AGREEMENT AND PLAN OF MERGER

 

 

TABLE OF CONTENTS

				Page
ARTICLE I
THE OFFER
Section 1.1.		The Offer		2
Section 1.2.		Company Consent; Schedule 14D-9		4
Section 1.3.		Stockholder Lists		4
Section 1.4.		Directors		4
Section 1.5.		Top-Up Option		6
ARTICLE II
THE MERGER
Section 2.1.		The Merger		7
Section 2.2.		Closing; Effective Time		7
Section 2.3.		Effects of the Merger		7
Section 2.4.		Certificate of Incorporation; Bylaws		7
Section 2.5.		Directors and Officers		8
Section 2.6.		Special Meeting		8
Section 2.7.		Merger Without Meeting of Stockholders		8
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
Section 3.1.		Conversion of Securities		8
Section 3.2.		Treatment of Equity Awards and ESPP		9
Section 3.3.		Dissenting Shares		10
Section 3.4.		Surrender of Shares		10
Section 3.5.		Withholding Taxes		11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1.		Organization and Qualification; No Subsidiaries		12
Section 4.2.		Certificate of Incorporation and Bylaws		13
Section 4.3.		Capitalization		13
Section 4.4.		Authority		14
Section 4.5.		No Conflict; Required Filings and Consents		15
Section 4.6.		Compliance		16

 

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Section 4.7.		SEC Filings; Financial Statements		16
Section 4.8.		Absence of Certain Changes or Events		18
Section 4.9.		Absence of Litigation		19
Section 4.10.		Employee Benefit Plans		19
Section 4.11.		Labor and Employment Matters		21
Section 4.12.		Insurance		22
Section 4.13.		Properties		22
Section 4.14.		Tax Matters		22
Section 4.15.		Schedule 14D-9; Offer Documents; Proxy Statement		24
Section 4.16.		Intellectual Property		25
Section 4.17.		Environmental Matters		27
Section 4.18.		Contracts		28
Section 4.19.		Affiliate Transactions		30
Section 4.20.		Opinion of Financial Advisors		30
Section 4.21.		Brokers; Certain Fees		31
Section 4.22.		Takeover Laws; Rights Agreement		31
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Section 5.1.		Organization		32
Section 5.2.		Authority		32
Section 5.3.		No Conflict; Required Filings and Consents		32
Section 5.4.		Absence of Litigation		33
Section 5.5.		Offer Documents; Schedule 14D-9; Proxy Statement		33
Section 5.6.		Brokers		34
Section 5.7.		Financing		34
ARTICLE VI
COVENANTS
Section 6.1.		Conduct of Business of the Company Pending the Merger		34
Section 6.2.		Access to Information; Confidentiality		36
Section 6.3.		Acquisition Proposals		37
Section 6.4.		Employment and Employee Benefits Matters		41

 

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Section 6.5.		Directors’ and Officers’ Indemnification and Insurance		42
Section 6.6.		Further Action; Efforts		43
Section 6.7.		Takeover Laws		45
Section 6.8.		Proxy Statement		45
Section 6.9.		Subsequent Filings		45
Section 6.10.		Public Announcements		46
Section 6.11.		Notification		46
Section 6.12.		Approval of Compensation Actions		46
Section 6.13.		Dispositions		46
Section 6.14.		Plenaxis® Disposition		46
ARTICLE VII
CONDITIONS OF MERGER
Section 7.1.		Conditions to Obligation of Each Party to Effect the Merger		47
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1.		Termination by Mutual Agreement		47
Section 8.2.		Termination by Either Parent or the Company		47
Section 8.3.		Termination by the Company		48
Section 8.4.		Termination by Parent		48
Section 8.5.		Effect of Termination		49
Section 8.6.		Expenses		50
Section 8.7.		Amendment		50
Section 8.8.		Waiver		50
ARTICLE IX
GENERAL PROVISIONS
Section 9.1.		Non-Survival of Representations, Warranties, Covenants and Agreements		50
Section 9.2.		Notices		51
Section 9.3.		Certain Definitions		51
Section 9.4.		Severability		52
Section 9.5.		Entire Agreement; Assignment		52

 

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Section 9.6.		Parties in Interest		53
Section 9.7.		Governing Law		53
Section 9.8.		Headings		53
Section 9.9.		Counterparts		53
Section 9.10.		Specific Performance; Jurisdiction		53
Section 9.11.		Interpretation		54

 

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INDEX OF DEFINED TERMS

Acquisition Proposal	40		Environmental Laws	28
Affiliate	51		Environmental Permits	28
Agreement	1		ERISA	19
Alternative Acquisition Agreement	39		ERISA Affiliate	20
beneficial owner	52		ESPP	9
beneficially owned	52		ESPP Offering Period	14
Business Day	52		Exchange Act	2
Bylaws	13		Expiration Date	Exhibit A
Capitalization Date	13		FDA	16
Certificate of Incorporation	13		Financial Advisor	30
Certificate of Merger	7		Financial Statements	17
Certificates	10		Foreign Antitrust Laws	16
Change of Board Recommendation	39		FTC	44
Closing	7		GAAP	52
Closing Date	7		Governmental Entity	15
Code	20		HSR Act	16
Common Stock	1		Indemnified Parties	42
Company	1		Indemnified Party	42
Company Board	1		Independent Directors	5
Company Board Recommendation	15		Intellectual Property	25
Company Disclosure Schedule	12		Inventions	25
Company Employees	20		IRS	20
Company Plans	20		knowledge	52
Company Registered Intellectual Property	26		Law	15
Company Requisite Vote	14		Licensed-In Agreement	29
Company Securities	14		Licensed-In Intellectual Property	29
Company Stock Plan	13		Liens	22
Company Subsidiary	12		Material Adverse Effect	12
Compensation Actions	19		Material Contract	30
Confidentiality Agreement	15		Materials of Environmental Concern	28
Continuing Directors	5		Merger	1
Contract	15		Merger Agreement	Exhibit A
control	52		Merger Consideration	8
controlled	52		Minimum Tender Condition	Exhibit A
controlled by	52		Nasdaq	2
Copyrights	25		Notice Period	39
Current Employees	41		Offer	1
DGCL	1		Offer Conditions	2
Dissenting Shares	10		Offer Documents	3
DOJ	44		Offer Price	1
Effective Time	7		Option	9
employee benefit plan	19		Outside Date	48
Environmental Claim	28		Owned Intellectual Property	25

 

 

 

owns beneficially	52		SEC Reports	16
Parent	1		Securities Act	6
Parent Disclosure Schedule	31		September 30 Balance Sheet	18
Patents	25		Shares	1
Paying Agent	10		Special Meeting	8
Permits	16		Subsidiary	52
Person	52		Superior Proposal	40
Preferred Stock	13		Surviving Corporation	7
Proceeding	19		Takeover Laws	31
Proxy Statement	25		Tax	24
Purchase Time	9		Top-Up Option	6
Purchaser	1		Top-Up Shares	6
Purchaser Material Adverse Effect	32		Trade Secrets	25
Release	28		Trademarks	25
Rights	1		under common control with	52
Rights Agreement	1		USRPHC	24
Schedule 14D-9	4
Schedule TO	3
SEC	2

 

 

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of December 20, 2006 (this “ Agreement ”), among SMITHKLINE BEECHAM CORPORATION, a Pennsylvania corporation (“ Parent ”), PILGRIM ACQUISITION CORPORATION, a Delaware corporation and a wholly-owned Subsidiary of Parent (“ Purchaser ”), and PRAECIS PHARMACEUTICALS INCORPORATED, a Delaware corporation (the “ Company ”).

WHEREAS, Parent and the Board of Directors of each of Purchaser and the Company has approved the acquisition of the Company by Parent on the terms and conditions set forth in this Agreement;

WHEREAS, on the terms and subject to the conditions set forth herein, Purchaser has agreed to commence a tender offer (the “ Offer ”) to purchase all outstanding shares of common stock, par value $0.01 per share, of the Company (the “ Common Stock ”), including the associated preferred stock purchase rights (the “ Rights ”) issued pursuant to the Rights Agreement, dated as of January 24, 2001, between the Company and American Stock Transfer and Trust Company, as Rights Agent (the “ Rights Agreement ”) (the shares of Common Stock, together with the Rights, being referred to collectively as the “ Shares ”), at a price of $5.00 per Share, net to the seller in cash (such price, or any higher price as may be paid in the Offer in accordance with this Agreement, the “ Offer Price ”);

WHEREAS, following consummation of the Offer, on the terms and subject to the conditions set forth herein Purchaser shall merge with and into the Company (the “ Merger ”) and each Share that is issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company or owned by Parent, Purchaser or any direct or indirect wholly-owned Subsidiary of Parent or the Company immediately prior to the Effective Time, which will be canceled with no consideration issued in exchange therefor, and other than Dissenting Shares) will be canceled and converted into the right to receive cash in an amount equal to the Offer Price, all upon the terms and conditions set forth herein;

WHEREAS, the Board of Directors of the Company (the “ Company Board ”) has, on the terms and subject to the conditions set forth herein, unanimously (i) determined that the transactions contemplated by this Agreement are fair to, and in the best interests of, the stockholders of the Company, (ii) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Offer and the Merger, in accordance with the Delaware General Corporation Law (the “ DGCL ”), and (iii) determined to recommend that the Company’s stockholders accept the Offer and tender their Shares to Purchaser and, to the extent applicable, adopt the “agreement of merger” (as such term is used in Section 251 of the DGCL) set forth in this Agreement;

WHEREAS, the Board of Directors of Purchaser has, on the terms and subject to the conditions set forth herein, unanimously approved and declared advisable this Agreement and the transactions contemplated hereby, including the Offer and the Merger, and Parent or a wholly-owned Subsidiary of Parent (in each case, in its capacity as the sole stockholder of Purchaser) has adopted the “agreement of merger” set forth in this Agreement in each case, in accordance with the DGCL; and

 

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Purchaser and the Company hereby agree as follows:

ARTICLE I

THE OFFER

SECTION 1.1.  The Offer .  (a) (i) Provided that this Agreement shall not have been terminated in accordance with Article VIII and that none of the events set forth in Paragraph (2) of Exhibit A hereto shall exist or have occurred and be continuing, Purchaser shall, and Parent shall cause Purchaser to, promptly (but in no event later than January 9, 2007) commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) the Offer to purchase all outstanding Shares, at the Offer Price.  The obligations of Purchaser to, and of Parent to cause Purchaser to, accept for payment and to pay for any Shares tendered pursuant to the Offer shall be subject to only those conditions set forth in Exhibit A (the “ Offer Conditions ”).  The initial expiration date of the Offer shall be the twentieth Business Day following (and including the day of) the commencement of the Offer.  Purchaser expressly reserves the right (but shall not be obligated) at any time or from time to time in its sole discretion to waive any Offer Condition or modify or amend the terms of the Offer, except that, without the prior written consent of the Company, Purchaser shall not (A) decrease the Offer Price or change the form of the consideration payable in the Offer, (B) decrease the number of Shares sought pursuant to the Offer, (C) amend or waive the Minimum Tender Condition (as defined in Exhibit A), (D) add to the conditions set forth on Exhibit A, (E) modify the conditions set forth on Exhibit A in a manner adverse to the holders of Shares, (F) extend the expiration of the Offer except as required or permitted by Section 1.1(a)(ii) or (iii), or (G) make any other change in the terms or conditions of the Offer which is adverse to the holders of Shares.

(ii)           Subject to the satisfaction or waiver by Purchaser of the Offer Conditions as of the time of any scheduled expiration of the Offer, Purchaser shall, and Parent shall cause Purchaser to, accept for payment and pay for Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after such scheduled expiration and Purchaser shall, and Parent shall cause Purchaser to, immediately accept and promptly pay for all Shares as they are validly tendered during any subsequent offer period.  Purchaser may, without the consent of the Company, (A) extend the Offer for one or more periods of time of up to twenty Business Days per extension if at any scheduled expiration of the Offer any of the Offer Conditions are not satisfied, until such time as such Offer Conditions are satisfied or waived, (B) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the “ SEC ”) or the staff thereof or the Nasdaq National Market (“ Nasdaq ”) applicable to the Offer, or (C) elect to provide a subsequent offering period for the Offer in accordance with Rule 14d-11 under the Exchange Act, provided that Purchaser shall not extend the Offer pursuant to clause (A) of this Section beyond the Outside Date without the consent of the Company.  The Offer Price may be increased, and the Offer may be extended to the extent required by law in connection with such increase in the Offer Price, in each case without the consent of the Company.

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(iii)          Subject to the terms and conditions of this Agreement, Purchaser shall extend the Offer on one or more occasions for periods determined by Purchaser of up to twenty Business Days per extension if, at any scheduled expiration of the Offer, any of the Offer Conditions have not been satisfied or waived; provided , that (A) if all Offer Conditions other than the Minimum Tender Condition are satisfied or waived as of any scheduled expiration of the Offer, Purchaser shall not be obligated to extend the Offer unless required by applicable Law or any applicable rule or regulation of any stock exchange (but shall be entitled to extend the Offer), and (B) if at any scheduled expiration of the Offer (x) the Offer Condition set forth in Paragraph 2(a) of Exhibit A has not been satisfied or waived (other than by reason of a judgment, injunction or order that is not final or remains subject to appeal) or (y) the Offer Condition set forth in Paragraph 2(d) of Exhibit A has not been satisfied or waived by Purchaser and, in the case of clause (y), the breach or failure to perform or comply that has caused such non-satisfaction is not capable of being cured within 25 days after receipt by the Company of notice of such breach or failure (it being understood that a willful failure to comply with Section 6.3 shall not be deemed capable of being cured) or, if capable of being cured within such period, has not been cured within such period, then Purchaser shall not be obligated (but shall be entitled) to extend the Offer; provided , further , that Purchaser shall not, and shall not be required to, extend the Offer (1) beyond the Outside Date or (2) at any time that it is permitted to terminate this Agreement pursuant to Article VIII.

(b)           On the date of commencement of the Offer, Parent and Purchaser shall file or cause to be filed with the SEC a Tender Offer Statement on Schedule TO (together with all amendments and supplements thereto, the “ Schedule TO ”) with respect to the Offer which shall contain the offer to purchase and related letter of transmittal and summary advertisement and other ancillary Offer documents and instruments pursuant to which the Offer will be made (collectively with any supplements or amendments thereto, the “ Offer Documents ”).  The Company and its counsel shall be given a reasonable opportunity to review and comment on the Offer Documents prior to their filing with the SEC.  Parent and Purchaser agree (i) to provide the Company with, and to consult with the Company regarding, any comments that may be received from the SEC or its staff with respect to the Offer Documents promptly after receipt thereof and prior to responding thereto and (ii) to provide the Company with any comments or responses thereto.  If at any time prior to the Closing, any information relating to the Offer, the Merger, the Company, Parent, Purchaser or any of their respective Affiliates, directors or officers, should be discovered by the Company or Parent which should be set forth in an amendment or supplement to the Offer Documents, so that the Offer Documents shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, the party which discovers such information shall promptly notify the other party, and an appropriate amendment or supplement describing such information shall be filed with the SEC and disseminated to the stockholders of the Company, as and to the extent required by applicable Law or any applicable rule or regulation of any stock exchange.

(c)           Parent shall provide or cause to be provided to Purchaser on a timely basis the funds necessary to purchase any Shares that Purchaser becomes obligated to purchase pursuant to the Offer and Purchaser shall maintain such funds exclusively for such purpose.

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SECTION 1.2.  Company Consent; Schedule 14D-9 .  (a) The Company hereby approves of and consents to the Offer.

(b)           On the date the Offer Documents are filed, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto, the “ Schedule 14D-9 ”) containing, subject to Section 6.3(d), the recommendations of the Company Board described in Section 4.4(b).  The Company hereby consents to the inclusion of the recommendations of the Company Board described in Section 4.4(b) in the Offer Documents (it being understood that such consent shall not be deemed to limit the Company Board’s rights under Section 6.3(d)) and to the inclusion of a copy of the Schedule 14D-9 with the Offer Documents mailed or furnished to the Company’s stockholders.  Parent and Purchaser shall be given a reasonable opportunity to review and comment on the Schedule 14D-9 prior to its filing with the SEC.  The Company agrees (i) to provide Parent and Purchaser with, and to consult with Parent and Purchaser regarding, any comments that may be received from the SEC or its staff with respect to the Schedule 14D-9 promptly upon receipt thereof and prior to responding thereto and (ii) to provide Parent and Purchaser with any comments or responses thereto.  If at any time prior to the Closing, any information relating to the Offer, the Merger, the Company, Parent, Purchaser or any of their respective Affiliates, directors or officers, should be discovered by the Company or Parent which should be set forth in an amendment or supplement to the Schedule 14D-9, so that the Schedule 14D-9 shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, the party which discovers such information shall promptly notify the other party, and an appropriate amendment or supplement describing such information shall be filed with the SEC and disseminated to the stockholders of the Company, as and to the extent required by applicable Law or any applicable rule or regulation of any stock exchange.

SECTION 1.3.  Stockholder Lists .  In connection with the Offer, the Company shall cause its transfer agent to, promptly (but in any event on or before January 3, 2007), furnish Parent and Purchaser with mailing labels, security position listings and any available listing or computer file containing the names and addresses of the record holders of the Shares as of the latest practicable date and shall furnish Parent and Purchaser with such information and assistance (including periodic updates of such information) as Parent or Purchaser or their agents may reasonably request in communicating the Offer to the record and beneficial holders of the Shares.  Subject to the requirements of applicable Law, and except for such actions as are reasonably necessary to disseminate the Offer Documents and otherwise to perform its obligations hereunder, Purchaser shall hold all information and documents provided to it under this Section 1.3 in confidence in accordance with the Confidentiality Agreement, and shall use such information and documents only in connection with the Offer, and if this Agreement shall have been terminated Parent and Purchaser shall deliver to the Company all such information and documents (and all copies thereof).

SECTION 1.4.  Directors .  (a)  Promptly upon the purchase by Purchaser pursuant to the Offer of such number of Shares as represents at least a majority of the then-outstanding Shares, and from time to time thereafter, Purchaser shall be entitled to designate such number of directors, rounded up to the next whole number, on the Company Board as will give Purchaser

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representation on the Company Board equal to the product of (x) the total number of directors on the Company Board (after giving effect to any increase in the number of directors pursuant to this Section 1.4) and (y) the percentage that such number of Shares so purchased bears to the total number of Shares outstanding, and the Company shall, upon request by Purchaser, promptly increase the size of the Company Board or use its reasonable best efforts to secure the resignations of such number of directors as is necessary to provide Purchaser with such level of representation and shall cause Purchaser’s designees to be so elected or appointed.  The Company shall also use its reasonable best efforts to cause individuals designated by Purchaser to constitute the same percentage of each committee of the Company Board as the percentage of the entire Company Board represented by individuals designated by Purchaser.  The Company’s obligations to appoint designees to the Company Board shall be subject to Section 14(f) of the Exchange Act.  At the request of Purchaser, the Company shall take all actions necessary to effect any such election or appointment of Purchaser’s designees, including mailing to its stockholders the information required by Section 14(f) of the Exchange Act and Rule 14f-l promulgated thereunder which, unless Purchaser otherwise elects, shall be so mailed together with the Schedule 14D-9.  Parent and Purchaser will supply to the Company all information with respect to themselves and their respective officers, directors and Affiliates required by Section 14(f) of the Exchange Act and Rule 14f-l promulgated thereunder.

(b)           Following the election or appointment of Purchaser’s designees pursuant to Section 1.4(a) and prior to the Effective Time, any amendment or termination of this Agreement requiring action by the Company Board, any extension of time for the performance of any of the obligations or other acts of Parent or Purchaser under this Agreement, any waiver of compliance with any of the agreements or conditions under this Agreement that are for the benefit of the Company, any exercise of the Company’s rights or remedies under this Agreement, any action to seek to enforce any obligation of Parent or Purchaser under this Agreement (or any other action by the Company Board with respect to this Agreement or the Merger if such other action adversely affects, or could reasonably be expected to adversely affect, any of the holders of Shares other than Parent or Purchaser) may only be authorized by, and will require the authorization of, a majority of the directors of the Company then in office who are directors of the Company on the date hereof or their successors as appointed by such continuing directors (the “ Continuing Directors ”); provided , however , that if there shall be no Continuing Directors as a result of such individuals’ deaths, disabilities, resignations or refusal to serve, then such actions may be effected by majority vote of the Independent Directors, or, if no Independent Directors are then in office, by a majority vote of the Company Board.

(c)           In the event that Parent’s designees are elected or appointed to the Company Board pursuant to Section 1.4(a), until the Effective Time, (i) the Company Board shall have at least such number of directors as may be required by the Nasdaq rules or the federal securities Laws who are considered independent directors within the meaning of such rules and Laws (“ Independent Directors ”) and (ii) each committee of the Company Board that is required (or a majority of which is required) by the Nasdaq rules or the federal securities Laws to be composed solely of Independent Directors shall be so composed; provided , however , that in such event, if the number of Independent Directors shall be reduced below the number of directors as may be required by such rules or Laws for any reason whatsoever, the remaining Independent Director(s) shall be entitled to designate persons to fill such vacancies who shall be deemed to be Independent Directors for purposes of this Agreement or, if no other Independent Director then

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remains, the other directors shall designate such number of directors as may be required by the Nasdaq rules and the federal securities Laws, to fill such vacancies who shall not be stockholders or Affiliates of Parent or Purchaser, and such Persons shall be deemed to be Independent Directors for purposes of this Agreement.

SECTION 1.5.  Top-Up Option .  (a)  The Company hereby irrevocably grants to Purchaser an option (the “ Top-Up Option ”), exercisable only after the acceptance by Purchaser of, and payment for, Shares tendered in the Offer, to purchase that number (but not less than that number) of Shares (the “ Top-Up Shares ”) as is equal to the lowest number of Shares that, when added to the number of Shares owned directly or indirectly by Parent or Purchaser at the time of such exercise, shall constitute one share more than 90% of the total Shares then outstanding (assuming the issuance of the Top-Up Shares) at a price per Share equal to the Offer Price; provided , however , that (i) the Top-Up Option shall be exercisable only once, at such time as Parent and Purchaser, directly or indirectly, own at least 85% of the total number of Shares then outstanding and on or prior to the 20 th  Business Day after the Expiration Date or the expiration date of any subsequent offering period, (ii) in no event shall the Top-Up Option be exercisable for a number of Shares in excess of the Company’s then authorized and unissued shares of Common Stock (including as authorized and unissued shares of Common Stock, for purposes of this Section 1.5, any Shares held in the treasury of the Company), (iii) Purchaser shall, concurrently with the exercise of the Top-Up Option, give written notice to the Company that as promptly as practicable following such exercise, Purchaser intends to (and Purchaser shall, and Parent shall cause Purchaser to, as promptly as practicable after such exercise) consummate the Merger in accordance with Section 253 of the DGCL as contemplated by Section 2.7, and (iv) the Top-Up Option may not be exercised if any provision of applicable Law or any judgment, injunction, order or decree of any Governmental Entity shall prohibit, or require any action, consent, approval, authorization or permit of, action by, or filing with or notification to, any Governmental Entity or the Company’s stockholders in connection with the exercise of the Top-Up Option or the delivery of the Top-Up Shares in respect of such exercise, which action, consent, approval, authorization or permit, action, filing or notification has not theretofore been obtained or made, as applicable.

(b)           Any certificates evidencing Top-Up Shares may include any legends required by applicable securities laws.

(c)           Parent and Purchaser understand that the Shares that Purchaser may acquire upon exercise of the Top-Up Option will not be registered under the Securities Act of 1933, as amended (the “ Securities Act ”), and will be issued in reliance upon an exemption thereunder for transactions not involving a public offering.  Parent and Purchaser represent and warrant to the Company that Purchaser is, and will be upon exercise of the Top-Up Option, an “accredited investor” (as defined in Rule 501 of Regulation D promulgated under the Securities Act).  Purchaser agrees that the Top-Up Option and the Top-Up Shares to be acquired upon exercise thereof are being and will be acquired for the purpose of investment and not with a view to or for resale in connection with any distribution thereof within the meaning of the Securities Act.

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ARTICLE II

THE MERGER

SECTION 2.1.  The Merger .  Upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL, at the Effective Time, Purchaser shall be merged with and into the Company.  As a result of the Merger, the separate corporate existence of Purchaser shall cease and the Company shall continue as the surviving corporation of the Merger (the “ Surviving Corporation ”).

SECTION 2.2.  Closing; Effective Time .  Subject to the provisions of Article VII, the closing of the Merger (the “ Closing ”) shall take place at the offices of Cleary Gottlieb Steen & Hamilton LLP, One Liberty Plaza, New York, New York, as soon as practicable, but in no event later than the second Business Day, after the satisfaction or waiver of the conditions set forth in Article VII (excluding conditions that, by their terms, cannot be satisfied until the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), or at such other place or on such other date as Parent and the Company may mutually agree.  The date on which the Closing actually occurs is hereinafter referred to as the “ Closing Date ”.  At the Closing, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the “ Certificate of Merger ”) with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with, the relevant provisions of the DGCL (the date and time of the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, or such later time as is specified in the Certificate of Merger and as is agreed to by the parties hereto, being hereinafter referred to as the “ Effective Time ”) and shall make all other filings or recordings required under the DGCL in connection with the Merger.

SECTION 2.3.  Effects of the Merger .  The Merger shall have the effects set forth herein and in the applicable provisions of the DGCL.  Without limiting the generality of the foregoing and subject thereto, at the Effective Time, all the property, rights, privileges, immunities, powers and franchises of the Company and Purchaser shall vest in the Surviving Corporation and all debts, liabilities and duties of the Company and Purchaser shall become the debts, liabilities and duties of the Surviving Corporation.

SECTION 2.4.  Certificate of Incorporation; Bylaws .  (a)  At the Effective Time, the certificate of incorporation of the Company shall, by virtue of the Merger, be amended and restated in its entirety to read as the certificate of incorporation of Purchaser in effect immediately prior to the Effective Time (except that Article I thereof shall read as follows:  “The name of the Corporation is Praecis Pharmaceuticals Incorporated.”) and, as so amended, shall be the certificate of incorporation of the Surviving Corporation until thereafter amended in accordance with its terms and as provided by law.

(b)           At the Effective Time, and without any further action on the part of the Company and Purchaser, the bylaws of the Company shall be amended and restated in their entirety so as to read as the bylaws of Purchaser as in effect immediately prior to the Effective Time (except that such bylaws shall be amended to reflect that the name of the Surviving Corporation shall be Praecis Pharmaceuticals Incorporated), and, as so amended, shall be the

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bylaws of the Surviving Corporation until thereafter amended in accordance with their terms and the certificate of incorporation of the Surviving Corporation and as provided by law.

SECTION 2.5.   Directors and Officers .  The directors and officers of Purchaser immediately prior to the Effective Time shall be the directors and officers, respectively, of the Surviving Corporation, in each case until the earlier of his or her resignation or removal or until his or her successors are duly elected and qualified.

SECTION 2.6.  Special Meeting .  Unless the Merger is consummated in accordance with Section 253 of the DGCL as contemplated by Section 2.7, and subject to applicable law, the Company, acting through its Board of Directors, shall, in accordance with applicable law, duly call, give notice of, convene and hold a special meeting (the “ Special Meeting ”) of its stockholders as soon as practicable following the consummation of the Offer for the purpose of adopting the “agreement of merger” (as such term is used in Section 251 of the DGCL) set forth in this Agreement and include in the Proxy Statement the Company Board Recommendation; provided , that nothing herein shall be deemed to limit Section 6.3(d).  Parent and Purchaser each agree that, at the Special Meeting, all of the Shares acquired pursuant to the Offer or otherwise owned by GlaxoSmithKline plc, Parent or Purchaser or any of their respective controlled Affiliates will be voted in favor of the Merger.

SECTION 2.7.  Merger Without Meeting of Stockholders .  If, following the Offer and any subsequent offering period or the exercise of the Top-Up Option, Parent, Purchaser, or any other direct or indirect Subsidiary of Parent, shall hold at least 90 percent of the outstanding shares of each class of capital stock of the Company, each of Parent, Purchaser and the Company shall (subject to Section 7.1) take all necessary and appropriate action to cause the Merger to become effective, as soon as practicable after the consummation of the Offer, without a meeting of stockholders of the Company, in accordance with Section 253 of the DGCL.

ARTICLE III

EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS

SECTION 3.1.  Conversion of Securities .  At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, the Company or the holders of any of the following securities, the following shall occur:

(a)           each Share issued and outstanding immediately prior to the Effective Time (other than any Shares to be canceled pursuant to Section 3.1(b) and any Dissenting Shares) shall be converted into the right to receive the Offer Price in cash without interest (the “ Merger Consideration ”), payable to the holder thereof upon surrender of such Shares in the manner provided in Section 3.4, less any required withholding Taxes;

(b)           each Share held in the treasury of the Company and each Share owned by Parent, Purchaser or any direct or indirect wholly-owned Subsidiary of Parent or the Company immediately prior to the Effective Time shall be canceled and retired without any conversion thereof, and no payment or distribution shall be made with respect thereto; and

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(c)           each share of common stock of Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation.

SECTION 3.2.  Treatment of Equity Awards and ESPP .  (a)  Substantially concurrently with the approval of this Agreement, the Compensation Committee of the Company Board has taken all actions so that each option to acquire Shares granted under any Company Stock Plan (an “ Option ”), whether vested or unvested, that is outstanding and unexercised immediately prior to the purchase of Shares pursuant to the Offer (the “ Purchase Time ”) shall, by virtue of the occurrence of the Purchase Time and without any action on the part of Purchaser, the Company or the holder thereof, be terminated and shall solely represent the right to receive from the Company in exchange, at the Purchase Time or as soon as practicable thereafter, an amount in cash equal to the product of (i) the number of Shares subject to such Option and (ii) the excess, if any, of the Offer Price, without interest, over the exercise price per Share subject to such Option, less any required withholding Taxes.  For the avoidance of doubt, pursuant to such action of the Compensation Committee of the Company Board, if the exercise price per Share of an Option is equal to or greater than the Offer Price, then by virtue of the occurrence of the Purchase Time and without any action on the part of Purchaser, the Company or the holder thereof, the Option will be cancelled without payment of any consideration to the holder.

(b)           Substantially concurrently with the approval of this Agreement, the Compensation Committee of the Company Board or the Company Board has taken any and all actions with respect to the Company’s Employee Stock Purchase Plan (the “ ESPP ”) as are necessary to provide that: (i) all offering periods under the ESPP will be suspended following the close of the offering period that is in effect as of the date of this Agreement (it being understood that such current offering period ends on December 31, 2006), such that no further offering periods will commence prior to the Purchase Time, and (ii) the ESPP will terminate, effective immediately as of the Purchase Time, except that all administrative and other rights and authorities granted under the ESPP to the Company, the Company Board or any committee or designee thereof shall remain in effect and reside with the Company following the Purchase Time.

(c)           The Company Stock Plan shall terminate as of the Purchase Time, and any and all rights under any provisions in any other plan, program or arrangement, including any Company Plan, providing for the issuance or grant of any other interest in respect of the capital stock of the Company (other than the ESPP, which is addressed in Section 3.2(b) and the right to receive the payment contemplated by Section 3.2(a)) shall be canceled as of the Purchase Time, except that all administrative and other rights and authorities granted under the Company Stock Plan to the Company, the Company Board or any committee or designee thereof shall remain in effect and shall reside with the Company following the Purchase Time.

(d)           The Company shall take any actions reasonably necessary to effectuate the provisions of this Section 3.2; it being understood that the intention of the parties is that immediately following the Purchase Time no holder of an Option or any participant in any Company Plan or other employee benefit arrangement of the Company shall have any right thereunder to acquire any capital stock  (including any “phantom” stock or stock appreciation

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rights) of the Company, the Surviving Corporation or any of their Subsidiaries pursuant to such Company Plan or other arrangement.  Any notice which the Company shall deliver to the holders of Options or the participants in any other Company Plan setting forth such holders’ rights pursuant to this Agreement shall be reasonably acceptable to Parent.

SECTION 3.3.  Dissenting Shares .  (a)  Notwithstanding anything in this Agreement to the contrary, Shares that are issued and outstanding immediately prior to the Effective Time and which are held by holders of Shares that have properly demanded and perfected their rights to be paid the fair value of such Shares in accordance with Section 262 of the DGCL (the “ Dissenting Shares ”) shall not be converted into the right to receive the Merger Consideration, and the holders thereof shall be entitled to only such rights as are granted by Section 262 of the DGCL; provided, however, that if any such holder shall fail to perfect or shall effectively waive, withdraw or lose such holder’s rights under Section 262 of the DGCL, such holder’s Shares shall not constitute Dissenting Shares and instead shall thereupon be deemed to have been converted, at the Effective Time, into the right to receive the Merger Consideration, as set forth in Section 3.1 of this Agreement, without any interest thereon.

(b)           The Company shall give Parent (i) notice of any appraisal demands received by the Company, withdrawals thereof and any other instruments served pursuant to Section 262 of the DGCL and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to the exercise of appraisal rights under Section 262 of the DGCL.  The Company shall not, except with the prior written consent of Parent or as otherwise required by applicable Law, make any payment with respect to any such exercise of appraisal rights or offer to settle or settle any such rights.

SECTION 3.4.  Surrender of Shares .  (a)  Prior to the Effective Time, Parent shall deposit (or cause to be deposited) with a bank or trust company designated by Parent and reasonably acceptable to the Company (the “ Paying Agent ”) sufficient funds to timely make, and shall cause the Paying Agent to timely make, all payments pursuant to Section 3.4(b).  Such funds may be invested by the Paying Agent as directed by Purchaser or, after the Effective Time, the Surviving Corporation; provided, that such investments shall be in short-term obligations of the United States of America with maturities of no more than 30 days or guaranteed by the United States of America and backed by the full faith and credit of the United States of America or in commercial paper obligations rated A-1 or P-1 or better by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation, respectively.  Any interest or income produced by such investments will be payable to the Surviving Corporation or Parent, as Parent directs.  Such funds so deposited with the Paying Agent shall not be used for any other purpose.

(b)           Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each record holder, as of the Effective Time, of an outstanding certificate or certificates which immediately prior to the Effective Time represented Shares (the “ Certificates ”), a form of letter of transmittal (which shall be in customary form and shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates for payment of the Merger Consideration therefor.  Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be

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required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each Share formerly represented by such Certificate, and such Certificate shall then be canceled.  No interest shall be paid or accrued for the benefit of holders of the Certificates on the Merger Consideration payable in respect of the Certificates.  If payment of the Merger Consideration is to be made to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the Person requesting such payment shall have paid any transfer and other Taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such Tax either has been paid or is not applicable.  Until surrendered as contemplated by this Section 3.4(b), each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the applicable Merger Consideration as contemplated by this Article III.

(c)           At any time following the date that is six months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) which have been made available to the Paying Agent and which have not been disbursed to holders of Certificates and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates.  The Surviving Corporation shall pay all charges and expenses, including those of the Paying Agent, in connection with the exchange of Shares for the Merger Consideration.

(d)           After the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of Shares that were outstanding prior to the Effective Time.  After the Effective Time, Certificates presented to the Surviving Corporation for transfer shall be canceled and exchanged for the consideration provided for, and in accordance with the procedures set forth in, this Article III.

(e)           In the event that any Certificate shall have been lost, stolen or destroyed, upon the holder’s compliance with the replacement requirements established by the Paying Agent, including, if necessary, the posting by the holder of a bond in customary amount as indemnity against any claim that may be made against it with respect to the Certificate, the Paying Agent will deliver in exchange for the lost, stolen or destroyed Certificate the applicable Merger Consideration payable in respect of the Shares represented by such Certificate pursuant to this Article III.

SECTION 3.5.  Withholding Taxes .  Notwithstanding anything in this Agreement to the contrary, Parent, the Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable to pursuant to the Offer, the Merger or otherwise pursuant to this Agreement any amount as may be required to be deducted and withheld with respect to the making of such payment under applicable Tax Laws.  To the extent that amounts are so properly withheld by the Paying Agent, the Surviving Corporation or Parent, as the case may be, and are paid to the appropriate Governmental Entity in accordance with applicable Law, such withheld amounts shall be treated for all purposes of this Agreement

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as having been paid to the holder of the Shares or other Person in respect of which such deduction and withholding was made by the Paying Agent, the Surviving Corporation or Parent, as the case may be.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the correspondingly numbered Section of the disclosure schedule delivered by the Company to Parent and Purchaser prior to the execution of this Agreement (the “ Company Disclosure Schedule ”) (provided, however, that a matter disclosed with respect to one representation or warranty shall also be deemed to be disclosed with respect to each other representation or warranty to which the matter disclosed reasonably relates, but only to the extent such relationship is reasonably apparent on the face of the disclosure contained in the Company Disclosure Schedule with respect to such matter), the Company hereby represents and warrants to Parent and Purchaser as follows (it being understood that references in the representations and warranties contained in this Article IV (excluding Sections 4.1(a), 4.1(b), 4.2, 4.3, 4.7(a) and 4.7(b)) to the Company shall be deemed also to refer to PRAECIS Europe Limited (the “ Company Subsidiary ”) and any other Subsidiary of the Company) but only with respect to the periods of time such entities were or are Subsidiaries of the Company:

SECTION 4.1.  Organization and Qualification; No Subsidiaries .  (a) The Company is a duly organized and validly existing corporation in good standing (where applicable) under the Laws of the State of Delaware, with all corporate or other entity power and authority to own its properties and conduct its business as currently conducted and is duly qualified and in good standing as a foreign corporation authorized to do business in each of the jurisdictions in which the character of the properties owned or held under lease by it or the nature of the business transacted by it makes such qualification necessary, except as would not constitute, individually or in the aggregate, a Material Adverse Effect.  “ Material Adverse Effect ” means any change, effect, event or occurrence that has, or would reasonably be expected to have, a material adverse effect on (i) the business, financial condition, or results of operations of the Company or (ii) the ability of the Company, on or before the Outside Date, to perform its obligations under this Agreement that are required to be performed on or before the Outside Date or to consummate the transactions contemplated by this Agreement to be consummated on or before the Outside Date; provided , however , that, in the case of clause (i) only, none of the following shall be deemed to be, and shall not be taken into account in determining whether there has been, a Material Adverse Effect:  (A) the fact, in and of itself, of diminishment in the Company’s cash balance or financial investments to the extent resulting from operations not in breach of the Company’s covenants and agreements hereunder or (B) any change, effect, event or occurrence to the extent resulting from (1) general changes after the date hereof in capital markets, general economic conditions or the industries in which the Company operates, or any outbreak or escalation after the date hereof of hostilities or war, (2) the announcement, pendency or performance of this Agreement or the transactions contemplated hereby, (3) changes after the date hereof in any laws or regulations or applicable accounting regulations or principles or the interpretations thereof, (4) the incurrence or payment of fees and expenses (including the fees and expenses of the Company’s Financial Advisor, counsel and accountants) in connection with (x) this Agreement, the Offer, the Merger and the other transactions contemplated hereby or

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(y) the Company’s efforts to dispose of Plenaxis®, (5) actions taken by the Company at, and in accordance with, the written direction or request of Parent, or (6) provided that the Company complies in all material  respects with Section 6.14, the failure of the Company to dispose of its Plenaxis® related assets, unless, in the case of clause (1) or (3), such change, effect, event or occurrence has a materially disproportionate effect on the Company compared with other companies operating in the industries in which the Company operates.

(b)           The Company does not own directly or indirectly, beneficially or of record, any equity interest in any Person other than the Company Subsidiary.  During the period from January 1, 2006, through the date hereof, the only Subsidiaries of the Company were the Company Subsidiary and 830 Winter Street LLC, which was dissolved on August 30, 2006.  The Company Subsidiary has conducted no business and has no liabilities except for those incidental to (i) applying for, receiving and holding the certificate of registration with respect to Plenaxis® received by the company Subsidiary from Bundesinstitut Arzneimittel und Medizinprodukte on September 27, 2005 to market Plenaxis® in Germany, (ii) as a party to the Contracts listed on Section 4.1(b) of the Company Disclosure Schedule, complete and correct copies of which have been made available to Parent prior to the date hereof, and (iii) as an obligor on intercompany indebtedness payable by the Company Subsidiary to the Company.

(c)           The Compensation Committee of the Company Board is (and at all times since January 1, 2006 was, and at all times from the date of this Agreement to the first date on which the Purchaser’s designees constitute a majority of the Company Board pursuant to Section 1.4 will be) composed solely of Independent Directors.

SECTION 4.2.  Certificate of Incorporation and Bylaws .  The Company has heretofore made available to Parent true, correct and complete copies of the certificate of incorporation and bylaws of the Company as currently in effect, including all amendments thereto (respectively, the “ Certificate of Incorporation ” and “ Bylaws ”).  The Certificate of Incorporation and the Bylaws are in full force and effect and no other organizational documents are applicable to or binding upon the Company.  The Company is not in violation of any provisions of its Certificate of Incorporation or Bylaws.

SECTION 4.3.  Capitalization .  (a)  The authorized capital stock of the Company consists of (i) 200,000,000 Shares, and (ii) 10,000,000 shares of preferred stock, par value $0.01 per share (the “ Preferred Stock ”), of which 1,600,000 of such shares of Preferred Stock are designated as Series A Junior Participating Preferred Stock and have been reserved for issuance upon the exercise of the Rights distributed to the holders of Common Stock pursuant to the Rights Agreement.

(b)           As of the close of business on December 19, 2006 (the “ Capitalization Date ”):  (i) 10,708,417 Shares were issued and outstanding, all of which were validly issued, fully paid and nonassessable and were issued free of preemptive rights; (ii) an aggregate of 2,576,483 Shares were reserved for issuance upon or otherwise deliverable in connection with the grant of equity-based awards or the exercise of outstanding Options issued pursuant to the Company’s Fourth Amended and Restated 1995 Stock Plan or any predecessor plan thereto (collectively, the “ Company Stock Plan ”); (iii) 77,355 Shares were reserved for issuance upon or otherwise deliverable pursuant to the terms of the ESPP; (iv) no shares of Preferred Stock were

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outstanding; and (v) 40,872 Shares and no shares of Preferred Stock were held in the treasury of the Company.  From the close of business on the Capitalization Date until the date of this Agreement, no options or other rights to acquire shares of Common Stock or Preferred Stock have been granted and no shares of Common Stock or Preferred Stock have been issued or sold from treasury, except for Shares issued pursuant to the exercise of Options in accordance with their terms or rights or Shares issued pursuant to the terms of the ESPP (and the issuance of Rights attached to such Shares).  Section 4.3(b) of the Company Disclosure Schedule sets forth, as of the Capitalization Date, each Option or other equity-based award outstanding under any Company Plan (other than the ESPP), the number of Shares issuable thereunder and the expiration date and exercise or conversion price relating thereto.  Section 4.3(b) of the Company Disclosure Schedule sets forth, as of the Capitalization Date, the number of Shares that will be issuable under the ESPP in the offering period that ends on December 31, 2006 (“ ESPP Offering Period ”), assuming that the trading price of the Shares at the end of the ESPP Offering Period will be greater than or equal to the trading price at the beginning of the ESPP Offering Period and that no participant in the ESPP exercises his or her right to withdraw from the ESPP pursuant to Section 6(c)(i) of the ESPP, such number of Shares being subject to increase if the trading price of the Shares is lower at the end of the ESPP Offering Period than the trading price at the beginning of the ESPP Offering Period.

(c)           Except as set forth in clauses (a) and (b) of this Section 4.3 (including Shares described therein as reserved for issuance upon the exercise of Options or under the ESPP) and for the Company’s obligations under this Agreement, (i) there are not outstanding or authorized any (A) shares of capital stock or other voting securities of the Company, (B) securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, or (C) options or other rights to acquire from the Company, or any obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company (collectively, “ Company Securities ”); (ii) there are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any Company Securities; and (iii) there are no other options, calls, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company to which the Company is a party.

SECTION 4.4.  Authority .  (a) The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby.  The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate proceeding on the part of the Company is necessary to authorize this Agreement or to consummate the transactions so contemplated (other than adoption of the “agreement of merger” (as such term is used in Section 251 of the DGCL) contained in this Agreement by the holders of at least a majority in combined voting power of the outstanding Shares (the “ Company Requisite Vote ”), and the filing with the Secretary of State of the State of Delaware of the Certificate of Merger as required by the DGCL).  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 Purchaser, constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,

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moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and any implied covenant of good faith and fair dealing.

(b)           The making of any offer and proposal and the taking of any other action by Parent or Purchaser in accordance with this Agreement and the transactions contemplated hereby have been consented to by the Company Board under provisions of the confidentiality agreement, dated November 10, 2006, between Parent and the Company (the “ Confidentiality Agreement ”).  The Company Board (at a meeting or meetings duly called and held) has unanimously: (i) determined that this Agreement, the Offer and the Merger are advisable and fair to and in the best interests of, the Company and its stockholders; (ii) adopted and approved this Agreement and the “agreement of merger” (as such term is used in Section 251 of the DGCL) contained in this Agreement; (iii) directed that the “agreement of merger” (as such term is used in Section 251 of the DGCL) contained in this Agreement be submitted to the stockholders of the Company for adoption (unless the Merger is consummated in accordance with Section 253 of the DGCL as contemplated by Section 2.7); and (iv) resolved to recommend acceptance of the Offer and adoption of the “agreement of merger” (as such term is used in Section 251 of the DGCL) contained in this Agreement by the stockholders of the Company (the “ Company Board Recommendation ”), which actions and resolutions have not, as of the date hereof, been subsequently rescinded, modified or withdrawn in any way.

SECTION 4.5.  No Conflict; Required Filings and Consents .  (a)  The execution, delivery and performance of this Agreement by the Company, the consummation of the Offer, and the consummation by the Company of the Merger and the transactions contemplated by Article III, do not and will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws of the Company, (ii) assuming that all consents, approvals and authorizations contemplated by clauses (i) through (v) of subsection (b) below have been obtained, and all filings described in such clauses have been made, conflict with or violate any federal, state, local or foreign statute, law, ordinance, rule, regulation, order, judgment, decree or legal requirement (“ Law ”) or any Nasdaq rule or regulation applicable to the Company or by which any of its properties are bound or (iii) (A) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both would become a default), or (B) result in the loss of a benefit under, or give rise to any right of termination, cancellation, amendment or acceleration of, or (C) result in the creation of any Lien on any of the properties or assets of the Company under any note, bond, mortgage, indenture, contract, agreement, lease, license, permit or other instrument or obligation (each, a “ Contract ”) to which the Company is a party or by which the Company or any of its properties are bound, except, in the case of clauses (ii) and (iii), for any such conflict, violation, breach, default, loss, right or other occurrence which would not constitute, individually or in the aggregate, a Material Adverse Effect.

(b)           The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any federal, state, local or foreign governmental or regulatory (including stock exchange) authority, agency, court, commission, or other governmental body (each, a “ Governmental Entity ”), except for (i) applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder (including the filing of the Proxy Statement), and state

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securities, takeover and “blue sky” laws, (ii) the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), (iii) the applicable requirements of Nasdaq, (iv) the filing with the Secretary of State of the State of Delaware of the Certificate of Merger as required by the DGCL, (v) the applicable requirements of antitrust or other competition laws of jurisdictions other than the United States or investment laws relating to foreign ownership (“ Foreign Antitrust Laws ”), and (vi) any such consent, approval, authorization, permit, action, filing or notification the failure of which to make or obtain would not constitute, individually or in the aggregate, a Material Adverse Effect.

SECTION 4.6.  Compliance .  (a)  The Company is, and since January 1, 2002 the Company has been, in compliance in all material respects with all Laws applicable to the Company or by which any of its properties are bound, including Laws enforced by the United States Food and Drug Administration (“ FDA ”) and comparable foreign Governmental Entities, except as would not constitute, individually or in the aggregate, a Material Adverse Effect.

(b)           The Company has all material registrations, applications, licenses, requests for exemptions, permits and other regulatory authorizations (“ Permits ”) from Governmental Entities required to conduct their respective businesses.  The Company is in compliance in all material respects with all such Permits.  Except as would not constitute, individually or in the aggregate, a Material Adverse Effect, any third party that is or since November 1, 1996 was a manufacturer or contractor for the Company has been since November 1, 1996, and is, in compliance in all material respects with all Permits from the FDA and comparable foreign Governmental Entities insofar as the same are required for or pertain to the manufacture or handling of product components or products for the Company.

(c)           The Company is not and has not been (and, except as would not constitute, individually or in the aggregate, a Material Adverse Effect, no employee of the Company is or has been) debarred from participation in any program related to pharmaceutical products pursuant to 21 U.S.C. Section 335a (a) or (b).

(d)           Each product of the Company is, and since November 1, 1996 has been, developed, tested, manufactured and stored by or on behalf of the Company (and the business of the Company is, and since January 1, 2002 has been, otherwise conducted) in compliance in all material respects with the U.S. Federal Food, Drug, and Cosmetic Act, as amended, and applicable regulations promulgated thereunder, and all applicable similar Laws of any non-U.S. jurisdiction, including those requirements relating to good manufacturing practice, good laboratory practice (except for preclinical studies designed and conducted as non-GLP studies) and good clinical practice.

SECTION 4.7.  SEC Filings; Financial Statements .  (a)  The Company has filed all forms, reports, statements, certifications and other documents (including all exhibits, amendments and supplements thereto) required to be filed by it with the SEC since January 1, 2004 (such documents filed since January 1, 2004, the “ SEC Reports ”).  As of their respective dates, each of the SEC Reports complied as to form in all material respects with the applicable requirements of the Securities Act and the rules and regulations promulgated thereunder and the Exchange Act and the rules and regulations promulgated thereunder, each as in effect on the date so filed.  Except to the extent amended or superseded by a subsequent filing with the SEC made

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prior to the date hereof, as of their respective dates (and if so amended or superseded, then on the date of such subsequent filing), none of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(b)           The audited and unaudited consolidated financial statements (including the related notes thereto) of the Company included (or incorporated by reference) in the Company SEC Reports, as amended or supplemented prior to the date of this Agreement (the “ Financial Statements ”), have been prepared in accordance with GAAP in all material respects applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects in conformity with GAAP the consolidated financial position of the Company and its consolidated Subsidiaries at the respective dates thereof and the consolidated statements of operations, cash flows and changes in stockholders’ equity for the periods indicated therein (subject, in the case of unaudited financial statements, to normal and recurring year-end audit adjustments which are not, individually or in the aggregate, material in amount or significance, in each case as permitted by GAAP and the applicable rules and regulations promulgated by the SEC).

(c)           The records, systems, controls, data and information of the Company are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the Company or its accountants (including all means of access thereto and therefrom), except for any nonexclusive ownership and nondirect control that has not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the system of internal accounting controls described below in this Section 4.7(c).  The Company (i) has implemented and maintains a system of internal control over financial reporting (as required by Rule 13a-15(a) under the Exchange Act) that is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of its financial statements for external purposes in accordance with GAAP, and, (ii) to the knowledge of the Company, such system of internal control over financial reporting is effective.  For purposes of this Section 4.7(c), “knowledge of the Company” means the actual knowledge of the Chief Executive Officer; the Chief Financial Officer; the Vice President, Legal and Secretary of the Company; and the Senior Vice President, Regulatory Affairs and Project Management of the Company, and shall not have the meaning ascribed thereto in Section 9.3(f).  The Company has implemented and maintains disclosure controls and procedures (as required by Rule 13a-15(a) of the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time frames specified by the SEC’s rules and forms (and such disclosure controls and procedures are effective), and (ii) has disclosed, based on its most recent evaluation of its system of internal control over financial reporting prior to the date of this Agreement, to the Company’s outside auditors and the audit committee of the Company’s Board of Directors (A) any significant deficiencies and material weaknesses known to it in the design or operation of its internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that would reasonably be expected to adversely affect the Company’s ability to record, process, summarize and report financial information and (B) any fraud known to it, that involves management or other employees who have a significant role in the Company’s internal

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controls over financial reporting.  A true, correct and complete summary of any such disclosures made by management to the Company’s auditors and the audit committee of the Company’s Board of Directors has been provided to Parent and, if prior to the date hereof, is set forth as Section 4.7(c) of the Company Disclosure Schedule.

(d)           Since December 31, 2001, (i) neither the Company nor, to the knowledge of the Company, any director, officer, employee, auditor, accountant or representative of the Company has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that the Company has engaged in questionable accounting or auditing practices, and (ii) no attorney representing the Company, whether or not employed by the Company, has reported evidence of a material violation of securities Laws, breach of fiduciary duty or similar violation by the Company or any of its officers, directors, employees or agents to the Company Board or any committee thereof or to any director or officer of the Company.

(e)           To the knowledge of the Company, as of the date hereof, no employee of the Company has provided or is providing information to any law enforcement agency regarding the commission or possible commission of any crime or the violation or possible violation of any applicable Law of the type described in Section 806 of the Sarbanes-Oxley Act by the Company.  Neither the Company nor, to the knowledge of the Company, any director, officer, employee, contractor, subcontractor or agent of the Company has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against an employee of the Company in the terms and conditions of employment because of any lawful act of such employee described in Section 806 of the Sarbanes-Oxley Act.

(f)            The Company has no liabilities of any nature, whether accrued, absolute, fixed, contingent or otherwise, known or unknown, whether due or to become due and whether or not required to be recorded or reflected on a balance sheet under GAAP, that would constitute, individually or in the aggregate, a Material Adverse Effect, other than liabilities (i) as and to the extent reflected or reserved against on the September 30 Balance Sheet or in the notes thereto, (ii) incurred in the ordinary course of business consistent with past practice since the September 30, 2006, or (iii) arising from contractual obligations to be performed after the date hereof under Contracts set forth in Section 4.18 of the Company Disclosure Schedule or other Contracts not required to be listed therein (but excluding any obligations or liabilities that arise in connection with any Contract as a result of any breach or default at or prior to the Purchase Time under such Contract, except for breaches or defaults to the extent disclosed on Section 4.18(b) of the Disclosure Schedule).  The “ September 30 Balance Sheet ” means the consolidated balance sheet of the Company dated as of September 30, 2006 included in the Company’s Quarterly Report on Form 10-Q for the nine-month period ended September 30, 2006 filed with the SEC prior to the date hereof.

SECTION 4.8.  Absence of Certain Changes or Events .

(a)           Since December 31, 2005 through the date of this Agreement, the Company has conducted its business in the ordinary course consistent with past practice, and the

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Company has not taken any action since September 30, 2006 through the date hereof that, if taken after the date of this Agreement without the prior written consent of Parent, would constitute a breach of Section 6.1.

(b)           Since December 31, 2005 through the date of this Agreement, the Company has not suffered any Material Adverse Effect, and there has not been (and, as of the date hereof, there is not) any change, condition, event or development that would constitute, individually or in the aggregate, a Material Adverse Effect.

(c)           Since January 1, 2006 through the date of this Agreement, the Company has not done any of the following except as has been approved, as an employment compensation, severance or other employee benefit arrangement, by the Compensation Committee of the Company Board (and, to the extent any of the following was so approved after the date of the first discussion of a possible tender offer by the Company with Parent, the Compensation Committee of the Company Board was, at the time of each such approval, aware of the status of such potential tender offer): (i) any granting by the Company to any of its present or former directors, officers or employees of any increase in compensation or benefits in any form; (ii) any granting to any present or former director, officer or employee of the right to receive any severance or termination compensation or benefit; or (iii) any entry by the Company into any employment, consulting, indemnification, termination, change of control, non-competition or severance agreement or arrangement with any present or former director, officer or employee of the Company, or any amendment to or adoption of any Company Plan (the matters described in foregoing clauses (i), (ii) and (iii), collectively, “ Compensation Actions ”).

SECTION 4.9.  Absence of Litigation .  There is no claim, action, suit, proceeding, arbitration, mediation or investigation by or before any Governmental Entity (each, a “ Proceeding ”) pending or, to the knowledge of the Company, threatened against or relating to the Company or any properties or assets of the Company, other than any such Proceeding that (i) does not involve an amount in controversy in excess of $50,000, (ii) does not seek material injunctive or other non-monetary relief, and (iii) that would not constitute, individually or in the aggregate, a Material Adverse Effect.  Neither the Company nor any of its properties or assets, is subject to any outstanding order, writ, injunction or decree.  To the knowledge of the Company, no officer or director of the Company is a defendant in any Proceeding in connection with his or her status as an officer or director of the Company, and since January 1, 2004 no such Proceeding has been threatened.  As of the date hereof, Section 4.9 of the Company Disclosure Schedule sets forth an accurate and complete list of each Proceeding resolved or settled since January 1, 2004 and requiring payment by the Company in excess of $50,000 or involving the imposition on the Company of material injunctive or other non-monetary relief.

SECTION 4.10.  Employee Benefit Plans .  (a)  Section 4.10(a) of the Company Disclosure Schedule contains a true and complete list of each material “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) and each other employment, bonus, vacation, stock option, stock purchase, restricted stock or other equity-based, incentive, deferred compensation, profit sharing, savings, retirement, retiree medical or life insurance, supplemental retirement, severance, fringe benefit, retention, change of control or other benefit plans, programs, agreements, contracts, policies or arrangements contributed to, sponsored or maintained by the Company as of the date

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hereof for the benefit of any current, former or retired employee, officer, consultant, independent contractor or director of the Company (collectively, the “ Company Employees ”) or to which the Company is a party or with respect to which the Company has or would reasonably be expected to have any liability (such plans, programs, policies, agreements and arrangements, including the Company Stock Plan and the ESPP, collectively, “ Company Plans ”).

(b)           With respect to each Company Plan, the Company has made available to Parent a current, accurate and complete copy thereof (or, if a plan is not written, a written description thereof) and, to the extent applicable, (i) any related trust agreement or other funding instrument, (ii) the most recent determination letter received from the Internal Revenue Service (the “ IRS ”) for each Company Plan that is intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), (iii) the most recent summary plan description and any summaries of any material modification of such Company Plan, (iv) all prospectuses prepared in connection with any such Plan, (v) any material participant communications made since January 1, 2006, and (vi) for the most recent year (A) the Form 5500 and attached schedules, (B) audited financial statements, and (C) actuarial valuation reports, if any.

(c)           Each Company Plan has been established and administered in all material respects in accordance with its terms and in compliance with the applicable provisions of ERISA, the Code, and other applicable laws, rules and regulations.  No “prohibited transaction,” within the meaning of Section 4975 of the Code or Sections 406 or 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred with respect to any Company Plan.  All material contributions, premiums and other payments required to be made with respect to each Company Plan have been made on or before their due dates under applicable Law and the terms of such Company Plan.

(d)           Neither the Company nor any other person or entity that, together with the Company, is or was treated as a single employer under Section 414(b), (c), (m) or (o) of the Code (each, together with the Company, an “ ERISA Affiliate ”), is now contributing to or has any liability to, or has at any time within the past six years (and in the case of any such other person or entity, only during the period within the past six years that such other person or entity was an ERISA Affiliate) contributed to or had any liability to (i) a pension plan (within the meaning of Section  3(2) of ERISA) subject to Section 412 of the Code or Title IV of ERISA; (ii) a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA) ; or (iii) a single employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which an ERISA Affiliate would reasonably be expected to incur liability under Section 4063 or 4064 of ERISA.

(e)           No Proceedings (other than routine claims for benefits in the ordinary course) are pending or, to the knowledge of the Company, threatened with respect to any Company Plan.

(f)            Neither the Company nor any ERISA Affiliate has incurred any liability under Title IV of ERISA that has not been satisfied in full and, to the knowledge of the Company, no condition exists that presents a risk to the Company of incurring any such liability other than liability for premiums due the Pension Benefit Guaranty Corporation.

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(g)           No Company Plan provides post-termination welfare benefits, and the Company does not have any obligation to provide any post-termination welfare benefits, in each case, other than health care continuation as required by Section 4980B of the Code or similar Law of any state or foreign jurisdiction.

(h)           Each Company Plan which is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service and, to the knowledge of the Company, no circumstances exist which would materially and adversely affect such favorable determination.

(i)            Neither the execution by the Company of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or upon occurrence of any additional or subsequent events) (i) constitute an event under any Company Plan or any trust or loan related to any of those plans or agreements that will or may result in any payment, acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Company Employee, (ii) result in the triggering or imposition of any restrictions or limitations on the right of the Company to amend or terminate any Company Plan or (iii) result in the failure of any amount to be deductible by reason of Section 280G of the Code.

(j)            All Options and other equity-based awards under Company Plans (i) have been granted in compliance with the terms of the applicable Company Plans, with applicable Laws, and with the applicable provisions of the Company’s certificate of incorporation and bylaws as in e