-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UZymr7toYwtJOcbxqN6ioR/mx2rZWTrmglmMjv59kHhVzNuh7QTCO/irsj8FV3ug GmLO5uHPDYruHMSCBZlWlA== /in/edgar/work/20000821/0000912057-00-038571/0000912057-00-038571.txt : 20000922 0000912057-00-038571.hdr.sgml : 20000922 ACCESSION NUMBER: 0000912057-00-038571 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20000821 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PATHOGENESIS CORP CENTRAL INDEX KEY: 0001001186 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 911542150 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T SEC ACT: SEC FILE NUMBER: 005-45497 FILM NUMBER: 707182 BUSINESS ADDRESS: STREET 1: 201 ELLIOT AVE W CITY: SEATTLE STATE: WA ZIP: 98119 BUSINESS PHONE: 2064678100 MAIL ADDRESS: STREET 1: 201 ELLIOT AVE WEST CITY: SEATTLE STATE: WA ZIP: 98119 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CHIRON CORP CENTRAL INDEX KEY: 0000706539 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 942754624 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: 4560 HORTON ST CITY: EMERYVILLE STATE: CA ZIP: 94608 BUSINESS PHONE: 5106558730 SC TO-T 1 scto-t.txt SCHEDULE TO-T As filed with the Securities and Exchange Commission on August 21, 2000 SCHEDULE TO TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 PATHOGENESIS CORPORATION (Name of Subject Company) CHIRON CORPORATION AND PICARD ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CHIRON CORPORATION (Names of Filing Persons) COMMON STOCK, AND THE ASSOCIATES PREFERRED STOCK PURCHASE RIGHTS (Title of Class of Securities) 70321E104 (CUSIP Number of Class of Securities) WILLIAM G. GREEN, ESQ. SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY CHIRON CORPORATION 4560 HORTON STREET EMERYVILLE, CA 94608 (510) 655-8750 (Name, address, and telephone numbers of person authorized to receive notices and communications on behalf of filing persons) with copies to: ALISON S. RESSLER, ESQ. MATTHEW G. HURD, ESQ. C/O SULLIVAN & CROMWELL 1888 CENTURY PARK EAST LOS ANGELES, CALIFORNIA 90067-1725 (310) 712-6600 - -------------------------------------------------------------------------------- CALCULATION OF FILING FEE
Transaction valuation (1) Amount of filing fee $728,669,249 $145,734 - --------------------------------------------------------------------------------
(1) Based on the offer to purchase all of the outstanding shares of common stock of PathoGenesis Corporation at a purchase price of $38.50 cash per share, 16,627,511 shares outstanding and outstanding options with respect to 2,295,588 shares and 3,375 shares reserved for issuance upon the exercise of warrants, in each case as of August 17, 2000. [ ] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: N/A Form or Registration No.: N/A Filing Party: N/A Date Filed: N/A [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [x] third-party tender offer subject to Rule 14d-1. [ ] issuer tender offer subject to Rule 13e-4. [ ] going-private transaction subject to Rule 13e-3. [ ] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] This Tender Offer Statement on Schedule TO relates to the commencement by Picard Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), of its offer to purchase all of the outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended, between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at a price of $38.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 21, 2000 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1), and in the related Letter of Transmittal, a copy of which is attached hereto as Exhibit (a)(2). The information in the Offer to Purchase, including all schedules and annexes thereto, is hereby incorporated by reference in response to all the items of this Schedule TO, except as otherwise set forth below. ITEM 10. FINANCIAL STATEMENTS. (a) Financial information. Not applicable. (b) Pro forma information. Not applicable. ITEM 11. ADDITIONAL INFORMATION. (b) Other material information. The information set forth in the Letter of Transmittal attached hereto as Exhibit (a)(2) is incorporated herein by reference. ITEM 12. EXHIBITS. The following documents are attached as exhibits to this Schedule TO: (a)(1) Offer to Purchase, dated August 21, 2000. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(5) Form of Letter to brokers, dealers, commercial banks, trust companies and other nominees. (a)(6) Form of Letter to be used by brokers, dealers, commercial banks, trust companies and other nominees to their clients. (a)(7) Form of Letter to Participants in the Amended and Restated Employee Stock Purchase Plan. (a)(8) Form of Letter to Participants in the 401(k) Profit Sharing Plan of PathoGenesis. (a)(9) Summary newspaper advertisement, dated August 21, 2000. Published in The Wall Street Journal. Exhibit (b) None. Exhibit (d)(1) Agreement and Plan of Merger, dated as of August 13, 2000, among Parent, the Merger Sub and the Company. Exhibit (d)(2) Confidentiality Agreement dated August 8, 2000 between Goldman, Sachs & Co. and the Company. Exhibit (e)(3) Collaboration Agreement dated December 15, 1999 between the Company and Parent.(1) Exhibit (g) None. Exhibit (h) None.
- -------------- (1) Incorporated by Reference to Exhibit 99(e)(2) of the Company's Schedule 14D-9, filed on August 21, 2000. ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3 Not applicable. SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: August 21, 2000 PICARD ACQUISITION CORP. /s/ William G. Green -------------------------- Name: William G. Green Title: Director, Vice President and Secretary CHIRON CORPORATION /s/ William G. Green -------------------------- Name: William G. Green Title: Senior Vice President, Secretary and General Counsel EX-99.A1 2 ex-99_a1.txt EXHIBIT 99-A1 OFFER TO PURCHASE FOR CASH ALL OF THE OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK) OF PATHOGENESIS CORPORATION AT $38.50 NET PER SHARE BY PICARD ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CHIRON CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE (THE "COMMON STOCK"), TOGETHER WITH THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK (THE "RIGHTS" AND, COLLECTIVELY WITH THE COMMON STOCK, THE "SHARES"), OF PATHOGENESIS CORPORATION (THE "COMPANY") WHICH, WHEN ADDED TOGETHER WITH ALL OTHER SHARES OWNED BY CHIRON CORPORATION AND ITS SUBSIDIARIES, WOULD REPRESENT AT LEAST A MAJORITY OF THE OUTSTANDING SHARES (DETERMINED ON A FULLY DILUTED BASIS FOR ALL OUTSTANDING STOCK OPTIONS AND OTHER RIGHTS (OTHER THAN THE RIGHTS, IF SUCH RIGHTS ARE NOT AT THAT TIME EXERCISABLE) TO ACQUIRE SHARES OUTSTANDING ON THE DATE OF PURCHASE), (II) ANY REQUISITE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER OR THE MERGER DESCRIBED HEREIN HAVING BEEN TERMINATED OR HAVING EXPIRED, AND (III) THE APPLICABLE WAITING PERIODS UNDER CERTAIN FOREIGN ANTITRUST AND COMPETITION LAWS HAVING BEEN TERMINATED OR HAVING EXPIRED, EXCEPT FOR SUCH WAITING PERIODS THE FAILURE OF WHICH TO TERMINATE OR EXPIRE IS NOT REASONABLY LIKELY TO HAVE A PARENT MATERIAL ADVERSE EFFECT OR A COMPANY MATERIAL ADVERSE EFFECT (AS SUCH TERMS ARE DEFINED IN THE OFFER TO PURCHASE) OR TO PROVIDE A REASONABLE BASIS TO CONCLUDE THAT CHIRON CORPORATION, PICARD ACQUISITION CORP. OR THE COMPANY OR ANY OF ITS DIRECTORS, OFFICERS, AGENTS, ADVISORS OR OTHER REPRESENTATIVES WOULD BE SUBJECT TO THE RISK OF CRIMINAL LIABILITY. THE CONSUMMATION OF THE OFFER IS ALSO SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE. SEE SECTION 13. THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER, DATED AS OF AUGUST 13, 2000 (THE "MERGER AGREEMENT"), AMONG CHIRON CORPORATION, PICARD ACQUISITION CORP. AND THE COMPANY. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares should (1) complete and sign the Letter of Transmittal or a facsimile thereof in accordance with the instructions in the Letter of Transmittal, including any required signature guarantees, and mail or deliver the Letter of Transmittal or such facsimile with such stockholder's certificate(s) for the tendered Shares and any other required documents to the Depositary named herein, (2) follow the procedure for book-entry tender of Shares set forth in Section 3, or (3) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Stockholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if they desire to tender Shares so registered. Unless the context requires otherwise, all references to Shares herein shall include the associated Rights. The Rights are presently evidenced by the certificates for the Common Stock and a tender by a stockholder of such stockholder's shares of Common Stock will also constitute a tender of the associated Rights. A stockholder of the Company who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be directed to the Information Agent or the Dealer Manager. Stockholders may also contact their broker, dealer, commercial bank, trust company or other nominee. THE DEALER MANAGER FOR THE OFFER IS: [LOGO] August 21, 2000 SUMMARY TERM SHEET This summary highlights important and material information from this Offer to Purchase but does not purport to be complete. To fully understand the tender offer described in this document and for a more complete description of its terms, you should read carefully this entire Offer to Purchase and the Letter of Transmittal (which together, as amended and supplemented, constitute the "Offer"). We have included section references to direct you to a more complete description of the topics contained in this summary. - - WHO IS OFFERING TO BUY MY SECURITIES? Picard Acquisition Corp., a wholly owned subsidiary of Chiron Corporation, is offering to buy your Shares as described in this document. See Section 9 of this document for further information about Chiron Corporation and Picard Acquisition Corp. - - WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER? Picard Acquisition Corp. is offering to buy all of the outstanding Shares, including the associated Rights, of PathoGenesis Corporation. For information about the conditions to which the Offer is subject, see Section 13 of this document. - - HOW MUCH IS PICARD ACQUISITION CORP. OFFERING TO PAY AND WHAT IS THE FORM OF PAYMENT? Picard Acquisition Corp. is offering to pay $38.50 in cash for each Share, including the associated Rights, of PathoGenesis Corporation. See Section 1 of this document for information about the terms of the Offer. - - DOES PICARD ACQUISITION CORP. HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT? Yes. Chiron Corporation, parent of Picard Acquisition Corp., will be financing the Offer described in this document with existing cash. See Section 12 of this document. - - ARE CHIRON CORPORATION'S FINANCIAL RESULTS RELEVANT TO MY DECISION AS TO WHETHER TO TENDER IN THE OFFER? Since the Offer is for cash and is not subject to any financing condition, Chiron Corporation's financial results should not be relevant to your decision on whether to tender your Shares in the Offer. - - HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE INITIAL OFFERING PERIOD? You may tender your Shares into the Offer until 12:00 midnight, New York City time, on Monday, September 18, 2000, which is the scheduled expiration date of the offering period, unless Picard Acquisition Corp. decides to extend the offering period or provide a subsequent offering period. See Section 3 of this document for information about tendering your Shares. - - CAN THE OFFER BE EXTENDED, AND UNDER WHAT CIRCUMSTANCES? Yes, Chiron Corporation and Picard Acquisition Corp. have agreed that if all of the conditions to the Offer described in this document are not satisfied on any scheduled expiration date of the Offer, Picard Acquisition Corp. may (and in certain circumstances will be required to) extend the Offer for a period of time (which, without the written consent of PathoGenesis Corporation, will not exceed ten days per extension) that Picard Acquisition Corp. reasonably believes is necessary to cause the conditions to the Offer described in this document to be satisfied, PROVIDED that so long as Chiron Corporation and Picard Acquisition Corp. shall have complied with their obligations under the Merger Agreement, Picard Acquisition Corp. will not be required to extend the Offer beyond March 14, 2001 (as such date may be extended pursuant to the Merger Agreement). In addition, i Picard Acquisition Corp. 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 its staff applicable to the Offer, or (ii) on one or more occasions for an aggregate period of not more than ten business days if a number of Shares representing at least a majority of the total number of outstanding Shares (calculated on a fully diluted basis) but fewer than 90% of the total number of outstanding Shares shall have been validly tendered in the Offer and not withdrawn. See Section 1 of this document for information about extension of the Offer. - - WILL THERE BE A SUBSEQUENT OFFERING PERIOD? Following the satisfaction of all the conditions to the Offer described in this document and the acceptance of and payment for all the Shares tendered during the offering period, Picard Acquisition Corp. may, with the written consent of the Company, elect to provide a subsequent offering period, although Picard Acquisition Corp. currently has no intention to do so. - - HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED? Picard Acquisition Corp. will announce by press release any extension of the Offer no later than 9:00 a.m., New York City time, on the next day after the previously scheduled expiration date. See Section 1 of this document for more information about extension of the Offer. If, with the consent of the Company, Picard Acquisition Corp. determines to provide a subsequent offering period, it will publicly disclose its intentions by issuing a press release no later than 9:00 a.m., New York City time, on the next day after the expiration date of the offering period. Any such press release will state the approximate number of Shares tendered to date. - - WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER? The Offer is conditioned upon, among other things, at least a majority of the total number of outstanding Shares (calculated on a fully diluted basis) being validly tendered in the Offer and not withdrawn, on the expiration or termination of the applicable waiting period under United States federal antitrust laws and on the expiration or termination of the applicable waiting periods under certain foreign antitrust and competition laws. The Offer is subject to certain other conditions. For a complete description of all of the conditions to which the Offer is subject, see Section 13 of this document. - - HOW DO I TENDER MY SHARES? If you hold the certificates for your Shares, you should complete the enclosed Letter of Transmittal and enclose all the documents required by it, including your certificates, and send them to the Depositary at the address listed on the back cover of this document. If your broker holds your Shares for you in "street name" you must instruct your broker to tender your Shares on your behalf. In any case, the Depositary must receive all required documents prior to 12:00 midnight, New York City time, on Monday, September 18, 2000, which is the expiration date of the Offer, unless Picard Acquisition Corp. decides to extend the Offer. If you cannot comply with any of these procedures, you still may be able to tender your Shares by using the guaranteed delivery procedures described in this document. See Section 3 of this document for more information on the procedures for tendering your Shares. - - UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES? The tender of your Shares may be withdrawn at any time prior to the expiration date of the Offer. There will be no withdrawal rights during any subsequent offering period. See Section 4 of this document for more information. - - HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES? You (or your broker or bank, if your Shares were held in "street name") must notify the Depositary at the address and telephone number listed on the back cover of this document, and the notice must include the name of the stockholder that tendered the Shares, the number of Shares to be withdrawn ii and the name in which the tendered Shares are registered. For complete information about the procedures for withdrawing your previously tendered Shares, see Section 4 of this document. - - WHAT DOES MY BOARD OF DIRECTORS THINK OF THE OFFER? THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. - - IF PICARD ACQUISITION CORP. CONSUMMATES THE TENDER OFFER, WHAT ARE PICARD ACQUISITION CORP.'S PLANS WITH RESPECT TO ALL THE SHARES THAT ARE NOT TENDERED IN THE OFFER? If Picard Acquisition Corp. purchases at least a majority of the Shares pursuant to the Offer, it intends to cause a merger to occur between Picard Acquisition Corp. and PathoGenesis Corporation in which stockholders who have not previously tendered their Shares will also receive $38.50 in cash subject to their right to dissent and demand the fair cash value of their Shares. If Picard Acquisition Corp. does not receive at least a majority of the Shares, it does not presently intend to acquire any Shares. - - IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES? The purchase of the Shares by Picard Acquisition Corp. will reduce the number of the Shares that might otherwise trade publicly and may reduce the number of holders of the Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. The Shares may also cease to be quoted on the Nasdaq Stock Market. Also, PathoGenesis Corporation may cease making filings with the SEC or may otherwise cease being required to comply with the SEC's rules relating to publicly held companies. See Section 7 of this document for complete information about the effect of the Offer on your Shares. - - WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE? On June 2, 2000, the last trading day prior to the public announcement by the Company that it had engaged a financial advisor and other advisors to explore strategic options for enhancing shareholder value, the reported closing price of the Shares on the Nasdaq Stock Market was $18.125 per Share. On August 11, 2000, the last full trading day prior to the public announcement of the Offer, the reported closing price of the Shares was $32.750 per Share. On August 18, 2000, the last full trading day for which prices were available before the commencement of the Offer, the reported closing price of the Shares was $37.938 per Share. You should obtain a recent market quotation for your Shares in deciding whether to tender them. See Section 6 of this document for recent high and low closing bid prices for the Shares. - - WHO IS RESPONSIBLE FOR THE PAYMENT OF TAXES AND BROKERAGE FEES? Stockholders of record who tender Shares directly will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of the Shares by Picard Acquisition Corp. pursuant to the Offer. However, any tendering stockholder or other payee who fails to complete and sign the Substitute Form W-9 included in the Letter of Transmittal may be subject to backup federal income tax withholding of 31% of the gross proceeds payable to such stockholder or other payee pursuant to the Offer. See Section 3. Stockholders who hold their Shares through a broker, bank or other nominee should check with such institution as to whether they charge any service fees. - - WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER? If you have any questions you can call the Dealer Manager, Donaldson, Lufkin & Jenrette Securities Corporation at (310) 282-7765 (call collect), or the Information Agent, MacKenzie Partners, Inc. at (800) 322-2885 (toll free). See the back cover of this Offer to Purchase. iii TABLE OF CONTENTS
SECTION PAGE - ------- ---- SUMMARY TERM SHEET................................................... i INTRODUCTION......................................................... 1 1. Terms of the Offer.......................................... 2 2. Acceptance for Payment and Payment for the Shares........... 5 3. Procedure for Tendering Shares.............................. 6 4. Rights of Withdrawal........................................ 9 5. Certain Federal Income Tax Consequences of the Offer........ 10 6. Price Range of the Shares................................... 10 7. Effect of the Offer on the Market for the Shares; Stock Quotation, Margin Regulations and Exchange Act Registration................................................ 10 8. Certain Information Concerning the Company.................. 12 9. Certain Information Concerning Parent and Merger Sub........ 14 10. Background of the Offer; Contacts with the Company.......... 15 11. Purpose of the Offer; Plans for the Company; the Merger..... 24 12. Source and Amount of Funds.................................. 35 13. Certain Conditions of the Offer............................. 35 14. Dividends and Distributions................................. 36 15. Certain Legal Matters....................................... 36 16. Fees and Expenses........................................... 38 17. Miscellaneous............................................... 39 Schedule A Information Concerning the Directors and Executive Officers of Parent and Merger Sub............................................ A-1
iv TO THE HOLDERS OF SHARES OF PATHOGENESIS CORPORATION: INTRODUCTION Picard Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), hereby offers to purchase all of the outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at $38.50 per Share, net to the seller in cash (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Tendering stockholders who are record holders of their Shares and tender directly to Harris Trust Company of New York (the "Depositary") will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of the Shares by Merger Sub pursuant to the Offer. Stockholders who hold their Shares through a broker or bank should consult such institution as to whether it charges any service fees. Merger Sub will pay all charges and expenses of Donaldson, Lufkin & Jenrette Securities Corporation, as dealer manager ("DLJ" or the "Dealer Manager"), the Depositary and MacKenzie Partners, Inc. (the "Information Agent"). Unless the context requires otherwise, all references to Shares herein shall include the associated Rights, and all references to the Rights shall include all benefits that may inure to the holders of the Rights pursuant to the Rights Agreement. The Offer is being made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of August 13, 2000, among Parent, Merger Sub and the Company, pursuant to which, upon the terms and subject to the conditions of the Merger Agreement, at the Effective Time (as defined below) in accordance with the Delaware General Corporation Law (the "DGCL"), Merger Sub shall be merged with and into the Company and the separate existence of Merger Sub shall thereupon cease (the "Merger"). The Company shall continue its existence under the laws of the State of Delaware. As a result of the Merger, the Company (sometimes referred to herein as the "Surviving Corporation") will become a wholly owned subsidiary of Parent. The Merger shall become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such subsequent time or date (not later than 90 days after the date of filing) as Parent and the Company shall agree and specify in the certificate of merger. The time at which the Merger becomes effective is referred to in this document as the "Effective Time". In the Merger, each issued and outstanding Share (other than Shares, if any, that are held by any stockholder who is entitled to demand and properly demands appraisal of such shares pursuant to and who complies in all respects with, the provisions of Section 262 of the DGCL ("Dissenting Stockholders") and Shares that are owned by the Company (as treasury stock), Parent or any subsidiary of Parent (including Merger Sub) immediately prior to the Effective Time) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive from the Surviving Corporation in cash, without interest, the Offer Price. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. 1 GOLDMAN, SACHS & CO. ("GOLDMAN SACHS"), FINANCIAL ADVISOR TO THE COMPANY, HAS DELIVERED TO THE BOARD OF DIRECTORS OF THE COMPANY ITS OPINION, DATED AUGUST 13, 2000 (THE "FINANCIAL ADVISOR OPINION"), TO THE EFFECT THAT, AS OF SUCH DATE, AND BASED ON AND SUBJECT TO THE MATTERS SET FORTH THEREIN, THE $38.50 PER SHARE IN CASH TO BE RECEIVED BY HOLDERS OF THE SHARES IN THE OFFER AND THE MERGER IS FAIR FROM A FINANCIAL POINT OF VIEW TO SUCH HOLDERS. A COPY OF THE FINANCIAL ADVISOR OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN IS ATTACHED AS AN EXHIBIT TO THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE "SCHEDULE 14D-9"), WHICH HAS BEEN FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") IN CONNECTION WITH THE OFFER AND WHICH IS BEING MAILED TO STOCKHOLDERS HEREWITH. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE FINANCIAL ADVISOR OPINION CAREFULLY. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES WHICH, WHEN ADDED TOGETHER WITH ALL OTHER SHARES OWNED BY PARENT AND ITS SUBSIDIARIES, WOULD REPRESENT AT LEAST A MAJORITY OF THE OUTSTANDING SHARES (DETERMINED ON A FULLY DILUTED BASIS FOR ALL OUTSTANDING STOCK OPTIONS AND OTHER RIGHTS (OTHER THAN THE RIGHTS, IF SUCH RIGHTS ARE NOT AT THAT TIME EXERCISABLE) TO ACQUIRE SHARES OUTSTANDING ON THE DATE OF PURCHASE) (THE "MINIMUM CONDITION"), (II) ANY REQUISITE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"), APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER OR THE MERGER DESCRIBED HEREIN HAVING BEEN TERMINATED OR HAVING EXPIRED (THE "HSR CONDITION"), AND (III) THE APPLICABLE WAITING PERIODS UNDER FOREIGN ANTITRUST AND COMPETITION LAWS HAVING BEEN TERMINATED OR HAVING EXPIRED, EXCEPT FOR SUCH WAITING PERIODS THE FAILURE OF WHICH TO TERMINATE OR EXPIRE IS NOT REASONABLY LIKELY TO HAVE A PARENT MATERIAL ADVERSE EFFECT OR A COMPANY MATERIAL ADVERSE EFFECT (AS SUCH TERMS ARE DEFINED IN SECTION 11) OR TO PROVIDE A REASONABLE BASIS TO CONCLUDE THAT THE COMPANY, MERGER SUB OR PARENT OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, AGENTS, ADVISORS OR OTHER REPRESENTATIVES WOULD BE SUBJECT TO THE RISK OF CRIMINAL LIABILITY (THE "FOREIGN ANTITRUST CONDITION"). THE OFFER IS ALSO SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE. SEE SECTION 13. THE MINIMUM CONDITION, THE HSR CONDITION, THE FOREIGN ANTITRUST CONDITION AND THE OTHER CONDITIONS TO THE OFFER SET FORTH IN SECTION 13 ARE COLLECTIVELY REFERRED TO AS THE "OFFER CONDITIONS." ACCORDING TO THE COMPANY, AS OF AUGUST 18, 2000 THERE WERE 16,627,661 SHARES OUTSTANDING AND THERE WERE 2,295,438 SHARES RESERVED FOR ISSUANCE UNDER THEN-EXERCISABLE STOCK OPTIONS PURSUANT TO THE COMPANY'S STOCK OPTION AND INCENTIVE PLANS AND 3,375 SHARES RESERVED FOR ISSUANCE UPON THE EXERCISE OF WARRANTS. BASED ON SUCH INFORMATION, THE MINIMUM CONDITION WOULD BE SATISFIED IF 9,463,238 SHARES WERE VALIDLY TENDERED AND NOT WITHDRAWN. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION AND THEY SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 1. TERMS OF THE OFFER. Upon the terms and subject to the conditions set forth in the Offer (including the terms and conditions set forth in Section 13 and, if the Offer is extended or amended, the terms and conditions of such extension or amendment), Merger Sub will accept for payment, and pay for, all Shares validly tendered on or prior to the Expiration Date (as defined herein) and not withdrawn as permitted by Section 4. The term "Expiration Date" means 12:00 Midnight, New York City time, on Monday, September 18, 2000, unless and until Merger Sub shall have extended the period for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by Merger Sub, shall expire. The period from the date hereof until 12:00 Midnight, New York City time, on Monday, September 18, 2000, as such period may be extended, is referred to as the "Offering Period." 2 The Rights presently are transferable only with the certificates for the Shares and the surrender for transfer of certificates for any Shares will also constitute the transfer of the Rights associated with the Shares represented by such certificates. Pursuant to the terms of the Merger Agreement, the Company's Board of Directors amended the Rights Agreement to provide that, for so long as the Merger Agreement is in full force and effect, (i) none of Parent and its subsidiaries (including Merger Sub) shall become an "Acquiring Person" (as defined in the Rights Agreement) and no "Stock Acquisition Date" (as defined in the Rights Agreement) shall occur as a result of the execution, delivery and performance of the Merger Agreement and the consummation of the Offer or the Merger, (ii) no "Distribution Date" (as defined in the Rights Agreement) shall occur as a result of the announcement of or the execution of the Merger Agreement or any of the transactions contemplated thereby and (iii) each of Parent and Merger Sub will not be an "Acquiring Person" as a result of the transactions contemplated by the Merger Agreement. Subject to the terms of the Merger Agreement (see Section 11) and applicable rules and regulations of the SEC, Merger Sub expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the Offering Period by giving oral or written notice of such extension to the Depositary. During any such extension of the Offering Period, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. See Section 4. Notwithstanding any other term of the Offer or the Merger Agreement, Merger Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Merger Sub's obligation to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer, unless the Minimum Condition, the HSR Condition and the Foreign Antitrust Condition have been satisfied. Furthermore, notwithstanding any other term of the Offer or the Merger Agreement, Merger Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, if, immediately prior to the acceptance for payment of shares of Company Common Stock pursuant to the Offer, any of certain specified conditions set forth in Section 13 exists, which, in the reasonable judgment of Merger Sub or Parent, in any such case, and regardless of the circumstances giving rise to any such condition (including any action or inaction by Parent or any of its affiliates), makes it inadvisable to proceed with the Offer and/or with such acceptance for payment or payment. Pursuant to the Merger Agreement, Merger Sub reserves the right to waive any condition to the Offer or modify the terms of the offer, except that, without the written consent of the Company, Merger Sub will not (i) reduce the number of Shares subject to the Offer, (ii) reduce the price per Share to be paid pursuant to the Offer, (iii) change or waive the Minimum Condition, add to the Offer Conditions or modify any Offer Condition in any manner adverse to the holders of Shares, (iv) except as described below, extend the Offer, (v) change the form of consideration payable in the Offer or (vi) otherwise amend the Offer in any manner adverse to the holders of Shares. Notwithstanding the foregoing, Merger Sub may (but shall not be obligated to), without the consent of the Company, (i) extend the Offer for one or more periods of time (which, without the written consent of the Company, shall not exceed ten days per extension) that Merger Sub reasonably believes are necessary to cause the Offer Conditions to be satisfied, if at the scheduled expiration date of the Offer any of the Offer Conditions are not satisfied, until such time as such Offer Conditions are satisfied or waived, (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer, or (iii) extend the Offer on one or more occasions for an aggregate period of not more than ten business days if the Minimum Condition has been satisfied but fewer than 90% of the Shares have been validly tendered and not withdrawn. Pursuant to the Merger Agreement, if all of the Offer Conditions are not satisfied on any scheduled expiration date of the Offer then Merger Sub will from time to time and on each such occurrence 3 extend the Offer for a period of time (which, without the written consent of the Company, shall not exceed ten days per extension) that Merger Sub reasonably believes is necessary to cause the Offer Conditions to be satisfied until such conditions are satisfied or waived, PROVIDED that, so long as Parent and Merger Sub shall have complied with their obligations under the Merger Agreement, Merger Sub shall not be required to extend the Offer beyond March 14, 2001 (the "Drop Dead Date"), as may be extended pursuant to the Merger Agreement. Upon the terms and subject to the conditions of the Offer (including the Offer Conditions and, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Merger Sub will accept for payment, and will purchase, all Shares validly tendered and not withdrawn promptly after the expiration of the Offering Period. If there is a Subsequent Offering Period, all Shares tendered during the Subsequent Offering Period will be immediately accepted for payment and purchased as they are tendered. Any extension, delay, termination or amendment of the Offer will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which Merger Sub may choose to make any public announcement, Merger Sub shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release or other public announcement. Merger Sub may (with the written consent of the Company) elect to provide a subsequent offering period of three to 20 business days (the "Subsequent Offering Period") following its acceptance for payment of Shares in the Offer. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. A Subsequent Offering Period, if one is provided, is not an extension of the Offering Period. A Subsequent Offering Period would be an additional period of time, following the expiration of the Offering Period, in which stockholders may tender Shares not tendered during the Offering Period. Any decision to provide a Subsequent Offering Period will be announced no later than 9:00 a.m., New York City time, on the next business day after the expiration of the Offering Period. Merger Sub will announce the approximate number and percentage of the Shares deposited as of the expiration of the Offering Period no later than 9:00 a.m., New York City time, on the next business day following the expiration of the Offering Period, and such securities will be immediately accepted and promptly purchased. All Offer Conditions must be satisfied or waived prior to the commencement of any Subsequent Offering Period. Merger Sub confirms that if it makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, Merger Sub will extend the Offer to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. If, during the Offering Period, Merger Sub, with the written consent of the Company, shall decrease the number of Shares sought pursuant to the Offer or the Common Stock Price, such decrease shall be applicable to all holders whose Shares are accepted for payment pursuant to the Offer and, if at the time notice of any decrease is first published, sent or given to holders of such Shares, the Offer is scheduled to expire at any time earlier than the tenth business day from and including the date that such notice is first so published, sent or given, the Offer will be extended until the expiration of such ten-business day period. In the event that Merger Sub waives any condition set forth in Section 13, the SEC may, if the waiver is deemed to constitute a material change to the information previously provided to the 4 stockholders, require that the Offer remain open for an additional period of time and/or that Merger Sub disseminate information concerning such waiver. The Company has provided Merger Sub with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of the Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by Merger Sub to record holders of the Shares and will be furnished by Merger Sub to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of the Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR THE SHARES. Upon the terms and subject to the conditions of the Offer (including the Offer Conditions and, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Merger Sub will accept for payment, and will pay for, all Shares validly tendered and not withdrawn promptly after the expiration of the Offering Period. If there is a Subsequent Offering Period, all Shares tendered during the Subsequent Offering Period will be immediately accepted for payment and paid for as they are tendered. For purposes of the Offer, Merger Sub will be deemed to have accepted for payment Shares validly tendered and not withdrawn as, if and when Merger Sub gives oral or written notice to the Depositary of its acceptance for payment of such Shares pursuant to the Offer. Payment for any Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for the tendering stockholders for the purpose of receiving payments from Merger Sub and transmitting such payments to the tendering stockholders. In all cases, payment for any Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a timely Book-Entry Confirmation (as defined below) with respect thereto), (ii) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined below) and (iii) any other documents required by the Letter of Transmittal. Accordingly, payment may be made to tendering stockholders at different times if delivery of the certificates and other required documents occur at different times. The price paid to any holder of the Shares pursuant to the Offer will be the highest price per Shares paid to any other holder of Shares pursuant to the Offer. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE OFFER PRICE FOR THE SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased Shares will be returned, without expense to the tendering stockholder, or such other person as the tendering stockholder shall specify in the Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. In the case of any Shares delivered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility (as defined below) pursuant to the procedures set forth in Section 3, such Shares will be credited to such account maintained at the Book-Entry Transfer Facility as the tendering stockholder shall specify in the Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. If no such instructions are given with respect to any Shares delivered by book-entry transfer, any such Shares not tendered or not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated in the Letter of Transmittal as the account from which such Shares were delivered. Merger Sub reserves the right to assign to any other wholly owned subsidiaries of Parent the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such assignment 5 will not relieve Merger Sub of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for any Shares validly tendered and accepted for payment pursuant to the Offer. 3. PROCEDURE FOR TENDERING SHARES. VALID TENDER. To tender Shares pursuant to the Offer, either (i) a Letter of Transmittal (or a manually signed facsimile thereof) properly completed and duly executed in accordance with the instructions of the Letter of Transmittal, together with any required signature guarantees and certificates for the Shares to be tendered, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents must be received by the Depositary prior to the Expiration Date at one of its addresses set forth on the back cover of this Offer to Purchase or (ii) the tendering stockholder must comply with the guaranteed delivery procedures set forth below. BOOK-ENTRY DELIVERY. The Depositary will establish accounts with respect to the Shares at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry transfer of the Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of the Shares may be effected through book-entry transfer, either the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedures described below. The confirmation of a book-entry transfer of the Shares into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation." The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Merger Sub may enforce such agreement against the participant. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF ANY SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, IT IS REQUESTED THAT THE STOCKHOLDER USE PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. SIGNATURE GUARANTEES. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by the registered holder (which term, for purposes of this section, includes any participant in the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of the Shares tendered therewith and such registered holder has not completed the box entitled "Special Payment Instructions" 6 or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates for any Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for any Shares not tendered or not accepted for payment are to be returned to a person other than the registered holder of the certificates surrendered, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder or holders appear on the certificates, with the signatures on the certificates or stock powers guaranteed as described above. See Instructions 1 and 5 of the Letter of Transmittal. GUARANTEED DELIVERY. A stockholder who desires to tender Shares pursuant to the Offer and whose certificates for any Shares are not immediately available or who cannot comply with the procedure for book-entry transfer on a timely basis, or who cannot deliver all required documents to the Depositary prior to the Expiration Date may tender such Shares by following all of the procedures set forth below: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Merger Sub, is received by the Depositary, as provided below, prior to the Expiration Date; and (iii) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all such Shares), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal), and any other required documents, are received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by telegram, telex, facsimile transmission, mail or a nationally recognized overnight courier to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. OTHER REQUIREMENTS. Notwithstanding any other provision of this document, payment for the Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of the instruments and documents referred to in Section 2. TENDER CONSTITUTES AN AGREEMENT. The valid tender of any Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering stockholder and Merger Sub upon the terms and subject to the conditions of the Offer. APPOINTMENT. By executing a Letter of Transmittal as set forth above, the tendering stockholder will irrevocably appoint designees of Merger Sub as such stockholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by Merger Sub and with respect to any and all non-cash dividends, distributions, rights, and other shares of Common Stock or other securities issued or issuable in respect of such Shares on or after August 13, 2000 (collectively, "Distributions"). All such proxies will be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Merger Sub deposits the payment for such Shares with the Depositary. All such powers of attorney and proxies will be irrevocable and will be deemed granted in consideration of the acceptance for payment by Merger Sub of the Shares tendered in accordance with the terms of the Offer. Upon the effectiveness of such appointment, all prior powers of attorney, proxies and consents given by such stockholder will be revoked, and no subsequent powers of attorney, proxies and consents may be given 7 (and, if given, will not be deemed effective). Merger Sub's designees will be empowered to exercise all voting and other rights of such stockholder with respect to such Shares (and any and all Distributions) as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the stockholders of the Company, actions by written consent in lieu of any such meeting or otherwise. Merger Sub reserves the right to require that, in order for any Shares to be deemed validly tendered, immediately upon Merger Sub's depositing the payment for such Shares with the Depositary, Merger Sub must be able to exercise full voting, consent and other rights with respect to such Shares (and any and all Distributions). DETERMINATION OF VALIDITY. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of the Shares will be determined by Merger Sub in its sole discretion, which determination will be final and binding. Merger Sub reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of Merger Sub's counsel, be unlawful. Merger Sub also reserves the absolute right to waive any defect or irregularity in the tender of any Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of any Shares will be deemed to have been validly made until all defects and irregularities relating thereto have been cured or waived. None of Parent, Merger Sub, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Merger Sub's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and Instructions thereto) will be final and binding. BACKUP WITHHOLDING. In order to avoid "backup withholding" of Federal income tax on payments of cash pursuant to the Offer, a stockholder surrendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury that such TIN is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide such stockholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. All stockholders other than non-corporate foreign stockholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to Merger Sub and the Depositary). Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Non-corporate foreign stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 10 to the Letter of Transmittal. 4. RIGHTS OF WITHDRAWAL. Tenders of the Shares made pursuant to the Offer are irrevocable except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the expiration of the Offering Period and, unless theretofore accepted for payment by Merger Sub pursuant to the Offer, may also be withdrawn at any time after October 20, 2000. There will be no withdrawal rights during any Subsequent Offering Period for any Shares tendered during any Subsequent Offering Period. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of the Shares to be withdrawn and the names 8 in which the certificate(s) evidencing the Shares to be withdrawn are registered, if different from that of the person who tendered such Shares. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry tender as set forth in Section 3, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. If certificates for the Shares to be withdrawn have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers of the particular certificates evidencing the Shares to be withdrawn must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Merger Sub, in its sole discretion, which determination shall be final and binding. None of Parent, Merger Sub, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tendered Shares may not be rescinded, and any Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following one of the procedures described in Section 3 at any time prior to the Expiration Date. If Merger Sub extends the Offer, is delayed in its acceptance for payment of any Shares, or is unable to accept for payment any Shares pursuant to the Offer, for any reason, then, without prejudice to Merger Sub's rights under this Offer, the Depositary may, nevertheless, on behalf of Merger Sub, retain tendered Shares, but such Shares may be withdrawn to the extent that tendering stockholders are entitled to withdrawal rights as set forth in this Section 4. 9 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER. Sales of the Shares pursuant to the Offer and the exchange of the Shares for cash pursuant to the Merger will be taxable transactions for Federal income tax purposes and may also be taxable under applicable state, local and other tax laws. For Federal income tax purposes, a stockholder whose Shares are purchased pursuant to the Offer or who receives cash as a result of the Merger will generally recognize gain or loss equal to the difference between the adjusted basis of the Shares sold or exchanged and the amount of cash received therefor. Any such recognized gain or loss will be capital gain or loss if the Shares are held as capital assets by the stockholder, and will be long term capital gain or loss if the shareholder has held the Shares for more than one year. Long-term capital gain of a non-corporate stockholder is generally subject to a maximum U.S. Federal income tax rate of 20%. THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO STOCKHOLDERS IN SPECIAL SITUATIONS SUCH AS STOCKHOLDERS WHO RECEIVED THEIR SHARES UPON THE EXERCISE OF STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND STOCKHOLDERS WHO ARE NOT UNITED STATES PERSONS. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX LAWS. 6. PRICE RANGE OF THE SHARES. The Shares are listed on the Nasdaq Stock Market under the symbol "PGNS." The following table sets forth, for the calendar quarters indicated, the high and low closing prices for the Shares on the Nasdaq Stock Market based on public sources:
CLOSING COMPOSITE PRICE ------------------- HIGH LOW -------- -------- CALENDAR YEAR 1998: First Quarter........................................... $39.938 $33.125 Second Quarter.......................................... 39.750 27.000 Third Quarter........................................... 36.250 22.500 Fourth Quarter.......................................... 59.375 32.125 1999: First Quarter........................................... 56.875 10.750 Second Quarter.......................................... 15.375 11.875 Third Quarter........................................... 20.000 13.125 Fourth Quarter.......................................... 21.438 14.250 2000: First Quarter........................................... 32.750 20.000 Second Quarter.......................................... 26.000 14.750 Third Quarter (through August 18, 2000)................. 38.000 24.625
On June 2, 2000, the last full trading day prior to the public announcement by the Company that it had engaged a financial advisor and other advisors to explore strategic options for enhancing shareholder value, the reported closing price of the Shares was $18.125 per Share. On August 11, 2000, the last full trading day prior to the public announcement of the terms of the Offer and the Merger, the reported closing price of the Shares was $32.750 per Share. On August 18, 2000, the last full trading day prior to commencement of the Offer, the reported closing price of the Shares was $37.938 per Share. The Company has never paid any dividends. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATION, MARGIN REGULATIONS AND EXCHANGE ACT REGISTRATION. 10 MARKET FOR THE SHARES. The purchase of any Shares by Merger Sub pursuant to the Offer will reduce the number of the Shares that might otherwise trade publicly and may reduce the number of holders of the Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. STOCK QUOTATION. The Shares are quoted on the Nasdaq Stock Market. According to published guidelines of the Nasdaq Stock Market, the Shares would no longer be quoted on the Nasdaq National Market if, among other things, the number of publicly held Shares (excluding Shares held directly or indirectly by officers, directors and any person who is a beneficial owner of more than 10% of the Shares) were less than 500,000, the aggregate market value of publicly held Shares were less than $1,000,000 or there were fewer than 300 holders of the Shares in round lots. If these standards were not met, quotations might continue to be published in the over-the-counter "additional list" or one of the "local lists" unless, as set forth in published guidelines of the Nasdaq Stock Market, the number of publicly held Shares was less than 100,000, or there were fewer than 300 holders in total. According to information furnished to Parent by the Company, as of the close of business on August 18, 2000, there were 371 holders of record of shares of Common Stock not including beneficial holders of Common Stock held in street name, and there were 16,627,661 Shares outstanding. If the Common Stock were to cease to be quoted on the Stock National Market, the associated Rights would be delisted as well. If the Shares were to cease to be quoted on the Nasdaq Stock Market, the market for the Shares could be adversely affected. It is possible that the Shares would be traded or quoted on other securities exchanges or in the over-the-counter market, and that price quotations would be reported by such exchanges, or other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of stockholders and/or the aggregate market value of the Shares remaining at such time the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. MARGIN REGULATIONS. The Shares are presently "margin securities" under the regulations of the Board of Governors of the Federal Reserve Board (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. Depending upon factors similar to those described above regarding listing and market quotations, the Shares might no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations in which event the Shares would be ineligible as collateral for margin loans made by brokers. EXCHANGE ACT REGISTRATION. The Shares are currently registered under the Exchange Act. Such registration may be terminated by the Company upon application to the SEC if the outstanding Shares are not listed on a national securities exchange and if there are fewer than 300 holders of record of such shares. Termination of registration of the Shares under the Exchange Act would reduce the information required to be furnished by the Company to its stockholders and to the SEC and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b) and the requirement to furnish a proxy statement in connection with stockholders' meetings pursuant to Section 14(a) and the related requirement to furnish an annual report to stockholders, no longer applicable with respect to the Shares. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 under the Securities Act of 1933, as amended, may be impaired or eliminated. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be eligible for listing on the Nasdaq Stock Market or for continued inclusion on the Federal Reserve Board's list of "margin securities." Merger Sub intends to seek to cause the Company to apply for termination of registration of the Shares as soon as possible after consummation of the Offer if the requirements for termination of registration are met. If registration of the Shares is not terminated 11 prior to the Merger, then the registration of such Shares under the Exchange Act and the listing of such Shares on the Nasdaq Stock Market will be terminated following the completion of the Merger. 8. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company was incorporated in 1991 as a Delaware corporation. Its executive offices are located at 201 Elliott Avenue West, Seattle, Washington 98119. Its telephone number at such location is (206) 467-8100. The Company develops and markets drugs to treat infectious diseases--particularly serious lung infections--where there is a significant need for improved therapy. The Company's drug TOBI-Registered Trademark- (tobramycin solution for inhalation) was initially tested and approved for cystic fibrosis (CF) patients with Pseudomonas aeruginosa lung infections. TOBI has been on the market in the U.S. since January 1998. Sales are growing as market penetration of the drug increases in the U.S. and other countries where TOBI has been approved for sale. According to industry data, pseudomonal bacteria infect the lungs of about 60% of the 70,000 people worldwide with CF. Set forth below is certain summary consolidated financial information for each of the Company's last three fiscal years for the period ended 1999 as contained in the Company's Annual Report on Form 10-K (the "Form 10-K") as well as unaudited financial information for the period ended June 30, 2000, as contained in the Company's Quarterly Report on Form 10-Q. More comprehensive financial information is included in such reports (including management's discussion and analysis of financial condition and results of operation) and other documents filed by the Company with the SEC, and the following summary is qualified in its entirety by reference to such reports and other documents and all of the financial information and notes contained therein. Copies of such reports and other documents may be examined at or obtained from the SEC in the manner set forth below. PATHOGENESIS CORPORATION SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ------------------------------ JUNE 30, 2000 1999 1998 1997 ---------------- -------- -------- -------- (UNAUDITED) INCOME STATEMENT DATA: Revenues........................................ $39,937 $60,844 $61,052 $ 442 Income before income taxes (loss)............... (1,111) (8,195) 1,883 (33,038) Net income (loss)............................... (1,111) (8,195) 1,883 (33,038) Net income per common share: Basic......................................... (0.07) (0.50) (0.12) (2.10) Diluted....................................... (0.07) (0.50) (0.11) (2.10) BALANCE SHEET DATA (AT PERIOD END): Current assets.................................. 63,874 68,211 79,784 87,190 Total assets.................................... 97,830 100,837 112,766 97,596 Current liabilities............................. 8,410 14,422 14,631 8,107 Total stockholders' equity...................... 86,863 86,414 93,410 89,489
Except as otherwise set forth herein, the information concerning the Company contained in this Offer to Purchase has been taken from or based upon publicly available documents and records on file with the SEC and other public sources and is qualified in its entirety by reference thereto. Although Merger Sub, Parent and the Dealer Manager have no knowledge that would indicate that any statements contained herein based on such documents and records are untrue, Parent, Merger Sub and the Dealer Manager cannot take responsibility for the accuracy or completeness of the information contained in such documents and records, or for any failure by the Company to disclose events which 12 may have occurred or may affect the significance or accuracy of any such information but which are unknown to Parent, Merger Sub or the Dealer Manager. OTHER FINANCIAL INFORMATION. During the course of the discussions and information exchange between Parent and the Company that led to the execution of the Merger Agreement, the Company provided Parent and its financial advisors with certain information about the Company and its financial performance which is not publicly available. The information provided included financial projections for the Company as an independent company for 2000, 2001, 2002, 2003, 2004 and 2005 (i.e., without regard to the impact on the Company of a transaction with Parent and Merger Sub) and the Company's budget for 2000. The financial projections included, among other things, the following forecasts of the Company's total revenue, operating income (loss), net income and net cash flow, respectively (in millions): $88, ($1.26), $.05 and ($6) in 2000; $123, $20, $20 and $18 in 2001; $187, $44, $43 and $38 in 2002; $265, $71, $63 and $55 in 2003, $347, $99, $64 and $54 in 2004; and $593, $192, $121 and $96 in 2005. The Company has advised Parent and Merger Sub that it does not as a matter of course make public any projections as to future performance or earnings, and the aforementioned projections are included in this Offer to Purchase solely because such information was provided to Parent and its financial advisors during the course of Parent's evaluation of the Company. Parent and Merger Sub did not rely on such information in their valuation of the Company. The projections were not prepared with a view to public disclosure or compliance with the published guidelines of the Commission or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. The Company has advised Parent and Merger Sub that (i) its internal operating projections are, in general, prepared solely for internal use and capital budgeting and other management decisions and are subjective in many respects and thus susceptible to various interpretations and periodic revision based on actual experience and business developments and (ii) the projections were based on a number of internal assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters that are inherently subject to significant economic and competitive uncertainties, all of which are difficult to predict and some of which are beyond the control of the Company. Accordingly, there can be no assurance, and no representation or warranty is or has been made by any of the Company, Parent, Merger Sub or any of their representatives, that actual results will not vary materially from those described above. The foregoing information is forward-looking in nature and inherently subject to significant uncertainties and contingencies, including industry performance, general business and economic conditions, currency exchange rates, customer requirements, competition, adverse changes in applicable laws, regulations or rules governing environmental, tax and accounting matters and other matters. The inclusion of this information should not be regarded as an indication that the Company, Parent, Merger Sub or anyone who received this information then considered, or now considers, it a reliable prediction of future events, and this information should not be relied on as such. None of the Company, Parent, Merger Sub or any of their respective financial advisors or the Dealer Manager assumes any responsibility for the validity, reasonableness, accuracy or completeness of the projections described above. None of the Company, Parent, Merger Sub or any of their respective financial advisors or the Dealer Manager intends to, and each of them disclaims any obligation to, update, revise or correct such projections if they are or become inaccurate (even in the short term). The projections have not been adjusted to reflect the effects of the Offer or the Merger. AVAILABLE INFORMATION. The Company is subject to the information and reporting requirements of the Exchange Act and in accordance therewith is obligated to file reports and other information with the SEC relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities, any material interests of such persons in transactions with the Company and other matters is required to be disclosed in proxy statements distributed to the Company's stockholders and filed with the SEC. Such reports, proxy statements and 13 other information should be available for inspection at the public reference room at the SEC's offices at 450 Fifth Street, N.W., Washington, D.C., 20549 and also should be available for inspection and copying at the regional offices of the SEC located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611. Copies may be obtained, by mail, upon payment of the SEC's customary charges, by writing to its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and can be obtained electronically on the SEC's Website at http://www.sec.gov. 9. CERTAIN INFORMATION CONCERNING PARENT AND MERGER SUB. Parent is a Delaware corporation with principal executive offices located at 4560 Horton Street, Emeryville, California 94608. Its telephone number at that address is (510) 655-8730. Parent was incorporated in California in 1981 and was merged into a Delaware corporation in November 1986. Parent is a biotechnology company that participates in three global healthcare businesses; biopharmaceuticals, vaccines and blood testing. The Company is applying a broad and integrated scientific approach to the development of innovative products for preventing and treating cancer, infectious diseases and cardiovascular disease. Merger Sub is a Delaware corporation and to date has engaged in no activities other than those incident to its formation and the commencement of the Offer. FINANCIAL INFORMATION OF PARENT. Parent is subject to the information reporting requirements of the Exchange Act and in accordance therewith Parent is obligated to file reports and other information with the SEC relating to its business, financial condition and other matters. Information, as of particular dates, concerning Parent's directors and officers, their remuneration, stock options granted to them, the principal holders of Parent's securities, any material interests of such persons in transactions with Parent and other matters is required to be disclosed in proxy statements distributed to Parent's stockholders and filed with the SEC. Such reports, proxy statements and other information are available from the SEC at the addresses and through the website described in Section 8. OTHER INFORMATION REGARDING PARENT AND MERGER SUB. The name, citizenship, business address, business telephone number, current principal occupation (including the name, principal business and address of the organization in which such occupation is conducted), and material positions held during the past five years (including the name, principal business and address of the organization in which such occupation was conducted), of each of the directors and executive officers of Parent and Merger Sub are set forth in Schedule A to this Offer to Purchase. Neither Parent nor Merger Sub, nor, to the best of their knowledge, any of the persons listed in Schedule A hereto nor any associate or majority-owned subsidiary of any of the foregoing, beneficially owns or has a right to acquire any Shares or has engaged in any transactions in the Shares in the past 60 days. Neither Parent nor Merger Sub has purchased any Shares during the past two years. Except as set forth in Section 10, there have been no negotiations, transactions or material contacts between Parent or Merger Sub, or, to the best of their knowledge, any of the persons listed in Schedule A hereto, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Except as described in Section 10, neither Parent nor Merger Sub, nor, to the best of their knowledge, any of the persons listed in Schedule A hereto, had any transaction with the Company or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the SEC applicable to the Offer. 14 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. On December 15, 1999, Parent and the Company entered into the Collaboration Agreement described under Item 11 below to collaborate on drug discovery and development, focusing on development of new antibiotics. In early January 2000, Wilbur H. Gantz, Chairman and Chief Executive Officer of the Company, was invited to a breakfast meeting with Sean Lance, Chairman and Chief Executive Officer of Parent. At that meeting, Mr. Lance discussed Parent's desire to expand into the antibiotic field and suggested to Mr. Gantz that the Company would be a good strategic fit with Parent and that Parent was interested in pursuing a combination of the two companies. Mr. Gantz explained to Mr. Lance that while the Company valued Parent as a collaboration partner and recognized that Parent's size and financial strength could be important components in growth, particularly in research, at that time he believed that the Company was not interested in pursuing a combination of the two companies and that the Company's pursuit of its business plan was the best way for the Company to maximize value for the Company's shareholders. On January 18, 2000, Mr. Lance sent the following letter to Mr. Gantz: [PARENT LETTERHEAD] SEAN P. LANCE CHAIRMAN AND CHIEF EXECUTIVE OFFICER JANUARY 18, 2000 VIA FEDERAL EXPRESS Mr. Wilbur H. Gantz Chairman and Chief Executive Officer PathoGenesis Corporation 5215 Old Orchard Road, Suite 900 Skokie, Illinois 60077 Dear Bill: Thank you for making the time to meet with me on Tuesday and sharing your thoughts on PathoGenesis so candidly. The mutual respect of our research teams paved the way for Chiron's view that a combination between our companies would be very compelling. As you know, Chiron has taken several measures to focus its business on three strategically important therapeutic areas: infectious disease, cancer and cardiology. We have reviewed the idea with our Executive Committee and key Board Members and believe an acquisition of PathoGenesis would play a significant role in building a leading franchise in infectious disease with powerful revenue and earnings growth, fueled by a focused, significant product pipeline and research engine. Over the last twelve months, we have substantially increased our financial resources and continued to strengthen our profit position, while putting our strategic vision into practice. As a result, an acquisition by Chiron would provide PathoGenesis with significant financial and strategic resources to enable you to expand and accelerate your company's commercial and clinical output. Access to Chiron's strong balance sheet and financing capabilities and the combined companies' strategic resources would fuel further growth, making us together an attractive strategic partner for future licensing and acquisition activities. Bill, we thought that it might be helpful to put our proposal in writing so that you can give our general economic outline careful consideration. 15 As discussed, we are prepared to offer a significant premium to the current trading price of PathoGenesis's stock. We are open to discuss the form of consideration for the purchase including cash, stock or any combination. I am sure you will agree acquisitions of this kind must be undertaken on a merger basis. Your key employees are critical to ensuring the future success of this transaction for Chiron, particularly in the R&D and sales and marketing functions. We would like to work with you to develop an employment plan for the members of both organizations including location and function. In addition, we would be open to discuss a plan for the issuance of stock options to PathoGenesis employees. We believe the support of PathoGenesis's senior management will be critical to the successful integration of our two companies. We would like to create combined integration teams, with significant contributions from you and your management team. In order to allow you an opportunity to consider this proposal carefully, we want to emphasize that this letter does not constitute a formal offer or a binding obligation of either party. I would appreciate very much that this letter and our discussions would remain in your confidence. Bill, as you know, we are very excited about the prospect of combining our two companies. Together, we believe we can aggressively build upon the impressive accomplishments of PathoGenesis and Chiron to become a major player in the anti-infective market. This is an important strategic opportunity that we should not pass up. As I discussed, I would very much like to get together to present our strategic vision for the next 5 to 7 years. We could meet sometime in early February, perhaps the week of February 7th to 11th. As I will be out of the office for the next two weeks, I would suggest Joyce Lonergan, our Vice President of Corporate Development, call you to arrange a meeting. I look forward to speaking with you soon. Sincerely, /s/ Sean P. Lance Sean P. Lance Chairman and Chief Executive Officer 16 A regularly scheduled meeting of the Board of Directors of the Company was held on January 26, 2000, at which representatives from Goldman, Sachs & Co. ("Goldman Sachs"), the Company's financial advisor, and Wachtell, Lipton, Rosen & Katz, the Company's legal advisors, were present. At this meeting, Mr. Gantz advised the Board of the verbal and written overtures from Parent. Management and the representatives from Goldman Sachs discussed with the Board certain publicly available information concerning Parent, as well as potential strategies that could be followed if the Board determined to pursue a sale of the Company or a strategic business combination involving the Company, and the Company's legal advisors reviewed with the directors their fiduciary duties under Delaware law. After a discussion of alternatives, the Board unanimously authorized Mr. Gantz to send the following letter to Mr. Lance: [PATHOGENESIS LETTERHEAD] JANUARY 27, 2000 WILBUR H. GANTZ CHAIRMAN AND CHIEF EXECUTIVE OFFICER VIA FEDERAL EXPRESS Mr. Sean P. Lance Chairman and Chief Executive Officer Chiron Corporation 4560 Horton Street Emeryville, CA 94608-2916 Dear Sean: I have received your letter of January 18, 2000. As I told you when we had breakfast on January 11, PathoGenesis Corporation is not interested in pursuing a combination of our two companies. We are confident that pursuit of our business plan as an independent company is the best way for us to maximize value for our shareholders. We are beginning to see the results of our significant investments, and we do not believe that this is the best time, from the perspective of our shareholders, to engage in a process to sell the company. If and when we reach any different conclusion, we would expect to explore the full range of options available to us before engaging in any transaction. I have discussed this matter and your letter with my board of directors. The board fully supports this conclusion. Let me note, however, that we at PathoGenesis view Chiron as an important business partner. We are excited about the collaboration agreement that we reached just last month, and we view our collaboration as an important part of our efforts to increase shareholder value. We trust that you place similar importance on our collaboration, and that our mutual efforts contemplated by that agreement will result in a fruitful relationship. In that regard, let me remind you of your confidentiality obligations under that agreement, and specifically of your obligations, among other things, to use information learned in connection with the collaboration solely in connection with the collaboration. Sean, we have carefully considered your letter. From PathoGenesis' perspective, this is simply not the time to engage in the type of discussions that you suggested. I trust that this will conclude the matter. Sincerely yours, /s/ Wilbur H. Gantz Wilbur H. Gantz 17 On February 7, 2000, Mr. Lance sent the following letter to Mr. Gantz: [PARENT LETTERHEAD] SEAN P. LANCE CHAIRMAN AND CHIEF EXECUTIVE OFFICER FEBRUARY 7, 2000 VIA FEDERAL EXPRESS Mr. Wilbur H. Gantz Chairman and Chief Executive Officer PathoGenesis Corporation 5215 Old Orchard Road, Suite 900 Skokie, Illinois 60077 Dear Bill: Thank you for your letter of last week, I appreciate your candor in communicating PathoGenesis' view on a potential acquisition by Chiron. Given your confident outlook, we understand your feeling that PathoGenesis has significant potential as an independent company. Indeed, we share the view that this is an exciting inflection point for you and your team. We continue to feel that there is a strong rationale for expanding our strategic partnership, perhaps in some other capacity. In 1998, we carefully reviewed our businesses and the industry environment and developed a statement of strategic intent that is the unifying principle of our future business plan. In summary, our core business will be novel therapeutics, vaccines, and blood testing, focusing on three therapeutic areas--infectious disease, oncology, and interventional cardiology. We will execute our strategy through an increased commercial orientation for our operating businesses, clinical candidates and research programs. We will focus our resources in areas where we can be most competitive and optimally leverage our scientific and technological assets. As you can see, infectious disease is a cornerstone of our strategy. We would very much like to share our vision and walk you through the thought process that drives our belief that a strategic relationship could be extremely profitable for both our companies. Specifically, we have taken many important steps towards building an Infectious Disease franchise over the last two years, including: - Signing of our valued research collaboration for anti-infectives; - Expanding our small molecule and chemistry research expertise to leverage combinatorial chemistry and high-throughput screening technologies; - Further developing and leveraging of Chiron's U.S. and European sales and marketing infrastructure to market and deliver Proleukin (IL-2) for HIV therapy; and - In-licensing of the MIV-150 compound for the treatment of HIV. We believe all of these events will contribute greatly to our success in infectious disease. As you can see, our research collaboration is an important part of this strategy and we will continue to make every effort to ensure its success. However, we recognize an on-going need to combine strengths with companies that have a common strategic mission, complementary technologies and capabilities. 18 Bill, we are enthusiastic about the prospects to build on our collaboration and maximize the shareholder value of both companies through additional strategic partnerships. I would like to build on the discussion we started at breakfast on January 11 and share in greater detail Chiron's strategic vision. I look forward to speaking with you soon. Yours sincerely, /s/ Sean P. Lance Sean P. Lance Chairman and Chief Executive Officer On February 14, 2000, a telephonic meeting of the Executive Committee of the Board of Directors of the Company was held, at which representatives from Goldman Sachs and the Company's legal advisors were present. Mr. Gantz advised the committee about the February 7, 2000 letter from Parent. The Executive Committee discussed the exchange of correspondence and the advantages and disadvantages of the proposed dialog and authorized Mr. Gantz to send the following letter to Mr. Lance: [COMPANY LETTERHEAD] Wilbur H. Gantz Chairman and Chief Executive Officer February 15, 2000 VIA FEDERAL EXPRESS Mr. Sean P. Lance Chairman and Chief Executive Officer Chiron Corporation 4560 Horton Street Emeryville, CA 94608-2916 Dear Sean: I have received your letter of February 7 and am pleased that you acknowledge our significant potential as an independent company. As I have previously expressed to you in person and by letter, PathoGenesis is not interested in pursuing a combination of our two companies or any other type of relationship beyond the collaboration that we put in place last December. Again, I trust that this exchange will conclude this matter. Sincerely yours, /s/ Wilbur H. Gantz Wilbur H. Gantz Chairman and Chief Executive Officer 19 At a regularly scheduled meeting on June 1, 2000, the Board of Directors of the Company discussed the possibility of the Company undertaking a strategic review of various options for enhancing shareholder value. The Board considered the volatility of the prices of the Shares and the then-current market price of the Shares; the difficulty of being a stand-alone company with only a single drug in the marketplace but various promising drug candidates in its pipeline; the resources and critical mass necessary to fully develop the Company's drug pipeline, as well as the risks inherent in such development; and the potential benefits of a combination with another company, including increased size and resources. In light of all these factors, the Board decided to engage Goldman Sachs and other advisors to explore strategic options for enhancing shareholder value. The Company announced this decision publicly on June 5, 2000. On June 23, 2000, Mr. Lance sent the following letter to Mr. Gantz: [PARENT LETTERHEAD] SEAN P. LANCE CHAIRMAN AND CHIEF EXECUTIVE OFFICER JUNE 23, 2000 VIA FACSIMILE: (847) 583-5409 Mr. Wilbur H. Gantz Chairman and Chief Executive Officer PathoGenesis Corporation 5215 Old Orchard Road, Suite 900 Skokie, Illinois 60077 Dear Bill: Since you and I last corresponded, Chiron has watched with interest PathoGenesis' progress and accomplishments over the past few months. We continue to believe that a transaction between PathoGenesis and Chiron represents a significant opportunity for both of our companies as well as our respective shareholders. We note your June 5th announcement regarding the hiring of Goldman, Sachs & Co. to explore strategic options. We believe that the value of PathoGenesis may diminish dramatically with the uncertainty and disruption to the Company's employees and operations associated with the process apparently contemplated by your announcement. In order to preserve this value for the benefit of our respective shareholders, we are prepared to move immediately to a definitive transaction. Specifically, we propose a strategic merger between Chiron and PathoGenesis. In the merger, PathoGenesis' shares would be valued at $38.50 per share, which represents an aggregate value of approximately $700 million on a fully diluted basis, and a significant premium over PathoGenesis' current share price. The merger consideration would be payable in cash, common stock of Chiron, or a combination of the two, at your option. As I mentioned, we believe that it is in our respective best interests to move quickly. We propose to immediately commence negotiations with a view toward entering into a definitive agreement by Friday, June 30. In order to meet this timeline, our outside counsel have prepared a draft agreement which we believe you will find quite favorable from your perspective and very conducive to a prompt conclusion of these matters. As we have indicated in prior letters, a merger transaction of this nature requires support and contributions from key employees of both companies to ensure long-term success. We are prepared to work in partnership with you and your management team to form an optimal integration plan for the members of both organizations, including location and function. 20 Of course, this letter is an expression of interest and does not constitute a binding obligation of either party. Any transaction is subject to negotiation of definitive agreements and final approval by our Board of Directors. I would appreciate very much that this letter and our discussions remain in the confidence of PathoGenesis and its advisors. We are enthusiastic about the prospects of a merger between PathoGenesis and Chiron. We look forward to your response no later than the close of business on Monday, June 26. This proposal will expire at that time unless we have received your favorable response and commenced negotiations. Yours sincerely, /s/ Sean P. Lance Sean P. Lance Chairman and Chief Executive Officer On June 29, 2000, a special meeting of the Board of Directors of the Company was held in New York. At this meeting the Board received a detailed presentation from Goldman Sachs on the progress of the review of strategic options and a presentation from the Company's legal advisors on the legal duties of directors in considering a potential acquisition of the Company. The Board of Directors of the Company discussed the status of the then ongoing evaluation of strategic options for enhancing shareholder value, including the fact that a number of other companies, or their financial advisors, had contacted Goldman Sachs to express interest in a transaction with the Company, and that the Company was in the process of developing material that it intended would be included in a confidential information memorandum to be shared with parties potentially interested in pursuing a transaction with the Company. Goldman Sachs reviewed with the Board of Directors of the Company the companies that had expressed interest in a potential transaction with the Company, and the Board of Directors of the Company discussed the various strategic fits and risks associated with these companies and various other companies that Goldman Sachs believed might be interested in pursuing such a transaction. The Board of Directors of the Company discussed the risks of proceeding with the process of reviewing strategic options, including the risk that Parent might withdraw or reduce the valuation of its proposal. The Board of Directors of the Company determined that the consideration offered by Parent in its June 23rd letter was not sufficient for the Company to forego completion of a process by which it would determine whether other parties were interested in acquiring or combining with the Company, and the value at which those potential transactions might proceed. However, in light of the Offer, the Board of Directors of the Company decided that such a process should be completed promptly, and should focus on those parties that the Board of Directors of the Company, with the advice of management and its financial advisors, believed were reasonably likely to be interested in and capable of pursuing a transaction with the Company in which the Company's shareholders would receive a premium for their Shares. The Board of Directors of the Company also decided to appoint a Strategic Options Committee to address issues that might arise in connection with the review of strategic options being conducted by the Company, though approval of any transactions would require approval by the entire Board of Directors of the Company. On June 30, 2000 representatives of Goldman Sachs informed representatives of Parent that the consideration offered in the June 23rd letter was not sufficient to persuade the Board of Directors of the Company to forego completing the process to determine the level of interest of other potential acquirors or transaction partners, that the Company intended to complete that process promptly, and that Parent would be invited to join in that process. 21 During the weeks of July 10 and July 17, several potentially interested parties executed confidentiality agreements and were provided confidential information concerning the Company, and those parties so requesting received a presentation by the Company's management team. On July 17, 2000, a concurrent telephonic meeting of the Executive Committee and the Strategic Options Committee of the Company's Board of Directors was held at which representatives from Goldman Sachs and the Company's legal advisors were present. The representatives of Goldman Sachs updated the committees on the companies that had been in contact with Goldman Sachs and the schedule for the remainder of the process. The representatives from Goldman Sachs informed the committees that they had contacted Parent regarding participation in the Company's process but Parent declined to execute a confidentiality agreement, had not been provided confidential information and had not received a presentation from management. During the week of July 24, certain potentially interested parties, including Parent, were provided with forms of merger agreements, and were requested to submit offers to acquire the Company, together with any changes that the offeror would require to the form of merger agreement, on August 3, 2000. Interested parties, including Parent, submitted proposals on August 3. Parent's proposal contemplated the acquisition of the outstanding Shares in a cash tender offer for $38.25 per share. Parent's proposal was the only proposal received by the Board of Directors of the Company that contemplated a cash transaction, and was the only proposal that did not contemplate that additional due diligence would be required to complete the transaction. In addition, no proposal offered consideration in excess of that offered by Parent, based on the value of the consideration offered on the date of the proposals. On August 7, 2000, a special meeting of the Board was held to consider the proposals submitted. Representatives of Goldman Sachs provided a detailed presentation on the companies that were participating in the process and, along with the Company's legal advisors, reviewed the financial and legal terms of the written proposals. The Board discussed the relative merits of the proposals, including the amount and type of consideration offered, the timing of the proposed transactions and the likelihood of closing under each such proposal. The Board decided to continue discussions with each party that had submitted a written proposal and authorized Goldman Sachs to continue discussions with those parties. Following the meeting of the Board on August 7, 2000, representatives of Goldman Sachs telephoned representatives of each party that had submitted a written proposal, and their financial advisors, to inform them that no offer had been selected by the Board as the winning offer, and to provide other feedback on the offers that had been received, including with respect to the changes to the merger agreement that had been provided by each party submitting a written proposal. In addition, Mr. Gantz telephoned Mr. Lance and indicated that at that time the Board of Directors of the Company was not willing to accept Parent's proposed price of $38.25 per Share. Mr. Lance indicated that he believed that Parent had offered a full price, though Parent had not seen confidential information. On August 8, 2000, Mr. Gantz telephoned Mr. Lance and discussed the possibility of Parent entering into a confidentiality agreement in order to facilitate the exchange of confidential information and the possibility of a management presentation. On August 10, 2000, Parent executed a confidentiality agreement (described in Section 11 hereto) and was provided certain confidential information, and members of Parent's management and representatives of DLJ received a presentation concerning the Company from members of the Company's senior management in San Francisco. On August 10 and 11, Parent's General Counsel, along with Parent's legal advisors, and the Company's General Counsel, along with the Company's legal advisors, discussed and negotiated 22 revisions to the form of contract that Parent had provided in its proposal. As a result of those negotiations, Parent agreed that it would not require certain of the proposed contractual changes that it had suggested in its original proposal. In particular, Parent agreed that Parent would not have the right to terminate the Merger Agreement solely as a result of the provision of confidential information by the Company to third parties, or the taking of other actions by the Company as permitted by the exception to the "no solicitation" provision of the Merger Agreement (described in Section 11 of the Offer to Purchase) would not permit Parent to terminate the Merger Agreement, and that in the event of termination of the Merger Agreement by Parent as a result of the Company Board of Directors changing its recommendation of the Offer, the "termination fee" (described in Section 11 of the Offer to Purchase) would not be payable unless the Company were to enter into or consummate another acquisition transaction within twelve months of such termination. In the evening of August 11, 2000, Mr. Lance informed Mr. Gantz that, after evaluation of the information that had been made available, Parent's final offer to acquire the Company was $38.50 in cash. Representatives of the Company informed representatives of Parent that the Company's Board would meet on Sunday, August 13, to evaluate all final offers, and that all comments to the Merger Agreement would need to be resolved by that time. Negotiations on the final language of the Merger Agreement continued on August 12 and the language was substantially finalized early in the morning of Sunday, August 13. During the period from August 7 to August 11, one other interested party increased the consideration that it had originally proposed in a stock transaction, but noted that its proposal remained conditioned on additional due diligence. During that time, representatives of Goldman Sachs and senior members of management met with that bidder, and the Company's General Counsel, along with representatives from the Company's legal advisors, and that party's legal advisors discussed the proposed revisions that had been made by that bidder to the merger agreement that had been proposed by the Company. The increased value of that bidder's proposal was not, as of August 13, 2000, in excess of $38.50 per share. On August 11, 2000, the Board of Directors of Parent met at Parent's offices in Emeryville, California, to consider the proposed transaction. Parents' Board of Directors approved the Merger Agreement and the transactions contemplated by the Merger Agreement. On August 13, 2000, the Board of Directors of the Company met at the Company's offices in Skokie, Illinois, to consider the proposals. Goldman Sachs, along with the Company's legal advisors, gave a presentation on the financial and legal aspects of the proposals that had been received. At this meeting, Goldman Sachs orally delivered its opinion to the Board of Directors of the Company that, as of such date, and based upon and subject to certain matters and assumptions, the consideration to be received by holders of Shares pursuant to the Offer and the Merger Agreement is fair from a financial point of view to such holders. Following such presentations and the receipt of Goldman Sachs's opinion, the Board of Directors of the Company unanimously approved the Offer, the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement and determined to recommend that the Company's stockholders accept the Offer and tender their shares pursuant to the Offer. Following such meeting, the definitive Merger Agreement was executed in the afternoon of August 13, 2000, and a joint press release announcing the transaction was issued on August 14, 2000 before the opening of trading. 11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; THE MERGER. PURPOSE. The purpose of the Offer and the Merger is to enable Parent indirectly to acquire control of, and the entire equity interest in, the Company. The Offer is being made pursuant to the Merger Agreement and is intended to increase the likelihood that the Merger will be effected. The 23 purpose of the Merger is to acquire all of the outstanding Shares not purchased pursuant to the Offer. The Company will, as of the Effective Time (as defined herein), be a wholly owned subsidiary of Parent. If Merger Sub acquires 90% or more of the outstanding Shares pursuant to the Offer, it will have the votes necessary under Delaware law to approve the Merger without a meeting of the Company's stockholders. Under the DGCL, if Merger Sub owns at least 90% of the outstanding Shares, the Merger may be effected without the vote of, or notice to, the Company's stockholders. Therefore, if at least approximately 14,964,895 of the outstanding Shares are acquired pursuant to the Offer or otherwise, Merger Sub will be able to, and intends to, effect the Merger without a meeting of the Company's stockholders. The DGCL requires that the adoption of any plan of merger or consolidation of the Company must be approved by the holders of a majority of the Company's outstanding Shares if the "short form" merger procedure described above is not available. In such case, under the DGCL, the affirmative vote of holders of a majority of the outstanding Shares (including any shares owned by Merger Sub) is required to approve the Merger. If Merger Sub acquires, through the Offer or otherwise, voting power with respect to at least a majority of the outstanding Shares (which would be the case if the Minimum Condition were satisfied and Merger Sub were to accept for payment, and pay for, Shares tendered pursuant to the Offer), it would have sufficient voting power to effect the Merger regardless of the vote of any other stockholder of the Company. PLANS FOR THE COMPANY. Except as disclosed in this Offer to Purchase, neither Parent nor Merger Sub has any present plans or proposals that would result in an extraordinary corporate transaction, such as a merger, reorganization, liquidation, or sale or transfer of a material amount of assets, involving the Company or any of its subsidiaries, or any material changes in the Company's capitalization, corporate structure, business or composition of its management or the Company Board. Parent will continue to evaluate and review the Company and its business, assets, corporate structure, capitalization, operations, properties, policies, management and personnel with a view towards determining how to optimally realize any potential benefits which arise from the relationship of the operations of the Company with those of Parent. Such evaluation and review is ongoing and is not expected to be completed until after the consummation of the Offer and the Merger. If, as and to the extent that Parent acquires control of the Company, Parent will complete such evaluation and review of the Company and will determine what, if any, changes would be desirable in light of the circumstances and the strategic opportunities which then exist. Such changes could include, among other things, restructuring Parent and/or the Company through changes in Parent's and/or the Company's business, corporate structure, articles of incorporation, by-laws, capitalization or management or could involve consolidating and streamlining certain operations and reorganizing other businesses and operations. Assuming the Minimum Condition has been satisfied and Merger Sub purchases all Shares tendered pursuant to the Offer, Merger Sub intends, subject to Rule 14f-1 of the Exchange Act, promptly to exercise its rights under the Merger Agreement to obtain majority representation on, and control of, the Board of Directors of the Company. Under the Merger Agreement, the Company has agreed that, promptly upon the purchase of and payment for Shares by Merger Sub or any of its affiliates pursuant to the Offer, Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as is equal to the product obtained by multiplying the total number of directors on such Board (giving effect to the directors designated by Parent in accordance with this sentence) by the percentage that the number of Shares so purchased and paid for, plus any shares beneficially owned by Parent or its affiliates on the date of such purchase and payment, bears to the total number of Shares then outstanding. Merger Sub presently intends to select such designees to the Board of Directors from among individuals (who are currently officers or directors of Parent or its affiliates) identified in a list that Parent had provided to the Company and that the Company has included in its Schedule 14D-9. The Merger Agreement also 24 provides that the directors of the Company immediately prior to the Effective Time shall be the directors of the Company after the consummation of the Merger at and after the Effective Time. Merger Sub or an affiliate of Merger Sub may, following the consummation or termination of the Offer, seek to acquire additional Shares through open market purchases, privately negotiated transactions, a tender offer or exchange offer or otherwise, upon such terms and at such prices as it shall determine, which may be more or less than the price paid in the Offer. The Company's Board of Directors has approved the Merger Agreement and Merger Sub's acquisition of the Shares pursuant to the Offer and, therefore, Section 203 of the DGCL is inapplicable. Merger Sub and its affiliates also reserve the right to dispose of any or all Shares acquired by them, subject to the terms of the Merger Agreement. THE MERGER AGREEMENT. THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT. THIS SUMMARY IS NOT A COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE MERGER AGREEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT WHICH IS FILED WITH THE SEC AS AN EXHIBIT TO THE TENDER OFFER STATEMENT ON SCHEDULE TO FILED BY PARENT AND MERGER SUB (THE "SCHEDULE TO") AND IS INCORPORATED HEREIN BY REFERENCE. CAPITALIZED TERMS NOT OTHERWISE DEFINED BELOW SHALL HAVE THE MEANINGS SET FORTH IN THE MERGER AGREEMENT. THE SCHEDULE TO MAY BE OBTAINED FROM PARENT AT THE ADDRESS SET FORTH IN SECTION 9 OR FROM THE SEC AS SET FORTH IN SECTION 8. THE MERGER AGREEMENT MAY BE OBTAINED FROM PARENT AT SUCH ADDRESS, OR FROM THE COMPANY AS SET FORTH IN SECTION 8. THE OFFER. The Merger Agreement provides that Merger Sub will commence the Offer and that upon the terms and subject to prior satisfaction or waiver (to the extent permitted to be waived) of the conditions of the Offer, promptly after expiration of the Offer, Merger Sub will accept for payment, and pay for, all Shares validly tendered and not withdrawn pursuant to the Offer that Merger Sub is permitted to accept and pay for under applicable law (such date of acceptance for payment, the "Acceptance Date"). Provisions of the Merger Agreement relating to the modification of the terms and conditions of the Offer are described in Section 13. THE MERGER. The Merger Agreement provides that following the receipt of any required approval by the Company's stockholders of the Merger Agreement and the satisfaction or waiver of certain other conditions, at the Effective Time Merger Sub will be merged into the Company. In the Merger, each issued and outstanding Share (other than Shares held by Dissenting Stockholders and Shares that are owned by the Company (as treasury stock), Parent or any subsidiary of Parent (including Merger Sub) immediately prior to the Effective Time) shall be converted into the right to receive from the Surviving Corporation in cash, without interest, the Offer Price. CONDITIONS TO THE MERGER. The respective obligations of each party to effect the Merger are subject to the satisfaction or waiver prior to the Effective Time of the following conditions: (1) Merger Sub shall have purchased Shares pursuant to the Offer, except that this condition shall not be a condition to Parent's and Merger Sub's obligation to effect the Merger if Merger Sub shall have failed to purchase Shares pursuant to the Offer in breach of (or as a result of Parent's breach) the Merger Agreement. (2) the Merger Agreement and the Merger shall have been adopted and approved by the requisite vote of the stockholders of the Company, if required by the DGCL; (3) no judgment, injunction, order or decree of a court or governmental agency or authority of competent authority shall be in effect which has the effect of making the Merger illegal or otherwise restraining or prohibiting the consummation of the Merger; PROVIDED, HOWEVER, that no party may rely on this condition if it is in breach of its covenant to use all reasonable efforts (including specific actions with respect to antitrust clearance) to consummate and make effective the transactions contemplated by the Merger Agreement and such breach has, directly or indirectly, resulted in such judgment, order or decree being in effect; and 25 (4) any waiting period applicable to the consummation of the Merger under the HSR Act and any foreign antitrust and competition laws shall have expired or been terminated and all approvals required under foreign antitrust and competition laws before the consummation of the Merger shall have been obtained, except for such waiting periods (other than the HSR Act) or approvals the failure of which to expire or be obtained is not reasonably likely to have a Parent Material Adverse Effect (as defined below) or a Company Material Adverse Effect (as defined below) or to provide a reasonable basis to conclude that the parties to the Merger Agreement or any of their respective directors, officers, agents, advisors or other representatives would be subject to the risk of criminal liability. "Parent Material Adverse Effect" means any effect that is materially adverse to (i) the business, financial condition or operations of Parent and its subsidiaries, taken as a whole, or (ii) the ability of Parent or Merger Sub to consummate the transactions contemplated by the Merger Agreement, except, in the case of clause (i), for any such effect resulting from or arising out of the condition of the United States economy or financial markets generally, or from a condition generally affecting participants in the industry in which Parent competes. "Company Material Adverse Effect" means any effect that is materially adverse to (i) the business, financial condition, operations or prospects of the Company and its subsidiaries, taken as a whole, or (ii) the ability of the Company to consummate the transactions contemplated by the Merger Agreement, except, in each case, for any such effect resulting from or arising out of (x) any employee attrition, including without limitation resignations or other terminations of employment of any employees of the Company, whether or not in the ordinary course of business, (y) the condition of the United States economy or financial markets generally, or (z) a condition generally affecting participants in the industry in which the Company competes. TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated and the Offer and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of the Merger Agreement by the stockholders of the Company): (1) by mutual written consent of the Company and Parent; (2) by either Parent or the Company: - if Merger Sub shall not have accepted for payment any Shares pursuant to the Offer prior to the Drop Dead Date, provided that (A) if at such date the waiting period applicable to the consummation of the Offer or the Merger under the HSR Act or any foreign antitrust and competition laws shall not have expired or been terminated, or any approval required under any foreign antitrust and competition laws shall not have been obtained (except for such waiting periods (other than under the HSR Act) or approvals the failure of which to expire or be obtained is not reasonably likely to have a Parent Material Adverse Effect or a Company Material Adverse Effect or to provide a reasonable basis to conclude that Parent, Merger Sub to the Company or any of their respective directors, officers, agents, advisors or other representatives would be subject to the risk of criminal liability), the Drop Dead Date may be extended to June 14, 2001 by Parent or the Company by written notice to the other party, PROVIDED that the party extending the Drop Dead Date has a reasonable expectation, assuming that all other parties to the Merger Agreement comply with their obligations thereunder that the applicable waiting period or approval will have expired or been terminated or obtained, as the case may be, on or prior to June 14, 2001 and (B) the right to terminate the Merger Agreement pursuant to the provisions described in this paragraph will not be available to any party whose breach of the Merger Agreement has been the cause of, or resulted in, the failure of Shares to have been purchased pursuant to the Offer by the Drop Dead Date; or 26 Notwithstanding this restriction, the Company may in response to an unsolicited bona fide written offer or proposal with respect to a potential or proposed Acquisition Transaction which the Company's Board of Directors determines, in good faith and after consultation with its independent financial advisor and legal counsel, could reasonably be expected to lead to a Superior Proposal (as defined below), furnish confidential or nonpublic information to, and engage in discussions and negotiate with, such potential acquiror, PROVIDED that the Company's Board of Directors determines in good faith after consultation with outside legal counsel that such action is necessary in order for its directors to comply with their fiduciary duties under applicable law. The Company is also required to pay Parent the $25,000,000 termination fee in the event that the Merger Agreement is terminated by: (1) the Company pursuant to the provision of the Merger Agreement described in the second bullet point of clause (4) of "Termination of the Merger Agreement" above (relating to the Board of Directors of the Company authorizing the Company to enter into a binding written agreement concerning a Superior Proposal (as defined below)); or (2) Parent because the Company has entered into a definitive agreement for a Superior Proposal (as defined below). In each of the cases where the Company is required to pay the termination fee, the Company shall pay all of the reasonable, documented charges and expenses, including those of the paying agent, incurred by Parent or Merger Sub in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement up to a maximum amount of $3,100,000. ACQUISITION PROPOSALS. The Company has agreed that prior to the Effective Time or earlier termination of the Merger Agreement, the Company shall not and shall not permit its subsidiaries to, and the Company will use its reasonable best efforts to cause any officer, director or employee, of the Company or any of its subsidiaries, and any attorney, accountant, investment banker, financial advisor or other agent retained by it or any of its subsidiaries, not to, directly or indirectly, initiate, solicit, encourage or negotiate or provide nonpublic or confidential information to facilitate, any proposal or offer (other than any proposal or offer by Parent or any of its subsidiaries) to acquire all or 15% or more of the business, properties or capital stock of the Company, whether by merger, purchase of assets, tender offer or otherwise, and whether for cash, securities or any other consideration or combination thereof (an "Acquisition Transaction"). Notwithstanding this restriction, the Company may in response to an unsolicited bona fide written offer or proposal with respect to a potential or proposed Acquisition Transaction which the Company's Board of Directors determines, in good faith and after consultation with its independent financial advisor and legal counsel, could reasonably be expected to lead to a Superior Proposal (as defined below), furnish confidential or nonpublic information to, and engage in discussions and negotiate with, such potential acquiror, PROVIDED that the Company's Board of Directors determines in good faith after consultation with outside legal counsel that such action is necessary in order for its directors to comply with their fiduciary duties under applicable law. Under the Merger Agreement, "Superior Proposal" means an Acquisition Proposal which the Company's Board of Directors determines, in good faith and after consultation with its independent financial advisor and legal counsel, would, if consummated, likely provide consideration to the holders of Shares with greater financial value than the consideration payable in the Offer and the Merger. The Company agreed that it would immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted prior to the date of the Merger Agreement with respect to any Acquisition Proposal. 30 The Company is required promptly to notify Parent after receipt of any Acquisition Proposal, and such notice must indicate in reasonable detail the identity of the offeror and the material terms and conditions of such proposal. The Company must thereafter keep Parent informed, on a reasonably current basis, on the status and terms of any such Acquisition Proposal and the status or any discussion or negotiations with any potential acquiror related thereto. Prior to the Effective Time, the Board of Directors of the Company may withdraw or modify the recommendation by the Board of Directors of the Company of the Merger Agreement, the Offer or the Merger, if the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that its fiduciary obligations require it to do so. The Merger Agreement specifically allows the Board of Directors of the Company to take and disclose to the Company's stockholders a position contemplated by Rules 14d-9 and 14e-2 under the Exchange Act with respect to a tender or exchange offer by a third party and to make such disclosure to the Company's stockholders as, in the good faith judgment of the Board of Directors of the Company, with the advice of outside counsel, is required under applicable law. COVENANTS, REPRESENTATIONS AND WARRANTIES. The Merger Agreement also contains certain other restrictions as to the conduct of business by the Company pending the Merger, including, among other things, covenants restricting the Company's ability to take actions that would change or affect the capital structure of the Company, as well as representations and warranties of each of the parties customary in transactions of this kind. AMENDMENT OF THE MERGER AGREEMENT. The Merger Agreement may be amended by Parent, Merger Sub and the Company by action taken or authorized by their respective Boards of Directors at any time before or after the Company stockholders approve the Offer; PROVIDED that after the Acceptance Date no amendment may be made which decreases the Offer Price and any amendment will require the concurrence of a majority of the directors of the Company then in office who neither were designated by Parent nor are employees of the Company. After the approval of the Company stockholders has been obtained, no amendment may be made that by law requires the further approval of the Company stockholders without the further approval of such stockholders. TREATMENT OF OPTIONS AND WARRANTS. At the Effective Time, each holder of outstanding and unexercised options to purchase Shares granted under any of the Company's stock option plans or otherwise (each, a "Company Option"), whether or not exercisable or vested, shall be entitled to receive, in full satisfaction of such Company Option, cash in an amount equal to the product of (A) the excess, if any, of the Offer Price over the exercise price per share thereof and (B) the number of Shares subject to such Company Option (the "Option Cash-Out Right"). Each option holder shall have the right to elect, in lieu of such holder's Option Cash-Out Right, to cause each and every Company Option held by such holder (but not fewer than all Company Options held by such holder) to be converted, at the Effective Time, into options (each, a "Parent Option") to purchase a number of shares of common stock, par value $0.01 per share ("Parent Shares"), of Parent equal to the product, rounded down to the nearest whole share, of (A) the number of Company Shares subject to the original Company Option and (B) the Conversion Ratio (as defined below), at a per Parent Share exercise price, rounded up to the nearest whole cent, equal to (I) the per share exercise price for the Shares originally issuable pursuant to such Company Option divided by (II) the Conversion Ratio; PROVIDED, HOWEVER, that (A) in the case of any Company Option to which Section 422 of the Internal Revenue Code (the "Code") applies, the exercise price, the number of Parent Shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in accordance with the foregoing, subject to such adjustments as are necessary in order to satisfy the requirements of Section 424(a) of the Code; (B) any holder making such election shall thereby waive such holder's right to accelerated vesting of all of the Company Options held by such holder on the Acceptance Date and the Effective Time or as a result of any other event contemplated by this 31 Agreement, and any Parent Options issued upon the conversion of Company Options held by such holder that had not become vested and exercisable prior to the Acceptance Date shall vest and become exercisable only in accordance with the original terms of such Company Options; and (C) at the Effective Time Parent shall grant to such holder making such election and granting the waiver contemplated by clause (B) an option (each, a "New Parent Option") to purchase a number of Parent Shares equal to the product or (x) the number of Parent Shares subject to Parent Options issued upon conversion of all unvested and unexercisable Company Options held by such holder, and (y) .30. The New Parent Options shall have a vesting schedule and a per Parent Share exercise price determined as of the Effective Time in accordance with the Chiron Corporation 1991 Stock Option Plan, as amended. The exercise price per share of the New Parent Options shall be no more than the fair market value of Parent Common Stock on the grant date and the vesting schedule for the New Parent Options shall provide that such New Parent Options shall vest and become exercisable with respect to no fewer than 25% of the shares subject to such New Parent Option on each anniversary of the grant date. Each of the New Parent Options shall be an incentive stock option to the extent permitted under applicable law. The election to convert Company Options into Parent Options shall be made prior to the Effective Time and shall be effective at the Effective Time. The term "Conversion Ratio" means the ratio of (y) the Offer Price to (z) the average (the "Parent Average Price") of the closing prices per Parent Share on the Nasdaq Stock Market for the five consecutive trading days immediately preceding the Effective Time. In the event that any holder of a Company Option is terminated within twelve months after the Effective Time other than for cause or terminates within 13 months following the Effective Time pursuant to "good reason" as defined in any applicable employment or severance agreement, then each Parent Option received upon conversion of a Company Option shall immediately become exercisable and vested whether or not then exercisable or vested and shall be converted into the right to receive cash in an amount equal to the product of (A) the amount, if any, by which the Parent Average Price exceeds the exercise price per share thereof for such Parent Option and (B) the number of shares of Parent Common Stock subject to such Parent Option. All Parent Options and New Parent Options issued pursuant to this provision of the Merger Agreement will have customary "cashless exercise" provisions. At the Effective Time, each outstanding warrant to purchase Shares shall be converted into an obligation of Parent to pay, and a right of the holder thereof to receive in full satisfaction of such warrant, cash in an amount in respect thereof equal to the product of (A) the excess, if any, of the Offer Price over the exercise price of such warrant and (B) the number of Shares subject to such warrant. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Parent has agreed that the indemnification provisions of the Company's certificate of incorporation or bylaws as in effect at the Acceptance Date shall not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at the Effective Time were directors, officers, employees or agents of the Company. From and after the Acceptance Date, Parent will assume, be jointly and severally liable for, and honor, guaranty and stand surety for, and shall cause the Company to honor, in accordance with their respective terms, each of the covenants in the Merger Agreement pertaining to indemnification of officers and directors, without limit as to time. From and after the Acceptance Date, each of Parent and the Company and, from and after the Effective Time, the Surviving Corporation, will, to the fullest extent permitted under applicable law, indemnify and hold harmless each present and former director, officer, employee and agent of the Company or any of its subsidiaries against any costs or expenses, judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of, relating to or in connection with any action or omission occurring or alleged to occur prior to 32 the Effective Time (including, without limitation, acts or omissions in connection with such persons serving as an officer, director or other fiduciary in any entity if such service was at the request or for the benefit of the Company) or the Merger or the other transactions contemplated by the Merger Agreement or arising out of or pertaining to the transactions contemplated by the Merger Agreement to the fullest extent that the Company would have been permitted under Delaware law and the Company's certificate of incorporation and bylaws in effect on the date of the Merger Agreement. For a period of six years after the Effective Time, Parent will cause to be maintained in effect the current directors' and officers' liability insurance coverage maintained by the Company and its subsidiaries with respect to matters arising on or before the Effective Time; PROVIDED, HOWEVER, that if the existing current policies expire, are terminated or cancelled during such six-year period, Parent will use its reasonable efforts to obtain as much coverage as can be obtained for the remainder of such period for a premium not in excess (on an annualized basis) of two times the premiums paid the Company as of the date of the Merger Agreement. TREATMENT OF EMPLOYEE BENEFITS. Parent agrees that the Company will honor, and following the Effective Time, Parent and its affiliates will honor, all Company employee benefit plans in accordance with their terms as in effect immediately before the Acceptance Date, subject to any amendment or termination thereof that may be permitted by such terms and provided that nothing in the provision of the Merger Agreement described in this sentence will prevent Parent or the Surviving Corporation from replacing the Company's existing company employee benefit plans as contemplated by and in accordance with the following sentence. Through December 31, 2001, Parent shall provide, or shall cause to be provided, to current and former employees of the Company and its subsidiaries (the "Company Employees") compensation and employee benefits that are, in the aggregate, not less favorable than those provided to Company Employees immediately before the Acceptance Date, although this will not prevent the termination of employment of any Company Employee or the amendment or termination of any particular company employee benefit plans to the extent permitted by its terms as in effect immediately before the Acceptance Date. For purposes of eligibility and vesting and levels of benefits under the employee benefit plans of Parent and its affiliates providing benefits to any Company Employees after the Acceptance Date (the "New Plans"), each Company Employee shall be credited with his or her years of service with the Company and its affiliates before the Effective Time, to the same extent as such Company Employee was entitled, before the Effective Time, to credit for such service under any similar Company employee benefit plans, except to the extent such credit would result in a duplication of benefits. In addition, and without limiting the generality of the foregoing: (i) each Company Employee will be immediately eligible to participate, without any waiting time, in any and all New Plans to the extent coverage under such New Plan replaces coverage under a comparable Company employee benefit plan in which such Company Employee participated immediately before the Effective Time (such plans, collectively, the "Old Plans"); and (ii) for purposes of each New Plan providing medical, dental, pharmaceutical and/or vision benefits to any Company Employee, Parent will cause all pre-existing condition exclusions and actively-at-work requirements of such New Plan to be waived for such employee and his or her covered dependents, and Parent shall cause any eligible expenses incurred by such employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the date such employee's participation in the corresponding New Plan begins to be taken into account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan. In the Merger Agreement, Parent has acknowledged that the transactions contemplated by the Merger Agreement shall constitute a "change of control" under the Company's employee benefit plans, as applicable. Parent has further acknowledged that certain executives shall have "Good Reason" under their employment agreements as of the Acceptance Date and shall be eligible to terminate employment 33 and receive severance benefits for a "Good Reason" termination following the Acceptance Date. Parent and the Company have acknowledged that none of such executives is a participant on his own behalf with respect to the transaction contemplated by the Merger Agreement. Pursuant to the Merger Agreement, the Company amended its Employee Stock Purchase Plan to provide that participants in the plan will not be allowed to make new deposits in their accounts following the Acceptance Date. Participants will be deemed to have exercised their rights to purchase Shares with amounts remaining in their accounts immediately prior to the Effective Time and the Employee Stock Purchase Plan will terminate immediately prior to the Effective Time. COMPOSITION OF THE BOARD OF DIRECTORS. The directors of Merger Sub immediately prior to the Effective Time, will be the directors of the Surviving Corporation after the Effective Time until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. COLLABORATION AGREEMENT. On December 15, 1999, the Company and Parent entered into a Collaboration Agreement (the "Collaboration Agreement") to research, develop, manufacture and commercially utilize mutually selected novel antibacterial drugs for human use. The research program contemplated by the Collaboration Agreement runs for three years after the effective date, and is thereafter extendable by joint consent of the parties. The work under the Collaboration Agreement is directed and managed by a Collaboration Management Team, composed of members selected in equal number by each Party. The Collaboration Agreement contemplates joint development and co-commercialization of products, with the costs and profits from such products divided equally by the parties. The foregoing summary and description of the Collaboration Agreement are qualified in their entirety by reference to the Collaboration Agreement, which has been filed as an exhibit to the Schedule TO and is incorporated herein by reference. CONFIDENTIALITY AGREEMENT. On August 10, 2000, Parent executed a confidentiality agreement, dated August 8, 2000 (the "Confidentiality Agreement"), which provides that Parent will use certain information concerning the Company solely for the purpose of evaluating a strategic transaction between Parent and the Company and that Parent will keep such material confidential. The foregoing summary of the Confidentiality Agreement is qualified in its entirety by reference to the Confidentiality Agreement, which has been filed as an exhibit to the Schedule TO and is incorporated herein by reference. APPRAISAL RIGHTS. Holders of the Shares do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, each holder of the Shares who properly demands and perfects appraisal rights and who has neither voted in favor of the Merger nor consented thereto in writing will be entitled to an appraisal by the Delaware Court of Chancery of the fair value of his Shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any, to be paid. In determining such fair value, the Court may consider all relevant factors. The value so determined could be more or less than the consideration to be paid in the Offer and the Merger. Any judicial determination of the fair value could be based upon considerations other than or in addition to the market value of the Shares, including, among other things, asset values and earning capacity. If any holder of the Shares who demands appraisal under Section 262 of the DGCL fails to perfect, or effectively withdraws or loses his right to appraisal as provided in the DGCL, the Shares of such stockholder will be converted into the Offer Price in accordance with the Merger Agreement. A stockholder may withdraw his demand for appraisal by delivery to Parent of a written withdrawal of his demand for appraisal and acceptance of the Merger. The foregoing discussion is not a complete statement of law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL. 34 FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. RULE 13E-3. The Merger would have to comply with any applicable Federal law operative at the time of its consummation. Rule 13e-3 under the Exchange Act is applicable to certain "going private" transactions. Merger Sub does not believe that Rule 13e-3 will be applicable to the Merger unless the Merger is consummated more than one year after the Acceptance Date. If applicable, Rule 13e-3 would require, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the Merger and the consideration offered to minority stockholders be filed with the SEC and disclosed to minority stockholders prior to consummation of the Merger. The Rights presently are transferable only with the certificates for the Shares and the surrender for transfer of certificates for any Shares will also constitute the transfer of the Rights associated with the Shares represented by such certificates. Pursuant to the terms of the Merger Agreement, the Company's Board of Directors amended the Rights Agreement to provide that, for so long as the Merger Agreement is in full force and effect, (i) none of Parent and its subsidiaries (including Merger Sub) shall become an "Acquiring Person" (as defined in the Rights Agreement) and no "Stock Acquisition Date" (as defined in the Rights Agreement) shall occur as a result of the execution, delivery and performance of the Merger Agreement and the consummation or the Offer of the Merger, (ii) no "Distribution Date" (as defined in the Rights Agreement) shall occur as a result of the announcement of or the execution of the Merger Agreement or any of the transactions contemplated thereby and (iii) each of Parent and Merger Sub will not be an "Acquiring Person" as a result of the transactions contemplated by the Merger Agreement. 12. SOURCE AND AMOUNT OF FUNDS. Merger Sub estimates that the total amount of funds required to purchase all of the outstanding Shares pursuant to the Offer and the Merger and to pay related fees and expenses will be approximately $700 million. Parent will finance the Offer and the Merger with existing cash. 13. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other term of the Offer or the Agreement, Merger Sub is not be required to accept for payment or, subject to any applicable rules and regulations of the SEC (including the rules relating to Merger Sub's obligation to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer, unless: - the Minimum Condition has been satisfied; - the HSR Condition has been satisfied; and - the Foreign Antitrust Condition has been satisfied. Furthermore, notwithstanding any other term of the Offer or the Merger Agreement, Merger Sub is not required to accept for payment or to pay for any Shares not previously accepted for payment or paid for, if, immediately prior to the acceptance for payment of Shares pursuant to the Offer, any of the following conditions exists, which, in the reasonable judgment of Merger Sub or Parent and regardless of the circumstances giving rise to any such condition, makes it inadvisable to proceed with the Offer and/or with such acceptance for payment or payment: (1) there shall have been entered, enforced or issued by any governmental entity, any judgment, order, injunction or decree which: - makes illegal, restrains or prohibits the making of the Offer, the acceptance for payment of, or payment for, any Shares by Parent or Merger Sub, or the consummation of the Merger; or 35 - prohibits the ownership or operation by Parent or any of its subsidiaries of the Company; PROVIDED, in each case, that Parent has complied with its covenants to use all reasonable efforts (including specific actions with respect to antitrust clearance) to consummate and make effective the transactions contemplated by the Merger Agreement; (2) there shall have been any statute, rule, regulation, legislation or interpretation enacted, enforced, promulgated, amended or issued by any governmental entity or deemed by any governmental entity applicable to Parent, the Company or any subsidiary or affiliate of Parent or the Company or any transaction contemplated by the Merger Agreement, other than the HSR Act and foreign antitrust and competition laws which would reasonably be expected to result, directly or indirectly, in any of the consequences referred to in clause (1) above; (3) the representations and warranties of the Company contained in the Merger Agreement shall not be true and correct as of such time, except for such failures to be true and correct that, in the aggregate, are not reasonably likely to have a Company Material Adverse Effect; (4) the Company shall have failed to perform in any material respect any material obligation required to be performed by it at or prior to such time under the Merger Agreement; or (5) the Merger Agreement shall have been terminated in accordance with its terms. The foregoing conditions are for the sole benefit of Merger Sub and Parent and may be asserted by Merger Sub or Parent regardless of the circumstances giving rise to such condition or may be waived by Merger Sub and Parent in whole or in part at any time and from time to time in their reasonable discretion. The failure by Parent, Merger Sub or any other affiliate of Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. A public announcement shall be made of a material change in, or waiver of, such conditions, and the Offer may, in certain circumstances, be extended in connection with any such change or waiver. All Offer Conditions must be satisfied or waived prior to the commencement of any Subsequent Offering Period. 14. DIVIDENDS AND DISTRIBUTIONS. Pursuant to the Merger Agreement, the Company has agreed that during the term of the Merger Agreement the Company may not declare, set aside or pay any dividend or distribution with respect to the Shares payable in cash, stock, property or otherwise, except for the payment of dividends or distributions to the Company, or a subsidiary of the Company, by a subsidiary of the Company. 15. CERTAIN LEGAL MATTERS. GENERAL. Except as otherwise disclosed herein, based upon an examination of publicly available filings with respect to the Company, Parent and Merger Sub are not aware of any licenses or other regulatory permits which appear to be material to the business of the Company and which might be adversely affected by the acquisition of the Shares by Merger Sub pursuant to the Offer or of any approval or other action by any governmental, administrative or regulatory agency or authority which would be required for the acquisition or ownership of the Shares by Merger Sub pursuant to the Offer. Should any such approval or other action be required, it is currently contemplated that such approval or action would be sought or taken. There can be no assurance that any such approval or action, if needed, would be obtained or, if obtained, that it will be obtained without substantial conditions or that adverse consequences might not result to the Company's or Parent's business or that certain parts of the Company's or Parent's business might not have to be disposed of in the event that such approvals 36 are not obtained or such other actions are not taken, any of which might enable Merger Sub to elect to terminate the Offer without the purchase of the Shares thereunder, if the relevant conditions to termination are met. Merger Sub's obligation under the Offer to accept for payment and pay for the Shares is subject to the Offer Conditions certain conditions. See Section 13. UNITED STATES ANTITRUST COMPLIANCE. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission ("FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the FTC and certain waiting period requirements have been satisfied. The acquisition of the Shares by Merger Sub is subject to these requirements. See Section 2 of this Offer to Purchase as to the effect of the HSR Act on the timing of Merger Sub's obligation to accept Shares for payment. Pursuant to the HSR Act, Parent filed a Notification and Report Form with respect to the acquisition of the Shares pursuant to the Offer and the Merger with the Antitrust Division and the FTC on August 21, 2000. Under the provisions of the HSR Act applicable to the purchase of the Shares pursuant to the Offer, such purchases may not be made until the expiration of a 15-calendar day waiting period following the filing by Parent. Accordingly, the waiting period under the HSR Act will expire at 11:59 p.m., New York City time, on September 5, 2000, unless early termination of the waiting period is granted or Parent receives a request for additional information or documentary material prior thereto. Pursuant to the HSR Act, Parent will request early termination of the waiting period applicable to the Offer. There can be no assurances given, however, that the 15-day HSR Act waiting period will be terminated early. If either the FTC or the Antitrust Division were to request additional information or documentary material from Parent, the waiting period would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request unless the waiting period is sooner terminated by the FTC or the Antitrust Division. Thereafter, the waiting period could be extended only by agreement or by court order. See Section 2. Only one extension of such waiting period pursuant to a request for additional information is authorized by the rules promulgated under the HSR Act, except by agreement or by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See Section 4. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of the Shares by Merger Sub pursuant to the Offer. At any time before or after Merger Sub's purchase of the Shares, 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 acquisition of the Shares pursuant to the Offer or seeking divestiture of the Shares acquired by Merger Sub or the divestiture of substantial assets of Parent, the Company or any of their respective subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if a challenge is made, what the result will be. See Section 13 of this Offer to Purchase for certain conditions to the Offer that could become applicable in the event of such a challenge. GERMAN ANTITRUST COMPLIANCE. Under the German Act against Restraints of Competition (the "Act"), certain acquisition transactions may not be consummated in Germany unless certain information has been furnished to the German Federal Cartel Office (the "FCO" or BUNDESKARTELLAMT) and certain waiting period requirements have been satisfied without issuance by the FCO of an order to refrain. The purchase of the Shares by Merger Sub pursuant to the Offer and the consummation of the Merger may be subject to such requirements. Under such laws, the FCO has one month (unless earlier terminated by the FCO) from the date of filing of such information with the FCO to clear the Offer and the Merger or to advise the parties of its intention to investigate the Offer and the Merger in depth, in which case the FCO has four months from the date of filing in which to take steps to oppose 37 the Offer and the Merger. According to the Act, the purchase of the Shares pursuant to the Offer may not be consummated before the end of the one-month period, or, if the FCO has informed the parties about the initiation of an in-depth review within such period, before the end of the four-month period or its agreed-upon extension, unless the FCO has given its clearance to the proposed transaction in writing before the end of such periods. In the course of its reviews, the FCO will examine whether the proposed acquisition of the Shares by Merger Sub pursuant to the Offer would create a dominant market position or strengthen an already-existing dominant position in Germany. If the FCO makes such a finding, it will act to prohibit the transaction. While Parent and the Merger Sub do not believe that there is any basis for the FCO to investigate the Offer and the Merger in depth, there can be no assurance that the FCO will not investigate or oppose the transactions or that the FCO will not seek to extend the waiting period. Parent and the Company expects to file the information with the FCO as soon as reasonably practicable following the date of this document. OTHER FOREIGN FILINGS. Parent and the Company each conduct operations in a number of foreign countries, and filings may have to be made with foreign governments under their pre-merger notification statutes. The filing requirements of various nations are being analyzed by the parties, and, where necessary, the parties intend to make such filings. STATE TAKEOVER LAWS. Section 203 of the DGCL limits the ability of a Delaware corporation to engage in business combinations with "interested stockholders" (defined generally as any beneficial owner of 15% or more of the outstanding voting stock in the corporation) unless, among other things, the corporation's board of directors has given its prior approval to either the business combination or the transaction which resulted in the stockholder becoming an "interested stockholder." The Company's Board of Directors has approved the Merger Agreement and Merger Sub's acquisition of the Shares pursuant to the Offer and, therefore, Section 203 of the DGCL is inapplicable to the Offer and the Merger. Based on information supplied by or on behalf of the Company, Merger Sub does not believe that any state takeover laws purport to apply to the Offer or the Merger. Neither Parent nor Merger Sub has currently complied with any state takeover statute or regulation. Merger Sub reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer or the Merger, and if an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, Merger Sub might be required to file certain information with, or to receive approvals from, the relevant state authorities, and Merger Sub might be unable to accept for payment or pay for any Shares tendered pursuant to the Offer, or be delayed in consummating the Offer or the Merger. Under such circumstances, Merger Sub may not be obliged to accept for payment or pay for any Shares tendered pursuant to the Offer. CERTAIN LITIGATION. On August 15, 2000, an action was commenced against the Company and its directors in the Superior Court of Washington in and for King County by Neil Baldwin, purporting to bring suit as a shareholder on behalf of a proposed class of shareholders of the Company. The complaint alleges, among other things, that the defendants have breached their fiduciary duties of undivided loyalty, independence and due care with respect shareholders in connection with the Offer and the Merger, that individual defendants are engaged in self-dealing in connection with the Offer and the Merger, and that individual defendants have breached their fiduciary duty to "secure and obtain the best price reasonable under the circumstances" in connection with the Offer and the Merger. The plaintiff generally seeks declaratory and injunctive relief, including directing the individual defendants to exercise their fiduciary duties "to obtain a transaction which is in the best interests of [the Company's] shareholders until the process for the sale or auction of the Company is completed." The time for the defendants to respond has not yet elapsed. 38 16. FEES AND EXPENSES. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") is acting as Dealer Manager in connection with the Offer and has provided certain financial advisory services to Parent in connection therewith. Parent has agreed to pay DLJ reasonable and customary compensation for its services as Dealer Manager and as financial advisors in connection with the Offer. Parent has agreed to reimburse DLJ for its reasonable out-of-pocket expenses, including the fees and expenses of its counsel, in connection with the Offer, and has agreed to indemnify DLJ against certain liabilities and expenses in connection with the Offer, including liabilities under the federal securities laws. At any time DLJ and its affiliates may actively trade the Shares for their own account or for the account of customers and, accordingly, may at any time hold a long or short position in the Shares. MacKenzie Partners, Inc. is acting as Information Agent in connection with the Offer. The Information Agent may contact holders of the Shares by personal interview, mail, telephone, telex, telegraph and other methods of electronic communication and may request brokers, dealers, banks, trust companies and other nominees to forward the Offer materials to beneficial holders. The Information Agent will receive reasonable and customary compensation for its services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities and expenses in connection with its services, including certain liabilities under the Federal securities laws. Merger Sub will pay the Depositary reasonable and customary compensation for its services in connection with the Offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Depositary against certain liabilities and expenses in connection therewith, including liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by Merger Sub for customary mailing and handling expenses incurred by them in forwarding material to their customers. 17. MISCELLANEOUS. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of the Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Merger Sub may, in its sole discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of the Shares in such jurisdiction. Neither Parent nor Merger Sub is aware of any jurisdiction in which the making of the Offer or the acceptance of the Shares in connection therewith would not be in compliance with the laws of such jurisdiction. Parent and Merger Sub have filed the Schedule TO with the SEC pursuant to Rule l4d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. The Schedule TO and any amendments thereto, including exhibits, may be examined and copies may be obtained from the principal office of the SEC in Washington, D.C. in the manner set forth in Section 8 and are available from Parent at the address set forth in Section 9. No person has been authorized to give any information or make any representation on behalf of Parent or Merger Sub not contained in this Offer to Purchase or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. PICARD ACQUISITION CORP. August 21, 2000 39 SCHEDULE A INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND MERGER SUB 1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of each director and executive officer of Parent. Each such person is a citizen of the United States of America, unless otherwise noted, and the business address of each such person is c/o Chiron Corporation, 4560 Horton Street, Emeryville, California 94608.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS ---------------- -------------------------------------------------------------- Raymund Breu......................... Director of Chiron since May 1999. Chief Financial Officer and a Member of the Executive Committee of Novartis AG since December 1996. Citizen of Switzerland. Vaughn D. Bryson..................... Director of Chiron since June 1997. Lewis W. Coleman..................... Director of Chiron since 1991. Rajen K. Dalal....................... Vice President of Chiron since 1991 and President of Chiron Blood Testing since 1998. Citizen of India. Pierre E. Douaze..................... Director of Chiron since 1995. From December 1996 through December 1997, he was a member of the Executive Committee of Novartis AG and Head of its Healthcare Division and Pharma Sector. In December 1997, Mr. Douaze retired from Novartis AG. Citizen of France. William G. Green..................... Senior Vice President, Secretary and General Counsel of Chiron since 1990 and Director, Vice President and Secretary of the Purchaser. Paul J. Hastings..................... Vice President of Chiron and President of Chiron BioPharmaceuticals since 1999. Prior to joining Chiron, he was the Presidient, Chief Executive Officer and member of the board of LXR Biotechnology. From 1993 to 1998, Mr. Hastings spent five years at Genzyme Corporation in Cambridge, Massachusetts, as President of Genzyme Therapeutics. Paul L. Herrling..................... Director of Chiron since 1997, is the Head of Research at Novartis Pharma AG and a member of the Novartis Pharma Executive Board. Citizen of Switzerland. Peter K. Jensen...................... Vice President of Chiron and Head of Development since 1999. Prior to joining Chiron, he was the Development Director and Chief Medical Officer of British Biotech plc from 1998 to 1999 in Oxford, England, President in Annapolis, Maryland. From 1996 to 1998 he was Vice President, Clinical Research and Drug Safety of the Schering-Plough Research Institute. Sean P. Lance........................ President and Chief Executive Officer of Chiron since May 1998 and Chairman of the Board since May 1999. Citizen of South Africa. Edward E. Penhoet.................... Co-founder of Chiron and a Director since its inception in 1981, Chief Executive Officer of Chiron until May 1998.
A-1
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS ---------------- -------------------------------------------------------------- William J. Rutter.................... Director of Chiron, Co-founder of Chiron, served as Chairman of the Board from Chiron's inception in 1981 until May 1999 when he became Chairman of the Board Emeritus. He served as Director of Novartis AG from 1995 until April 1999. Jack W. Schuler...................... Director of Chiron since 1990. Linda W. Short....................... Vice President, Human Resources, of Chiron until 1999. In 1999, she was promoted to Vice President, Corporate Resources. Prior to joining Chiron, she was the Director of Human Resources of Industrial Indemnity from 1994 to 1997. David V. Smith....................... Vice President, Controller of Chiron since 1999. Prior to joining Chiron, he was the Vice President, Finance and Chief Financial Officer of Anergen, Inc. from 1997 until he joined Chiron. From 1988 to 1997, he held various financial management positions with Genentech, Inc. Pieter J. Strijkert.................. Director of Chiron since 1987. Citizen of The Netherlands. James R. Sulat....................... Vice President and Chief Financial Officer of Chiron since 1998 and President of Purchaser. Lewis T. Williams.................... Senior Vice President and President of Chiron Technologies until 1998. In 1998, he was promoted to Chief Scientific Officer of Chiron. In May 1999, he was appointed a Director of Chiron.
A-2 2. DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUB. The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years, of each director and executive officer of Merger Sub. Each such person is a citizen of the United States of America, unless otherwise noted, and the business address of each such person is c/o Chiron Corporation, 4560 Horton Street, Emeryville, California 94608.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS ---------------- -------------------------------------------------------------- James R. Sulat....................... Director and President of Merger Sub. Vice President and Chief Financial Officer of Parent. William G. Green..................... Director, Vice President and Secretary of Merger Sub. Senior Vice President, Secretary and General Counsel of Parent.
A-3 Manually signed facsimile copies of the Letter of Transmittal will be accepted properly completed and duly executed. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent or delivered by each stockholder of the Company or his broker-dealer, commercial bank, trust company or other nominee to the Depositary as follows: THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK
BY MAIL: BY HAND/OVERNIGHT DELIVERY: Wall Street Station Receive Window P.O. Box 1023 Wall Street Plaza New York, NY 10268-1023 88 Pine Street, 19th Floor New York, NY 10005
BY FACSIMILE TRANSMISSION: (FOR ELIGIBLE INSTITUTIONS ONLY) (212) 701-7636 FOR INFORMATION (CALL COLLECT): (212) 701-7624 Any questions or requests for assistance or additional copies of the Offer to Purchase and the Letter of Transmittal, the Notice of Guaranteed Delivery and related materials may be directed to the Information Agent at the telephone numbers and location listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or CALL TOLL FREE (800) 322-2885 THE DEALER MANAGER FOR THE OFFER IS: [LOGO] 2121 Avenue of the Stars Los Angeles, California 90067 (310) 282-6161 (Call Collect) A-4 EX-99.A2 3 ex-99_a2.txt EXHIBIT 99-A2 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK) OF PATHOGENESIS CORPORATION PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 21, 2000 BY PICARD ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CHIRON CORPORATION - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000 UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK
BY MAIL: BY HAND/OVERNIGHT DELIVERY: Wall Street Station Receive Window P.O. Box 1023 Wall Street Plaza New York, NY 10268-1023 88 Pine Street, 19th Floor New York, NY 10005
BY FACSIMILE TRANSMISSION: (FOR ELIGIBLE INSTITUTIONS ONLY) (212) 701-7636 FOR INFORMATION (CALL COLLECT): (212) 701-7624
- -------------------------------------------------------------------------------------------------------- DESCRIPTION OF THE SHARES TENDERED SHARES TENDERED (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) - -------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) NUMBER OF SHARES NUMBER (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CERTIFICATE REPRESENTED BY OF SHARES APPEAR(S) ON CERTIFICATE(S)) NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2) - -------------------------------------------------------------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Total Shares - --------------------------------------------------------------------------------------------------------
(1) Need not be completed by Book-Entry Stockholders. (2) Unless otherwise indicated, all shares represented by share certificates delivered to the depositary will be deemed to have been tendered. See instruction 4. / / Check here if certificates have been lost, destroyed or mutilated. See instruction 11. Number of shares represented by lost, destroyed or mutilated certificates:. - ------------------------------------------------------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER, OTHER THAN AS LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED BELOW AND, UNLESS YOU ARE A FOREIGN INDIVIDUAL, COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW. FOREIGN INDIVIDUALS SHOULD COMPLETE A FORM W-8, WHICH CAN BE OBTAINED FROM THE DEPOSITARY. THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be used by stockholders of PathoGenesis Corporation if certificates for the Shares (as defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in Instruction 2 below) is utilized, if delivery of the Shares is to be made by book-entry transfer to an account maintained by the Depositary at the Book-Entry Transfer Facility (as defined in and pursuant to the procedures set forth in Section 3 of the Offer to Purchase). Holders who deliver Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders" and other stockholders who deliver Shares are referred to herein as "Certificate Stockholders." Stockholders whose certificates for the Shares are not immediately available or who cannot deliver either the certificates for, or a Book-Entry Confirmation (as defined in Section 3 of the Offer to Purchase) with respect to, their Shares and all other documents required hereby to the Depositary prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution ______________________________________________ Account Number _____________________________________________________________ Transaction Code Number ____________________________________________________ / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s) _____________________________________________ Window Ticket Number (if any) ______________________________________________ Date of Execution of Notice of Guaranteed Delivery _________________________ Name of Institution that Guaranteed Delivery _______________________________ If delivered by Book-Entry Transfer, check box: / / Account Number _____________________________________________________________ Transaction Code Number ____________________________________________________ 2 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Picard Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), the above-described shares of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at a purchase price of $38.50 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 21, 2000 and in this related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). The undersigned understands that Merger Sub reserves the right to transfer or assign, in whole at any time, or in part from time to time, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Merger Sub of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for any Shares validly tendered and accepted for payment pursuant to the Offer. Receipt of the Offer is hereby acknowledged. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of August 13, 2000 (the "Merger Agreement"), by and among Parent, Merger Sub and the Company. Upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms of any such extension or amendment), subject to, and effective upon, acceptance for payment of the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Merger Sub all right, title and interest in and to all the Shares that are being tendered hereby (and any and all non-cash dividends, distributions, rights, other shares of common stock or other securities issued or issuable in respect thereof on or after August 13, 2000 (collectively, "Distributions")) and irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver certificates for such Shares (and any and all Distributions), or transfer ownership of such Shares (and any and all Distributions) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of Purchaser, (ii) present such Shares (and any and all Distributions) for transfer on the books of the Company, and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any and all Distributions), all in accordance with the terms of the Offer. By executing this Letter of Transmittal, the undersigned hereby irrevocably appoints William G. Green and James R. Sulat in their respective capacities as officers of Merger Sub, and any individual who shall thereafter succeed to any such offices of Merger Sub, and each of them, and any other designees of Merger Sub, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, (i) to vote at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof or otherwise in such manner as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper with respect to, (ii) to execute any written consent concerning any matter as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper with respect to, and (iii) to otherwise act as each such attorney-in-fact 3 and proxy or his substitute shall in his sole discretion deem proper with respect to, all of the Shares (and any and all Distributions) tendered hereby and accepted for payment by Merger Sub. This appointment will be effective if and when, and only to the extent that, Merger Sub accepts such Shares for payment pursuant to the Offer. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for payment of such Shares in accordance with the terms of the Offer. Such acceptance for payment shall, without further action, revoke any prior powers of attorney and proxies granted by the undersigned at any time with respect to such Shares (and any and all Distributions), and no subsequent powers of attorney, proxies, consents or revocations may be given by the undersigned with respect thereto (and, if given, will not be deemed effective). Merger Sub reserves the right to require that, in order for the Shares to be deemed validly tendered, immediately upon Merger Sub's acceptance for payment of such Shares, Merger Sub must be able to exercise full voting, consent and other rights with respect to such Shares (and any and all Distributions), including voting at any meeting of the Company's stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and all Distributions, that the undersigned owns the Shares tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that the tender of the tendered Shares complies with Rule 14e-4 under the Exchange Act, and that when the same are accepted for payment by Merger Sub, Merger Sub will acquire good, marketable and unencumbered title thereto and to all Distributions, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or Merger Sub to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of Merger Sub all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance and transfer or appropriate assurance thereof, Merger Sub shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of the Shares tendered hereby or deduct from such purchase price the amount or value of such Distribution as determined by Merger Sub in its sole discretion. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, successors and assigns of the undersigned. This tender is irrevocable; provided that Shares tendered pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date and, unless theretofore accepted for payment as provided in the Offer to Purchase, may also be withdrawn at any time after October 20, 2000, subject to the withdrawal rights set forth in Section 4 of the Offer to Purchase. The undersigned understands that the valid tender of the Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the Instructions hereto will constitute a binding agreement between the undersigned and Merger Sub upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms or conditions of any such extension or amendment). Without limiting the foregoing, if the price to be paid in the Offer is amended in accordance with the terms of the Merger Agreement, the price to be paid to the undersigned will be the amended price notwithstanding the fact that a different price is stated in this Letter of Transmittal. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, Merger Sub may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the purchase price of all Shares purchased and/or return any certificates for any Shares not tendered or accepted for payment in the name(s) of the registered holder(s) appearing above under "Description of the Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," 4 please mail the check for the purchase price of all Shares purchased and/or return any certificates for any Shares not tendered or not accepted for payment (and any accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of the Shares Tendered." In the event that the boxes entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price of all Shares purchased and/or return any certificates evidencing Shares not tendered or not accepted for payment (and any accompanying documents, as appropriate) in the name(s) of, and deliver such check and/or return any such certificates (and any accompanying documents, as appropriate) to, the person(s) so indicated. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please credit any Shares tendered herewith by book-entry transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that Merger Sub has no obligation pursuant to the "Special Payment Instructions" to transfer any Shares from the name of the registered holder thereof if Merger Sub does not accept for payment any of the Shares so tendered. 5 - ------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of the Shares accepted for payment is to be issued in the name of someone other than the undersigned, if certificates for any Shares not tendered or not accepted for payment are to be issued in the name of someone other than the undersigned or if any Shares tendered hereby and delivered by book-entry transfer that are not accepted for payment are to be returned by credit to an account maintained at a Book-Entry Transfer Facility other than the account indicated above. Issue check and/or stock certificate(s) to: Name _______________________________________________________________________ (PLEASE PRINT) Address ____________________________________________________________________ (ZIP CODE) / / Credit Shares delivered by book-entry transfer and not purchased to the Book-Entry Transfer Facility account. Account number _____________________________________________________________ - ------------------------------------------- - ------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificates for any Shares not tendered or not accepted for payment and/or the check for the purchase price of any Shares accepted for payment is to be sent to someone other than the undersigned or to the undersigned at an address other than that shown under "Description of the Shares Tendered." Mail check and/or stock certificates to: Mail check and/or stock certificates to: Name: ______________________________________________________________________ (PLEASE PRINT) Address ____________________________________________________________________ (INCLUDE ZIP CODE) __________________________________________________________________________ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 - ----------------------------------------------------- 6 - -------------------------------------------------------------------------------- IMPORTANT STOCKHOLDER: SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) Signature(s) of Owner(s) ___________________________________________________ Name(s) ____________________________________________________________________ Name of Firm _______________________________________________________________ (PLEASE PRINT) Capacity (full title) ______________________________________________________ (SEE INSTRUCTION 5) Address ____________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) Area Code and Telephone Number _____________________________________________ Taxpayer Identification or Social Security Number __________________________ (SEE SUBSTITUTE FORM W-9) Dated: __________________, 2000 (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by the person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5). GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE BELOW. Authorized signature(s) ____________________________________________________ Name(s) ____________________________________________________________________ Name of Firm _______________________________________________________________ (PLEASE PRINT) Address ____________________________________________________________________ (ZIP CODE) Area Code and Telephone Number _____________________________________________ Dated: __________________, 2000 - -------------------------------------------------------------------------------- 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Section, includes any participant in any of the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of the Shares tendered herewith, unless such registered holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program or by any other "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Exchange Act (each, an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by stockholders of the Company either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of the Shares is to be made by book-entry transfer pursuant to the procedures set forth herein and in Section 3 of the Offer to Purchase. For a stockholder validly to tender Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), together with any required signature guarantees or an Agent's Message (in connection with book-entry transfer of the Shares) and any other required documents, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date and either (i) certificates for tendered Shares must be received by the Depositary at one of such addresses prior to the Expiration Date, or (ii) Shares must be delivered pursuant to the procedures for book-entry transfer set forth herein and in Section 3 of the Offer to Purchase and a Book-Entry Confirmation must be received by the Depositary prior to the Expiration Date, or (b) the tendering stockholder must comply with the guaranteed delivery procedures set forth herein and in Section 3 of the Offer to Purchase. Stockholders whose certificates for the Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot comply with the book-entry transfer procedures on a timely basis may tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth herein and in Section 3 of the Offer to Purchase. Pursuant to such guaranteed delivery procedures, (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Merger Sub, must be received by the Depositary prior to the Expiration Date, and (iii) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all tendered Shares), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents must be received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery. A "trading day" is any day on which the New York Stock Exchange is open for business. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares, that such participant has received and agrees to be 8 bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against the participant. The signatures on this Letter of Transmittal cover the Shares tendered hereby. THE METHOD OF DELIVERY OF THE SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. THE SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, IT IS REQUESTED THAT THE STOCKHOLDER USE REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. All tendering stockholders, by executing this Letter of Transmittal (or a manually signed facsimile thereof), waive any right to receive any notice of acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein under "Description of Shares Tendered" is inadequate, the number of Shares tendered and the certificate numbers with respect to such Shares should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares evidenced by any certificate delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In any such case, new certificate(s) for the remainder of the Shares that were evidenced by the old certificates will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date, or the termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any stock certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Merger Sub of the authority of such person to so act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment or certificates for any Shares not tendered or not accepted for payment are to be issued in the name of a person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares evidenced by certificates listed and transmitted hereby, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered 9 holder(s) appear(s) on the certificates. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, Purchaser will pay all stock transfer taxes with respect to the transfer and sale of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price of any Shares purchased is to be made to, or if certificates for any Shares not tendered or not accepted for payment are to be registered in the name of, any person other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such other person) payable on account of the transfer to such other person will be deducted from the purchase price of such Shares purchased unless evidence satisfactory to Merger Sub of the payment of such taxes, or exemption therefrom, is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates evidencing the Shares tendered hereby. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase price of any Shares accepted for payment is to be issued in the name of, and/or certificates for any Shares not accepted for payment or not tendered are to be issued in the name of and/or returned to, a person other than the signer of this Letter of Transmittal or if a check is to be sent, and/or such certificates are to be returned, to a person other than the signer of this Letter of Transmittal, or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Any stockholder(s) delivering Shares by book-entry transfer may request that Shares not purchased be credited to such account maintained at the Book-Entry Transfer Facility as such stockholder(s) may designate in the box entitled "Special Payment Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated above as the account from which such Shares were delivered. 8. BACKUP WITHHOLDING. In order to avoid "backup withholding" of Federal income tax on payments of cash pursuant to the Offer, a stockholder surrendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 in this Letter of Transmittal and certify, under penalties of perjury, that such TIN is correct and that such stockholder is not subject to backup withholding. If a tendering stockholder is subject to backup withholding, such stockholder must cross out item (Y) of the Certification box on the Substitute Form W-9. Backup withholding is not an additional tax. Rather, the amount of the backup withholding can be credited against the Federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder upon filing an income tax return. The stockholder is required to give the Depositary the TIN (i.e., social security number or employer identification number) of the record owner of the Shares. If the Shares are held in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. If the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future, such stockholder should check the box in Part 1(b) of the Substitute Form W-9 and sign and date the Substitute Form W-9, and the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the Certificate of Awaiting Taxpayer Identification Number is 10 completed, the Depositary will withhold 31% on all payments made prior to the time a properly certified TIN is provided to the Depositary. Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the Information Agent or the Dealer Manager at the addresses and phone numbers set forth below, or from brokers, dealers, commercial banks or trust companies. 10. WAIVER OF CONDITIONS. Subject to the Merger Agreement, Merger Sub reserves the absolute right in its sole discretion to waive, at any time or from time to time, any of the specified conditions of the Offer, in whole or in part, in the case of any Shares tendered. 11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions and indicating the number of Shares lost. THE STOCKHOLDER WILL THEN BE INSTRUCTED AS TO THE STEPS THAT MUST BE TAKEN IN ORDER TO REPLACE THE CERTIFICATE(S). THIS LETTER OF TRANSMITTAL AND RELATED DOCUMENTS CANNOT BE PROCESSED UNTIL THE PROCEDURES FOR REPLACING LOST, DESTROYED OR STOLEN CERTIFICATES HAVE BEEN FOLLOWED. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE HEREOF) TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. EITHER CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY, OR SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE; OR THE TENDERING STOCKHOLDERS MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY. IMPORTANT TAX INFORMATION Under Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary (as payor) with such stockholder's correct taxpayer identification number on Substitute Form W-9 below. If such stockholder is an individual, the taxpayer identification number is his social security number. If the Depositary is not provided with the correct taxpayer identification number, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. Certain stockholders (including, among others, all corporations, and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a Form W-8, Certificate of Foreign Status attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. Exempt stockholders, should furnish their TIN, write "Exempt" in Part 2 of the Substitute Form W-9 below, and sign, date and return the Substitute Form W-9 to the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. 11 If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of such stockholder's correct taxpayer identification number by completing the form contained herein certifying that the taxpayer identification number provided on Substitute Form W-9 is correct (or that such stockholder is awaiting a taxpayer identification number). WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future, such stockholder should check the box in Part 1(b) of the Substitute Form W-9 and sign and date the Substitute Form W-9, and the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% on all payments made prior to the time a properly certified TIN is provided to the Depositary. 12 PAYOR'S NAME: HARRIS TRUST COMPANY OF NEW YORK - --------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Name ------------------------ FORM W-9 Address ------------------------ (Number and Street) ------------------------ (City) (State) (Zip Code) - ------------------------ DEPARTMENT OF THE TREASURY PART 1(A)--PLEASE PROVIDE TIN ------------------------ INTERNAL REVENUE SERVICE YOUR TIN ------------------------ IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW TIN PART 1(B)--PLEASE CHECK THE Social security number OR BOX AT RIGHT IF YOU HAVE Employer identification APPLIED FOR, AND ARE number AWAITING RECEIPT OF YOUR TIN / / - ------------------------ PART 2--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING PLEASE WRITE "EXEMPT" HERE (SEE INSTRUCTIONS) - ------------------------ PAYOR'S REQUEST FOR TAXPAYER PART 3--CERTIFICATION IDENTIFICATION NUMBER (TIN) UNDER PENALTIES OF PERJURY, I CERTIFY THAT (X) The number shown on this AND CERTIFICATION form is my correct TIN (or I am waiting for a number to be issued to me), and (Y) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION OF INSTRUCTIONS--You must cross out Item (Y) of Part 3 above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (Y). - ------------------------ Sign Here--> SIGNATURE ------------------------ DATE ------------------------ - ------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
13 YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 1(B) OF THE SUBSTITUTE FORM W-9 INDICATING YOU HAVE APPLIED FOR, AND ARE AWAITING RECEIPT OF, YOUR TIN.
CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and that (1) I mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that, if I do not provide a taxpayer identification number to the Payor by the time of payment, 31 percent of all reportable payments made to me pursuant to this Offer will be withheld. Signature Date
MANUALLY SIGNED FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL, CERTIFICATES FOR THE SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH STOCKHOLDER OF THE COMPANY OR SUCH STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO THE DEPOSITARY AT ONE OF ITS ADDRESSES SET FORTH ON THE FIRST PAGE. Questions and requests for assistance or for additional copies of the Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and locations listed below, and will be furnished promptly at Purchaser's expense. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or CALL TOLL FREE (800) 322-2885 THE DEALER MANAGER FOR THE OFFER IS: [LOGO] 2121 Avenue of the Stars Los Angeles, California 90067 (310) 282-6161 (Call Collect) EX-99.A3 4 ex-99_a3.txt EXHIBIT 99-A3 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK) OF PATHOGENESIS CORPORATION TO PICARD ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CHIRON CORPORATION (NOT TO BE USED FOR SIGNATURE GUARANTEES) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000, UNLESS THE OFFER IS EXTENDED. This Notice of Guaranteed Delivery, or a form substantially equivalent hereto, must be used to accept the Offer (as defined below) (i) if certificates for Shares (as defined below) are not immediately available, (ii) if the procedure for book-entry transfer, as set forth in the Offer to Purchase, cannot be completed on a timely basis or (iii) if time will not permit all required documents to reach the Depositary on or prior to the Expiration Date. Such form may be delivered by hand, transmitted by facsimile transmission, telegram, telex, mail or nationally recognized overnight courier to the Depositary. See Section 3 of the Offer to Purchase. THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK
BY MAIL: BY HAND/OVERNIGHT DELIVERY: Wall Street Station Receive Window P.O. Box 1023 Wall Street Plaza New York, NY 10268-1023 88 Pine Street, 19th Floor New York, NY 10005
BY FACSIMILE TRANSMISSION: (FOR ELIGIBLE INSTITUTIONS ONLY) (212) 701-7636 FOR INFORMATION (CALL COLLECT): (212) 701-7624 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR TRANSMISSION VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. 1 Ladies and Gentlemen: The undersigned hereby tenders to Picard Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), upon the terms and subject to the conditions set forth in Merger Sub's Offer to Purchase dated August 21, 2000 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares set forth below of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Signature(s) ___________________________________________________________________ ________________________________________________________________________________ Name(s) of Record Holder(s) ____________________________________________________ PLEASE PRINT OR TYPE Number of Shares _______________________________________________________________ Certificate No.(s) (If Available) ______________________________________________ Dated _________________________________, 2000 Address(es) ____________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ZIP CODE Area Code and Tel. No.(s) ______________________________________________________ Taxpayer Identification or Social Security Number ______________________________ Check box if Shares will be tendered by book-entry transfer: / / Account Number _________________________________________________________________ 2 THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program, the Stock Exchange Medallion Program or an "eligible guarantor institution" as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that such tender of Shares complies with Rule 14e-4 and (c) guarantees to deliver to the Depositary either certificates representing the Share tendered hereby, in proper form for transfer, or confirmation of book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company, in each case with delivery of a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase), and any other required documents, within three trading days (as defined in the Offer to Purchase) after the date hereof. ________________________________________________________________________________ NAME OF FIRM ________________________________________________________________________________ ADDRESS ________________________________________________________________________________ ZIP CODE Area Code and Tel. No. _________________________________________________________ ________________________________________________________________________________ AUTHORIZED SIGNATURE Name ___________________________________________________________________________ PLEASE PRINT OR TYPE Title __________________________________________________________________________ Date _________________________________, 2000 NOTE: DO NOT SEND CERTIFICATES FOR THE SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT ONLY WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.A4 5 ex-99_a4.txt EXHIBIT 99-A4 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. All "section" references are to the Internal Revenue Code of 1986, as amended.
- ------------------------------------------------------ ------------------------------------------------------ GIVE THE NAME AND GIVE THE NAME AND EMPLOYER SOCIAL SECURITY IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ------------------------------------------------------ ------------------------------------------------------ 1. Individual The individual 9. Sole Proprietorship The owner(5) 10. A valid trust, estate, Legal entity(1) or pension trust 2. Two or more individuals The actual owner of the 11. Corporate The corporation (joint account) account or, if combined funds, the first individual on the account(2) 3. Husband and wife (joint The actual owner of the 12. Religious, charitable, The organization account) account or, if joint or educational funds, the first organization account individual on the account(2) 4. Custodian account of a The minor(3) 13. Partnership account The partnership minor (Uniform Gift to held in the name of the Minors Act) business 5. Adult and minor (joint The adult or, if the minor 14. Association, club, or The organization account) is only contributor, the other tax-exempt minor(2) organization 6. Account in the name of The ward, minor, or 15. A broker or registered The broker or nominee guardian or committee incompetent person(4) nominee for a designated ward, minor, or incompetent person 7. a. The usual revocable The grantor-trustee(2) 16. Account with the The public entity savings trust account Department of (grantor is also Agriculture in the trustee) name b. So-called trust account The actual owner(2) of a public entity (such that is not a legal or as a state or local valid trust under State government, school law district, or prison) that 8. Sole proprietorship The owner(5) receives agricultural program payments - ------------------------------------------------------ ------------------------------------------------------
(1) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) (2) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. (3) Circle the minor's name and furnish the minor's social security number. (4) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (5) You must show your individual name, but you may also enter your business or "doing business as" name. You may either use your social security number on your employer identification number (if you have one.) NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Internal Revenue Service Form SS-5, Application for a Social Security Card, or Form SS-4, Application for Employer Identification Number, at your local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - An organization exempt from tax under section 501(a), an individual retirement account (IRA), or a custodial account under section 403(b)(7), if the account satisfies the requirement of section 401(f)(2). - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization, or any agency or instrumentality thereof. Other payees that may be exempt from backup withholding include: - A corporation. - A financial institution. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. - A middleman known in the investment community as a nominee or custodian. - A futures commission merchant registered with the commodity futures trading commission. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. Section 404(k) distributions made by an ESOP. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. Exempt payees described above should file this Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A, 6042, 6044, 6045, 6049, and 6050A and 6050N and the regulations thereunder. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. The IRS may also provide this informaiton to the Department of Justice for civil and criminal litigation, and to the cities, states and the District of Columbia to carry out their tax laws. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. (4) MISUSE OF TINS.--If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.A5 6 ex-99_a5.txt EXHIBIT 99-A5 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK) OF PATHOGENESIS CORPORATION AT $38.50 NET PER SHARE BY PICARD ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CHIRON CORPORATION ------------------------------------------------------------ THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- August 21, 2000 To Brokers, Dealers, Commercial Banks, Trust Companies And Other Nominees: We have been appointed by Picard Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), to act as Dealer Manager in connection with Purchaser's offer to purchase all outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at a purchase price of $38.50 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 21, 2000, and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES WHICH, WHEN ADDED TOGETHER WITH ALL OTHER SHARES OWNED BY CHIRON CORPORATION AND ITS SUBSIDIARIES, WOULD REPRESENT AT LEAST A MAJORITY OF THE OUTSTANDING SHARES (DETERMINED ON A FULLY DILUTED BASIS FOR ALL OUTSTANDING STOCK OPTIONS AND OTHER RIGHTS (OTHER THAN THE RIGHTS, 1 IF SUCH RIGHTS ARE NOT AT THAT TIME EXERCISABLE) TO ACQUIRE SHARES OUTSTANDING ON THE DATE OF PURCHASE), (II) ANY REQUISITE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER OR THE MERGER DESCRIBED HEREIN HAVING BEEN TERMINATED OR HAVING EXPIRED, AND (III) THE APPLICABLE WAITING PERIODS UNDER CERTAIN FOREIGN ANTITRUST AND COMPETITION LAWS HAVING BEEN TERMINATED OR HAVING EXPIRED, EXCEPT FOR SUCH WAITING PERIODS THE FAILURE OF WHICH TO TERMINATE OR EXPIRE IS NOT REASONABLY LIKELY TO HAVE A PARENT MATERIAL ADVERSE EFFECT OR A COMPANY MATERIAL ADVERSE EFFECT (AS SUCH TERMS ARE DEFINED IN THE OFFER TO PURCHASE) OR TO PROVIDE A REASONABLE BASIS TO CONCLUDE THAT PARENT, MERGER SUB OR THE COMPANY OR ANY OF ITS DIRECTORS, OFFICERS, AGENTS, ADVISORS OR OTHER REPRESENTATIVES WOULD BE SUBJECT TO THE RISK OF CRIMINAL LIABILITY. THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER, DATED AS OF AUGUST 13, 2000 (THE "MERGER AGREEMENT"), AMONG PARENT, MERGER SUB, AND THE COMPANY. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offer to Purchase dated August 21, 2000; 2. Letter of Transmittal for your use in accepting the Offer and tendering Shares and for the information of your clients; 3. Notice of Guaranteed Delivery to be used to accept the Offer if certificates for the Shares and all other required documents cannot be delivered to Harris Trust Company of New York (the "Depositary"), or if the procedures for book-entry transfer cannot be completed, by the Expiration Date; 4. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 5. A letter to stockholders of the Company from Sean P. Lance, President and Chief Executive Officer of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 dated August 21, 2000, which has been filed by the Company with the Securities and Exchange Commission which includes the recommendation of the Board of Directors of the Company that stockholders accept the Offer and tender their Shares to Purchaser pursuant to the Offer; 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. A return envelope addressed to the Depositary. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Merger Sub will accept for payment and pay for any Shares which are validly tendered on or prior to the Expiration Date, or any Subsequent Offering Period, and not theretofore properly withdrawn, when permitted, when, as and if Merger Sub gives oral or written notice to the Depositary of Purchaser's acceptance of such Shares for payment pursuant to the Offer. Payment for any Shares purchased pursuant to the Offer will in all 2 cases be made only after timely receipt by the Depositary of (i) certificates for the Shares, or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company, pursuant to the procedures described in Section 3 of the Offer to Purchase, (ii) a properly completed and duly executed Letter of Transmittal (or a properly completed and manually signed facsimile thereof) or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry transfer and (iii) all other documents required by the Letter of Transmittal. Merger Sub will not pay any fees or commissions to any broker or dealer or other person (other than the Depositary, the Information Agent and the Dealer Manager as described in the Offer to Purchase) in connection with the Offer. Merger Sub will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for customary mailing and handling costs incurred by them in forwarding the enclosed materials to their customers. Purchaser will pay or cause to be paid all stock transfer taxes applicable to its purchase of the Shares pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal. WE REQUEST THAT YOU CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000 UNLESS THE OFFER IS EXTENDED. In order to accept the Offer, a duly executed and properly completed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer of the Shares, and any other required documents, should be sent to the Depositary, and certificates representing the tendered Shares should be delivered or tendered by book-entry transfer, all in accordance with the Instructions set forth in the Letter of Transmittal and in the Offer to Purchase. If holders of the Shares wish to tender, but it is impracticable for them to forward their certificates or other required documents or to comply with the procedures for delivery by book-entry transfer prior to the expiration of the Offer, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained from, the Information Agent or the undersigned at the addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Very truly yours, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF PARENT, MERGER SUB, THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT, THE DEPOSITARY, OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.A6 7 ex-99_a6.txt EXHIBIT 99-A6 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK) OF PATHOGENESIS CORPORATION AT $38.50 NET PER SHARE BY PICARD ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CHIRON CORPORATION ------------------------------------------------------------ THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- August 21, 2000 To Our Clients: Enclosed for your consideration are the Offer to Purchase dated August 21, 2000 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Picard Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), to purchase all outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated June 26, 1997, as amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at a purchase price of $38.50 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of August 13, 2000 among Parent, Merger Sub and the Company (the "Merger Agreement"). WE ARE THE HOLDER OF RECORD OF THE SHARES HELD FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE ENCLOSED LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase. Your attention is invited to the following: 1 1. The tender price is $38.50 per Share, net to you in cash without interest. 2. The Offer is being made for all outstanding Shares. 3. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. 4. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000, UNLESS THE OFFER IS EXTENDED. 5. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which, when added together with all other Shares owned by Parent and its subsidiaries, would represent at least a majority of the outstanding Shares (determined on a fully diluted basis for all outstanding stock options and other rights (other than the rights, if such rights are not at the time exercisable) to acquire Shares outstanding on the date of purchase), (ii) any requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable to the purchase of Shares pursuant to the Offer or the Merger described herein having been terminated or having expired, and (iii) the applicable waiting periods under certain foreign antitrust and competition laws having been terminated or having expired, except for such waiting periods the failure of which to terminate or expire is not reasonably likely to have a Parent Material Adverse Effect or a Company Material Adverse Effect (as such terms are defined in the Offer to Purchase) or to provide a reasonable basis to conclude that Parent, Merger Sub or the Company or any of their respective directors, officers, agents, advisors or other representatives would be subject to the risk of criminal liability. 6. Any stock transfer taxes applicable to the sale of the Shares to Merger Sub pursuant to the Offer will be paid by Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of the Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Merger Sub may, in its sole discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of the Shares in such jurisdiction. Neither Parent nor Merger Sub is aware of any jurisdiction in which the making of the Offer or the acceptance of the Shares in connection therewith would not be in compliance with the laws of such jurisdiction. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form set forth on the reverse side of this letter. An envelope to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the reverse side of this letter. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF PATHOGENESIS CORPORATION (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK) BY PICARD ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CHIRON CORPORATION The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated August 21, 2000 and the related Letter of Transmittal in connection with the Offer (as defined below) by Picard Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation, to purchase all outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended, between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at a purchase price of $38.50 per Share, net to the seller in cash, without interest, on the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). This will instruct you to tender the number of Shares indicated below (or if no number is indicated below, all Shares) held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. - -------------------------------------------------------------------------------- Number of Shares tendered:*_____________________________________________________ - -------------------------------------------------------------------------------- Certificate Nos. (if available): _______________________________________________ Check the box if Shares will be tendered by book-entry transfer: / / Account No: ____________________________________________________________________ Dated: __________________________________________________________________ , 2000 SIGN HERE Signature(s): __________________________________________________________________ Please type or print address(es): ______________________________________________ Area Code and Telephone Number: ________________________________________________ Taxpayer Identification or Social Security Number(s): __________________________ - ------------------------ * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 3 EX-99.A7 8 ex-99_a7.txt EXHIBIT 99-A7 OFFER TO PURCHASE FOR CASH ALL OF THE OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK) OF PATHOGENESIS CORPORATION AT $38.50 NET PER SHARE BY PICARD ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CHIRON CORPORATION - ------------------------------------------------------------ THE OFFER AND WITHDRAWAL OF RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- August 21, 2000 To Participants in the Amended and Restated Employee Stock Purchase Plan of PathoGenesis (SharePath): Enclosed for your consideration are the Offer to Purchase dated August 21, 2000 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Picard Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), to purchase all outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at a purchase price of $38.50 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of August 13, 2000 among Parent, Merger Sub and the Company ("Merger Agreement"). COMPUTERSHARE INVESTOR SERVICES LLC IS THE CUSTODIAN OF SHARES HELD FOR YOUR ACCOUNT AS A PARTICIPANT IN THE PATHOGENESIS CORPORATION AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN (THE "PLAN") AND IS THE CUSTODIAN OF THE PLAN ON BEHALF OF THE COMPANY. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE CUSTODIAN AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD IN YOUR PLAN ACCOUNT. We request instructions as to whether you wish to have us tender on your behalf any or all of the Shares held in your Plan account, upon the terms and subject to the conditions set forth in the Offer. Please note the following: 1. The tender price is $38.50 per Share, net to you in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. 2. The Offer is being made for all outstanding Shares. 3. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. 4. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000, UNLESS THE OFFER IS EXTENDED. 5. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the offer that number of shares of Share which, when added together with all other Shares owned by Chiron Corporation and its subsidiaries, would represent at least a majority of the outstanding Shares (determined on a fully diluted basis for all outstanding stock options and other rights (other than the Rights, if such rights are not at that time exercisable) to acquire Shares outstanding on the date of purchase), (ii) any requisite waiting period under the Harts- Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable to the purchase of shares pursuant to the Offer or the merger described herein having been terminated or having expired, and (iii) the applicable waiting periods under certain foreign antitrust and competition laws having been terminated or having expired, except for such waiting periods the failure of which to terminate or expire is not reasonably likely to have a Parent Material Adverse Effect or a Company Material Adverse Effect (as such terms are defined in the Offer to Purchase) or to provide a reasonably basis to conclude that Parent, Merger Sub or the Company or any of its directors, officers, agents advisors or other representatives would be subject to the risk of criminal liability. 6. Any stock taxes applicable to the sale of the Shares to Merger Sub pursuant to the Offer will be paid by Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any or all of the Shares held in your Plan account, please so instruct us by completing, executing and returning to us the instruction form enclosed with this letter and the Substitute Form W-9 by 12:00 midnight, New York City time, on September 18, 2000, unless the Offer is extended. An envelope in which to return your instructions to us is enclosed. If you authorize tender of such Shares, all such Shares will be rendered unless otherwise specified in your instructions. YOUR AUTHORIZATION SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is not being made to (nor will tenders be accepted from or on behalf of) the holders of Shares residing in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, the Purchaser may, in its discretion, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of the Purchaser by Donaldson, Lufkin & Jenrette Securities Corporation, the Dealer Manager for the Offer, or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. Very truly yours, Computer Investor Services LLC as Custodian 2 Instructions with Respect to the Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of PathoGenesis Corporation by Picard Acquisition Corp. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated August 21, 2000 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Picard Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), to purchase all outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at a purchase price of $38.50 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase. The Offer is being made in connection with the Agreement and Plan of Merger dated as of August 13, 2000 among Parent, Merger Sub and the Company (the "Merger Agreement"). The undersigned understand(s) that the Offer applies to Shares allocated to the account of the undersigned in the PathoGenesis Corporation Amended and Restated Employee Stock Purchase Plan (the "Plan"). This will instruct you, in your capacity as custodian of the Plan, to tender to the Purchaser the number of Shares, indicated below (or, if no number is indicated below, all Shares) that are held by you for the Plan account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to be Tendered: - ------------------- Shares* Date: - ------------------------ * Unless otherwise indicated, it will be assumed that all Shares in your Plan account are to be tendered. - -------------------------------------------------------------------------------- SIGN HERE Signature(s) _______________________________________________________________ ____________________________________________________________________________ Please type or print name(s) _______________________________________________ ____________________________________________________________________________ Please type or print address _______________________________________________ Area Code and Telephone Number______________________________________________ Taxpayer Identification or Social Security Number___________________________ - -------------------------------------------------------------------------------- 3 PAYOR'S NAME: HARRIS TRUST COMPANY OF NEW YORK - ----------------------------------------------------------------------------------------------------------------- SUBSTITUTE Part I: PLEASE PROVIDE YOUR Social Security Number or FORM W-9 TIN IN THE BOX AT RIGHT AND Employer Identification Department of the Treasury CERTIFY BY SIGNING AND Number Internal Revenue Service DATING BELOW ------------------------ ---------------------------------------------------------------------- PART 2--Certifications--Under penalties of perjury, I certify that: Payer's Request for Taxpayer (1) The number shown on this form is my current Taxpayer Identification Number ("TIN") Identification Number (or I am writing for a number to be issued to me and have checked the box in Part 3) and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). ---------------------------------------------------------- SIGNATURE ------------ Part 3 Date -------------- Awaiting TIN / / - -----------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld, but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days. Signature -------------------------------------------------------- Date: -------------------- - -------------------------------------------------------------------------------- 4 EX-99.A8 9 ex-99_a8.txt EXHIBIT 99-A8 OFFER TO PURCHASE FOR CASH ALL OF THE OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK) OF PATHOGENESIS CORPORATION AT $38.50 NET PER SHARE BY PICARD ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CHIRON CORPORATION - ------------------------------------------------------------ THE OFFER AND WITHDRAWAL OF RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- August 21, 2000 To Participants in the 401(k) Profit Sharing Plan of PathoGenesis: Enclosed for your consideration are the Offer to Purchase dated August 21, 2000 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Picard Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), to purchase all outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at a purchase price of $38.50 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of August 13, 2000 among Parent, Merger Sub and the Company ("Merger Agreement"). WILMINGTON TRUST COMPANY IS THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT AS A PARTICIPANT IN THE PATHOGENESIS CORPORATION 401(K) PROFIT SHARING PLAN (THE "PLAN") AND IS THE TRUSTEE OF THE PLAN (THE "TRUSTEE") ON BEHALF OF THE COMPANY. THE TRUST AGREEMENT PROVIDES THAT THE TRUSTEE SHALL INVEST AND REINVEST ASSETS IN INDIVIDUALLY DIRECTED ACCOUNTS, INCLUDING THE DETERMINATION TO TENDER SHARES HELD IN A PARTICIPANT'S ACCOUNT, PURSUANT TO THE DIRECTIONS OF THE PARTICIPANT, AS COMMUNICATED BY THE ADMINISTRATOR OF THE PLAN OR ITS DELEGATE. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD IN YOUR PLAN ACCOUNT. We, as delegate for the Company, the Plan administrator, request instructions as to whether you wish to have us tender on your behalf any or all of the Shares held in your Plan account, upon the terms and subject to the conditions set forth in the Offer. Please note the following: 1. The tender price is $38.50 per Share, net to you in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. 2. The Offer is being made for all outstanding Shares. 3. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. 4. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 18, 2000, UNLESS THE OFFER IS EXTENDED. 5. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the offer that number of shares of Share which, when added together with all other Shares owned by Chiron Corporation and its subsidiaries, would represent at least a majority of the outstanding Shares (determined on a fully diluted basis for all outstanding stock options and other rights (other than the Rights, if such rights are not at that time exercisable) to acquire Shares outstanding on the date of purchase), (ii) any requisite waiting period under the Harts-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable to the purchase of shares pursuant to the Offer or the merger described herein having been terminated or having expired, and (iii) the applicable waiting periods under certain foreign antitrust and competition laws having been terminated or having expired, except for such waiting periods the failure of which to terminate or expire is not reasonably likely to have a Parent Material Adverse Effect or a Company Material Adverse Effect (as such terms are defined in the Offer to Purchase) or to provide a reasonably basis to conclude that Parent, Merger Sub or the Company or any of its directors, officers, agents advisors or other representatives would be subject to the risk of criminal liability. 6. Any stock taxes applicable to the sale of the Shares to Merger Sub pursuant to the Offer will be paid by Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any or all of the Shares held in your Plan account, please so instruct us by completing, executing and returning to us the instruction form enclosed with this letter and the Substitute Form W-9 by 12:00 midnight, New York City time, on September 18, 2000, unless the Offer is extended. An envelope in which to return your instructions to us is enclosed. If you authorize tender of such Shares, all such Shares will be rendered unless otherwise specified in your instructions. YOUR AUTHORIZATION SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is not being made to (nor will tenders be accepted from or on behalf of) the holders of Shares residing in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, the Purchaser may, in its discretion, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of the Purchaser by Donaldson, Lufkin & Jenrette Securities Corporation, the Dealer Manager for the Offer, or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. Very truly yours, 2 Administrative Management Group Delegate of Plan Administrator Telephone: (847) 577-6000 3 Instructions with Respect to the Offer to Purchase for Cash All Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of PathoGenesis Corporation by Picard Acquisition Corp. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated August 21, 2000 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Picard Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), to purchase all outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), of PathoGenesis Corporation, a Delaware corporation (the "Company"), together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, dated as of June 26, 1997, as amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank (the Common Stock and the Rights together being referred to herein as the "Shares"), at a purchase price of $38.50 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase. The Offer is being made in connection with the Agreement and Plan of Merger dated as of August 13, 2000 among Parent, Merger Sub and the Company (the "Merger Agreement"). The undersigned understand(s) that the Offer applies to Shares allocated to the account of the undersigned in the PathoGenesis Corporation 401(k) Profit Sharing Plan (the "Plan"). This will instruct you, in your capacity as delegate of the Plan Administrator, to tender to the Purchaser the number of Shares, indicated below (or, if no number is indicated below, all Shares) that are held by you for the Plan account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to be Tendered: - ------------------- Shares* Date: - ------------------------ * Unless otherwise indicated, it will be assumed that all Shares in your Plan account are to be tendered. - -------------------------------------------------------------------------------- SIGN HERE Signature(s) _______________________________________________________________ ____________________________________________________________________________ Please type or print name(s) _______________________________________________ ____________________________________________________________________________ Please type or print address _______________________________________________ Area Code and Telephone Number______________________________________________ Taxpayer Identification or Social Security Number___________________________ - -------------------------------------------------------------------------------- 4 PAYOR'S NAME: HARRIS TRUST COMPANY OF NEW YORK - ----------------------------------------------------------------------------------------------------------------- SUBSTITUTE Part I: PLEASE PROVIDE YOUR Social Security Number or FORM W-9 TIN IN THE BOX AT RIGHT AND Employer Identification Department of the Treasury CERTIFY BY SIGNING AND Number Internal Revenue Service DATING BELOW ------------------------ ---------------------------------------------------------------------- PART 2--Certifications--Under penalties of perjury, I certify that: Payer's Request for Taxpayer (1) The number shown on this form is my current Taxpayer Identification Number ("TIN") Identification Number (or I am writing for a number to be issued to me and have checked the box in Part 3) and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). ---------------------------------------------------------- SIGNATURE ------------ Part 3 Date -------------- Awaiting TIN / / - -----------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld, but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days. Signature -------------------------------------------------------- Date: -------------------- - -------------------------------------------------------------------------------- 5 EX-99.A9 10 ex-99_a9.txt EXHIBIT 99-A9 This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made only by the Offer to Purchase, dated August 21, 2000, of Transmittal and any amendments or supplements thereto, and is being made to all holders of Shares. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, the Purchaser (as defined below) may, in its discretion, take such action as it may deem necessary to make the Offer in any jur on and extend the Offer to holders of Shares in such jurisdiction. Notice of Offer to Purchase for Cash All of the Outstanding Shares of Common Stock (and the accompanying Rights (as defined below)) of PathoGenesis Corporation at $38.50 Net Per Share by Picard Acquisition Corp. a wholly owned subsidiary of Chiron Corporation Picard Acquisition Corp., a Delaware corporation (the "Purchaser"), a wholly owned subsidiary of Chiron Corporation, a Delaware corporation ("Parent"), is offering to purchase all of the outstanding shares of Common Stock, par value $0.001 per share (the "Common Stock" and, together with the associated rights to purchase Series A Junior Preferred Stock (the "Rights"), the "Shares") of PathoGenesis Corporation, a Delaware corporation (the "Company"), at a price of $38.50 per Share, net to the seller in cash (less any required withholding taxes), without interest thereon, on the terms and subject to the conditions set forth in the Offer to Purchase, dated August 21, 2000 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Tendering stockholders who have Shares registered in tge fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. Stockholders who hold their Shares through a broker, dealer, commercial bank, trust company or other nominee should consult such institution as to whether it charges any service fees. Purchaser will pay all charges and expenses of the Dealer Manager, the Depositary and MacKenzie Partners, Inc., which is acting as the information agent (the "Information Agent"), incurred in connection with the Offer. Following the consummation of the Offer, the Purchaser intends to effect the Merger described below. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which, when added together with all other Shares owned by Parent and its subsidiaries, would represent at least a majority of the outstanding Shares (determined on a fully diluted basis for all outstanding stock options and other rights (other than the Rights, if such Rights are not at that time exercisable) to acquire Shares outstanding on the date of purchase) (the "Minimum Condition"), (ii) any requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), applicable to the purchase of Shares pursuant to the Offer or the Merger described herein having been terminated or having expired (the "HSR Condition"), and (iii) the applicable waiting periods under foreign antitrust and competition laws having been terminated or having expired, except for such waiting periods the failure of which to terminate or expire is not reasonably likely to have a Parent Material Adverse Effect or a Company Material Adverse Effect (as such terms are defined in the Offer to Purchase) or to provide a reasonable basis to conclude that the parties to the Merger Agreement or any of their respective directors, officers, agents, advisors or other representatives would be subject to the risk of criminal liability (the "Foreign Antitrust Condition"). The Offer is also subject to the satisfaction of certain other conditions. The Minimum Condition, the HSR Condition, the Foreign Antitrust Condition and the other conditions to the Offer set forth in the Offer to Purchase are collectively referred to as the "Offer Conditions." See Section 13 of the Offer to Purchase. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of August 13, 2000 (the "Merger Agreement"), among Parent, the Purchaser and the Company. The purpose of the Offer is for Parent, indirectly through the Purchaser, to acquire a majority voting interest in the Company as the first step in a business combination. The Merger Agreement provides that, among other things, the Purchaser will make the Offer and that simultaneously with or as soon as practicable after expiration of the Offer, receipt of any required approval by the Company's stockholders of the Merger Agreement and the satisfaction or waiver of the other conditions set forth in the Merger Agreement, the Purchaser will be merged with and into the Company in accordance with relevant provisions of the General Corporation Law of the State of Delaware (the "DGCL"), with the Company continuing as the surviving corporation (the "Merger"). At the effective time of the Merger (the "Effective Time"), each issued and outstanding Share (other than Shares, if any, that are held by any stockholder who is entitled to demand and properly demands appraisal of such Shares pursuant to, and who complies in all respects with, the provisions of Section 262 of the DGCL and Shares that are owned by the Company (as treasury stock), Parent or any subsidiary of Parent (including the Purchaser) immediately prior to the Effective Time) shall be converted into the right to receive in cash, without interest, $38.50 or any higher price that may be paid for the Shares pursuant to the Offer. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Shares pursuant to the Offer. On the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from the Purchaser and transmitting such payment to tendering stockholders. Under no circumstances will interest on the purchase price of Shares be paid by the Purchaser because of any extension of the Offer or delay in making any payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (as defined in the Offer to Purchase), pursuant to the procedures set forth in the Offer to Purchase, (ii) a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase), and (iii) any other documents required by the Letter of Transmittal. If, by the Expiration Date, any or all of the Offer Conditions have not been satisfied, the Purchaser, in its sole discretion may elect to: (i) extend the Offer and, subject to applicable withdrawal rights, retain all tendered Shares until the expiration of the Offer, as extended, subject to the terms of the Offer; (ii) waive all of the unsatisfied Offer Conditions (other than the Minimum Condition and the condition that the Merger Agreement not be terminated in accordance with its terms) and, subject to complying with applicable rules and regulations of the Securities and Exchange Commission (the "SEC"), accept for payment all Shares so tendered; or (iii) terminate the Offer and not accept for payment any Shares and return all tendered Shares to tendering stockholders. The term "Expiration Date" means 12:00 Midnight, New York City time, on Monday, September 18, 2000, unless the Purchaser shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser shall expire. The Purchaser does not currently intend to make a subsequent offering period available following the Expiration Date pursuant to Rule 14d-11 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), although it reserves the right to do so if it obtains the written consent of the Company. Subject to the terms of the Merger Agreement and applicable rules and regulations of the SEC, the Purchaser expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the Offer by giving oral or written notice of such extension to the Depositary. During any such extension of the Offer, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. Notwithstanding any other term of the Offer or the Merger Agreement, the Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer, unless the Offer Conditions have been satisfied. Pursuant to the Merger Agreement, the Purchaser reserves the right to waive any condition to the Offer or modify the terms of the Offer, except that, without the written consent of the Company, the Purchaser will not (i) reduce the number of Shares subject to the Offer, (ii) reduce the price per Share to be paid pursuant to the Offer, (iii) change or waive the Minimum Condition, add to the Offer Conditions or modify the Offer Conditions in any manner adverse to the holders of Shares, (iv) except as described below, extend the Offer, (v) change the form of consideration payable in the Offer or (vi) otherwise amend the Offer in any manner adverse to the holders of Shares. Notwithstanding the foregoing, the Purchaser may (but shall not be obligated to), without the consent of the Company, (i) extend the Offer for one or more periods of time (which, without the written consent of the Company, shall not exceed ten days per extension) that the Purchaser reasonably believes are necessary to cause the Offer Conditions to be satisfied, if at the scheduled expiration date of the Offer any of the Offer Conditions are not satisfied, until such time as such Offer Conditions are satisfied or waived, (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer, or (iii) extend the Offer on one or more occasions for an aggregate period of not more than ten business days if the Minimum Condition has been satisfied but fewer than 90% of the Shares have been validly tendered and not withdrawn. Pursuant to the Merger Agreement, if all of the Offer Conditions are not satisfied on any scheduled Expiration Date, then the Purchaser will from time to time and on each such occurrence extend the Offer for a period of time (which, without the written consent of the Company, shall not exceed ten days per extension) that the Purchaser reasonably believes is necessary to cause the Offer Conditions to be satisfied until such conditions are satisfied or waived, provided that, so long as Parent and the Purchaser shall have complied with their obligations under the Merger Agreement, the Purchaser shall not be required to extend the Offer beyond March 14, 2001, as such date may be extended pursuant to the Merger Agreement. Upon the terms and subject to the conditions of the Offer (including the Offer Conditions and, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment, and will pay for, all Shares validly tendered and not withdrawn promptly after the expiration of the Offer. If there is a subsequent offering period, all Shares tendered during the subsequent offering period will be immediately accepted for payment and paid for as they are tendered. Shares tendered in any subsequent offering period and accepted for payment may not be withdrawn. The Purchaser confirms that its reservation of the right to delay payment for Shares which it has accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that a tender offeror pay the consideration offered or return the tendered securities promptly after the termination or withdrawal of a tender offer. Any decision to provide a subsequent offering period will be announced at least five business days prior to the expiration of the Offer and the Purchaser will announce the approximate number and percentage of Shares deposited as of the expiration of the Offer no later than 9:00 a.m., New York City time, on the next business day following the expiration of the Offer, and such securities will be immediately accepted and promptly paid for. Tenders of the Shares made pursuant to the Offer are irrevocable except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the expiration of the Offer and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after October 20, 2000. There will be no withdrawal rights during any subsequent offering period for any Shares tendered during the subsequent offering Period. For a withdrawal of Shares tendered pursuant to the Offer to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name in which the certificates representing such Shares are registered if different from that of the person who tendered the Shares. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers of the particular certificates evidencing the Shares to be withdrawn must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, which determination shall be final and binding. None of the Purchaser, Parent, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tender for Shares may not be rescinded, and any Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following one of the procedures described in the Offer to Purchase at any time prior to the Expiration Date or the expiration of any subsequent offering period. Sales of Shares pursuant to the Offer and the exchange of Shares for cash pursuant to the Merger will be taxable transactions for Federal income tax purposes and may also be taxable under applicable state, local and other tax laws. For Federal income tax purposes, a stockholder whose Shares are purchased pursuant to the Offer or who receives cash as a result of the Merger will realize gain or loss equal to the difference between the adjusted basis of the Shares sold or exchanged and the amount of cash received therefor. Such gain or loss will be capital gain or loss if the Shares are held as capital assets by the stockholder. Capital gain of a non-corporate stockholder is generally subject to a maximum tax rate of 20% in respect of property held for more than one year. The income tax discussion set forth above is included for general information only and may not be applicable to stockholders in special situations such as stockholders who received their shares upon the exercise of stock options or otherwise as compensation and stockholders who are not United States persons. Stockholders should consult their own tax advisors with respect to the specific tax consequences to them of the Offer and the Merger, including the application and effect of Federal, state, local, foreign or other tax laws. The information required to be disclosed by Paragraph (d)(1) of Rule 14d-6 of the General Rules and Regulations under the Exchange Act is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided to the Purchaser its list of stockholders and security position listing for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other related materials will be mailed to record holders of Shares and will be mailed to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer. Questions and requests for assistance and copies of the Offer to Purchase, the Letter of Transmittal and all other tender offer materials may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below, and will be furnished promptly at the Purchaser's expense. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: MACKENZIE PARTNERS, INC. LOGO 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) E-mail: proxy@mackenziepartners.com or Call Toll-Free (800) 322-2885 The Dealer Manager for the Offer is: Donaldson, Lufkin & Jenrette LOGO 2121 Avenue of the Stars, Suite 3100 Los Angeles, California 90067 Call Collect: (310) 282-7765 August 21, 2000 EX-99.D1 11 ex-99_d1.txt EXHIBIT 99-D1 AGREEMENT AND PLAN OF MERGER dated as of August 13, 2000 by and among PATHOGENESIS CORPORATION, CHIRON CORPORATION and PICARD ACQUISITION CORP. TABLE OF CONTENTS
Page ---- ARTICLE I THE OFFER Section 1.01. The Offer........................................................1 Section 1.02 Company Actions..................................................3 Section 1.03. Directors of the Company.........................................4 ARTICLE II THE MERGER Section 2.01. The Merger.......................................................5 Section 2.02. Closing..........................................................5 Section 2.03. Effective Time...................................................5 Section 2.04. Effects of the Merger............................................5 Section 2.05. Certificate of Incorporation and By-laws.........................5 Section 2.06. Directors........................................................6 Section 2.07. Officers.........................................................6 Section 2.08. Effect on Capital Stock..........................................6 Section 2.09. Exchange of Certificates.........................................7 Section 2.10. Options..........................................................8 Section 2.11. Warrants........................................................10 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Section 3.01. Organization and Qualification..................................10 Section 3.02. Authority; Non-Contravention; Approvals.........................10 Section 3.03. Interim Operations of Merger Sub................................12 Section 3.04. Capital Resources...............................................12 Section 3.05. Offer Documents; Proxy Statement................................12 Section 3.06. Ownership of Capital Stock......................................13 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 4.01. Organization and Qualification..................................13 Section 4.02. Capitalization..................................................13 Section 4.03. Subsidiaries....................................................15 -i- Section 4.04. Authority; Non-Contravention; Approvals.........................15 Section 4.05. Reports and Financial Statements................................16 Section 4.06. Absence of Undisclosed Liabilities..............................17 Section 4.07. Absence of Certain Changes or Events............................17 Section 4.08. Litigation......................................................17 Section 4.09. Offer Documents; Proxy Statement................................18 Section 4.10. No Violation of Law.............................................18 Section 4.11. Compliance with Agreements......................................18 Section 4.12. Taxes...........................................................19 Section 4.13. Employee Benefit Plans; ERISA...................................19 Section 4.14. Labor Controversies.............................................21 Section 4.15. Environmental Matters...........................................21 Section 4.16. Intellectual Property...........................................22 Section 4.17. Opinion of Financial Advisor....................................23 Section 4.18. Brokers and Finders.............................................23 Section 4.19. Insurance.......................................................23 Section 4.20. Takeover Statutes...............................................23 Section 4.21. ESPP............................................................23 ARTICLE V COVENANTS Section 5.01. Conduct of Business Pending the Merger..........................23 Section 5.02. Restrictions on Parent and the Company..........................25 Section 5.03. No Solicitation.................................................26 Section 5.04. Access to Information; Confidentiality..........................27 Section 5.05. Merger Sub......................................................28 Section 5.06. Employee Benefits...............................................28 Section 5.07. Proxy Statement.................................................29 Section 5.08. Company Meeting.................................................29 Section 5.09. Public Announcement.............................................30 Section 5.10. Expenses and Fees...............................................30 Section 5.11. Agreement to Cooperate..........................................30 Section 5.12. Directors' and Officers' Indemnification........................31 Section 5.13. Section 16 Matters..............................................32 Section 5.14. Further Assurances..............................................33 ARTICLE VI CONDITIONS TO THE MERGER Section 6.01. Conditions to the Obligations of Each Party.....................33 -ii- ARTICLE VII TERMINATION Section 7.01. Termination.....................................................33 ARTICLE VIII MISCELLANEOUS Section 8.01. Effect of Termination...........................................36 Section 8.02. Non-Survival of Representations and Warranties..................37 Section 8.03. Notices.........................................................37 Section 8.04. Interpretation..................................................38 Section 8.05. Miscellaneous...................................................38 Section 8.06. Counterparts....................................................39 Section 8.07. Amendments; Extensions..........................................39 Section 8.08. Entire Agreement................................................39 Section 8.09. Severability....................................................39 Section 8.10. Specific Performance............................................40 Section 8.11. No Admission....................................................40
-iii- AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of August 13, 2000 (this "AGREEMENT"), by and among Chiron Corporation, a Delaware corporation ("PARENT"), Picard Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent ("MERGER SUB"), and PathoGenesis Corporation, a Delaware corporation (the "COMPANY"). WHEREAS, the respective boards of directors of each 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; WHEREAS, in furtherance thereof, Parent proposes to cause Merger Sub to make a tender offer (as it may be amended from time to time as permitted under this Agreement (the "OFFER")) to purchase all the outstanding shares of common stock, par value $0.001, of the Company, together with the associated Company Rights (as defined herein) (the "COMPANY COMMON STOCK"), at a purchase price of $38.50 per share (such price, or any greater amount paid per share of Company Common Stock pursuant to the Offer, herein referred to as the "OFFER PRICE"), net to the seller in cash, without interest on the terms and subject to the conditions set forth in this Agreement; WHEREAS, the respective boards of directors of each of Parent, Merger Sub and the Company have approved the merger of Merger Sub with and into the Company following the consummation of the Offer, on the terms and subject to the conditions set forth in this Agreement, whereby each issued share of Company Common Stock not owned by Parent, Merger Sub or the Company, other than the Appraisal Shares (as defined herein), shall be converted into the right to receive the price per share paid pursuant to the Offer; and WHEREAS, the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with this Agreement. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I THE OFFER Section 1.01. THE OFFER. (a) Subject to the conditions of this Agreement and provided that this Agreement shall not have been terminated in accordance with its terms pursuant to Article VII hereof and none of the events set forth in paragraphs (a) through (e) of Exhibit A hereto shall have occurred or be existing, as promptly as reasonably practicable but in no event later than six business days after the date of the public announcement 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 Securities and Exchange Commission (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 Exhibit A. The initial expiration date of the Offer shall be the 20th business day following the commencement of the Offer. Merger Sub expressly reserves the right to waive any condition to the Offer or modify the terms of the Offer, except that, without the written 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 price per share of Company Common Stock to be paid pursuant to the Offer, (iii) change or waive the Minimum Tender Condition (as defined in Exhibit A), add to the conditions set forth in Exhibit A or modify any condition set forth in Exhibit A in any manner adverse to the holders of Company Common Stock, (iv) except as provided below in this Section 1.01(a), extend the Offer, (v) change the form of consideration payable in the Offer or (vi) otherwise amend the Offer in any manner adverse to the holders of Company Common Stock. Notwithstanding the foregoing, Merger Sub may (but shall not be obligated to), without the consent of the Company, (A) extend the Offer for one or more periods of time (which, without the written consent of the Company, shall not exceed ten days per extension) that Merger Sub reasonably believes are necessary to cause the conditions of the Offer set forth herein to be satisfied, if at the scheduled expiration date of the Offer any of the conditions to Merger Sub's obligation to purchase shares of Company Common Stock are not satisfied, until such time as such conditions are satisfied or waived, (B) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer or (C) extend the Offer on one or more occasions for an aggregate period of not more than ten business days if the Minimum Tender Condition has been satisfied but fewer than 90% of the Company Common Shares have been validly tendered and not withdrawn. Parent and Merger Sub agree that if all of the conditions to the Offer are not satisfied on any scheduled expiration date of the Offer then Merger Sub shall from time to time and on each such occurrence extend the Offer for a period of time (which, without the written consent of the Company, shall not exceed ten days per extension) that Merger Sub reasonably believes is necessary to cause the conditions of the Offer set forth herein to be satisfied until such conditions are satisfied or waived, PROVIDED that, so long as Parent and Merger Sub shall have complied with their obligations under this Agreement, Merger Sub shall not be required to extend the Offer beyond the Drop Dead Date (as defined in Section 7.01(b)). Merger Sub may, with the written consent of the Company, elect to provide a subsequent offering period for the Offer in accordance with Rule 14d-11 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), following its acceptance for payment of shares of Company Common Stock in the Offer. On the terms and subject to the conditions of the Offer and this Agreement, promptly after expiration of the Offer, Merger Sub shall, and Parent shall cause Merger Sub to, accept for payment and purchase all shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer that Merger Sub is permitted to accept and pay for under applicable law. (b) On the date of commencement of the Offer, Parent and Merger Sub shall file with the SEC, and cause to be disseminated to the Company's stockholders, as and to the extent required by applicable Federal securities laws, 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"). 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 -2- 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 Company's stockholders, in each case as and to the extent required by or deemed advisable under applicable Federal securities laws. The Company and its counsel shall be given reasonable opportunity to review and comment upon the Offer Documents prior to their filing with the SEC or dissemination to the stockholders of the Company. Parent and Merger Sub shall provide to the Company and its counsel in writing any written comments (and orally, any oral 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 and shall consult with the Company and its counsel prior to responding to any such comments. (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 1.02. COMPANY ACTIONS. (a) The Company hereby approves of and consents to the Offer, the Merger and the other transactions contemplated by this Agreement. The Company hereby consents to the inclusion in the Offer Documents of the recommendation of the Company's board of directors described in Section 4.04(d). (b) Subject to Section 5.03(d), 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 or supplemented from time to time, the "SCHEDULE 14D-9") containing the recommendations referred to in Section 4.04(d) and shall mail the Schedule 14D-9 to the holders of Company Common Stock. 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 Company's stockholders, in each case as and to the extent required by or deemed advisable under applicable Federal securities laws. Parent and its counsel shall be given reasonable opportunity to review and comment upon the Schedule 14D-9 prior to its filing with the SEC or dissemination to stockholders of the Company. The Company shall provide Parent and its counsel in writing with any written comments (and orally, any oral 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 and shall consult with Parent and its counsel prior to responding to such comments. (c) In connection with the Offer and the Merger, the Company shall cause 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 -3- communicating the Offer to the Company's stockholders. 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 Offer, the Merger and the other transactions contemplated by this Agreement, 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 1.03. DIRECTORS OF THE COMPANY. (a) Promptly upon the purchase of and payment for shares of Company Common Stock by Merger Sub or any of its affiliates pursuant to the Offer, Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as is equal to the product obtained by multiplying the total number of directors on such Board (giving effect to the directors designated by Parent pursuant to this sentence) by the percentage that the number of shares of Company Common Stock so purchased and paid for, plus any shares beneficially owned by Parent or its affiliates on the date of such purchase and payment, bears to the total number of shares of Company Common Stock then outstanding. In furtherance thereof, the Company shall, upon request of Parent, promptly increase the size of its Board of Directors or exercise its best efforts to secure the resignations of such number of directors, or both, as is necessary to enable Parent's designees to be so elected to the Company's Board and, subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, shall cause Parent's designees to be so elected. At such time, the Company shall, if requested by Parent, also cause directors designated by Parent to constitute at least the same percentage (rounded up to the next whole number) as is on the Company's Board of Directors of each committee of the Company's Board of Directors. Notwithstanding the foregoing, if shares of Company Common Stock are purchased pursuant to the Offer, there shall be until the Effective Time at least two members of the Company's Board of Directors who are directors on the date hereof and are not employees of the Company. (b) The Company shall promptly take all actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to fulfill its obligations under Section 1.03(a), including mailing to stockholders together with the Schedule 14D-9 the information required by such Section 14(f) and Rule 14f-1 as is necessary to enable Parent's designees to be elected to the Company's Board of Directors. Parent and Merger Sub will supply the Company and be solely responsible for any information with respect to them and their nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f-1. (c) Following the election of Parent's designees to the Company's Board of Directors pursuant to this Section 1.03, prior to the Effective Time (i) any amendment or termination of this Agreement by the Company, (ii) any extension or waiver by the Company of the time for the performance of any of the obligations or other acts of Parent or Merger Sub under this Agreement, or (iii) any waiver of any of the Company's rights hereunder shall, in any such case, require the concurrence of a majority of the directors of the Company then in office who neither were designated by Parent nor are employees of the Company (the "INDEPENDENT DIRECTOR APPROVAL"). -4- ARTICLE II THE MERGER Section 2.01. THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the "DGCL"), Merger Sub shall be merged with and into the Company at the Effective Time (as defined in Section 2.03). At the Effective Time, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation (the "SURVIVING CORPORATION") and shall succeed to and assume all the rights and obligations of Merger Sub in accordance with the DGCL. Section 2.02. CLOSING. Upon the terms and subject to the conditions set forth in this Agreement, the closing of the Merger (the "CLOSING") shall take place at 10:00 a.m., New York time, on the second business day after the satisfaction or (to the extent permitted by applicable law) waiver of the conditions set forth in Article VI (other than those conditions to be satisfied or waived at the Closing), at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019, or at such other time, date or place agreed to in writing by Parent and the Company. The date on which the Closing occurs is referred to in this Agreement as the "CLOSING DATE". Section 2.03. EFFECTIVE TIME. Upon the terms and subject to the conditions set forth in this Agreement, as soon as practicable on or after the Closing Date, a certificate of merger or other appropriate documents (in any such case, the "CERTIFICATE OF MERGER") shall be duly prepared, executed and acknowledged by the parties in accordance with the relevant provisions of the DGCL and filed with the Secretary of State of the State of Delaware. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or at such subsequent time or date (not later than 90 days after the date of filing) as Parent and the Company shall agree and specify in the Certificate of Merger. The time at which the Merger becomes effective is referred to in this Agreement as the "EFFECTIVE TIME". Section 2.04. EFFECTS OF THE MERGER. The Merger shall have the effects set forth in Section 259 of the DGCL. Section 2.05. CERTIFICATE OF INCORPORATION AND BY-LAWS. (a) At the Effective Time, the Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety to read as the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, until thereafter changed or amended as provided therein or by applicable law; PROVIDED, HOWEVER, that the Certificate of Incorporation of the Surviving Corporation shall provide that the Surviving Corporation shall be named "PathoGenesis Corporation" and shall contain indemnification provisions consistent with the obligations set forth in Section 5.12(a). (b) 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 changed or amended as provided therein or by applicable law; PROVIDED that the By-Laws of the Surviving Corporation -5- shall contain indemnification provisions consistent with the obligations set forth in Section 5.12(a). Section 2.06. DIRECTORS. The directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. Section 2.07. OFFICERS. The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. Section 2.08. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of capital stock of the Company, Parent or Merger Sub: (a) CAPITAL STOCK OF SUB. Each issued and outstanding share of common stock of Merger Sub, par value $0.001 per share, issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. (b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each share of Company Common Stock that is owned by the Company (as treasury stock), Parent or any subsidiary of Parent (including Merger Sub) immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist and no consideration shall be delivered in exchange therefor. (c) CONVERSION OF COMPANY COMMON STOCK. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be cancelled in accordance with Section 2.08(b)) and the Appraisal Shares (as defined in Section 2.08(d)) shall be converted into the right to receive from the Surviving Corporation in cash, without interest, the Offer Price (the "MERGER CONSIDERATION"). At 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 that immediately prior to the Effective Time represented any such shares (a "CERTIFICATE") shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration. (d) APPRAISAL RIGHTS. Notwithstanding anything in this Agreement to the contrary, shares (the "APPRAISAL SHARES") of Company Common Stock issued and outstanding immediately prior to the Effective Time that are held by any holder who is entitled to demand and properly demands appraisal of such shares pursuant to, and who complies in all respects with, the provisions of Section 262 of the DGCL ("SECTION 262") shall not be converted into the right to receive the Merger Consideration as provided in Section 2.08(c), but instead such holder shall be entitled to payment of the fair value of such shares in accordance with the provisions of Section 262. At the Effective Time, all Appraisal Shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of Appraisal Shares shall -6- cease to have any rights with respect thereto, except the right to receive the fair value of such shares in accordance with the provisions of Section 262. Notwithstanding the foregoing, if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262 or a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by Section 262, then the right of such holder to be paid the fair value of such holder's Appraisal Shares under Section 262 shall cease and such Appraisal Shares shall be deemed to have been converted at the Effective Time into, and shall have become, the right to receive the Merger Consideration as provided in Section 2.08(c). The Company shall serve prompt notice to Parent of any demands for appraisal of any shares of Company Common Stock, and Parent shall have the opportunity to participate in and direct 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. Section 2.09. EXCHANGE OF CERTIFICATES. (a) PAYING AGENT. Prior to the Effective Time, Parent shall designate, or shall cause to be designated, a bank or trust company reasonably acceptable to the Company to act as agent for the payment of the Merger Consideration upon surrender of Certificates (the "PAYING AGENT"), and, from time to time after the Effective Time, Parent shall provide, or cause the Surviving Corporation to provide, to the Paying Agent funds in amounts and at the times necessary for the payment of the Merger Consideration pursuant to Section 2.08(c) upon surrender of Certificates, it being understood that any and all interest or income earned on funds made available to the Paying Agent pursuant to this Agreement shall be turned over to Parent. (b) EXCHANGE PROCEDURE. As soon as reasonably practicable after the Effective Time, the Paying Agent shall mail to each holder of record of a Certificate (i) a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates held by such person shall pass, only upon proper delivery of the Certificates to the Paying Agent and shall be in customary form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the shares formerly represented by such Certificate shall have been converted pursuant to Section 2.08(c), and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Company Common Stock that is not registered in the stock transfer books of the Company, the proper amount of cash may be paid in exchange therefor 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 payment 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. No interest shall be paid or shall accrue on the cash payable upon surrender of any Certificate. -7- (c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All cash paid upon the surrender of a Certificate in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock formerly represented by such Certificate. At the close of business on the day on which the Effective Time occurs the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for transfer or any other reason, they shall be cancelled and exchanged as provided in this Article II. (d) NO LIABILITY. None of Parent, Merger Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. All funds held by the Paying Agent for payment to the holders of unsurrendered Certificates and unclaimed at the end of one year after the Effective Time shall be returned to the Surviving Corporation, after which time any holder of unsurrendered Certificates shall look as a general creditor only to Parent for payment of such funds to which such holder may be due, subject to applicable law. (e) 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 the Surviving Corporation, the posting by such person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent shall pay in respect of such lost, stolen or destroyed Certificate the Merger Consideration. (f) WITHHOLDING RIGHTS. Parent, the Surviving Corporation or the Paying Agent 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 Parent, the Surviving Corporation or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the "CODE"), or any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate taxing authority by Parent, the Surviving Corporation or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent, the Surviving Corporation or the Paying Agent. Section 2.10. OPTIONS. (a) At the Effective Time, each holder of outstanding and unexercised options to purchase shares of Company Common Stock granted under any of the Company Option Plans or otherwise (each, a "COMPANY OPTION"), whether or not exercisable or vested, shall be entitled to receive, in full satisfaction of such Company Option, cash in an amount equal to the product of (A) the excess, if any, of the Offer Price over the exercise price per share thereof and (B) the number of shares of Company Common Stock subject to such Company Option (the "OPTION CASH-OUT RIGHT"). Each option holder shall have the right to elect, in lieu of such holder's Option Cash Out Right, to cause each and every Company Option -8- held by such holder (but not fewer than all Company Options held by such holder) to be converted, at the Effective Time, into options (each, a "PARENT OPTION") to purchase a number of shares of common stock, par value $0.01 per share ("PARENT SHARES"), of Parent equal to the product, rounded down to the nearest whole share, of (A) the number of Company Shares subject to the original Company Option and (B) the Conversion Ratio (as defined below), at a per Parent Share exercise price, rounded up to the nearest whole cent, equal to (I) the per share exercise price for the shares of Company Common Stock originally issuable pursuant to such Company Option divided by (II) the Conversion Ratio; PROVIDED, HOWEVER, that (A) in the case of any Company Option to which Section 422 of the Code applies, the exercise price, the number of Parent Shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in accordance with the foregoing, subject to such adjustments as are necessary in order to satisfy the requirements of Section 424(a) of the Code; (B) any holder making such election shall thereby waive such holder's right to accelerated vesting of all of the Company Options held by such holder on the date of acceptance for payment of shares of Company Common Stock pursuant to the Offer (the "ACCEPTANCE DATE") and the Effective Time or as a result of any other event contemplated by this Agreement, and any Parent Options issued upon the conversion of Company Options held by such holder that had not become vested and exercisable prior to the Acceptance Date shall vest and become exercisable only in accordance with the original terms of such Company Options; and (C) at the Effective Time Parent shall grant to such holder making such election and granting the waiver contemplated by clause (B) an option (each, a "NEW PARENT OPTION") to purchase a number of Parent Shares equal to the product of (x) the number of Parent Shares subject to Parent Options issued upon conversion of all unvested and unexercisable Company Options held by such holder, and (y) .30. The New Parent Options shall have a vesting schedule and a per Parent Share exercise price determined as of the Effective Time in accordance with the Chiron Corporation 1991 Stock Option Plan, as amended. The exercise price per share of the New Parent Options shall be no more than the fair market value of Parent Common Stock on the grant date and the vesting schedule for the New Parent Options shall provide that such New Parent Options shall vest and become exercisable with respect to no fewer than 25% of the shares subject to such New Parent Option on each anniversary of the grant date. Each of the New Parent Options shall be an incentive stock option to the extent permitted under applicable law. The election referred to in the second sentence of this Section 2.10(a) shall be made prior to the Effective Time and shall be effective at the Effective Time. The term "CONVERSION RATIO" means the ratio of (y) the Offer Price to (z) the average (the "PARENT AVERAGE PRICE") of the closing prices per Parent Share on the NASDAQ Stock Market ("NASDAQ") for the five consecutive trading days immediately preceding the Effective Time. Any amounts payable pursuant to this Section 2.10 shall be subject to any required withholding of taxes and shall be paid without interest. In respect of each Parent Option and New Parent Option and the Parent Common Shares underlying such option, Parent shall file at the Effective Time, and keep current, a Form S-8 or other appropriate registration statement for as long as any Parent Options or New Parent Options remain outstanding. In connection with the issuance of Parent Options and New Parent Options, Parent shall reserve for issuance the number of Parent Common Shares that will become subject to Parent Options and New Parent Options pursuant to this Section 2.10. In the event that any holder of a Company Option is terminated within twelve months after the Effective Time other than for cause or terminates within 13 months following the Effective Time pursuant to "good reason" as defined in any applicable employment or severance agreement, then each Parent Option received upon -9- conversion of a Company Option shall immediately become exercisable and vested whether or not then exercisable or vested and shall be converted into the right to receive cash in an amount equal to the product of (A) the amount, if any, by which the Parent Average Price exceeds the exercise price per share thereof for such Parent Option and (B) the number of shares of Parent Common Stock subject to such Parent Option. All Parent Options and New Parent Options issued pursuant to this Section 2.10 shall have customary "cashless exercise" provisions. (b) The Company shall make the payment of the amount determined pursuant to Section 2.10(a) above to holders that have not made the election described in the second sentence thereof as soon as reasonably practicable following the Effective Time, but in no event later than five business days following the Effective Time. (c) The Company and the Parent shall cooperate to provide, at least 20 days prior to the Effective Time, each holder of Company Options with an election form to make the election and waiver described in this Section 2.10, which election form shall confirm the terms of the election, the Parent Options and the New Parent Options as set forth above and, upon the making of such election and waiver by such option holder, shall constitute a written agreement enforceable by the option holder. Section 2.11. WARRANTS. (a) At the Effective Time, each outstanding warrant to purchase shares of Company Common Stock shall be converted into an obligation of Parent to pay, and a right of the holder thereof to receive in full satisfaction of such warrant, cash in an amount in respect thereof equal to an amount equal to the product of (A) the excess, if any, of the Offer Price over the exercise price of such warrant and (B) the number of shares of Company Common Stock subject to such warrant. (b) Parent shall make the payment of the amount determined pursuant to Section 2.11(a) above as soon as reasonably practicable following the Effective Time, but in no event later than five business days following the Effective Time. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub jointly and severally represent and warrant to the Company that: Section 3.01. ORGANIZATION AND QUALIFICATION. Each of Parent and Merger Sub is a corporation duly organized and validly existing under the laws of the state of its incorporation and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted or as contemplated herein. Merger Sub is a wholly-owned subsidiary of Parent. Section 3.02. AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Each of Parent and Merger Sub has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. This Agreement has been unanimously approved by the Board of Directors of each of Parent and Merger Sub, and by Parent as sole -10- stockholder in Merger Sub, and no other corporate proceedings on the part of either Parent or Merger Sub are necessary to authorize the execution and delivery of this Agreement or the consummation by each of Parent and Merger Sub of the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of Parent and Merger Sub, and, assuming the due authorization, execution and delivery hereof by the Company, constitutes a valid and legally binding agreement of each of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) general equitable principles. (b) The execution, delivery and performance of this Agreement by each of Parent and Merger Sub and the consummation of the transactions contemplated hereby do not and will not violate, conflict with or result in a breach of any provision of, 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 of, or accelerate the performance required by, or result in a right of termination or acceleration under, or require any offer to purchase or any prepayment of any debt or result in the creation of any lien, security interest or encumbrance upon any of the properties or assets of Parent or any of its subsidiaries under any of the terms, conditions or provisions of (i) the respective certificates of incorporation or by-laws or similar organizational documents of Parent, Merger Sub or any subsidiary of Parent, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to Parent, Merger Sub or any subsidiary of Parent or any of their respective properties or assets, subject in the case of consummation, to obtaining prior to the Acceptance Date the Parent Required Statutory Approvals, or (iii) any loan or credit agreement, bond, debenture, note, mortgage, indenture, guarantee, lease or other contract, commitment, obligation, undertaking, permit, concession, franchise or license, whether oral or written (each, including all amendments thereto, a "CONTRACT") to which Parent, Merger Sub or any subsidiary of Parent is a party or by which Parent, Merger Sub or any subsidiary of Parent or any of their respective properties or assets may be bound or affected, other than, in the case of (ii) and (iii) above, such violations, conflicts, breaches, defaults, terminations, accelerations, offers, prepayments or creations of liens, security interests or encumbrances that are not reasonably likely to have, individually or in the aggregate, a Parent Material Adverse Effect, or prevent or materially impede or delay the consummation of the Offer, the Merger or the other transactions contemplated hereby. For purposes of this Agreement, the term "PARENT MATERIAL ADVERSE EFFECT" shall mean any effect that is materially adverse to (i) the business, financial condition or operations of Parent and its subsidiaries, taken as a whole, or (ii) the ability of Parent or Merger Sub to consummate the transactions contemplated hereby, except, in the case of clause (i), for any such effect resulting from or arising out of the condition of the United States economy or financial markets generally, of from a condition generally affecting participants in the industry in which Parent competes. (c) Except for (i) the filings by Parent and Merger Sub required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), (ii) filings by Parent and Merger Sub required by, and approvals under, foreign antitrust and competition laws ("FOREIGN ANTITRUST LAWS"), (iii) the applicable requirements of the Exchange Act and the rules -11- and regulations promulgated thereunder, (iv) the filing and recordation of appropriate merger documents as required by the DGCL, (v) any filings with or approvals from authorities required solely by virtue of the jurisdictions in which the Company or its subsidiaries conduct any business or own any assets and (vi) any required filings with or approvals from applicable domestic or foreign environmental authorities (the filings and approvals referred to in clauses (i) through (vi) collectively referred to as the "PARENT REQUIRED STATUTORY APPROVALS"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by Parent or Merger Sub or the consummation by Parent and Merger Sub of the transactions contemplated hereby, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which are not material and which, if not made or obtained, as the case may be, individually and in the aggregate, would not impair in any material respect the ability of Parent or Merger Sub to perform its obligations under this Agreement or prevent or materially impede or delay the consummation of the Offer, the Merger and the other transactions contemplated hereby or subject Parent or any of its subsidiaries or any of its or their officers, directors or employees to any criminal liability. Section 3.03. INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed solely for the purpose of engaging in the transactions contemplated hereby and has engaged in no business and has incurred no liabilities other than in connection with the transactions contemplated by this Agreement. Section 3.04. CAPITAL RESOURCES. Parent has, and prior to the expiration of the Offer Merger Sub will have, sufficient cash resources to pay for all shares of Company Common Stock validly tendered into and not withdrawn from the Offer and to pay the Merger Consideration and all associated costs and expenses. Section 3.05. OFFER DOCUMENTS; PROXY STATEMENT. Neither the Offer Documents nor any information supplied by Parent or Merger Sub for inclusion in the Schedule 14D-9 will, at the time the Offer Documents, the Schedule 14D-9, or any amendments or supplements thereto, are filed with the SEC or are first published, sent or given to stockholders of the Company, as the case may be, 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 made therein, in the light of the circumstances under which they are made, not misleading. The information supplied by Parent for inclusion in any proxy statement to be sent to stockholders of the Company in connection with a meeting of the Company's stockholders to consider the Merger (the "COMPANY MEETING") (such proxy statement, as amended or supplemented, the "PROXY STATEMENT"), on the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Company, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, or shall, at the time of the Company Meeting, omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Company Meeting which shall have become false or misleading. Notwithstanding the foregoing, Parent and Merger Sub make no representation or warranty with respect to any information supplied by or on behalf of the Company which is contained in any of the Offer Documents, the Proxy Statement or any amendment or supplement thereto. The Offer -12- Documents shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder. Section 3.06. OWNERSHIP OF CAPITAL STOCK. Immediately prior to the execution and delivery of this Agreement, neither Parent nor any of its subsidiaries beneficially owned any shares of Company Common Stock. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Merger Sub that, except as set forth in the disclosure schedule dated as of the date hereof delivered by the Company to Parent and Merger Sub (the "COMPANY DISCLOSURE SCHEDULE"): Section 4.01. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and validly existing under the laws of the State of Delaware and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted or as contemplated herein. The Company is qualified to transact business and, where applicable, is in good standing in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except as is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. True, accurate and complete copies of the Company's Amended and Restated Certificate of Incorporation and Bylaws, in each case as in effect on the date hereof, including all amendments thereto, have heretofore been filed with the SEC or delivered to Parent. For purposes of this Agreement, the term "COMPANY MATERIAL ADVERSE EFFECT" shall mean any effect that is materially adverse to (i) the business, financial condition, operations or prospects of the Company and its subsidiaries, taken as a whole, or (ii) the ability of the Company to consummate the transactions contemplated hereby, except, in each case, for any such effect resulting from or arising out of (x) any employee attrition, including without limitation resignations or other terminations of employment of any employees of the Company, whether or not in the ordinary course of business, (y) the condition of the United States economy or financial markets generally, or (z) a condition generally affecting participants in the industry in which the Company competes. Section 4.02. CAPITALIZATION. (a) The authorized capital stock of the Company consists of 60,000,000 shares of Company Common Stock and 1,000,000 shares of preferred stock, par value $0.001 (the "COMPANY PREFERRED SHARES"). As of July 26, 2000, (i) 16,581,400 shares of Company Common Stock, including in each case the associated Company Rights (as defined in Section 4.02(b)), and no Company Preferred Shares, were issued and outstanding, all of which shares of Company Common Stock were validly issued and are fully paid, nonassessable and free of preemptive rights, (ii) not more than 44,400 shares of Company Common Stock were held in the treasury of the Company and (iii) 4,177,916 shares of Company Common Stock were reserved for issuance upon exercise of Company Stock Options and warrants issued and outstanding. Since July 26, 2000 through the date hereof, except as -13- permitted by this Agreement, (i) no shares of Company Common Stock have been issued, except in connection with the exercise of Company Stock Options or warrants issued and outstanding and except for shares of Company Common Stock required to be issued in connection with the Company's existing 401(k) Plan (the "401(k) PLAN") or Employee Stock Purchase Plan (the "ESPP") and (ii) no options, warrants, securities convertible into, or commitments with respect to the issuance of, shares of capital stock of the Company have been issued, granted or made except Company Rights in accordance with the terms of the Company Rights Agreement. (b) Except for (i) the Preferred Share Purchase Rights (the "COMPANY RIGHTS") issued pursuant to the Rights Agreement, as amended (the "COMPANY RIGHTS AGREEMENT"), dated as of June 26, 1997, by and between the Company and Harris Trust and Savings Bank (the "COMPANY RIGHTS AGENT"), as amended, (ii) Company Stock Options issued and outstanding, (iii) rights under the 401(k) Plan and the ESPP, and (iv) warrants to purchase a maximum of 3,375 shares of Company Common Stock, as of the date hereof, there were no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement and also including any rights plan or other anti-takeover agreement, obligating the Company or any subsidiary of the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Company Common Stock or obligating the Company or any subsidiary of the Company to grant, extend or enter into any such agreement or commitment. As of the date hereof, there are no obligations, contingent or otherwise, of the Company to (i) repurchase, redeem or otherwise acquire any shares of Company Common Stock or the capital stock or other equity interests of any subsidiary of the Company except in connection with the exercise of Company Stock Options issued and outstanding or (ii) (other than advances to subsidiaries in the ordinary course of business) provide material funds to, or make any material investment in (in the form of a loan, capital contribution or otherwise), or provide any guarantee with respect to the obligations of, any subsidiary of the Company or any other person. There are no outstanding stock appreciation rights or similar derivative securities or rights of the Company or any of its subsidiaries. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except as otherwise contemplated by this Agreement there are no voting trusts, irrevocable proxies or other agreements or understandings to which the Company or any subsidiary of the Company is a party or is bound with respect to the voting of any shares of Company Common Stock. The Board of Directors of the Company has taken all action to amend the Company Rights Agreement (subject only to execution of such amendment by the Company Rights Agent) to provide that, for so long as this Agreement is in full force and effect, (i) none of the Parent and its subsidiaries (including Merger Sub) shall become an "ACQUIRING PERSON" and no "STOCK ACQUISITION DATE" shall occur as a result of the execution, delivery and performance of this Agreement and the consummation of the Offer or the Merger, (ii) no "DISTRIBUTION DATE" shall occur as a result of the announcement of or the execution of this Agreement or any of the transactions contemplated hereby and (iii) each of Parent and Merger Sub will not be an Acquiring Person as a result of the transactions contemplated hereby. (c) The Company has filed with the SEC or previously made available to Parent complete and correct copies of the 1992 Stock Option Plan, the 1996 Non-Employee -14- Director Stock Option Plan, the 1997 Stock Option Plan, the 1999 Stock Plan and the 1999 Employee Stock Option Plan (the "COMPANY OPTION PLANS"), including all amendments thereto. Section 4.02(c) of the Company Disclosure Schedule contains a correct and complete list as of July 31, 2000 of each outstanding Company Stock Option, including the holder, date of grant, exercise price and number of Company Common Shares subject thereto, and setting forth the weighted average exercise price for all outstanding Company Stock Options. Section 4.03. SUBSIDIARIES. Each direct and indirect subsidiary of the Company is duly organized, validly existing and, where applicable, in good standing under the laws of its jurisdiction of incorporation and has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted and each subsidiary of the Company is qualified to transact business, and is in good standing, in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary; except in all cases as are not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. All of the outstanding shares of capital stock of each subsidiary of the Company are validly issued, fully paid, nonassessable and free of preemptive rights and are owned directly or indirectly by the Company. There are no subscriptions, options, warrants, voting trusts, proxies or other commitments, understandings, restrictions or arrangements relating to the issuance, sale, voting or transfer of any shares of capital stock of any subsidiary of the Company, including any right of conversion or exchange under any outstanding security, instrument or agreement. The Company has no material investment in any entity other than its subsidiaries. Section 4.04. AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) The Company has full corporate power and authority to enter into this Agreement and, subject to the approval of the stockholders of the Company if required by the DGCL (the "COMPANY STOCKHOLDER APPROVAL"), to consummate the transactions contemplated hereby. This Agreement has been approved by the Board of Directors of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement or, except for the Company Stockholder Approval, the consummation by the Company of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company, and, assuming the due authorization, execution and delivery hereof by Parent and Merger Sub, constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (ii) general equitable principles. (b) The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby do not and will not violate, conflict with or result in a breach of any provision of, 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 of, or accelerate the performance required by, or result in a right of termination or acceleration under, or require any offer to purchase or any prepayment of any debt or result in the creation of any lien, security interest or encumbrance upon any of the properties or assets of the Company or any of its subsidiaries under any of the terms, conditions or provisions of (i) the respective certificates of incorporation or bylaws or similar organizational documents of the Company or any of its subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment, -15- decree, order, injunction, writ, permit or license of any court or governmental authority applicable to the Company or any of its subsidiaries or any of their respective properties or assets, subject in the case of consummation, to obtaining (prior to the Acceptance Date) the Company Required Statutory Approvals and prior to the Effective Time, the Company Stockholder Approval, or (iii) any Contract to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties or assets may be bound or affected, other than, in the case of (ii) and (iii) above, such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests or encumbrances that are not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect or prevent or materially impede or delay the consummation of the Offer, the Merger or the other transactions contemplated hereby. (c) Except for (i) the filings by the Company required by the HSR Act, (ii) filings by the Company required by, and approvals under, Foreign Antitrust Laws, (iii) the applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder, (iv) the filing and recordation of appropriate merger documents as required by the DGCL, (v) any filings with or approvals from authorities required solely by virtue of the jurisdictions in which Parent or its subsidiaries conduct any business or own any assets and (vi) any required filings with or approvals from applicable domestic or foreign environmental authorities (the filings and approvals referred to in clauses (i) through (vi) collectively referred to as the "COMPANY REQUIRED STATUTORY APPROVALS"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which are not material and which, if not made or obtained, as the case may be, are not reasonably likely to prevent or materially impede or delay the consummation of the Offer, the Merger and the other transactions contemplated hereby or subject the Company or any of its subsidiaries or any its or their officers, directors or employees to any criminal liability. (d) The Board of Directors of the Company, at a meeting duly called and held, duly and unanimously, by all those present, adopted resolutions that are still in full force and effect as of the date hereof, (i) approving and declaring advisable the Offer, the Merger, this Agreement and the transactions contemplated hereby, (ii) declaring that it is in the best interests of the Company's stockholders that the Company enter into this Agreement and consummate the Offer and the Merger on the terms and subject to the conditions set forth in this Agreement, (iii) recommending that the Company's stockholders accept the Offer, tender their shares pursuant to the Offer and adopt this Agreement (if required by applicable law), (iv) approving the acquisition of the shares of the Company Common Stock by Merger Sub pursuant to the Offer and the other transactions contemplated by this Agreement and (v) exempting this Agreement and the transactions contemplated hereby from the restrictions of Section 203 of the DGCL. Section 4.05. REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1998, the Company has filed with the SEC all material forms, statements, reports and documents (including all exhibits, posteffective amendments and supplements thereto) (the "COMPANY SEC REPORTS") required to be filed by it under each of the Securities Act of 1933, as amended, the -16- Exchange Act and the respective rules and regulations thereunder, all of which, as amended if applicable, complied in all material respects with all applicable requirements of the appropriate act and the rules and regulations thereunder. As of their respective dates except as amended or supplemented prior to the date hereof, the Company SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The audited consolidated financial statements of the Company included in the Company's Annual Report on Form 10-K for the twelve months ended December 31, 1999 and the unaudited financial statements of the Company included in the Company's Quarterly Report on Form 10-Q (the "COMPANY 10-Q") for the quarterly period ended March 31, 2000 (collectively, the "COMPANY FINANCIAL STATEMENTS") have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present in all material respects the financial position of the Company and its subsidiaries as of the dates thereof and the results of their operations and changes in financial position for the periods then ended (subject, in the case of the unaudited financial statements, to normal year-end adjustments). The Company's Annual Report on Form 10-K for the twelve months ended December 31, 1999, the Company 10-Q and the Current Report on Form 8-K filed by the Company on June 5, 2000 are collectively referred to as the "COMPANY RECENT SEC REPORTS". Section 4.06. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the unaudited financial statements included in the Company 10-Q or in the Company Recent SEC Reports, neither the Company nor any of its subsidiaries had at March 31, 2000, or has incurred since that date, any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature, except (a) liabilities, obligations or contingencies (i) which are accrued or reserved against in the financial statements in the Company 10-Q or reflected in the notes thereto or (ii) which were incurred in the ordinary course of business and consistent with past practices, (b) liabilities, obligations or contingencies which (i) are not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect, or (ii) have been discharged or paid in full prior to the date hereof, and (c) liabilities, obligations and contingencies which are of a nature not required to be reflected in the consolidated financial statements of the Company and its subsidiaries prepared in accordance with GAAP consistently applied. Section 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1999, there has not occurred, and there is not currently existing, any circumstance or event that is reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. Section 4.08. LITIGATION. Except as disclosed in the Company Recent SEC Reports, as of the date hereof, there are no claims, suits, actions or proceedings pending, or, to the knowledge of the Company, threatened against, relating to or affecting the Company or any of its subsidiaries, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator that are reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect or that are reasonably likely to prevent or materially impede or delay the consummation of the Offer or the Merger. Neither the Company nor any of its subsidiaries is subject to any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or authority, or any -17- arbitrator which prohibits the consummation of the transactions contemplated hereby or is reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. Section 4.09. OFFER DOCUMENTS; PROXY STATEMENT. Neither the Schedule 14D-9 nor any information supplied by the Company for inclusion in the Offer Documents will, at the respective times the Schedule 14D-9, the Offer Documents or any amendments or supplements thereto are filed with the SEC or are first published, sent or given to stockholders of the Company, as the case may be, 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 made therein, in the light of the circumstances under which they are made, not misleading. The Proxy Statement will not, on the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Company, 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 made therein, in the light of the circumstances under which they are made, not misleading and will not, at the time of the Company Meeting, omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Company Meeting which shall have become false or misleading in any material respect. The Schedule 14D-9 and the Proxy Statement will, when filed by the Company with the SEC, comply as to form in all material respects with the applicable provisions of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to information supplied by or on behalf of Parent or Merger Sub which is contained in any of the foregoing documents. Section 4.10. NO VIOLATION OF LAW. Except as disclosed in the Company Recent SEC Reports, neither the Company nor any of its subsidiaries is in violation of, or has been given written notice that it is currently violating, any law, statute, order, rule, regulation, ordinance or judgment (including, without limitation, any applicable environmental law, ordinance or regulation) of any governmental or regulatory body or authority, except for violations which are not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. No investigation or review by any governmental or regulatory body or authority is pending or, to the knowledge of the Company, threatened, nor has any governmental or regulatory body or authority indicated an intention to conduct the same, other than, in each case, those the outcome of which, as far as reasonably can be foreseen, is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. The Company and its subsidiaries have all permits, licenses, franchises, variances, exemptions, orders and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted (collectively, the "COMPANY PERMITS"), except for permits, licenses, franchises, variances, exemptions, orders, authorizations, consents and approvals the absence of which is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. The Company and its subsidiaries are not in violation of the terms of any Company Permit, except for violations which are not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. Section 4.11. COMPLIANCE WITH AGREEMENTS. The Company and each of its subsidiaries are not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, would result in a default under, (a) the respective articles or certificates of incorporation, -18- bylaws or similar organizational instruments of the Company or any of its subsidiaries or (b) any Contract to which the Company or any of its subsidiaries is a party or by which any of them is bound or to which any of their property is subject, other than as is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. Section 4.12. TAXES. (a) The Company and its subsidiaries have (i) duly filed with the appropriate governmental authorities all Tax Returns required to be filed by them, and such Tax Returns are true, correct and complete, and (ii) duly paid in full all Taxes shown as due on such Tax Returns, except in each case where the failure to file such Tax Returns or pay such Tax or the failure of such Tax Returns to be true, correct and complete is not, individually or in the aggregate, reasonably likely to have a Company Material Adverse Effect. There are no material liens for Taxes upon any property or asset of the Company or any subsidiary thereof, except for liens for Taxes not yet due or Taxes contested in good faith and reserved against in accordance with GAAP. There are no unresolved issues of law or fact arising out of a notice of deficiency, proposed deficiency or assessment from the Internal Revenue Service (the "IRS") or any other governmental taxing authority with respect to Taxes of the Company or any of its subsidiaries which are reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. (b) For purposes of this Agreement, "TAX" (including, with correlative meaning, the terms "TAXES") includes all federal, state, local and foreign income, profits, franchise, gross receipts, environmental, customs duty, capital stock, communications services, severance, stamp, sales, unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts, and "TAX RETURN" means any return, report or similar statement (including attached schedules) required to be filed with respect to any Tax, including without limitation, any information return, claim for refund, amended return or declaration of estimated Tax. Section 4.13. EMPLOYEE BENEFIT PLANS; ERISA. (a) Section 4.13(a) of the Company Disclosure Schedule includes a complete list of each employee benefit plan, program or policy providing benefits to any current or former employee, officer or director of the Company or any of its subsidiaries or any beneficiary or dependent thereof that is sponsored or maintained by the Company or any of its subsidiaries or to which the Company or any of its subsidiaries contributes or is obligated to contribute (other than those programs or policies that do not provide material benefits and other than employee benefit plans, programs or policies providing benefits to non-U.S. employees of the Company), including without limitation any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA, and including any "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA (a "MULTIEMPLOYER PLAN")) and any material bonus, incentive, deferred compensation, vacation, stock purchase, stock option, stock based, severance, employment, change of control or fringe benefit agreement, plan, program or policy (collectively, the "COMPANY EMPLOYEE BENEFIT PLANS"). (b) With respect to each Company Employee Benefit Plan other than a Multiemployer Plan (a "COMPANY PLAN"), the Company has delivered or made available to -19- Parent a true, correct and complete copy of: (i) all plan documents and trust agreements; (ii) the most recent Annual Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current summary plan description, if any; (iv) the most recent annual financial report, if any; (v) the most recent actuarial report, if any; and (vi) the most recent determination letter from the IRS, if any. Except as specifically provided in the foregoing documents, or in other documents, delivered or made available to Parent, there are no amendments to any Company Plan that have been adopted or approved. (c) The IRS has issued a favorable determination letter with respect to each Plan that is intended to be a "qualified plan" within the meaning of Section 401(a) of the Code (a "QUALIFIED PLAN") and its related trust that has not been revoked, and there are no circumstances and no events have occurred that would reasonably be expected to result in a revocation of such letter, which cannot be cured without a Company Material Adverse Effect. (d) Except as is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect: (i) the Company and its subsidiaries have complied, and are now in compliance, with all provisions of ERISA, the Code and all laws and regulations applicable to the Company Employee Benefit Plans and each Company Plan has been administered in all material respects in accordance with its terms; (ii) none of the Company and its subsidiaries nor any other person, including any fiduciary, has engaged in any "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA), which could subject any of the Company Employee Benefit Plans or their related trusts, the Company, any of its subsidiaries or any person that the Company or any of its subsidiaries has an obligation to indemnify, to any tax or penalty imposed under Section 4975 of the Code or Section 502 of ERISA; (iii) there are no pending or, to the Company's knowledge, threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations which have been asserted or instituted against the Company Plans, any fiduciaries thereof with respect to their duties to the Company Plans or the assets of any of the trusts under any of the Company Plans which could reasonably be expected to result in any liability of the Company or any of its subsidiaries to the Pension Benefit Guaranty Corporation, the Department of Treasury, the Department of Labor, any Multiemployer Plan or any Plan. (e) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in, cause the accelerated vesting, funding or delivery of, or increase the amount or value of, any material payment or benefit to any employee, officer or director of the Company or any of its subsidiaries, or result in any limitation on the right of the Company or any of its subsidiaries to amend, merge, terminate or receive a reversion of assets from any Company Employee Benefit Plan or related trust. (f) No Company Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code, and none of the Company and its subsidiaries, nor any of their respective ERISA Affiliates, has, at any time during the last six years contributed to or been obligated to contribute to any plan subject to Title IV of ERISA. (g) No Company Employee Benefit Plan is a Multiemployer Plan, none of the Company and its subsidiaries nor any of their respective ERISA Affiliates has, at any time during the last six years, contributed to or been obligated to contribute to any Multiemployer -20- Plan, and none of the Company and its subsidiaries nor any ERISA Affiliates has incurred any withdrawal liability to a Company Multiemployer Plan that has not been satisfied in full. (h) Neither the Company nor any of its subsidiaries has any obligations for retiree health and life benefits under any Company Employee Benefit Plan, except as set forth in Section 4.13(h) of the Company Disclosure Schedule and except for obligations under Section 601 et. seq. of ERISA and Section 4980B of the Code ("COBRA"). (i) Except as is not reasonably likely to have a Company Material Adverse Effect, each employee benefit plan, program, policy or arrangement providing benefits to any current or former non-U.S. employee, officer or director of the Company or any of its subsidiaries or any beneficiary or dependent thereof that is sponsored or maintained by the Company or any of its subsidiaries to which the Company or any of its subsidiaries contributes or is obligated to contribute (the "FOREIGN PLAN"), is in compliance in all respects with applicable law and is being administered in accordance with its terms and all contributions required to be made to such Foreign Plans pursuant to applicable law have been made. Section 4.14. LABOR CONTROVERSIES. Except as is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect, (i) there is not pending or, to the knowledge of the Company, threatened, any labor strike, material dispute, walk-out, work stoppage, slow-down or lockout involving the Company or any of its subsidiaries, (ii) there are no controversies pending or, to the knowledge of the Company, threatened between the Company or its subsidiaries and any representatives (including unions) of any of their employees, and (iii) to the knowledge of the Company, there are no organizational efforts being made involving any of the presently unorganized employees of the Company or its subsidiaries. Section 4.15. ENVIRONMENTAL MATTERS. (a) (i) The Company and its subsidiaries have conducted their respective businesses in compliance with all applicable Environmental Laws, including, without limitation, having all permits, licenses and other approvals and authorizations necessary for the operation of their respective businesses as presently conducted, (ii) none of the properties owned by the Company or any of its subsidiaries contain any Hazardous Substance as a result of any activity of the Company or any of its subsidiaries in amounts exceeding the levels permitted by applicable Environmental Laws, (iii) since January 1, 1997, neither the Company nor any of its subsidiaries has received any notices, demand letters or requests for information from any federal, state, local or foreign governmental entity indicating that the Company or any of its subsidiaries may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of their businesses, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or threatened, against the Company or any of its subsidiaries relating to any violation, or alleged violation, of any Environmental Law, (v) no Hazardous Substance has been disposed of, released or transported in violation of any applicable Environmental Law, or in a manner giving rise to any liability under Environmental Law, from or on any properties owned by the Company or any of its subsidiaries as a result of any activity of the Company or any of its subsidiaries during the time such properties were owned, leased or operated by the Company or any of its subsidiaries and (vi) neither the Company, its subsidiaries nor any of their respective properties are subject to any material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment or claim -21- asserted or arising under any Environmental Law, except for violations of the foregoing clauses (i) through (vi) that are not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. (b) As used herein, "ENVIRONMENTAL LAW" means any federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction, requirement or agreement with any governmental entity relating to (x) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety, or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as in effect at the date hereof. (c) As used herein, "HAZARDOUS SUBSTANCE" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any Environmental Law. Hazardous Substance includes any substance to which exposure is regulated by any government authority or any Environmental Law including, without limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or byproduct thereof, radon, radioactive material, asbestos, or asbestos containing material, urea formaldehyde foam insulation or polychlorinated biphenyls. Section 4.16. INTELLECTUAL PROPERTY. Except as disclosed in Section 4.16 of the Company Disclosure Schedule, the Company and its subsidiaries own, or are licensed to use, all Intellectual Property used in and material to the conduct of the Company's business as it is currently conducted, and, to the knowledge of the Company, all material patents, trademarks, trade names, service marks and copyrights held by the Company and/or its subsidiaries are valid and subsisting. Except as disclosed in Section 4.16 of the Company Disclosure Schedule, to the Company's knowledge, the Company and its subsidiaries own or are licensed to use all Intellectual Property necessary to exploit the Company's or its subsidiaries' projects in development that have been disclosed in the Company SEC Reports or otherwise publicly announced. Except as is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect, (i) the use of the Intellectual Property by the Company and its subsidiaries does not infringe on or other otherwise violate the rights of any third party, and is in accordance in all material respects with the applicable license pursuant to which the Company acquired the right to use such Intellectual Property, (ii) to the knowledge of the Company, no third party is challenging, infringing on or otherwise violating any right of the Company in the Intellectual Property, and (iii) neither the Company nor any of its subsidiaries has received any written notice of any offer to license, pending claim, order or proceeding with respect to any unlicensed third party Intellectual Property used in and material to the conduct of the Company's business as it is currently conducted, and to the Company's knowledge no Intellectual Property is being used or enforced by the Company in a manner that would reasonably be expected to result in the abandonment, cancellation or unenforceability of any Intellectual Property used in and material to the conduct of the Company's business as it is currently conducted. For purposes of this Agreement, the term "INTELLECTUAL PROPERTY" means all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, technology, know-how, computer -22- software programs or applications, and tangible or intangible proprietary information or materials. Section 4.17. OPINION OF FINANCIAL ADVISOR. The Company's financial advisor, Goldman, Sachs & Co. (the "COMPANY FINANCIAL ADVISOR"), has delivered to the Board of Directors of the Company an oral opinion, to be confirmed in writing (the "FAIRNESS OPINION"), to the effect that, as of the date of this Agreement, 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. Section 4.18. BROKERS AND FINDERS. The Company has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of the Company to pay any investment banking fees, finder's fees, brokerage or agent commissions or other like payments in connection with the transactions contemplated hereby, other than fees payable to the Company Financial Advisor. A true and complete copy of any fee agreement with the Company Financial Advisor has been provided to Parent. Section 4.19. INSURANCE. All material fire and casualty, general liability, business interruption, product liability, and sprinkler and water damage insurance policies maintained by the Company or any of its subsidiaries are with reputable insurance carriers, provide full and adequate coverage for all normal risks incident to the business of the Company and its subsidiaries and their respective properties and assets. Section 4.20. TAKEOVER STATUTES. The Board of Directors of the Company has taken all actions necessary to exempt the Offer, the Merger, this Agreement and the transactions contemplated hereby under Section 203 of the DGCL. No other state takeover or similar statute or regulation is applicable to this Agreement, the Offer, the Merger or the other transactions contemplated hereby. Section 4.21. ESPP. The Company has amended the ESPP to delete Section 18(b) of the plan and to provide that participants shall not be allowed to make new deposits following the Acceptance Date (though participants shall be deemed to have exercised their rights to purchase shares of Company Common Stock with amounts remaining in their accounts immediately prior to the Effective Time and that the ESPP will terminate immediately prior to the Effective Time). ARTICLE V COVENANTS Section 5.01. CONDUCT OF BUSINESS PENDING THE MERGER. Except as otherwise contemplated by this Agreement, required by law or disclosed in Section 5.01 of the Company Disclosure Schedule, and except within the amounts and pursuant to the time schedules contemplated by the Company's annual budget or capital budget (copies of which have been delivered to Parent on or prior to the date of this Agreement), after the date hereof and prior to the Effective Time, without Parent's consent (which shall not be unreasonably withheld), the Company shall, and shall cause its subsidiaries to: -23- (a) conduct their respective businesses in the ordinary and usual course of business and consistent with past practice; (b) not (i) amend or propose to amend their respective certificates of incorporation or bylaws or equivalent constitutional documents, (ii) split, combine or reclassify their outstanding capital stock or (iii) declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise, except for the payment of dividends or distributions to the Company or a subsidiary of the Company by a subsidiary of the Company; (c) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any additional shares of, or any options, warrants or rights of any kind to acquire any shares of their capital stock of any class or any debt or equity securities convertible into or exchangeable for such capital stock, except that (i) the Company may issue shares of capital stock of the Company (A) upon exercise of Company Stock Options outstanding on the date hereof or hereafter granted in accordance with the provisions of subclause (ii) or (iii) of this clause (c), (B) in accordance with the 401(k) Plan, the ESPP and the Company Rights Agreement as in effect on the date hereof, and (C) upon exercise of warrants outstanding on the date hereof, and (ii) the Company may grant Company Stock Options to purchase in the aggregate with respect to all such Company Stock Options 100,000 shares of Company Common Stock in accordance with the terms of the Company Option Plans to persons who are not currently directors or officers of the Company or its subsidiaries consistent with past practice and with an exercise price per share of Company Common Stock no less than the fair market value of a share of Company Common Stock as of the date of grant and no new options will be allowed to accelerate as a result of the change of control caused by consummation of the Offer or the Merger; (d) not (i) incur or become contingently liable with respect to any indebtedness for borrowed money other than (A) borrowings in the ordinary course of business or borrowings under the existing credit facilities of the Company or any of its subsidiaries as such facilities may be amended or replaced in a manner that does not have a Company Material Adverse Effect (the "EXISTING CREDIT FACILITIES") up to the existing borrowing limit on the date hereof and (B) borrowings to refinance existing indebtedness, (ii) redeem, purchase, acquire or offer to purchase or acquire any shares of its capital stock or any options, warrants or rights to acquire any of its capital stock or any security convertible into or exchangeable for its capital stock other than in connection with the exercise of outstanding Company Stock Options and warrants pursuant to the terms of the Company Option Plans and the relevant written agreements evidencing the grant of Company Stock Options and warrants, or to use for the 401(k) Plan or the ESPP, (iii) make any material acquisition of any assets or businesses other than expenditures for current assets in the ordinary course of business and expenditures for fixed or capital assets in the ordinary course of business or (iv) sell, pledge, dispose of or encumber any material assets or businesses other than (A) sales of businesses or assets disclosed in the Company Disclosure Schedule, (B) pledges or encumbrances pursuant to Existing Credit Facilities or other permitted borrowings, (C) sales or dispositions of businesses or assets -24- as may be required by applicable law, (D) sales of inventory and other current assets, or (E) sales of idle facilities and related assets. (e) use reasonable best efforts to preserve intact their respective business organizations and goodwill, keep available the services of their respective present officers and key employees, and preserve the goodwill and business relationships with customers and others having business relationships with them other than as contemplated by the terms of this Agreement; (f) not enter into or amend any employment, severance, special pay arrangement with respect to termination of employment or other similar arrangements or agreements with any directors, officers or key employees or with any other persons, except pursuant to (i) applicable law; (ii) previously existing contractual arrangements or policies or (iii) employment agreements entered into with a person who is hired or promoted by the Company or one of its subsidiaries after the date hereof in the ordinary course of business; (g) not materially increase the salary or monetary compensation of any person except for increases in the ordinary course of business consistent with past practice or except pursuant to previously existing contractual arrangements; (h) not adopt, enter into or amend to materially increase benefits or obligations of any Company Plan, except (i) any of the foregoing involving any such then existing plans, agreements, trusts, funds or arrangements of any company acquired after the date hereof or (ii) as required pursuant to existing contractual arrangements or this Agreement; (i) not make capital expenditures, or enter into any binding commitment or contract to make such expenditures, in each case other than in the ordinary course of business; (j) not enter into any contract or commitment (i) providing for the provision of products by the Company or any of its subsidiaries that has a term of more than three years and which is reasonably expected to generate more than $2 million in revenues over its term or (ii) providing for the purchase of services by the Company or any of its subsidiaries that has a term of more than one year and which is reasonably expected to involve payments of more than $2 million over its term; (k) not make, change or revoke any material Tax election unless required by law or make any agreement or settlement with any taxing authority regarding any material amount of Taxes or which is reasonably likely to materially increase the obligations of the Company or the Surviving Corporation to pay Taxes in the future; or (l) enter into an agreement or arrangement with respect to any of the foregoing. Section 5.02. RESTRICTIONS ON PARENT AND THE COMPANY. (a) Parent agrees that, from and after the date hereof and prior to the Acceptance Date, and except as may be agreed in -25- writing by the Company or as may be expressly permitted pursuant to this Agreement (including the exercise of termination rights under this Agreement), Parent shall not, and shall not permit any of its subsidiaries to agree, in writing or otherwise, to take any action which would materially delay the consummation of the Offer, including by application of Rule 14e-5 under the Exchange Act. (b) The Company agrees that, from and after the date hereof and prior to the Acceptance Date, and except as may be agreed in writing by Parent or as may be expressly permitted pursuant to this Agreement (including any actions pursuant to Section 5.03 and including the exercise of termination rights under this Agreement), the Company shall not, and shall not permit any of its subsidiaries to agree, in writing or otherwise, to take any action which would materially delay the consummation of the Offer. Section 5.03. NO SOLICITATION. (a) After the date hereof and prior to the Effective Time or earlier termination of this Agreement, the Company shall not and shall not permit its subsidiaries to, and the Company shall use its reasonable best efforts to cause any officer, director or employee of the Company or any of its subsidiaries, and any attorney, accountant, investment banker, financial advisor or other agent retained by it or any of its subsidiaries, not to, directly or indirectly, initiate, solicit, encourage or negotiate or provide nonpublic or confidential information to facilitate, any proposal or offer (other than any proposal or offer by Parent or any of its subsidiaries) to acquire all or 15% or more of the business, properties or capital stock of the Company, whether by merger, purchase of assets, tender offer or otherwise, whether for cash, securities or any other consideration or combination thereof (any such transactions, other than any transaction involving Parent or any of its subsidiaries, being referred to herein as an "ACQUISITION TRANSACTION"). (b) Notwithstanding the provisions of paragraph (a) above or any other provision of this Agreement, prior to the Effective Time, the Company may, in response to an unsolicited bona fide written offer or proposal with respect to a potential or proposed Acquisition Transaction (an "ACQUISITION PROPOSAL") from a corporation, partnership, person or other entity or group (a "POTENTIAL ACQUIROR") which the Company's Board of Directors determines, in good faith and after consultation with its independent financial advisor and legal counsel, could reasonably be expected to lead to a Superior Proposal, furnish confidential or nonpublic information to, and engage in discussions and negotiate with, such Potential Acquiror, PROVIDED that the Company Board of Directors determines in good faith after consultation with outside legal counsel that such action is necessary in order for its directors to comply with their fiduciary duties under applicable law. For purposes of this Agreement, "SUPERIOR PROPOSAL" means an Acquisition Proposal which the Company's Board of Directors determines, in good faith and after consultation with its independent financial advisor and legal counsel, would, if consummated, likely provide consideration to the holders of Company Common Stock with greater financial value than the consideration payable in the Offer and the Merger. The Company agrees that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Acquisition Proposal. The Company agrees that it will take the necessary steps to promptly inform the individuals or entities referred to in Section 5.03(a) that have been engaged in connection with the evaluation of a possible Acquisition Transaction of the obligations undertaken in this Section 5.03. -26- (c) The Company shall promptly notify Parent after receipt of any Acquisition Proposal. Such notice to Parent shall be made orally and in writing and shall indicate in reasonable detail the identity of the offeror and the material terms and conditions of such proposal, to the extent known. The Company shall thereafter keep Parent informed, on a reasonably current basis, on the status and terms of any such Acquisition Proposal and the status of any discussion or negotiations with any Potential Acquiror related thereto. (d) At any time prior to the Effective Time, the Board of Directors of the Company may withdraw or modify the recommendation by the Board of Directors of the Company of this Agreement, the Offer or the Merger, if the Board of Directors of the Company determines in good faith (after consultation with outside counsel) that its fiduciary obligations require it to do so. (e) Nothing contained in this Section 5.03 or any other provision of this Agreement shall prohibit the Company or the Board of Directors of the Company from (i) taking and disclosing to the Company's stockholders a position with respect to a tender or exchange offer by a third party pursuant to Rule 14d-9 and 14e-2 promulgated under the Exchange Act or (ii) making such disclosure to the Company's stockholders as, in the good faith judgment of the Board of Directors of the Company, with the advice of outside counsel, is required under applicable law. Section 5.04. ACCESS TO INFORMATION; CONFIDENTIALITY. (a) Except for competitively sensitive information as to which access, use and treatment is covered by Section 5.04(b), and subject to applicable law, the Company and its subsidiaries shall afford to Parent and Merger Sub and their respective accountants, counsel, financial advisors and other representatives (the "PARENT REPRESENTATIVES") reasonable access during normal business hours upon reasonable notice throughout the period prior to the Effective Time to their respective properties, books, contracts, commitments and records and, during such period, shall furnish promptly such information concerning its businesses, properties and personnel as Parent or Merger Sub shall reasonably request; PROVIDED, HOWEVER, such investigation shall not unreasonably disrupt the Company's operations. All nonpublic information provided to, or obtained by, Parent in connection with the transactions contemplated hereby shall be "Evaluation Material" for purposes of the Confidentiality Agreement dated August 8, 2000 between Parent and the Company (the "CONFIDENTIALITY AGREEMENT"), the terms of which shall continue in force until the Effective Time; PROVIDED that Parent, Merger Sub and the Company may disclose such information as may be necessary in connection with seeking the Parent Required Statutory Approvals, the Company Required Statutory Approvals and the Company Stockholder Approval. Notwithstanding the foregoing, the Company shall not be required to provide any information which it reasonably believes it may not provide to Parent by reason of applicable law, rules or regulations, which constitutes information protected by attorney/client privilege, or which the Company or any subsidiary is required to keep confidential by reason of contract, agreement or understanding with third parties. No investigation pursuant to this Section 5.04(a) shall affect any representation or warranty in this Agreement of any party hereto or any condition to the obligations of the parties hereto. (b) As promptly as possible following the date hereof the parties intend to establish an appropriate protocol which shall remain in place until the expiration of the -27- applicable waiting periods under the HSR Act pursuant to which the Company may disclose to a limited number of representatives of the Parent confidential information which is competitively sensitive in nature for the purpose of preparing filings required under the HSR Act, and otherwise consistent with the advice of the parties outside antitrust counsel. Any such information shall be "Evaluation Material" for purposes of the Confidentiality Agreement. The Company and Parent may, as each deems advisable and necessary, reasonably designate any competitively sensitive material provided to the other under this Section as "outside counsel only." Such materials and the information contained therein shall be given only to the outside legal counsel of the recipient and will not be disclosed by such outside counsel to employees, officers or directors of the recipient unless express permission is obtained in advance from the source of such materials (the Company or Parent as the case may be) or its legal counsel. Section 5.05. MERGER SUB. Parent will take all action necessary (a) to cause Merger Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement and (b) to ensure that, prior to the Effective Time, Merger Sub shall not conduct any business or make any investments other than as specifically contemplated by this Agreement, or incur or guarantee any indebtedness. Section 5.06. EMPLOYEE BENEFITS. (a) Parent agrees that the Company will honor, and from and after the Effective Time, Parent and its Affiliates shall honor, all Company Employee Benefit Plans in accordance with their terms as in effect immediately before the Acceptance Date, subject to any amendment or termination thereof that may be permitted by such terms and provided that nothing in this sentence shall prevent Parent or the Surviving Corporation from replacing the Company's existing Company Employee Benefit Plans as contemplated by and in accordance with the following sentence. Through December 31, 2001, Parent shall provide, or shall cause to be provided, to current and former employees of the Company and its subsidiaries (the "COMPANY EMPLOYEES") compensation and employee benefits that are, in the aggregate, not less favorable than those provided to Company Employees immediately before the Acceptance Date. The foregoing shall not be construed to prevent the termination of employment of any Company Employee or the amendment or termination of any particular Company Employee Benefit Plan to the extent permitted by its terms as in effect immediately before the Acceptance Date. (b) For purposes of eligibility and vesting and levels of benefits under the employee benefit plans of Parent and its Affiliates providing benefits to any Company Employees after the Acceptance Date (the "NEW PLANS"), each Company Employee shall be credited with his or her years of service with the Company and its Affiliates before the Effective Time, to the same extent as such Company Employee was entitled, before the Effective Time, to credit for such service under any similar Company Employee Benefit Plans, except to the extent such credit would result in a duplication of benefits. In addition, and without limiting the generality of the foregoing: (i) each Company Employee shall be immediately eligible to participate, without any waiting time, in any and all New Plans to the extent coverage under such New Plan replaces coverage under a comparable Company Employee Benefit Plan in which such Company Employee participated immediately before the Effective Time (such plans, collectively, the "OLD PLANS"); and (ii) for purposes of each New Plan providing medical, dental, pharmaceutical and/or vision benefits to any Company Employee, Parent shall cause all pre- -28- existing condition exclusions and actively-at-work requirements of such New Plan to be waived for such employee and his or her covered dependents, and Parent shall cause any eligible expenses incurred by such employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the date such employee's participation in the corresponding New Plan begins to be taken into account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan. (c) Parent hereby acknowledges that the transactions contemplated by this Agreement shall constitute a "change of control" under the Company Employee Benefit Plans, as applicable. (d) Parent hereby acknowledges that the executives listed on Section 5.06(d) of the Company Disclosure Schedule shall have "Good Reason" under their employment agreements as of the Acceptance Date and shall be eligible to terminate employment and receive severance benefits for a "Good Reason" termination following the Acceptance Date. Parent and the Company acknowledge that none of such executives is a participant on his own behalf with respect to the transactions contemplated by this Agreement. Section 5.07. PROXY STATEMENT. As promptly as practicable after the consummation of the Offer and if required by the Exchange Act, the Company shall prepare and file with the SEC, and shall use all reasonable efforts to have cleared by the SEC, and promptly thereafter shall mail to stockholders, the Proxy Statement. Parent and Merger Sub agree to cooperate with the Company in the preparation of the Proxy Statement and other proxy solicitation materials of the Company. Subject to the fiduciary duties of the Company's Board of Directors, the Proxy Statement shall contain the recommendation of the Company's Board of Directors that the Company's stockholders approve this Agreement and the Merger. Section 5.08. COMPANY MEETING. Following the consummation of the Offer, the Company shall promptly take all action necessary in accordance with the DGCL and its Certificate of Incorporation and By-Laws to convene the Company Meeting, if such meeting is required. The stockholder vote required for approval of the Merger will be no greater than that set forth in the DGCL. The Company shall use its reasonable efforts to solicit from stockholders of the Company proxies in favor of the Merger and shall take all other action necessary or, in the reasonable opinion of Parent, advisable to secure any vote of stockholders required by the DGCL to effect the Merger. Notwithstanding the foregoing, if Merger Sub or any other subsidiary of Parent shall acquire at least 90 percent of the outstanding shares of Company Common Stock, and PROVIDED that the conditions set forth in Article VI shall have been satisfied or waived, the Company shall, at the request of Parent, take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after such acquisition, without the approval of the stockholders of the Company, in accordance with Section 253 of the DGCL. Parent shall vote, or shall cause to be voted, all of the shares of Company Common Stock acquired in the Offer or otherwise owned by it or any of its subsidiaries (including Merger Sub) in favor of the approval and adoption of this Agreement and the Merger. -29- Section 5.09. PUBLIC ANNOUNCEMENTS. Parent and the Company will consult with each other before issuing any press release or making any public statement with respect to this Agreement and the transactions contemplated hereby and, except as may be required by applicable law or any listing agreement with Nasdaq, will not issue any such press release or make any such public statement prior to such consultation. Section 5.10. EXPENSES AND FEES. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, except that those expenses incurred in connection with printing and filing the Proxy Statement shall be equally borne by Parent and the Company. Section 5.11. AGREEMENT TO COOPERATE. (a) Subject to the terms and conditions of this Agreement and applicable law, Parent and the Company shall use all reasonable efforts to take, or cause to be taken, all action and do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including to obtain all necessary or appropriate waivers, consents or approvals of third parties required in order to preserve contractual relationships of Parent and the Company and their respective subsidiaries, all necessary or appropriate waivers, consents and approvals to effect all necessary registrations, filings and submissions and to lift any injunction or other legal bar to consummation of the Offer or the Merger (and, in such case, to proceed with the consummation of the Offer and the Merger as expeditiously as possible), including through all possible appeals. (b) In addition to and without limitation of the foregoing, each of Parent and the Company undertakes and agrees to file (and Parent agrees to cause any person or entity that may be deemed to be the ultimate parent entity or otherwise to control Parent to file, if such filing is required by law) as soon as practicable, and in any event prior to five business days after the date hereof, a Notification and Report Form under the HSR Act with the United States Federal Trade Commission and the Antitrust Division of the United States Department of Justice (and shall file as soon as practicable any form or report required by any other Governmental Agency relating to antitrust matters). Each of Parent and the Company shall (and Parent shall cause any such parent entity to) (i) respond as promptly as practicable to any inquiries or requests received from any domestic or foreign government or governmental agency or authority (each, a "GOVERNMENTAL AGENCY") for additional information or documentation, and (ii) not extend any waiting period under the HSR Act or enter into any agreement with any Governmental Agency not to consummate the transactions contemplated by this Agreement, except with the prior consent of the other parties hereto (which shall not be unreasonably withheld or delayed). Parent shall (and shall cause any such parent entity to) offer to take (and if such offer is accepted, commit to take) all steps that it is capable of taking to avoid or eliminate impediments under any antitrust, competition, or trade regulation law that may be asserted by any Governmental Agency with respect to the Offer or the Merger so as to enable the Acceptance Date to occur no later than the date that is six months after the date hereof (the "OUTSIDE DATE"), other than any such actions that are reasonably likely to have, individually or in the aggregate, a material adverse effect on the business, financial condition or results of operations of Parent and its subsidiaries, taken as a whole, and shall defend through litigation on the merits any claim asserted in any court by any party, including appeals. In addition to and without limiting the foregoing, Parent shall (and shall cause any such parent entity to) propose, -30- negotiate, offer to commit and effect (and if such offer is accepted, commit to and effect), by consent decree, hold separate order, or otherwise, the sale, divestiture or disposition of such assets or businesses of Parent (or any such parent entity) or its (or their) subsidiaries or, effective as of the Effective Time, the Surviving Corporation or its subsidiaries, or otherwise offer to take or offer to commit to take any action which it is capable of taking and, if the offer is accepted, take or commit to take such action that limits its freedom of action with respect to, or its ability to retain, any of the businesses, services or assets of Parent, any such parent entity, the Surviving Corporation or their respective subsidiaries, in order to avoid the filing of any suit or proceeding or the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any suit or proceeding, which would otherwise have the effect of preventing or delaying the occurrence of the Acceptance Date beyond the Outside Date, or which may be necessary to allow the Acceptance Date to occur prior to the Outside Date; PROVIDED that nothing in this sentence shall require the Parent to take or agree to take any action or actions that are reasonably likely to have, individually or in the aggregate, a material adverse effect on the business, financial condition or results of operations of Parent and its subsidiaries, taken as a whole, and PROVIDED, FURTHER, that any such action may be conditioned upon the occurrence of the Acceptance Date. At the request of Parent, the Company shall agree to divest, hold separate or otherwise take or commit to take any action that limits its freedom of action with respect to, or its ability to retain, any of the businesses, services or assets of the Company or any of its subsidiaries, PROVIDED that any such action may be conditioned upon the consummation of the Merger and the transactions contemplated hereby. Each party shall (i) promptly notify the other party of any written communication to that party or its affiliates from any Governmental Agency and, subject to applicable law, permit the other party to review in advance any proposed written communication to any of the foregoing; (ii) not agree to participate, or to permit its affiliates to participate, in any substantive meeting or discussion with any Governmental Agency in respect of any filings, investigation or inquiry concerning this Agreement or the Merger unless it consults with the other party in advance and, to the extent permitted by such Governmental Agency, gives the other party the opportunity to attend and participate thereat; and (iii) to the extent permitted under applicable law, furnish the other party with copies of all correspondence, filings, and communications (and memoranda setting forth the substance thereof) between them and their affiliates and their respective representatives on the one hand, and any government or regulatory authority or members or their respective staffs on the other hand, with respect to this Agreement and the Merger. Section 5.12. DIRECTORS' AND OFFICERS' INDEMNIFICATION. (a) The indemnification provisions of the Company's Certificate of Incorporation or Bylaws as in effect at the Acceptance Date shall not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at the Effective Time were directors, officers, employees or agents of the Company. From and after the Acceptance Date, Parent shall assume, be jointly and severally liable for, and honor, guaranty and stand surety for, and shall cause the Company to honor, in accordance with their respective terms, each of the covenants contained in this Section 5.12, without limit as to time. (b) From and after the Acceptance Date, each of Parent and the Company and, from and after the Effective Time, the Surviving Corporation, shall, to the fullest extent permitted under applicable law, indemnify and hold harmless each present and former director, -31- officer, employee and agent of the Company or any of its subsidiaries (each, together with such person's heirs, executors or administrators, an "INDEMNIFIED PARTY" and collectively, the "INDEMNIFIED PARTIES") against any costs or expenses (including advancing attorneys' fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each Indemnified Party to the fullest extent permitted by law), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of, relating to or in connection with any action or omission occurring or alleged to occur prior to the Effective Time (including, without limitation, acts or omissions in connection with such persons serving as an officer, director or other fiduciary in any entity if such service was at the request or for the benefit of the Company) or the Merger or the other transactions contemplated by this Agreement or arising out of or pertaining to the transactions contemplated by this Agreement to the fullest extent that the Company would have been permitted under Delaware law and the Company's Certificate of Incorporation and By-laws in effect on the date of this Agreement. (c) For a period of six years after the Effective Time, Parent shall cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by the Company and its subsidiaries (PROVIDED that Parent may substitute therefor policies of at least the same coverage and amounts containing terms and conditions that are no less advantageous to the Indemnified Parties, and which coverages and amounts shall be no less than the coverages and amounts provided at that time for Parent's directors and officers) with respect to matters arising on or before the Effective Time; PROVIDED, HOWEVER, that if the existing current policies expire, are terminated or cancelled during such six-year period, Parent will use its reasonable efforts to obtain as much coverage as can be obtained for the remainder of such period for a premium not in excess (on an annualized basis) of two times the premiums paid the Company as of the date of this Agreement. (d) Parent shall pay all reasonable expenses, including reasonable attorneys' fees, that may be incurred by any Indemnified Party in enforcing the indemnity and other obligations provided in this Section 5.12. (e) The rights of each Indemnified Party hereunder shall be in addition to, and not in limitation of, any other rights such Indemnified Party may have under the Certificate of Incorporation or Bylaws of the Company, any other indemnification arrangement, the DGCL or otherwise. The provisions of this Section 5.12 shall survive the consummation of the Merger and expressly are intended to benefit each of the Indemnified Parties. Section 5.13. SECTION 16 MATTERS. Prior to the Acceptance Date, Parent and the Company shall take all such steps as may be required and permitted to cause the transactions contemplated by this Agreement, including any dispositions of shares of Company Common Stock (including derivative securities with respect to shares of Company Common Stock) by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company to be exempt under Rule 16b-3 promulgated under the Exchange Act. -32- Section 5.14. FURTHER ASSURANCES. Each party hereby agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. ARTICLE VI CONDITIONS TO THE MERGER Section 6.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The respective obligations of the Company, Parent and Merger Sub to consummate the Merger are subject to the satisfaction on or prior to the Closing Date of the following conditions: (a) Merger Sub shall have purchased shares of Company Common Stock pursuant to the Offer, except that this condition shall not be a condition to Parent's and Merger Sub's obligation to effect the Merger if Merger Sub shall have failed to purchase shares of Company Common Stock pursuant to the Offer in breach of (or as a result of Parent's breach of) this Agreement; (b) this Agreement and the Merger shall have been approved and adopted by the requisite vote of the stockholders of the Company, if required by the DGCL; (c) no judgment, injunction, order or decree of a court or governmental agency or authority of competent jurisdiction shall be in effect which has the effect of making the Merger illegal or otherwise restraining or prohibiting the consummation of the Merger; PROVIDED, HOWEVER, that no party may rely on this condition if it is in breach of its obligations under Section 5.11 hereof and such breach has, directly or indirectly, resulted in such judgment, injunction, order or decree being in effect; and (d) (i) any waiting period applicable to consummation of the Merger under the HSR Act and Foreign Antitrust Laws shall have expired or been terminated and (ii) all approvals required under Foreign Antitrust Laws before consummation of the Merger shall have been obtained, except in the case of (i) and (ii) above, such waiting periods (other than the HSR Act) or approvals the failure of which to expire or be obtained is not reasonably likely to have a Parent Material Adverse Effect or a Company Material Adverse Effect or to provide a reasonable basis to conclude that the parties hereto or any of their respective directors, officers, agents, advisors or other representatives would be subject to the risk of criminal liability. ARTICLE VII TERMINATION Section 7.01. TERMINATION. This Agreement may be terminated and the Offer and the Merger contemplated hereby may be abandoned at any time prior to the Effective Time (notwithstanding any approval of this Agreement by the stockholders of the Company): -33- (a) by mutual written consent of the Company (including, from and after the Acceptance Date, the Independent Director Approval contemplated by Section 1.03(c)) and Parent; (b) by either Parent or the Company: (i) if Merger Sub shall not have accepted for payment any shares of Company Common Stock pursuant to the Offer prior to the date that is twenty business days following the Outside Date (the "DROP DEAD DATE"); PROVIDED that (A) if at such date the waiting period applicable to the consummation of the Offer or the Merger under the HSR Act or any Foreign Antitrust Law shall not have expired or been terminated, or any approval required under any Foreign Antitrust Law shall not have been obtained (except for such waiting periods (other than under the HSR Act) or approvals the failure of which to expire or be obtained is not reasonably likely to have a Parent Material Adverse Effect or a Company Material Adverse Effect or to provide a reasonable basis to conclude that the parties hereto or any of their respective directors, officers, agents, advisors or other representatives would be subject to the risk of criminal liability), the Drop Dead Date may be extended to the date that is three months from such twentieth business day following the Outside Date (the "EXTENDED DROP DEAD DATE") by Parent or the Company by written notice to the other party, PROVIDED that the party extending the Drop Dead Date has a reasonable expectation, assuming that all other parties comply with their obligations under this Agreement, that the applicable waiting period or approval will have expired or been terminated or obtained, as the case may be, on or prior to such Extended Drop Dead Date and (B) the right to terminate this Agreement pursuant to this Section 7.01(b)(i) shall not be available to any party whose breach of this Agreement has been the cause of, or resulted in, the failure of shares of Company Common Stock to have been purchased pursuant to the Offer by the Drop Dead Date; or (ii) if any governmental entity shall have issued an order, injunction or other decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for the Company Common Stock pursuant to the Offer or the Merger and such order, injunction, decree or ruling or other action shall have become final and nonappealable; PROVIDED, that the party seeking to terminate this Agreement pursuant to this Section 7.01(b) shall have used its reasonable best efforts to remove such order, decree, ruling or injunction and shall not be in violation of Section 5.11; (c) prior to the Acceptance Date by Parent if the Company shall have breached any of its representations, warranties or covenants contained in this Agreement, which breach would give rise to the failure of a condition set forth in paragraph (c) or (d) of Exhibit A and which breach has not been or is incapable of being cured by the Company prior to the Drop Dead Date; -34- (d) prior to the Acceptance Date by the Company if Parent or Merger Sub shall have breached in any material respect any of its obligations to be performed by either of them under this Agreement, or if the representations and warranties of Parent and Merger Sub contained in this Agreement shall not be true and correct, except for such failures to be true and correct that, individually and in the aggregate, are not reasonably likely to have a Parent Material Adverse Effect; (e) prior to the Acceptance Date by the Company if (i) the Company is not in material breach of Section 5.03(a), (ii) the Board of Directors of the Company authorizes the Company, subject to complying with the terms of this Agreement, to enter into a binding written agreement concerning a transaction that constitutes a Superior Proposal and the Company gives Parent notice (which may be revoked by the Company by a subsequent notice to that effect) in writing that it intends to enter into such an agreement, attaching the most current version of such agreement to such notice, (iii) Parent does not make, within three business days of receipt of the Company's written notification of its intention to enter into a binding agreement for Superior Proposal, an offer that the Board of Directors of the Company determines, in good faith after consultation with its financial advisors, is at least as favorable from a financial point of view, to the stockholders of the Company as the Superior Proposal and (iv) the Company prior to or concurrently with such termination pays to Parent in immediately available funds the Termination Fee (as defined in Section 8.01(b)) and acknowledges in writing to Parent its obligation to pay to Parent the Reimbursable Expenses (as defined in Section 8.01(b)) in accordance with Section 8.01(c). The Company agrees (i) that it will not enter into a binding agreement referred to in clause (ii) above until at least the fourth business day after it has provided the notice (which has not been revoked) to Parent required thereby and (y) to notify Parent promptly if its intention to enter into a written agreement referred to in its notification shall change at any time after giving such notification; (f) prior to the Acceptance Date by Parent, if (i) the Board of Directors of the Company shall have failed to recommend, or shall have withdrawn, adversely modified or adversely amended in any material respect its approval or recommendation of the Offer, the Merger or this Agreement to the Company's stockholders or fails to reconfirm its recommendation of this Agreement within five business days after a written request from Parent to do so, it being understood that (x) the fact that the Company or any of the other Persons described in Section 5.03(a) has taken any of the actions that would be proscribed by Section 5.03(a) but for Section 5.03(b) and disclosure of such fact, (y) disclosure of any competing proposal that is not being recommended by the Board of Directors of the Company, or (z) disclosure of any other facts or circumstances, in each case together with a statement that the Board of Directors of the Company continues to recommend the Offer, the Merger and this Agreement, shall not be considered to be a withdrawal, adverse modification or adverse amendment in any material respects of such approval or recommendation or a failure to reconfirm its recommendation of this Agreement; or (ii) the Company shall have entered into a definitive agreement for a Superior Proposal; (g) by the Company if as the result of the failure to be satisfied of any of the conditions set forth in Exhibit A, Parent or Merger Sub shall have terminated or withdrawn the Offer or the Offer shall have expired without Merger Sub having purchased any Shares pursuant thereto; PROVIDED, HOWEVER, that the Company may not terminate this Agreement pursuant to this -35- Section 7.01(g) if the failure of any such condition to be satisfied at the time of such termination results from (i) the Company's failure to perform any of its obligations under this Agreement or (ii) facts or circumstances that constitute a breach of any representation or warranty of the Company under this Agreement; (h) by Parent if the Offer shall have expired without Merger Sub having purchased any Shares pursuant thereto; PROVIDED, HOWEVER, that Parent may not terminate this Agreement pursuant to this Section 7.01(h) if Merger Sub has failed to extend the Offer at any time that it is required to do so under this Agreement or if the failure of any conditions to the Offer to be satisfied at the time of such termination results from (i) Parent's failure to perform any of its obligations under this Agreement or (ii) facts or circumstances that constitute a breach of any representation or warranty of Parent under this Agreement; or (i) by the Company if Parent or Merger Sub shall have failed to commence the Offer in accordance with the Section 1.01; PROVIDED, HOWEVER, that the Company may not terminate this Agreement pursuant to this Section 7.01(i) if such failure to have commenced the Offer shall have been caused by (i) the Company's failure to perform any of its obligations under this Agreement, (ii) facts or circumstances that constitute a breach of any representation or warranty of the Company under this Agreement or (iii) the occurrence of any of the events specified in paragraph (b), (c) or (d) of Exhibit A. ARTICLE VIII MISCELLANEOUS Section 8.01. EFFECT OF TERMINATION. (a) In the event of termination of this Agreement by either Parent or the Company prior to the Acceptance Date pursuant to the provisions of Section 7.01, this Agreement shall forthwith become void, and there shall be no liability or further obligation on the part of the Company, Parent, Merger Sub or their respective officers or directors (except as set forth in this Section 8.01, in the second sentence of Section 5.04 and in Sections 5.10 and 8.05, all of which shall survive the termination). Nothing in this Section 8.01 shall relieve any party from liability for any willful or material breach of any covenant or agreement of such party contained in this Agreement. (b) In the event that this Agreement is terminated (i) by the Company pursuant to Section 7.01(g) or by Parent pursuant to Section 7.01(h), and prior to any such termination (but after the date hereof) (A) an Acquisition Proposal shall have been made to the Company or any of its subsidiaries or any of its stockholders and shall have been announced publicly or (B) any Person shall have publicly announced an intention (whether or not conditional) to make an Acquisition Proposal with respect to the Company or any of its subsidiaries, or (ii) by Parent pursuant to Section 7.01(f)(i), and in each case within 12 months after any such termination the Company enters into a definitive agreement (which is reasonably capable of being consummated within 18 months of such termination) with respect to or consummates a transaction contemplated by such Acquisition Proposal, then the Company shall promptly, but in no event later than two days after the date of entering into (or, if earlier, consummating) such transaction, pay Parent a termination fee of $25,000,000 (the "TERMINATION FEE") and shall promptly, but in no event later than two days after being notified of such by -36- Parent, pay all of the reasonable, documented charges and expenses, including those of the Paying Agent, incurred by Parent or Merger Sub in connection with this Agreement and the transactions contemplated by this Agreement up to a maximum amount of $3,100,000 (the "REIMBURSABLE EXPENSES") (upon receipt of reasonable documentation with respect thereto), in each case payable by wire transfer of same day funds. (c) In the event that this Agreement is terminated (i) by the Company pursuant to Section 7.01(e) or by Parent pursuant to Section 7.01(f)(ii), the Company shall, in the case of termination by the Company, prior to or concurrently with such termination, and in the case of termination by Parent, promptly but in no event later than two days after the date of such termination, pay Parent the Termination Fee and in each case shall promptly, but in no event later than two days after being notified of such by Parent, pay Parent the Reimbursable Expenses (upon receipt of reasonable documentation with respect thereto), in each case payable by wire transfer of same day funds. (d) The Company acknowledges that the Agreements contained in Section 8.01(b) and (c) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Parent and Merger Sub would not enter into this Agreement; accordingly, if the Company fails to promptly pay the amount due pursuant to Section 8.01(b) or (c), and, in order to obtain such payments, Parent or Merger Sub commences a suit which results in a judgment against the Company for the fee set forth in Section 8.01 (b) or (c), the Company shall pay to Parent or Merger Sub its costs and expenses (including attorneys' fees) in connection with such suit, together with interest on the amount of the fee at the prime rate of Bank of America, N.A. in effect on the date such payment was required to be made. Section 8.02. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representations or warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Acceptance Date, with respect to representations and warranties of the Company, or the Effective Time, with respect to representations and warranties of Parent and Merger Sub. This Section 8.02 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after such time. Section 8.03. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, mailed by registered or certified mail (return receipt requested) or sent via facsimile to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Parent or Merger Sub, to: Chiron Corporation 4560 Horton Street Emeryville, California 94608-2916 Attention: Sean Lance, Chairman and CEO William Green, Senior Vice President and General Counsel Facsimile: (510) 654-5360 -37- with copies to: Sullivan & Cromwell 1888 Century Park East Los Angeles, California 90067 Attention: Alison S. Ressler, Esq. Facsimile: (310) 712-8800 If to the Company, to: PathoGenesis Corporation 5215 Old Orchard Road Suite 900 Skokie, Illinois 60077 Attention: Wilbur H. Gantz, Chairman and CEO Cameron S. Avery, General Counsel Facsimile: (847) 583-5409 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019-6150 Attention: David M. Silk, Esq. Facsimile: (212) 403-2000 Section 8.04. INTERPRETATION. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In this Agreement, unless a contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision, (ii) "knowledge" shall mean actual knowledge of the executive officers of the Company or Parent, as the case may be, and (iii) reference to any Article or Section means such Article or Section hereof. No provision of this Agreement shall be interpreted or construed against any party hereto solely because such party or its legal representative drafted such provision. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Section 8.05. MISCELLANEOUS. This Agreement (including the documents and instruments referred to herein) shall not be assigned by operation of law or otherwise except that Merger Sub may assign its obligations under this Agreement to any other wholly-owned subsidiary of Parent subject to the terms of this Agreement. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO -38- CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE. Section 8.06. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 8.07. AMENDMENTS; EXTENSIONS. (a) This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after the Company Stockholder Approval has been obtained; PROVIDED that, (i) after Acceptance Date, (A) no amendment shall be made which decreases the Merger Consideration and (B) any amendment will require the Independent Director Approval contemplated by Section 1.03 and (ii) after the Company Stockholder Approval has been obtained, there shall be made no amendment that by law requires further approval by stockholders of the Company without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. (b) At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors (which after the Acceptance Date will require, with respect to the Company, the Independent Director Approval contemplated by Section 1.03), may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein; PROVIDED that after the Company Stockholder Approval has been obtained, there shall be made no waiver that by law requires further approval by stockholders of the Company without the further approval of such stockholders. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure or delay of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. Section 8.08. ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by either party hereto. Neither this Agreement nor any provision hereof is intended to confer upon any person other than the parties hereto any rights or remedies hereunder except for the provisions of Sections 5.06(d) and 5.12, which are intended for the benefit of the Company's former and present officers, directors, employees and agents. Section 8.09. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or unenforceable, all other provisions of this Agreement shall remain in full force and effect so long as the economic or legal substance of the -39- transactions contemplated hereby is not affected in any manner materially adverse to any party. Section 8.10. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event any of the provisions of this Agreement were not to be performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof in addition to any other remedies at law or in equity. Section 8.11. NO ADMISSION. Nothing herein, including Section 4.11, shall be deemed an admission by the Company, in any action or proceeding by or on behalf of a third-party, that such third-party is not in breach or violation of, or in default in, the performance or observance of any term or provision of any contract. -40- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. PATHOGENESIS CORPORATION By: --------------------------------- Name: Title: CHIRON CORPORATION By: --------------------------------- Name: Title: PICARD ACQUISITION CORP. By: --------------------------------- Name: Title: EXHIBIT A CONDITIONS OF THE OFFER Notwithstanding any other term of the Offer or the Agreement, Merger Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating to Merger Sub's obligation to pay for or return tendered shares of Company Common Stock promptly after the termination or withdrawal of the Offer), to pay for any shares of Company Common Stock tendered pursuant to the Offer, unless (i) there shall have been validly tendered and not withdrawn prior to the expiration of the Offer that number of shares of Company Common Stock which, when added together with all other shares of Company Common Stock owned by Parent and its subsidiaries, would represent at least a majority of the outstanding Company Common Stock (determined on a fully diluted basis for all outstanding stock options and any other rights (other than Company Rights, if such Company Rights are not at such time exercisable) to acquire Company Common Stock outstanding on the date of purchase) (the "MINIMUM TENDER CONDITION"), (ii) any requisite waiting period under the HSR Act applicable to the purchase of shares of Company Common Stock pursuant to the Offer or to the Merger shall have been terminated or shall have expired, and (iii) the applicable waiting periods under the Foreign Antitrust Laws shall have been terminated or shall have expired, except for such waiting periods the failure of which to terminate or expire is not reasonably likely to have a Parent Material Adverse Effect or a Company Material Adverse Effect or to provide a reasonable basis to conclude that the parties hereto or any of their respective directors, officers, agents, advisors or other representatives would be subject to the risk of criminal liability. Furthermore, notwithstanding any other term of the Offer or this Agreement, Merger Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any shares of Company Common Stock not theretofore accepted for payment or paid for, if, immediately prior to the acceptance for payment of shares of Company Common Stock pursuant to the Offer, any of the following conditions exists: (a) there shall have been entered, enforced or issued by any governmental entity, any judgment, order, injunction or decree (i) which makes illegal, restrains or prohibits the making of the Offer, the acceptance for payment of, or payment for, any shares of Company Common Stock by Parent or Merger Sub, or the consummation of the Merger; or (ii) which prohibits the ownership or operation by Parent or any of its subsidiaries of the Company; PROVIDED, in each case, that Parent has complied with its obligations under Section 5.11 of the Agreement; (b) there shall have been any statute, rule, regulation, legislation or interpretation enacted, enforced, promulgated, amended or issued by any governmental entity or deemed by any governmental entity applicable to (i) Parent, the Company or any subsidiary or affiliate of Parent or the Company or (ii) any transaction contemplated by this Agreement, other than the HSR Act and the Foreign Antitrust Laws which would reasonably be expected to result, directly or indirectly, in any of the consequences referred to in clauses (i) or (ii) of paragraph (a) above; (c) the representations and warranties of the Company contained in this Agreement shall not be true and correct as of such time, except for such failures to be true and correct that, in the aggregate, are not reasonably likely to have a Company Material Adverse Effect; (d) the Company shall have failed to perform in any material respect any material obligation required to be performed by it at or prior to such time under this Agreement; or (e) this Agreement shall have been terminated in accordance with its terms; which, in the reasonable judgment of Merger Sub or Parent, in any such case, and regardless of the circumstances giving rise to any such condition (including any action or inaction by Parent or any of its affiliates), makes it inadvisable to proceed with the Offer and/or with such acceptance for payment or payment. The foregoing conditions are for the sole benefit of Merger Sub and Parent and may be asserted by Merger Sub or Parent regardless of the circumstances giving rise to such condition or may be waived by Merger Sub and Parent in whole or in part at any time and from time to time in their reasonable discretion. The failure by Parent, Merger Sub or any other affiliate of Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. The terms in this Exhibit A that are defined in the attached Agreement have the meanings set forth therein. A-2 EX-99.D2 12 ex-99_d2.txt EXHIBIT 99-D2 August 8, 2000 James R. Sulat CFO Chiron Corporation 4680 Horton Street Emeryville, CA 94808-2916 Dear Sir: Goldman, Sachs & Co. ("Goldman Sachs") is acting as financial advisor to PathoGenesis Corporation (the "Company") in connection with exploring strategic alternatives, including the potential sale of all or a portion of the Company (the "Transaction"). In that connection, you have requested certain information concerning the Company from officers, directors, employees and/or agents of the Company, including Goldman Sachs. all such information (whether written or oral) furnished to you and/or your Representatives (as defined below), whether directly or indirectly, whether prior to, on or following the date hereof, together with analyses, compilations, forecasts, studies or other documents or records prepared by you or your Representatives which contain, are based on or otherwise reflect or are generated in whole or in part from such information, including that stored on any computer, word processor or other similar device, are collectively referred to herein as the "Evaluation Material." As a condition of receiving such Evaluation Material, you hereby agree as follows: (1) You shall use the Evaluation Material solely for the purpose of evaluating the Transaction and for no other purpose whatsoever. You shall keep the Evaluation Material confidential, except that you may disclose the Evaluation Material or portions thereof to those of your directors, officers, employees, affiliates and representatives (including, without limitation, financial advisors, attorneys and accountants), or to such other persons as to whom disclosure is expressly permitted pursuant to the specific prior written consent of Goldman Sachs or the Company (collectively, the "Representatives"), and (a) who need to know such information for the purpose of evaluating the Transaction and (b) who are informed by you of the confidential nature of the Evaluation Material. You shall be fully responsible for any failure of any of your Representatives to comply with this Agreement as if they were the Company. In the event that you or any of your Representatives are requested or required in connection with any judicial or administrative proceedings (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) or in order, in the James R. Sulat Chiron Corporation August 8, 2000 Page 2 opinion of your outside counsel, to avoid violating the federal securities laws, to disclose any of the Evaluation Material, you shall provide the Company with prompt prior written notice of such requirement and, to the extent legally permissible, your proposed disclosure in response thereto, you shall furnish only that portion of the Evaluation Material which you are advised by opinion of counsel is legally required, and you shall exercise your reasonable best efforts to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded such Evaluation Material and shall cooperate with any Company efforts to achieve the same. (2) If you determine not to proceed with the Transaction, you will promptly inform Goldman Sachs of that decision and, in that case or at any time upon the request of the Company or Goldman Sachs for any reason, you and your Representatives shall promptly, at the option of the Company, either (a) destroy all copies of the written Evaluation Material in your or their possession or under your or their custody or control (including that stored in any computer, word processor or similar device) and confirm such destruction to the Company in writing or (b) return to Goldman Sachs all copies of the Evaluation Material furnished to you in your possession or in the possession of your Representatives; provided that you shall be entitled to retain one secure archival copy of the Evaluation Materials in the offices of outside legal counsel. Notwithstanding the return or destruction of the Evaluation Material, you will continue to be bound by your obligations of confidentiality and other obligations hereunder. (3) The term "Evaluation Material" does not include any information which (a) at the time of disclosure is generally available to and known by the public (other than as a result of a disclosure by you or by any of the Representatives in violation of this Agreement), (b) was available to you on a non-confidential basis from a source (other than the Company or its representatives) that is not and was not prohibited from disclosing such information to you by a contractual, legal or fiduciary obligation or (c) was to become available or known to you pursuant to the Collaboration Agreement, dated December 15, 1988, by and between you and the Company. (4) You acknowledge and agree that (x) Goldman Sachs and the Company are free to conduct the process leading up to a possible Transaction as Goldman Sachs and the Company, in their sole discretion, may determine (including, without James R. Sulat Chiron Corporation August 8, 2000 Page 3 limitation, by negotiating with any prospective buyer and entering into a preliminary or definitive agreement without prior notice to you or any other person), (y) Goldman Sachs and the Company reserve the right, in their sole discretion, to change the procedures relating to your consideration of the Transaction at any time without prior notice to you or any other person, to reject any and all proposals made by you or any of your Representatives with regard to the Transaction, and to terminate discussions and negotiations with you at any time and for any reason, and (z) unless and until a written definitive agreement concerning the Transaction has been executed with the Company (and then only to the extent provided in such written definitive agreement), neither Goldman Sachs nor the Company, nor their respective officers, directors, employees, affiliates, stockholders, agents or controlling persons will have any legal obligation to you or any kind whatsoever with respect to the Transaction, whether by virtue of this agreement, any other written or oral expression with respect to the Transaction or otherwise. For purposes hereof, the term "definitive agreement" does not include an executed letter of intent or any other preliminary written agreement, nor does it include any written or oral acceptance of an offer or bid on your part. The Company acknowledges and agrees that you have undertaken no obligation pursuant to this letter agreement to participate in any process conducted by the Company and Goldman Sachs concerning a possible Transaction. (5) You acknowledge that you and your Representatives may receive material non-public information in connection with your evaluation of the Transaction and you are aware (and you will so advise your Representatives) that the United States securities laws impose restrictions on trading in securities when in possession of such information. (6) You understand and acknowledge that none of the Company, Goldman Sachs or any of their respective officers, directors, employees, affiliates, stockholders, agents, representatives or controlling persons is making any representation or warranty, express or implied, as to the accuracy or completeness of the Evaluation Material, and each of the Company, Goldman Sachs and such other persons expressly disclaims any and all liability to you or any other person that may be based upon or relate to (a) the use of the Evaluation Material by you or any of the Representatives or (b) any errors therein or omissions therefrom. You further agree that you are not entitled to rely on the accuracy and completeness of the James R. Sulat Chiron Corporation August 8, 2000 Page 4 Evaluation Material and that you will be entitled to rely solely on those particular representations and warranties, if any, that are made to you in a definitive agreement relating to the Transaction when, as, and if it is executed, and subject to such limitations and restrictions as may be specified in such definitive agreement. (7) You acknowledge that remedies at law may be inadequate to protect the Company against any actual or threatened breach of this agreement by you or your Representatives, and, without prejudice to any other rights and remedies otherwise available to the Company, you agree to the granting of equitable relief (including specific performance or injunction) in the Company's favor without proof of actual damages. You agree to indemnify and hold harmless the Company from any damage, loss, cost or liability (including reasonable legal fees and disbursements and the costs of enforcing this indemnity) arising out of or resulting from any unauthorized use or disclosure by you or your Representatives of the Evaluation Material. Any equitable relief shall not be deemed to be the exclusive remedy for a breach of this agreement, but shall be in addition to all other remedies available at law or equity. If any term, provision, covenant or restriction of this agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. (8) You agree that no failure or delay by the Company in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof of the exercise of any other right, power or privilege hereunder. (9) This agreement is for the benefit of and shall be enforceable by the Company and its successors and assigns. The rights of the Company under this agreement may be assigned in whole or in part to any party to a business combination with the Company, which party shall be entitled to enforce this agreement to the same extent and in the same manner as the Company is entitled to enforce this agreement. (10) You hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of New York for any actions, suits or James R. Sulat Chiron Corporation August 8, 2000 Page 5 proceedings arising out of or relating to this agreement and the transactions contemplated hereby regardless of how characterized (and you agree not to commence any action, suit or proceeding relating thereto except in such courts). You hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this agreement or the transactions contemplated hereby in the courts of the State of Ne York, and hereby further irrevocably and unconditionally waive and agree not to plead a claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. (11) This agreement and all controversies arising from or relating to performance under this agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to its conflicts of law principles. This agreement contains the entire agreement between you and the Company concerning the subject matter hereof, and no modification of this agreement or waiver of the terms and conditions hereof will be binding unless approved in writing by the Company and you. Please confirm your agreement to the foregoing by signing both copies of this agreement and returning one to Nicholas Vita. Very truly yours, PATHOGENESIS CORPORATION By: --------------------------------- GOLDMAN, SACHS & CO. On Behalf of PATHOGENESIS CORPORATION CONFIRMED AND AGREED AS OF THE DATE WRITTEN ABOVE: CHIRON CORPORATION James R. Sulat Chiron Corporation August 8, 2000 Page 6 By: ---------------------------- William G. Green General Counsel -----END PRIVACY-ENHANCED MESSAGE-----