AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

by and among

COMBINATORX, INCORPORATED,

PAWSOX, INC.,

NEUROMED PHARMACEUTICALS INC.,

NEUROMED PHARMACEUTICALS LTD.

AND

STOCKHOLDER REPRESENTATIVE

Dated as of June 30, 2009

 

This Agreement and Plan of Merger (the “Merger Agreement”) contains representations and warranties that CombinatoRx, Incorporated (“CombinatoRx”), PawSox, Inc. (“Merger Sub”), Neuromed Pharmaceuticals Inc. (“Neuromed”) and Neuromed Pharmaceuticals Ltd. (“Neuromed Canada”) made to each other. These representations and warranties were made only for the purposes of the Merger Agreement and solely for the benefit of CombinatoRx, Merger Sub, Neuromed and Neuromed Canada as of specific dates, may be subject to important limitations and qualifications agreed to by the parties thereto and included in confidential disclosure schedules provided by Neuromed and CombinatoRx to each other in connection with the signing of the Merger Agreement, and may not be complete. Furthermore, these representations and warranties may have been made for the purposes of allocating contractual risk between CombinatoRx, Merger Sub, Neuromed and Neuromed Canada instead of establishing these matters as facts, and may or may not have been accurate as of any specific date and do not purport to be accurate as of the date of the filing of the Merger Agreement by CombinatoRx with the Securities and Exchange Commission. Accordingly, you should not rely upon the representations and warranties contained in the Merger Agreement as characterizations of the actual state of facts, since they were intended to be for the benefit of, and to be limited to, the parties thereto.

TABLE OF CONTENTS

 

Exhibits and Schedules

 

Exhibit A

Forms of Voting Agreements

 

Exhibit B

Form of Registration Rights Agreement

 

Exhibit C

Form of Escrow Agreement

 

Exhibit D

CombinatoRx Board of Directors’ Committees and Classes

 

Schedule I

Allocation of Merger Consideration

 

Schedule II

Option Plan Amendments

 

Schedule III

Option Exchange Program

 

Schedule IV

Wire Instructions

Neuromed Disclosure Schedule

CombinatoRx Disclosure Schedule

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER (the “ Agreement ”), dated as of June 30, 2009, by and among CombinatoRx, Incorporated, a Delaware corporation (“ CombinatoRx ”), PawSox, Inc., a Delaware corporation and a wholly-owned subsidiary of CombinatoRx (“ Merger Sub ”), Neuromed Pharmaceuticals Inc., a Delaware corporation (“ Neuromed ”), Neuromed Pharmaceuticals Ltd., a corporation existing under the laws of the Province of British Columbia, Canada (“ Neuromed Canada ”), and Kurt C. Wheeler, as representative of the Neuromed Stockholders (the “ Stockholder Representative ”).

WHEREAS , CombinatoRx, Merger Sub and Neuromed intend to effect a merger (the “ Merger ”) of Merger Sub with and into Neuromed in accordance with this Agreement and the General Corporation Law of the State of Delaware (the “ DGCL ”), with Neuromed to be the surviving corporation of the Merger and becoming a wholly-owned subsidiary of CombinatoRx.

WHEREAS , the respective Boards of Directors of CombinatoRx, Merger Sub, Neuromed and Neuromed Canada have declared that it is advisable and in the best respective interests of CombinatoRx, Merger Sub, Neuromed and Neuromed Canada and their respective stockholders to enter into a business combination upon the terms and subject to the conditions set forth herein.

WHEREAS , concurrently with the execution of this Agreement, and as an inducement to CombinatoRx, Merger Sub, Neuromed and Neuromed Canada to enter into this Agreement, certain stockholders of CombinatoRx, Neuromed and Neuromed Canada have entered into voting agreements, dated as of the date hereof, in the forms attached hereto as Exhibit A (each a “ Voting Agreement ” and collectively, the “ Voting Agreements ”), pursuant to which such stockholders have agreed, subject to the terms thereof, to vote or cause to be voted all of the shares of capital stock of CombinatoRx or the Neuromed Entities, as the case may be, held of record or beneficially owned by such stockholder in favor of the adoption and approval of this Agreement in the case of stockholders of Neuromed, and in favor of the approval of the CombinatoRx Stockholder Proposals in the case of stockholders of CombinatoRx.

WHEREAS , concurrently with the execution of this Agreement, and as an inducement to CombinatoRx, Merger Sub, Neuromed and Neuromed Canada to enter into this Agreement, certain stockholders of CombinatoRx, Neuromed and Neuromed Canada have entered into a registration rights agreement with CombinatoRx, dated as of the date hereof, in the form attached hereto as Exhibit B (the “ Registration Rights Agreement ”), pursuant to which CombinatoRx has agreed to provide certain registration rights under the Securities Act and the rules and regulations thereunder, or any similar successor statute, and applicable state securities laws.

WHEREAS , concurrently with the execution of this Agreement, and as an inducement to CombinatoRx, Merger Sub, Neuromed and Neuromed Canada to enter into this Agreement, CombinatoRx, the Stockholder Representative and the Escrow Agent have entered into an escrow agreement, in the form attached hereto as Exhibit C (the “ Escrow Agreement ”).

WHEREAS , CombinatoRx, Merger Sub, Neuromed and Neuromed Canada intend to adopt this Agreement as a plan of reorganization within the meaning of Section 368(a) of the

Internal Revenue Code of 1986, as amended (the “ Code ”), and the regulations thereunder, and to cause the Merger to qualify as a tax-free reorganization under the provisions of Section 368(a) of the Code.

WHEREAS , the parties desire to make certain representations, warranties and agreements in connection with the Merger and to prescribe certain conditions to the Merger.

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

ARTICLE I - THE MERGER

1.1 The Merger . Upon the terms and subject to the satisfaction or waiver of the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, Merger Sub shall merge with and into Neuromed. Neuromed shall continue as the surviving corporation (the “ Surviving Corporation ”) in the Merger and shall continue its corporate existence under the laws of the State of Delaware as a wholly-owned subsidiary of CombinatoRx. Upon consummation of the Merger, the separate corporate existence of Merger Sub shall terminate.

1.2 Effective Time . The Merger shall become effective as set forth in the certificate of merger (the “ Certificate of Merger ”), executed in accordance with the relevant provisions of the DGCL, which shall be filed with the Secretary of State of the State of Delaware on or before the Closing Date. The term “ Effective Time ” shall be the date and time when the Merger becomes effective as set forth in the Certificate of Merger.

1.3 Closing . Subject to the terms and conditions of this Agreement, the closing of the Merger (the “ Closing ”) will take place at the offices of Goodwin Procter LLP, Exchange Place, Boston, Massachusetts, unless another place is agreed to in writing by the parties hereto, at 10:00 a.m., local time, on a date (the “ Closing Date ”) specified by the parties, which shall be no later than two (2) Business Days after the satisfaction or waiver (subject to applicable Laws) of the latest to occur of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to satisfaction of such conditions at the Closing), unless this Agreement has been theretofore terminated pursuant to its terms or unless extended by mutual agreement of the parties.

1.4 Effects of the Merger . At and after the Effective Time, the Merger shall have the effects set forth in this Agreement and in the appropriate provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises, and be subject to all of the restrictions, disabilities and duties of Neuromed and Merger Sub, as provided under Section 259 of the DGCL.

1.5 Certificate of Incorporation and Bylaws . At the Effective Time, the Neuromed Charter, as in effect immediately prior to the Effective Time, shall be amended to be identical to the certificate of incorporation of Merger Sub (the “ Merger Sub Charter ”), as in effect

 

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immediately prior to the Effective Time (which shall contain such provisions as are necessary to give full effect to the exculpation and indemnification provided for in Section 6.7 hereof), except the provisions of the Merger Sub Charter relating to the incorporator of the Merger Sub shall be omitted, and as so amended shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided and in accordance with applicable Laws (the “ Surviving Corporation Charter ”). From and after the Effective Time, the Neuromed Bylaws, as in effect immediately prior to the Effective Time, shall be amended and restated to be identical to the bylaws of Merger Sub (the “ Merger Sub Bylaws ”) as in effect immediately prior to the Effective Time (which shall contain such provisions as are necessary to give full effect to the exculpation and indemnification provided for in Section 6.7 hereof), and as so amended shall be the bylaws of the Surviving Corporation, until thereafter amended as provided therein and in accordance with applicable Laws (the “ Surviving Corporation Bylaws ”).

1.6 Directors and Officers . From and after the Effective Time:

(a) the directors of Merger Sub immediately prior to the Effective Time shall become the initial directors of the Surviving Corporation, until their successors shall have been duly elected, appointed or qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation Charter and the Surviving Corporation Bylaws; and

(b) the officers of Neuromed at the Effective Time shall be the initial officers of the Surviving Corporation, until their successors shall have been duly elected, appointed or qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation Charter and the Surviving Corporation Bylaws.

ARTICLE II - EFFECT OF THE MERGER ON NEUROMED SECURITIES; EXCHANGE OF SECURITIES

2.1 Conversion of Securities . As of the Effective Time, by virtue of the Merger and without any action on the part of any party hereto or of the holder of any Neuromed Securities or any shares of the capital stock of Merger Sub:

(a) Capital Stock of Merger Sub . Each share of the common stock of Merger Sub, par value $0.01 per share (the “ Merger Sub Common Stock ”), issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock, $0.01 par value per share, of the Surviving Corporation, and all such shares as so converted shall thereafter constitute all of the issued and outstanding shares of the Surviving Corporation.

(b) Cancellation of Certain Stock .

(i) All shares of capital stock of Neuromed that are owned by any Neuromed Entity and any shares of capital stock of Neuromed owned by CombinatoRx, Merger Sub or any other wholly-owned Subsidiary of CombinatoRx immediately prior to the Effective Time shall be cancelled and shall cease to exist and no consideration shall be delivered in exchange therefor.

 

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(ii) All shares of Neuromed Special Series Voting Stock, Neuromed Special E, Neuromed Series E and Neuromed Special Common Stock issued and outstanding immediately prior to the Effective Time shall be cancelled and shall cease to exist and no consideration shall be delivered in exchange therefor.

(c) Conversion of Neuromed Securities . Subject to the escrow arrangement described in Section 2.5 and the terms of the Escrow Agreement, Neuromed Stockholders, taken together, shall have the right to receive, in respect of the Neuromed Series Preferred and Neuromed Common Stock held by them, in the aggregate:

(i) that number of validly issued, fully paid and nonassessable shares of CombinatoRx Common Stock equal to the amount by which (i) the CombinatoRx Deemed Outstanding Shares exceeds (ii) the total number of Neuromed Management Incentive Shares, which aggregate number of shares shall be divided amongst the Neuromed Stockholders in respect of the Neuromed Securities held by them in the manner set forth in Schedule I hereof. The shares issued to Neuromed Stockholders pursuant to this Section 2.1(c)(i) are referred to collectively as the “ Initial Merger Consideration ”; and

(ii) that additional number of validly issued, fully paid and nonassessable shares of CombinatoRx Common Stock equal to the amount by which (i) the product of (A) the quotient of 7 divided by 3 and (B) the CombinatoRx Deemed Outstanding Shares exceeds (ii) the sum of (A) the total number of Neuromed Management Incentive Shares and (B) the Initial Merger Consideration (for so long as such additional shares are held in escrow, the “ Milestone Shares ”, and together with the Initial Merger Consideration, the “ Merger Consideration ”), to be divided amongst Neuromed Stockholders in respect of the Neuromed Securities held by them in the manner set forth in Schedule I hereof.

(d) As of the Effective Time, all outstanding shares of capital stock of Neuromed shall automatically be cancelled and shall cease to exist, and each holder of a certificate (each a “ Certificate ” and collectively, the “ Certificates ”) representing shares of capital stock of Neuromed shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration and any cash in lieu of fractional shares of CombinatoRx Common Stock as provided under this Article II upon surrender of such Certificate in accordance with Section 2.2, without interest or dividends.

(e) Neuromed Stock Options and Related Matters .

(i) As soon as practicable following the date of this Agreement, the Board of Directors of Neuromed and Neuromed Canada (or, if appropriate, any committee thereof administering the Neuromed Stock Option Plans) shall adopt such resolutions or take such other actions as are required:

(A) to cause the vesting of Neuromed Stock Options granted under any of the Neuromed Stock Option Plans and outstanding immediately prior to the Effective Time to be accelerated in full effective immediately prior to the Effective Time;

 

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(B) to cause, pursuant to the Neuromed Stock Option Plans, each Neuromed Stock Option outstanding and unexercised immediately prior to the Effective Time to be cancelled and to no longer represent the right to purchase Neuromed Common Stock or any other equity security of the Neuromed Entities, CombinatoRx, the Surviving Corporation or any other Person or any other consideration effective as of the Effective Time; and

(C) to terminate as of or immediately prior to the Effective Time, all Neuromed Stock Option Plans and any and all agreements relating to such plans or awards thereunder.

(ii) After the execution of this Agreement, but in any event, no later than fifteen (15) days prior to the Closing Date, Neuromed shall provide notice of the proposed Merger to each Person who is a holder of Neuromed Stock Options, which notice shall describe the treatment of and payment for such Neuromed Stock Options pursuant to this Section 2.1(e).

2.2 Fractional Shares . Notwithstanding any other provision hereof, no fractional shares of CombinatoRx Common Stock and no certificates or scrip therefor, or other evidence of ownership thereof, will be issued in the Merger. In lieu thereof, CombinatoRx shall pay to each holder of a fractional share of CombinatoRx Common Stock an amount of cash (without interest) determined by multiplying the fractional share interest to which such holder would otherwise be entitled by the average of the last sale prices of CombinatoRx Common Stock, as reported on NASDAQ, for the five (5) trading days immediately preceding the Closing Date, rounded to the nearest whole cent.

2.3 Exchange Procedures .

(a) Exchange Fund . Subject to Section 2.5, at or before the Effective Time, for the benefit of Neuromed Stockholders, (i) CombinatoRx shall cause to be delivered to the Exchange Agent, for exchange in accordance with this Article II, certificates representing the shares of CombinatoRx Common Stock issuable pursuant to Section 2.1(c)(i) (“ New Certificates ”), and (ii) CombinatoRx shall deliver, or shall cause to be delivered, to the Exchange Agent an aggregate amount of cash sufficient to pay the estimated amount of cash to be paid in lieu of fractional shares of CombinatoRx Common Stock) (such cash and New Certificates, being hereinafter referred to as the “ Exchange Fund ”). In the event the Exchange Fund shall be insufficient to make all such payments, CombinatoRx shall promptly deliver, or cause to be delivered, additional funds to the Exchange Agent in an amount that is equal to the deficiency in the amount of funds required to make such payments. The Exchange Agent shall make payments of the aggregate Initial Merger Consideration (less any Escrow Shares) out of the Exchange Fund in accordance with this Agreement. The Exchange Fund shall not be used for any other purpose.

 

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(b) Exchange Procedures . As promptly as practicable and in any event not later than two (2) Business Days following the Effective Time, and provided that Neuromed has delivered, or caused to be delivered, to the Exchange Agent all information which is necessary for the Exchange Agent to perform its obligations as specified herein, the Exchange Agent shall mail to each holder of record of a Certificate or Certificates who has not previously surrendered such Certificate or Certificates a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates in exchange for the Initial Merger Consideration, subject to Section 2.5, and the right to receive Milestone Shares, if any, pursuant to the terms of the Escrow Agreement into which the shares of Neuromed Securities represented by such Certificate or Certificates shall have been converted pursuant to Section 2.1 of this Agreement and Schedule I hereto. Upon proper surrender of a Certificate for exchange and cancellation to the Exchange Agent, together with a properly completed and duly executed letter of transmittal, the holder of such Certificate shall be entitled to receive in exchange therefore, as applicable, (i) a New Certificate representing that number of shares of CombinatoRx Common Stock (if any) to which such former Neuromed Stockholder shall have become entitled pursuant to this Agreement and Schedule I hereto, subject to Section 2.5, (ii) a check representing the amount of cash (if any) payable in lieu of a fractional share of CombinatoRx Common Stock to which such former Neuromed Stockholder has the right to receive in respect of the Certificate surrendered pursuant to this Agreement, and (iii) subject to Section 2.5, the right to receive Milestone Shares, if any, pursuant to the terms of the Escrow Agreement and Schedule I hereto, and the Certificate so surrendered shall forthwith be cancelled. Until surrendered as contemplated by this Section 2.3(b), each Certificate (other than Certificates representing shares to be cancelled in accordance with Section 2.1(b) and any Dissenting Shares) shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Initial Merger Consideration provided in Section 2.1(c), subject to Section 2.5, any cash in lieu of fractional shares pursuant to Section 2.2, any unpaid dividends or distributions thereon as provided in paragraph (c) of this Section 2.3, and Milestone Shares, if any, pursuant to the terms of the Escrow Agreement and Schedule I hereto. No interest shall be paid or accrued on any cash constituting Initial Merger Consideration (including any cash in lieu of fractional shares) or any such unpaid dividends and distributions payable to holders of Certificates.

(c) Dividends or Other Distributions . No dividends or other distributions with a record date after the Effective Time with respect to CombinatoRx Common Stock shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this Section 2.3. After the surrender of a Certificate in accordance with this Section 2.3, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of CombinatoRx Common Stock (other than any Escrow Shares, which shall be governed by the terms of the Escrow Agreement) represented by such Certificate.

(d) Lost Certificates . The Exchange Agent and CombinatoRx, as the case may be, shall not be obligated to deliver cash and/or a New Certificate or New Certificates representing shares of CombinatoRx Common Stock to which a holder of Neuromed Securities would otherwise be entitled as a result of the Merger until such holder surrenders the Certificate or Certificates representing shares of Neuromed Securities for exchange as provided in this

 

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Section 2.3, or, an appropriate affidavit of loss and, if required by CombinatoRx, an indemnity agreement and/or a bond in an amount as may be reasonably required by CombinatoRx. If any New Certificates evidencing shares of CombinatoRx Common Stock are to be issued in a name other than that in which the surrendered Certificate is registered, it shall be a condition of the issuance thereof that the Certificate so surrendered shall be properly endorsed or accompanied by an executed form of assignment separate from the Certificate and otherwise in proper form for transfer, and that the Person requesting such exchange pay to the Exchange Agent any transfer or other tax required by reason of the issuance of a New Certificate for shares of CombinatoRx Common Stock in any name other than that of the registered holder of the Certificate surrendered or otherwise establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable.

(e) No Further Rights . The Merger Consideration (including any payments paid pursuant to Section 2.2 and the right to receive any Milestone Shares) delivered upon the surrender for exchange of Certificates (or affidavit of loss in lieu thereof) in accordance with the terms hereof and the right to receive Escrow Shares under the Escrow Agreement shall be deemed to have been delivered (and paid) in full satisfaction of all rights pertaining to such shares of Neuromed Securities, and from and after the Effective Time the stock transfer books of Neuromed shall be closed and thereafter there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of shares of Neuromed Securities that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to CombinatoRx, the Surviving Corporation or the Exchange Agent, for any reason, such Certificates shall be cancelled, subject to applicable Laws in the case of Dissenting Shares.

(f) Termination of Exchange Fund . Any portion of the Exchange Fund that remains undistributed to the holders of Certificates twelve (12) months after the Effective Time (as well as any interest or proceeds from any investment thereof) shall be delivered by the Exchange Agent to CombinatoRx, upon demand, and any holder of a Certificate who has not previously complied with this Article II prior to the end of such twelve (12) month period shall thereafter look only to CombinatoRx for payment of its claim for the Initial Merger Consideration. If outstanding Certificates are not surrendered or the payment for them is not claimed prior to the date on which such shares of CombinatoRx Common Stock or cash would otherwise escheat to or become the property of any governmental unit or agency, the unclaimed items shall, to the extent permitted by abandoned property and any other applicable Laws, become the property of CombinatoRx (and to the extent not in its possession shall be delivered to it), free and clear of all claims or interest of any Person previously entitled to such property. Neither the Exchange Agent nor any party to this Agreement shall be liable to any holder of shares of Neuromed Securities for any consideration paid to a public official pursuant to applicable abandoned property, escheat, or similar laws. CombinatoRx and the Exchange Agent shall be entitled to rely upon the books and records of Neuromed to establish the identity of those Persons entitled to receive the Initial Merger Consideration specified in this Agreement, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of any shares of Neuromed Securities represented by any Certificate, CombinatoRx and the Exchange Agent shall be entitled to deposit any Initial Merger Consideration represented thereby in escrow with an independent third party that is a financial institution and thereafter be relieved with respect to any claims thereto. For greater certainty, this Section 2.3(f) shall not apply to the Escrow Shares.

 

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(g) Investment of Exchange Fund . The Exchange Agent shall invest any cash included in the Exchange Fund as directed by CombinatoRx; provided , however , that such investments shall be in obligations of or guaranteed by the United States of America or any agency or instrumentality thereof and backed by the full faith and credit of the United States of America or in certificates of deposit, bank repurchase agreements, or banker’s acceptances of commercial banks with capital exceeding $1 billion (based on the most recent financial statements of such bank that are then publicly available). Any net profit resulting from, or interest or income produced by, such investments shall be placed in the Exchange Fund and be payable to CombinatoRx.

(h) Withholding Rights . Each of CombinatoRx, the Surviving Corporation and the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement or otherwise to any holder of a Certificate, as the case may be, such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code, or any other applicable provision of Law. To the extent that amounts are so withheld and paid over to the appropriate Governmental Authority by CombinatoRx, the Surviving Corporation, or the Exchange Agent, as the case may be, such deducted, withheld and paid over amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Certificate, as applicable, in respect of which such deduction and withholding was made by CombinatoRx, the Surviving Corporation, or the Exchange Agent, as the case may be. To the extent that amounts are so withheld and paid over to the appropriate Governmental Authority by CombinatoRx, the Surviving Corporation or the Exchange Agent, as the case may be, shall deliver a notice to the holder of the Certificate, as applicable, of such amount so deducted, withheld or paid over if and to the extent required by applicable Law.

2.4 Appraisal Rights .

(a) Notwithstanding anything in this Agreement to the contrary, any shares (the “ Dissenting Shares ”) of the capital stock of Neuromed that are issued and outstanding immediately prior to the Effective Time and that are held by Neuromed Stockholders who, in accordance with Section 262 of the DGCL (the “ Appraisal Rights Provisions ”), (i) have not voted in favor of adopting this Agreement, (ii) shall have demanded properly in writing appraisal for such shares, (iii) have otherwise complied in all respects with the Appraisal Rights Provisions, and (iv) have not effectively withdrawn, lost, or failed to perfect their rights to appraisal (the “ Dissenting Stockholders ”), will not be converted into Merger Consideration pursuant to Section 2.1(c), but at the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, shall be cancelled and shall cease to exist and shall represent the right to receive only those rights provided under the Appraisal Rights Provisions; provided , however , that all shares of the capital stock of Neuromed held by Neuromed Stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares under the Appraisal Rights Provisions shall thereupon be deemed to have been cancelled and to have been converted, as of the Effective Time, into the right to receive, without any interest thereon, the Merger Consideration pursuant to Section 2.1(c).

 

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(b) Neuromed shall give CombinatoRx prompt notice of any demands received by Neuromed for the exercise of appraisal rights with respect to shares of the capital stock of Neuromed and CombinatoRx shall have the right to participate in all negotiations and proceedings with respect to such demands. Neuromed shall not, except with the prior written consent of CombinatoRx, which consent shall not be unreasonably withheld or delayed, make any payment with respect to, or settle or offer to settle, any such demands.

2.5 Escrow Arrangement .

(a) At the Effective Time, if, and only if, the FDA Approval Date (as defined in the Escrow Agreement) is not on or prior to the Closing Date, CombinatoRx shall deduct from the Initial Merger Consideration (as set forth in Section 2.1(c)(i)), an aggregate number of shares of CombinatoRx Common Stock equal to the amount by which (i) the CombinatoRx Deemed Outstanding Shares exceeds (ii) the sum of (A) the Firm Shares and (B) the total number of Neuromed Management Incentive Shares, which shares (for so long as such shares are held in escrow, the “ Holdback Shares ”) shall, without any act or formality on the part of Neuromed Stockholder, be deposited by CombinatoRx with Computershare Trust Company, N.A. (the “ Escrow Agent ”). The allocation of such Holdback Shares among the Neuromed Stockholders shall be calculated in the manner set forth in Schedule I hereto.

(b) At the Effective Time, if, and only if, the FDA Approval Date (as defined in the Escrow Agreement) is not on or prior to the Closing Date, CombinatoRx shall deposit the Milestone Shares with the Escrow Agent in order to satisfy its obligation to release additional shares of CombinatoRx Common Stock to Neuromed Stockholders pursuant to the terms of the Escrow Agreement. The allocation of such Milestone Shares among the Neuromed Stockholders shall be calculated in the manner set forth in Schedule I hereto.

(c) At the Effective Time, if, and only if, the FDA Approval Date (as defined in the Escrow Agreement), is on or prior to the Closing Date, CombinatoRx shall not deposit the Holdback Shares or the Milestone Shares with the Escrow Agent and instead shall deposit such shares with the Exchange Agent for distribution together with the Firm Shares to the holders of Neuromed Securities in accordance with Section 2.1(c) and Schedule I hereto as if such distribution was made after the Effective Time pursuant to the terms of the Escrow Agreement, including, for the avoidance of doubt, with respect to the respective share amounts to be released upon the FDA Approval Date.

(d) All shares of CombinatoRx Common Stock deposited with the Escrow Agent pursuant to this Section 2.5, are referred to herein as “ Escrow Shares ” and shall be governed by the terms of the Escrow Agreement. The Escrow Shares shall be released in accordance with the terms and conditions of the Escrow Agreement.

2.6 Neuromed Warrants . CombinatoRx hereby assumes, effective as of the Effective Time, the obligations of the Warrant to purchase Neuromed Securities issued to Comerica Bank on October 22, 2004 such that, in the event that such warrant is outstanding as of the Effective Time, from and after the Effective Time such warrant will be exercisable or convertible so as to allow the holder to acquire on the exercise thereof the same securities, cash and property as would be issuable or payable in consideration for the Option Securities (as defined therein) issuable upon exercise of the unexercised portion of such warrant as if such Option Securities were outstanding as of immediately prior to the Effective Time.

 

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2.7 Neuromed Management Incentive Shares . Prior to the Effective Time, Neuromed may adopt an equity incentive plan providing for the grants of restricted stock units to employees and directors as set forth in Section 5.1 of the Neuromed Disclosure Schedule. If awards under such an equity incentive plan are granted, CombinatoRx hereby agrees to assume, effective as of the Effective Time, such awards.

ARTICLE III - REPRESENTATIONS AND WARRANTIES OF NEUROMED AND NEUROMED CANADA

Except as set forth in the disclosure schedules delivered concurrently with the execution of this Agreement to CombinatoRx and Merger Sub (the “ Neuromed Disclosure Schedule ”), which shall identify any exceptions to the representations, warranties and covenants contained in this Agreement (with specific reference to the particular Section or subsection to which such information relates; provided , however , that any information set forth in one section of such Neuromed Disclosure Schedule also shall be deemed to apply to each other section and subsection of this Agreement to which its relevance is reasonably apparent), Neuromed and Neuromed Canada hereby jointly and severally represent and warrant to CombinatoRx and Merger Sub as follows:

3.1 Corporate Organization .

(a) Neuromed is a corporation, duly organized, validly existing and in good corporate standing under the laws of the State of Delaware. Neuromed has all requisite corporate power and authority to own, lease and operate all of its properties and assets and to carry on its business as it is now being conducted. Neuromed is duly licensed or qualified to do business and is in corporate good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased, or operated by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified and in corporate good standing would not, either individually or in the aggregate, reasonably be expected to have a Neuromed Material Adverse Effect. The certificate of incorporation of Neuromed (the “ Neuromed Charter ”) and the bylaws of Neuromed (the “ Neuromed Bylaws ”), copies of which have previously been made available to CombinatoRx, are true, correct and complete copies of such documents as currently in effect and Neuromed is not in violation of any provision thereof. Other than the Neuromed Charter and Neuromed Bylaws, Neuromed is not a party to or bound by or subject to any stockholder agreement or other agreement governing the affairs of Neuromed or the relationships, rights and duties of stockholders and is not subject to a stockholder rights plan or similar plan.

(b) Neuromed Canada is a corporation duly continued, validly existing and in good corporate standing under the laws of the Province of British Columbia, Canada. Neuromed Canada has all requisite corporate power and authority to own, lease and operate all of its properties and assets and to carry on its business as it is now being conducted. Neuromed Canada is duly licensed or qualified to do business and is in corporate good standing in each

 

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jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased, or operated by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified and in corporate good standing would not, either individually or in the aggregate, reasonably be expected to have a Neuromed Material Adverse Effect. All of the organizational documents of Neuromed Canada, copies of which have previously been made available to CombinatoRx, are true, correct and complete copies of such documents as currently in effect and Neuromed Canada is not in violation of any provision thereof. Other than such organizational documents, Neuromed Canada is not a party to or bound by or subject to any stockholder agreement or other agreement governing the affairs of Neuromed Canada or the relationships, rights and duties of stockholders and is not subject to a stockholder rights plan or similar plan.

(c) As of the date hereof, Neuromed has no Subsidiaries. Each of the Subsidiaries of Neuromed Canada is a corporation or legal entity, validly existing and, if applicable, in good standing under the laws of the jurisdiction of its organization. Each of the Subsidiaries of Neuromed Canada has all requisite corporate power or other power and authority to own, lease and operate all of its properties and assets and to carry on its business as it is now being conducted. Each of the Subsidiaries of Neuromed Canada is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased, or operated by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified and in good standing would not, either individually or in the aggregate, reasonably be expected to have a Neuromed Material Adverse Effect. The notice of articles and articles or equivalent organizational documents of each of the Subsidiaries of Neuromed Canada, copies of which have previously been made available to CombinatoRx, are true, correct and complete copies of such documents as currently in effect.

3.2 Capitalization .

(a) As of the date hereof, the authorized capital stock of Neuromed consists of 157,528,103 shares of Neuromed Common Stock and 297,657,128 shares of Neuromed Preferred Stock, issuable in series, of which 1,045,149 shares of Neuromed Series A-1, 786,797 shares of Neuromed Series A-2, 3,297,178 shares of Neuromed Series B-1, 2,409,440 shares of Neuromed Series B-2, 22,000,000 shares of Neuromed Series C-1, 18,000,000 shares of Neuromed Series C-2, 34,000,000 shares of Neuromed Series D-1, 39,000,000 shares of Neuromed Series D-2, 60,000 shares of Neuromed Series E, 10,000 shares of Neuromed Series F, 32,500,000 shares of Neuromed Special Common Stock, 1,045,149 shares of Neuromed Special A-1, 786,797 shares of Neuromed Special A-2, 3,297,178 shares of Neuromed Special B-1, 2,409,440 shares of Neuromed Special B-2, 11,000,000 shares of Neuromed Special C-1, 14,000,000 shares of Neuromed Special C-2, 34,000,000 shares of Neuromed Special D-1, 39,000,000 shares of Neuromed Special D-2, 39,000,000 shares of Neuromed Special E and 10,000 shares of Neuromed Special F have been authorized.

(b) As of the date hereof, there are 2,547,938 shares of Neuromed Common Stock issued and outstanding. As of the date hereof, there are no shares of Neuromed Series A-1, no shares of Neuromed Series A-2, no shares of Neuromed Series B-1, no shares of Neuromed Series B-2, 8,375,000 shares of Neuromed Series C-1, 7,282,608 shares of Neuromed Series C-2, 10,832,994 shares of Neuromed Series D-1, 9,815,000 shares of Neuromed Series D-2, no shares of Neuromed Series E and no shares of Neuromed Series F issued and outstanding.

 

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(c) As of the date hereof, there are 1,649,801 shares of Neuromed Special Common Stock, 1,045,149 shares of Neuromed Special A-1, 786,797 shares of Neuromed Special A-2, 3,297,178 shares of Neuromed Special B-1, 2,409,440 shares of Neuromed Special B-2, 7,660,570 shares of Neuromed Special C-1, 6,661,367 shares of Neuromed Special C-2, 7,238,435 shares of Neuromed Special D-1, 24,900,200 shares of Neuromed Special D-2, no shares of Neuromed Special E and no shares of Neuromed Special F issued and outstanding. All required actions have been taken by the Series A-E Holders so that, immediately prior to the Effective Time, there will be no shares of Neuromed Special Common Stock and no shares of Neuromed Special Series Voting Stock issued or outstanding.

(d) As of the date hereof, there are 1,649,801 shares of Neuromed Canada Common Exchangeable Shares, 1,045,149 shares of Neuromed Canada A-1 Exchangeable Shares, 786,797 shares of Neuromed Canada A-2 Exchangeable Shares, 3,297,178 shares of Neuromed Canada B-1 Exchangeable Shares, 2,409,440 shares of Neuromed Canada B-2 Exchangeable Shares, 7,660,570 shares of Neuromed Canada C-1 Exchangeable Shares, 6,661,367 shares of Neuromed Canada C-2 Exchangeable Shares, 7,238,435 shares of Neuromed Canada D-1 Exchangeable Shares, 24,900,200 shares of Neuromed Canada D-2 Exchangeable Shares, no shares of Neuromed Canada E Exchangeable Shares and no shares of Neuromed Canada F Exchangeable Shares issued and outstanding. All required actions have been taken by the stockholders of Neuromed and Neuromed Canada so that, prior to the Effective Time, the foregoing shares of Neuromed Canada Exchangeable Shares will be exchanged for 1,649,801 shares of Neuromed Common Stock, 1,045,149 shares of Neuromed Series A-1, 786,797 shares of Neuromed Series A-2, 3,297,178 shares of Neuromed Series B-1, 2,409,440 shares of Neuromed Series B-2, 7,660,570 shares of Neuromed Series C-1, 6,661,367 shares of Neuromed Series C-2, 7,238,435 shares of Neuromed Series D-1, 24,900,200 shares of Neuromed Series D-2, no shares of Neuromed Series E and no shares of Neuromed Series F. All required actions have been taken by the stockholders of Neuromed and Neuromed Canada so that, immediately prior to the Effective Time, there will be no shares of Neuromed Canada Exchangeable Shares or Neuromed Canada E Exchangeable Shares issued or outstanding.

(e) As of the date hereof, there are 94,502,477 shares of Neuromed Canada Special Voting Shares issued and outstanding. All required actions have been taken by the stockholders of Neuromed and Neuromed Canada so that, immediately prior to the Effective Time, there will be no shares of Neuromed Canada Special Voting Shares issued or outstanding.

(f) As of the date hereof, there is one share of Neuromed Canada New Common Shares and 480 shares of Neuromed Canada Non-Voting Preferred Shares issued and outstanding, all of which are owned by Neuromed.

(g) As of the date hereof, there are Neuromed U.S. Notes having an aggregate principal amount of $2,821,277 outstanding. The outstanding interest accrued through June 29, 2009 on all Neuromed U.S. Notes is $78,996. All required actions have been taken by the holders of Neuromed U.S. Notes, the stockholders of Neuromed and Neuromed Canada, Neuromed and Neuromed Canada so that, not later than the Effective Time, each outstanding

 

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Neuromed U.S. Note will be converted into or exchanged for shares of Neuromed Series F (and thereafter each outstanding Neuromed U.S. Note will be cancelled with no further action by any Person) which in turn at the Effective Time will be converted into the right to receive a portion of the Merger Consideration.

(h) As of the date hereof, there are Neuromed Canada Notes having an aggregate principal amount of $6,290,000 outstanding. The outstanding interest accrued through June 29, 2009 on all Neuromed Canada Notes is $176,120. All required actions have been taken by the holders of Neuromed Canada Notes, the stockholders of Neuromed and Neuromed Canada, Neuromed and Neuromed Canada so that, not later than the Effective Time, each outstanding Neuromed Canada Note will be converted into or exchanged for shares of Neuromed Canada F Exchangeable Shares (and thereafter each outstanding Neuromed Canada Note will be cancelled with no further action by any Person) which immediately prior to the Effective Time will be exchanged for shares of Neuromed Series F which in turn at the Effective Time will be converted into the right to receive a portion of the Merger Consideration.

(i) As of the date hereof, there are no shares of Neuromed Common Stock and no shares of Neuromed Preferred Stock held in the treasury of Neuromed.

(j) Section 3.2(j) of the Neuromed Disclosure Schedule sets forth a true, correct and complete list, as of the date hereof, of all issued and outstanding shares of Neuromed Common Stock, shares of Neuromed Preferred Stock, shares of Neuromed Canada Exchangeable Shares, shares of Neuromed Canada E Exchangeable Shares, shares of Neuromed Canada Special Voting Shares, any other equity security of Neuromed or Neuromed Canada (other than Neuromed Stock Options or Neuromed Warrants) and Neuromed Notes, on a holder-by-holder basis.

(k) As of the date hereof, there are units that include an aggregate of 4,039,051 shares of Neuromed Common Stock issuable upon exercise of all outstanding Neuromed U.S. Stock Options, subject to adjustment on the terms set forth in the Neuromed Stock Option Plan (U.S.). As of the date hereof, there are 3,639,857 shares of Neuromed Common Stock issuable upon conversion of all shares of Neuromed Canada Common Exchangeable Shares issuable upon the exercise of all outstanding Neuromed Canada Stock Options, subject to adjustment on the terms set forth in the Neuromed Stock Option Plan (Canada). Section 3.2(k) of the Neuromed Disclosure Schedule sets forth a true, correct and complete list, as of the date hereof, of (i) the name of the holder of each Neuromed Stock Option, (ii) the date each Neuromed Stock Option was granted, (iii) the number, issuer and type of securities subject to each such Neuromed Stock Option, (iv) the expiration date of each such Neuromed Stock Option, (v) the vesting schedule of each such Neuromed Stock Option, (vi) the price at which each such Neuromed Stock Option (or each component thereof, if applicable) may be exercised and (vii) the number of shares of Neuromed Common Stock issuable upon the exercise of such, or upon the conversion of all securities issuable upon the exercise of such, Neuromed Stock Options. Each Neuromed Stock Option will be accelerated after the date hereof and terminate immediately prior to the Effective Time, all in accordance with the terms of the Neuromed Stock Option Plan under which such Neuromed Stock Option was granted.

 

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(l) As of the date hereof, there are no outstanding restricted stock awards of either Neuromed or Neuromed Canada.

(m) As of the date hereof, there are 20,000 shares of Neuromed Common Stock and 1,952,420 shares of Neuromed Series D-1 issuable upon the conversion of all securities issuable upon the exercise of all outstanding Neuromed Warrants. Section 3.2(m) of the Neuromed Disclosure Schedule sets forth a true, correct and complete list, as of the date hereof, of (i) the name of the holder of each Neuromed Warrant, (ii) the date each Neuromed Warrant was issued, (iii) the number, issuer and type of securities subject to each such Neuromed Warrant, (iv) the price at which each such Neuromed Warrant (or each component thereof, if applicable) may be exercised and (v) whether and to what extent any holders of Neuromed Warrants shall be required to exercise such Neuromed Warrants prior to the Effective Time. If all required actions are taken by the holders of Neuromed Bridge Warrants, the stockholders of Neuromed and Neuromed Canada, Neuromed and Neuromed Canada, Neuromed Bridge Warrants will be exercised pursuant to Section 2 thereof for units of capital stock of Neuromed and Neuromed Canada which will, immediately prior to the Effective Time, be or be exchanged for an aggregate of 1,952,420 shares of Neuromed Series D-1.

(n) All issued and outstanding shares of Neuromed Common Stock and Neuromed Preferred Stock have been duly authorized, validly issued and are fully paid and nonassessable, and were not issued in violation of the material terms of any agreement or understanding binding upon Neuromed at the time at which they were issued and were issued in compliance with the Neuromed Charter and Neuromed Bylaws and all applicable Laws. All issued and outstanding securities of Neuromed Canada have been duly authorized, validly issued and are fully paid and nonassessable, and were not issued in violation of the material terms of any agreement or understanding binding upon Neuromed Canada at the time at which they were issued and were issued in compliance with the Neuromed Canada Charter and all applicable Laws. Other than the Neuromed Stock Options and Neuromed Warrants or as set forth in the Further Amended Share Exchange Agreement dated May 7, 2007 by and among Neuromed, Neuromed Canada and the holders of shares in the capital of Neuromed or Neuromed Canada, neither Neuromed nor Neuromed Canada has and neither is bound by any outstanding subscriptions, options, warrants, calls, commitments, rights agreements, or agreements of any character calling for Neuromed or Neuromed Canada to issue, deliver, or sell, or cause to be issued, delivered, or sold any shares of Neuromed Common Stock or any other equity security of Neuromed or Neuromed Canada or any Subsidiary of Neuromed or Neuromed Canada or any securities convertible into, exchangeable for, or representing the right to subscribe for, purchase, or otherwise receive any shares of Neuromed Common Stock or any other equity security of Neuromed or Neuromed Canada or any Subsidiary of Neuromed or Neuromed Canada or obligating Neuromed or Neuromed Canada or any such Subsidiary to grant, extend, or enter into any such subscriptions, options, warrants, calls, commitments, rights agreements, or any other similar agreements. There are no registration rights, repurchase or redemption rights, anti-dilutive rights, voting agreements, voting trusts, preemptive rights or restrictions on transfer relating to any capital stock of Neuromed or Neuromed Canada.

(o) Section 3.2(o) of the Neuromed Disclosure Schedule lists each Subsidiary of Neuromed and Neuromed Canada as of the date hereof and indicates for each such Subsidiary as of such date (i) the percentage and type of equity securities owned or controlled, directly or

 

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indirectly, by Neuromed and Neuromed Canada and (ii) the jurisdiction of incorporation or organization. Immediately prior to the Effective Time, Neuromed will own all of the outstanding securities of Neuromed Canada, and Neuromed Canada will own all of the outstanding securities of each Subsidiary listed on Section 3.2(o) of the Neuromed Disclosure Schedule. No Subsidiary of Neuromed or Neuromed Canada has or is bound by any outstanding subscriptions, options, warrants, calls, commitments, rights agreements, or agreements of any character calling for it to issue, deliver, or sell, or cause to be issued, delivered, or sold any of its equity securities or any securities convertible into, exchangeable for, or representing the right to subscribe for, purchase or otherwise receive any such equity security or obligating such Subsidiary to grant, extend or enter into any such subscriptions, options, warrants, calls, commitments, rights agreements, or other similar agreements. There are no outstanding contractual obligations of any Subsidiary of Neuromed or Neuromed Canada to repurchase, redeem, or otherwise acquire any of its capital stock or other equity interests. All of the shares of capital stock of each of the Subsidiaries of Neuromed or Neuromed Canada (i) are validly issued, fully paid (to the extent required under the applicable governing documents) and nonassessable, (ii) are owned by Neuromed or Neuromed Canada free and clear of any claim, lien, Encumbrance (other than Permitted Encumbrances), or agreement with respect thereto, (iii) were not issued in violation of the material terms of any agreement or understanding binding upon Neuromed, Neuromed Canada or either of their Subsidiaries at the time at which they were issued, and (iv) were issued in compliance with the applicable governing documents and all applicable Laws.

3.3 Authority . Each of Neuromed and Neuromed Canada has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and perform its respective obligations hereunder, subject only to obtaining Neuromed Stockholder Approval. The adoption, execution, delivery and performance of this Agreement and the approval of the consummation of the transactions contemplated hereby have been recommended by, and have been duly and validly adopted and approved by a unanimous vote of, the Board of Directors of Neuromed Canada. No approval of the holders of the outstanding securities of Neuromed Canada is required in order for Neuromed Canada to execute and deliver this Agreement and to consummate the transactions contemplated hereby and perform its obligations hereunder. The adoption, execution, delivery and performance of this Agreement and the approval of the consummation of the transactions contemplated hereby have been recommended by, and have been duly and validly adopted and approved by a unanimous vote of, the Board of Directors of Neuromed. As of the date hereof, Neuromed has received Series A-E Approval to execute and deliver this Agreement and to consummate the transactions contemplated hereby and perform its obligations hereunder, and no other approval or consent of, or action by, the holders of the outstanding securities of Neuromed, other than Neuromed Stockholder Approval, is required in order for Neuromed to execute and deliver this Agreement and to consummate the transactions contemplated hereby and perform its obligations hereunder. The Board of Directors of Neuromed has recommended that Neuromed Stockholders adopt and approve this Agreement at the Neuromed Stockholder Meeting. Except for Neuromed Stockholder Approval and the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, no other corporate proceeding on the part of any Neuromed Entity is necessary to authorize the adoption, execution, delivery and performance of this Agreement or to consummate the Merger and the other transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Neuromed and Neuromed Canada and (assuming due authorization, execution and delivery by the other parties hereto) constitutes the

 

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legal, valid and binding obligations of Neuromed and Neuromed Canada, enforceable against Neuromed and Neuromed Canada in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to creditors’ rights and general principles of equity. All other documents required to be executed by Neuromed and Neuromed Canada on or prior to the date hereof in connection with the transactions contemplated herein have been duly and validly executed and delivered by Neuromed and Neuromed Canada and (assuming due authorization, execution and delivery by the other parties thereto) constitute the legal, valid and binding obligations of Neuromed and Neuromed Canada, respectively, enforceable against each of them in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to creditors’ rights and general principles of equity.

3.4 No Violation; Required Filings, Consents and Approvals .

(a) Assuming Neuromed Stockholder Approval is obtained, none of the execution, delivery, or performance of this Agreement by Neuromed and Neuromed Canada, the consummation by Neuromed and Neuromed Canada of the transactions contemplated hereby, or compliance by Neuromed and Neuromed Canada with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the organizational documents of Neuromed or Neuromed Canada or any resolution of its respective board of directors (or any committee thereof), (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement, or other instrument or obligation to which any Neuromed Entity is a party or by which it or any of its properties or assets may be bound, including without limitation any stockholder agreement or other agreement or understanding with any party holding an ownership interest in Neuromed or Neuromed Canada, or (iii) subject to compliance with the requirements specified in Section 3.4(b)(ii), violate any Law or Order applicable to any Neuromed Entity or any of their properties or assets, excluding from the foregoing clauses (ii) and (iii) such violations, breaches or defaults that would not, individually or in the aggregate, (A) prevent or materially delay consummation of the Merger, (B) otherwise prevent or materially delay performance by Neuromed of its material obligations under this Agreement, or (C) have a Neuromed Material Adverse Effect.

(b) No consent, approval, license, permit, notice, registration, waiver, qualification, order or authorization, or registration, declaration or filing, with or of, as appropriate of (i) any Person or (ii) any Governmental Authority is required by or with respect to any Neuromed Entity in connection with the execution and delivery of this Agreement or any related agreements required to be executed by this Agreement or the consummation of the transactions contemplated hereby and thereby, except for (A) the filing of the Registration Statement with the SEC in accordance with the Securities Act, (B) the filing of the Proxy Statement and related proxy materials with the SEC in accordance with the Exchange Act, and such other filings as are required to be made with the SEC under the Exchange Act or the Securities Act in connection with the transactions contemplated by this Agreement, (C) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (D) such approvals as may be required under applicable federal and state securities Laws and the Laws of any foreign country including, without limitation, the Competition Act (Canada), (E) such filings

 

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and approvals as may be required under any Antitrust Laws and (F) such other approvals which, if not obtained or made, would not, individually or in the aggregate, (1) prevent or materially delay consummation of the Merger, (2) otherwise prevent or materially delay performance by Neuromed or Neuromed Canada of its material obligations under this Agreement, or (3) have a Neuromed Material Adverse Effect.

(c) A fully executed copy of each of the Neuromed Canada Voting Agreements has been delivered to CombinatoRx prior to the execution of this Agreement. The Neuromed Canada Voting Agreements have been executed and delivered by shareholders of Neuromed Canada representing sufficient shares of each class and series of capital stock of Neuromed Canada to pass with a sufficient majority all resolutions necessary to approve the Neuromed Canada Amended Charter under the Neuromed Canada Charter and under all applicable Laws. The Board of Directors of Neuromed Canada has taken all necessary corporate action, subject to receipt of approval and effectiveness of the Neuromed Canada Amended Charter, to (i) reserve sufficient shares of Neuromed Canada F Exchangeable Shares to permit the conversion of all of the Neuromed Canada Notes pursuant to the terms of the Neuromed Notes Amendment Agreement and (ii) reserve sufficient shares of Neuromed Canada Special Voting Shares to permit the conversion of the Neuromed U.S. Notes pursuant to the terms of the Neuromed Notes Amendment Agreement.

3.5 Broker’s Fees . None of the Neuromed Entities or any of their respective officers, directors, employees, or agents has employed any broker, finder, or financial advisor to act for any of the Neuromed Entities or incurred any liability for any fees or commissions payable by any of the Neuromed Entities in connection with any of the transactions contemplated by this Agreement (including the Merger), except for fees and commissions incurred in connection with the engagement of JMP Securities Inc. and Evans & Evans, Inc., and for legal, accounting and other professional fees payable in connection with the Merger, all of which will be payable by Neuromed or Neuromed Canada.

3.6 Neuromed Financial Statements .

(a) Attached as Section 3.6 of the Neuromed Disclosure Schedule are true, correct and complete copies of the audited consolidated balance sheet as of September 30, 2007 and September 30, 2008 and the related consolidated audited statements of operations and cash flows for the twelve months ended September 30, 2007 and September 30, 2008 of the Neuromed Entities (collectively, the “ Neuromed Financial Statements ”). The Neuromed Financial Statements (x) complied, or will comply as to form in all material respects prior to the filing of the Registration Statement, with the published rules and regulations of the SEC with respect thereto, (y) were prepared in accordance with GAAP or Canadian GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto), and (z) fairly presented, in all material respects, the financial position of the Neuromed Entities as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated. The balance sheet of the Neuromed Entities as of September 30, 2008 is hereinafter referred to as the “ Neuromed Balance Sheet ”.

(b) The Neuromed Entities, collectively, maintain adequate disclosure controls and procedures designed to ensure that material information relating to the Neuromed Entities is made known to the Chief Executive Officer or President and the Chief Financial Officer of Neuromed by others within those entities.

 

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(c) None of the Neuromed Entities nor, to the knowledge of Neuromed, any director, officer, employee, or internal or external auditor of any Neuromed Entity has received or otherwise had or obtained actual knowledge of any substantive material complaint, allegation, assertion or claim, whether written or oral, that any of the Neuromed Entities has engaged in questionable accounting or auditing practices.

(d) During the periods covered by the Neuromed Financial Statements, there have been no: (A) changes in the internal control over financial reporting of the Neuromed Entities that have materially affected, or are reasonably likely to materially affect, the Neuromed Entities’ internal control over financial reporting; (B) significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting reported to the Board of Directors of Neuromed and the Neuromed Entities’ external auditors; or (C) instances of fraud, whether or not material, involving the management of any Neuromed Entity or other employees of any Neuromed Entity who have a significant role in the Neuromed Entities’ internal control over financial reporting.

3.7 Absence of Certain Changes or Events . Since September 30, 2008, the Neuromed Entities have conducted their respective businesses in all material respects in the ordinary course consistent with their past practices and:

(a) there has not been any change, event, circumstance or condition to the knowledge of Neuromed that, individually or in the aggregate, has had, or would reasonably be expected to have, a Neuromed Material Adverse Effect;

(b) there has been no split, combination or reclassification of any of the outstanding shares of the capital stock of Neuromed or Neuromed Canada, and neither Neuromed nor Neuromed Canada has declared or paid any dividends on or made any other distributions (in either case, in stock or property) on or in respect of the outstanding shares of the capital stock of Neuromed or Neuromed Canada, respectively;

(c) none of the Neuromed Entities have allotted, reserved, set aside or issued, authorized or proposed the allotment, reservation, setting aside or issuance of, or purchased or redeemed or proposed the purchase or redemption of, any shares in its capital stock or any class of securities convertible or exchangeable into, or rights, warrants or options to acquire, any such shares or other convertible or exchangeable securities;

(d) except as required as a result of a change in applicable Laws, GAAP or Canadian GAAP, there has not been any material change in any method of accounting or accounting practice by the Neuromed Entities;

(e) none of the Neuromed Entities have (i) acquired or sold, pledged, leased, encumbered or otherwise disposed of any material property or assets or agreed to do any of the foregoing or (ii) incurred or committed to incur capital expenditures in excess of $100,000, in the aggregate;

 

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(f) there has been no transfer (by way of a license or otherwise) of, or agreement to transfer to, any Person’s rights to any of the Neuromed Intellectual Property Assets;

(g) there has been no notice delivered to any of the Neuromed Entities of any claim of ownership by a third party of any of the Neuromed Intellectual Property Assets owned or developed by any of the Neuromed Entities, or of infringement by any of the Neuromed Entities of any Third Party IP Assets;

(h) there has not been any: (i) grant of any severance or termination pay to any employee of any Neuromed Entity; (ii) entry into any employment, deferred compensation, severance or other similar plan or agreement (or any amendment to any such existing agreement) with any new or current employee of any Neuromed Entity; (iii) change in the compensation, bonus or other benefits payable or to become payable to its directors, officers, employees or consultants, except as required by any pre-existing plan or arrangement set forth in Section 3.7(h) of the Neuromed Disclosure Schedule; or (iv) termination of any of the officers or key employees of any Neuromed Entity; and

(i) there has not been any agreement to do any of the foregoing.

3.8 Legal Proceedings . Section 3.8 of the Neuromed Disclosure Schedule includes a description of all material Actions and, to the knowledge of Neuromed, investigations of a Governmental Authority involving any of the Neuromed Entities’ respective officers or directors in connection with the Neuromed Business occurring, arising or existing since January 1, 2007. None of the items set forth in Section 3.8 of the Neuromed Disclosure Schedule would, individually or in the aggregate, (i) prevent or materially delay the consummation of the Merger, (ii) otherwise prevent or materially delay performance by any Neuromed Entity of any of their respective material obligations under this Agreement, or (iii) have a Neuromed Material Adverse Effect.

3.9 Absence of Undisclosed Liabilities . Except for those liabilities that are reflected or reserved against on the Neuromed Financial Statements or incurred in the ordinary course consistent with their past practices, none of the Neuromed Entities have incurred any obligation, Indebtedness, claim, deficiency, expense, guaranty or other liability (contingent or otherwise) that, either alone or when combined with all similar liabilities, either individually or in the aggregate, has had, or would reasonably be expected to have, a Neuromed Material Adverse Effect.

3.10 Compliance with Laws . Each of the Neuromed Entities is in compliance with all Laws or Orders, except where any such failure to be in compliance has not had, or would not reasonably be expected to have, individually or in the aggregate, a Neuromed Material Adverse Effect. No investigation or review by any Governmental Authority with respect to any Neuromed Entity is pending or, to the knowledge of Neuromed, threatened, nor has any Governmental Authority indicated an intention to conduct the same which, in each case, would reasonably be expected to have a material and adverse impact on any Neuromed Entity. To the knowledge of Neuromed, each of the Neuromed Entities is in material compliance with the Foreign Corrupt Practices Act of 1977, as amended, and any rules and regulations thereunder.

 

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3.11 Regulatory Compliance .

(a) Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Neuromed Material Adverse Effect, each of the Neuromed Entities and their employees and agents hold all permits, licenses, variances, registrations, exemptions, Orders, consents and approvals from the U.S. Food and Drug Administration (the “ FDA ”) and any other Governmental Authority that is concerned with the quality, identity, strength, purity, safety, efficacy or manufacturing of Neuromed Products (any such Governmental Authority, a “ Neuromed Regulatory Agency ”) necessary for the lawful operating of the businesses of each of the Neuromed Entities as currently conducted (the “ Neuromed Permits ”), including all authorizations required under the Federal Food, Drug and Cosmetic Act of 1938, as amended (the “ FDCA ”) and the regulations of the FDA promulgated thereunder, and the Public Health Service Act of 1944, as amended (the “ PHSA ”). Notwithstanding the foregoing, it is acknowledged that no Neuromed Product is a marketed product or has received marketing approval and, therefore, that further permits, licenses, variances, registrations, exemptions, Orders, consents and/or approvals will be required before any Neuromed Product may be marketed. Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Neuromed Material Adverse Effect, all such Neuromed Permits are valid, and in full force and effect. Since January 1, 2007, there has not occurred any violation of, default (with or without notice or lapse of time or both) under, or event giving to others any right of termination, amendment or cancellation of, with or without notice or lapse of time or both, any Neuromed Permit except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Neuromed Material Adverse Effect. Each of the Neuromed Entities is in compliance in all material respects with the terms of all Neuromed Permits, and no event has occurred that, to the knowledge of Neuromed, would reasonably be expected to result in the revocation, cancellation, non-renewal or adverse modification of any Neuromed Permit, except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Neuromed Material Adverse Effect.

(b) None of the Neuromed Entities nor, to the knowledge of Neuromed, any director, officer, employee, agent or Representative thereof, has committed any act, made any statement or failed to make any statement that would reasonably be expected to provide a basis for the FDA or any other Neuromed Regulatory Agency to invoke its policy with respect to “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” as set forth in 56 Fed. Reg. 46191 (Sept. 10, 1991) and any amendments thereto. None of the Neuromed Entities nor, to the knowledge of Neuromed, any director, officer, employee, agent or Representative thereof, has engaged in any activity prohibited under U.S. federal or state criminal or civil health care laws (including without limitation the U.S. federal Anti-Kickback Statute, Stark Law, False Claims Act, Health Insurance Portability and Accountability Act, and any comparable state laws), or the regulations promulgated pursuant to such laws (each, a “ Health Care Law ”). There is no civil, criminal, administrative or other proceeding, notice or demand pending, received or, to the knowledge of Neuromed, threatened against any of the Neuromed Entities that relates to an alleged violation of any Health Care Law. None of the Neuromed Entities nor, to the knowledge of Neuromed, any director, officer, employee, agent or Representative thereof, has been convicted of any crime or engaged in any conduct for which debarment is mandated by 21 U.S.C. sec. 335a(a) or any similar Law or authorized by 21 U.S.C. sec. 335a(b) or any similar Law. There are no consent decrees (including plea agreements) or similar actions to which any Neuromed Entity or, to the knowledge of Neuromed, any director, officer, employee, agent or Representative thereof, are bound or which relate to Neuromed Products.

 

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(c) Each of the Neuromed Entities is and has been in compliance in all material respects with all applicable statutes, rules, regulations, decrees, writs and orders of the FDA and any other Neuromed Regulatory Agency with respect to the labeling, storing, testing, development, manufacture, packaging and distribution of the Neuromed Products. All required pre-clinical toxicology studies conducted by or on behalf of any Neuromed Entity and Neuromed-sponsored clinical trials (or clinical trials sponsored by any other Neuromed Entity) conducted or being conducted with respect thereto, have been and are being conducted in compliance in all material respects with applicable licenses and Laws, including, without limitation, the applicable requirements of the FDA’s current Good Manufacturing Practices, Good Laboratory Practices and Good Clinical Practices. The results of any such studies, tests and trials, and all other material information related to such studies, tests and trials, have been made available to CombinatoRx. Each clinical trial conducted by or on behalf of a Neuromed Entity with respect to Neuromed Products has been conducted in accordance with its clinical trial protocol, and in compliance in all material respects with all applicable Laws, including Good Clinical Practices, Informed Consent and all other applicable requirements contained in 21 CFR Parts 312, 50, 54, 56 and 11. Each of the Neuromed Entities has filed all required notices (and made available to CombinatoRx copies thereof) of adverse drug experiences, injuries or deaths relating to clinical trials conducted by or on behalf of a Neuromed Entity with respect to such Neuromed Products.

(d) All applications, submissions, information and data utilized by any Neuromed Entity as the basis for, or submitted by or on behalf of any of the Neuromed Entities in connection with any and all requests for a Neuromed Permit relating to any of the Neuromed Entities, when submitted to the FDA or other Neuromed Regulatory Agency, were true, correct and complete in all material respects as of the date of submission, and any updates, changes, corrections or modification to such applications, submissions, information and data required under applicable Laws have been submitted to the FDA or other Neuromed Regulatory Agency.

(e) None of the Neuromed Entities nor, to the knowledge of Neuromed, any of the Neuromed Entities’ Representatives, licensors, licensees, assignors or assignees has received any notice that the FDA or any other Neuromed Regulatory Agency has initiated, or threatened to initiate, any Action to suspend any clinical trial, suspend or terminate any Investigational New Drug Application sponsored by any of the Neuromed Entities or otherwise restrict the pre-clinical research or clinical study of any Neuromed Product or any drug product being developed by any licensee or assignee of the Neuromed Intellectual Property Assets based on such intellectual property, or to recall, suspend or otherwise restrict the development or manufacture of any Neuromed Product. None of the Neuromed Entities is in receipt of written notice of, or is subject to, any adverse inspection, finding of deficiency, finding of non-compliance, investigation, civil or criminal proceeding, hearing, suit, demand, claim, complaint, inquiry, proceeding, or other compliance or enforcement action relating to any Neuromed Products. To the knowledge of Neuromed, there is no act, omission, event or circumstance that would reasonably be expected to give rise to any such action.

 

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(f) The Neuromed Entities have made available to CombinatoRx true, correct and complete copies of any and all applications, approvals, licenses, written notices of inspectional observations, establishment inspection reports and any other documents received from the FDA or other Neuromed Regulatory Agency, including documents that indicate or suggest lack of compliance with the regulatory requirements of the FDA or other Neuromed Regulatory Agency. The Neuromed Entities have made available to CombinatoRx for review all correspondence to or from the FDA or other Neuromed Regulatory Agency, minutes of meetings, written reports of phone conversations, visits or other contact with the FDA or other Neuromed Regulatory Agency, notices of inspectional observations, establishment inspection reports, and all other documents concerning communications to or from the FDA or other Neuromed Regulatory Agency, or prepared by the FDA or other Neuromed Regulatory Agency or which bear in any way on the Neuromed Entities’ compliance with regulatory requirements of the FDA or any other Neuromed Regulatory Agency, or on the likelihood or timing of approval of any Neuromed Products.

3.12 Taxes and Tax Returns .

(a) Each material Tax Return required to be filed by, or on behalf of, the Neuromed Entities, and each material Tax Return in which the Neuromed Entities were required to be included, has been timely filed. Each such Tax Return was true, correct and complete in all material respects.

(b) Each of the Neuromed Entities (i) has paid (or has had paid on its behalf) all material Taxes due and owing, whether or not shown as due on any Tax Return, and (ii) has withheld and remitted to the appropriate Taxing Authority all material Taxes required to be withheld and paid in connection with any amounts paid or owing to or collected from any employee, independent contractor, supplier, creditor, stockholder, partner, member or other third party, and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed.

(c) The unpaid Taxes of the Neuromed Entities (A) did not, as of September 30, 2008, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Neuromed Balance Sheet (rather than in any notes thereto) and (B) will not exceed that reserve as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of the Neuromed Entities in filing their Tax Returns.

(d) Section 3.12(d) of the Neuromed Disclosure Schedule lists all federal, state, local and foreign Tax Returns filed with respect to the Neuromed Entities for taxable periods ended on or after September 30, 2005, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Neuromed Entities have delivered to CombinatoRx correct and complete copies of all federal Income Tax Returns, examination reports, and statements of deficiencies assessed against, or agreed to by the Neuromed Entities since September 30, 2005.

(e) There are no liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Neuromed Entities.

 

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(f) None of the Neuromed Entities is currently the beneficiary of any extension of time within which to file any material Tax Return or with respect to any material Tax assessment or deficiency.

(g) None of the Neuromed Entities has waived any statute of limitations with respect to any material Taxes.

(h) There is no material Tax claim, audit, suit, or administrative or judicial Tax proceeding now pending or presently in progress or threatened in writing with respect to a material Tax Return of the Neuromed Entities.

(i) None of the Neuromed Entities has received notice in writing of any proposed material deficiencies from any Taxing Authority.

(j) None of the Neuromed Entities has distributed stock of a corporation, or has had its stock distributed, in a transaction purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code.

(k) None of the Neuromed Entities is party to or has any obligation under any Tax sharing agreement (whether written or not) or any Tax indemnity or other Tax allocation agreement or arrangement.

(l) None of the Neuromed Entities (A) is or has ever been a member of a group of corporations that files or has filed (or has been required to file) consolidated, combined, or unitary Tax Returns, other than a group the common parent of which was Neuromed or (B) has any liability for the Taxes of any person (other than the Neuromed Entities) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, provincial, local or foreign Law), as a transferee or successor, by contract or otherwise.

(m) The taxable year of the Neuromed Entities for all income Tax purposes is the fiscal year ended September 30 ^th , and each of the Neuromed Entities uses the accrual method of accounting in keeping its books and in computing its taxable income.

(n) None of the Neuromed Entities has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code at any time during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

(o) No Subsidiary of Neuromed or Neuromed Canada which is a foreign corporation (i) shall have recognized a material amount of “subpart F income” as defined in Section 952 of the Code during a taxable year of such Subsidiary that includes but does not end on the Closing Date, (ii) is a resident of any jurisdiction other than that of its incorporation, or (iii) is engaged in a U.S. trade or business.

(p) The Neuromed Entities have complied with all record keeping and reporting obligations under Section 6038A with respect to its ownership of and transactions with its foreign affiliates.

 

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(q) The Neuromed Entities have disclosed on its federal income Tax return all positions taken therein that could give rise to a “substantial understatement of income tax” within the meaning of Section 6662 of the Code.

(r) None of the Neuromed Entities has participated in a listed transaction within the meaning of Treasury Regulations Section 1.6011-4 (or any predecessor provision).

(s) None of the Neuromed Entities will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:

(i) change in method of accounting for a taxable period ending on or prior to the Closing Date;

(ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law) executed on or prior to the Closing Date;

(iii) intercompany transactions or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law);

(iv) installment sale or open transaction disposition made on or prior to the Closing Date;

(v) prepaid amount received on or prior to the Closing Date;

(vi) election with respect to income from the discharge of indebtedness under Section 108(i) of the Code; or

(vii) any similar election, action, or agreement that would have the effect of deferring any Liability for Taxes of the Neuromed Entities from any period ending on or before the Closing Date to any period ending after such period.

(t) No written claim has been made by any Taxing Authority that the Neuromed Entities is or may be subject to Tax or required to file a Tax Return in a jurisdiction where it does not file Tax Returns, which could reasonably be expected to have, individually or in the aggregate, a Neuromed Material Adverse Effect.

3.13 Employee Benefit Programs .

(a) Section 3.13(a) of the Neuromed Disclosure Schedule sets forth a list of every Employee Program maintained by Neuromed or an ERISA Affiliate of Neuromed (the “ Neuromed Employee Programs ”).

(b) Each Neuromed Employee Program that is intended to qualify under Section 401(a) of the Code has received a favorable determination or approval letter from the IRS regarding its qualification under such. No event or omission has occurred that would

 

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reasonably be expected to cause any Neuromed Employee Program to lose its qualification or otherwise fail to satisfy the relevant requirements to provide tax-favored benefits under the applicable Code Section (including without limitation Code Sections 105, 125, 401(a) and 501(c)(9)).

(c) Neither Neuromed nor any ERISA Affiliate of Neuromed knows, nor should any of them reasonably know, of any material failure of any party to comply with any laws applicable with respect to the Employee Programs maintained by Neuromed or any ERISA Affiliate of Neuromed. Except as would not, individually or in the aggregate, have a Neuromed Material Adverse Effect, with respect to any Employee Program ever maintained by Neuromed or any ERISA Affiliate of Neuromed, there has been no (i) “prohibited transaction”, as defined in Section 406 of ERISA or Code Section 4975, (ii) failure to comply with any provision of ERISA, other applicable Laws, or any agreement, or (iii) non-deductible contribution. No litigation or governmental administrative proceeding (or investigation) or other proceeding (other than those relating to routine claims for benefits) is pending or, to the knowledge of Neuromed, threatened with respect to any such Neuromed Employee Program. All payments and/or contributions required to have been made (under the provisions of any agreements or other governing documents or applicable Laws) with respect to all Employee Programs ever maintained by Neuromed or any ERISA Affiliate of Neuromed, for all periods prior to the Closing Date, either have been made or have been accrued.

(d) Neither Neuromed nor any ERISA Affiliate of Neuromed has maintained an Employee Program subject to Title IV of ERISA, including a Multiemployer Plan. None of the Neuromed Employee Programs has ever provided health care or any other non-pension benefits to any employees after their employment is terminated (other than as required by part 6 of subtitle B of title I of ERISA or state continuation laws) or has ever promised to provide such post-termination benefits.

(e) Each Employee Program required to be listed on Section 3.13(a) or Section 3.13(h) of the Neuromed Disclosure Schedule may be amended, terminated, or otherwise discontinued by CombinatoRx after the Effective Time in accordance with its terms without material liability to Neuromed, Neuromed Canada, CombinatoRx or any of their respective Subsidiaries.

(f) None of the Neuromed Entities is a party to any written (i) agreement with any stockholders, director, or employee of any of the Neuromed Entities (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving any of the Neuromed Entities of the nature of any of the transactions contemplated by this Agreement, (B) providing any guaranteed period of employment or compensation guarantee, or (C) providing severance benefits after the termination of employment of such director or employee; or (ii) agreement or plan binding any of the Neuromed Entities, including any stock option plan, stock appreciation right plan, restricted stock plan, stock purchase plan, or severance benefit plan, any of the benefits of which shall be increased, or the vesting of the benefits of which shall be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which shall be calculated on the basis of any of the transactions contemplated by this Agreement. There is no contract, agreement, plan or arrangement covering any individual that, by itself or

 

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collectively, would give rise to any parachute payment subject to Section 280G of the Code, nor has Neuromed made any such payment, and the consummation of the transactions contemplated herein shall not obligate Neuromed or any other entity to make any parachute payment that would be subject to Section 280G of the Code.

(g) Each Neuromed Employee Program that is a “nonqualified deferred compensation plan” within the meaning of Section 409A of the Code has been operated in material compliance with Section 409A of the Code, based upon a good faith, reasonable interpretation of Section 409A of the Code, the regulations and other guidance issued thereunder. No stock option granted under any Neuromed Stock Option Plan has any exercise price that was less than the fair market value of the underlying stock as of the date the option was granted, or has any feature for the deferral of compensation other than the deferral of recognition of income until the later of exercise or disposition of such option.

(h) Section 3.13(h) of the Neuromed Disclosure Schedule contains a complete and accurate list of all Neuromed Canada Employee Programs. No Neuromed Canada Employee Program has been terminated or partially terminated and all Neuromed Canada Employee Programs are still in full force and effect.

(i) All Neuromed Canada Employee Programs are registered where required by the applicable Laws and no events have occurred which would affect the registered status of such Neuromed Canada Employee Programs.

(j) All Neuromed Canada Employee Programs are in good standing under applicable Laws and Neuromed Canada has made all filings required by the Governmental Authorities and applicable Laws. The Neuromed Canada Employee Programs and all investments held by such Plans comply in all respects with all applicable Laws and the Neuromed Canada Employee Programs have been established, funded, invested, amended, maintained and administered in compliance with all of the terms and conditions of the Neuromed Canada Employee Programs and all applicable Laws.

(k) All employee data necessary to administer the Neuromed Canada Employee Programs is in the possession of Neuromed Canada.

(l) All required contributions or premiums to be paid under the Neuromed Canada Employee Programs have been fully paid to the date hereof in a timely fashion in accordance with applicable Laws and there are no liabilities, contingent or otherwise, in respect of any pension, benefit or compensation plan that has been discontinued.

(m) There have been no withdrawals or transfers of assets from the Neuromed Canada Employee Programs except to a member or a beneficiary except in accordance with the terms of such Neuromed Canada Employee Programs or in accordance with approval granted by a Governmental Authority. No actuarial surplus has ever been removed from any of the Neuromed Canada Employee Programs. In respect of each Neuromed Canada Employee Program that is funded, in whole or in part, no Person has taken any contribution holidays in respect of such Neuromed Canada Employee Program, paid any administration expenses from the fund of such Neuromed Canada Employee Program or received a transfer from or been

 

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merged with another plan, in each case except in accordance with the terms of such Neuromed Canada Employee Program, the trusts and other funding criteria which govern such Neuromed Canada Employee Program and applicable Laws.

(n) There are no outstanding liabilities under the Income Tax Act (Canada) or other Tax liabilities with respect to the Neuromed Canada Employee Programs.

(o) No unfunded liability, solvency deficiency, unpaid special payment or experience deficiency, whether due or not, exists with respect to the Neuromed Canada Employee Programs. There has been no material change in the value of any Neuromed Canada Employee Program since the last valuation which would affect the actuarial report or financial statements and the actuarial methods and assumptions used have not changed since the last valuation.

(p) No improvements to the Neuromed Canada Employee Programs have been promised and no improvements will be made or promised prior to the Effective Time except as may be required by applicable Laws.

(q) None of the Neuromed Canada Employee Programs requires or permits a retroactive increase in premiums or payments, or require additional payments or premiums on the termination of any Neuromed Canada Employee Programs or insurance contract in respect thereof, and the level of insurance reserves, if any, under any insured Neuromed Canada Employee Program is reasonable and sufficient to provide for all incurred but unreported claims.

(r) None of the execution and delivery of this Agreement, the performance of the obligations of the Neuromed Entities under this Agreement or the consummation of any of the transactions contemplated in this Agreement will:

(i) result in any payment (including bonus, golden parachute, retirement, severance, unemployment compensation, or other benefit or enhanced benefit) becoming payable under any Neuromed Canada Employee Program;

(ii) increase any benefits otherwise payable under any Neuromed Canada Employee Programs;

(iii) entitle any employee of Neuromed Canada to any job security or similar benefit or any enhanced benefits; or

(iv) result in the acceleration of the time of payment or vesting of any benefits otherwise payable under any Neuromed Canada Employee Programs, or result in any such plan becoming terminable other than at the sole and unfettered discretion of Neuromed Canada.

(s) None of the Neuromed Canada Employee Programs provides benefits beyond retirement or other termination of service to employees or former employees or to the beneficiaries or dependants of such employees.

 

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(t) There are no outstanding actions or claims with respect to the Neuromed Canada Employee Programs, other than claims for benefits submitted by members or beneficiaries in the ordinary course; there are no requests for documents and there is no litigation, legal action, suit, investigation, claim, counterclaim or proceeding pending or threatened against or affecting any Neuromed Canada Employee Programs which could have a material adverse effect on Neuromed Canada or on any Neuromed Canada Employee Program as of the Effective Time.

(u) Neither Neuromed Canada nor any administrator or fiduciary of the Neuromed Canada Employee Programs (or agent of any of the foregoing) has been in breach of any fiduciary obligation with respect to the administration of the Neuromed Canada Employee Programs. Neither Neuromed Canada, nor any administrator of any fiduciary of the Neuromed Canada Employee Programs (or agent of any of the foregoing) has engaged in any transaction or acted or failed to act in a manner which could subject Neuromed Canada to any liability for a breach of fiduciary duty.

(v) No Neuromed Canada Employee Program is a multi-employer pension plan as defined under the provisions of applicable federal or provincial pension standards legislation in Canada.

(w) No condition exists that would prevent Neuromed Canada from amending or terminating any Neuromed Canada Employee Program other than any limitations imposed by applicable Laws.

(x) For purposes of this Section 3.13:

(i) An entity “maintains” an Employee Program if such entity sponsors, contributes to, or provides benefits under or through such Employee Program, or has any obligation (by agreement or under applicable Laws) to contribute to or provide benefits under or through such Employee Program, or if such Employee Program provides benefits to or otherwise covers employees of such entity (or their spouses, dependents, or beneficiaries).

(ii) An entity is an “ ERISA Affiliate ” of Neuromed if it would have ever been considered a single employer with Neuromed under ERISA Section 4001(b) or part of the same “controlled group” as Neuromed for purposes of ERISA Section 302(d)(8)(C).

3.14 Labor and Employment Matters .

(a) None of the Neuromed Entities is a party to, or otherwise bound by, any collective bargaining agreement, contract, or other written agreement with a labor union or labor organization. To the knowledge of Neuromed, none of the Neuromed Entities is subject to any charge, demand, petition, or representation proceeding seeking to compel, require, or demand it to bargain with any labor union or labor organization nor is there pending or threatened any labor strike or lockout involving the Neuromed Entities.

 

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(b) Except as would not, individually or in the aggregate, have a Neuromed Material Adverse Effect, (i) the Neuromed Entities are in compliance in all material respects with all applicable Laws respecting labor, employment, fair employment practices, work safety and health, terms and conditions of employment, wages and hours, including, but not limited to Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Americans with Disabilities Act, as amended, and the related rules and regulations adopted by those federal agencies responsible for the administration of such laws, and other than normal accruals of wages during regular payroll cycles, there are no arrearages in the payment of wages; (ii) none of the Neuromed Entities is delinquent in any payments to any employee or to any independent contractors, consultants, temporary employees, leased employees or other servants or agents employed or used with respect to the operation of the business of the Neuromed Entities and classified by the Neuromed Entities as other than an employee or compensated other than through wages paid by the Neuromed Entities through its respective payroll department (“ Neuromed Contingent Workers ”), for any wages, salaries, commissions, bonuses, fees or other direct compensation due with respect to any services performed for it to the date hereof or amounts required to be reimbursed to such employees or Neuromed Contingent Workers; (iii) there are no grievances, complaints or charges with respect to employment or labor matters (including, without limitation, allegations of employment discrimination, retaliation or unfair labor practices) pending or, to the knowledge of Neuromed, threatened against the Neuromed Entities in any judicial, regulatory or administrative forum, under any private dispute resolution procedure; (iv) none of the employment policies or practices of the Neuromed Entities is currently being audited or investigated, or to the knowledge of Neuromed, subject to imminent audit or investigation by any Governmental Authority; (v) none of the Neuromed Entities is, or within the last three (3) years has been, subject to any order, decree, injunction or judgment by any Governmental Authority or private settlement contract in respect of any labor or employment matters; (vi) each of the Neuromed Entities is in material compliance with the requirements of the Immigration Reform Control Act of 1986 and similar Law regarding employment of workers who are not citizens of the country in which services are performed; (vii) all employees of the Neuromed Entities are employed at-will and no such employees are subject to any contract with the Neuromed Entities or any policy or practice of the Neuromed Entities providing for right of notice of termination of employment or the right to receive severance payments or similar benefits upon the termination of employment by the Neuromed Entities; (viii) to the extent that any Neuromed Contingent Workers are employed, each of the Neuromed Entities has properly classified and treated them in accordance with applicable Laws and for purposes of all employee benefit plans and perquisites; and (ix) none of the Neuromed Entities has experienced a “plant closing”, “business closing”, or “mass layoff” as defined in the Worker Adjustment and Retraining Notification Act (the “ WARN Act ”) or any similar Law affecting any site of employment of the Neuromed Entities or one or more facilities or operating units within any site of employment or facility of the Neuromed Entities, and, during the ninety (90)-day period preceding the date hereof, no employee has suffered an “employment loss,” as defined in the WARN Act, with respect to the Neuromed Entities.

(c) No employees of Neuromed Canada have a location of employment outside of the Province of British Columbia. Neuromed Canada will not have terminated, laid-off or dismissed (whether such dismissal is actual or constructive) in the four weeks preceding the Effective Time any employees. All liabilities due and payable in respect of employees of

 

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Neuromed Canada have been paid to date, including premium contributions, remittance and assessments for employment insurance, employer health tax, Canada Pension Plan, income tax, workers’ compensation and any other employment related legislation, accrued wages, Taxes, salaries, commissions and employee benefit plan payments. There are no outstanding or, to the knowledge of Neuromed, pending or threatened assessments, actions, causes of action, claims, complaints, demands, orders, prosecutions or suits against Neuromed Canada, its directors, officers or agents pursuant to or under any applicable Laws, including, but not limited to Canada Pension Plan, employment insurance, income tax, employer health tax, employment standards, labor relations, occupational health and safety, human rights, workers’ compensation and pay equity. Neuromed Canada has no obligation to re-instate any former employees of Neuromed Canada. Except for remuneration paid to employees and independent contractors in the usual and ordinary course of business and made at current rates of remuneration, no payments have been made or authorized by Neuromed Canada to officers, directors, employees or independent contractors of Neuromed Canada. No current or former director, officer, shareholder, employee or independent contractor of Neuromed Canada or any person not dealing at arm’s length within the meaning of the Income Tax Act (Canada) with any such person is indebted to Neuromed Canada. All vacation pay, bonuses, commissions and other emoluments relating to the employees of Neuromed Canada are accurately reflected in all respects and have been accrued in the records of Neuromed Canada.

3.15 Material Contracts . Section 3.15 of the Neuromed Disclosure Schedule is a correct and complete list of each currently effective contract, agreement or other instrument or obligation (written or oral) to which any of the Neuromed Entities is a party as of the date hereof (collectively, the “ Neuromed Contracts ”):

(a) relating to the lease of real property by the Neuromed Entities;

(b) for the purchase of materials, supplies, goods, services, equipment or other assets for annual payments by the Neuromed Entities of, or pursuant to which in the last year the Neuromed Entities paid, in the aggregate, $100,000 or more;

(c) for the sale of materials, supplies, goods, services, equipment or other assets for annual payments to the Neuromed Entities of, or pursuant to which in the last year the Neuromed Entities received, in the aggregate, $100,000 or more;

(d) that relates to any partnership, joint venture, strategic alliance or other similar contract;

(e) relating to Indebtedness for borrowed money or the deferred purchase price of property (whether incurred, assumed, guaranteed or secured by any asset), except for contracts relating to Indebtedness in an amount not exceeding $100,000 in the aggregate;

(f) severance or change-in-control agreement;

(g) which by its terms limits in any material respect (i) the localities in which all or any significant portion of the business and operations of the Neuromed Entities or, following the consummation of the transactions contemplated by this Agreement, the business and operations of Surviving Corporation, CombinatoRx or any Affiliate of CombinatoRx, is or would be conducted, or (ii) the scope of the Neuromed Business and operations of the Neuromed Entities, taken as a whole;

 

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(h) Neuromed Licenses-In or Neuromed Licenses-Out in respect of any Neuromed Intellectual Property Assets that provide for annual payments of, or pursuant to which in the last year the Neuromed Entities paid or received, in the aggregate, $100,000 or more;

(i) containing any royalty, dividend or similar arrangement based on the revenues or profits of the Neuromed Entities;

(j) with any Governmental Authority;

(k) any contract with (a) an executive officer or director of the Neuromed Entities or any of such executive officer’s or director’s immediate family members, (b) an owner of more than five percent (5%) of the voting power of the outstanding capital stock of Neuromed (assuming the exchange of all shares of capital stock of Neuromed Canada for shares of capital stock of Neuromed) or (c) to the knowledge of Neuromed, any “related person” (within the meaning of Item 404 of Regulation S-K under the Securities Act) of any such officer, director or owner (other than the Neuromed Entities);

(l) any agreement that gives rise to any material payment or benefit as a result of the performance of this Agreement or any of the other transactions contemplated hereby;

(m) relating to the acquisition or disposition of any material interest in, or any material amount of, property or assets of any of the Neuromed Entities or for the grant to any Person of any preferential rights to purchase any of their assets, other than in the ordinary course of business consistent with past practice; or

(n) any other agreement (or group of related agreements) the performance of which requires aggregate payments to or from any of the Neuromed Entities in excess of $100,000.

Each Neuromed Contract is in full force and effect and will not terminate as a result of the consummation of the transactions contemplated hereby. None of the Neuromed Entities or, to the knowledge of Neuromed, any other party thereto is in default or breach under the terms of any such Neuromed Contract. Each Neuromed Contract is a valid and binding obligation of the Neuromed Entities party thereto and, to the knowledge of Neuromed, each of the other parties, enforceable against them in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to creditors’ rights and general principles of equity.

3.16 Properties .

(a) Section 3.16(a) of the Neuromed Disclosure Schedule identifies (i) the street address of each parcel of Neuromed Leased Real Property, (ii) the identification of the Neuromed Lease and the Neuromed Ancillary Lease Documents and (iii) the identity of the lessor, lessee and current occupant (if different than the lessee) of each such parcel of Neuromed

 

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Leased Real Property. With respect to each Neuromed Lease, except as would not, individually or in the aggregate, have a Neuromed Material Adverse Effect:

(i) the Neuromed Leases and the Neuromed Ancillary Lease Documents are valid, binding and, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws relating to creditors’ rights and general principles of equity, enforceable and in full force and effect and have not been modified or amended, and a Neuromed Entity holds a valid and existing leasehold interest under such Neuromed Leases free and clear of any Encumbrances except Permitted Encumbrances. The Neuromed Entities have delivered to CombinatoRx full, complete and accurate copies of each of the Neuromed Leases and all Neuromed Ancillary Lease Documents described in Section 3.16(a) of the Neuromed Disclosure Schedule;

(ii) none of the Neuromed Leased Real Property is subject to any Encumbrance other than a Permitted Encumbrance;

(iii) the Neuromed Leases and all Neuromed Ancillary Lease Documents shall continue to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing;

(iv) with respect to each of the Neuromed Leases, none of the Neuromed Entities has exercised or given any notice of exercise, nor has any lessor or landlord exercised or received any notice of exercise, of any option, right of first offer or right of first refusal contained in any such Neuromed Lease or Neuromed Ancillary Lease Document, including any such option or right pertaining to purchase, expansion, renewal, extension or relocation;

(v) none of the Neuromed Entities, nor, to the knowledge of Neuromed, any other party to any Neuromed Leases or Neuromed Ancillary Lease Documents is in breach or default, and, to the knowledge of Neuromed, no event has occurred which, with notice or lapse of time, would constitute such a breach or default or permit termination, modification or acceleration under the Neuromed Leases or any Neuromed Ancillary Lease Documents;

(vi) no party to the Neuromed Leases has repudiated any provision thereof and there are no disputes, oral agreements or forbearance programs in effect as to the Neuromed Leases; and

(vii) none of the Neuromed Entities has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any of its rights and interest in the leasehold or subleasehold under any of the Neuromed Leases or any Neuromed Ancillary Lease Documents.

(b) The Neuromed Entities own good title, free and clear of all Encumbrances, to all personal property and other non-real estate assets, in all cases excluding the Neuromed Intellectual Property Assets, necessary to conduct the Neuromed Business as currently conducted, except for Permitted Encumbrances. The Neuromed Entities, as lessees,

 

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have the right under valid and subsisting leases to use, possess and control all personal property leased by the Neuromed Entities as now used, possessed and controlled by the Neuromed Entities, as applicable.

(c) The Neuromed Leased Real Property constitutes all of the real property used or occupied by the Neuromed Entities in connection with the conduct of the Neuromed Business.

(d) None of the Neuromed Entities has any Neuromed Owned Real Property, nor is any of the Neuromed Entities a party to or bound by or subject to any agreement, contract or commitment, or any option to purchase, any real or immovable property.

3.17 Environmental Liability . Except as would not, individually or in the aggregate, have a Neuromed Material Adverse Effect:

(a) the Neuromed Entities are in material compliance with all Environmental Laws applicable to their operations and use of the Neuromed Leased Real Property;

(b) none of the Neuromed Entities has generated, transported, treated, stored, or disposed of any Hazardous Material, except in material compliance with all applicable Environmental Laws, and there has been no Release or threat of Release of any Hazardous Material by any of the Neuromed Entities at or on the Neuromed Leased Real Property that requires reporting, investigation or remediation by the Neuromed Entities pursuant to any Environmental Law;

(c) none of the Neuromed Entities has (i) received written notice under the citizen suit provisions of any Environmental Law or (ii) been subject to or, to the knowledge of Neuromed, threatened with any governmental or citizen enforcement action with respect to any Environmental Law; and

(d) to the knowledge of Neuromed, there are no underground storage tanks, landfills, current or former waste disposal areas or polychlorinated biphenyls at or on the Neuromed Leased Real Property that require reporting, investigation, cleanup, remediation or any other type of response action by the Neuromed Entities pursuant to any Environmental Law.

3.18 State Takeover Laws . The board of directors of each of Neuromed and Neuromed Canada has approved this Agreement and taken all other requisite action such that the provisions of any antitakeover laws and regulations of any Governmental Authority will not apply to this Agreement or any of the transactions contemplated hereby.

3.19 Intellectual Property .

(a) Section 3.19(a) of the Neuromed Disclosure Schedule contains a complete and accurate list of all (i) Patents owned by any of the Neuromed Entities or used or held for use by any of the Neuromed Entities in the Neuromed Business (“ Neuromed Patents ”), registered and material unregistered Marks owned by any of the Neuromed Entities or used or held for use by any of the Neuromed Entities in the Neuromed Business (“ Neuromed Marks ”) and registered and material unregistered Copyrights owned by any of the Neuromed Entities or used or held for

 

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use by any of the Neuromed Entities in the Neuromed Business (“ Neuromed Copyrights ”), (ii) licenses, sublicenses or other agreements under which a Neuromed Entity is granted rights by others in the Neuromed Intellectual Property Assets (“ Neuromed Licenses-In ”) (other than commercial off the shelf software or materials transfer agreements), and (iii) licenses, sublicenses or other agreements under which a Neuromed Entity has granted rights to others in the Neuromed Intellectual Property Assets (“ Neuromed Licenses-Out ”).

(b) With respect to the Neuromed Intellectual Property Assets (i) purported to be owned by a Neuromed Entity, a Neuromed Entity exclusively owns such Neuromed Intellectual Property Assets and (ii) licensed to a Neuromed Entity by a third party (other than commercial off the shelf software or materials transfer agreements), such Neuromed Intellectual Property Assets are the subject of a written license or other agreement; in the case of the foregoing clauses (i) and (ii) above, free and clear of all Encumbrances, other than Encumbrances resulting from the express terms of a Neuromed License-In or Neuromed License-Out or Permitted Encumbrances granted by a Neuromed Entity.

(c) All Neuromed Intellectual Property Assets owned by, and, to the knowledge of Neuromed, all Neuromed Intellectual Property Assets exclusively licensed to a Neuromed Entity that have been issued by, or registered with, or are the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office or any similar office or agency anywhere in the world are currently in compliance with formal legal requirements (including without limitation, as applicable, payment of filing, examination and maintenance fees, inventor declarations, proofs of working or use, timely post-registration filing of affidavits of use and renewal applications), and, to the knowledge of Neuromed, all Neuromed Patents, Neuromed Marks and Neuromed Copyrights, and all intellectual property rights and/or proprietary rights relating to any of the foregoing, that are owned by or exclusively licensed to a Neuromed Entity are valid and enforceable.

(d) To the knowledge of Neuromed, each Neuromed Patent that has been issued by, or registered with, or is the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office or any similar office or agency anywhere in the world was issued, registered, or filed, as applicable, with the correct inventorship and there has been no known misjoinder or nonjoinder of inventors.

(e) No Neuromed Patent is now involved in any interference, reissue, re examination or opposition proceeding; to the knowledge of Neuromed, there is no patent or patent application of any third party that potentially interferes with a Neuromed Patent; all products made, used or sold under the Neuromed Patents have been marked with the proper patent notice.

(f) There are no pending or, to the knowledge of Neuromed, threatened claims against a Neuromed Entity or any of its employees alleging that any of the operation of the Neuromed Business or any activity by a Neuromed Entity, or the manufacture, sale, offer for sale, importation, and/or use of any Neuromed Product infringes or violates (or in the past infringed or violated) the rights of others in or to any Intellectual Property Assets (“ Third Party IP Assets ”) or constitutes a misappropriation of (or in the past constituted a misappropriation of) any subject matter of any Intellectual Property Assets of any person or entity or that any Neuromed Intellectual Property Assets is invalid or unenforceable.

 

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(g) To the knowledge of Neuromed, neither the operation of the Neuromed Business, nor any activity by a Neuromed Entity, nor manufacture, use, importation, offer for sale and/or sale of any Neuromed Product infringes or violates (or in the past infringed or violated) any Third Party IP Assets or constitutes a misappropriation of (or in the past constituted a misappropriation of) any subject matter of any Third Party IP Assets.

(h) None of the Neuromed Entities has any obligation to compensate any person for the use of any Intellectual Property Assets; none of the Neuromed Entities has entered into any agreement to indemnify any other person against any claim of infringement or misappropriation of any Intellectual Property Assets; there are no settlements, covenants not to sue, consents, judgments, or orders or similar obligations that: (i) restrict the rights of a Neuromed Entity to use any Intellectual Property Assets, (ii) restrict the Neuromed Business, in order to accommodate a third party’s Intellectual Property Assets, or (iii) permit third parties to use any Neuromed Intellectual Property Assets.

(i) All former and current employees, consultants and contractors of a Neuromed Entity have executed written instruments that assign to Neuromed or Neuromed Canada, all rights, title and interest in and to any and all (i) inventions, improvements, discoveries, writings and other works of authorship, and information relating to the Neuromed Business or any of the products or services being researched, developed, manufactured or sold by the Neuromed Entities or that may be used with any such products or services and (ii) Intellectual Property Assets relating thereto; in each case where a Neuromed Patent is held by a Neuromed Entity by assignment, the assignment has been duly recorded with the U.S. Patent and Trademark Office and all similar offices and agencies anywhere in the world in which foreign counterparts are registered or issued.

(j) To the knowledge of Neuromed, (i) there is no, nor has there been any, infringement or violation by any person or entity of any Neuromed Intellectual Property Assets or the rights of the Neuromed Entities therein or thereto and (ii) there is no, nor has there been any, misappropriation by any person or entity of any Neuromed Intellectual Property Assets or the subject matter thereof.

(k) The Neuromed Entities have taken reasonable security measures to protect the secrecy, confidentiality and value of all Trade Secrets owned by the Neuromed Entities or used or held for use by the Neuromed Entities in the Neuromed Business (the “ Neuromed Trade Secrets ”), including, without limitation, requiring each employee and consultant of a Neuromed Entity and any other person with access to Neuromed Trade Secrets to execute a binding confidentiality agreement, copies or forms of which have been provided to CombinatoRx and, to the knowledge of Neuromed, there has not been any breach by any party to such confidentiality agreements.

(l) Following the Effective Time, the Surviving Corporation will have the same rights and privileges in the Neuromed Intellectual Property Assets as the Neuromed Entities had in the Neuromed Intellectual Property Assets immediately prior to the Effective Time.

 

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3.20 Books and Records . Each of the minute and record books of Neuromed and Neuromed Canada contain complete and accurate minutes of all meetings of, and copies of all bylaws and resolutions passed by, or consented to in writing by, the directors (and any committees thereof) and stockholders of Neuromed and Neuromed Canada, respectively, since its formation and which are required to be maintained in such books under applicable Laws; all such meetings were duly called and held and all such bylaws and resolutions were duly passed or enacted. Each of the stock certificate books, registers of stockholders and other corporate registers of Neuromed and Neuromed Canada comply in all material respects with the provisions of all applicable Laws and are complete and accurate in all material respects.

3.21 Related Party Transactions . Section 3.21 of the Neuromed Disclosure Schedule describes any material transactions or relationships, since January 1, 2007, between the Neuromed Entities and any (a) executive officer or director of the Neuromed Entities or any of such executive officer’s or director’s immediate family members, (b) owner of more than five percent (5%) of the voting power of the outstanding capital stock of Neuromed or Neuromed Canada or (c) to the knowledge of Neuromed, any “related person” (within the meaning of Item 404 of Regulation S-K under the Securities Act) of any such officer, director or owner (other than the Neuromed Entities) in each of the case of (a), (b) or (c) that is of the type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act (a “ Related Party Transaction ”).

3.22 Disclosure Documents; Neuromed Information . The information relating to the Neuromed Entities to be contained in the Registration Statement will not, on the date the Registration Statement is filed with the SEC, at any time it is amended or supplemented, or at the time it becomes effective under the Securities Act, contain any untrue statement of any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not false or misleading at the time and in light of the circumstances under which such statement is made. The information in the Proxy Statement relating to the Neuromed Entities will not, on the date the Proxy Statement is first mailed to Neuromed Stockholders and CombinatoRx Stockholders or at the time of the Neuromed Stockholder Meeting and CombinatoRx Stockholder Meeting, contain any untrue statement of any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not false or misleading at the time and in light of the circumstances under which such statement is made. The Proxy Statement will comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, no representation is made by Neuromed or Neuromed Canada with respect to the information that has been or will be supplied by CombinatoRx and Merger Sub or any of their Representatives for inclusion in the Registration Statement or Proxy Statement.

3.23 Banking Information . Section 3.23 of the Neuromed Disclosure Schedule sets forth (i) the name and location of each bank, trust company or other institution in which any of the Neuromed Entities has an account, money on deposit or safety deposit box, (ii) the name of each Person authorized to draw thereon or have access thereto, and (iii) the name of each Person holding general or special power of attorney from any of the Neuromed Entities.

 

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3.24 Government Programs . No agreements, loans, funding arrangements or assistance programs are outstanding in favor of any of the Neuromed Entities from any Governmental Authority, and, to the knowledge of Neuromed, no basis exists for any Governmental Authority to seek payment or repayment from any of the Neuromed Entities of any amount or benefit received, or to seek performance of any obligation of any of the Neuromed Entities, under any such program.

3.25 Definition of Neuromed’s Knowledge . As used in this Agreement, the phrase “to the knowledge of Neuromed” or any similar phrase means the actual knowledge of Christopher Gallen, Gene Wright, John Proffet and Stacey Murton, after due inquiry by each such individual of each such individual’s direct reports.

ARTICLE IV - REPRESENTATIONS AND WARRANTIES

OF COMBINATORX AND MERGER SUB

Except as set forth in the disclosure schedules delivered concurrently with the execution of this Agreement to Neuromed and Neuromed Canada (the “ CombinatoRx Disclosure Schedule ”), which shall identify any exceptions to the representations, warranties and covenants contained in this Agreement (with specific reference to the particular Section or subsection to which such information relates; provided , however , that any information set forth in one section of such CombinatoRx Disclosure Schedule also shall be deemed to apply to each other section and subsection of this Agreement to which its relevance is reasonably apparent), CombinatoRx and Merger Sub hereby jointly and severally represent and warrant to Neuromed and Neuromed Canada as follows:

4.1 Corporate Organization .

(a) CombinatoRx is a corporation duly organized, validly existing and in good corporate standing under the laws of the State of Delaware. CombinatoRx has all requisite corporate power and authority to own, lease and operate all of its properties and assets and to carry on its business as it is now being conducted. CombinatoRx is duly licensed or qualified to do business and is in corporate good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased, or operated by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified and in corporate good standing would not, either individually or in the aggregate, reasonably be expected to have a CombinatoRx Material Adverse Effect. The CombinatoRx Charter and CombinatoRx Bylaws, copies of which have previously been made available to Neuromed, are true, correct and complete copies of such documents as currently in effect and CombinatoRx is not in violation of any provision thereof. Other than the CombinatoRx Charter and CombinatoRx Bylaws, CombinatoRx is not a party to or bound by or subject to any stockholder agreement or other agreement governing the affairs of CombinatoRx or the relationships, rights and duties of stockholders and is not subject to a stockholder rights plan or similar plan.

(b) Merger Sub is a corporation duly incorporated, validly existing and in good corporate standing under the laws of the State of Delaware. Merger Sub was formed solely

 

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for the purpose of engaging in the transactions contemplated by this Agreement. All of the issued and outstanding capital stock of Merger Sub, which consists of 100 shares of Merger Sub Common Stock, is validly issued, fully paid and non-assessable, and is owned, beneficially and of record, by CombinatoRx, free and clear of any claim, lien, Encumbrance, or agreement with respect thereto. Except for obligations and liabilities incurred in connection with its incorporation and the transactions contemplated by this Agreement, Merger Sub has not, and will not have, incurred, directly or indirectly, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any Person. The Merger Sub Charter and Merger Sub Bylaws, copies of which have previously been made available to Neuromed, are true, correct and complete copies of such documents as currently in effect and Merger Sub is not in violation of any provision thereof.

(c) Each of CombinatoRx’s Subsidiaries is a corporation or legal entity, validly existing and, if applicable, in good standing under the laws of the jurisdiction of its organization. Each of CombinatoRx’s Subsidiaries has all requisite corporate power or other power and authority to own, lease and operate all of its properties and assets and to carry on its business as it is now being conducted. Each of CombinatoRx’s Subsidiaries is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased, or operated by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified and in good standing would not, either individually or in the aggregate, reasonably be expected to have a CombinatoRx Material Adverse Effect. The certificate of incorporation and bylaws or equivalent organizational documents of each of CombinatoRx’s Subsidiaries (other than Merger Sub), copies of which have previously been made available to Neuromed, are true, correct and complete copies of such documents as currently in effect and such Subsidiaries of CombinatoRx are not in violation of any provision thereof.

4.2 Capitalization .

(a) As of the date hereof, the authorized capital stock of CombinatoRx consists of 60,000,000 shares of CombinatoRx Common Stock and 5,000,000 shares of preferred stock, $0.001 par value per share, of CombinatoRx (the “ CombinatoRx Preferred Stock ”). As of the date hereof, there were 35,083,881 shares of CombinatoRx Common Stock issued and outstanding (of which 57,500 were shares of restricted stock of CombinatoRx) and no shares of CombinatoRx Preferred Stock issued and outstanding. As of the date hereof, there were no shares of CombinatoRx Common Stock and no shares of CombinatoRx Preferred Stock held in the treasury of CombinatoRx. CombinatoRx has no shares of CombinatoRx Common Stock or CombinatoRx Preferred Stock reserved for issuance other than as described above. The outstanding shares of CombinatoRx Common Stock have been duly authorized, validly issued, fully paid and nonassessable, and were not issued in violation of the material terms of any agreement or understanding binding upon CombinatoRx at the time at which they were issued and were issued in compliance with the CombinatoRx Charter and CombinatoRx Bylaws and all applicable Laws. Except for the CombinatoRx Stock Option Plans and the CombinatoRx Warrants, CombinatoRx does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments, rights agreements, or agreements of any character calling for CombinatoRx to issue, deliver, or sell, or cause to be issued, delivered, or sold any shares of CombinatoRx Common Stock or any other equity security of CombinatoRx or any Subsidiary of

 

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CombinatoRx or any securities convertible into, exchangeable for, or representing the right to subscribe for, purchase, or otherwise receive any shares of CombinatoRx Common Stock or any other equity security of CombinatoRx or any Subsidiary of CombinatoRx or obligating CombinatoRx or any such Subsidiary to grant, extend, or enter into any such subscriptions, options, warrants, calls, commitments, rights agreements, or any other similar agreements. There are no registration rights, repurchase or redemption rights, anti-dilutive rights, voting agreements, voting trusts, preemptive rights or restrictions on transfer relating to any capital stock of CombinatoRx.

(b) As of the date hereof, there are 5,045,978 shares of CombinatoRx Common Stock issuable upon exercise of all outstanding CombinatoRx Stock Options, subject to adjustment on the terms set forth in the CombinatoRx Stock Option Plans. Section 4.2(b) of the CombinatoRx Disclosure Schedule sets forth a true, correct and complete list, as of the date hereof, of (i) the name of the holder of each CombinatoRx Stock Option, (ii) the date each CombinatoRx Stock Option was granted, (iii) the number, issuer and type of securities subject to each such CombinatoRx Stock Option, (iv) the expiration date of each such CombinatoRx Stock Option, (v) the vesting schedule of each such CombinatoRx Stock Option, (vi) the price at which each such CombinatoRx Stock Option (or each component thereof, if applicable) may be exercised, (vii) the number of shares of CombinatoRx Common Stock issuable upon the exercise of such, or upon the conversion of all securities issuable upon the exercise of such, CombinatoRx Stock Options and (viii) whether and to what extent the exercisability of each CombinatoRx Stock Option will be accelerated upon consummation of the transactions contemplated by this Agreement or any termination of employment thereafter.

(c) As of the date hereof, there are 57,500 shares of CombinatoRx Common Stock subject to outstanding CombinatoRx Restricted Stock Awards. Section 4.2(c) of the CombinatoRx Disclosure Schedule sets forth each CombinatoRx Restricted Stock Award outstanding as of the date hereof and the number of shares of CombinatoRx Common Stock subject to the award.

(d) As of the date hereof, there are 96,252 shares of CombinatoRx Common Stock issuable upon exercise of all outstanding CombinatoRx Warrants. Section 4.2(d) of the CombinatoRx Disclosure Schedule sets forth a true, correct and complete list, as of the date hereof, of (i) the name of the holder of each CombinatoRx Warrant, (ii) the date each CombinatoRx Warrant was issued, (iii) the number, issuer and type of securities subject to each such CombinatoRx Warrant, (iv) the price at which each such CombinatoRx Warrant (or each component thereof, if applicable) may be exercised, (v) the number of shares of CombinatoRx Common Stock issuable upon the exercise of such, or upon the conversion of all securities issuable upon the exercise of such, CombinatoRx Warrant and (vi) whether and to what extent any holders of CombinatoRx Warrants shall be required to exercise such CombinatoRx Warrants prior to the Effective Time.

(e) Section 4.2(e) of the CombinatoRx Disclosure Schedule lists each Subsidiary of CombinatoRx, other than Merger Sub, as of the date hereof and indicates for each such Subsidiary as of such date (i) the percentage and type of equity securities owned or controlled, directly or indirectly, by CombinatoRx and (ii) the jurisdiction of incorporation or organization. No Subsidiary of CombinatoRx has or is bound by any outstanding subscriptions,

 

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options, warrants, calls, commitments, rights agreements, or agreements of any character calling for it to issue, deliver, or sell, or cause to be issued, delivered, or sold any of its equity securities or any securities convertible into, exchangeable for, or representing the right to subscribe for, purchase or otherwise receive any such equity security or obligating such Subsidiary to grant, extend or enter into any such subscriptions, options, warrants, calls, commitments, rights agreements, or other similar agreements. There are no outstanding contractual obligations of any Subsidiary of CombinatoRx to repurchase, redeem, or otherwise acquire any of its capital stock or other equity interests. All of the shares of capital stock of each of the Subsidiaries of CombinatoRx (i) are validly issued, fully paid (to the extent required under the applicable governing documents) and nonassessable, (ii) are owned by CombinatoRx free and clear of any claim, lien, Encumbrance (other than Permitted Encumbrances), or agreement with respect thereto, (iii) were not issued in violation of the material terms of any agreement or understanding binding upon CombinatoRx or any of its Subsidiaries at the time at which they were issued and (iv) were issued in compliance with the applicable governing documents and all applicable Laws.

(f) The shares of CombinatoRx Common Stock to be issued in the Merger have been duly and validly reserved for issuance, and when issued in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and nonassessable, and free of any preemptive or similar rights.

4.3 Authority . Each of CombinatoRx and Merger Sub has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and perform its respective obligations hereunder, subject only to obtaining CombinatoRx Stockholder Approvals. The adoption, execution, delivery and performance of this Agreement and the approval of the consummation of the transactions contemplated hereby have been duly and validly adopted and approved by the boards of directors of CombinatoRx and Merger Sub. The Board of Directors of CombinatoRx has recommended that the stockholders of CombinatoRx approve the CombinatoRx Stockholder Proposals at the CombinatoRx Stockholder Meeting. The Board of Directors of Merger Sub has declared this Agreement advisable and has recommended that the sole stockholder of Merger Sub adopt this Agreement and approve the Merger. Except for CombinatoRx Stockholder Approvals and the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, no other corporate proceeding on the part of CombinatoRx or Merger Sub is necessary to authorize the adoption, execution, delivery and performance of this Agreement or to consummate the Merger and the other transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by CombinatoRx and Merger Sub, and (assuming due authorization, execution and delivery by the other parties hereto), constitutes the legal, valid and binding obligations of CombinatoRx and Merger Sub, enforceable against CombinatoRx and Merger Sub in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to creditors’ rights and general principles of equity. All other documents required to be executed by CombinatoRx and Merger Sub on or prior to the date hereof in connection with the transactions contemplated herein have been duly and validly executed and delivered by CombinatoRx and Merger Sub and (assuming due authorization, execution and delivery by the other parties thereto) constitute the legal, valid and binding obligations of CombinatoRx and Merger Sub, respectively, enforceable against each of them in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other similar Laws relating to creditors’ rights and general principles of equity.

 

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4.4 No Violation; Required Filings, Consents and Approvals .

(a) Assuming the CombinatoRx Stockholder Approvals are obtained, none of the execution, delivery, or performance of this Agreement by CombinatoRx and Merger Sub, the consummation by CombinatoRx and Merger Sub of the transactions contemplated hereby, or compliance by CombinatoRx and Merger Sub with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the organizational documents of CombinatoRx or Merger Sub or any resolution of its respective board of directors (or any committee thereof), (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement, or other instrument or obligation to which CombinatoRx or Merger Sub, as the case may be, is a party or by which it or any of their respective properties or assets may be bound, including without limitation any stockholder agreement or other agreement or understanding with any party holding an ownership interest in CombinatoRx or Merger Sub, or (iii) subject to compliance with the requirements specified in clause (ii) of Section 4.4(b), violate any Law or Order applicable to CombinatoRx or Merger Sub or any of their respective properties or assets, excluding from the foregoing clauses (ii) and (iii) such violations, breaches, or defaults that would not, individually or in the aggregate, (A) prevent or materially delay consummation of the Merger, (B) otherwise prevent or materially delay performance by CombinatoRx or Merger Sub of their respective material obligations under this Agreement, or (C) have a CombinatoRx Material Adverse Effect.

(b) No consent, approval, license, permit, notice, registration, waiver, qualification, order or authorization, or registration, declaration or filing, with or of, as appropriate of (i) any Person or (ii) any Governmental Authority is required by or with respect to CombinatoRx or its Subsidiaries in connection with the execution and delivery of this Agreement or any related agreements required to be executed by this Agreement or the consummation of the transactions contemplated hereby and thereby, except for (A) the filing of the Registration Statement with the SEC in accordance with the Securities Act, (B) the filing of the Proxy Statement and related proxy materials with the SEC in accordance with the Exchange Act, and such other filings as are required to be made with the SEC under the Exchange Act or the Securities Act in connection with the transactions contemplated by this Agreement, (C) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (D) such approvals as may be required under applicable federal and state securities Laws and the Laws of any foreign country, (E) such filings and approvals as may be required under any Antitrust Laws, and (F) such other approvals which, if not obtained or made, would not, individually or in the aggregate, (1) prevent or materially delay consummation of the Merger, (2) otherwise prevent or materially delay performance by CombinatoRx of its material obligations under this Agreement, or (3) have a CombinatoRx Material Adverse Effect.

4.5 Broker’s Fees . Neither CombinatoRx nor Merger Sub nor any of their respective officers, directors, employees, or agents has employed any broker, finder, or financial advisor to act for CombinatoRx or Merger Sub or incurred any liability for any fees or commissions payable by CombinatoRx or Merger Sub in connection with any of the transactions contemplated by this Agreement (including the Merger), except for fees and commissions incurred in connection with the engagement of Dr. Stelios Papadopoulos and Wedbush Morgan Securities Inc., and for legal, accounting and other professional fees payable in connection with the Merger, all of which will be payable by CombinatoRx.

 

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4.6 CombinatoRx Reports; Financial Statements; Sarbanes-Oxley Act .

(a) CombinatoRx has filed or furnished, as applicable, on a timely basis all forms, statements, certifications, reports and documents required to be filed or furnished by it with the SEC under the Exchange Act or the Securities Act since January 1, 2006 (the forms, statements, reports and documents filed or furnished since January 1, 2006 and those filed or furnished subsequent to the date hereof, including any amendments thereto, the “ CombinatoRx SEC Reports ”). Each of the CombinatoRx SEC Reports, at the time of its filing or being furnished complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, and any rules and regulations promulgated thereunder applicable to the CombinatoRx SEC Reports, or, if not yet filed or furnished, will to CombinatoRx’s knowledge comply in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, and any rules and regulations promulgated thereunder applicable to the CombinatoRx SEC Reports. As of their respective dates (or, if amended prior to the date hereof, as of the date of such amendment), the CombinatoRx SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, and any CombinatoRx SEC Reports filed or furnished with the SEC subsequent to the date hereof will not to CombinatoRx’s knowledge, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading.

(b) As of the date of this Agreement, CombinatoRx has timely responded to all comment letters of the staff of the SEC relating to the CombinatoRx SEC Reports, and the SEC has not advised CombinatoRx that any final responses are inadequate, insufficient or otherwise non-responsive. CombinatoRx has made available to Neuromed true, correct and complete copies of all comment letters, written inquiries and enforcement correspondence between the SEC, on the one hand, and CombinatoRx and any of its Subsidiaries, on the other hand, occurring since January 1, 2007 and will, reasonably promptly following the receipt thereof, make available to Neuromed any such correspondence sent or received after the date hereof. To the knowledge of CombinatoRx, as of the date of this Agreement, none of the CombinatoRx SEC Reports is the subject of ongoing SEC review or outstanding SEC comment.

(c) CombinatoRx is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of NASDAQ.

(d)(i) Each of the consolidated financial statements (including, in each case, any notes or schedules thereto) included in or incorporated by reference into the CombinatoRx SEC Reports fairly present, in all material respects, the consolidated financial position of CombinatoRx and its consolidated Subsidiaries as of its date, or, in the case of the CombinatoRx SEC Reports filed after the date hereof, will fairly present, in all material respects, the consolidated financial position of CombinatoRx and its consolidated Subsidiaries as of its date and each of the consolidated statements of income, changes in stockholders’ equity (deficit) and

 

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cash flows included in or incorporated by reference into the CombinatoRx SEC Reports (including any related notes and schedules) fairly presents in all material respects, the results of operations, retained earnings (loss) and changes in financial position, as the case may be, of such companies for the periods set forth therein (except as indicated in the notes thereto, and in the case of unaudited statements, as may be permitted by the rules of the SEC, and subject to normal year-end audit adjustments that will not be material in amount or effect), in each case in accordance with GAAP consistently applied during the periods involved, except as may be noted therein, or in the case of CombinatoRx SEC Reports filed after the date hereof, will fairly present, in all material respects, the results of operations, retained earnings (loss) and changes in financial position, as the case may be, of such companies for the periods set forth therein (except as indicated in the notes thereto, and in the case of unaudited statements, as may be permitted by the rules of the SEC, and subject to normal year-end audit adjustments that will not be material in amount or effect), in each case in accordance with GAAP consistently applied during the periods involved, except as may be noted therein (the “ CombinatoRx Financial Statements ”).

(e) CombinatoRx has designed and maintains a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) sufficient to provide reasonable assurance regarding the reliability of financial reporting, and, to the knowledge of CombinatoRx, such system is effective in providing such assurance. CombinatoRx (i) maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) designed to ensure that information required to be disclosed by CombinatoRx in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and, to the knowledge of CombinatoRx, such disclosure controls and procedures are effective (ii) has disclosed, based on the most recent evaluation of its chief executive officer and its chief financial officer prior to the date hereof, to CombinatoRx’s auditors and the Audit Committee of the Board of Directors of CombinatoRx (and made summaries of such disclosures available to Neuromed) (A) (i) any significant deficiencies in the design or operation of internal control over financial reporting that would adversely affect in any material respect CombinatoRx’s ability to record, process, summarize and report financial information and (ii) any material weakness in internal control over financial reporting, and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in CombinatoRx’s internal controls over financial reporting. Each of CombinatoRx and its Subsidiaries have materially complied with or substantially addressed such deficiencies, material weaknesses or fraud. CombinatoRx is in compliance in all material respects with all effective provisions of the Sarbanes-Oxley Act.

(f) Each of the principal executive officer of CombinatoRx and the principal financial officer of CombinatoRx (or each former principal executive officer of CombinatoRx and each former principal financial officer of CombinatoRx, as applicable) has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act or Sections 302 and 906 of the Sarbanes Oxley Act and the rules and regulations of the SEC promulgated thereunder with respect to the CombinatoRx SEC Reports, and the statements contained in such certifications were true and correct on the date such certifications were made. For purposes of this Section 4.6(f), “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act. Neither CombinatoRx nor any of its Subsidiaries has outstanding, or has arranged any outstanding, “extensions of credit” to directors or executive officers in violation of Section 402 of the Sarbanes Oxley-Act.

 

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(g) Neither CombinatoRx or any of its Subsidiaries nor, to the knowledge of CombinatoRx, any director, officer, employee, or internal or external auditor of CombinatoRx or any of its Subsidiaries has received or otherwise had or obtained actual knowledge of any substantive material complaint, allegation, assertion or claim, whether written or oral, that CombinatoRx or any of its Subsidiaries has engaged in questionable accounting or auditing practices.

4.7 Absence of Certain Changes or Events . Except as set forth in CombinatoRx 2009 SEC Reports, since December 31, 2008, CombinatoRx and each of its Subsidiaries have conducted their respective businesses in all material respects in the ordinary course consistent with their past practices, and:

(a)