UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Sec. 240.14a-12
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SGX Pharmaceuticals, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
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1)
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
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SGX
PHARMACEUTICALS, INC.
10505 Roselle Street
San Diego, California 92121
Dear Stockholder:
You are cordially invited to attend a special meeting of
stockholders of SGX Pharmaceuticals, Inc., a Delaware
corporation, referred to as SGX, the
Company, us, or we, to be
held at 9:00 a.m., California time, on August 20,
2008, at SGXs corporate headquarters located at 10505
Roselle Street, San Diego, California 92121.
At the special meeting we will ask you to consider and to vote
upon a proposal to adopt the merger agreement under which SGX
would be acquired by Eli Lilly and Company, an Indiana
corporation, or Lilly. We entered into the merger
agreement on July 8, 2008. If the merger is completed, each
of your shares of our common stock will be converted into the
right to receive $3.00 in cash, without interest and less any
applicable withholding taxes. The merger consideration of $3.00
per share of our common stock represents an approximately 110%
premium over the closing price of our common stock on The Nasdaq
Global Market on July 7, 2008, the day before we announced
that we entered into the merger agreement. Upon completion of
the merger, our common stock, which is listed on The Nasdaq
Global Market under the symbol SGXP, will no longer
be listed.
This proxy statement is furnished in connection with the
solicitation by our board of directors, or our board, of proxies
to be used at the special meeting of stockholders of SGX.
After careful consideration, our board unanimously approved
the merger agreement and determined that the merger agreement,
the merger and the transactions contemplated by the merger
agreement are advisable and are fair to, and in the best
interests of, the Company and our stockholders, and unanimously
approved and declared advisable the merger agreement and the
transactions contemplated by the merger agreement. Therefore,
our board recommends that you vote FOR the adoption
of the merger agreement.
Our board considered a number of factors in evaluating the
merger, in consultation with our legal and financial advisors.
Included in the enclosed proxy statement is the full text of the
written opinion of our financial advisor, Lazard
Frères & Co. LLC, to the effect that, as of
July 8, 2008, and based upon and subject to the
considerations set forth in its opinion, the merger
consideration is fair to the stockholders of the Company from a
financial point of view.
In connection with the merger agreement, certain SGX
stockholders, including certain executive officers and
directors, who beneficially owned, in the aggregate,
approximately 26% of the outstanding shares of our common stock
as of the record date, entered into a voting agreement with
Lilly. Pursuant to the voting agreement, each stockholder party
to such agreement has agreed, subject to limited exceptions, to
vote all shares of our common stock that he, she or it owns as
of the record date, in favor of adoption of the merger agreement.
Your vote is very important. Adoption of the merger agreement
requires the affirmative vote of the holders of a majority of
our common stock outstanding and entitled to vote at the special
meeting.
Only holders of record of shares of our common stock at the
close of business on July 16, 2008 will be entitled to vote
at the special meeting. Whether or not you plan to attend the
special meeting, it is important that your shares, regardless of
the number, be represented. Accordingly, please complete, sign,
date and return your proxy card in the envelope which has been
enclosed for your convenience. If you hold your shares in
street name, you should instruct your broker how to
vote in accordance with your voting instruction form. Completing
a proxy now will not prevent you from being able to vote at the
special meeting by attending in person and casting a vote.
Failure to submit a signed proxy or to vote in person at the
special meeting will have the same effect as a vote against the
adoption of the merger agreement.
The enclosed proxy statement explains the proposed merger, the
merger agreement and the transactions contemplated by the merger
agreement and provides specific information concerning the
special meeting. Please read the entire proxy statement
carefully.
Sincerely,
Michael Grey
President and Chief Executive Officer
San Diego, California
July 21, 2008
This proxy statement is dated July 21, 2008, and is first
being mailed to SGX stockholders on or about July 23, 2008.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE
TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT, PASSED UPON THE
MERITS OR FAIRNESS OF SUCH TRANSACTIONS, OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SGX
PHARMACEUTICALS, INC.
10505 Roselle Street
San Diego, California 92121
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
We cordially invite you to attend a special meeting of
stockholders of SGX Pharmaceuticals, Inc., a Delaware
corporation, referred to as SGX, the
Company, us, or we. This
special meeting will be held at 9:00 a.m., California time,
on August 20, 2008, at SGXs corporate headquarters
located at 10505 Roselle Street, San Diego, California
92121, for the following purposes:
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To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, referred to in this notice and the enclosed
proxy statement as the merger agreement, dated as of
July 8, 2008, among SGX, Eli Lilly and Company, an Indiana
corporation, or Lilly, and REM Merger Sub, Inc., or
Merger Sub, a Delaware corporation and wholly-owned
subsidiary of Lilly. As a result of the merger, SGX will merge
with Merger Sub and become a wholly-owned subsidiary of Lilly,
and each outstanding share of our common stock will be converted
into the right to receive $3.00 in cash, without interest and
less any applicable withholding taxes;
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To consider and vote upon any proposal to adjourn, postpone or
continue the special meeting to a later date to solicit
additional proxies in favor of the proposal to adopt the merger
agreement at the special meeting; and
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To transact such other business as may properly come before the
special meeting or any adjournment, postponement or continuance
thereof.
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Our board of directors, or our board, has fixed July 16,
2008, as the record date, and only holders of record of SGX
common stock at the close of business on that date will be
entitled to notice of, and to vote at, the special meeting. In
connection with the proposed merger, you may be entitled to
assert dissenters rights under Delaware law.
After careful consideration, our board unanimously approved
the merger agreement and determined that the merger agreement,
the merger and the transactions contemplated by the merger
agreement are advisable and are fair to, and in the best
interests of, SGX and our stockholders, and unanimously approved
and declared advisable the merger agreement and the transactions
contemplated by the merger agreement. Therefore, our board
recommends that you vote FOR the adoption of the
merger agreement.
Your vote is very important. Adoption of the merger agreement
requires the affirmative vote of the holders of a majority of
our common stock outstanding and entitled to vote at the special
meeting.
You are cordially invited to be present and to vote at the
special meeting in person. Whether or not you plan to attend the
special meeting, it is important that your shares, regardless of
the number, be represented. Accordingly, you are requested to
complete, sign, date and return the enclosed proxy in the
enclosed postage-paid and addressed envelope. If you have
returned a signed proxy but elect to attend the special meeting
and vote in person, you will be entitled to vote. Failure to
submit a signed proxy or to vote in person at the special
meeting will have the same effect as a vote AGAINST
the approval of the merger agreement.
By Order of the Board of Directors,
Michael Grey
President and Chief Executive Officer
San Diego, California
July 21, 2008
ADDITIONAL
INFORMATION
This document incorporates important business and financial
information about us from documents that are not included in or
delivered with this document. See Where You Can Find More
Information on page 65. You can obtain documents
incorporated by reference in this document from us by requesting
them in writing at 10505 Roselle Street, San Diego,
California 92121, Attn: Corporate Secretary, or by calling
858-558-4850.
You will not be charged for any of these documents that you
request. If you wish to request documents, you should do so by
August 13, 2008 in order to receive them before the special
meeting.
If you have additional questions about the merger or require
assistance in submitting proxies or voting shares of our common
stock, or if you would like to receive additional copies of the
proxy statement or the enclosed proxy card, please contact
Georgeson Inc.:
Georgeson Inc.
199 Water Street
New York, NY 10038
Banks and Brokers Call:
212-440-9800
All Others Call Toll Free:
877-278-6774
TABLE OF
CONTENTS
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2
SUMMARY
TERM SHEET
This summary term sheet highlights selected information from
this proxy statement with respect to the merger and may not
contain all of the information that is important to you. To
understand the merger fully and for a more complete description
of the terms of the merger, you should read this entire proxy
statement carefully, including the annexes, and the documents we
refer to or incorporate by reference herein. We encourage you to
read each of these documents, in particular the merger
agreement.
Except as otherwise specifically noted in this proxy
statement, merger refers to the merger contemplated
by the merger agreement, and transactions refers to
the transactions contemplated by the merger agreement.
The
Merger (page 18)
The merger agreement provides that Merger Sub will merge with
and into SGX, with SGX continuing after the merger as the
surviving corporation. As a result of the merger, we will become
a wholly-owned subsidiary of Lilly, shares of our common stock
will no longer be listed on any stock exchange or quotation
system and each outstanding share of our common stock will be
converted into the right to receive $3.00 in cash, without
interest, less any applicable withholding taxes.
Information
About the Parties to the Transaction (page 18)
SGX Pharmaceuticals, Inc.
We are a
biotechnology company focused on the discovery, development and
commercialization of novel, targeted therapeutics directed at
addressing unmet medical needs in oncology. Our principal
executive offices are located at 10505 Roselle Street,
San Diego, California 92121, and our telephone number is
858-558-4850.
Eli Lilly and Company.
Eli Lilly and
Company, a leading innovation-driven corporation, is developing
a growing portfolio of
first-in-class
and
best-in-class
pharmaceutical products by applying the latest research from its
own worldwide laboratories and from collaborations with eminent
scientific organizations. Headquartered in Indianapolis,
Indiana, Lilly provides answers through medicines
and information for some of the worlds most
urgent medical needs. Lilly manufactures and distributes its
products through owned or leased facilities in the United
States, Puerto Rico, and 25 other countries. Lilly products are
sold in approximately 135 countries. Lillys principal
executive offices are located at Lilly Corporate Center,
Indianapolis, Indiana 46285, and its telephone number is
317-276-2000.
REM Merger Sub, Inc.
REM Merger Sub,
Inc., a Delaware corporation and wholly-owned subsidiary of
Lilly, was organized solely for the purpose of entering into the
merger agreement with us and completing the merger. Merger Sub
was incorporated on July 3, 2008 and has not conducted any
business operations. Merger Subs principal executive
offices are located at Lilly Corporate Center, Indianapolis,
Indiana 46285, and its telephone number is 317-276-2000.
The
Special Meeting (page 16)
We are furnishing this proxy statement to our stockholders as
part of the solicitation of proxies by our board of directors,
or our board, for use at the special meeting.
Date, Time and Place.
The special
meeting will be held at 9:00 a.m., California time, on
August 20, 2008, at our corporate headquarters located at
10505 Roselle Street, San Diego, California 92121.
Purpose.
You will be asked to consider
and vote upon a proposal to adopt the merger agreement. You may
also be asked to transact such other business as may properly
come before the special meeting or any adjournment, postponement
or continuance thereof.
Record Date; Stockholders Entitled to
Vote.
Our board has fixed July 16, 2008,
as the record date, and only those of our stockholders who are
shown by our records to have owned shares of our common stock as
of the close of business on the record date will be entitled to
receive notice of, and to vote at, the special meeting. The only
outstanding class of our stock is our common stock, par value
$0.001 per share. As of the close of business on the record
date, 20,667,204 shares of our common stock were
outstanding. Each holder of record of our common stock
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on the record date will be entitled to one vote for each share
held on all matters to be voted upon at the special meeting.
Voting and Proxies.
You should
complete, sign and date the accompanying proxy and promptly
return it in the enclosed postage-paid return envelope. Brokers
or banks holding shares in street name may vote your
shares on the adoption of the merger agreement only if you
provide instructions on how to vote. Brokers or banks will
provide you with directions on how to instruct the broker or
bank to vote your shares. All properly executed proxies that we
receive prior to the vote at the special meeting, and that are
not revoked, will be voted in accordance with the instructions
indicated on the proxies. If no direction is indicated on a
properly executed proxy returned to us, the underlying shares
will be voted
FOR
the adoption of the merger
agreement and in the discretion of the proxy holder(s) on any
other matter that may properly be brought before the special
meeting.
Revocability of Proxy.
You may revoke
your proxy prior to its exercise. You may do this by
(i) delivering to our Corporate Secretary at 10505 Roselle
Street, San Diego, California 92121, prior to the special
meeting, an instrument of revocation or another proxy bearing a
date or time later than the date or time of the proxy being
revoked or (ii) voting in person at the special meeting.
Mere attendance at the special meeting will not serve to revoke
your proxy.
Quorum.
A quorum must be present to
transact business at the special meeting. A quorum will be
present at the special meeting if a majority of all of our
shares of common stock issued and outstanding on the record date
and entitled to vote at the special meeting are represented at
the special meeting in person or by a properly executed proxy.
If you submit a properly executed proxy card, even if you
abstain from voting, your shares will be counted for purposes of
determining whether a quorum is present at the special meeting.
In the event that a quorum is not present at the special
meeting, it is expected that the meeting will be adjourned or
postponed to solicit additional proxies.
Vote Required.
Adoption of the merger
agreement requires the affirmative vote of holders of a majority
of our shares of common stock outstanding and entitled to vote
at the special meeting. Any proposal to adjourn or postpone the
special meeting or on any other matter to be voted upon at the
special meeting requires the affirmative vote of a majority of
the shares represented in person or by proxy entitled to vote on
the matter and actually voted on the matter for approval. In
connection with the merger agreement, certain SGX stockholders,
including certain executive officers, who beneficially owned, in
the aggregate, approximately 26% of the outstanding shares of
our common stock as of the record date, entered into a voting
agreement with Lilly. Pursuant to the voting agreement, each
stockholder party to such agreement has agreed, subject to
limited exceptions, to vote all shares of our common stock that
he, she or it owns as of the record date, in favor of adoption
of the merger agreement. For a description of the voting
agreement,
see
The Voting Agreement below.
Effect of Abstentions and Broker
Non-Votes.
Both abstentions and broker
non-votes will be counted in determining whether a quorum
is present at the special meeting. Abstentions, broker
non-votes and shares not in attendance and not voted at
the special meeting will have the same effect as a vote
AGAINST
the proposal to adopt the merger
agreement. Abstentions and broker non-votes will have no effect
on the outcome of any vote to adjourn or postpone the special
meeting or any other matter properly brought before the special
meeting. It is very important that as many stockholders as
possible vote their shares, so please promptly complete, sign,
date and return the enclosed proxy card.
Solicitation of Proxies and
Expenses.
The solicitation of proxies is
being made initially by mail. Directors, officers and other
employees of the Company may solicit proxies in person, by
telephone, electronically, by mail or other means, but they will
not be specifically compensated for these services. We will
reimburse brokers, banks and other persons for expenses they
incur in forwarding proxy material to obtain voting instructions
from beneficial stockholders. We have hired Georgeson Inc., a
solicitation firm, to help facilitate the solicitation process.
We will bear the total cost of our and Georgesons
solicitation of proxies. Lilly may participate in the
solicitation of proxies and will bear the entire cost of its
solicitations. For a description of the costs and expenses of
soliciting proxies,
see
The Special
Meeting Solicitation Costs below.
Stockholders Should Not Send In Their Stock Certificates
with Their Proxies.
A transmittal form with
instructions for the surrender of certificates representing
shares of our common stock will be mailed to you if the merger
is completed.
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Board
Recommendation (page 16)
After careful consideration, our board unanimously approved the
merger agreement and determined that the merger agreement, the
merger and the transactions contemplated by the merger agreement
are advisable and are fair to, and in the best interests of, SGX
and our stockholders, and unanimously approved and declared
advisable the merger agreement and the transactions contemplated
by the merger agreement. Therefore, our board recommends that
you vote
FOR
the adoption of the merger
agreement and
FOR
the adjournment,
postponement or continuation of the special meeting to a later
date, if necessary or appropriate, to solicit additional proxies
in favor of the proposal to adopt the merger agreement.
Opinion
of Lazard Frères & Co. LLC
(page 25)
In connection with the merger, on July 8, 2008, our
financial advisor, Lazard Frères & Co. LLC, which
we refer to as Lazard, rendered its oral opinion to
our board, subsequently confirmed in writing, that, as of such
date, and based upon and subject to the assumptions, procedures,
factors, qualifications and limitations set forth therein, the
per share merger consideration to be paid to holders of our
common stock (other than shares of our common stock held by
holders who are entitled to and properly demand an appraisal of
their shares of our common stock and shares of our common stock
held in our treasury or owned by Merger Sub, Lilly or any
wholly-owned subsidiary of us or of Lilly), in the merger was
fair, from a financial point of view, to such holders.
The full text of Lazards written opinion, dated
July 8, 2008, which sets forth the assumptions made,
procedures followed, factors considered, and qualifications and
limitations on the review undertaken by Lazard in connection
with its opinion is attached to this proxy statement as
Annex C
and is incorporated into this proxy
statement by reference. We encourage you to read Lazards
opinion, and the section entitled The
Merger Opinion of Lazard
Frères & Co. LLC beginning on page 25,
carefully and in their entirety.
Lazards opinion was
directed to our board for the information and assistance of our
board in connection with its evaluation of the consideration to
be paid to the holders of our common stock in the merger.
Lazards opinion did not address any other aspect of the
merger and was not intended to and does not constitute a
recommendation to any holder of our common stock as to how such
holder should vote or act with respect to the merger or any
matter relating thereto.
Reasons
for the Merger (page 23)
In making its recommendation that you vote
FOR
the proposal to adopt the merger
agreement, our board considered a number of factors, including
the following:
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our business, competitive position and prospects in the industry
in which we compete;
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our financing prospects and partnering opportunities and the
prospects for generating adequate cash flow from those
activities;
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the stage of our drug discovery and development programs and the
failure and discontinuation earlier this year of our Phase I
studies in our MET program;
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the premium to the current and historical closing trading prices
of shares of our common stock and to our current historical
enterprise value represented by the $3.00 per share in cash to
be received by our stockholders in the merger;
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the fact that Lillys offer will be paid in cash, providing
certainty, immediate value and liquidity for our stockholders;
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the financial analyses and written opinion of Lazard, the
financial advisor to our board;
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our boards assessment of a number of strategic, financial
and operational considerations, including the alternatives
(including the possibility of continuing to operate as an
independent entity) to the proposed merger and the risks and
uncertainties associated with the alternatives;
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the terms of the merger agreement, including our ability to
furnish information to, and conduct negotiations with, a third
party should we receive a superior proposal and terminate the
merger agreement in the exercise of fiduciary duties in
connection with the receipt of a superior proposal, upon payment
of a termination fee; and
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the interest that certain of our directors and executive
officers may have with respect to the merger, in addition to
their interests as stockholders of SGX generally.
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In the course of deliberations, our board also considered a
variety of risks and potentially negative factors, including:
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the fact that we will no longer exist as an independent company
and our stockholders will forego any increase in our value that
might result from our possible growth and potential future
advancement of our drug discovery and development programs;
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the fact that under the terms of the merger agreement, we cannot
solicit other acquisition proposals and must pay Lilly a
termination fee of $2.0 million, plus an additional amount
not to exceed $250,000 for the expenses of Lilly, if the merger
agreement is terminated under certain circumstances;
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the fact that receipt of the merger consideration generally will
be taxable to our stockholders; and
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various affirmative and negative covenants that are applicable
to us under the merger agreement until the earlier of the
consummation of the merger and termination of the merger
agreement.
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The
Merger Agreement (page 38)
The rights and obligations of the parties to the merger
agreement are governed by the specific terms and conditions of
the merger agreement and not by any summary or other information
in this proxy statement. Therefore, the information in this
proxy statement regarding the merger agreement and the merger is
qualified in its entirety by reference to the merger agreement,
a copy of which is attached as
Annex A
to this proxy
statement.
Structure of the Merger.
Upon the terms
and conditions of the merger agreement, Merger Sub will merge
with and into SGX, with SGX continuing after the merger as the
surviving corporation. SGX will become a wholly-owned subsidiary
of Lilly. You will have no equity interest in SGX or Lilly after
the merger.
SGX Common Stock.
At the effective time
of the merger, each share of our common stock will be converted
into the right to receive $3.00 in cash, without interest and
less any applicable withholding taxes.
SGX Stock Options.
In connection with
the merger: (i) each option to purchase our common stock
granted under our 2005 Equity Incentive Plan, or 2005
Plan, that is outstanding immediately prior to the
effective time of the merger, will be canceled and terminated
and converted into the right to receive, as of the effective
time of the merger, an amount in cash equal to the product of
(A) the number of shares underlying the option
multiplied by
(B) the excess, if any, of
(1) $3.00 per share over (2) the exercise price per
share of such option, subject to applicable tax withholding; and
(ii) each option to purchase our common stock granted under
our 2000 Equity Incentive Plan, or 2000 Plan, or our
2005 Non-Employee Directors Stock Option Plan, or
NEDSOP, to the extent not vested, will be
accelerated in full to a date prior to the effective time of the
merger (as determined by our board) and such options will
terminate at the effective time of the merger if not exercised
prior to the effective time;
provided, that
, each such
option with an exercise price per share less than $3.00 that
remains outstanding and unexercised immediately prior to the
effective time of the merger, shall be canceled and terminated
and converted into the right to receive, as of the effective
time of the merger, an amount in cash equal to the product of
(A) the number of shares underlying the option
multiplied by
(B) the excess, if any, of
(1) $3.00 per share over (2) the exercise price per
share of such option, subject to applicable tax withholding.
No payment will be made with respect to stock options that have
per share exercise prices above $3.00 and such options will be
canceled and terminated in accordance with their terms.
SGX Restricted Stock and Restricted Stock
Units.
In connection with the merger, each
share of restricted stock and each restricted stock unit
outstanding immediately prior to the effective time of the
merger will be treated as the corresponding number of shares of
common stock as of the effective time of the merger in the same
manner as
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other outstanding shares of common stock issued and outstanding
as of immediately prior to the effective time of the merger.
SGX Warrants.
In connection with the
merger, each warrant to purchase our common stock outstanding
immediately prior to the effective time of the merger will cease
to represent a right to acquire shares of our common stock and
will be converted into the right to receive (upon surrender of
the warrant) an amount in cash, without interest, equal to the
product of the number of shares of our common stock subject to
such warrant multiplied by the excess, if any, of (i) $3.00
per share over (ii) the exercise price per share of such
warrant, subject to applicable tax withholding.
No payment will be made with respect to warrants that have per
share exercise prices above $3.00.
SGX ESPP.
Immediately before the
effective time of the merger, our 2005 Employee Stock Purchase
Plan, or ESPP, will terminate. At such time, each
right to purchase shares of our common stock under our ESPP will
be automatically exercised by applying the payroll deductions of
each participant in the ESPP for the applicable Purchase Period
(as defined in the ESPP) to the purchase of a number of whole
shares of our common stock at an exercise price per share of our
common stock equal to 85% of the merger consideration, which
shares will then be canceled, immediately prior to the effective
time of the merger, and converted into the right to receive the
merger consideration. Excess payroll deductions not used as a
result of ESPP share limitations or fractional shares will be
distributed to the ESPP participants without interest.
Dissenters Shares.
Shares of our
common stock that are outstanding immediately prior to the
merger and held by any dissenting stockholder who properly
perfects his, her or its dissenters rights will not be
converted into the right to receive the merger consideration.
Instead, the dissenting stockholder will be entitled to an
appraisal and payment for his, her or its dissenting shares in
accordance with and subject to Section 262 of the Delaware
General Corporation Law, or the DGCL. For more
information regarding dissenters rights,
see
Dissenters Rights on page 55 of this
proxy statement. In addition, a copy of Section 262 of the
DGCL, is attached as
Annex D
to this proxy statement.
Directors and Officers of SGX Following the
Merger.
Following the merger, none of our
directors will serve as directors of the surviving corporation,
and the directors and officers of Merger Sub will be the initial
directors and officers of the surviving corporation.
Employee Matters.
For a period of one
year following the effective time of the merger, Lilly has
agreed to provide our employees who are located in the United
States and retained by Lilly with employee benefits that are
substantially comparable in the aggregate to those benefits
provided to such employees immediately prior to the merger.
However, Lilly will be under no obligation to retain any of our
employees other than as required by applicable law or an
employment agreement.
Our Conduct Prior to the Merger.
The
merger agreement subjects us to various affirmative and negative
covenants until the earlier of the consummation of the merger
and termination of the merger agreement.
See
The
Merger Agreement Conduct of Our Business Prior to
the Merger.
Conditions of the Merger.
A number of
conditions must be satisfied or waived before the merger can be
completed. The most important of these include:
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adoption of the merger by holders of a majority of the
outstanding shares of our common stock;
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termination or expiration of the waiting period (and any
extension thereof) applicable to the merger under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, or the HSR
Act;
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subject to certain conditions and limitations set forth in the
merger agreement, absence of any legal prohibitions or
restraints against the merger or certain proceedings instituted
by a governmental authority relating to the merger;
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subject to certain conditions and limitations set forth in the
merger agreement, our representations and warranties in the
merger agreement must be true and correct as of the date of the
merger agreement and on the closing date; and
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the absence of any event or events since the date of the merger
agreement that has had or would reasonably be expected to have a
Company Material Adverse Effect (
See
The Merger
Agreement Representations and Warranties for
what constitutes a Company Material Adverse Effect).
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We cannot offer any assurance that all of the conditions will be
satisfied or waived or that the merger will occur.
Termination of the Merger Agreement and Termination
Fee.
The merger agreement contains provisions
addressing the circumstances under which we or Lilly may
terminate the merger agreement.
See
The Merger
Agreement Termination. Upon termination of the
merger agreement under specified circumstances, we may be
required to pay Lilly a $2.0 million termination fee, plus
an additional amount not to exceed $250,000 for expenses of
Lilly.
See
The Merger Agreement
Termination Fee.
The
Voting Agreement (page 53)
As a condition of, and an inducement to, Lilly entering into the
merger agreement, on the date the merger agreement was executed,
each of Michael Grey, Stephen K. Burley, W. Todd Myers,
Siegfried Reich, Karin Eastham, Christopher S. Henney, Atlas
Venture Fund IV, L.P., and its affiliated entities that
hold shares of our common stock, and BAVP, L.P. (which is an
affiliate of Louis Bock, a member of our board), who
collectively beneficially owned approximately 26% of the
outstanding shares of our common stock as of the record date,
entered into a voting agreement with Lilly to vote his, her or
its shares of our common stock in favor of the adoption of the
merger agreement and against any inconsistent proposals or
transactions.
Pursuant to the voting agreement, each of these stockholders
granted an irrevocable proxy to Lilly and irrevocably appointed
Lilly as his, her or its proxy to vote his, her or its shares of
our common stock in favor of the adoption of the merger
agreement and against any inconsistent proposals or transactions.
The voting agreement, and the stockholders obligations
thereunder, will terminate upon the earlier to occur of the
consummation of the merger, the termination of the merger
agreement, the amendment of the merger agreement in a way that
adversely affects such stockholder without such
stockholders consent or, with respect to any stockholder
party to the voting agreement, the written agreement of such
stockholder and Lilly.
The voting agreement is attached as
Annex B
to this
proxy statement. For a more complete description of the voting
agreement,
see
The Voting Agreement beginning
on page 53.
Material
United States Federal Income Tax Consequences
(page 35)
If you are a U.S. holder of our common stock, the merger
will be a taxable transaction to you. For U.S. federal
income tax purposes, your receipt of cash in exchange for your
shares of our common stock generally will cause you to recognize
a gain or loss measured by the difference, if any, between the
cash you receive in the merger and your adjusted tax basis in
your shares.
You should read The Merger Material United
States Federal Income Tax Consequences below for a more
complete discussion of the United States federal income tax
consequences of the merger. Tax matters can be complicated and
the tax consequences of the merger to you will depend on your
particular circumstances. We urge you to consult your own tax
advisor to understand fully the tax consequences of the merger
to you (including the application and effect of any state,
local, or foreign income and other tax laws).
Interests
of Our Directors and Executive Officers in the Merger
(page 31)
When considering the recommendation of our board with respect to
the adoption of the merger agreement, you should be aware that
some of our directors and executive officers have interests in
the merger that may be different from, and in addition to, their
interests as stockholders and the interests of our stockholders
generally. Our board was aware of these interests during its
deliberations on the merits of the merger and in deciding to
recommend that you vote for the adoption of the merger agreement
at the special meeting. For a more detailed discussion of these
interests,
see
The Merger Interests of
Our Directors and Executive Officers in the Merger below.
8
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement, and the documents to which we refer you in
this proxy statement, include forward-looking statements based
on estimates and assumptions. There are forward-looking
statements throughout this proxy statement, including, without
limitation, under the headings Summary Term Sheet,
The Special Meeting, The Merger,
Opinion of Lazard Frères & Co. LLC
and in statements containing words such as believes,
estimates, anticipates,
continues, predict,
potential, contemplates,
expects, may, will,
likely, could, should or
would or other similar words or phrases. These
statements are subject to risks, uncertainties, and other
factors, including, among others:
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the effect of the announcement of the merger on our business
relationships, operating results and business generally;
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the occurrence of any event, change or other circumstances that
could give rise to the termination of the merger agreement or
the payment of any termination fee;
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the outcome of any legal proceedings that may be instituted
against us, Lilly or others related to the merger agreement;
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failure to obtain the required stockholder approval, to satisfy
other conditions to the completion of the merger, or to obtain
the regulatory approvals required for the merger on the terms
expected or on the anticipated schedule;
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the amount of the costs, fees, expenses and charges related to
the merger; and
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our and Lillys ability to meet expectations regarding the
timing and completion of the merger.
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We discuss some of the above risks in greater detail under the
heading to this proxy statement titled Risk Factors.
In addition, we are subject to risks and uncertainties and other
factors detailed in our filings with the Securities and Exchange
Commission, or SEC, including our annual report on
Form 10-K
for the fiscal year ended December 31, 2007 and our
quarterly report on
Form 10-Q
for the fiscal quarter ended March 31, 2008 and in
subsequent filings with the SEC, which should be read in
conjunction with this proxy statement. See Where You Can
Find More Information on page 65. Many of the factors
that will impact the completion of the proposed merger are
beyond our ability to control or predict. In light of the
significant uncertainties inherent in the forward-looking
statements contained in this proxy statement, readers should not
place undue reliance on forward-looking statements. We cannot
guarantee any future results, levels of activity, performance or
achievements. The statements made in this proxy statement
represent our views as of the date of this proxy statement, and
it should not be assumed that the statements made in this proxy
statement remain accurate as of any future date. Moreover, we
assume no obligation to update forward-looking statements,
except as required by law.
9
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
The following questions and answers are intended to address
some commonly asked questions regarding the merger and the
special meeting. These questions and answers may not address all
questions that may be important to you as a SGX stockholder.
Please refer to the more detailed information contained
elsewhere in this proxy statement, the annexes to this proxy
statement and the documents referred to in this proxy statement,
which you should read carefully.
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Q:
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Why am I
receiving this proxy statement?
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A:
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We entered into a merger agreement dated July 8, 2008, with
Lilly and Merger Sub. Upon completion of the merger contemplated
by the merger agreement, we will become a wholly-owned
subsidiary of Lilly and each share of our common stock will be
converted into the right to receive $3.00 in cash, without
interest and less any applicable withholding taxes. A copy of
the merger agreement is attached to this proxy statement as
Annex A
.
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To consummate the merger, the merger agreement must be adopted
by the affirmative vote of the holders of a majority of the
shares of our common stock outstanding at the close of business
on the record date. Our board is providing this proxy statement
to give you information for use in determining how to vote on
the proposals submitted to the stockholders at the special
meeting. You should carefully read this proxy statement, the
attached annexes and the documents referred to in, or
incorporated by reference into, this proxy statement. The
enclosed proxy card and voting instructions allow you, as a
stockholder, to vote your shares without attending the special
meeting in person.
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Q:
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What is
the date, time and place of the special meeting?
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A:
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The special meeting of stockholders of SGX will be held at
9:00 a.m., California time, on August 20, 2008, at the
Companys corporate headquarters located at 10505 Roselle
Street, San Diego, California 92121.
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Q:
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What am I
being asked to vote on?
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A:
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You are being asked to vote on the following proposals:
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Adoption of the merger agreement;
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Approval of any proposal to adjourn, postpone or continue the
special meeting to a later date to solicit additional proxies in
favor of the proposal to adopt the merger agreement; and
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Consideration and action upon any other business that may
properly come before the special meeting or any adjournment,
postponement or continuance thereof; we do not currently expect
any other business to come before the meeting.
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Q:
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What will
I receive if the merger is completed?
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A:
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If the proposed merger is completed, at the effective time of
the merger, each outstanding share of our common stock will
automatically be cancelled and will be converted into the right
to receive $3.00 per share in cash, without interest and
less any applicable withholding taxes. We refer to the amount of
consideration to be received by the stockholders in the merger
as the merger consideration.
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Q:
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How many
shares must be present or represented at the special meeting in
order to conduct business?
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A:
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A quorum of stockholders is necessary to hold a valid special
meeting. A quorum is present at the special meeting if a
majority of the shares of our common stock entitled to vote on
the record date are present in person or represented by proxy.
Abstentions and broker non-votes are counted as present for the
purpose of determining whether a quorum is present.
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Q:
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Who is
entitled to vote at the special meeting?
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A:
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Only stockholders of record as of the close of business on
July 16, 2008 are entitled to receive notice of the special
meeting and to vote their shares of our common stock that they
held at that time at the special meeting, or at any adjournments
or postponements of the special meeting. You will have one vote
at the special meeting for each share of our common stock you
owned at the close of business on the record date. There are
20,667,204 shares of our common stock entitled to be voted
at the special meeting.
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Q:
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What vote
of our stockholders is required to approve the
proposals?
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A:
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The voting requirements to approve the proposals are as follows:
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Adoption of the merger agreement requires the affirmative vote
of holders of the majority of our shares of common stock
outstanding and entitled to vote at the special meeting; and
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Any proposal to adjourn or postpone the special meeting requires
the affirmative vote of a majority of the shares represented in
person or by proxy and entitled to vote, excluding abstentions.
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In connection with the merger agreement, certain SGX
stockholders, including certain executive officers and
directors, who beneficially owned, in the aggregate,
approximately 26% of the outstanding shares of our common stock
as of the record date, entered into a voting agreement with
Lilly. Pursuant to the voting agreement, each stockholder party
to such agreement has agreed, subject to limited exceptions, to
vote all shares of SGX common stock that he, she or it owns as
of the record date, in favor of adoption of the merger agreement.
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Q:
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How does
our board recommend I vote?
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A:
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Our board unanimously recommends that our stockholders vote
FOR
the approval and adoption of the merger
agreement and
FOR
the adjournment,
postponement or continuation of the special meeting to a later
date, if necessary or appropriate, to solicit additional proxies
in favor of the proposal to adopt the merger agreement. You
should read The Merger Reasons for the
Merger, beginning on page 23, for a discussion of the
factors that our board considered in deciding to recommend the
approval and adoption of the merger agreement.
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Q: What
is the opinion of the Companys financial
advisor?
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A:
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Our board received an opinion from its financial advisor, Lazard
Frères & Co. LLC, that, as of July 8, 2008,
the merger consideration is fair to our stockholders from a
financial point of view. Please read The
Merger Opinion of Lazard Frères & Co.
LLC for information about the opinion of Lazard and
Annex C
for the complete opinion.
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Q:
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How are
votes counted?
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A:
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For the proposal relating to the adoption of the merger
agreement, you may vote
FOR
,
AGAINST
or
ABSTAIN
.
Abstentions will not count as votes cast on the proposal
relating to adoption of the merger agreement but will count for
the purpose of determining whether a quorum is present. As a
result, if you
ABSTAIN
, it has the same
effect as if you vote
AGAINST
the adoption of
the merger agreement with respect to the majority of outstanding
shares voting requirement. If you sign and return your proxy and
do not indicate how you want to vote, your proxy will be voted
FOR
the proposal to adopt the merger
agreement. If you hold your shares in street name,
follow the instructions from your broker on how to vote your
shares.
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Q:
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What do I
need to do now? How do I vote?
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A:
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We urge you to read this proxy statement carefully, including
its annexes, and to consider how the merger affects you. Then
return your completed, signed and dated proxy card in the
enclosed envelope as soon as possible, so that your shares can
be voted at the special meeting. Please do NOT send in your
stock certificates at this time.
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If your shares of our common stock are held in street
name by your broker, be sure to give your broker
instructions on how you want to vote your shares because your
broker will not be able to vote on the merger
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proposal without instructions from you.
See
the question
below If my broker holds my shares in street
name, will my broker vote my shares for me?
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Q:
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Why is it
important for me to vote?
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A:
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Your vote is important. The failure to return your proxy card or
vote in person at the special meeting will mean that your shares
will not be counted for purposes of determining whether a quorum
is present at the special meeting and will have the same effect
as voting
AGAINST
the proposal to adopt the
merger agreement.
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Q:
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If my
broker holds my shares in street name, will my
broker vote my shares for me?
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A:
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Your broker will not be able to vote your shares with regard to
the adoption of the merger agreement without instructions from
you but may be able to vote with respect to any other proposals
that may properly come before the special meeting. You should
instruct your broker to vote your shares following the
procedures provided by your broker. Without instructions, your
shares will be considered present at the special meeting for
purposes of determining a quorum but will have the same effect
as being voted
AGAINST
the adoption of the
merger agreement.
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A:
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Yes. If your shares are held directly in your name and not in
street name through a broker or bank, you may attend
the special meeting and vote your shares in person. If your
shares are held in street name, you must get a proxy
card from your broker or bank in order to attend the special
meeting and vote in person.
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We urge you to complete, sign, date and return the enclosed
proxy card as soon as possible, even if you plan to attend the
special meeting, as it is important that your shares be
represented and voted at the special meeting. If you attend the
special meeting in person, you may vote by written ballot as you
wish, even though you have previously returned your proxy card.
See
the question below May I change my vote after I
have mailed my signed proxy card?
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Q:
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May I
change my vote after I have mailed my signed proxy
card?
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A:
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Yes. You may change your vote at any time before the shares of
our common stock reflected on your proxy card are voted at the
special meeting. If your shares are registered in your name, you
can do this in one of three ways:
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you can deliver to our Corporate Secretary a written notice
stating that you would like to revoke your proxy (the written
notice must bear a date later than the proxy card and be
received before the taking of the vote at the special meeting);
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you can complete, execute and deliver to our Corporate Secretary
a new, later-dated proxy card for the same shares, provided the
new proxy card is received before the polls close at the special
meeting; or
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you can attend the special meeting and vote in person. Your
attendance alone will not revoke your proxy.
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If you have instructed a broker to vote your shares, you must
follow directions received from your broker to change those
instructions. You cannot vote shares held in street
name by returning a proxy card directly to us or by voting
in person at the special meeting, unless you obtain a proxy card
from your bank or broker.
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Q:
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Who will
bear the cost of this solicitation?
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A:
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We have retained Georgeson Inc., a proxy solicitation firm, to
solicit proxies in connection with the special meeting at a cost
of approximately $15,000 plus expenses. We will bear the expense
of our and Georgesons solicitation of proxies for the
special meeting. In addition, we may reimburse brokers, banks
and other custodians, nominees and fiduciaries representing
beneficial owners of shares for their expenses in forwarding
soliciting materials to such beneficial owners. Proxies may also
be solicited by certain of our directors, officers and
employees, personally or by telephone, facsimile or other means
of communication. No additional compensation will be paid for
such services. Lilly may participate in the solicitation of
proxies and will bear
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the entire cost of its solicitations. For a description of the
costs and expenses of soliciting proxies,
see
The
Special Meeting Solicitation Costs below.
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Q:
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What
should I do if I receive more than one set of voting
materials?
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A:
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You may receive more than one set of voting materials, including
multiple copies of this proxy statement and multiple proxy cards
or voting instruction cards. For example, if you hold your
shares in more than one brokerage account, you will receive a
separate voting instruction card for each brokerage account in
which you hold shares. If you are a stockholder of record and
your shares are registered in more than one name, you will
receive more than one proxy card. Please complete, sign, date
and return each proxy card and voting instruction card that you
receive.
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Q:
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What
happens if I sell my shares of SGX common stock before the
special meeting?
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A:
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The record date for the special meeting is earlier than the date
of the special meeting and the date that the merger is expected
to be completed. If you transfer your shares of our common stock
after the close of business on the record date but before the
special meeting, you will retain your right to vote at the
special meeting but will have transferred the right to receive
the merger consideration.
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Q:
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How will
Lilly finance the merger?
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A:
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Lilly has represented to us, in the merger agreement, that it
will have sufficient funds available to complete the
transactions contemplated by the merger agreement. The merger is
not conditioned upon Lilly obtaining financing from any outside
sources.
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Q:
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When do
you expect the merger to be completed?
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A:
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We are working toward completing the merger as quickly as
possible, but we cannot predict the exact timing. We expect to
complete the merger in the second half of 2008. In addition to
obtaining stockholder approval, we must satisfy all other
closing conditions set forth in the merger agreement, including
the expiration or termination of the waiting period under the
HSR Act.
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Q:
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What will
happen to my outstanding stock options if the merger is
completed?
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A:
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If the merger is completed, each option to purchase our common
stock granted under our 2005 Plan that is outstanding
immediately prior to the effective time of the merger will be
canceled and terminated and converted into the right to receive,
as of the effective time of the merger, an amount in cash equal
to the product of (i) the number of shares underlying the
option
multiplied by
(ii) the excess, if any, of
(1) $3.00 per share over (2) the exercise price per
share of such option, subject to applicable tax withholding. In
addition, each option to purchase our common stock granted under
our 2000 Plan or our NEDSOP, to the extent not vested, will be
accelerated in full to a date prior to the effective time of the
merger (as determined by our board) and such options will
terminate at the effective time of the merger if not exercised
prior to the effective time;
provided, that
, each such
option with an exercise price per share less than $3.00 that is
outstanding immediately prior to the effective time of the
merger but that would otherwise be outstanding and unexercised
immediately prior to the effective time of the merger, shall be
canceled and terminated and converted into the right to receive,
as of the effective time of the merger, an amount in cash equal
to the product of (i) the number of shares underlying the
option
multiplied by
(ii) the excess, if any, of
(1) $3.00 per share over (2) the exercise price per
share of such option, subject to applicable tax withholding.
Accordingly, no payment will be made with respect to stock
options that have per share exercise prices above $3.00 and such
options will be canceled and terminated in accordance with their
terms.
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Q:
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What will
happen to my outstanding restricted stock and restricted stock
units if the merger is completed?
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A:
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If the merger is completed, each share of restricted stock and
each restricted stock unit outstanding immediately prior to the
effective time of the merger will be treated as the
corresponding number of shares of common stock
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13
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as of the effective time of the merger in the same manner as
other outstanding shares of common stock issued and outstanding
as of immediately prior to the effective time of the merger.
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Q:
|
What will
happen to my outstanding warrants if the merger is
completed?
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A:
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If the merger is completed, each warrant to purchase our common
stock outstanding immediately prior to the effective time of the
merger will cease to represent a right to acquire shares of our
common stock and will be converted into the right to receive
(upon surrender of the warrant) an amount in cash, without
interest, equal to the product of the number of shares of our
common stock subject to such warrant multiplied by the excess,
if any, of (i) $3.00 per share over (ii) the exercise
price per share of such warrant, subject to applicable tax
withholding. Accordingly, no payment will be made with respect
to warrants that have per share exercise prices above $3.00.
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Q:
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How will
I know if the merger has occurred?
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A:
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We will issue a press release regarding the outcome of the
stockholder vote at the special meeting. We will also file a
Current Report on
Form 8-K
with the SEC disclosing the results of the vote. If you continue
to hold shares of our common stock when the merger is completed,
you will be notified by mail that the merger was completed and
instructed as to how to receive your merger consideration
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Q:
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What
plans does the Company have if the merger agreement is not
approved?
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A:
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If the merger agreement is not approved, we will remain an
independent public company. We expect that our board will
evaluate and review our business operations, financial
condition, research and development programs, and partnering and
financing opportunities, among other things, and make such
changes as are deemed appropriate, and continue to identify
strategic alternatives to maximize stockholder value.
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Q:
|
Should I
send in my SGX stock certificates now?
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A:
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No. After the merger is completed, you will receive written
instructions, including a letter of transmittal, for exchanging
your shares of our common stock for the merger consideration.
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Q:
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When will
I receive the cash consideration for my shares of SGX common
stock?
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A:
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After the merger is completed, you will receive written
instructions, including a letter of transmittal, that will
explain how to exchange your shares for the cash consideration
paid in the merger. When you properly complete and return the
required documentation described in the written instructions,
you will receive from the paying agent a payment of the cash
consideration for your shares.
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Q:
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Will the
merger be taxable to me?
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A:
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Generally, yes. The receipt of cash for shares of our common
stock pursuant to the merger will generally be a taxable
transaction for U.S. federal income tax purposes and
possibly for state, local, or foreign income tax purposes as if
you sold your shares to Lilly for cash. In general, if you
receive cash in exchange for shares of our common stock pursuant
to the merger you will recognize gain or loss for United States
federal income tax purposes equal to the difference, if any,
between the amount of cash received and your adjusted tax basis
in the shares of our common stock exchanged for cash pursuant to
the merger. If shares of our common stock constitute capital
assets in your hands, such gain or loss will be capital gain or
loss. In general, capital gain recognized by an individual will
be subject to a maximum U.S. federal income tax rate of 15%
if the shares of our common stock were held for more than one
year, and if held for one year or less they will be subject to
tax at ordinary income rates. Because individual circumstances
may differ, you should consult with your tax advisor to
determine the particular tax effects to you.
See
The Merger Material United States Federal
Income Tax Consequences beginning on page 35 of this
proxy statement.
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Q:
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Am I
entitled to dissenters rights in connection with the
merger?
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A:
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Stockholders are entitled to dissenters rights under
Section 262 of the DGCL, provided they satisfy the special
criteria and conditions set forth in Section 262 of the
DGCL. For more information regarding dissenters rights,
see
Dissenters Rights on page 55
of this proxy statement. In addition, a copy of Section 262
of the DGCL is attached as
Annex D
to this proxy
statement.
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Q:
|
Where can
I learn more about Lilly?
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A:
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Information about Lilly is available for free from its website
at www.lilly.com or from its public filings with the SEC at
www.sec.gov.
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Q:
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Who can
help answer my questions?
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A:
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If you have any questions about the merger, including the
procedures for voting your shares, or if you need additional
copies of this proxy statement or the enclosed proxy (which will
be provided without charge) you should contact Georgeson Inc.,
as follows:
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Georgeson
Inc.
199 Water Street
New York, NY 10038
Banks and Brokers Call:
212-440-9800
All Others Call Toll Free:
877-278-6774
15
THE
SPECIAL MEETING
We are furnishing this proxy statement to our stockholders as
part of the solicitation of the enclosed proxy card by our board
for use at the special meeting in connection with the proposed
merger and any other items to be voted on at the special
meeting. This proxy statement and the other documents attached
to or incorporated by reference in this proxy statement provides
our stockholders with information regarding the matters to be
voted on at the special meeting.
Date,
Time and Place
We will hold the special meeting on August 20, 2008, at
9:00 a.m., California time at the Companys
corporate headquarters located at 10505 Roselle Street,
San Diego, California 92121.
Purpose
of the Special Meeting
At the special meeting, we will ask holders of our common stock
to (i) approve and adopt the merger agreement pursuant to
which Merger Sub will merge with and into SGX and each share of
our common stock you own at the effective time of the merger
will be converted into the right to receive $3.00 in cash,
without interest and less any applicable withholding taxes,
(ii) vote on any proposal to adjourn, postpone or continue
the special meeting to a later date to solicit additional
proxies in favor of the proposal to approve and adopt the merger
agreement and (iii) consider and act upon any other
business that may properly come before the special meeting or
any adjournments, postponements or continuations thereof.
Recommendation
of Our Board of Directors
After careful consideration, our board unanimously approved the
merger agreement and determined that the merger agreement, the
merger and the transactions contemplated by the merger agreement
are advisable and are fair to, and in the best interests of, SGX
and our stockholders, and unanimously approved and declared
advisable the merger agreement and the transactions contemplated
by the merger agreement. Therefore, our board recommends that
you vote
FOR
the adoption of the merger
agreement and
FOR
the adjournment,
postponement or continuation of the special meeting to a later
date, if necessary or appropriate, to solicit additional proxies
in favor of the proposal to adopt the merger agreement.
Record
Date and Quorum
Our board has fixed July 16, 2008 as the record date for
the determination of stockholders entitled to receive notice of,
and to vote at, the special meeting. The only outstanding class
of our stock is our common stock, par value $0.001 per share. As
of the close of business on the record date, 20,667,204 shares
of our common stock were outstanding and entitled to vote.
A quorum must be present to transact business at the special
meeting. A quorum will be present at the special meeting if a
majority of all shares of our common stock issued and
outstanding on the record date and entitled to vote at the
special meeting are represented at the special meeting in person
or by a properly executed proxy. If you submit a properly
executed proxy card, even if you abstain from voting or vote
against the adoption of the merger agreement, your shares will
be counted for purposes of calculating whether a quorum is
present at the special meeting.
If a quorum is not present at the special meeting, it is
expected that the meeting will be adjourned or postponed to
solicit additional proxies. If a new record date is set for the
adjourned meeting, however, then a new quorum would have to be
established at the adjourned meeting.
Stockholder
Vote Required to Adopt the Proposals at the Special
Meeting
Adoption of the merger agreement requires the affirmative vote
of holders of the majority of shares of our common stock
outstanding and entitled to vote at the special meeting. If a
stockholder abstains from voting or does not vote, either in
person or by proxy, it will have the same effect as a vote
AGAINST
the proposal to adopt the merger
agreement. If a broker holds a stockholders shares of our
common stock in its name and the stockholder
16
does not give the broker voting instructions, the broker may not
vote the shares on the proposal to adopt the merger agreement.
If a stockholder does not give a broker voting instructions and
the broker does not vote the shares, this is referred to as a
broker non-vote. An abstention occurs when a
stockholder attends the special meeting, either in person or by
proxy, but abstains from voting or does not vote. Abstentions,
broker non-votes and shares not present and not voted at the
special meeting have the same effect as votes
AGAINST
the proposal to adopt the merger
agreement.
Any proposal to adjourn or postpone the special meeting to
permit further solicitation of proxies requires the affirmative
vote of a majority of the shares represented in person or by
proxy, entitled to vote on the matter and actually voted on the
matter for approval. Abstentions, broker non-votes and shares
not voted will have no effect on the outcome of any proposal to
adjourn or postpone the special meeting.
Voting
Procedure
You are requested to complete, sign and date the enclosed proxy
card and promptly return it in the enclosed postage-paid return
envelope. There are two ways to vote our common stock at the
special meeting:
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You can vote by completing, signing, dating and returning the
enclosed proxy card. If a holder submits a proxy card, the
proxy (one of the individuals named on the proxy
card) will vote the holders shares as the holder instructs
on the proxy card. If a holder signs and returns the proxy card
but does not give instructions on how to vote the shares, the
shares will be voted as recommended by our board,
FOR
the adoption of the merger agreement and
FOR
the adjournment, postponement or
continuation of the special meeting to a later date, if
necessary or appropriate, to solicit additional proxies in favor
of the proposal to adopt the merger agreement; or
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You can attend the special meeting and vote in person. We will
give each stockholder a ballot when he or she arrives at the
special meeting. Stockholders who are beneficial owners of
shares held in street name by a broker, trustee or
bank or other nominee holder on behalf of such stockholder may
vote in person at the meeting by obtaining a proxy from the
nominee holding the shares.
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Revocation
of Proxy
You may revoke your proxy prior to its exercise. You may do this
by (i) delivering to our Corporate Secretary a written
notice stating that you would like to revoke your proxy (the
written notice must bear a date later than the proxy card and be
received before the taking of the vote at the special meeting);
(ii) completing, executing and delivering to our Corporate
Secretary a new, later-dated proxy card for the same shares,
provided the new proxy card is received before the taking of the
vote at the special meeting; or (iii) attending the special
meeting and voting in person. Your attendance alone at the
special meeting will not revoke your proxy.
Solicitation
Costs
We and our proxy solicitation firm, Georgeson Inc., are
soliciting proxies for the special meeting from our
stockholders. We will bear the entire cost of our and
Georgesons solicitations, including the payment of fees of
$15,000, plus expenses, to Georgeson for their services. Lilly
may participate in soliciting proxies for the special meeting
from our stockholders and will bear the entire cost of its
solicitations. Solicitation of proxies may be made by means of
personal calls upon, or telephonic or electronic communications
with, stockholders or their personal representatives by our and
Lillys directors, officers and employees who will not be
specially compensated for such services. Although there is no
formal agreement to do so, we may reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding this proxy statement to
stockholders whose common stock is held of record by such
entities.
Exchange
of Stock Certificates
Holders of our common stock should not send stock certificates
with their proxies. Separate transmittal documents for the
surrender of our common stock certificates in exchange for the
merger consideration will be mailed to holders of our common
stock if and when the merger is completed.
17
THE
PARTIES TO THE MERGER AGREEMENT
SGX Pharmaceuticals, Inc.
We are a
biotechnology company focused on the discovery, development and
commercialization of novel, targeted therapeutics directed at
addressing unmet medical needs in oncology. Our most advanced
drug development programs target the c-MET receptor tyrosine
kinase, or MET, an enzyme implicated in a broad
array of cancers, and the BCR-ABL tyrosine kinase enzyme, for
treatment of Chronic Myelogenous Leukemia, a cancer of the bone
marrow. Our earlier stage drug discovery activities are focused
on a portfolio of other protein and enzyme targets that have
been implicated in human cancers. Our principal executive
offices are located at 10505 Roselle Street, San Diego,
California 92121, and our telephone number is
858-558-4850.
Eli Lilly and Company.
Lilly, a leading
innovation-driven corporation, is developing a growing portfolio
of
first-in-class
and
best-in-class
pharmaceutical products by applying the latest research from its
own worldwide laboratories and from collaborations with eminent
scientific organizations. Headquartered in Indianapolis,
Indiana, Lilly provides answers through medicines
and information for some of the worlds most
urgent medical needs. Lilly manufactures and distributes its
products through owned or leased facilities in the United
States, Puerto Rico, and 25 other countries. Lilly products are
sold in approximately 135 countries. Lillys principal
executive offices are located at Lilly Corporate Center,
Indianapolis, Indiana 46285, and its telephone number is
317-276-2000.
REM Merger Sub, Inc.
REM Merger Sub, Inc., a
Delaware corporation and wholly-owned subsidiary of Lilly, or
Merger Sub, was organized solely for the purpose of
entering into the merger agreement with us and completing the
merger. Merger Sub was incorporated on July 3, 2008 and has
not conducted any business operations. Merger Subs
principal executive offices are located at Lilly Corporate
Center, Indianapolis, Indiana 46285, and its telephone number is
317-276-2000.
THE
MERGER
The discussion in this proxy statement of the merger and the
principal terms of the merger agreement is subject to, and is
qualified in its entirety by reference to, the merger agreement,
a copy of which is attached to this proxy statement as
Annex A
. You should read the entire merger agreement
carefully.
Background
of the Merger
As a part of the ongoing evaluation of our business, our board
and members of our senior management regularly review and assess
opportunities to achieve long-term strategic goals. During this
ongoing review process, members of our senior management, in
conjunction with our board, have considered potential
opportunities for business combinations, acquisitions,
dispositions, internal restructurings and other strategic
alternatives.
Following the announcement in August 2006 of the termination of
our Phase II/III clinical trial for Troxatyl, our board explored
a number of strategic alternatives. At a regularly scheduled
board meeting on September 28, 2006, our board agreed to
retain Canadian Imperial Bank of Commerce, or CIBC, to provide
financial advisory services in connection with our boards
review of a range of strategic and financial alternatives,
including to help us identify potential merger and acquisition
opportunities.
Between the third quarter of 2006 and May 2007, CIBC and our
board considered more than 60 potential merger and acquisition
candidates, and ultimately focused on approximately
30 companies, including Lilly. Most of the companies
considered were merger of equals candidates. Included in these
30 companies were seven larger companies which, in varying
degrees of detail, evaluated the possibility of acquiring SGX.
Members of our management team and CIBC engaged in preliminary
exploratory discussions with several of these larger companies
as well as other parties. During this period, our boards
most extensive discussions were with a large biotechnology
company in the first quarter of 2007. Ultimately, however, this
party decided not to move forward with an acquisition of SGX for
its own strategic reasons.
Aside from the more extensive discussions with the large
biotechnology company described above, none of the merger
opportunities that our board considered through May 2007 were
pursued due to inadequate valuation
and/or
18
product opportunities and none of the discussions led to an
acquisition or merger proposal. Some of the larger companies we
had discussions with expressed interest in exploring potential
partnering opportunities with respect to one of our most
advanced drug development programs targeting the MET receptor
tyrosine kinase, an enzyme implicated in a broad array of solid
and blood tumors, rather than acquiring SGX. At its meeting on
May 17, 2007, our board resolved to discontinue proactively
seeking merger and acquisition opportunities and to focus on MET
program partnering opportunities. Our engagement with CIBC was
terminated on May 18, 2007.
From mid-May to October 2007, our board focused on partnering
opportunities for our MET program. Our board retained Lazard on
July 16, 2007 to provide further assistance in connection
with exploring such opportunities. During this period, we
received multiple term sheets with respect to partnering our MET
program, including from Lilly, and ultimately entered into
separate contract discussions with two companies as potential
partners for our MET program. While our separate discussions
with each of these companies progressed to near final agreement,
in September and October 2007, respectively, both potential
partners decided not to move forward on the terms that were
being negotiated at that time. During a telephonic meeting on
October 31, 2007, our board decided to delay the further
exploration of partnering opportunities for our MET program
until Phase I clinical data was available. In addition, our
board decided to evaluate the possibility of raising capital
through a private investment in public equity, or
PIPE, transaction.
In November 2007, we completed a PIPE transaction pursuant to
which we raised approximately $25.0 million in gross
proceeds. In connection with the PIPE transaction, Lazard served
as our exclusive placement agent and received a fee of
approximately $1.6 million, commensurate with amounts
typically paid to placement agents in PIPE transactions.
On December 3, 2007, we announced that we had submitted an
investigational new drug, or IND, application to the
U.S. Food and Drug Administration for SGX523, our lead MET
product candidate at that time.
On January 16, 2008, we announced that we had opened
enrollment in two Phase I studies designed to evaluate the
safety, tolerability and pharmacokinetic profile of our lead MET
product candidate, and treated the first patient.
On March 27, 2008, we announced that we had observed dose
limiting toxicity earlier than anticipated in the Phase I
studies of our lead MET product candidate and that its future
development path was uncertain. Following this announcement, we
and our board evaluated a number of potential strategic
alternatives, including renewed focus on partnering activities,
evaluating standalone financing opportunities and an exploration
of potential merger and acquisition opportunities.
On April 8, 2008, our Chief Executive Officer, Mike Grey,
received a call from representatives of Lilly, during which the
representatives of Lilly indicated interest in strategic
discussions between SGX and Lilly, including discussions with
respect to a potential acquisition of SGX.
Our board held a conference call on April 11, 2008 to
review our strategic alternatives. Our board, taking into
consideration the financing environment, general market
conditions, our cash position and projected cash requirements,
the status of partnering discussions and revenue expectations,
the stage of our discovery and development programs and the
prospects for financing our continuing discovery and product
development activities through partnering or financing
alternatives, determined that a merger or acquisition
transaction should be explored. In light of the prior strategic
discussions during late 2006 and 2007, our board directed our
management and Lazard to conduct a focused process to identify
potential merger or acquisition candidates. Following this
authorization, we began working with Lazard to compile an
initial list of potential merger and acquisition candidates and
to contact the companies that we believed might have an interest
in pursuing a potential transaction based on our prior
discussions during late 2006 and 2007. This list included, among
other companies, Lilly, Company A, a mid-cap publicly-traded
biotechnology company, Company B, another mid-cap
publicly-traded biotechnology company, and Company C, a large
publicly-traded biotechnology company. All of the companies on
the list, except one, had previously been contacted in
connection with the strategic process conducted by CIBC during
the third quarter of 2006 and through May 2007
and/or
by
Lazard during the MET partnering discussions during the latter
half of 2007.
On April 11, 2008, following the meeting of our board,
Mr. Grey called a representative of Lilly to discuss a
potential merger or acquisition. During the call, we agreed to
proceed with exploratory meetings with Lilly regarding a merger
or acquisition.
19
On April 14, 2008, the first scientific meeting between
members of our management team and Lilly took place in
San Diego. Lilly attendees included representatives from
various disciplines and organizations within Lilly.
On April 15, 2008, Mr. Grey called a representative of
Company A to explore interest in a merger or acquisition
transaction between SGX and Company A. Company A had previously
conducted extensive due diligence on our drug discovery and
development programs in connection with partnering discussions
and expressed potential interest in exploring a broader
strategic relationship.
During the week of April 14, 2008, representatives of
Lazard called representatives of Company B to explore interest
in a possible merger or acquisition transaction between SGX and
Company B. Mr. Grey followed up with a call during the same
week to a representative of Company B to express interest in a
strategic transaction and to arrange a meeting with members of
our management team to review our programs.
In mid April 2008, Mr. Grey and representatives of Lazard
had initial discussions with Company A to further explore
potential synergies between the companies. Representatives of
Company A ultimately contacted representatives of Lazard and, in
late May 2008, Company A declined to pursue strategic
discussions. No particular reason for the decline was provided
by Company A.
During the week of April 14, 2008, representatives of
Lazard approached representatives of Company C and expressed
interest in exploring a merger or acquisition transaction
between Company C and SGX.
On April 17, 2008, Mr. Grey received a call from a
representative of Company D, a small cap biotechnology company,
expressing interest in exploring a transaction between SGX and
Company D. Mr. Grey held a follow up call on April 18,
2008 with representatives of Company D, and agreed to a
scientific meeting between the companies to review our programs.
On April 23, 2008, members of our management team met with
representatives of Lilly and on April 24, 2008, members of
our management team gave a presentation reviewing our programs
to Lilly Research Laboratories executives.
On April 29, 2008, Mr. Grey held discussions regarding
a potential transaction with representatives of Company C.
Representatives of Company C informed Mr. Grey that Company
C was not interested in pursuing discussions with respect to a
potential transaction with SGX at that time because of the
preclinical stage of our drug development programs.
On May 1, 2008, members of our management team and Lazard
held a meeting with representatives of Company D to review our
programs in connection with a potential merger or acquisition
transaction between Company D and SGX. From approximately May 1
through May 10, 2008, members of our management team and
representatives of Lazard engaged in numerous follow up
discussions with representatives of Company D relating to
diligence questions from Company D.
On May 2, 2008, members of our management team and
representatives of Lazard held a meeting with Company Bs
scientific team to present our drug discovery and development
programs in connection with discussions regarding a potential
merger or acquisition transaction between Company B and SGX.
On May 5, 2008, a member of our management team received a
call from representatives of Company B, confirming Company
Bs interest in conducting more diligence on our drug
discovery and development programs.
On May 9, 2008, Mr. Grey held a call with a Lilly
executive. The Lilly executive conveyed Lillys interest in
proceeding with discussions regarding the acquisition of SGX and
undertook to provide a letter confirming Lillys interest.
On May 13, 2008, we established a virtual data room, which
included documents with respect to our research and development
programs, in order to facilitate due diligence by Lilly and
Company B. In connection with this process, our representatives
responded to numerous follow up questions from Lilly and Company
B as well as periodic diligence requests from Company D.
On May 14, 2008, we received a letter from Lilly confirming
its interest in pursuing an acquisition of SGX but which did not
indicate the terms pursuant to which it would be willing to
proceed.
20
On May 14, 2008, Mr. Grey met with a representative of
Company D, during which the representative of Company D
expressed Company Ds interest in a possible transaction
following its diligence and Company D undertook to provide a
written proposal to us.
On May 19, 2008, we received a letter from Company D
proposing a stock-for-stock acquisition at a price range between
$1.35 and $1.59 per share based upon a fixed exchange ratio
depending on SGXs net cash balance as of the completion of
the transaction.
Between May 19 and June 1, 2008, representatives of Lazard
and various members of our management team had telephone
discussions with representatives of Lilly and its financial
advisor, during which Lilly was informed of our regularly
scheduled board meeting on June 5, 2008 and our
boards expectation of reviewing competing acquisition
proposals at that meeting, and encouraged Lilly to submit an
acquisition proposal by June 4, 2008. During this period,
representatives of Lazard and Lillys financial advisor had
further discussions regarding a potential acquisition.
On June 1, 2008, Mr. Grey held a meeting with
representatives of Company B to discuss the terms of a potential
acquisition. The representative of Company B indicated Company
Bs interest in proceeding with discussions but that
Company B would only be able to submit a proposal following
Company Bs board meeting on June 10, 2008.
On June 4, 2008, we received a non-binding letter from
Lilly which proposed a merger for the acquisition of SGX at
$2.62 per share in cash. The letter was accompanied by a request
for a
30-day
exclusivity period for negotiating a definitive agreement.
On June 5, 2008, during a board meeting, our board,
together with its legal and financial advisors, reviewed various
strategic alternatives, including our prospects for financing
our continuing discovery and development activities through
partnering opportunities and the potential stockholder value
that could be created through our continued operation as a
standalone company. Our board also assessed the acquisition
proposals submitted by Lilly and Company D, considered
preliminary financial analysis and metrics with respect to SGX
and reviewed the potential benefits and risks of a sale of SGX
for cash as compared to a sale for stock of a small cap
pharmaceutical company as contemplated by the Company D
proposal. Thereafter, our board instructed our management and
representatives of Lazard to seek a better price from Lilly and
to obtain a formal proposal from Company B as soon as possible.
Following the board meeting, on June 5, 2008, Mr. Grey
called a representative of Lilly, and a representative of Lazard
called Lillys financial advisor to solicit a revised
offer. Also on June 5, 2008, representatives of Lazard
called representatives of Company B and informed Company B that
Company B had until June 10, 2008 to submit a proposal, as
SGX otherwise intended to enter into an exclusivity agreement
with a competing third party.
On June 6, 2008, members of our management team and
representatives of Lazard participated in calls with
representatives of Lilly during which the members of our
management team presented updated data with respect to certain
of our research and development programs and provided an
analysis supporting a higher price. Later on June 6, 2008,
we received a revised and improved proposal with a price per
share of $2.76 in cash and a revised exclusivity letter from
Lilly. Also on June 6, 2008, Mr. Grey placed a call to
a representative of Lilly during which Mr. Grey indicated
that the timing of our board meeting scheduled for June 9,
2008 would preclude SGX from responding by the deadline set
forth in Lillys exclusivity letter. The representative of
Lilly indicated that a response on the morning of June 10,
2008 would be acceptable.
Between June 6 and June 9, 2008, members of our management
team responded to various due diligence requests from Company B.
During the weekend of June 7 and June 8, 2008,
representatives of Lazard held additional discussions with
representatives of Company B with respect to a proposed offer
from Company B.
On June 9, 2008, we provided a revised version of the
exclusivity letter to Lilly and its financial advisor
incorporating our proposed changes.
On June 9, 2008, representatives of Lazard held separate
discussions with representatives of Lillys financial
advisor and representatives of Company B. During these
discussions, representatives of Company B indicated that Company
B had a board call on June 10, 2008 and that Company B
intended to provide an acquisition proposal to us
21
that day and that the proposal would likely be a stock-for-stock
transaction with a valuation at or above $3.00 per share,
although no specific price was proposed by Company B.
On June 9, 2008, our board, together with our legal and
financial advisors, held a call to review Lillys revised
proposal and receive an update with respect to the progress of
discussions with Company B, including a discussion of the
potential terms of a proposal from Company B. Our board
instructed management and representatives of Lazard to seek to
increase the Lilly offer price in light of the discussion
regarding the potential Company B proposal. We scheduled a board
meeting at 10:00 A.M. Pacific Time on June 10,
2008 to review the status of a potential offer from Company B.
Lazard subsequently held further discussions with
representatives of Lillys financial advisor in an attempt
to increase the offer price from Lilly. Lilly revised its offer
to increase the offer price to $3.00 per share in cash.
On June 10, 2008, representatives of Lazard held further
discussions with representatives of Lillys financial
advisor regarding Lillys revised proposal. Mr. Grey
also held discussions with representatives of Lilly regarding
the terms of the exclusivity agreement between SGX and Lilly.
Just prior to our board meeting on June 10, 2008,
representatives of Company B contacted representatives of Lazard
and indicated that Company B would not be submitting a proposal
to acquire SGX at that time, indicating a desire to review
additional preclinical data with respect to one of our
development programs that was not yet available. Thereafter, at
its meeting on June 10, 2008, our board reviewed the
revised terms proposed by Lilly and the terms proposed by
Company D and decided to move forward with Lillys
proposal. Our board determined that the Lilly offer was superior
to the Company D offer in terms of price (with the Lilly price
being substantially higher than the price proposed by Company
D), and consideration (with the Lilly offer being a cash offer
as compared to an offer for stock of a small-cap pharmaceutical
company) and certainty of closing (with SGX having a
5-year
history of working with Lilly in connection with collaboration
and other activities) and reaffirmed that proceeding with the
sale was the best alternative available to SGX to maximize
stockholder value. Our board authorized SGX to enter into the
revised exclusivity agreement with Lilly.
On June 10, 2008, we and Lilly executed an exclusivity
agreement.
On June 16, 2008, we and Lilly entered into an additional
confidentiality agreement that included a standstill provision.
On June 18, 2008, Lilly distributed the draft merger
agreement and on June 19, 2008, Lilly distributed the form
of stockholder voting agreement to us.
Between June 18, 2008 and the signing of the merger agreement,
SGX and Lilly and their respective outside counsel spent
considerable time negotiating the terms of the merger agreement,
including the conditions to closing, non-solicitation
provisions, termination provisions and termination fees, and
exchanged multiple drafts of the merger agreement in the process
of these negotiations.
On July 8, 2008, our board held a special telephonic
meeting. Members of our senior management, together with
representatives of Lazard and representatives of Cooley Godward
Kronish LLP, our outside legal counsel, participated in the
meeting. At this meeting, representatives of Cooley discussed
with our board the key terms of the proposed merger agreement.
Representatives of Lazard reviewed with our board its financial
analysis of the per share merger consideration to be received by
the holders of shares of our common stock in the merger, and
Lazard rendered its opinion to our board, to the effect that, as
of July 8, 2008, and subject to certain assumptions,
qualifications and limitations, the per share merger
consideration to be paid to holders of our common stock (other
than shares of our common stock held by holders who are entitled
to and properly demand an appraisal of their shares of common
stock and shares of our common stock held in treasury of SGX or
owned by Merger Sub, Lilly or any wholly-owned subsidiary of
Lilly or of SGX), in the merger was fair, from a financial point
of view, to such holders. There was an extended discussion among
the participants in the board meeting. Following the discussion,
our board, by unanimous vote, approved the merger agreement and
the transactions contemplated by the merger agreement. Our board
determined that the merger agreement, the merger and the
transactions contemplated by the merger agreement are advisable
and are fair to, and in the best interests of, SGX and our
stockholders and recommended that that our stockholders adopt
the merger agreement. Later in the day, we, Merger Sub and Lilly
executed the merger agreement. Concurrently with the execution
of the merger agreement, and as a condition to
22
Lillys willingness to enter into the merger agreement,
certain of our stockholders, including certain executive
officers and directors, entered into the voting agreement with
Lilly.
On July 8, 2008, we and Lilly issued a joint press release
announcing the transaction.
Reasons
for the Merger
The following describes material reasons, factors and
information taken into account by our board in deciding to
approve the merger agreement and the transactions contemplated
by the merger agreement and to recommend that our stockholders
adopt the merger agreement:
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the fact that Lillys offer will be paid in cash, providing
certainty, immediate value and liquidity to our stockholders;
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the premium to the current and historical closing trading prices
of shares of our common stock and to our current and historical
enterprise value represented by the $3.00 per share in cash to
be received by our stockholders.
See
The
Merger Opinion of Lazard Frères & Co.
LLC;
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the 110% premium to the closing price of our common stock on the
day before we announced the signing of the merger agreement and
the 108% premium to our average closing price over the one month
before we announced the signing of the merger agreement, in each
case represented by the merger consideration, were both deemed
by us to be particularly relevant because these closing prices
reflect a market value of our stock prior to the announcement;
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the financial analyses reviewed by Lazard at meetings of our
board held on June 5, 2008, June 9, 2008 and
July 8, 2008, and Lazards opinion that, as of
July 8, 2008 and based upon and subject to the
considerations set forth in its opinion, the merger
consideration is fair to our stockholders from a financial point
of view;
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our boards knowledge of and familiarity with our business,
financial condition and results of operations, as well as our
financial plan, prospects and competitive position if we were to
remain as a stand-alone entity, and our boards belief that
the merger is more favorable to our stockholders than any other
strategic alternative reasonably available to us, including
remaining as a stand-alone entity;
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the challenges facing us, as well as the uncertainties
surrounding our ability to execute successfully on our business
plan, including, among others: risks inherent in drug discovery;
our need for substantial additional funding to continue our
operations and to enable us to achieve significant milestones
under our business plan, and our prospects for funding ourselves
through corporate partnering or other financing alternatives
and/or raising such capital on reasonable terms; the poor market
conditions and prospects for obtaining financing, particularly
for biotechnology companies with pre-clinical programs; and our
ability to continue as a going concern in light of our financing
prospects;
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the fact that the merger was arrived at after a competitive
process conducted by us (with the assistance of our advisors) to
evaluate our strategic alternatives;
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the failure of our lead clinical product candidate in March 2008
and the decrease in our stock price in the four months leading
up to the execution of the merger agreement, the potential risks
of a further deterioration of our stock price and the consequent
risk that future acquisition proposals, if any, may be on terms
significantly less favorable to us and our stockholders;
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our estimation and the estimation of our board that, based on
our existing cash, cash equivalents and short-term investments,
together with cash from existing and new collaborations,
commercial agreements and grants, and anticipated cash needs,
we, absent new financing, were projected to require additional
cash infusion in the second half of 2009, or potentially sooner
if we were not successful in obtaining additional collaboration
agreements or commercial agreements or receiving milestone
payments under existing agreements;
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the possibility that absent the transaction with Lilly, in the
event that we are unable to fund ourselves through partnering or
financing activities or through other strategic opportunities,
we could ultimately end up with no alternative other than to
liquidate or to seek protection under U.S. bankruptcy laws,
and that, upon such
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23
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liquidation or bankruptcy, the holders of our common stock would
likely receive a recovery that would be materially less than
$3.00 per share;
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the belief of our board that the terms of the merger agreement,
including the parties representations, warranties and
covenants, and the conditions to their respective obligations to
consummate the merger, are reasonable and were the product of
arms length negotiations between us and our advisors and
Lilly and its advisors and compare favorably with those in
similar acquisition transactions considering our financial
condition and prospects;
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the right of our board under certain circumstances described
below and in the merger agreement, in connection with the
discharge of its fiduciary duties to our stockholders, to
consider unsolicited acquisition proposals, to change its
recommendation with respect to the merger and to terminate the
merger agreement should we receive an unsolicited proposal that
our board determines to be a superior proposal;
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Lillys ability to fund the consideration for the merger;
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the relatively limited conditions to Lillys obligations to
complete the merger; and
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the right of our board to approve selected actions by us under
the merger agreement, including amendments to the merger
agreement, waivers of the merger agreement provisions and the
termination of the merger agreement under selected circumstances.
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In the course of its deliberations, our board also considered a
variety of risks and other potentially negative factors,
including the following:
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the fact that our stockholders will not participate in any
potential future growth of SGX or Lilly or value that might
result from the future advancement of our drug discovery and
development programs;
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the impact of the announcement and pendency of the merger,
including the impact of the merger on our employees, customers,
collaborators and our relationships with other third parties and
the risk of diverting managements focus and resources from
other strategic opportunities, such as pursuing partnering
discussions for our drug discovery and development programs, and
from operational matters while working to negotiate and close
the merger with Lilly, which could impair our prospects as an
independent company if the merger is not consummated;
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the risk that the merger might not be consummated in the event
that we or Lilly are unable to satisfy one or more of our
respective closing conditions;
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the fact that under the terms of the merger agreement, we cannot
solicit other acquisition proposals and must pay to Lilly a
termination fee of $2.0 million, plus an additional amount not
to exceed $250,000 for Lillys expenses, if the merger
agreement is terminated under certain circumstances, which, in
addition to being costly, might have the effect of discouraging
other parties from proposing an alternative transaction that
might be more advantageous to our stockholders than the merger;
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the fact that receipt of the merger consideration generally will
be taxable to our stockholders for U.S. federal income tax
purposes; and
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the fact that, pursuant to the merger agreement, we must
generally conduct our business in the ordinary course and we are
subject to a variety of other restrictions on the conduct of our
business prior to closing of the merger or termination of the
merger agreement, including restrictions on our ability to
partner our drug discovery and development programs or enter
into certain licensing transactions which may delay or prevent
us from pursuing business opportunities that may arise or
preclude actions that would be advisable if we were to remain an
independent company.
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Our board carefully considered these factors as a whole in
reaching its determination and recommendation. Our board
concluded that, overall, the risks, uncertainties, restrictions
and potentially negative factors associated with the merger were
outweighed by the potential benefits of the merger. In addition,
our board considered the interests that certain of our directors
and executive officers may have with respect to the merger, in
addition to their interests as our stockholders generally.
24
The foregoing discussion of factors considered by our board is
not meant to be exhaustive but includes the material factors
considered by our board (i) in declaring that the merger
agreement, the merger and the other transactions contemplated by
the merger agreement are advisable and fair to, and in the best
interests of, SGX and our stockholders, (ii) in approving
the merger agreement, the merger and the other transactions
contemplated by the merger agreement and (iii) in
recommending that our stockholders adopt the merger agreement.
In view of the wide variety of factors considered by our board
in connection with the evaluation of the merger and the
complexity of these matters, our board did not find it
practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching
its determination and recommendation. Rather, the directors made
their determinations and recommendations based on the totality
of the information presented to them, and the judgments of
individual members of our board may have been influenced to a
greater or lesser degree by different factors.
Recommendation
of the Board of Directors
After careful consideration, our board, based in part on
consultations with our legal and financial advisors, unanimously
approved the merger agreement and determined that the merger
agreement, the merger, and the transactions contemplated by the
merger agreement are advisable and fair to, and in the best
interests of, SGX and our stockholders and unanimously approved
and declared advisable the merger agreement and the transactions
contemplated by the merger agreement. Accordingly, our board
unanimously recommends that you vote
FOR
the
adoption of the merger agreement and
FOR
the
adjournment, postponement or continuation of the special meeting
to a later date, if necessary or appropriate, to solicit
additional proxies in favor of the proposal to adopt the merger
agreement.
Opinion
of Lazard Frères & Co. LLC
We retained Lazard to act as our financial advisor and to render
an opinion to our board as to the fairness, from a financial
point of view, to holders of our common stock of the
consideration to be paid to such holders in the merger. On
July 8, 2008, Lazard rendered its oral opinion to our
board, subsequently confirmed in writing, that, as of such date,
and based upon and subject to the assumptions, procedures,
factors, qualifications and limitations set forth therein, the
consideration to be paid to holders of our common stock (other
than shares of our common stock held by holders who are entitled
to and properly demand an appraisal of their shares of our
common stock and shares of our common stock held in our treasury
or owned by Merger Sub, Lilly or any wholly-owned subsidiary of
us or of Lilly, which holders, together with their respective
affiliates, we collectively refer to in this section as
excluded holders) in the merger was fair, from a
financial point of view, to such holders.
The full text of Lazards written opinion, dated
July 8, 2008, which sets forth the assumptions made,
procedures followed, factors considered, and qualifications and
limitations on the review undertaken by Lazard in connection
with its opinion is attached to this proxy statement as
Annex C
and is incorporated into this proxy
statement by reference. The description of Lazards opinion
set forth in this proxy statement is qualified in its entirety
by reference to the full text of Lazards written opinion
attached as
Annex C
. We encourage you to read
Lazards opinion and this section of this proxy statement
carefully and in their entirety.
Lazards opinion was directed to our board for the
information and assistance of our board in connection with its
evaluation of the merger and only addressed the fairness, from a
financial point of view, to holders of our common stock (other
than excluded holders) of the consideration to be paid to such
holders in the merger as of the date of Lazards opinion.
We did not request Lazard to consider, and Lazards opinion
did not address, the relative merits of the merger as compared
to any other transaction or business strategy in which we might
engage or the merits of the underlying decision by us to engage
in the merger. Lazards opinion was not intended to and
does not constitute a recommendation to any holder of our common
stock as to how such holder should vote or act with respect to
the merger or any matter relating thereto. Lazards opinion
was necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available
to Lazard as of, the date of Lazards opinion. Lazard
assumed no responsibility for updating or revising its opinion
based on circumstances or events occurring after the date of
Lazards opinion. Lazards opinion did not express any
opinion as to the price at which shares of our common stock may
trade at any time subsequent to the announcement of the
merger.
25
The following is a summary of Lazards opinion. Lazard
has consented to the inclusion of its written opinion in this
proxy statement. We encourage you to read Lazards written
opinion carefully in its entirety.
In connection with its opinion, Lazard:
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Reviewed the financial terms and conditions of a draft, dated
July 7, 2008, of the merger agreement;
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Analyzed certain publicly available historical business and
financial information relating to us;
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Reviewed various financial forecasts and other data provided to
Lazard by us relating to our business;
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Held discussions with members of our senior management with
respect to our business and prospects;
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Reviewed public information with respect to certain other
companies in lines of business Lazard believed to be generally
relevant in evaluating our business;
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Reviewed the financial terms of certain business combinations
involving companies in lines of business Lazard believed to be
generally relevant in evaluating our business;
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Reviewed historical stock prices and trading volumes of our
common stock; and
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Conducted such other financial studies, analyses and
investigations as Lazard deemed appropriate.
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Lazard assumed and relied upon the accuracy and completeness of
the foregoing information, without independent verification of
such information. Lazard did not conduct any independent
valuation or appraisal of any of the assets or liabilities
(contingent or otherwise) of SGX or concerning the solvency or
fair value of SGX, and Lazard was not furnished with such
valuation or appraisal. With respect to the financial forecasts
that Lazard reviewed, Lazard assumed, with our consent, that
they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of our management as
to our future financial performance. Lazard has relied on the
assessments of our management as to the validity of, and risks
associated with, our product candidates (including without
limitation, the timing and probability of successful
development, testing and marketing, and of approval by
appropriate governmental authorities, of such product
candidates). Lazard assumed no responsibility for and expressed
no view as to such forecasts or the assumptions on which they
are based.
In rendering its opinion, Lazard assumed, with our consent, that
the merger would be consummated on the terms described in the
merger agreement, without any waiver or modification of any
material terms or conditions. Representatives of SGX advised
Lazard, and Lazard assumed, that the merger agreement, when
executed, would conform to the draft reviewed by Lazard in all
material respects. Lazard also assumed, with our consent, that
obtaining the necessary regulatory or third party approvals and
consents for the merger would not have an adverse effect on us
or the combined company. Lazards opinion did not address
any legal, tax, regulatory or accounting matters, as to which
Lazard understood that we obtained such advice as we deemed
necessary from qualified professionals. Lazard did not express
any view or opinion as to any terms or other aspects of the
merger (other than the consideration to the extent expressly
specified herein), including the voting agreement between
certain of our stockholders and Lilly. In addition, Lazard
expressed no view or opinion as to the fairness of the amount or
nature of, or any other aspects relating to, the compensation to
any officers, directors or employees of any parties to the
merger, or class of such persons, relative to the per share
merger consideration to be paid to holders of our common stock
(other than excluded holders) or otherwise.
The following is a brief summary of the material financial
analyses and reviews that Lazard deemed appropriate in
connection with rendering its opinion. The brief summary of
Lazards analyses and reviews provided below is not a
complete description of the analyses and reviews underlying
Lazards opinion. The preparation of a fairness opinion is
a complex process involving various determinations as to the
most appropriate and relevant methods of analysis and review and
the application of those methods to particular circumstances,
and, therefore, is not readily susceptible to summary
description. Considering selected portions of the analyses and
reviews or the summary set forth below, without considering the
analyses and reviews as a whole, could create an incomplete or
misleading view of the analyses and reviews underlying
Lazards opinion.
In arriving at its opinion, Lazard considered the results of all
of its analyses and reviews and did not attribute any particular
weight to any factor, analysis or review considered by it;
rather, Lazard made its determination as to
26
fairness on the basis of its experience and professional
judgment after considering the results of all of its analyses
and reviews.
For purposes of its analyses and reviews, Lazard considered
industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond
our control. No company, business or transaction used in
Lazards analyses and reviews as a comparison is identical
to us or the proposed merger, and an evaluation of the results
of those analyses and reviews is not entirely mathematical.
Rather, the analyses and reviews involve complex considerations
and judgments concerning financial and operating characteristics
and other factors that could affect the merger, public trading
or other values of the companies, businesses or transactions
used in Lazards analyses and reviews. The estimates
contained in Lazards analyses and reviews and the ranges
of valuations resulting from any particular analysis or review
are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or
less favorable than those suggested by Lazards analyses
and reviews. In addition, analyses and reviews relating to the
value of companies, businesses or securities do not purport to
be appraisals or to reflect the prices at which companies,
businesses or securities actually may be sold. Accordingly, the
estimates used in, and the results derived from, Lazards
analyses and reviews are inherently subject to substantial
uncertainty.
The summary of the analyses and reviews provided below
includes information presented in tabular format. In order to
fully understand Lazards analyses and reviews, the tables
must be read together with the full text of each summary. The
tables alone do not constitute a complete description of
Lazards analyses and reviews. Considering the data in the
tables below without considering the full description of the
analyses and reviews, including the methodologies and
assumptions underlying the analyses and reviews, could create a
misleading or incomplete view of Lazards analyses and
reviews.
Except as otherwise noted, the following quantitative
information, to the extent that it is based on market data, is
based on market data as it existed on or before July 7,
2008 and is not necessarily indicative of current market
conditions.
Financial
Analyses
Discounted
Cash Flow Sum-of-the-Parts Analysis
Lazard performed a discounted cash flow analysis on a
risk-adjusted basis of SGX to calculate the estimated present
value of the standalone unlevered, after-tax free cash flows
that SGX could generate during fiscal years 2008 through 2023
(or, in certain cases, 2012, based on estimates of our
management) of each of our major product candidates, the value
of our net operating losses, internal research and development
expense and corporate general and administrative expenses,
utilizing both internal estimates of our management, which were
probability adjusted for clinical and regulatory risk based on
our management estimates, and certain industry related
studies.
1
The unlevered, after-tax free cash flows were discounted to
present value using a weighted average cost of capital ranging
from 14.0% to 16.0%. This calculation is referred to as the
Sum-of-the-Parts DCF. The assumed discount rate range was
derived from the weighted average cost of capital analysis that
Lazard calculated for us based on comparable public companies.
Based on this analysis, Lazard arrived at an implied value per
share range for SGX of $1.39 to $3.39. Lazard noted that this
range is inclusive of the per share consideration of $3.00.
Public
Company Comparables Analysis
Lazard reviewed and analyzed selected publicly available
financial and other data of the following companies having
businesses and trading characteristics that it viewed as
reasonably comparable to SGX.
The companies included in this analysis were:
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Infinity Pharmaceuticals, Inc.
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1
Cumulative
probabilities of marketing approval based on the Journal of
Clinical Pharmacology & Therapeutics, May 2001,
Risks in New Drug Development Approval Success Rates for
Investigational Drugs, published by the Tufts Center for
the Study of Drug Development, Tufts University.
27
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Arqule, Inc.
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Cytokinetics, Incorporated
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Supergen, Inc.
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EntreMed, Inc.
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Sunesis Pharmaceuticals, Inc.
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Incyte Corporation
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Exelixis, Inc.
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Lazard reviewed, among other things, technology value per
expected product candidate of the selected companies, which was
calculated as the equity value of such company based on the
closing stock price on July 7, 2008, plus debt, less cash,
divided by the expected number of marketed products (with the
number of marketed product candidates calculated by multiplying
the number of product candidates of the selected companies by
the probability of success for clinical and regulatory risk of
such product
candidates).
2
Lazard then applied a range of technology values per expected
product candidate derived from the selected companies to our
expected number of marketed products. Financial data of the
selected companies were based on publicly available information.
Financial data of SGX were based on internal estimates provided
by our management. This analysis indicated an implied technology
value of SGX from $1.0 million to $24.0 million, an
implied equity value of SGX from $23.0 million to
$46.0 million and an implied per share value of SGX from
$1.08 to $2.17. Lazard noted that this range is below the per
share consideration of $3.00.
Selected
Precedent Transactions Analysis
Lazard reviewed, to the extent publicly available, financial
information relating to the following six selected transactions
involving bio-pharmaceutical companies developing oncology
products:
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Announcement Date
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Acquiror
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Target
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05/29/2008
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Bristol-Myers Squibb Company
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Kosan Biosciences Incorporated
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05/21/2008
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Daiichi Sankyo Company, Limited
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U3 Pharma AG
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03/22/2007
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Eisai Co., Ltd.
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Morphotek Inc.
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05/03/2006
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Biogen Idec Inc.
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Conforma Therapeutics Corp.
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12/23/2005
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AstraZeneca PLC
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KuDOS Pharmaceuticals
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05/12/2005
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Cephalon, Inc.
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Salmedix, Inc.
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Lazard reviewed, among other things, transaction value per
expected product candidate of the target companies, which was
calculated as the equity value of such company based on the
offer price on the date of announcement, plus debt, less cash,
divided by the expected number of marketed products (with the
number of marketed product candidates calculated by multiplying
the number of product candidates of the selected companies by
the probability of success for clinical and regulatory risk of
such product
candidates).
3
These transaction values per expected product candidate ranged
from $119.0 million to $406.0 million. Lazard then
applied a range of transaction values per expected product
candidate derived from the selected transactions to our expected
number of marketed products. Financial data of the selected
transactions were based on public filings, publicly available
research analysts estimates and other publicly available
information. Financial data of SGX were based on internal
estimates of our management. This analysis indicated a range of
implied transaction value of SGX of $30.0 million
2
Cumulative
probabilities of marketing approval based on the Journal of
Clinical Pharmacology & Therapeutics, May 2001,
Risks in New Drug Development Approval Success Rates for
Investigational Drugs, published by the Tufts Center for
the Study of Drug Development, Tufts University.
3
Cumulative
probabilities of marketing approval based on the Journal of
Clinical Pharmacology & Therapeutics, May 2001,
Risks in New Drug Development Approval Success Rates for
Investigational Drugs, published by the Tufts Center for
the Study of Drug Development, Tufts University.
28
to $101.0 million, an implied equity value of SGX of
$51.0 million to $122.0 million, and an implied per
share range for SGX of $2.44 to $5.85. Lazard noted that this
range is inclusive of the per share consideration of $3.00.
Premia
Analysis-Life Sciences Transactions
Lazard also performed a premia paid analysis, analyzing the
premia paid in selected bio-pharmaceutical transactions
involving all cash mergers of public company targets with a
transaction value of less than $2.0 billion since 2005.
Lazards analysis was based on the
one-day,
one-week and four-week implied premia paid in such transactions.
The implied premia in this analysis were calculated comparing
the transaction price prior to the announcement of the
transaction to the target companys stock price one day,
one week and four-weeks prior to the announcement of the
transaction. The results of these calculations are as follows:
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Premium Range
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Implied Range
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25th percentile 75th percentile
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26% - 80%
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$
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1.80 - $2.88
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From these premia, Lazard, based on its experience with mergers
and acquisitions, derived a reference range for SGX common stock
as of July 7, 2008 of $1.80 to $2.88. Lazard noted that the
market price of $1.43 per share as of July 7, 2008 was
below this range and the per share consideration of $3.00 was
above the range.
Miscellaneous
In connection with Lazards services as our financial
advisor, we agreed to pay Lazard an aggregate fee of
$1.5 million, a portion of which was payable upon the
rendering of Lazards written opinion (as fully set forth
in
Annex C
) and a significant portion of which
is contingent upon the closing of the merger. We have also
agreed to reimburse Lazard for certain expenses incurred in
connection with Lazards engagement and to indemnify Lazard
and certain related parties against certain liabilities that may
arise out of the rendering of the advice, including certain
liabilities under U.S. federal securities laws.
Lazard, as part of its investment banking business, is
continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, leveraged buyouts, and
valuations for estate, corporate and other purposes. Lazard in
the past has provided investment banking services to us and
certain of our affiliates, for which Lazard has received
compensation, and certain affiliates of Lazard in the past have
provided, currently provide, and in the future may provide,
financial services to Lilly, for which such affiliates have
received, and may in the future receive, compensation. In the
past two years Lazard has provided services to us related to a
private investment in public equity offering in 2007, for which
Lazard received compensation. In addition, in the ordinary
course of their respective businesses, affiliates of Lazard and
LFCM Holdings LLC (an entity indirectly owned in large part by
managing directors of Lazard) may actively trade our securities
and/or
the
securities of Lilly and certain of their respective affiliates
for their own accounts and for the accounts of their customers
and, accordingly, may at any time hold a long or short position
in such securities. The issuance of Lazards opinion was
approved by the Opinion Committee of Lazard.
Lazard is an internationally recognized investment banking firm
providing a full range of financial advisory and other services.
Lazard was selected to act as our financial advisor because of
its qualifications, expertise and reputation in investment
banking and mergers and acquisitions, as well as its familiarity
with our business.
We and Lilly determined the per share merger consideration to be
paid to the holders of our common stock (other than excluded
holders) in the merger through arms-length negotiations,
and our board approved the per share merger consideration.
Lazard conducted the analyses and reviews summarized above for
the purpose of providing an opinion to our board as to the
fairness, from a financial point of view, to the holders of our
common stock (other than excluded holders) of the per share
merger consideration to be paid to such holders in the merger.
Lazard did not recommend any specific consideration to our board
or any other person or indicate that any given consideration
constituted the only appropriate consideration for the merger.
Lazards opinion and analyses were only one of many factors
taken into consideration by our board in its evaluation of the
merger. Consequently, the summary of the analyses and reviews
provided above should not be viewed as determinative of the
opinion of our board or our management with respect to the per
share merger
29
consideration or as to whether our board would have been willing
to recommend a different transaction or determine that a
different per share merger consideration was fair. Additionally,
Lazards opinion is not intended to confer any rights or
remedies upon any of our employees or creditors.
Certain
Effects of the Merger
If the merger agreement is adopted by our stockholders and the
other conditions to the closing of the merger are either
satisfied or waived, Merger Sub will be merged with and into
SGX, with SGX being the surviving corporation. Following the
merger, SGX will be a wholly-owned subsidiary of Lilly.
When the merger is completed, each share of our common stock
issued and outstanding immediately prior to the effective time
of the merger will be converted into the right to receive $3.00
in cash, without interest and less any applicable withholding
taxes.
The merger agreement provides that immediately prior to the
effective time of the merger, each option to purchase our common
stock granted under our 2005 Plan that is outstanding
immediately prior to the effective time of the merger will be
canceled and terminated and converted into the right to receive,
as of the effective time of the merger, an amount in cash equal
to the product of (A) the number of shares underlying the
option
multiplied by
(B) the excess, if any, of
(1) $3.00 per share over (2) the exercise price per
share of such option, subject to applicable tax withholding. In
addition, each option to purchase our common stock granted under
our 2000 Plan or NEDSOP with an exercise price per share less
$3.00 that is not exercised and remains outstanding and
unexercised immediately prior to the effective time of the
merger shall be canceled and terminated and converted into the
right to receive, as of the effective time of the merger, an
amount in cash equal to the product of (A) the number of
shares underlying the option
multiplied by
(B) the
excess, if any, of (1) $3.00 per share over (2) the
exercise price per share of such option, subject to applicable
tax withholding. No payment will be made with respect to stock
options that have per share exercise price above $3.00 and such
options will be canceled and terminated in accordance with their
terms.
The merger agreement also provides that immediately prior to the
effective time of the merger, each share of restricted stock and
each share of common stock subject to restricted stock units
will be treated as the corresponding number of shares of common
stock as of the effective time of the merger in the same manner
as other outstanding shares of common stock issued and
outstanding as of immediately prior to the effective time of the
merger. In addition, the merger agreement provides that at the
effective time of the merger, each warrant to purchase our
common stock that is outstanding immediately prior to the
effective time of the merger will cease to represent a right to
acquire shares of our common stock and will be converted into
the right to receive (upon surrender of the warrant) an amount
in cash, without interest, equal to the product of the number of
shares of our common stock subject to such warrant multiplied by
the excess, if any, of (i) $3.00 per share over
(ii) the exercise price per share of such warrant, subject
to applicable tax withholding. No payment will be made with
respect to warrants that have per share exercise prices above
$3.00.
After the merger is completed, our stockholders will have the
right to receive the merger consideration but will no longer
have any rights as SGX stockholders and will have no rights as
either Lilly or Merger Sub stockholders. Therefore, such
stockholders will not participate in any future earnings or
growth of SGX or Lilly, and will not benefit from any
appreciation in value of SGX or Lilly.
Our common stock is currently registered under the Securities
Exchange Act of 1934, as amended, or the Exchange
Act, and is listed on The Nasdaq Global Market under the
symbol SGXP. As a result of the merger, we will
become a privately held corporation, our common stock will cease
to be listed on The Nasdaq Global Market and there will be no
public market for our common stock. In addition, registration of
our common stock under the Exchange Act will be terminated. This
termination will make certain provisions of the Exchange Act,
such as the requirement of furnishing a proxy or information
statement in connection with stockholders meetings, no
longer applicable to us. After the effective time of the merger,
we will also no longer be required to file periodic reports with
the SEC on account of our common stock.
The directors and officers of Merger Sub will be the initial
directors and officers of the surviving corporation following
the merger. As of the effective time of the merger, the
certificate of incorporation of Merger Sub as in
30
effect immediately before the effective time of the merger will
be the surviving corporations certificate of
incorporation. In addition, the bylaws of Merger Sub as in
effect immediately before the effective time of the merger will
be the surviving corporations bylaws.
The benefit of the merger to our stockholders is the right to
receive the merger consideration. The primary detriments are
that our stockholders will cease to participate in our future
earnings and growth, if any, and that the receipt of the payment
for their shares generally will be a taxable transaction for
United States federal income tax purposes.
See
The
Merger Material United States Federal Income Tax
Consequences below.
Effects
on SGX if the Merger Is Not Completed
If the merger agreement is not adopted by our stockholders or if
the merger is not completed for any other reason, our
stockholders will not receive any payment for their shares in
connection with the merger. Instead, we will remain an
independent public company and we anticipate that our common
stock will continue to be listed and traded on The Nasdaq Global
Market.
If the merger is not consummated, our board will evaluate and
review our business operations, financial condition, research
and development programs, and partnering and financing
opportunities, among other things, and make such changes as are
deemed appropriate. If the merger agreement is not adopted by
our stockholders or if the merger is not consummated for any
other reason, we cannot assure you that any other transaction
acceptable to us will be offered, or that our business,
prospects or results of operations will not be adversely
impacted.
Under certain circumstances, we may be required to pay Lilly a
termination fee of $2.0 million and reimburse Lilly for up
to $250,000 of certain expenses incurred by it in connection
with the merger upon the termination of the merger agreement.
See
The Merger Agreement
Termination and The Merger Agreement
Termination Fee below.
Financing
The total amount of funds required by Merger Sub to pay all the
merger consideration and related fees and expenses in connection
with the merger and the related transactions is estimated to be
approximately $66.0 million. Lilly expects to finance the
merger with cash on hand.
Interests
of Our Directors and Executive Officers in the Merger
In considering the recommendation of our board to vote for the
proposal to adopt the merger agreement, you should be aware that
some of our directors and executive officers have interests in
the merger that are different from, and in addition to, the
interests of our stockholders generally and that may create
potential conflicts of interest. The members of our board are
aware of and considered the interests of our directors and
executive officers, among other matters, when they considered
and approved the merger agreement, the merger and the other
transactions and determined to recommend to our stockholders
that they vote for the proposal to adopt the merger agreement.
Equity
and Long-Term Incentive Awards.
Stock Options.
The merger agreement provides
that each option to purchase our common stock granted under our
2005 Plan that is outstanding immediately prior to the effective
time of the merger will be canceled and terminated and converted
into the right to receive, as of the effective time of the
merger, an amount in cash equal to the product of (A) the
number of shares underlying the option
multiplied by
(B) the excess, if any, of (1) $3.00 per share
over (2) the exercise price per share of such option,
subject to applicable tax withholding. The merger agreement also
provides that each option to purchase our common stock granted
under our 2000 Plan or our NEDSOP shall be accelerated in full
to a date prior to the effective time of the merger (as
determined by our board) and such options shall terminate at the
effective time of the merger if not exercised prior to the
effective time;
provided, that
each option with an
exercise price per share less than $3.00 that remains
outstanding and unexercised immediately prior to the effective
time of the merger, shall be canceled and terminated and
converted into a right to receive, as of the effective time of
the merger, an amount in cash equal to the product of
(A) the number of shares
31
underlying the option
multiplied by
(B) the excess,
if any, of (1) $3.00 per share over (2) the exercise
price per share of such option, subject to applicable tax
withholding.
Restricted Stock and Restricted Stock
Units.
The merger agreement provides that each
share of our restricted stock and each of our restricted stock
units will be treated as the corresponding number of shares of
common stock as of the effective time of the merger in the same
manner as other outstanding shares of our common stock issued
and outstanding as of immediately prior to the effective time of
the merger.
The following table lists, with respect to each of our executive
officers, all of our executive officers as a group and all of
our non-management directors as a group, the total cash to be
received under the merger agreement for the stock options,
restricted stock and restricted stock units held by such
individual or group (assuming vesting through July 21,
2008).
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|
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|
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|
|
|
|
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In-the-Money
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Options that will
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Restricted Stock
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Vested in-the-
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Vest as a Result of
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Units that will Vest as
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Totals
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Money Options
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the Merger
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a Result of the Merger
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Total
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Total
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Executive Officers
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Shares
|
|
|
Payment
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|
Shares
|
|
|
Payment
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|
Shares
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|
Payment
|
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|
Shares
|
|
|
Payment
|
|
|
Michael Grey
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|
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263,863
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|
$
|
527,726
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|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
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263,863
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$
|
527,726
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Stephen K. Burley
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131,175
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$
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258,769
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$
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$
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131,175
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$
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258,769
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W. Todd Myers
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|
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$
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|
|
|
|
|
|
|
$
|
|
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26,563
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$
|
79,689
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|
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26,563
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|
$
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79,689
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Terence Rugg
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$
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|
|
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|
|
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$
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|
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|
$
|
|
|
|
|
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$
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Siegfried Reich
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$
|
|
|
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$
|
|
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28,125
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|
|
$
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84,375
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|
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28,125
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|
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$
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84,375
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Annette North
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50,000
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$
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100,000
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$
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|
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|
|
|
$
|
|
|
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|
50,000
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|
|
$
|
100,000
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|
|
|
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|
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|
|
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|
|
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|
|
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|
|
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Executive Officers as a group
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445,038
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$
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886,495
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$
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54,688
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$
|
164,064
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499,726
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$
|
1,050,559
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|
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|
|
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|
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|
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|
|
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Non-Management Directors
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|
|
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Christopher S. Henney
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1,666
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$
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2,749
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18,334
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|
$
|
30,251
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|
|
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|
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$
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20,000
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|
|
$
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33,000
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Karin Eastham
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|
|
833
|
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|
$
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1,374
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9,862
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|
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$
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16,516
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|
|
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|
|
$
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10,695
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|
|
$
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17,890
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Louis C. Bock
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|
|
833
|
|
|
$
|
1,374
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|
|
|
9,167
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|
|
$
|
15,126
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|
|
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|
|
$
|
|
|
|
|
10,000
|
|
|
$
|
16,500
|
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Joseph Turner
|
|
|
833
|
|
|
$
|
1,374
|
|
|
|
9,167
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|
|
$
|
15,126
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|
|
|
|
|
|
$
|
|
|
|
|
10,000
|
|
|
$
|
16,500
|
|
|
|
|
|
|
|
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|
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|
|
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|
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|
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|
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|
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|
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|
|
|
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Non-Management Directors as a group
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4,165
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$
|
6,872
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46,530
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|
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$
|
77,018
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|
|
|
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$
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|
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50,695
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|
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$
|
83,890
|
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Change of Control and Severance
Arrangements.
We are party to change of
control and severance arrangements with each of Michael Grey,
Stephen K. Burley, W. Todd Myers, Siegfried Reich, Terence Rugg
and Annette North. The potential payments payable to these
individuals upon termination of their employment, including in
connection with a change of control, under severance and change
in control agreements are set out below. The consummation of the
merger will constitute a change of control within the meaning of
these agreements. Payments due by us to our executive officers
pursuant to the agreements will not be grossed up to
reduce or eliminate the effect of the golden
parachute or other tax provisions of the Internal Revenue
Code. Any obligation to pay taxes remains an obligation of the
executive officer.
Michael Grey.
Upon a change in control,
all unvested equity awards held by Mr. Grey that would have
otherwise been vested on the date that is 12 months after
such change in control will immediately become vested. In
addition, if his employment is terminated without
Cause (as defined in the change in control severance
agreement) at any time, Mr. Grey will receive
12 months salary continuation and, other than in connection
with a change of control, 12 months accelerated vesting of
stock options or other equity awards. If Mr. Greys
employment is terminated without Cause or he resigns
for Good Reason (as defined in the change in control
32
severance agreement) within three months prior to or
12 months following a change of control, then he is
entitled to the following benefits (in lieu of 12 months
salary continuation):
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a lump sum payment of 24 months salary;
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continuation of health and welfare benefits for 12 months;
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the targeted bonus for the year in which the change in control
occurs;
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continuance of indemnification rights and liability insurance;
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automatic vesting of all unvested stock options and equity
awards; and
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|
an extension of the option exercise period to up to
15 months or, such shorter period as complies with
Section 409A of the Internal Revenue Code.
|
Stephen Burley.
Upon a change in
control, all unvested equity awards held by Dr. Burley that
would have otherwise been vested on the date that is
12 months after such change in control will immediately
become vested. In addition, if his employment is terminated
without Cause (as defined in the change in the
control severance agreement) at any time, Dr. Burley will
receive 12 months salary continuation and, other than in
connection with a change of control, 12 months accelerated
vesting of stock options or other equity awards. If
Dr. Burleys employment is terminated without
Cause or he resigns for Good Reason (as
defined in the change in control severance agreement) within
three months prior to or 12 months following a change of
control, then he is entitled to the following benefits (in lieu
of 12 months salary continuation):
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|
|
a lump sum payment of 12 months salary;
|
|
|
|
continuation of health and welfare benefits for 12 months;
|
|
|
|
the targeted bonus for the year in which the change in control
occurs;
|
|
|
|
continuance of indemnification rights and liability insurance;
|
|
|
|
automatic vesting of all unvested stock options and equity
awards; and
|
|
|
|
an extension of the option exercise period to up to
12 months or, such shorter period as complies with
Section 409A of the Internal Revenue Code.
|
W. Todd Myers, Siegfried Reich, Terence Rugg and
Annette North.
Upon a change in control, all
unvested equity awards held by each of Mr. Myers,
Dr. Reich, Dr. Rugg and Ms. North that would have
otherwise been vested on the date that is 12 months after
such change in control will immediately become vested. In
addition, if any of these executive officers employment is
terminated without Cause (as defined in each change
in control severance agreement) at any time, the executive will
receive 12 months salary continuation. If the
executives employment is terminated without
Cause or the executive resigns for Good
Reason (as defined in the change in control severance
agreement) within three months prior to or 12 months
following a change of control, then the executive is entitled to
the following benefits (in lieu of 12 months salary
continuation):
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|
|
|
|
a lump sum payment of 12 months salary;
|
|
|
|
continuation of health and welfare benefits for 12 months;
|
|
|
|
the targeted bonus for the year in which the change in control
occurs;
|
|
|
|
continuance of indemnification rights and liability insurance;
|
|
|
|
automatic vesting of all unvested stock options and equity
awards; and
|
|
|
|
an extension of the option exercise period to up to
12 months or, such shorter period as complies with
Section 409A of the Internal Revenue Code.
|
In addition, if Dr. Rugg resigns for Good Reason within
three months prior to or within 12 months following the
occurrence of the Change in Control, then Dr. Rugg will
have no obligation to reimburse the Company for any relocation
assistance provided to him.
33
The following table illustrates the payments and benefits to
which the above-named executive officers would be entitled
pursuant to their change of control employment agreements if the
merger were consummated on July 21, 2008 and a qualifying
termination of employment without Cause (as defined
in each change in control severance agreement) occurred on such
date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance
|
|
|
Health & Welfare
|
|
|
|
|
|
|
|
|
|
(Salary and 2008
|
|
|
Benefits
|
|
|
Value of Equity
|
|
|
Total Change in
|
|
Name
|
|
Target
Bonus)
(1)
|
|
|
Continuation
(2)
|
|
|
Acceleration
(3)
|
|
|
Control Benefits
|
|
|
Michael Grey
|
|
$
|
1,103,049
|
|
|
$
|
19,195
|
|
|
$
|
|
|
|
$
|
1,122,244
|
|
W. Todd Myers
|
|
$
|
400,703
|
|
|
$
|
15,928
|
|
|
$
|
79,689
|
|
|
$
|
496,320
|
|
Stephen K. Burley
|
|
$
|
524,680
|
|
|
$
|
13,432
|
|
|
$
|
|
|
|
$
|
538,112
|
|
Siegfried Reich
|
|
$
|
408,980
|
|
|
$
|
12,143
|
|
|
$
|
84,375
|
|
|
$
|
505,498
|
|
Terence Rugg
|
|
$
|
444,015
|
|
|
$
|
15,928
|
|
|
$
|
|
|
|
$
|
459,943
|
|
Annette North
|
|
$
|
379,735
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
379,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,257,162
|
|
|
$
|
76,626
|
|
|
$
|
164,064
|
|
|
$
|
3,501,852
|
|
|
|
|
(1)
|
|
Includes both cash severance amounts and the full 2008 target
bonus amount under the 2008 bonus plan. The 2008 target bonus
payments included in this amount are as follows: $262,631 for
Mr. Grey, $121,953 for Mr. Myers, $159,685 for
Dr. Burley, $111,540 for Dr. Reich, $121,095 for
Dr. Rugg and $103,564 for Ms. North.
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(2)
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Consists of health, dental, vision and life insurance coverage.
The value is based upon the type of insurance coverage we
carried for each executive officer as of December 31, 2007
and is valued at the premiums in effect on December 31,
2007.
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(3)
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Reflects the value of all unvested restricted stock units on
July 21, 2008; all restricted stock units will accelerate
in full in connection with the merger.
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Acceleration of Vesting of Director Stock
Options.
All stock options held by the
members of our board will accelerate in full upon the closing of
the merger, and the options will be paid out, as noted above.
Our Management Following the
Merger.
Certain members of our management
team are discussing employment arrangements with Lilly, which
may include the right to purchase or participate in the equity
of Lilly. However, there can be no assurance that any such
arrangement will be agreed upon, other than the employment
arrangement described below. These matters are subject to
negotiation and discussion. Any new arrangements may be entered
into at or prior to the completion of the merger.
Stephen K. Burley, our Chief Scientific Officer and Senior Vice
President, Research, has agreed to be employed by Lilly pursuant
to an offer letter contingent upon and assuming the closing of
the merger. The employment arrangement provides that
Dr. Burley will be paid an annual base salary of $340,000
as a Distinguished Lilly Scholar and will be eligible to receive
an annual performance-based incentive bonus with a 2008
individual bonus target of 34% of his base salary earnings from
Lilly in 2008. Additionally, Dr. Burley will be eligible to
participate in Lillys equity program, pursuant to which he
will have the opportunity to receive grants of shares of
Lillys common stock and restricted stock units, with such
grants being approved by the Lilly Compensation Committee on a
yearly basis. Dr. Burley will also be granted a one-time
restricted stock unit award for 10,000 shares of
Lillys common stock which will vest over a three-year
period based on performance and continued employment. Lilly and
Dr. Burley have agreed to terminate his Change in Control
Severance Agreement with SGX effective as of the closing date of
the merger in exchange for a lump sum payment equal to
12 months of his current base salary, a cash payment equal
to his full SGX 2008 target bonus amount and the indemnification
rights described in such agreement. Dr. Burley will also be
entitled to receive benefits during his employment that Lilly
makes available to other similarly-situated employees, and
12 months severance if he is terminated involuntarily for
reasons other than cause within the first 36 months of his
employment with Lilly.
Our Directors Following the
Merger.
Following the merger, none of our
directors will serve as directors of the surviving corporation,
and the directors and officers of Merger Sub will be the initial
directors and officers, respectively, of the surviving
corporation.
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Indemnification; Directors and Officers
Insurance.
The merger agreement provides that
all rights to indemnification in favor of any person who is, or
has been, or becomes prior to the effective time an officer or
director of SGX, as provided in our certificate of incorporation
and bylaws, or pursuant to agreements, will be assumed by the
surviving corporation. For six years after the merger, Lilly and
the surviving corporation will indemnify the officers and
directors described above to the full extent permitted under
applicable law.
In addition, under the merger agreement, Lilly will cause the
surviving corporation to maintain our officers and
directors liability insurance policies in effect on the
date of the merger agreement for a period of not less than six
years after the effective time of the merger, but only to the
extent related to actions or omissions prior to the effective
time of the merger. The surviving corporation may substitute
policies of at least the same coverage and amounts containing
terms no less advantageous to such former directors or officers
and such substitution must not result in gaps or lapses of
coverage with respect to matters occurring prior to the
effective time of the merger. In no event will Lilly or the
surviving corporation be required to expend more than an amount
per year equal to 300% of the last annual aggregate premium paid
by us prior to the date of the merger agreement for such
insurance to maintain or procure insurance coverage pursuant to
the merger agreement. If the amount of the annual premiums
necessary to maintain or procure such insurance coverage exceeds
300% of the last annual aggregate premium paid by us, Lilly and
the surviving corporation must procure and maintain for such
six-year period as much coverage as reasonably practicable for
such amount. Lilly will have the option to cause coverage to be
extended under our officers and directors liability
insurance policies by obtaining a six-year tail
policy or policies on terms and conditions no less advantageous
than our existing officers and directors liability
insurance policies.
Accounting
Treatment
Lilly will account for the merger as a purchase, as
that term is used under U.S. generally accepted accounting
principles, for accounting and financial reporting purposes.
Under purchase accounting, our assets (including identifiable
intangible assets) and liabilities (including contracts and
other commitments) as of the effective time of the merger will
be recorded at their respective fair values and added to those
of Lilly. Any excess of purchase price over the fair value is
recorded as goodwill. Financial statements of Lilly issued after
the merger would reflect these fair values and would not be
restated retroactively to reflect our historical financial
position or results of operations.
Material
United States Federal Income Tax Consequences
The following is a summary of the material United States federal
income tax consequences of the merger to our stockholders. This
summary is limited to stockholders who hold their shares of our
common stock as capital assets within the meaning of
section 1221 of the Internal Revenue Code of 1986, as
amended, or the Code. This summary is based upon the provisions
of the Code, treasury regulations promulgated thereunder,
judicial decisions and administrative rulings currently in
effect, all of which are subject to change, possibly with
retroactive effect. Any such change could alter the tax
consequences to our stockholders. This summary does not address
all of the United States federal income tax consequences that
may be relevant to particular stockholders in light of their
individual circumstances or to stockholders who are subject to
special rules, including: United States expatriates, insurance
companies, dealers or brokers in securities or currencies,
tax-exempt organizations, financial institutions, mutual funds,
pass-through entities and investors in such entities,
stockholders who hold their shares of our common stock as a
hedge or as part of a hedging, straddle, conversion, synthetic
security, integrated investment or other risk-reduction
transaction or who are subject to alternative minimum tax or
stockholders who acquired their shares of our common stock upon
the exercise of employee stock options or otherwise as
compensation. In the case of a stockholder that is a
partnership, the tax treatment of a partner generally will
depend on the status of the partner and on the activities of the
partnership. Partners of partnerships holding our common stock
are encouraged to consult their tax advisors. Further, this
discussion does not address any United States federal estate and
gift tax consequences or any state, local or foreign tax
consequences relating to the merger.
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Consequences
of the Merger to Stockholders
The following describes the material tax consequences of the
merger to our stockholders who receive cash for their shares in
connection with the merger:
Consequences
of the Merger to U.S. Holders. A U.S. holder
means:
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a citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for
United States federal income tax purposes) organized or created
in the United States or under laws of the United States or any
political subdivision thereof;
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an estate, the income of which is subject to federal income tax
regardless of its source;
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a trust, with respect to which a court within the United States
is able to exercise primary supervision over its administration
and one or more United States persons have the authority to
control all of the substantial decisions of the trust; or
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a trust that has a valid election in effect under applicable
United States Treasury Regulations to be treated as a United
States person.
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The receipt of cash pursuant to the merger will be a taxable
transaction for United States federal income tax purposes.
Generally, for United States federal income tax purposes, a
stockholder will recognize capital gain or loss equal to the
difference between the amount of cash received by the
stockholder in the merger and the stockholders adjusted
tax basis in the shares of our common stock exchanged for cash
in the merger. The capital gain or loss will be long-term if the
stockholders holding period for the shares of our common
stock exceeds one year at the effective time of the merger.
Capital gains recognized by an individual upon exchange of a
share of our common stock that has been held for more than one
year generally will be subject to a maximum United States
federal income tax rate of 15% or, in the case of a share that
has been held for one year or less, will be subject to tax at
ordinary income tax rates. In addition, there are limits on the
deductibility of capital losses. The amount and character of
gain or loss must be determined separately for each block of our
common stock (
i.e.
, shares acquired at the same cost in a
single transaction) exchanged for cash in the merger.
Backup Withholding.
A stockholder
(other than exempt stockholders, including, among others, all
corporations and certain foreign individuals) whose shares of
our common stock are exchanged for the merger consideration may
be subject to backup withholding at the backup withholding rate
of 28% unless the stockholder provides the stockholders
taxpayer identification number and otherwise complies with the
applicable backup withholding rules and certification
requirements. Corporations are generally exempt from backup
withholding. Each non-corporate stockholder should complete and
sign the Substitute
Form W-9
included as part of the letter of transmittal that will be sent
to stockholders promptly following closing of the merger so as
to provide the information and certification necessary to avoid
backup withholding. In order for a foreign individual to qualify
as an exempt recipient, he or she must submit a signed statement
(such as a Certificate of Foreign Status on IRS
Form W-8
BEN) attesting to his, her or its exempt status. Backup
withholding is not an additional tax. Rather, the amount of the
backup withholding can be credited against the United States
federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to
the IRS. If backup withholding results in an overpayment of tax,
a refund can be obtained by the stockholder by filing a United
States federal income tax return.
Consequences of the Merger to
Non-U.S. Holders.
For
purposes of this description, a
non-U.S. holder
is any person (other than a partnership) that is not a
U.S. holder for U.S. federal income tax
purposes.
Non-U.S. holders
who are stockholders of SGX will generally not be subject to
United States federal income tax on the receipt of cash as a
result of the merger. This general rule, however, is subject to
some exceptions. For example, the gain would be subject to
United States federal income tax if:
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the gain is effectively connected with the conduct by the
non-U.S. holder
of a United States trade or business, subject to an applicable
treaty providing otherwise; or
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of the sale, exchange,
or other disposition, and other requirements are met.
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A
non-U.S. holder
with gain effectively connected with the conduct of a trade or
business in the United States is encouraged to consult his, her
or its own tax advisor regarding the United States federal
income tax consequences of the merger. An individual who is
present in the United States for 183 days or more in the
taxable year in which our common stock is disposed of in the
merger is encouraged to consult his, her or its own tax advisor
regarding the United States federal income tax consequences of
the merger.
Dissenters Rights.
Under
specified circumstances, stockholders may be entitled to
appraisal rights in connection with the Merger.
See
Dissenters Rights below. If a stockholder
receives cash pursuant to the exercise of appraisal rights, such
stockholder generally will recognize gain or loss, measured by
the difference between the cash received and such holders
tax basis in such stock. Interest, if any, awarded in an
appraisal proceeding by a court would be included in such
stockholders income as ordinary income for federal income
tax purposes. Stockholders who exercise appraisal rights are
urged to consult their own tax advisors.
THE SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES SET FORTH ABOVE IS BASED ON THE LAW IN EFFECT ON
THE DATE HEREOF. STOCKHOLDERS ARE STRONGLY URGED TO CONSULT
THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF
ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE
MERGER.
Governmental
and Regulatory Matters
Completion of the merger is subject to certain governmental or
regulatory clearance procedures, including the termination or
expiration of the waiting period under the HSR Act. We and Lilly
filed our respective notification and report forms pursuant to
the HSR Act with the Antitrust Division of the United States
Department of Justice, or DOJ, or the United States
Federal Trade Commission, or FTC, on July 11,
2008. Under the HSR Act, the merger may not be consummated until
30 days after the latter of the initial filings (unless
early termination of this waiting period is granted) or, if the
Antitrust Division of the DOJ or the FTC issues a request for
additional information, 30 days after SGX and Lilly have
each substantially complied with such request for additional
information (unless this period is shortened pursuant to a grant
of earlier termination).
As of the date of this proxy statement, we and Lilly have not
yet obtained any governmental or regulatory clearances that may
be required to complete the merger. There can be no assurance
that the governmental reviewing authorities will terminate or
permit any applicable waiting periods to expire, or approve or
clear the merger at all or without restrictions or conditions.
We and Lilly have agreed to use reasonable best efforts to take
such actions as are necessary or advisable to obtain prompt
approval of the transactions contemplated by the merger
agreement.
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THE
MERGER AGREEMENT
The following description sets forth the material provisions
of the merger agreement but does not purport to describe all of
the terms of the merger agreement. The full text of the merger
agreement is attached to this proxy statement as
Annex A
. You are urged to read the merger agreement
in its entirety because it is the legal document that governs
the merger. The merger agreement should be read in conjunction
with the disclosures in our filings with the SEC available at
the SECs website, www.sec.gov. The provisions contained in
the merger agreement are intended to govern the contractual
rights and relationships, and to allocate risks, between us and
Lilly with respect to the merger.
The
Merger
At the effective time of the merger, Merger Sub will merge with
and into SGX. SGX will continue as the surviving corporation and
will become a wholly-owned subsidiary of Lilly. Lilly, as the
sole stockholder of SGX following the merger, will have the
corporate power and authority to control all aspects of the
corporate and business affairs of SGX following the merger.
Merger Sub was created solely for purposes of the merger, has no
material assets or operations of its own, and will cease to
exist following the merger.
Closing
and Effective Time of the Merger
The consummation of the merger will occur within two business
days after all of the conditions to the consummation of the
merger contained in the merger agreement are satisfied or
waived. The merger will become effective upon the filing of a
certificate of merger with the Secretary of State of the State
of Delaware. Although we expect to complete the merger as soon
as reasonably practicable after the special meeting and the
receipt of any required regulatory approvals or consents, we
cannot assure you that the conditions to the merger will be
satisfied (or waived, to the extent permitted) or, if satisfied
or waived, the date by which they will be satisfied or waived.
In addition, because the merger is subject to closing
conditions, we cannot predict the exact timing of the effective
time of the merger.
See
The Merger
Agreement Conditions to the Merger beginning
on page 50 of this proxy statement.
Merger
Consideration
At the effective time of the merger, each issued and outstanding
share of our common stock (other than shares of common stock
owned by us, Lilly, Merger Sub, any other wholly-owned
subsidiary of Lilly or an SGX stockholder properly exercising
dissenters rights) will be converted into the right to
receive $3.00 in cash, without interest and less any applicable
withholding taxes.
Cancellation
of Shares
Each share of our common stock owned by us, Lilly, Merger Sub or
any other wholly-owned subsidiary of Lilly immediately prior to
the effective time of the merger will be automatically cancelled
and retired and will not be converted into any merger
consideration.
Dissenters
Shares
Shares of our common stock that are outstanding immediately
prior to the merger and held by any dissenting stockholder who
properly perfects his, her or its dissenters rights will
not be converted into the right to receive the merger
consideration. Instead, the dissenting stockholder will be
entitled to an appraisal and payment for his, her or its
dissenting shares in accordance with and subject to
Section 262 of the DGCL.
See
Dissenters
Rights below.
Treatment
of Stock Options
At the effective time:
(i) each option to purchase our common stock granted under
our 2005 Plan that is outstanding immediately prior to the
effective time of the merger, will be canceled and terminated
and converted into the right to receive, as of the effective
time of the merger, an amount in cash equal to the product of
(A) the number of shares underlying the
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option
multiplied by
(B) the excess, if any, of
(1) $3.00 per share over (2) the exercise price per
share of such option, subject to applicable tax
withholding; and
(ii) each option to purchase our common stock granted under
our 2000 Plan or our NEDSOP will be accelerated in full to a
date prior to the effective time of the merger (as determined by
our board) and such options will terminate at the effective time
of the merger if not exercised prior to the effective time;
provided, that
each option with an exercise price per
share less than $3.00 that remains outstanding and unexercised
immediately prior to the effective time of the merger, will be
canceled and terminated and converted into a right to receive,
as of the effective time of the merger, an amount in cash equal
to the product of (A) the number of shares underlying the
option
multiplied by
(B) the excess, if any, of
(1) $3.00 per share over (2) the exercise price per
share of such option, subject to applicable tax withholding.
No payment will be made with respect to stock options that have
per share exercise prices above $3.00 and such options will be
canceled and terminated in accordance with their terms.
Treatment
of Restricted Stock and Restricted Stock Units
At the effective time of the merger, each holder of our
restricted stock and our restricted stock units will be treated
as a holder of the corresponding number of shares of our common
stock as of the effective time of the merger in the same manner
as other outstanding shares of our common stock issued and
outstanding as of immediately prior to the effective time of the
merger.
Treatment
of ESPP
Immediately prior to effective time of the merger our ESPP will
terminate. On such date each right to purchase our common stock
under our ESPP will be automatically exercised by applying the
payroll deductions of each participant in the ESPP for the
applicable Purchase Period (as defined in the ESPP) for the
purchase of a number of whole shares of our common stock at an
exercise price per share of our common stock equal to 85% of the
merger consideration, which shares will then be canceled,
immediately prior to the effective time of the merger, and
converted into the right to receive the merger consideration.
Excess payroll deductions not used as a result of ESPP share
limitations or fractional shares will be distributed to the ESPP
participants without interest.
Treatment
of Warrants
At the effective time, each warrant to purchase our common stock
outstanding immediately prior to the effective time of the
merger will cease to represent a right to acquire shares of our
common stock and will be converted into the right to receive
(upon surrender of the warrant) an amount in cash, without
interest, equal to the product of the number of shares of our
common stock subject to such warrant multiplied by the excess,
if any, of (i) $3.00 per share over (ii) the exercise
price per share of such warrant, subject to applicable tax
withholding.
No payment will be made with respect to warrants that have per
share exercise prices above $3.00.
Payment
Procedures
Lilly will select a payment agent in connection with the merger.
The payment agent will make payment of the merger consideration
in exchange for certificates representing the outstanding shares
of our common stock. Lilly will deposit sufficient cash with the
payment agent at or promptly following the effective time of the
merger in order to permit the payment of the merger
consideration. As soon as reasonably practicable following the
effective time of the merger, the payment agent will send to our
stockholders a letter of transmittal and instructions explaining
how to send their stock certificates to the payment agent. The
payment agent will mail checks or effect wire transfers for the
appropriate merger consideration, without interest, less any
applicable withholding taxes, to our stockholders promptly
following the payment agents receipt and processing of our
stock certificates and properly completed transmittal documents.
In the event of a transfer of ownership of our common stock that
is not registered in our transfer records, payment of the merger
consideration will be made to the applicable transferee if the
stock certificate is presented to
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the payment agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
Lilly may cause the payment agent to deliver to Lilly any funds
undistributed to holders of certificates formerly representing
shares of our common stock as of the date that is one year after
the effective date of the merger. Any holders of certificates
who have not surrendered such certificates in compliance with
the above-described procedures, may thereafter look only to
Lilly for payment of the merger consideration to which they are
entitled.
If any certificate formerly representing shares of our common
stock is lost, stolen, mutilated or destroyed, then upon receipt
of an affidavit from the holder to that effect and the posting
of a bond as an indemnity to Lilly, the payment agent will issue
to such holder the merger consideration into which the shares
represented by such lost, stolen, mutilated or destroyed
certificate were converted.
Stock certificates should not be surrendered by our
stockholders before the effective time of the merger and should
be sent only pursuant to instructions set forth in the letters
of transmittal to be mailed to our stockholders following the
effective time of the merger. In all cases, the merger
consideration will be provided only in accordance with the
procedures set forth in the merger agreement and such letters of
transmittal.
The merger consideration paid to you upon exchange of your
shares of our common stock, restricted stock and restricted
stock units, in-the-money stock options or in-the-money warrants
will be paid in full satisfaction of all rights relating to the
shares of our common stock, restricted stock and restricted
stock units, stock options or warrants.
Certificate
of Incorporation and Bylaws of SGX Following the
Merger
The certificate of incorporation of the surviving corporation
shall be amended at the effective time to be in the form of the
certificate of incorporation of Merger Sub in effect immediately
prior to the effective time, except that the name of the
surviving corporation may be changed to a name designated by
Lilly. As of the effective time of the merger, the bylaws of
Merger Sub as in effect immediately before the effective time of
the merger will be the surviving corporations bylaws.
Directors
and Officers of SGX Following the Merger
Following the merger, none of our directors will serve as
directors of the surviving corporation and the directors and
officers of Merger Sub will be the initial directors and
officers of the surviving corporation. If requested by Lilly
prior to the effective time of the merger, SGX will use its
reasonable best efforts to cause the directors of SGX to tender
their resignations as directors, effective as of the effective
time of the merger and to deliver to Lilly written evidence of
such resignations at or prior to the effective time of the
merger.
Representations
and Warranties
The merger agreement contains customary representations and
warranties that we, on the one hand, and Lilly and Merger Sub,
on the other hand, made to, and solely for the benefit of, each
other. Our representations and warranties to Lilly and Merger
Sub relate to, among other things:
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our organization;
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our capital structure;
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our authority to enter into the merger agreement;
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required consents to consummate the merger;
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our subsidiaries;
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our reports to the SEC and our financial statements;
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compliance with the Sarbanes-Oxley Act;
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absence of certain changes or events;
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litigation;
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information supplied for inclusion in this proxy statement;
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brokers and finders fees;
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employee benefit plans;
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opinion of financial advisors;
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tax matters;
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environmental matters;
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compliance with applicable laws;
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intellectual property;
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material contracts;
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government contracts and regulatory matters;
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employment matters;
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real property matters;
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insurance matters;
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affiliate transactions;
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the applicability of certain state and federal antitakeover laws;
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title to our assets;
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compliance under the foreign corrupt practices act; and
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the absence of other representations and warranties.
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Lillys and Merger Subs representations and
warranties to us relate to, among other things:
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organization;
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the ownership of Merger Sub;
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the authority to enter into the merger agreement;
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required consents to consummate the merger;
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information supplied for inclusion in this proxy statement;
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funding available to pay the merger consideration; and
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litigation.
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The representations and warranties expire at the effective time
of the merger. The assertions embodied in the representations
and warranties are qualified by information in confidential
disclosure schedules that we delivered to Lilly in connection
with signing the merger agreement. Accordingly, you should not
rely on the representations and warranties as unqualified
characterizations of the actual state of facts or circumstances,
since they were only made as of the date of the merger agreement
and are modified in important part by the underlying disclosure
schedules. Moreover, information concerning the subject matter
of such representations and warranties may change after the date
of the merger agreement, which subsequent information may or may
not be fully reflected in our public disclosures.
Certain representations and warranties in the merger agreement
provide exceptions for items that are not reasonably likely to
have a Company Material Adverse Effect. For purposes
of the merger agreement, a Company Material Adverse
Effect means: any event, condition, change, occurrence or
development of a state of facts that, individually or in the
aggregate with all other events, conditions, changes,
occurrences or developments
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of a state of facts, or Effect, is or would
reasonably likely be expected to (A) be materially adverse
to our business, operations, properties, assets, liabilities,
condition (financial or otherwise) or results of operations or
(B) materially impact or delay, prevent or materially
impede our ability to perform our obligations under the merger
agreement in compliance with its terms or to consummate the
transactions contemplated by the merger agreement;
provided,
however,
that no such Effect shall be considered in
determining whether a Company Material Adverse Effect has
occurred to the extent that it is proximately caused by:
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changes in any applicable law or GAAP;
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changes in economic or biotechnology or pharmaceutical industry
conditions in the United States (and in each case to the extent
that we are not disproportionately adversely affected);
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acts of terrorism or war occurring after the date of the merger
agreement (and in each case to the extent that we are not
disproportionately affected);
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the pendency or announcement of the transactions contemplated by
the merger agreement (it being understood that Effects
proximately caused by the pendency or announcement of the
transactions contemplated by the merger agreement could include
disruption in (or loss of) supplier, distributor, partner or
similar relationships or loss of employees, or claims made or
litigation filed or announced that challenges any of the
transactions contemplated by the merger agreement or actions
taken by our board or us expressly required by the merger
agreement or with Lillys written consent in connection
therewith);
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any adverse data resulting from pre-clinical activities other
than activities related to our MET, JAK2 or BCR-ABL programs;
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the failure of us to meet internal or analysts
projections, in and of itself (it being understood that any
Effect that may have caused or contributed to any such failure
may be deemed to constitute, in and of itself, a Company
Material Adverse Effect and may be taken into consideration when
determining whether a Company Material Adverse Effect has
occurred);
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any action taken by us with Lillys written consent or the
taking of any action expressly required by the merger
agreement; or
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a decline in our stock price, in and of itself (it being
understood that any Effect that may have caused or contributed
to any such decline may be deemed to constitute, in and of
itself, a Company Material Adverse Effect and may be taken into
consideration when determining whether a Company Material
Adverse Effect has occurred).
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Conduct
of Our Business Prior to the Merger
Affirmative Covenants.
We have agreed
that, until the earlier of the effective time of the merger or
the termination of the merger agreement, we will:
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conduct our business only in the ordinary and usual course of
business and consistent with past practices;
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use reasonable best efforts to maintain and preserve
substantially intact our business organization, to maintain our
significant beneficial business relationships with suppliers,
contractors, distributors, customers, licensors, licensees and
others having material business relationships with us;
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use reasonable best efforts to retain the services of certain
officers and key employees identified by Lilly in consultation
with us and to comply in all material respects with all
applicable laws and the requirements of all contracts that are
material to us;
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so long as the merger is consummated on or before
September 1, 2008, maintain at least $15.0 million in
cash, cash equivalents and short-term investments, net of
outstanding lines of credit and notes payable as of the date two
business days prior to the date the merger is consummated; and
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use reasonable best efforts to prepare such narratives, synopses
and/or reports as are reasonably necessary (determined after
consultation with Lilly) in connection with proceeding toward
closing the IND with respect to our SGX523 product candidate.
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Negative Covenants.
We have agreed
that, until the earlier of the effective time of the merger or
the termination of the merger agreement, except with the prior
written consent of Lilly, we will not, among other things:
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except with respect to intellectual property, which is addressed
separately below, (A) acquire, sell, lease, transfer,
encumber or permit to be subject to any lien or dispose of any
assets, rights or securities that are material to us, or
(B) terminate, cancel or materially modify any material
contract;
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acquire by merging or consolidating with or by purchasing a
substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business, corporation,
partnership, association or other business organization or
division thereof;
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amend or propose to amend our certificate of incorporation or
bylaws;
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declare, set aside, make or pay any dividend or other
distribution payable in cash, capital stock, property or
otherwise with respect to any shares of our capital stock;
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purchase, redeem or otherwise acquire, or offer to purchase,
redeem or otherwise acquire, any shares of our capital stock,
other equity securities, other ownership interests or any
options, warrants or rights to acquire any such stock,
securities or interests, other than in connection with the
relinquishment of shares by our employees and directors in
payment of withholding tax upon the vesting of restricted stock;
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adjust, recapitalize, split, combine, subdivide or reclassify
any outstanding shares of our capital stock;
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except for our common stock issuable upon exercise of options
outstanding on the date of the merger agreement or the warrants
or pursuant to our ESPP (it being understood that, between the
date of the merger agreement and September 15, 2008, no more
than $17,500 per our bi-weekly pay period may be withheld
pursuant to payroll deductions from participants in the ESPP to
be applied toward the purchase of shares of our common stock
under the ESPP), and the vesting of restricted stock and
restricted stock unit awards granted prior to the execution of
the merger agreement, issue, sell, encumber, dispose of or
authorize, propose or agree to the issuance, sale, encumbrance
or disposition by us of, any shares of, or any options, warrants
or rights of any kind to acquire any shares of, or any
securities convertible into or exchangeable for any shares of,
our capital stock of any class, or any other securities in
respect of, in lieu of, or in substitution for any class of our
capital stock outstanding on the date of the merger agreement;
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incur, or modify in any material respect the terms of, any
indebtedness for borrowed money, or assume, guarantee or endorse
any such indebtedness of another person, except indebtedness
incurred, assumed or guaranteed in the ordinary course of
business consistent with past practice and not in excess of
$100,000 in the aggregate;
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make any loans or advances, except to or for the benefit of our
subsidiaries;
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other than to the extent required in a written contract or
agreement in existence as of the date of the merger agreement,
(A) grant any awards under any employee benefit plan
(including the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units
or restricted stock or the removal of existing restrictions
presently contained therein or awards made thereunder or the
commencement of a new purchase period or new offering under the
ESPP); (B) grant or increase any severance or termination
pay to any current or former director, executive officer,
employee, consultant or independent contractor; (C) execute
any employment, deferred compensation or other similar agreement
(or any amendment to any such existing agreement) with any such
individual; (D) increase the benefits payable under any
existing severance or termination pay policies or employment
agreements; (E) hire any officers (or promote an employee
into an officer position) or increase the compensation, bonus or
other benefits of current or former directors, executive
officers, employees, consultants or independent contractors;
(F) adopt or establish any plan, policy, program or
arrangement that would be considered an employee benefit plan if
such plan, policy, program or arrangement were in effect as of
the date of the merger agreement, or amend in any material
respect any existing employee benefit plan; (G) provide any
material benefit to a current or former director, executive
officer, employee, consultant or independent contractor not
required by any existing agreement or employee benefit plan;
(H) take any action to accelerate the vesting or payment of
any compensation or benefit under any employee benefit plan or
to fund or in any other way secure the payment
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of compensation or benefits under any employee benefit plan or
make any material determinations not in the ordinary course of
business under any employee benefit plan; or (I) take any
action that would result in its incurring any obligation for any
payments or benefits under any employee benefit plan;
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execute or amend (other than as required by existing employee
benefit plans or employment agreements or by applicable law) in
any material respect any employment, consulting, severance,
termination or indemnification agreement between us and any of
our respective directors, officers, agents, consultants,
independent contractors or employees, or any collective
bargaining agreement or other obligation to any labor
organization or employee incurred or entered into by us;
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make any material changes in our reporting for taxes or
accounting methods other than as required by GAAP or applicable
law; make or rescind any material tax election; file any amended
tax return with respect to any material tax; make any material
change to our method or reporting income, deductions, or other
tax items for tax purposes; settle or compromise any tax
liability or enter into any transaction with an affiliate
outside the ordinary course of business if such transaction
would give rise to a material tax liability;
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settle, compromise or otherwise resolve any litigation or other
legal proceedings material to us or that would result in any
liability in excess of the amount reserved therefor or reflected
on the balance sheets included in our financial statements or
which relates to any of our intellectual property;
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pay or discharge any claims, liens or liabilities which are not
reserved for or reflected on the balance sheets included in our
financial statements or incurred in the ordinary course of
business after the date of our financial statements;
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adopt a plan of complete or partial liquidation (or resolutions
providing for or authorizing such liquidation), dissolution,
merger, consolidation, restructuring, recapitalization or
reorganization of SGX (other than the merger);
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abandon, cease to prosecute, fail to maintain, sell, license,
assign or encumber any permit or other material assets (other
than our intellectual property);
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with respect to our intellectual property, (A) other than
with respect to material transfer or service agreements, sell,
assign, license, sublicense, encumber, impair, abandon, fail to
maintain, transfer or otherwise dispose of any of our rights,
title or interests in any of our intellectual property;
(B) grant any rights under material transfer or service
agreements, other than (1) those entered into in the
ordinary course of business consistent with past practice in
connection with the National Institute of Health Cooperative
Agreement Award from the National Institute of General Medical
Sciences or the drug discovery collaboration agreement with
Cystic Fibrosis Foundation Therapeutics, Inc. or
(2) materials sent by us pursuant to service agreements
existing as of the date of the merger agreement;
(C) extend, amend, waive, cancel or modify any rights in or
to our intellectual property; (D) fail to diligently
prosecute the patent applications within our intellectual
property (
provided, however
, that with respect to our
intellectual property that is jointly owned, our obligation is
to diligently prosecute such patent applications to the fullest
extent permitted under existing contractual arrangements with
third parties covering such intellectual property that is
jointly owned); (E) divulge, furnish or make accessible any
trade secrets within our intellectual property to any person who
is not subject to an enforceable written agreement to maintain
the confidentiality of such trade secrets, other than
presentations required to be given under the National Institute
of Health Cooperative Agreement Award from the National
Institute of General Medical Sciences or the drug discovery
collaboration agreement with Cystic Fibrosis Foundation
Therapeutics, Inc.; or (F) divulge, furnish or make
accessible any trade secrets within our intellectual property to
any person who is not subject to an enforceable written
agreement to maintain the confidentiality of such trade secrets,
other than presentations given by us in the ordinary course
consistent with past practice, excluding those presentations
covered by clause (D) above;
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enter into any contract that would result in the grant to us of
any right or license in the intellectual property of any person
(other than contracts in connection with the purchase of
laboratory reagents and materials), or amend, assign, terminate
or fail to exercise a right of renewal or extension under
contract related to our intellectual property;
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enter into, renew, amend or terminate any material contract or
any joint venture, partnership or other similar arrangement;
engage in any transaction or series of transactions with any of
our affiliates that would be required to be disclosed under
Item 404 of
Regulation S-K
under the Securities Act, without regard to any monetary
thresholds therein; or waive, release or assign any rights or
claims under any material contract;
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authorize any new capital expenditures in excess of $100,000 in
the aggregate, other than those capital expenditures reimbursed
by third parties;
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fail to use reasonable best efforts to keep in full force and
effect all insurance policies maintained by us, other than such
policies that expire by their terms (in which event we will use
reasonable best efforts so that such policies will be renewed or
replaced) or changes to such policies made in the ordinary
course of business consistent with past practice;
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enter into any agreement, arrangement or commitment that
materially limits or otherwise materially restricts us, or that
would reasonably be expected to, after the effective time of the
merger, materially limit or restrict Lilly or any of their
affiliates or any successor thereto, from engaging or competing
in any line of business in which it is currently engaged or in
any geographic area material to the business or operations of
Lilly; or
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take any action that would or would reasonably be expected to
result in any of the conditions to the merger not being
satisfied or that would or would reasonably be expected to delay
the consummation of, or impair our ability to consummate, the
merger.
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Proxy
Statement; Stockholders Meeting
We agreed to file this proxy statement with the SEC as promptly
as practicable following the date of the merger agreement,
respond promptly to any comments made by the SEC with respect to
this proxy statement and cause this proxy statement and form of
proxy to be mailed to our stockholders as promptly as reasonably
practicable after its clearance by the SEC. Under the merger
agreement, subject to the ability of our board to change its
recommendation in favor of the merger pursuant to the merger
agreement, we are required to use our reasonable best efforts to
solicit proxies from our stockholders and take all other action
reasonably necessary or advisable to secure the approval of our
stockholders, and through our board, recommend to our
stockholders the approval of the merger agreement. In addition,
under the merger agreement we are required to call and hold a
meeting of our stockholders, for the purpose of obtaining the
stockholder approval for the merger agreement and the
transactions contemplated thereby, including the merger, as soon
as practicable.
Employee
Matters
For a period of one year following the effective time of the
merger, Lilly has agreed to provide our employees who are
located in the United States and retained by Lilly with employee
benefits that are substantially comparable in the aggregate to
those benefits provided to such employees immediately prior to
the merger. However, Lilly will be under no obligation to retain
any employee or group of employees of ours other than as
required by applicable law or an employment agreement.
For purposes of all employee benefit plans, programs and
arrangements maintained by or contributed to by Lilly, Lilly has
agreed to cause each such plan, program or arrangement to treat
the prior service with SGX of each person who is an employee or
former employee of ours immediately prior to the effective time
of the merger (to the same extent such service is recognized
under our existing analogous plans, programs or arrangements) as
service rendered to Lilly or its subsidiaries, as the case may
be, for purposes of eligibility to participate in and vesting
under such plans, programs and arrangements (but not benefit
accrual),
provided, however
, that such crediting of
service shall not operate to duplicate any benefit or the
funding of such benefit or provide any benefit not currently
provided to such employee. Our employees will also be given
credit for any deductible or co-payment amounts paid in respect
of the plan year in which the closing of the merger occurs, to
the extent that, following the closing of the merger, they
participate in any other plan for which deductibles or
co-payments are required. Lilly has also agreed to use
reasonable best efforts to cause each of its employee benefit
plans in which our employees participate to waive any
preexisting condition that was waived under the terms of any of
our employee benefit plans immediately prior to the
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closing of the merger or waiting period limitation which would
otherwise be applicable to an employee of ours on or after the
closing of the merger.
Furthermore, Lilly has agreed to recognize any accrued but
unused vacation and sabbatical time of our employees as of the
closing of the merger, in accordance with the terms of our
policies and Lilly will provide such vacation and sabbatical
time in accordance with the terms of our policies. However,
Lilly will not be obligated to extend or enlarge the benefits
available under our policies.
Regulatory
Filings
We, Lilly and Merger Sub have each agreed, as promptly as
practicable after the date of the merger agreement (and in any
event within 10 business days after the date of the merger
agreement), to file or cause to be filed with the FTC, the DOJ
or any comparable foreign antitrust or competition authority,
any notifications required to be filed under the HSR Act with
respect to the transactions contemplated by the merger agreement.
Public
Statements
We, Lilly and Merger Sub have each agreed to not issue any
public release or announcement concerning the merger without the
prior written consent of us and Lilly, unless such release or
announcement is permitted by the merger agreement or required by
law or the rules or regulations of any applicable governmental
authority.
Reasonable
Best Efforts
We, Lilly and Merger Sub have each agreed to use our respective
reasonable best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective in the most
expeditious manner practicable, the merger, including:
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obtaining all permits, consents, approvals, authorizations and
actions or nonactions required for or in connection with the
consummation of the merger and the other transactions
contemplated by the merger agreement,
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taking all steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, a
governmental authority,
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obtaining all necessary consents from third parties, and
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executing and delivering any additional instruments necessary to
consummate the merger and the other transactions contemplated by
the merger agreement.
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Furthermore, we, Lilly and Merger Sub have each agreed to use
our respective reasonable best efforts to respond promptly to
any requests for additional information made by the FTC, the DOJ
or any other governmental authority, and to cause the waiting
period under the HSR Act to terminate or expire at the earliest
possible date.
Notification
of Certain Matters
We have agreed to give prompt written notice to Lilly of:
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any notice or other communication from any third party alleging
that the consent of such third party is or may be required in
connection with the merger and the other transactions
contemplated by the merger agreement;
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the occurrence or existence of any event that results, or with
the passage of time or otherwise, would reasonably be likely to
result in the failure of any condition to closing relating to
representations and warrants or satisfaction of covenants; or
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the occurrence or existence of any event having, or which,
individually or in the aggregate, would reasonably be expected
to have, a Company Material Adverse Effect (
See
The
Merger Agreement Representations and
Warranties for what constitutes a Company Material Adverse
Effect).
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Access to
Information
We have agreed to give Lilly and Merger Sub reasonable access to
our officers, employees, agents, properties, facilities, books,
records, contracts and other assets and to furnish Lilly and
Merger Sub all financial, operating and other data and
information as they may reasonably request. Lilly and Merger Sub
have the right to make such due diligence investigations as they
deem necessary or reasonable, upon reasonable notice to us and
without significant interference to our operations or properties.
Limitation
on Soliciting, Discussing or Negotiating Other Acquisition
Proposals
The merger agreement contains detailed provisions prohibiting us
from seeking an alternative transaction to the merger. Under
these no solicitation and related provisions,
subject to specific exceptions described below, we have agreed
that, prior to the earlier of the consummation of the merger and
the termination of the merger agreement, we will not, and we
will not permit any of our representatives to directly or
indirectly:
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solicit, initiate or take any action to knowingly facilitate or
encourage (including by way of furnishing information) the
submission of any takeover proposal;
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approve or recommend any takeover proposal, enter into any
agreement,
agreement-in-principle
or letter of intent with respect to or accept any takeover
proposal (or resolve to or publicly propose to do any of the
foregoing); or
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participate or engage in any discussions or negotiations
regarding, or furnish to any person any information with respect
to, or take any other action to knowingly facilitate any
inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any takeover proposal.
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For these purposes, takeover proposal means any
inquiry, proposal or offer from any person (other than Lilly,
Merger Sub or any of their affiliates) or group (as
defined in Section 13(d) of the Exchange Act) relating to:
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the direct or indirect acquisition (including by way of a
license) (whether in a single transaction or a series of related
transactions) of our assets (including securities of our
subsidiaries) equal to 15% or more of our consolidated assets or
to which 15% or more of our revenues or earnings on a
consolidated basis are attributable;
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the direct or indirect acquisition (whether in a single
transaction or a series of related transactions) of 15% or more
of any class of our equity securities;
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a tender offer or exchange offer that if consummated would
result in any person or group (as defined in
Section 13(d) of the Exchange Act) beneficially owning 15%
or more of any class of our equity securities; or
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a merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar
transaction involving us, in each case, other than the
transactions contemplated by the merger agreement;
provided,
however
, that with respect to a Significant Stockholder (as
defined in the merger agreement), 15% shall be
replaced with the percentage of our equity securities directly
or indirectly owned by such Significant Stockholder as of the
date of the merger agreement (for the avoidance of doubt, the
aforementioned ownership of our equity securities by a
Significant Stockholder as of the date of the merger agreement
shall not, in and of itself, constitute a takeover proposal);
and
provided further, however
, that the direct or
indirect acquisition (in one or more transactions) of any of our
equity securities (or any rights to acquire any of our equity
securities) by such Significant Stockholder occurring after the
date of the merger agreement that results in such Significant
Stockholder acquiring, directly or indirectly, our equity
securities (or rights to acquire our equity securities) in
excess of 2% of all our outstanding equity securities on the
date of the merger agreement shall constitute a takeover
proposal.
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Notwithstanding the above-described restrictions, the merger
agreement provides that, if we receive an unsolicited bona fide
written takeover proposal after the date of the merger agreement
that did not result from a breach of the merger agreement and
our board reasonably determines in good faith (after
consultation with outside counsel and receiving the advice of
its financial advisor of nationally recognized reputation) that
such takeover proposal constitutes, or is reasonably likely to
lead to, a superior proposal and our board determines in good
faith,
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after consulting with and receiving the advise of outside
counsel, that the failure to take such action does or would
constitute a breach of its fiduciary obligations to our
stockholders under Delaware law, then we may, prior to receipt
of our stockholders approval of the merger agreement (but
in no event after such approval):
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furnish information with respect to us to the person making such
takeover proposal and its representatives, but only pursuant to
a confidentiality agreement in customary form that is no less
favorable to us than our confidentiality agreement with Lilly;
provided, however
, that (A) such confidentiality
agreement may not include any provision calling for an exclusive
right to negotiate with us and (B) we advise Lilly of all
such information delivered to such person concurrently with its
delivery to such person and concurrently with its delivery to
such person we deliver to Lilly all such information not
previously provided to Lilly;
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conduct discussions or negotiations with such person regarding
such takeover proposal; and
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to the extent permitted under the merger agreement, enter into a
binding written agreement concerning a transaction that
constitutes a superior proposal.
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Under the merger agreement, a superior proposal is
any bona fide written offer obtained after the date of the
merger agreement and not in breach of the merger agreement to
acquire, directly or indirectly, for consideration consisting of
cash
and/or
securities, more than 50% of our outstanding voting equity
securities or all or substantially all of our assets on a
consolidated basis, and is on terms that our board determines in
its good faith judgment (after consultation with outside counsel
and receiving the advice of its financial advisor of nationally
recognized reputation), taking into account all relevant factors
(including the terms and conditions of the takeover proposal,
including price, form of consideration, closing conditions, the
ability to fully finance the transaction and such other aspects
of the takeover proposal as our board in good faith deems
relevant), (A) would, if consummated, result in a
transaction that is more favorable to the holders of our common
stock from a financial point of view than the transactions
contemplated by the merger agreement (including the terms of any
proposal by Lilly to modify the terms of the transactions
contemplated by the merger agreement) and (B) is reasonably
capable of being completed on the terms proposed.
We have agreed to provide notice to Lilly within 24 hours
after receipt if any proposal, offer, inquiry or other contact
is received by, any information is requested from, or any
discussions or negotiations are sought to be initiated or
continued with, us in respect of any takeover proposal, and we
will be required, in any such notice to Lilly, to indicate the
identity of the person making such proposal, offer, inquiry or
other contact (and include any written materials received from
or on behalf of such person relating to such proposal, offer,
inquiry or request), and we have agreed to promptly keep Lilly
informed of all material developments affecting the status and
terms of any such proposals, offers, inquiries or requests (and
provide Lilly with copies of any additional written materials
received that relate to such proposals, offers, inquiries or
requests) and of the status of any such discussions or
negotiations.
In the merger agreement, we have agreed that neither our board
nor any committee thereof will:
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fail to make, withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to Lilly, the
recommendation that our stockholders vote for the adoption of
the merger agreement or the approval or declaration of
advisability by our board of the merger agreement, the merger
and the other transactions contemplated by the merger agreement;
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approve or recommend, or propose publicly to approve or
recommend, any takeover proposal; or
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cause or permit us to enter into any letter of intent,
memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement, option agreement, joint venture
agreement, partnership agreement or other agreement constituting
or related to, or which is intended to or is reasonably likely
to lead to, any takeover proposal, or resolve or agree to take
any such action.
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Any failure or action described in the three bullets above is
referred to as a Company adverse recommendation
change.
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Notwithstanding the foregoing, our board may, at any time prior
to the stockholder vote adopting the merger agreement:
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fail to make, withdraw or modify its recommendation that our
stockholders vote for the adoption of the merger agreement;
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recommend a takeover proposal that constitutes a superior
proposal; or
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to the extent permitted under the merger agreement, enter into a
binding written agreement concerning a transaction that
constitutes a superior proposal;
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provided that, among other things:
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our board determines in good faith, after consulting with and
receiving advice from outside counsel, that it is required to
make such Company adverse recommendation change in order for our
board to comply with its fiduciary duties to our stockholders
under Delaware law;
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no Company adverse recommendation change may be made in the
absence of a superior proposal and until the fourth business day
following Lillys receipt of written notice of such
determination by our board and compliance by us with the other
applicable terms of the merger agreement.
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None of the foregoing restrictions will prohibit us or our board
from (A) taking and disclosing to our stockholders our
position with respect to any tender or exchange offer by a third
party pursuant to
Rules 14d-9
and
14e-2(a)
promulgated under the Exchange Act, or (B) making any
required disclosure to our stockholders, if in each case our
board determines in good faith, after consultation with outside
counsel, that the taking of such position or the making of such
disclosure is necessary in order for our board to comply with
its fiduciary duties to our stockholders under Delaware law.
Indemnification;
Directors and Officers Insurance
The merger agreement provides that all rights to indemnification
in favor or any person who is, or has been, or becomes prior to
the effective time an officer or director of SGX, as provided in
our certificate of incorporation and bylaws, or pursuant to
agreements, will be assumed by the surviving corporation. For
six years after the merger, Lilly and the surviving corporation
will indemnify the officers and directors described above to the
full extent permitted under applicable law.
Under the merger agreement, Lilly will cause the surviving
corporation to maintain our officers and directors
liability insurance policies in effect on the date of the merger
agreement for a period of not less than six years after the
effective time of the merger, but only to the extent related to
actions or omissions prior to the effective time of the merger.
The surviving corporation may substitute policies of at least
the same coverage and amounts containing terms no less
advantageous to our former directors or officers provided that
the substitution does not result in gaps or lapses of coverage
with respect to matters occurring prior to the effective time of
the merger. In no event will Lilly or the surviving corporation
be required to expend more than an amount per year equal to 300%
of the last annual aggregate premium paid by us for such
insurance. If the amount of the annual premiums necessary to
maintain or procure such insurance coverage exceeds 300% of the
last annual aggregate premium paid by us, Lilly and the
surviving corporation must procure and maintain for such
six-year period as much coverage as reasonably practicable for
such amount. Lilly has the option to extend coverage under our
current officers and directors liability insurance
policies by obtaining a six-year tail policy or
policies on terms and conditions no less advantageous than our
existing officers and directors liability insurance
policies.
Stockholder
Litigation
We have agreed to give Lilly the opportunity to participate in
the defense or settlement of any stockholder litigation against
us or our directors relating to the merger or any of the other
transactions contemplated by the merger agreement. We have also
agreed not to settle any such litigation without Lillys
prior written consent.
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Conditions
to the Merger
The obligation of each of us, Lilly and Merger Sub to complete
the merger is subject to the satisfaction or waiver of the
following additional conditions:
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adoption of the merger agreement by the holders of a majority of
the outstanding shares of our common stock at the special
meeting;
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termination or expiration of the waiting period under the HSR
Act; and
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absence of any legal prohibitions or restraints against the
merger (provided that the party seeking to assert this condition
shall first, if applicable, take reasonable steps to resist or
contest such legal prohibition or restraint).
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The obligation of Lilly and Merger Sub to complete the merger
are also subject to the satisfaction or waiver of the following
additional conditions:
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subject to certain conditions and limitations set forth in the
merger agreement, our representations and warranties in the
merger agreement must be true and correct as of the date of the
merger agreement and on the closing date;
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we must perform in all material respects all of our obligations,
and comply in all material respects with our agreements and
covenants in the merger agreement;
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the absence of certain pending or threatened proceedings by a
governmental authorities relating to the merger; and
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the absence of any event or events since the date of the merger
agreement that, individually or in the aggregate, has had or
would reasonably be expected to have a Company Material Adverse
Effect (
See
The Merger Agreement
Representations and Warranties for what constitutes a
Company Material Adverse Effect).
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Our obligation to complete the merger is also subject to the
satisfaction or waiver of the following additional conditions:
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subject to certain conditions and limitations set forth in the
merger agreement, the representations and warranties of Lilly
and Merger Sub in the merger agreement must be true and correct
as of the date of the merger agreement and on the closing
date; and
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Lilly must perform in all material respects all of the
obligations, and comply in all material respects with the
agreements and covenants required to be performed by or complied
with by it under the merger agreement at or prior to the closing
date.
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Termination
The merger agreement may be terminated and the merger may be
abandoned by any of the following means, at any time prior to
the effective time of the merger, whether before or after the
merger agreement has been adopted by our stockholders:
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by mutual written consent of us, Lilly and Merger Sub;
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by either us or Lilly, if the merger has not been consummated on
or prior to November 15, 2008 (provided that the party
seeking the termination did not fail to fulfill its obligations
under the merger agreement which prevented the merger from being
consummated on or prior to November 15, 2008);
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by either us or Lilly if any governmental entity issues an
order, decree or ruling, or takes any other action in each case
making the merger illegal or permanently enjoining, restraining
or otherwise prohibiting the consummation of the merger and such
order, decree or ruling or other action has become final and
nonappealable (provided that the party seeking to assert such
occurrence shall first, if applicable, take reasonable steps to
resist or contest such prohibition or restraint and such
prohibition or restraint is not primarily due to the failure of
such party to perform any of its obligations under the merger
agreement);
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by either us or Lilly if the merger agreement is not adopted by
our stockholders at the special meeting;
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by Lilly, if prior to our stockholders adoption of the
merger agreement (i) our board has made a Company adverse
recommendation change (
See
The Merger
Agreement Limitation on Soliciting, Discussing or
Negotiating Other Acquisition Proposals), (ii) our
board does not reject any tender or exchange offer that is
commenced or a takeover proposal (replacing 15% in
the definition thereof with 50%) that is made in
writing to our board and publicly disseminated within 10
business days of the commencement or public dissemination
thereof, or (iii) we have violated or breached in any
material respect any of our non-solicitation obligations under
the merger agreement;
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by Lilly, if (i) there has been any event or condition
that, individually or in the aggregate, has had or would
reasonably be expected to have, a Company Material Adverse
Effect (
See
The Merger Agreement
Representations and Warranties for what constitutes a
Company Material Adverse Effect), or (ii) we breach any of
our representations or warranties or fail to perform in any
material respect any of our covenants or other agreements in
each case contained in the merger agreement, which breach or
failure to perform (A) would give rise to the failure of a
closing condition (
See
Merger Agreement
Conditions to the Merger), and (B) is incapable of
being cured or has not been cured by us within 20 calendar days
after written notice has been given by Lilly to us of such
breach or failure to perform;
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by us, if Lilly has breached any of its representations or
warranties or failed to perform in any material respect any of
its covenants or other agreements in each case contained in the
merger agreement, which breach or failure to perform
(i) has had or would reasonably be expected to have a
material adverse effect on Lilly, and (ii) is incapable of
being cured or has not been cured by Lilly within 20 calendar
days after written notice has been given by us to Lilly of such
breach or failure to perform; or
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by us, if prior to our stockholders adoption of the merger
agreement, (i) we are in compliance with our
non-solicitation obligations under the merger agreement,
(ii) our board has received a takeover proposal that it has
determined in good faith, after consultation with our financial
advisor of nationally recognized reputation and outside counsel,
constitutes a superior proposal, (iii) we have notified
Lilly in writing that we intend to enter into a definitive
agreement implementing such superior proposal, attaching the
most current version of such agreement (including any
amendments, supplements or modifications) to such notice, which
we refer to as a superior proposal notice,
(iv) during the four business day period following
Lillys receipt of a superior proposal notice, (A) we
have offered to negotiate with (and, if accepted, negotiated in
good faith with), and have caused our respective financial and
legal advisors to offer to negotiate with (and, if accepted,
negotiate in good faith with), Lilly in making adjustments to
the terms and conditions of the merger agreement and
(B) our board has determined in good faith, after the end
of such four business day period, and after considering the
results of such negotiations and the revised proposals made by
Lilly, if any, that the superior proposal giving rise to such
notice continues to be a superior proposal;
provided,
however
, that any amendment, supplement or modification to
the financial terms or other material terms of any takeover
proposal shall be deemed a new takeover proposal and we may not
terminate the merger agreement pursuant to this provision unless
we have complied with the requirements of this provision with
respect to such new takeover proposal, including sending a
superior proposal notice with respect to such new takeover
proposal and offering to negotiate for four business days from
such new superior proposal notice, (v) prior to or
concurrently with such termination, we pay to Lilly in
immediately available funds the termination fee required to be
paid pursuant to the merger agreement, and (vi) our board
concurrently approves, and we concurrently enter into, a
definitive agreement providing for the implementation of such
superior proposal.
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Effect of
Termination
If the merger agreement is terminated by either us or Lilly in
accordance with its terms, the merger agreement will immediately
become void and have no effect, without any liability or
obligation on the part of us, Lilly or Merger Sub, other than
certain provisions relating to brokers or finders
fees, public announcements, notifications, availability of
information, availability of remedies, confidentiality
agreements, termination fees and expenses, and
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other miscellaneous provisions. However, no party will be
relieved from any liability for any willful breach of the merger
agreement prior to such termination.
Termination
Fee
In the event that:
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(i) a takeover proposal has been made to SGX or has been made
directly to our stockholders generally or any person has
publicly announced an intention to make a takeover proposal and
thereafter, (ii) the merger agreement is terminated by SGX
or Lilly if, (A) under certain circumstances, the merger
has not been consummated on or prior to November 15, 2008
or (B) if the merger agreement is not adopted by our
stockholders at the special meeting, and (iii) we enter into a
definitive agreement with respect to, or consummate a
transaction contemplated by, any takeover proposal (replacing
15% in the definition thereof with 50%)
within 12 months of the date the merger agreement is
terminated (so long as, in the case of a transaction that has
not been consummated within such period, such transaction is
thereafter consummated);
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(i) a takeover proposal has been made to SGX or has been made
directly to our stockholders generally or any person has
publicly announced an intention to make a takeover proposal and
thereafter, (ii) the merger agreement is terminated by
Lilly as a result of our breach of any of our representations or
warranties or our failure to perform in any material respect any
of our covenants or other agreements in each case contained in
the merger agreement, which breach or failure to perform
(A) would give rise to the failure of a closing condition,
and (B) is incapable of being cured or has not been cured
by us within 20 calendar days after written notice has been
given by Lilly to us of such breach or failure to perform, and
(iii) we enter into a definitive agreement with respect to,
or consummate a transaction contemplated by any takeover
proposal (replacing 15% in the definition thereof
with 50%) within 12 months of the date the
merger agreement is terminated (so long as, in the case of a
transaction that has not been consummated within such period,
such transaction is thereafter consummated);
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the merger agreement is terminated by Lilly, if (i) prior
to our stockholders adoption of the merger agreement, our
board has made a Company adverse recommendation change (
See
The Merger Agreement Limitation on
Soliciting, Discussing or Negotiating Other Acquisition
Proposals), (ii) our board does not reject any tender
or exchange offer that is commenced or a takeover proposal
(replacing 15% in the definition thereof with
50%) that is made in writing to our board and
publicly disseminated within 10 business days of the
commencement or public dissemination thereof (including, for
these purposes, by taking no position with respect to the
acceptance by our stockholders of a tender offer or exchange
offer within such period, which shall constitute a failure to
reject such offer), or (iii) we have violated or breached
in any material respect any of our non-solicitation obligations
under the merger agreement;
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the merger agreement is terminated by us, if prior to our
stockholders adoption of the merger agreement, (i) we
are in compliance with our non-solicitation obligations under
the merger agreement, (ii) our board has received a
takeover proposal that it has determined in good faith, after
consultation with our financial advisor of nationally recognized
reputation and outside counsel, constitutes a superior proposal,
(iii) we have notified Lilly in writing that we intend to
enter into a definitive agreement implementing such superior
proposal, attaching the most current version of such agreement
(including any amendments, supplements or modifications) to such
notice, which we refer to as a superior proposal
notice, (iv) during the four business day period
following Lillys receipt of a superior proposal notice,
(A) we have offered to negotiate with (and, if accepted,
negotiated in good faith with), and have caused our respective
financial and legal advisors to offer to negotiate with (and, if
accepted, negotiate in good faith with), Lilly in making
adjustments to the terms and conditions of the merger agreement
and (B) our board has determined in good faith, after the
end of such four business day period, and after considering the
results of such negotiations and the revised proposals made by
Lilly, if any, that the superior proposal giving rise to such
notice continues to be a superior proposal;
provided,
however
, that any amendment, supplement or modification to
the financial terms or other material terms of any takeover
proposal shall be deemed a new takeover proposal and we may not
terminate the merger agreement pursuant to this provision unless
we have complied with the requirements of this
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provision with respect to such new takeover proposal, including
sending a superior proposal notice with respect to such new
takeover proposal and offering to negotiate for four business
days from such new superior proposal notice, (v) prior to
or concurrently with such termination, we pay to Lilly in
immediately available funds the termination fee required to be
paid pursuant to the merger agreement, and (vi) our board
concurrently approves, and we concurrently enter into, a
definitive agreement providing for the implementation of such
superior proposal; or
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the merger agreement is terminated by us or Lilly if,
(i) under certain circumstances, the merger has not been
consummated on or prior to November 15, 2008 or if the
merger agreement is not adopted by our stockholders at the
special meeting or by Lilly as a result of our breach of any of
our representations or warranties or our failure to perform in
any material respect any of our covenants or other agreements in
each case contained in the merger agreement, which breach or
failure to perform (A) would give rise to the failure of a
closing condition, and (B) is incapable of being cured or
has not been cured by us within 20 calendar days after written
notice has been given by Lilly to us of such breach or failure
to perform, and (ii) we enter into a definitive agreement
with any Significant Stockholder (as defined in the merger
agreement) with respect to, or consummate a transaction
contemplated by, any takeover proposal (replacing the percentage
of equity securities of SGX directly or indirectly owned by such
Significant Stockholder as of the date of the merger agreement
in the definition thereof with 50%) within
12 months of the date the merger agreement is terminated
(so long as, in the case of a transaction that has not been
consummated within such period, such transaction is thereafter
consummated);
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then we must pay to Lilly a termination fee of
$2.0 million, plus an additional amount not to exceed
$250,000 for the expenses of Lilly.
Amendment
The merger agreement may be amended by a writing signed by each
of the parties. However, after the adoption of the merger
agreement by our stockholders at the special meeting, there will
be no amendment made that in any way materially adversely
affects the rights of such stockholders (other than a
termination of the merger agreement in accordance with its
terms) without the further approval of such stockholders.
THE
VOTING AGREEMENT
The following description sets forth the material provisions
of the voting agreement but does not purport to describe all of
the terms of the voting agreement. The full text of the voting
agreement is attached to this proxy statement as
Annex B
.
You are urged to read the voting
agreement in its entirety
.
As a condition of, and an inducement to, Lilly entering into the
merger agreement, on the date the merger agreement was executed,
each of Michael Grey, Stephen K. Burley, W. Todd Myers,
Siegfried Reich, Karin Eastham, Christopher S. Henney, Atlas
Venture Fund IV, L.P., and its affiliated entities that
hold shares of our common stock, and BAVP, L.P. (which is an
affiliate of Louis Bock, a member of our board) who collectively
beneficially owned approximately 26% of the outstanding shares
of our common stock as of the record date, entered into a voting
agreement with Lilly.
Under the terms of the voting agreement, each of the above
stockholders irrevocably appointed Lilly as its proxy to vote
all shares of our outstanding common stock held by that
stockholder as of the record date:
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in favor of the merger and the adoption of the merger agreement
and the approval of the transactions contemplated by the merger
agreement, and any actions required in furtherance thereof;
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against any action or agreement that would result in a breach in
any material respect of any covenant, representation or warranty
or any other obligation of ours under the merger
agreement; and
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against (i) any extraordinary corporate transaction, such
as a merger, rights offering, reorganization, recapitalization
or liquidation involving us (other than the merger), (ii) a
sale or transfer of a material amount of our assets or capital
stock, or (iii) any action that is intended, or would
reasonably be expected, to impede, interfere with, prevent,
delay, postpone or adversely affect the transactions
contemplated by the merger agreement.
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During the term of the voting agreement, except as otherwise
provided therein, each stockholder agrees not to:
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sell, transfer, pledge, encumber, assign or otherwise dispose
of, or enter into any contract, option or other arrangement or
understanding with respect to such actions of, such
stockholders shares of our common stock or any interest
contained therein;
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grant any proxies or powers of attorney or enter into a voting
agreement or other arrangement with respect to such
stockholders shares of our common stock;
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enter into, or deposit such stockholders shares of our
common stock into, a voting trust or take any other action which
would, or could reasonably be expected to, result in a
diminution of the voting power represented by any of such
stockholders shares of our common stock; or
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commit or agree to take any of the foregoing actions.
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Under the terms of the voting agreement, each stockholder agrees
not to exercise any appraisal rights or any dissenters
rights that such stockholder may have or could potentially have
in connection with the merger agreement and the transactions
contemplated by the merger agreement.
The voting agreement will terminate on the earliest of
(i) the termination of the merger agreement in accordance
with its terms, (ii) with respect to any stockholder, the
written agreement of such stockholder and Lilly to terminate the
voting agreement, (iii) the consummation of the merger, and
(iv) the date of any amendment of the merger agreement to
alter the merger consideration in a manner adverse to the
stockholders without the stockholders consent.
ADJOURNMENT,
POSTPONEMENT OR CONTINUATION OF THE SPECIAL MEETING
If at the special meeting the number of shares of our common
stock present or represented and voting in favor of the approval
of the merger agreement is insufficient to approve the merger
agreement under Delaware law and under our certificate of
incorporation, our management may move to adjourn, postpone or
continue the special meeting in order to enable our board to
continue to solicit additional proxies in favor of the approval
of the merger agreement. In that event, we will ask you to vote
only upon the adjournment, postponement or continuation proposal
and not the merger proposal.
In this proposal, we are asking you to authorize the holder of
any proxy solicited by our board to vote in favor of adjourning,
postponing or continuing the special meeting and any later
adjournments. If our stockholders approve the adjournment,
postponement or continuation proposal, we could adjourn,
postpone or continue the special meeting, and any adjourned
session of the special meeting, to use the additional time to
solicit additional proxies in favor of the proposal to approve
the merger agreement, including the solicitation of proxies from
our stockholders that have previously voted against the merger
proposal. Among other things, approval of the adjournment,
postponement or continuation proposal could mean that, even if
we had received proxies representing a sufficient number of
votes against the proposal to approve the merger agreement, we
could adjourn, postpone or continue the special meeting without
a vote on the proposal to approve the merger agreement and seek
to convince the holders of those shares to change their votes to
votes in favor of the approval of the merger agreement.
The adjournment, postponement or continuation proposal requires
that holders of more of our shares vote in favor of the
adjournment, postponement or continuation proposal than vote
against the proposal. Accordingly, abstentions and broker
non-votes will have no effect on the outcome of this proposal.
No proxy that is specifically marked AGAINST the proposal to
approve the merger agreement will be voted in favor of the
adjournment, postponement or continuation proposal, unless it is
specifically marked FOR the discretionary authority to adjourn,
postpone or continue the special meeting to a later date.
Our board believes that if the number of shares of our common
stock present or represented at the special meeting and voting
in favor of the proposal to approve the merger agreement is
insufficient to approve the merger agreement, it is in the best
interests of our stockholders to enable the board, for a limited
period of time, to continue to seek to obtain a sufficient
number of additional votes to approve the merger agreement.
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DISSENTERS
RIGHTS
Under Delaware law, you have the right to dissent from the
merger and to receive payment in cash for the fair value of your
shares of our common stock as determined by the Delaware Court
of Chancery, together with interest, if any, as determined by
the court, in lieu of the consideration you would otherwise be
entitled to pursuant to the merger agreement. These rights are
known as appraisal rights. Stockholders electing to exercise
appraisal rights must comply with the provisions of
Section 262 of the DGCL in order to perfect their rights.
We will require strict compliance with the statutory procedures.
The following is intended as a brief summary of the material
provisions of the Delaware statutory procedures required to be
followed by a stockholder in order to dissent from the merger
and perfect appraisal rights.
This summary, however, is not a complete statement of all
applicable requirements and is qualified in its entirety by
reference to Section 262 of the DGCL, the full text of
which appears in
Annex D
to this proxy statement.
Failure to precisely follow any of the statutory procedures set
forth in Section 262 of the DGCL may result in a
termination or waiver of your appraisal rights. All references
in this summary to a stockholder are to the record
holder of shares of our common stock unless otherwise indicated.
Section 262 requires that stockholders for whom appraisal
rights are available be notified not less than 20 days
before the stockholders meeting to vote on the merger that
appraisal rights will be available. A copy of Section 262
must be included with such notice. This proxy statement
constitutes our notice to our stockholders of the availability
of appraisal rights in connection with the merger in compliance
with the requirements of Section 262. If you wish to
consider exercising your appraisal rights, you should carefully
review the text of Section 262 contained in
Annex D
to this proxy statement since failure to
timely and properly comply with the requirements of
Section 262 will result in the loss of your appraisal
rights under Delaware law.
If you elect to demand appraisal of your shares, you must
satisfy each of the following conditions:
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You must deliver to us a written demand for appraisal of your
shares before the vote with respect to the merger is taken. This
written demand for appraisal must be in addition to and separate
from any proxy or vote abstaining from or voting against the
adoption and approval of the merger agreement and the merger.
Voting against or failing to vote for the adoption and approval
of the merger agreement and the merger by itself does not
constitute a demand for appraisal within the meaning of
Section 262.
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You must not vote in favor of, or consent in writing to, the
adoption and approval of the merger agreement and the merger. A
vote in favor of the adoption and approval of the merger
agreement and merger, by proxy, over the Internet, by telephone
or in person, will constitute a waiver of your appraisal rights
in respect of the shares so voted and will nullify any
previously filed written demands for appraisal. A proxy which
does not contain voting instructions will, unless revoked, be
voted in favor of the adoption and approval of the merger
agreement and the merger. Therefore, a stockholder who votes by
proxy and who wishes to exercise appraisal rights must vote
against the merger agreement and the merger or abstain from
voting on the merger agreement and the merger.
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You must continue to hold your shares of our common stock
through the effective date of the merger. Therefore, a
stockholder who is the record holder of shares of our common
stock on the date the written demand for appraisal is made but
who thereafter transfers the shares prior to the effective date
of the merger will lose any right to appraisal with respect to
such shares.
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If you fail to comply with any of these conditions and the
merger is completed, you will be entitled to receive the merger
consideration, but you will have no appraisal rights with
respect to your shares of our common stock. All demands for
appraisal should be addressed to SGX Pharmaceuticals, Inc.,
10505 Roselle Street, San Diego, California 92121 Attn:
Corporate Secretary, Telephone
(858) 558-4850,
and must be delivered before the vote on the merger agreement is
taken at the special meeting and should be executed by, or on
behalf of, the record holder of the shares of common stock. The
demand must reasonably inform us of the identity of the
stockholder and the intention of the stockholder to demand
appraisal of his, her or its shares.
To be effective, a demand for appraisal by a holder of common
stock must be made by, or in the name of, such registered
stockholder, fully and correctly, as the stockholders name
appears on his or her stock certificate(s).
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Beneficial owners who do not also hold the shares of record may
not directly make appraisal demands to us. The beneficial holder
must, in such cases, have the registered owner, such as a
broker, bank or other nominee, submit the required demand in
respect of those shares. If shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian,
execution of a demand for appraisal should be made by or for the
fiduciary; and if the shares are owned of record by more than
one person, as in a joint tenancy or tenancy in common, the
demand should be executed by or for all joint owners. An
authorized agent, including an authorized agent for two or more
joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in
executing the demand, he or she is acting as agent for the
record owner. A record owner, such as a broker, who holds shares
as a nominee for others, may exercise his or her right of
appraisal with respect to the shares held for one or more
beneficial owners, while not exercising this right for other
beneficial owners. In that case, the written demand should state
the number of shares as to which appraisal is sought. Where no
number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of the record
owner.
If you hold your shares of common stock in a brokerage account
or in other nominee form and you wish to exercise appraisal
rights, you should consult with your brokerage firm, bank, trust
or other nominee to determine the appropriate procedures for the
making of a demand for appraisal by the nominee.
Within 10 days after the effective date of the merger, the
surviving corporation must give written notice that the merger
has become effective to each stockholder who has properly filed
a written demand for appraisal and who did not vote in favor of
the merger agreement and the merger. At any time within
60 days after the effective time of the merger, any
stockholder who has demanded an appraisal, and who has not
commenced an appraisal proceeding or joined that proceeding as a
named party, has the right to withdraw the demand and to accept
the cash payment specified by the merger agreement for his or
her shares of common stock; after this period, the stockholder
may withdraw such demand for appraisal only with the consent of
the surviving corporation. Within 120 days after the
effective date of the merger, any stockholder who has complied
with Section 262 will, upon written request to the
surviving corporation, be entitled to receive a written
statement setting forth the aggregate number of shares not voted
in favor of the merger agreement and the merger and with respect
to which demands for appraisal rights have been received and the
aggregate number of holders of such shares. A person who is the
beneficial owner of shares of common stock held in a voting
trust or by a nominee on behalf of such person may, in such
persons own name, request from the surviving corporation
the statement described in the previous sentence. Such written
statement will be mailed to the requesting stockholder within
10 days after such written request is received by the
surviving corporation or within 10 days after expiration of
the period for delivery of demands for appraisal, whichever is
later. Within 120 days after the effective time, either the
surviving corporation or any stockholder who has complied with
the requirements of Section 262 and who is otherwise
entitled to appraisal rights may file a petition in the Delaware
Court of Chancery demanding a determination of the fair value of
the shares held by all stockholders entitled to appraisal. A
person who is the beneficial owner of shares of our common stock
held in a voting trust or by a nominee on behalf of such person
may, in such persons own name, file the petition described
in the previous sentence. Upon the filing of the petition by a
stockholder, service of a copy of such petition will be made
upon SGX, as the surviving corporation. The surviving
corporation has no obligation to file such a petition in the
event there are dissenting stockholders. Accordingly, the
failure of a stockholder to file such a petition within the
period specified could nullify the stockholders previously
written demand for appraisal. There is no present intent on our
part to file an appraisal petition, and stockholders seeking to
exercise appraisal rights should not assume that we will file
such a petition or that we will initiate any negotiations with
respect to the fair value of such shares. Accordingly,
stockholders who desire to have their shares appraised should
initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner
prescribed in Section 262.
If a petition for appraisal is duly filed by a stockholder and a
copy of the petition is delivered to the surviving corporation,
the surviving corporation will then be obligated, within
20 days after receiving service of a copy of the petition,
to provide the Register in Chancery with a duly verified list
containing the names and addresses of all stockholders who have
demanded an appraisal of their shares and with whom agreements
as to the value of their shares have not been reached by the
surviving corporation. After notice to dissenting stockholders
who demanded appraisal of their shares, the Delaware Court of
Chancery is empowered to conduct a hearing upon the petition,
and to determine those stockholders who have complied with
Section 262 and who have become entitled to the appraisal
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rights provided thereby. The Delaware Court of Chancery may
require the stockholders who have demanded appraisal for their
shares to submit their stock certificates to the Register in
Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with that
direction, the Delaware Court of Chancery may dismiss the
proceedings as to that stockholder.
After determination of the stockholders entitled to appraisal of
their shares of common stock, the Delaware Court of Chancery
will appraise the shares, determining their fair value exclusive
of any element of value arising from the accomplishment or
expectation of the merger, together with interest, if any.
Unless the Delaware Court of Chancery in its discretion
determines otherwise for good cause shown, interest from the
effective date of the merger through the date of payment of the
judgment will be compounded quarterly and will accrue at 5% over
the Federal Reserve discount rate (including any surcharge) as
established from time to time during the period between the
effective date of the merger and the date of payment of the
judgment. When the value is determined, the Delaware Court of
Chancery will direct the payment of such value, with interest
thereon accrued during the pendency of the proceeding, if the
Delaware Court of Chancery so determines, to the stockholders
entitled to receive the same, upon surrender by such holders of
the certificates representing those shares.
In determining fair value, and, if applicable, interest, the
Delaware Court of Chancery is required to take into account all
relevant factors. In
Weinberger v. UOP, Inc
., the
Delaware Supreme Court discussed the factors that could be
considered in determining fair value in an appraisal proceeding,
stating that proof of value by any techniques or methods
which are generally considered acceptable in the financial
community and otherwise admissible in court should be
considered, and that fair price obviously requires
consideration of all relevant factors involving the value of a
company.
Section 262 provides that fair value is to be
exclusive of any element of value arising from the
accomplishment or expectation of the merger. In
Cede & Co. v. Technicolor, Inc.
, the
Delaware Supreme Court stated that such exclusion is a
narrow exclusion [that] does not encompass known elements
of value, but which rather applies only to the speculative
elements of value arising from such accomplishment or
expectation. In
Weinberger
, the Delaware Supreme Court
construed Section 262 to mean that elements of future
value, including the nature of the enterprise, which are known
or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered.
Although we believe the merger consideration is fair, no
representation is made as to the outcome of the appraisal of
fair value as determined by the Delaware Court of Chancery, and
you should be aware that the fair value of your shares as
determined under Section 262 could be more than, the same
as, or less than the value that you are entitled to receive
under the terms of the merger agreement. Moreover, the surviving
corporation does not anticipate offering more than the value
that you are entitled to receive under the terms of the merger
agreement to any stockholder exercising appraisal rights and
reserves the right to assert, in any appraisal proceeding, that,
for purposes of Section 262, the fair value of
a share of our common stock is less than the merger
consideration.
Costs of the appraisal proceeding may be imposed upon the
surviving corporation and the stockholders participating in the
appraisal proceeding by the Delaware Court of Chancery as the
Court deems equitable in the circumstances. Upon the application
of a stockholder, the Delaware Court of Chancery may order all
or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without
limitation, reasonable attorneys fees and the fees and
expenses of experts, to be charged pro rata against the value of
all shares entitled to appraisal. Any stockholder who had
demanded appraisal rights will not, after the effective time of
the merger, be entitled to vote shares subject to that demand
for any purpose or to receive payments of dividends or any other
distribution with respect to those shares, other than with
respect to payment as of a record date prior to the effective
time; however, if no petition for appraisal is filed within
120 days after the effective time of the merger, or if the
stockholder delivers a written withdrawal of his or her demand
for appraisal and an acceptance of the terms of the merger
within 60 days after the effective time of the merger, then
the right of that stockholder to appraisal will cease and that
stockholder will be entitled to receive the cash payment for
shares of his, her or its shares of our common stock pursuant to
the merger agreement. No appraisal proceeding in the Delaware
Court of Chancery will be dismissed as to any stockholder
without the prior approval of the Court, and such approval may
be conditioned upon such terms as the Delaware Court of Chancery
deems just;
provided, however
, that any stockholder who
has not commenced an appraisal proceeding or joined that
proceeding as a named party
57
will maintain the right to withdraw its demand for appraisal and
to accept the cash that such holder would have received pursuant
to the merger agreement within 60 days after the effective
date of the merger.
Failure to comply with all of the procedures set forth in
Section 262 will result in the loss of a stockholders
statutory appraisal rights. In view of the complexity of
Section 262, stockholders who may wish to dissent from the
merger and pursue appraisal rights should consult their legal
advisors.
MARKET
PRICE OF COMMON STOCK
Our common stock is listed on The Nasdaq Global Market under the
symbol SGXP. The following table sets forth the high
and low sales prices of our common stock for the periods
indicated.
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High ($)
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Low ($)
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Year Ended December 31, 2006
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First Quarter
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9.71
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5.75
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Second Quarter
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8.18
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4.65
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Third Quarter
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5.50
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1.88
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Fourth Quarter
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3.56
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2.50
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Year Ended December 31, 2007
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First Quarter
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5.91
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3.20
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Second Quarter
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5.50
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4.61
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Third Quarter
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7.40
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5.29
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Fourth Quarter
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6.59
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4.71
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Year Ended December 31, 2008
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First Quarter
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5.21
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1.36
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Second Quarter
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1.68
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1.22
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Third Quarter
(through July 18
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3.09
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1.30
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On July 7, 2008, the last full day of trading before the
day of our public announcement of our execution of the merger
agreement, the closing price of our common stock reported was
$1.43 per share. On July 18, 2008, the last full day of
trading before the date of this proxy statement, the closing
price of our common stock reported was $2.99 per share.
58
RISK
FACTORS
In addition to the other information included in this proxy
statement, including the matters addressed in Cautionary
Statement Concerning Forward-Looking Information, you
should carefully consider the following risks before deciding
whether to vote for approval and adoption of the merger
agreement.
We
will incur substantial expenses related to the merger, and the
merger might not be completed if we or Lilly are unable to
fulfill all of the closing conditions.
We estimate that we will incur aggregate costs of approximately
$6.0 million associated with the merger, none of which has
been paid as of June 30, 2008, as well as severance costs
relating to our employees of approximately $3.3 million.
The consummation of the merger is conditioned upon the
fulfillment of certain conditions by each of the parties,
including our obligation to obtain all licenses, permits,
consents and approvals in connection with the merger. Although
we intend to obtain all such approvals, it is possible that we
may not be able to obtain all such approvals. It is not certain
if the transaction would proceed in the event that certain of
our or Lillys closing conditions cannot be satisfied. For
example, if any required third party consent is not received, it
is possible that Lilly might not consummate the merger.
The
announcement of the merger could harm us, and failure to
complete the merger could negatively affect our stock price and
future business and operations.
The announcement of the merger could have a negative effect on
our business relationships, operating results and business
generally. In addition, if the merger is not completed for any
reason, the price of our common stock may decline to the extent
that the current market price of our common stock reflects a
positive market assumption that the merger will be completed.
Furthermore, if the merger agreement is terminated, we may be
unable to find a third party willing to engage in a similar
transaction on terms as favorable as those set forth in the
merger agreement, or at all. In addition, we may not be able to
enter into partnering arrangements or successfully pursue
financing activities, or obtain adequate funding through other
strategic opportunities. This could limit our ability to merge
with another entity, continue as a stand alone entity or
otherwise pursue our strategic goals in an atmosphere of
increased uncertainty. Speculation regarding the likelihood of
the closing of the merger could increase the volatility of our
stock price.
Some
of our officers and directors have interests in the merger that
may influence them to support or approve the merger in a manner
different than other stockholders.
Some of the directors who recommend that you vote in favor of
the merger, and the officers who provided information to our
board relating to the merger, have employment, indemnification,
stock option and bonus arrangements that provide them with
interests in the merger that may differ from yours. The receipt
of compensation or other benefits in the merger may have
influenced our directors in making their recommendation that you
vote in favor of the transactions called for by the merger
agreement, and the officers in making recommendations to the our
board relating to the merger.
We
will no longer exist as an independent public company following
the merger and our stockholders will forego any increase in our
value.
If the merger is successful, we will no longer exist as an
independent public company and our stockholders will forego any
potential increase in our value that might have otherwise
resulted from our possible growth or from the future advancement
of our drug discovery and development programs.
59
Upon
termination of the merger agreement under specified
circumstances, we may be required to pay a termination fee to
Lilly.
Upon termination of the merger agreement under specified
circumstances, we may be required to pay Lilly a $2.0 million
termination fee, plus an additional amount not to exceed
$250,000 for expenses of Lilly, at a time when such a payment
could materially and adversely affect our liquidity and our
ability to continue our business operations or otherwise
continue as a going concern.
If the
merger is not consummated, we may run out of cash and ultimately
end up with no alternative other than to liquidate or seek
protection under U.S. bankruptcy laws.
If the merger is not consummated, based on our existing cash,
cash equivalents and short term investments, together with cash
from existing and new collaborations, commercial agreements and
grants, and anticipated cash needs, we, absent new financing or
funding through partnering or financing activities or through
other strategic opportunities, are projected to require
additional cash infusion in the second half of 2009, or
potentially sooner, and could ultimately end up with no
alternative other than to liquidate or to seek protection under
U.S. bankruptcy laws.
60
SUBMISSION
OF STOCKHOLDER PROPOSALS
If the merger is consummated, we will not have public
stockholders, and there will be no public participation in any
future meetings of stockholders. However, if the merger is not
consummated, we expect to hold our annual meeting of
stockholders in 2009.
Stockholder Proposals.
To be considered
for inclusion in next years proxy materials, your proposal
must be submitted in writing by December 17, 2008, to
Annette North, Esq.; 10505 Roselle Street, San Diego,
California 92121. If you wish to submit a proposal that is to be
included in next years proxy materials or nominate a
director, you must do so by February 5, 2009. Stockholders
are advised to review our Bylaws, which contain additional
requirements with respect to advance notice of stockholder
proposals and director nominations. Our current Bylaws are
available at the SECs website, www.sec.gov, or upon
written request to Investor Relations, SGX Pharmaceuticals,
Inc., at 10505 Roselle Street, San Diego, California 92121.
61
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of our common stock as of July 16, 2008 by all
persons who, to our knowledge, were the beneficial owners of
more than 5% of the outstanding shares of our common stock, each
of our directors, each of our current named executive officers
(as defined in Item 402(a)(3) of
Regulation S-K)
and all directors and executive officers as a group.
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Beneficial
Ownership
(1)
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Beneficial Owner
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Number of Shares
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Percent of Total
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Biotechnology Value Fund, L.P. and its
affiliates
(2)
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5,905,274
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28.6
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%
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900 North Michigan Avenue, Suite 1100
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Chicago, IL 60611
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BAVP,
L.P.
(3)
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2,569,663
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12.4
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%
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950 Tower Lane, Suite 700
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Foster City, CA 94404
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Atlas Venture Fund IV, L.P. and its
affiliates
(4)
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2,504,095
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12.1
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%
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890 Winter Street, Suite 320
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Waltham, MA 02451
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OrbiMed Advisors LLC and Orbimed Capital LLC and its
affiliates
(5)
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2,408,400
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11.7
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%
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767 Third Avenue, 30th Floor
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New York, NY 10017
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Great Point Partners LLC and its
affiliates
(6)
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1,186,357
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5.7
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%
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165 Mason Street, 3rd Floor
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Greenwich, CT 06830
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Michael
Grey
(7)
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480,677
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2.3
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%
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Stephen K.
Burley
(8)
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291,572
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1.4
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%
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W. Todd
Myers
(9)
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78,389
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*
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Terence
Rugg
(10)
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58,853
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*
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Siegfried
Reich
(11)
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80,887
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*
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Louis C.
Bock
(12)
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2,569,663
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12.4
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%
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Karin
Eastham
(13)
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35,000
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*
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Christopher S.
Henney
(14)
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170,215
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*
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Joseph
Turner
(15)
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5,625
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*
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All directors and executive officers as a group
(10 persons)
(16)
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3,883,023
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18.8
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%
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(1)
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This table is based upon information supplied by our executive
officers, directors and principal stockholders and Schedules 13D
and 13G filed with the SEC. Unless otherwise indicated in the
footnotes to this table and subject to community property laws
where applicable, we believe that each of our stockholders named
in this table has sole voting and investment power with respect
to the shares indicated as beneficially owned. Applicable
percentages are based on 20,667,204 shares outstanding on
July 16, 2008, adjusted as required by rules promulgated by
the SEC.
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(2)
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Includes 3,250,200 shares held by BVF Investments, L.L.C.
(Investments), 1,342,774 shares held by
Biotechnology Value Fund, L.P. (BVF),
914,700 shares held by Biotechnology Value Fund II,
L.P. (BVF2) and 397,600 shares held by
Investment 10, L.L.C. (ILL10). BVF Partners L.P. and
BVF Inc., share voting and dispositive power over shares of our
common stock beneficially owned by BVF, BVF2, Investments and
those owned by ILL10, on whose behalf, BVF Partners L.P. acts as
an investment manager and accordingly, BVF Partners L.P. and BVF
Inc. have beneficial ownership of all the shares of our common
stock owned by such parties.
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(3)
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The voting and disposition of the shares held by BAVP, L.P. is
determined by a
majority-in-interest
of the four managing members of Scale Venture Management I,
LLC (Scale), the ultimate general partner of BAVP,
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62
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L.P. Louis C. Bock, one of our directors, is one of the four
managing members of Scale and, as such, may be deemed to share
voting and investment power with respect to the
2,546,747 shares of common stock beneficially owned by
Scale. Mr. Bock disclaims beneficial ownership of these
shares, except to the extent of his proportionate pecuniary
interest therein. Mr. Bock also holds stock options,
subject to vesting, to purchase up to 32,500 shares of our
common stock, 22,916 shares of which he has the right to
acquire from us within 60 days of July 16, 2008 and
are included above. Pursuant to the policies of Scale and its
affiliates, Mr. Bock is deemed to hold this stock option
for the benefit of BAVP, L.P. and must exercise the stock option
solely for the benefit of BAVP, L.P.; therefore, BAVP, L.P. may
be deemed to be the indirect beneficial owner of such stock
option.
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(4)
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Includes 27,734 shares (the Atlas III
Shares) held by Atlas Venture Fund III, L.P.
(Atlas III), 602 shares (the AVE III
Shares) held by Atlas Venture Entrepreneurs
Fund III, L.P. (AVE III), 2,426,391 shares
(the Atlas IV Shares) held by Atlas Venture
Fund IV, L.P. (Atlas IV) and 30,341 shares
(the AVE IV Shares, and together with the
Atlas III Shares, the AVE III Shares, the Atlas IV
Shares, the Shares) held by Atlas Venture
Entrepreneurs Fund IV, L.P. (AVE IV, and
together with Atlas III, AVE III, and Atlas IV the
Funds). By virtue of their relationship as
affiliated limited partnerships, each of the Funds may be deemed
to share the power to direct the disposition of and vote the
Atlas III Shares, the AVE III Shares, the Atlas IV
Shares and the AVE IV Shares, for an aggregate of
2,485,068 shares of Common Stock. As general partner of the
Funds and by virtue of the Funds relationship as affiliated
limited partnerships, each of Atlas Venture Associates III, L.P.
(AVA III LP.) and Atlas Venture Associates IV, L.P.
(AVA IV LP) may also be deemed to beneficially own
the Shares. As the general partner of AVA III LP and AVA IV LP
respectively, Atlas Venture Associates III, Inc. (AVA III
Inc.) and Atlas Venture Associates IV, Inc. (AVA IV
Inc.) may also be deemed to beneficially own the Shares.
AVA III LP, AVA IV LP, AVA III Inc. and AVA IV Inc. disclaim
beneficial ownership of the shares except to the extent of their
pecuniary interest therein. In their capacities as directors of
AVA III Inc. and AVA IV Inc. each of Messrs. Axel Bichara,
Dr. Jean-Francois Formela and Christopher Spray may be
deemed to beneficially own the Shares. Each of
Messrs. Bichara, Formela and Spray disclaim beneficial
ownership of the Shares except to the extent of his pecuniary
interest therein. Dr. Formela also holds stock options to
purchase 22,500 shares of our common stock,
19,027 shares of which he has the right to acquire from us
through September 5, 2008 and are included above. The
proceeds of the sale of any such shares belong to Atlas Venture
Advisors, Inc., and, therefore, Dr. Formela disclaims
beneficial ownership of these shares, except to the extent of
his proportionate pecuniary interest therein.
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(5)
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Includes 681,100 shares held by Caduceus Capital Master
Fund Limited (Caduceus Master),
433,400 shares held by Caduceus Capital II, L.P.
(Caduceus Capital), 401,700 shares held by UBS
Eucalyptus Fund, LLC (UBS), 48,800 shares held
by PW Eucalyptus Fund, Ltd. (PW),
173,400 shares held by Summer Street Life Sciences Hedge
Fund Investors LLC (Summer Street) and
670,000 shares held by Stichting Pensioenfonds ABP
(Stichting). The share numbers provided in this
table do not include warrants held by Caduceus Master to
purchase 189,000 shares, warrants held by Caduceus Capital
to purchase 120,000 shares, warrants held by UBS to
purchase 111,000 shares, warrants held by PW to purchase
13,500 shares, warrants held by Summer Street to purchase
48,000 shares and warrants held by Stichting to purchase
201,000 shares and, in each case which become exercisable
beginning on May 19, 2008. Such warrants were acquired by
these holders in connection with a private placement offering on
November 19, 2007. OrbiMed Advisors, LLC serves as the
investment adviser for each of these selling stockholders and,
in such capacity, has the discretionary authority to vote over
and dispose of the shares held by these selling stockholders and
may be deemed to be the beneficial owner of these shares. Samuel
D. Isaly, in his capacity as Managing Partner of OrbiMed
Advisors, LLC, also has discretionary authority to vote over and
dispose of the shares held by these selling stockholders, and
may be deemed to be the beneficial owner of these shares.
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(6)
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Includes 664,360 shares (the BMVF Shares) held
by Biomedical Value Fund, L.P. (BMVF) and
521,997 shares (the BOVF Shares) held by
Biomedical Offshore Value Fund, Ltd. (BOVF). The
share numbers provided in this table do not include warrants
held by BMVF to purchase 199,308 shares and warrants held
by BOVF to purchase 156,599 shares and, in each case which
become exercisable beginning on May 19, 2008. Such warrants
were acquired by these holders in connection with a private
placement offering on November 19, 2007. Great Point
Partners LLC (Great Point) is the investment manager
of BMVF and BOVF and by virtue of such status may be deemed to
be the beneficial owner of the BMVF Shares and the
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BOVF Shares. Each of Dr. Jeffrey R. Jay, M.D.
(Dr. Jay), as senior managing member of Great
Point, and Mr. David Kroin (Mr. Kroin), as
special managing member of Great Point, has voting and
investment power with respect to the BMVF Shares and the BOVF
Shares, and therefore may be deemed to be the beneficial owner
of the BMVF Shares and the BOVF Shares. Great Point,
Dr. Jay and Mr. Kroin disclaim beneficial ownership of
the BMVF Shares and the BOVF Shares, except to the extent of
their respective pecuniary interests.
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(7)
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Includes 380,677 shares that Mr. Grey has the right to
acquire from us within 60 days of July 16, 2008
pursuant to the exercise of stock options.
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(8)
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Includes 235,841 shares that Dr. Burley has the right
to acquire from us within 60 days of July 16, 2008
pursuant to the exercise of stock options.
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(9)
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Includes 54,166 shares that Mr. Myers has the right to
acquire from us within 60 days of July 16, 2008
pursuant to outstanding stock options and restricted stock units.
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(10)
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Represents shares that Dr. Rugg has the right to acquire
from us within 60 days of July 16, 2008 pursuant to
the exercise of stock options.
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(11)
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|
Includes 58,227 shares that Mr. Reich has the right to
acquire from us within 60 days of July 16, 2008
pursuant to outstanding stock options and restricted stock units.
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(12)
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Includes 2,546,747 shares of our common stock and options
to purchase up to 22,916 shares of our common stock that
Mr. Bock has the right to acquire from us within
60 days of July 16, 2008.
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(13)
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Includes 695 shares that are subject to repurchase by as of
July 16, 2008 under certain circumstances and 22,500 shares
that Ms. Eastham has the right to acquire from us within
60 days of July 16 , 2008 pursuant to the exercise of
stock options.
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(14)
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Includes 13,050 shares held by Dr. Henneys two
adult children who do not reside with him, over which
Dr. Henney has no beneficial ownership or control and
60,000 shares that Dr. Henney has the right to acquire from us
within 60 days of July 16, 2008 pursuant to the
exercise of stock options.
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(15)
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|
Represents shares that Mr. Turner has the right to acquire
from us within 60 days of July 16, 2008 pursuant to
the exercise of stock options.
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(16)
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Includes the shares referred to in footnotes (3), (7), (8), (9),
(10), (11), (12), (13), (14) and (15).
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64
HOUSEHOLDING
OF PROXY MATERIALS
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements with respect to two or more
stockholders sharing the same address by delivering a single
proxy statement addressed to those stockholders. This process,
which is commonly referred to as householding,
potentially means extra convenience for stockholders and cost
savings for companies.
In connection with this proxy solicitation, a number of brokers
with account holders who are
SGX
stockholders
will be householding our proxy materials. A single
proxy statement will be delivered to multiple stockholders
sharing an address unless contrary instructions have been
received from the affected stockholders. Once you have received
notice from your broker that they will be
householding communications to your address,
householding will continue until you are notified
otherwise or until you revoke your consent with your broker. If,
at any time, you would prefer to receive a separate proxy
statement, please send a request in writing to SGX
Pharmaceuticals, Inc., Annette North, Corporate Secretary, 10505
Roselle Street, San Diego, California 92121 at
858-558-4850. Stockholders who currently receive multiple copies
of the proxy statement at their addresses and would like to
request householding of their communications should
contact their brokers.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any
document we file at the SECs public reference room located
at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to the public at the SECs
website at
http://www.sec.gov.
Statements contained in this proxy statement, or in any document
incorporated by reference in this proxy statement regarding the
contents of any contract or other document, are not necessarily
complete and each such statement is qualified in its entirety by
reference to that contract or other document filed as an exhibit
with the SEC. The SEC allows us to incorporate by
reference into this proxy statement documents we file with
the SEC. This means that we can disclose important information
to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this
proxy statement, and later information that we file with the SEC
will update and supersede that information. We incorporate by
reference the documents listed below and any documents filed by
us pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this proxy statement and before
the date of the special meeting (other than Current Reports or
portions thereof furnished under Item 2.02 or
Item 7.01 of
Form 8-K):
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Our Annual Report on
Form 10-K
for our fiscal year ended December 31, 2007 (filed on
March 27, 2008);
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Our Quarterly Report on
Form 10-Q
for our fiscal quarter ended March 31, 2008 (filed on
May 13, 2008); and
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Our Current Reports on
Form 8-K
filed on February 27, 2008 and July 8, 2008.
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Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of reports, proxy
statements or other information concerning us, without charge,
by written or telephonic request directed to us at 10505 Roselle
Street, San Diego, California 92121 Attn: Corporate
Secretary, or from the SEC through the SECs website at the
address provided above. Documents incorporated by reference are
available without charge, excluding any exhibits to those
documents unless the exhibit is specifically incorporated by
reference into those documents.
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A
PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT
JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE
YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT
IS DATED JULY 21, 2008. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF
ANY DATE OTHER THAN
65
THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO
STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
By Order of the Board of Directors,
Michael Grey
President and Chief Executive Officer
San Diego, California
July 21, 2008
66
ANNEX A
PRIVILEGED AND CONFIDENTIAL
Agreement
and Plan of Merger
dated
as of July 8, 2008
among
Eli
Lilly and Company,
REM
Merger Sub, Inc.
and
SGX
Pharmaceuticals, Inc.
A-1
Agreement and Plan of
Merger
(this
Agreement
), dated as of
July 8, 2008, among
Eli Lilly and
Company
, an Indiana corporation
(
Parent
),
REM Merger Sub,
Inc.
, a Delaware corporation and wholly-owned subsidiary
of Parent (
Merger Sub
), and
SGX Pharmaceuticals,
Inc.
, a Delaware corporation (the
Company
).
Introduction
The respective Boards of Directors of Parent, Merger Sub and the
Company have unanimously approved the acquisition of the Company
by Parent on the terms and subject to the conditions set forth
in this Agreement.
In furtherance of such acquisition, the respective Boards of
Directors of Parent, Merger Sub and the Company have approved
and declared advisable the merger (the
Merger
) of Merger Sub into the Company, on
the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of common
stock, par value $0.001 per share, of the Company (the
Company Common Stock
) not owned by Parent,
Merger Sub or the Company as of the Effective Time shall be
converted into the right to receive the Merger Consideration.
Concurrently with the execution of this Agreement and as an
inducement to and condition of Parents willingness to
enter into this Agreement, each of the stockholders of the
Company listed on Schedule I is entering into a Voting
Agreement, dated as of the date hereof (the
Voting
Agreement
), the form of which is attached as
Exhibit A, pursuant to which, among other things, each such
stockholder agrees to vote its shares of Company Common Stock in
favor of this Agreement, the Merger and the other transactions
contemplated by this Agreement.
In consideration of the foregoing and of the representations,
warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
ARTICLE 1
DEFINITIONS
Section
1.1.
Definitions
.
(a) As used in this Agreement, the following terms have the
respective meanings set forth below:
Affiliate
means, as to any Person, any other
Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this
purpose,
control
(including, with its
correlative meanings,
controlled by
and
under common control with
) shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of management or policies of a Person,
whether through the ownership of securities or partnership or
other ownership interests, by contract or otherwise.
AJCA
means the American Jobs Creation Act of
2004, as amended.
Bayh-Dole Act
means the Patent and Trademark
Law Amendments Act, 35 U.S.C. § 200 et seq., as
may be amended or succeeded from time to time, and the
regulations promulgated thereunder.
Business Day
means any day other than
Saturday, Sunday or any day on which commercial banks in New
York, New York are authorized or required to close.
Code
means the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
Company Board
means the Board of Directors of
the Company.
Company Charter Documents
means the Amended
and Restated Certificate of Incorporation and the Amended and
Restated By-laws of the Company.
Company Employee Benefit Plan
means any
material plan, program, policy, practice, agreement or
arrangement providing compensation or benefits in any form to
any current or former employee, officer, director, independent
contractor or consultant of the Company or any of the Company
Subsidiaries (or any Company ERISA Affiliate) or any beneficiary
or dependent thereof, whether written or unwritten, formal or
informal, including any other pension, profit-sharing, bonus,
incentive compensation, deferred compensation,
A-4
vacation, sick pay, stock purchase, stock option, phantom
equity, severance, employment, consulting, independent
contractor, unemployment, hospitalization or other medical,
dental, vision, life, or other insurance, long- or short-term
disability, change of control, fringe benefit, cafeteria plan or
any other plan, program, policy, agreement or arrangement.
Company Financial Advisor
means Lazard
Frères & Co. LLC.
Company Intellectual Property
means all
Intellectual Property owned, controlled, licensed or used by the
Company or any Company Subsidiary.
Company Material Adverse Effect
means any
event, condition, change, occurrence or development of a state
of facts that, individually or in the aggregate with all other
events, conditions, changes, occurrences or developments or a
state of facts (
Effect
), is or would
reasonably likely be expected to (i) be materially adverse
to the business, operations, properties, assets, liabilities,
condition (financial or otherwise) or results of operations of
the Company and the Company Subsidiaries considered as a single
enterprise or (ii) materially impact or delay, prevent or
materially impede the ability of the Company to perform its
obligations under this Agreement in compliance with its terms or
to consummate the Transactions;
provided
,
however
,
that no such Effect shall be considered in determining whether a
Company Material Adverse Effect has occurred to the extent that
it is proximately caused by (A) changes in any applicable
Law or GAAP, (B) changes in economic or biotechnology or
pharmaceutical industry conditions in the United States (and in
each case to the extent that the Company and the Company
Subsidiaries considered as a single enterprise are not
disproportionately adversely affected), (C) acts of
terrorism or war occurring after the date hereof (and in each
case to the extent that the Company and the Company Subsidiaries
considered as a single enterprise are not disproportionately
affected), (D) the pendency or announcement of the
Transactions (it being understood that Effects proximately
caused by the pendency or announcement of the Transactions could
include disruption in (or loss of) supplier, distributor,
partner or similar relationships or loss of employees, or claims
made or litigation filed or announced that challenges any of the
Transactions or actions taken by the Company Board or the
Company expressly required by this Agreement or with
Parents written consent in connection therewith),
(E) any adverse data resulting from pre-clinical activities
other than activities related to the Companys MET, JAK2 or
BCR-ABL programs, (F) the failure of the Company to meet
internal or analysts projections, in and of itself (it
being understood that any Effect that may have caused or
contributed to any such failure may be deemed to constitute, in
and of itself, a Company Material Adverse Effect and may be
taken into consideration when determining whether a Company
Material Adverse Effect has occurred), (G) any action taken
by the Company with Parents written consent or the taking
of any action expressly required by this Agreement, or
(H) a decline in the Companys stock price, in and of
itself (it being understood that any Effect that may have caused
or contributed to any such decline may be deemed to constitute,
in and of itself, a Company Material Adverse Effect and may be
taken into consideration when determining whether a Company
Material Adverse Effect has occurred).
Company Preferred Stock
means the preferred
stock, par value $0.001 per share, of the Company.
Company Subsidiaries
means the Subsidiaries
of the Company.
Confidentiality Agreement
means the
Confidentiality Agreement, dated as of June 16, 2008,
between Parent and the Company.
Constituent Corporations
means, collectively,
the Company and Merger Sub.
Contract
means any loan or credit agreement,
debenture, note, bond, mortgage, indenture, deed of trust,
license, lease, contract, purchase order or other agreement,
instrument or obligation.
Copyrights
means (i) all copyrights
(including copyrights in any package inserts, marketing or
promotional materials, labeling information or other text
provided to consumers), whether registered or unregistered
throughout the world, (ii) any registrations and
applications therefor, (iii) all rights and priorities
afforded under any international treaty, convention, or the
like, (iv) all extensions and renewals of any thereof,
(v) the right to sue for past, present and future
infringements of any of the foregoing, and all proceeds of the
A-5
foregoing, including licenses, royalties, income, payments,
claims, damages (including attorneys fees), and proceeds
of suit, and (vi) any rights similar to the foregoing in
any country, including moral rights.
Current Government Contract
means any
Government Contract, the period of performance of which has not
yet expired or terminated or for which final payment has not yet
been received.
DGCL
means the Delaware General Corporation
Law.
DOJ
means the United States Department of
Justice.
Environmental Laws
means any federal,
foreign, state or local statute, law, code, or legal
requirement, including regulations, rules, orders, judgments,
judicial decisions, permits, licenses, approvals, ordinances,
injunctions, directives and the common law, pertaining or
relating to pollution, the environment, natural resources, the
protection of the environment, or human health and safety,
including any of the foregoing pertaining to (i) the
presence, receipt, manufacture, processing, generation, use,
distribution, transport, shipment, treatment, handling, storage,
disposal, removal or remediation of any Hazardous Substance,
(ii) air, water (including ground, surface and drinking
water), land surface or subsurface strata, noise, or odor
pollution, (iii) the release or threatened release into the
environment of any Hazardous Substance, including emissions,
discharges, injections, spills, escapes, dumping or leaching of
any Hazardous Substance, (iv) the protection of natural
resources, including wildlife, marine sanctuaries, wetlands and
all endangered and threatened species, (v) storage tanks,
vessels and containers whether above- or underground, abandoned,
disposed or discarded barrels, containers and other closed
receptacles, or (vi) health and safety of employees and
other persons.
ERISA
means the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations
promulgated thereunder.
ESPP
means the Companys 2005 Employee
Stock Purchase Plan.
Exchange Act
means the Securities Exchange
Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
Expenses
means all out-of-pocket fees and
expenses (including all fees and expenses of counsel,
accountants, financial advisors and investment bankers) incurred
by Parent or on its behalf in connection with or related to the
authorization, preparation, negotiation, execution and
performance of this Agreement, the Voting Agreement and the
Transactions.
FDA
means the United States Food and Drug
Administration.
FDCA
means the Federal Food, Drug, and
Cosmetic Act and any regulations and regulatory guidance
promulgated thereunder.
FTC
means the United States Federal Trade
Commission.
GAAP
means United States generally accepted
accounting principles.
Government Contract
means any prime contract,
subcontract, grant, teaming agreement or arrangement,
cooperative agreement, joint venture, basic ordering agreement,
pricing agreement, letter contract or other similar arrangement
of any kind, between the Company or any Company Subsidiary, on
the one hand, and (i) any Governmental Authority,
(ii) any prime contractor of a Governmental Authority in
its capacity as a prime contractor, or (iii) any
subcontractor with respect to any contract of a type described
in clauses (i) or (ii) above, on the other hand.
Governmental Authority
means any Federal,
state, local or foreign governmental or regulatory (including
stock exchange) authority.
Hazardous Substance
means, whether alone or
in combination and whether solid, liquid or gaseous,
(i) biologic agents or vectors, genetically modified
organisms (whether or not living), culture, or serum that are
listed in the HHS and USDA Select Agents and Toxins pursuant to
7 CFR Part 311, 9 CFR Part 121, and
42 CFR Part 73,
and/or
those
that are not otherwise exempt under NIH guidelines for Research
Involving
A-6
Recombinant DNA Molecules (2002) or otherwise subject to
regulation by Environmental Law, (ii) any hazardous
substance, as defined by the Comprehensive Environmental
Response, Compensation, and Liability Act, (iii) any
hazardous waste, as defined by the Resource
Conservation and Recovery Act, and (iv) any chemical,
pollutant, contaminant, waste, or hazardous, dangerous or toxic
material or substance, infectious or contagious material or
substance, special waste, medical waste, biomedical waste,
mutagenic or carcinogenic material or substance, endotoxin,
blood-borne pathogen or terms of similar import including
asbestos and asbestos containing material, buried contaminants,
regulated chemicals, flammable explosives, radiation and
radioactive materials, polychlorinated biphenyls, oil, petroleum
and petroleum products and by-products, lead and lead-based
paint, pesticides, natural or synthetic gas, nuclear fuel,
nuclear material, urea formaldehyde, bacteria, fungi, mold or
any material subject to regulation, investigation, control or
remediation under any applicable Law or that is capable of
causing harm or injury to human health, natural resources or the
environment or could give rise to liability or an obligation to
remediate under any Law, all as amended or hereafter amended.
HSR Act
means the
Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended, and the rules and
regulations promulgated thereunder.
Intellectual Property
means intellectual
property rights, including Trademarks, Internet Property,
Software, Copyrights and Patents, whether registered or
unregistered, and all applications and registrations therefor,
Know-How, confidential information, Trade Secrets, and similar
proprietary rights in confidential inventions, discoveries,
analytic models, improvements, processes, techniques, chemical
and biological materials, devices, methods, patterns,
formulations and specifications.
Internet Property
means (i) all websites
and rights thereto and (ii) all URLs, internet protocol
addresses and corresponding domain names, including all
registrations and applications relating thereto.
Know-How
means any proprietary or
nonproprietary information related to the manufacture,
preparation, development (including research, pre-clinical and
clinical), or commercialization of a product, including data,
product specifications, processes, product designs, plans,
ideas, concepts, inventions, formulae, chemical,
pharmacological, toxicological, pharmaceutical, physical,
analytical, stability, safety, quality assurance, quality
control and clinical information, technical information,
research information, and all other confidential or proprietary
technical and business information, whether or not embodied in
any documentation or other tangible materials, including any
trade secret or other rights therein.
Lien
means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset.
Nasdaq
means The Nasdaq Stock Market LLC.
Non-Owned Company Intellectual Property
means
Company Intellectual Property licensed to the Company or any
Company Subsidiary or in which the Company or any Company
Subsidiary otherwise possesses sufficient legal enforceable
rights to use, but not including Owned Company Intellectual
Property.
Option Consideration
means, with respect to
any share of Company Common Stock issuable under a particular
Option, an amount equal to (i) the Merger Consideration per
share of Company Common Stock less (ii) the exercise price
payable in respect of each share of Company Common Stock
issuable under such Option.
Options
means any option granted, and,
immediately before the Effective Time not exercised, expired or
terminated, to a current or former employee, director or
independent contractor of the Company or any of the Company
Subsidiaries or any former Subsidiary of the Company or
predecessor thereof to purchase shares of Company Common Stock
pursuant to the Stock Plans.
OTS Software License
means a license for
off-the-shelf computer software that is commercially available
and generally available to the public for purchase.
Owned Company Intellectual Property
means
Company Intellectual Property in which the Company or any
Company Subsidiary has or purports to have an ownership interest.
A-7
Parent Material Adverse Effect
means a
material adverse effect on the ability of either Parent or
Merger Sub to perform its obligations under this Agreement or to
consummate the Merger and the other Transactions.
Patents
means (i) all national, regional
and international patents and patent applications, including
provisional patent applications, (ii) all patent
applications filed either from such patents, patent applications
or provisional applications or from an application claiming
priority from either of these, including divisionals,
continuations,
continuations-in-part,
substitutions, provisionals, converted provisionals, and
continued prosecution applications, (iii) any and all
patents that have issued or in the future issue from the
foregoing patent applications described in clauses (i) and
(ii), including utility models, petty patents and design patents
and certificates of invention, (iv) any and all extensions
or restorations by existing or future extension or restoration
mechanisms, including revalidations, reissues, re-examinations
and extensions (including any supplementary protection
certificates and the like) of the foregoing patents or patent
applications described in clauses (i), (ii) and (iii),
(v) any and all licenses, royalties, income, payments,
causes of action, claims, demands or other rights occasioned
from or because of any and all past, present and future
infringement of any of the foregoing, including all rights to
recover damages (including attorneys fees), proceeds of
suit, profits and injunctive or other relief for such
infringement, and (vi) any similar rights, including
so-called pipeline protection, or any importation, revalidation,
confirmation or introduction patent or registration patent or
patent of additions to any such foregoing patent applications
and patents.
Permitted Lien
means (i) Liens for
Taxes, assessments or similar charges incurred in the ordinary
course of business that are not yet due and payable or the
amount of which is being contested in good faith,
(ii) deposits made in the ordinary course of business,
(iii) Liens of mechanics, materialmen, warehousemen or
similar Liens securing obligations incurred in the ordinary
course of business that are not yet due and payable,
(iv) purchase money Liens and Liens securing rental
payments under capital lease arrangements or similar Liens
securing obligations incurred in the ordinary course of business
that are not yet due and payable, (v) in the case of leased
property, all matters, whether or not of record, affecting the
title of the owner of the leased property that in the aggregate
are not material, and (vi) Liens and encumbrances which are
incurred in the ordinary course of business and which do not in
the aggregate materially detract from the value of the related
assets or properties or materially impair the use thereof in the
operation of such business.
Person
means an individual, corporation,
partnership, joint venture, association, trust, unincorporated
organization, limited liability company or other entity.
PHSA
means the Public Health Service Act and
any regulations and regulatory guidance promulgated thereunder.
Restricted Stock
means any outstanding award
of restricted Company Common Stock with respect to which the
restrictions have not lapsed, and which award shall not have
previously expired or terminated, to a current or former
employee, director or independent contractor of the Company or
any of the Company Subsidiaries or any predecessor thereof
pursuant to any applicable Stock Plan or any other contract or
agreement entered into by the Company or any of the Company
Subsidiaries.
Restricted Stock Unit
means any outstanding
award of restricted stock units based upon Company Common Stock
with respect to which the restrictions have not lapsed, and
which award shall not have previously expired or terminated, to
a current or former employee, director or independent contractor
of the Company or any of the Company Subsidiaries or any
predecessor thereof pursuant to any applicable Stock Plan or any
other contract or agreement entered into by the Company or any
of the Company Subsidiaries.
Sarbanes-Oxley Act
means the Sarbanes-Oxley
Act of 2002, as amended, and the rules and regulations
promulgated thereunder.
SEC
means the United States Securities and
Exchange Commission.
Section 262
means Section 262 of
the DGCL.
Securities Act
means the Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder.
A-8
Significant Stockholder
means any stockholder
of the Company owning, directly or indirectly, more than 15% of
the equity securities of the Company (or rights to acquire more
than 15% of the equity securities of the Company) outstanding on
the date hereof.
Software
means computer software programs,
including all source code, object code, specifications,
databases, designs and documentation related to such programs.
Stock Plans
means the Companys 2000
Equity Incentive Plan, 2005 Equity Incentive Plan and 2005
Non-Employee Directors Stock Option Plan.
Subsidiary
means, with respect to any Person,
another Person, an amount of the voting securities or other
voting ownership 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 voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly
by such first Person.
Subsidiary Documents
means the certificate of
incorporation and by-laws (or comparable organizational
documents) of each of the Company Subsidiaries.
Superior Proposal
means any bona fide written
offer obtained after the date hereof and not in breach of this
Agreement to acquire, directly or indirectly, for consideration
consisting of cash
and/or
securities, more than 50% of the outstanding voting equity
securities of the Company or all or substantially all of the
assets of the Company and the Company Subsidiaries on a
consolidated basis, and is on terms that the Company Board
determines in its good faith judgment (after consultation with
outside counsel and receiving the advice of its financial
advisor of nationally recognized reputation), taking into
account all relevant factors, including the terms and conditions
of the Takeover Proposal, including price, form of
consideration, closing conditions, the ability to fully finance
the transaction and such other aspects of the Takeover Proposal
as the Company Board in good faith deems relevant,
(i) would, if consummated, result in a transaction that is
more favorable to the holders of Company Common Stock from a
financial point of view than the Transactions (including the
terms of any proposal by Parent to modify the terms of the
Transactions) and (ii) is reasonably capable of being
completed on the terms proposed.
Surviving Corporation
means the corporation
surviving the Merger after the Effective Time.
Takeover Proposal
means any inquiry, proposal
or offer from any Person (other than Parent, Merger Sub or any
of their Affiliates) or group (as defined in
Section 13(d) of the Exchange Act) relating to (i) the
direct or indirect acquisition (including by way of a license)
(whether in a single transaction or a series of related
transactions) of assets of the Company and the Company
Subsidiaries (including securities of Company Subsidiaries)
equal to 15% or more of the Companys consolidated assets
or to which 15% or more of the Companys revenues or
earnings on a consolidated basis are attributable, (ii) the
direct or indirect acquisition (whether in a single transaction
or a series of related transactions) of 15% or more of any class
of equity securities of the Company, (iii) a tender offer
or exchange offer that if consummated would result in any Person
or group (as defined in Section 13(d) of the
Exchange Act) beneficially owning 15% or more of any class of
equity securities of the Company, or (iv) a merger,
consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of the Company
Subsidiaries, in each case, other than the Transactions;
provided
,
however
, that with respect to a
Significant Stockholder, 15% shall be replaced with
the percentage of equity securities of the Company directly or
indirectly owned by such Significant Stockholder as of the date
of this Agreement (for the avoidance of doubt, the
aforementioned ownership of Company Common Stock by a
Significant Stockholder as of the date hereof shall not, in and
of itself, constitute a Takeover Proposal);
provided
further
,
however
, that the direct or indirect
acquisition (in one or more transactions) of any equity
securities (or any rights to acquire any equity securities) of
the Company by such Significant Stockholder occurring after the
date of this Agreement that results in such Significant
Stockholder acquiring, directly or indirectly, equity securities
of the Company (or rights to acquire equity securities of the
Company) in excess of 2% of all Company Common Stock outstanding
on the date hereof shall constitute a Takeover Proposal.
Tax Return
means any report, return,
statement, declaration or other written information required to
be supplied to a taxing or other Governmental Authority in
connection with Taxes.
A-9
Taxes
means all taxes, levies or other like
assessments, charges or fees (including estimated taxes, charges
and fees), including income, franchise, profits, corporations,
advance corporation, gross receipts, transfer, excise, property,
sales, use value-added, ad valorem, license, capital, wage,
employment, payroll, withholding, social security, severance,
occupation, import, custom, stamp, alternative, add-on minimum,
environmental or other governmental taxes or charges, imposed by
the United States or any state, county, local or foreign
government or subdivision or agency thereof, including any
interest, penalties or additions to tax applicable or related
thereto.
Trade Secrets
means trade secrets as defined
in the Uniform Trade Secrets Act and under corresponding foreign
statutory and common law.
Trademark
means (i) all trademarks,
trade names, trade dress, service marks, logos, trade styles,
certification marks, collective marks, designs, industrial
designs and other identifiers of source and all other general
intangibles of a like nature, whether registered or
unregistered, (ii) all registrations and applications for
any of the foregoing, (iii) all extensions or renewals of
any of the foregoing, (iv) all of the goodwill connected
with the use of and symbolized by the foregoing, (v) all
rights and priorities afforded under the United States
common law, under the common law of any
other country or jurisdiction, or under any international
treaty, convention, or the like, (vi) the right to sue for
past, present and future infringement, misappropriation or
dilution of any of the foregoing or for any injury to goodwill,
(vii) all proceeds of the foregoing, including licenses,
royalties, income, payments, claims, damages (including
attorneys fees) and proceeds of suit, and (viii) any
rights similar to the foregoing in any country.
Transactions
means the Merger and the other
transactions contemplated by each of this Agreement and the
Voting Agreement.
WARN Act
means the Worker Adjustment and
Retraining Notification Act of 1988, as amended, and any similar
provision of state law that applies to the Company or the
Company Subsidiaries.
Warrant
means a Common Stock Purchase Warrant
issued by the Company and listed on Schedule II.
(b) The following terms are defined in the following
sections of this Agreement:
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Term
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Section
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409A Authorities
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4
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.10(l)
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Agreement
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Preamble
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Appraisal Shares
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3
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.2(c)
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Bankruptcy and Equity Exception
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4
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.3(a)
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Certificate of Merger
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2
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.4
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Certificates
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3
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.3(b)
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Closing
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2
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.3
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Closing Date
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2
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.3
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Company
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Preamble
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Company Adverse Recommendation Change
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7
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.8(c)
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Company Common Stock
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Introduction
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Company Disclosure Letter
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4
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Company Employee
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7
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.2(b)
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Company ERISA Affiliates
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4
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.10(a)
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Company Financial Statements
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4
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.5(b)
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Company Recommendation
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7
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.1(b)
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Company SEC Reports
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4
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.5(a)
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Company Stockholders Meeting
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7
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.1(b)
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D&O Insurance
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7
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.9(c)
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Drug Laws
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4
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.14(b)
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A-10
LLP, 1201 Pennsylvania Avenue, N.W., Washington, DC 20004,
unless another time, date or place is agreed to in writing by
the parties hereto (such date upon which the Closing occurs, the
Closing Date
).
Section
2.4.
Consummation
of the Merger
.
Immediately following the
Closing, the parties hereto shall cause the Merger to be
consummated by filing with the Secretary of State of the State
of Delaware a certificate of merger or other appropriate
documents (in any such case, the
Certificate of
Merger
) in such form as required by, and 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 such Secretary of State
(the time and date the Merger becomes effective being the
Effective Time
and
Effective
Date,
respectively).
Section
2.5.
Organizational
Documents; Directors and Officers
.
(a) The certificate of incorporation of the Surviving
Corporation shall be amended at the Effective Time to be in the
form of the certificate of incorporation of Merger Sub in effect
immediately prior to the Effective Time and, as so amended,
shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided therein and
under the DGCL, except that the name of the Surviving
Corporation may be changed to a name to be specified by Parent.
The By-laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter amended as provided therein and
under the DGCL. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the
Surviving Corporation and shall serve until the earlier of their
resignation, removal or death or their respective successors are
duly elected or appointed and qualified, as the case may be. The
officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation and
shall serve until the earlier of their resignation, removal or
death or until their respective successors have been duly
elected or appointed and qualified, as the case may be.
(b) If requested by Parent prior to the Effective Time, the
Company shall use its reasonable best efforts to cause the
directors of each of the Company Subsidiaries (or certain of the
Company Subsidiaries as indicated by Parent) to tender their
resignations as directors, effective as of the Effective Time
and to deliver to Parent written evidence of such resignations
at or prior to the Effective Time.
ARTICLE 3
EFFECT OF
THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
Section
3.1.
Conversion
of Merger Sub Capital Stock
.
At the
Effective Time, by virtue of the Merger and without any action
on the part of Parent, Merger Sub or the Company, each share of
Merger Sub capital stock will be converted into and become one
fully paid and nonassessable share of common stock, par value
$0.001 per share, of the Surviving Corporation.
Section
3.2.
Conversion
of Company Common Stock
.
At the Effective
Time, by virtue of the Merger and without any action on the part
of Parent, Merger Sub, the Company or any holder of shares of
Company Common Stock:
(a) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than
(i) any shares to be canceled pursuant to
Section 3.2(b) and (ii) any Appraisal Shares) shall be
canceled and shall be converted automatically into the right to
receive $3.00 in cash (the
Merger
Consideration
). As of the Effective Time, all such
shares of Company Common Stock shall no longer be outstanding
and shall automatically be canceled and shall cease to exist,
and each holder of a certificate representing any such shares of
Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration
upon surrender of such certificate in accordance with
Section 3.3, without interest.
(b) Each share of Company Common Stock held in the treasury
of the Company and each share of Company Common Stock owned by
Merger Sub, Parent or any wholly-owned Subsidiary of Parent or
of the Company immediately prior to the Effective Time shall be
canceled without any conversion thereof and no payment or
distribution shall be made with respect thereto.
A-12
(c)
Appraisal
Rights
. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that
are outstanding immediately prior to the Effective Time and that
are held by any Person who is entitled to demand and properly
demands appraisal of such shares (
Appraisal
Shares
) pursuant to, and who complies in all respects
with, Section 262 shall not be converted into the right to
receive Merger Consideration as provided in Section 3.2(a),
but rather the holders of Appraisal Shares shall be entitled to
payment of the fair value of such Appraisal Shares in accordance
with Section 262 (and at the Effective Time, such Appraisal
Shares shall no longer be outstanding and shall automatically be
canceled and shall cease to exist, and such holders shall cease
to have any right with respect thereto, except the right to
receive the fair value of such Appraisal Shares in accordance
with Section 262);
provided
,
however
, that if
any such holder shall fail to perfect or otherwise shall waive,
withdraw or lose the right to appraisal under Section 262,
then the right of such holder to be paid the fair value of such
holders Appraisal Shares shall cease and such Appraisal
Shares shall be deemed to have been converted as of the
Effective Time into, and to have become exchangeable solely for
the right to receive, Merger Consideration as provided in
Section 3.2(a). The Company shall serve prompt notice to
Parent of any demands received by the Company for appraisal of
any shares of Company Common Stock, and Parent shall have the
right to participate in all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the
Company shall not, without the prior written consent of Parent,
make any payment with respect to, or settle or offer to settle,
any such demands, or agree to do any of the foregoing. Any
portion of the Merger Consideration made available by the Paying
Agent pursuant to Section 3.3(a) to pay for Appraisal
Shares shall be returned to Parent upon demand.
Section
3.3.
Exchange
of Certificates.
(a)
Paying Agent
. Prior to the
Effective Time, Parent shall enter into an agreement with such
bank or trust company as may be designated by Parent and
reasonably acceptable to the Company (the
Paying
Agent
), which shall provide for the payment of Merger
Consideration in accordance with the terms of this
Section 3.3. At or promptly following the Effective Time,
Parent shall deposit with the Paying Agent in accordance with
this Article 3, the cash necessary to pay for the shares of
Company Common Stock converted into the right to receive Merger
Consideration (the
Exchange Fund
). The
Exchange Fund shall not be used for any other purpose. Such
Merger Consideration deposited with the Paying Agent shall,
pending its disbursement to holders of shares of Company Common
Stock, be invested by the Paying Agent as directed by Parent.
Any net profit resulting from, or interest or income produced
by, such amounts on deposit with the Paying Agent will be
payable to Parent.
(b)
Exchange Procedures
. As soon
as reasonably practicable after the Effective Time, the Paying
Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the
Certificates
) whose shares were converted
into the right to receive the Merger Consideration pursuant to
Section 3.2, (i) a letter of transmittal (in customary
form which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions as Parent may
reasonably specify and is reasonably acceptable to the Company)
and (ii) instructions for use in surrendering the
Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent,
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 receive promptly in
exchange therefor the amount of cash which the shares of Company
Common Stock theretofore represented by such Certificate entitle
such holder to receive pursuant to the provisions of this
Article 3 and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership
of Company Common Stock 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 issuance 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 Parent that such tax has been paid or is not
applicable. Each Certificate shall be deemed at any time after
the Effective Time to represent only the right to receive upon
surrender in accordance with this Section 3.3 the Merger
Consideration into which the shares of Company Common Stock
shall have been converted pursuant to Section 3.2. No
interest shall be paid or shall accrue on any cash payable to
holders of Certificates pursuant to the provisions of this
Article 3.
(c)
No Further Ownership Rights in Company Common
Stock
. The Merger Consideration paid upon the
surrender for exchange of Certificates in accordance with the
terms of this Article 3 shall be deemed to have been
A-13
paid in full satisfaction of all rights pertaining to the shares
of Company Common Stock theretofore represented by such
Certificates, and there shall be no further registration of
transfers on the stock transfer books of the Company of the
shares of Company Common Stock which 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 3, except as
otherwise provided by Law.
(d)
Termination of Exchange
Fund
. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for one
year after the Effective Time shall be delivered to Parent, upon
demand, and any holders of Certificates who have not theretofore
complied with this Article 3 shall thereafter look only to
Parent (subject to abandoned property, escheat or similar Laws,
as general creditors thereof) for payment of their claim for
Merger Consideration.
(e)
No Liability
. None of Parent,
Merger Sub, the Company or the Paying Agent shall be liable to
any Person in respect of any cash from the Exchange Fund
delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law. If any Certificate
shall not have been surrendered prior to five years after the
Effective Time (or immediately prior to such earlier date on
which any amounts payable pursuant to this Article 3 would
otherwise escheat to or become the property of any Governmental
Authority), any such amounts shall, to the extent permitted by
applicable Law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any
Person previously entitled thereto.
(f)
Paying Agent Charges
. The
Surviving Corporation or Parent shall bear and pay all charges
and expenses of the Paying Agent incurred in connection with the
payment of the Merger Consideration.
(g)
Lost Certificates
. If any
Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such Person of a bond in such reasonable
amount as Parent may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the
Paying Agent shall issue in exchange for such lost, stolen or
destroyed Certificate the applicable Merger Consideration with
respect thereto pursuant to this Agreement.
(h)
Withholding Rights
. Parent
shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as it is required to
deduct and withhold with respect to the making of such payment
under the Code or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent and
paid to the appropriate taxing authorities, such withheld
amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common
Stock in respect of which such deduction and withholding was
made by Parent.
Section
3.4.
Company
Options; Restricted Stock; ESPP
.
(a) As soon as practicable following the date of this
Agreement, the Company Board (or, if appropriate, any committee
thereof administering the Stock Plans) shall adopt such
resolutions or take such other actions as may be required to
provide that each Option granted under the 2005 Equity Incentive
Plan and outstanding immediately prior to the Effective Time
(whether or not then vested or exercisable) shall be canceled
and terminated and converted at the Effective Time into the
right to receive a cash amount equal to the Option Consideration
for each share of Company Common Stock then subject to the
Option, or, if the Option Consideration shall be a negative
number, no such cash payment shall be due and owing. Except as
otherwise provided below, any Option Consideration due and owing
shall be paid as soon after the Closing Date as shall be
practicable. Notwithstanding the foregoing, Parent and the
Surviving Corporation shall be entitled to deduct and withhold
from any Option Consideration otherwise payable such amounts as
may be required to be deducted and withheld with respect to the
making of such payment under the Code, or any provision of
state, local or foreign tax law. As soon as practicable
following the date of this Agreement, the Company Board (or, if
appropriate, any committee thereof administering the Stock
Plans) shall adopt such resolutions or take such other actions
as may be required to provide that each Option granted under the
2000 Equity Incentive Plan or the 2005 Non-Employee
Directors Stock Option Plan and then outstanding shall be
accelerated in full to a date prior to the Effective Time as the
Company Board shall determine (or, if the Company Board shall
not determine such date, to the date that is five days prior to
the Effective
A-14
Time), and such Options shall terminate at the Effective Time if
not exercised at or prior to the Effective Time. Notwithstanding
the foregoing, each holder of an Option granted under the 2000
Equity Incentive Plan or the 2005 Non-Employee Directors
Stock Option Plan that, in each case, contingent upon the
occurrence of the Effective Time, expires at the expiration of
the
five-day
exercise period preceding the Effective Time (the
Exercise Period
) by virtue of being
outstanding and unexercised at the expiration of the Exercise
Period pursuant to the 2000 Equity Incentive Plan or the 2005
Non-Employee Directors Stock Option Plan but that would
otherwise be outstanding and unexercised immediately prior to
the Effective Time, and that has an exercise price that is less
than the Merger Consideration shall receive at the Effective
Time from Parent or the Paying Agent (at the direction of
Parent) an amount in cash equal to the product of (x) the
number of outstanding and unexercised shares of Company Common
Stock subject to each such Option (as accelerated in full as set
forth in this Section 3.4) as of immediately prior to the
expiration of the Exercise Period and (y) the excess of the
Merger Consideration over the exercise price per share of
Company Common Stock applicable to such Option, less any
required withholding taxes. Prior to the Effective Time, the
Company shall make any amendments to the terms of the Stock
Plans and use reasonable best efforts to obtain any consents
from holders of Options that, in each case, are necessary to
give effect to the transactions contemplated by this
Section 3.4 and, notwithstanding anything to the contrary,
payment may be withheld in respect of any Option until any
necessary consents are obtained. Prior to the Effective Time,
the Company shall take all actions necessary to terminate all
its Stock Plans, such termination to be effective at or before
the Effective Time.
(b) As soon as practicable following the date of this
Agreement, the Company Board (or, if appropriate, any committee
thereof administering the Stock Plans) shall adopt such
resolutions or take such other actions as may be required to
provide for the lapse as of the Effective Time of all forfeiture
provisions applicable to any shares of Restricted Stock. Each
holder of Restricted Stock shall be treated as a holder of the
corresponding number of shares of Company Common Stock as of the
Effective Time in accordance with the terms of Section 3.2
in the same manner as other outstanding shares of Company Common
Stock issued and outstanding as of immediately prior to the
Effective Time.
(c) As soon as practicable following the date of this
Agreement, the Company Board (or, if appropriate, any committee
thereof administering the Stock Plans) shall adopt such
resolutions or take such other actions as may be required to
provide that each Restricted Stock Unit outstanding immediately
prior to the Effective Time (whether or not then vested) shall
be canceled and terminated at the Effective Time. Each holder of
a Restricted Stock Unit shall be treated as a holder of the
corresponding number of shares of Company Common Stock as of the
Effective Time in accordance with the terms of Section 3.2
in the same manner as other outstanding shares of Company Common
Stock issued and outstanding as of immediately prior to the
Effective Time.
(d) As soon as practicable following the date of this
Agreement, the Company Board (or, if appropriate, any committee
thereof administering the Stock Plans) shall adopt such
resolutions or take such other actions as may be required with
respect to the ESPP as are necessary to provide that the ESPP
shall terminate, effective immediately before the Effective Time
(the
ESPP Termination Date
). On the ESPP
Termination Date, each purchase right under the ESPP as of the
ESPP Termination Date shall be automatically exercised by
applying the payroll deductions of each participant in the ESPP
for the applicable Offering Period (as defined in the ESPP) to
the purchase of a number of whole shares of Company Common Stock
(subject to the provisions of the ESPP regarding the number of
shares purchasable) at an exercise price per share of Company
Common Stock equal to 85% of the Merger Consideration, which
number of shares will then be canceled, immediately prior to the
Effective Time, and converted into the right to receive the
Merger Consideration in accordance with Section 3.2(a)
hereof. Any excess payroll deductions withheld from a
participant that are not used as a result of ESPP share
limitations shall be distributed to such participant without
interest. If a fractional number of shares results, then such
number shall be rounded down to the next whole number, and the
excess payroll deductions shall be distributed to the applicable
participant without interest.
Section
3.5.
Warrants
.
Prior
to the Effective Time, the Company shall take all actions
necessary to provide that each Warrant that is outstanding
immediately prior to the Effective Time and is not exercised
prior to the Effective Time shall cease to represent a right to
acquire shares of the Company Common Stock and shall be
converted, at the Effective Time, into the right to receive
(upon surrender of the warrant certificate) an amount in cash,
without interest, equal to the product of (a) the amount,
if positive, by which the Merger Consideration
A-15
exceeds the per share exercise price of such Warrant and
(b) the number of shares of Company Common Stock issuable
upon exercise of such Warrant.
Section
3.6.
Taking
of Necessary Action; Further Action
.
Each
of Parent, Merger Sub and the Company shall use reasonable best
efforts to take all such actions as may be necessary or
appropriate in order to effectuate the Merger under the DGCL as
promptly as commercially practicable. If at any time after the
Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to
all assets, property, rights, privileges, powers and franchises
of either of the Constituent Corporations, the officers and
directors of the Surviving Corporation are fully authorized in
the name of each Constituent Corporation or otherwise to take,
and shall take, all such lawful and necessary action.
Section
3.7.
Adjustments
to Prevent Dilution
.
In the event that
the Company changes the number of shares of Company Common Stock
or securities convertible or exchangeable into or exercisable
for shares of Company Common Stock issued and outstanding prior
to the Effective Time as a result of a reclassification, stock
split (including a reverse stock split), stock dividend or
distribution, recapitalization, merger, issuer tender or
exchange offer, or other similar transaction, the Merger
Consideration shall be equitably adjusted.
ARTICLE 4
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except as set forth on the disclosure letter delivered by the
Company to Parent prior to the execution of this Agreement (the
Company Disclosure Letter
), which Company
Disclosure Letter identifies the Section (or, if applicable,
subsection) of this Agreement to which such exception relates
(
provided
,
however
, that any disclosure contained
in any section of the Company Disclosure Letter shall be deemed
to be disclosed with respect to any other Section of this
Agreement only to the extent that it is reasonably and readily
apparent that such disclosure is applicable to such other
Section of this Agreement), the Company hereby represents and
warrants to Parent and Merger Sub as follows:
Section
4.1.
Organization
.
(a) Each of the Company and the Company Subsidiaries is a
corporation, limited liability company or partnership duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its organization. Each of the Company and
the Company Subsidiaries has all requisite power and authority
necessary to enable it to own, operate and lease its properties
and to carry on its business as now conducted. Each of the
Company and the Company Subsidiaries possesses all licenses,
franchises, permits, exemptions, clearances, certificates,
approvals and authorizations, and any applications for, and
supplements or amendments to, the foregoing (collectively,
Permits
) from Governmental Authorities, or
required by Governmental Authorities to be obtained, in each
case necessary for the lawful conduct of their respective
businesses as now conducted, the lack of which, individually or
in the aggregate, has not had and would not reasonably be
expected to have a Company Material Adverse Effect.
(b) The copies of the Company Charter Documents which are
incorporated by reference as exhibits to the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2007 are complete and
correct copies of such documents and contain all amendments
thereto as in effect on the date of this Agreement. The Company
has delivered or made available to Parent complete and correct
copies of the Subsidiary Documents, in each case, as amended to
the date of this Agreement. All such Company Charter Documents
and Subsidiary Documents are in full force and effect and
neither the Company nor any of the Company Subsidiaries is in
violation of any of their respective provisions. The Company has
made available to Parent correct and complete copies of the
minutes (or, in the case of minutes that have not yet been
finalized, a brief summary of the meeting) of all meetings of
stockholders, the Company Board and each committee of the
Company Board and the Company Subsidiaries since January 1,
2006;
provided
,
however
, that the Company shall
not be obligated to furnish to Parent any minutes for meetings
or portions of meetings to the extent that they discuss the
Transactions or alternative transactions considered by the
Company Board.
A-16
Section
4.2.
Capitalization
.
(a) The authorized capital stock of the Company consists of
(i) 75,000,000 shares of Company Common Stock and
(ii) 5,000,000 shares of Company Preferred Stock. As
of the date of this Agreement: (A) 20,656,153 shares
of Company Common Stock (including outstanding shares of
Restricted Stock) were issued and outstanding; (B) no
shares of Company Preferred Stock were issued or outstanding;
(C) no shares of Company Common Stock were held by the
Company in its treasury; (D) there were outstanding Options
to purchase 2,701,000 shares of Company Common Stock out of
a total of 2,882,902 shares of Company Common Stock
reserved for issuance under the Stock Plans (including upon
exercise of the Options); (E) 297,645 shares of
Company Common Stock were reserved for issuance (but not issued)
in connection with the grant of equity-based awards under the
ESPP; (F) the Company had withheld approximately $145,000
in cash, as of the end of the last pay period, pursuant to
payroll deductions from the participants in the ESPP to be
applied toward the purchase of shares of Company Common Stock
under the ESPP; (G) 56,251 shares of Company Common
Stock were reserved for issuance in connection with outstanding
Restricted Stock Units; and (H) there were outstanding
Warrants exercisable for 1,682,009 shares of Company Common
Stock and such number of shares of Company Common Stock were
reserved for issuance upon conversion of the Warrants. Such
issued and outstanding shares of Company Common Stock have been,
and all such shares of Company Common Stock that may be issued
prior to the Effective Time will be when issued, duly authorized
and validly issued, are fully paid and nonassessable, and are
free of preemptive rights.
(b) Section 4.2(b) of the Company Disclosure Letter
sets forth, as of the date of this Agreement, each equity-based
award (including Restricted Stock) and Option outstanding under
the Stock Plans indicating the applicable Stock Plan and type of
award such as an incentive stock option (as defined
in Section 422 of the Code) or a nonqualified stock option,
the extent to which such award or Option is vested and
exercisable or subject to acceleration, the date on which such
award or Option was granted, the Stock Plan under which such
award or Option was granted, the number of shares of capital
stock of the Company issuable thereunder and the expiration date
and exercise or conversion price relating thereto. The treatment
of the awards and Options described in Section 3.4 shall
not violate the terms of the Stock Plans or any agreement
governing the terms of such awards or Options. All of the
Options have been granted solely to employees, consultants (who
are individuals) or directors of the Company in the ordinary
course of business consistent with past practice. All Options
have been granted in accordance with the terms of the Stock
Plans and applicable Law, and, with respect to each outstanding
Option, the exercise price is no less than the fair market value
of such Option on the date of grant and the Option is either
exempt from or not otherwise subject to the requirements of
Section 409A of the Code. Since January 1, 2006, the
Company has not declared or paid any dividend, or declared or
made any distribution on, or authorized the creation or issuance
of, or issued, or authorized or effected any
split-up
or
any other recapitalization of, any of its capital stock, or
directly or indirectly redeemed, purchased or otherwise acquired
any of its outstanding capital stock, other than pursuant to
agreements which permit or require the Company to repurchase
shares of its capital stock upon termination of services to the
Company or any Company Subsidiary. The Company has not
heretofore agreed to take any such action, and there are no
outstanding contractual obligations of the Company of any kind
to redeem, purchase or otherwise acquire any outstanding shares
of capital stock of the Company. Other than the Company Common
Stock, there are no outstanding bonds, debentures, notes or
other indebtedness or securities of the Company having the right
to vote (or, other than the outstanding Options and Warrants,
convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of the
Company may vote.
(c) There are no stockholder agreements, voting trusts or
other agreements or understandings to which the Company or any
Company Subsidiary is a party relating to the voting or
disposition of any shares of the capital stock of the Company or
any of the Company Subsidiaries or granting to any Person or
group of Persons the right to elect, or to designate or nominate
for election, a director to the Company Board or any Company
Subsidiary.
(d) Except as set forth in Section 4.2(a), as of the
date of this Agreement, (i) no shares of capital stock or
other voting securities of the Company are issued, reserved for
issuance or outstanding, and (ii) there are no outstanding
securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which
the Company or any of the Company Subsidiaries is a party or by
which any of them is bound (A) obligating the Company or
any of the Company Subsidiaries to issue, deliver, register or
sell, or cause to be issued, delivered, registered or sold,
additional shares of capital stock or other equity interests in,
or any security convertible or exercisable for or exchangeable
into any capital stock of or other equity interest in or other
voting securities of, the
A-17
Company or of any Company Subsidiary, (B) obligating the
Company or any Company Subsidiary to issue, grant, extend or
enter into any such option, warrant, call, right, security,
commitment, contract, arrangement or undertaking, or
(C) that give any Person the right to receive any economic
benefit or right similar to or derived from the economic
benefits and rights occurring to holders of capital stock of the
Company. As of the date of this Agreement, there are not any
outstanding obligations of the Company or any Company Subsidiary
to repurchase, redeem or otherwise acquire any shares of capital
stock or voting securities of the Company. No Company Subsidiary
owns any Company Common Stock.
Section
4.3.
Authorization;
No Conflict
.
(a) The Company has the requisite corporate power and
authority to enter into and deliver this Agreement and all other
agreements and documents contemplated hereby to which it is a
party and to carry out its obligations hereunder and thereunder
and to consummate the Transactions. The execution and delivery
of this Agreement by the Company, the performance by the Company
of its obligations hereunder and the consummation by the Company
of the Transactions have been duly and validly authorized and
approved by the Company Board. No other corporate proceedings on
the part of the Company or any of the Company Subsidiaries are
necessary to authorize the execution and delivery of this
Agreement, the performance by the Company of its obligations
hereunder and the consummation by the Company of the
Transactions, except for the approval of this Agreement by the
holders of a majority of the issued and outstanding shares of
Company Common Stock (the
Required Company Stockholder
Vote
). No other vote of the Companys
stockholders is necessary in connection with this Agreement, the
Voting Agreement or the consummation of any of the Transactions.
This Agreement has been duly and validly executed and delivered
by the Company and, assuming the due authorization, execution
and delivery hereof by Parent and Merger Sub, constitutes a
legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar Laws of general application affecting or
relating to the enforcement of creditors rights generally and
equitable principles of general applicability, whether
considered in a proceeding at law or in equity (the
Bankruptcy and Equity Exception
).
(b) The Company Board, at a meeting duly called and held
prior to the execution of this Agreement, duly and unanimously
adopted resolutions (i) authorizing the execution, delivery
and performance of this Agreement, (ii) approving, adopting
and declaring advisable this Agreement, the Merger and the other
transactions contemplated by this Agreement,
(iii) authorizing, approving and declaring advisable the
Voting Agreement, (iv) determining that the terms of the
Merger and the other Transactions are fair to and in the best
interests of the Company and its stockholders, and
(v) authorizing the submission of this Agreement to the
Companys stockholders for their approval and recommending
that the Companys stockholders adopt this Agreement.
(c) Neither the execution and delivery of this Agreement by
the Company nor the consummation by the Company of the
Transactions nor compliance by the Company with any of the
provisions herein will (i) result in a violation or breach
of or conflict with the Company Charter Documents or the
Subsidiary Documents, (ii) result in a violation or breach
of or conflict with any provisions of, or result in the loss of
any benefit under or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a
default) under, or result in the termination, cancellation of,
or give rise to a right of purchase under, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon
any of the properties or assets owned or operated by the Company
or any Company Subsidiary under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of
trust, license, contract, lease, agreement or other instrument
or obligation of any kind to which the Company or any of the
Company Subsidiaries is a party or by which the Company or any
of the Company Subsidiaries or any of their respective
properties or assets may be bound, or (iii) subject to
obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred
to in paragraph (d) below, violate any judgment, ruling,
order, writ, injunction or decree of any Governmental Authority
(
Judgment
) or any statute, code, decree, law,
ordinance, rule or regulation or orders of Governmental
Authorities (
Law
) applicable to the Company
or any of the Company Subsidiaries or any of their respective
properties or assets, other than any such event described in
items (ii) or (iii) which, individually or in the
aggregate, has not had and would not reasonably be expected to
have a Company Material Adverse Effect.
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(d) No consent, permit, approval, order or authorization
of, or registration, declaration or filing with, any
Governmental Authority is necessary to be obtained or made by
the Company or any Company Subsidiary in connection with the
Companys execution, delivery and performance of this
Agreement or the consummation by the Company of the
Transactions, except for (i) compliance with the DGCL, with
respect to the filing of the Certificate of Merger,
(ii) compliance with and filings pursuant to the HSR Act,
(iii) the filing with the SEC of a proxy statement relating
to the Company Stockholders Meeting (such proxy statement, as
amended or supplemented from time to time, the
Proxy
Statement
), additional proxy materials under
Rule 14b-12
under the Exchange Act and such reports under Section 13 or
16 of the Exchange Act as may be required in connection with
this Agreement and the Transactions, (iv) compliance with
the rules of Nasdaq, (v) compliance with the blue
sky laws of various states, (vi) completing any
notice required under the FDCA or similar Laws of jurisdictions
other than the United States, and (vii) any other material
consent, approval, order, authorization, registration,
declaration or filing.
Section
4.4.
Subsidiaries
.
(a) The Company Subsidiaries and their respective
jurisdictions of organization are identified in
Section 4.4(a) of the Company Disclosure Letter. The
Company Subsidiaries have no operations, assets, liabilities or
employees.
(b) All of the outstanding shares of capital stock or other
equity securities of, or other ownership interests in, each
Company Subsidiary are duly authorized, validly issued, fully
paid and nonassessable, and such shares, securities or interests
are owned by the Company or by a Company Subsidiary free and
clear of any Liens or limitations on voting rights. There are no
subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character
relating to the issuance, transfer, sales, delivery, voting or
redemption (including any rights of conversion or exchange under
any outstanding security or other instrument) for any of the
capital stock or other equity interests of, or other ownership
interests in, any Company Subsidiary. There are no agreements
requiring the Company or any Company Subsidiary to make
contributions to the capital of, or lend or advance funds to,
any Company Subsidiary.
Section
4.5.
SEC
Reports and Financial Statements
.
(a) Since January 31, 2006, the Company has filed with
the SEC all forms, reports, schedules, registration statements,
definitive proxy statements and other documents (collectively,
including all exhibits thereto, the
Company SEC
Reports
) required to be filed by the Company with the
SEC in a timely manner. As of their respective filing dates, or
if amended or supplemented, as of the date of the last such
amendment or supplement, and giving effect to any amendments or
supplements thereto filed prior to the date of this Agreement,
the Company SEC Reports complied in all material respects with
the applicable requirements of the Securities Act, the Exchange
Act and the Sarbanes-Oxley Act, as the case may be, and the
respective rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Reports, and none of
the Company SEC Reports contained any untrue statement of a
material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading. None of the Company Subsidiaries is
required to file any forms, reports or other documents with the
SEC pursuant to Section 13 or 15 of the Exchange Act.
(b) The consolidated financial statements (including, in
each case, any related notes and schedules thereto)
(collectively, the
Company Financial
Statements
) of the Company contained in the Company
SEC Reports, when filed, complied as to form in all material
respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto,
were prepared in conformity with GAAP (except, in the case of
unaudited statements, as permitted by
Form 10-Q
of the SEC or as noted in the notes to such financial
statements) applied on a consistent basis during the periods
involved (except as otherwise noted therein) and present fairly,
in all material respects, the consolidated financial position
and the consolidated results of operations and cash flows of the
Company and the Company Subsidiaries as of the respective dates
or for the periods presented therein (subject, in the case of
unaudited statements, to normal and recurring year-end
adjustments).
(c) With respect to each annual report on
Form 10-K,
each quarterly report on
Form 10-Q
and each amendment of any such report included in the Company
SEC Reports filed since January 31, 2006, the principal
executive officer and principal financial officer of the Company
have made all certifications required by the Sarbanes-Oxley Act,
and the statements contained in any such certifications are
complete and correct.
A-19
(d) The Company has established and maintains disclosure
controls and procedures (as such term is defined in
Rule 13a-15(e)
or
15d-15(e)
promulgated by the SEC under the Exchange Act). Such disclosure
controls and procedures are designed to ensure that material
information relating to the Company and the Company Subsidiaries
required to be disclosed in the Companys reports filed or
submitted under the Exchange Act is made known to the
Companys principal executive officer and its principal
financial officer by others within those entities, particularly
during the periods in which the periodic reports required under
the Exchange Act are being prepared; and, to the knowledge of
the Company, such disclosure controls and procedures are
effective in timely alerting the Companys principal
executive officer and its principal financial officer to
material information required to be included in the
Companys periodic reports required under the Exchange Act
and to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.
(e) The Company is in compliance in all material respects
with all current listing and corporate governance requirements
of Nasdaq, and is in compliance in all material respects with
all effective provisions of the Sarbanes-Oxley Act and all
regulations of the SEC.
(f) The Companys principal executive officer and its
principal financial officer have disclosed, based on their most
recent evaluation of internal control over financial reporting,
to the Companys auditors and the audit committee of the
Company Board and to Parent, (i) all significant
deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are
reasonably likely to adversely affect the Companys ability
to record, process, summarize and report financial information
and (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Companys internal control over financial reporting.
(g) Since January 31, 2006, the Company has not
identified any material weaknesses in the design or operation of
its internal control over financial reporting. To the knowledge
of the Company, there is no reason to believe that its principal
executive officer and principal financial officer will not be
able to give the certifications and attestations required
pursuant to the rules and regulations adopted pursuant to
Section 404 of the Sarbanes-Oxley Act, without
qualification, when next due. The Company maintains a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance
with managements general or specific authorizations;
(ii) access to assets is permitted only in accordance with
managements general or specific authorization; and
(iii) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(h) Neither the Company nor any Company Subsidiary has any
liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), except liabilities or
obligations that (i) are accrued or reserved against in the
most recent Company Financial Statements included in the Company
SEC Reports filed prior to the date of this Agreement or are
reflected in the notes thereto, (ii) were incurred in the
ordinary course of business since the date of such Company
Financial Statements and, individually and in the aggregate,
have not had and would not reasonably be expected to have a
Company Material Adverse Effect, (iii) are incurred in
connection with the Transactions, (iv) have been discharged
or paid in full prior to the date of this Agreement in the
ordinary course of business, or (v) individually or in the
aggregate, have not had and would not reasonably be expected to
have a Company Material Adverse Effect.
(i) Prior to the date of this Agreement, the Company has
made available to Parent complete and correct copies of all
comment letters from the SEC since January 31, 2006 through
the date of this Agreement with respect to any of the Company
SEC Reports and all correspondence since January 31, 2006
through the date of this Agreement from or with the SEC or the
DOJ relating to accounting, sales and other business practices
of the Company or any Company Subsidiary. As of the date of this
Agreement, there are no outstanding or unresolved comments in
comment letters received from the SEC staff with respect to any
of the Company SEC Reports.
(j) To the knowledge of the Company, as of the date of this
Agreement, there are no SEC inquiries or investigations or
internal investigations pending or threatened, in each case
regarding any accounting practices of the Company or any
malfeasance by any director or executive officer of the Company.
Except as set forth in Company compliance reports made available
to Parent prior to the date of this Agreement, since
January 31, 2006 through the date of this Agreement, there
have been no internal investigations regarding accounting or
revenue
A-20
recognition discussed with, reviewed by or initiated at the
direction of the principal executive officer, principal
financial officer, general counsel or similar legal officer, the
Company Board or any committee thereof.
Section
4.6.
Absence
of Material Adverse Changes, etc
.
Except
as disclosed in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, the
Companys Quarterly Report on
Form 10-Q
filed with the SEC on May 13, 2008 and the Current Reports
on
Form 8-K
filed with the SEC on March 12, 2008 and May 13, 2008
(specifically excluding, however, any forward-looking statements
or disclosures set forth under the caption Risk
Factors contained in such reports), since January 1,
2008 through the date of this Agreement, the Company and the
Company Subsidiaries have conducted their business in the
ordinary course of business consistent with past practice and
there has not been or occurred:
(a) any event, condition, change, occurrence or development
of a state of circumstances which, individually or in the
aggregate, has had or would reasonably be expected to have a
Company Material Adverse Effect; or
(b) except for any actions required to be taken in
furtherance of the Transactions, any event, condition, action or
occurrence that, if taken during the period from the date of
this Agreement through the Effective Time, would constitute a
breach of Section 6.1(b).
Section
4.7.
Litigation
.
(a) There are no suits, claims, actions, proceedings,
arbitrations, mediations, or, to the knowledge of the Company,
governmental investigations, informal inquiries or requests for
documents, whether by subpoena or informal letter
(
Proceedings
), pending or, to the knowledge
of the Company, threatened against the Company or any of the
Company Subsidiaries, against any of their respective directors,
officers, employees or agents in their capacities as such or
which affect the assets or operations of the Company or the
Company Subsidiaries. Neither the Company nor the Company
Subsidiaries nor any of their respective properties is or are
subject to any material Judgment.
(b) There are no pending, and in the past three years there
have been no, written claims of any director, officer or
employee of the Company or any of the Company Subsidiaries
seeking indemnification from the Company or any of the Company
Subsidiaries under applicable Law, the Company Charter Documents
or the Subsidiary Documents, any insurance policy maintained by
the Company or any of the Company Subsidiaries or any Contract.
Section
4.8.
Information
Supplied
.
None of the information
supplied or to be supplied by the Company specifically for
inclusion or incorporation by reference in the Proxy Statement
will, at the date it is first mailed to the Companys
stockholders or at the time of the Company Stockholders Meeting,
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 and will
not, at the time of the Company Stockholders Meeting, omit to
state any material fact necessary to correct any statement in
any earlier communication from the Company with respect to the
solicitation of proxies for the Company Stockholders Meeting
which shall have become false or misleading in any material
respect. 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. 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 in writing specifically for inclusion or
incorporation by reference in the Proxy Statement.
Section
4.9.
Brokers
or Finders Fees
.
Except for the
Company Financial Advisor, no agent, broker, investment banker,
Person or firm acting on behalf of the Company or any Company
Subsidiary or under the Companys or any Company
Subsidiarys authority is or will be entitled to any
commission or brokers or finders fee or similar fee
or commission or reimbursement of expenses in connection with
such brokers or finders services to the Company or
any Company Subsidiary in connection with any of the
Transactions. The Company has heretofore delivered to Parent a
complete and correct copy of the Companys engagement
letter with the Company Financial Advisor, which letter
describes all fees payable to the Company Financial Advisor in
connection with the Transactions, all agreements under which any
such fees or any expenses are payable and all indemnification
and other agreements related to the engagement of the Company
Financial Advisor.
A-21
Section
4.10.
Employee
Plans
.
(a) Section 4.10 of the Company Disclosure Letter sets
forth all Company Employee Benefit Plans established,
maintained, adopted, participated in, sponsored, contributed or
required to be contributed to, or provided by, the Company or
any entity with which the Company is considered a single
employer under Section 414(b), (c) or (m) of the
Code (
Company ERISA Affiliates
) and under
which the Company or any Company ERISA Affiliate would
reasonably be expected to have any liability.
(b) With respect to each Company Employee Benefit Plan, the
Company has made available to Parent a true, correct and
complete copy of: (i) each writing constituting a part of
any written Company Employee Benefit Plan and all amendments
thereto, and all trusts or service agreements relating to the
administration and recordkeeping of the Company Employee Benefit
Plan, and written summaries of the material terms of all
unwritten Company Employee Benefit Plans; (ii) the three
most recent Annual Reports (Form 5500 Series) including all
applicable schedules, if any, for each Company Employee Benefit
Plan that is subject to such reporting requirements;
(iii) the current summary plan description and any material
modifications thereto, if any, or any written summary provided
to participants with respect to any plan for which no summary
plan description exists; (iv) the most recent determination
letter (or if applicable, advisory or opinion letter) from the
Internal Revenue Service, if any, and any pending applications
for a determination or opinion letter; and (v) all notices
or other written correspondence given to such Company Employee
Benefit Plan, the Company, or any ERISA Affiliate by the
Internal Revenue Service, Department of Labor, Pension Benefit
Guarantee Corporation, or other governmental agency relating to
such Company Employee Benefit Plan or provided to any such
entity by the Company Employee Benefit Plan, the Company or an
ERISA Affiliate.
(c) Each Company Employee Benefit Plan that is intended to
be qualified within the meaning of
Section 401(a) of the Code has been the subject of a
favorable and up-to-date (through any applicable remedial
amendment period) determination, advisory or opinion letter from
the Internal Revenue Service on which the Company is entitled to
rely, and no event has occurred and no condition exists that
would reasonably be expected to adversely affect the qualified
status of any such Company Employee Benefit Plan. All assets of
a Company Employee Benefit Plan consist of cash or marketable
securities.
(d) The Company has (i) filed or caused to be filed
all returns and reports on the Company Employee Benefit Plans
that it
and/or
any
such plan are required to file and (ii) paid or made
adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to
those returns or reports or pursuant to any assessment or
adjustment that has been made relating to those returns or
reports.
(e) Each Company Employee Benefit Plan has been operated
and administered in all material respects in accordance with its
provisions and in compliance with all provisions of ERISA, the
Code and all Laws and regulations applicable to the Company
Employee Benefit Plans. All contributions required to be made to
any Company Employee Benefit Plan (or to any person pursuant to
the terms thereof) have been made or the amount of such payment
or contribution obligation has been reflected in the Company SEC
Reports which are publicly available prior to the date of this
Agreement.
(f) Neither the Company nor any Company Subsidiary has
engaged in any prohibited transaction, within the meaning of
Section 4975 of the Code or Section 406 of ERISA, as a
fiduciary or party in interest with respect to any Company
Employee Benefit Plan. To the knowledge of the Company, no
prohibited transaction has occurred with respect to any Company
Employee Benefit Plan. No fiduciary, within the meaning of
Section 3(21) of ERISA, has breached his or her fiduciary
duty with respect to a Company Employee Benefit Plan or
otherwise has any liability in connection with any acts taken
(or failed to be taken) with respect to the administration or
investment of the assets of any Company Employee Benefit Plan.
(g) No Company Employee Benefit Plan is subject to
Title IV of ERISA or Section 412 of the Code, or is a
multiemployer plan within the meaning of
Section 3(37) of ERISA, and neither the Company, a Company
Subsidiary nor any ERISA Affiliate of the Company or a Company
Subsidiary has ever sponsored, contributed to, been required to
contribute to, or had any obligations or incurred any liability
under any plan that is subject to Title IV of ERISA or
Section 412 of the Code, or is a multiemployer
plan within the meaning of Section 3(37) of ERISA.
A-22
(h) The Company and the Company Subsidiaries have not
offered to provide life, health or medical benefits or insurance
coverage to any individual, or to the family members of any
individual, for any period extending beyond the termination of
the individuals employment, except to the extent required
by the COBRA provisions in ERISA and the Code or similar
provisions of state law.
(i) Neither the execution and delivery of this Agreement
nor the consummation of the Transactions, alone or in connection
with any other event (such as a termination of employment) will
(i) result in any payment becoming due under any Company
Employee Benefit Plan, (ii) increase any benefits otherwise
payable under any Company Employee Benefit Plan, or
(iii) result in the acceleration of the time of payment or
vesting of any such benefits. No benefit that is or may become
payable by any Company Employee Benefit Plan as a result of, or
arising under, this Agreement shall constitute an excess
parachute payment (as defined in Section 280G(b)(1)
of the Code) that is subject to the imposition of an excise tax
under Section 4999 of the Code or that would not be
deductible by reason of Section 280G of the Code.
(j) The Company and the Company Subsidiaries have no formal
plan, commitment, or proposal, whether legally binding or not,
and have not made a commitment to any individual to create any
additional benefit plans, programs, policies or arrangements or
modify or change any existing Company Employee Benefit Plan that
would affect any current or former employee, director,
consultant, or independent contractor, of the Company, or any
beneficiary or alternate payee of such an individual. No events
have occurred or are expected to occur with respect to any
Company Employee Benefit Plan that would cause a material change
in the cost of providing the benefits under such plan or would
cause a material change in the cost of providing for other
liabilities of such plan.
(k) The Company has the right at any time to amend or
terminate each Company Employee Benefit Plan without incurring
any liability other than with respect to benefits that have
already accrued under a retirement plan.
(l) Each Company Employee Benefit Plan that is a
nonqualified deferred compensation plan within the
meaning of Section 409A(d)(1) of the Code (a
Nonqualified Deferred Compensation Plan
)
subject to Section 409A of the Code has been operated in
compliance with Section 409A of the Code since
January 1, 2005, based upon a good faith reasonable
interpretation of (i) Section 409A of the Code and
(ii)(A) the regulations issued thereunder or (B) Internal
Revenue Service Notice
2005-1
(clauses (i) and (ii), together, the
409A
Authorities
). No Company Employee Benefit Plan that
would be a Nonqualified Deferred Compensation Plan subject to
Section 409A of the Code but for the effective date
provisions that are applicable to Section 409A of the Code,
as set forth in Section 885(d) of the AJCA, has been
materially modified within the meaning of
Section 885(d)(2)(B) of the AJCA after October 3,
2004, based upon a good faith reasonable interpretation of the
AJCA and the 409A Authorities.
Section
4.11.
Opinion
of Financial Advisor
.
The Company
Financial Advisor has delivered to the Company Board its written
opinion (or oral opinion to be confirmed in writing), dated as
of the date hereof, that, as of such date, subject to the
assumptions, qualifications and limitations set forth therein,
the Merger Consideration to be received by holders of the
Company Common Stock (other than the Company, Merger Sub, Parent
or any wholly-owned Subsidiary of Parent or the Company)
pursuant to this Agreement is fair, from a financial point of
view, to the holders of the Company Common Stock. A written copy
of such opinion will be provided to Parent as soon as
practicable after the date hereof. The Company has been
authorized by the Company Financial Advisor to permit the
inclusion of such opinion in its entirety and/or references
thereto in the Proxy Statement, provided that the opinion is
reproduced therein in full and any such references are in a form
reasonably acceptable to the Company Financial Advisor and its
counsel.
Section
4.12.
Taxes
.
(a) Except as, individually or in the aggregate, has not
had and would not reasonably be expected to have a Company
Material Adverse Effect, (i) each of the Company and each
Company Subsidiary has timely filed all federal, state, local,
and other Tax Returns required to be filed by it in the manner
prescribed by applicable Law and all such Tax Returns are true,
complete and correct; and (ii) all Taxes shown as due on
such Tax Returns have been paid in full and the Company and each
Company Subsidiary has made adequate provision (or adequate
provision has been made on its behalf) for all accrued Taxes not
yet due. The accruals and reserves for Taxes reflected in the
Companys
Form 10-K
for the fiscal year ended December 31, 2007 are adequate to
cover all Taxes accruing
A-23
through such date. There are no Liens on any of the assets,
rights or properties of the Company or any Company Subsidiary
with respect to Taxes, other than Liens for Taxes not yet due
and payable or for Taxes that the Company or a Company
Subsidiary is contesting in good faith through appropriate
proceedings.
(b) Except as, individually or in the aggregate, has not
had and would not reasonably be expected to have a Company
Material Adverse Effect, (i) no deficiencies have been
asserted in writing against the Company or any Company
Subsidiary as a result of examinations by any state, local,
federal or foreign taxing authority and no issue has been raised
by any examination conducted by any state, local, federal or
foreign taxing authority that, by application of the same
principles, might result in a proposed deficiency for any other
period not so examined which deficiency (or deficiencies), in
either case, is not (or are not) adequately reserved for in the
most recent Company Financial Statements; and (ii) any
deficiency resulting from any audit or examination relating to
Taxes of the Company or any Company Subsidiary by any taxing
authority has been paid or is being contested in good faith and
in accordance with Law and is adequately reserved for on the
balance sheets contained in the Company Financial Statements in
accordance with GAAP.
(c) Neither the Company nor any Company Subsidiary has been
a party to a listed transaction within the meaning
of Treas. Reg. Sec. 1.6011-4(b).
(d) Neither the Company nor any Company Subsidiary is a
party to 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).
(e) The federal income Tax Returns of the Company and the
Company Subsidiaries have been examined by and settled with the
Internal Revenue Service or have expired or otherwise have been
closed by virtue of the expiration of the relevant statute of
limitations for all taxable periods ending on or before
December 31, 2003.
(f) Neither the Company nor any Company Subsidiary has been
a member of an affiliated group filing a consolidated federal
income Tax Return (other than a group the common parent of which
was the Company). Except for any liability that, individually or
in the aggregate, has not had and would not reasonably be
expected to have a Company Material Adverse Effect, neither the
Company nor any Company Subsidiary has been notified in writing
that it will be required to incur any liability for Taxes of any
Person (other than the Company or a Company Subsidiary) under
Treasury
Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law) with
respect to any Tax claim that has been made by a taxing
authority with respect to such other Person.
(g) The Company and the Company Subsidiaries have duly and
timely withheld, collected, paid and reported to the proper
Governmental Authorities all Taxes required to have been
withheld, collected, paid or reported.
Section
4.13.
Environmental
Matters
.
(a) The Company and the Company Subsidiaries are and have
for the past five years been in compliance in all material
respects with all applicable Environmental Laws, which
compliance includes obtaining, maintaining and complying with
all permits, notices, licenses, consents, certificates,
approvals and authorizations (
Environmental
Permits
), if any, required under Environmental Laws in
connection with the operation of the Companys and the
Company Subsidiaries businesses or owned, leased or
operated real property, and no Environmental Permit is or, to
the knowledge of the Company, will be subject to review,
revision, major modification or prior consent by any
Governmental Authority as a result of the consummation of the
Transactions.
(b) There are no pending or, to the knowledge of the
Company, threatened demands, claims, investigations,
proceedings, information requests, complaints, administrative or
judicial orders, or notices against the Company or any Company
Subsidiary or any property currently or formerly owned, operated
or leased by the Company or any Company Subsidiary alleging
non-compliance in any material respect with or material
liability under any Environmental Law.
(c) There are no facts, circumstances or conditions
associated with the Company or any Company Subsidiary or their
respective operations or any real property currently or formerly
owned, leased or operated by the Company or any Company
Subsidiary or any other property, including any property at
which the Company or any Company Subsidiary or any Person
working at the request or direction of the Company or any
Company Subsidiary has arranged for the disposal or treatment of
Hazardous Substances, that would reasonably be expected to give
rise to
A-24
any material violation of any Environmental Laws or result in
the Company or any Company Subsidiary incurring any material
liability under any Environmental Law.
(d) None of the Company or any Company Subsidiary has, in
the course of its business, sent or disposed of, otherwise had
taken or transported, arranged for the taking or disposal of (on
behalf of itself, a customer or any other party) or in any other
manner participated or been involved in the taking of or
disposal or release of a Hazardous Substance to or at a site
that is contaminated by any Hazardous Substance or that,
pursuant to any Environmental Law, (A) has been placed on
the National Priorities List, the
CERCLIS list, or any similar state or federal list,
or (B) is subject to or the source of a claim, an
administrative order or other request to take removal, remedial,
corrective or any other response action under any Environmental
Law or to pay for the costs of any such action at the site.
(e) To the knowledge of the Company, any storage tanks
(whether above or under ground) previously located at any real
property or facility currently or formerly owned, operated or
leased by the Company or any Company Subsidiary were at all
times maintained, operated, sealed, closed or disposed of in
accordance in all material respects with all applicable
Environmental Laws.
(f) There are no circumstances or conditions relating to
the properties, assets or business of the Company or any of the
Company Subsidiaries that would reasonably be expected to
prevent such properties, assets or business, when used and
operated in the manner currently used and operated, from
continuing to operate in compliance in all material respects
with all applicable Environmental Laws.
(g) Neither the Company nor any Company Subsidiary has
assumed or retained by contract (including leases) or other
binding agreement or by operation of Law, any liabilities of a
third party arising under or pursuant to any Environmental Law
or has agreed to indemnify, defend or hold harmless any third
party for any liabilities arising under or pursuant to any
Environmental Law.
(h) The Company and each Company Subsidiary have made
available to Parent copies of all material environmental or
health and safety assessments, audits, investigations, or
similar reports pertaining to the operation of the
Companys and the Company Subsidiaries businesses and
the operation or use of any real property currently or formerly
owned, leased, or operated by the Company or any Company
Subsidiary, to the extent in the possession, custody or control
of the Company or any Company Subsidiary.
Section
4.14.
Compliance
.
(a) Neither the Company nor any Company Subsidiary is in
violation in any material respect of any Law applicable to the
Company or any Company Subsidiary or by which any of their
respective properties or other assets or any of their businesses
or operations are bound or any rule, regulation, guideline,
guidance or requirement issued under any of the foregoing or has
received any written notice or other written communication (or
to the knowledge of the Company any oral notice or other
communication) from any Governmental Authority of any violation
or any investigation with respect to any such Law.
(b) All activities conducted by the Company or any of the
Company Subsidiaries and, to the knowledge of the Company, all
activities conducted by a third party on behalf of the Company
or any of the Company Subsidiaries, in each case, that are
subject to the jurisdiction of the FDA or any comparable
Governmental Authority, or subject to the FDCA, the PHSA or
similar Laws of any foreign jurisdiction (collectively,
Drug Laws
), have been conducted in compliance
in all material respects with all applicable requirements under
all such Drug Laws, including those relating to good laboratory
practices, good clinical practices, adverse event reporting,
good manufacturing practices, recordkeeping, and filing of
reports. Except for matters governed by Environmental Laws,
which are addressed in Section 4.13, neither the Company
nor any of the Company Subsidiaries has received any written
notice or other written communication (or to the knowledge of
the Company any oral notice or other communication) from the FDA
or any other Governmental Authority alleging any violation of
any Drug Law, including any failure to maintain systems and
programs adequate to ensure compliance with any applicable Law
related to product quality, including Good Manufacturing
Practice, Good Laboratory Practice, and
Good Clinical Practice as those terms are defined by
FDA and in all applicable Drug Laws, by the Company or any
Company Subsidiary relating to any activity that is subject to
Drugs Laws. Neither the Company nor any of the Company
Subsidiaries has received any (i) notices of inspectional
observations (including those recorded on form FDA 483),
establishment
A-25
inspection reports, warning letters, untitled letters,
(ii) notice of any intention to conduct an investigation or
review, or (iii) other documents issued by the FDA or any
other Governmental Authority that indicate lack of compliance
with any Drug Law by the Company, any Company Subsidiary, or by
Persons who are otherwise performing services for the benefit of
the Company or any Company Subsidiary.
(c) The Company and the Company Subsidiaries have all
Permits from the FDA or any comparable Governmental Authority
that are required to conduct the Companys and the Company
Subsidiaries businesses as now being conducted, and such
Permits are in full force and effect in all material respects.
The Company and the Company Subsidiaries have filed all reports,
notifications and filings with, and have paid all regulatory
fees to, the applicable Governmental Authority necessary to
maintain all of such Permits in full force and effect. The
Company and the Company Subsidiaries are in compliance in all
material respects with the terms of all Permits. Neither the
Company nor any of the Company Subsidiaries has received written
notice to the effect that a Governmental Authority was
considering the amendment, termination, revocation or
cancellation of any Permit. The consummation of the Merger or
any of the other Transactions, in and of itself, will not cause
the revocation or cancellation of any Permit.
(d) All preclinical tests performed by the Company or any
of the Company Subsidiaries and, to the knowledge of the
Company, all preclinical tests performed by a third party on
behalf of the Company or any of the Company Subsidiaries, in
each case, in connection with or as the basis for any submission
to the FDA or other comparable Government Authority, filed under
an IND, CTA, or other foreign equivalent or that the Company
anticipates will be submitted to the FDA or other comparable
Governmental Authority either (i) have been conducted in
accordance, in all material respects, with applicable Good
Laboratory Practice (
GLP
) requirements,
including those contained in 21 C.F.R. Part 58 or
(ii) involved experimental research techniques that were
not required to be performed by a registered GLP testing
laboratory (with appropriate notice being given to FDA or the
applicable Governmental Authority).
(e) All human clinical trials to the extent conducted by
the Company or any of the Company Subsidiaries and, to the
knowledge of the Company (for purposes solely of this
Section 4.14(e), knowledge of the Company means
the actual knowledge of the officers and employees listed on
Schedule III), all human clinical trials conducted by a
third party on behalf of the Company or any of the Company
Subsidiaries, have been and are being conducted in material
compliance with all applicable requirements of Good
Clinical Practice, Informed Consent and, to
the knowledge of the Company, Institutional Review
Boards, as those terms are defined by FDA and in all
applicable Drug Laws relating to clinical trials or the
protection of human subjects, including those contained in the
International Conference on Harmonization 6: Good Clinical
Practices Consolidated Guideline, and in 21 C.F.R. Parts
50, 54, 56, and 312, and the provisions governing the privacy of
patient medical records under the Health Insurance Portability
and Accountability Act of 1996 and the implementing regulations
of the United States Department of Health and Human Services,
and all comparable foreign Drug Laws. Neither the Company nor
any Company Subsidiary, nor to the knowledge of the Company,
anyone acting on behalf of the Company or any Company
Subsidiary, has received any written notice (or to the knowledge
of the Company any oral notice) that the FDA or any other
Governmental Authority or institutional review board has
initiated, or threatened to initiate, any clinical hold or other
action to suspend any clinical trial or suspend or terminate any
IND (or foreign equivalent thereto) sponsored by the Company or
any Company Subsidiary, or otherwise restrict the preclinical
research on or clinical study of any Company product candidate.
Notwithstanding the foregoing, any representation is made only
to the knowledge of the Company with respect to activities by
third parties to which the Company has transferred its
regulatory obligations under the provisions of 21 C.F.R.
Section 312.52 or any comparable foreign Drug Law.
(f) All clinical trials conducted by or on behalf of the
Company or any Company Subsidiary and the results of all such
clinical trials have been registered and disclosed in accordance
with all applicable Drug Laws.
(g) All manufacturing operations required to be conducted
in accordance with applicable Good Manufacturing Practices as
that term is defined by the FDA and in all applicable Drug Laws
conducted by or, to the knowledge of the Company, for the
benefit of, the Company or any Company Subsidiary with respect
to Company product candidates have been and are being conducted
in accordance, in all material respects, with such applicable
Good Manufacturing Practices.
A-26
(h) No product or product candidate manufactured, tested,
distributed, held or marketed by the Company or any of the
Company Subsidiaries has been recalled, withdrawn, suspended or
discontinued (whether voluntarily or otherwise). No proceedings
(whether completed or pending) seeking the recall, withdrawal,
suspension or seizure of any such product or product candidate
or pre-market approvals or marketing authorizations are pending
or, to the knowledge of the Company, threatened, against the
Company or any of its Affiliates, nor have any such proceedings
been pending at any time. Except with respect to Troxatyl, for
which the Company has provided the final clinical study report
for SPD758-216 and clinical study report synopses for SPD758-109
and SPD758-110, the Company has, prior to the execution of this
Agreement, provided or made available to Parent all information
about adverse drug experiences obtained or otherwise received by
the Company or any of the Company Subsidiaries from any source,
in the United States or outside the United States, including
information derived from clinical investigations prior to any
market authorization approvals, commercial marketing experience,
postmarketing clinical investigations, postmarketing
epidemiological/surveillance studies or registries, reports in
the scientific literature, and unpublished scientific papers
relating to any product or product candidate manufactured,
tested, distributed, held or marketed by the Company, any of the
Company Subsidiaries or any of their licensors or licensees in
the possession of the Company or any of the Company
Subsidiaries. In addition, the Company (and each Company
Subsidiary, as applicable) has filed all annual and periodic
reports, amendments and IND Safety Reports required for any of
its products or product candidates required to be made to the
FDA or any other Governmental Authority.
(i) There are no Proceedings pending or, to the knowledge
of the Company, threatened against the Company or any Company
Subsidiary with respect to (i) a violation by the Company
or any Company Subsidiary of any Drug Law, or (ii) any
alleged injuries to a participant in any clinical trial
conducted by or on behalf of the Company or any Company
Subsidiary.
(j) Section 4.14(j) of the Company Disclosure Letter
sets forth a complete and accurate listing (x) by study
title and report number, where applicable or (y) including
a description, where study title and report number are not
applicable, as of the date hereof of all preclinical studies and
clinical trials previously or currently undertaken or sponsored
with respect to SGX126, SGX523 and SGX393 product candidates of
the Company or any Company Subsidiary in connection with or as
the basis for any regulatory submission by or on behalf of the
Company or the Company Subsidiaries to the FDA or any other
Governmental Authority. Complete and accurate copies of all such
data and reports made available to the Company with respect to
the studies and trials listed in Section 4.14(j) of the
Company Disclosure Letter have been provided or made available
for review to Parent, and the Company has otherwise provided or
made available for review all material preclinical and material
clinical studies and trials conducted by the Company or any of
the Company Subsidiaries and, to the knowledge of the Company,
all material preclinical and material clinical studies and
trials conducted by a third party on behalf of the Company or
any of the Company Subsidiaries, and all other material
information known to it regarding the efficacy and safety of
such product candidates.
(k) Neither the Company nor any Company Subsidiary is
marketing, distributing, selling or otherwise commercializing
any product, or has done so.
(l) Except with respect to Troxatyl, for which the Company
has provided the final clinical study report for SPD758-216 and
clinical study report synopses for SPD758-109 and SPD758-110,
the Company and each Company Subsidiary have delivered or made
available to Parent all forms, licenses, reports, applications,
material written correspondence, and material meeting minutes
received from or sent to the FDA and any other similar
Governmental Authority, and all written reports of phone
conversations, visits or other contact with the FDA and any
other similar Governmental Authority, relating to any product
candidate of the Company or any Company Subsidiary or to
compliance with any Drug Law, including any and all notices of
inspectional observations, establishment inspection reports and
any other documents received from the FDA or any other similar
Governmental Authority which bear in any way on the
Companys compliance with regulatory requirements of the
FDA or any other similar Governmental Authority.
(m) None of the Company, any Company Subsidiary, or any
officer, employee or, to the knowledge of the Company, agent of
the Company or any of the Company Subsidiaries, has made an
untrue statement of a material fact or fraudulent statement to
the FDA or any other Governmental Authority, failed to disclose
a material fact required to be disclosed to the FDA or any other
Governmental Authority, or committed any act, made any
A-27
statement, or failed to make any statement, that would
reasonably be expected to provide a basis for the FDA to invoke
its policy respecting Fraud, Untrue Statements of Material
Fact, Bribery, and Illegal Gratuities, set forth in 56
Fed. Reg. 46191 (September 10, 1991). Neither the Company
(or any Company Subsidiary) nor, to the knowledge of the
Company, any officer, employee or agent of the Company or any
Company Subsidiary has been convicted of any crime or engaged in
any conduct that would reasonably be expected to result in or
that has resulted in (i) debarment under 21 U.S.C.
Section 335a or any similar state or federal Law or
(ii) exclusion from participating in the federal health
care programs under Section 1128 of the Social Security Act
or any similar state or federal Law.
Section
4.15.
Intellectual
Property
.
(a) Section 4.15(a) of the Company Disclosure Letter
sets forth a complete and accurate list of all registered
Company Intellectual Property (other than Trade Secrets,
Know-How, Software and goodwill attendant to the Intellectual
Property and other intellectual property rights not reducible to
schedule form), including (i) a complete and accurate list
of all Patents, (ii) a complete and accurate list of all
owned registered Copyrights, and (iii) a complete and
accurate list of all registered Trademarks.
(b) To the knowledge of the Company, the Company
Intellectual Property is enforceable and valid. None of the
Owned Company Intellectual Property, and to the knowledge of the
Company none of the Non-Owned Company Intellectual Property, has
been or is the subject of any pending Proceeding (including,
with respect to Patents, inventorship challenges, interferences,
reissues, reexaminations and oppositions, and with respect to
Trademarks, invalidation, opposition, cancellation, abandonment
or similar Proceeding) or any order of any court or other
Governmental Authority (i) restricting the use of such
Company Intellectual Property, (ii) restricting assignment
or license thereof by the Company or any Company Subsidiary, as
applicable, or (iii) that causes or would reasonably be
expected to cause any Company Intellectual Property to be
invalid or unenforceable, or challenging the Companys
rights in any Company Intellectual Property. To the knowledge of
the Company, none of the Company Intellectual Property has been
or is the subject of any threatened Proceeding or claim of
infringement threatened or made in writing. Section 4.15(b)
of the Company Disclosure Letter sets forth any and all
settlements or agreements reached with respect to any such
Proceedings related to the Owned Company Intellectual Property.
(c) The Company is the sole and exclusive owner of, and has
the valid right to use, all Owned Company Intellectual Property
and has the valid right to use all Non-Owned Company
Intellectual Property. Section 4.15(c) of the Company
Disclosure Letter sets forth a complete and accurate list of all
royalty, license fee and other payment obligations payable by or
to the Company or any Company Subsidiary with respect to the
Company Intellectual Property. The Company or a Company
Subsidiary, as applicable, has the unrestricted right to assign,
transfer or grant to Parent all of its rights in and to the
Owned Company Intellectual Property free of any rights or claims
of any Person or any other Liens other than rights granted under
routine material transfer and service agreements, and without
payment by any Person of any royalties, license fees or other
amounts to any other Person. The consummation of the
Transactions will not (i) result in the loss of, or
otherwise adversely affect, any rights of the Company or any
Company Subsidiary in any Company Intellectual Property,
(ii) grant or require Parent, the Company or any Company
Subsidiary to grant to any Person any rights with respect to any
Intellectual Property, (iii) subject the Parent, the
Company or any Company Subsidiary to any increase in royalties
or other payments in respect of any Company Intellectual
Property, or (iv) diminish any royalties or other payments
the Parent, the Company or any Company Subsidiary would
otherwise be entitled to in respect of any Owned Company
Intellectual Property.
(d) Neither the Company nor any Company Subsidiary has
assigned, transferred, conveyed, or granted any licenses to any
Company Intellectual Property to third parties, or otherwise
caused or permitted any Lien to attach to any Company
Intellectual Property or any Patents, Know-How, Trademarks or
other Intellectual Property or related technology or products
that would have been Company Intellectual Property, but for such
assignment, transfer, license, conveyance or Lien other than
rights granted under routine material transfer and service
agreements. Neither the Company nor any Company Subsidiary, nor
to the knowledge of the Company, any other Person, is party to
any agreements with third parties that materially limit or
restrict use of the Owned Company Intellectual Property by the
Company or any Company Subsidiary or require any payments for
such use. No other Person has any proprietary, commercial, joint
ownership, royalty or other interest in the Owned Company
Intellectual Property or the goodwill associated therewith.
Neither the Company nor any Company Subsidiary has entered into
any Contract
A-28
(i) granting any Person the right to bring infringement
actions with respect to, or otherwise to enforce rights with
respect to, any of the Owned Company Intellectual Property or
Non-Owned Company Intellectual Property that is exclusively
licensed to the Company, (ii) expressly agreeing to
indemnify any Person against any charge of infringement of any
of the Company Intellectual Property, or (iii) granting any
Person the right to control the prosecution of any of the Owned
Company Intellectual Property or Non-Owned Company Intellectual
Property that is exclusively licensed to the Company. There are
no existing agreements, options, commitments, or rights with, of
or to any Person to acquire or obtain any rights to any of the
Owned Company Intellectual Property or Non-Owned Company
Intellectual Property that is exclusively licensed to the
Company.
(e) To the knowledge of the Company, there is no
unauthorized use, infringement, misappropriation or violation of
any of the Owned Company Intellectual Property or Non-Owned
Company Intellectual Property that is exclusively licensed to
the Company by any Person. The conduct of the business of the
Company or any Company Subsidiary as currently conducted or
currently contemplated (as described in the Company SEC Reports)
to be conducted in the future, including marketing, sale, use or
other exploitation of any product currently under investigation
or in development by the Company or any Company Subsidiary, to
the knowledge of the Company, does not presently infringe or
misappropriate or otherwise violate, as applicable, the
intellectual property rights or other proprietary rights of any
Person and neither the Company nor any Company Subsidiary has
received any written notice (or to the knowledge of the Company
any oral notice) from any Person, or has knowledge of, any claim
or assertion to the contrary.
(f) To the knowledge of the Company, all issuance, renewal,
maintenance and other material payments that are or have become
due with respect to the Owned Company Intellectual Property have
been timely paid. To the knowledge of the Company, all
documents, certificates and other material in connection with
the Owned Company Intellectual Property have, for the purposes
of maintaining such Company Intellectual Property, been filed in
a timely manner with the relevant Governmental Authorities. The
Company and the Company Subsidiaries have properly filed,
prosecuted and maintained all Patents and Trademarks included in
the Owned Company Intellectual Property and have used reasonable
best efforts to maintain all material other Owned Company
Intellectual Property. To the knowledge of the Company, no act
has been done or omitted to be done by the Company which has
had, or would reasonably be expected to have, the effect of
impairing or dedicating to the public, or entitling any Person
to cancel, forfeit, modify or consider abandoned, any Owned
Company Intellectual Property, or give any Person any rights
with respect thereto. The Company is listed in the records of
the appropriate
U.S. and/or
non-U.S. Governmental
Authority as the sole and exclusive owner of record for each
registration, grant and application included in the registered
Owned Company Intellectual Property.
(g) The Company and the Company Subsidiaries have taken all
reasonable measures to maintain in confidence all proprietary
Know-How and to protect the secrecy, confidentiality and value
of all Trade Secrets included within the Company Intellectual
Property.
(h) All Company personnel who have contributed to or
participated in the conception or development of any Owned
Company Intellectual Property have executed and delivered to the
Company a confidentiality agreement restricting such
Persons right to disclose proprietary information of the
Company. To the knowledge of the Company, no Company personnel
have any claim against the Company in connection with such
Persons involvement in the conception and development of
any Owned Company Intellectual Property and no such claim has
been asserted or threatened in writing. To the knowledge of the
Company, none of the Company personnel has any ownership
interest in any Patents for any device, process, design or
invention of any kind now used or needed by the Company in the
furtherance of its business operations, which Patents have not
been assigned to the Company. All Company personnel who have
contributed to or participated in the conception and development
of any Intellectual Property conceived
and/or
reduced to practice in the course of such Company
personnels employment at the Company, either (i) have
been party to a work-for-hire arrangement or
agreement with the Company, whether in accordance with
applicable federal and state law, domestic or foreign, or
otherwise, that has accorded the Company ownership of all
tangible and intangible property rights thereby arising, or
(ii) have executed or agreed to execute appropriate
instruments of assignment to the Company as assignee that have
conveyed or will convey to the Company ownership of all tangible
and intangible property thereby arising.
A-29
(i) To the knowledge of the Company there are no domain
names of the Company that consist of or include Trademarks that
are owned or registered by any Person other than the Company or
the Company Subsidiaries or their respective Affiliates.
(j) The Company and the Company Subsidiaries have complied
with any and all obligations pursuant to the Bayh-Dole Act,
including with respect to any Patents that are part of the
Company Intellectual Property.
(k) Section 4.15(k) of the Company Disclosure Letter
sets forth a complete and accurate list and description of all
Software used by the Company other than OTS Software Licenses.
Software used by Company is (i) owned by the Company,
(ii) currently in the public domain or otherwise available
to the Company without the approval or consent of any Person, or
(iii) licensed or otherwise used by the Company pursuant to
terms of valid, binding written agreements. The Software owned,
designed or developed by the Company or any of its employees,
consultants or agents conforms in all material respects to the
technical specifications for the design, performance, operation,
test, support and maintenance of such Software, and all other
documentation relating to such technical specifications. The
Company has not experienced within the past 12 months any
material disruption to, or material interruption in, the conduct
of its business attributable to a defect, bug, breakdown or
other failure or deficiency on the part of the Software used by
the Company. The Company has taken reasonable steps to provide
for the backup and recovery of the data and information critical
to the conduct of the business (including such data and
information that is stored on magnetic or optical media in the
ordinary course) without material disruption to, or material
interruption in, the conduct of the business. With respect to
each item of Software which is included in the Owned Company
Intellectual Property (
Owned Software
), the
Company is in possession and control of the applicable source
code, object code, documentation, and know-how to the extent
required for use, maintenance and support of the Owned Software
as used, maintained, or supported in the business of the
Company. No Person other than the Company and the Company
Subsidiaries has any rights to use, sell, license, transfer or
otherwise exploit the Owned Software (except for portions
thereof that may consist of embedded third party products
licensed from others). The Company has not disclosed any Owned
Software source code to any other Person other than pursuant to
an enforceable confidentiality agreement that reasonably
protects the Companys rights in such Owned Software.
Section
4.16.
Material
Contracts
.
(a) Set forth in Section 4.16(a) of the Company
Disclosure Letter is a complete and accurate list of the
following Contracts to which the Company or any Company
Subsidiary is a party or by which it is bound as of the date
hereof (each such Contract, whether or not set forth in such
section of the Company Disclosure Letter, a
Material
Contract
):
(i) employment Contract, independent contractor or
consulting Contract, severance Contract, change of control
Contract or any employee collective bargaining agreement or
other Contract with any labor union;
(ii) Contract not to compete or otherwise restricting in
any material respect the development, manufacture, marketing,
distribution or sale of any products or services (including any
Contract that requires the Company or any of the Company
Subsidiaries to work exclusively with any Person in any
particular area) or any other similar limitation on the ability
of the Company or any of the Company Subsidiaries to transact or
compete in any line of business, in any therapeutic area, with
any Person, in any geographic area or during any period of time;
(iii) Contract with (A) any Affiliate of the Company,
other than any of the Company Subsidiaries, or any officer or
director, (B) any current holder of capital stock of the
Company or any Affiliate (other than any director, officer or
employee or former employee holding incentive awards under any
Stock Plan), or (C) any director or officer of the Company
or a Company Subsidiary (other than any Contracts of the type
described in Section 4.16(a)(i) or indemnification
agreements), in each case required to be disclosed by the
Company in the Company SEC Reports under
Regulation S-K,
Item 404, without regard to any monetary thresholds therein;
(iv) each lease, license, sublease or other occupancy right
or similar Contract with any Person (together with any
amendments or supplements thereto) under which the Company or
any of the Company Subsidiaries are a lessee, lessor or
sublessor of, or makes available for use, to any Person (other
than the Company), any real property or any portion or any
premises otherwise occupied by or owned by the Company or any of
the
A-30
Company Subsidiaries (each such lease, license, sublease or
other occupancy right or similar Contract, a
Lease
);
(v) Contract (A) requiring or otherwise involving the
obligation (including any contingent obligation) to make payment
by or to the Company or any of the Company Subsidiaries of more
than an aggregate of $100,000, (B) in which the Company or
any of the Company Subsidiaries have granted development rights,
most favored nation pricing provisions or marketing
or distribution rights relating to any product or product
candidate or (C) in which the Company or any of the Company
Subsidiaries have agreed to purchase a minimum quantity of goods
relating to any product or product candidate or has agreed to
purchase goods relating to any product or product candidate
exclusively from a certain party;
(vi) Contract for the disposition of any significant
portion of the assets or business of the Company or any of the
Company Subsidiaries or any agreement for the acquisition,
directly or indirectly, of a material portion of the assets or
business of any other Person, in each case within the last three
years;
(vii) Contract for any joint venture, partnership, material
research and development project or similar arrangement;
(viii) Contract granting any Person any license from the
Company or any of the Company Subsidiaries to any Company
Intellectual Property, or pursuant to which the Company or any
of the Company Subsidiaries has been granted by any Person any
material license to any Intellectual Property, or any other
license, option, freedom from suit, release, transfer, or other
Contract to which the Company or any of the Company Subsidiaries
is a party relating in whole or in part to the Company
Intellectual Property or the Intellectual Property of any other
Person (
provided, however
, that the foregoing need not
include OTS Software Licenses or routine material transfer and
service agreements);
(ix) Contract (other than trade debt incurred in the
ordinary course of business) under which the Company or any of
the Company Subsidiaries have borrowed any money from, or issued
any note, bond, debenture or other evidence of indebtedness for
borrowed money to, any Person;
(x) Contract under which (A) any Person has directly
or indirectly guaranteed indebtedness for borrowed money,
liabilities or obligations of the Company or any of the Company
Subsidiaries or (B) the Company or any of the Company
Subsidiaries have directly or indirectly guaranteed indebtedness
for borrowed money, liabilities or obligations of any Person
(other than a Company Subsidiary), in each case other than
(I) endorsements for the purpose of collection in the
ordinary course of business and (II) ordinary course
Contracts relating to research and development of products;
(xi) except for Contracts covered by clause (ix)
above, Contract under which the Company or any of the Company
Subsidiaries have, directly or indirectly, made any advance,
loan, extension of credit or capital contribution to, or other
investment in, any Person other than a Company Subsidiary;
(xii) Contract providing for any mortgage or security
interest in material property of the Company and the Company
Subsidiaries;
(xiii) confidentiality agreements with any full time
employee of the Company or any of the Company Subsidiaries that
is not substantially in the form of the Companys or a
Company Subsidiarys form of confidentiality agreement;
(xiv) Contract involving a supply or tolling agreement or
arrangement that commits the Company or any of the Company
Subsidiaries to purchase goods or supplies relating to any
product candidate for clinical studies or commercial use to the
extent the commitment is not accrued on the most recent balance
sheet of the Company contained in the Company SEC Reports;
(xv) Contract involving a standstill or similar obligation
of the Company or any of the Company Subsidiaries to a third
party or of a third party to the Company or any of the Company
Subsidiaries;
(xvi) Government Contracts;
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(xvii) Contract that is not terminable by the Company or
the Company Subsidiaries upon less than 31 days
notice without penalty (such penalty to exclude any failure to
continue receiving any product or service that is discontinued
as a result of such termination) to the Company or the Company
Subsidiaries and not otherwise required to be disclosed in
response to any other subparagraph of this Section 4.16(a)
involving (A) payment obligations of the Company or the
Company Subsidiaries in excess of $25,000 in the aggregate from
and after the Closing Date or (B) any commitment of
employees or contractors of the Company or the Company
Subsidiaries under such Contract from and after the Closing Date
to the extent that the dollar value equivalent of the time of
such employees or contractors committed under such Contract is
reasonably likely to exceed $25,000 in the aggregate from and
after the Closing Date; and
(xviii) Contract not entered into in the ordinary course of
business that is material to the Company and the Company
Subsidiaries taken as a whole and not otherwise required to be
disclosed in response to any other subparagraph of this
Section 4.16(a).
(b) Each of the Material Contracts is valid, binding and in
full force and effect and is enforceable in accordance with its
terms by the Company and the Company Subsidiaries party thereto,
subject to the Bankruptcy and Equity Exception. Neither the
Company nor any of the Company Subsidiaries is in material
default under any Material Contract, nor, to the knowledge of
the Company, does any condition exist that, with notice or lapse
of time or both, would constitute a material default thereunder
by the Company and the Company Subsidiaries party thereto. To
the knowledge of the Company, no other party to any Material
Contract is in material default thereunder, nor does any
condition exist that, with notice or lapse of time or both,
would constitute a material default thereunder of such other
party. Neither the Company nor any of the Company Subsidiaries
has received any written notice (or to the knowledge of the
Company any oral notice) of termination or cancellation under
any Material Contract or received any written notice (or to the
knowledge of the Company any oral notice) of breach or default
in any material respect under any Material Contract which breach
has not been cured. Except as separately identified in
Section 4.16(b) of the Company Disclosure Letter, no
approval, consent or waiver of any Person is needed in order
that any Material Contract continue in full force and effect
immediately following the consummation of the Transactions. The
Company has provided, or otherwise made available to Parent,
complete and accurate copies of all of the Material Contracts
currently in effect.
Section
4.17.
Government
Contract Regulatory Matters
.
(a) The Company and the Company Subsidiaries have delivered
or made available to Parent complete and accurate copies of all
Current Government Contracts and all material documentation
related thereto. Each of the Current Government Contracts was
legally awarded, is valid, binding and in full force and effect
and is enforceable in accordance with its terms by the Company
and the Company Subsidiaries party thereto, subject to the
Bankruptcy and Equity Exception.
(b) The Company and the Company Subsidiaries have complied
in all material respects with all statutory and regulatory
requirements, including the Armed Services Procurement Act, the
Service Contract Act, the Procurement Integrity Act, the False
Claims Act, the Truth in Negotiation Act, the Federal
Procurement and Administrative Services Act, agency Grant
Regulations and guidance, the Federal Acquisition Regulation and
related cost principles and the Cost Accounting Standards, where
and as applicable to each of the Current Government Contracts
and the representations and certifications made by the Company
and the Company Subsidiaries with respect to such Government
Contracts were accurate in all material respects as of their
effective date and the Company and the Company Subsidiaries have
fully complied with all such certifications in all material
respects. No terminations or default, cure notice or show cause
notice has been issued and remains unresolved with respect to
any such Current Government Contract. No past performance
evaluation received by the Company or any Company Subsidiary
with respect to any such Current Government Contract has set
forth a material default or other material failure to perform
thereunder or termination thereof.
(c) With respect to the Current Government Contracts, no
Governmental Authority, prime contractor or higher-tier
subcontractor under a Government Contract or any other Person
has notified in writing the Company or any Company Subsidiary of
any actual or alleged violation or breach of any statute,
regulation, representation, certification, disclosure
obligation, contract term, condition, clause, provision or
specification that could be reasonably expected to materially
affect payments under such Current Government Contracts or
adversely affect the
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award of Government Contracts to the Company or the Company
Subsidiaries in the future. Neither the Company nor any Company
Subsidiary has received any written or, to the knowledge of the
Company, any oral, show cause, cure, deficiency, default or
similar notice relating to the Current Government Contracts; and
neither the Company nor any Company Subsidiary has received any
written or, to the knowledge of the Company, any oral, notice
terminating any of the Current Government Contracts for
convenience or indicating an intent to terminate any of the
Current Government Contracts for convenience.
(d) Neither the Company nor any Company Subsidiary has
received any written, or to the knowledge of the Company, oral,
notice of any outstanding claims or contract disputes to which
the Company or any Company Subsidiary is a party
(i) relating to the Current Government Contracts and
involving either a Governmental Authority, any prime contractor,
any higher-tier subcontractor, vendor or any third party; and
(ii) relating to the Current Government Contracts under the
Contract Disputes Act or any other federal statute.
(e) Neither the Company nor any Company Subsidiary has ever
been and is not now, suspended, debarred or proposed for
suspension or debarment from bidding on any Government Contract.
No suspension or debarment actions with respect to Government
Contracts have been commenced, or to the knowledge of the
Company, threatened against the Company or the Company
Subsidiaries or any of their respective officers or employees.
To the knowledge of the Company, there is no valid basis, for
the Companys or any Company Subsidiarys suspension
or debarment from bidding on any Government Contracts. No
negative determination of responsibility has been issued against
the Company or any Company Subsidiary during the past three
years with respect to any quotation, bid or proposal for a
Government Contract.
(f) Except for routine cost audits (
e.g.
, audits
performed pursuant to OMB Circular
A-133),
in
the past six years, neither the Company nor any Company
Subsidiary has undergone and is not undergoing any audit,
investigation or review relating to any Government Contract,
neither the Company nor any Company Subsidiary has received
written notice of, or undergone, any investigation or review
relating to any Government Contract, and, to the knowledge of
the Company, no such audit, investigation or review is
threatened other than routine cost audits conducted in the
ordinary course of business and for which no unresolved
deficiencies exist.
(g) To the knowledge of the Company, the Company and the
Company Subsidiaries perform no activities under Current
Government Contracts, and have no other relationships with any
other Person, that could result in an organizational
conflict of interest as defined in Subpart 9.5 of the
Federal Acquisition Regulation and agency supplements thereto.
(h) During the last five years, neither the Company nor any
Company Subsidiary has made any voluntary disclosure in writing
to any Governmental Authority with respect to any material
alleged irregularity, misstatement or omission arising under or
relating to a Government Contract.
(i) None of the Companys or the Company
Subsidiaries employees, consultants or agents is (or
during the last five years has been) under administrative, civil
or criminal investigation or indictment by any Governmental
Authority with respect to the conduct of the Companys and
the Company Subsidiaries respective businesses.
Section
4.18.
Employment
Matters
.
(a) Neither the Company nor any Company Subsidiary is or
has ever been a party to or otherwise bound by any collective
bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is
any such contract or agreement presently being negotiated, nor,
to the knowledge of the Company, is there, nor has there been in
the last five years, a representation campaign with respect to
any of the employees of the Company or any of the Company
Subsidiaries. As of the date of this Agreement, there is no
pending or, to the knowledge of the Company, threatened, labor
strike, dispute, walkout, work stoppage, slow-down or lockout
involving the Company or any of the Company Subsidiaries.
(b) Section 4.18(b) of the Company Disclosure Letter
sets forth a complete and accurate list of (i) the name of
each officer and employee of the Company or any Company
Subsidiary, (ii) each other person who has accepted an
offer of employment made by the Company or any Company
Subsidiary but whose employment has not yet commenced and
(iii) the names of each other person to whom an offer of
employment is outstanding by the Company or any Company
Subsidiary, in each case at the date hereof, together with each
such persons actual or
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offered position or function, date of hire, seniority recognized
to the extent preceding hire dates, status as active or
non-active and as a U.S. citizen or lawful permanent
resident, annual base salary or wages and any incentive or bonus
arrangement with respect to such person in effect on such date
and the target bonuses under those arrangements for the current
fiscal year. The Company has not received any written
communications that would lead it to believe that executive
officers or vice presidents will or may cease to be employees,
or will refuse offers of employment from Parent, because of the
consummation of the Transactions.
(c) All employees are employed on an at-will
basis and their employment can be terminated at any time for any
reason without any material amounts being owed to such
individual other than with respect to wages accrued before the
termination. Other than pursuant to Material Contracts set forth
in Section 4.16(a)(i) of the Company Disclosure Letter, the
Companys or the Company Subsidiaries relationships
with all individuals who act on their own as contractors or as
other service providers can be terminated at any time for any
reason without any amounts being owed to such individuals, other
than with respect to compensation or payments accrued before the
notice of termination. No employee is on disability or other
leave of absence, other than short term absences of less than
three weeks. The Company and the Company Subsidiaries have
complied, in all material respects, with all Laws governing the
employment of personnel by U.S. companies and the
employment of
non-U.S. nationals
in the United States, including those relating to wages, hours,
benefits, labor and the Immigration and Nationality Act
8 U.S.C. Sections 1101 et seq. and its implementing
regulations. Neither the Company nor the Company Subsidiaries
have sponsored any employee for, or otherwise knowingly engaged
any employee working pursuant to, a non-immigrant visa.
(d) The Company and the Company Subsidiaries have complied
in all material respects with their obligations under the WARN
Act and other similar applicable Law. Section 4.18(d) of
the Company Disclosure Letter sets forth a complete and accurate
list of all employees whose employment has been terminated
within 90 calendar days preceding the Closing Date, or whose
work hours have been materially reduced by the Company or the
Company Subsidiaries within six months preceding the Closing
Date, and such list indicates the employees name, site of
employment, position or job title, starting date of employment,
and date of employment loss, termination or layoff, and, if
applicable, the amount of hour reduction for each calendar month
during the six month period preceding the Closing Date.
(e) All source deductions and other amounts required by
applicable Law to be deducted or withheld from remuneration
payable to employees of the Company and the Company
Subsidiaries, and all employer premiums, contributions or
amounts payable by the Company or the Company Subsidiaries
thereon or in respect thereof, have been so deducted and
withheld and remitted, paid or contributed in material
compliance with applicable Law to the appropriate governmental
or regulatory authority.
(f) Neither the Company nor, to the knowledge of the
Company, any Company Subsidiary has used the services of workers
provided by third party contract labor suppliers, temporary
employees or leased employees (as that term is
defined in Section 414(n) of the Code). All individuals who
perform services for the Company or a Company Subsidiary and who
have been classified as other than employees have been properly
classified. All employees of the Company and Company
Subsidiaries are employed in the United States, and none of the
written terms and conditions of their employment provide for the
application of the law of any jurisdiction other than the United
States.
(g) The Company has made available to Parent prior to the
date of this Agreement a current, accurate and complete copy of
each material personnel policy, rule, or procedure generally
applicable to employees of the Company and the Company
Subsidiaries.
(h) Neither the Company nor any Company Subsidiary is a
party to, or otherwise bound by, any consent decree or
settlement agreement with, or citation by, any Governmental
Authority relating to employees or employment practices.
Section
4.19.
Real
Property
.
(a) Neither the Company nor any Company Subsidiary owns any
real property, nor has the Company or any Company Subsidiary
ever owned any real property.
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(b) Section 4.19 of the Company Disclosure Letter sets
forth a complete and accurate list of all real property that is
as of the date hereof leased, subleased or licensed by or from
the Company or any Company Subsidiary or otherwise used or
occupied by the Company or any Company Subsidiary (the
Leased Real Property
), the name of the
lessor, licensor, sublessor, master lessor
and/or
lessee, the date and term of the Lease, and any correspondence
with the landlord of such Leased Real Property relating to the
Companys obligation to remove any tenant improvements,
alterations or installations existing at the Leased Real
Property. The Company, or any of the Company Subsidiaries, is
the sole owner and holder of a valid leasehold interest in each
Lease free and clear of Liens other than Permitted Liens. The
Company or any of the Company Subsidiaries has peaceful and
undisturbed possession under each Lease. There are no leasing
commissions or similar payments due, arising out of, resulting
from or with respect to any Leases that are owned by the Company
or any of the Company Subsidiaries. No party has a right to
occupy any of the premises subject to a Lease except for the
Company or any of the Company Subsidiaries. There are no pending
or, to the knowledge of the Company, threatened condemnation or
eminent domain actions or proceedings, or any special
assessments or other activities of any public or quasi-public
body that are reasonably likely to adversely affect the
Companys rights pursuant to any Lease. No current use by
the Company nor any of the Company Subsidiaries of the Leased
Real Property or any improvements thereon is dependent on a
nonconforming use or other approval from a Governmental
Authority, the absence of which would significantly limit the
use of any of the properties or assets in the operation of the
business of the Company. Each parcel of Leased Real Property is
located on public roads and streets with, to the knowledge of
the Company, adequate and legal ingress available between such
streets and such parcel of Leased Real Property.
Section
4.20.
Insurance
.
Section 4.20
of the Company Disclosure Letter sets forth a complete and
accurate list of all material insurance policies of the Company
and the Company Subsidiaries. There is no material claim by the
Company or any Company Subsidiary pending under any of such
policies. All material insurance policies of the Company and the
Company Subsidiaries are in full force and effect and provide
insurance in such amounts and against such risks as is customary
in the industry in which they operate. Neither the Company nor
any Company Subsidiary is in material breach or default, and
neither the Company nor any Company Subsidiary has taken any
action or failed to take any action which, with notice or the
lapse of time, would constitute such a material breach or
default, or permit termination or modification of, any of such
insurance policies. No notice of cancellation or termination has
been received with respect to any such policy except customary
notices of cancellation in advance of scheduled expiration.
Section
4.21.
Affiliate
Transactions
.
No present or former
officer or director of the Company or any Company Subsidiary or
any Person owning 5% or more of the shares of Company Common
Stock or any other Affiliate, and no family member of any such
Person, is a party to any loan, lease or other Contract with or
binding upon the Company or any Company Subsidiary or any of
their respective properties or assets or has any interest in any
property owned by the Company or any Company Subsidiary or has
engaged in any transaction with any of the foregoing within the
last 12 months preceding the date of this Agreement.
Section
4.22.
State
Takeover Statutes
.
No fair
price, moratorium, control share
acquisition or other similar antitakeover statute or
regulation enacted under state or federal laws in the United
States (with the exception of Section 203 of the DGCL)
applicable to the Company is applicable to the Merger or any of
the other Transactions. The action of the Company Board in
approving this Agreement, the Voting Agreement and the
Transactions is sufficient to render inapplicable to this
Agreement, the Voting Agreement and the Transactions the
restrictions on business combinations (as defined in
Section 203 of the DGCL) as set forth in Section 203
of the DGCL.
Section
4.23.
Assets
.
The
Company and the Company Subsidiaries have (a) good and
valid title to all of the properties and assets reflected as
owned on the most recent balance sheet of the Company contained
in the Company SEC Reports, except for properties or assets that
have been sold or disposed of in the ordinary course of business
since the date of such balance sheet, free and clear of any
Liens, except for Permitted Liens, and (b) a valid
leasehold interest or other comparable Contract of use in all
properties and assets reflected as leased on such balance sheet,
except for such leases terminated in the ordinary course of
business since the date of such balance sheet, free and clear of
any Liens, except for Permitted Liens.
Section
4.24.
Foreign
Corrupt Practices Act
.
Neither the
Company nor any Company Subsidiary, and no director, officer,
agent or employee of the Company or any Company Subsidiary, has
(a) used any funds for unlawful
A-35
contributions, gifts, entertainment or other unlawful expenses
relating to political activity or (b) made any unlawful
payment to foreign or domestic government officials or employees
or to foreign or domestic political parties or campaigns or
violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or any other federal, foreign or state
anti-corruption or anti-bribery Law or requirement applicable to
the Company or the Company Subsidiaries.
Section
4.25.
No
Other Representations or Warranties
.
The
representations and warranties of the Company set forth in this
Article 4 constitute the sole and exclusive representations
and warranties of the Company to Parent and Merger Sub in
connection with the Merger and the other Transactions, and all
other representations and warranties of any kind or nature,
express or implied, are specifically disclaimed by the Company.
Except as provided in the Voting Agreement and any documents
entered into in connection therewith, no current or former
stockholder, director, officer, employee, affiliate or advisor
of the Company or any Company Subsidiary has made or is making
any representations, warranties or commitments whatsoever
regarding the subject matter of this Agreement, express or
implied.
ARTICLE 5
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company as follows:
Section
5.1.
Organization
.
Each
of Parent and Merger Sub is a corporation organized, validly
existing and in good standing under the laws of the jurisdiction
of its organization. Each of Parent and Merger Sub has all
requisite power and authority and possesses all governmental
franchises, licenses, permits, authorizations and approvals
necessary to enable it to own, operate and lease its properties
and to carry on its business as now conducted, except for such
franchises, licenses, permits, authorizations and approvals, the
lack of which, individually or in the aggregate, has not had and
would not reasonably be expected to have a Parent Material
Adverse Effect.
Section
5.2.
Merger
Sub
.
Merger Sub is a direct, wholly owned
Subsidiary of Parent that was formed solely for the purpose of
engaging in the Transactions. Since the date of its
incorporation, Merger Sub has not carried on any business or
conducted any operations other than the execution of this
Agreement, the performance of its obligations hereunder and
matters ancillary thereto.
Section
5.3.
Authorization;
No Conflict
.
(a) Each of Parent and Merger Sub has the requisite
corporate power and authority to enter into and deliver this
Agreement and all other agreements and documents contemplated
hereby to which it is a party and to carry out its obligations
hereunder and thereunder. The execution and delivery of this
Agreement and the Voting Agreement by Parent and Merger Sub (to
the extent a party), the performance by Parent and Merger Sub of
their respective obligations hereunder and thereunder and the
consummation by Parent and Merger Sub of the Transactions have
been duly and validly authorized by the respective Boards of
Directors of Parent and Merger Sub. No other corporate
proceedings on the part of Parent or Merger Sub are necessary to
authorize the execution and delivery of this Agreement and the
Voting Agreement, the performance by Parent and Merger Sub of
their respective obligations hereunder and thereunder and the
consummation by Parent and Merger Sub of the Transactions,
except for the approval of the Merger by Parent as the owner of
all the outstanding capital stock of Merger Sub. Each of this
Agreement and the Voting Agreement has been duly and validly
executed and delivered by Parent and Merger Sub (to the extent a
party) and, assuming the due authorization, execution and
delivery by the Company (to the extent a party) and the other
parties thereto, constitute legal, valid and binding obligations
of Parent and Merger Sub, enforceable against Parent and Merger
Sub in accordance with their respective terms, subject in each
case to the Bankruptcy and Equity Exception.
(b) Neither the execution and delivery of this Agreement
and the Voting Agreement by Parent or Merger Sub (to the extent
a party), nor the consummation by Parent or Merger Sub of the
Transactions nor compliance by Parent or Merger Sub with any of
the provisions herein or therein will (i) result in a
violation or breach of or conflict with the certificate of
incorporation or by-laws of Parent or Merger Sub or
(ii) subject to obtaining or making the
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consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph
(c) below, violate any Judgment or Law applicable to Parent
or Merger Sub or any of their respective properties or assets
other than any such event described in this clause (ii)
which, individually or in the aggregate, has not had and would
not reasonably be expected to have a Parent Material Adverse
Effect.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental
Authority is necessary to be obtained or made by Parent or
Merger Sub in connection with Parents or Merger Subs
(to the extent a party) execution, delivery and performance of
this Agreement and the Voting Agreement, or the consummation by
Parent or Merger Sub of the Transactions, except for
(i) compliance with the DGCL, with respect to the filing of
the Certificate of Merger, (ii) compliance with the HSR
Act, (iii) the filing with the SEC of such reports under
Sections 13 or 16 of the Exchange Act, as may be required
in connection with this Agreement and the Transactions,
(iv) compliance with the rules of Nasdaq and the NYSE,
(v) compliance with the blue sky laws of
various states, (vi) completing any notice required under
the FDCA or similar Laws of jurisdictions other than the United
States, and (vii) any such consent, approval, order,
authorization, registration, declaration or filing, the lack of
which, individually or in the aggregate, has not had and would
not reasonably be expected to have a Parent Material Adverse
Effect.
Section
5.4.
Information
Supplied
.
None of the information
supplied or to be supplied in writing by Parent specifically for
inclusion or incorporation by reference in the Proxy Statement
will, at the date it is first mailed to the Companys
stockholders and at the time of the Company Stockholders Meeting
or at the date of any amendment thereof or supplement thereto,
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 the light of the
circumstances under which they are made, not misleading.
Section
5.5.
Available
Funds
.
Parent has, or will have,
sufficient funds available to consummate the Transactions.
Section
5.6.
Litigation
.
There
are no Proceedings pending or, to the knowledge of Parent or
Merger Sub, threatened against Parent or Merger Sub or against
any of their respective directors, officers, employees or agents
in their capacities as such that would reasonably be expected to
have a Parent Material Adverse Effect.
ARTICLE 6
CONDUCT OF
BUSINESS PENDING THE MERGER
Section
6.1.
Conduct
of Business by the Company Pending the
Merger
.
The Company covenants and agrees
that, during the period from the date of this Agreement until
the Effective Time, unless Parent shall otherwise consent in
writing, except as expressly permitted or required pursuant to
this Agreement or except as set forth in Schedule 6.1:
(a) The Company and the Company Subsidiaries shall
(i) conduct their business only in the ordinary and usual
course of business and consistent with past practices,
(ii) use reasonable best efforts to maintain and preserve
substantially intact their respective business organizations, to
maintain their significant beneficial business relationships
with suppliers, contractors, distributors, customers, licensors,
licensees and others having material business relationships with
them, to retain the services of their present officers and key
employees (as identified by Parent in consultation with the
Company) and to comply in all material respects with all
applicable Laws and the requirements of all Contracts that are
material to the Company and the Company Subsidiaries, taken as a
whole, in each case, to the end that their goodwill and ongoing
business shall be unimpaired at the Effective Time,
(iii) maintain at least $15,000,000 in cash, cash
equivalents and short-term investments, net of outstanding lines
of credit and notes payable, as of the date two Business Days
prior to the Closing Date;
provided, however
, that the
covenant set forth in this Section 6.1(a)(iii) shall only
be applicable until and including September 1, 2008, and
shall terminate thereafter, and (iv) use reasonable best
efforts to prepare such narratives, synopses
and/or
reports as are reasonably necessary (determined after
consultation with Parent) in connection with proceeding toward
closing the IND with respect to the SGX523 product candidate of
the Company.
A-37
(b) Without limiting the generality of the foregoing
Section 6.1(a), except as set forth in Section 6.1 of
the Company Disclosure Letter and as contemplated by
Section 3.4 and Section 3.5, the Company shall not
directly or indirectly, and shall not permit any of the Company
Subsidiaries to, do any of the following without the prior
written consent of Parent (which consent shall (x) not be
unreasonably withheld or delayed with respect to those actions
prohibited by subsections (ix), (xii), (xiv), (xvii)(B)
(
provided, however
, that if Parent has not responded to
the Companys request for approval to take an action
covered by subsection (xvii)(B)(2) within three Business Days
following receipt by Parent of written notice from the Company
of such request, then such request shall be deemed approved by
Parent), (D) and (F), (xx) and (xxi), and (y) be
in the sole discretion of Parent with respect to those actions
prohibited by the remaining subsections):
(i) except with respect to Intellectual Property, which is
addressed in subsections (xvii) and (xviii),
(A) acquire, sell, lease, transfer, encumber or permit to
be subject to any Lien or dispose of any assets, rights or
securities that are material to the Company and the Company
Subsidiaries, taken as a whole, or (B) terminate, cancel or
materially modify any Material Contract;
(ii) acquire by merging or consolidating with or by
purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business,
corporation, partnership, association or other business
organization or division thereof;
(iii) amend or propose to amend the Company Charter
Documents or the Subsidiary Documents;
(iv) declare, set aside, make or pay any dividend or other
distribution payable in cash, capital stock, property or
otherwise with respect to any shares of its capital stock;
(v) purchase, redeem or otherwise acquire, or offer to
purchase, redeem or otherwise acquire, any shares of its capital
stock, other equity securities, other ownership interests or any
options, warrants or rights to acquire any such stock,
securities or interests, other than in connection with the
relinquishment of shares by employees and directors of the
Company in payment of withholding tax upon the vesting of
Restricted Stock;
(vi) adjust, recapitalize, split, combine, subdivide or
reclassify any outstanding shares of its capital stock;
(vii) except for the Company Common Stock issuable upon
exercise of Options outstanding on the date hereof or the
Warrants or pursuant to the ESPP (it being understood that,
between the date of this Agreement and September 15, 2008,
no more than $17,500 per bi-weekly pay period of the Company may
be withheld pursuant to payroll deductions from participants in
the ESPP to be applied toward the purchase of shares of Company
Common Stock under the ESPP), and the vesting of Restricted
Stock and Restricted Stock Unit awards granted prior to the
execution of this Agreement, issue, sell, encumber, dispose of
or authorize, propose or agree to the issuance, sale,
encumbrance or disposition by the Company or any of the Company
Subsidiaries of, any shares of, or any options, warrants or
rights of any kind to acquire any shares of, or any securities
convertible into or exchangeable for any shares of, its capital
stock of any class, or any other securities in respect of, in
lieu of, or in substitution for any class of its capital stock
outstanding on the date hereof;
(viii) incur, or modify in any material respect the terms
of, any indebtedness for borrowed money, or assume, guarantee or
endorse any such indebtedness of another Person, except
indebtedness incurred, assumed or guaranteed in the ordinary
course of business consistent with past practice and not in
excess of $100,000 in the aggregate;
(ix) make any loans or advances, except to or for the
benefit of the Company Subsidiaries;
(x) other than to the extent required in a written contract
or agreement in existence as of the date of this Agreement and
disclosed in Section 4.10 of the Company Disclosure Letter
or as otherwise expressly required by the terms of this
Agreement: (A) grant any awards under any Company Employee
Benefit Plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards,
performance units or restricted stock or the removal of existing
restrictions in any Company Employee Benefit Plan or awards made
thereunder or the commencement of a new purchase period or new
offering under the ESPP (whether or not provided by the terms of
the ESPP as of the date of this Agreement)), (B) grant or
increase any severance or termination pay to any current or
former director, executive officer, employee, consultant or
independent contractor of the Company or any Company Subsidiary,
(C) execute any employment, deferred compensation
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or other similar agreement (or any amendment to any such
existing agreement) with any such individual, (D) increase
the benefits payable under any existing severance or termination
pay policies or employment agreements, (E) hire any
officers (or promote an employee into an officer position) or
increase the compensation, bonus or other benefits of current or
former directors, executive officers, employees, consultants or
independent contractors of the Company or any Company
Subsidiary, (F) adopt or establish any plan, policy,
program or arrangement that would be considered a Company
Employee Benefit Plan if such plan, policy, program or
arrangement were in effect as of the date of this Agreement, or
amend in any material respect any existing Company Employee
Benefit Plan, (G) provide any material benefit to a current
or former director, executive officer, employee, consultant or
independent contractor of the Company or any Company Subsidiary
not required by any existing agreement or Company Employee
Benefit Plan, (H) take any action to accelerate the vesting
or payment of any compensation or benefit under any Company
Employee Benefit Plan or to fund or in any other way secure the
payment of compensation or benefits under any Company Employee
Benefit Plan or make any material determinations not in the
ordinary course of business under any Company Employee Benefit
Plan, or (I) take any action that would result in its
incurring any obligation for any payments or benefits described
in subsections (i), (ii) or (iii) of
Section 4.10(i) (without regard to whether the Transactions
are consummated);
(xi) execute or amend (other than as required by existing
employee benefit plans or employment agreements or by applicable
Law) in any material respect any employment, consulting,
severance, termination or indemnification agreement between the
Company or any of the Company Subsidiaries and any of their
respective directors, officers, agents, consultants, independent
contractors or employees, or any collective bargaining agreement
or other obligation to any labor organization or employee
incurred or entered into by the Company or any of the Company
Subsidiaries;
(xii) make any material changes in its reporting for Taxes
or accounting methods other than as required by GAAP or
applicable Law; make or rescind any material Tax election; file
any amended Tax Return with respect to any material Tax; make
any material change to its method or reporting income,
deductions, or other Tax items for Tax purposes; settle or
compromise any Tax liability or enter into any transaction with
an Affiliate outside the ordinary course of business if such
transaction would give rise to a material Tax liability;
(xiii) settle, compromise or otherwise resolve any
litigation or other legal proceedings material to the Company
and the Company Subsidiaries taken as a whole or as would result
in any liability in excess of the amount reserved therefor or
reflected on the balance sheets included in the Company
Financial Statements or which relates to any Company
Intellectual Property;
(xiv) pay or discharge any claims, Liens or liabilities
which are not reserved for or reflected on the balance sheets
included in the Company Financial Statements or incurred in the
ordinary course of business after the date of the Company
Financial Statements;
(xv) adopt a plan of complete or partial liquidation (or
resolutions providing for or authorizing such liquidation),
dissolution, merger, consolidation, restructuring,
recapitalization or reorganization of the Company or any of the
Company Subsidiaries (other than the Merger);
(xvi) abandon, cease to prosecute, fail to maintain, sell,
license, assign or encumber any Permit or other material assets
(other than Company Intellectual Property);
(xvii) with respect to Intellectual Property,
(A) other than with respect to material transfer or service
agreements, sell, assign, license, sublicense, encumber, impair,
abandon, fail to maintain, transfer or otherwise dispose of any
right, title or interest of the Company or any of the Company
Subsidiaries in any Company Intellectual Property,
(B) grant any rights under material transfer or service
agreements, other than (1) those entered into in the
ordinary course of business consistent with past practice in
connection with the National Institute of Health Cooperative
Agreement Award from the National Institute of General Medical
Sciences or the drug discovery collaboration agreement with
Cystic Fibrosis Foundation Therapeutics, Inc. or
(2) materials sent by the Company pursuant to service
agreements existing as of the date hereof, (C) extend,
amend, waive, cancel or modify any rights in or to the Company
Intellectual Property, (D) fail to diligently prosecute the
Patent applications within Owned Company Intellectual Property
(
provided, however
, that with respect to
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Owned Company Intellectual Property that is jointly owned, the
Companys obligation shall be to diligently prosecute such
Patent applications to the fullest extent permitted under
existing contractual arrangements with third parties covering
such Owned Company Intellectual Property that is jointly owned),
(E) divulge, furnish to or make accessible any Trade
Secrets within Company Intellectual Property to any Person who
is not subject to an enforceable written agreement to maintain
the confidentiality of such Trade Secrets, other than
presentations required to be given under the National Institute
of Health Cooperative Agreement Award from the National
Institute of General Medical Sciences or the drug discovery
collaboration agreement with Cystic Fibrosis Foundation
Therapeutics, Inc., or (F) divulge, furnish to or make
accessible any Trade Secrets within Company Intellectual
Property to any Person who is not subject to an enforceable
written agreement to maintain the confidentiality of such Trade
Secrets, other than presentations given by the Company in the
ordinary course consistent with past practice, excluding those
presentations covered by clause (D) above;
(xviii) (A) enter into any Contract that would result
in the grant to the Company or any of the Company Subsidiaries
of any right or license in the Intellectual Property of any
Person (other than Contracts in connection with the purchase of
laboratory reagents and materials), or (B) amend, assign,
terminate or fail to exercise a right of renewal or extension
under Contract related to Company Intellectual Property;
(xix) (A) enter into, renew, amend or voluntarily
terminate any Material Contract or any joint venture,
partnership or other similar arrangement, (B) engage in any
transaction or series of transactions with any Affiliate that
would be required to be disclosed under Item 404 of
Regulation S-K
under the Securities Act, without regard to any monetary
thresholds therein, or (C) waive, release or assign any
rights or claims under any Material Contract;
(xx) authorize any new capital expenditures in excess of
$100,000 in the aggregate, other than those capital expenditures
reimbursed by third parties;
(xxi) fail to use reasonable best efforts to keep in full
force and effect all insurance policies maintained by the
Company and the Company Subsidiaries, other than such policies
that expire by their terms (in which event the Company and the
Company Subsidiaries shall use reasonable best efforts so that
such policies will be renewed or replaced) or changes to such
policies made in the ordinary course of business consistent with
past practice;
(xxii) enter into any agreement, arrangement or commitment
that materially limits or otherwise materially restricts the
Company or any Company Subsidiary, or that would reasonably be
expected to, after the Effective Time, materially limit or
restrict Parent or any of its Subsidiaries or any of their
respective Affiliates or any successor thereto, from engaging or
competing in any line of business in which it is currently
engaged or in any geographic area material to the business or
operations of Parent or any of its Subsidiaries;
(xxiii) take any action that would or would reasonably be
expected to result in any of the conditions to the Merger
contained in Article 8 not being satisfied or that would or
would reasonably be expected to delay the consummation of, or
impair the ability of the Company to consummate, the
Transactions; or
(xxiv) take or agree in writing or otherwise to take any of
the actions precluded by Section 6.1(b).
ARTICLE 7
ADDITIONAL
AGREEMENTS
Section
7.1.
Preparation
of Proxy Statement; Stockholders Meeting
.
(a) The Company shall, as promptly as practicable following
the date hereof, with the timely cooperation and assistance of
Parent, prepare the Proxy Statement to be sent to the
stockholders of the Company in connection with the Company
Stockholders Meeting. Parent, Merger Sub and the Company shall
cooperate and consult with each other and their respective
counsel in the preparation of the Proxy Statement. The Company
shall not file the preliminary Proxy Statement, or any amendment
or supplement thereto, without providing Parent a reasonable
opportunity to review and comment thereon. Each party shall use
its reasonable best efforts to resolve, and each party agrees to
consult and cooperate with the other party in resolving, all SEC
comments with respect to the
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preliminary Proxy Statement as promptly as practicable after
receipt thereof and to cause the Proxy Statement in definitive
form to be mailed to the Companys stockholders as promptly
as reasonably practicable following its clearance by the SEC.
Each party agrees to consult with the other party (and such
consultations shall be reasonable) prior to responding to all
SEC comments with respect to the preliminary Proxy Statement.
Each of Parent, Merger Sub and the Company agrees to correct any
information provided by it for use in the Proxy Statement which
shall have become false or misleading in any material respect
and the Company shall promptly prepare and mail to its
stockholders an amendment or supplement setting forth such
correction. Each party shall as soon as reasonably practicable
(i) notify the other parties of the receipt of any comments
from the SEC with respect to the Proxy Statement and any request
by the SEC for any amendment to the Proxy Statement or for
additional information and (ii) provide each other party
with copies of all correspondence between a party and its
employees and other authorized representatives, on the one hand,
and the SEC, on the other hand, with respect to the Proxy
Statement.
(b) As soon as practicable following the date hereof, the
Company shall take all action necessary to establish a record
date for, duly call, give notice of, convene and hold a meeting
of its stockholders (the
Company Stockholders
Meeting
) for the purpose of seeking the Required
Company Stockholder Vote, regardless of whether a Company
Adverse Recommendation Change shall have occurred. The Company
shall, through the Company Board, recommend to its stockholders
that they adopt this Agreement and give the Required Company
Stockholder Vote (the
Company Recommendation
)
until and unless a Company Adverse Recommendation Change shall
have occurred. Unless a Company Adverse Recommendation Change
shall have occurred, the Company shall include the Company
Recommendation in the Proxy Statement and use its reasonable
best efforts to solicit from stockholders of the Company proxies
in favor of the adoption of this Agreement and shall take all
other action necessary or advisable to secure the Required
Company Stockholder Vote. Once the Company Stockholders Meeting
has been called and noticed, the Company shall not postpone or
adjourn the Company Stockholders Meeting without the consent of
Parent (other than (i) for the absence of a quorum or
(ii) to allow reasonable additional time for the filing and
mailing of any supplemental or amended disclosure which it
believes in good faith is necessary under applicable Law and for
such supplemental or amended disclosure to be disseminated and
reviewed by the Companys stockholders prior to the Company
Stockholders Meeting;
provided, however
, that in the
event that the Company Stockholders Meeting is delayed to a date
after the Outside Date as a result of either (i) or
(ii) above, then the Outside Date shall be extended to the
fourth Business Day after such date).
(c) Parent shall cause all shares of Company Common Stock
owned by Parent or Merger Sub, if any, to be voted in favor of
the adoption of the Agreement.
Section 7.2.
Employee
Matters
.
(a) Until the first anniversary of the Closing Date, Parent
agrees to provide employees of the Company and the Company
Subsidiaries who are located in the United States and retained
by Parent with employee benefits (excluding equity and change in
control plans, programs, or arrangements) that are substantially
comparable in the aggregate to those benefits provided to such
employees immediately prior to the Effective Time;
provided
,
however
, that Parent shall be under no
obligation to retain any employee or group of employees of the
Company or the Company Subsidiaries other than as required by
applicable Law or an employment agreement listed in
Section 7.2 of the Company Disclosure Letter.
(b) For purposes of all employee benefit plans, programs
and arrangements maintained by or contributed to by Parent and
its Subsidiaries (including, after the Closing, the Surviving
Corporation), Parent shall, or shall cause its Subsidiaries to,
cause each such plan, program or arrangement to treat the prior
service with the Company and its Affiliates of each Person who
is an employee or former employee of the Company or the Company
Subsidiaries immediately prior to the Closing (a
Company Employee
) (to the same extent such
service is recognized under existing analogous plans, programs
or arrangements of the Company or its Affiliates prior to the
Closing) as service rendered to Parent or its Subsidiaries, as
the case may be, for purposes of eligibility to participate in
and vesting thereunder (but not benefit accrual);
provided
,
however
, that such crediting of service
shall not operate to duplicate any benefit or the funding of
such benefit or provide any benefit not currently provided to
such Company Employee. Company Employees shall also be given
credit for any deductible or co-payment amounts paid in respect
of the plan year in which the Closing occurs, to the extent
that, following the Closing, they participate in any other plan
for which deductibles or co-payments are required. Parent shall
also use reasonable best efforts to cause each employee
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benefit plan maintained by or contributed to by Parent and its
subsidiaries (including, after the Closing, the Surviving
Corporation) in which Company Employees participate to waive any
preexisting condition that was waived under the terms of any
Company Employee Benefit Plan immediately prior to the Closing
or waiting period limitation which would otherwise be applicable
to a Company Employee on or after the Closing. Parent shall
recognize any accrued but unused vacation and sabbatical time of
the Company Employees as of the Closing Date, in accordance with
the terms of such Company policies and Parent shall cause the
Company and the Company Subsidiaries to provide such vacation
and sabbatical time in accordance with the terms of such Company
policies but in no event will Parent be obligated to extend or
enlarge the benefits available under such Company policies.
Nothing in this Section 7.2 shall prevent Parent from
amending or terminating any Company Employee Benefit Plan or
other agreement in accordance with its terms and applicable Law.
(c) The provisions of this Section 7.2 shall in no
event apply to any employee of the Company or any of the Company
Subsidiaries whose employment has been terminated and who is
later employed by Parent, the Surviving Corporation or any of
their respective Subsidiaries.
(d) The parties will cooperate in good faith with regard to
any notification that may be required by the WARN Act or other
similar applicable Law as a result of the Transactions.
Section 7.3.
Regulatory
Filings
.
The Company, Parent and Merger
Sub shall each, promptly after the date of this Agreement (and
in any event within 10 Business Days after the date of this
Agreement), file or cause to be filed with the FTC, the DOJ and
any comparable foreign antitrust or competition authority any
notifications required to be filed under the HSR Act with
respect to the Transactions.
Section 7.4.
Public
Statements
.
Each of the Company, Parent
and Merger Sub agrees that no public release or announcement
concerning the Transactions shall be issued by any party without
the prior written consent of the Company and Parent (which
consent shall not be unreasonably withheld or delayed), except
as such release or announcement may be permitted by
Section 7.8(d) or required by Law or the rules or
regulations of any applicable Governmental Authority to which
the relevant party is subject or submits, wherever situated, in
which case the party required to make the release or
announcement shall use its reasonable best efforts to allow each
other party reasonable time to comment on such release or
announcement in advance of such issuance, it being understood
that the final form and content of any such release or
announcement, to the extent so required, shall be at the final
discretion of the disclosing party. The parties agree that the
initial press release to be issued with respect to the
Transactions shall be in the form agreed by the parties.
Section 7.5.
Standard
of Efforts
.
(a) Subject to the terms and conditions provided herein
(including the provisions of Sections 7.1(b) and 7.8), each
of the Company, Parent and Merger Sub agrees to use its
reasonable best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective in the most
expeditious manner practicable, the Merger and the other
Transactions, including (i) obtaining all permits,
consents, approvals, authorizations and actions or nonactions
required for or in connection with the consummation by the
parties hereto of the Merger and the other Transactions,
(ii) the taking of all steps as may be necessary to obtain
an approval or waiver from, or to avoid an action or proceeding
by, a Governmental Authority, (iii) the obtaining of all
necessary consents from third parties, and (iv) the
execution and delivery of any additional instruments necessary
to consummate the Merger and the other Transactions in
accordance with the terms of this Agreement and to fully carry
out the purposes of this Agreement. The Company shall have the
right to review and approve in advance all characterizations of
the information relating to the Company; Parent shall have the
right to review and approve in advance all characterizations of
the information relating to Parent or Merger Sub; and each of
the Company and Parent shall have the right to review and
approve in advance all characterizations of the information
relating to the Transactions, in each case which appear in any
material filing (including the Proxy Statement) made in
connection with the Transactions. The Company, Parent and Merger
Sub agree that they will consult with each other (and such
consultations shall be reasonable) with respect to the obtaining
of all such necessary permits, consents, approvals and
authorizations of all third parties and Governmental Authorities.
(b) In furtherance of, and not in limitation of the
foregoing, the parties shall respond promptly to any requests
for additional information made by the FTC, the DOJ or any other
Governmental Authority, and use their respective
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reasonable best efforts to cause the waiting period under the
HSR Act to terminate or expire at the earliest possible date
after the date of filing. The parties agree not to extend
directly or indirectly any waiting period under the HSR Act or
enter into any agreement with a Governmental Authority to delay
or not to consummate the Merger and the other Transactions,
except with the prior written consent of the other parties
hereto (which consent shall not be unreasonably withheld or
delayed). Each of Parent and Merger Sub and the Company will
(i) promptly notify the other party of any written
communication to that party from any Governmental Authority and,
subject to applicable Law, permit the other party to review in
advance any proposed written communication to any such
Governmental Authority and incorporate the other partys
reasonable comments, (ii) not agree to participate in any
substantive meeting or discussion with any such Governmental
Authority in respect of any filing, investigation or inquiry
concerning this Agreement, the Merger or the other Transactions
unless it consults with the other party in advance and, to the
extent permitted by such Governmental Authority, gives the other
party the opportunity to attend, and (iii) furnish the
other party with copies of all correspondence, filings and
written communications between them and their Affiliates and
their respective representatives on one hand, and any such
Governmental Authority or its staff on the other hand, with
respect to this Agreement, the Merger and the other Transactions.
(c) Notwithstanding the foregoing or any other provision of
this Agreement, the Company shall not, without Parents
prior written consent, commit to any divestiture transaction or
agree to any restriction on its business, and nothing in this
Section 7.5 shall (i) limit any applicable rights a
party may have to terminate this Agreement pursuant to
Section 9.1 so long as such party has up to then complied
in all material respects with its obligations under this
Section 7.5, or (ii) require Parent to offer, accept
or agree to (A) dispose of or hold separate any part of its
or the Companys businesses, operations, assets or product
lines (or a combination of Parents and the Companys
respective businesses, operations, assets or product lines),
(B) not compete in any geographic area or line of business,
and/or
(C) restrict the manner in which, or whether, Parent, the
Company, the Surviving Corporation or any of their Affiliates
may carry on business in any part of the world.
Section 7.6.
Notification
of Certain Matters
.
The
Company shall give prompt notice to Parent and Merger Sub of
(a) any notice or other communication from any third party
alleging that the consent of such third party is or may be
required in connection with the Transactions, (b) any
Company Material Adverse Effect or the occurrence or existence
of any event which, individually or in the aggregate, would
reasonably be likely to have a Company Material Adverse Effect,
or (c) the occurrence or existence of any event that
results, or with the passage of time or otherwise, would
reasonably be likely to result, in the failure of any condition
set forth in Section 8.2(a) or (b) of this Agreement;
provided
,
however
, that the delivery of notice
pursuant to this Section 7.6 shall not limit or otherwise
affect the remedies available hereunder to Parent.
Section 7.7.
Access
to Information; Confidentiality
.
(a) The Company shall, and shall cause the Company
Subsidiaries and the officers, directors, employees and agents
of the Company and the Company Subsidiaries, to, afford the
officers, employees and agents of Parent and Merger Sub, at
their sole cost and risk, reasonable access at all reasonable
times from the date hereof through the Effective Date to its
officers, employees, agents, properties, facilities, books,
records, contracts and other assets and shall promptly furnish
Parent and Merger Sub all financial, operating and other data
and information as Parent and Merger Sub through their officers,
employees or agents, may from time to time reasonably request.
Parent and Merger Sub, at their sole cost and risk, shall have
the right to make such due diligence investigations as Parent
and Merger Sub shall deem necessary or reasonable, upon
reasonable notice to the Company and without significant
interference to Companys operations or properties. No
additional investigations or disclosures shall affect the
Companys representations and warranties contained herein,
or limit or otherwise affect the remedies available to Parent
and Merger Sub pursuant to this Agreement. Notwithstanding
anything to the contrary in this Section 7.7(a), neither
the Company nor any Company Subsidiary shall be obligated to
disclose any information if doing so would (i) violate any
applicable Law, (ii) result in the loss of attorney-client
privilege with respect to such information or (iii) result
in a breach of an agreement to which the Company or any Company
Subsidiary is a party;
provided
,
however
, that if
any information is withheld by the Company or any Company
Subsidiary pursuant to the foregoing, the Company shall inform
Parent as to the general nature of what is being withheld.
(b) The provisions of the Confidentiality Agreement shall
remain in full force and effect in accordance with its terms.
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Section 7.8.
No
Solicitation
.
(a) The Company shall, and shall cause the Company
Subsidiaries and the Companys and the Company
Subsidiaries respective directors, officers, employees,
investment bankers, financial advisors, attorneys, accountants,
agents and other representatives (collectively,
Representatives
) to, immediately cease and
cause to be terminated any discussions or negotiations with any
Person conducted heretofore with respect to a Takeover Proposal,
promptly request and use reasonable best efforts to obtain the
return from all such Persons or cause the destruction of all
copies of confidential information previously provided to such
Persons by the Company, the Company Subsidiaries or
Representatives to the extent any confidentiality agreement with
such Person so provides. From the date of this Agreement until
the Effective Time or, if earlier, the termination of this
Agreement in accordance with its terms, the Company shall not,
nor shall it permit any of the Company Subsidiaries to, nor
shall it authorize or permit any Representative to, directly or
indirectly, (i) solicit, initiate, or take any action to
knowingly facilitate or encourage (including by way of
furnishing information) the submission of, any Takeover
Proposal, (ii) approve or recommend any Takeover Proposal,
enter into any agreement,
agreement-in-principle
or letter of intent with respect to or accept any Takeover
Proposal (or resolve to or publicly propose to do any of the
foregoing), or (iii) participate or engage in any
discussions or negotiations regarding, or furnish to any Person
any information with respect to, or take any other action to
knowingly facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal;
provided
,
however
, that if in
response to an unsolicited, bona fide written Takeover Proposal
made after the date hereof in circumstances not involving a
breach of this Agreement, the Company Board reasonably
determines in good faith (after consultation with outside
counsel and receiving the advice of its financial advisor of
nationally recognized reputation) that such Takeover Proposal
constitutes, or is reasonably likely to lead to, a Superior
Proposal and with respect to which the Company Board determines
in good faith, after consulting with and receiving the advice of
outside counsel, that the failure to take such action does or
would constitute a breach of its fiduciary obligations to the
Companys stockholders under Delaware law, then the Company
may at any time prior to the receipt of the Required Company
Stockholder Vote (but in no event after such time),
(x) furnish information with respect to the Company and the
Company Subsidiaries to the Person making such Takeover Proposal
and its Representatives, but only pursuant to a confidentiality
agreement in customary form that is no less favorable to the
Company than the Confidentiality Agreement;
provided
,
however
, that (1) such confidentiality agreement may
not include any provision calling for an exclusive right to
negotiate with the Company and (2) the Company advises
Parent of all such information delivered to such Person
concurrently with its delivery to such Person and concurrently
with its delivery to such Person the Company delivers to Parent
all such information not previously provided to Parent,
(y) conduct discussions or negotiations with such Person
regarding such Takeover Proposal, and (z) to the extent
permitted pursuant to and in compliance with
Section 9.1(h), enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal.
The Company shall ensure that its Representatives are aware of
the provisions of this Section 7.8(a). Without limiting the
foregoing, it is agreed that any violation of the foregoing
restrictions by the Company Subsidiaries or any Representative
of the Company or any Company Subsidiary shall be deemed to be a
breach of this Section 7.8 by the Company. The Company
shall provide Parent with a correct and complete copy of any
confidentiality agreement entered into pursuant to this
Section 7.8(a) within 24 hours of the execution
thereof.
(b) In addition to the other obligations of the Company set
forth in this Section 7.8, the Company shall promptly
advise Parent, orally and in writing, and in no event later than
24 hours after receipt, if any proposal, offer, inquiry or
other contact is received by, any information is requested from,
or any discussions or negotiations are sought to be initiated or
continued with, the Company in respect of any Takeover Proposal,
and shall, in any such notice to Parent, indicate the identity
of the Person making such proposal, offer, inquiry or other
contact and the terms and conditions of any proposals or offers
or the nature of any inquiries or contacts (and shall include
with such notice copies of any written materials received from
or on behalf of such Person relating to such proposal, offer,
inquiry or request), and thereafter shall promptly keep Parent
informed of all material developments affecting the status and
terms of any such proposals, offers, inquiries or requests (and
the Company shall provide Parent with copies of any additional
written materials received that relate to such proposals,
offers, inquiries or requests) and of the status of any such
discussions or negotiations.
(c) Except as expressly permitted by this
Section 7.8(c), neither the Company Board nor any committee
thereof shall (i) fail to make, withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to
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Parent, the Company Recommendation or the approval or
declaration of advisability by the Company Board of this
Agreement, the Merger and the other Transactions,
(ii) approve or recommend, or propose publicly to approve
or recommend, any Takeover Proposal or (iii) cause or
permit the Company to enter into any letter of intent,
memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement, option agreement, joint venture
agreement, partnership agreement or other agreement constituting
or related to, or which is intended to or is reasonably likely
to lead to, any Takeover Proposal, or resolve or agree to take
any such action (any failure or action described in clause (i),
(ii) or (iii) being referred to as a
Company
Adverse Recommendation Change
).
Notwithstanding the foregoing, the Company Board may, prior to
the receipt of the Required Company Stockholder Vote,
(x) fail to make, withdraw or modify the Company
Recommendation, (y) recommend a Takeover Proposal that
constitutes a Superior Proposal, or (z) to the extent
permitted pursuant to and in compliance with
Section 9.1(h), enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal,
if, in each case, the Company Board determines in good faith,
after consulting with and receiving advice from outside counsel,
that the Company Board is required to make such Company Adverse
Recommendation Change in order for the Company Board to comply
with its fiduciary duties to the Companys stockholders
under Delaware law;
provided
,
however
, that no
Company Adverse Recommendation Change may be made in the absence
of a Superior Proposal and until the fourth Business Day
following Parents receipt of written notice from the
Company advising Parent that the Company Board intends to take
such action and specifying the reasons therefor, including the
terms and conditions of any Superior Proposal that is the basis
for the proposed action by the Company Board, and compliance by
the Company with the provisions of Section 9.1(h).
(d) Nothing in this Agreement shall prohibit the Company
Board from (i) taking and disclosing to the Companys
stockholders a position contemplated by
Rule 14e-2(a)
and
Rule 14d-9
promulgated under the Exchange Act or (ii) from making any
required disclosure to the Companys stockholders, if in
each case the Company Board determines in good faith, after
consultation with outside counsel, that the taking of such
position or the making of such disclosure is necessary in order
for the Company Board to comply with its fiduciary duties to its
stockholders under Delaware law;
provided
,
however
, that in no event shall the Company, the Company
Board or any committee thereof take, or agree or resolve to
take, any action prohibited by Section 7.8(c). Any
disclosure (other than a stop, look and listen or
similar communication of the type contemplated by
Rule 14d-9(f)
under the Exchange Act) made pursuant to this
Section 7.8(d) shall be deemed to be a Company Adverse
Recommendation Change unless the Company Board expressly
reaffirms the Company Recommendation.
Section 7.9.
Indemnification
and Insurance
.
(a) Parent and Merger Sub agree that all rights to
indemnification by the Company now existing in favor of each
Person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time an officer or
director of the Company or any Company Subsidiary (each an
Indemnified Party
) as provided in the Company
Charter Documents, in each case as in effect on the date of this
Agreement, or pursuant to any other agreements in effect on the
date hereof, copies of which have been provided to Parent, shall
be assumed by the Surviving Corporation in the Merger, without
further action, at the Effective Time and shall survive the
Merger and shall remain in full force and effect in accordance
with their terms.
(b) For six years after the Effective Time, to the full
extent permitted under applicable Law (with the parties agreeing
that any limitations on a corporations ability to
indemnify a director or officer under Delaware Law shall be
applicable to the indemnification provided for under this
Section 7.9(b) notwithstanding that such limitations may
not otherwise be applicable), Parent and the Surviving
Corporation (the
Indemnifying Parties
) shall
indemnify, defend and hold harmless each Indemnified Party
against all losses, claims, damages, liabilities, fees,
expenses, judgments and fines arising in whole or in part out of
actions or omissions in their capacity as such occurring at or
prior to the Effective Time (including in respect of this
Agreement), and shall reimburse each Indemnified Party for any
legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such
losses, claims, damages, liabilities, fees, expenses, judgments
and fines as such expenses are incurred;
provided
,
however
, that nothing herein shall impair any rights to
indemnification of any Indemnified Party referred to in
Section 7.9(a).
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(c) Parent shall cause the Surviving Corporation to
maintain the Companys officers and directors
liability insurance policies (complete and accurate copies of
which have been previously provided to Parent), in effect on the
date of this Agreement (the
D&O
Insurance
), for a period of not less than six years
after the Effective Time, but only to the extent related to
actions or omissions prior to the Effective Time;
provided
,
however
, that (i) the Surviving
Corporation may substitute therefor policies of at least the
same coverage and amounts containing terms no less advantageous
to such former directors or officers and (ii) such
substitution shall not result in gaps or lapses of coverage with
respect to matters occurring prior to the Effective Time;
provided further
,
however
, that in no event shall
Parent or the Surviving Corporation be required to expend more
than an amount per year equal to 300% of the last annual
aggregate premium paid prior to the date of this Agreement by
the Company for such insurance (the
Maximum
Amount
) to maintain or procure insurance coverage
pursuant hereto;
provided further
,
however
, that
if the amount of the annual premiums necessary to maintain or
procure such insurance coverage exceeds the Maximum Amount,
Parent and the Surviving Corporation shall procure and maintain
for such six-year period as much coverage as reasonably
practicable for the Maximum Amount. Parent shall have the option
to cause coverage to be extended under the Companys
D&O Insurance by obtaining a six-year tail
policy or policies on terms and conditions no less advantageous
than the Companys existing D&O Insurance, and such
tail policy or policies shall satisfy the provisions
of this Section 7.9(c).
(d) The Surviving Corporation shall not enter into any
settlement of any claim in which the Surviving Corporation is
jointly liable with the Indemnified Party (or would be if joined
in such claim) unless such settlement provides for a full and
final release of all claims asserted or that could have been
asserted against such Indemnified Party.
(e) The obligations of Parent and the Surviving Corporation
under this Section 7.9 shall survive the consummation of
the Merger and shall not be terminated or modified in such a
manner as to adversely affect any Indemnified Party to whom this
Section 7.9 applies without the consent of such affected
Indemnified Party (it being expressly agreed that the
Indemnified Parties to whom this Section 7.9 applies shall
be third party beneficiaries of this Section 7.9, each of
whom may enforce the provisions of this Section 7.9).
Section 7.10.
Section 16
Matters
.
Prior to the Effective Time,
Parent, Merger Sub and the Company shall take all such steps as
may be required to cause the transactions contemplated by
Section 3.4 and any other dispositions of equity securities
of the Company (including derivative securities) in connection
with this Agreement by each individual who is subject to the
reporting requirements of Section 16(a) of the Exchange Act
with respect to the Company to be exempt under
Rule 16b-3
under the Exchange Act in accordance with that certain No-Action
Letter dated January 12, 1999 issued by the SEC regarding
such matters.
Section 7.11.
Stockholder
Litigation
.
The Company shall give Parent
the opportunity to participate in the defense or settlement of
any stockholder litigation against the Company
and/or
its
directors relating to the Merger or any of the other
Transactions, and no such settlement shall be agreed to without
Parents prior written consent.
ARTICLE 8
CONDITIONS
Section 8.1.
Conditions to Each
Partys Obligation To Effect the
Merger
.
The respective obligations of
each party to effect the Merger are subject to the satisfaction
or, to the extent permitted by applicable Law, waiver on or
prior to the Closing Date of each of the following conditions:
(a)
Stockholder Approval
. This
Agreement shall have been adopted by the Required Company
Stockholder Vote.
(b)
HSR Act
. The waiting period
(and any extension thereof) applicable to the Merger and the
other Transactions under the HSR Act shall have been terminated
or shall have expired.
(c)
No Injunctions or
Restraints
. No Judgment issued by a court of
competent jurisdiction or by a Governmental Authority, nor any
Law or other legal restraint or prohibition, shall be in effect
that would make the Merger or the other Transactions illegal or
otherwise prevent the consummation thereof;
provided
,
however
, that the party seeking to assert this condition
shall have complied with the provisions of Section 7.5,
such that if any
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administrative, judicial or legislative action or proceeding is
instituted (or threatened to be instituted) challenging the
Merger or the other Transactions, the Company and Parent shall
each cooperate to reasonably contest and resist any such action
or proceeding, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order
(whether temporary, preliminary or permanent) that is in effect
and that restricts, prevents or prohibits consummation of Merger
or the other Transactions, including by promptly pursuing all
reasonable avenues of administrative and judicial appeal.
Section 8.2.
Conditions
to Obligations of Parent and Merger
Sub
.
The obligations of Parent and Merger
Sub to effect the Merger are further subject to the
satisfaction, or to the extent permitted by applicable Law, the
waiver on or prior to the Closing Date of each of the following
conditions:
(a)
Representations and
Warranties
. (i) The representations and
warranties of the Company contained in Sections 4.1(a) (the
first sentence), 4.2(a) and 4.9 shall be true and correct (other
than, (x) with respect to Section 4.1(a) (the first
sentence) and Section 4.2(a), de minimis inaccuracies and
(y) with respect to Section 4.9, commission or
brokers or finders fees or similar fees or
commissions or reimbursement of expenses payable by the Company
or any Company Subsidiary, in connection with such brokers
or finders services, to any agent, broker, investment
banker, Person or firm acting on behalf of the Company or any
Company Subsidiary or under the Companys or any Company
Subsidiarys authority (except for the Company Financial
Advisor) in connection with any of the Transactions, that, in
the aggregate, would not exceed $100,000) as of the date hereof
and as of the Closing Date (except to the extent expressly made
as of an earlier date, in which case as of such earlier date)
and (ii) the representations and warranties of the Company
contained in this Agreement (other than Sections 4.1(a)
(the first sentence), 4.2(a) and 4.9) shall be true and correct
(without giving effect to any limitation on any representation
or warranty indicated by the words Company Material
Adverse Effect, in all material respects,
in any material respect, material or
materially) as of the date hereof and as of the
Closing Date (except to the extent expressly made as of an
earlier date, in which case as of such earlier date), except in
the case of this clause (ii), where the failure of any such
representations and warranties to be so true and correct would
not, and would not reasonably be expected to, individually or in
the aggregate, have a Company Material Adverse Effect.
(b)
Performance of Obligations of the
Company
. The Company shall have performed in
all material respects all of the obligations, and complied in
all material respects with the agreements and covenants,
required to be performed by or complied with by it under this
Agreement at or prior to the Closing Date.
(c)
Certificates
. Parent and
Merger Sub shall have received certificates executed on behalf
of the Company by the chief executive officer or chief financial
officer of the Company, certifying that the conditions set forth
in Sections 8.2(a) and (b) have been satisfied.
(d)
Litigation
. There shall not be
pending or threatened any Proceeding by a Governmental Authority
(i) seeking to restrain or prohibit the consummation of the
Transactions or seeking to obtain from the Company, Parent or
Merger Sub any damages that would reasonably be expected to have
a Company Material Adverse Effect, (ii) seeking to prohibit
or limit the ownership or operation by the Company, Parent or
any of their respective Subsidiaries of any portion of the
business or assets of the Company, Parent or any of their
respective Subsidiaries, or to compel the Company, Parent or any
of their respective Subsidiaries to dispose of or hold separate
any portion of the business or assets of the Company, Parent or
any of their respective Subsidiaries, as a result of any
Transaction, (iii) seeking to impose limitations on the
ability of Parent or Merger Sub to acquire or hold, or exercise
full rights of ownership of, any shares of Company Common Stock,
including the right to vote the Company Common Stock purchased
by it on all matters properly presented to the stockholders of
the Company, or (iv) seeking to prohibit Parent or any of
its Subsidiaries from effectively controlling the business or
operations of the Company and the Company Subsidiaries.
(e)
Absence of Material Adverse
Effect
. Since the date of this Agreement,
there shall not have occurred any event or events that,
individually or in the aggregate, has had or would reasonably be
expected to have, a Company Material Adverse Effect.
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Section 8.3.
Conditions
to Obligation of the Company
.
The
obligation of the Company to effect the Merger is further
subject to the satisfaction, or to the extent permitted by
applicable Law, the waiver on or prior to the Closing Date of
each of the following conditions:
(a)
Representations and
Warranties
.
The representations and
warranties of Parent and Merger Sub contained in this Agreement
shall be true and correct (without giving effect to any
limitation on any representation or warranty indicated by the
words Parent Material Adverse Effect, in all
material respects, in any material respect,
material or materially) as of the date
hereof and as of the Closing Date (except to the extent
expressly made as of an earlier date, in which case as of such
earlier date), except where the failure of any such
representations and warranties to be so true and correct would
not, and would not reasonably be expected to, individually or in
the aggregate, have a Parent Material Adverse Effect.
(b)
Performance of Obligations of Parent and Merger
Sub
. Parent and Merger Sub shall have
performed in all material respects all of the obligations, and
complied in all material respects with the agreements and
covenants, required to be performed by or complied with by them
under this Agreement at or prior to the Closing Date.
(c)
Certificates
. The Company
shall have received certificates executed on behalf of Parent by
the chief executive officer or chief financial officer of
Parent, certifying that the conditions set forth in
Sections 8.3(a) and (b) have been satisfied.
Section 8.4.
Frustration
of Closing Conditions
.
None of the
Company, Parent or Merger Sub may rely, either as a basis for
not consummating the Merger or terminating this Agreement and
abandoning the Merger, on the failure of any conditions set
forth in Sections 8.1, 8.2 and 8.3 of this Agreement, as
the case may be, to be satisfied if such failure was caused by
such partys breach of any provision of this Agreement or
the failure to use reasonable best efforts to consummate the
Merger and the other Transactions, as required by and subject to
Section 7.5.
ARTICLE 9
TERMINATION,
AMENDMENT AND WAIVER
Section 9.1.
Termination
.
This
Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, whether before or after
this Agreement has been adopted by the Required Company
Stockholder Vote:
(a) by mutual written consent of Parent, Merger Sub and the
Company;
(b) by either the Company or Parent, if the Merger has not
been consummated on or prior to November 15, 2008 (the
Outside Date
);
provided
,
however
, that the right to terminate this Agreement
pursuant to this Section 9.1(b) shall not be available to
any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the Merger not
being consummated on or prior to the Outside Date;
(c) by either the Company or Parent, if any Judgment issued
by a court of competent jurisdiction or by a Governmental
Authority, or Law or other legal restraint or prohibition in
each case making the Merger illegal or permanently restraining,
enjoining or otherwise preventing the consummation thereof shall
be in effect and shall have become final and nonappealable;
provided
,
however
, that the party seeking the
right to terminate this Agreement pursuant to this
Section 9.1(c) shall have complied with the provisions of
Section 7.5 and the right to terminate pursuant to this
Section 9.1(c) shall not be available if the issuance of
such legal restraint or prohibition was primarily due to the
failure of such party to perform any of its obligations under
this Agreement;
(d) by either the Company or Parent, if upon a vote at a
duly held Company Stockholders Meeting the Required Company
Stockholder Vote shall not have been obtained;
(e) by Parent, if prior to the receipt of the Required
Company Stockholder Vote (i) a Company Adverse
Recommendation Change shall have occurred, (ii) the Company
Board or any committee thereof shall not have rejected any
tender or exchange offer that is commenced or a Takeover
Proposal (replacing 15% in the definition thereof
with 50%) that is made in writing to the Company Board and
publicly disseminated within 10 Business Days of the
commencement or public dissemination thereof (including, for
these purposes, by taking no position with respect to the
acceptance by the Companys stockholders of a tender offer
or exchange offer within such period,
A-48
which shall constitute a failure to reject such offer), or
(iii) the Company shall have violated or breached in any
material respect any of its obligations under Section 7.8;
(f) by Parent, if (i) there shall have occurred any
Effect that, individually or in the aggregate, has had or would
reasonably be expected to have, a Company Material Adverse
Effect or (ii) the Company shall have breached any of its
representations or warranties or failed to perform in any
material respect any of its covenants or other agreements in
each case contained in this Agreement, which breach or failure
to perform (A) would give rise to the failure of a
condition set forth in Section 8.2, and (B) is
incapable of being cured or has not been cured by the Company
within 20 calendar days after written notice has been given by
Parent to the Company of such breach or failure to perform;
(g) by the Company, if Parent shall have breached any of
its representations or warranties or failed to perform in any
material respect any of its covenants or other agreements in
each case contained in this Agreement, which breach or failure
to perform (i) has had or would reasonably be expected to
have a Parent Material Adverse Effect, and (ii) is
incapable of being cured or has not been cured by Parent within
20 calendar days after written notice has been given by the
Company to Parent of such breach or failure to perform; or
(h) by the Company, if prior to the receipt of the Required
Company Stockholder Vote, (i) the Company is in compliance
with its obligations under Section 7.8, (ii) the
Company Board has received a Takeover Proposal that it has
determined in good faith, after consultation with its financial
advisor of nationally recognized reputation and outside counsel,
constitutes a Superior Proposal, (iii) the Company has
notified Parent in writing that it intends to enter into a
definitive agreement implementing such Superior Proposal,
attaching the most current version of such agreement (including
any amendments, supplements or modifications) to such notice (a
Superior Proposal Notice
),
(iv) during the four Business Day period following
Parents receipt of a Superior Proposal Notice,
(A) the Company shall have offered to negotiate with (and,
if accepted, negotiated in good faith with), and shall have
caused its respective financial and legal advisors to offer to
negotiate with (and, if accepted, negotiate in good faith with),
Parent in making adjustments to the terms and conditions of this
Agreement and (B) the Company Board shall have determined
in good faith, after the end of such four Business Day period,
and after considering the results of such negotiations and the
revised proposals made by Parent, if any, that the Superior
Proposal giving rise to such notice continues to be a Superior
Proposal;
provided
,
however
, that any amendment,
supplement or modification to the financial terms or other
material terms of any Takeover Proposal shall be deemed a new
Takeover Proposal and the Company may not terminate this
Agreement pursuant to this Section 9.1(h) unless the
Company has complied with the requirements of this
Section 9.1(h) with respect to such new Takeover Proposal,
including sending a Superior Proposal Notice with respect
to such new Takeover Proposal and offering to negotiate for four
Business Days from such new Superior Proposal Notice,
(v) the Company prior to, or concurrently with, such
termination pays to Parent in immediately available funds the
fee required to be paid pursuant to Section 9.3(b)(iv), and
(vi) the Company Board concurrently approves, and the
Company concurrently enters into, a definitive agreement
providing for the implementation of such Superior Proposal.
The party desiring to terminate this Agreement shall give
written notice of such termination to the other party specifying
the provision hereof pursuant to which such termination is
effected.
Section 9.2.
Effect
of Termination
.
Upon the termination of
this Agreement pursuant to Section 9.1, this Agreement
shall forthwith become null and void and there shall be no
liability or obligation on the part of any party hereto, except
for the provisions of (i) Section 4.9,
(ii) Section 5.5, (iii) Section 7.4,
(iv) the proviso in Section 7.6, (v) the last
sentence of Section 7.7(a), (vi) Section 7.7(b),
(vii) this Section 9.2, (viii) Section 9.3,
and (ix) Article 10, which shall survive such
termination;
provided
,
however
, that nothing
herein shall relieve any party from liability for any willful
breach of this Agreement prior to such termination. The
Confidentiality Agreement shall not be affected by the
termination of this Agreement.
Section 9.3.
Fees
and Expenses
.
(a) Except as set forth in this Section 9.3, all costs
and expenses incurred in connection with this Agreement and the
Transactions shall be paid by the party incurring such expenses,
whether or not the Merger or any of the other Transactions are
consummated.
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(b) In the event that:
(i) (A) a Takeover Proposal shall have been made to
the Company or shall have been made directly to its stockholders
generally or any Person shall have publicly announced an
intention to make a Takeover Proposal and thereafter,
(B) this Agreement is terminated by the Company or Parent
pursuant to Section 9.1(b) (except if the failure to
consummate the Merger prior to the Outside Date was caused by
delay resulting from any Governmental Authority) or
Section 9.1(d) and (C) the Company enters into a
definitive agreement with respect to, or consummates a
transaction contemplated by, any Takeover Proposal (replacing
15% in the definition thereof with 50%)
within 12 months of the date this Agreement is terminated
(so long as, in the case of a transaction that has not been
consummated within such period, such transaction is thereafter
consummated);
(ii) (A) a Takeover Proposal shall have been made to
the Company or shall have been made directly to its stockholders
generally or any Person shall have publicly announced an
intention to make a Takeover Proposal and thereafter,
(B) this Agreement is terminated by Parent pursuant to
Section 9.1(f)(ii) and (C) the Company enters into a
definitive agreement with respect to, or consummates a
transaction contemplated by any Takeover Proposal (replacing
15% in the definition thereof with 50%)
within 12 months of the date this Agreement is terminated
(so long as, in the case of a transaction that has not been
consummated within such period, such transaction is thereafter
consummated);
(iii) this Agreement is terminated by Parent pursuant to
Section 9.1(e);
(iv) this Agreement is terminated by the Company pursuant
to Section 9.1(h); or
(v) (A) this Agreement is terminated by the Company or
Parent pursuant to Section 9.1(b) (except if the failure to
consummate the Merger prior to the Outside Date was caused by
delay resulting from any Governmental Authority) or
Section 9.1(d) or by Parent pursuant to
Section 9.1(f)(ii) and (B) the Company enters into a
definitive agreement with any Significant Stockholder with
respect to, or consummates a transaction contemplated by, any
Takeover Proposal (replacing the percentage of equity securities
of the Company directly or indirectly owned by such Significant
Stockholder as of the date of this Agreement in the definition
thereof with 50%) within 12 months of the date
this Agreement is terminated (so long as, in the case of a
transaction that has not been consummated within such period,
such transaction is thereafter consummated);
then in any such event under clause (i), (ii), (iii) or
(iv) of this Section 9.3(b), the Company shall pay to
Parent a termination fee of $2,000,000 (the
Termination
Fee
), plus an additional amount not to exceed $250,000
for the Expenses of Parent. Any payment required to be made
pursuant to clause (i), clause (ii) or clause (v) of
this Section 9.3(b) shall be made to Parent promptly
following the consummation of the transaction contemplated by
the Takeover Proposal referred to therein (and in any event not
later than two Business Days after delivery to the Company of
notice of demand for payment); any payment required to be made
pursuant to clause (iii) of this Section 9.3(b) shall
be made to Parent promptly following termination of this
Agreement by Parent as set forth in such clause (iii) (and in
any event not later than two Business Days after delivery to the
Company of notice of demand for payment) and any payment
required to be made pursuant to clause (iv) of this
Section 9.3(b) shall be made to Parent at the time provided
for in clause (v) of Section 9.1(h). In circumstances
in which Expenses are payable or reimbursable pursuant to this
Section 9.3(b), such payment shall be made to Parent not
later than two Business Days after delivery to the Company of an
itemization setting forth in reasonable detail all Expenses of
Parent (which itemization may be supplemented and updated from
time to time by Parent until the 60th day after Parent
delivers such notice of demand for payment). All such payments
shall be made by wire transfer of immediately available funds to
an account to be designated by Parent.
(c) The Company acknowledges that the agreement contained
in Section 9.3(b) is an integral part of the transactions
contemplated by this Agreement, and that, without that
agreement, Parent would not enter into this Agreement. If the
Company fails to make payment of such fee within the applicable
time period specified in Section 9.3(b) and Parent
commences a suit to collect such fee, the Company shall
indemnify and reimburse Parent for its fees and expenses
(including attorneys fees and expenses) incurred in connection
with such suit and shall pay
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interest on the amount of the payment at the prime rate as
published in The Wall Street Journal in effect on the date the
fee was payable pursuant to Section 9.3(b).
Section 9.4.
Amendment
.
This
Agreement may be amended by the parties hereto by action taken
by or on behalf of the respective Boards of Directors of the
Company, Parent and Merger Sub at any time prior to the
Effective Time, whether before or after approval of this
Agreement and the Transactions by the stockholders of the
Company;
provided
,
however
, that after any such
approval by the stockholders of the Company, no amendment shall
be made that in any way materially adversely affects the rights
of such stockholders (other than a termination of this Agreement
in accordance with the provisions hereof) without the further
approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of
the parties hereto.
Section 9.5.
Waiver
.
Any
failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived at any
time prior to the Effective Time by any of the parties entitled
to the benefit thereof only by a written instrument signed by
each such party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation,
representation, warranty, covenant, agreement or condition shall
not operate as a waiver of or estoppel with respect to, any
subsequent or other failure. No failure on the part of any party
to exercise any power, right, privilege or remedy under this
Agreement, and no delay on the part of any party in exercising
any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power,
right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or
remedy.
ARTICLE 10
GENERAL
PROVISIONS
Section 10.1.
Notices
.
All
notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested)
or sent by overnight courier or by facsimile (upon confirmation
of receipt) to the parties at the following addresses or at such
other addresses as shall be specified by the parties by like
notice:
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(a)
|
if to Parent or Merger Sub:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: Gregg S. Talbert
Fax:
(317) 276-5996
with a copy to:
Covington & Burling LLP
1201 Pennsylvania Avenue, N.W.
Washington, DC 20004
Attention: Catherine J. Dargan
Fax:
(202) 778-5567
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(b)
|
if to the Company:
SGX Pharmaceuticals, Inc.
10505 Roselle Street
San Diego, California 92121
Attention: Michael Grey and Annette North
Fax:
(858) 558-4859
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A-51
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with a copy to:
Cooley Godward Kronish LLP
4401 Eastgate Mall
San Diego, CA 92122
Attention: Frederick T. Muto and J. Patrick Loofbourrow
Fax:
(858) 550-6420
|
Notice so given shall (in the case of notice so given by mail)
be deemed to be given when received and (in the case of notice
so given by cable, telegram, facsimile, telex or personal
delivery) on the date of actual transmission or (as the case may
be) personal delivery.
Section 10.2.
Representations
and Warranties
.
The representations and
warranties contained in this Agreement shall not survive the
Merger.
Section 10.3.
Knowledge
Qualifiers
.
To the knowledge of
the Company
and similar phrases mean the actual
knowledge of the officers and employees listed on
Schedule III and all knowledge which was, or would
reasonably have been expected to be, obtained by such Persons
based on such Persons position or office.
Section 10.4.
Interpretations
.
When
a reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or
Exhibit to this Agreement unless otherwise indicated. The words
include, includes and
including when used herein shall be deemed in each
case to be followed by the words without limitation.
Any references in this Agreement to the date hereof
refers to the date of execution of this Agreement. The word
or shall not be exclusive. The table of contents,
index of defined terms 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. This Agreement
shall be construed without regard to any presumption or rule
requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.
Section 10.5.
Governing
Law; Jurisdiction
.
(a) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware regardless of
the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
(b) Each of the parties hereto (i) consents to submit
itself to the personal jurisdiction of any state or federal
court located in the State of Delaware or in the Court of
Chancery of the State of Delaware in the event any dispute
arises out of this Agreement, the Merger or any of the other
Transactions, (ii) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request
for leave from any such court, and (iii) agrees that it
will not bring any action relating to this Agreement or any of
the Transactions in any court other than a state or federal
court located in the State of Delaware or the Court of Chancery
of the State of Delaware.
(c) Each of the parties to this Agreement irrevocably
waives any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or any
of the Transactions.
Section 10.6.
Counterparts;
Facsimile Transmission of
Signatures
.
This Agreement may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, and delivered by means of
facsimile transmission or otherwise, each of which when so
executed and delivered shall be deemed to be an original and all
of which when taken together shall constitute one and the same
agreement.
Section 10.7.
Assignment;
No Third Party Beneficiaries
.
(a) This Agreement and all of the provisions hereto shall
be binding upon and inure to the benefit of, and be enforceable
by, the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations set forth herein shall be
assigned by any party hereto without the prior written consent
of the other parties hereto and any purported assignment without
such consent shall be void, except that Parent and Merger Sub,
upon prior written notice to the Company, may assign, in their
sole discretion, any of or
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all of their respective rights, interests and obligations under
this Agreement to Parent or to any Affiliate of Parent, but no
such assignment shall relieve Parent or Merger Sub of any of
their respective obligations hereunder.
(b) Nothing in this Agreement shall be construed as giving
any Person, other than the parties hereto and their heirs,
successors, legal representatives and permitted assigns, any
right, remedy or claim under or in respect of this Agreement or
any provision hereof, except that from and after the Effective
Time each Indemnified Party is an intended third party
beneficiary of Section 7.9, such Persons may specifically
enforce such provisions. No covenant or other undertakings in
this Agreement shall constitute an amendment to any employee
benefit plan, program, policy or arrangement, and any covenant
or undertaking that suggests that an employee benefit plan,
program, policy or arrangement will be amended shall be
effective only upon the adoption of a written amendment in
accordance with the amendment procedures of such plan, program,
policy or arrangement.
Section 10.8.
Severability
.
If
any provision of this Agreement shall be held to be illegal,
invalid or unenforceable under any applicable Law, then such
contravention or invalidity shall not invalidate the entire
Agreement. Such provision shall be deemed to be modified to the
extent necessary to render it legal, valid and enforceable, and
if no such modification shall render it legal, valid and
enforceable, then this Agreement shall be construed as if not
containing the provision held to be invalid, and the rights and
obligations of the parties shall be construed and enforced
accordingly.
Section 10.9.
Entire
Agreement
.
This Agreement (including the
Schedules and Exhibits hereto), the Company Disclosure Letter,
the Voting Agreement and the Confidentiality Agreement contain
all of the terms of the understandings of the parties hereto
with respect to the subject matter hereof or thereof.
Section 10.10.
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
or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
[
The remainder of this page is intentionally blank.
]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed as of the date first
written above.
SGX PHARMACEUTICALS, INC.
Name: Mike Grey
ELI LILLY AND COMPANY
Gino Santini, Senior Vice President, Corporate
Strategy and Business Development
REM MERGER SUB, INC.
Gregg S. Talbert, President and Treasurer
A-54
ANNEX B
PRIVILEGED
AND CONFIDENTIAL
Voting Agreement,
dated as of July 8, 2008 (this
Agreement
), among Eli Lilly and Company, an
Indiana corporation
(Parent)
, and each of the
stockholders listed on Schedule I to this Agreement (each,
a
Stockholder
and, collectively, the
Stockholders
).
Introduction
Parent, REM
Merger Sub,
Inc.
, a Delaware corporation and wholly owned subsidiary
of Parent
(Merger Sub)
, and SGX
Pharmaceuticals, Inc., a Delaware corporation (the
Company
), propose to enter into an Agreement
and Plan of Merger, dated as of the date hereof (as it may be
amended or supplemented from time to time, the
Merger
Agreement
), pursuant to which, upon the terms and
subject to the conditions thereof, Merger Sub will be merged
with and into the Company, and the Company will be the surviving
entity (the
Merger
).
As of the date hereof, each Stockholder is the record and
beneficial owner of the number of shares (the
Shares
) of common stock, par value
$0.001 per share, of the Company (the
Company
Common Stock
), set forth opposite such
Stockholders name on Schedule I attached hereto (such
Shares, together with any other shares of capital stock of the
Company acquired by such Stockholder after the date hereof and
during the term of this Agreement (including through the
exercise of any stock options, warrants or any other convertible
or exchangeable securities or similar instruments), being
collectively referred to herein as such Stockholders
Subject Shares
).
As a condition to its willingness to enter into the Merger
Agreement, Parent has required that each Stockholder agree, and
each Stockholder is willing to agree, to the matters set forth
herein.
In consideration of the foregoing and the agreements set forth
below, the parties hereto agree as follows:
Section 1.
Defined
Terms
. Capitalized terms used but not defined
herein have the meanings set forth in the Merger Agreement.
Section 2.
Voting
of Shares
.
(a)
Voting
. For so long as this
Agreement is in effect, each Stockholder hereby agrees to vote
(or cause to be voted) all of such Stockholders Subject
Shares, at every annual, special or other meeting of the
stockholders of the Company, and at any adjournment or
adjournments thereof, or pursuant to any consent in lieu of a
meeting or otherwise:
(i) in favor of the Merger and the adoption of the Merger
Agreement and the approval of the Transactions, and any actions
required in furtherance thereof;
(ii) against any action or agreement that would result in a
breach in any material respect of any covenant, representation
or warranty or any other obligation of the Company under the
Merger Agreement; and
(iii) against (A) any extraordinary corporate
transaction, such as a merger, rights offering, reorganization,
recapitalization or liquidation involving the Company or any of
its subsidiaries (other than the Merger), (B) a sale or
transfer of a material amount of assets or capital stock of the
Company or any of its subsidiaries or (C) any action that
is intended, or would reasonably be expected, to impede,
interfere with, prevent, delay, postpone or adversely affect the
Transactions.
(b)
Grant of Irrevocable
Proxy
. Such Stockholder hereby irrevocably
grants to, and appoints, Parent and any individual who shall
hereafter be designated by Parent, and each of them, such
Stockholders proxy and
attorney-in-fact
(with full power of substitution), for and in the name, place
and stead of such Stockholder, to vote, or cause to be voted,
such Stockholders Subject Shares, or grant a consent or
approval in respect of such Stockholders Subject Shares,
at every annual, special or other meeting of the stockholders of
the Company, and at any adjournment or adjournments thereof, or
pursuant to any consent in lieu of a meeting or otherwise, with
respect to the matters and in the manner specified in
Section 2(a) hereof (and not with respect to any other
matters);
provided
,
however
, that the foregoing
proxy shall terminate immediately upon termination of this
Agreement in accordance with its terms. Each Stockholder
understands and acknowledges that Parent is entering into the
Merger Agreement in reliance upon the
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Stockholders execution and delivery of this Agreement.
Each Stockholder hereby affirms that the irrevocable proxy set
forth in this Section 2(b) is given in connection with the
execution of the Merger Agreement, and that such irrevocable
proxy is given to secure the performance of the duties of such
Stockholder under this Agreement. Subject to this
Section 2(b), this grant of proxy is coupled with an
interest and may under no circumstances be revoked. Each
Stockholder hereby ratifies and confirms all actions (including
voting or causing to be voted such Stockholders Subject
Shares or granting an approval or consent in respect of such
Stockholders Subject Shares) that may be lawfully taken by
such irrevocable proxy in accordance herewith. Such irrevocable
proxy is executed and intended to be irrevocable in accordance
with the provisions of Section 212 of the Delaware General
Corporation Law, subject to the terms hereof.
Section 3.
Fiduciary
Responsibilities
. No Stockholder executing
this Agreement who is or becomes during the term hereof a
director or officer of the Company makes (or shall be deemed to
have made) any agreement or understanding herein in his or her
capacity as such director or officer. Without limiting the
generality of the foregoing, each Stockholder signs solely in
his, her or its capacity as the record and beneficial owner of
such Stockholders Subject Shares and nothing herein shall
limit or affect any actions taken by such Stockholder (or a
designee of such Stockholder) in his or her capacity as an
officer or director of the Company in exercising his or her or
the Companys or the Companys Board of
Directors rights in connection with the Merger Agreement
or otherwise and such actions shall not be deemed to be a breach
of this Agreement.
Section 4.
Representations
and Warranties of Stockholder
. Each
Stockholder, severally and not jointly, represents and warrants
to Parent as follows as of the date hereof:
(a)
Binding Agreement
. Such
Stockholder has the capacity to execute and deliver this
Agreement and to perform its obligations hereunder. Such
Stockholder has duly and validly executed and delivered this
Agreement and this Agreement constitutes a legal, valid and
binding obligation of such Stockholder, enforceable against such
Stockholder in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting
creditors rights generally and by general equitable
principles (regardless of whether enforceability is considered
in a proceeding in equity or at law).
(b)
No Conflict
. Neither the
execution and delivery of this Agreement by such Stockholder,
nor the performance by such Stockholder of its obligations
hereunder will (i) require any consent, approval,
authorization or permit of, registration, declaration or filing
(except for such filings as may be required under the federal
securities laws, the HSR Act or as would not prevent, delay or
otherwise impair such Stockholders ability to perform its
obligations hereunder) with, or notification to, any
Governmental Authority, (ii) if such Stockholder is an
entity, result in a violation of, or default under, or conflict
with any provision of its certificate of incorporation, bylaws,
partnership agreement, limited liability company agreement or
similar organizational documents, (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, cancellation, or acceleration) under any
contract, trust, agreement, instrument, commitment, arrangement
or understanding applicable to such Stockholder or such
Stockholders Subject Shares, or result in the creation of
a security interest, lien, charge, encumbrance, equity or claim
with respect to any of such Stockholders Subject Shares,
except, in the case of clause (iii), as would not prevent,
delay or otherwise impair such Stockholders ability to
perform its obligations hereunder, (iv) require any
consent, authorization or approval of any Person other than a
Governmental Authority, except, in the case of clause (iv),
as would not prevent, delay or otherwise impair such
Stockholders ability to perform its obligations hereunder
or (v) violate or conflict with any order, writ,
injunction, decree, rule, regulation or law applicable to such
Stockholder or such Stockholders Subject Shares. If such
Stockholder is a married individual and such Stockholders
Subject Shares constitute community property or otherwise need
spousal approval in order for this Agreement to be a legal,
valid and binding obligation of such Stockholder, this Agreement
has been duly authorized, executed and delivered by, and
constitutes a legal, valid and binding obligation of, such
Stockholders spouse, enforceable against such spouse in
accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or
other similar laws affecting creditors rights generally
and by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at
law).
(c)
Ownership of Shares
. Such
Stockholder is the record and beneficial owner of the Shares set
forth opposite such Stockholders name on Schedule I
attached hereto free and clear of any security interests, liens,
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charges, encumbrances, equities, claims, options or limitations
of whatever nature and free of any other limitation or
restriction (including any restriction on the right to vote,
sell or otherwise dispose of such Shares), except for any such
encumbrances arising hereunder. There are no outstanding
options, shares of Company Common Stock subject to vesting or
other rights to acquire from such Stockholder, or obligations of
such Stockholder to sell or to dispose of, any of the Shares set
forth opposite such Stockholders name on Schedule I
attached hereto. Except as provided in Section 2 hereof,
such Stockholder holds exclusive power to vote the Shares set
forth opposite such Stockholders name on Schedule I
attached hereto. As of the date of this Agreement, the Shares
set forth opposite such Stockholders name on such
Schedule I attached hereto represent all of the shares of
capital stock of the Company beneficially owned by such
Stockholder.
Section 5.
Representations
and Warranties of Parent
. Parent represents
and warrants to the Stockholders as follows as of the date
hereof:
(a)
Binding Agreement
. Parent is a
corporation organized, validly existing and in good standing
under the laws of the State of Indiana and has full corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Parent and the consummation of
the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Parent, and no other
corporate proceedings on the part of Parent are necessary to
authorize the execution, delivery and performance of this
Agreement by Parent and the consummation of the transactions
contemplated hereby (except as described in Section 4.3 of
the Merger Agreement). Parent has duly and validly executed this
Agreement and this Agreement constitutes a legal, valid and
binding obligation of Parent, enforceable against Parent in
accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or
other similar laws affecting creditors rights generally
and by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at
law).
(b)
No Conflict
. Neither the
execution and delivery by Parent of this Agreement, nor the
performance by Parent of its obligations hereunder will
(i) require any consent, approval, authorization or permit
of, registration, declaration or filing (except for such filings
as may be required under the federal securities laws, the HSR
Act or as would not be expected to prevent, delay or otherwise
impair Parents ability to perform its obligations
hereunder) with, or notification to, any governmental entity,
(ii) result in a violation of, or default under, or
conflict with any provision of its organizational documents,
(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, cancellation, or
acceleration) under any contract, trust, agreement, instrument,
commitment, arrangement or understanding applicable to Parent,
except, in the case of clause (iii), as would not prevent,
delay or otherwise impair Parents ability to perform its
obligations hereunder, (iv) require any consent,
authorization or approval of any Person other than a
governmental entity, except, in the case of clause (iv), as
would not prevent, delay or otherwise impair such Parents
ability to perform its obligations hereunder or (v) violate
or conflict with any order, writ, injunction, decree, rule,
regulation or law applicable to Parent.
Section 6.
Transfer
and Other Restrictions
. For so long as this
Agreement is in effect:
(a)
Certain Prohibited
Transfers
. Each Stockholder agrees not to:
(i) sell, transfer, pledge, encumber, assign or otherwise
dispose of (collectively, the
Transfer
), or
enter into any contract, option or other arrangement or
understanding with respect to the Transfer of, such
Stockholders Subject Shares or any interest contained
therein;
(ii) grant any proxies or powers of attorney or enter into
a voting agreement or other arrangement with respect to such
Stockholders Subject Shares, other than this Agreement;
(iii) enter into, or deposit such Stockholders
Subject Shares into, a voting trust or take any other action
which would, or could reasonably be expected to, result in a
diminution of the voting power represented by any of such
Stockholders Subject Shares; or
(iv) commit or agree to take any of the foregoing actions.
Notwithstanding the foregoing, nothing in this Agreement shall
prohibit a Transfer of Subject Shares by a Stockholder
(1) if the Stockholder is an individual (x) to any
member of such Stockholders immediate family, or to
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a trust for the benefit of such Stockholder or any member of
such Stockholders immediate family, or (y) upon the
death of such Stockholder, or (2) if the Stockholder is a
partnership or limited liability company, to one or more
partners or members of such Stockholder or to an affiliated
corporation under common control with such Stockholder;
provided
,
however
, that a Transfer referred to in
this sentence shall be permitted only if, (A) as a
precondition to such Transfer, the transferee agrees in a
writing, reasonably satisfactory in form and substance to
Parent, to be bound by all of the terms of this Agreement as a
Stockholder hereunder and (B) such Transfer shall not
result in the incurrence of any Lien upon any shares of Company
Common Stock.
(b)
Efforts
. Each Stockholder
agrees not to take any action which would make any
representation or warranty of such Stockholder herein untrue or
incorrect in any material respect as of any time prior to the
termination hereof or take any action that would have the effect
of preventing or disabling it from performing its obligations
under this Agreement. Subject to Section 3 hereof, for so
long as this Agreement is in effect, each Stockholder and Parent
shall use their reasonable best efforts to take, or cause to be
taken, all actions (including executing and delivering
additional documents) and do, or cause to be done, and to assist
and cooperate with the other parties hereto in doing, all
things, in each case, as may reasonably be necessary or
desirable to carry out the provisions of this Agreement.
(c)
Additional Shares
. In the
event (i) of any stock dividend, stock split,
recapitalization, reclassification, combination or exchange of
shares of capital stock of the Company on, of or affecting any
Stockholders Subject Shares or (ii) any Stockholder
becomes the beneficial owner of any additional shares of Company
Common Stock or other securities entitling the holder thereof to
vote or give consent with respect to the matters set forth in
Section 2(a) hereof, then the terms of this Agreement shall
apply to the shares of capital stock or other securities of the
Company held by such Stockholder immediately following the
effectiveness of the events described in clause (i) or such
Stockholder becoming the beneficial owner thereof, as described
in clause (ii), as though they were such Stockholders
Subject Shares hereunder. Each Stockholder hereby agrees, while
this Agreement is in effect, to notify Parent of the number of
any new shares of Company Common Stock acquired by such
Stockholder, if any, after the date hereof.
Section 7.
Appraisal
Rights
.
Each Stockholder hereby agrees not to
exercise any appraisal rights or any dissenters rights
that such Stockholder may have (whether under applicable law or
otherwise) or could potentially have or acquire in connection
with the Merger Agreement and the Transactions.
Section 8.
No
Solicitation
. For so long as this Agreement
is in effect, no Stockholder shall, nor shall such Stockholder
permit any investment banker, attorney or other advisor or
representative of the Stockholder to, directly or indirectly
through another Person, solicit, initiate or encourage, or take
any other action to facilitate, any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal;
provided
,
however
,
that any action which is permitted by the Merger Agreement to be
taken by a stockholder in his or her capacity as a director or
officer or which is permitted by Section 3 hereof shall not
be prohibited by the foregoing.
Section 9.
Specific
Enforcement; Jurisdiction
. The parties hereto
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in
accordance with the terms hereof or were otherwise breached and
that the non-breaching party shall be entitled to specific
performance of the terms hereof in addition to any other remedy
which may be available at law or in equity. It is accordingly
agreed that the non-breaching party will 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 state or federal court located in the State of
Delaware or in the Court of Chancery of the State of Delaware,
the foregoing being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself to the
personal jurisdiction of any state or federal court located in
the State of Delaware or in the Court of Chancery of the State
of Delaware in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for
leave from any such court, and (c) agrees that it will not
bring any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other
than a state or federal court located in the State of Delaware
or the Court of Chancery of the State of Delaware.
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Section 10.
Termination
. This
Agreement (including any proxies granted hereunder) shall
terminate and cease to have any force or effect on the earliest
of (a) the termination of the Merger Agreement in
accordance with its terms, (b) with respect to any
Stockholder, the written agreement of such Stockholder and
Parent to terminate this Agreement, (c) the consummation of
the Merger, and (d) the amendment of the Merger Agreement
to alter the Merger Consideration in a manner adverse to the
Stockholders unless such amendment has been consented to by the
Stockholders in writing prior to or simultaneously with such
amendment;
provided
,
however
, that
(i) Sections 9 through 19 shall survive any
termination of this Agreement and (ii) termination of this
Agreement shall not relieve any party from liability for any
breach of its obligations hereunder committed prior to such
termination.
Section 11.
Notices
. All
notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested)
or sent by overnight carrier or by facsimile (upon confirmation
of receipt) to the parties at the following addresses or at such
other as shall be specified by the parties by like notice:
(a) if to Parent, to the appropriate address set forth in
Section 10.1 of the Merger Agreement; and (b) if to a
Stockholder, to the appropriate address set forth on
Schedule I hereto.
Section 12.
Certain
Events
. Each Stockholder agrees that, while
in effect, this Agreement and the obligations hereunder shall
attach to such Stockholders Subject Shares and shall be
binding upon any person or entity to which legal or beneficial
ownership of such Stockholders Subject Shares shall pass,
whether by operation of law or otherwise, including such
Stockholders heirs, guardians, administrators or
successors.
Section 13.
Entire
Agreement
. This Agreement (including the
documents and instruments referred to herein) constitutes the
entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof.
Section 14.
Amendment
. This
Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement
executed by the parties hereto;
provided
,
however
,
that with respect to the obligations of any individual
Stockholder under this Agreement, this Agreement may be amended
with the approval of such Stockholder and Parent notwithstanding
the failure to obtain the approval of other Stockholders.
Section 15.
Successors
and Assigns
. This Agreement shall not be
assigned by a merger, operation of law or otherwise without the
prior written consent of the other parties hereto, except as
expressly provided by Section 6(a). This Agreement will be
binding upon, inure to the benefit of and be enforceable by each
party and such partys heirs, beneficiaries, executors,
successors, representatives and permitted assigns.
Section 16.
Counterparts
. This
Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, and delivered
by means of facsimile transmission or otherwise, each of which
when so executed and delivered shall be deemed to be an original
and all of which when taken together shall constitute one and
the same agreement.
Section 17.
GOVERNING
LAW
. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
Section 18.
Severability
. If
any provision of this Agreement shall be held to be illegal,
invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire
Agreement. Such provision shall be deemed to be modified to the
extent necessary to render it legal, valid and enforceable, and
if no such modification shall render it legal, valid and
enforceable, then this Agreement shall be construed as if not
containing the provision held to be invalid, and the rights and
obligations of the parties shall be construed and enforced
accordingly.
Section 19.
Headings
. The
headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or
interpretation of this Agreement.
B-5
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed, individually or by its respective
officer thereunto duly authorized, as of the date first written
above.
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Eli Lilly and Company
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By: /s/ Gino Santini
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Gino Santini Senior Vice President,
Corporate Strategy and Business Development
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Stockholders
:
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/s/ Michael Grey
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/s/ Stephen K. Burley
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Michael Grey
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Stephen K. Burley
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/s/ W. Todd Myers
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/s/ Siegfried Reich
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W. Todd Myers
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Siegfried Reich
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/s/ Karin Eastham
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/s/ Christopher S. Henney
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Karin Eastham
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Christopher S. Henney
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BAVP, L.P.
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By: Scale Venture Management I, LLC
its general partner
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Name: Lou Bock
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Title:Managing Director
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ATLAS VENTURE FUND III, L.P. ATLAS VENTURE
ENTREPRENEURS FUND III, L.P.
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ATLAS VENTURE FUND IV, L.P. ATLAS VENTURE ENTREPRENEURS
FUND IV, L.P.
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By: Atlas Venture Associates III, L.P.
their general partner
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By: Atlas Venture Associates IV, L.P.
their general partner
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By: Atlas Venture Associates III, Inc.
its general partner
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By: Atlas Venture Associates IV, Inc.
its general partner
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By: /s/ Avel Bichara
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Name: Avel Bichara
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Name: Avel Bichara
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Title: Vice President
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Title: Vice President
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B-6
SCHEDULE I
TO
VOTING AGREEMENT
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Number of Shares of
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Name and Address of Stockholder
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Company Common Stock
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Michael Grey
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100,000
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10505 Roselle Street
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San Diego, CA 92121
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W. Todd
Myers
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23,442
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10505 Roselle Street
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San Diego, CA 92121
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Karin
Eastham
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12,500
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10505 Roselle Street
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San Diego, CA 92121
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Stephen K.
Burley
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55,731
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10505 Roselle Street
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San Diego, CA 92121
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Siegfried
Reich
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22,660
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10505 Roselle Street
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San Diego, CA 92121
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Christopher S.
Henney
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97,165
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10505 Roselle Street
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San Diego, CA 92121
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BAVP, L.P.
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2,546,747
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950 Tower Lane, Suite 700
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Foster City, CA 94404
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ATLAS VENTURE FUND III, L.P.
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27,734
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890 Winter Street, Suite 320
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Waltham, MA 02451
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ATLAS VENTURE
ENTREPRENEURS FUND III, L.P.
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602
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890 Winter Street, Suite 320
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Waltham, MA 02451
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ATLAS VENTURE
FUND IV, L.P.
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2,426,391
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890 Winter Street, Suite 320
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Waltham, MA 02451
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ATLAS VENTURE
ENTREPRENEURS FUND IV, L.P.
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30,341
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890 Winter Street, Suite 320
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Waltham, MA 02451
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B-7
ANNEX C
July 8,
2008
The Board of Directors
SGX Pharmaceuticals, Inc.
10505 Roselle Street
San Diego, California 92121
Dear Members of the Board of Directors:
We understand that SGX Pharmaceuticals, Inc., a Delaware
corporation (SGX), Eli Lilly and Company, an Indiana
corporation (Lilly), and REM Merger Sub, Inc., a
Delaware corporation and wholly owned subsidiary of Lilly
(Merger Sub), propose to enter into an Agreement and
Plan of Merger (the Agreement), pursuant to which
Lilly will acquire SGX (the Transaction). Pursuant
to the Transaction, Merger Sub will be merged with and into SGX
and each outstanding share of the common stock, par value $0.001
per share, of SGX (SGX Common Stock), other than
shares of SGX Common Stock held by holders who are entitled to
and properly demand an appraisal of their shares of SGX Common
Stock and shares of SGX Common Stock held in treasury of SGX or
owned by Merger Sub, Lilly or any wholly-owned subsidiary of
Lilly or of SGX (such holders, together with their respective
affiliates, Excluded Holders), will be converted
into the right to receive $3.00 in cash (the
Consideration). The terms and conditions of the
Transaction are more fully set forth in the Agreement.
You have requested our opinion as of the date hereof as to the
fairness, from a financial point of view, to holders of SGX
Common Stock (other than Excluded Holders (as defined above)) of
the Consideration to be paid to such holders in the Transaction.
In connection with this opinion, we have:
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(i)
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Reviewed the financial terms and conditions of a draft, dated
July 7, 2008, of the Agreement;
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(ii)
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Analyzed certain publicly available historical business and
financial information relating to SGX;
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(iii)
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Reviewed various financial forecasts and other data provided to
us by SGX relating to the business of SGX;
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(iv)
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Held discussions with members of the senior management of SGX
with respect to the business and prospects of SGX;
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(v)
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Reviewed public information with respect to certain other
companies in lines of business we believe to be generally
relevant in evaluating the business of SGX;
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(vi)
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Reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be
generally relevant in evaluating the business of SGX;
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(vii)
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Reviewed historical stock prices and trading volumes of SGX
Common Stock; and
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(viii)
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Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
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We have assumed and relied upon the accuracy and completeness of
the foregoing information, without independent verification of
such information. We have not conducted any independent
valuation or appraisal of any of the assets or liabilities
(contingent or otherwise) of SGX or concerning the solvency or
fair value of SGX, and we have not been furnished with such
valuation or appraisal. With respect to the financial forecasts
that we have reviewed, we have assumed, with the consent of SGX,
that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the
management of SGX as to the future financial performance of SGX.
We have relied on the assessments of the management of SGX as to
the validity of, and risks associated with, the product
candidates of SGX (including without limitation, the timing and
probability of successful development, testing and marketing,
and of approval by appropriate governmental authorities, of
such
C-1
The Board of Directors
SGX Pharmaceuticals, Inc.
July 8, 2008
Page 2
product candidates). We assume no responsibility for and express
no view as to such forecasts or the assumptions on which they
are based.
Further, our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information
made available to us as of, the date hereof. We assume no
responsibility for updating or revising our opinion based on
circumstances or events occurring after the date hereof. We do
not express any opinion as to the price at which shares of SGX
Common Stock may trade at any time subsequent to the
announcement of the Transaction.
In rendering our opinion, we have assumed, with your consent,
that the Transaction will be consummated on the terms described
in the Agreement, without any waiver or modification of any
material terms or conditions. Representatives of SGX have
advised us, and we have assumed, that the Agreement, when
executed, will conform to the draft reviewed by us in all
material respects. We also have assumed, with your consent, that
obtaining the necessary regulatory or third party approvals and
consents for the Transaction will not have an adverse effect on
SGX or the combined company. We do not express any opinion as to
any tax or other consequences that might result from the
Transaction, nor does our opinion address any legal, tax,
regulatory or accounting matters, as to which we understand that
SGX obtained such advice as it deemed necessary from qualified
professionals. We express no view or opinion as to any terms or
other aspects of the Transaction (other than the Consideration
to the extent expressly specified herein), including voting
agreements between certain shareholders of SGX and Lilly. In
addition, we express no view or opinion as to the fairness of
the amount or nature of, or any other aspects relating to, the
compensation to any officers, directors or employees of any
parties to the Transaction, or class of such persons, relative
to the Consideration to be paid to holders of SGX Common Stock
(other than Excluded Holders) or otherwise.
Lazard Frères & Co. LLC (Lazard) is
acting as financial advisor to SGX in connection with the
Transaction and will receive a fee for our services, a portion
of which is payable upon the rendering of this opinion and a
substantial portion of which is contingent upon the closing of
the Transaction. We in the past have provided investment banking
services to SGX and certain of its affiliates, for which we have
received compensation, and certain of our affiliates in the past
have provided, currently provide, and in the future may provide,
financial services to Lilly, for which such affiliates have
received, and may in the future receive compensation. In the
past two years we have provided services to SGX related to a
Private Investment in Public Equity offering in 2007, for which
we received compensation. In addition, in the ordinary course of
their respective businesses, affiliates of Lazard and LFCM
Holdings LLC (an entity indirectly owned in large part by
managing directors of Lazard) may actively trade securities of
SGX and/or the securities of Lilly and certain of their
respective affiliates for their own accounts and for the
accounts of their customers and, accordingly, may at any time
hold a long or short position in such securities. The issuance
of this opinion was approved by the Opinion Committee of Lazard.
Our opinion does not address the relative merits of the
Transaction as compared to any other transaction or business
strategy in which SGX might engage or the merits of the
underlying decision by SGX to engage in the Transaction.
Our engagement and the opinion expressed herein are for the
benefit of the Board of Directors of SGX and our opinion is
rendered to the Board of Directors of SGX in connection with its
evaluation of the Transaction. Our opinion is not intended to
and does not constitute a recommendation to any stockholder as
to how such stockholder should vote or act with respect to the
Transaction or any matter relating thereto.
C-2
The Board of Directors
SGX Pharmaceuticals, Inc.
July 8, 2008
Page 3
Based on and subject to the foregoing, we are of the opinion
that, as of the date hereof, the Consideration to be paid to
holders of SGX Common Stock (other than Excluded Holders) in the
Transaction is fair, from a financial point of view, to such
holders.
Very truly yours,
LAZARD FRERES & CO. LLC
Jason R. Bernhard
Managing Director
C-3
§ 262.
Appraisal rights.
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to
such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to § 228 of this
title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholders shares of stock
under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word
stockholder means a holder of record of stock in a
stock corporation and also a member of record of a nonstock
corporation; the words stock and share
mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a nonstock
corporation; and the words depository receipt mean a
receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to
§ 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at, the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for
its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of
§ 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate of incorporation,
any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is
practicable.
D-1
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholders
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holders shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections (a)
and (d) of this section hereof and who is otherwise
entitled to appraisal rights, may commence an appraisal
proceeding by filing a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within
60 days after the effective date of the merger or
consolidation, any stockholder who has not commenced an
appraisal proceeding or joined that proceeding as a named party
shall have the right to withdraw such stockholders demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) of
this section hereof, upon written request, shall be entitled to
receive from
D-2
the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days
after such stockholders written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) of
this section hereof, whichever is later. Notwithstanding
subsection (a) of this section, a person who is the
beneficial owner of shares of such stock held either in a voting
trust or by a nominee on behalf of such person may, in such
persons own name, file a petition or request from the
corporation the statement described in this subsection.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After the Court determines the stockholders entitled to
an appraisal, the appraisal proceeding shall be conducted in
accordance with the rules of the Court of Chancery, including
any rules specifically governing appraisal proceedings. Through
such proceeding the Court shall determine the fair value of the
shares exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value,
the Court shall take into account all relevant factors. Unless
the Court in its discretion determines otherwise for good cause
shown, interest from the effective date of the merger through
the date of payment of the judgment shall be compounded
quarterly and shall accrue at 5% over the Federal Reserve
discount rate (including any surcharge) as established from time
to time during the period between the effective date of the
merger and the date of payment of the judgment. Upon application
by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court
may, in its discretion, proceed to trial upon the appraisal
prior to the final determination of the stockholders entitled to
an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such
stockholders certificates of stock to the Register in
Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder
is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Courts decree may be enforced as other decrees in the
Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation,
D-3
reasonable attorneys fees and the fees and expenses of
experts, to be charged pro rata against the value of all the
shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholders demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval
may be conditioned upon such terms as the Court deems just;
provided, however that this provision shall not affect the right
of any stockholder who has not commenced an appraisal proceeding
or joined that proceeding as a named party to withdraw such
stockholders demand for appraisal and to accept the terms
offered upon the merger or consolidation within 60 days
after the effective date of the merger or consolidation, as set
forth in subsection (e) of this section.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
D-4
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SGX PHARMACEUTICALS, INC.
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Using a
black ink
pen, mark your votes with an
X
as shown in
this example. Please do not write outside the designated
areas.
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x
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Special Meeting Proxy Card
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▼
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM
PORTION IN THE ENCLOSED ENVELOPE.
▼
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A
Proposals The Board
of Directors recommends a vote
FOR
Proposal 1 and 2.
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FOR
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AGAINST
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ABSTAIN
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1.
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Proposal to adopt the Agreement and Plan of Merger, dated as of July 8, 2008, among SGX
Pharmaceuticals, Inc., Eli Lilly and Company and REM Merger Sub, Inc., as it may be amended from
time to time.
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o
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o
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o
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FOR
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AGAINST
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ABSTAIN
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2.
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Proposal to approve the adjournment, postponement or continuation of the special meeting to a later date or time,
if necessary or appropriate, to solicit additional proxies in favor
of the proposal to adopt the Agreement and Plan of Merger.
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o
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o
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B
Non-Voting Items
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Change of Address
Please print new address below.
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Meeting Attendance
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Mark box to the
right if you plan to attend the Special Meeting.
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o
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C
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Authorized Signatures This section must be
completed for your vote to be counted. Date and Sign Below
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Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as
attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
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Date (mm/dd/yyyy) Please print date below.
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Signature 1 Please keep signature within the
box.
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Signature 2 Please keep signature within the
box.
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/ /
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n
+
▼
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM
PORTION IN THE ENCLOSED ENVELOPE.
▼
Proxy
SGX PHARMACEUTICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON AUGUST 20, 2008
The
undersigned hereby appoints Michael Grey and Annette North, and each of them, as attorneys and proxies of the
undersigned, with full power of substitution, to vote all of the
shares of stock of SGX Pharmaceuticals, Inc. which the undersigned
may be entitled to vote at the Special Meeting of
Stockholders of SGX Pharmaceuticals, Inc. to be held at 10505 Roselle Street, San Diego, California 92121 on
August 20, 2008 at 9:00 a.m. (Pacific time), and at any and all
adjournments, postponements, or continuations thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the matters stated on the reverse
side and in accordance with the instructions stated on the reverse side, and with discretionary authority as to any and all other matters that may properly come before the meeting.
Unless a contrary direction is indicated,
this Proxy will be voted for Proposal 1 and for Proposal 2, as
more specifically described in the Proxy Statement. If specific instructions are indicated, this Proxy will be voted in accordance therewith.
Please vote, date and promptly return this proxy in the enclosed return envelope which is postage prepaid if mailed in the
United States.
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