-----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, CM4WFNR+9pbF17Kgiq3L9Sh4NyKJEbSu8P4hqRSTz7y1DlaGX42WUBjYOoGJiqRn Vj6psjYbHcY6W26dQLtI2A== 0000950123-99-007564.txt : 19990813 0000950123-99-007564.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950123-99-007564 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19990812 GROUP MEMBERS: PURDUE ACQUISITION CORP GROUP MEMBERS: PURDUE ACQUISITION CORPORATION SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COCENSYS INC CENTRAL INDEX KEY: 0000895034 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 330538836 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-42753 FILM NUMBER: 99686247 BUSINESS ADDRESS: STREET 1: 213 TECHNOLOGY DRIVE CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9497536100 MAIL ADDRESS: STREET 1: 213 TECHNOLOGY DRIVE CITY: IRVINE STATE: CA ZIP: 92618 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PURDUE ACQUISITION CORP CENTRAL INDEX KEY: 0001092939 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 100 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06850 BUSINESS PHONE: 2038530123 MAIL ADDRESS: STREET 1: 100 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06850 SC 14D1 1 SCHEDULE 14D-1 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 COCENSYS, INC. (NAME OF SUBJECT COMPANY) PURDUE ACQUISITION CORPORATION PURDUE PHARMA L.P. (BIDDERS) COMMON STOCK, PAR VALUE $0.001 PER SHARE (TITLE OF CLASS OF SECURITIES) 191263201 (CUSIP NUMBER OF CLASS OF SECURITIES) HOWARD R. UDELL, ESQ. PURDUE ACQUISITION CORPORATION C/O PURDUE PHARMA L.P. 100 CONNECTICUT AVENUE NORWALK, CONNECTICUT 06850-3590 (203) 853-0123 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER) ------------------------ Copy To: STUART D. BAKER, ESQ. CHADBOURNE & PARKE LLP 30 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10112 (212) 408-5100 CALCULATION OF FILING FEE
- ------------------------------------------------------------------------------------------------------- TRANSACTION VALUATION* AMOUNT OF FILING FEE** ---------------------- ---------------------- $6,816,299 $1,364 - -------------------------------------------------------------------------------------------------------
* For purposes of calculating the amount of the filing fee only. The amount assumes the purchase of 5,876,120 shares of Common Stock, par value $0.001 per share (the "Shares") of the Subject Company, at a price per Share of $1.16 in cash. Such number of shares represents all the Shares outstanding on August 5, 1999, plus the number of Shares issuable upon the exercise of all outstanding options of the Subject Company and the conversion into Shares of the Series D Preferred Stock of the Subject Company. ** 1/50th of one percent of the Transaction Value. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: N/A Filing Party: N/A Form or Registration No.: N/A Date filed: N/A
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 14D-1 CUSIP NO. 191263201 PAGE 2 OF 7 PAGES - --------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS: PURDUE ACQUISITION CORPORATION S.S. OR IRS IDENTIFICATION NO. OF ABOVE PERSONS: - --------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ] (b) [ ] - --------------------------------------------------------------------------- 3 SEC USE ONLY - --------------------------------------------------------------------------- 4 SOURCE OF FUNDS: AF - --------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f): N/A [ ] - --------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: STATE OF DELAWARE - --------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 125(1) - --------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] - --------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) *(2) - --------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON CO - ---------------------------------------------------------------------------
* less than 0.1% (1) An executive officer of Purdue Acquisition Corporation ("Offeror"), an indirect wholly owned subsidiary of Purdue Pharma L.P. ("Parent"), owns indirectly 125 Shares of the Subject Company. Offeror and Parent disclaim beneficial ownership of such Shares. See Annex A of the Offer to Purchase. (2) Based on a representation of the Subject Company. 2 3 14D-1 CUSIP NO. 191263201 PAGE 3 OF 7 PAGES - --------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS: PURDUE PHARMA L.P. S.S. OR IRS IDENTIFICATION NO. OF ABOVE PERSONS: - --------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ] (b) [ ] - --------------------------------------------------------------------------- 3 SEC USE ONLY - --------------------------------------------------------------------------- 4 SOURCE OF FUNDS: WC - --------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) or 2(f): N/A [ ] - --------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: State of Delaware - --------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 125(1) - --------------------------------------------------------------------------- 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ] - --------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) *(2) - --------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON PN - ---------------------------------------------------------------------------
* less than 0.1% (1) See footnote on previous page. (2) See footnote on previous page. 3 4 This Tender Offer Statement on Schedule 14D-1 ("Schedule 14D-1") relates to a tender offer by Purdue Acquisition Corporation, a Delaware corporation ("Offeror"), and an indirect wholly owned subsidiary of Purdue Pharma L.P., a Delaware limited partnership ("Parent"), to purchase all outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), of CoCensys, Inc., a Delaware corporation (the "Company"), at a purchase price of $1.16 per share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which together constitute the "Offer"), copies of which are filed as Exhibits (a)(1) and (a)(2) hereto, respectively, and which are incorporated herein by reference, with respect to the acquisition of securities of the same class referred to in Item 1 of this statement. Offeror has been formed in connection with the Offer and the transactions contemplated thereby. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is CoCensys, Inc., a Delaware corporation, and the address of its principal executive offices is 213 Technology Drive, Irvine, California 92618. (b) The exact title of the class of equity securities being sought in the Offer is Common Stock, par value $0.001 per share, of the Company, including the associated rights to purchase Series A Junior Participating Preferred Stock issued under the Rights Agreement of the Company. The information set forth in the Introduction to the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a) -- (d); (g) The information set forth in the Introduction and Section 9 ("Certain Information Concerning PNC, Parent and Offeror") of the Offer to Purchase, and in Annex A thereto, is incorporated herein by reference. (e) -- (f) None of Offeror, Parent, or, to the best of their knowledge, any of the persons listed in Annex A of the Offer to Purchase, has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) None. (b) The information set forth in the Introduction, Section 9 ("Certain Information Concerning PNC, Parent and Offeror") and Section 11 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company") of the Offer to Purchase, and in Annex A thereto, is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in Section 10 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. (b) -- (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a) -- (e) The information set forth in the Introduction, Section 11 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company"), Section 12 ("Purpose of the Offer and the Merger; Plans for the Company") and Section 13 ("The Merger Agreement and the Series E Purchase Agreement") of the Offer to Purchase is incorporated herein by reference. 4 5 (f) -- (g) The information set forth in Section 7 ("Certain Effects of the Transaction") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) -- (b) The information set forth in Annex A to the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the Introduction, Section 9 ("Certain Information Concerning PNC, Parent and Offeror"), Section 11 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company") and Section 13 ("The Merger Agreement and the Series E Purchase Agreement") of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the Introduction and in Section 17 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. Not applicable. ITEM 10. ADDITIONAL INFORMATION. (a) None. (b) -- (c) The information set forth in Section 16 ("Certain Legal Matters") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 7 ("Certain Effects of the Transaction") of the Offer to Purchase is incorporated herein by reference. (e) The information set forth in Section 16 ("Certain Legal Matters") of the Offer to Purchase is incorporated herein by reference. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal is incorporated herein by reference in its entirety. 5 6 ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase, dated August 12, 1999. (a)(2) Letter of Transmittal with respect to the Shares. (a)(3) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees for Shares. (a)(4) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees for Shares. (a)(5) Notice of Guaranteed Delivery. (a)(6) IRS Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Form of Summary Advertisement, dated August 12, 1999. (a)(8) Press Release issued by Parent on August 6, 1999. (b) None. (c)(1) Agreement and Plan of Merger, dated as of August 5, 1999, among Parent, Offeror and the Company. (c)(2) Series E Purchase Agreement, dated as of August 5, 1999, between Offeror and the holder of the Series E Preferred. (d) None. (e) Not Applicable. (f) None.
6 7 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: August 12, 1999 PURDUE PHARMA L.P., by its general partner, PURDUE PHARMA INC. By: /s/ HOWARD R. UDELL ------------------------------------ Name: Howard R. Udell Title: Vice President and General Counsel PURDUE ACQUISITION CORPORATION By: /s/ HOWARD R. UDELL ------------------------------------ Name: Howard R. Udell Title: Vice President 7 8 EXHIBIT INDEX (a)(1) Offer to Purchase, dated August 12, 1999. (a)(2) Letter of Transmittal with respect to the Shares. (a)(3) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees for Shares. (a)(4) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees for Shares. (a)(5) Notice of Guaranteed Delivery. (a)(6) IRS Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Form of Summary Advertisement, dated August 12, 1999. (a)(8) Press Release issued by Parent on August 6, 1999. (b) None. (c)(1) Agreement and Plan of Merger, dated as of August 5, 1999, among Parent, Offeror and the Company. (c)(2) Series E Purchase Agreement, dated as of August 5, 1999, between Offeror and the holder of the Series E Preferred. (d) None. (e) Not Applicable. (f) None.
EX-99.A.1 2 OFFER TO PURCHASE 1 OFFER TO PURCHASE FOR CASH ALL OF THE OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF COCENSYS, INC. AT $1.16 NET PER SHARE BY PURDUE ACQUISITION CORPORATION AN INDIRECT WHOLLY OWNED SUBSIDIARY OF PURDUE PHARMA L.P. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 9, 1999, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW) SUCH NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE ("SHARES"), OF COCENSYS, INC., A DELAWARE CORPORATION (THE "COMPANY"), THAT, WHEN ADDED TO THE NUMBER OF SHARES TO BE RECEIVED BY PURDUE ACQUISITION CORPORATION UPON THE CONVERSION OF ALL OF THE SERIES E PREFERRED STOCK (AS DEFINED BELOW) PURCHASED BY PURDUE ACQUISITION CORPORATION UNDER THE SERIES E PURCHASE AGREEMENT (AS DEFINED BELOW), WOULD CONSTITUTE AT LEAST 90% OF THE FULLY DILUTED SHARES (AS DEFINED BELOW) AND (II) SATISFACTION OF CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 15. THE OFFER IS BEING MADE IN CONNECTION WITH THE AGREEMENT AND PLAN OF MERGER, DATED AS OF AUGUST 5, 1999, AMONG PURDUE PHARMA L.P., PURDUE ACQUISITION CORPORATION AND THE COMPANY. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT (EACH AS DEFINED BELOW), HAS DETERMINED THAT THE MERGER IS ADVISABLE AND THAT THE TERMS OF EACH OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT HOLDERS OF THE SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. ------------------------ IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares should either (i) complete and sign the Letter of Transmittal or a facsimile thereof in accordance with the instructions in the Letter of Transmittal and mail or deliver the Letter of Transmittal with the certificates evidencing such tendered Shares and all other required documents to the Depositary, or follow the procedure for book-entry transfer set forth in Section 2, or (ii) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for the stockholder. Stockholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if they desire to tender their Shares. Any stockholder who desires to tender Shares and whose certificates representing such Shares are not immediately available, or who cannot comply with the procedures for book-entry transfer on a timely basis, may tender such Shares pursuant to the guaranteed delivery procedure set forth in Section 2. Questions and requests for assistance or additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. The Dealer Manager for the Offer is: BANCBOSTON ROBERTSON STEPHENS AUGUST 12, 1999 2 TABLE OF CONTENTS
PAGE ---- INTRODUCTION................................................ 3 1. Terms of the Offer..................................... 5 2. Procedure for Tendering Shares......................... 7 3. Withdrawal Rights...................................... 10 4. Acceptance for Payment and Payment for Shares.......... 11 5. Certain Federal Income Tax Consequences................ 12 6. Price Range of Shares; Dividends....................... 13 7. Certain Effects of the Transaction..................... 13 8. Certain Information Concerning the Company............. 14 9. Certain Information Concerning PNC, Parent and the Offeror................................................ 17 10. Source and Amount of Funds............................. 18 11. Background of the Offer; Past Contacts, Transactions or Negotiations with the Company.......................... 18 12. Purpose of the Offer and the Merger; Plans for the Company................................................ 20 13. The Merger Agreement and the Series E Purchase Agreement.............................................. 21 14. Dividends and Distributions............................ 27 15. Certain Conditions of the Offer........................ 28 16. Certain Legal Matters.................................. 30 17. Fees and Expenses...................................... 31 18. Miscellaneous.......................................... 31 ANNEX A. CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PNI, THE OFFEROR AND PNC, THE GENERAL PARTNER OF PNLP....................... A-1
2 3 To the Holders of Common Stock of CoCensys, Inc.: INTRODUCTION Purdue Acquisition Corporation, a Delaware corporation (the "Offeror") and an indirect wholly owned subsidiary of Purdue Pharma L.P., a Delaware limited partnership ("Parent"), hereby offers to purchase all outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), including the associated rights to purchase Series A Junior Participating Preferred Stock issued under the Rights Agreement (as defined below) (the "Rights" and, together with the Common Stock, the "Shares") of CoCensys, Inc., a Delaware corporation (the "Company"), at a purchase price of $1.16 per Share (the "Offer Price"), net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Tendering holders of Shares will not be obligated to pay brokerage fees or commissions or, except as set forth in the Letter of Transmittal, transfer taxes on the purchase of Shares by the Offeror pursuant to the Offer. The Offeror will pay all charges and expenses of BancBoston Robertson Stephens Inc. (the "Dealer Manager"), American Stock Transfer & Trust Company (the "Depositary") and MacKenzie Partners, Inc. (the "Information Agent") in connection with the Offer. The Offeror is wholly owned by Purdue Neuroscience Inc., a Delaware corporation ("PNI"), that in turn is wholly owned by Purdue Neuroscience L.P., a Delaware limited partnership ("PNLP"). Parent owns 100% of the limited partnership interest in PNLP. Purdue Neuroscience Corporation, a New York corporation ("PNC"), is the general partner of PNLP. The Offeror, PNC, PNI and PNLP were formed in connection with the Offer and transactions contemplated thereby. For information concerning PNC, Parent and the Offeror, see Section 9. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS ADVISABLE AND THAT THE TERMS OF EACH OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT HOLDERS OF THE SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE SUCH NUMBER OF SHARES THAT, WHEN ADDED TO THE NUMBER OF SHARES TO BE RECEIVED BY THE OFFEROR UPON THE CONVERSION OF ALL OF THE SERIES E PREFERRED STOCK TO BE PURCHASED BY THE OFFEROR UNDER THE SERIES E PURCHASE AGREEMENT, WOULD CONSTITUTE AT LEAST 90% OF THE FULLY DILUTED SHARES (AS DEFINED BELOW) (THE "MINIMUM CONDITION"), AND (ii) SATISFACTION OF CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 15. HAMBRECHT & QUIST LLC, THE COMPANY'S FINANCIAL ADVISOR, HAS DELIVERED TO THE COMPANY'S BOARD OF DIRECTORS ITS WRITTEN OPINION THAT, AS OF THE DATE OF SUCH OPINION, THE CONSIDERATION TO BE OFFERED TO THE HOLDERS OF COMMON STOCK OF THE COMPANY PURSUANT TO THE OFFER AND THE MERGER IS FAIR TO SUCH STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. A COPY OF SUCH OPINION IS CONTAINED IN THE COMPANY'S STATEMENT ON SCHEDULE 14D-9, WHICH IS BEING DISTRIBUTED TO THE COMPANY'S STOCKHOLDERS CONCURRENTLY HEREWITH. The Offer is being made pursuant to the Agreement and Plan of Merger dated as of August 5, 1999 (the "Merger Agreement"), among Parent, the Offeror and the Company pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Offeror will be merged with and into the Company (the "Merger"), with the Company surviving the Merger (as such, the "Surviving Corporation") as an indirect wholly owned subsidiary of Parent. In the Merger, each outstanding Share (other than Shares owned by the Company as treasury stock, Parent, the Offeror or any other subsidiary or affiliate of Parent or by stockholders, if any, who are entitled to and who properly demand and perfect appraisal 3 4 rights under Delaware law) will be converted into the right to receive from the Surviving Corporation the Offer Price in cash, without interest (the "Merger Consideration"). See Section 13. The Merger is subject to a number of conditions, including approval by stockholders of the Company, if such approval is required by applicable law. If the Offeror acquires 90% or more of the outstanding Shares pursuant to the Offer, the Series E Purchase Agreement or otherwise, the Offeror would be able to effect the Merger pursuant to the short-form merger provisions of the Delaware General Corporation Law (the "DGCL"), without prior notice to, or any action by, any other stockholder of the Company. In such event, the Offeror could, and intends to, effect the Merger without prior written notice to, or any action by, any other stockholder of the Company. See Section 13. The Offeror has entered into a Purchase Agreement dated as of August 5, 1999 (the "Series E Purchase Agreement") with the holder of the Series E Convertible Preferred Stock of the Company (the "Series E Preferred Stock"). Under the Series E Purchase Agreement, the holder of the Series E Preferred Stock has agreed to sell, and the Offeror has agreed to purchase, immediately following consummation of the Offer all of the Series E Preferred Stock beneficially owned by it, representing approximately 31% of the Fully Diluted Shares on an as-converted basis at the currently scheduled Expiration Date, for an aggregate purchase price of $2,200,000. The obligation of the holder of the Series E Preferred Stock to sell, and the obligation of the Offeror to purchase, the Series E Preferred Stock under the Series E Purchase Agreement, are subject to the Offeror having accepted Shares for payment under the Offer in accordance with the Merger Agreement. The Series E Preferred Stock will be convertible at the option of the holder into approximately 2,634,493 Shares at the currently scheduled Expiration Date. See Section 13. The Merger Agreement is more fully described in Section 13. The Company has informed the Offeror that, as of August 5, 1999, there were 4,873,480 Shares issued and outstanding, 774,597 Shares issuable upon the exercise of outstanding options to purchase Shares ("Company Stock Options") and 227,425 Shares issuable upon the conversion by the Company of the Series D Convertible Preferred Stock of the Company (the "Series D Preferred Stock"). In connection with the execution of the Merger Agreement and the consummation of the Merger, (i) all outstanding Company Stock Options will be accelerated and fully vested and each Share subject to any Company Stock Option will be converted into the right to receive an amount in cash equal to the excess, if any, of the Offer Price over the per share exercise price of such Company Stock Option; (ii) each of the holders of outstanding warrants to purchase Shares ("Warrants") has agreed to cancel such Warrants for de minimus consideration, subject to the Offeror having accepted Shares for payment under the Offer in accordance with the Merger Agreement; (iii) the Series C Convertible Preferred Stock of the Company (the "Series C Preferred Stock"), without any action of the holder thereof in accordance with applicable law, automatically will be converted into the right to receive an amount in cash equal to the number of Shares into which the Series C Preferred Stock is convertible (143,021 Shares according to the Company) multiplied by the Offer Price; (iv) the Company converted the Series D Preferred Stock on August 5, 1999 into 227,425 Shares in accordance with the terms governing the Series D Preferred Stock; and (v) the Company agreed to prepay with no premium the $1 million convertible note issued by the Company to the Warner-Lambert Company (the "WL Note") in cash in accordance with the agreement between the Company and the Warner-Lambert Company. For purposes of this Offer, "Fully Diluted Shares" shall mean all outstanding Shares after giving effect to the exercise of all Company Stock Options and the conversion of the Series D Preferred Stock and the Series E Preferred Stock at the currently scheduled Expiration Date, but without giving effect to the exercise of any Warrants or the conversion of the Series C Preferred Stock or the conversion of the WL Note into Shares. Based upon the foregoing, the Offeror believes that there will be 8,509,995 Fully Diluted Shares at the currently scheduled Expiration Date. Because the Shares subject to the Series E Purchase Agreement will represent approximately 31% of the Fully Diluted Shares, the Minimum Condition will be satisfied if at least an aggregate of 5,024,503 Shares and Company Stock Options are validly tendered and not withdrawn prior to the Expiration Date. If the Minimum Condition is satisfied and the Offeror accepts for payment Shares tendered pursuant to the Offer, the Offeror will be able to effect the Merger pursuant to the short-form merger provisions of the DGCL without prior notice to, or any action by, any other stockholder of the Company. 4 5 Certain federal income tax consequences of the sale and purchase of Shares pursuant to the Offer and the conversion of Shares pursuant to the Merger are described in Section 5. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of the Offer (including if the Offer is extended or amended, the terms and conditions of any extension or amendment), the Offeror will accept for payment and pay promptly after the Expiration Date for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn in accordance with Section 3. The term "Expiration Date" means 12:00 midnight, New York City time, on Thursday, September 9, 1999, unless and until the Offeror shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Offeror, will expire. THE OFFER IS CONDITIONED UPON SATISFACTION OF THE MINIMUM CONDITION AND THE SATISFACTION OF THE OTHER CONDITIONS SET FORTH IN SECTION 15. In the Merger Agreement the Offeror has agreed that without the consent of the Company it may extend the Offer (a) if at the scheduled or extended Expiration Date any of the conditions to the Offeror's obligation to accept Shares for payment are not satisfied or waived, until such time as such conditions are satisfied or waived, (b) for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "Commission") or the staff thereof applicable to the Offer, (c) for a period not to exceed an aggregate of ten business days, notwithstanding that all conditions to the Offer are satisfied as of the Expiration Date, if, immediately prior to such Expiration Date, the Shares tendered and not withdrawn pursuant to the Offer, when added to the number of Shares to be received by the Offeror upon conversion of all of the Series E Preferred Stock purchased by the Offeror under the Series E Purchase Agreement, equal less than 90% of the Fully Diluted Shares and (d) until 10 business days following the expiration of the 10 business day period referred to in clause (iv) of condition (c) of Section 15 and, if such clause (iv) of condition (c) shall not have been satisfied, for so long as the Offeror shall determine until, in its sole discretion, all conditions of the Offer are satisfied or waived. Without limiting the right of the Offeror to extend the Offer pursuant to the immediately preceding sentence, in the event that (i) the Minimum Condition has not been satisfied or (ii) any condition set forth in paragraph (a) of Section 15 is not satisfied at the scheduled Expiration Date, the Offeror shall extend the Expiration Date in increments of five business days each until the earliest to occur of (x) the satisfaction or waiver of the Minimum Condition or such other condition, or the Offeror reasonably determines that any Offer Condition is not capable of being satisfied on or prior to October 15, 1999, (y) the termination of the Merger Agreement in accordance with its terms and (z) October 15, 1999; provided, however, that if any person or group (within the meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act")) has publicly made an Acquisition Proposal (as defined in Section 13 hereof) or disclosed in writing its intention to make an Acquisition Proposal, the Offeror shall not be required to extend the Offer for more than five business days from the date of such publication or written disclosure of such Acquisition Proposal unless the Company's Board of Directors has reaffirmed its recommendation that the stockholders of the Company accept the Offer. As used in this Offer to Purchase, "business day" has the meaning set forth in Rule 14d-1 under the Exchange Act. In addition, the Offeror has agreed in the Merger Agreement that it will not, without the written consent of the Company, (a) reduce the number of Shares subject to the Offer, (b) reduce the Offer Price, (c) add to or modify (other than by waiver) the conditions set forth in Section 15, (d) except as set forth in the immediately preceding paragraph, extend the Offer, (e) change the form of the consideration payable in the Offer, (f) waive the Minimum Condition, or (g) amend or alter any other term of the Offer in any manner materially adverse to the holders of the Shares. Subject to the terms of the Merger Agreement and the applicable rules and regulations of the Commission, the Offeror reserves the right, in its sole discretion, at any time and from time to time, and 5 6 regardless of whether or not any of the events or facts set forth in Section 15 hereof shall have occurred, to, (a) extend the period of time during which the Offer is open, and thereby delay acceptance for payment of and the payment for any Shares, by giving oral or written notice of such extension to the Depositary and (b) amend the Offer in any other respect by giving oral or written notice of such amendment to the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR NOT THE OFFEROR EXERCISES ITS RIGHT TO EXTEND THE OFFER. If by 12:00 midnight, New York City time, on Thursday, September 9, 1999 (or any date or time then set as the Expiration Date), any or all of the conditions to the Offer have not been satisfied or waived, the Offeror reserves the right (but shall not be obligated), subject to the terms and conditions contained in the Merger Agreement and to the applicable rules and regulations of the Commission to, (a) terminate the Offer and not accept for payment or pay for any Shares and return all tendered Shares to tendering stockholders, (b) waive any or all of the unsatisfied conditions and accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn, (c) extend the Offer and, subject to the right of stockholders to withdraw Shares until the Expiration Date, retain the Shares that have been tendered during the period or periods for which the Offer is extended or (d) amend the Offer. There can be no assurance that the Offeror will exercise its right to extend the Offer beyond any required extensions. Any extension, waiver, amendment or termination will be followed as promptly as practicable by a public announcement. In the case of an extension, Rule 14e-l(d) under the Exchange Act requires that the announcement be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which the Offeror may choose to make any public announcement, the Offeror will not have any obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If the Offeror extends the Offer or if the Offeror is delayed in its acceptance for payment of or payment (whether before or after its acceptance for payment of Shares) for Shares or it is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Offeror's rights under the Offer, the Depositary may retain tendered Shares on behalf of the Offeror, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in Section 3. However, the ability of the Offeror to delay the payment for Shares that the Offeror has accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer. If the Offeror makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer (including, with the Company's consent, a waiver of the Minimum Condition), the Offeror will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. With respect to a change in price or a change in the percentage of securities sought, a minimum period of 10 business days is generally required to allow for adequate dissemination to stockholders. Consummation of the Offer is conditioned upon the satisfaction of the Minimum Condition and the other conditions set forth in Section 15. Subject to the terms and conditions contained in the Merger Agreement, the Offeror reserves the right (but shall not be obligated) to waive any or all such conditions. However, if the Offeror waives or amends the Minimum Condition (which action may not be taken without the Company's consent) during the last five business days during which the Offer is open, the Offeror will be required to 6 7 extend the Expiration Date so that the Offer will remain open for at least five business days after the announcement of such waiver or amendment is first published, sent or given to holders of Shares and may also be required to extend the Offer if other conditions are waived, depending on the materiality of the waiver. The Company has provided the Offeror with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by the Offeror to record holders of Shares, and will be furnished to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists, or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. The Merger Agreement provides that prior to the effectiveness of the Merger, all outstanding Company Stock Options whether or not then fully exercisable, shall be accelerated and converted into the right to receive after the Effective Time (as defined in the Merger Agreement) from the Company, for each Share subject to any Company Stock Option, an amount in cash equal to the excess, if any, of the Offer Price over the per share exercise price of such Company Stock Option, without interest (less any applicable withholding taxes). All Company Stock Options not exercised at the Effective Time shall terminate and be canceled and shall cease to exist. See Section 13, "The Merger Agreement and the Series E Purchase Agreement -- Company Stock Options; Warrants." Notwithstanding the foregoing, the Board of Directors of the Company, with the written consent of Parent, has adopted resolutions providing for the acceleration of all Company Stock Options contingently upon and subject to consummation of the Offer. Holders of Company Stock Options who wish to tender Shares for which their Company Stock Options are exercisable should follow the procedures set forth in Section 2, "Procedure for Tendering Shares -- Tender of Shares from Exercise of Company Stock Options." 2. PROCEDURE FOR TENDERING SHARES. Valid Tenders. For Shares to be validly tendered pursuant to the Offer, a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined herein), and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedure set forth below. In addition, either (i) certificates representing such Shares must be received by the Depositary along with the Letter of Transmittal or such Shares must be tendered pursuant to the procedure for book-entry transfer set forth below, and a Book-Entry Confirmation (as defined in Section 4) must be received by the Depositary, in each case prior to the Expiration Date, or (ii) the guaranteed delivery procedures set forth below must be complied with. No alternative, conditional or contingent tenders will be accepted. Book-Entry Transfer. The Depositary will make a request to establish an account with respect to the Shares at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for transfer. Although delivery of Shares may be effected through book-entry at the Book-Entry Transfer Facility prior to the Expiration Date, (i) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase or (ii) the guaranteed delivery procedures described below must be complied with. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. 7 8 Signature Guarantee. Signatures on the Letter of Transmittal must be guaranteed by a member in good standing of the Securities Transfer Agents Medallion Program, or by any other bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing being referred to as an "Eligible Institution" and, collectively, as "Eligible Institutions"), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box labeled "Special Delivery Instructions" or the box labeled "Special Payment Instructions" on the Letter of Transmittal or (ii) for the account of any Eligible Institution. If the certificates evidencing Shares are registered in the name of a person or persons other than the signer of the Letter of Transmittal, or if payment is to be made, or delivered to, or certificates evidencing unpurchased Shares are to be issued or returned to, a person other than the registered owner or owners, then the tendered certificates must be endorsed or accompanied by duly executed stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed by an Eligible Institution as provided in the Letter of Transmittal. See Instructions 1 and 5 to the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates for Shares are not immediately available, or time will not permit all required documents to reach the Depositary prior to the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, such Shares may nevertheless be tendered if all of the following guaranteed delivery procedures are duly complied with: (i) the tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Offeror, is received by the Depositary, as provided below, prior to the Expiration Date; and (iii) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to such Shares), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message and any other documents required by the Letter of Transmittal are received by the Depositary within three trading days after the date of such Notice of Guaranteed Delivery. The term "trading day" is any day on which The Nasdaq Stock Market, Inc.'s National Market ("Nasdaq") is open for business. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or by mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND SOLE RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. DELIVERY OF THE LETTER OF TRANSMITTAL AND ACCOMPANYING SHARES WILL BE DEEMED EFFECTIVE AND RISK OF LOSS WITH RESPECT TO SUCH LETTER OF TRANSMITTAL AND ACCOMPANYING CERTIFICATE(S) WILL PASS ONLY WHEN SUCH LETTER OF TRANSMITTAL AND ACCOMPANYING CERTIFICATE(S) ARE ACTUALLY RECEIVED BY THE DEPOSITARY. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (i) certificates for such Shares or a Book-Entry Confirmation, (ii) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with all required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and (iii) any other documents required by the Letter of Transmittal. Appointment. By executing a Letter of Transmittal as set forth above (including through delivery of an Agent's Message), the tendering stockholder will irrevocably appoint designees of the Offeror as such stockholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full 8 9 power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Offeror and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after August 5, 1999. All such proxies shall be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, the Offeror accepts for payment Shares tendered by such stockholder as provided herein. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent powers of attorney and proxies may be given (and, if given, will not be deemed effective). The designees of the Offeror will thereby be empowered to exercise all voting and other rights with respect to such Shares or other securities or rights in respect of any annual, special or adjourned meeting of the Company's stockholders, or otherwise, as they in their sole discretion deem proper. The Offeror reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Offeror's acceptance for payment of such Shares, the Offeror must be able to exercise full voting and other rights with respect to such Shares and other securities or rights, including voting at any meeting of stockholders then scheduled. A tender of Shares pursuant to any one of the procedures described above will constitute the tendering stockholder's acceptance of the terms and conditions of the Offer, as well as the tendering stockholder's representation and warranty that (i) such stockholder has the full power and authority to tender, sell, assign and transfer the tendered Shares (and any and all other Shares or other securities issued or issuable in respect of such Shares on or after August 5, 1999), and (ii) when the same are accepted for payment by the Offeror, the Offeror will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The Offeror's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and the Offeror upon the terms and subject to the conditions of the Offer. Tender of Shares from Exercise of Company Stock Options. Holders of Company Stock Options who wish to tender Shares for which their Company Stock Options are exercisable may do so either (a) by first exercising their Company Stock Options and delivering to the Depositary certificates for Shares being so tendered or (b) by executing a Letter of Transmittal appointing the Depositary as their agent to exercise if, and only if, the Offer is consummated, their Company Stock Options for the number of Shares to be tendered indicated in the Letter of Transmittal. In the case of clause (b), only a number of whole Shares for which the Company Stock Options are exercisable may be tendered. The Depositary will, in the event the Offer is consummated, pay the Company for each Share tendered pursuant to clause (b) an amount equal to the exercise price of the Company Stock Option exercised, and pay the holder of the Company Stock Option tendered pursuant to clause (b) for each such Share tendered an amount equal to the Offer Price minus the exercise price of the exercised Company Stock Option. The amount paid to employees pursuant to clause (b) shall be reduced by such amount of wage and employment withholding taxes as may be required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended, or under any provision of state, local or foreign law. In any event, such payments for Shares tendered upon exercise of such Company Stock Options that are accepted for payment pursuant to the Offer will only be made after the receipt by the Depositary of such Shares as described in Section 4. Holders of Company Stock Options who elect to tender Shares pursuant to clause (b) above by executing a Letter of Transmittal, in addition to the matters described under "Appointment" above, will irrevocably appoint the Depositary as such holder's agent and attorney-in-fact in the manner set forth in the Letter of Transmittal, with full power of substitution, to the full extent of such holder's rights, to exercise the Company Stock Options for the Shares being tendered. Notwithstanding the foregoing, Company Stock Options contigent tendered will be deemed not to have been exercised if the Offeror fails to accept Shares for payment pursuant to the Offer. In the event Company Stock Options are registered in a name other than the name of the tendering holder, or to the extent deemed necessary or appropriate by the Depositary or the Offeror to exercise such Company Stock Options, additional documents may be required to transfer record ownership of the Company Stock Options into the name of the tendering holder or the name of the Depositary. BACKUP FEDERAL INCOME TAX WITHHOLDING. TO PREVENT "BACKUP" FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT OF THE PURCHASE PRICE OF 9 10 SHARES PURCHASED PURSUANT TO THE OFFER, EACH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER ("TIN") AND CERTIFY THAT SUCH STOCKHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. FOREIGN HOLDERS MUST SUBMIT A COMPLETED FORM W-8 TO AVOID BACKUP WITHHOLDING. THIS FORM MAY BE OBTAINED FROM THE DEPOSITARY. SEE INSTRUCTIONS 8 AND 9 SET FORTH IN THE LETTER OF TRANSMITTAL. Determination of Validity. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Offeror, in its sole discretion, and its determination will be final and binding on all parties. The Offeror reserves the absolute right to reject any or all tenders of any Shares that are determined by it not to be in proper form or the acceptance of or payment for which may, in the opinion of the Offeror, be unlawful. The Offeror also reserves the absolute right to waive any of the conditions of the Offer, subject to the limitations set forth in the Merger Agreement, or any defect or irregularity in the tender of any Shares. Subject to the terms of the Merger Agreement and applicable law, the Offeror's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the Instructions to the Letter of Transmittal) will be final and binding on all parties. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of the Offeror, Parent, PNC, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. 3. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 3, tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment pursuant to the Offer, may also be withdrawn at any time after Sunday, October 10, 1999. If purchase of or payment for Shares is delayed for any reason or if the Offeror is unable to purchase or pay for Shares for any reason, then, without prejudice to the Offeror's rights under the Offer, tendered Shares may be retained by the Depositary on behalf of the Offeror and may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as set forth in this Section 3, subject to Rule 14e-1(c) under the Exchange Act, which provides that no person who makes a tender offer shall fail to pay the consideration offered or return the securities deposited by or on behalf of security holders promptly after the termination or withdrawal of the Offer. For a withdrawal of Shares tendered pursuant to the Offer to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at its address set forth on the back cover page of this Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name in which the certificates representing such Shares are registered, if different from that of the person who tendered the Shares. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer set forth in Section 2, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and must otherwise comply with such Book-Entry Transfer Facility's procedures. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Offeror, in its sole discretion, and its determination will be final and binding on all parties. None of the Offeror, Parent, PNC, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 10 11 Any Shares properly withdrawn will be deemed not validly tendered for purposes of the Offer, but may be retendered at any subsequent time prior to the Expiration Date by following any of the procedures described in Section 2. 4. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Offeror will accept for payment and will pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn in accordance with Section 3 promptly after the later to occur of (a) the Expiration Date and (b) subject to compliance with Rule 14e-1(c) under the Exchange Act, the satisfaction or waiver of the conditions set forth in Section 15. Subject to compliance with Rule 14e-1(c) under the Exchange Act, the Offeror expressly reserves the right to delay payment for Shares in order to comply in whole or in part with any applicable law. See Sections 1 and 16. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility, pursuant to the procedures set forth in Section 2, (ii) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with all required signature guarantees or, in the case of a book-entry transfer, an Agent's Message and (iii) any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Offeror may enforce such agreement against the participant. For purposes of the Offer, the Offeror will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not withdrawn as, if and when the Offeror gives oral or written notice to the Depositary of the Offeror's acceptance of such Shares (which will include all Shares received and tendered from the exercise of Company Stock Options exercised at such time) for payment. In all cases, payment for Shares purchased pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from the Offeror and transmitting such payment to tendering stockholders. If, for any reason whatsoever, acceptance for payment of any Shares tendered pursuant to the Offer is delayed, or the Offeror is unable to accept for payment Shares tendered pursuant to the Offer, then, without prejudice to the Offeror's rights under Section 1, the Depositary may, nevertheless, on behalf of the Offeror, retain tendered Shares, and such Shares may not be withdrawn, except to the extent that the tendering stockholders are entitled to withdrawal rights as described in Section 3 above and as otherwise required by Rule 14e-1(c) under the Exchange Act. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE OFFEROR BECAUSE OF ANY DELAY IN MAKING SUCH PAYMENT. If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased or untendered Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares delivered by book-entry transfer to the Book-Entry Transfer Facility, such Shares will be credited to an account maintained within the Book-Entry Transfer Facility), as promptly as practicable after the expiration, termination or withdrawal of the Offer. If, prior to the Expiration Date, the Offeror increases the price being paid for Shares accepted for payment pursuant to the Offer, such increased consideration will be paid to all stockholders whose Shares are purchased pursuant to the Offer, whether or not such Shares were tendered prior to such increase in consideration. The Offeror reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Offeror of its obligations under the Offer or prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment. 11 12 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of certain United States federal income tax consequences of the Offer and the Merger to holders whose Shares are purchased pursuant to the Offer or whose Shares are converted to cash in the Merger (including pursuant to the exercise of appraisal rights). The discussion is for general information only and does not purport to consider all aspects of federal income taxation that may be relevant to holders of Shares. The discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing, proposed and temporary regulations promulgated thereunder and administrative and judicial interpretations thereof, all of which are subject to change. The discussion applies only to holders of Shares in whose hands such Shares are capital assets within the meaning of Section 1221 of the Code, and may not apply to Shares received pursuant to the exercise of employee stock options or otherwise as compensation, to Shares held in connection with a "straddle", "hedging", "conversion" or other risk reduction transaction, or to certain types of holders of Shares (such as insurance companies, tax-exempt organizations, financial institutions, broker-dealers in securities or foreign currencies, holders subject to the United States federal alternative minimum tax, or persons who have a fractional currency other than the United States dollar) who may be subject to special rules. This discussion does not discuss the federal income tax consequences to a holder of Shares who, for United States federal income tax purposes, is a non-resident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust, nor does it consider the effect of any foreign, state or local tax laws. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF SHARES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH HOLDER AND THE PARTICULAR TAX EFFECTS TO SUCH HOLDER OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER INCOME TAX LAWS. The receipt of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for federal income tax purposes. In general, for federal income tax purposes, a holder of Shares will recognize gain or loss equal to the difference between the holder's adjusted tax basis in the Shares sold pursuant to the Offer or converted to cash in the Merger and the amount of cash received therefor. Gain or loss must be determined separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction) sold pursuant to the Offer or converted to cash in the Merger. Such gain or loss will be capital gain or loss, and in the case of an individual, will be taxable at a maximum federal rate of 20% if the holder held the Shares for more than one year on the date of sale (in the case of the Offer) or the Effective Time (in the case of the Merger). Individuals who held Shares for one year or less on the date of sale (in the case of the Offer) or the Effective Time (in the case of the Merger) will be taxable at a maximum federal rate of 39.6%. For individual taxpayers, the deductibility of capital losses is subject to limitations. Payments to corporate taxpayers, whether capital gains or ordinary income, are subject to a maximum regular tax rate of 35%. The receipt of cash for Shares pursuant to the exercise of appraisal rights will generally be taxed in the same manner as described above. Payments in connection with the Offer or the Merger may be subject to "backup withholding" at a rate of 31%, unless a holder of Shares (a) is a corporation or comes within certain exempt categories and, when required, demonstrates this fact or (b) on a properly completed Substitute Form W-9 provides a correct TIN to the payor, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A holder who does not provide a correct TIN may be subject to penalties imposed by the Internal Revenue Service. Any amount paid as backup withholding does not constitute an additional tax and will be creditable against the holder's federal income tax liability. Each holder of Shares should consult with his or her own tax advisor as to his or her qualification for exemption from backup withholding and the procedure for obtaining such exemption. Holders tendering their Shares in the Offer may prevent backup withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. See Section 2. Similarly, holders who convert their Shares into cash in the Merger may prevent backup withholding by completing a Substitute Form W-9 and submitting it to the paying agent for the Merger. 12 13 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are currrently traded on the OTC Bulletin Board ("OTC") under the symbol COCN. Prior to July 14, 1999, the Shares were listed on Nasdaq under the same symbol. Nasdaq notified the Company by letter, dated December 1, 1998, that it was not in compliance with the $1.00 minimum closing bid price requirement for the continued listing of its Shares. A hearing on the issue was held on April 29, 1999, and the Company was notified by letter, dated July 13, 1999, that the Company's Shares had been delisted from Nasdaq. On July 14, 1999, the Shares commenced trading on the OTC. The following table sets forth for the periods indicated the high and low sales prices per Share on Nasdaq or the OTC as reported by the Company in its 1998 Annual Report on Form 10-K with respect to the fiscal years ended December 31, 1997 and December 31, 1998, and as reported by published financial sources with respect to periods after December 31, 1998. At the Special Meeting of Stockholders held on January 27, 1999, stockholders authorized the Board of Directors of the Company to effect a reverse stock split within a range of one new share of common stock for every six, seven or eight outstanding shares of stock. The Board subsequently approved a reverse split of one-for-eight effective April 15, 1999. All share and per share amounts have been restated to reflect this reverse stock split.
HIGH LOW ------ ------ Fiscal Year Ended December 31, 1997: First Quarter............................................ $63.00 $36.00 Second Quarter........................................... $47.00 $21.50 Third Quarter............................................ $50.00 $23.00 Fourth Quarter........................................... $48.50 $23.50 Fiscal Year Ended December 31, 1998: First Quarter............................................ $36.00 $23.00 Second Quarter........................................... $29.00 $16.50 Third Quarter............................................ $21.50 $ 7.00 Fourth Quarter........................................... $18.00 $ 2.00 Year Ending December 31, 1999: First Quarter............................................ $ 3.50 $ 1.50 Second Quarter........................................... $ 3.00 $ 0.63 Third Quarter (through August 11, 1999).................. $ 1.13 $ 0.63
On August 5, 1999, the last full day of trading prior to the public announcement of the execution of the Merger Agreement, the closing price per Share on the OTC, as reported by Dow Jones Interactive, was $0.875. On August 11, 1999, the last full day of trading prior to the commencement of the Offer, the closing price per Share on the OTC, as reported by Dow Jones Interactive, was $1.09. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. Since its inception, the Company has not declared or paid any dividends on the Shares. 7. CERTAIN EFFECTS OF THE TRANSACTION. Market for the Shares. The purchase of the Shares by the Offeror pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and will reduce the number of holders of Shares, which will adversely affect the liquidity and market value of the remaining Shares held by stockholders other than the Offeror. OTC Bulletin Board Listing. In order for the Shares to continue to be quoted on the OTC, the Company is required to be current in its Exchange Act filings and have at least one registered market maker. The extent of the public market for the Shares and the availability of such quotations would, however, depend on the number of holders of Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act, as described below, and other factors. According to the Company, as of August 5, 1999, there were approximately 376 holders of record of Shares and approximately 5,800 beneficial owners of Shares and as of August 5, 1999, there were 4,873,480 shares outstanding. 13 14 Exchange Act Registration. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application by the Company to the Commission if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders of Shares. It is the intention of the Offeror to seek to cause an application for such termination to be made as soon after consummation of the Offer as the requirements for termination of registration of the Shares are met. If such registration were terminated, the Company would no longer legally be required to disclose publicly in proxy materials distributed to stockholders the information which it now must provide under the Exchange Act or to make public disclosure of financial and other information in annual, quarterly and other reports required to be filed with the Commission under the Exchange Act; and the officers, directors and 10% stockholders of the Company would no longer be subject to the "short-swing" insider trading reporting and profit recovery provisions of the Exchange Act. Furthermore, if such registration were terminated, persons holding "restricted securities" of the Company may be deprived of their ability to dispose of such securities under Rule 144 or 144A promulgated under the Securities Act of 1933, as amended (the "Securities Act"). If the registration of the Shares is not terminated prior to the Merger, then the Shares will be delisted from all stock exchanges and the registration of the shares under the Exchange Act will be terminated following the consummation of the Merger. Margin Regulations. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that, following the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. If registration of Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities." 8. CERTAIN INFORMATION CONCERNING THE COMPANY. Except as otherwise set forth herein, the information concerning the Company contained in this Offer to Purchase, including financial information, has been taken from or based upon publicly available documents and records on file with the Commission and other public sources. Although neither the Offeror nor Parent has any knowledge that would indicate that statements contained herein based upon such documents are untrue, neither the Offeror, Parent, any affiliate of the Offeror or Parent, nor the Dealer Manager or Information Agent assumes any responsibility for the accuracy or completeness of any information concerning the Company or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to the Offeror, Parent or their affiliates. The Company is a corporation organized under the laws of Delaware with its principal executive offices located at 213 Technology Drive, Irvine, California 92618. According to the Company's Form 10-K for the year ended December 31, 1998, as amended ("Company's 1998 Form 10-K"), the Company is a biopharmaceutical company dedicated to the discovery and development of small molecule drugs to treat neurological and psychiatric disorders. The Company's technology focuses on the exploration of novel receptors and their ligands and inhibitors through three technology platforms: specific GABA(A) receptor modulators named epalons; glutamate receptor antagonists; and sodium channel blockers. The Company is working to build a portfolio of products for disorders of the central nervous system, both through discovery and development of products utilizing the technical expertise and creativity of its scientists and through the in-licensing of new technology and product candidates. The Company conducts discovery and development of its products through internal resources and by licensing its technologies to collaboration partners who fund further research and development of its products. Recent Developments. On December 1, 1998, Nasdaq notified the Company by letter that it was not in compliance with the $1.00 minimum closing bid price requirement for the continued listing of its Shares. A hearing on the issue 14 15 was held April 29, 1999, and the Company was notified by letter, dated July 13, 1999, that the Company's Shares had been delisted from Nasdaq. On July 14, 1999, the Shares commenced trading on the OTC. Set forth below is certain summary consolidated financial data with respect to the Company excerpted or derived from financial information contained in the Company's 1998 Form 10-K, which is incorporated herein by reference, and provided by the Company for the quarter ended June 30, 1999. More comprehensive financial information is included in the Company's 1998 Form 10-K and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to such reports and such other documents and all the financial information (including any related notes) contained therein. The Company's 1998 Form 10-K and other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below under "-- Available Information." COCENSYS, INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ------------------- -------------------------------------- 1999 1998 1998 1997 1996 ------- -------- ---------- ---------- ---------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA Revenues: Co-promotion revenues............ $ -- $ 540 $ 540 $ 3,264 $ 9,085 Co-development revenues.......... 1,377 1,021 2,046 8,650 6,073 ------- -------- -------- -------- -------- Total revenues................... 1,377 1,561 2,586 11,914 15,158 OPERATING EXPENSES Research and development......... 4,985 7,422 15,745 23,308 20,949 Marketing, general and administrative................. 1,622 2,032 3,894 9,975 13,862 Restructuring charges............ 2,196 -- -- -- -- ------- -------- -------- -------- -------- Total operating expenses......... 8,803 9,454 19,639 32,283 34,811 ------- -------- -------- -------- -------- Operating loss...................... (7,426) (7,893) (17,053) (21,369) (19,653) ------- -------- -------- -------- -------- Gain on disposition of sales force(1)....................... -- 750 1,000 4,728 -- Gain on disposition of interest of Cytovia, Inc.(2)............ 3,326 0 Interest income.................. 245 434 908 898 1,304 Interest expense................. (85) (44) (81) (78) (139) ------- -------- -------- -------- -------- Net loss............................ (3,940) (6,753) (15,226) (15,821) (18,488) Accretion of preferred stock for beneficial conversion feature.... 168 890 -- -- Dividends on preferred stock........ 760 323 1,052 -- -- ------- -------- -------- -------- -------- Net loss attributable to common shareholders..................... $(4,700) $ (7,244) $(17,168) $(15,821) $(18,488) ======= ======== ======== ======== ======== Basic and diluted loss per share(3)......................... $ (1.13) $ (2.49) $ (5.60) $ (5.60) $ (6.79) ======= ======== ======== ======== ======== Shares used in computing basic and diluted loss per share........... 4,170 2,915 3,066 2,822 2,723 ======= ======== ======== ======== ========
JUNE 30, DECEMBER 31, --------- --------------------------------- 1999 1998 1997 1996 --------- --------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and investments........ $ 5,616 $ 12,195 $ 12,960 $ 17,999 Working capital............................... (1,714) 5,315 8,374 14,434 Total assets.................................. 7,445 15,099 16,916 22,051 Long-term obligations......................... 186 392 1,101 324 Accumulated deficit........................... (120,851) (116,151) (98,983) (83,162) Total stockholders' equity.................... (392) 7,506 10,831 16,947
- --------------- (1) In October 1997, the Company sold its sales and marketing force as discussed in note 4 to the financial statements of the Company. (2) On May 6, 1999, the Company sold its interest in Cytovia, Inc. for $3.3 million. (3) The earnings per share amounts prior to 1997 have been restated as required to comply with Statement of Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS No. 128"). For further discussion of earnings per share and the impact of SFAS No. 128, see the notes to the financial statements of the Company. 15 16 Available Information. The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. The Company is required to disclose in such proxy statements certain information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities and any material interests of such persons in transactions with the Company. Such reports, proxy statements and other information may be inspected at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street (Suite 400), Chicago, Illinois 60661. Copies of such material may also be obtained by mail, at prescribed rates, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also be accessed electronically by means of the Commission's World Wide Web site on the internet at http://www.sec.gov which includes documents the Company has filed via the SEC's EDGAR System. 9. CERTAIN INFORMATION CONCERNING PNC, PARENT AND THE OFFEROR. The Offeror, a Delaware corporation, is an indirect wholly owned subsidiary of Parent. To date, the Offeror has not conducted any business other than that incident to its formation, the execution and delivery of the Merger Agreement and the Series E Purchase Agreement and the commencement of the Offer. It is not anticipated that, prior to the consummation of the Offer and the Merger, the Offeror will have any significant assets or liabilities or will engage in any activities other than those incident to the Offer and the Merger. The principal executive office of the Offeror is located c/o Purdue Pharma L.P., 100 Connecticut Avenue, Norwalk, Connecticut 06850. PNI, a Delaware corporation, is a holding company and has not conducted any business other than that incident to its formation. PNI is currently wholly owned by PNLP, a Delaware limited partnership and a holding company that has not conducted any business other than that incident to its formation. The principal executive offices of PNI and PNLP are located c/o Purdue Pharma L.P., 100 Connecticut Avenue, Norwalk, Connecticut 06850. PNC, a New York corporation, is the general partner of PNLP, and has not conducted any business other than that incident to its formation. The principal executive office of PNC is located c/o Purdue Pharma L.P., 100 Connecticut Avenue, Norwalk, Connecticut 06850. Parent, a Delaware limited partnership, is a pharmaceutical company headquartered in Connecticut. The principal executive office of Parent is located at 100 Connecticut Avenue, Norwalk, Connecticut 06850. Parent and its associated companies are engaged in the research, development, production, marketing, sales, distribution and licensing of ethical pharmaceuticals, over-the-counter medicines and hospital products. Parent and its associated companies' primary distribution and manufacturing arms are located in the United States, United Kingdom, Germany and Canada. They also have facilities in Switzerland, Ireland, Austria and Denmark, and joint ventures in India, China and other international locations. Products are marketed and sold in other countries by Parent's associated companies and joint ventures and are also licensed in over 100 countries. Parent and its associated companies are wholly owned, directly or indirectly through family trusts and holding companies, 50% by the family of Mortimer D. Sackler, M.D. and 50% by the family of Raymond R. Sackler, M.D. The name, citizenship, business address, present principal occupation and material positions held during the past five years of the directors and executive officers of the Offeror, PNI and PNC are set forth in Annex A to this Offer to Purchase. Except as set forth in this Offer to Purchase, none of the Offeror, Parent, PNC or, to the best of their knowledge, any of the persons listed in Annex A hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, 16 17 any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, there have been no contacts, negotiations or transactions between PNC, the Offeror or Parent, or, to the best of their knowledge, any of the persons listed in Annex A hereto, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Except as described in this Offer to Purchase, none of PNC, the Offeror, Parent or, to the best knowledge of Parent or the Offeror, any of the persons listed in Annex A hereto, has had any transaction with the Company or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the Commission applicable to the Offer. The Offeror has entered into the Series E Purchase Agreement with the holder of the Series E Preferred Stock. Under the Series E Purchase Agreement, the holder of the Series E Preferred Stock has agreed to sell, and the Offeror has agreed to purchase, immediately upon consummation of the Offer all of the Series E Preferred Stock beneficially owned by it, representing approximately 31% of the Fully Diluted Shares on an as-converted basis at the currently scheduled Expiration Date, for an aggregate purchase price of $2,200,000. The obligation of the holder of the Series E Preferred Stock to sell, and the obligation of the Offeror to purchase, the Series E Preferred Stock under the Series E Purchase Agreement, are subject to the Offeror having accepted Shares for payment under the Offer in accordance with the Merger Agreement. The Series E Preferred Stock will be convertible at the option of the holder into approximately 2,634,493 Shares at the currently scheduled Expiration Date. Available Information. Neither the Offeror nor Parent is subject to the information requirements of the Exchange Act and, accordingly, do not file reports or other information with the Commission under the Exchange Act relating to its business, financial position, results of operations or other matters. However, the Offeror and Parent have filed a Schedule 14D-1 and exhibits thereto with the Commission in connection with the Offer and the Merger. 10. SOURCE AND AMOUNT OF FUNDS. The Offer is not conditioned upon any financing arrangements. Parent and the Offeror estimate that the total amount of funds required by the Offeror to (i) purchase all of the Shares pursuant to the Offer and pay the Merger Consideration, and (ii) pay fees and expenses incurred in connection with the Offer and the Merger will be approximately $9.2 million. The Offeror has obtained all required funds from capital contributions from PNI made prior to commencement of the Offer. 11. BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE COMPANY. On May 19, 1998, a former executive of the Company approached an executive of Parent at a biotechnology partnering conference to discuss potential interest in a research and development collaboration and technology licensing arrangement for some of its programs in the areas of epilepsy, pain, neuroprotection and neurodegenerative disease treatments. Through ensuing correspondence and conversations, Parent expressed interest in the Company's programs in sodium ion channel modulation and AMPA/Kainate modulators for the treatment of pain, a core business area of Parent. On August 4, 1998, a conference call was held between executives of the Company and Parent. The Company stated that it planned to take its lead sodium channel blocker compound, Co 102862, through Phase II clinical evaluation to demonstrate efficacy in humans and to maximize the value of the product for its stockholders before licensing. The Company was primarily interested in establishing a research collaboration partnership for the AMPA program in a manner similar to their collaboration with Parke-Davis. Between August 28 and October 21, 1998, the Company and Parent negotiated a confidentiality agreement (the "Confidentiality Agreement") to support further discussions regarding these programs. During October 1998, the Company informed Parent that it had changed its licensing strategy and would begin partnering discussions for its sodium channel blocker program. Executives of the Company visited 17 18 Parent on November 17, 1998 for detailed scientific discussions with executives of Parent. After the discussions both parties decided to negotiate a licensing agreement for the sodium channel blocker program. The Confidentiality Agreement was amended on December 7, 1998 to expand the scope of confidential disclosures to include the Company's glycine site NMDA antagonist and nociceptin/orphanin FQ receptor modulation programs. The Company provided its proposed terms for a development and collaboration agreement for the sodium channel blocker program to Parent on December 11, 1998. On December 8, 1998, the Company entered into an engagement letter with Hambrecht & Quist LLC ("H&Q") to represent the Company as its exclusive financial advisor in connection with the potential sale of the Company. On December 17, 1999, executives of Parent visited the Company to discuss all of the Company's programs in pain management and to conduct a preliminary due diligence investigation with respect to the previously discussed development and research collaboration agreement. Following discussions with an executive of the Company and internal discussions and evaluations, on January 13, 1999 at the Hambrecht & Quist Healthcare Investor Conference in San Francisco, Parent developed and presented a non-binding offer letter with respect to the licensing programs under discussion to the executives of the Company, including the Chairman of the Company. Over the next two months, negotiations continued regarding license terms and conditions which resulted in a second non-binding offer letter, dated February 26, 1999, describing a proposed product license, development and research collaboration agreement and a development services agreement ("February 26, 1999 Offer Letter"). On March 10, 1999, the Chairman and executives of the Company visited Parent and met with executives of Parent to discuss the proposed collaboration between the companies and to better understand the principles underlying the proposed relationship. On March 16, 1999, a group of seven scientists from Parent visited the Company to conduct further technical due diligence to support the February 26, 1999 Offer Letter. On April 16, 1999, Parent sent to the Company a revised non-binding offer letter describing a proposed product license, development and research collaboration agreement which was subject to Parent's testing and verification of efficacy of the lead compound, Co 102862 ("April 16, 1999 Offer Letter"). On May 17, 1999, while executives from both parties were attending the Biotechnology Industry Organization's annual meeting in Seattle, they met to discuss ways to resolve the subject condition in the April 16, 1999 Offer Letter. During the course of conversation, an executive from the Company asked if Parent had authorized a person from BancBoston Robertson Stephens Inc. ("BancBoston Robertson Stephens") to initiate acquisition discussions with the Company. Parent's executive stated that BancBoston Robertson Stephens met with Parent in early April where they discussed a range of companies for potential transactions but Parent had not yet engaged or authorized any investment banker to contact the Company on its behalf. The Company's executive stated if Parent was interested in acquiring the Company they could contact the Chairman of the Board directly since they already had established a relationship. When asked, the Company executive indicated that Parent would be considered a friendly suitor given the strong congruence of mutual scientific and product interests between the parties. On June 7, executives of Parent telephoned the Chairman of the Company and confirmed with the Company that the Company would view Parent as a friendly suitor. On June 9, 1999, before the Company's Board of Directors meeting, executives of Parent telephoned the Company's Chairman to confirm Parent's interest in acquiring the Company and to present certain terms of the proposed acquisition. Later that day, the Company's Chairman confirmed by telephone that the Company's Board of Directors would entertain an offer from Parent and suggested a period of exclusivity for negotiating terms of the proposed transaction. On June 10, 1999, Parent confirmed to the Company its intention to proceed to negotiate without exclusivity while conducting an expedited due diligence process. 18 19 On June 11, 1999, Parent signed an engagement letter dated May 13, 1999, with BancBoston Robertson Stephens pursuant to which Parent engaged BancBoston Robertson Stephens to represent Parent as its investment banker in a transaction with the Company. During May and June 1999, BancBoston Robertson Stephens had held exploratory, informational and confirmatory discussions with H&Q. On June 18, 1999, executives of Parent visited the Company and its executives to discuss the transaction. On such date, the CA was amended in order to expand the scope of the agreement to include information and discussions related to the Company's finances, business, operations and technologies in order for Parent to determine its level of interest in pursuing a transaction with the Company. On June 23, 1999, a non-binding proposal letter was sent by Parent to the Company describing a preliminary offer to purchase the Company, including the Company's outstanding preferred stock and liabilities, at a price between the then current market value (an aggregate of approximately $7.2 million) and $9.5 million in cash, subject to certain conditions. After consulting with the Company's advisors and several members of the Company's Board of Directors, the Chairman of the Company agreed to receive Parent's due diligence team for an evaluation of the Company. On-site due diligence was conducted by Parent and its representatives at the Company from June 30 through July 8, 1999. On July 9, 1999, a revised non-binding proposal letter and draft agreement and plan of merger was sent by Parent to the Company for consideration. After discussions between the parties and their representatives, a further revised non-binding proposal letter was signed by the Company on July 15, 1999 (the "Revised Proposal Letter"). The Revised Proposal Letter was subject to certain conditions, including, among other things, Offeror reaching satisfactory agreements with the holder of the Series E Preferred Stock, and the Company reaching satisfactory agreements with certain warrant and option holders and with respect to the WL Note (the "Ancillary Agreements"). Between July 15, 1999 and August 5, 1999, drafts of the Merger Agreement and the Ancillary Agreements were delivered to the Company and its representatives. Numerous discussions and negotiations took place between the parties and their representatives pursuant to which the parties agreed upon the terms of the proposed transaction and finalized the definitive agreements, including the Merger Agreement and the Ancillary Agreements. On August 4, 1999, H&Q delivered its oral opinion to the Board of Directors of the Company that the consideration to be received by the holders of common stock of the Company in connection with the proposed Merger is fair, from a financial point of view, to such stockholders. On August 4, 1999, the Board of Directors of Parent, the Board of Directors of the Offeror and the Board of Directors of the Company each approved the proposed transaction. On August 5, 1999, H&Q delivered its written opinion to the Board of Directors of the Company that the consideration to be received by the holders of Common Stock of the Company in the Merger is fair to such stockholders from a financial point of view. On August 5, 1999, a duly appointed committee of the Board of Directors of the Company ratified the Board of Directors of the Company's approval of the transaction, and Parent, the Offeror and the Company entered into the Merger Agreement. The transaction was publicly announced before U.S. financial markets opened on August 6, 1999. A copy of Parent's press release announcing the execution of the Merger Agreement is filed as Exhibit (a)(8) hereto and is incorporated herein by reference. 12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY. Purpose. The purpose of the Offer is to enable Parent to acquire control of, and the entire equity interest in, the Company. The Offer, as the first step in the acquisition of the Company, is intended to facilitate the acquisition of all the Shares. Parent currently intends, as soon as practicable following consummation of the Offer, to propose and seek to consummate the Merger. The purpose of the Merger is to acquire all Shares not tendered and purchased pursuant to the Offer. Pursuant to the Merger, each then outstanding Share (other than Shares owned by the Offeror, Parent or any of their affiliates, Shares held in the treasury of the Company and Shares owned by the stockholders who properly perfect any appraisal rights under the DGCL) would be 19 20 converted into the right to receive an amount in cash equal to the price per Share paid by the Offeror pursuant to the Offer. If the Offeror acquires, pursuant to the Offer, the Series E Purchase Agreement or otherwise, voting power with respect to at least a majority of the outstanding Shares, the Offeror will have certain rights to designate a majority of the directors on the Company's Board of Directors. See "The Merger Agreement -- Board of Directors" in Section 13. The Company has agreed that, upon the acceptance for payment by the Offeror of such number of Shares that, together with the Shares held by the Offeror from the conversion of the Series E Preferred Stock, would constitute a majority of the outstanding Shares, the Offeror will designate such number of directors to sit on the Board as will give the Offeror a majority of the Board of Directors. Appraisal Rights. Holders of Shares do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, holders of Shares at the Effective Time will have certain rights pursuant to the provisions of Section 262 of the DGCL ("Section 262") to dissent and demand appraisal of their Shares. Under Section 262, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. Any such judicial determination of the fair value of Shares could be based upon factors other than, or in addition to, the price per Share to be paid in the Merger or the market value of the Shares. The value so determined could be more or less than the price per Share to be paid in the Merger. The foregoing summary of Section 262 does not purport to be complete and is qualified in its entirety by reference to Section 262. FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. Going Private Transactions. The Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions. The Offeror does not believe that Rule 13e-3 will be applicable to the Merger unless the Merger is consummated more than one year after the Offeror purchases Shares in the Offer. If applicable, Rule 13e-3 requires, among other things, that certain financial information concerning the fairness of the Merger and the consideration offered to minority stockholders in such transaction be filed with the Commission and disclosed to stockholders prior to the consummation of the Merger. Except as otherwise described in this Offer to Purchase, the Offeror and Parent have no current plans or proposals that would relate to, or result in, any extraordinary corporate transaction involving the Company, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries, a sale or transfer of a material amount of assets of the Company or any of its subsidiaries, any change in the Company's capitalization or dividend policy or any other material change in the Company's business, corporate structure or personnel. 13. THE MERGER AGREEMENT AND THE SERIES E PURCHASE AGREEMENT. The Merger Agreement. The Merger Agreement provides that following the satisfaction or waiver of the conditions described below under "Conditions to the Obligations of the Parties to Effect the Merger," the Offeror will be merged with and into the Company, with the Company surviving the Merger and each then outstanding Share (other than Shares owned by the Company, Parent, the Offeror, any other subsidiary or affiliate of Parent or by stockholders, if any, who are entitled to and who properly exercise dissenters' rights under Delaware law) will be converted into the right to receive an amount in cash equal to the price per Share paid pursuant to the Offer, without interest. The Offer is conditioned upon, among other things, the Minimum Condition, and the Offeror has agreed in the Merger Agreement that it will not, without the written consent of the Company, waive the Minimum Condition. Vote Required To Approve Merger. The DGCL provides that if a parent company owns at least 90% of each class of voting stock of a subsidiary, such parent company can effect a short-form merger with that subsidiary without the action of the other stockholders of the subsidiary. Accordingly, if, as a result of the 20 21 Offer or the conversion of the Series E Preferred Stock or otherwise, the Offeror owns at least 90% of the outstanding Shares, the Offeror could, and intends to, effect the Merger without prior notice to, or any action by, any other stockholder of the Company. If a parent company owns less than 90% of each class of voting stock of a subsidiary, the DGCL requires, among other things, that the adoption of any plan of merger or consolidation of the Company must be approved by the Board of Directors and generally by the holders of the Company's outstanding voting securities. The Board of Directors of the Company has unanimously approved the Offer and the Merger; consequently, the only additional action of the Company that may be necessary to effect the Merger is approval by the Company's stockholders if the "short-form" merger procedure described above is not available. Under the DGCL, the affirmative vote of holders of a majority of the outstanding Shares (including any Shares owned by the Offeror) is generally required to approve the Merger. If the Offeror acquires, through the Offer, the conversion of the Series E Preferred Stock or otherwise, voting power with respect to a majority of the outstanding Shares, it would have sufficient voting power to effect the Merger without the vote of any other stockholder of the Company. Conditions to the Obligations of the Parties to Effect the Merger. The Merger Agreement provides that the obligation of the parties to effect the Merger is subject to the satisfaction of certain conditions, including the following: (a) if required by applicable law, the Merger Agreement and the transactions contemplated thereby shall have been approved by the affirmative vote of the holders of a majority of the Shares; (b) no statute, rule, regulation, executive order, decree, temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other federal, state or local government or any court, tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, domestic, foreign or supranational (a "Governmental Entity") or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect; provided, however, that each of the Company, the Offeror and Parent shall have used reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as possible any injunction or other order that may be entered; and (c) the Offeror shall have previously accepted for payment and paid for Shares pursuant to the Offer. Termination of the Merger Agreement. The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the terms of the Merger Agreement by the stockholders of the Company: (1) by mutual written consent of Parent and the Company, by action of the Board of Directors of the General Partner on behalf of the Parent and by the Board of Directors of the Company; (2) by either Parent or the Company if neither the Offer nor the Merger shall have been consummated on or before December 31, 1999 unless such date is otherwise extended by Parent in its sole discretion; provided, however, that neither Parent nor the Company may terminate the Merger Agreement under the foregoing clause if such party shall have materially breached the Merger Agreement; (3) by either Parent or the Company if any court of competent jurisdiction in the United States or other United States Governmental Entity has issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; provided, however, that the party seeking to terminate the Merger Agreement shall have used its best efforts to remove or lift such order, decree, ruling or other action; (4) by the Company if, prior to the Effective Time, any person has made a bona fide proposal relating to an Acquisition Proposal (as defined below), or has commenced a tender or exchange offer for the Shares, and the Board of Directors of the Company determines in good faith (i) after consultation with its financial advisors, that such transaction constitutes a Superior Proposal (as defined below) and (ii) after receiving advice from outside legal counsel to the Company, that the failure to engage in such 21 22 negotiations or discussions or provide such information would be reasonably determined to constitute a breach of the fiduciary duties of the Board of Directors of the Company under applicable law; (5) by Parent if, (A) Parent shall not have materially breached the Merger Agreement and (B) the Board of Directors of the Company shall have (i) failed to recommend to the stockholders of the Company that they accept the Offer, tender their Shares pursuant to the Offer and approve and adopt the Merger Agreement (the "Stockholder Acceptance"), (ii) withdrawn or modified its approval or recommendation of the Merger Agreement, the Offer or the Merger, (iii) shall have approved or recommended an Acquisition Proposal (as defined below), (iv) shall have resolved to effect any of the foregoing or (v) shall have otherwise taken steps to impede the Stockholder Acceptance; (6) by the Company, if the Offeror or Parent shall have (i) failed to commence the Offer within five business days after the public announcement by Parent and the Company of the Merger Agreement, (ii) failed to pay for Shares pursuant to the Offer in accordance with the Merger Agreement or (iii) breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in the Merger Agreement, which breach or failure to perform in respect of clause (iii) is incapable of being cured or has not been cured within 20 days after the giving of written notice to Parent or the Offeror, as applicable; (7) by Parent or the Offeror prior to the Offeror's obligation to accept Shares for payment pursuant to the Offer in the event of a breach by the Company of any representation, warranty, covenant or other agreement contained in the Merger Agreement which (i) would give rise to the failure of a condition set forth in paragraph (c), (d) or (e) of Section 15 and (ii) cannot be or has not been cured within 20 days after the giving of written notice to the Company; (8) by either Parent or the Company, if the Stockholder Acceptance shall not have been obtained at a Stockholders Meeting; if required by applicable law; or (9) by either Parent or the Company if, as the result of the failure of any of the conditions set forth in Section 15, the Offeror shall have terminated the Offer in accordance with its terms without the Offeror having purchased any Shares pursuant to the Offer; provided, however, that the right to terminate the Merger Agreement pursuant to this clause shall not be available to any party whose failure to fulfill any of its obligations under, or breach of any provisions of, the Merger Agreement or results in the failure of any such condition. Acquisition Proposals. The Merger Agreement provides that, from the date thereof until such time as Parent's designees shall constitute a majority of the members of the Board of Directors of the Company or the termination of the Merger Agreement, neither the Company nor any of its officers, directors, or employees shall, and the Company will instruct its agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by the Company) not to, initiate, solicit or knowingly encourage, directly or indirectly, any inquiries or the making or implementation of any Acquisition Proposal (including, without limitation, any Acquisition Proposal to its stockholders) or, other than in the event that the Board of Directors of the Company determines in good faith, after receiving advice from outside counsel, that failure to do so would be reasonably determined to constitute a breach of its fiduciary duties to the Company's stockholders under applicable law, and in response to an unsolicited request therefor by a person who a majority of the Board of Directors of the Company believes intends to submit a Superior Proposal, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or release any third party from any obligations under any existing standstill agreement or arrangement, or otherwise knowingly facilitate any effort or attempt to make or implement an Acquisition Proposal; and that it will immediately cease and cause to be terminated any existing activities, discussion or negotiations with any parties conducted heretofore with respect to any of the foregoing, and it will take the necessary steps to inform the individuals or entities referred to above of the obligations undertaken in this section; provided, however, that nothing contained in this section shall prohibit the Company or its Board of Directors from taking and disclosing to the Company's stockholders a position with respect to a tender offer by a third party pursuant to Rule 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making such disclosure to the Company's stockholders which, in the judgment of the 22 23 Board of Directors of the Company after receiving advice of outside counsel, may be required under applicable law. The Merger Agreement provides that the Company shall promptly advise Parent in writing of the receipt, directly or indirectly, of any inquiries, discussions, negotiations, or proposals relating to an Acquisition Proposal (including the specific terms thereof and, subject to any confidentiality obligations of the Company existing as of August 5, 1999, the identity of the other party or parties involved) and furnish to Parent within 24 hours of such receipt an accurate description of all material terms (including any changes or adjustment to such terms as a result of negotiations or otherwise) of any such written proposal in addition to any non-public information provided to any third party relating thereto. In addition, the Company shall promptly advise Parent, in writing, if the Board of Directors of the Company shall make any determination as to any Acquisition Proposal. The Merger Agreement defines "Acquisition Proposal" as any inquiry, proposal or offer from any person relating to any direct or indirect acquisition or purchase of 20% or more of any class of equity securities of the Company, any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of any class of equity securities of the Company, any merger, consolidation, business combination, sale of substantially all the assets, recapitalization, liquidation, dissolution or similar transaction involving the Company, other than the transactions contemplated by the Merger Agreement, or any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Offer and/or the Merger or which would reasonably be expected to dilute materially the benefits to Parent of the transactions contemplated thereby. For purposes of the Merger Agreement, "Superior Proposal" means any Acquisition Proposal which a majority of the disinterested directors of the Company determines in its good faith judgment (based on the advice of the Company's independent financial advisor) to be more favorable to the stockholders of the Company than the Offer or the Merger, and for which financing, to the extent required, is then committed. Fees and Expenses. The Merger Agreement provides that, in the event that (i) the Merger Agreement is terminated pursuant to clause 4 or 5 under "Termination of the Merger Agreement" above, or (ii) any person (other than Parent or any of its affiliates) shall have made or proposed, communicated or disclosed in a manner which is or otherwise becomes public an Acquisition Proposal prior to the Effective Time and, thereafter, the Merger Agreement is terminated in connection with such Acquisition Proposal, then the Company shall pay to Parent $237,500 as liquidated damages and not as a penalty. The parties agree that such amount is a reasonable estimate of the costs and expenses that would be incurred and the value of services consumed by and on behalf of Parent and the Offeror if the transactions contemplated hereunder were not to go forward as a result of such a termination. Except as otherwise specifically provided for in the Merger Agreement, whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement shall be paid by the party incurring such expenses. The Merger Agreement provides that the prevailing party in any legal action undertaken to enforce the Merger Agreement or any provision thereof shall be entitled to recover from the other party the costs and expenses (including attorneys' and expert witness fees and expenses) incurred in connection with such action. Conduct of Business by the Company. The Merger Agreement provides that, except as contemplated by the Merger Agreement or as expressly agreed to in writing by Parent (such consent not to be unreasonably withheld), during the period from the date of the Merger Agreement until such time as Parent's designees shall constitute a majority of the members of the Board of Directors of the Company, the Company will conduct its operations according to its ordinary and usual course of business and consistent with past practice and use commercially reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors, licensees, advertisers, distributors and others having material business dealings with it and to preserve goodwill. Without limiting the generality of the foregoing, and except as (x) otherwise expressly provided in the Merger Agreement, (y) required by law, or (z) set forth on Schedule 6.01 to the Merger Agreement, the Company will not without the consent of Parent (such consent not to be unreasonably withheld): (i) (a) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its stockholders in their capacity as such, other than dividends declared prior to the date of the Merger Agreement, (b) split, 23 24 combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (c) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (ii) other than in connection with the exercise of options and warrants outstanding prior to the date hereof in accordance with their current terms, issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities or equity equivalent; (iii) amend its Certificate of Incorporation or By-Laws; (iv) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets; (v) sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets; (vi) amend or otherwise modify, or terminate, any Contract; (vii) incur any additional indebtedness (including for this purpose any indebtedness evidenced by notes, debentures, bonds, leases or other similar instruments, or secured by any lien on any property, conditional sale obligations, obligations under any title retention agreement and obligations under letters of credit or similar credit transaction) in a single transaction or a group of related transactions, enter into a guaranty, or engage in any other financing arrangements having a value in excess of $10,000, or make any loans, advances or capital contributions to, or investments in, any other person; (viii) alter through merger, liquidation, reorganization, restructuring or in any other fashion its corporate structure or ownership; (ix) except as may be required as a result of a change in law or in generally accepted accounting principles, change any of the accounting principles or practices used by it; (x) revalue any of its assets, including, without limitation, writing down the value of its inventory or writing off notes or accounts receivable other than in the ordinary course of business; (xi) make any tax election, change any annual tax accounting period, amend any tax return, settle or compromise any income tax liability, enter into any closing agreement, settle any tax claim or assessment, surrender any right to claim a tax refund or fail to make the payments or consent to any extension or waiver of the limitations period applicable to any tax claim or assessment; (xii) except in the ordinary course of business, settle or compromise any pending or threatened suit, action or claim with a cost of $10,000 or more; (xiii) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted, contingent or otherwise) other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by, the financial statements (or the notes thereto) of the Company or incurred in the ordinary course of business consistent with past practice; (xiv) increase in any manner the compensation or fringe benefits of any of its directors, officers and other key employees or pay any pension or retirement allowance not required by any existing plan or agreement to any such employees, or become a party to, amend or commit itself to any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee, other than increases in the compensation of employees who are not officers or directors of the Company made in the ordinary course of business consistent with past practice, or, except to the extent required by law, voluntarily accelerate the vesting of any compensation or benefit; 24 25 (xv) waive, amend or allow to lapse any term or condition of any confidentiality, "standstill", consulting, advisory or employment agreement to which the Company is a party (except for any agreement which terminates in accordance with its express terms); (xvi) approve any annual operating budgets for the Company; (xvii) change the Company's dividend policy; (xviii) enter into any transaction with affiliates; (xix) enter into any business other than the business currently engaged in by the Company; (xx) pursuant to or within the meaning of any bankruptcy law, (a) commence a voluntary case, (b) consent to the entry of an order for relief against it in an involuntary case, (c) consent to the appointment of a custodian of it or for all or substantially all of its property or (d) make a general assignment for the benefit of its creditors; (xxi) purchase or lease or enter into a binding agreement to purchase or lease any real property; (xxii) enter into or amend, modify or terminate any employment agreement with any officer or employee; (xxiii) enter into any joint venture, lease, license, management agreement, research agreement, development agreement, option or other obligation relating to new development, or any other agreement of the Company, including without limitation any agreement or arrangement relating to Intellectual Property Rights (as defined in the Merger Agreement); or (xxiv) take, or agree in writing or otherwise to take, any of the foregoing actions. Board of Directors. The Merger Agreement provides that promptly upon the acceptance for payment of, and payment for, a majority of the Shares by the Offeror pursuant to the Offer, the Offeror shall be entitled and obligated to designate, subject to compliance with Section 14(f) of the Exchange Act, a majority of the directors on the Company's Board of Directors, and the Company shall, at such time, cause the Offeror's designees to be so elected by its existing Board of Directors. Subject to applicable law, the Company has agreed to take all action requested by Parent necessary to effect any such election, including mailing to its stockholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Company Stock Options; Warrants. The Merger Agreement provides that prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, any committee thereof) shall adopt appropriate resolutions and take all action necessary to provide that the outstanding Company Stock Options and Warrants, whether or not then fully vested or exercisable, shall, at the Effective Time, be canceled and retired and shall cease to exist, and the holders thereof entitled to receive the consideration from the Surviving Corporation, if any, determined in accordance with the Merger Agreement, including obtaining all necessary consents of the holders of Company Stock Options and Warrants to the foregoing cancellation and treatment of such Company Stock Options and Warrants. In addition, the Company shall take all necessary action to provide that the employee stock purchase plans and the stock options plans of the Company shall be terminated as of the Effective Time. Notwithstanding the foregoing, the Board of Directors of the Company, with the written consent of Parent, has adopted resolutions providing for the acceleration of all Company Stock Options contigently upon and subject to consummation of the Offer. Rights Agreement. The Company has distributed one Right for each outstanding share of Common Stock pursuant to the Rights Agreement, dated as of May 15, 1995, by and between the Company and American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agreement"). Pursuant to the Merger Agreement, the Company has executed and delivered an Amendment to the Rights Agreement, dated as of August 5, 1999 (the "Rights Agreement Amendment"), by and between the Company and the Rights Agent which provides that, among other things, (a) neither the Merger Agreement, nor any of the 25 26 transactions contemplated thereby, including the Offer and the Merger, will result in the occurrence of a "Distribution Date" (as defined in the Rights Agreement) or otherwise cause the Rights to become exercisable by the holders thereof and (b) the Rights will automatically on and as of the Effective Time be void and of no further force or effect. Indemnification and Insurance. In the Merger Agreement, Parent and the Offeror have agreed that all rights to indemnification for acts or omissions occurring prior to the Effective Time that are in existence as of the date of the Merger Agreement in favor of the current or former directors or officers (the "Indemnified Parties") of the Company as provided in its certificate of incorporation or by-laws or existing indemnification contracts (all of which have been disclosed on Schedule 4.10 to the Merger Agreement) shall survive the Merger and shall continue in full force and effect in accordance with their terms. Pursuant to the Merger Agreement, Parent will, for a period of six years from the Effective Time, unless Parent agrees in writing to guarantee the indemnification obligations set forth above, maintain in effect the Company's current directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy except that, to the extent that such coverage is not obtainable at less than or equal to 150% of the current per annum cost, Parent will be obligated to purchase only so much coverage as may then be obtained for such amount. The Merger Agreement provides that the indemnification obligations set forth in the Merger Agreement shall be binding on all successors and assigns of Parent and the Surviving Corporation. Representations and Warranties. The Merger Agreement contains various customary representations and warranties. Procedure for Termination, Amendment, Extension or Waiver. The Merger Agreement provides that in the event the Offeror's designees are appointed or elected to the Board of Directors of the Company as described above under "Board of Directors", after the acceptance for payment of Shares pursuant to the Offer and prior to the Effective Time, the affirmative vote of the directors of the Company not designated by Parent or the Offeror is required for the Company to amend or terminate the Merger Agreement, exercise or waive any of its rights or remedies under the Merger Agreement, or extend the time for performance of the Offeror's and Parent's respective obligations under the Merger Agreement. Series E Purchase Agreement. The Offeror has entered into the Series E Purchase Agreement with the holder of the Series E Preferred Stock. Under the Series E Purchase Agreement, the holder of the Series E Preferred Stock has agreed to sell, and the Offeror has agreed to purchase, immediately upon consummation of the Offer all of the Series E Preferred Stock beneficially owned by it, representing approximately 31% of the Fully Diluted Shares on an as-converted basis at the currently scheduled Expiration Date, for an aggregate purchase price of $2,200,000. The obligation of the holder of the Series E Preferred Stock to sell, and the obligation of the Offeror to purchase, the Series E Preferred Stock under the Series E Purchase Agreement, are subject to the Offeror having accepted Shares for payment under the Offer in accordance with the Merger Agreement. The Series E Preferred Stock will be convertible at the option of the holder, subject to certain conditions, into approximately 2,634,493 Shares at the currently scheduled Expiration Date. 14. DIVIDENDS AND DISTRIBUTIONS. Pursuant to the terms of the Merger Agreement, the Company is prohibited from taking any of the actions described in the paragraphs under the caption "Conduct of Business by the Company" under Section 13, and nothing herein shall constitute a waiver by the Offeror or Parent of any of its rights under the Merger Agreement or a limitation of remedies available to the Offeror or Parent for any breach of the Merger Agreement, including termination thereof. If, on or after August 5, 1999, the Company should (a) split, combine or otherwise change the Shares or its capitalization, (b) acquire or otherwise cause a reduction in the number of outstanding Shares or other securities or (c) issue or sell additional Shares, shares of any other class of capital stock, other voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire any of the foregoing, other than Shares issued pursuant to the exercise of outstanding Company stock options 26 27 or warrants, then, subject to the provisions of Section 15, the Offeror, in its sole discretion, may make such adjustments as it deems appropriate in the Offer Price and other terms of the Offer, including, without limitation, the number or type of securities offered to be purchased. If, on or after August 5, 1999, the Company should declare or pay any cash dividend on the Shares or other distribution on the Shares, or issue with respect to the Shares any additional Shares, shares of any other class of capital stock, other voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, payable or distributable to stockholders of record on a date prior to the transfer of the Shares purchased pursuant to the Offer to the Offeror or its nominee or transferee on the Company's stock transfer records, then, subject to the provisions of Section 15, (a) the Offer Price may, in the sole discretion of the Offeror, be reduced by the amount of any such cash dividend or cash distribution and (b) the whole of any such noncash dividend, distribution or issuance to be received by the tendering stockholders will (i) be received and held by the tendering stockholders for the account of the Offeror and will be required to be promptly remitted and transferred by each tendering stockholder to the Depositary for the account of the Offeror, accompanied by appropriate documentation of transfer, or (ii) at the direction of the Offeror, be exercised for the benefit of the Offeror, in which case the proceeds of such exercise will promptly be remitted to the Offeror. Pending such remittance and subject to applicable law, the Offeror will be entitled to all rights and privileges as owner of any such noncash dividend, distribution, issuance or proceeds and may withhold the entire Offer Price or deduct from the Offer Price the amount or value thereof, as determined by the Offeror in its sole discretion. 15. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other term of the Offer or the Merger Agreement, and in addition to (and not in limitation of) the Offeror's right to extend and amend the Offer at any time in its sole discretion (subject to the provisions of the Merger Agreement), the Offeror shall not be required to accept for payment or, subject to applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Offeror's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for, and may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any Shares tendered pursuant to the Offer unless there shall have been validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares that, when added to the number of Shares to be received by the Offeror upon the conversion of all of the Series E Preferred purchased by the Offeror under the Series E Purchase Agreement would satisfy the Minimum Condition as of the Expiration Date. Notwithstanding any other term of the Offer or the Merger Agreement, the Offeror shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate the Offer if, at any time on or after the date of the Merger Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exists or shall occur and remain in effect: (a) there shall be threatened, instituted or pending by any Governmental Entity or instituted or pending by any person any suit, action, investigation or proceeding (i) challenging the acquisition by Parent or the Offeror of any Shares under the Offer or seeking to restrain, prohibit or delay the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by the Merger Agreement, or seeking to obtain from the Company, Parent or the Offeror any damages that are material in relation to the Company, (ii) seeking to prohibit or impose any limitations on Parent's or the Offeror's ownership or operation (or that of any of their respective subsidiaries or affiliates) of all or a material portion of their or the Company's businesses or assets, or to compel Parent, the Offeror, the Company or their respective subsidiaries and affiliates to dispose of or hold separate any material portion of the business or assets of the Company or Parent, the Offeror and their respective subsidiaries (provided that any prohibition, limitation, restriction or other action or requirement with respect to any of the Intellectual Property Rights of the Company, or rights or obligations related to or arising from the Intellectual Property Rights of the Company, shall be deemed a material portion for purposes hereof), (iii) seeking to make illegal, impose material limitations on the ability of the Offeror, or render the Offeror unable, to accept for payment, pay for or purchase some or all 27 28 of the Shares pursuant to the Offer and the Merger, (iv) seeking to impose material limitations on the ability of the Offeror or Parent (or any of their affiliates) to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the Company's stockholders, or (v) which otherwise is reasonably likely to have a material adverse effect on the Parent, the Offeror or Company; (b) there shall be any statute, rule, regulation, judgment, decree, order or injunction enacted, entered, enforced, promulgated or deemed applicable to the Offer or the Merger, or any other action shall be taken by any Governmental Entity or court that could reasonably be expected to, in the judgment of the Parent, result, directly or indirectly, in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; (c) (i) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or the Offeror its approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved or recommended any Acquisition Proposal, (ii) the Company shall have entered into any agreement with any other Person pursuant to any Acquisition Proposal, (iii) the Board of Directors of the Company or any committee thereof shall have resolved to take any of the foregoing actions, or (iv) the Board of Directors of the Company shall have failed to reject any Acquisition Proposal within 10 business days after receipt by the Company or public announcement thereof; (d) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified as to materiality shall not be true and correct or any such representations and warranties that are not so qualified shall not be true and correct in any material respect, in each case at the date of the Merger Agreement and at the scheduled or extended expiration of the Offer, other than any matters that individually or in the aggregate would not have a material adverse effect on the Company (provided, however, that the failure of any representations and warranties with respect to, arising from or related to the Intellectual Property Rights of the Company to be true and correct in any material respect shall be deemed to have a material adverse effect on the Company); (e) the Company shall have failed to perform in any respect any material obligation or to comply in any respect with any material agreement or material covenant of the Company to be performed or complied with by it under the Merger Agreement, which failure to perform or comply is not substantially cured within 10 days after Parent provides the Company with notice of such failure; (f) there shall be any securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company, or securities convertible into or exercisable for shares of capital stock or other voting securities of the Company, which gives any person any right to acquire equity securities of the Surviving Corporation at or following the Effective Time; (g) the Merger Agreement shall have been terminated in accordance with its terms; or (h) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on any national securities exchange or over-the-counter market in the United States, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) any general limitation (whether or not mandatory) by any governmental authority on the extension of credit by banks or other lending institutions, (iv) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof, (v) a change in general financial, bank or capital market conditions which materially and adversely affects the ability of financial institutions in the United States to extend credit or syndicate loans. The foregoing conditions are for the sole benefit of Parent and the Offeror, may be asserted by Parent or the Offeror regardless of the circumstances giving rise to such condition (including any action or inaction by Parent or the Offeror not in violation of the Merger Agreement) and may be waived by Parent or the Offeror in whole or in part at any time and from time to time in the sole discretion of Parent or the Offeror, subject in 28 29 each case to the terms of the Merger Agreement. The failure by Parent or the Offeror at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Terms used herein but not defined herein shall have the meanings assigned to such terms in the Merger Agreement. 16. CERTAIN LEGAL MATTERS. Except as set forth in this Section, the Offeror is not aware of any approval or other action by any governmental or administrative agency which would be required for the acquisition or ownership of Shares by the Offeror as contemplated herein. Should any such approval or other action be required, it will be sought, but the Offeror has no current intention to delay the purchase of Shares tendered pursuant to the Offer pending the outcome of any such matter, subject, however, to the Offeror's right to decline to purchase Shares if any of the conditions specified in Section 15 shall have occurred. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions, or that adverse consequences might not result to the Company's business or that certain parts of the Company's business might not have to be disposed of if any such approvals were not obtained or other action taken. U.S. Antitrust. The Hart-Scott-Rodino Act ("HSR Act") imposes a 15-calendar day waiting period for consummation of a cash tender offer following the filing of a Notification and Report Form. The HSR Act does not apply, however, to the acquisition of companies with annual net sales and total assets below certain thresholds. Parent believes that the Offer and the Merger are not subject to the HSR Act because the Company has annual net sales (as reported in its 1998 Form 10-K) and total assets (as provided by the Company for the quarter ended June 30, 1999) of less than $15 million. Therefore, Parent does not intend to file a Notification and Report Form with respect to the Offer under the HSR Act. Filings with, notifications to, and authorizations and approvals of certain antitrust authorities in jurisdictions other than the United States may be required. There can be no assurance that any authorizations, approvals or decisions required by such authorities will be granted or that such authorities will not challenge the Offer or the Merger. Parent and the Company believe, however, that the failure to obtain such authorizations and approvals would not be material. At any time before or after the Offeror's purchase of Shares pursuant to the Offer, an antitrust enforcement agency could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or the consummation of the Merger or seeking the divestiture of Shares acquired by the Offeror or the divestiture of substantial assets of Parent or its affiliates or the Company. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, of the results thereof. Section 203 of the DGCL. Section 203 of the DGCL, in general, prohibits a Delaware corporation such as the Company from engaging in a "Business Combination" (defined as a variety of transactions, including mergers) with an "Interested Stockholder" (defined generally as a person that is the beneficial owner of 15% or more of a corporation's outstanding voting stock) for a period of three years following the date that such person became an Interested Stockholder unless, among other things, prior to the date such person became an Interested Stockholder, the board of directors of the corporation approved either the Business Combination or the transaction that resulted in the stockholder becoming an Interested Stockholder. Neither the Offeror nor any of its affiliates (as such term is defined in Section 203 of the DGCL) became an Interested Stockholder prior to approval of the transaction by the Board of Directors of the Company. Therefore, Section 203 of the DGCL is inapplicable to the Merger. Other State Takeover Laws. A number of other states have adopted laws and regulations applicable to attempts to acquire securities of corporations which are incorporated, or have substantial assets, stockholders, principal executive offices or principal places of business, or whose business operations otherwise have substantial economic effects in such states. In Edgar v. MITE Corp., in 1982, the Supreme Court of the United States (the "U.S. Supreme Court") invalidated on constitutional grounds the Illinois Business Takeover statute, which, as a matter of state securities law, made takeovers of corporations meeting certain 29 30 requirements more difficult. However in 1987, in CTS Corp. v. Dynamics Corp. of America, the U.S. Supreme Court held that the State of Indiana may, as a matter of corporate law and, in particular, with respect to those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquirer from voting on the affairs of a target corporation without the prior approval of the remaining stockholders. The state law before the U.S. Supreme Court was by its terms applicable only to corporations that had a substantial number of stockholders in the state and were incorporated there. The Offeror does not know whether any state takeover statutes or regulations will, by their terms, apply to the Offer or the Merger and has not complied with any such laws. Should any person seek to apply any state takeover law, the Offeror will take such action as then appears desirable, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover laws is applicable to the Offer or the Merger, and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, the Offeror might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, the Offeror might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer and the Merger. In such case, the Offeror may not be obligated to accept for payment any Shares tendered. See Section 15. 17. FEES AND EXPENSES. Neither the Offeror nor Parent, nor any officer, director, stockholder, agent or other representative of the Offeror or Parent, will pay any fees or commissions to any broker, dealer or other person (other than the Information Agent and the Depositary) for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies and other nominees will, upon request, be reimbursed by the Offeror for customary mailing and handling expenses incurred by them in forwarding materials to their customers. BancBoston Robertson Stephens is acting as Dealer Manager in connection with the Offer and has provided certain financial advisory services to Parent in connection with the proposed acquisition of the Shares. Parent and its associated companies have agreed to pay BancBoston Robertson Stephens a transaction fee of $750,000 for its services upon consummation of the Offer. BancBoston Robertson Stephens will not receive a separate fee for its services as Dealer Manager in connection with the Offer. Parent and its associated companies also have agreed to reimburse BancBoston Robertson Stephens for its out-of-pocket expenses related to its engagement, including the fees of its counsel, and have agreed to indemnify BancBoston Robertson Stephens against certain liabilities and expenses. The Offeror has retained MacKenzie Partners, Inc., as Information Agent, and American Stock Transfer & Trust Company, as Depositary, in connection with the Offer. The Information Agent and the Depositary will receive reasonable and customary compensation for their services hereunder and reimbursement for their reasonable out-of-pocket expenses. The Information Agent and the Depositary will also be indemnified by the Offeror against certain liabilities in connection with the Offer. The Information Agent may contact holders of Shares by mail, telex, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners of Shares. 18. MISCELLANEOUS. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares residing in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Offeror by the Dealer Manager or one or more registered brokers or dealers licensed under the laws of such jurisdiction. No person has been authorized to give any information or make any representation on behalf of the Offeror other than as contained in this Offer to Purchase or in the Letter of Transmittal and, if any such information or representation is given or made, it should not be relied upon as having been authorized by the Offeror or Parent. 30 31 The Offeror and Parent have filed with the Commission a Schedule 14D-1, pursuant to Section 14(d)(1) of the Exchange Act and Rule 14d-3 promulgated thereunder, furnishing certain information with respect to the Offer. Such Schedule 14D-1 and any amendments thereto, including exhibits, may be examined and copies may be obtained at the same places and in the same manner as set forth with respect to the Company in Section 8 (except that they will not be available at the regional offices of the Commission). PURDUE ACQUISITION CORPORATION August 12, 1999 31 32 ANNEX A CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PNI, THE OFFEROR AND PNC, THE GENERAL PARTNER OF PNLP 1. Directors and Executive Officers of PNI and the Offeror. Set forth below is the name, current business address, present principal occupation or employment and five-year employment history of each director and executive officer of PNI and the Offeror. Each person named below is a citizen of the United States of America. Each person's business address is c/o Purdue Pharma L.P., 100 Connecticut Avenue, Norwalk, Connecticut 06850.
PRINCIPAL OCCUPATION OR EMPLOYMENT DURING PAST FIVE YEARS, NAME POSITIONS WITH THE OFFEROR AND CERTAIN DIRECTORSHIPS - ---- ---------------------------------------------------------- Stuart D. Baker.............................. Director, Vice President and Assistant Secretary of the Offeror and PNI since August 1999; Vice President of Parent since 1994; and Partner at Chadbourne & Parke LLP since 1969. Mr. Baker owns indirectly 125 Shares (less than 0.1%) through Beaux Arts Wall Paper Co., Inc., a corporation wholly owned by Mr. Baker, with a business address at 30 Rockefeller Plaza, Room 3248, New York, New York 10112. Howard R. Udell.............................. Director, Vice President and Assistant Secretary of the Offeror and PNI since August 1999; Vice President and General Counsel of Parent since 1992; and Partner at Millard, Greene & Udell since 1976. Paul D. Goldenheim, M.D...................... Vice President of the Offeror and PNI since August 1999; Vice President of Parent since 1994. Edward B. Mahony............................. Vice President of the Offeror and PNI since August 1999; Vice President of Parent since 1994. James J. Dolan............................... Vice President of the Offeror and PNI since August 1999; Vice President of Parent since 1997 and Executive Director, Licensing and Business Development of Parent since 1994.
2. General Partner of PNLP. Set forth below is the name of each director and executive officer of PNC, the general partner of PNLP. Unless otherwise indicated, for each person identified below all information concerning the citizenship, current business address, present principal occupation or employment and five-year employment history of such person is the same as the information given above.
PRINCIPAL OCCUPATION OR EMPLOYMENT DURING PAST FIVE YEARS, NAME POSITIONS WITH THE OFFEROR AND CERTAIN DIRECTORSHIPS - ---- ---------------------------------------------------------- Stuart D. Baker.............................. Director, Vice President and Assistant Secretary since August 1999. Howard R. Udell.............................. Director, Vice President and Assistant Secretary since August 1999. Paul D. Goldenheim, M.D...................... Vice President since August 1999. Edward B. Mahony............................. Vice President since August 1999. James J. Dolan............................... Vice President since August 1999.
Parent and its associated companies are wholly owned, directly or indirectly through family trusts and holding companies, 50% by the family of Mortimer D. Sackler, M.D. and 50% by the family of Raymond R. Sackler, M.D. A-1 33 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of the addresses set forth below: The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Facsimile Transmission: By Hand or Overnight Courier: 40 Wall Street (718) 234-5001 40 Wall Street 46th Floor 46th Floor New York, New York 10005 New York, New York 10005
Confirm Receipt of Facsimile by Telephone: (718) 921-8200 Any questions or requests for assistance or additional copies of the Offer to Purchase and the Letter of Transmittal and Notice of Guaranteed Delivery may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and locations listed below. Stockholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Dealer Manager for the Offer is: BANCBOSTON ROBERTSON STEPHENS 590 MADISON AVENUE, 36TH FLOOR NEW YORK, NEW YORK 10022 (212) 319-8900 (CALL COLLECT) The Information Agent for the Offer is: [MACKENZIE LOGO] 156 FIFTH AVENUE NEW YORK, NEW YORK 10010 (212) 929-5500 (CALL COLLECT) (800) 322-2885 (TOLL-FREE) EX-99.A.2 3 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF COCENSYS, INC. PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 12, 1999 BY PURDUE ACQUISITION CORPORATION AN INDIRECT WHOLLY OWNED SUBSIDIARY OF PURDUE PHARMA L.P. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 9, 1999, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Facsimile Transmission: By Hand or Overnight Delivery: 40 Wall Street (718) 234-5001 46th Floor 40 Wall Street New York, New York 10005 Confirm Receipt of 46th Floor Facsimile by Telephone: New York, New York 10005 (718) 921-8200
YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW. DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The names and addresses of the registered holders should be printed, if not already below, exactly as they appear on the certificates evidencing Shares (as defined below) tendered hereby or Company Stock Options (as defined in the Offer to Purchase). The certificates evidencing Shares, the Shares and/or the number of Company Stock Options (and the related exercise price) that the undersigned wishes to tender should be indicated in the appropriate boxes. - --------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - --------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESSES OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) SHARES TENDERED APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY) - --------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES TO BE SHARE RECEIVED AND CERTIFICATE NUMBER OF TENDERED UPON OR OPTION SHARES EXERCISE OF OPTION NUMBER OF GRANT REPRESENTED BY COMPANY EXERCISE SHARES NUMBER(S)* CERTIFICATE(S)* STOCK OPTIONS PRICE TENDERED** ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ TOTAL SHARES - --------------------------------------------------------------------------------------------------------------------- * Need not be completed by stockholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares represented by any certificates delivered to the Depositary are being tendered. See Instruction 4. - ---------------------------------------------------------------------------------------------------------------------
2 This Letter of Transmittal is to be completed by stockholders of CoCensys, Inc. if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 2 of the Offer to Purchase. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary. Stockholders whose certificates for Shares are not immediately available or who cannot deliver their Shares and all other documents required hereby to the Depositary by the Expiration Date (as defined in the Offer to Purchase), or who cannot comply with the book-entry transfer procedures on a timely basis, may nevertheless tender their Shares pursuant to the guaranteed delivery procedures set forth in Section 2 of the Offer to Purchase. See Instruction 2. This Letter of Transmittal may also be used to tender Shares issuable upon the exercise of Company Stock Options (as defined in the Offer to Purchase). NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution ---------------------------------------------------------------------------- The Depository Trust Company Account Number ----------------------------------------------------------------------- Transaction Code Number ---------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ---------------------------------------------------------------------------- Window Ticket Number (if any) ---------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery -------------------------------------------------------------------- Name of Institution that Guaranteed Delivery --------------------------------------------------------------------------- IF DELIVERED BY BOOK-ENTRY TRANSFER: The Depository Trust Company Account Number: ---------------------------------------------------------------------- Transaction Code Number: ---------------------------------------------------------------------------- IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE BEEN LOST OR DESTROYED, SEE INSTRUCTION 12. 2 3 LADIES AND GENTLEMEN: The undersigned hereby tenders to Purdue Acquisition Corporation, a Delaware corporation (the "Offeror") an indirect wholly owned subsidiary of Purdue Pharma L.P., a Delaware limited partnership ("Parent"), the above-described shares of Common Stock, par value $0.001 per share (the "Common Stock"), including the associated rights to purchase Series A Junior Participating Preferred Stock issued under the Rights Agreement (as defined in the Offer to Purchase)(the "Rights" and together with the Common Stock, the "Shares") of CoCensys, Inc., a Delaware corporation (the "Company"), pursuant to the Offeror's offer to purchase all of the outstanding Shares at a purchase price of $1.16 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 12, 1999 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together with the Offer to Purchase constitute the "Offer"). Any Shares issuable upon the exercise of Company Stock Options tendered hereby as indicated above (the "Option Shares") will only be received by the Depositary and tendered by it and the Company Stock Options will only be exercised by it in the event that the Offer is consummated. The Offer is being made in connection with the Agreement and Plan of Merger, dated as of August 5, 1999 (the "Merger Agreement"), among Parent, the Offeror and the Company. Subject to and effective upon acceptance for payment of and payment for the Shares tendered herewith, the undersigned hereby sells, assigns and transfers to or upon the order of the Offeror all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities issued or issuable in respect thereof on or after August 5, 1999) and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all such other Shares or securities), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and all such other Shares or securities or rights), or transfer ownership of such Shares (and all such other Shares or securities) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Offeror, (b) present such Shares (and all such other Shares or securities) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and all such other Shares or securities), all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints each designee of the Offeror as the attorney-in-fact and proxy of the undersigned, each with full power of substitution, to exercise all voting and other rights of the undersigned in such manner as each such attorney and proxy or his substitute shall in his sole judgment deem proper, with respect to all of the Shares tendered hereby which have been accepted for payment by the Offeror prior to the time of any vote or other action (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after August 5, 1999) at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned meeting) or otherwise. This proxy is irrevocable, shall be coupled with an interest, and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by the Offeror in accordance with the terms of the Offer. Such acceptance for payment shall revoke any other proxy or written consent granted by the undersigned at any time with respect to such Shares (and all such other Shares or other securities or rights), and no subsequent proxies will be given or written consents will be executed by the undersigned (and if given or executed, will not be deemed effective). If the undersigned is tendering Option Shares to be received from an exercise by the Depositary of Company Stock Options on behalf of the undersigned, in addition to the matters described above, the undersigned hereby irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to the full extent of the undersigned's rights with respect to such Company Stock Options, (a) to exercise Company Stock Options for the Shares to be tendered, (b) to cause the transfer of record ownership of such Company Stock Options into the name of the undersigned or the Depositary if deemed by the Depositary or the Offeror to be necessary or appropriate to exercise such Company Stock Options for the Shares being tendered and (c) to receive the Option Shares issuable upon exercise of such Company Stock Options tendered hereunder. Notwithstanding the foreging, the undersigned understands and agrees that such Company Stock Options will be deemed not to have been exercised if the Offeror fails to accept Shares for payment pursuant to the Offer. If the undersigned is tendering Option Shares from an exercise of Company Stock Options, the undersigned, upon request, shall execute and deliver all additional documents deemed by the Depositary or the Offeror to be necessary or desirable to effectuate the exercise of such Company Stock Options into the Shares tendered hereby, including, without limitation, such documents as shall be necessary to effect the transfer of record ownership of such Company Stock Options into the name of the undersigned or the Depositary. The undersigned hereby represents and warrants (and if more than one, each undersigned hereby represents and warrants jointly and severally) that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that when the same are accepted for payment by the Offeror, the Offeror will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. 3 4 The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Offeror to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and all such other Shares or other securities or rights). All authority herein conferred or agreed to be conferred shall survive the death, bankruptcy or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 2 of the Offer to Purchase and in the instructions hereto will constitute an agreement between the undersigned and the Offeror upon the terms and subject to the conditions of the Offer. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price of any Shares purchased, and return any Shares not tendered or not purchased, in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of any Shares purchased and return any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the purchase price of any Shares purchased and return any Shares not tendered or not purchased in the name(s) of, and mail said check and any certificates to, the person(s) so indicated. The undersigned recognizes that the Offeror has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if the Offeror does not accept for payment any of the Shares so tendered. The payment made to the undersigned for each Option Share tendered will be an amount equal to the Offer Price minus the exercise price of the exercised Company Stock Option. The amount paid to employees for Option Shares will be reduced by such amount of wage and employment withholding taxes as may be required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended, or under any provision of state, local or foreign law. For each Option Share tendered, an amount equal to the exercise price of the Company Stock Option exercised for such Option Share shall be paid to the Company. ------------------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not purchased and/or the check for the purchase price of Shares purchased are to be issued in the name of someone other than the undersigned, or if Shares tendered by book-entry transfer which are not purchased are to be returned by credit to an account maintained at The Depository Trust Company. Issue check and/or certificate(s) to: Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (ZIP CODE) ------------------------------------------------------------ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) Credit unpurchased Shares delivered by book-entry transfer to an account maintained at The Depository Trust Company. ------------------------------------------------------------ (ACCOUNT NUMBER) ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not purchased and/or the check for the purchase price of Shares purchased are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown under "Description of Shares Tendered." Mail check and/or certificate(s) to: Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (ZIP CODE) ------------------------------------------------------------ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) ------------------------------------------------------------ 4 5 IMPORTANT -- SIGN HERE (COMPLETE SUBSTITUTE FORM W-9) X - -------------------------------------------------------------------------------- X: - -------------------------------------------------------------------------------- (SIGNATURE(S) OF HOLDER(S)) Dated: - ------------------------, 1999 (Must be signed by registered holder(s) exactly as name(s) appear(s) on share certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information. See Instructions 1 and 5.) Name(s) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT) Capacity (Full title) - -------------------------------------------------------------------------------- (SEE INSTRUCTIONS) Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDING ZIP CODE) Area Code and Telephone Number ( ) - -------------------------------------------------------------------------- Employer Identification or Social Security Number - ---------------------------------------------------------------- (COMPLETE SUBSTITUTE FORM W-9) GUARANTEE OF SIGNATURE(S) (IF REQUIRED-SEE INSTRUCTIONS 1 AND 5) Authorized Signature - -------------------------------------------------------------------------------- Name(s) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT) Title - -------------------------------------------------------------------------------- Name of Firm - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDING ZIP CODE) Area Code and Telephone Number ( ) - -------------------------------------------------------------------------- Dated: - ------------------------, 1999 5 6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. Except as otherwise provided below, signatures on all Letters of Transmittal must be guaranteed by a member in good standing of the Securities Transfer Agents Medallion Program or by any other bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each of the foregoing constituting an "Eligible Institution"), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box labeled "Special Payment Instructions" or the box labeled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instruction 5. If the certificates evidencing Shares are registered in the name of a person or persons other than the signer of this Letter of Transmittal, or if payment is to be made or delivered to, or certificates evidencing unpurchased Shares are to be issued or returned to, a person other than the registered owner or owners, then the tendered certificates must be endorsed or accompanied by duly executed stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates or stock powers, with the signatures on the certificates or stock powers guaranteed by an Eligible Institution as provided herein. See Instruction 5. 2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if the delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth in Section 2 of the Offer to Purchase. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) and any other documents required by this Letter of Transmittal or an Agent's Message in the case of a book-entry delivery, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal by the Expiration Date. Stockholders who cannot deliver their Shares and all other required documents to the Depositary by the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedures set forth in Section 2 of the Offer to Purchase. Pursuant to such procedures: (a) such tender must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Offeror, must be received by the Depositary prior to the Expiration Date; and (c) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to such Shares), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other documents required by this Letter of Transmittal must be received by the Depositary within three trading days after the date of such Notice of Guaranteed Delivery, all as provided in Section 2 of the Offer to Purchase. The term "trading day" is any day on which Nasdaq is open for business. THE METHOD OF DELIVERY OF SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Except as provided herein for tendering Option Shares, no alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. Partial Tenders (not applicable to stockholders who tender by book-entry transfer). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal unless otherwise 6 7 provided in the appropriate box on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made, or Shares not tendered or not purchased are to be returned, in the name of any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, the certificate must be endorsed or accompanied by, appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Offeror of the authority of such person so to act must be submitted. 6. Stock Transfer Taxes. The Offeror will pay any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be returned in the name of, any person other than the registered holder(s), then the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 7. Special Payment and Delivery Instruction. If the check for the purchase price of any Shares purchased is to be issued, or any Shares not tendered or not purchased are to be returned, in the name of a person other than the person(s) signing this Letter of Transmittal or if the check or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer may request that Shares not purchased be credited to such account at the Book-Entry Transfer Facility as such stockholder may designate under "Special Payment Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated above. 8. Substitute Form W-9. A tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 which is provided under "Important Tax Information" below, and to certify whether the stockholder is subject to backup withholding of federal income tax. If a tendering stockholder is subject to backup withholding, the stockholder must cross out item (2) of the Certification box of the Substitute Form W-9. Failure to provide the information on the Substitute Form W-9 may subject the tendering stockholder to federal income tax withholding of 31% of the payment of the purchase price. If the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, he or she should write "Applied For" in the space provided for the TIN in Part I, and sign and date the Substitute Form W-9 and the Certificate of Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Depositary will withhold 31% on 7 8 all payments of the purchase price, but such withholdings will be refunded if the tendering stockholder provides a TIN within 60 days. 9. Foreign Holders. Foreign holders must submit a completed IRS Form W-8 to avoid 31% backup withholding. IRS Form W-8 may be obtained by contacting the Depositary at one of the addresses on the face of this Letter of Transmittal. 10. Requests for Assistance or Additional Copies. Requests for additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 and questions or requests for assistance should be directed to the Information Agent or the Dealer Manager at their respective addresses or telephone numbers. 11. Waiver of Conditions. The conditions of the Offer may be waived by Offeror (subject to certain limitations in the Offer to Purchase), in whole or in part, at any time or from time to time, in Offeror's sole discretion. 12. Lost, Destroyed or Stolen Certificates. If any certificate(s) evidencing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary. The stockholder will then be instructed as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE HEREOF), PROPERLY COMPLETED AND DULY EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES, OR IN THE CASE OF BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, TOGETHER WITH SHARE CERTIFICATES OR BOOK-ENTRY CONFIRMATIONS AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY, OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under U.S. federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is an individual, the TIN is his or her social security number. If a tendering stockholder is subject to backup withholding, he or she must cross out item (2) of the Certification box on the Substitute Form W-9. If the Depositary is not provided with the correct TIN, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 may be obtained from the Depositary. Exempt stockholders, other than foreign individuals, should furnish their TIN, write "Exempt" on the face of the Substitute Form W-9 below and sign, date and return the Substitute Form W-9 to the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of his or her correct TIN by completing the form below certifying that the TIN provided on the Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN), and that such stockholder is not subject to backup withholding because (i) such stockholder has not been notified 8 9 by the Internal Revenue Service that such stockholder is subject to backup withholding as a result of a failure to report all interest or dividends, or (ii) the Internal Revenue Service has notified such stockholder that such stockholder is no longer subject to backup withholding. To prevent possible erroneous backup withholding, exempt stockholders (other than certain foreign individuals) should certify in accordance with the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 that such stockholder is exempt from backup withholding. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the record holder(s) of the Shares. If the Shares are in more than one name or are not in the name of the actual holder(s), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidelines on which number to report. If the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, such stockholder should write "Applied For" in the space provided for the TIN in Part I, and sign and date the Substitute Form W-9 and the Certificate of Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Depositary will withhold 31% on all payments of the purchase price, but such withholdings will be refunded if the tendering stockholder provides a TIN within 60 days. 9 10 - -------------------------------------------------------------------------------------------------------------------------- PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY - -------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART I--Please provide your TIN in the box at right and FORMW-9 certify by signing and dating below. ------------------------------- Social Security Number or Employer Identification Number (if awaiting TIN write "Applied For") ------------------------------------------------------------------------------------------- PART II--For Payees exempt from backup withholding, see the attached Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 and complete as DEPARTMENT OF THE instructed therein. TREASURY, INTERNAL ------------------------------------------------------------------------------------------- REVENUE SERVICE Certification--Under penalties of perjury, I certify that: PAYER'S REQUEST FOR (1) The number shown on this form is my correct Taxpayer Identification Number (or a TAXPAYER IDENTIFICATION Taxpayer Identification Number has not been issued to me) and either (a) I have mailed or NUMBER ("TIN") AND delivered an application to receive a Taxpayer Identification Number to the appropriate CERTIFICATION FOR Internal Revenue Service ("IRS") or Social Security Administration office or (b) I PAYEE EXEMPT FROM intend to mail or deliver an application in the near future (I understand that if I do BACKUP WITHHOLDING not provide a Taxpayer Identification Number to the Depository, 31% of all reportable payments made to me will be withheld, but will be refunded if I provide a certified Taxpayer Identification Number within 60 days); and (2) I am not subject to backup withholding either because I have not been notified by the IRS that I am subject to backup withholding as result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. ------------------------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines.) Signature Date: ----------------------------------------------- -------------------- Name: ------------------------------------------------------------------------------------------- Address: ----------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN. - -------------------------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a TIN has not been issued to me, and either (1) I have mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Officer or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a TIN by the time of payment, 31% of all payments pursuant to the Offer made to me thereafter will be withheld until I provide a number. Signature: ------------------------------------------------- Date: -------------------- - --------------------------------------------------------------------------------------------------
10 11 The Information Agent for the Offer is: [MACKENZIE LOGO] 156 Fifth Avenue New York, New York 10010 Call Collect: (212) 929-5500 Call Toll-Free: (800) 322-2885 The Dealer Manager for the Offer is: BANCBOSTON ROBERTSON STEPHENS 590 Madison Avenue 36th Floor New York, New York 10022 Call Collect: (212) 319-8900 EX-99.A.3 4 FORM OF LETTER TO BROKERS 1 BANCBOSTON ROBERTSON STEPHENS 590 MADISON AVENUE, 36TH FLOOR NEW YORK, NEW YORK 10022 OFFER TO PURCHASE FOR CASH ALL OF THE OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF COCENSYS, INC. AT $1.16 NET PER SHARE BY PURDUE ACQUISITION CORPORATION AN INDIRECT WHOLLY OWNED SUBSIDIARY OF PURDUE PHARMA L.P. - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 9, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- August 12, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Purdue Acquisition Corporation, a Delaware corporation (the "Offeror"), an indirect wholly owned subsidiary of Purdue Pharma L.P., a Delaware limited partnership ("Parent"), to act as Dealer Manager in connection with the Offeror's offer to purchase all outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), including the associated rights to purchase Series A Junior Participating Preferred Stock issued under the Rights Agreement (as defined in the Offer to Purchase) (the "Rights" and together with the Common Stock, the "Shares"), of CoCensys, Inc. a Delaware corporation (the "Company"), at a purchase price of $1.16 per Share, net to the seller in cash (subject to applicable withholding of taxes), without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 12, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer") enclosed herewith. The Offer is being made in connection with the Agreement and Plan of Merger, dated as of August 5, 1999, among Parent, the Offeror and the Company (the "Merger Agreement"). Holders of Shares whose certificates for such Shares (the "Certificates") are not immediately available or who cannot deliver their Certificates and all other required documents to the Depositary or complete the procedures for book-entry transfer prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 2 of the Offer to Purchase. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares in your name or in the name of your nominee. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase; 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal (with manual signatures) may be used to tender Shares; 2 3. The letter to stockholders of the Company from the Chairman, President and Chief Executive Officer of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9; 4. The Notice of Guaranteed Delivery for Shares to be used to accept the Offer if neither of the two procedures for tendering Shares set forth in the Offer to Purchase can be completed on a timely basis; 5. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of a nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. A return envelope addressed to American Stock Transfer & Trust Company, as Depositary. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE, PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 9, 1999 UNLESS THE OFFER IS EXTENDED. Please note the following: 1. The tender price is $1.16 per Share, net to the seller in cash (subject to applicable withholding of taxes) without interest thereon. 2. The Offer is being made for all of the outstanding Shares. 3. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Thursday, September 9, 1999, unless the Offer is extended (the "Expiration Date"). 4. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the Expiration Date that number of Shares that, when added to the number of Shares to be received by Offeror upon the conversion of all of the Series E Preferred Stock (as defined in the Offer to Purchase) to be held by Offeror upon consummation of the transactions contemplated by the Series E Purchase Agreement (as defined in the Offer to Purchase), would constitute at least 90% of the Fully Diluted Shares (as defined in the Offer to Purchase) and (ii) the satisfaction of certain other terms and conditions. See Section 15 of the Offer to Purchase. 5. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer of Shares pursuant to the Offer. In order to take advantage of the Offer, a duly executed and properly completed Letter of Transmittal (or a manually signed facsimile thereof) and any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) or other required documents should be sent to the Depositary and certificates representing the tendered Shares or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) should be delivered to the Depositary in accordance with the instructions set forth in the Offer. If holders of Shares wish to tender, but it is impracticable for them to forward their certificates or other required documents or complete the procedures for book-entry transfer prior to the Expiration Date, a tender may be effected by following the guaranteed delivery procedures specified in Section 2 of the Offer to Purchase. Neither the Offeror, the Parent nor any officer, director, stockholder, agent or other representative of the Offeror will pay any fees or commissions to any broker, dealer or other person (other than the Dealer Manager, the Depositary and the Information Agent as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. The Offeror will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Offeror will pay or cause to be paid any transfer taxes payable on the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to MacKenzie Partners, Inc., the Information Agent for the Offer, 156 Fifth Avenue, New York, New York 10010, (800) 322-2885 (toll-free) or 2 3 BancBoston Robertson Stephens, the Dealer Manager for the Offer, at 590 Madison Avenue, 36th Floor, New York, New York 10022, (212) 319-8900 (call collect). Requests for additional copies of the enclosed materials may be directed to the Information Agent at the above address and telephone number. Very truly yours, BancBoston Robertson Stephens NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE PARENT, THE OFFEROR, THE DEPOSITARY, THE INFORMATION AGENT, THE DEALER MANAGER OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.A.4 5 FORM OF LETTER TO CLIENTS 1 OFFER TO PURCHASE FOR CASH ALL OF THE OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF COCENSYS, INC. AT $1.16 NET PER SHARE BY PURDUE ACQUISITION CORPORATION AN INDIRECT WHOLLY OWNED SUBSIDIARY OF PURDUE PHARMA L.P. - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 9, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- August 12, 1999 To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated August 12, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), relating to the offer by Purdue Acquisition Corporation, a Delaware corporation (the "Offeror") and an indirect wholly owned subsidiary of Purdue Pharma L.P., a Delaware limited partnership (the "Parent"), to purchase all of the outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), including the associated rights to purchase Series A Junior Participating Preferred Stock issued under the Rights Agreement (as defined in the Offer to Purchase) (the "Rights" and, together with the Common Stock, the "Shares"), of CoCensys, Inc., a Delaware corporation (the "Company"), at a purchase price of $1.16 per Share, net to the seller in cash (subject to applicable withholding of taxes), without interest thereon, upon the terms and subject to the conditions set forth in the Offer. This material is being forwarded to you as the beneficial owner of Shares carried by us in your account but not registered in your name. Also enclosed is the Letter to Stockholders of the Company from the Chairman, President and Chief Executive Officer of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. Accordingly, we request instructions as to whether you wish to tender any or all of the Shares held by us for your account, upon the terms and conditions set forth in the Offer. Your attention is invited to the following: 1. The tender price is $1.16 per Share, net to the seller in cash (subject to applicable withholding of taxes), without interest thereon, upon the terms and subject to the conditions set forth in the Offer. 2. The Offer is being made for all of the outstanding Shares. 3. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Thursday, September 9, 1999, unless the Offer is extended (the "Expiration Date"). 2 4. The Offer is being made pursuant to the Agreement and Plan of Merger dated as of August 5, 1999 (the "Merger Agreement"), among Parent, the Offeror and the Company pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Offeror will be merged with and into the Company (the "Merger"), with the Company surviving the Merger as an indirect wholly owned subsidiary of Parent. In the Merger, each outstanding Share (other than Shares owned by the Company as treasury stock, Parent, the Offeror or any other subsidiary or affiliate of Parent or by stockholders, if any, who are entitled to and who properly demand and perfect appraisal rights under Delaware law) will be converted into the right to receive $1.16 per Share, net to the seller in cash (subject to applicable withholding of taxes), without interest thereon, as set forth in the Merger Agreement and the Offer. 5. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE SUCH NUMBER OF SHARES, THAT, WHEN ADDED TO THE NUMBER OF SHARES TO BE RECEIVED BY OFFEROR UPON THE CONVERSION OF ALL OF THE SERIES E PREFERRED STOCK (AS DEFINED IN THE OFFER TO PURCHASE) PURCHASED BY OFFEROR UNDER THE SERIES E PURCHASE AGREEMENT (AS DEFINED IN THE OFFER TO PURCHASE), WOULD CONSTITUTE AT LEAST 90% OF THE FULLY DILUTED SHARES (AS DEFINED IN THE OFFER TO PURCHASE) AND (II) THE SATISFACTION OF CERTAIN OTHER TERMS AND CONDITIONS IN THE OFFER TO PURCHASE. 6. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS ADVISABLE AND THAT THE TERMS OF EACH OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT HOLDERS OF THE SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. 7. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer of Shares pursuant to the Offer. If you wish to have us tender any or all of the Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form contained in this letter. An envelope to return your instruction to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise indicated in such instruction form. PLEASE FORWARD YOUR INSTRUCTIONS TO US PROMPTLY TO PERMIT US TO TENDER YOUR SHARES ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal and any supplements or amendments thereto. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares residing in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the securities laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of the Offeror by BancBoston Robertson Stephens Inc. or by one or more registered brokers or dealers licensed under the laws of such jurisdiction. 2 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OF THE OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF COCENSYS, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated August 12, 1999, and the related Letter of Transmittal (which together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Purdue Acquisition Corporation, a Delaware corporation (the "Offeror"), an indirect wholly owned subsidiary of Purdue Pharma L.P., a Delaware limited partnership, to purchase all outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), including the associated rights to purchase Series A Junior Participating Preferred Stock issued under the Rights Agreement (as defined in the Offer to Purchase) (the "Rights" and, together with the Common Stock, the "Shares"), of CoCensys, Inc., a Delaware corporation. This will instruct you to tender to the Offeror the number of Shares indicated below (or, if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to be Tendered:* ____________ Shares SIGN HERE ----------------------------------------------------------- Account Number: ---------------------------------------- ----------------------------------------------------------- Signature(s) ----------------------------------------------------------- Date: , 1999 ----------------------------------------------------------- (Print Name(s)) ----------------------------------------------------------- ----------------------------------------------------------- (Print Address(es)) ----------------------------------------------------------- (Area Code and Telephone Number(s)) ----------------------------------------------------------- (Taxpayer Identification or Social Security Number(s))
- --------------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 3 EX-99.A.5 6 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF COCENSYS, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 9, 1999, UNLESS THE OFFER IS EXTENDED. This form, or one substantially equivalent hereto, must be used to accept the Offer (as defined below) if certificates for shares of Common Stock, par value $0.001 per share (the "Common Stock"), including the associated rights to purchase Series A Junior Participating Preferred Stock issued under the Rights Agreement (as defined in the Offer to Purchase) (the "Rights" and, together with the Common Stock, the "Shares") of CoCensys, Inc., a Delaware corporation (the "Company"), are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach American Stock Transfer & Trust Company (the "Depositary") on or prior to the Expiration Date (as defined in the Offer to Purchase). Such form may be delivered by hand, facsimile transmission, or mail to the Depositary. See Section 2 of the Offer to Purchase, dated August 12, 1999 (the "Offer to Purchase"). The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail By Facsimile Transmission: By Hand or Overnight Courier: 40 Wall Street (718) 234-5001 40 Wall Street 46th Floor Confirm Receipt of 46th Floor New York, New York 10005 Facsimile by Telephone: New York, New York 10005 (718) 921-8200
If you require additional information, please call the Depositary at (212) 936-5100 (within New York) or (800) 937-5449 (outside New York). DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION OF INSTRUMENTS VIA A FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal or an Agent's Message and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED. 2 Ladies and Gentlemen: The undersigned hereby tenders to Purdue Acquisition Corporation, a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 12, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), receipt of which are hereby acknowledged, the number of Shares of the Company set forth below, pursuant to the guaranteed delivery procedure set forth in Section 2 of the Offer to Purchase. Certificate No(s). (if available) - -------------------------------------------------------------------------------- Number of Shares tendered - -------------------------------------------------------------------------------- Check if Shares will be tendered by book-entry transfer Account Number at The Depository Trust Company - ---------------------------------------------------------------------- Dated - -------------------------------------------------------------------------------- Name(s) of Record Holder(s) - -------------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Address(es) - -------------------------------------------------------------------------------- (ZIP CODE) Area Code and Tel. No. - -------------------------------------------------------------------------------- Signature(s) - -------------------------------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, (b) represents that such tender of Shares complies with Rule 14e-4 under the Exchange Act, and (c) guarantees delivery to the Depositary, at one of its addresses set forth above, of certificates representing the Shares tendered hereby in proper form for transfer, or confirmation of book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company, in each case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees or an Agent's Message (as defined in Section 4 of the Offer to Purchase), and any other required documents, within three Nasdaq National Market trading days after the date hereof. Name of Firm: - --------------------------------------------- - ------------------------------------------------------- (AUTHORIZED SIGNATURE) - ------------------------------------------------------- (TITLE) Address: - ---------------------------------------------------- Name: - ----------------------------------------------- (PLEASE TYPE OR PRINT) - ------------------------------------------------------------- (ZIP CODE) Title: - ------------------------------------------------- Area Code and Telephone Number: - --------------------------------------- Date: - ----------------------------------------- , 1999. NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE. SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. EX-99.A.6 7 IRS GUIDELINES 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. - ------------------------------------------------------------ GIVE THE TAXPAYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- - ------------------------------------------------------------ 1. An individual's account The individual 2. Two or more individuals (joint The actual owner of account) the account or, if combined funds, the first individual on the account(1) 3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1) 6. Account in the name of guardian or The ward, minor, or committee for a designated ward, incompetent minor, or incompetent person(3) person(3) 7. a. The usual revocable savings The grantor- trust account (grantor is also trustee(1) trustee) b. So-called trust account that is The actual owner(1) not a legal or valid trust under State law 8. Sole proprietorship account The owner(4)
- ------------------------------------------------------------ - ------------------------------------------------------------ GIVE THE TAXPAYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- - ------------------------------------------------------------ 9. A valid trust, estate, or pension The legal entity trust (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization 12. Partnership account held in the The partnership name of the business 13. Association, club, or other tax- The organization exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a) of the Code. - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. - A futures commission merchant registered with the Commodity Futures Trading Commission. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441 of the Code. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to an appropriate nominee. - Section 404(k) payments made by an ESOP. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852 of the Code). - Payments described in section 6049(b)(5) of the Code to non-resident aliens. - Payments on tax-free covenant bonds under section 1451 of the Code. - Payments made by certain foreign organizations. - Payments of mortgage interest to you. - Payments made to an appropriate nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give correct taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a correct taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includable payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 20% on any portion of an underpayment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.A.7 8 FORM OF SUMMARY ADVERTISEMENT 1 EXHIBIT a(7) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below), is made solely by the Offer to Purchase, dated August 12, 1999, and the related Letter of Transmittal and is being made to all holders of Shares. Offeror (as defined below) is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Offeror becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Offeror will make a good faith effort to comply with such state statute. If, after such good faith effort, Offeror cannot comply with such state statute, the Offer will not be made to, nor will tenders be accepted from or on behalf of, the holders of Shares in such state. In any jurisdiction where the securities, "blue sky" or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Offeror by BancBoston Robertson Stephens Inc., the Dealer Manager, or one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All of the Outstanding Shares of Common Stock (Including the associated Series A Junior Participating Preferred Stock Purchase Rights) of CoCensys, Inc. at $1.16 Net Per Share by Purdue Acquisition Corporation an indirect wholly owned subsidiary of Purdue Pharma L.P. Purdue Acquisition Corporation, a Delaware corporation ("Offeror") and an indirect wholly owned subsidiary of Purdue Pharma L.P., a Delaware limited partnership ("Parent"), is offering to purchase all of the outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), including the associated rights to purchase Series A Junior Participating Preferred Stock issued under the Rights Agreement (as defined in the Offer to Purchase) (the "Rights" and, together with the Common Stock, the "Shares"), of CoCensys, Inc., a Delaware corporation (the "Company"), at a purchase price of $1.16 per Share (such price, or such higher price per Share as may be paid in the Offer, being referred to herein as the "Offer Price"), net to the seller in cash (subject to applicable withholding of taxes), without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 12, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Offeror pursuant to the Offer. Following the Offer, Offeror intends to effect the Merger (as defined below). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 9, 1999, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, there having been validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares that, when added to the number of Shares to be received by Offeror upon the conversion of all of the Series E Preferred Stock (as defined below) purchased by Offeror under the Series E Purchase Agreement (as defined below), would constitute at least 90% of the Fully Diluted Shares (as defined below) (the "Minimum Condition") and is also subject to certain other terms and conditions described in the Offer to Purchase. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of August 5, 1999 (the "Merger Agreement"), among Parent, Offeror and the Company. The Merger Agreement provides that, among other things, as promptly as practicable after the purchase of Shares pursuant to the Offer and the satisfaction or waiver of the other conditions set forth in the Merger Agreement and in accordance with the applicable provisions of the Delaware General 2 Corporation Law (the "DGCL"), Offeror will be merged with and into the Company (the "Merger"), the separate corporate existence of Offeror will cease and the Company will continue as the surviving corporation and will be a wholly owned indirect subsidiary of Parent. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by the Company as treasury stock, Parent, Offeror or any other subsidiary or affiliate of Parent or by stockholders, if any, who properly demand and perfect their appraisal rights under the DGCL) will be converted automatically into the right to receive the Offer Price, without interest. The Board of Directors of the Company has unanimously approved the Offer, the Merger and the Merger Agreement, has determined that the Merger is advisable and that the terms of each of the Offer and the Merger are fair to and in the best interests of the Company's stockholders and recommends that holders of the Shares accept the Offer and tender their Shares in the Offer. Concurrently with the execution of the Merger Agreement, Offeror entered into a Purchase Agreement, dated as of August 5, 1999 (the "Series E Purchase Agreement"), with the holder of the Series E Convertible Preferred Stock of the Company (the "Series E Preferred Stock"). Under the Series E Purchase Agreement, the holder of the Series E Preferred Stock has agreed to sell, and Offeror has agreed to purchase, immediately following consummation of the Offer all of the Series E Preferred Stock beneficially owned by it, representing approximately 31% of the Fully Diluted Shares on an as-converted basis at the currently scheduled Expiration Date (as defined herein), for an aggregate purchase price of $2,200,000. The obligation of the holder of the Series E Preferred Stock to sell, and the obligation of Offeror to purchase, the Series E Preferred Stock under the Series E Purchase Agreement, are subject to Offeror having accepted Shares for payment under the Offer in accordance with the Merger Agreement. The Series E Preferred Stock will be convertible at the option of the holder into approximately 2,634,493 Shares at the currently scheduled Expiration Date. For purposes of the Offer, "Fully Diluted Shares" means all outstanding Shares after giving effect to the exercise of all Company Stock Options (as defined in the Offer to Purchase) and the conversion of the Series D Preferred Stock of the Company and the Series E Preferred Stock at the currently scheduled Expiration Date, but without giving effect to (i) the exercise of any outstanding warrants to purchase Shares of the Company, (ii) the conversion of the Series C Preferred Stock of the Company, or (iii) the conversion of an outstanding note of the Company into Shares. Based upon the foregoing, Offeror believes that there will be 8,509,995 Fully Diluted Shares at the currently scheduled Expiration Date. Because the Shares subject to the Series E Purchase Agreement will represent approximately 31% of the Fully Diluted Shares, the Minimum Condition will be satisfied if at least an aggregate of 5,024,503 Shares and Company Stock Options are validly tendered and not withdrawn prior to the Expiration Date. If the Minimum Condition is satisfied and Offeror accepts for payment Shares tendered pursuant to the Offer, Offeror will be able to effect the Merger pursuant to the short-form merger provisions of the DGCL without prior notice to, or any action by, any other stockholder of the Company. For purposes of the Offer, Offeror will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn as, if and when Offeror gives oral or written notice to American Stock Transfer & Trust Company (the "Depositary") of Offeror's acceptance of such Shares (which will include all Shares received and tendered from the exercise of Company Stock Options exercised at such time) for payment pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment of Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from Offeror and transmitting such payments to validly tendering stockholders whose Shares have been accepted for payment. Under no circumstances will interest on the Offer Price for the Shares be paid, regardless of any extension of the Offer or any delay in making such payment. The term "Expiration Date" means 12:00 midnight, New York City time, on Thursday, September 9, 1999, unless and until Offeror, in accordance with the terms of the Merger Agreement, extends the period of time during which the Offer is open, in which event the term "Expiration Date" will mean the latest time and 3 date at which the Offer, as so extended by Offeror, will expire. Subject to the terms and conditions of the Merger Agreement, Offeror may extend the period of time during which the Offer is open at any time in its sole discretion and thereby delay acceptance for payment of, and payment for, any Shares, by giving oral or written notice of such extension to the Depositary and by making a public announcement thereof by no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not withdrawn will remain tendered pursuant to the Offer, subject to the rights of a tendering stockholder to withdraw his Shares. Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time on or prior to the Expiration Date and, unless theretofore accepted for payment by Offeror pursuant to the Offer, may also be withdrawn at any time after Sunday, October 10, 1999. For a withdrawal of tendered Shares to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at its address set forth on the back cover page of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution (as defined in Section 2 of the Offer to Purchase), the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in Section 2 of the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility (as defined in Section 2 of the Offer to Purchase) to be credited with the withdrawn Shares and must otherwise comply with such Book-Entry Transfer Facility's procedures. All questions as to the form and validity (including the time of receipt) of any notice of withdrawal will be determined by Offeror, in its sole discretion, and its determination will be final and binding on all parties. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided Offeror with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing. The Offer to Purchase and the Letter of Transmittal contain important information which should be read carefully before any decision is made with respect to the Offer. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below. Copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be obtained from the Information Agent at its address and telephone number set forth below and will be furnished promptly at Offeror's expense. No fees or commissions will be paid by Offeror to brokers, dealers or other persons (other than the Dealer Manager and Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: [MACKENZIE LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or Call Toll-Free (800) 322-2885 4 The Dealer Manager for the Offer is: BancBoston Robertson Stephens 590 Madison Avenue, 36th Floor New York, New York 10022 (212) 319-8900 (Call Collect) August 12, 1999 EX-99.A.8 9 PRESS RELEASE 1 Exhibit (a)(8) FRIDAY AUGUST 6, 12:01 AM EASTERN TIME COMPANY PRESS RELEASE SOURCE: PURDUE PHARMA L.P. PURDUE PHARMA L.P. AND COCENSYS, INC. ANNOUNCE THE SIGNING OF DEFINITIVE AGREEMENT PURDUE OFFERING TO PURCHASE ALL OUTSTANDING SHARES OF COCENSYS, INC.'S COMMON STOCK NORWALK, Conn., Aug. 6/PRNewswire/--Purdue Pharma L.P. today announced the execution of a definitive agreement whereby Purdue Acquisition Corporation, an indirect wholly-owned subsidiary of Purdue Pharma L.P., would offer to purchase for cash all outstanding shares of CoCensys, Inc. (OTC Bulletin Board: COCN - news) common stock for $1.16 per share. The board of directors of CoCensys has unanimously approved the transaction and resolved to recommend that CoCensys shareholders accept the offer. Under the terms of the merger agreement, Purdue Acquisition Corporation will promptly commence a tender offer for all of the outstanding common shares of CoCensys, Inc. Simultaneously with the execution of the merger agreement, Purdue Acquisition Corporation entered into a purchase agreement with the holder of the Series E Convertible Preferred Stock of CoCensys, pursuant to which Purdue Acquisition Corporation has agreed to purchase all of the Series E Preferred Stock upon consummation of the tender offer. The Series E Preferred Stock is convertible into approximately 28% of the fully diluted shares of common stock of CoCensys. Purdue Acquisition Corporation plans to convert the Series E Preferred Stock into common stock immediately following consummation of the tender offer. Purdue Acquisition Corporation's tender offer is conditioned upon, among other things, there being validly tendered and not withdrawn such number of shares that, when added to the number of shares of common stock to be received by Purdue Acquisition Corporation upon conversion of the Series E Preferred Stock, equals at least ninety percent of the fully diluted outstanding common shares of CoCensys. After the consummation of the tender offer, Purdue Acquisition Corporation has agreed to acquire any of the remaining outstanding shares of CoCensys pursuant to a second-step merger at the same price per share paid for shares tendered. CoCensys is a biopharmaceutical company that discovers and develops products for the treatment of neurological and psychiatric disorders. CoCensys' product development programs focus on novel small molecule compounds for the treatment of epilepsy, anxiety, Parkinson's and other neurodegenerative diseases, neuropathic pain, migraine, insomnia and stroke. CoCensys has development programs with the Wyeth-Ayerst Laboratories Division of American Home Products Corporation to develop analogs of naturally-occurring neuroactive compounds, "epalons", for the treatment of anxiety, with Parke-Davis, a division of Warner-Lambert Company, to identify and develop subtype-selective NMDA receptor antagonists for the treatment of a variety of neurological and psychiatric diseases, and with Senju Pharmaceutical and Parke-Davis for the exploration of ophthalmic indications of CoCensys' glutamate receptor antagonist compounds. More information about CoCensys is available on its web site at www.cocensys.com. Purdue Pharma L.P., headquartered in Norwalk, Connecticut, U.S. and its associated companies, including the Mundipharma companies and Napp Pharmaceutical Group, Ltd., comprise a privately-held, worldwide pharmaceutical network with discovery, development, manufacturing, marketing and distribution capabilities. The companies maintain a leading presence in the field of pain management with their products OxyContin(R) (oxycodone hydrochloride controlled-release) tablets and MS Contin(R) (morphine sulfate controlled-release) tablets. The network also includes a biologic therapeutics business, Purdue BioPharma L.P., based in Princeton, New Jersey, focused on the development of antibody-based therapeutics and vaccines. More information about Purdue is available on its web site at www.pharma.com. Michael Friedman, Vice President of Purdue Pharma L.P. stated, "Purdue Pharma expects to benefit from the merger through enhanced research and development capabilities and strengthened ties with leading pharmaceutical companies. The combined company will enable us to capitalize on our key competencies and strengthen our position as a leading pain management company." "CoCensys and Purdue Pharma are an excellent strategic fit. Purdue Pharma has the market presence to capitalize on CoCensys' leading research programs," said Friedman. After the merger is consummated, Purdue Pharma L.P. intends to continue to operate CoCensys' Irvine, CA facility. Purdue Acquisition Corporation expects that the necessary filings with the Securities and Exchange Commission in connection with the tender offer will be made within the next several days and that offer documents will be mailed to CoCensys shareholders promptly thereafter. BancBoston Robertson Stephens advised Purdue Pharma L.P. and is acting as dealer manager for the tender offer. Hambrecht & Quist advised CoCensys and provided a fairness opinion to the board of directors of CoCensys. This news release contains forward-looking statements including statements concerning the projected impact of the proposed merger on earnings results and sales growth. These statements are based on current expectations; actual results may differ materially. EX-99.C.1 10 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT (C)(1) AGREEMENT AND PLAN OF MERGER Among PURDUE PHARMA L.P., PURDUE ACQUISITION CORPORATION and COCENSYS, INC. Dated as of August 5, 1999 2 TABLE OF CONTENTS
Page ---- ARTICLE I The Offer ................................................................................... 2 SECTION 1.01. The Offer ............................................................................ 2 SECTION 1.02. Company Actions ...................................................................... 4 ARTICLE II The Merger ................................................................................. 7 SECTION 2.01. The Merger ........................................................................... 7 SECTION 2.02. Closing .............................................................................. 7 SECTION 2.03. Effective Time ....................................................................... 7 SECTION 2.04. Effects of the Merger................................................................. 8 SECTION 2.05. Certificate of Incorporation and By-laws.............................................. 8 SECTION 2.06. Directors ............................................................................ 8 SECTION 2.07. Officers ............................................................................. 8 ARTICLE III Effect of the Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates.............................................................................. 8 SECTION 3.01. Effect on Capital Stock............................................................... 8 SECTION 3.02. Exchange of Certificates.............................................................. 10 ARTICLE IV Representations and Warranties of the Company............................................... 12 SECTION 4.01. Organization ......................................................................... 12 SECTION 4.02. Subsidiaries ......................................................................... 13 SECTION 4.03. Capitalization ....................................................................... 13 SECTION 4.04. Authority ............................................................................ 15 SECTION 4.05. Consents and Approvals; No Violations................................................. 15 SECTION 4.06. SEC Reports and Financial Statements.................................................. 16 SECTION 4.07. Absence of Certain Changes or Events.................................................. 17 SECTION 4.08. No Undisclosed Liabilities............................................................ 18 SECTION 4.09. Information Supplied.................................................................. 18 SECTION 4.10. Benefit Plans ........................................................................ 19 SECTION 4.11. Other Compensation Arrangements....................................................... 21
i 3 SECTION 4.12. Litigation ........................................................................... 21 SECTION 4.13. Compliance with Applicable Law........................................................ 22 SECTION 4.14. Tax Matters .......................................................................... 22 SECTION 4.15. State Takeover Statutes............................................................... 24 SECTION 4.16. Brokers; Fees and Expenses............................................................ 24 SECTION 4.17. Opinion of Financial Advisor.......................................................... 25 SECTION 4.18. Intellectual Property................................................................. 25 SECTION 4.19. Labor Relations and Employment........................................................ 27 SECTION 4.20. Change of Control..................................................................... 28 SECTION 4.21. Environmental Matters................................................................. 28 SECTION 4.22. Material Contracts.................................................................... 32 SECTION 4.23. Property. ............................................................................ 34 SECTION 4.24. Insurance. ........................................................................... 35 SECTION 4.25. Year 2000 Compliance.................................................................. 35 ARTICLE V Representations and Warranties of Parent and Sub............................................. 36 SECTION 5.01. Organization ......................................................................... 36 SECTION 5.02. Authority ............................................................................ 36 SECTION 5.03. Consents and Approvals; No Violations................................................. 37 SECTION 5.04. Information Supplied.................................................................. 37 SECTION 5.05. Interim Operations of Sub............................................................. 38 SECTION 5.06. Financing ............................................................................ 38 ARTICLE VI Covenants .................................................................................. 38 SECTION 6.01. Conduct of Business of the Company.................................................... 38 SECTION 6.02. No Solicitation ...................................................................... 42 SECTION 6.03. Other Actions ........................................................................ 44 SECTION 6.04. Notice of Certain Events.............................................................. 44 ARTICLE VII Additional Agreements...................................................................... 45 SECTION 7.01. Stockholder Approval; Preparation of Proxy Statement.................................. 45 SECTION 7.02. Access to Information................................................................. 46 SECTION 7.03. Reasonable Efforts.................................................................... 47 SECTION 7.04. Options and Warrants.................................................................. 47 SECTION 7.05. Directors ............................................................................ 47 SECTION 7.06. Redemption of Stockholders Rights Plan................................................ 48 SECTION 7.07. Fees and Expenses 48 SECTION 7.08. Indemnification; Insurance............................................................ 49
ii 4 SECTION 7.09. Certain Litigation.................................................................... 50 SECTION 7.10. 401(k) Plan .......................................................................... 50 SECTION 7.11. Environmental Remediation............................................................. 50 ARTICLE VIII Conditions ............................................................................... 51 SECTION 8.01. Conditions to Each Party's Obligation to Effect the Merger............................ 51 ARTICLE IX Termination, Amendment and Waiver........................................................... 52 SECTION 9.01. Termination .......................................................................... 52 SECTION 9.02. Effect of Termination................................................................. 53 SECTION 9.03. Amendment ............................................................................ 54 SECTION 9.04. Extension; Waiver .................................................................... 54 ARTICLE X Miscellaneous ............................................................................... 55 SECTION 10.01. Nonsurvival of Representations and Warranties........................................ 55 SECTION 10.02. Notices ............................................................................. 55 SECTION 10.03. Interpretation ...................................................................... 56 SECTION 10.04. Counterparts ........................................................................ 57 SECTION 10.05. Entire Agreement; Third Party Beneficiaries.......................................... 57 SECTION 10.06. Governing Law ....................................................................... 57 SECTION 10.07. Publicity ........................................................................... 57 SECTION 10.08. Assignment .......................................................................... 57 SECTION 10.09. Enforcement ......................................................................... 58
Exhibits Exhibit A - Conditions of the Offer iii 5 THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 5, 1999, is among PURDUE PHARMA L.P., a Delaware limited partnership ("Parent"), PURDUE ACQUISITION CORPORATION, a Delaware corporation and an indirect wholly owned subsidiary of Parent ("Sub"), and COCENSYS, INC., a Delaware corporation (the "Company"). WHEREAS the Board of Directors of PURDUE PHARMA INC., a New York corporation and the general partner of Parent (the "General Partner") and the respective Boards of Directors of Sub and the Company have approved the acquisition of the Company by Parent on the terms and subject to the conditions set forth in this Agreement; WHEREAS, in furtherance of such acquisition, Parent proposes to cause Sub to make a tender offer (as it may be amended from time to time as permitted under this Agreement, the "Offer") to purchase all the outstanding shares of Common Stock, par value $0.001 per share, of the Company (the "Company Common Stock"; all the outstanding shares of Company Common Stock together with the rights (the "Rights") associated with each such share issued in connection with the Company's Rights Agreement, dated as of May 15, 1995, by and between the Company and American Stock Transfer and Trust Company, as Rights Agent (the "Rights Plan"), being hereinafter collectively referred to as the "Shares") at a purchase price of $1.16 per Share (the "Offer Price"), net to the holder in cash, without interest thereon, upon the terms and subject to the conditions set forth in this Agreement; and the Board of Directors of the Company has determined that the Offer and the Merger (as defined below) are in the best interests of the Company's stockholders and has adopted resolutions approving this Agreement, the Offer and the Merger, determining that the Merger is advisable and recommending that the holders of Shares accept the Offer, and approving the acquisition of Shares by Sub pursuant to the Offer; WHEREAS the Board of Directors of the General Partner on behalf of Parent and the respective Boards of Directors of Sub and the Company have each approved the merger of Sub with and into the Company (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement, whereby each share of Company Common Stock, other than shares of Company Common Stock owned directly or indirectly by Parent or the Company and Dissenting Shares (as 6 defined in Section 3.01(f)), will be converted into the right to receive the price per Share paid in the Offer; WHEREAS Parent has required as a condition to entering into this Agreement, among other things, that the holder of the outstanding Series E Preferred Stock (as defined herein) of the Company (the "Preferred Stockholder") enter into a Stock Purchase Agreement (the "Preferred Stock Purchase Agreement") pursuant to which the Preferred Stockholder has agreed, among other things, to sell the Series E Preferred Stock to Sub, immediately upon, and subject to, consummation of the Offer; and WHEREAS Parent, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger and also to prescribe various conditions to the Offer and the Merger. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Sub and the Company hereby agree as follows: ARTICLE I THE OFFER SECTION 1.01. The Offer. (a) Subject to the provisions of this Agreement, as promptly as practicable but in no event later than five business days after the date of the public announcement by Parent and the Company of the execution and delivery of this Agreement, Sub shall, and Parent shall cause Sub to, commence the Offer. The obligation of Sub, and of Parent to cause Sub, to commence the Offer and accept for payment, and pay for, any Shares tendered pursuant to the Offer shall be subject to the conditions set forth in Exhibit A (the "Offer Conditions") and to the terms and conditions of this Agreement. Sub expressly reserves the right, subject to compliance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to modify the terms of the Offer, except that, without the written consent of the Company, Sub shall not (i) reduce the number of Shares subject to the Offer, (ii) reduce the Offer Price, (iii) add to or modify (other than by waiver) the Offer Conditions, (iv) except as provided in the next two sentences, extend the Offer, (v) change the form of consideration payable in the 2 7 Offer, (vi) waive the Minimum Condition (as defined in Exhibit A), or (vii) amend or alter any other term of the Offer in any manner materially adverse to the holders of the Shares. Notwithstanding the foregoing, at any time prior to termination of this Agreement, Sub may, without the consent of the Company, extend the Offer, (A) if at the scheduled or extended expiration date of the Offer any of the Offer Conditions shall not be satisfied or waived, until such time as such conditions are satisfied or waived, (B) for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer, (C) for a period not to exceed an aggregate of 10 business days, notwithstanding that all conditions to the Offer are satisfied as of such expiration date of the Offer, if, immediately prior to such expiration date (as it may be extended), the Shares tendered and not withdrawn pursuant to the Offer, when added to the number of shares of Company Common Stock to be received by Sub upon conversion of all of the Series E Preferred Stock to be held by Sub upon consummation of the Preferred Stock Purchase Agreement, equal less than 90% of the Fully Diluted Shares (as defined in Exhibit A) as of the scheduled expiration date of the Offer, as it may be extended from time to time, and (D) until 10 business days following the expiration of the 10 business day period referred to in clause (iv) of condition (c) of Exhibit A and, if such clause (iv) of condition (c) shall not have been satisfied, for so long as Parent and Sub shall determine until, in their sole discretion, all conditions of the Offer are satisfied or waived. Without limiting the right of Sub to extend the Offer pursuant to the immediately preceding sentence, in the event that (i) the Minimum Condition has not been satisfied or (ii) any condition set forth in paragraph (a) of Exhibit A is not satisfied at the scheduled expiration date of the Offer, Sub shall, and Parent shall cause Sub to, extend the expiration date of the Offer in increments of five business days each until the earliest to occur of (x) the satisfaction or waiver of the Minimum Condition or such other condition, or Parent reasonably determines that any Offer Condition is not capable of being satisfied on or prior to October 15, 1999, (y) the termination of this Agreement in accordance with its terms and (z) October 15, 1999; provided, however, that if any person or group (within the meaning of Section 13(d)(3) of the Exchange Act) has publicly made an Acquisition Proposal (as defined in Section 6.02(b)) or disclosed in writing its intention to make an Acquisition Proposal, Sub shall not be required pursuant to 3 8 this sentence to extend the Offer for more than five business days from the date of such publication or written disclosure of such Acquisition Proposal unless the Company's Board of Directors has reaffirmed its recommendation that the stockholders of the Company accept the Offer. Subject to the terms and conditions of the Offer and this Agreement, Sub shall, and Parent shall cause Sub to, accept for payment, and pay for, all Shares validly tendered and not withdrawn pursuant to the Offer that Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer as soon as practicable after the expiration of the Offer. (b) On the date of commencement of the Offer, Parent and Sub shall file with the SEC a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with respect to the Offer, which shall contain an offer to purchase and a related letter of transmittal (such Schedule 14D-1 and the documents included therein pursuant to which the Offer will be made, together with any supplements or amendments thereto, the "Offer Documents") and shall mail the Schedule 14D-1 to the stockholders of the Company. Parent and Sub agree that the Offer Documents shall comply as to form in all material respects with the Exchange Act, and the rules and regulations promulgated thereunder, and the Offer Documents, on the date first filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by Parent or Sub with respect to information supplied by the Company or any of its stockholders specifically for inclusion or incorporation by reference in the Offer Documents. Parent, Sub and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and Parent and Sub further agree to take all steps necessary to amend or supplement the Schedule 14D-1 and, as applicable, the Offer Documents and to cause the Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to holders of Shares, in each case as and to the extent required by applicable securities laws. The Company and its counsel shall be given reasonable opportunity to review and comment upon the Offer Documents 4 9 prior to their filing with the SEC or dissemination to the stockholders of the Company. Parent and Sub agree to provide the Company and its counsel any comments Parent, Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments. (c) The Company agrees that neither the Offer nor purchases of Shares thereunder breach the terms of the Confidentiality Agreement (as defined in Section 7.02 below). (d) Parent shall provide or cause to be provided to Sub on a timely basis the funds necessary to purchase any and all Shares that Sub becomes obligated to purchase pursuant to the Offer. SECTION 1.02. Company Actions. (a) Subject to Section 6.02(a), the Company hereby approves of and consents to the Offer and represents and warrants that (i) the Board of Directors of the Company (the "Board"), at a meeting duly called and held, duly adopted resolutions approving this Agreement, the Offer and the Merger, determining that the Merger is advisable and that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company and the Company's stockholders and recommending that the holders of Shares accept the Offer and tender their Shares pursuant to the Offer and approve the Merger and this Agreement, if required under applicable law, and (ii) Hambrecht & Quist LLC (the "Financial Advisor") has delivered to the Board its opinion (the "Fairness Opinion") to the effect that, as of the date thereof and based upon and subject to the matters set forth in such Fairness Opinion, the consideration to be received by the holders of Shares in the Offer and the Merger is fair to the holders of Shares from a financial point of view. The Company represents that such approval constitutes approval of the Offer, this Agreement and the transactions contemplated hereby, including the Merger, for purposes of Section 203 of the Delaware General Corporation Law, as amended (the "DGCL"), such that Section 203 of the DGCL will not apply to the transactions contemplated by this Agreement. The Company hereby consents to the inclusion in the Offer Documents of such recommendation of the Board. The Company has been authorized by the Financial Advisor to permit, subject to the prior review and consent by the Financial Advisor (such consent not to be unreasonably withheld), the inclusion of the Fairness Opinion 5 10 (or a reference thereto) in the Offer Documents, the Schedule 14D-9 (as hereinafter defined) and the Proxy Statement (as hereinafter defined), as may be required under applicable law. (b) Promptly after the time the Offer Documents are filed with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9") containing the recommendation described in paragraph (a) and shall mail the Schedule 14D-9 to the stockholders of the Company in compliance with Rule 14d-9 promulgated under the Exchange Act. To the extent practicable, the Company shall cooperate with Parent and Sub in mailing or otherwise disseminating the Schedule 14D-9 with the appropriate Offer Documents to the Company's stockholders. The Schedule 14D-9 shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by the Company with respect to information supplied by Parent or Sub specifically for inclusion in the Schedule 14D-9. Each of the Company, Parent and Sub agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Company's stockholders, in each case as and to the extent required by applicable securities laws. Parent and its counsel shall be given reasonable opportunity to review and comment upon the Schedule 14D-9 prior to its filing with the SEC or dissemination to stockholders of the Company. The Company agrees to provide Parent and its counsel any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. 6 11 (c) In connection with the Offer, the Company shall furnish or cause its transfer agent to furnish Sub promptly with mailing labels containing the names and addresses of the record holders of Shares as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of stockholders, security position listings and computer files and all other information in the Company's possession or control regarding the beneficial owners of Shares, and shall furnish to Sub such information and assistance (including updated lists of stockholders, security position listings and computer files) as Parent may reasonably request in communicating the Offer to the Company's stockholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Sub and their agents shall hold in confidence the information contained in any such labels, listings and files, will use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, will, upon such termination, promptly deliver, and will use their best efforts to cause their agents promptly to deliver, to the Company all copies of such information (and all copies of information derived therefrom) then in their possession or control. The Company acknowledges that Sub intends to commence the Offer by sending Offer materials to the holders of the Shares and, therefore, time is of the essence with respect to the obligations of the Company as set forth in this subparagraph. ARTICLE II THE MERGER SECTION 2.01. The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, Sub shall be merged with and into the Company at the Effective Time (as defined in Section 2.03) in accordance with Section 253 of the DGCL. Following the Effective Time, the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of Sub in accordance with the DGCL. At the election of Parent, any direct or indirect wholly owned subsidiary (as defined in Section 10.03) of Parent may be substituted for Sub as a constituent corporation in the Merger. In such event, the parties agree 7 12 to execute an appropriate amendment to this Agreement in order to reflect the foregoing. SECTION 2.02. Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m. (New York City time) on a date to be specified by Parent or Sub, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VIII (the "Closing Date"), at the offices of Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York 10112, unless another date, time or place is agreed to in writing by the parties hereto. SECTION 2.03. Effective Time. Subject to the provisions of this Agreement, as soon as practicable on or after the Closing Date, the Company shall file with the Secretary of State of Delaware a certificate of merger or other appropriate documents (in any such case, the "Certificate of Merger") executed in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Delaware Secretary of State, or at such other time as Sub and the Company shall agree should be specified in the Certificate of Merger (the time the Merger becomes effective being hereinafter referred to as the "Effective Time"). SECTION 2.04. Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. SECTION 2.05. Certificate of Incorporation and By-laws. (a) The Certificate of Incorporation of Sub, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law; provided, however, that Article I of the Certificate of Incorporation of the Surviving Corporation shall be amended to read as follows: "The name of the corporation is CoCensys, Inc." (b) The By-Laws of Sub as in effect immediately prior to the Effective Time shall be the By-Laws of the Surviving Corporation, until thereafter changed or amended as provided therein or by applicable law. 8 13 SECTION 2.06. Directors. The directors of Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be, and the Company shall procure, prior to and as a condition to the Closing, the resignation of each of its directors effective as of the Closing. SECTION 2.07. Officers. The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES SECTION 3.01. Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the Company, Parent, Sub or the holder of any Shares or shares of capital stock of the Company or any shares of capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of capital stock of Sub shall be converted into and become 1,000 fully paid and nonassessable shares of Common Stock, par value $.001 per share, of the Surviving Corporation. (b) Cancellation of Treasury Stock and Parent Owned Stock. Each share of Company Common Stock that is owned by the Company or held in treasury and each Share that is owned by Parent, Sub or any other subsidiary of Parent shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) Conversion of Company Common Stock. Subject to Section 3.01(f), each Share issued and outstanding (other than Shares to be canceled in accordance with Section 3.01(b)) shall be converted into the right to receive from the Surviving Corporation in cash, without interest, the price paid in the Offer (the "Merger Consideration"). As of the 9 14 Effective Time, all such Shares shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest. (d) Effect on Options. All stock options (individually, an "Option" and collectively, the "Options") outstanding immediately prior to the Effective Time, whether or not then fully exercisable, automatically shall be accelerated and converted into the right to receive after the Effective Time from the Surviving Corporation, for each share of Company Common Stock subject to any Option, an amount in cash equal to the excess, if any, of the Merger Consideration over the per share exercise price of such Option, without interest. All Options not exercised at the Effective Time shall terminate and be canceled and shall cease to exist. All amounts payable pursuant to this paragraph shall be subject to all applicable withholding of taxes and shall be paid as soon as practicable following the Effective Time. (e) Effect on Warrants. All warrants for the purchase of Company Common Stock (individually, a "Warrant" and collectively, the "Warrants") outstanding immediately prior to the Effective Time, whether or not then fully exercisable, automatically shall be converted into the right to receive after the Effective Time from the Surviving Corporation, for each share of Common Stock subject to any Warrant, an amount in cash equal to the excess, if any, of the Merger Consideration over the per share exercise price of such Warrant, without interest. All Warrants not exercised at the Effective Time shall terminate and be canceled and shall cease to exist. All amounts payable pursuant to this paragraph shall be subject to all applicable withholding of taxes and shall be paid as soon as practicable following the Effective Time. (f) Shares of Dissenting Stockholders. Notwithstanding anything in this Agreement to the contrary, any issued and outstanding Shares held by a person (a "Dissenting Stockholder") who complies with all the provisions of Delaware law concerning the right of holders of Company Common Stock to dissent from the Merger and require appraisal of their Shares ("Dissenting Shares") shall not be converted as described in Section 3.01(c) but shall become the right to 10 15 receive such consideration as may be determined to be due to such Dissenting Stockholder pursuant to the laws of the State of Delaware. If, after the Effective Time, such Dissenting Stockholder withdraws his demand for appraisal or fails to perfect or otherwise loses his right of appraisal, in any case pursuant to the DGCL, his Shares shall be deemed to be converted as of the Effective Time into the right to receive the Merger Consideration. The Company shall give Parent (i) prompt notice of any demands for appraisal of Shares received by the Company and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands. The Company shall not, without the prior written consent of Parent, such consent not to be unreasonably withheld, make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands. (g) Withholding Tax. Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares outstanding immediately prior to the Effective Time such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any provision of state, local or foreign tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares outstanding immediately prior to the Effective Time in respect of which such deduction and withholding was made. SECTION 3.02. Exchange of Certificates. (a) Paying Agent. Prior to the Effective Time, Parent shall designate a bank or trust company reasonably acceptable to the Company to act as paying agent in the Merger (the "Paying Agent"), and, from time to time on, prior to or after the Effective Time, Parent shall make available, or cause the Surviving Corporation to make available, to the Paying Agent funds in amounts and at the times necessary for the payment of the Merger Consideration upon surrender of certificates representing Shares as part of the Merger pursuant to Section 3.01 (it being understood that any and all interest earned on funds made available to the Paying Agent pursuant to this Agreement shall be turned over to Parent). 11 16 (b) Exchange Procedure. As soon as reasonably practicable after the Effective Time, Parent shall cause the Paying Agent to mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented Shares (the "Certificates"), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates (or affidavits of loss in lieu thereof) to the Paying Agent and shall be in a form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 3.01, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 3.02, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 3.01. No interest will be paid or will accrue on the cash payable upon the surrender of any Certificate. (c) No Further Ownership Rights in Company Common Stock. All cash paid upon the surrender of Certificates in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such 12 17 Certificates. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be canceled and exchanged as provided in this Article III. (d) Termination of Fund; No Liability. At any time following six months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which had been made available to the Paying Agent and which have not been disbursed to holders of Certificates, and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates, without any interest thereon. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Certificate for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the schedule attached to this Agreement setting forth exceptions to the Company's representations and warranties set forth herein (the "Company Disclosure Schedule"), the Company represents and warrants to Parent and Sub as set forth below. The Company Disclosure Schedule will be arranged in sections corresponding to sections of this Agreement to be modified by such disclosure schedule. SECTION 4.01. Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not 13 18 have a material adverse effect (as defined in Section 10.03) on the Company. The Company is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not have a material adverse effect on the Company or prevent or materially delay the consummation of the Offer and/or the Merger. The Company has made available to Parent complete and correct copies of its Certificate of Incorporation and By-laws. SECTION 4.02. Subsidiaries. The Company has no subsidiaries (as defined in Section 10.03). Except as set forth on Schedule 4.02 of the Company Disclosure Schedule, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any corporation, partnership, joint venture, business, trust or other entity. SECTION 4.03. Capitalization. The authorized capital stock of the Company consists of 750,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, par value $.001 per share (the "Preferred Stock"), of which 350,000 shares have been designated as Series A Junior Participating Preferred Stock (the "Series A Preferred Stock"), 100,000 shares have been designated as Series B Convertible Preferred Stock (the "Series B Preferred Stock"), 100,000 shares have been designated as Series C Convertible Preferred Stock (the "Series C Preferred Stock"), 100,000 shares have been designated as Series D Convertible Preferred Stock (the "Series D Preferred Stock") and 10,000 shares have been designated as Series E Convertible Preferred Stock (the "Series E Preferred Stock"). As of the date hereof, (a) 4,873,480 shares of Company Common Stock were issued and outstanding; (b) 100,000 shares of the Series C Preferred Stock were issued and outstanding; (c) 100,000 shares of the Series D Preferred Stock were issued and outstanding; (d) 1,159.2 shares of the Series E Preferred Stock were issued and outstanding; (e) no shares of Company Common Stock were held by the Company in its treasury; (f) 869,353 shares of Company Common Stock were reserved for issuance upon exercise of outstanding Options; (g) a maximum of 235,352 shares of Company Common Stock were reserved for issuance upon the exercise of outstanding Warrants; (h) a maximum of 350,000 shares of Series A Preferred Stock and no shares of Company 14 19 Common Stock were reserved for issuance in connection with the Rights distributed to the holders of the Company Common Stock pursuant to the Rights Plan; (i) a maximum of 143,021 shares of Company Common Stock were reserved for issuance upon the conversion of the Series C Preferred Stock; (j) a maximum of 575,000 shares of Company Common Stock were reserved for issuance upon the conversion of the Series D Preferred Stock; (k) a maximum of 2,471,000 shares of Company Common Stock were reserved for issuance upon the conversion of the Series E Preferred Stock; (l) a maximum of 1,067,000 shares of Company Common Stock were reserved for issuance in connection with the $1 million convertible note issued by the Company to Warner-Lambert Company; and (m) a maximum of 18,839 shares of Company Common Stock were reserved for issuance under the Company's 1995 Employee Stock Purchase Plan. Except as set forth above, as of the date of this Agreement, no shares of capital stock or other voting securities of the Company were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of the Company are, and all shares which may be issued will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Except as set forth on Schedule 4.03 of the Company Disclosure Schedule, there are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except as set forth above, and except as set forth on Schedule 4.03 of the Company Disclosure Schedule, as of the date of this Agreement, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or obligating the Company to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking, including any securities pursuant to which rights to acquire capital stock became exercisable only after a change of control of the Company or upon the acquisition of a specified amount of the Common Stock or voting powers of the Company. Except as set forth on Schedule 4.03 of the Company Disclosure Schedule, as of the date of this Agreement, there are not any outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of capital stock of the 15 20 Company. Except as set forth on Schedule 4.03 of the Company Disclosure Schedule, since March 31, 1999, no shares of the capital stock of the Company have been issued other than pursuant to the exercise of Company stock options and warrants already in existence and outstanding on such date, and the Company has not granted any stock options, warrants or other rights to acquire any capital stock of the Company. There are no securities issued by the Company or agreements, arrangements or other understandings to which the Company is a party giving any person any right to acquire equity securities of the Surviving Corporation at or following the Effective Time and all securities, agreements, arrangements and understandings relating to the right to acquire equity securities of the Company (whether pursuant to the exercise of options, warrants or otherwise) provide that, at and following the Effective Time, such right shall entitle the holder thereof to receive the consideration he would have received in the Merger had he exercised his right immediately before the Effective Time. SECTION 4.04. Authority. The Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby (other than, with respect to the Merger, the approval and adoption of the terms of this Agreement by the holders of a majority of the Shares (the "Company Stockholder Approval"), if required by applicable law). The execution, delivery and performance of this Agreement and the consummation by the Company of the Merger and of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (in each case, other than, with respect to the Merger, the Company Stockholder Approval, if required by applicable law). The only votes of the holders of any class or series of Company capital stock necessary to approve the Merger are the affirmative votes of the holders of a majority of the outstanding shares of Common Stock, voting separately as a class. This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes a valid and binding obligation of Parent and Sub, constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general 16 21 application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. SECTION 4.05. Consents and Approvals; No Violations. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act (including the filing with the SEC of the Schedule 14D-9 and a proxy statement relating to any approval by the Company's stockholders of this Agreement (the "Proxy Statement"), if required by applicable law), Section 203 of the DGCL and the laws of other states in which the Company is qualified to do or is doing business, state takeover laws and foreign laws, neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of the Company, (ii) require any filing with, or permit, authorization, consent or approval of, any federal, state or local government or any court, tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, domestic, foreign or supranational (a "Governmental Entity") (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not have a material adverse effect on the Company or prevent or materially delay the consummation of the Offer and/or the Merger), (iii) except as set forth on Schedule 4.05 of the Company Disclosure Schedule, result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company is a party or by which it or any of its properties or assets may be bound; provided, however, that certain contracts and agreements set forth on Schedule 4.05 of the Company Disclosure Schedule, (A) provide for their termination upon a change of control of the Company or (B) contain provisions restricting their assignment pursuant to a merger, or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its properties or assets, except in the case of clauses (iii) or (iv) for violations, breaches or defaults that would not have a material adverse 17 22 effect on the Company or prevent or materially delay the consummation of the Offer and/or the Merger. SECTION 4.06. SEC Reports and Financial Statements. The Company has filed with the SEC, and has heretofore made available to Parent true and complete copies of, all forms, reports, schedules, statements and other documents required to be filed by it under the Exchange Act or the Securities Act of 1933, as amended (the "Securities Act") (such forms, reports, schedules, statements and other documents, including any financial statements or schedules included therein, are referred to as the "Company SEC Documents"). Except as set forth in Schedule 4.06 of the Company Disclosure Schedule, the Company SEC Documents, at the time filed, (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. The financial statements of the Company included in the Company SEC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Forms 10-Q and 8-K of the SEC) and fairly present in all material respects (subject, in the case of the unaudited statements, to normal, year-end audit adjustments that will not be material in amount or effect) the financial position of the Company (and its consolidated subsidiaries, to the extent applicable) as at the dates thereof and the results of its (or their) operations and cash flows for the periods then ended. SECTION 4.07. Absence of Certain Changes or Events. Except as set forth on Schedule 4.07 of the Company Disclosure Schedule, since March 31, 1999, the Company has conducted its business only in the ordinary course, and there has not been any material adverse change (as defined in Section 10.03) with respect to the Company. Except as set forth on Schedule 4.07 of the Company Disclosure Schedule, since March 31, 1999, there has not been (i) any declaration, setting aside or 18 23 payment of any dividend or other distribution with respect to its capital stock or any redemption, purchase or other acquisition of any of its capital stock (or securities convertible into its capital stock), (ii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iii) (w) any granting by the Company to any officer or director of the Company of any increase in compensation other than in the ordinary course of business, (x) any granting by the Company to any such officer or director of any increase in severance or termination pay, (y) except employment arrangements in the ordinary course of business consistent with past practice with employees other than any executive officer of the Company, any entry by the Company into any employment, severance or termination agreement with any such employee or executive officer or director or (z) any increase in or establishment of any bonus, insurance, deferred compensation, pension, retirement, profit-sharing, stock option (including the granting of stock options, stock appreciation rights, performance awards or restricted stock awards or the amendment of any existing stock options, stock appreciation rights, performance awards or restricted stock awards), stock purchase or other employee benefit plan or agreement or arrangement, (iv) any damage, destruction or loss, whether or not covered by insurance, that has or reasonably could be expected to have a material adverse effect on the Company, (v) any payment to an affiliate of the Company other than in the ordinary course of business consistent with past practice, (vi) any revaluation by the Company of any of its material assets, (vii) mortgage, lien, pledge, encumbrance, charge, agreement, claim or restriction placed upon any of the material properties or assets of the Company, (viii) any material change in accounting methods, principles or practices by the Company or (ix) (A) any licensing or other agreement with regard to the acquisition or disposition of any Intellectual Property Rights (as defined in Section 4.18) or rights thereto other than licenses or other agreements in the ordinary course of business consistent with past practice or (B) any amendment or consent with respect to any licensing agreement filed, or required to be filed, by the Company with the SEC. SECTION 4.08. No Undisclosed Liabilities. Except as and to the extent set forth in the Company Fiscal Year 1998 Financial Statements, as of December 31, 1998, and except as 19 24 subsequently disclosed in Company SEC Documents, or as set forth on Schedule 4.08 of the Company Disclosure Schedule, the Company had no liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that would be required by generally accepted accounting principles to be reflected on a balance sheet of the Company (including the notes thereto). Since December 31, 1998, except as and to the extent set forth in the Company SEC Documents, the Company has not incurred any liabilities of any nature, whether or not accrued, contingent or otherwise, other than in the ordinary course of business and that would not have a material adverse effect on the Company. As of the date of this Agreement, the Company does not have indebtedness for borrowed money in excess of $1,000,000. SECTION 4.09. Information Supplied. None of the information supplied or to be supplied by the Company specifically for inclusion or incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the information to be filed by the Company in connection with the Offer pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information Statement"), or (iv) the Proxy Statement, will, in the case of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the Company's stockholders, or, in the case of the Proxy Statement, at the time the Proxy Statement is first mailed to the Company's stockholders or at the time of the Stockholders Meeting (as defined in Section 7.01) to the extent required by applicable law, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Schedule 14D-9, the Information Statement and the Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Sub specifically for inclusion or incorporation by reference therein. SECTION 4.10. Benefit Plans. (a) Each "employee pension benefit plan" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended 20 25 ("ERISA")) (a "Pension Plan"), "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) (a "Welfare Plan") and each other plan, pension or welfare arrangement or policy (written or oral) relating to stock options, stock purchases, compensation, deferred compensation, bonuses, severance, fringe benefits or other employee benefits, in each case maintained or contributed to, or required to be maintained or contributed to, by the Company for the benefit of any present or former employee, officer or director (each of the foregoing, a "Benefit Plan") has been administered in all material respects in accordance with its terms. The Company and all the Benefit Plans are in compliance in all material respects with the applicable provisions of ERISA, the Code and all other applicable laws. (b) Schedule 4.10 of the Company Disclosure Schedule sets forth a complete list of each Benefit Plan as well as each employment, termination, indemnity, consulting and severance agreement and any and all other contracts, binding arrangements and understandings (whether written or oral) with any present or former directors, officers, employees or consultants of the Company. (c) None of the Pension Plans is subject to Title IV of ERISA or Section 412 of the Code and none of the Company or any other person or entity that, together with the Company, is treated as a single employer under Section 414 (b), (c), (m) or (o) of the Code (each, including the Company, a "Commonly Controlled Entity"): (i) currently has an obligation to contribute to, or during any time during the last six years had an obligation to contribute to, a Pension Plan subject to Title IV of ERISA or Section 412 of the Code, or (ii) has incurred any liability to the Pension Benefit Guaranty Corporation, which liability has not been fully paid. All contributions and other payments required to be made by the Company to any Pension Plan with respect to any period ending before the Closing Date have been made or reserves adequate for such contributions or other payments have been or will be set aside therefor and have been or will be reflected in financial statements. (d) Neither the Company nor any Commonly Controlled Entity is required to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has withdrawn from any multiemployer plan where such withdrawal has resulted or would result in any "withdrawal liability" (within the 21 26 meaning of Section 4201 of ERISA) or "mass withdrawal liability" within the meaning of PBGC Regulation 4219.2 that has not been fully paid. (e) Except as set forth on Schedule 4.10 of the Company Disclosure Schedule, each Benefit Plan (and its related trust, if any) that is intended to be qualified under Section s 401 and 501(a) of the Code has been determined by the IRS to qualify under such sections and nothing has occurred to cause the loss of such qualified status. (f) Each Benefit Plan that is a Welfare Plan may be amended or terminated at any time after the Effective Time without material liability to the Company. (g) Except as set forth on Schedule 4.10 of the Company Disclosure Schedule, or as required under Section 4980B of the Code, the Company does not have any obligation to provide post-retirement health benefits. (h) The Company has heretofore delivered to Parent correct and complete copies of each of the following: (i) All written, and descriptions of all binding oral, employment, termination, consulting and severance agreements, contracts, arrangements and understandings listed on Schedule 4.10 of the Company Disclosure Schedule; (ii) Each Benefit Plan and all amendments thereto; the trust instrument and/or insurance contracts, if any, forming a part of such Benefit Plan and all amendments thereto; (iii) The most recent IRS Form 5500 and all schedules thereto, if any; (iv) The most recent determination letter issued by the IRS regarding the qualified status of each such Pension Plan; (v) The most recent accountant's report, if any; and (vi) The most recent summary plan description, if any. 22 27 SECTION 4.11. Other Compensation Arrangements. Except as disclosed in the Company SEC Documents or on Schedule 4.11 of the Company Disclosure Schedule, or except as provided in this Agreement, as of the date of this Agreement, the Company is not a party to any oral or written (i) consulting agreement not terminable on not more than 60 calendar days notice (except for third party agreements for the development of, and assignment to, the Company of Intellectual Property in the ordinary course of business) and involving the payment of more than $30,000 per annum, (ii) agreement with any executive officer or other key employee of the Company (x) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature contemplated by this Agreement or (y) providing any term of employment or compensation guarantee extending for a period longer than two years or the payment of more than $30,000 per annum or (iii) agreement or plan, including any stock option plan, stock appreciation right plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement, other than as contemplated by Section 3.01(d), or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. SECTION 4.12. Litigation. Except as set forth on Schedule 4.12 of the Company Disclosure Schedule, there is no suit, claim, action, proceeding or investigation pending before any Governmental Entity or, to the knowledge of the Company, overtly threatened against the Company that could reasonably be expected to have a material adverse effect on the Company. The Company is not subject to any outstanding order, writ, injunction or decree that could reasonably be expected to have a material adverse effect on the Company. SECTION 4.13. Compliance with Applicable Law. The Company holds all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary for the lawful conduct of its business (the "Company Permits"), except for failures to hold such permits, licenses, variances, exemptions, orders and approvals that would not have a material adverse effect on the Company. Except as set forth on Schedule 4.13 of the Company Disclosure Schedule, the Company is in compliance with the terms of the Company Permits, except 23 28 where the failure so to comply would not have a material adverse effect on the Company. Except as disclosed in the Company SEC Documents and except as set forth on Schedule 4.13 of the Company Disclosure Schedule, to the best knowledge of the Company, the business of the Company is not being conducted in violation of any law, ordinance or regulation of any Governmental Entity, except for possible violations that would not have a material adverse effect on the Company or prevent or materially delay the consummation of the Offer and/or the Merger. As of the date of this Agreement, no investigation or review by any Governmental Entity with respect to the Company is pending or, to the knowledge of the Company, overtly threatened, nor has any Governmental Entity indicated an intention to conduct any such investigation or review, other than, in each case, those the outcome of which would not be reasonably expected to have a material adverse effect on the Company or prevent or materially delay the consummation of the Offer and/or the Merger. SECTION 4.14. Tax Matters. Except as disclosed in the Company SEC Documents or on Schedule 4.14 of the Company Disclosure Schedule: (a) The Company (and any affiliated group of which the Company is now or has ever been a member) has timely filed all federal income tax returns and all other material tax returns and reports required to be filed by it. All such returns are complete and correct in all material respects. The Company (i) has paid to the appropriate authorities all taxes required to be paid by it, except taxes for which an adequate reserve has been established on the financial statements contained in the Company SEC Documents or the Company Fiscal Year 1998 Financial Statements, and (ii) has withheld and paid to the appropriate authorities all material withholding taxes required to be withheld by it. The most recent financial statements contained in the Company SEC Documents reflect an adequate reserve for all taxes payable by the Company for all taxable periods and portions thereof through the date of such financial statements. (b) No federal income tax return or other material tax return of the Company is under audit or examination by any taxing authority, and no written or unwritten notice of such an audit or examination has been received by the Company. Each material deficiency resulting from any audit or examination relating to taxes by any taxing authority has been 24 29 paid, except for deficiencies being contested in good faith. No material issues relating to taxes were raised in writing by the relevant taxing authority in any completed audit or examination that can reasonably be expected to recur in a later taxable period. The federal income tax returns of the Company do not contain any positions that could give rise to a material substantial understatement penalty within the meaning of Section 6662 of the Code. (c) There is no agreement or other document extending, or having the effect of extending, the period of assessment or collection of any taxes and no power of attorney with respect to any taxes has been executed or filed with any taxing authority. (d) No material liens for taxes exist with respect to any assets or properties of the Company, except for liens for taxes not yet due. (e) The Company is not a party to and is not bound by any tax sharing agreement, tax indemnity obligation or similar agreement, arrangement or practice with respect to taxes (including any advance pricing agreement, closing agreement or other agreement relating to taxes with any taxing authority). (f) The Company will not be required to include in a taxable period ending after the Effective Time taxable income attributable to income that accrued in a prior taxable period but was not recognized in any prior taxable period as a result of the installment method of accounting, the completed contract method of accounting, the long-term contract method of accounting, the cash method of accounting or Section 481 of the Code or comparable provisions of state, local or foreign tax law. (g) The Company (i) is not a party to a safe harbor lease within the meaning of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982, (ii) is not a "consenting corporation" under Section 341(f) of the Code, (iii) has not agreed or is not obligated to make any payments for services which would not be deductible pursuant to Sections 162(a)(1), 162(m) or 280G of the Code, (iv) has not participated in an international boycott as defined in Section 999 of the Code, (v) is not required to 25 30 make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise, (vi) does not own any assets which directly or indirectly secure any debt the interest on which is tax-exempt under Section 103(a) of the Code, or (vii) does not own any asset which is tax-exempt use property within the meaning of Section 168(h) of the Code. (h) The Company is not a party to any joint venture, partnership or other arrangement or contract which is treated as a partnership for tax purposes, or has elected to be treated as a branch or a partnership pursuant to Treasury Regulation Section 301.7701-3. (i) The Company is a United States person within the meaning of Section 7701(a)(30) of the Code. (j) As used in this Agreement, "taxes" shall include all federal, state, local and foreign income, property, sales, excise, withholding and other taxes, tariffs or governmental charges of any nature whatsoever. (k) For purposes of this Section 4.14, all references to the Company shall include any former subsidiary of the Company, as the context may require. SECTION 4.15. State Takeover Statutes. The Board of Directors of the Company has approved the Offer, the Merger, this Agreement and the acquisition of Shares by Sub pursuant to the Offer and such approval is sufficient to render inapplicable to the Offer, the Merger, this Agreement and the transactions contemplated by this Agreement the provisions of Section 203 of the DGCL. To the knowledge of the Company, no other state takeover statute or similar statute or regulation, including without limitation Section 2115 or Chapters 11 and 12 of the California Corporations Code, applies or purports to apply to the Offer, the Merger, this Agreement, or any of the transactions contemplated by this Agreement. SECTION 4.16. Brokers; Fees and Expenses. No broker, investment banker, financial advisor or other person, other than Hambrecht & Quist LLC, the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf 26 31 of the Company. The estimated fees and expenses incurred and to be incurred by the Company in connection with this Agreement and the transactions contemplated by this Agreement (including the fees of the Company's legal counsel and the legal counsel for its financial advisor) are set forth in a letter dated August 5, 1999 from the Company to Parent. SECTION 4.17. Opinion of Financial Advisor. The Board of Directors of the Company has received the opinion of Hambrecht & Quist LLC, dated August 5, 1999, to the effect that, as of that date, the consideration to be received by the holders of Shares pursuant to the Offer and the Merger is fair to such holders from a financial point of view, and a complete and correct signed copy of such opinion has been, or promptly upon receipt thereof will be, delivered to Parent for inclusion in the Offer Documents. SECTION 4.18. Intellectual Property. (a) The list of patents and patent applications (collectively the "Company Patent Rights") as listed on Schedule 4.18 of the Company Disclosure Schedule is a complete and correct listing of all the patents and patent applications owned solely or jointly by the Company, and, to the knowledge of the Company, there are no unpaid maintenance fees, patents that have lapsed, or abandonment of patent applications, or any reason why any patent application should not be allowed. (b) The Company is the sole and exclusive owner of all right, title, and interest in the trademarks ("Registered Marks") and trademark applications ("Pending Marks") listed on Schedule 4.18 to the Company Disclosure Schedule, and to the knowledge of the Company, the Company has not allowed any of the Registered Marks or Pending Marks to be abandoned, canceled, or to expire. (c) Except as set forth on Schedule 4.18 of the Company Disclosure Schedule, to the knowledge of the Company, other than patent and trademark prosecution by the Company, there are no legal or governmental proceedings pending relating to patents, trade secrets, trademarks, service marks or other proprietary information or materials of the Company, and to the knowledge of the Company no such proceedings are overtly threatened or contemplated by Governmental Entity or other person. 27 32 (d) The Company has made available to Parent true and correct copies of all license agreements relating to the Intellectual Property Rights to which the Company is a party listed on Schedule 4.18 to the Company Disclosure Schedule. (e) Except as set forth on Schedule 4.18 of the Company Disclosure Schedule, the Company owns, or is licensed or otherwise has the right to use (in each case, clear of any liens or encumbrances of any kind), all Intellectual Property Rights used in or necessary for the conduct of its business as currently conducted, and no claims are pending or, to the knowledge of the Company, overtly threatened that the Company is infringing on or otherwise violating the rights of any person with regard to any Intellectual Property Rights owned by and/or licensed to the Company, and to the knowledge of the Company, no person is infringing on or otherwise violating any right of the Company with respect to any Intellectual Property owned by and/or licensed to the Company. (f) None of the former or current members of management or key personnel of the Company, including all former and current employees, agents, consultants and contractors who have contributed to or participated in the conception and development of Intellectual Property Rights of the Company have any valid claim against the Company in connection with the involvement of such persons in the conception and development of any Intellectual Property Rights of the Company, and to the knowledge of the Company no such claim has been asserted or overtly threatened. (g) The Company has taken reasonable and necessary steps to protect its Intellectual Property Rights, and to the knowledge of the Company no Intellectual Property Rights have been lost or are in jeopardy of being lost through failure to act by the Company. (h) For purposes of this Agreement, "Intellectual Property Rights" shall mean inventions, discoveries and ideas, whether patented, patentable or not in any jurisdiction, patents, patent applications (including reexaminations, reissues, extensions and the like), trademarks (registered or unregistered), service marks, brand names, certification marks, trade dress, assumed names, trade names and other indications of origin, the goodwill associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, 28 33 including any extension, modification or renewal of any such registration or application; trade secrets, know-how and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any person; writings and other works, whether copyrighted, copyrightable or not in any jurisdiction; registration or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof; computer programs and software (including source code, object code and data); licenses, immunities, covenants not to sue and the like relating to the foregoing; any similar intellectual property or proprietary rights and any claims or causes of action arising out of or related to any infringement or misappropriation of any of the foregoing. SECTION 4.19. Labor Relations and Employment. (a) Except as set forth on Schedule 4.19 of the Company Disclosure Schedule, (i) there is no labor strike, dispute, slowdown, stoppage or lockout actually pending, or, to the best knowledge of the Company, threatened against the Company, and during the past three years there has not been any such action; (ii) no union claims to represent the employees of the Company; (iii) the Company is not a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company; (iv) none of the employees of the Company is represented by any labor organization and the Company does not have any knowledge of any current union organizing activities among the employees of the Company, nor are there representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened to be brought or filed with the National Labor Relations Board or any other labor relations tribunal; (v) to the knowledge of the Company, the Company is, and has been at all times, in material compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and are not engaged in any unfair labor practices as defined in the National Labor Relations Act or other applicable law, ordinance or regulation; (vi) there is no unfair labor practice charge or complaint against the Company pending or, to the knowledge of the Company, threatened before the National Labor Relations Board or any similar state or foreign agency; (vii) there is no grievance with respect to or relating to the Company 29 34 arising out of any collective bargaining agreement or other grievance procedure; (viii) no charges with respect to or relating to the Company are pending before the Equal Employment Opportunity Commission or any other agency responsible for the prevention of unlawful employment practices; (ix) the Company has not received notice of the intent of any federal, state, local or foreign agency responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to the Company and no such investigation is in progress; and (x) there are no complaints, lawsuits or other proceedings pending or to the knowledge of the Company threatened in any forum by or on behalf of any present or former employee of the Company alleging breach of any express or implied contract of employment, any law or regulation governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship. (b) To the knowledge of the Company, since the enactment of the Worker Adjustment and Retraining Notification ("WARN") Act, there has not been (i) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of the Company; or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of the Company; nor has the Company been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law. Except as set forth on Schedule 4.19 of the Company Disclosure Schedule, to the knowledge of the Company, none of the employees of the Company has suffered an "employment loss" (as defined in the WARN Act) since three months prior to the date of this Agreement. SECTION 4.20. Change of Control. Except as set forth on Schedule 4.20 of the Company Disclosure Schedule, the transactions contemplated by this Agreement will not constitute a "change of control" under, require the consent from or the giving of notice to a third party pursuant to, permit a third party to terminate or accelerate vesting, repayment or repurchase rights, give rise to any right, license or encumbrance or create any other detriment under the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which the Company is a party, 30 35 including without limitation any Intellectual Property Rights of the Company, or by which it or any of its properties or assets may be bound, except where the adverse consequences resulting from such change of control or where the failure to obtain such consents or provide such notices would not, individually or in the aggregate, have a material adverse effect on the Company. SECTION 4.21. Environmental Matters. (a) Except as set forth on Schedule 4.21 of the Company Disclosure Schedule, the Company has been and is in compliance with all applicable Environmental Laws (as this term and the other terms in this section are defined below), except for such violations and defaults as would not, individually or in the aggregate, have a material adverse effect on the Company. (b) Except as set forth on Schedule 4.21 of the Company Disclosure Schedule, to the knowledge of the Company, the Company possesses all required Environmental Permits; all such Environmental Permits are in full force and effect; there are no pending or, to the knowledge of the Company, threatened proceedings to revoke such Environmental Permits and the Company is in compliance with all terms and conditions thereof, except for such failures to possess or comply with Environmental Permits as would not, individually or in the aggregate, have a material adverse effect on the Company. (c) Except as set forth on Schedule 4.21 of the Company Disclosure Schedule, and except for matters which would not, individually or in the aggregate, have a material adverse effect on the Company, to the knowledge of the Company, the Company has not received any notification that the Company or any former subsidiary as a result of any of the current or past operations of the Business, or any property currently or formerly owned or leased or used in connection with the Business, is or may be adversely affected by any proceeding, investigation, claim, lawsuit or order by any Governmental Entity or other person relating to whether (i) any Remedial Action is or may be needed to respond to a Release or threat of Release into the environment of Hazardous Substances arising out of or caused by any current or past operations of the Company or any of its former subsidiaries, (ii) any Environmental Liabilities and Costs imposed by, under or pursuant to Environmental Laws as in effect on or prior to the date hereof shall be sought, or proceeding commenced, arising from the current or past operations of the Business or 31 36 (iii) the Company or any former subsidiary is or may be a "potentially responsible party" for a Remedial Action, pursuant to any Environmental Law for the costs of investigating or remediating Releases or threatened Releases into the environment of Hazardous Substances, whether or not such Release or threatened Release has occurred or is occurring at properties currently or formerly owned or operated by the Company and its former subsidiaries. (d) Except as set forth on Schedule 4.21 of the Company Disclosure Schedule and except for Environmental Permits, the Company has not entered into any written agreement with any entity or persons including any Governmental Entity by which the Company has assumed the responsibility, either directly or by services rendered or as a guarantor or surety, to pay for the remediation of any condition arising from or relating to a Release of Hazardous Substances as defined under Environmental Laws as in effect on or prior to the date hereof into the environment in connection with the Business, including for cost recovery by third parties with respect to such Releases or threatened Releases. (e) Except as set forth on Schedule 4.21 of the Company Disclosure Schedule, to the knowledge of the Company, there is not now and has not been at any time in the past, a Release in connection with the current or former conduct of the Business of substances that would constitute Hazardous Substances as regulated under Environmental Laws as in effect on or prior to the date hereof for which the Company is required or is reasonably likely to be required to perform, at its own expense, or to pay for a Remedial Action pursuant to Environmental Laws as currently in effect, or will incur Environmental Liabilities and uncompensated costs that would, individually or in the aggregate, have a material adverse effect on the Company. (f) For purposes hereof: (i) "Business" means the current and former businesses of the Company and its subsidiaries including, but not limited to, businesses or subsidiaries that have been previously sold by the Company, or otherwise disposed of or merged into the Company, or any predecessors thereto. 32 37 (ii) "Environmental Laws" means all Laws relating to the protection of human health or the environment, or to any emission, discharge, generation, processing, storage, holding, abatement, existence, Release, threatened Release or transportation of any chemical or substance, including, but not limited to, (i) CERCLA, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, property transfer statutes or requirements and (ii) all other requirements pertaining to reporting, licensing, permitting, investigation or remediation of Hazardous Substances in the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport or handling of Hazardous Substances or relating to human health or safety from exposure to Hazardous Substances. (iii) "Environmental Liabilities and Costs" means all damages, natural resource damages, claims, losses, expenses, costs, obligations, and liabilities (collectively, "Losses"), whether direct or indirect, known or unknown, current or potential, past, present or future, imposed by, under or pursuant to Environmental Laws, including, but not limited to, all Losses related to Remedial Actions, and all fees, capital costs, disbursements, penalties, fines and expenses of counsel, experts, contractors, personnel and consultants and the value of any services that might be provided by the Company in lieu thereof and expenditures necessary to cause any such property or the Company or any former subsidiary to be in compliance with requirements of Environmental Laws. (iv) "Environmental Permits" means any federal, state, provincial or local permit, license, registration, consent, order, administrative consent order, certificate, approval or other authorization necessary for the conduct of the Business as currently conducted, and wherever it is currently conducted, under any applicable Environmental Law. (v) "Governmental Entity" means any government or subdivision thereof, domestic, foreign or supranational or any administrative, governmental or 33 38 regulatory authority, agency, commission, tribunal or body, domestic, foreign or supranational. (vi) "Hazardous Substances" means any substance that (a) is defined, listed or identified or otherwise regulated under any Environmental Law (including, without limitation, radioactive substances, polycholorinated-biphenyls, petroleum and petroleum derivatives and products) or (b) requires investigation, removal or remediation under applicable Environmental Law. (vii) "Laws" means all (A) constitutions, treaties, statutes, laws (including, but not limited to, the common law), rules, regulations, ordinances or codes of any Governmental Entity, (B) Environmental Permits, and (C) orders, decisions, injunctions, judgments, awards and decrees of any Governmental Entity. (viii) "Release" means as defined in CERCLA. (ix) "Remedial Action" means all actions required by any Governmental Entity pursuant to Environmental Law or otherwise taken as necessary to comply with Environmental Law to (A) clean up, remove, treat or in any other way remediate any Hazardous Substances; (B) prevent the release of Hazardous Substances so that they do not migrate or endanger or threaten to endanger public health or welfare or the environment; or (C) perform studies, investigations or monitoring in respect of any such matter. SECTION 4.22. Material Contracts. (a) The Company is not in default under or in violation of any provision of any Contract (as hereinafter defined), except for such defaults or violations which would not, individually or in the aggregate, reasonably be expected to result in a material adverse effect on the Company. (b) Except as set forth on Schedule 4.22(b) of the Company Disclosure Schedule, the Company is not a party to or bound by any: (i) employment agreement or employment contract that has an aggregate future liability in excess of $30,000 and is not terminable by the Company by notice of not more than 60 days for a cost of less than $20,000; 34 39 (ii) employee collective bargaining agreement or other contract with any labor union; (iii) covenant of the Company not to compete; (iv) agreement, contract or other arrangement with any current or former officer, director, or affiliate or relative thereof, of the Company (other than employment agreements covered by clause (i) above); (v) lease, sublease or similar agreement involving annual payments in excess of $30,000 under which the Company is a lessor or sublessor of, or makes available for use to any person, (A) any Company Property (as hereinafter defined) or (B) any portion of any premises otherwise occupied by the Company; (vi) lease or similar agreement with any person under which (A) the Company is lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible personal property owned by any person or (B) the Company is a lessor or sublessor of, or makes available for use any person, any tangible personal property owned or leased by the Company, in any such case which has an aggregate annual future liability or receivable, as the case may be, in excess of $30,000 and is not terminable by the Company by notice of not more than 60 days for a cost of less than $20,000; (vii) (A) continuing contract for the future purchase of materials, supplies or equipment (other than purchase contracts and orders for inventory in the ordinary course of business consistent with past practice) in excess of $30,000 annually, (B) management, service, consulting or other similar type of contract or (C) advertising agreement or arrangement, in any such case which has an aggregate future liability to any person in excess of $30,000 and is not terminable by the Company by notice of not more than 60 days for a cost of less than $20,000; (viii) license, option or other agreement relating in whole or in part to intellectual property (including any license or other agreement under which the Company is licensee or licensor of any such intellectual 35 40 property, other than as set forth on Schedule 4.18 of the Company Disclosure Schedule); (ix) agreement, contract or other instrument under which the Company has borrowed any money from, or issued any note, bond, debenture or other evidence of indebtedness to, any person or any other note, bond, debenture or other evidence of indebtedness issued to any person; (x) agreement, contract or other instrument (including so-called take-or-pay or keepwell agreements) under which (A) any person has directly or indirectly guaranteed indebtedness, liabilities or obligations of the Company or (B) the Company has directly or indirectly guaranteed indebtedness, liabilities or obligations of any person (in each case other than endorsements for the purpose of collection in the ordinary course of business); (xi) agreement, contract or other instrument under which the Company has, directly or indirectly, made any advance, loan, extension or credit or capital contribution in excess of $20,000 to, or other investment in any person; (xii) mortgage, pledge, security agreement, deed of trust or other instrument granting a lien or other encumbrance upon any Company Property; (xiii) agreement or instrument providing for indemnification of any person with respect to liabilities relating to any current or former business of the Company, a former subsidiary or any predecessor person exclusive of indemnifications included in other documents listed in the Company Disclosure Schedule or granted to sellers of real property owned or leased by the Company or its affiliates; or (xiv) any other material agreement, contract, management contract, lease, license, commitment or instrument to which the Company is a party or by or to which it or any of its assets or business is bound or subject, not covered by any of the categories specified in clauses (i) through (xiii) above. 36 41 Except as set forth on Schedule 4.22(b) of the Company Disclosure Schedule, all agreements, contracts, leases, licenses, commitments or instruments of the Company listed in the Company Disclosure Schedule (collectively, the "Contracts") are valid, binding and in full force and effect and are enforceable by the Company in accordance with their respective terms. Except as set forth on Schedule 4.22(b) of the Company Disclosure Schedule, the Company has performed all material obligations required to be performed by it to date under the Contracts and it is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder and, to the knowledge of the Company, no other party to any of the Contracts is (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder nor has any other party to any of the Contracts taken any action or failed to take any action that would (with or without the lapse of time or the giving of notice or both) cause any of the Contracts to terminate, or threatened, or otherwise indicated to the Company that such party intends to, is considering, or may terminate any of the Contracts. Except as set forth on Schedule 4.22(b) of the Company Disclosure Schedule, there are no change of control or similar provisions or any obligations arising under any Contract with are created, accelerated or triggered by the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby or thereby. SECTION 4.23. Property. Schedule 4.23 of the Company Disclosure Schedule accurately identifies all real property, leases and other rights in real property, structures and other buildings of the Company (collectively, the "Company Properties"). All properties and assets of the Company, real and personal, material to the conduct of its business are, except for changes in the ordinary course of business since March 31, 1999, reflected in the balance sheet, and except as set forth on Schedule 4.23 of the Company Disclosure Schedule, the Company has good and marketable title to real and personal property reflected on the balance sheet or acquired by it since the date of the balance sheet, free and clear of all Liens (as defined below) and defects of title other than Permitted Liens (as defined below). All real property, structures and other buildings and material equipment of the Company are currently used in the operation of the business, are adequately maintained and are in satisfactory operating condition and repair for the requirements of the business as 37 42 presently conducted. "Liens" means any mortgages, pledges, claims, liens, charges, encumbrances, agreements, restrictions and security interests of any kind or nature whatsoever. "Permitted Liens" means any Liens for (i) taxes or other charges or levies of a Governmental Entity which are not due and payable or which are being contested in good faith by appropriate proceedings as described on Schedule 4.23 of the Company Disclosure Schedule and as to which adequate financial reserves have been established and described on Schedule 4.23 of the Company Disclosure Schedule; (ii) workmen's, repairmen's or other similar Liens (inchoate or otherwise) arising or incurred in the ordinary course of business in respect of obligations which are not overdue; (iii) minor title defects, easements or Liens affecting real property, which defects, easements or Liens do not, individually or in the aggregate, materially impair the continued use, occupancy, value or marketability of title of the real property to which they relate, assuming that the property is used on substantially the same basis as such property is currently being used by the Company. SECTION 4.24. Insurance. Schedule 4.24 of the Company Disclosure Schedule accurately identifies each material insurance policy (including policies providing property, casualty, environmental liability, liability, malpractice and workers compensation insurance) and all other material types of insurance maintained by the Company, together with carriers and liability limits for each such policy. Each such policy is duly in force and no notice has been received by the Company from any insurance carrier purporting to cancel or reduce coverage under any such policy. The Company is current in all premiums or other payments due thereunder and no notice has been received by the Company from any insurance carrier purporting to increase any such premiums in any material respect. All insurance coverage held for the benefit of the Company is adequate to cover risks customarily insured against by similar companies in its industry. SECTION 4.25. Year 2000 Compliance. Except as set forth on Schedule 4.25 of the Company Disclosure Schedule, the Company's disclosure in the Company's March 31, 1999, Form 10-Q under the caption "Impact of Year 2000" accurately sets forth in all material respects the Company's year 2000 compliance status regarding its internal systems, including IT and non-IT systems, and technical infrastructure. 38 43 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub represent and warrant to the Company as follows: SECTION 5.01. Organization. Parent is a limited partnership duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation and has all requisite limited partnership power and authority to carry on its business as now being conducted, except where the failure to be so formed, existing and in good standing or to have such power and authority would not be reasonably expected to prevent or materially delay the consummation of the Offer and/or the Merger. Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not be reasonably expected to prevent or materially delay the consummation of the Offer and/or the Merger. SECTION 5.02. Authority. Parent has requisite limited partnership power and authority and Sub has requisite corporate power and authority, to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary partnership action on the part of Parent and corporate action on the part of Sub and no other partnership proceedings on the part of Parent or corporate proceedings on the part of Sub are necessary to authorize this Agreement or to consummate such transactions. No vote of the limited partner of Parent is required to approve this Agreement or the transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent and Sub, as the case may be, and, assuming this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of each of Parent and Sub enforceable against them in accordance with its terms, except (i) as limited by 39 44 applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. SECTION 5.03. Consents and Approvals; No Violations. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act (including the filing with the SEC of the Offer Documents), the DGCL, the laws of other states in which Parent is qualified to do or is doing business, state takeover laws and foreign laws, neither the execution, delivery or performance of this Agreement by Parent and Sub nor the consummation by Parent and Sub of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the certificate of limited partnership or the limited partnership agreement of Parent or the certificate of incorporation or by-laws of Sub, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not be reasonably expected to prevent or materially delay the consummation of the Offer and/or the Merger), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which Parent or any of its subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Parent, any of its subsidiaries or any of their properties or assets, except in the case of clauses (iii) and (iv) for violations, breaches or defaults which would not, individually or in the aggregate, be reasonably expected to prevent or materially delay the consummation of the Offer and/or the Merger. SECTION 5.04. Information Supplied. None of the information supplied or to be supplied by Parent or Sub specifically for inclusion or incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the Information Statement, or (iv) the Proxy Statement will, in 40 45 the case of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the Company's stockholders, or, in the case of the Proxy Statement, at the time the Proxy Statement is first mailed to the Company's stockholders or at the time of the Stockholders Meeting to the extent required by applicable law, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Offer Documents will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by Parent or Sub with respect to statements made or incorporated by reference therein based on information supplied by the Company specifically for inclusion or incorporation by reference therein. SECTION 5.05. Interim Operations of Sub. Sub was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. SECTION 5.06. Financing. Sub will have sufficient funds to pay the Offer Price upon consummation of the Offer and the Merger Consideration upon consummation of the Merger and all related fees and expenses. ARTICLE VI COVENANTS SECTION 6.01. Conduct of Business of the Company. Except as contemplated by this Agreement or as expressly agreed to in writing by Parent (such consent not to be unreasonably withheld), during the period from the date of this Agreement until such time as Parent's designees shall constitute a majority of the members of the Board of Directors of the Company, the Company will conduct its operations according to its ordinary and usual course of business and consistent with past practice and use commercially reasonable efforts to preserve intact its current business organization, 41 46 keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors, licensees, advertisers, distributors and others having material business dealings with it and to preserve goodwill. Without limiting the generality of the foregoing, and except as (x) otherwise expressly provided in this Agreement, (y) required by law, or (z) set forth on Schedule 6.01 of the Company Disclosure Schedule, the Company will not without the consent of Parent (such consent not to be unreasonably withheld): (a) (i) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its stockholders in their capacity as such, other than dividends declared prior to the date of this Agreement, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (b) other than in connection with the exercise of options and warrants outstanding prior to the date hereof in accordance with their current terms, issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities or equity equivalent; (c) amend its Certificate of Incorporation or By-Laws; (d) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets; (e) sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets; 42 47 (f) amend or otherwise modify, or terminate, any Contract; (g) incur any additional indebtedness (including for this purpose any indebtedness evidenced by notes, debentures, bonds, leases or other similar instruments, or secured by any lien on any property, conditional sale obligations, obligations under any title retention agreement and obligations under letters of credit or similar credit transaction) in a single transaction or a group of related transactions, enter into a guaranty, or engage in any other financing arrangements having a value in excess of $10,000, or make any loans, advances or capital contributions to, or investments in, any other person; (h) alter through merger, liquidation, reorganization, restructuring or in any other fashion its corporate structure or ownership; (i) except as may be required as a result of a change in law or in generally accepted accounting principles, change any of the accounting principles or practices used by it; (j) revalue any of its assets, including, without limitation, writing down the value of its inventory or writing off notes or accounts receivable other than in the ordinary course of business; (k) make any tax election, change any annual tax accounting period, amend any tax return, settle or compromise any income tax liability, enter into any closing agreement, settle any tax claim or assessment, surrender any right to claim a tax refund or fail to make the payments or consent to any extension or waiver of the limitations period applicable to any tax claim or assessment; (l) except in the ordinary course of business, settle or compromise any pending or threatened suit, action or claim with a cost of $10,000 or more; (m) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted, contingent or otherwise) other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in, or contemplated by, the financial statements (or the notes thereto) of the Company or incurred in the ordinary course of business consistent with past practice; 43 48 (n) increase in any manner the compensation or fringe benefits of any of its directors, officers and other key employees or pay any pension or retirement allowance not required by any existing plan or agreement to any such employees, or become a party to, amend or commit itself to any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee, other than increases in the compensation of employees who are not officers or directors of the Company made in the ordinary course of business consistent with past practice, or, except to the extent required by law, voluntarily accelerate the vesting of any compensation or benefit; (o) waive, amend or allow to lapse any term or condition of any confidentiality, "standstill", consulting, advisory or employment agreement to which the Company is a party (except for any agreement which terminates in accordance with its express terms); (p) approve any annual operating budgets for the Company; (q) change the Company's dividend policy; (r) enter into any transaction with affiliates; (s) enter into any business other than the business currently engaged in by the Company; (t) pursuant to or within the meaning of any bankruptcy law, (i) commence a voluntary case, (ii) consent to the entry of an order for relief against it in an involuntary case, (iii) consent to the appointment of a custodian of it or for all or substantially all of its property or (iv) make a general assignment for the benefit of its creditors; (u) purchase or lease or enter into a binding agreement to purchase or lease any real property; (v) enter into or amend, modify or terminate any employment agreement with any officer or employee; (w) enter into any joint venture, lease, license, management agreement, research agreement, development agreement, option or other obligation relating to new development, or any other agreement of the Company, including without limitation any agreement or arrangement relating to Intellectual Property Rights; or 44 49 (x) take, or agree in writing or otherwise to take, any of the foregoing actions. During the period from the date of this Agreement through the Effective Time, (i) as requested by Parent, the Company shall confer on a regular basis with one or more representatives of Parent with respect to material operational matters; (ii) the Company shall, within 30 days following each fiscal month, deliver to Parent financial statements, including an income statement and balance sheet for such month; and (iii) upon the knowledge of the Company of any material adverse change to the Company, any material litigation or material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the breach in any material respect of any representation or warranty contained herein, the Company shall promptly notify Parent thereof. Notwithstanding any provision contained in this Agreement, action taken by the Company which is permitted under this Section 6.01 shall not constitute a misrepresentation or breach of warranty or covenant. The Company shall have the right to update the Company Disclosure Schedule, as it relates to Section 4.07, between the date hereof and the Effective Time to reflect actions taken by the Company which are permitted to be taken pursuant to this Section 6.01. SECTION 6.02. No Solicitation. (a) The Company agrees that from the date of this Agreement until such time as the Parent's designees shall constitute a majority of the Board of Directors of the Company or the termination of this Agreement (i) that neither it nor any of its officers, directors or employees shall, and that the Company will instruct its agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its subsidiaries) not to initiate, solicit or knowingly encourage, directly or indirectly, any inquiries or the making or implementation of any Acquisition Proposal (including, without limitation, any Acquisition Proposal to its stockholders) or, other than in the event that the Board of Directors of the Company determines in good faith, after receiving advice from outside counsel, that failure to do so would be reasonably determined to constitute a breach of its fiduciary duties to the Company's stockholders under applicable law, and in response to an unsolicited 45 50 request therefor by a person who a majority of the Board of Directors of the Company believes intends to submit a Superior Proposal (as defined below), engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or release any third party from any obligations under any existing standstill agreement or arrangement, or otherwise knowingly facilitate any effort or attempt to make or implement an Acquisition Proposal; and (ii) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing, and it will take the necessary steps to inform the individuals or entities referred to above of the obligations undertaken in this Section 6.02; provided, however, that nothing contained in this Section 6.02 shall prohibit the Company or its Board of Directors from taking and disclosing to the Company's stockholders a position with respect to a tender offer by a third party pursuant to Rule 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making such disclosure to the Company's stockholders which, in the judgment of the Board of Directors of the Company after receiving advice of outside counsel, may be required under applicable law. From and after the execution of this Agreement, the Company shall promptly advise Parent in writing of the receipt, directly or indirectly, of any inquiries, discussion, negotiations, or proposals relating to an Acquisition Proposal (including the specific terms thereof and, subject to any confidentiality obligations of the Company existing as of the date hereof, the identity of the other party or parties involved) and furnish to Parent within 24 hours of such receipt an accurate description of all material terms (including any changes or adjustment to such terms as a result of negotiations or otherwise) of any such written proposal in addition to any non-public information provided to any third party relating thereto. In addition, the Company shall promptly advise Parent, in writing, if the Board of Directors of the Company shall make any determination as to any Acquisition Proposal. (b) For purposes hereof: (i) "Acquisition Proposal" means any inquiry, proposal or offer from any person relating to any direct or indirect acquisition or purchase of 20% or more of any class of equity securities of the Company, any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of any 46 51 class of equity securities of the Company, any merger, consolidation, business combination, sale of substantially all the assets, recapitalization, liquidation, dissolution or similar transaction involving the Company, other than the transactions contemplated by this Agreement, or any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Offer and/or the Merger or which would reasonably be expected to dilute materially the benefits to Parent of the transactions contemplated hereby; and (ii) "Superior Proposal" means an Acquisition Proposal which a majority of the disinterested directors of the Company determines in its good faith judgment (based on advice of the Company's independent financial advisor) to be more favorable to the stockholders of the Company than the Offer or the Merger, and for which financing, to the extent required, is then committed. SECTION 6.03. Other Actions. Except as otherwise contemplated by this Agreement, neither the Company, on the one hand, nor the Parent nor Sub or any of their respective subsidiaries on the other hand, shall take any action that would reasonably be expected to result in (i) any of the representations and warranties of the Company on the one hand, or of Parent or Sub on the other hand, set forth in this Agreement that are qualified as to materiality becoming untrue, (ii) any of such representations and warranties that are not so qualified becoming untrue in any material respect, or (iii) except as otherwise permitted by Section 6.02, any of the Offer Conditions not being satisfied. SECTION 6.04. Notice of Certain Events. The Company and Parent shall promptly notify each other of: (a) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other communication from any Government Entity in connection with the transactions contemplated by this Agreement; (c) any action, suits, claims, investigations or proceedings commenced or, to the knowledge of the notifying party, threatened against, relating to or 47 52 involving or otherwise affecting such party or any of its subsidiaries; (d) an administrative or other order or notification relating to any material violation or claimed violation of law; (e) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing Date; and (f) any material failure of any party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.04 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.01. Stockholder Approval; Preparation of Proxy Statement. (a) If the Company Stockholder Approval is required by law, the Company will, at Parent's request, as soon as practicable following the acceptance for payment of, and payment for, any Shares by Sub pursuant to the Offer and the expiration of the Offer, duly call, give notice of, convene and hold a meeting of its stockholders (the "Stockholders Meeting") for the purpose of obtaining the Company Stockholder Approval. The Company will, through its Board of Directors, recommend to its stockholders that the Company Stockholder Approval be given. Notwithstanding the foregoing, if Sub or any other subsidiary of Parent shall acquire at least 90% of the outstanding Shares, the parties shall, at the request of Parent, take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a Stockholders Meeting in accordance with Section 253 of the DGCL. Without limiting the generality of the foregoing, the 48 53 Company agrees that its obligations pursuant to the first sentence of this Section 7.01(a) shall not be affected by (i) the commencement, public proposal, public disclosure or communication to the Company of any Acquisition Proposal or (ii) the withdrawal or modification by the Board of Directors of the Company of its approval or recommendation of the Offer, this Agreement or the Merger. (b) If the Company Stockholder Approval is required by law, the Company will, at Parent's request, as soon as practicable following the acceptance for payment of, and payment for, any Shares by Sub pursuant to the Offer and the expiration of the Offer, prepare and file a preliminary Proxy Statement with the SEC and will use commercially reasonable efforts to respond to any comments of the SEC or its staff and to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after responding to all such comments to the satisfaction of the staff. The Company will notify Parent promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Merger. If at any time prior to the Stockholders Meeting there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company will promptly prepare and mail to its stockholders such an amendment or supplement. The Company will not mail any Proxy Statement, or any amendment or supplement thereto, to which Parent reasonably objects, provided that Parent shall identify its objections and fully cooperate with the Company to create a mutually satisfactory Proxy Statement. (c) Parent agrees to cause all Shares purchased pursuant to the Offer to be voted in favor of the Company Stockholder Approval. SECTION 7.02. Access to Information. From the date hereof until such time as Parent's designees shall constitute a majority of the members of the Board of Directors of the Company, the Company shall give Parent and Sub, their counsel, financial advisors, auditors and other authorized representatives reasonable full access to the offices, properties, books and record of the Company during normal 49 54 business hours, will furnish to Parent and Sub, their counsel, financial advisors, financial institutions auditors and other authorized representatives such financial and operating data and other information as such may be reasonably requested and will instruct the employees of the Company, their counsel and financial advisors to cooperate with Parent and Sub in their investigation of the Business; provided, that (i) no investigation pursuant to this Section 7.02 shall affect any representation or warranty given by the Company to Parent and Sub hereunder; (ii) any information provided to Parent and/or Sub pursuant to this Section 7.02 shall be subject to the Confidentiality and Non-Disclosure Agreement dated September 28, 1998, as amended, by and between the Company and Purdue Pharma L.P., a Delaware limited partnership and affiliated companies (the "Confidentiality Agreement"), the terms of which shall continue to apply, except as otherwise agreed by the parties thereto, unless and until Parent and Sub shall have purchased a majority of the outstanding Shares pursuant to the Offer and notwithstanding termination of this Agreement; and (iii) the Company shall be required to disclose information that would otherwise jeopardize protections offered under the attorney-client privilege or the work-product doctrine only to appropriate counsel to the parties whose access to such information would not jeopardize such privileges; provided, however, that the parties agree to otherwise provide such information in a manner that will not jeopardize such privileges. SECTION 7.03. Reasonable Efforts. Each of the Company, Parent and Sub agree to use its reasonable efforts to take, or cause to be taken, all actions necessary to comply promptly with all legal requirements which may be imposed on itself with respect to the Offer and the Merger (which actions shall include furnishing all information required in connection with approvals of or filings with any Governmental Entity) and will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon any of them in connection with the Offer and the Merger. Each of the Company, Parent and Sub will use its reasonable efforts to take all reasonable actions necessary to obtain (and will cooperate with each other in obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other public or private third party required to be obtained or made by Parent, Sub or the Company in connection with the Offer and the Merger or the taking of any action contemplated thereby or 50 55 by this Agreement, except that no party need waive any substantial rights or agree to any substantial limitation on its operations or to dispose of any assets. SECTION 7.04. Options and Warrants. Prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, any committee thereof) shall adopt appropriate resolutions and take all action necessary to provide that the outstanding Options and Warrants, whether or not then fully vested or exercisable, shall, at the Effective Time, be canceled and retired and shall cease to exist, and the holders thereof entitled to receive the consideration from the Surviving Corporation, if any, determined in accordance with Section 3.01(d) and (e) hereof, respectively, including obtaining all necessary consents of the holders of Options and Warrants to the foregoing cancellation and treatment of such Options and Warrants. In addition, the Company shall take all necessary action to provide that the stock options plans of the Company shall be terminated as of the Effective Time. SECTION 7.05. Directors. Promptly upon the acceptance for payment of, and payment for, a majority of the outstanding Shares by Sub pursuant to the Offer, Sub shall be entitled and obligated to designate such number of directors on the Board of Directors of the Company as will give Sub, subject to compliance with Section 14(f) of the Exchange Act, a majority of such directors, and the Company shall, at such time, cause Sub's designees to be so elected by its existing Board of Directors; provided, however, that in the event that Sub's designees are elected to the Board of Directors of the Company, until the Effective Time such Board of Directors shall have at least two directors who are directors on the date of this Agreement and who are not officers of the Company (the "Independent Directors"); and provided, further, that, in such event, if the number of Independent Directors shall be reduced below two for any reason whatsoever, the remaining Independent Director shall designate a person to fill such vacancy who shall be deemed to be an Independent Director for purposes of this Agreement or, if no Independent Directors then remain, the other directors shall designate two persons to fill such vacancies who shall not be officers or affiliates of the Company or officers or affiliates of Parent or any of its subsidiaries, and such persons shall be deemed to be Independent Directors for purposes of this Agreement. Subject to applicable law, the Company shall take all action requested by Parent necessary to effect any such election, including 51 56 mailing to its stockholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company agrees to make such mailing together with the mailing of the Schedule 14D-9 (provided that Sub shall have provided to the Company on a timely basis all information required to be included in the Information Statement with respect to Sub's designees). In connection with the foregoing, the Company will promptly, at the option of Parent, either increase the size of the Company's Board of Directors and/or obtain the resignation of such number of its current directors as is necessary to enable Sub's designees to be elected or appointed to, and to constitute a majority of, the Company's Board of Directors as provided above. SECTION 7.06. Redemption of Stockholders Rights Plan. Promptly upon the execution of this Agreement, the Board of Directors of the Company shall take all action necessary to amend the Rights Plan (i) to provide that (A) the Rights will not separate from the Shares as a result of the execution of this Agreement and the consummation of the Offer and Merger, and (B) none of the Company, Parent, Sub nor the Surviving Corporation shall have any obligations under the Rights Plan to any holder (or former holder) of Rights as of and following the Effective Time, and (ii) as otherwise may be necessary to render the Rights Plan inapplicable to the transactions contemplated by the Offer and the Merger. SECTION 7.07. Fees and Expenses. (a) Except as otherwise specifically provided for herein, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. (b) The prevailing party in any legal action undertaken to enforce this Agreement or any provision hereof shall be entitled to recover from the other party the costs and expenses (including attorneys' and expert witness fees and expenses) incurred in connection with such action. (c) Parent and the Company shall cooperate in the preparation, execution and filing of all returns, applications or other documents regarding any real property transfer, stamp, recording, documentary or other taxes and any other fees and similar taxes which become payable in connection with 52 57 the Merger (collectively, "Transfer Taxes"). The Company will pay all of the Transfer Taxes. SECTION 7.08. Indemnification; Insurance. (a) Parent and Sub agree that all rights to indemnification for acts or omissions occurring prior to the Effective Time now existing in favor of the current or former directors or officers (the "Indemnified Parties") of the Company as provided in its Certificate of Incorporation or By-laws or existing indemnification contracts (all of which have been disclosed on Schedule 4.10 of the Company Disclosure Schedule) shall survive the Merger and shall continue in full force and effect in accordance with their terms. (b) For six years from the Effective Time, Parent shall, unless Parent agrees in writing to guarantee the indemnification obligations set forth in Section 7.08(a), maintain in effect the Company's current directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy (a copy of which has been heretofore delivered to Parent); provided, however, that in no event shall Parent be required to expend in any one year an amount in excess of 150% of the annual premiums currently paid by the Company for such insurance (which the Company represents is currently not more than $185,000); and, provided, further, that if the annual premiums of such insurance coverage exceed such amount, Parent shall be obligated only to obtain a policy with the greatest coverage available for a cost not exceeding such amount. (c) This Section 7.08 shall survive the consummation of the Merger at the Effective Time, is intended to benefit the Company, Parent, the Surviving Corporation and the Indemnified Parties, and shall be binding on all successors and assigns of Parent and the Surviving Corporation. SECTION 7.09. Certain Litigation. The Company agrees that it will not settle any litigation commenced after the date hereof against the Company or any of its directors by any stockholder of the Company relating to the Offer, the Merger or this Agreement, without the prior written consent of Parent. In addition, the Company will not voluntarily cooperate with any third party which may hereafter seek to restrain or prohibit or otherwise oppose the Offer or the 53 58 Merger and will cooperate with Parent and Sub to resist any such effort to restrain or prohibit or otherwise oppose the Offer or the Merger, unless the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that failing so to cooperate with such third party or cooperating with Parent or Sub, as the case may be, would constitute a breach of the director's fiduciary duties under applicable law. Section 7.10. 401(k) Plan. The Company agrees to take, or cause to be taken, all actions necessary to identify and correct all compliance and form defects related to the Company's 401(k) plan, including without limitation all action necessary to correct any compliance or form defect identified in the Memorandum dated July 21, 1999, from Ernst & Young to the Company and any other compliance or form defects that may be identified after the date thereof, and further agrees to take all necessary action to provide that the Company's 401(k) plan shall be terminated effective immediately prior to the acceptance for payment of Shares by Sub in the Offer. The Company agrees and acknowledges that no employees of the Company shall be entitled to participate in any defined contribution plan (including but not limited to any 401(k) plan or similar plan) of Parent or any of its affiliates for a period of one year following the effective date of termination of the Company's 401(k) plan. Section 7.11. Environmental Remediation. The Company agrees to take, or cause to be taken, all actions necessary to comply by September 10, 1999 in all material respects with the corrective actions recommended in the Tenant Environmental Inspection Report dated May 18, 1999, as requested by the Company's building property manager in the letter to the Company dated July 9, 1999. ARTICLE VIII CONDITIONS SECTION 8.01. Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the satisfaction prior to the Closing Date of the following conditions (provided, however, that paragraphs (b) and (c) shall be conditions to each party's obligation to effect the Merger 54 59 only until such time as Parent's designees shall constitute a majority of the members of the Board of Directors of the Company). (a) Company Stockholder Approval. If required by applicable law, the Company Stockholder Approval shall have been obtained. (b) Representations and Warranties. The representations and warranties of the Company contained in this Agreement that are qualified as to materiality shall be true and correct and any representations and warranties that are not so qualified shall be true and correct in all material respects at and as of the Effective Time, with the same force and effect as if made at and as of the Effective Time, other than such representations and warranties as are expressly made as of another date, and Parent and Sub shall have received a certificate of the Company to that effect signed by a duly authorized officer thereof. (c) Agreements and Covenants. The Company shall have performed or complied with in all material respects all agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Effective Time, including without limitation the redemption of the Rights Plan, and Parent and Sub shall have received a certificate of the Company to such effect signed by a duly authorized officer thereof. (d) No Injunctions or Restraints. No statute, rule, regulation, executive order, decree, temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other Governmental Entity or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect; provided, however, that each of the parties shall have used reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as possible any injunction or other order that may be entered. (e) Purchase of Shares. Sub shall have previously accepted for payment and paid for Shares pursuant to the Offer. 55 60 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER SECTION 9.01. Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after the Company Stockholder Approval (if required by applicable law): (a) by mutual written consent of Parent and the Company, by action of the Board of Directors of the General Partner on behalf of the Parent and by the Board of Directors of the Company; (b) by either Parent or the Company if neither the Offer nor the Merger shall have been consummated on or before December 31, 1999, unless such date is otherwise extended by Parent in its sole discretion; provided, however, that neither Parent nor the Company may terminate this Agreement pursuant to this Section 9.01(b) if such party shall have materially breached this Agreement; (c) by either Parent or the Company if any court of competent jurisdiction in the United States or other United States Governmental Entity has issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; provided, however, that the party seeking to terminate this Agreement shall have used its best efforts to remove or lift such order, decree, ruling or other action; (d) by the Company if, prior to the Effective Time, any person has made a bona fide proposal relating to an Acquisition Proposal, or has commenced a tender or exchange offer for the Shares, and the Board determines in good faith (i) after consultation with its financial advisors, that such transaction constitutes a Superior Proposal and (ii) after having received the advice of outside legal counsel to the Company, that the failure to engage in such negotiations or discussions or provide such information would be reasonably determined to constitute a breach of the fiduciary duties of the Board of Directors of the Company under applicable law; (e) by Parent, if (A) Parent shall not have materially breached this Agreement and (B) the Board shall 56 61 have (i) failed to recommend to the holders of the Shares that they accept the Offer, tender their Shares pursuant to the Offer and approve and adopt this Agreement (the "Stockholder Acceptance"), (ii) withdrawn or modified its approval or recommendation of this Agreement, the Offer or the Merger, (iii) shall have approved or recommended an Acquisition Proposal, (iv) shall have resolved to effect any of the foregoing or (v) shall have otherwise taken steps to impede the Stockholder Acceptance; (f) by either Parent or the Company, if the Company Stockholder Approval shall not have been obtained at a Stockholders Meeting, if required by applicable law; (g) by the Company, if Sub or Parent shall have (A) failed to commence the Offer within five business days after the public announcement (on the date hereof or the following day) by Parent and the Company of this Agreement, (B) failed to pay for Shares pursuant to the Offer in accordance with Section 1.01(a) hereof or (C) breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform in respect of clause (C) is incapable of being cured or has not been cured within 20 days after the giving of written notice to Parent or Sub, as applicable; (h) by Parent or Sub prior to Sub's obligation to accept Shares for payment pursuant to the Offer in the event of a breach by the Company of any representation, warranty, covenant or other agreement contained in this Agreement which (i) would give rise to the failure of a condition set forth in paragraph (c), (d) or (e) of Exhibit A and (ii) cannot be or has not been cured within 20 days after the giving of written notice to the Company; or (i) by either Parent or the Company if, as the result of the failure of any of the conditions set forth in Exhibit A to this Agreement, Sub shall have terminated the Offer in accordance with its terms without Sub having purchased any Shares pursuant to the Offer; provided, however, that the right to terminate this Agreement pursuant to this Section 9.01(i) shall not be available to any party whose failure to fulfill any of its obligations under, or breach of any provisions of, this Agreement or results in the failure of any such condition. 57 62 SECTION 9.02. Effect of Termination. In the event of a termination of this Agreement pursuant to Section 9.01, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Sub or the Company or their respective officers or directors, except with respect to Section 7.02, Section 7.07, this Section 9.02 and Article X; provided, however, that nothing herein shall relieve any party for liability for any willful breach hereof. Further, if this Agreement is terminated pursuant to Section 9.01(d) or (e), or any person (other than Parent or any of its affiliates) shall have made, or proposed, communicated or disclosed in an manner which is or otherwise becomes public an Acquisition Proposal prior to the consummation of the Offer and thereafter this Agreement is terminated in connection with such Acquisition Proposal, the Company shall pay to Parent the amount of Two Hundred Thirty Seven Thousand Five Hundred Dollars ($237,500.00) as liquidated damages and not as a penalty. The parties agree that such amount is a reasonable estimate of the costs and expenses that would be incurred and the value of services consumed by and on behalf of Parent and Sub if the transactions contemplated hereunder were not to go forward as a result of such a termination. SECTION 9.03. Amendment. This Agreement may be amended by the parties hereto, by action taken or authorized by the Board of Directors of the General Partner on behalf of the Parent and the Board of Directors of the Company, at any time before or after obtaining the Company Stockholder Approval (if required by law), but, after any such approval, no amendment shall be made which by law requires further approval by such stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Following the election or appointment of the Sub's designees pursuant to Section 7.05 and prior to the Effective Time, the affirmative vote of a majority of the Independent Directors then in office shall be required by the Company to (i) amend or terminate this Agreement by the Company, (ii) exercise or waive any of the Company's rights or remedies under this Agreement or (iii) extend the time for performance of Parent and Sub's respective obligations under this Agreement. SECTION 9.04. Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action 58 63 taken or authorized by the Board of Directors of the General Partner on behalf of the Parent and the Board of Directors of the Company, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (iii) subject to Section 9.03, waive compliance with any of the provisions of this Agreement or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure of any party hereto to assert any of its rights hereunder or otherwise shall not constitute a waiver of those rights. ARTICLE X MISCELLANEOUS SECTION 10.01. Nonsurvival of Representations and Warranties. The representations and warranties in this Agreement or in any instrument delivered pursuant hereto shall terminate at the Effective Time or termination of this Agreement or, in the case of the Company, shall terminate upon the acceptance for payment of, and payment for, Shares by Sub pursuant to the Offer, unless the survival thereof is provided for by their terms. SECTION 10.02. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed), sent by overnight courier (providing proof of delivery) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Sub, to: Purdue Pharma L.P. 100 Connecticut Avenue Norwalk, Connecticut 06850-3590 Attention: Howard R. Udell, Esq. Telecopy No.: (203) 851-5204 59 64 with a copy to: Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 Attention: Stuart D. Baker, Esq. Telecopy No.: (212) 489-7130 and (b) if to the Company, to: CoCensys, Inc. 213 Technology Drive Irvine, California 92618 Attention: F. Richard Nichol, Ph.D. Telecopy No.: (949) 753-6141 with a copy to: Cooley Godward LLP 3000 El Camino Real Palo Alto, CA 94306 Attention: Alan C. Mendelson and Suzanne Sawochka Hooper Telecopy No.: (650) 857-0663 SECTION 10.03. Interpretation. When a reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. As used in this Agreement, the term "subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such 60 65 voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person. As used in this Agreement, "material adverse change" or "material adverse effect" means, when used in connection with the Company, any change or effect (or any development that, insofar as can reasonably be foreseen, is likely to result in any change or effect) that, individually or in the aggregate with other favorable and unfavorable changes or effects, is materially adverse to the business, financial condition, results of operations or prospects of the Company. Notwithstanding the foregoing, a material adverse change or material adverse effect shall not include any material adverse change or material adverse effect resulting from or arising out of (i) this Agreement or the transactions contemplated by this Agreement or the announcement or pendency of the Offer or the Merger, (ii) any occurrence or condition affecting the biotechnology or biopharmaceutical industries generally, or (iii) any changes in general economic, regulatory or political conditions. As used in this Agreement, a corporate party's "knowledge" means the actual knowledge of any director or executive officer. SECTION 10.04. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. SECTION 10.05. Entire Agreement; Third Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein) (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) except as provided in Section 7.08, is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. SECTION 10.06. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to any applicable conflicts of law, except to the extent the DGCL shall be held to govern the terms of the Merger. 61 66 SECTION 10.07. Publicity. Except as otherwise required by law or the rules of the NASDAQ National Market, for so long as this Agreement is in effect, neither the Company nor Parent shall, or shall permit any of its affiliates to, issue or cause the publication of any press release or other public announcement with respect to the transactions contemplated by this Agreement without the consent of the other party, which consent shall not be unreasonably withheld. SECTION 10.08. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect wholly owned subsidiary of Parent. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. SECTION 10.09. Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of New York or Delaware or in a New York or Delaware state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit to the personal jurisdiction of any federal court located in the States of New York or Delaware or any New York or Delaware state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a federal court sitting in the State of New York or Delaware or a New York or Delaware state court and (iv) waives any right to trial by jury with respect to any claim or proceeding 62 67 related to or arising out of this Agreement or any of the transactions contemplated hereby. 63 68 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. PURDUE PHARMA L.P., by its general partner, PURDUE PHARMA INC. By: /s/ James J. Dolan ________________________ Name: James J. Dolan Title: Vice President PURDUE ACQUISITION CORPORATION By: /s/ James J. Dolan ________________________ Name: James J. Dolan Title: Vice President COCENSYS, INC. By: /s/ F. Richard Nichol ________________________ Name: F. Richard Nichol, Ph.D. Title: Chairman and Chief Executive Officer 64 69 EXHIBIT A Conditions of the Offer Notwithstanding any other term of the Offer or this Agreement, and in addition to (and not in limitation of) Sub's right to extend and amend the Offer at any time in its sole discretion (subject to the provisions of this Agreement), Sub shall not be required to accept for payment or, subject to applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Sub's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for, and may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any Shares tendered pursuant to the Offer unless there shall have been validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares that, when added to the number of shares of Company Common Stock to be received by Sub upon the conversion of all of the Series E Preferred Stock to be held by Sub upon consummation of the Preferred Stock Purchase Agreement, would constitute at least ninety percent (90%) of the Fully Diluted Shares (as defined below) as of the expiration date of the Offer, as it may be extended from time to time (the "Minimum Condition"). For the purposes of this Agreement: (i) "Fully Diluted Shares" shall mean all outstanding securities entitled generally to vote in the election of directors of the Company after giving effect to the exercise or conversion of all options, rights and securities exercisable or convertible into such voting securities (other than the Series C Preferred Stock), and (ii) both "Shares tendered" and "Fully Diluted Shares" shall include those shares that would be received upon the exercise of stock options contingently tendered to the Offer. Furthermore, notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate the Offer if, at any time on or after the date of this Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exists or shall occur and remain in effect: (a) there shall be threatened, instituted or pending by any Governmental Entity or instituted or pending by any person any suit, action, investigation or proceeding 65 70 (i) challenging the acquisition by Parent or Sub of any Shares under the Offer or seeking to restrain, prohibit or delay the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by this Agreement, or seeking to obtain from the Company, Parent or Sub any damages that are material in relation to the Company, (ii) seeking to prohibit or impose any limitations on Parent's or Sub's ownership or operation (or that of any of their respective subsidiaries or affiliates) of all or a material portion of their or the Company's businesses or assets, or to compel Parent, Sub, the Company or their respective subsidiaries and affiliates to dispose of or hold separate any material portion of the business or assets of the Company or Parent, Sub and their respective subsidiaries (provided that any prohibition, limitation, restriction or other action or requirement with respect to any of the Intellectual Property Rights of the Company, or rights and obligations related to or arising from the Intellectual Property Rights of the Company, shall be deemed a material portion for purposes hereof), (iii) seeking to make illegal, impose material limitations on the ability of Sub, or render Sub unable, to accept for payment, pay for or purchase some or all of the Shares pursuant to the Offer and the Merger, (iv) seeking to impose material limitations on the ability of Sub or Parent (or any of their affiliates) to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the Company's stockholders, or (v) which otherwise is reasonably likely to have a material adverse effect on the Parent, Sub or Company; (b) there shall be any statute, rule, regulation, judgment, decree, order or injunction enacted, entered, enforced, promulgated or deemed applicable to the Offer or the Merger, or any other action shall be taken by any Governmental Entity or court that could reasonably be expected to, in the judgment of the Parent, result, directly or indirectly, in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; (c)(i) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Sub its approval or recommendation of the Offer, the Merger or this Agreement, or approved or recommended any Acquisition Proposal, (ii) the Company shall have entered into any agreement with any other Person pursuant 66 71 to any Acquisition Proposal, (iii) the Board of Directors of the Company or any committee thereof shall have resolved to take any of the foregoing actions or (iv) the Board of Directors of the Company shall have failed to reject any Acquisition Proposal within 10 business days after receipt by the Company or public announcement thereof; (d) any of the representations and warranties of the Company set forth in this Agreement that are qualified as to materiality shall not be true and correct or any such representations and warranties that are not so qualified shall not be true and correct in any material respect, in each case at the date of this Agreement and at the scheduled or extended expiration of the Offer, other than any matters that individually or in the aggregate would not have a material adverse effect on the Company (provided, however, that the failure of any representations and warranties with respect to, arising from or related to the Intellectual Property Rights of the Company to be true and correct in any material respects shall be deemed to have a material adverse effect on the Company); (e) the Company shall have failed to perform in any respect any material obligation or to comply in any respect with any material agreement or material covenant of the Company to be performed or complied with by it under this Agreement, which failure to perform or comply is not substantially cured within 10 days after Parent provides the Company with notice of such failure; (f) there shall be any securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company, or securities convertible into or exercisable for shares of capital stock or other voting securities of the Company, which gives any person any right to acquire equity securities of the Surviving Corporation at or following the Effective Time; (g) this Agreement shall have been terminated in accordance with its terms; or 67 72 (h) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on any national securities exchange or over-the-counter market in the United States, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) any general limitation (whether or not mandatory) by any governmental authority on the extension of credit by banks or other lending institutions, (iv) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof, (v) a change in general financial, bank or capital market conditions which materially and adversely affects the ability of financial institutions in the United States to extend credit or syndicate loans. The foregoing conditions are for the sole benefit of Parent and Sub, may be asserted by Parent or Sub regardless of the circumstances giving rise to such condition (including any action or inaction by Parent or Sub not in violation of this Agreement) and may be waived by Parent or Sub in whole or in part at any time and from time to time in the sole discretion of Parent or Sub, subject in each case to the terms of this Agreement. The failure by Parent or Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Terms used herein but not defined herein shall have the meanings assigned to such terms in the Agreement of which this Exhibit A is a part. 68 EX-99.C.2 11 SERIES E PURCHASE AGREEMENT 1 Exhibit (c)(2) AGREEMENT PURCHASE AGREEMENT (the "Agreement"), dated as of August 5, 1999, between RGC International Investors, LDC. ("Seller) and Purdue Acquisition Corporation ("Purchaser"). WHEREAS, Seller is the owner of 1,159.2 shares (the "Shares") of Series E Convertible Preferred Stock (the "Series E Preferred") of CoCensys, Inc., a Delaware corporation ("CoCensys"); WHEREAS, Seller is the owner of certain stock purchase warrants (the "Warrants") to purchase shares of common stock of CoCensys (the "Common Stock"); and WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, the Shares and the Warrants (collectively, the "Purchased Interests"), subject to the terms and conditions set forth below. NOW, THEREFORE, Seller and Purchaser hereby agree as follows: 1. Purchase and Sale. Subject to the terms and conditions set forth herein, and in reliance on the representations, warranties and agreements set forth herein, Seller hereby agrees to sell to Purchaser and Purchaser hereby agrees to purchase from Seller all of the right, title and interest of Seller in and to the Purchased Interests, for an aggregate sum of $2,200,000 in cash (the "Purchase Price"). In the event the amount of cash paid by Purchaser for all of the equity interest in CoCensys exceeds $8,451,000, the Purchase Price shall be increased by a dollar amount in cash equal to the amount of such excess multiplied by 0.26. 2. Closing. The consummation of the purchase and sale of the Purchased Interests (the "Closing") shall take place immediately following satisfaction of all conditions to close set forth below, or such other date as Purchaser and Seller shall agree (the "Closing Date"). At the Closing, Seller will deliver to Purchaser certificates for the Purchased Interests, with the endorsements on the reverse thereof, or an assignment separate from the certificates, duly completed and executed, and Purchaser shall pay the Purchase Price by wire transfer pursuant to Seller's instructions. 3. Representations and Warranties of Seller. Seller hereby represents and warrants to Purchaser that (a) Seller has the requisite legal power to enter into this Agreement and perform its obligations under the terms of this Agreement; (b) Seller is the owner, free and clear of any liens, pledges, encumbrances, options, restrictions, charges, voting trusts, agreements or claims (collectively, "Liens"), of the Purchased Interests (other than a general brokerage account pledge, which automatically will be removed upon transfer of the Purchased Interests from Seller's brokerage account) and has the power to transfer its right title and interest 2 in the Purchased Interests to Purchaser; and (c) upon Closing, Purchaser will acquire good and valid title, free and clear of any Liens of, against or relating to Seller, to the Purchased Interests. All requisite legal action on the part of Seller necessary for the authorization, execution and delivery of this Agreement, the performance of all Seller's obligations hereunder and for the sale and delivery of the Purchased Interests has been taken or will be taken prior to the Closing. This Agreement, when executed and delivered, shall constitute a valid and legally binding obligation of Seller in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors. 4. Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to Seller that Purchaser has the requisite legal power to enter into this Agreement and to purchase the Purchased Interests and perform its obligations under the terms of this Agreement. All requisite legal action on the part of Purchaser necessary for the authorization, execution and delivery of this Agreement, the performance of all Purchaser's obligations hereunder and for the purchase of the Purchased Interests and payment of the Purchase Price has been taken or will be taken prior to the Closing. This Agreement, when executed and delivered, shall constitute a valid and legally binding obligation of Purchaser in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors. 5. Conditions to Closing. The respective obligation of each party to effect the purchase and sale of the Purchased Interests is subject to the fulfillment, at or prior to the Closing, of all of the following conditions, any of which may be waived by either party: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by each party shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date; and each party shall have performed all obligations and conditions herein required to be performed by it on or prior to the Closing. (b) Consents and Approvals; No Violations. 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 sale and transfer of the Purchased Interests pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing. No stop order or other order enjoining the sale of the Purchased Interests shall have been issued and no proceedings for such purpose shall be pending or, to the knowledge of either party, threatened by the SEC or any commissioner of corporations or similar officer of any other state having jurisdiction over this transaction. At the time of the Closing, the sale of the Purchased Interests shall be legally permitted by all laws and regulations to which Purchaser and Seller are subject. 2 3 (c) Close on Tender. Purchaser shall have accepted for payment and paid for shares of Common Stock pursuant to the cash tender offer for all of the outstanding shares of Common Stock of CoCensys contemplated by the Agreement and Plan of Merger, dated as of August 5, 1999, among Purdue Pharma L.P., Purchaser and CoCensys (the "Merger Agreement"). 6. Termination. This Agreement, and all rights and obligations of the parties hereunder, shall terminate simultaneously with the termination of the Merger Agreement, unless otherwise agreed by the parties. 7. Further Assurances. Each party agrees to take all steps and to execute all documents necessary to effectuate the transaction contemplated hereby. 8. Consent to Jurisdiction. All legal actions or proceedings brought against Purchaser or Seller with respect to this Agreement may be brought in any state or federal court of competent jurisdiction in the State of New York, and by execution and delivery of this Agreement, each of Purchaser and Seller accepts for itself and in connection with its properties, the jurisdiction of the aforesaid courts. Each of Purchaser and Seller hereby expressly and irrevocably waives any claim or defense in any such action or proceeding based on any alleged lack of personal jurisdiction, improper venue or forum non conveniens or any similar basis. Each of Purchaser and Seller further irrevocably consents to the service of any complaint, summons, notice or other process relating to any legal action or proceeding by delivery thereof to it by hand or by mail to its respective address set forth below its signature hereto. Nothing herein shall affect the right of Purchaser or Seller to bring proceedings against the other party in the courts of any other jurisdiction or to serve process in any manner permitted by law. 9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of New York, without regard to principles of conflicts of law. 10. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or three (3) days following mailing by registered or certified mail, postage and fees prepaid, addressed to the parties at the address set forth in the signature block below. 11. Successors and Assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either party without the prior written consent of the other party, except that (i) Purchaser may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any subsidiary of Parent that may be substituted for Purchaser as contemplated by Section 10.08 of the Merger Agreement. Subject to the preceding sentence, this Agreement shall bind and inure to the benefit of the successors and assigns of Seller and Purchaser, and be enforceable by the parties and their respective successors and assigns. 3 4 12. Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the sale to Purchaser or any entity affiliated with Purchaser of the Purchased Interests, and supersedes and merges all prior agreements or understandings, whether written or oral. This Agreement may not be amended, modified or revoked, in whole or in part, except by an agreement in writing signed by each of the parties hereto. 13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. SELLER: RGC International Investors, LDC By: Rose Glen Capital Management, L.P., Investment Manager By: RGC General Partner Corp. /s/ Wayne Bloch By: ___________________ Wayne Bloch, Managing Director 3 Bala Plaza- East Suite 200 Bala Cynwyd, Pennsylvania 19004 PURCHASER: Purdue Acquisition Corporation /s/ James J. Dolan By: _________________________ James J. Dolan Vice President 100 Connecticut Avenue Norwalk, Connecticut 06850 5 -----END PRIVACY-ENHANCED MESSAGE-----