AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

AMGEN INC.,

AVIATOR MERGER SUB, INC.,

AVIDIA, INC.

and

ALLOY VENTURES, INC.,

AS STOCKHOLDERS’ AGENT

Dated as of September 28, 2006

TABLE OF CONTENTS

 

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into as of September 28, 2006 by and among Amgen Inc., a Delaware corporation (“ Parent ”), Aviator Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“ Merger Sub ”), Avidia, Inc., a Delaware corporation (the “ Company ”) and Alloy Ventures, Inc., in its capacity as a Stockholders’ Agent hereunder (the “ Stockholders’ Agent ”).

RECITALS

A. Upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware General Corporation Law, as amended (“ Delaware Law ”), Parent, Merger Sub and the Company will enter into a business combination transaction pursuant to which Merger Sub will merge with and into the Company (the “ Merger ”);

B. The board of directors of the Company has, by resolutions duly adopted, unanimously: (i) declared that the Merger and the other transactions contemplated by this Agreement are advisable, fair to and in the best interests of the Company and its stockholders; (ii) approved this Agreement in accordance with the provisions of the Delaware Law and the provisions of the California General Corporation Law, as amended (“ California Law ”) applicable to the Company by virtue of Section 2115 thereof; (iii) directed that this Agreement and the Merger be submitted to the stockholders of the Company for their adoption and approval by written consent; and (iv) recommended that the stockholders of the Company vote in favor of the adoption of this Agreement and the approval of the Merger;

C. The respective boards of directors of Parent and Merger Sub have, by resolutions duly adopted, unanimously declared that the Merger and the other transactions contemplated by this Agreement are advisable and approved this Agreement in accordance with the provisions of the Delaware Law; and

D. On or prior to the date of this Agreement, each holder of Company Capital Stock who is executing the Voting Agreement has executed a written consent with respect to all shares of Company Capital Stock held by such holder, approving this Agreement and the Merger, and as a result, the Required Stockholder Vote has been obtained.

NOW, THEREFORE, in consideration of the covenants, representations and warranties set forth herein, and for other good and valuable consideration, the parties, intending to be legally bound, agree as follows:

1. Definitions .

1.1 Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings:

“ 280G Shareholder Vote ” has the meaning set forth in Section 6.11.

“ Action ” means any civil, criminal, administrative or regulatory action, suit, demand, inquiry, claim, hearing, investigation or proceeding.

“ Agreement ” has the meaning set forth in the Preamble.

“ Affiliate ” means, with respect to any person, another person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such person.

“ Appointing Former Holder ” has the meaning set forth in Section 9.3(a).

“ Assets ” means all of the tangible and intangible properties and assets (real, personal or mixed), but not IP Rights, and, in case of the Company and/or any of its Subsidiaries, used or held for use in connection with or material to the Current Company Business.

“ AV14C001 ” has the meaning set forth in Section 6.10.

“ Avimer ” means a molecule that may be created by the Company’s proprietary method of creating protein chains that originate from the recombination of families of human serum proteins and which contain modular binding domains designed to bind to a particular target site.

“ Basket Amount ” has the meaning set forth in Section 9.2(b).

“ BIA Agreement ” has the meaning set forth in Section 3.13(b).

“ BLA ” means a Biologics License Application submitted to the FDA to allow for the marketing and distribution of a biological product into the United States, as described in Section 351 of the Public Health Service Act, as amended, and 21 C.F.R. Part 601, as it may be amended.

“ Bonus Plan ” shall mean the Company’s 2006 Change of Control Bonus Plan attached hereto as Annex A .

“ California Law ” has the meaning set forth in Recital B.

“ CERCLA ” has the meaning set forth in Section 3.17(a).

“ Certificate ” has the meaning set forth in Section 2.7(a).

“ cGMP ” means the applicable regulatory requirements, as amended from time to time, for current Good Manufacturing Practice, including without limitation those promulgated by (i) the FDA under the United States Federal Food, Drug and Cosmetic Act, 21 C.F.R. §210 et seq. or under the Public Health Service Act, Biological Products, 21 C.F.R. §§600-610, (ii) the European Medicines Agency or under the European Union guide to Good Manufacturing Practice for medical products and (iii) any other applicable Governmental Entity in each jurisdiction where the Company, or a third party acting on its behalf, is undertaking a clinical trial.

“ Claim Notice ” has the meaning set forth in Section 9.2(c).

“ Closing ” has the meaning set forth in Section 2.2.

 

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“ Closing Date ” has the meaning set forth in Section 2.2.

“ CMC ” has the meaning set forth in Section 3.30.

“ COBRA ” has the meaning set forth in Section 3.19(f).

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Company ” has the meaning set forth in the Preamble.

“ Company Acquisition Proposal ” has the meaning set forth in Section 6.7.

“ Company Balance Sheet ” has the meaning set forth in Section 3.4.

“ Company Balance Sheet Date ” has the meaning set forth in Section 3.6.

“ Company Capital Stock ” means all shares of Company Common Stock and Company Preferred Stock.

“ Company Common Stock ” means shares of Company’s common stock, par value $.0001 per share.

“ Company Disclosure Schedule ” has the meaning set forth in Section 3.

“ Company Employees ” has the meaning set forth in Section 6.4(a).

“ Company Employee Plans ” has the meaning set forth in Section 3.19(a).

“ Company Financial Statements ” has the meaning set forth in Section 3.4.

“ Company International Employee Plans ” has the meaning set forth in Section 3.19(a).

“ Company IP Rights ” has the meaning set forth in Section 3.10(a).

“ Company Material Adverse Effect ” has the meaning set forth in Section 10.2(a).

“ Company Options ” means options to purchase shares of Company Common Stock.

“ Company Option Plan ” means the Company’s 2003 Stock Option Plan.

“ Company Preferred Stock ” means all shares of Series A Preferred Stock, Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.

“ Company Products ” has the meaning set forth in Section 3.29(a).

“ Company Warrant ” means each outstanding warrant to purchase Company Capital Stock.

“ Confidentiality Agreement ” has the meaning set forth in Section 8.2.

 

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“ Contingent Payments ” means each of the SQ Formulation Milestone Payment and the Registration Study Milestone Payment.

“ Contract ” means any loan agreement, indenture, letter of credit (including related letter of credit applications and reimbursement obligations), mortgage, security agreement, pledge agreement, deed of trust, bond, note, guarantee, surety obligation, warranty, license, franchise, permit, power of attorney, invoice, quotation, purchase order, lease, supply agreement, contract research organization agreement, co-promotion agreement, co-development agreement, collaboration agreement and any other agreement, contract, instrument, obligation, offer, commitment, plan, arrangement or understanding, written or oral, express or implied, to which a person is a party or by which any of its Assets or any Company IP Rights or Third Party IP Rights may be bound or affected, in each case as amended, supplemented, waived or otherwise modified.

“ Copyrights ” has the meaning set forth in Section 3.10(a).

“ Current Company Business ” has the meaning set forth in Section 3.1.

“ Delaware Law ” has the meaning set forth in the Recital A.

“ Disqualified Individual ” has the meaning set forth in Section 3.27.

“ Dissenting Share ” has the meaning set forth in Section 2.9.

“ Dissenting Stockholder ” has the meaning set forth in Section 2.9.

“ Effective Time ” has the meaning set forth in Section 2.2.

“ Environmental Laws ” has the meaning set forth in Section 3.17(a).

“ ERISA ” has the meaning set forth in Section 3.19(a).

“ ERISA Affiliate ” has the meaning set forth in Section 3.19(a).

“ Expense Statement ” has the meaning set forth in the definition of the term “Specified Transactional Expenses.”

“ FDA ” means the United States Food and Drug Administration.

“ FDCA ” has the meaning set forth in Section 3.29.

“ Former Securityholders ” means, collectively, Former Stockholders and those persons who held outstanding Company Warrants, Vested Company Options and/or Units, in each case, immediately prior to the Effective Time.

“ Former Stockholders ” means those persons who held shares of outstanding Company Capital Stock immediately prior to the Effective Time (other than any holder of outstanding Company Warrants, Company Options or Units immediately prior to the Effective Time).

 

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“ GAAP ” means United States generally accepted accounting principles.

“ Governmental Entity ” has the meaning set forth in Section 3.1.

“ Hazardous Materials ” has the meaning set forth in Section 3.17(a).

“ HIPAA ” has the meaning set forth in Section 3.19(f).

“ HMO ” has the meaning set forth in Section 3.19(k).

“ HSR ” has the meaning set forth in Section 3.2.

“ IL6 Avimer ” means that specific molecule identified as C326 developed by the Company that inhibits interleukin 6, the structure of which appears in Section 1.1 of the Company Disclosure Schedules.

“ Indemnified Party ” has the meaning set forth in Section 9.2(b).

“ IP License ” has the meaning set forth in Section 3.10(a).

“ IP Rights ” has the meaning set forth in Section 3.10(a).

“ knowledge ” has the meaning set forth in Section 10.2(b).

“ Laws ” (including, with the correlative meaning, the term “ Law ”) means any federal, state, local or foreign law, statute, ordinance, rule, regulation, judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity.

“ Lease ” has the meaning set forth in Section 3.16(a).

“ Liabilities ” means any and all indebtedness, Losses, claims, charges, demands, actions, damages, obligations, payments, costs and expenses, sums of money, bonds, indemnities and similar obligations, covenants, contracts, controversies, omissions, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether due or to become due, fixed, contingent or absolute, inchoate or otherwise, matured or unmatured, liquidated or unliquidated, accrued or not accrued, asserted or not asserted, known or unknown, determined, determinable or otherwise, whenever or however arising, including those arising under any Law, principles of common law (including out of any contract or tort based on negligence or strict liability), action, threatened or contemplated action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys’ fees and any and all costs and expenses, whatsoever reasonably incurred in investigating, preparing or defending against any such actions or threatened or contemplated actions), order or consent decree of any Government Entity or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, whether or not the same would be required by GAAP to be recorded or reflected in financial statements or disclosed in the notes thereto.

 

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“ Losses ” (including, with the correlative meaning, the term “ Loss ”) means any losses, Liabilities, settlements, Actions, judgments, deficiencies, assessments, Taxes, Tax Benefit Losses, interest, penalties, costs, expenses (including reasonable legal, accounting and other professional fees and disbursements and expenses of investigation, preparation, defense and ongoing monitoring) and damages of any kind or nature, whether or not resulting from a claim asserted by a third party.

“ Material Contract ” has the meaning set forth in Section 3.12(c).

“ Maxygen Agreement ” has the meaning set forth in Section 3.12(b).

“ MedImmune Agreement ” means the Exclusive License and Collaboration Agreement, dated October 19, 2005, between the Company and MedImmune, Inc.

“ Merger ” has the meaning set forth in Recital A.

“ Merger Consideration ” means (a) the Up-Front Payment plus (b) the Contingent Payments, if any are payable pursuant to the terms of this Agreement.

“ Merger Sub ” has the meaning set forth in the Preamble.

“ Milestone ” means each of the SQ Formulation Milestone and the Registration Study Milestone.

“ NDA ” means a new drug application, as described in Section 505(b)(1) of the federal Food, Drug & Cosmetic Act of 1938, as amended, and 21 C.F.R. Part 314.50 et seq ., as it may be amended.

“ Order ” has the meaning set forth in Section 7.1(a).

“ Parent ” has the meaning set forth in the Preamble.

“ Parent Claims ” has the meaning set forth in Section 9.1(b)(iii).

“ Parent Common Stock ” means the common stock, par value $0.0001 per share, of Parent.

“ Parent Indemnified Party ” means collectively: (a) Parent and its Affiliates; (b) each director, officer, employee, agent and representative of each person described in clause (a); and (c) each heir, executor and administrator of each person described in clause (a) or (b), in such capacity.

“ Parent Material Adverse Effect ” has the meaning set forth in Section 4.3(b).

“ Parent Option ” has the meaning set forth in Section 2.11(b).

“ Parent Plans ” has the meaning set forth in Section 6.4(a).

 

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“ Patent Rights ” has the meaning set forth in Section 3.10(a).

“ Payee ” has the meaning set forth in Section 9.2(e)(i).

“ Paying Agent ” has the meaning set forth in Section 2.7(b).

“ Payor ” has the meaning set forth in Section 9.2(e)(i).

“ Permitted Encumbrances ” has the meaning set forth in Section 3.15.

“ person ” has the meaning set forth in Section 10.2(d).

“ Phase I Clinical Trial ” means the first phase of human clinical trials conducted on sufficient numbers of patients with the endpoint of determining initial tolerance, safety and pharmacokinetic information, and as described, with respect to the United States, in 21 C.F.R. §312.21(a), as it may be amended, and, with respect to any other country or jurisdiction, its equivalent in such other country or jurisdiction (to the extent such Phase I Clinical Trial will provide material support and direction for subsequent clinical trials and, ultimately, marketing approval in the United States).

“ Pre-Closing Period ” has the meaning set forth in Section 5.1.

“ Pro Rata Portion ” means, with respect to any Former Securityholder, the fraction having: (a) a numerator equal to the sum of (i) the number of shares of Company Capital Stock held by such person immediately prior to the Effective Time (including shares of Company Capital Stock that constitute, and have never lost their status as, Dissenting Shares, held by such person), (ii) the number of shares of Company Capital Stock subject to an outstanding Company Warrant held by such person immediately prior to the Effective Time, (iii) the number of shares of Company Capital Stock subject to an outstanding Company Option held by such person immediately prior to the Effective Time and (iv) the number of Units which have been awarded to such person as of immediately prior to the Effective Time, in each case, with all Company Preferred Shares being measured on an as-converted basis, as applicable; and (b) a denominator equal to the sum of (i) the aggregate number of shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time (including all shares of Company Capital Stock that constitute, and have never lost their status as, Dissenting Shares), (ii) the aggregate number of shares of Company Capital Stock subject to all outstanding Company Warrants immediately prior to the Effective Time, (iii) the aggregate number of shares of Company Capital Stock subject to all outstanding Company Options immediately prior to the Effective Time and (iv) the aggregate number of Units which have been awarded as of immediately prior to the Effective Time, in each case, with all Company Preferred Shares being measured on an as-converted basis, as applicable.

“ RCRA ” has the meaning set forth in Section 3.17(a).

“ Registration-Enabling Clinical Trial ” means a human clinical trial conducted on sufficient numbers of patients for the principal purpose of definitively establishing that a drug is safe and efficacious for its intended use, and to define warnings, precautions and adverse

 

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reactions that are associated with the drug in the dosage range to be prescribed upon approval, and to provide pivotal data enabling marketing approval by the FDA of such drug or label expansion of such drug. Nothing in this Agreement shall obligate Parent or the Surviving Corporation to seek, file or take any action in respect of any Special Protocol Assessment or any NDA (or BLA, if applicable).

“ Registration Study Milestone ” has the meaning set forth in Section 9.1(a).

“ Registration Study Milestone Maximum Amount ” has the meaning set forth in Section 9.1(a).

“ Registration Study Milestone Payment ” has the meaning set forth in Section 9.1(a).

“ Registration Study Milestone RSU(s) ” has the meaning set forth in Section 2.11(c).

“ Remaining Up-Front Payment ” means an amount, in cash, equal to: (a) (i) the Up-Front Payment, (ii)  minus any amounts paid or payable pursuant to Section 2.6(a) of this Agreement, (iii)  plus the aggregate exercise price in respect of all outstanding Company Warrants outstanding immediately prior to the Effective Time, (iv)  plus the aggregate exercise price in respect of all Company Options outstanding immediately prior to the Effective Time and (v)  plus $168,052; (b)  divided by the sum of (i) the aggregate number of shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time (including all shares of Company Capital Stock that constitute, and have never lost their status as, Dissenting Shares), (ii) the aggregate number of shares of Company Capital Stock subject to all outstanding Company Warrants immediately prior to the Effective Time, (iii) the aggregate number of shares of Company Capital Stock subject to all outstanding Company Options immediately prior to the Effective Time and (iv) the aggregate number of Units which have been awarded as of immediately prior to the Effective Time, in each case, with all Company Preferred Shares being measured on an as-converted basis, as applicable.

“ Required Stockholder Vote ” has the meaning set forth in Section 3.2.

“ Series A Preferred Stock ” means shares of the Company’s Series A Preferred Stock, par value $.0001 per share, as defined in the Company’s Amended and Restated Certificate of Incorporation.

“ Series A-1 Preferred Stock ” means shares of the Company’s Series A-1 Preferred Stock, par value $.0001 per share, as defined in the Company’s Amended and Restated Certificate of Incorporation.

“ Series B Preferred Stock ” means shares of the Company’s Series B Preferred Stock, par value $.0001 per share, as defined in the Company’s Amended and Restated Certificate of Incorporation.

“ Series C Preferred Stock ” means shares of the Company’s Series C Preferred Stock, par value $.0001 per share, as defined in the Company’s Amended and Restated Certificate of Incorporation, including, without limitation, all shares of such Series C Preferred Stock issued or

 

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issuable under the Series C Preferred Stock Purchase Agreement (including, without limitation, pursuant to any exercise of the Put Right (as defined in the Series C Preferred Stock Purchase Agreement) under Section 1.4 of the Series C Preferred Stock Purchase Agreement).

“ Series C Preferred Stock Purchase Agreement ” means that certain Series C Preferred Stock Purchase Agreement, dated May 5, 2006, by and among the Company and the Purchasers listed on the Schedule of Purchasers attached thereto (the “ Series C Preferred Stock Purchasers ”).

“ Series C Preferred Stock Purchasers ” has the meaning set forth in the definition of the term “Series C Preferred Stock Purchase Agreement.”

“ Special Protocol Assessment ” means an agreement between the FDA and a sponsor on the design and size of clinical trials intended to form the primary basis of an efficacy claim in a marketing application, as described in FDA’s Guidance for Industry entitled “Special Protocol Assessment” (May 2002), as it may be amended.

“ Specified Transactional Expenses ” means any amounts in excess of $5,000,000 paid by the Company since March 31, 2006, or payable at any time after the Effective Time, to financial advisors, investment bankers, accountants, auditors, the Stockholders’ Agent (including, without limitation, the Stockholders’ Agent’s Fund), legal counsel or other agents, representatives, advisors or any other person in connection with the transactions contemplated hereby, and to any party with respect to any consent, royalty, milestone, settlement or similar payments under any Contract (including, without limitation, any amounts payable in connection with the matters set forth in Section 9.1(b)(iii) of the Company Disclosure Schedule), as set forth in a statement delivered by the Company to Parent not less than five business days prior to the Closing Date (and updated and supplemented by the Company through and including the Closing Date), and agreed to by Parent (the “ Expense Statement ”).

“ SQ Formulation Milestone ” has the meaning set forth in Section 9.1(a).

“ SQ Formulation Milestone Payment ” has the meaning set forth in Section 9.1(a).

“ SQ Formulation Milestone RSU(s) ” has the meaning set forth in Section 2.11(c).

“ Stockholders’ Agent ” has the meaning set forth in the Preamble.

“ Stockholders’ Agent’s Costs ” has the meaning set forth in Section 9.3(b).

“ Stockholders’ Agent’s Fund ” has the meaning set forth in Section 9.3(a).

“ Subsidiary ” has the meaning set forth in Section 10.2(c).

“ Surviving Corporation ” has the meaning set forth in Section 2.1.

“ Takeover Statute ” has the meaning set forth in Section 3.28.

“ Tax(es) ” has the meaning set forth in Section 3.18(a).

 

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“ Tax Benefit Loss ” means the lost value to Parent due to any of the following (but excluding, in each case, any value lost as a result of the application of Section 382, 383 or 384 of the Code whether as the result of the transactions contemplated by this Agreement or prior transactions): (a) a reduction of a Tax credit of the Company or any of its Subsidiaries shown on a Tax Return attributable to an income Tax period ending on or before the Effective Date, (b) a reduction of a Tax deduction or Tax loss or an increase in an item of Taxable income or gain shown on a Tax Return of the Company or any of its Subsidiaries attributable to an income Tax period ending on or before the Effective Date, or (c) a disallowed deduction due to an excess parachute payment under section 280G of the Code. The lost value to the Parent described in (a), (b) or (c) shall be measured by the increase in the Taxes due shown on any Tax Return of the Company, the Surviving Corporation or Parent in which the benefit of the lost Tax benefit is or would otherwise be obtained through a reduction of Taxes, as computed on a with and without basis.

“ Tax Return ” has the meaning set forth in Section 3.18(b).

“ Third Party Claim ” has the meaning set forth in Section 9.2(c).

“ Third Party IP Rights ” has the meaning set forth in Section 3.10(a).

“ Trademark Rights ” has the meaning set forth in Section 3.10(a).

“ Unit ” means a contractual right to receive a cash payment equal in value to a share of Company Common Stock contingent upon consummation of the Merger, designated as a “Participating Unit” and defined under the Bonus Plan and awarded to participants under the Bonus Plan.

“ Unvested Company Option(s) ” means those Company Options which have been granted and which have not vested as of immediately prior to the Effective Time under the Company Option Plan.

“ Up-Front Exchange Ratio ” means: (a) the Remaining Up-Front Payment, (b)  divided by the closing price of a share of Parent Common Stock on the third trading day immediately preceding the Closing.

“ Up-Front Payment ” shall mean an amount, in cash, equal to: (a) $360,000,000, (b)  minus the Specified Transactional Expenses, and (c)  minus any dividends that have been declared by the Company since the Company Balance Sheet Date, whether paid or unpaid as of the Closing Date.

“ VEBA ” has the meaning set forth in Section 3.19(a).

“ Vested Company Option(s) ” shall mean those Company options which have been granted and which shall have vested as of immediately prior to the Effective Time under the Company Option Plan.

“ Voting Agreements ” has the meaning set forth in Section 3.2.

 

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“ Voting Debt ” has the meaning set forth in Section 3.2.

2. The Merger .

2.1 The Merger . At the Effective Time and upon the terms and subject to the conditions set forth in this Agreement, and pursuant to the applicable provisions of the Delaware Law, Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation in the Merger (the “ Surviving Corporation ”).

2.2 Closing; Effective Time . The consummation of the Merger (the “ Closing ”) shall take place as soon as practicable, but no later than two business days, after the satisfaction or waiver of the last of the conditions set forth in Section 7 to be satisfied or waived (other than those conditions that by their nature are to be satisfied at the Closing), or at such other time as the parties hereto agree (the actual date on which the Closing takes place being the “ Closing Date ”). In the event that, pursuant to the terms of the preceding sentence, the Closing Date would have occurred within a ten business day period prior to the last business day of any fiscal quarter of Parent, then Parent may, in its sole discretion, delay the Closing Date until the first business day of the next succeeding fiscal quarter of Parent. The Closing shall take place at the offices of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306, or at such other location as the parties hereto agree. In connection with the Closing, Parent and the Company shall cause the Merger to be made effective by filing the Certificate of Merger in the form attached hereto as Schedule 2.2 with the Secretary of State of the State of Delaware in accordance with the relevant provisions of Delaware Law (the time of such filing being the “ Effective Time ”).

2.3 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger filed pursuant to Section 2.2 and the applicable provisions of Delaware Law.

2.4 Certificate of Incorporation; Bylaws . Unless otherwise agreed to by Parent and the Company prior to the Closing, at the Effective Time:

(a) the certificate of incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation of the Surviving Corporation until thereafter amended as provided by Delaware Law and such certificate of incorporation; and

(b) the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter amended.

2.5 Directors and Officers . At the Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, to serve until their respective successors are duly elected or appointed and qualified.

 

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2.6 Effect on Capital Stock . At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company, any stockholders of the Company or the Stockholders’ Agent, (A) any shares of Company Common Stock then held by the Company or any wholly-owned Subsidiary of the Company (or held in the Company’s treasury) shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor, (B) each share of the common stock, $0.01 par value per share, of Merger Sub then outstanding shall be converted into one share of common stock of the Surviving Corporation and (C) the Merger Consideration shall be distributed as follows:

(a) Each share of Company Preferred Stock then outstanding shall be converted into the right to receive the following amounts from the Up-Front Payment:

(i) each share of Series A Preferred Stock shall be converted into the right to receive an amount, in cash, equal to $7.50;

(ii) each share of Series A-1 Preferred Stock shall be converted into the right to receive an amount, in cash, equal to $7.50;

(iii) each share of Series B Preferred Stock and each share of Series B Preferred Stock which may be purchased under an applicable Company Warrant shall be converted into the right to receive an amount, in cash, equal to $4.75683; and

(iv) each share of Series C Preferred Stock shall be converted into the right to receive an amount, in cash, equal to $6.26.

(b) After payment in full of the amounts set forth in clause (a) above, (i) each holder of Company Capital Stock shall be entitled to receive the Remaining Up-Front Payment for each share of Company Capital Stock held by such holder, (ii) each holder of a Company Warrant shall be entitled to receive the Remaining Up-Front Payment for each share of Company Capital Stock which may be purchased under such Company Warrant minus the exercise price per share of Company Capital Stock at which such Company Warrant was exercisable immediately prior to the Effective Time, (iii) each holder of a Vested Company Option shall be entitled to receive the Remaining Up-Front Payment for each share of Company Common Stock which may be purchased under such Vested Company Option minus the exercise price per share of Company Common Stock at which such Vested Company Option was exercisable immediately prior to the Effective Time, and (iv) each holder of a Unit issued under the Company’s Bonus Plan shall be entitled to receive the Remaining Up-Front Payment for each share of Company Common Stock represented by each such Unit minus $0.46 per Unit.

(c) Each Former Securityholder shall be entitled to receive such holder’s Pro Rata Portion of the applicable Contingent Payment, if any, to be paid to such holder at the time and in the manner set forth in Section 9.1.

2.7 Surrender of Certificates .

(a) At the Effective Time, all shares of Company Capital Stock outstanding immediately prior to the Effective Time shall automatically be canceled and retired

 

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and shall cease to exist, and no holder of record of a certificate that immediately prior to the Effective Time represented outstanding shares of the Company Capital Stock (a “ Certificate ”) shall have any rights as a stockholder of the Company and each Certificate (i) representing any outstanding shares of Company Capital Stock shall thereafter represent only the right to receive the Merger Consideration payable in respect of such shares as set forth in this Agreement and (ii) representing any Dissenting Shares shall thereafter represent only the right to receive the payments described in Section 2.9.

(b) At or promptly following the Effective Time, Parent shall deposit or shall cause to be deposited with a paying agent designated by Parent and reasonably acceptable to the Company (the “ Paying Agent ”), for the benefit of Former Stockholders, an amount in cash sufficient in the aggregate to provide all funds necessary for the Paying Agent to make payments to each Former Stockholder of the amounts set forth in Sections 2.6(a) and (b). From and after the Effective Time, the Paying Agent shall act as the agent of Parent and the Surviving Company in effecting any amounts to be paid under this Agreement and the exchange of the Certificates that immediately prior to the Effective Time represented outstanding shares of Company Capital Stock. In the event that Parent elects, in its sole discretion pursuant to Section 2.11(a), 2.11(e) or 9.1(b)(ii) of this Agreement, to have the Paying Agent make the applicable payments under Section 2.6(a) or (b) to former holders of Company Warrants, former holders of Vested Company Options and/or former holders of Units, Parent shall make appropriate arrangements with the Paying Agent to such effect and all references to “Former Stockholders” in this Section 2.7 shall be deemed to apply to “Former Securityholders,” unless the context expressly requires otherwise.

(c) Upon surrender of a Certificate for cancellation to the Paying Agent, together with a letter of transmittal specifying that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates (or affidavits of loss in lieu thereof), such letter of transmittal to be in such form and have such other provisions as Parent and the Company may reasonably agree, duly completed and validly executed in accordance with the instructions thereto, (i) the holder of such Certificate shall be entitled to receive in exchange therefor a payment of the applicable amount provided in Section 2.6 with respect to such Certificate (after giving effect to any required Tax withholdings) and (ii) the Certificate so surrendered shall forthwith be canceled. Parent shall, no later than two business days after receipt of each properly surrendered Certificate, cause the Paying Agent to make the payment of the applicable amount provided in Sections 2.6(a) and (b) to the holder of such Certificate, in cash, by wire transfer of immediately available funds to the account designated by such holder in the letter of transmittal delivered with such Certificate. Parent shall cause the Paying Agent to pay to each holder of a properly surrendered Certificate, at the time and in the manner set forth in Section 9.1, such holder’s applicable Pro Rata Portion of any Contingent Payment to be paid as provided in Section 2.6(c). Until so surrendered, each outstanding Certificate that prior to the Effective Time represented shares of Company Capital Stock (other than Dissenting Shares) will be deemed from and after the Effective Time, for all purposes, to evidence the right to receive a payment of the applicable amount provided in Section 2.6. If, after the Effective Time, any Certificate is presented to the Surviving Corporation or Parent, it shall be cancelled and exchanged as provided in this Section 2.7. No interest shall be paid or accrued after the Effective Time on any amount payable upon due surrender of the Certificates.

 

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If payment is to be made to a person other than the registered holder of the Certificate surrendered, it shall be a condition of such payment that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a person other than the registered holder of the Certificate surrendered or establish to the satisfaction of the Paying Agent that such Tax was paid or is not applicable.

(d) At the Effective Time, the stock transfer books of the Company shall be closed, and there shall thereafter be no further registration of transfers of shares of Company Capital Stock outstanding immediately prior to the Effective Time on the records of the Company. At and after the Effective Time, each holder of a Certificate shall cease to have rights as a stockholder of the Company, except for the right to surrender his or her Certificate in exchange for the applicable portion of the Merger Consideration, or to the extent but only to the extent permitted by applicable Law, to assert dissenter’s rights and no transfer of Shares shall thereafter be made on the stock transfer books of the Surviving Corporation. If, after the Effective Time, Certificates are presented to the Paying Agent, Parent or the Surviving Corporation, they shall be canceled and exchanged for the applicable portion of the Merger Consideration.

(e) Upon the earlier to occur of (i) the 90th calendar day following the Closing Date and (ii) the earliest date as of which the Paying Agent has made payments pursuant to Sections 2.6(a) and (b) of this Agreement in exchange for at least 90% of the aggregate number of shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time, the Paying Agent’s duties shall terminate in respect of payments pursuant to Sections 2.6(a) and (b) of this Agreement, and any cash deposited in the account of the Paying Agent in respect of payments pursuant to Sections 2.6(a) and (b) of this Agreement shall be transferred to an account of the Surviving Corporation or Parent managed and held for the benefit of the Former Stockholders. In the event that Parent elects, in its sole discretion pursuant to Section 2.11(a), 2.11(e) or 9.1(b)(iii) of this Agreement to have the Paying Agent make the applicable payments under Section 2.6(c) to Former Securityholders, upon the earlier to occur of (i) the 90th calendar day following the payment by Parent, or on Parent’s behalf, of the applicable amounts to the Paying Agent pursuant to Section 9.1(a) of this Agreement and (ii) the earliest date as of which the Paying Agent has made payments pursuant to Section 2.6(c) of this Agreement in exchange for at least 90% of the aggregate number of shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time, the Paying Agent’s duties shall terminate in respect of payments pursuant to Section 2.6(c) of this Agreement, and any cash deposited in the account of the Paying Agent in respect of payments pursuant to Section 2.6(c) of this Agreement shall be transferred to an account of the Surviving Corporation or Parent managed and held for the benefit of such persons. Thereafter, any Former Securityholder that has not theretofore exchanged its shares in accordance with this Section 2.7 shall thereafter look only to the Surviving Corporation for payment of any amounts to be paid under this Agreement. Notwithstanding the foregoing, none of Parent, the Surviving Corporation, the Paying Agent or any other person shall be liable to any Former Securityholder for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar Laws.

 

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2.8 Lost, Stolen or Destroyed Certificates . In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by such record holder, the Paying Agent shall pay to the record holder of such Certificate the applicable payment of the applicable amounts provided in Sections 2.6(a) and (b) to be paid in respect of the shares represented thereby upon due surrender of and deliverable in respect of the shares represented by such Certificate pursuant to this Agreement and such person also shall be entitled to the right to receive the applicable portion of the Contingent Payments to be distributed or provided in Section 2.6 at the time and in the manner set forth in Section 9.1; provided , however , that Parent or the Paying Agent may, in its discretion and as a condition precedent to the payment of such consideration, require such record holder to deliver a bond in such sum as Parent may reasonably direct as indemnity against any claim that may be made against Parent or the Surviving Corporation with respect to such Certificate.

2.9 Dissenting Shares . Notwithstanding anything in this Agreement to the contrary, any share of Company Capital Stock that is issued and outstanding immediately prior to the Effective Time and which is held by a stockholder who did not consent to or vote in favor of the approval of this Agreement, which stockholder complies with all of the provisions of Delaware Law or, if applicable, California Law, relevant to the exercise and perfection of appraisal or, if applicable, dissenters’ rights (such share being a “ Dissenting Share ,” and such stockholder being a “ Dissenting Stockholder ”), shall not be converted into the right to receive the consideration to which the holder of such share would be entitled pursuant to Section 2.6, but rather shall be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Share pursuant to Delaware Law or, if applicable, California Law. If any Dissenting Stockholder fails to perfect such stockholder’s appraisal or, if applicable, dissenters’, rights under Delaware Law or, if applicable, California Law, or effectively withdraws or otherwise loses such rights with respect to any Dissenting Shares, such Dissenting Shares shall thereupon automatically be converted into the right to receive the applicable amounts provided in Section 2.6, pursuant to the exchange procedures set forth in Section 2.7. The Company will promptly give Parent notice of any demands received by the Company for appraisal or, if applicable, dissenters’ rights, attempted withdrawals of such demands, and any other instruments served pursuant to applicable Law received by the Company with respect to its stockholders’ appraisal or, if applicable, dissenters’, rights. Parent shall have the opportunity to direct all negotiations and proceedings with respect to demand for appraisal under the Delaware Law or, if applicable, California Law. Prior to the Effective Time, the Company shall not, without the prior written consent of Parent, voluntarily make any payment with respect to any demands regarding appraisals of or payments for Dissenting Shares, offer to settle or settle any such demands or approve any withdrawal of any such demands. The Company shall comply with its obligations pursuant to Section 1301(a) of California Law within ten calendar days following the date of this Agreement.

2.10 Taking of Further Action . If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Article II of this Agreement and to vest the Surviving Corporation with full right, title and possession to all Assets, IP Rights, rights, privileges, powers and franchises of the Company and Merger Sub, Parent and the Surviving Corporation are fully authorized in their respective names to take, and will take, all such lawful and necessary or desirable action, so long as such action is not inconsistent with this Agreement.

 

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2.11 Treatment of Company Warrants, Company Options and Units .

(a) At the Effective Time, with no further action required on the part of Parent, the Surviving Corporation, the Paying Agent or any holder thereof, each outstanding Company Warrant, whether or not then exercisable, shall only entitle the holder thereof to receive the amounts provided for in Section 2.6 with respect to holders of Company Warrants. After the Effective Time, Parent shall, or shall cause the Surviving Corporation or the Paying Agent (as Parent shall determine in its sole discretion) to, deliver the amounts provided for in Sections 2.6(a) and (b) with respect to holders of Company Warrants to such holders of Company Warrants (solely with respect to shares of Company Capital Stock covered by such Company Warrants) as soon as reasonably practicable after (i) the surrender by such holder of its Company Warrant and (ii) the execution by such holders of an instrument, in form furnished by Parent, providing for the appointment by such holder of the Stockholders’ Agent pursuant to Section 9.3 of this Agreement and such other matters as Parent may reasonably request. Subject to a Company Warrant holder’s compliance with the terms of clauses (i) and (ii) of the preceding sentence, at the time and in the manner set forth in Section 9.1, Parent shall deliver such Company Warrant holder’s applicable Pro Rata Portion of any Contingent Payment to be paid as provided in Section 2.6(c) (solely with respect to shares of Company Capital Stock covered by such Company Warrants).

(b) At the Effective Time, each outstanding Vested Company Option shall be canceled and shall only entitle the holder thereof to receive the payments specified in Sections 2.6(b) and (c), subject to the provisions of Section 2.11(e) below. At the Effective Time, each outstanding Unvested Company Option shall be converted into an option to purchase Parent Common Stock in accordance with this Section 2.11(b) (a “ Parent Option ”) and a number of restricted stock units in respect of Parent Common Stock as specified in Section 2.11(c) below. Each Unvested Company Option so converted shall have, and be subject to, the same terms and conditions (including vesting schedule and repurchase rights) as set forth in the Company Option Plan and any agreements thereunder (or if issued other than pursuant to a Company Stock Option Plan, pursuant to the agreement that governs its issuance) immediately prior to the Effective Time and, to the extent allowable under applicable Law and the terms of the Company Option Plan (or such other agreement), except that (i) each Unvested Company Option shall be exercisable (or shall become exercisable in accordance with its terms) for that number of whole shares of Parent Common Stock equal to the product of the number of shares that were issuable upon exercise of such Unvested Company Option immediately prior to the Effective Time multiplied by the Up-Front Exchange Ratio, rounded down to the nearest whole number of shares of Parent Common Stock and (ii) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such Unvested Company Option so converted shall be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which such Unvested Company Option was exercisable immediately prior to the Effective Time by the Up-Front Exchange Ratio, rounded up to the nearest whole cent. Continuous employment with the Company or any Subsidiary shall be credited to the optionee for purposes of determining the vesting of all converted Unvested Company Options after the

 

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Effective Time. In addition to the foregoing, Parent shall assume the Company Option Plan, and the number and kind of shares of Company Capital Stock available for issuance under the Company Option Plan shall be converted into shares of Parent Common Stock in accordance with the provisions of the Company Option Plan.

(c) At the Effective Time, each outstanding Unvested Company Option shall also be deemed to be converted into the right to acquire or receive benefits measured by the value (as of the third trading date immediately preceding the Closing Date) of the number of shares of Parent Common Stock equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Company Common Stock subject to such Unvested Company Option immediately prior to the Effective Time and (ii) the Company Option holder’s Pro Rata Portion (solely with respect to the shares of Company Common Stock covered by such Unvested Company Option) of the maximum potential Contingent Payments specified in Section 9.1(a); provided that for purposes of this Section 2.11(c), “maximum potential Contingent Payments” shall be determined by reflecting any reductions pursuant to Section 9.1(b)(iii)(A). Such rights shall be divided into “ SQ Formulation Milestone RSUs ” in respect of the SQ Formulation Milestone Payment and “ Registration Study Milestone RSUs ” in respect of the Registration Study Milestone Payment in proportion to the maximum potential Contingent Payment attributable to each such Contingent Payment. The SQ Formulation Milestone RSUs and the Registration Study Milestone RSUs shall vest in accordance with the terms set forth in the subsections of Section 9.1 relevant to each Contingent Payment, being voided and of no further effect in proportion to the amount by which the relevant Contingent Payment that is due under Section 9.1(a), as adjusted pursuant to Section 9.1(b), is less than the maximum potential Contingent Payment specified in the relevant portion of Section 9.1(a), and the remainder of such RSUs which have not been so voided shall only vest if the former holder of such Unvested Company Option is an employee of Parent, the Surviving Corporation or any of their respective Subsidiaries at the time such Contingent Payment is payable; provided that the ability to earn such Contingent Payment has not otherwise terminated in accordance with Section 9.1(b)(i) and subject to the provisions of Section 2.11(c) in the Company Disclosure Schedule.

(d) The Company shall take all necessary steps to cause that, by virtue of the Merger, all repurchase rights the Company holds relating to shares of Company Common Stock acquired through the exercise of Company Options shall be held by the Surviving Corporation following the Merger or assigned to Parent and that such repurchase rights relate to the Merger Consideration received in respect of such shares of Company Common Stock.

(e) At the Effective Time, with no further action required on the part of Parent, the Surviving Corporation, the Paying Agent or any holder thereof, each outstanding Vested Company Option and Unit shall only entitle the holder thereof, as applicable, to receive the amounts provided for in Section 2.6 with respect to holders of Vested Company Options or Units, as applicable. After the Effective Time, Parent shall, or shall cause the Surviving Corporation or the Paying Agent (as Parent shall determine in its sole discretion) to (i) deliver the amounts provided for in Section 2.6(b) with respect to holders of Vested Company Options to such holders of Vested Company Options (solely with respect to the shares of Company Common Stock covered by such Vested Company Option) and shall, at the time and in the manner set forth in Section 9.1, deliver to each such holder of Vested Company Options such

 

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person’s applicable Pro Rata Portion of any Contingent Payment to be paid as provided in Section 2.6(c) (solely with respect to the shares of Company Common Stock covered by such Vested Company Option), and (ii) deliver the amounts provided for in Section 2.6(b) with respect to holders of Units to such holders of Units (solely with respect to the shares of Company Common Stock represented by such Unit), as provided in and pursuant to the Bonus Plan, and shall, at the time and in the manner set forth in Section 9.1, deliver to each such Unit holder such Unit holder’s applicable Pro Rata Portion of any Contingent Payment to be paid as provided in Section 2.6(c) (solely with respect to shares of Company Common Stock represented by such Unit), in each case, after the execution by such holders of Vested Company Options or Units, as the case may be, of an instrument, in form furnished by Parent, and after compliance by such holder with the other requirements of the Company Option Plan or the Bonus Plan, as applicable, and the terms of the Merger Agreement.

(f) The Company represents and warrants that none of the provisions of this Section 2.11, if effected, would violate the terms of the Company Option Plan or any other Company Employee Plan. At or prior to the Effective Time, the Company, the board of directors of the Company and the Company’s compensation committee, as applicable, shall adopt any resolutions and take any actions which are necessary to effectuate the provisions of this Section 2.11.

2.12 Certain Withholding; No Interest . Parent or the Paying Agent shall be entitled to deduct and withhold from any portion of any payment payable pursuant to this Agreement to any Former Stockholder, former holder of a Company Warrant or former holder of a Company Option or Unit such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or foreign Tax Law. To the extent that amounts are so withheld by Parent or the Paying Agent, such withheld amounts (a) shall be remitted by Parent or the Paying Agent to the applicable Governmental Entity and (b) shall be treated for all purposes of this Agreement as having been paid to such Former Stockholder, former holder of a Company Warrant or former holder of a Company Option or Unit. No interest shall be payable on any amounts payable pursuant to this Agreement.

3. Representations and Warranties of the Company . The Company represents and warrants to Parent that, except as disclosed in a disclosure schedule of even date herewith delivered by the Company to Parent and complying with the provisions of Section 10.3 (the “ Company Disclosure Schedule ”):

3.1 Organization, Standing and Power . Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing, if applicable, under the Laws of the jurisdiction of its incorporation. The Company and its Subsidiaries have the requisite corporate or similar power and authority to own, lease and operate their Assets and to carry on their business as now being conducted (collectively, the “ Current Company Business ”). Each of the Company and its Subsidiaries is duly qualified to do business, and is in good standing (if such concept is applicable in the relevant jurisdiction) in each jurisdiction where the operation of the Current Company Business by the Company and its Subsidiaries requires such qualification, except where the failure to be so qualified or in good standing could not reasonably be expected to result in a Company Material Adverse Effect or prevent,

 

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materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement. The Company has delivered, or made available for review in a data room, to Parent or its advisors true and correct copies of the respective certificate of incorporation and bylaws or other equivalent organizational documents, as applicable, of the Company and each of its Subsidiaries, each as in effect as of the date of this Agreement. Neither the Company nor any of its Subsidiaries is in violation of any of the provisions of its certificate of incorporation or bylaws or equivalent organizational documents. As of the date of this Agreement, (i) the Company has no Subsidiaries other than those listed in Section 3.1 of the Company Disclosure Schedule and (ii) the Company does not directly or indirectly own any material equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any material equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. Section 3.1 of the Company Disclosure Schedule contains a correct and complete list of each jurisdiction where the Company and/or each of its Subsidiaries is organized and/or qualified to do business.

3.2 Authority . The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the Merger. The affirmative vote or consent of the holders of a majority of the shares of Company Common Stock and 66 2/3 percent of the shares of Company Preferred Stock (voting together as a single class on an as-converted basis) outstanding on the record date chosen for purposes of determining the stockholders of the Company entitled to vote on the approval of this Agreement is the only vote of the holders of any Company Capital Stock necessary under Delaware Law to approve this Agreement and the Merger (the “ Required Stockholder Vote ”). On or prior to the date of this Agreement, each holder of Company Capital Stock who is executing a Voting Agreement in the form attached hereto as Exhibit A (collectively, the “ Voting Agreements ”) has executed a written consent with respect to all shares of Company Capital Stock held by such holder, approving this Agreement and the Merger, and as a result, the Required Stockholder Vote has been obtained and no other corporate proceedings are necessary to authorize this Agreement or to consummate the Merger and the other transactions contemplated hereby (other than the filing and recordation of the Certificate of Merger and such other documents as required by Delaware Law). As a result of the Company’s receipt of all required stockholder approvals immediately following the execution and delivery hereof, the Merger has been approved by the Company’s stockholders in accordance with Delaware Law and California Law. The Board of Directors of the Company has unanimously (i) declared that the Merger and the other transactions contemplated by this Agreement are advisable, fair to and in the best interests of the Company and its stockholders, (ii) approved this Agreement in accordance with the provisions of Delaware Law and California Law, (iii) directed that this Agreement and the Merger be submitted to the stockholders of the Company for their adoption and approval by written consent, and (iv) resolved to recommend that the stockholders of the Company vote in favor of the adoption of this Agreement and the approval of the Merger. This Agreement has been duly executed and delivered by the Company and, assuming that this Agreement constitutes a valid and binding obligation of the other parties hereto, this Agreement constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar Laws affecting or relating to creditors’ rights generally and general principles of equity, regardless of whether asserted in a proceeding in equity or at law. The execution and delivery of this Agreement by the Company does not

 

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constitute, and the consummation by the Company of the transactions contemplated hereby will not result in, a termination, or breach or violation by the Company of, or a default by the Company under (with or without notice or lapse of time, or both), (a) any provision of the certificate of incorporation or bylaws of the Company, as amended, (b) any Material Contract or (c) any Law applicable to the Company or any of its Assets, except in the case of clause (b) where such termination, breach, violation or default could not reasonably be expected to result in a Company Material Adverse Effect or Parent Material Adverse Effect. No material consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality (each, a “ Governmental Entity ”) is required to be obtained or made by the Company at or prior to the Effective Time in order for the Company to execute and deliver this Agreement or to consummate the Merger, except for: (a) the filing of the Certificate of Merger as provided in Section 2.2; and (b) such filings as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“ HSR ”), and foreign antitrust Laws set forth in Section 3.2 of the Company Disclosure Schedule.

3.3 Governmental Authorizations . The Company and its Subsidiaries have obtained each material federal, state, county, local or foreign governmental consent, license, permit, grant or other authorization of a Governmental Entity that is required, as of the date hereof, for the operation by the Company and its Subsidiaries of the Current Company Business, and all of such consents, licenses, permits, grants and authorizations are in full force and effect.

3.4 Financial Statements . The Company has delivered to Parent or its advisors (a) the audited consolidated balance sheets and statements of operations of the Company as of and for the fiscal years ended December 31, 2004 and December 31, 2005, and for the period from inception (July 15, 2003) of the Company through December 31, 2005, and (b)(i) the unaudited consolidated balance sheet of the Company as of August 31, 2006 (the “ Company Balance Sheet ”) and (ii) the unaudited consolidated statement of operations of the Company for the eight-month period ended August 31, 2006 (collectively, the “ Company Financial Statements ”). The Company Financial Statements have been prepared in accordance with GAAP (except as disclosed in the notes thereto and except that the unaudited Company Financial Statements do not contain footnotes and are subject to normal year-end audit adjustments) applied on a consistent basis throughout the periods covered. The Company Financial Statements fairly present, in all material respects and in accordance with GAAP, the consolidated financial condition of the Company as of the dates indicated therein and the consolidated results of operations and cash flows of the Company for the periods indicated therein, subject to normal year-end audit adjustments and the absence of footnotes in the case of the unaudited Company Financial Statements.

3.5 Capitalization; Shares and Stockholder Information .

(a) Capitalization . The authorized capital stock of the Company consists of (i) 20,000,000 shares of Company Common Stock, of which there were issued and outstanding as of the close of business on the date of this Agreement 183,105 shares, and (ii) 13,991,652 shares of Company Preferred Stock. As of the date of this Agreement, there were issued and outstanding, 486,663 shares of Series A Preferred Stock convertible into the same number of shares of Common Stock. As of the date of this Agreement, there were issued and

 

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outstanding 340,000 shares of Series A-1 Preferred Stock convertible into the same number of shares of Common Stock. As of the date of this Agreement, there were issued and outstanding 6,006,070 shares of Series B Preferred Stock convertible into the same number of shares of Common Stock. As of the date of this Agreement, there were issued and outstanding 3,495,826 shares of Series C Preferred Stock convertible into the same number of shares of Common Stock. All outstanding shares of Company Common Stock and Company Preferred Stock (i) are duly authorized, validly issued, fully paid and non-assessable, (ii) are free of any liens or encumbrances created by the Company, and, to the knowledge of the Company, free of any liens or encumbrances created by or imposed upon the holders thereof, and (iii) were not issued in violation of any preemptive rights or rights of first refusal created by statute, the certificate of incorporation or bylaws of the Company or any agreement to which the Company is a party or by which it is bound. As of the date of this Agreement, there were 1,967,779 shares of Company Common Stock reserved for issuance under the Company Option Plan, of which 1,392,551 shares of Company Common Stock were subject to outstanding Company Options and 452,123 shares of Company Common Stock were reserved for future option grants. The Company has delivered to Parent or its advisors (or made available in a data room for review by Parent or its advisors) true and complete copies of each form of agreement and each Company Option Plan evidencing each Company Option. Each Company Option was granted or awarded with an exercise price no less than the fair market value of a share of Company Common Stock on the date of such grant or award based on a reasonable, good faith determination of fair market value by the Company’s Board of Directors consistent with the proposed regulations promulgated under Section 409A of the Code and such grant or award dates are identical to the dates on which the Company’s Board of Directors or Compensation Committee awarded such Company Options. Each of the outstanding shares of capital stock or other securities of each of the Company’s Subsidiaries is duly authorized, validly issued, fully paid and nonassessable and owned by the Company, free and clear of any lien. Except for the rights created pursuant to this Agreement and the Company Options and other rights disclosed in the preceding sentences, there are no options, warrants, calls, rights, commitments or agreements that are outstanding to which the Company is a party or by which it is bound, obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of Company Capital Stock or obligating the Company to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter into any option, warrant, call, right, commitment or agreement regarding shares of Company Capital Stock. There are no other contracts, commitments or agreements relating to the voting, purchase or sale of the Company’s capital stock (a) between or among the Company and any of its stockholders, and (b) to the Company’s knowledge, between or among any of the Company’s stockholders. The Company does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the Stockholders on any matter (“ Voting Debt ”). As of the date hereof, there are no declared and unpaid dividends on any share of Company Capital Stock.

(b) Shares and Stockholder Information . Section 3.5(b) of the Company Disclosure Schedule sets forth, as of the date hereof: (i) the true and correct number of shares of Company Capital Stock that each current stockholder of the Company holds of record; and (ii) to the knowledge of the Company, the address, state of residence, if applicable, and federal tax identification number (or social security number, as applicable) of such stockholder.

 

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Section 3.5(b) of the Company Disclosure Schedule contains a correct and complete list of each outstanding Company Option, including the holder, date of grant, exercise price, number of shares subject thereto, number of shares vested as of such date, vesting schedule, the type of Company Option and the Company Option Plan or other plan under which such Company Stock Options were granted.

3.6 Absence of Certain Changes . Except as set forth in Section 3.6 of the Company Disclosure Schedule, between December 31, 2005 (the “ Company Balance Sheet Date ”) and the date of this Agreement, the Company and its Subsidiaries have conducted their business in the ordinary course consistent with past practice and there has not occurred (a) any amendment to the certificate of incorporation or bylaws or equivalent organizational documents of the Company or its Subsidiaries; (b) any change in the financial condition, prospects, Assets, IP Rights, Liabilities, business or results of operations of the Company and its Subsidiaries or any development or combination of developments of which the Company has knowledge that, individually or in the aggregate, could reasonably be expected to result in a Company Material Adverse Effect; (c) any material damage, destruction or other loss with respect to any IP Right or any material Asset, owned, leased, licensed or otherwise used by the Company or any of its Subsidiaries, whether or not covered by insurance; (d) any merger or consolidation of the Company or any of its Subsidiaries with any other person or any split, combination or reclassification of the capital stock of the Company or any of its Subsidiaries or any purchase, redemption or other acquisition, directly or indirectly, by the Company or any of its Subsidiaries of the capital stock of the Company or such Subsidiary or any securities convertible or exercisable therefor; (e) any declaration, setting aside or payment of any dividend or other distribution, payable in cash, stock, property or otherwise, in respect of the capital stock of the Company; (f) any transfer, lease, license, guarantee, sale, mortgage, pledge, disposal or encumbrance of any IP Right or any material Asset, other than in the ordinary course of business consistent with past practice; (g) any incurrence by the Company or any of its Subsidiaries of any indebtedness or the issuance of any debt securities or warrants or other rights to acquire debt securities of the Company or any of its Subsidiaries or the assumption, guarantee or endorsement as an accommodation or otherwise, by the Company or any of its Subsidiaries of the obligations of any other person (other than any Subsidiary of the Company), in the case of any of the foregoing involving an aggregate principal amount or potential guaranteed amount in excess of $100,000; (h) any acquisition by the Company or any of its Subsidiaries of any Assets or interest in any Assets from any other person (other than any Subsidiary) outside the ordinary course of business consistent with past practice in excess of $100,000 individually, or $250,000 in the aggregate; (i) any incurrence of any lien on any IP Right or any material Asset; (j) any change by the Company in its accounting policies or procedures, except as required by GAAP or by applicable Law; (k) any revaluation of any of the Company’s IP Rights or material Assets; (l) any increase in or establishment of any bonus, insurance, severance, retention, deferred compensation, pension, retirement, profit-sharing, stock option, stock purchase or other employee benefit plan, or any other increase in the compensation payable or to become payable to any officers or employees of the Company or any of its Subsidiaries or any amendment of any of the Company Employee Plans or Company International Employee Plans; (m) any making of any material loan, advance or capital contribution to, or investment in, any person other than (i) loans, advances or capital contributions to, or investments in, wholly owned Subsidiaries of the Company and (ii) loans, advances or capital contributions to, or investments in, any person in an

 

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amount not in excess of $50,000 in the aggregate; or (n) any agreement or undertaking to do any of the foregoing.

3.7 Absence of Undisclosed Liabilities . The Company and its Subsidiaries do not have any Liabilities or obligations of any nature (whether known, unknown, absolute, accrued, choate, inchoate, contingent or otherwise, whether direct or indirect, or as guarantor or otherwise with respect to any Liability or obligation of any other person and whether due or to become due), except (a) as and to the extent disclosed on and adequately reserved against in the Company Financial Statements, (b) for Liabilities and obligations under the Company’s Contracts, including the Material Contracts listed in Section 3.7 of the Company Disclosure Schedule (other than Liabilities for any breach of such Contracts), (c) for accounts payable and payroll obligations incurred in the ordinary course of business since the Company Balance Sheet Date, (d) other Liabilities and obligations in the aggregate amount not exceeding $100,000 incurred since the Company Balance Sheet Date in the ordinary course of business, (e) for any other Liabilities not required to be reflected in the liabilities column of a balance sheet prepared in accordance with GAAP and (f) the Specified Transactional Expenses.

3.8 Litigation . There are (a) no civil, criminal or administrative actions, suits, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries (other than routine claims for unemployment or workers’ compensation benefits not exceeding $10,000 in the aggregate) and (b) to the knowledge of the Company, no facts or circumstances that are reasonably likely to result in any such actions, suits, claims, hearings, investigations or proceedings. None of the Company or its Subsidiaries, or any of their respective IP Rights or material Assets, is subject to any settlement or similar agreement with any Governmental Entity, or to any order, judgment, decree, injunction or award of any Governmental Entity.

3.9 Restrictions on Business Activities . There is no Material Contract, other agreement, judgment, injunction, order or decree binding upon the Company or its Subsidiaries that has, or would reasonably be expected to have, the effect of prohibiting or materially impairing (i) the conduct of the Current Company Business by the Company or its Subsidiaries, or (ii) the ability of the Company or its Subsidiaries to transact business in any material market, field or geographical area or with any person.

3.10 Intellectual Property .

(a) For purposes of this Agreement:

(i) “ IP Rights ” means any and all of the following in any country: Copyrights, Patent Rights, Trademark Rights, domain name registrations, moral rights, trade secrets, know-how rights, and other intellectual property rights and intangible assets; for the avoidance of doubt, any reference in this Agreement to “IP Rights” of the Company and/or its Subsidiaries shall include, without limitation, Company IP Rights and Third Party IP Rights, unless the context expressly provides otherwise;

(ii) “ Copyrights ” means all copyrights and copyrightable works, including all rights of authorship, use, publication, reproduction, distribution,

 

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performance, preparation of derivative works, transformation, moral rights and rights of ownership of copyrightable works and all rights to register and obtain renewals and extensions of registrations, together with all other interests accruing by reason of international copyright.

(iii) “ IP License ” means any Contract concerning IP Rights to which the Company or any of its Subsidiaries is a party or has obtained or granted rights thereunder, including, without limitation, license or sublicense agreements (A) granting the Company or any of its Subsidiaries rights to use IP Rights owned or held by any other Person, (B) pursuant to which the Company or any of its Subsidiaries grants rights to any other Person to use any Company IP Rights or Third Party IP Rights, or any (C) non-assertion agreements, settlement agreements, covenants not to sue, trademark coexistence agreements and trademark consent agreements.

(iv) “ Patent Rights ” means all issued patents and pending patent applications (which for purposes of this Agreement shall include utility models, design patents, certificates of invention and applications for certificates of invention and priority rights) in any country, including all provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals, reissues, re-examinations and extensions thereof.

(v) “ Company IP Rights ” means all IP Rights owned solely or co-owned by the Company or its Subsidiaries

(vi) “ Third Party IP Rights ” means any IP Right licensed or otherwise granted to the Company or its Subsidiaries or as to which the Company or its Subsidiaries has any right, title or interest, pursuant to any IP License.

(vii) “ Trademark Rights ” means all trademarks, registered trademarks, applications for registration of trademarks, service marks, registered service marks, applications for registration of service marks, trade names, registered trade names and applications for registration of trade names.

(b) Part 1 of Section 3.10(b) of the Company Disclosure Schedule lists all of the Patent Rights and all registered Trademark Rights (or Trademark Rights for which applications for registration have been filed) owned solely by the Company or its Subsidiaries as of the date hereof, setting forth in each case the jurisdictions in which patents have been issued, patent applications have been filed, trademarks have been registered and trademark applications have been filed. As of the date hereof, there are no Patent Rights or registered Trademark Rights (or Trademark Rights for which applications for registration have been filed) in which the Company or its Subsidiaries has any co-ownership interest. Part 2 of Section 3.10(b) of the Company Disclosure Schedule lists, to the knowledge of the Company as of the date hereof, all of the Patent Rights and all registered Trademark Rights (or Trademark Rights for which applications for registration have been filed) in which the Company or its Subsidiaries has any right, title or interest by virtue of any IP License, other than those owned solely or co-owned by the Company or its Subsidiaries.

(c) Neither the Company nor its Subsidiaries jointly owns any Company IP Rights with any person other than the Company or its Subsidiaries. No current or

 

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former officer, manager, director or employee of the Company or its Subsidiaries, and to the knowledge of the Company, no stockholder, consultant or independent contractor of the Company or its Subsidiaries, has any right, title or interest in, to or under any Company IP Rights that has not been exclusively assigned, transferred or licensed to the Company or its Subsidiaries. No third party is challenging in writing, or is threatening in writing to challenge, the right, title or interest of the Company or its Subsidiaries in, to or under the Company IP Rights, or the validity, enforceability or claim construction of any Patent Rights owned or co-owned or exclusively licensed to the Company or its Subsidiaries pursuant to any IP License.

(d) Section 3.10(d) of the Company Disclosure Schedule lists all legally binding IP Licenses.

(e) No third party is asserting in writing or threatening in writing, to make a claim which would materially and adversely affect the interest of the Company or its Subsidiaries in, under or to any IP License. To the knowledge of the Company, no third party is asserting or threatening in writing to make a claim against any person other than the Company or its Subsidiaries or their respective Affiliates, nor, to the knowledge of the Company, is any such claim being asserted or being threatened in writing against any such person, which would materially and adversely affect the interest of the Company or its Subsidiaries to or under any IP License.

(f) All Patent Rights and registered Trademark Rights of which the Company or its Subsidiaries possesses sole ownership have been duly filed or registered (as applicable) with the Governmental Entity(ies) listed on, and have been maintained as described in, Section 3.10(f) of the Company Disclosure Schedule.

(g) As of the date of this Agreement, neither the Company nor its Subsidiaries is subject to any legally binding contract, agreement or other arrangement that restricts the use, transfer, delivery or licensing of Company IP Rights or Third Party IP Rights (or any tangible embodiment thereof).

(h) The Company and its Subsidiaries have put in place the policies and procedures listed on Section 3.10(h) of the Company Disclosure Schedule to protect and maintain the confidentiality of the proprietary know-how included in the Company IP Rights. Except as set forth in Section 3.10(h) or Section 3.12(a) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has granted, licensed or conveyed to any third party pursuant to IP Licenses, any Company IP Rights or Third Party IP Rights (or any tangible embodiment thereof). As of the date of this Agreement, there are no outstanding obligations to pay any material amounts or provide other material consideration to any other person in connection with any Company IP Rights or Third Party IP Rights (or any tangible embodiment thereof).

(i) The Company and its Subsidiaries own, or otherwise possess legally enforceable rights to use, all IP Rights used in the conduct of the Current Company Business. The Company IP Rights and the Third Party IP Rights collectively constitute all of the IP Rights necessary to enable the Company and its Subsidiaries to conduct the Current Company Business.

 

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(j) To the knowledge of the Company, the conduct of the Current Company Business does not infringe, constitute contributory infringement, inducement to infringe, misappropriation or unlawful use of IP Rights of any other person, and neither the Company nor its Subsidiaries has received any written notice or other written communication asserting any of the foregoing that remains unresolved.

(k) To the knowledge of the Company, as of the date of this Agreement, no Company IP Rights are being infringed or misappropriated by any third party.

(l) Neither the Company nor its Subsidiaries is currently a party to any legally binding written or oral contract, agreement, license or other arrangement to indemnify any other person against any charge of infringement of any IP Rights.

(m) All current and former officers, employees and temporary employees of the Company and its Subsidiaries have executed and delivered to the Company or its Subsidiaries an agreement (containing no exceptions or exclusions from the scope of its coverage) regarding the protection of proprietary information and the assignment to the Company or its Subsidiaries of any IP Rights arising from services performed for the Company or its Subsidiaries by such persons, the current form of which has been made available in a data room for review by Parent or its advisors. All current and former consultants and independent contractors to the Company or its Subsidiaries have executed and delivered to the Company or its Subsidiaries an agreement in substantially the form provided to Parent or its counsel (containing no exceptions or exclusions from the scope of its coverage) regarding the protection of proprietary information and the assignment to the Company or its Subsidiaries of any IP Rights arising from the services performed for the Company or its Subsidiaries by such persons. To the knowledge of the Company, no current or former employee, temporary employee, consultant or independent contractor of the Company or its Subsidiaries is in material violation of any term of any patent disclosure agreement or employment contract or any other contract or agreement relating to the relationship of any such person with the Company or its Subsidiaries.

(n) Neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated by this Agreement will contravene, conflict with or result in any limitation on the Company’s right, title or interest in or to any Company IP Rights or under any Third Party IP Rights.

3.11 Interested Party Transactions . Neither the Company nor any director, officer, employee, consultant or Affiliate of the Company: (a) has any cause of action or other claim whatsoever against, or owes any amounts to, the Company except for claims of employees in the ordinary course of business, such as for accrued vacation pay or for accrued benefits under an employee benefit plan maintained by the Company or for benefits under an employment or indemnification agreement with the Company or any of its Subsidiaries, disclosed in the Company Disclosure Schedule; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property which the Company is using or which is necessary for the business of the Company; or (c) to the knowledge of the Company, owns any direct or indirect interest of any kind in (other than publicly traded securities in an amount less than 1% of the voting securities of such entity), or is an Affiliate or employee of, or consultant or lender to, or borrower from, or has the right to participate in the management, operations or profits of, any person that is (i) a

 

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competitor, supplier, customer, client, distributor, lessor, tenant, creditor or debtor of the Company, (ii) a party to any contract with the Company or any of its Subsidiaries, or (iii) engaged in any transaction with the Company.

3.12 Material Contracts .

(a) Section 3.12(a) of the Company Disclosure Schedule lists all of the Material Contracts in effect as of the date of this Agreement. The Company has delivered to Parent, or made available to Parent or its advisors in a data room, a complete and accurate copy of each such Material Contract and all amendments or modifications thereto that exist as of the date of this Agreement.

(b) With respect to each Material Contract listed in Section 3.12(a) of the Company Disclosure Schedule: (i) such Material Contract is in full force and effect as of the date hereof and, with respect to each party thereto other than the Company or any of its Subsidiaries, is binding and enforceable against such party, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar Laws affecting or relating to creditors’ rights generally and general principles of equity, regardless of whether asserted in a proceeding in equity or at law; and (ii)(A) neither the Company nor, to the Company’s knowledge, any other party to a Material Contract, is in material breach or material default of such Material Contract, and (B) no event has occurred that with notice or lapse of time would constitute a material breach or material default thereunder by the Company or any Subsidiary that is a party to such Material Contract, or would permit the modification or premature termination of such Material Contract by any other party thereto. Section 3.12(b) of the Company Disclosure Schedule sets forth a true and correct list of all Avidia Targets and all Excluded Targets, as such terms are defined in the Cross License Agreement, dated July 16, 2003, between the Company and Maxygen, Inc. (the “ Maxygen Agreement ”).

(c) “ Material Contract ” means (i) each Contract or series of related Contracts that (A) involved or involves payment by the Company or any of its Subsidiaries of consideration of more than $100,000 in the aggregate over the term of such Contract and has continuing material obligations, rights or interests (other than a Contract under which the sole continuing obligation is to maintain confidentiality) and cannot be cancelled by the Company or such Subsidiary without penalty or further payment without more than 90 days’ notice (other than payments for services rendered to the date of termination and de minimis termination expenses) or (B) has material continuing obligations or interests involving the payment of royalties or other amounts calculated based upon the revenues or income of the Company or any of its Subsidiaries; (ii) each Contract pursuant to which the Company, any of its Subsidiaries or any other party thereto has material continuing obligations, rights or interests relating to the research, development, clinical trial, distribution, supply, manufacture, marketing or co-promotion of, or collaboration with respect to, any product or product candidate for which the Company or any of its Subsidiaries is currently engaged in research or development excluding (A) study agreements with clinical trial sites; (B) non-disclosure agreements; (C) Contracts with contractors or vendors providing services to the Company or any of its Subsidiaries, and (D) customary material transfer Contracts, and in each case of the foregoing (A), (B), (C) or (D), entered into in the ordinary course of business consistent with past practice); (iii) each Contract evidencing indebtedness in excess of $50,000; (iv) each material Contract with any

 

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Governmental Entity; (v) each non-competition Contract or other Contract that limits or purports to limit in any material respect either the type of business in which the Company or any of its Subsidiaries (or, after giving effect to the Merger, Parent or its Subsidiaries) may