ENCY Encysive Pharmaceuticals (MM)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

SCHEDULE 14C

Information Statement Pursuant to Section 14(c)

of the Securities Exchange Act of 1934

 

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o   Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))

o   Definitive Information Statement

 

ENCYSIVE PHARMACEUTICALS INC.

(Name of Registrant as Specified In Its Charter)

 

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o   Fee paid previously with preliminary materials.

 

 

 

 

 

 

 

 

 

 

ENCYSIVE PHARMACEUTICALS INC.
4848 Loop Central Drive, Suite 700
Houston, Texas 77081

INFORMATION STATEMENT

May [  l  ], 2008

 

Dear Stockholder:

 

This Information Statement is being furnished to you as a holder of the common stock of Encysive Pharmaceuticals Inc., a Delaware corporation that we refer to as Encysive.

 

On February 20, 2008, Encysive entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Pfizer Inc., a Delaware corporation that we refer to as Pfizer, and Pfizer’s wholly-owned subsidiary, Explorer Acquisition Corp., a Delaware corporation that we refer to as the Purchaser. Pursuant to the Merger Agreement, the Purchaser will merge (the “Merger”) with and into Encysive, with Encysive surviving the Merger as a wholly-owned subsidiary of Pfizer. In the Merger, you will be entitled to receive $2.35 in cash, without interest and less any required withholding taxes, for each share of Encysive common stock that you own.

 

The Merger is the second and final step of the acquisition of Encysive by Pfizer. The first step was a tender offer commenced by Pfizer and the Purchaser on March 4, 2008 to acquire all of the outstanding Encysive shares at a purchase price of $2.35 cash per share, net to the seller in cash, without interest and less any required withholding taxes. Pursuant to the tender offer, which expired at 12:00 midnight, New York City time, on March 31, 2008 and a subsequent offering period that expired at 5:00 p.m., New York City time, on April 14, 2008, the Purchaser purchased a total of 69,076,466 Encysive shares (representing approximately 85.33% of the shares outstanding on such date).

 

In accordance with Delaware law, the affirmative vote or consent of the holders of a majority of the voting power of the outstanding shares of Encysive common stock is required to adopt the Merger Agreement. The Purchaser has adopted the Merger Agreement by executing and delivering a written consent. Since the Purchaser owns a majority of the outstanding shares of Encysive common stock, this action by written consent is sufficient to adopt the Merger Agreement without the affirmative vote of any other Encysive stockholder. Accordingly, your approval of the Merger or the Merger Agreement is not required and is not being requested.

 

This Information Statement constitutes notice to you of action by written consent contemplated by Section 228(e) of the Delaware General Corporation Law (which we refer to as the DGCL).

 

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

 

Under Section 262 of the DGCL, Encysive stockholders may be entitled to appraisal rights in connection with the Merger as described in this Information Statement. If you comply with the procedural requirements of Section 262 of the DGCL, you will have the right to demand appraisal of your shares and receive their “fair value,” as appraised by the Delaware Court of Chancery. For additional information, see “Appraisal Rights.”

 

This Information Statement constitutes notice to you of the availability of appraisal rights under Section 262 of the DGCL. A copy of the provision of the DGCL that grants appraisal rights and specifies the required procedures for demanding appraisal is attached to this Information Statement as Annex C.

 

We encourage you to read the entire Information Statement carefully because it sets forth the details of the Merger and the other transactions contemplated by the Merger Agreement as well as other important information.

 

By order of the Board of Directors,

 

Paul S. Manierre
Vice President, General Counsel and Secretary

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

This Information Statement is dated May[  l  ], 2008 and is being mailed to Encysive stockholders on May[  l  ], 2008.

TABLE OF CONTENTS

 

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the more detailed information contained elsewhere in this Information Statement, the annexes to this statement and the documents referred to or incorporated by reference in this statement.

 

 

 

This Information Statement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. Forward-looking statements represent our management’s judgment regarding future events. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “target,” “seek,” “project,” “could,” “plan,” “expect,” “anticipate,” “estimate,” “believe,” “predict,” “intend,” “potential,” or “continue” or the negative of these terms or other words of similar import, although some forward-looking statements are expressed differently. All statements, other than statements of historical fact, included in and incorporated by reference into this Information Statement regarding our financial position, business strategy and plans or objectives for future operations are forward-looking statements. Among the factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: statements regarding the expected completion of the acquisition of us by Pfizer, including the Merger and the Merger Agreement; our ability to earn a profit from sales or licenses of Thelin ^tm or other drug candidates; unexpected delays in commencing and completing an additional Phase III clinical trial for Thelin ^tm (sitaxsentan sodium) in pulmonary arterial hypertension (“PAH”) to address concerns regarding efficacy raised in the third approvable letter, dated June 15, 2007, received from the U.S. Food and Drug Administration (the “FDA”); regulatory approval of Thelin ^tm and our other products under development by the FDA; the unpredictability of the duration and results of regulatory review of our New Drug Application(s) (“NDA”) and Investigational New Drug Application(s) by the FDA and national regulatory authorities in Australia, Canada, the European Union (“EU”) and other countries; the high cost and uncertainty of the research, clinical trials and other development activities involving our products and compounds; possible delays in the timelines for initiating clinical trials and obtaining results of clinical trials with respect to our products under development, including Thelin ^tm and TBC3711; market acceptance of Thelin ^tm in the EU, Australia and Canada and the actual rate of acceptance; the speed with which reimbursement and pricing approvals, and product launches for Thelin ^tm may be achieved in the EU, Australia, Canada and in other countries where Thelin ^tm may be approved; difficulties or delays in importing, manufacturing, packaging or distributing Thelin ^tm in the EU, Australia and Canada and in other countries where Thelin ^tm may be approved; the impact of competitive products on Thelin ^tm and Argatroban sales; the availability of sufficient funds to continue to commercialize Thelin ^tm in the EU and Canada; reduced estimates of patient populations and diagnosis rates of patients with PAH; the impact of national, provincial and local reimbursement policies and governmental regulation of prices for Thelin ^tm in the EU, Australia and Canada; our ability to predict revenues from Thelin ^tm and expense levels in 2008 and beyond; the impact of existing and future EU regulatory provisions on product exclusivity, including orphan drug exclusivity for Thelin ^tm ; the impact of legislation or regulations in the U.S., and countries within the EU, Australia and in Canada affecting Thelin ^tm ’s pricing, reimbursement or access; the scope of our patents and challenges by others of the scope of our patents; our ability to attract and retain qualified personnel; the ability of our subsidiary to repay the notes secured by royalties on the sales of Argatroban; our ability to prevail in the Argatroban abbreviated new drug application patent litigation and the costs of such litigation; the breadth of approved labeling for our approved product and our competitors’ products; our ability to establish future collaborative arrangements or licenses; and the availability of materials necessary for the manufacture of our products; as well as more specific risks and uncertainties facing us.

 

You should read these forward-looking statements carefully because they discuss our expectations about our future performance, contain projections of our future operating results or our future financial condition, or state other “forward-looking” information.

 

In addition, the statements in this Information Statement are made as of May[  l  ], 2008. Subsequent events or developments may cause our views to change. We undertake no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectations or otherwise. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to May[  l  ], 2008.

 

We are a global biopharmaceutical company engaged in the discovery, development and commercialization of novel, synthetic, small molecule compounds to address unmet medical needs. We focus our research and development programs predominantly on the treatment and prevention of interrelated diseases of the vascular endothelium and exploit our expertise in the area of the intravascular inflammatory process, referred to as the inflammatory cascade, and vascular diseases. We have successfully developed two approved drugs. Argatroban was our first approved drug which was approved by the FDA for the treatment of heparin-induced thrombocytopenia, and is licensed to and marketed by GlaxoSmithKline plc in the U.S. and Canada. Thelin ^tm (sitaxsentan sodium) is an endothelin receptor antagonist we developed for the treatment of PAH and has been approved by the European Agency for the Evaluation of Medicinal Products in the EU, Health Canada’s Therapeutic Products Directorate in Canada and the Australian Therapeutic Goods Administration in Australia for the treatment of PAH. We are marketing and distributing Thelin ^tm in the EU and Canada either directly or through third parties and expect to commence distribution of Thelin ^tm in Australia through a third party in the second quarter of 2008. In addition, Thelin ^tm is under review by the FDA in the U.S. We have received three approvable letters from the FDA and plan to commence an additional Thelin ^tm Phase III clinical trial in patients with PAH during the second quarter of 2008 to address the concerns of the FDA regarding efficacy outlined in the FDA’s approvable letter dated June 15, 2007.

 

Our principal executive office is located at 4848 Loop Central Drive, Suite 700, Houston, Texas 77081, and our telephone number is (713) 796-8822.

 

Pfizer is headquartered in New York, New York. Pfizer is a research-based, global pharmaceutical company. Pfizer discovers, develops, manufactures and markets leading prescription medicines for humans and animals.

 

Pfizer’s principal executive office is 235 East 42nd Street, New York, New York 10017, and its telephone number is (212) 573-2323.

 

The Purchaser is a Delaware corporation organized in connection with the Merger and to date has engaged in no activities other than those incident to its formation and the consummation of the tender offer for our shares. The Purchaser is a wholly-owned subsidiary of Pfizer.

 

The Purchaser’s principal executive office is 235 East 42nd Street, New York, New York 10017, and its telephone number is (212) 573-2323.

 

The Merger is being effected pursuant to an Agreement and Plan of Merger, dated as of February 20, 2008, by and among Encysive, Pfizer and the Purchaser. The Merger is the second and final step of Pfizer’s acquisition of Encysive. The first step was a tender offer by Pfizer and the Purchaser to acquire all of the outstanding shares of common stock of Encysive (including any associated preferred stock purchase rights, the “Shares”) at a purchase price of $2.35 per Share, in cash, without interest and less any required withholding taxes.

 

Pursuant to the terms of the Merger Agreement, the Purchaser and Pfizer commenced the tender offer to purchase all of the outstanding Shares on March 4, 2008. The initial offering period expired at 12:00 midnight, New York City time, on March 31, 2008. On April 1, 2008, Pfizer accepted for payment the Shares that had been validly tendered and not withdrawn as of the initial expiration date for the offer and promptly paid for such Shares. On April 1, 2008, the Purchaser and Pfizer commenced a subsequent offering period which expired at 5:00 p.m., New York City time, on April 14, 2008. At the expiration of the subsequent offering period, the Purchaser had accepted for payment and promptly paid for a total of 69,076,466 Shares in the tender offer, representing approximately 85.33% of the outstanding Shares.

 

The Merger Agreement provides that, effective upon the acceptance for payment of, and payment by the Purchaser for, any Shares in the tender offer, as long as Pfizer directly or indirectly beneficially owns not less than a majority of the issued and outstanding Shares, the Purchaser would be entitled to designate a number of directors, rounded to the next whole number, that will give the Purchaser representation on Encysive’s board of directors equal to the product of the total number of directors on the board (determined after giving effect to the directors elected pursuant to this designation) multiplied by the percentage of the issued and outstanding Shares owned by the Purchaser or any other subsidiary of Pfizer. Pursuant to this provision, George W. Cole, Richard A.F. Dixon, Ph.D., Ron J. Anderson, M.D., John H. Dillon, II, Suzanne Oparil, M.D., John M. Pietruski and James T. Willerson, M.D. resigned from the board, effective as of April 3, 2008. At the time of their resignation, Drs. Anderson and Willerson were members of the Compensation and Corporate Governance Committee of the board; Mr. Dillon and Dr. Oparil were members of the Audit Committee of the board and Drs. Dixon and Willerson and Mr. Cole were members of the Executive Committee of the board. In addition, Mr. Cole served as chair of the Executive Committee of the board.

 

The following designees of the Purchaser were appointed to Encysive’s board of directors, effective as of April 3, 2008, to fill the vacancies created by the resignation of the above-listed directors: Martin Mackay, David Reid, Margaret M. Foran and Douglas E. Giordano. Three independent directors, J. Kevin Buchi, Robert J. Cruikshank and James A. Thomson, Ph.D., have remained on the board pending completion of the Merger. In addition, subject to the terms of the Merger Agreement, pending completion of the Merger, the Purchaser is entitled, at its request, to have its designees appointed to the appropriate committees of the board.

 

Under Section 251 of the DGCL, the approval of Encysive’s board of directors and the affirmative vote of the holders of a majority of the Shares outstanding and entitled to vote are required to approve and adopt the Merger Agreement. Encysive’s board of directors has previously approved the Merger Agreement and the Merger. Pursuant to the terms of the Merger Agreement, the Purchaser committed to complete the acquisition of the remaining Shares, through the Merger, following conclusion of the tender offer if certain conditions were satisfied. In addition, Pfizer agreed to cause all Shares purchased pursuant to the tender offer by the Purchaser to be voted in favor of the adoption of the Merger Agreement. The Purchaser, as owner of more than 50% of the outstanding Shares, adopted the Merger Agreement by written consent on May[  l  ], 2008.

 

Federal securities laws state that the Merger may not be completed until 20 days after the date of mailing of this Information Statement to Encysive stockholders. Therefore, notwithstanding the execution and delivery of the written consent, the Merger will not occur until that time has elapsed. Pfizer, the Purchaser and Encysive are obligated to complete the Merger under the terms of the Merger Agreement subject to the conditions set forth

therein, all of which we expect to be satisfied at the end of such 20 day period. Therefore, we expect the Merger to close on or about May [  l  ], 2008; however, there is no assurance that the Merger will close at that time, or at all.

 

Encysive’s board of directors has set May[  l  ], 2008 as the record date for determining stockholders entitled to consent to the adoption of the Merger Agreement. On such date, the written consent of the Purchaser approving and adopting the Merger Agreement was executed and delivered. This is the date used for determining the stockholders entitled to receive notice of such action and to receive this Information Statement and for determining the number of Shares issued and outstanding and therefore necessary to adopt the Merger Agreement. On May[  l  ], 2008, there were issued and outstanding and entitled to vote 80,955,060 Shares. Each Share issued and outstanding is entitled to one vote.

 

Prior to June 15, 2007, Encysive had pursued a strategy of independently commercializing or attempting to commercialize Thelin ^tm (sitaxsentan sodium) in the United States, the European Union, Canada, Australia and other countries. On June 15, 2007, however, Encysive received from the FDA a third approvable letter for its NDA for Thelin ^tm (the “Approvable Letter”), which was under review for the treatment of pulmonary arterial hypertension. In the Approvable Letter, the FDA stated that Encysive’s development program for Thelin ^tm did not demonstrate the evidence of effectiveness needed for approval. The FDA did note, however, that the Thelin ^tm development program provided some evidence that Thelin ^tm improves exercise tolerance in patients with pulmonary arterial hypertension and encouraged Encysive to conduct an additional study to demonstrate the drug’s effectiveness. Prior to receiving the Approvable Letter, based on dialogue with the FDA, Encysive had expected to receive regulatory approval for Thelin ^tm in the United States on or before June 15, 2007.

 

On June 20, 2007, Encysive’s board of directors convened a meeting to consider strategic options for the company and to discuss a restructuring of the company. At the meeting, Encysive’s board of directors formed a strategic options committee and authorized the committee to interview and select an investment bank to assist Encysive in exploring its strategic alternatives. An additional meeting was convened on June 24, 2007, at which meeting Encysive’s board of directors elected George W. Cole as the company’s new CEO and President. On the following day, June 25, 2007, the company announced that it was implementing a strategic restructuring to focus its resources on its most promising assets and would be reducing its U.S. workforce by approximately 70 percent, with approximately 150 employees, including the U.S. sales force, being terminated immediately. The company ended the second quarter of 2007 with approximately $65 million in cash and expected that operating expenses going forward would be reduced significantly.

 

On July 11, 2007, Encysive representatives held a formal preliminary dispute resolution meeting with representatives of the FDA to discuss the Approvable Letter. Following the meeting and after reviewing the FDA’s rationale for withholding approval with outside experts, Encysive continued to believe that its NDA for Thelin ^tm should have been approved. In light of these conclusions, on August 6, 2007, Encysive filed with the FDA a request for formal dispute resolution to challenge the Approvable Letter by bringing the dispute to the attention of FDA supervisors.

 

On July 16, 2007, Encysive’s board of directors engaged Morgan Stanley & Co. Incorporated (“Morgan Stanley”) to serve as financial advisor to assist the company in evaluating its strategic alternatives to maximize stockholder value based upon the recommendation of the Strategic Options Committee, which had interviewed and met with several investment banks. Upon its engagement, Morgan Stanley promptly commenced a review of the company’s business and operations and the company’s available alternatives. At a meeting of Encysive’s board of directors on July 25, 2007, Morgan Stanley representatives presented a preliminary review of the strategic alternatives available to the company. These included a sale of the entire company, a sale of licensing rights to Thelin ^tm worldwide or only in the European Union or the United States, a partial sale of the company to a financial investor or continuing with the status quo with the aid of an equity financing transaction. At the meeting, representatives from Porter & Hedges, L.L.P. (“Porter & Hedges”), counsel to Encysive, reviewed with Encysive’s board of directors their fiduciary duties under Delaware law with respect to these potential transactions. Following

the presentations and further questions and discussion, Encysive’s board of directors authorized Morgan Stanley to continue its review of the company’s strategic alternatives and to solicit interest from a broad range of potential bidders to determine their interest in a possible transaction with the company.

 

During the remainder of July and throughout August 2007, Encysive’s management and Morgan Stanley evaluated further the company’s potential strategic alternatives and drafted a brief non-confidential description of the company and its Thelin ^tm assets. Beginning on September 11, 2007, Morgan Stanley and company management contacted a targeted list of over 70 potential bidders and distributed the brief company description to more than 50 potential bidders, ranging from pharmaceutical and biotechnology companies (including Pfizer) to strategic investors.

 

In August and September 2007, Encysive’s board of directors approved two financings to provide the company sufficient working capital to continue its operations and time to conduct a full review of its strategic alternatives with Morgan Stanley. On August 20, 2007, Encysive entered into a securities purchase agreement for the offer and sale of 7,692,305 units to institutional accredited investors at a price of $1.95 per unit, with each unit consisting of one Share and a warrant to purchase one Share. This financing resulted in net proceeds to Encysive of approximately $14 million. On September 21, 2007, the company’s special purpose subsidiary, Argatroban Royalty Sub LLC, refinanced its original $60 million in principal amount of the original Argatroban secured 12% notes by issuing an aggregate principal amount of $68 million of its new Argatroban secured 18.5% notes, resulting in net proceeds to the company of approximately $11.2 million. This debt refinancing and the equity financing completed in August 2007 added approximately $25.2 million to the company’s working capital, giving the company additional liquidity to fund its operations and time to continue its ongoing review of strategic alternatives. Encysive ended the third quarter of 2007 with approximately $54 million in cash, an amount which included the proceeds from both financings.

 

On September 5, 2007, Encysive received a letter from the FDA in response to its request for formal dispute resolution. In the response, the FDA’s reviewer wrote that the data included in the Thelin ^tm NDA did not provide the substantial evidence of effectiveness needed for approval and encouraged the company to conduct an additional study to demonstrate Thelin ^tm ’s effectiveness. In light of the FDA’s response and after consulting with outside experts, on September 24, 2007, Encysive announced its decision not to continue to pursue formal dispute resolution with the FDA, but instead to move forward with plans to conduct an additional Phase III study evaluating Thelin ^tm in patients with pulmonary arterial hypertension.

 

Following the distribution of the brief company description to the targeted list of potential bidders, at the board’s direction, Morgan Stanley initiated further contact with the recipients to gauge potential interest in an acquisition, merger, asset purchase, licensing agreement, equity investment or other strategic transaction with the company. Twenty-seven interested parties, including Pfizer, entered into confidentiality agreements with the company, and beginning on September 25, 2007, were furnished a confidential information memorandum providing substantially more detail about the company and its proprietary product portfolio, research and development programs, sales forecasts and operations. Following the distribution of the confidential information memorandum, several parties requested teleconferences with Morgan Stanley and the company to discuss the substantial information contained therein. Based on a specific request, management held an in-person meeting with one interested party during the week of November 18, 2007.

 

During October and November of 2007, Morgan Stanley sent initial bid process letters to each interested party and invited such party to submit a non-binding preliminary bid for the company or its assets by November 20, 2007, which was later extended to December 7, 2007. By the middle of December 2007, eleven such non-binding preliminary bids were received, including one from Pfizer. With respect to these eleven bids, three proposed a whole company acquisition or merger, three proposed acquiring Encysive’s European assets and four proposed acquiring licensing rights to Thelin ^tm outside of the United States. Encysive also received a bid from a potential strategic investor with respect to certain specified assets of the company.

 

Encysive’s board of directors met on December 11, 2007, at which meeting Morgan Stanley described each of the eleven non-binding bids received after the first round of the process, discussed the strengths and weaknesses of each bid from a financial perspective and answered questions from members of Encysive’s board of directors. Encysive’s board of directors then discussed which of the eleven bidders should be invited to participate in the

second round of the process. Encysive’s board of directors selected nine bidders (including Pfizer) and directed Morgan Stanley to continue pursuing strategic options with these nine interested parties. Representatives from Porter & Hedges were also present at the meeting and reviewed with Encysive’s board of directors their fiduciary duties under Delaware law with respect to the potential transactions and the bidding process. In December 2007, the company also engaged Covington & Burling LLP (“Covington”) as special transaction counsel to the company and Encysive’s board of directors.

 

Beginning December 13, 2007, and continuing through January 31, 2008, members of Encysive’s management with assistance from Morgan Stanley, conducted management presentations and due diligence activities in the U.S. and Europe with the nine selected interested parties. These due diligence interactions included conducting in-person management presentations and telephonic conferences, responding to various due diligence questions about Thelin ^tm and the company’s assets and operations, arranging for telephonic due diligence discussions between the company’s and the interested parties’ outside specialists, and scheduling in-person due diligence review sessions and on-site due diligence visits to the facilities of the company and its third party contractors. Each interested party was given an extensive, in-person presentation by Morgan Stanley and Encysive representatives, and was provided access to the company’s on-line, due diligence data room containing financial, regulatory, intellectual property, clinical, operational, human resource, legal and other information concerning the company and its assets. Presentations and on-line due diligence data room access were appropriately tailored to account for the type of transaction each interested party had proposed in its initial bid. The data room contained over 6,200 company documents totaling over 100,000 pages. In addition, certain of the company’s regulatory and clinical confidential information (which was considered too sensitive for inclusion in the on-line data room) was available upon request to all interested parties for review on secure laptop computers located at Covington’s offices in the U.S. and Europe.

 

The interested parties were informed that Encysive would provide either a form of merger agreement or a form of stock and asset purchase agreement for the company’s European business together with a co-development and license agreement to facilitate the ongoing conduct of the company’s business in the U.S., depending on the type of transaction the interested party had proposed. Morgan Stanley then sent a final bid process letter to the interested parties instructing each of them that submissions of final written offers, together with marked-up forms of the relevant agreements, were due by January 14, 2008, although this deadline was subsequently extended to January 31, 2008. Prior to the bidding deadline, three parties advised Morgan Stanley of their intent to withdraw from the bidding process.

 

Six interested parties, including Pfizer, submitted final written offers to Morgan Stanley. Three interested parties (including Pfizer) submitted bids to acquire or merge with the entire company:

 

 

The three remaining interested parties submitted final offers to acquire Thelin ^tm assets outside of the United States:

 

 

 

On February 4, 2008, representatives of Morgan Stanley and Covington provided a telephonic overview to Encysive’s board of directors of the bids that had been received, including written summaries of the contract mark-ups, and discussed the timing, structuring and cost implications of each. Representatives of Porter & Hedges and Covington also reviewed with Encysive’s board of directors their fiduciary duties in the context of the transactions being considered and the bidding process.

 

At this time, Encysive’s management and Encysive’s board of directors were inclined to pursue a transaction with Bidder C. However, in reviewing the proposal from Bidder C, Encysive’s board of directors had concerns regarding the timeline of signing and consummating a transaction with Bidder C, the sufficiency of the company’s working capital until a closing could occur, the risk that a closing might not occur and whether after the closing the company would have sufficient capital to complete the new Phase III clinical trial evaluating Thelin ^tm in patients with pulmonary arterial hypertension. Given these concerns, Encysive’s board of directors asked Morgan Stanley to request that Bidder C increase its bid, especially its upfront price. On February 5, 2008, Bidder C increased its upfront payment from $200 million to $220 million, but eliminated the $20 million milestone payment and reduced the periodic royalty payments from 12% to 10% of net sales until the later of the five year anniversary of the closing and the payment of $40 million (rather than $50 million) in royalties. Also on February 5, 2008, Pfizer increased its bid to $1.65 per Share after Morgan Stanley informed Pfizer at the board’s request that its price was not competitive with Bidder C’s offer.

 

Encysive’s board of directors met again on February 6, 2008 to review the status of the strategic alternatives process and the six final offers. Representatives of Morgan Stanley and Covington reviewed with Encysive’s board of directors the terms of the offers, and related transaction signing and closing timelines, and presented analyses with respect to each bid. Morgan Stanley also presented its preliminary financial analyses and discussed the company’s cash position going forward and the timing of the proposed transactions. In addition, representatives of the bidders proposing the stock-for-stock merger and the AIM listing transactions also made presentations to Encysive’s board of directors and answered questions from members of Encysive’s board of directors. Encysive’s board of directors then discussed the consequences of the proposed transactions with respect to the company’s $130 million convertible notes maturing in 2012, in particular that all but one of the six bids (the stock-for-stock merger), including all bid proposals for the purchase of Thelin ^tm rights outside of the United States, would likely trigger the convertible note holders’ rights to require Encysive or its successor to repurchase the notes at par value following such transactions.

 

Encysive’s board of directors found the stock-for-stock merger structure to be unattractive because, among other reasons, it valued Encysive’s Shares at below their then trading price. Also, completion of the proposed stock-for-stock merger was expected to take longer to accomplish than a cash acquisition transaction and presented a substantial risk with respect to the certainty of closing. Encysive’s board of directors also found the AIM listing transaction proposal to be unattractive due to, among other reasons, the lack of any financing commitment, the amount of due diligence that remained to be completed and the considerable risks associated with the transaction in terms of timing and completion.

 

Encysive’s board of directors found Bidder C’s offer financially attractive and confirmed its intent to pursue a transaction with Bidder C. However, Encysive’s board of directors had several remaining concerns with the bid

from Bidder C relating to, among other things, various points raised in their revisions to the agreements and the level of ongoing liability to Encysive for its European Thelin ^tm business. Encysive’s board of directors instructed Encysive’s management and financial and legal advisors to discuss these concerns with Bidder C and report back to Encysive’s board of directors the following day. Encysive’s board of directors also directed Morgan Stanley and the company’s management to inform Pfizer that its price was still not competitive with Bidder C’s bid and to determine whether Pfizer would increase its bid price. Finally, Encysive’s board of directors asked Morgan Stanley to contact Bidder B to determine the current status of its offer, remaining due diligence items and contract comments and revisions because Bidder B appeared to be significantly behind Pfizer in terms of the amount of diligence remaining to be conducted and in providing its comments and revisions to Encysive’s form of merger agreement.

 

Encysive’s board of directors held a meeting on February 7, 2008 at which management and Morgan Stanley reported on the ongoing discussions with Bidder C and the fact that Bidder C had conceded many of the issues on the contracts previously of concern to Encysive’s board of directors. Representatives of Covington and Porter & Hedges also attended the meeting. Representatives of Morgan Stanley reported to Encysive’s board of directors that Bidder B had not provided any additional information on its offer, and that Pfizer had indicated a willingness to raise its bid further but was seeking guidance from the company on the price that would be required to make its bid competitive. After further discussion, Encysive’s board of directors remained in favor of the bid from Bidder C but was concerned that, due to the time it might take to negotiate, sign and then complete a transaction with Bidder C, which closing would be subject to a stockholder vote under Delaware law, Encysive would have insufficient working capital to complete the transaction if any delay were to occur. Encysive’s board of directors therefore directed Morgan Stanley and the company’s management to determine if Bidder C would agree to fund the company’s ongoing operations before closing if consummation of a transaction with Bidder C were to be delayed, and to continue to negotiate the terms of the draft stock and asset purchase and license agreements with Bidder C.

 

Encysive’s board of directors held a meeting on February 8, 2008 to receive updates on the issues raised above with respect to Pfizer and Bidders B and C, and to further consider its various options. Representatives of Morgan Stanley, Covington and Porter & Hedges also attended the meeting. During this meeting, representatives of Morgan Stanley and the company’s management reported that Bidder C had indicated its willingness to negotiate a funding arrangement, though the details were still to be negotiated. It was also reported that the company had received a written bid from Bidder B for a cash tender offer at $1.80 per Share, but that the bid was still subject to its board’s approval. Bidder B’s bid also was not accompanied by any comments to the form of merger agreement or a specific due diligence timetable. Encysive’s board of directors discussed the fact that the proceeds from a sale to Bidder C would not, after repayment of the company’s $130 million convertible notes and other transaction related expenses, provide adequate cash to fund both its ongoing operations and the completion of a new Phase III clinical trial evaluating Thelin ^tm in patients with pulmonary arterial hypertension, resulting in the need to raise further capital in equity financings that if available at all, due to the low price of the company’s shares, would likely dilute the value of the company’s shares for existing stockholders and be on less than favorable terms to the company.

 

At the end of the February 8, 2008 meeting of Encysive’s board of directors, and after discussing the advantages and disadvantages of the company’s various options and the timing and certainty of completing the remaining proposed transactions, Encysive’s board of directors determined that the Pfizer bid likely represented the best option then available for Encysive’s stockholders and authorized management and the company’s financial and legal advisors to negotiate the terms of a definitive merger agreement with Pfizer, but requested that Morgan Stanley first inform Pfizer that Encysive could only proceed with Pfizer if it would agree to a price of no less than $2.00 per Share. On February 10, after Pfizer raised its offer to $2.00 per Share, Covington sent a revised draft merger agreement to Pfizer’s outside counsel, Weil, Gotshal & Manges LLP (“Weil”). Encysive and Covington also provided draft disclosure schedules to the draft merger agreement to Pfizer and Weil on February 12, 2008. Commencing on February 11, 2008, representatives of the company, Morgan Stanley and Covington commenced discussions with Pfizer, Weil and Lazard Frères & Co. LLC, Pfizer’s financial advisor, and such discussions were followed by a meeting at Covington’s New York offices on February 13, 2008, to negotiate the draft merger agreement. Pfizer and Weil provided a revised draft merger agreement to Encysive and Covington on February 14, 2008, and the parties met again at Covington’s New York offices on February 15, 2008, to negotiate further the outstanding terms of the draft merger agreement. Several contractual issues remained open by the end of the day on February 15, 2008, including the scope of the company’s representations and warranties, the circumstances under

which Encysive could terminate the merger agreement in order to accept a superior third party takeover proposal and in such case, the amount and timing of the termination fee payable by the company.

 

During the time Encysive and its representatives were negotiating with Pfizer and Weil, on February 14, 2008, Bidder C indicated to Morgan Stanley its potential desire to acquire all of Encysive at an attractive price. On the morning of February 15, 2008, Morgan Stanley sent Bidder C the company’s draft merger agreement and related disclosure schedules, and the company provided access to all of the company’s confidential information available in its on-line, due diligence data room. However, Bidder C did not further pursue such an offer despite the initial indication to Morgan Stanley that it might.

 

On February 12, 2008, Bidder B submitted a written offer increasing its offer price to $2.10 per Share, but did not provide comments or revisions on the proposed merger agreement, or assurances that its board had approved the bid. On the afternoon of February 15, 2008, however, Bidder B confirmed that its board had approved the offer at $2.10 per Share, and provided the company a contract mark-up containing a limited number of revisions along with a short list of open diligence items. On the evening of February 15, 2008, after management of the company and members of Encysive’s board of directors determined that it was advisable to work toward negotiating a potential transaction with Bidder B while continuing at the same time to negotiate with Pfizer, Morgan Stanley informed Pfizer that Encysive had received a revised bid that was more favorable in terms of price and contract terms than Pfizer’s but that the company would provide Pfizer an opportunity to raise its price and improve its contractual terms.

 

Encysive and Covington proceeded to negotiate the terms of a merger agreement with Bidder B and its counsel, providing a revised draft of the merger agreement, along with draft merger agreement schedules and answers to the open diligence questions, to Bidder B late in the evening on February 16, 2008. The negotiations continued on February 17 and 18, 2008, with Bidder B providing Encysive with two revised drafts of the merger agreement as well as comments on the draft disclosure schedules. However, several significant contract issues remained open by the end of day on February 18, 2008.

 

On February 16, 2008, Morgan Stanley requested that both Pfizer and Bidder B submit their best and final offers on February 18, 2008. Both bidders asked to have until February 19, 2008 to respond.

 

Encysive’s board of directors conducted a meeting on February 18, 2008 to receive an update from Morgan Stanley and Covington on the negotiations with Pfizer and Bidder B and the status of the bids and draft merger agreements. Representatives of Porter & Hedges were also present at the meeting. After questions from members of Encysive’s board of directors and further discussion, Encysive’s board of directors confirmed that Pfizer and Bidder B should be required to submit their best and final offers by the close of business on February 19, 2008.

 

As instructed by Encysive’s board of directors, Morgan Stanley informed Pfizer and Bidder B that they should submit their best and final offers by close of business on February 19, 2008, before a meeting of Encysive’s board of directors scheduled for the evening of February 19, 2008. Representatives of Encysive and Covington had provided a revised draft merger agreement to Pfizer and Weil on February 17, 2008, reflecting Encysive’s position on the open issues and the agreements that had been reached between the parties over the previous week, and provided Pfizer and Weil revised disclosure schedules in the evening on February 18, 2008. During the course of February 18 and 19, 2008, Encysive, Covington, Pfizer and Weil resolved all the remaining open issues on the draft merger agreement, although items on the disclosure schedules still remained to be discussed and finalized.

 

By the close of business on February 19, 2008, Bidder B submitted its written best and final binding offer to acquire Encysive for $2.26 per Share, including a revised draft merger agreement that it said it was ready to sign. On February 19, 2008, Pfizer also submitted its written best and final binding offer to acquire Encysive for $2.35 per Share, including a draft merger agreement in the form that had been substantially agreed to by the parties. Pfizer’s offer indicated that it was Pfizer’s expectation to sign and announce the transaction before the open of business on February 20, 2008.

 

During the evening of February 19, 2008, Encysive’s board of directors met to consider the best and final offers from Pfizer and Bidder B. Representatives of Covington, Porter & Hedges and Morgan Stanley also attended the meeting. After receiving presentations on the offers from Morgan Stanley and Covington and discussing the advantages and disadvantages of the two proposals, including with respect to price, certainty of closing and

contractual terms, Encysive’s board of directors directed the company’s management and its financial and legal advisors to complete negotiations on all remaining open issues with Pfizer, including in particular with respect to various open items in the disclosure schedules, in preparation for a Company board meeting early in the morning on February 20, 2008, to approve the definitive merger agreement and authorize its execution. Representatives of Covington, Encysive, Pfizer and Weil completed the definitive documentation late that evening through the following early morning.

 

Early in the morning on February 20, 2008, Encysive’s board of directors convened a meeting to consider and approve the definitive merger agreement with Pfizer and the related transactions. Also present at the meeting were representatives of Morgan Stanley, Covington and Porter & Hedges. At the meeting, Morgan Stanley orally and in written form provided its opinion to Encysive’s board of directors that, based on and subject to the assumptions made, matters considered, procedures followed and limitations on the review undertaken as set forth in its written opinion, as of February 20, 2008, the consideration to be received by holders of Shares pursuant to the Merger Agreement with Pfizer was fair, from a financial point of view, to such holders. Morgan Stanley then reviewed the financial bases and calculations underlying its opinion and answered questions from members of Encysive’s board of directors. A representative from Porter & Hedges then reviewed with the members of Encysive’s board of directors their fiduciary duties under Delaware law. A representative of Covington then reviewed in detail the material terms of the proposed merger agreement that had been negotiated with Pfizer, which terms were also set forth in a summary that had been provided to members of the Board before the meeting along with the final text of the proposed merger agreement itself, and answered questions from members of Encysive’s board of directors. Following questions by the members of Encysive’s board of directors to representatives of Morgan Stanley, Covington and Porter & Hedges, and further discussion among the members of Encysive’s board of directors, Encysive’s board of directors, by unanimous action of all members, resolved that Pfizer’s offer was in the best interests of Encysive’s stockholders and approved, authorized the execution, delivery and performance of, and declared advisable the Merger Agreement, the tender offer, the Merger and the other transactions contemplated by the Merger Agreement, and further resolved to recommend to Encysive’s stockholders that they accept and tender their Shares into Pfizer’s tender offer, approve the Merger and adopt the Merger Agreement.

 

Immediately following the Encysive board meeting and prior to the opening of trading on NASDAQ on February 20, 2008, Pfizer and Encysive executed the Merger Agreement and announced the transaction in a jointly issued press release.

 

At a meeting of our board of directors held on February 20, 2008, our board of directors unanimously:

 

 

 

Encysive’s board of directors, in the course of reaching its decision to approve and adopt the Merger Agreement and to recommend that Encysive’s stockholders accept the tender offer, tender their Shares pursuant to the tender offer and approve the Merger Agreement and the transactions contemplated thereby, consulted with

Encysive’s management and its financial and legal advisors and considered a number of factors, including the following:

 

 

In the course of its deliberations, Encysive’s board of directors also considered a variety of risks and other countervailing factors related to entering into the Merger Agreement and the transactions contemplated by the Merger Agreement, including:

 

 

 

The foregoing discussion of the factors considered by Encysive’s board of directors is not intended to be exhaustive, but does set forth the principal factors considered by Encysive’s board of directors. Encysive’s board of directors collectively reached the conclusion to approve the Merger Agreement and the related transactions in light of the various factors described above and other factors that the members of Encysive’s board of directors believed were appropriate. In view of the wide variety of factors considered by Encysive’s board of directors in connection with its evaluation of the tender offer, the Merger and the related transactions and the complexity of these matters, Encysive’s board of directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of Encysive’s board of directors. Rather, Encysive’s board of directors made its recommendation based on the totality of information presented to and the investigation conducted by it. In considering the factors discussed above, individual directors may have given different weights to different factors.

 

OUR BOARD OF DIRECTORS APPROVED AND DECLARED ADVISABLE THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDED THAT OUR STOCKHOLDERS ADOPT THE MERGER AGREEMENT.

 

Morgan Stanley was asked by Encysive’s board of directors to render an opinion to the Encysive’s board of directors as to the fairness, from a financial point of view, to Encysive’s stockholders of the consideration to be received by the stockholders of Encysive in connection with the tender offer and the Merger. On February 20, 2008, Morgan Stanley delivered its oral and written opinion to Encysive’s board of directors that, as of the date of its opinion, and subject to and based upon the assumptions made, matters considered, procedures followed and

limitations on the review undertaken as set forth in its opinion, the consideration to be received by the holders of Shares pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.

 

Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the ordinary course of Morgan Stanley’s securities underwriting, trading and brokerage, foreign exchange, commodities and derivatives trading, prime brokerage, investment management and financing and financial services activities, Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, trade or otherwise structure and effect transactions, for its own account or for the account of customers, in the equity or debt securities or loans of Encysive or Pfizer. In the two years prior to the date of its opinion, Morgan Stanley and its affiliates have provided financial advisory services for Encysive and Pfizer and have received fees for the rendering of these services. Morgan Stanley may also seek to provide such services to Pfizer in the future and would receive fees for the rendering of such services.

 

The full text of Morgan Stanley’s opinion, dated as of February 20, 2008, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Morgan Stanley is attached as Annex B to this Information Statement. We urge you to read this opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to Encysive’s board of directors, addresses only the fairness from a financial point of view of the consideration pursuant to the Merger Agreement to holders of Shares, and does not address any other aspect of the tender offer or constitute a recommendation to any holder of Shares as to whether to accept the tender offer. The summary of the opinion of Morgan Stanley set forth in this Information Statement is qualified in its entirety by reference to the full text of the opinion.

 

In connection with rendering its opinion, Morgan Stanley, among other things:

 

 

 

 

Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to it by Encysive, and formed a substantial basis for its opinion. With respect to the financial projections, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Encysive of the future financial performance of Encysive. In addition, Morgan Stanley assumed that the offer and the Merger will be consummated in accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions. Morgan Stanley assumed that in connection with the

receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed offer and Merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed offer and Merger. Morgan Stanley relied upon, without independent verification, the assessment by the management of Encysive of: (i) the strategic, financial and other benefits expected to result from the offer and Merger; (ii) the timing and risks associated with the integration of Encysive and Pfizer; (iii) Encysive’s and Pfizer’s ability to retain key employees of Encysive; and (iv) the validity of, and risks associated with, Encysive’s existing and future technologies, intellectual property, products, services and business models. Morgan Stanley is not a legal, tax, regulatory or actuarial advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of Pfizer and Encysive and their respective legal, tax, regulatory or actuarial advisors with respect to such matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of Encysive’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of Shares pursuant to the Merger Agreement. Additionally, Morgan Stanley’s opinion did not address the relative merits of the tender offer or Merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are achievable. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Encysive, nor was it furnished with any such appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of February 20, 2008. Events occurring after February 20, 2008 may affect the opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm the opinion.

 

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion. These summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

 

Historical Share Price Performance

 

Morgan Stanley observed that the low and high trading prices in the 52 weeks prior to February 19, 2008 were $0.59 and $5.02, respectively.

 

Discounted Cash Flow Analysis

 

Morgan Stanley performed discounted cash flow analyses to determine a range of present values for Encysive based on financial projections prepared by the management of Encysive. Morgan Stanley also analyzed additional scenarios that reflected various sensitivities based on management’s varying assumptions of ETRA market size, Thelin ^tm peak market share and probability of U.S. regulatory approval of Thelin ^tm . In calculating the discounted cash flow equity value per Share, Morgan Stanley calculated the unlevered free cash flow estimates for a projection period from 2008 to 2017. The unlevered free cash flows were then discounted to present values as of March 31, 2008 using discount rates of 13.0% to 15.0%. Under all scenarios, unlevered free cash flows resulting from the sale of Thelin ^tm in the U.S. were probability-weighted to account for development and FDA approval risk. Also, all scenarios included the costs of a trial required to secure regulatory approval for Thelin ^tm in the U.S. Additionally, Morgan Stanley noted that significant capital would be required in order for Encysive to achieve any standalone case. As such, Morgan Stanley assumed that Encysive would need to raise equity capital as required to achieve profitability. Thus, Morgan Stanley’s analysis included the future dilution required to meet the various standalone cases and represented the equity value per Share available to current stockholders. Under the “Market Perform Case,” management assumed that Thelin ^tm generated a 22% peak market share of a $2.4 billion U.S. ETRA market. The “Market Perform Case” implied $898 million in Thelin ^tm peak year worldwide sales. Based on the Market Perform Case, Morgan Stanley observed that the equity value per Share to current stockholders was approximately $5.22 to $5.95. Under the “Base Case,” management assumed that Thelin ^tm generated a 15% peak market share of a $2.4 billion U.S. ETRA market. The “Base Case” implied $663 million in Thelin ^tm peak year worldwide sales. Assuming the Base Case, Morgan Stanley observed that the equity value per Share to current stockholders was approximately $2.60 to $3.00. Under the “Downside Case,” management assumed that Thelin ^tm generated a 15%

peak market share of a $1.5 billion U.S. ETRA market. The “Downside Case” implied $457 million in Thelin ^tm peak year worldwide sales. Based on the Downside Case, Morgan Stanley observed that the equity value per Share to current stockholders was approximately $1.61 to $1.89. Morgan Stanley also performed a sensitivity analysis on the Base Case that assumed a 0% probability of obtaining FDA approval for Thelin ^tm . Based on such sensitized Base Case, Morgan Stanley observed that the equity value per Share to current stockholders was approximately $1.38 to $1.63. Morgan Stanley noted that the consideration to be received by the holders of Shares pursuant to the Merger Agreement was $2.35 per Share.

 

Other Analyses

 

Using publicly available information, Morgan Stanley reviewed the terms of certain comparable biotechnology and pharmaceutical acquisition transactions that have been announced and are pending or completed; its review focused on, among other precedent acquisition transactions:

 

For each of the transactions above, Morgan Stanley reviewed the price paid for the acquired company and calculated the respective premiums to the acquired company’s unaffected stock price one day prior to announcement of the transaction. Based on such review, Morgan Stanley noted the following:

 

 

Based on the offer of $2.35 per Share and the share price of Encysive as of February 19, 2008, the last trading day before the tender offer and the Merger were announced, Morgan Stanley calculated the Encysive 1-day premium, premium to 30-day average share price, premium to 90-day average share price, premium to 180-day average share price and premium to 1-year average share price to be 118%, 203%, 201%, 114% and 17%, respectively.

 

No company or transaction utilized in precedent transactions analyses is identical to Encysive or the offer or the Merger. In evaluating the transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, business, economic, market and financial conditions and other matters, many of which are beyond the control of Encysive, such as the impact of competition on the business of Encysive or the industries in which it is principally engaged, the growth of these industries and the absence of any material adverse change in the financial condition and prospects of Encysive or the industries in which it is principally engaged or in the financial markets in general which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being compared. Mathematical analysis, such as determining the mean or median, or the high or the low, is not in itself a meaningful method of using peer group data.

 

In connection with the review of the offer and the Merger by Encysive’s board of directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Furthermore, Morgan Stanley believes that the summary provided and the analyses described above must be considered as a whole and that selecting any portion of its analyses, without considering all analyses, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions, so that the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of Encysive.

 

In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Encysive. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. The analyses performed were prepared solely as part of Morgan Stanley’s analysis of the fairness from a financial point of view of the consideration to be received by holders of Shares pursuant to the Merger Agreement and were conducted in connection with the delivery by Morgan Stanley of its written opinion dated February 20, 2008 to Encysive’s board of directors. The analyses do not purport to be appraisals or to reflect the prices at which Shares might actually trade.

 

Morgan Stanley’s opinion was one of many factors taken into consideration by Encysive’s board of directors in making its decision to approve the offer and the Merger. Consequently, the Morgan Stanley analyses as described above should not be viewed as determinative of the opinion of Encysive’s board of directors with respect to the value of Encysive, the tender offer and merger consideration or of whether Encysive’s board of directors would have been willing to agree to a different investment transaction.

 

The Merger is not conditioned on any financing arrangements.

 

The following is a summary of certain United States federal income tax consequences of the Merger to stockholders of Encysive whose Shares are converted into the right to receive cash in the Merger. The discussion is for general information only and does not purport to consider all aspects of United States federal income taxation that might be relevant to stockholders of Encysive. The discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing, proposed and temporary regulations thereunder and administrative and judicial interpretations thereof, all of which are subject to change, possibly with a retroactive effect. The discussion applies only to stockholders of Encysive in whose hands Shares are capital assets within the meaning of Section 1221 of the Code. This discussion does not apply to Shares received pursuant to the exercise of employee stock options or otherwise as compensation, or to certain types of stockholders (such as insurance companies, tax-exempt organizations, financial institutions and broker-dealers) who may be subject to special rules. This discussion does not discuss the United States federal income tax consequences to any stockholder of Encysive who, for United States federal income tax purposes, is a nonresident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust, nor does it consider the effect of any foreign, state or local tax laws.

 

Because individual circumstances may differ, each stockholder should consult its, his or her own tax advisor to determine the applicability of the rules discussed below and the particular tax effects of the Merger on a beneficial holder of Shares, including the application and effect of the alternative minimum tax and any state, local and foreign tax laws and of changes in such laws.

 

The exchange of Shares for cash pursuant to the Merger will be a taxable transaction for United States federal income tax purposes. In general, a stockholder who receives cash in exchange for Shares pursuant to the Merger will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received and the stockholder’s adjusted tax basis in the Shares exchanged for cash pursuant to the Merger. Gain or loss will be determined separately for each block of Shares (that is, Shares acquired at the same cost in a single transaction) exchanged for cash pursuant to the Merger. Such gain or loss will be long-term capital gain or loss provided that a stockholder’s holding period for such Shares is more than one year at the time of consummation of the Merger, as the case may be. Capital gains recognized by an individual upon a disposition of a Share that has been held for more than one year generally will be subject to a maximum United States federal income tax rate of 15%. In the case of a Share that has been held for one year or less, such capital gains generally will be subject to tax at ordinary income tax rates. Certain limitations apply to the use of a stockholder’s capital losses.

 

A stockholder whose Shares are exchanged for cash pursuant to the Merger may be subject to backup withholding unless certain information is provided to the paying agent or an exemption applies.

 

Members of our board of directors and our officers since the beginning of the last fiscal year had various interests in the Merger described in this section that are different from, or in addition to, the interests of Encysive and our stockholders generally.

 

Director and Officer Exculpation, Indemnification and Insurance

 

Encysive’s restated certificate of incorporation, as amended, contains certain provisions permitted under the DGCL relating to the liability of Encysive’s directors. These provisions eliminate a director’s personal liability to Encysive or Encysive’s stockholders for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving certain wrongful acts, including:

 

 

 

Encysive’s bylaws also contain provisions that require Encysive to indemnify its directors and officers to the fullest extent permitted by law.

 

Encysive has entered into indemnification agreements with the following current or former directors and officers: Ron J. Anderson, J. Kevin Buchi, George W. Cole, Robert J. Cruikshank, John H. Dillon, II, Richard A.F. Dixon, Richard A. Goeggel, D. Jeffrey Keyser, Derek J. Maetzold, Paul S. Manierre, Suzanne Oparil, John M. Pietruski, James A. Thomson, James T. Willerson, Bruce D. Given and Gordon Busenbark.

 

Each indemnification agreement provides that Encysive will indemnify the indemnified person to the fullest extent permitted by applicable law or Encysive’s restated certificate of incorporation, as amended, including if and when the indemnified person is or was a party or is threatened to be made a party to any action, suit, arbitration, investigation, administrative hearing, or any other proceeding (a “Proceeding”) because of the indemnified person’s status or former status as a director, officer, or other agent of Encysive or because of anything done or not done by the indemnified person in such capacity, against all expenses and liabilities actually and reasonably incurred by the indemnified person or on the indemnified person’s behalf in connection with the investigation, defense, settlement, or appeal of such Proceeding. Encysive will also advance to the indemnified person all reasonable expenses incurred in defense of any Proceeding.

 

Under the Merger Agreement, Pfizer and the Purchaser have agreed that all rights to indemnification by Encysive in favor of its and its subsidiaries’ officers and directors, as provided in the restated certificate of incorporation, as amended, or bylaws of Encysive or pursuant to indemnification agreements, shall survive and remain in full force and effect for a period of not less than six years after the effective time of the Merger (the “Effective Time”).

 

Under the Merger Agreement, Pfizer and the surviving corporation have agreed, for a period of six years after the Effective Time, to the fullest extent permitted by law (but subject to the limitations under the DGCL on a corporation’s ability to indemnify its own officers and directors), to indemnify, defend and hold harmless the officers and directors of Encysive and its subsidiaries against all losses, claims, damages, liabilities, fees, expenses, judgments and fines, including reasonable legal or other expenses incurred in connection with investigating or defending any claims, arising out of actions or omissions occurring on or prior to the Effective Time.

 

Pursuant to the Merger Agreement, for a period of six years following the Effective Time, Pfizer has agreed to cause to be maintained in effect policies of directors’ and officers’ liability insurance or a six-year tail insurance policy covering the persons who are covered by Encysive’s existing directors’ and officers’ liability insurance policies for events that occur prior to the Effective Time and providing coverage at least as favorable, in the aggregate, as such existing policies. However, Pfizer will not be required to pay an annual premium in excess of 200% of the aggregate annual amounts currently paid by Encysive to maintain such existing policies. In the event that equivalent coverage cannot be obtained without paying aggregate premiums in excess of such amount, Pfizer will only be required to obtain as much coverage as is reasonably practicable by paying aggregate premiums equal to such amount.

 

Termination Agreements

 

Encysive has entered into termination agreements with the following officers: Derek J. Maetzold, George W. Cole, D. Jeffrey Keyser, Paul S. Manierre, Richard A.F. Dixon, and Richard A. Goeggel. Each termination agreement provides for, among other things, severance benefits, including salary and bonus payments and benefits continuation, in the event of a termination of employment by the officer for “good reason” or by Encysive without “cause” (as each such term is defined in the termination agreements), and for increased severance benefits and accelerated payment of severance benefits in the event of a termination of employment by the officer for “good reason” or by Encysive without “cause” within two years after an event constituting a “change in control” (as defined in the termination agreements).

In the event of a termination of employment by the officer for “good reason” or by Encysive without “cause” within two years after an event constituting a “change in control”: George W. Cole’s termination agreement generally provides for a lump sum payment equal to three times his annual base salary and most recent annual cash bonus, and continuation of welfare benefits for 18 months following termination; Richard A.F. Dixon’s and Paul S. Manierre’s termination agreements generally provide for a lump sum payment equal to three times the individual’s annual base salary and most recent annual cash bonus, and continuation of welfare benefits for 36 months following termination; and Derek J. Maetzold’s, D. Jeffrey Keyser’s and Richard A. Goeggel’s termination agreements generally provide for a lump sum payment equal to 1.5 times their annual base salary and most recent annual cash bonus, and continuation of welfare benefits for 18 months following termination.

 

Each termination agreement provides (i) a gross-up “bonus” payment in the event that the employee receives an “excess parachute payment” as defined in section 280G(b)(1) of the Code, that is subject to an excise tax under section 4999 of the Code, and (ii) payment by Encysive of certain legal fees and expenses incurred by the employee in connection with a termination of employment by the employee for “good reason” or by Encysive without “cause” within two years after an event constituting a “change in control.”

 

Former Officers

 

On October 31, 2005, Mr. Busenbark was appointed Encysive’s Chief Financial Officer and entered into Encysive’s standard termination agreement. On July 9, 2007, Mr. Busenbark resigned effective July 13, 2007. As a result of his resignation, Mr. Busenbark forfeited all restricted common stock and all outstanding stock options since none were vested on July 13, 2007. Mr. Busenbark had no benefits payable pursuant to his termination agreement.

 

On March 21, 2002, Dr. Given was appointed Encysive’s President and Chief Executive Officer and a member of Encysive’s board of directors. Effective June 24, 2007, Encysive’s employment of Dr. Given was terminated and, effective July 12, 2007, Dr. Given resigned from Encysive’s board of directors. On July 12, 2007, Encysive entered into a Separation Agreement and Release with Dr. Given. Under the terms of this agreement, Encysive agreed to pay Dr. Given the benefits which he was entitled to receive under the provisions of his termination agreement relating to a termination by Encysive without “cause” or by the executive for “good reason.”

 

Severance Benefits

 

Encysive maintains the 2007 Severance Pay Plan which applies to U.S. employees of Encysive who do not have a written employment or termination agreement. Any such employee who is terminated without “cause” within 180 days following the consummation of the Merger will be eligible to receive the severance benefits specified under the 2007 Severance Pay Plan (generally a severance payment equal to 60 days annual base pay plus two weeks of the participant’s annual base pay for each full year of service in excess of four years of service). For this purpose, “cause” means conviction of a felony, misconduct involving material dishonesty, breach of trust, unethical business practice, or refusal or material failure to perform material job functions (unless caused by incapacitating disability occurring after the closing date or in accordance with applicable law). Severance benefits for employees of Encysive’s foreign subsidiaries are statutory and contractual. The statutory and contractual (which includes “garden leave” payments) benefits differ by country and employee rank.

 

Acceleration of Options and Other Equity Based Awards

 

Pursuant to the Merger Agreement, all outstanding options, whether vested or unvested, will be terminated upon consummation of the Merger. Accordingly, for each terminated option with an exercise price lower than the per Share merger consideration, the option holder will receive a payment at the Effective Time, for each Share subject to the option, equal to (i) the per Share merger consideration minus (ii) the exercise price of the option, subject to applicable tax withholding. If an option’s exercise price is greater than or equal to the per Share merger consideration, the option holder will receive no payment with respect to that option.

 

The restrictions on outstanding restricted stock lapsed as of the day of the consummation of the tender offer and the holders of restricted stock are to be treated like other Encysive stockholders for purposes of the tender offer and the Merger. Outstanding phantom units vested as of the day before the consummation of the tender offer, and

holders of outstanding phantom units are entitled to a cash payment (subject to applicable tax withholding) pursuant to the terms of each phantom unit and the related stock plan under which it was granted.

 

Summary Information

 

The tables below set forth the amounts payable to Encysive’s current and former officers and directors holding office at the time of the approval of the Merger Agreement as a result of the tender offer and the Merger pursuant to the cash-out of outstanding options and stock (including restricted stock). The table with this information for officers also sets forth the amounts payable to each officer if his employment is terminated by the officer for “good reason” or by Encysive without “cause” within two years after an event constituting a “change of control” (as each such term is defined in the termination agreements). The termination agreements and certain rights provided thereunder are described above.

 

 

 

 

 

 

 

Other Employee Matters

 

For a period of one year following the consummation of the Merger, Pfizer will provide retained U.S. employees with employee benefits (excluding equity and change in control arrangements) during their employment that are substantially comparable in the aggregate to the benefits provided to such employees immediately prior to the consummation of the Merger. This does not require Pfizer to continue any particular benefit plan or program, nor does it prevent Pfizer from integrating retained employees into Pfizer’s employee benefit plans. European employees are employed on the terms of their contracts with the relevant European subsidiary of Encysive. The Merger will not, of itself, effect any change in the terms of their employment or their employee benefits. European employees are also protected either by statute or by the terms of relevant collective agreements.

 

Other Matters

 

Dr. James A. Thomson, a member of Encysive’s board of directors and chair of its Compensation and Corporate Governance Committee, is also the president and chief executive officer and a member of the board of trustees of the RAND Corporation, a nonprofit corporation that performs research and analysis and conducts educational programs. The RAND Corporation provides research and analysis services to a variety of public sector entities and private sector organizations, including Pfizer from time to time. The aggregate revenues received from Pfizer for such services were less than 1% of the RAND Corporation’s gross revenues in 2007, less than 2.5% of its gross revenues in 2006 and less than 2% of its gross revenues in 2005.

 

Subject to the terms and conditions of the Merger Agreement and in accordance with the DGCL, at the time of the Merger, the Purchaser will merge with and into Encysive, with Encysive continuing as the surviving corporation, wholly-owned by Pfizer. The time of the filing of the certificate of merger with the Secretary of State of the State of Delaware will be the Effective Time.

 

The conversion of our common stock into the right to receive the per Share merger consideration in cash, without interest, will occur automatically at the effective date of the Merger. Promptly after the effective date of the Merger, the paying agent will send a letter of transmittal to each holder of record of a certificate or certificates of

Encysive common stock. The letter of transmittal will contain instructions for obtaining cash in exchange for shares of our common stock. Stockholders should not return stock certificates before receiving the letter of transmittal.

 

In the event of a transfer of ownership of our common stock that is not registered in the records of our transfer agent, the cash consideration for shares of our common stock may be paid to a person other than the person in whose name the certificate so surrendered is registered if:

 

 

The cash paid upon conversion of the Shares will be issued in full satisfaction of all rights relating to the Shares.

 

If your Shares are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your “street name” Shares in exchange for the merger consideration.

 

Other than the expiration of 20 days from the mailing of this Information Statement to Encysive’s stockholders and the filing of a certificate of merger with the Secretary of State of the State of Delaware, we are unaware of any material federal, state or foreign regulatory requirements, approvals or filings required for the completion of the Merger that have not been obtained. The “Regulatory Condition” to the tender offer has already been satisfied.

 

Under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the “HSR Act”) and the rules promulgated thereunder by the Federal Trade Commission (the “FTC”), the Merger cannot be consummated until Encysive and Pfizer file a notification and report form under the HSR Act and the applicable waiting period has expired or been terminated. Encysive and Pfizer filed notification and report forms under the HSR Act with the FTC and the Antitrust Division of the Department of Justice (the “Antitrust Division”) on March 4, 2008. Encysive and Pfizer were notified by the FTC that early termination of the waiting period had been granted as of March 19, 2008. At any time before or after consummation of the Merger, notwithstanding the early termination of the waiting period under the HSR Act, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of Encysive and Pfizer. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

 

Under German merger control law, the purchase of Shares in the tender offer and the Merger cannot be completed until the expiration of a one-month waiting period following the Federal Cartel Office (FCO)’s receipt of a complete filing by Pfizer as the ultimate parent company of the Purchaser without any decision of the FCO to enter into an in-depth investigation (Hauptprüfverfahren) has been passed or a clearance has been obtained. Pfizer filed a merger control notification on March 4, 2008 with the FCO. On March 27, 2008, Pfizer obtained clearance from the FCO with respect to the offer and the Merger pursuant to German merger control law. The Merger may be consummated upon the issuance of the clearance decision (in case of non-conditional remedies which have to be fulfilled later on within a certain time frame) or upon the complete fulfillment of all respective conditions (in case of conditional remedies).

 

While there can be no assurance that the Merger will not be challenged by a governmental authority or private party on antitrust grounds, based on a review of information provided by Pfizer relating to the businesses in which it and its affiliates are engaged, Encysive believes that the Merger can be effected in compliance with federal and state antitrust laws. The term “antitrust laws” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, all other Federal and state statutes, rules, regulations, orders, decrees, administrative and judicial doctrines and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

 

If the Merger is completed, Encysive will become a wholly-owned subsidiary of Pfizer and the Encysive common stock will cease to be listed on the NASDAQ Global Market and will not be publicly traded. In addition, upon consummation of the Merger, the registration of our common stock and our reporting obligations with respect to our common stock under the Exchange Act will be terminated upon application to the SEC.

 

Encysive’s common stock is currently registered under the Exchange Act. Such registration may be terminated upon application of Encysive to the SEC if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by Encysive to its stockholders and to the SEC and would make certain provisions of the Exchange Act no longer applicable to Encysive, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with stockholders’ meetings and the related requirement of furnishing an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to “going private” transactions. Furthermore, the ability of “affiliates” of Encysive and persons holding “restricted securities” of Encysive to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act may be impaired or eliminated. If registration of the Shares under the Exchange Act was terminated, the Shares would no longer be “margin securities” or be eligible for listing on NASDAQ. We intend and will cause Encysive to terminate the registration of the Shares under the Exchange Act as soon after consummation of the Merger as the requirements for termination of registration are met.

 

In addition, if the registration of the Shares of Encysive’s common stock is terminated, Encysive will no longer be subject to certain provisions of the Sarbanes-Oxley Act of 2002 or the liability provisions of the Exchange Act with respect to Encysive’s common stock. By virtue of Encysive no longer operating as a company with publicly listed equity securities, Encysive will save substantial costs per year, including the cost of annual NASDAQ fees, costs incurred in connection with Encysive’s annual meeting and premiums for the Company’s directors’ and officers’ insurance.

 

Upon consummation of the Merger, you will cease to have rights as a stockholder, other than your right to either receive the merger consideration or to exercise your appraisal rights, and you will no longer have any interest in any of our future earnings or growth, if any.

 

The discussion of the provisions set forth below is not a complete summary regarding your appraisal rights under Delaware law and is qualified in its entirety by reference to the text of the relevant provisions of Delaware law, which are attached as Annex C to this Information Statement and incorporated herein by reference. Stockholders intending to exercise appraisal rights should carefully review Annex C. Failure to follow any of these statutory procedures set forth in Annex C may result in a termination or waiver of your appraisal rights under applicable law. Therefore, this summary and Annex C should be reviewed carefully by any stockholder who wishes to exercise statutory appraisal rights or who wishes to reserve the right to do so.

 

Under the DGCL, stockholders of Encysive are entitled to appraisal rights for any or all of the Shares held by them at the Effective Time provided that they comply with the conditions established by Section 262 of the DGCL (“Section 262”). Annexed as Annex C to this Information Statement is a copy of Section 262 which sets forth your statutory rights of appraisal and the procedures for effecting these rights.

 

Section 262 sets forth the procedures a stockholder must follow to have his, her or its shares appraised by the Delaware Court of Chancery (the “Court”) and to receive payment of the “fair value” of such Shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, as determined by the Court. The statutory rights of appraisal granted by Section 262 are subject to strict compliance with the procedures set forth in Section 262.

 

Under Section 262, where a merger is adopted by stockholders by written consent in lieu of a meeting of stockholders, either a constituent corporation before the effective date of the merger or the surviving or resulting corporation, within 10 days after the effective date of the merger, must notify each stockholder of each constituent corporation entitled to appraisal rights of the merger and that appraisal rights are available to such stockholders. This Information Statement constitutes notice to holders of Encysive’s common stock concerning the availability of appraisal rights under Section 262.

 

A stockholder electing to exercise appraisal rights must demand in writing from Encysive the appraisal of his, her or its Shares within 20 days after the date of mailing of this Information Statement. Accordingly, this 20 day period will terminate on June [     l     ], 2008. Such demand will be sufficient if it reasonably informs Encysive of the identity of the stockholder of record and that the stockholder intends to demand appraisal of his, her or its Shares. The address for delivery of demand is: Encysive Pharmaceuticals Inc., 4848 Loop Central Drive, Suite 700, Houston, Texas 77081, Attention: Corporate Secretary.

 

Only a stockholder of record on the effective date of the Merger is entitled to assert appraisal rights for the Shares registered in her, his or its name. The demand should be executed by or for the stockholder of record, fully and correctly, as the stockholder’s name appears on the stockholder’s stock certificates. If the Shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand must be made in that capacity, and if the Shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by or for all joint owners. A person having a beneficial interest in Shares held of record in the name of another person must act promptly to cause the record holder to follow the steps summarized herein properly and in a timely manner to perfect appraisal rights. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the record owner. If a stockholder holds Shares through a broker who in turn holds the Shares through a central securities depositary nominee, such as The Depository Trust Company, a demand for appraisal of such Shares must be made by or on behalf of the depositary nominee and must identify the depositary nominee as the holder of record. A stockholder of record who holds Shares as nominee for a beneficial owner may exercise appraisal rights with respect to the securities held for one or more beneficial owners while not exercising such rights for other beneficial owners. In addition, any stockholder of record who holds Shares for her, his or its own account or for one beneficial owner, may demand appraisal for less than all of such Shares. In such case, the written demand must set forth the number of Shares as to which demand for appraisal is made. Where no number of Shares is expressly mentioned, the demand will be presumed to cover all Shares standing in the name of the record owner. Encysive must send a notice of the Effective Time of the Merger either prior to the Effective Time of the

Merger or within 10 days thereafter. If the notice is sent more than 20 days following the sending of this notice, the notice of the Effective Time of the Merger need only be sent to stockholders who have demanded appraisal rights.

 

Within 120 days after the effective date of the Merger, Encysive or any stockholder who has satisfied the provisions of Section 262 may commence an appraisal proceeding by filing a petition with the Court, with a copy served on Encysive in the case of a petition filed by a stockholder, demanding a determination of the fair value of the Shares held by such stockholders entitled to appraisal rights. Stockholders seeking to exercise appraisal rights should not assume that Encysive will file a petition with respect to the appraisal of the value of their Shares or that Encysive will initiate any negotiations with respect to the “fair value” of such Shares. Accordingly, it is the obligation of each stockholder to initiate all necessary action to perfect such stockholder’s appraisal rights within the time periods prescribed by Section 262.

 

Within 120 days after the effective date of the Merger, any stockholder who has complied with the requirements for exercise of appraisal rights, as discussed above, will be entitled, upon written request, to receive from Encysive a statement setting forth the aggregate number of Shares with respect to which demands for appraisal have been made and the aggregate number of holders of such Shares. Such statement must be mailed within 10 days after the written request therefor has been received by Encysive or, if later, within 10 days after the expiration of the period for delivery to Encysive of appraisal demands. A person who is the beneficial owner of Shares held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, request such a statement from Encysive and may also file a petition for appraisal.

 

If a petition for an appraisal is timely filed, after a hearing on such petition, the Court will determine the stockholders entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their Shares and who hold Shares represented by certificates to submit their certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. Where proceedings are not dismissed, the appraisal proceeding shall be conducted, as to the Shares owned by such stockholders, in accordance with the rules of the Court, including any rules specifically governing appraisal proceedings. Through such proceeding, the Court shall determine the fair value of such Shares exclusive of any element of value arising from the accomplishment or expectation of the Merger with interest thereon to be paid in accordance with Section 262 as the Court so determines.

 

In determining such “fair value,” the Court will take into account all relevant factors. In Weinberger v. UOP, Inc. , decided February 1, 1983, the Delaware Supreme Court set forth the considerations that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company . . . .” The Delaware Supreme Court stated that in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc. , the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation.” In Weinberger , the Delaware Supreme Court held that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.” Stockholders considering seeking appraisal should bear in mind that the fair value of their Shares determined under Section 262 could be more, the same, or less than the per Share merger consideration if they do not seek appraisal of their Shares and that investment banking opinions as to fairness from a financial point of view are not necessarily opinions as to fair value under Section 262. Although Encysive believes the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Court. Moreover, Encysive does not anticipate offering more than the per Share merger consideration to any stockholder exercising appraisal rights and reserves the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a Share is less than the per Share merger consideration.

When the fair value is so determined, the Court shall direct the payment of the fair value of the Shares, with interest thereon to be paid in accordance with Section 262 and as the Court so determines, to the dissenting stockholders entitled thereto, upon the surrender to Encysive by such dissenting stockholders of the certificates formerly representing such Shares. Unless the Court, in its discretion, sets a different interest rate for good cause shown, interest on an appraisal award will accrue and compound quarterly from the effective date of the Merger through the date the judgment is paid at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the Merger and the date of payment of the judgment. The cost of the appraisal proceeding may be determined by the Court and taxed against the parties as the Court deems equitable under the circumstances. Upon application of a dissenting stockholder, the Court may order that all or a portion of the expenses incurred by any dissenting stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and the fees and expenses of experts, be charged pro rata against the value of all Shares entitled to appraisal. In the absence of such a determination or assessment, each party bears her, his or its own expenses.

 

Any stockholder who has duly demanded an appraisal in compliance with Section 262 will not, after the effective date of the Merger, be entitled to vote the Shares subject to such demand for any purpose or be entitled to receive the payment of dividends or other distributions in respect of those Shares (other than those payable to stockholders of record as of a date prior to the effective date of the Merger).

 

If any stockholder who demands appraisal of their Shares under Section 262 fails to perfect or effectively withdraws or loses the right to appraisal, the Shares of such stockholder will be converted into the right to receive the per Share merger consideration in accordance with the Merger Agreement. A stockholder will fail to perfect or effectively lose a right to appraisal if no petition for appraisal is filed within 120 days after the effective date of the Merger, or if the stockholder delivers to Encysive a written withdrawal of such stockholder’s demand for an appraisal and an acceptance of the Merger, except that (i) any such attempt to withdraw made more than 60 days after the effective date of the Merger requires the written approval of Encysive, and (ii) no appraisal proceeding in the Court shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just, provided, however, that this provision shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the Merger within 60 days. Since Encysive has no obligation or intention to file such a petition, any stockholder who desires a petition to be filed is advised to file it on a timely basis.

 

This section of this Information Statement describes the material terms of the Merger Agreement but does not purport to describe all of the terms of the Merger Agreement. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, which is attached as Annex A to this Information Statement and is incorporated into this Information Statement by reference. We urge you to read the full text of the Merger Agreement because it is the legal document that governs the Merger. We have included this description of the Merger Agreement to provide you with information regarding its terms. We have not provided this description to provide you with any other factual information about us. You can find such factual information elsewhere in this Information Statement and in the public filings we make with the SEC, as described in the section entitled “Where You Can Find More Information” below. Capitalized terms not herein defined have the meanings ascribed to them in the Merger Agreement.

 

The Merger Agreement provides that at the Effective Time, the Purchaser will be merged with and into Encysive, with Encysive being the surviving corporation (the “Surviving Corporation”). Following the Merger, the separate existence of the Purchaser will cease, and Encysive will continue as the Surviving Corporation, wholly-owned by Pfizer. The directors of the Purchaser immediately prior to the Effective Time will be the directors of the Surviving Corporation.

 

Pursuant to the Merger Agreement, at the Effective Time, each Share that is held by Encysive, Pfizer, the Purchaser or by their wholly-owned subsidiaries, shall automatically be canceled and retired and shall cease to exist, and no cash or other consideration shall be delivered in exchange therefor.

 

Each Share issued and outstanding immediately prior to the Effective Time (other than Shares to be canceled in accordance with the foregoing sentence and Appraisal Shares (as defined below)) shall be canceled and converted into the right to receive the merger consideration ($2.35 in cash, without interest thereon and less any required withholding taxes). As of the Effective Time, all such Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of a certificate representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the merger consideration, without interest.

 

Shares outstanding immediately prior to the Effective Time held by a holder (if any) who is entitled to demand, and who properly demands, appraisal for such Shares in accordance with Section 262 of the DGCL (“Appraisal Shares”) shall not be converted into a right to receive the merger consideration unless such holder fails to perfect or shall have effectively withdrawn or otherwise lost such holder’s right to appraisal, if any. Such stockholders shall be entitled to receive payment of the fair value of such Shares held by them in accordance with the provisions of Section 262 of the DGCL.

 

The Merger Agreement provides that prior to the Effective Time, Encysive will take all actions necessary to provide that each Option (as defined herein) to purchase Shares pursuant to the Stock Plans (as defined herein) outstanding immediately prior to the Effective Time (whether or not then vested or exercisable) will be cancelled and terminated and converted at the Effective Time into the right to receive a cash amount equal to the Option Consideration (as defined herein) for each Share then subject to the Option (without interest and less applicable withholding taxes) or if the Option Consideration is a negative number, no such cash payment will be due and owing. Option Consideration means, with respect to each Share under a particular Option, an amount equal to (i) the merger consideration per Share, less (ii) the exercise price payable in respect of each Share under such Option. Options means any option granted, and, immediately before the Effective Time not exercised, expired or terminated, to a current or former employee, director or independent contractor of Encysive or any of its

 

 

¹  Certain disclosure made in the Offer to Purchase summarizing the Merger Agreement has been eliminated from this summary as no longer applicable. Certain provisions of the Merger Agreement summarized herein no longer have application as a result of the consummation of the tender offer; however, they have been included herein for the sake of completeness or because references to them are made elsewhere in this Information Statement.

subsidiaries or any former subsidiary or predecessor thereof to purchase Shares pursuant to the Stock Plans. Stock Plans means Encysive’s Amended and Restated 1990 Incentive Stock Option Plan, Amended and Restated 1992 Incentive Stock Option Plan, Amended and Restated 1995 Stock Option Plan, Amended and Restated 1995 Non-Employee Director Stock Option Plan, Amended and Restated 1999 Stock Inventive Plan and 2007 Incentive Plan, as amended. Encysive agreed to take all actions necessary prior to the Effective Time to terminate all of the Stock Plans, effective at or before the Effective Time.

 

The Merger Agreement further provides that as soon as practicable following the date of the Merger Agreement, Encysive’s Board of Directors (or a committee thereof) shall adopt resolutions or take such other actions required so that, subject to the terms of the Stock Plans and the grants thereunder, (i) each Phantom Unit will become fully vested and deemed earned in full effect as of the day immediately preceding the date of acceptance for payment of the Shares pursuant to the tender offer, (ii) each holder of a Phantom Unit will thereafter be entitled to receive cash (less any applicable withholding taxes), within 30 days of the day immediately preceding the date of acceptance for Shares pursuant to the tender offer, equal to the amount payable to the holder pursuant to the terms of the Phantom Unit and the related Stock Plan under which it was granted and (iii) any forfeiture provisions applicable to such Phantom Unit will lapse as of the acceptance for payment of Shares pursuant to the tender offer. The foregoing is subject to terms set forth in Section 2.4(b) of the Merger Agreement.

 

The Merger Agreement further provides that as soon as practicable following the date of the Merger Agreement, Encysive’s Board of Directors (or a committee thereof) shall adopt resolutions or take such other actions required to provide for the lapse as of the acceptance for payment of Shares pursuant to the tender offer of all forfeiture provisions applicable to any shares of Restricted Stock (as defined herein) and to permit cashless or net vesting of such shares of Restricted Stock. Each holder of Restricted Stock shall be treated as a holder of the corresponding number of Shares issued and outstanding as of immediately prior to the acceptance for payment of Shares pursuant to the tender offer. Restricted Stock means restricted Shares outstanding immediately prior to the Effective Time with respect to which restrictions have not lapsed, and which award shall not have expired or terminated, to a current or former employee, director or independent contractor of Encysive or one of its subsidiaries or any predecessor thereof pursuant to any applicable Stock Plan or any other contract or agreement entered into by Encysive or any of its subsidiaries.

 

The Merger Agreement further provides that prior to the Effective Time, subject to conditions set forth in Section 6.12 thereof, each outstanding warrant to purchase Shares issued by Encysive pursuant to the Securities Purchase Agreement dated as of August 20, 2007 (each, a “Warrant”) shall be converted into the right to receive an amount in cash (without interest and less any withholding taxes) equal to the product of (x) the number of Shares for which such Warrant may be exercised and (y) the merger consideration.

 

In the Merger Agreement, Encysive has made customary representations and warranties to Pfizer and the Purchaser, including representations relating to: organization and authorization of Encysive; Encysive’s capitalization; organization, existence and good standing of Encysive’s subsidiaries; no conflicts with or consents required in connection with the Merger Agreement; Encysive’s public information; no material adverse change; legal proceedings; material contracts; taxes; commissions and fees; employee benefit plans and employment matters; regulatory compliance; intellectual property; insurance; real property; environmental matters; opinion of financial advisor; information supplied; Encysive’s rights agreement; no liquidated damages event; and state takeover statutes.

 

In the Merger Agreement, Pfizer and the Purchaser have made customary representations and warranties to Encysive, including representations relating to: organization, existence and capitalization; authorization with respect to the Merger Agreement; no conflicts with or consents required in connection with the Merger Agreement; commissions and fees; information supplied; availability of funds; and no additional representations.

 

The Merger Agreement provides that, from the date of the Merger Agreement to the Effective Time, except as contemplated by the Merger Agreement (including in Encysive’s disclosure letter) or as required by law, and unless

Pfizer otherwise consents in writing, Encysive and its subsidiaries shall (i) conduct their operations according to their ordinary and usual course of business and consistent with past practice (ii) use commercially reasonable efforts to maintain and preserve intact their business organizations and their significant business relationships and (iii) use commercially reasonable efforts to retain the services of their present officers and key employees and to comply in all material respects with all applicable laws and the requirements of all contracts that are material to Encysive and its subsidiaries, taken as a whole, in each case, to the end that their goodwill and ongoing business shall be unimpaired at the Effective Time.

 

Between the date of the Merger Agreement and the Effective Time, Encysive is subject to customary operating covenants and restrictions, including restrictions relating to the issuance, sale or pledge of stock; split, combination, subdivision, reclassification, redemption or purchase of outstanding stock and other securities; declaration, setting aside or payment of dividends; purchase, sale or encumbrance of material property or material assets; acquisitions, mergers, consolidations and asset purchases; amendment of charter documents and bylaws; compensation of directors, officers and employees; employee benefits plans; indebtedness; changes in the fiscal year and financial accounting methods; tax issues; lease or sublease of real property; capital expenditures; contracts; payment, discharge, settlement and satisfaction of liens, liabilities or obligations; collective bargaining agreements or other labor union contracts; settlement of litigation; insurance coverage; creation of subsidiaries; and engagement of new business activities.

 

Pursuant to the Merger Agreement, the Encysive Board of Directors (the “Encysive Board”) shall not (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Pfizer, the recommendation by the Encysive Board that its stockholders accept the tender offer, tender their Shares to the Purchaser pursuant to the tender offer and adopt the Merger Agreement (the “Company Recommendation”) or the approval or declaration of the advisability by the Encysive Board of the Merger Agreement and the transactions contemplated thereby (including the tender offer and the Merger) or (ii) approve or recommend, or propose publicly to approve or recommend, any Takeover Proposal (as defined below). Any action described in clause (i) or (ii) shall constitute a “Company Adverse Recommendation Change” and shall only be made in accordance with conditions set forth in Section 6.8(c) of the Merger Agreement.

 

However, the Encysive Board may, prior to the acceptance and payment for Shares pursuant to the tender offer, (i) withdraw or modify the Company Recommendation, (ii) recommend a Takeover Proposal that constitutes a Superior Proposal (as defined below) or (iii) to the extent permitted under the terms of the Merger Agreement, enter into a binding written agreement concerning a transaction that constitutes a Superior Proposal, if the Encysive Board determines in good faith, after consultation with and receiving advice from outside counsel, that such withdrawal, modification, recommendation or agreement is necessary in order for the Encysive Board to comply with its fiduciary duties to its stockholders under Delaware law. The Merger Agreement further provides that no Company Adverse Recommendation Change may be made in the absence of a Superior Proposal unless such change is based upon an event that is unknown to the Encysive Board as of February 20, 2008 but becomes known prior to the acceptance for payment of Shares pursuant to the tender offer.

 

The Merger Agreement provides that Encysive and its subsidiaries, as well as their respective officers, directors, agents and representatives, shall not directly or indirectly, (i) solicit, initiate, or take any action to facilitate or encourage (including by way of furnishing non-public information) the submission of, any Takeover Proposal (as defined below), (ii) approve or recommend any Takeover Proposal, enter into any agreement, agreement-in-principle or letter of intent with respect to any Takeover Proposal (or resolve to or publicly propose to do any of the foregoing), or (iii) participate or engage in any discussions or negotiations regarding, or furnish to any person any non-public information with respect to, or knowingly take any action to facilitate any inquiries or the making of any proposal that constitutes, or would reasonably be expected to lead to any Takeover Proposal.

 

However, the Merger Agreement also provides that Encysive may refer any third party to Section 6.8 of the Merger Agreement and if in response to an unsolicited, bona fide written Takeover Proposal made after the date of

the Merger Agreement, the Encysive Board reasonably determines in good faith (after receiving advice from its financial advisor) that such Takeover Proposal constitutes or is reasonably likely to lead to, a Superior Proposal (as defined below) and with respect to which the Encysive Board determines in good faith, after consultation with and receiving advice from outside counsel, that the taking of such action is necessary in order for the Encysive Board to comply with its fiduciary duties to its stockholders under Delaware law, Encysive may prior to the acceptance by the Purchaser of Shares pursuant to the tender offer, (i) furnish information with respect to Encysive and its subsidiaries to the person making such Takeover Proposal (and its representatives) that makes such Takeover Proposal but only pursuant to a confidentiality agreement in customary form that is no less favorable to Encysive than the confidentiality agreement with Pfizer (except that such confidentiality agreement shall contain additional provisions that expressly permit Encysive to comply with certain provisions of the Merger Agreement), provided that (A) it may not include any provision calling for an exclusive right to negotiate with Encysive, (2) Encysive provides Pfizer with not less than 24 hours notice of its intention to enter into such confidentiality agreement and (3) Encysive advises Pfizer of all such non-public information delivered to such person concurrently with its delivery to such person and concurrently with its delivery to such person Encysive delivers to Pfizer all such information not previously provided to Pfizer, (ii) conduct discussions or negotiations with such person regarding such Takeover Proposal and (iii) to the extent permitted under the terms of the Merger Agreement, enter into a binding written agreement concerning a transaction that constitutes a Superior Proposal.

 

The Merger Agreement contains a provision that Encysive shall provide Pfizer with oral and written notice, in no event later than 24 hours after receipt, if any proposal, offer, inquiry or other contact is received by, any information is requested from, or any discussions or negotiations are sought to be initiated or continued with, Encysive with respect of any Takeover Proposal, that indicates the identity of the person making such proposal, offer, inquiry or other contact and the terms and conditions thereof (and shall include with such notice copies of any written materials received from or on behalf of such person relating thereto), and thereafter shall keep Pfizer reasonably informed of all material developments affecting the status and terms of such proposals, offers, inquiries or requests (and Encysive shall provide Pfizer with copies of any additional written materials received therewith) and of the status of such discussions or negotiations.

 

The Merger Agreement further contains a provision that the Encysive Board may take and disclose a position contemplated by Rule 14d-9 or 14e-2(a) of the Exchange Act or Item 1012(a) of Regulation M-A promulgated under the Exchange Act with regard to an Takeover Proposal and make any disclosure to its stockholders if in their good faith judgment (after consultation with outside legal counsel), if the taking of such position or the making of such disclosure is necessary for the Encysive Board to comply with its fiduciary duties under Delaware law. However, the Encysive Board shall not make a Company Adverse Recommendation Change (as described above) unless they determine in their good faith judgment, after consultation with and advice from outside legal counsel, that such withdrawal, modification, recommendation or agreement is necessary to comply with its fiduciary duties to its stockholders under Delaware law.

 

As used in the Merger Agreement, a “Takeover Proposal” means any inquiry, proposal or offer from any person (other than Pfizer, the Purchaser or any of their affiliates) or “group” (as defined in Section 13(d) of the Exchange Act) relating to (A) the direct or indirect acquisition (whether in a single transaction or a series of related transactions) of assets of Encysive and Encysive’s subsidiaries (including securities of Encysive’s subsidiaries) equal to 20% or more of Encysive’s consolidated assets or to which 20% or more of Encysive’s revenues or earnings on a consolidated basis are attributable, (B) the direct or indirect acquisition (whether in a single transaction or a series of related transactions) of 20% or more of any class of equity securities of Encysive, (C) a tender offer or exchange offer that if consummated would result in any person or “group” (as defined in Section 13(d) of the Exchange Act) beneficially owning 15% or more of any class of equity securities of Encysive or (D) a merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving Encysive or any of Encysive’s subsidiaries, in each case, other than the transactions contemplated by the tender offer, the Merger and the other transactions contemplated by the Merger Agreement.

 

As used in the Merger Agreement, a “Superior Proposal” means any bona fide written offer obtained after the date of the Merger Agreement and not in breach of the Merger Agreement to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the outstanding voting equity securities of Encysive or all or substantially all of the assets of Encysive and Encysive’s subsidiaries on a consolidated basis, and

is on terms that the Encysive Board determines in its good faith judgment (after receipt of the advice of its financial advisor of nationally recognized reputation and outside counsel), taking into account all relevant factors, (A) would, if consummated, result in a transaction that is more favorable to the holders of Encysive common stock from a financial point of view than the transactions contemplated by the tender offer, the Merger and the other transactions contemplated by the Merger Agreement (including the terms of any proposal by Pfizer to modify the terms of such transactions) and (B) is reasonably capable of being completed on the terms proposed.

 

Pfizer will, until the first anniversary of the Effective Time, provide to employees of Encysive (or its subsidiaries) who are located in the United States (including employees of Encysive or its United States subsidiaries who have been seconded to non-United States incorporated subsidiaries of Encysive (“US Seconded Employees”)) who are retained by Pfizer with employee benefits (excluding equity and change in control plans, programs and arrangements) that are substantially comparable, in the aggregate, to the those benefits provided to them immediately prior to the closing of the Merger.

 

Pfizer agreed in the Merger Agreement to honor in accordance with their terms all employment and severance agreements that are disclosed by Encysive in the disclosure letter to the Merger Agreement or filed as exhibits to Encysive’s SEC filings and all accrued benefits vested thereunder; provided that, nothing therein shall prevent Pfizer from amending or terminating any such contract, agreement, plan or commitment in accordance with its terms and applicable law.

 

Pursuant to the Merger Agreement, for the purposes of all employee benefit plans, programs and arrangements maintained by or contributed to by Pfizer and its subsidiaries (including, after the closing, the Surviving Corporation), Pfizer shall, or shall cause its subsidiaries to, cause each such plan, program or arrangement to treat the prior service with Encysive and its affiliates of each person who is an employee or former employee of Encysive or its subsidiaries immediately prior to the closing of the Merger who is located in the United States (including US Seconded Employees) as service rendered to Pfizer or its subsidiaries, to the extent permitted by law and applicable tax qualification requirements, for purposes of eligibility to participate and vesting thereunder (but not for any other purpose including, without limitation, for purposes of benefit accrual). However, none of the foregoing provisions operate to duplicate any benefit or the funding of any such benefit.

 

The Merger Agreement provides that Pfizer and the Surviving Corporation will indemnify, defend and hold harmless each director or officer who is now, or who has been at any time prior to the date of the Merger Agreement or who becomes prior to the Effective Time an officer or director of Encysive (or its subsidiaries) (the “Indemnified Parties”) against all losses, claims, damages, liabilities, fees, expenses, judgments and fines arising in whole or in part out of actions or omissions in their capacities as such occurring at or prior to the Effective Time, and shall reimburse each Indemnified Party in connection with investigating or defending any such losses, claims, damages, liabilities, fees, expenses, judgments and fines as such expenses are incurred to the fullest extent permitted by applicable law (subject to any limitations on a corporation’s ability to indemnify a director or officer under Delaware law, notwithstanding that such limitations may not otherwise be applicable), for a period of six years after the date of the Effective Time.

 

Pfizer and the Surviving Corporation agree that all rights to indemnification now existing in favor of the Indemnified Parties as provided in the respective charters or by-laws or pursuant to any other agreements in effect as of the date of the Merger Agreement shall survive the Merger and shall continue in full force and effect for a period of not less than six years after the Effective Time.

 

The Merger Agreement also provides that for a period of not less than six years after the Effective Time, the current policies of directors’ and officers’ (D&O) liability insurance maintained by Encysive with respect to claims arising from facts or events which occurred before the Effective Time (or comparable substitute policies) will be maintained in effect. However, Pfizer or the Surviving Corporation is not required to expend more than an amount per year equal to 200% of current annual premiums paid by Encysive for such insurance to maintain or procure insurance coverage. If the amount of the annual premiums necessary to maintain or procure such insurance

coverage exceeds such amount, Pfizer and the Surviving Corporation will procure and maintain for such six-year period as much coverage as is reasonably practicable for such amount. Pfizer has the right to cause coverage to be extended under Encysive’s D&O insurance by obtaining a six-year “tail” policy on terms and conditions no less advantageous than Encysive’s existing D&O insurance.

 

Each of the parties to the Merger Agreement agrees to use its commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the tender offer, the Merger and all other transactions contemplated by the Merger Agreement in the most expeditious manner practicable including, obtaining all consents, approvals and authorizations required for or in connection with the consummation by the parties hereto of the transactions contemplated by the Merger Agreement and the execution of any additional instruments necessary to consummate the transactions contemplated hereby.

 

The Merger Agreement requires that each of Pfizer, the Purchaser and Encysive, as promptly as practicable (and in any event within 10 business days) after the date of the Merger Agreement, make all filings required by each of them under the HSR Act, and any applicable foreign antitrust or competition laws with respect to the tender offer, the Merger and the transactions contemplated hereby, and to cooperate with each other in connection with the making of all such filings. Pfizer and Encysive agree to use commercially reasonable efforts to obtain all permits, authorizations, consents, expiration or termination of waiting periods, and approvals from third parties and any federal, state, local or foreign governmental or regulatory authority (“Governmental Entity”) necessary to consummate the tender offer, the Merger and the transactions contemplated hereby; provided, however, the parties are not required to defend, contest or otherwise resist any administrative or judicial action or proceeding, including any proceeding by a Governmental Entity or private party, challenging any of the transactions contemplated by the Merger Agreement as violative of any antitrust law.

 

The Merger Agreement provides that the directors of the Purchaser immediately prior to the Effective Time will become the directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation. The officers of the Purchaser immediately prior to the Effective Time shall be the officers of the Surviving Corporation, each to hold office in accordance with the laws of the State of Delaware and the Certificate of Incorporation and Bylaws of the Surviving Corporation. If requested by Pfizer prior to the Effective Time, Encysive will use commercially reasonable efforts to cause each director and officer of each subsidiary of Encysive to execute and deliver a letter effectuating his or her resignation as a director or officer, as the case may be, effective upon the Effective Time.

 

The Merger Agreement provides that the respective obligations of each party to effect the Merger are subject to the satisfaction or waiver at or prior to the Effective Time of the following conditions:

 

 

In addition, the obligations of Pfizer and the Purchaser to effect the Merger are subject to the condition that the Purchaser shall have purchased all Shares validly tendered and not withdrawn pursuant to the tender offer.

 

The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the Merger Agreement has been adopted by Encysive’s stockholders:

 

(a) by mutual written consent of the parties;

 

(b) by either Pfizer or Encysive if (i) the tender offer has not been consummated on or before August 20, 2008 or (ii) the tender offer is terminated or withdrawn pursuant to its terms and the terms of the Merger Agreement without any Shares being purchased, except that the right to terminate the Merger Agreement under either clause (i) or (ii) shall not be available to any party whose failure to fulfill any obligation under the Merger Agreement has been the cause of or resulted in the event specified in such clause;

 

(c) by either Pfizer or Encysive, if any judgment, ruling, order, writ, injunction or decree (“Judgment”) issued by a court of competent jurisdiction or by a Governmental Entity, or law or other legal restraint or prohibition, in each case making the Merger illegal or permanently restraining, enjoining or otherwise preventing the consummation thereof shall be in effect and shall have become final and non-appealable; provided that the party seeking the right to terminate the Merger Agreement pursuant to the foregoing shall have used commercially reasonable efforts to resist, lift or resolve such Judgment, law or other legal restraint and the right to terminate pursuant to the foregoing shall not be available if the issuance of such legal restraint or prohibition was primarily due to the failure of such party to perform any of its obligations under the Merger Agreement;

 

(d) by Pfizer prior to the acceptance of Shares for payment in the tender offer, if:

 

(i) due to a circumstance or occurrence that would result in a failure to satisfy one or more conditions to the tender offer (as set forth in Annex A to the Merger Agreement entitled “Conditions of the Offer”), the Purchaser has failed to commence the tender offer;

 

(ii) (A) a Company Adverse Recommendation Change (as defined above) shall have occurred, (B) the Encysive Board or any committee thereof shall not have rejected any tender or exchange offer that is commenced or a Takeover Proposal (replacing “20%” and “15%” in the definition thereof with 50%) that is made in writing to the Encysive Board and publicly disseminated within 10 business days after the commencement or public dissemination thereof (including, for these purposes, by taking no position with respect to the acceptance by Encysive’s stockholders of a tender offer or exchange offer within such period, which shall constitute a failure to reject such offer) or (C) Encysive shall have willfully violated or breached in any material respect any of its obligations under Section 6.8 of the Merger Agreement entitled “No Solicitation”; or

 

(iii) if (A) there shall have occurred any event, change, or development of a state of facts that, individually or in the aggregate, has had or would reasonably be expected to have, a Company Material Adverse Effect (as defined in the Merger Agreement) or (B) Encysive shall have breached any of its representations or warranties or failed to perform in any material respect any of its covenants or other agreements, which breach or failure to perform (x) would give rise to the failure of a condition set forth in paragraphs (e) or (f) of Annex A to the Merger Agreement entitled “Conditions of the Offer” and (y) is not curable or has not been cured by Encysive within the later of (I) 15 business days after written notice to Encysive and (II) the next scheduled expiration date of the tender offer pursuant to the terms of the Merger Agreement;

 

(e) by Encysive, if Pfizer shall have breached any of its representations or warranties or failed to perform in any material respect any of its covenants or other agreements in each case contained in this Agreement, which breach or failure to perform (A) has had or would reasonably be expected to have a Parent Material Adverse Effect (as defined in the Merger Agreement), and (B) is not curable or has not been cured by Pfizer within 15 business days after written notice to Pfizer;

 

(f) by Encysive, if prior to the acceptance of Shares for payment in the tender offer, (A) Encysive is in compliance with its obligations under Section 6.8 of the Merger Agreement entitled “No Solicitation,” (B) the Encysive Board has received a Takeover Proposal that it has determined in good faith, after consultation with

its financial advisor, constitutes a Superior Proposal, (C) Encysive has notified Pfizer in writing that it intends to enter into a definitive agreement implementing such Superior Proposal, attaching the most current version of such agreement (including any amendments, supplements or modifications) to such notice (a “Superior Proposal Notice”), (D) during the three business day period following Pfizer’s receipt of a Superior Proposal Notice, (1) Encysive shall have offered to negotiate with (and, if accepted, negotiated in good faith with), and shall have caused its respective financial and legal advisors to offer to negotiate with (and, if accepted, negotiate in good faith with), Pfizer in making adjustments to the terms and conditions of this Agreement and (2) Encysive Board shall have determined in good faith, after the end of such three business day period, and after considering the results of such negotiations and the revised proposals made by Pfizer, if any, that the Superior Proposal giving rise to such notice continues to be a Superior Proposal; provided that any amendment, supplement or modification to the financial terms or other material terms of any Takeover Proposal shall be deemed a new Takeover Proposal and Encysive may not terminate the Merger Agreement unless Encysive has complied with the requirements of the Merger Agreement with respect to such new Takeover Proposal, including sending a Superior Proposal Notice with respect to such new Takeover Proposal and offering to negotiate for three Business Days from such new Superior Proposal Notice, (E) Encysive prior to, or concurrently with, such termination pays to Pfizer the required fee in accordance with the terms of the Merger Agreement, and (F) Encysive Board concurrently approves, and Encysive concurrently enters into, a definitive agreement providing for the implementation of such Superior Proposal.

 

The Merger Agreement contemplates that a termination fee of $7,700,000 (the “Termination Fee”) will be payable by Encysive to Pfizer under any of the following circumstances in accordance with the terms set forth therein:

 

 

The Merger Agreement may be amended by the parties to the agreement at any time before or after approval of the Merger Agreement by the holders of the Shares; provided, however, after approval of the Merger Agreement by the stockholders of Encysive, there may not be made any amendment that pursuant to Section 251(d) of DGCL

requires further approval by such stockholders without the further approval of such stockholders. The Merger Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.

 

Following the appointment of Pfizer’s designees to the Encysive Board and prior to the Effective Time, the approval by affirmative vote or written consent of the independent directors of the Encysive Board then in office is required to authorize (i) any amendment or termination of the Merger Agreement by Encysive, (ii) any extension of time for performance of any obligation or action under the Merger Agreement by Pfizer or the Purchaser or (iii) any waiver or exercise of Encysive’s rights under the Merger Agreement.

 

The following table presents information regarding the beneficial ownership of our common stock as of April 14, 2008 by (i) each person or entity known by Encysive to be a beneficial owner of five percent or more of our common stock, (ii) each of our current directors and named executive officers, (iii) each individual who is a former director and who voted to approve the Merger Agreement on February 20, 2008, (iv) former directors and named executive officers serving during our last fiscal year, and (iv) all current directors and officers as a group.

 

In general, “beneficial ownership” includes the shares of common stock that an individual has the power to vote or the power to dispose of and stock options that are exercisable currently or become exercisable or redeemable within 60 days and restricted stock units that could vest within 60 days. Except as otherwise noted, the persons named in the table below have sole voting and investment power with respect to all securities shown as beneficially owned by them. The percentage of outstanding Shares beneficially owned is based on the number of Shares outstanding as of April 14, 2008 of 80,955,060 Shares.

 

Unless indicated below, the address of each individual listed below is c/o Encysive Pharmaceuticals Inc., 4848 Loop Central Drive, Suite 700, Houston, Texas 77081.

 

 

 

 

MARKET PRICE OF THE COMPANY COMMON STOCK AND DIVIDEND INFORMATION

 

Our stock currently trades on the NASDAQ Global Market under the symbol “ENCY.” On the record date, May [     l     ], 2008, there were 80,955,060 Shares issued and outstanding. The following table sets forth, for the periods indicated, the high and low sales price per Share, as reported by NASDAQ based on published financial sources. We have never paid dividends on our Shares. Stockholders are urged to obtain a current market quotation for the Shares.

 

 

On February 19, 2008, the last full day of trading before the public announcement of the terms of the tender offer and the Merger, the reported closing sales price of the Shares on NASDAQ was $1.08 per Share. On February 29, 2008, the second to last full day of trading before the commencement of the tender offer, the reported closing sales price of the Shares on NASDAQ was $2.30 per Share. The merger consideration represents a premium of 183% over Encysive’s volume weighted average share price for the 20 trading days immediately preceding the public announcement of the tender offer and the Merger and a premium of 118% over the closing price on the last full day of trading before the public announcement of the tender offer and the Merger.

 

Set forth below is summary financial information for Encysive and its consolidated subsidiaries excerpted from Encysive’s Annual Reports on Form 10-K for the fiscal years ended December 31, 2007 and December 31, 2006. The financial data should be read in conjunction with the consolidated financial statements and notes thereto contained in Encysive’s Annual Reports on Form 10-K, as amended, for the fiscal year ended December 31, 2007 filed with the SEC on March 17, 2008 and amended on March 27, 2008, and for the fiscal year ended December 31, 2006 filed with the SEC on March 16, 2007 and amended on March 16, 2007. More comprehensive financial information is included in such reports and other documents filed by Encysive with the SEC, and the following summary is qualified in its entirety by reference to such reports and other documents may be examined at or obtained from the SEC in the manner set forth in the section entitled “Where You Can Find More Information.”

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($ in thousands, except per share data)

 

CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)

 

EXPECTED SALES OF THELIN ^tm FOR FISCAL YEAR 2008

 

On December 14, 2007, Encysive publicly announced that it expects to record sales of Thelin ^tm for 2008 in the range of approximately $40 million to $50 million.

 

We file annual, quarterly and current reports, information statements and other information with the SEC under the Exchange Act relating to our business, financial condition and other matters. Such reports and other information (including this Information Statement, proxy statements filed by Encysive with the SEC and distributed to Encysive stockholders, and its recently filed Annual Report on Form 10-K, as amended), as well as the Tender Offer Statement on Schedule TO filed by Pfizer and the Purchaser with the SEC on March 4, 2008, together with all amendments and exhibits thereto, and the Schedule 14D-9 filed by Encysive with the SEC on March 4, 2008, together with all amendments and exhibits thereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain more information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of such information may be obtained by mail, upon payment of the SEC’s customary charges, by writing to the SEC’s principal office at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The SEC also maintains an internet website located at http://www.sec.gov, which contains reports, proxy statements and other information that we file with the SEC electronically via the EDGAR system. You may also obtain free copies of documents that we file with the SEC by going to the “Investor Relations” section of our website at http://www.encysive.com or by writing Encysive at 4848 Loop Central Drive, Suite 700, Houston, Texas 77081, or calling (713) 796-8822.

 

Statements contained in this Information Statement, or in any document incorporated in this Information Statement by reference regarding the contents or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this Information Statement certain documents we file with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this Information Statement, and later information that we file with the SEC, prior to the closing of the Merger, will automatically update and supersede that information. We incorporate by reference the documents listed below and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Information Statement and prior to the Effective Time of the Merger. These include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as information or proxy statements (except for information furnished to the SEC that is not deemed to be “filed” for purposes of the Exchange Act). Notwithstanding the foregoing, information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K, including the related exhibits, is not incorporated by reference into this Information Statement.

 

 

Any person, including any beneficial owner, to whom this Information Statement is delivered may request copies of reports, proxy statements or other information concerning us, without charge, as described above in “Where You Can Find More Information.”

 

You should rely only on information contained in or incorporated by reference in this information. No persons have been authorized to give any information or to make any representations other than those contained in this Information Statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person.

THIS INFORMATION STATEMENT IS DATED MAY [     l     ], 2008. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS INFORMATION STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

 

Pursuant to the rules of the SEC, services that deliver Encysive’s communications to stockholders that hold their stock through a bank, broker or other holder of record may deliver to multiple stockholders sharing the same address a single copy of Encysive’s Information Statement, unless Encysive has received contrary instructions from one or more of the stockholders. Upon written or oral request, Encysive will promptly deliver a separate copy of the Information Statement to any stockholder at a shared address to which a single copy of the Information Statement was delivered. Multiple stockholders sharing the same address may also notify Encysive if they wish to receive separate copies of Encysive’s communications to stockholders in the future or if they are currently receiving multiple copies of such communications and they would prefer to receive a single copy in the future. Stockholders may notify Encysive of their requests by writing Ann Tanabe, Vice President, Investor Relations, Encysive Pharmaceuticals Inc., 4848 Loop Central Drive, Suite 700, Houston, Texas 77081, or calling (713) 796-8822.

 

AGREEMENT AND PLAN OF MERGER

 

Annex A

 

 

Agreement and Plan of Merger
Dated as of February 20, 2008
among
Pfizer Inc.,
Explorer Acquisition Corp.
and
Encysive Pharmaceuticals Inc.

 

Table of Contents

 

Defined Terms

 

Agreement and Plan of Merger (this “Agreement” ), dated as of February 20, 2008, among Pfizer Inc., a Delaware corporation (“Parent”) , Explorer Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”) , and Encysive Pharmaceuticals Inc., a Delaware corporation (the “Company” ).

 

Introduction

 

The respective Boards of Directors of Parent, Merger Sub and the Company have approved the acquisition of the Company by Parent on the terms and subject to the conditions set forth in this Agreement.

 

In furtherance of such acquisition, Parent has agreed to cause Merger Sub to commence a tender offer (as it may be amended from time to time as permitted under this Agreement, the “Offer” ) to purchase all the shares of common stock, par value $0.005 per share, of the Company (the “Company Common Stock” ), including the associated Rights, issued and outstanding (each, a “Share” and, collectively, the “Shares” ), at a price per Share of $2.35 (such amount, or any other amount per Share paid pursuant to the Offer and this Agreement, the “Offer Price” ), subject to any required withholding of Taxes, net to the seller in cash, on the terms and subject to the conditions set forth in this Agreement.

 

Following consummation of the Offer, the parties intend that Merger Sub will be merged with and into the Company (the “Merger” ), with the Company surviving the Merger as a wholly owned subsidiary of Parent in accordance with the General Corporation Law of the State of Delaware (the “DGCL” ), and each Share that is not tendered and accepted pursuant to the Offer, other than certain Shares as provided in Sections 2.2(b) and (c), will thereupon be cancelled and converted into the right to receive cash in an amount equal to the Offer Price, on the terms and subject to the conditions set forth herein.

 

The respective Boards of Directors of Parent, Merger Sub and the Company have approved this Agreement and the Transactions, including the Offer and the Merger, on the terms and subject to the conditions set forth herein.

 

In consideration of the foregoing and of the representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto agree as follows:

 

ARTICLE 1

 

THE OFFER AND THE MERGER

 

Section  1.1   The Offer .   (a) Provided that (1) none of the events or circumstances set forth in paragraphs (a) through (g) of Annex A hereto shall have occurred and be existing (and shall not have been waived by Merger Sub) and (2) the Company shall have complied in all material respects with its obligations under Section 1.2, as promptly as reasonably practicable, but in no event later than ten (10) business days (as defined in Rule 14d-1(g)(3) promulgated by the United States Securities and Exchange Commission (the “SEC” ) under the Securities Exchange Act of 1934, as amended (the “Exchange Act” ) after the date of this Agreement, Merger Sub shall, and Parent shall cause Merger Sub to, commence the Offer within the meaning of the applicable rules and regulations of the SEC. The obligations of Merger Sub to, and of Parent to cause Merger Sub to, accept for payment, and pay for, any shares of Company Common Stock tendered pursuant to the Offer are subject to the conditions set forth in Annex A. The initial expiration date of the Offer shall be the 20th business day following the commencement of the Offer (determined using Exchange Act Rule 14d-1(g)(3)). Merger Sub expressly reserves the right to waive any condition to the Offer, to increase the price per Share payable in the Offer and/or to modify the other terms of the Offer, except that, without the consent of the Company, Merger Sub shall not (i) reduce the number of shares of Company Common Stock subject to the Offer, (ii) reduce the Offer Price, (iii) waive the Minimum Tender Condition (as defined in Annex A), (iv) add to the conditions set forth in Annex A or modify any condition set forth in Annex A in a manner adverse to the holders of Company Common Stock, (v) extend the Offer (except as provided below), (vi) change the form of consideration payable in the Offer or (vii) otherwise amend the Offer in any manner adverse to the holders of Company Common Stock. Notwithstanding the foregoing, Merger Sub may, without the consent of the Company, extend the Offer (i) for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer, (ii) if at the scheduled expiration date of the Offer, any of the conditions set forth in Annex A shall not have been satisfied or waived, for one (1) or more periods of not more than

ten (10) business days each, until such time as such conditions are satisfied or waived, or (iii) for one (1) or more periods for an aggregate period of not more than twenty (20) business days beyond the latest expiration date that would otherwise be permitted if, on such expiration date, there shall not have been tendered and not withdrawn that number of Shares that, together with any Shares then owned by Parent, would equal ninety percent (90%) or more of the issued and outstanding Shares; provided that if Merger Sub shall extend the offer pursuant to this clause (iii), Merger Sub shall waive during such extension all conditions set forth in Annex A other than the Minimum Tender Condition, the Regulatory Condition and the conditions set forth in paragraphs (a), (b) and (f) therein. In addition, subject to Parent’s right to terminate this Agreement pursuant to Section 9.1, (i) if at the initially scheduled expiration date of the Offer, any one or more of the Minimum Tender Condition, the Regulatory Condition or the conditions set forth in paragraphs (a), (b), (e) or (f) of Annex A are not satisfied, at the request of the Company Merger Sub shall, and Parent shall cause Merger Sub to, extend the offer one (1) time for a period of up to ten (10) business days and (ii) if at any extended expiration date of the Offer, the Regulatory Condition or the conditions set forth in paragraphs (e) or (f) of Annex A are not satisfied, at the request of the Company Merger Sub shall, and Parent shall cause Merger Sub to, extend the Offer for increments of not more than ten (10) business days each until such time as such conditions are satisfied or waived; provided that Merger Sub shall not be required to extend the Offer beyond the Outside Date. Further, Merger Sub may, without the consent of the Company, make available a “subsequent offering period”, in accordance with Rule 14d-11 promulgated by the SEC under the Exchange Act, for up to twenty (20) business days. On the terms and subject to the conditions of the Offer and this Agreement, Merger Sub shall, and Parent shall cause Merger Sub to, pay for all Shares validly tendered and not withdrawn pursuant to the Offer that Merger Sub becomes obligated to purchase pursuant to the Offer as soon as practicable after the expiration of the Offer. For the avoidance of doubt, the parties hereto agree that shares of Restricted Stock may be tendered in the Offer and be acquired by Parent or Merger Sub pursuant to the Offer.

 

(b) On the date of commencement of the Offer, Parent and Merger Sub shall file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer, which shall contain an offer to purchase and a related letter of transmittal and summary advertisement (such Schedule TO and the documents included therein pursuant to which the Offer will be made, together with any supplements or amendments thereto, the “Offer Documents” ). The Company shall promptly provide Parent with all information concerning the Company that is required to be included in the Offer Documents. Each of Parent, Merger Sub and the Company shall promptly correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and each of Parent and Merger Sub shall take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and the Offer Documents as so amended or supplemented to be disseminated to the holders of Company Common Stock, in each case as and to the extent required by applicable Federal securities Laws. The Company and its counsel shall be given a reasonable opportunity to review and comment upon the Offer Documents before they are filed with the SEC and disseminated to stockholders. Parent and Merger Sub shall provide the Company and its counsel in writing with any comments Parent, Merger Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments, shall consult with the Company and its counsel prior to responding to any such comments and shall provide the Company with copies of all such responses.

 

(c) Parent shall provide or cause to be provided to Merger Sub on a timely basis the funds necessary to purchase any shares of Company Common Stock that Merger Sub becomes obligated to purchase pursuant to the Offer.

 

Section  1.2   Company Actions .   The Company hereby approves of and consents to the Offer, the Merger and the other transactions contemplated by this Agreement (collectively, the “Transactions” ). The Company represents and warrants that the Board of Directors of the Company (the “Company Board” ), at a meeting duly called and held, has unanimously (i) approved and declared advisable this Agreement and the Transactions, including the Offer and the Merger (such approval having been made in accordance with the DGCL, including for purposes of Section 203 thereof), and (ii) resolved to recommend that stockholders of the Company accept the Offer, tender their Shares to Merger Sub pursuant thereto and adopt this Agreement. Subject to Section 6.8(c), the Company shall, through the Company Board, recommend that stockholders of the Company accept the Offer, tender their Shares to Merger Sub pursuant thereto and adopt this Agreement. The Company hereby consents to the inclusion in the Offer

Documents of the recommendation of the Company Board described above. The Company also represents and warrants that (A) the Company Board has received the opinion of Morgan Stanley & Co. Incorporated (the “Company Financial Advisor” ), dated the date of this Agreement, to the effect that, as of such date, and subject to the various assumptions and qualifications set forth therein, the consideration to be received by the Company’s stockholders in the Offer and the Merger is fair to such holders from a financial point of view and (B) the Company has been authorized by the Company Financial Advisor to permit the inclusion of such opinion and/or references thereto in the Offer Documents and, together with a description of the material financial analyses underlying such opinion, in the Schedule 14D-9 and any Proxy Statement, subject to prior review and consent by the Company Financial Advisor (such consent not to be unreasonably withheld or delayed). Further, the Company represents and warrants that it has been informed that all directors and executive officers of the Company intend to tender all of their respective Shares, if any, in the Offer and that the Offer Documents may so state.

 

(a) On the date the Offer Documents are filed with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to time, the “Schedule 14D-9” ) describing the recommendations referred to in Section 1.2(a) and shall mail the Schedule 14D-9 to the holders of Shares. Each of the Company, Parent and Merger Sub shall promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company shall take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the holders of Company Common Stock, in each case as and to the extent required by applicable Federal securities Laws. Parent and its counsel shall be given a reasonable opportunity to review and comment upon the Schedule 14D-9 before it is filed with the SEC and disseminated to holders of Shares. The Company shall provide Parent and its counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments, shall consult with Parent and its counsel prior to responding to any such comments and shall provide Parent with copies of all such responses.

 

(b) In connection with the Offer, the Company shall instruct its transfer agent to furnish Merger Sub promptly with mailing labels containing the names and addresses of the record holders of Company Common Stock as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of stockholders, security position listings and computer files and all other information in the Company’s possession or control regarding the beneficial owners of Company Common Stock, and shall furnish to Merger Sub such information and assistance (including updated lists of stockholders, security position listings and computer files) as Parent may reasonably request in communicating the Offer to the holders of Company Common Stock. Subject to the requirements of applicable Law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Transactions, Parent and Merger Sub shall hold in confidence the information contained in any such labels, listings and files, shall use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, shall, upon request, deliver to the Company all copies of such information then in their possession.

 

Section  1.3   The Merger .   At the Effective Time, in accordance with this Agreement and the DGCL, Merger Sub shall be merged with and into the Company, the separate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation. For purposes of this Agreement, (i) the corporation surviving the Merger after the Effective Time may be referred to as the “Surviving Corporation” and (ii) the Company and Merger Sub are collectively referred to as the “Constituent Corporations” .

 

Section  1.4   Effects of the Merger .   The Merger shall have the effects set forth in Section 259 of the DGCL.

 

Section  1.5   Closing .   The closing of the Merger (the “Closing” ) shall take place at 10:00 a.m. (East Coast time) on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or (to the extent permitted by applicable Law) waiver of the conditions set forth in Article 7 (other than any such conditions which by their nature cannot be satisfied until the Closing Date, which shall be required to be so satisfied or (to the extent permitted by applicable Law) waived on the Closing Date), at the offices of Covington & Burling LLP, 620 Eighth Avenue, New York, New York 10018, unless another time, date or place is agreed to in writing by the parties hereto (such date upon which the Closing occurs, the “Closing Date” ).

Section  1.6   Consummation of the Merger .   As soon as practicable after the Closing, the parties hereto shall cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware a certificate of merger or other appropriate documents (in any such case, the “Certificate of Merger” ) in such form as required by, and executed in accordance with, the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with such Secretary of State, or at such later time as Parent and the Company shall agree and specify in the Certificate of Merger (the time and date the Merger becomes effective being the “Effective Time” and “Effective Date” , respectively).

 

Section  1.7   Organizational Documents; Directors and Officers .

 

(a) The certificate of incorporation of the Company as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided therein and under the DGCL. The By-laws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the By-laws of the Surviving Corporation until thereafter amended as provided therein and under the DGCL. The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and shall serve until the earlier of their resignation or removal or their respective successors are duly elected or appointed and qualified, as the case may be. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation and shall serve until the earlier of their resignation or removal or until their respective successors have been duly elected or appointed and qualified, as the case may be.

 

(b) If requested by Parent prior to the Effective Time, the Company shall use its commercially reasonable efforts to cause the directors of each of the Company Subsidiaries (or certain of the Company Subsidiaries as indicated by Parent) to tender their resignations as directors, effective as of the Effective Time and to deliver to Parent written evidence of such resignations at the Effective Time.

 

ARTICLE 2

 

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE

CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES

 

Section  2.1   Conversion of Merger Sub Capital Stock .   At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or any holder of shares of Merger Sub capital stock, each share of Merger Sub capital stock shall be converted into and become one fully paid and nonassessable share of common stock, par value $0.005 per share, of the Surviving Corporation.

 

Section  2.2   Conversion of Company Common Stock .   At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or any holder of Shares:

 

(a) Each Share issued and outstanding immediately prior to the Effective Time (other than (i) any Shares to be canceled pursuant to Section 2.2(b) and (ii) any Appraisal Shares) shall be canceled and shall be converted automatically into the right to receive the highest price per Share paid pursuant to the Offer (the “Merger Consideration” ). As of the Effective Time, all such Shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration upon surrender of such certificate in accordance with Section 2.3, without interest.

 

(b) Each Share held in the treasury of the Company and each Share owned by Merger Sub, Parent or any wholly-owned subsidiary of Parent or of the Company immediately prior to the Effective Time shall be canceled without any conversion thereof and no payment or distribution shall be made with respect thereto.

 

(c)  Appraisal Rights .   Notwithstanding anything in this Agreement to the contrary, Shares that are outstanding immediately prior to the Effective Time and that are held by any Person who is entitled to demand and properly demands appraisal of such Shares ( “Appraisal Shares” ) pursuant to, and who complies in all respects with, Section 262 of the DGCL ( “Section 262” ) shall not be converted into the right to receive Merger Consideration as provided in Section 2.2(a), but rather the holders of Appraisal Shares shall be entitled to payment of the fair value of such Appraisal Shares in accordance with Section 262 (and at the Effective Time,

such Appraisal Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and such holders shall cease to have any right with respect thereto, except the right to receive the fair value of such Appraisal Shares in accordance with Section 262); provided , however , that if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262, then the right of such holder to be paid the fair value of such holder’s Appraisal Shares shall cease and such Appraisal Shares shall be deemed to have been converted as of the Effective Time into, and to have become exchangeable solely for the right to receive, Merger Consideration as provided in Section 2.2(a). The Company shall serve prompt notice to Parent of any demands received by the Company for appraisal of any shares of Company Common Stock, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing. Any portion of the Merger Consideration made available by the Exchange Agent pursuant to Section 2.3(a) to pay for Appraisal Shares shall be returned to Parent upon demand.

 

Section  2.3   Exchange of Certificates .

 

(a)  Exchange Agent .   Prior to the Effective Time, Parent shall enter into an agreement with such bank or trust company as may be designated by Parent and reasonably acceptable to the Company (the “Exchange Agent” ), which shall provide for the payment of Merger Consideration in accordance with the terms of this Section 2.3. Parent shall, or shall take all steps necessary to enable and cause the Surviving Corporation to, deposit with the Exchange Agent as of the Effective Time, for the benefit of the holders of Shares, for payment by the Exchange Agent in accordance with this Article 2, the cash necessary to pay for the Shares converted into the right to receive Merger Consideration (the “Exchange Fund” ). The Exchange Fund shall not be used for any other purpose. Such aggregate Merger Consideration deposited with the Exchange Agent shall, pending its disbursement to such holders, be invested by the Exchange Agent as directed by Parent. Any net profit resulting from, or interest or income produced by, such amounts on deposit with the Exchange Agent will be payable to Parent or as Parent otherwise directs.

 

(b)  Exchange Procedures .   As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding Shares (the “Certificates” ) whose shares were converted into the right to receive the Merger Consideration pursuant to Section 2.2, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in surrendering the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall receive in exchange therefor the amount of cash which the Shares theretofore represented by such Certificate entitle such holder to receive pursuant to the provisions of this Article 2 and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Common Stock that is not registered in the transfer records of the Company, payment may be made to a Person other than the Person in whose name the Certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such issuance shall pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such Tax has been paid or is not applicable. Each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon surrender in accordance with this Section 2.3 the Merger Consideration into which the Shares shall have been converted pursuant to Section 2.2. No interest shall be paid or shall accrue on any cash payable to holders of Certificates pursuant to the provisions of this Article 2.

 

(c)  No Further Ownership Rights in Company Common Stock .   The Merger Consideration paid upon the surrender for exchange of Certificates in accordance with the terms of this Article 2 shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates, subject , however , to the Surviving Corporation’s obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time that may have been declared or made by the Company on such Shares in accordance with the terms of this Agreement or prior to the date of this Agreement and that remain unpaid at the

Effective Time, and there shall be no further registration of transfers on the stock transfer books of the Company of the Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Exchange Agent for any reason, they shall be canceled and exchanged as provided in this Article 2, except as otherwise provided by Law.

 

(d)  Termination of Exchange Fund .   Any portion of the Exchange Fund that remains undistributed to the holders of Certificates for 180 days after the Effective Time shall be delivered to Parent, upon demand, and any holders of Certificates who have not theretofore complied with this Article 2 shall thereafter look only to Parent (subject to abandoned property, escheat or similar Laws, as general creditors thereof) for payment of their claim for Merger Consideration.

 

(e)  No Liability .   None of Parent, Merger Sub, the Company or the Exchange Agent shall be liable to any Person in respect of any cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. If any Certificate shall not have been surrendered prior to such date on which any amounts payable pursuant to this Article 2 would otherwise escheat to or become the property of any Governmental Authority (as defined in Section 3.3(c)), any such amounts shall, to the extent permitted by applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto.

 

(f)  Lost Certificates .   If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such Person of a bond in such reasonable amount as Parent may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificate the applicable Merger Consideration with respect thereto pursuant to this Agreement.

 

(g)  Withholding Rights .   Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as it is required to deduct and withhold with respect to the making of such payment under the applicable Tax Law. To the extent that amounts are so withheld by the Parent and paid to the appropriate Taxing Authorities, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by the Parent.

 

Section  2.4   Company Options; Phantom Units; Restricted Stock .

 

(a) Prior to the Effective Time, the Company shall take all actions necessary to provide that each Option outstanding immediately prior to the Effective Time (whether or not then vested or exercisable) shall be cancelled and terminated and converted at the Effective Time into the right to receive a cash amount equal to the Option Consideration for each share of Company Common Stock then subject to the Option, or, if the Option Consideration shall be a negative number, no such cash payment shall be due and owing. Except as otherwise provided below, any Option Consideration due and owing shall be paid as soon after the Closing Date as shall be practicable. Notwithstanding the foregoing, Parent and the Surviving Corporation shall be entitled to deduct and withhold from any Option Consideration otherwise payable such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax law. Prior to the Effective Time, the Company shall make any amendments to the terms of the Stock Plans and obtain any consents from holders of Options that, in each case, are necessary to give effect to the transactions contemplated by this Section 2.4 and, notwithstanding anything to the contrary, payment may be withheld in respect of any Option until any necessary consents are obtained. Prior to the Effective Time, the Company shall take all actions necessary to terminate all its Stock Plans, such termination to be effective at or before the Effective Time. For purposes of this Agreement, “Option Consideration” means, with respect to any share of Company Common Stock issuable under a particular Option, an amount equal to (i) the Merger Consideration per Share less (ii) the exercise price payable in respect of each share of Company Common Stock issuable under such Option; “Options” means any option granted, and, immediately before the Effective Time not exercised, expired or terminated, to a current or former employee, director or independent contractor of the Company or any of the Company Subsidiaries or any former subsidiary of the Company or predecessor thereof to purchase shares of Company Common Stock pursuant to the Stock Plans; and “Stock Plans” means the Company’s Amended and Restated 1990 Incentive Stock Option Plan,

Amended and Restated 1992 Incentive Stock Option Plan, Amended and Restated 1995 Stock Option Plan, Amended and Restated 1995 Non-Employee Director Stock Option Plan, Amended and Restated 1999 Stock Incentive Plan and 2007 Incentive Plan, as amended.

 

(b) As soon as practicable following the date of this Agreement, the Company Board (or, if appropriate, any committee thereof administering the Stock Plans) shall adopt such resolutions or take such other actions as may be required, if any, so that, subject to the terms of the Stock Plans and the grants thereunder (i) each Phantom Unit shall become fully vested and deemed earned in full effective as of the day immediately preceding the date of acceptance for payment of the shares of Company Common Stock pursuant to the Offer, (ii) each holder of a Phantom Unit shall thereafter become entitled to receive in cash (subject to amounts required to be withheld by Law), within 30 days of the day immediately preceding the date of acceptance for payment of the shares of Common Stock pursuant to the Offer, the amount payable thereunder to the holder thereof pursuant the terms of such Phantom Unit and the related Stock Plan under which it was granted and (iii) any forfeiture provisions applicable to the Phantom Units shall lapse as of the acceptance for payment of shares of Company Common Stock pursuant to the Offer. As used in this Agreement, “Phantom Unit” means an award, other than an Option or Restricted Stock, granted and, immediately before the date specified in clause (b)(i) above, not paid or terminated to a current or former employee, director or independent contractor of the Company or any of the Company Subsidiaries or any former subsidiary of the Company or predecessor thereof pursuant to the Stock Plans for which the value of a Share of Company Common Stock is used to measure the benefits payable to the grantee of such award.

 

(c) As soon as practicable following the date of this Agreement, the Company Board (or, if appropriate, any committee thereof administering the Stock Plans) shall adopt such resolutions or take such other actions as may be required to provide for the lapse as of the acceptance for payment of shares of Company Common Stock pursuant to the Offer of all forfeiture provisions applicable to any shares of Restricted Stock and to permit cashless or net vesting of such shares of Restricted Stock. Each holder of Restricted Stock shall be treated as a holder of the corresponding number of shares of Company Common Stock as of the acceptance for payment of shares of Company Common Stock pursuant to the Offer in accordance with the terms of Section 2.2 in the same manner as other outstanding shares of Company Common Stock issued and outstanding as of immediately prior to the acceptance for payment of shares of Company Common Stock pursuant to the Offer. As used in this Agreement, “Restricted Stock” means any award of restricted Company Common Stock outstanding immediately before the Effective Time with respect to which the restrictions have not lapsed, and which award shall not have previously expired or terminated, to a current or former employee, director or independent contractor of the Company or any of the Company Subsidiaries or any predecessor thereof pursuant to any applicable Stock Plan or any other contract or agreement entered into by the Company or any of the Company Subsidiaries.

 

Section  2.5   Warrants .   At the Effective Time and subject to Section 6.12, each outstanding Warrant of the Company shall be converted into the right to receive, upon exercise of such Warrant and payment of the exercise price thereof, an amount equal to the product of (x) the number of shares of Company Common Stock for which such Warrant may be exercised and (y) the Merger Consideration. As used in this Agreement, “Warrant” means a Common Stock Purchase Warrant issued by the Company pursuant to the Securities Purchase Agreement dated as of August 20, 2007.

 

Section  2.6   Taking of Necessary Action; Further Action .   Each of Parent, Merger Sub and the Company shall use commercially reasonable efforts to take all such actions as may be necessary or appropriate in order to effectuate the Merger under the DGCL as promptly as commercially practicable. If at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of either of the Constituent Corporations, the officers and directors of the Surviving Corporation are fully authorized in the name of each Constituent Corporation or otherwise to take, and shall take, all such lawful and necessary action.

 

Section  2.7   Option to Acquire Additional Shares .   The Company hereby grants to Merger Sub an option (the “Top-Up Option” ), exercisable in accordance with this Section 2.7, to purchase up to that number of newly issued shares of Company Common Stock (the “Top-Up Option Shares” ) equal to the number of shares that, when added to the number of Shares owned by Parent and its subsidiaries immediately following consummation of the

Offer, shall constitute one share more than 90% of the Shares then outstanding (after giving effect to the issuance of the Top-Up Option Shares) for a cash purchase price per Top-Up Option Share equal to the Offer Price; provided , however , that the number of Top-Up Option Shares shall not exceed the number equal to 19.9% of the Shares outstanding immediately prior to the issuance of the Top-Up Option Shares. The Top-Up Option may be exercised by Merger Sub at any one time before the Effective Time within thirty (30) business days after Merger Sub’s acceptance of, and payment for Shares pursuant to the Offer in accordance with the terms of this Agreement. If Merger Sub wishes to so exercise the Top-Up Option, Merger Sub shall give the Company written notice within such thirty (30)-business day period specifying the number of shares of Company Common Stock that Merger Sub wishes to purchase pursuant to the Top-Up Option and a place and a time (which, subject to applicable Law and any required regulatory approvals, shall be at least two (2), but not more than five (5), business days after the date of delivery of such written notice) for the closing of such purchase. At such closing, (i) the purchase price in respect of such exercise of the Top-Up Option (which shall equal the product of (x) the number of shares of Company Common Stock being purchased pursuant to the Top-Up Option and (y) the Offer Price) shall be paid to the Company in immediately available funds by wire transfer to an account designated by the Company, and (ii) the Company shall deliver to Merger Sub a certificate or certificates representing the number of shares of Company Common Stock so purchased. The Company agrees that it shall reserve (and maintain free from preemptive rights) sufficient authorized but unissued shares of Common Stock so that the Top-Up Option may be exercised without additional authorization of shares of Company Common Stock (after giving effect to all other options, warrants, convertible securities and other rights to purchase shares of Company Common Stock). Merger Sub shall acquire the Top-Up Option Shares for investment purposes only and not with a view to any distribution thereof, and will not sell any Top-Up Option Shares purchased pursuant to this Section except in compliance with the Securities Act of 1933, as amended.

 

ARTICLE 3

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth on the disclosure letter (each section of which qualifies the correspondingly numbered representation and warranty or covenant to the extent specified therein, provided that any disclosure set forth with respect to any particular section shall be deemed to be disclosed in reference to other applicable sections of this Agreement to the extent it is reasonably apparent from a reading of the disclosure that such disclosure is applicable to such other sections) previously delivered by the Company to Parent (the “Company Disclosure Letter” ), the Company hereby represents and warrants to Parent and Merger Sub as follows:

 

Section  3.1   Organization .

 

(a) Each of the Company and the Company Subsidiaries is a corporation, limited liability company or limited partnership duly organized, validly existing and, where applicable, in good standing under the laws of the jurisdiction of its organization. Each of the Company and the Company Subsidiaries has all requisite power and authority necessary to enable it to own, operate and lease its properties and to carry on its business as now conducted. Each of the Company and the Company Subsidiaries possesses all licenses, franchises, permits, certificates, approvals and authorizations from Governmental Authorities, or required by Governmental Authorities to be obtained, in each case necessary for the lawful conduct of their respective businesses as now conducted, the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect (collectively, “Permits” ). A “Company Material Adverse Effect” means any change, event, occurrence or development of a state of facts that, individually or in the aggregate with all other changes, events, occurrences or developments of a state of facts, is materially adverse to, (i) the business, operations, properties, assets, liabilities (contingent or otherwise), financial condition or results of operations of the Company and the Company Subsidiaries considered as a single enterprise or (ii) the ability of the Company to perform its obligations under this Agreement in accordance with its terms or to consummate the Transactions; provided , however , that no event, change, occurrence or development of a state of facts shall be included in the definition of Company Material Adverse Effect that (A) arises out of general political, economic or market conditions or general changes or developments in the biotechnology or pharmaceutical industry or affecting participants in the biotechnology or pharmaceutical industry (provided that such adverse effect does not affect the

Company or any Company Subsidiaries, taken as a whole, in a disproportionate manner), (B) results from or is caused by acts of terrorism or war (whether or not declared) or natural disasters occurring after the date hereof (provided that such adverse effect does not affect the Company or any Company Subsidiaries, taken as a whole, in a disproportionate manner), (C) arises out of, results from or relate to the Transactions or the announcement or performance thereof (including any negative impact on relationships with employees of the Company or the Company Subsidiaries as a result of the announcement or performance of this Agreement), provided that any legal or contractual consequence of the execution of this Agreement or the consummation of the Transactions that has not been disclosed to Parent in this Agreement or the Company Disclosure Letter shall not be excluded under this proviso, (D) results from changes in Law (after the date hereof) or any applicable accounting regulations or principles or the interpretations thereof, (E) results from changes in the price or trading volume of the Company’s stock (provided that any event, change, occurrence or development of a state of facts that may have caused or contributed to such change in market price or trading volume shall not be excluded under this proviso) (F) results from any failure by the Company to meet revenue, earnings or other projections, in and of itself (provided that any event, change, occurrence or development of a state of facts that may have caused or contributed to such failure to meet published revenue, earnings or other projections shall not be excluded under this proviso) or (G) results from a delisting warning or delisting of the Company Common Stock on the Nasdaq Stock Market due to the closing price per share falling below the $1.00 minimum bid price.

 

(b) The copies of the certificate of incorporation and bylaws of the Company (the “Company Charter Documents” ) which are incorporated by reference as exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 are complete and correct copies of such documents and contain all amendments thereto as in effect on the date of this Agreement. The Company has delivered or made available to Parent complete and correct copies of the certificate of incorporation and by-laws (or comparable organizational documents) of each of the Company Subsidiaries (the “Subsidiary Documents” ), in each case, as amended to the date of this Agreement. All such Company Charter Documents and Subsidiary Documents are in full force and effect and neither the Company nor any of the Company Subsidiaries is in violation of any of their respective provisions. The Company has made available to Parent correct and complete copies of the minutes (or, in the case of minutes that have not yet been finalized, a brief summary of the meeting) of all meetings of stockholders, the Company Board and each committee of the Company Board and the Company Subsidiaries since January 1, 2005; provided that the Company shall not be obligated to furnish to Parent any minutes for meetings that only discuss the Transactions or alternative transactions considered by the Company Board.

 

Section  3.2   Capitalization .

 

(a) The authorized capital stock of the Company consists of (i) 150,000,000 shares of Company Common Stock and (ii) 5,000,000 shares of preferred stock, par value $0.005 per share, ( “Company Preferred Stock” ). As of the close of business on February 15, 2008: (A) 81,175,765 shares of Company Common Stock were issued and 80,962,765 shares of Company Common Stock were outstanding, including in each case the associated Preferred Share Purchase Rights (the “Rights” ) issued pursuant to the Rights Agreement dated as of January 2, 2002 between the Company and The Bank of New York, as Rights Agent (the “Rights Agreement” ); (B) no shares of Company Preferred Stock were issued or outstanding and 10,000 shares of Junior Participating Series A Company Preferred Stock were reserved for issuance upon exercise of the Rights under the Rights Agreement; (C) 213,000 shares of Company Common Stock were held by the Company in its treasury; (D) there were outstanding Options to purchase 5,032,753 shares of Company Common Stock and 7,866,067 shares of Company Common Stock were reserved for issuance under the Stock Plans (including upon exercise of the Options); (E) there were outstanding $130,000,000 in aggregate principal amount of the Company’s 2.50% Convertible Notes due 2012 (the “Notes” ) convertible into 9,322,001 shares of Company Common Stock and such number of shares of Company Common Stock were reserved for issuance upon conversion of the Notes; and (F) there were outstanding Warrants exercisable for 7,692,305 shares of Company Common Stock and such number of shares of Company Common Stock were reserved for issuance upon conversion of the Warrants. Such issued and outstanding shares of Company Common Stock have been duly authorized and validly issued, are fully paid and nonassessable, and are free of preemptive rights. Section 3.2(a) of the Company Disclosure Letter sets forth, as of the close of business on February 15, 2008, each outstanding option, warrant or other right to subscribe for, purchase or acquire from the Company any capital stock of the Company or securities convertible into or exchangeable for capital stock of the Company, including the

name of the holder thereof, the stock plan under which it was issued, the date of grant and exercise price thereof, and the vesting schedule thereof. Except for the Phantom Units described on Section 3.2(a) of the Company Disclosure Letter, there are no outstanding or authorized stock appreciation rights, phantom stock awards or other rights that are linked in any way to the price of the Company Common Stock or the value of the Company or any part thereof. During the period from February 15, 2008 to the date of this Agreement, (i) the Company has not issued any shares of its capital stock, options, warrants voting securities or equity interests, or any securities convertible into or exchangeable or exercisable for any shares of its capital stock, options, warrants, voting securities or equity interests. The Company has not, subsequent to February 15, 2008, declared or paid any dividend, or declared or made any distribution on, or authorized the creation or issuance of, or issued, or authorized or effected any split-up or any other recapitalization of, any of its capital stock, or directly or indirectly redeemed, purchased or otherwise acquired any of its outstanding capital stock. The Company has not heretofore agreed to take any such action, and there are no outstanding contractual obligations of the Company of any kind to redeem, purchase or otherwise acquire any outstanding shares of capital stock of the Company. Other than the Company Common Stock, there are no outstanding bonds, debentures, notes or other indebtedness or securities of the Company having the right to vote (or, other than the outstanding Options, Rights, Notes and Warrants, convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote.

 

(b) Except as set forth in Section 3.2(a) and for Company Preferred Stock issuable upon exercise of the Rights, (i) as of February 15, 2008, no shares of capital stock or other voting securities of the Company are issued, reserved for issuance or outstanding, and (ii) there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of the Company Subsidiaries is a party or by which any of them is bound obligating the Company or any of the Company Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities or equity interests of the Company or of any of the Company Subsidiaries or obligating the Company or any of the Company Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking.

 

(c) The Compensation Committee of the Company’s Board of Directors, consisting solely of independent directors, has taken all such actions as may be required to cause to be exempted under Rule 14d — 10(d)(2) under the Exchange Act, any and all employment compensation, severance and employee benefit agreements and arrangements that have been entered into or granted by the Company or any Company Subsidiary with or to current or future directors, officers, or employees of the Company and the Company Subsidiaries, to ensure that all such agreements and arrangements satisfy the safe harbor provisions of Rule 14d — 10(d)(2) of the Exchange Act. All Options were granted at an exercise price at least equal to the fair market value (within the meaning of Section 409A of the Code) of a share of Company Common Stock on the date of grant and no Option has been extended, amended or repriced since the date of the grant.

 

Section  3.3   Authorization; No Conflict .

 

(a) The Company has the requisite corporate power and authority to enter into and deliver this Agreement and all other agreements and documents contemplated hereby to which it is a party and to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder and the consummation by the Company of the Transactions have been duly authorized and approved by the Company Board. No other corporate proceedings on the part of the Company or any of the Company Subsidiaries are necessary to authorize the execution and delivery of this Agreement, the performance by the Company of its obligations hereunder and the consummation by the Company of the Transactions, except, in the case of the Merger (to the extent required by the DGCL), for the approval of this Agreement by the holders of a majority of the issued and outstanding shares of Company Common Stock (the “Required Company Stockholder Vote” ). This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar Laws of general application affecting or relating to the enforcement of creditors rights generally and equitable principles of general applicability, whether considered in a proceeding at law or in equity (the “Bankruptcy and Equity Exception” ).

(b) Neither the execution and delivery of this Agreement by the Company nor the consummation by the Company of the Transactions nor compliance by the Company with any of the provisions herein will (i) result in a violation or breach of or conflict with the Company Charter Documents or the Subsidiary Documents, (ii) result in a violation or breach of or conflict with any provisions of, or result in the loss of any benefit under or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation of, or give rise to a right of purchase under, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any Lien (as defined in Section 3.4) upon any of the properties or assets owned or operated by the Company or any Company Subsidiaries under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, contract, lease, agreement or other instrument or obligation of any kind to which the Company or any of the Company Subsidiaries is a party or by which the Company or any of the Company Subsidiaries or any of their respective properties or assets may be bound or (iii) subject to obtaining or making the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (c) below, violate any judgment, ruling, order, writ, injunction or decree of any Governmental Authority ( “Judgment” ) or any statute, code, decree, law, ordinance, rule or regulation or orders of Governmental Authorities ( “Law” ) applicable to the Company or any of the Company Subsidiaries or any of their respective properties or assets, other than any such event described in items (ii) or (iii) which, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect.

 

(c) No consent, approval, order or authorization of, or registration, declaration or filing with, any Federal, state, local or foreign governmental or regulatory authority (a “Governmental Authority” ) is necessary to be obtained or made by the Company or any Company Subsidiary in connection with the Company’s execution, delivery and performance of this Agreement or the consummation by the Company of the Transactions, except for (i) compliance with the DGCL, with respect to the filing of the Certificate of Merger, (ii) compliance with and filings pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act” ) and the foreign competition or antitrust Laws identified on Section 3.3(c)(ii) of the Company Disclosure Letter, (iii) the filing with the SEC of (A) the Schedule 14D-9, (B) if necessary, a proxy statement in definitive form relating to the Company Stockholders Meeting (as defined in Section 6.1(b)) (such proxy statement, as amended or supplemented from time to time, (the “Proxy Statement” )) and compliance with other applicable requirements of the Exchange Act, (C) any information statement required by Rule 14f-1 promulgated by the SEC under the Exchange Act (the “Information Statement” ) in connection with the Offer and (D) such reports under Section 13 or 16 of the Exchange Act and the rules and regulations promulgated thereunder, as may be required in connection with this Agreement and the Transactions, (iv) compliance with the rules of The Nasdaq Stock Market Inc. ( “Nasdaq” ), and (v) compliance with the “blue sky” laws of various states, other than such other consents, approvals, orders, authorizations, filings, declarations or registrations that, if not obtained, made or given, would not, individually or in the aggregate, reasonably be expected to prevent or materially impede, interfere with, hinder or delay the consummation of the Transactions.

 

Section  3.4   Subsidiaries .

 

(a) All of the subsidiaries of the Company (each a “Company Subsidiary” and together, the “Company Subsidiaries” ) and their respective jurisdictions of organization are identified in Section 3.4(a) of the Company Disclosure Letter. Other than the Company Subsidiaries, the Company does not own or control, directly or indirectly, any membership interest, partnership interest, joint venture interest, other equity interest or any other capital stock of any Person and there are no silent partnerships, sub-partnerships and/or similar rights with respect to the Company or any Company Subsidiary. As used in this Agreement, “Person” means an individual, corporation, partnership, limited partnership, joint venture, association, trust, unincorporated organization, limited liability company or other entity.

 

(b) All of the outstanding shares of capital stock or other equity securities of, or other ownership interests in, each Company Subsidiary are, where applicable, duly authorized, validly issued, fully paid and nonassessable, and the Company or a Company Subsidiary is the record and beneficial owner of such shares, securities or interests, free and clear of any Liens or limitations on voting rights. All such shares of capital stock, equity securities and other ownership interests have been duly and validly issued and are fully paid and nonassessable. There are no subscriptions, options, warrants, calls, rights, convertible securities or other agreements or commitments of any

character relating to the issuance, transfer, sales, delivery, voting or redemption (including any rights of conversion or exchange under any outstanding security or other instrument) for any of the capital stock or other equity interests of, or other ownership interests in, any Company Subsidiary. There are no agreements requiring the Company or any Company Subsidiary to make contributions to the capital of, or lend or advance funds to, any Company Subsidiary. As used in this Agreement, “Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, claim or encumbrance of any kind in respect of such asset.

 

Section  3.5   SEC Reports and Financial Statements .   Since January 1, 2005, the Company has filed with the SEC all forms, reports, schedules, registration statements, definitive proxy statements and other documents (collectively, including all exhibits thereto, the “Company SEC Reports” ) required to be filed by the Company with the SEC. As of their respective dates, and giving effect to any amendments or supplements thereto filed prior to the date of this Agreement, the Company SEC Reports complied in all material respects with the requirements of the Securities Act of 1933, as amended (the “Securities Act” ), the Exchange Act and the Sarbanes-Oxley Act, as the case may be and the respective rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Reports, and none of the Company SEC Reports contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of the date of this Agreement, there are no outstanding or unresolved comments received from the SEC Staff with respect to the Company SEC Reports. To the knowledge of the Company, none of the Company SEC Reports is the subject of ongoing SEC review or investigation. None of the Company Subsidiaries is required to file any forms, reports or other documents with the SEC pursuant to Section 13 or 15 of the Exchange Act.

 

(a) The consolidated balance sheets and the related consolidated statements of operations, consolidated statements of stockholders’ equity and consolidated statements of cash flows (including, in each case, any related notes and schedules thereto) (collectively, the “Company Financial Statements” ) of the Company contained in the Company SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in conformity with United States generally accepted accounting principles ( “GAAP” ) (except, in the case of unaudited statements, as may be noted therein) applied on a consistent basis during the periods involved (except as otherwise noted therein) and present fairly in all material respects the consolidated financial position and the consolidated results of operations and cash flows of the Company and the Company Subsidiaries as of the dates or for the periods presented therein (subject, in the case of unaudited statements, to normal year end adjustments that will not be material in amount or effect). Neither the Company nor any of the Company Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required to be reflected or reserved against on a consolidated balance sheet of the Company prepared in accordance with GAAP or the notes thereto, other than liabilities (i) as and to the extent reflected or reserved against on the audited balance sheet of the Company and the Company Subsidiaries as of December 31, 2006 (including the notes thereto) or any subsequent Company Financial Statement included in the Company SEC Reports or (ii) incurred after December 31, 2006 in the ordinary course of business consistent with past practices and that are not, individually or in the aggregate, material to the Company and the Company Subsidiaries, taken as a whole.

 

(b) Neither the Company nor any Company Subsidiary is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any similar contract (including any contract or arrangement relating to any transaction or relationship between or among the Company and any of the Company Subsidiaries, on the one hand, and any unconsolidated Affiliate, including, any structured finance, special purpose or limited purpose entity or Person, on the other hand or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC), where the results, purpose or effect of such contract is to avoid disclosure of any material transaction involving, or material liabilities of, the Company or any of the Company Subsidiaries in the Company SEC Reports. As used in this Agreement, “Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, or is controlled by, or is under common control with, such Person. For this purpose, “control” (including, with its correlative meanings, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise.

(c) With respect to each annual report on Form 10-K, each quarterly report on Form 10-Q and each amendment of any such report included in the Company SEC Reports filed since January 1, 2005, the principal executive officer and principal financial officer of the Company (or each former principal executive officer and each former principal financial officer of the Company) have made all certifications required by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act” ) and any related rules and regulations promulgated by the SEC and the statements contained in any such certifications are complete and correct.

 

(d) The Company has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) or 15d-15(e) promulgated by the SEC under the Exchange Act); such disclosure controls and procedures are designed to ensure that material information relating to the Company and the Company Subsidiaries required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is made known to the Company’s principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the Exchange Act are being prepared; and, to the knowledge of the Company, such disclosure controls and procedures are effective in timely alerting the Company’s principal executive officer and its principal financial officer to material information required to be included in the Company’s periodic reports required under the Exchange Act and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The Company’s principal executive officer and its principal financial officer have disclosed, based on their most recent completed evaluation, to the Company’s auditors and the audit committee of the Board of Directors of the Company and to Parent, (x) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal controls and (y) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls. To the knowledge of the Company, there are no facts or circumstances that would prevent its chief executive officer and principal financial officer from giving the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, without qualification, when next due.

 

(e) To the knowledge of the Company, neither the Company nor any of the Company Subsidiaries nor any director, officer, agent, employee or Affiliate of the Company or any of the Company Subsidiaries is aware of any action, or any allegation of any action, or has taken any action, directly or indirectly, (i) that would constitute a violation by such Persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder the ( “FCPA” ), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA, or (ii) that would constitute an offer to pay, a promise to pay or a payment of money or anything else of value, or an authorization of such offer, promise or payment, directly or indirectly, to any employee, agent or representative of another company or entity in the course of their business dealings with the Company or any of the Company Subsidiaries, in order to induce such person to act against the interest of his or her employer or principal.

 

(f) The Company has disclosed to Parent all internal investigations, and, to the knowledge of the Company, all external, governmental or other regulatory investigations, in each case regarding any action or any allegation of any action described in subsection (e) of this Section 3.5. To the knowledge of the Company, it also has disclosed to Parent all facts or circumstances that call into question the accuracy of its books and records or the adequacy of the internal controls at the Company or any of the Company Subsidiaries with respect to the actions described in subsection (e) of this Section 3.5.

 

(g) The Company and the Company Subsidiaries have instituted and maintained policies and procedures designed to ensure, and which are reasonably expected to ensure, compliance with the FCPA.

 

(h) The Company is in compliance in all material respects with all current listing and corporate governance requirements of Nasdaq, and is in compliance in all material respects with all rules, regulations and requirements of the Sarbanes-Oxley Act and the SEC.

Section  3.6   Absence of Material Adverse Changes, etc .

 

(a) Since September 30, 2007, the Company and the Company Subsidiaries have conducted their business in the ordinary course of business consistent with past practice and:

 

(i) there has not been or occurred any event, change, occurrence or development of a state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect; and

 

(ii) neither the Company nor any of the Company Subsidiaries have taken any action described in Section 5.1 hereof (other than (b)(vii), (ix), (x), (xiii), (xv), (xvi) and (xvii) and (b)(xxii) to the extent relating the foregoing) that, if taken during the period from the date of this Agreement through the Effective Time, would constitute a breach of such provision.

 

(b) Without limiting the foregoing, except as disclosed in the Available Company SEC Documents, since December 31, 2006, there has not occurred any damage, destruction or loss (whether or not covered by insurance) of any material asset of the Company or any of the Company Subsidiaries that materially affects the use thereof. As used in this Agreement, “Available Company SEC Documents” means the reports, schedules, forms, statements and other documents filed by the Company with the SEC or furnished by the Company to the SEC, in each case, prior to the date of this Agreement.

 

Section  3.7   Litigation .   There are no suits, actions, claims or legal, administrative, arbitration or other proceedings or governmental or regulatory investigations pending or, to the knowledge of the Company, threatened, to which the Company or any of the Company Subsidiaries is a party, or, to the knowledge of the Company, that materially affects the assets of the Company or any of the Company Subsidiaries, except where such suits, actions, claims, proceedings or investigations would not reasonably be expected to result in a Judgment for money damages in excess of $250,000 and would not reasonably be expected to result in any material injunctive relief. There are no material Judgments of any Governmental Authority or arbitrator outstanding (or, to the knowledge of the Company, threatened to be imposed) against the Company or any of the Company Subsidiaries.

 

Section  3.8   Information Supplied .   None of the information supplied or to be supplied by the Company specifically for inclusion or incorporation by reference in (i) the Offer Documents, the Schedule 14D-9 or the Information Statement will, at the time such document is filed with the SEC, at any time it is amended or supplemented or at the time it is first published, sent or given to the holders of Company Common Stock, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading, and (ii) the Proxy Statement (if any) will, at the date it is first mailed to the holders of Company Common Stock or at the time of the Company Stockholders Meeting (if such a meeting is held), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading or will, at the time of the Company Stockholders Meeting (if such a meeting is held), omit to state any material fact necessary to correct any statement in any earlier communication from the Company with respect to the solicitation of proxies for the Company Stockholders Meeting that shall have become false or misleading in any material respect. The Schedule 14D-9, the Information Statement and the Proxy Statement (if any) will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder. No representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Merger Sub in writing specifically for inclusion or incorporation by reference in the Schedule 14D-9, the Information Statement or the Proxy Statement (if any).

 

Section  3.9   Broker’s or Finder’s Fees .   Except for the Company Financial Advisor, no agent, broker, investment banker, or similar Person or firm acting on behalf of the Company or any Company Subsidiary or under the Company’s or any Company Subsidiary’s authority is or will be entitled to any advisory, commission or broker’s or finder’s fee or similar fee or commission or reimbursement of expenses from any of the parties hereto in connection with any of the Transactions. The Company has heretofore delivered to Parent a complete and correct copy of the Company’s engagement letter with the Company Financial Advisor, which letter describes all fees payable to the Company Financial Advisor in connection with the Transactions, all agreements under which any

such fees or any expenses are payable and all indemnification and other agreements related to the engagement of the Company Financial Advisor.

 

Section  3.10   Employee Plans .   (a) Section 3.10(a)(i) of the Company Disclosure Letter sets forth all Company Employee Benefit Plans. Section 3.10(a)(ii) of the Company Disclosure Letter sets forth a complete and accurate list, as of the date of this Agreement, of all employees of the Company and the Company Subsidiaries, indicating for each employee (to the extent permitted by Law) his or her name, date of hire, position, salary, target bonus, and accrued vacation and sick leave balance, location and status as full time or part time employees. Such information shall be updated in writing and delivered to Parent as of a date within three (3) business days of Closing. As used in this Agreement, “Company Employee Benefit Plan” means an Employee Benefit Plan maintained, adopted, sponsored, contributed or required to be contributed to by the Company or any entity with which the Company is considered a single employer under Section 414(b), (c) or (m) of the Code (“Company ERISA Affiliates”) with respect to any current or former employee, officer or director of the Company or any of the Company Subsidiaries or any beneficiary or dependent thereof and under which the Company or any Company ERISA Affiliate would reasonably be expected to have any material liability. As used in this Agreement, “Employee Benefit Plan” means any material plan, program, policy, practice, agreement or other arrangement, whether written or unwritten, relating to individual consulting, employment, pension, profit-sharing, bonus, incentive compensation, deferred compensation, vacation, sick pay, stock purchase, equity-based stock option, phantom equity, severance, supplemental unemployment, hospitalization or other medical, life, or other insurance, long- or short-term disability, change of control, fringe benefit or any other similar employee benefits.

 

(b) With respect to each Company Employee Benefit Plan, the Company has made available to Parent a true, correct and complete copy of: (i) each written Company Employee Benefit Plan and all amendments thereto, if any; (ii) the most recent Annual Report (Form 5500 Series) including all applicable schedules, if any; (iii) the current summary plan description and any material modifications thereto, if any, or any written summary provided to participants with respect to any plan for which no summary plan description exists; (iv) the most recent determination letter (or if applicable, advisory or opinion letter) from the Internal Revenue Service, if any; and (v) all material notices given to such Company Employee Benefit Plan, the Company, or any Company ERISA Affiliate by the Internal Revenue Service, Department of Labor, Pension Benefit Guarantee Corporation, the Financial Services Commission of Ontario, the Canada Revenue Agency, or other governmental agency relating to such Company Employee Benefit Plan.

 

(c) Each Company Employee Benefit Plan that is intended to be “qualified” within the meaning of Section 401(a) of the Code ( “Qualified Company Employee Benefit Plan”) has been the subject of a favorable determination letter (or, if applicable, advisory or opinion letter) from the Internal Revenue Service that has not been revoked (or if not determined to be so qualified, such Company Employee Benefit Plan may still be amended within the remedial amendment period to cure any qualification defect to the extent permitted by Law), and to the Company’s knowledge, no event has occurred and no condition exists that would reasonably be expected to adversely affect the qualified status of any such Company Employee Benefit Plan.

 

(d) (i) Each Company Employee Benefit Plan has been operated and administered in all material respects in accordance with its provisions and in compliance with all applicable provisions of ERISA and the Code and any other applicable Laws; and (ii) all contributions required to be made to any Company Employee Benefit Plan have to the extent material been made or the amount of such payment or contribution obligation has been reflected in the Available Company SEC Documents which are publicly available prior to the date of this Agreement.

 

(e) (i) Neither the Company nor any Company Subsidiary has engaged in any prohibited transaction that will have a material effect on the Company and the Company Subsidiaries, taken as a whole, within the meaning of Section 4975 of the Code or Section 406 of ERISA, as a fiduciary or party in interest with respect to any Company Employee Benefit Plan; and (ii) to the knowledge of the Company, no prohibited transaction has occurred with respect to any Company Employee Benefit Plan.

 

(f) Neither the Company nor any Company ERISA Affiliate has, at any time during the last six years, sponsored, contributed to or been obligated to contribute to any pension plan subject to Title IV of ERISA, any “multiemployer plan” (as defined in Section 3(37) of ERISA) or a plan that has two or more contributing sponsors at least two of whom are not under common control (within the meaning of Section 4063 of ERISA).

(g) No Company Employee Benefit Plan that is a welfare plan within the meaning of Section 3(1) of ERISA provides benefits or coverage following retirement or other termination of employment other than as required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code or under a similar state Law, or claims incurred on or before the end of the month on or immediately following the termination date of any employee.

 

(h) Neither the execution and delivery of this Agreement nor the consummation of the Transactions, either alone or in connection with a subsequent event, will (i) result in any material payment (including without limitation severance, unemployment compensation, bonus or otherwise) becoming due to any director, officer or employee of the Company under any Company Employee Benefit Plan or otherwise, (ii) result in a payment or benefit becoming due to any director, officer or employee of the Company under any Company Employee Benefit Plan or otherwise which will be characterized as an “excess parachute payment” within the meaning of Section 280G(b)(1) of the Code that is subject to the imposition of an excise tax under section 4999 of the Code, (iii) materially increase any benefits otherwise payable under any Company Employee Benefit Plan, or (iv) result in the acceleration of the time of payment, funding or vesting of any such benefits to any material extent.

 

(i) Each Company Employee Benefit Plan has been operated in good faith compliance with the applicable provisions of Section 409A of the Code, and no benefit provided under such Company Employee Benefit Plan will trigger any reportable transaction under Section 409A of the Code.

 

(j) With respect to each non-US Company Employee Benefit Plan (a “Foreign Plan” ):

 

(i) all employer and employee contributions to each Foreign Plan required by law or by the terms of such Foreign Plan have been made, or, if applicable, accrued in accordance with normal accounting practices;

 

(ii) each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities;

 

(iii) other than routine claims for benefits, no Company Employee Benefit Plan, no administrator of any Company Employee Benefit Plan, and no member of any body which administers a Company Employee Benefit Plan, is subject to any pending action, investigation, examination, claim (including claims for income taxes, interest, penalties, fines or excise taxes) or any other proceeding initiated by any Person, and there exists no state of facts which could reasonably be expected to give rise to any such action, investigation, examination, claim or other proceeding;

 

(iv) subject to the requirements of applicable Laws, no provision of any Company Employee Benefit Plan or of any agreement, and no act or omission of the Company in any way limits, impairs, modifies or otherwise affects the right of the Company to unilaterally amend or terminate any Company Employee Benefit Plan, and no commitments to improve or otherwise amend any Company Employee Benefit Plan have been made; and

 

(v) No Foreign Plan is, or at any time was, a defined benefit registered pension plan; and

 

(k) the Company is not and has not at any time since 27 April 2004 been connected with or an associate of (as those terms are used in the UK Pensions Act 2004) an employer in relation to an occupational pension scheme (as defined in section 1 of the UK Pension Schemes Act 1993 ( “PSA 1993” ) established in the UK which is not a money purchase scheme (as defined in section 181 of PSA 1993).

 

As used in this Agreement, “Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, and “ERISA” means the Employee Retirement Income Securities Act of 1974, as amended, and the rules and regulations promulgated thereunder.

 

Section  3.11   Opinion of Financial Advisor .   The Company Board has received from the Company Financial Advisor an opinion (the “Fairness Opinion” ) to the effect that, as of the date of the opinion and subject to the considerations and limitations set forth therein, the consideration to be received by holders of Company Common Stock in the Offer and the Merger is fair, from a financial point of view, to the holders of the Company Common Stock (other than Parent, Merger Sub and their affiliates). The Company has delivered to Parent a correct and complete copy of the Fairness Opinion for informational purposes only and not for reliance by Parent.

Section  3.12   Taxes .

 

(a) Each of the Company and each Company Subsidiary has timely filed all material federal, provincial, state, local, municipal, and other Tax Returns required to be filed by it in the manner prescribed by applicable Law and all such Tax Returns are true, complete and correct in all material respects; and all Taxes due and owing (whether or not shown as due on such Tax Returns) have been paid in full and the Company and each Company Subsidiary has made adequate provision (or adequate provision has been made on its behalf) for all accrued Taxes not yet due. The accruals and reserves for Taxes reflected in the Company’s Form 10-K for the fiscal year ended December 31, 2006 are adequate to cover all Taxes accruing through such date. There are no Liens on any of the assets, rights or properties of the Company or any Company Subsidiary with respect to Taxes, (other than Liens for Taxes not yet due and payable or for Taxes that the Company or a Company Subsidiary is contesting in good faith through appropriate proceedings).

 

(b) There is no claim, audit, action, suit, proceeding or investigation currently pending or, to the knowledge of the Company threatened against or with respect to the Company or any Company Subsidiary in respect of any Tax or Tax asset of the Company or any Company Subsidiary.

 

(c) Neither the Company nor any Company Subsidiary has ever been a party to a “reportable transaction” within the meaning of Treas. Reg. Sec. 1.6011-4(b) or any similar provision of state, local or foreign law.

 

(d) Neither the Company nor any Company Subsidiary is a party to any Tax sharing agreement, Tax indemnity obligation or similar agreement, arrangement or practice with respect to Taxes (including any advance pricing agreement, closing agreement or other agreement relating to Taxes with any Taxing Authority).

 

(e) The federal income Tax Returns of the Company and the Company Subsidiaries have been examined by and settled with the United States Internal Revenue Service or have expired or otherwise have been closed by virtue of the expiration of the relevant statute of limitations for all taxable periods ending on or before December 31, 2003.

 

(f) Neither the Company nor any Company Subsidiary (i) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company), or (ii) has any liability for the Taxes of any Person (other than the Company or any of the Company Subsidiaries) under Treas. Reg. Sec. 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee of successor, by contract, or otherwise.