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Agreement and Plan of Reorganization

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Sectors: Biotechnology / Pharmaceuticals
Governing Law: Delaware, View Delaware State Laws
Effective Date: July 16, 1997
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EXHIBIT 2.1


================================================================================


AGREEMENT AND PLAN


OF REORGANIZATION AND MERGER


BETWEEN


ANSAN PHARMACEUTICALS, INC. AND


DISCOVERY LABORATORIES, INC.


JULY 16, 1997


================================================================================


AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER


This Agreement and Plan of Reorganization and Merger ("Agreement") is made as of July 16, 1997 between ANSAN PHARMACEUTICALS, INC., a Delaware corporation ("Ansan") and DISCOVERY LABORATORIES, INC., a Delaware corporation ("Discovery").


BACKGROUND


A. The parties hereto desire that Discovery shall be merged with and into Ansan; that Ansan shall be the surviving corporation; and that each share of the capital stock of Discovery which is outstanding immediately prior to the effective time of the merger, other than those shares which become "Appraisal Shares" within the meaning of Section 262 of the DGCL, be converted as set forth in this Agreement into shares of the capital stock of Ansan.


B. The parties intend that the merger constitute a "reorganization" under Section 368(a), of the Code.


In consideration of the premises and agreements set forth herein, THE PARTIES AGREE AS FOLLOWS:


ARTICLE I


DEFINITIONS


The terms defined in this Article I shall, for purposes of this Agreement, have the meanings specified in this Article I unless the context expressly or by necessary implication otherwise requires:


1.1. Affiliate. "Affiliate" shall have the meaning set forth in the
--------- 1933 Act.


1.2. Affiliates Agreement. "Affiliates Agreement" shall have the
-------------------- meaning set forth in Section 6.9 of this Agreement.


1.3. Ansan Common Stock. "Ansan Common Stock" shall mean the Common
------------------- Stock, $.001 par value, of Ansan.


1.4. Ansan Financial Statements. "Ansan Financial Statements" shall
-------------------------- have the meaning set forth in Section 5.2 of this Agreement.


1.5. Ansan Preferred Stock. "Ansan Preferred Stock" shall mean the
--------------------- Series B Convertible Preferred Stock of Ansan having the rights, preferences and restrictions substantially as set forth in the Certificate of Designation attached to this Agreement as Exhibit A, but subject to any further adjustments to reflect the reverse stock split contemplated by this Agreement, which Certificate of Designation shall be filed with the Secretary of State of the State of Delaware on or before the Closing Date.


1.6. Ansan Series A Preferred Stock. "Ansan Series A Preferred
------------------------------ Stock" shall mean the Series A Convertible Preferred Stock of Ansan having the rights, preferences and restrictions set forth in the Certificate of Designation filed with the Secretary of State of the State of Delaware on or about the date hereof.


1.7. Ansan Stock. "Ansan Stock" shall mean the Ansan Common Stock,
----------- Ansan Preferred Stock and Ansan Series A Preferred Stock.


1.8. ATI. "ATI" shall mean Acute Therapeutics, Inc., a Delaware
--- corporation.


1.9. Appraisal Shares. "Appraisal Shares" shall mean all shares, if
---------------- any, of the outstanding capital stock of Discovery or Ansan for which appraisal rights have been claimed under Section 262 of the DGCL.


1.10. Balance Sheet. "Balance Sheet" shall have the meaning set
------------- forth in Section 3.6 of this Agreement.


1.11. Balance Sheet Date. "Balance Sheet Date" shall have the
------------------ meaning set forth in Section 3.6 of this Agreement.


1.12. Business Day. "Business Day" shall mean any day the New York
------------ Stock Exchange is open for trading.


1.13. Certificate. "Certificate" shall have the meaning set forth in
----------- Section 2.4.3 of this Agreement.


1.14. Certificate of Merger. "Certificate of Merger" shall mean the
--------------------- certificate of merger between Ansan and Discovery as required by Section 251 of the DGCL, in the form attached to this Agreement as Exhibit B.


1.15. Closing. "Closing" shall mean the delivery by Ansan and
------- Discovery of the various documents contemplated by this Agreement or otherwise required in order to consummate the Merger.


1.16. Closing Date. "Closing Date" shall have the meaning set forth
------------ in Section 2.2 of this Agreement.


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1.17. Code. "Code" shall mean the Internal Revenue Code of 1986, as
---- amended.


1.18. DGCL. "DGCL" shall mean the General Corporation Law of the
---- State of Delaware, as amended.


1.19. Disclosure Statement. "Disclosure Statement" shall have the
-------------------- meaning set forth in the first paragraph of Article III of this Agreement.


1.20. Discovery Common Stock. "Discovery Common Stock" shall mean
---------------------- the Common Stock, $.001 par value, of Discovery.


1.21. Discovery Financial Statements. "Discovery Financial
------------------------------ Statements" shall have the meaning set forth in Section 4.3 of this Agreement.


1.22. Discovery Option. "Discovery Option" shall have the meaning
---------------- set forth in Section 2.3 of this Agreement.


1.23. Discovery Preferred Stock. "Discovery Preferred Stock" shall
------------------------- mean the Series A Convertible Preferred Stock of Discovery.


1.24. Discovery Stock. "Discovery Stock" shall mean both the
--------------- Discovery Common Stock and the Discovery Preferred Stock.


1.25. Discovery Warrant. "Discovery Warrant" shall have the meaning
----------------- set forth in Section 2.3 of this Agreement.


1.26. Discovery Working Capital. "Discovery Working Capital" shall
------------------------- mean an amount equal to Discovery's current assets, less Discovery's current liabilities, less any long-term debt owed to ATI, as determined in accordance with generally accepted accounting principles and without consolidating the accounts of ATI with Discovery for the purposes of such calculation.


1.27. Effective Time. "Effective Time" shall mean the time when the
-------------- Certificate of Merger is filed with the Secretary of State of the State of Delaware and the Merger becomes effective.


1.28. Exchange Act. "Exchange Act" shall mean the Securities and
------------ Exchange Act of 1934, as amended.


1.29. Exchange Agent. "Exchange Agent" shall have the meaning set
-------------- forth in Section 2.4.1 of this Agreement.


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1.30. Fair Market Value of Ansan Common Stock. "Fair Market Value of
--------------------------------------- Ansan Common Stock" shall mean the average of the last reported closing bid prices of the Ansan Common Stock on the Nasdaq SmallCap Market on the 20 trading days immediately preceding the Closing Date.


1.31. Holders. "Holders" shall mean holders of Discovery Stock
------- immediately prior to the Effective Time.


1.32. Lockup Agreement. "Lockup Agreement" shall have the meaning
---------------- set forth in Section 6.10 of this Agreement.


1.33. Merger. "Merger" shall mean the merger of Discovery with and
------ into Ansan in accordance with this Agreement, the Certificate of Merger and applicable law.


1.34. Proxy Statement. "Proxy Statement" shall mean the Proxy
--------------- Statement to be mailed to the stockholders of Ansan in connection with the Merger.


1.35. S-4. "S-4" shall mean the Registration Statement on Form S-4
--- to be filed by Ansan with the SEC in connection with the issuance of Ansan Stock pursuant to the Merger.


1.36. SEC. "SEC" shall mean the Securities and Exchange Commission.
---


1.37. Subsidiary. "Subsidiary" shall mean, with respect to a
---------- particular party hereto, any corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned by such party or by one or more Subsidiaries, or by such party and one or more Subsidiaries.


1.38. Titan. "Titan" shall mean Titan Pharmaceuticals Inc., a
----- Delaware corporation.


1.39. Titan Agreement. "Titan Agreement" shall mean the agreement in
--------------- the form attached hereto as Exhibit C.


1.40. 1933 Act. "1933 Act" shall mean the Securities Act of 1933, as
-------- amended, and the rules, regulations and forms thereunder.


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ARTICLE II


MERGER, CLOSING AND CONVERSION OF SHARES

2.1. Merger. Subject to and in accordance with the terms and
------ conditions of the Agreement and the Certificate of Merger, on the Closing Date, Ansan and Discovery shall execute and file the Certificate of Merger with the Secretary of State of the State of Delaware, whereupon Discovery shall be merged with and into Ansan pursuant to Sections 251 of the DGCL.


2.2. Closing. The Closing shall take place at the offices of Heller
------- Ehrman White & McAuliffe, 525 University Avenue, Palo Alto, California 94301, on November 3, 1997 at 1:00 pm, or if the conditions set forth in Articles VI and VII have not been satisfied or waived by such date, on the earliest practicable date, but in no event later than December 31, 1997, after satisfaction or waiver of such conditions (the "Closing Date").


2.3. Conversion of Shares.
--------------------


2.3.1 In accordance with this Agreement and the Certificate of Merger:


(a) each share of Discovery Common Stock outstanding immediately prior to the Effective Time (except those shares of Discovery Common Stock which are Appraisal Shares and whose Holder and Discovery do not thereafter agree in writing should not be treated as Appraisal Shares) shall, by virtue of the Merger and without any action on the part of the holder thereof be converted, at and as of the Effective Time into 1.1641085 shares of Ansan Common Stock. Holders of Discovery Common Stock shall receive only whole shares of Ansan Common Stock, with Ansan being authorized to pay in cash, in lieu of any resulting fractional share, the Fair Market Value of Ansan Common Stock multiplied by such fraction so as to eliminate the necessity for the issuance of fractional shares upon such conversion,


(b) each share of Discovery Preferred Stock outstanding immediately prior to the Effective Time (except those shares of Discovery Preferred Stock which are Appraisal Shares and whose Holder and Discovery do not thereafter agree in writing should not be treated as Appraisal Shares) shall, by virtue of the Merger and without any action on the part of the holder thereof be converted, at and as of the Effective Time into one (1) share of Ansan Preferred Stock. Holders of Discovery Preferred Stock shall receive only whole shares of Ansan Preferred Stock; in lieu of any fractional share of Ansan Preferred Stock, Holders shall receive in cash the fair market


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value of such fractional share valuing Ansan Preferred Stock on an as-converted to Ansan Common Stock basis at the Fair Market Value of the Ansan Common Stock,


(c) each of the outstanding underwriter warrants and stock options to purchase Discovery Stock ("Discovery Warrant" and "Discovery Option", respectively) shall thereafter entitle the holder thereof to receive, upon exercise thereof, 1.1641085 shares of Ansan Common Stock for each share of Discovery Common Stock subject to such Discovery Option or Discovery Warrant, at an exercise price for each full share of Ansan Common Stock equal to the exercise price per share of Discovery Common Stock with respect to such Discovery Option or Discovery Warrant multiplied by 1.1641085, which exercise price per share shall be rounded up to the nearest two-place decimal, and one (1) share of Ansan Preferred Stock for each share of Discovery Preferred Stock subject to such Discovery Option or Discovery Warrant, at an exercise price equal to the exercise price stated in such Discovery Option or Discovery Warrant. The number of shares of Ansan Stock that may be purchased by a holder on the exercise of any Discovery Option or Discovery Warrant shall not include any fractional share of Ansan Stock but shall be rounded down to the next lower whole share of Ansan Stock. Ansan shall assume in full such Discovery Options and Discovery Warrants and all of Discovery's other rights and obligations thereunder and under all agreements relating thereto (including without limitation registration rights in favor of the holders of the Discovery Warrants) and shall give notice to such effect to the Holder thereof promptly after the Closing. After such assumption, Ansan shall issue, upon any partial or total exercise of any Discovery Option or Discovery Warrant, in lieu of shares of Discovery Stock, the number of shares of Ansan Stock to which the holder of the Discovery Option or Discovery Warrant is entitled pursuant to this Agreement,


(d) any Ansan Stock held by Discovery immediately prior to the Effective Time shall be canceled, and


(e) in accordance with the foregoing, Ansan shall issue Ansan Common Stock and Ansan Preferred Stock and assume the obligations to issue Ansan Common Stock and Ansan Preferred Stock upon exercise of Discovery Options and Discovery Warrants which, on as converted and exercised basis, represent 20,208,807 shares of Ansan Common Stock.


2.4. Exchange of Certificates.
---- ------------------------


2.4.1 Prior to the Closing Date, Ansan shall appoint Continental Stock Trust & Transfer, or such other bank or trust company selected by Ansan as Discovery may approve, to act as exchange agent (the "Exchange Agent") in the Merger.


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2.4.2 Promptly after the Closing Date, but in no event later than three Business Days thereafter, the Exchange Agent shall make available for exchange in accordance with this Section 2.4.2 the shares of Ansan Stock issuable pursuant to Section 2.3 in exchange for outstanding shares of Discovery Stock.


2.4.3 As soon as practicable after the Closing Date, the Exchange Agent shall mail to each holder of record of a stock certificate that, immediately prior to the Closing Date, represented outstanding shares of Discovery Stock (a "Certificate") whose shares are being converted into Ansan Common Stock or Ansan Preferred Stock pursuant to Section 2.3, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Ansan may reasonably specify), and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates evidencing Ansan Common Stock or Ansan Preferred Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Ansan, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor (subject to Section 2.4) the number of shares of Ansan Common Stock or Ansan Preferred Stock to which the holder of Discovery Stock is entitled pursuant to Section 2.3 hereof and is represented by the Certificate so surrendered. The Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Discovery Stock that is not registered in the transfer records of Discovery, or its transfer agent, Ansan Common Stock or Ansan Preferred Stock may be delivered to a transferee if the Certificate representing such Discovery Stock is presented to the Exchange Agent and accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.4.3, each Certificate shall be deemed at any time after the Closing Date to represent the right to receive upon such surrender such whole number of shares of Ansan Common Stock or Ansan Preferred Stock as provided by Section 2.3 and the provisions of the DGCL.


2.4.4 No dividends or distributions payable to Holders after the Effective Time, or cash payable in lieu of fractional shares, shall be paid to the Holder of any unsurrendered Certificate until the Holder of the Certificate shall surrender such Certificate.


2.4.5 All Ansan Common Stock and Ansan Preferred Stock delivered upon the surrender for exchange of shares of Discovery Stock in accordance with the terms hereof shall be deemed to have been delivered in full satisfaction of all rights pertaining to such shares of Discovery Stock. There shall be no further registration of transfers on the stock transfer books of Discovery or its transfer agent of the shares of Discovery Stock that were outstanding immediately prior to the Effective Time. If, after


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the Closing Date, Certificates are presented for any reason, they shall be canceled and exchanged as provided in Section 2.4.


2.5. Appraisal Shares. Holders of Appraisal Shares shall have those
---------------- rights, but only those rights, of holders of "appraisal shares" under Section 262 of the DGCL. Each party shall give the other party prompt notice of any demand, purported demand or other communication received by it with respect to any Appraisal Shares or shares claimed to be Appraisal Shares. Each party agrees that, without the prior written consent of the other party, which consent shall not be unreasonably withheld, it shall not voluntarily make any payment with respect to, or settle or offer to settle, any demand or purported demand respecting such shares.


2.6. Registration on Form S-4. The Ansan Common Stock to be issued
------------------------ in the Merger (and the Ansan Common Stock underlying the Ansan Preferred Stock to be issued in the Merger) and the Ansan Preferred Stock to be issued in the Merger shall be registered under the 1933 Act on Form S-4. As promptly as practicable after the date hereof, Ansan shall prepare and file with the SEC the Proxy Statement and any other documents required by the Exchange Act in connection with the Merger, and Ansan shall prepare and file with the SEC the Form S-4 and any other documents required by the 1933 Act in connection with the Merger (including, without limitation the filing of Form 8-K by Ansan when appropriate). Ansan shall use its reasonable efforts to have the Form S-4 declared effective under the 1933 Act as promptly as practicable after such filing. Ansan shall afford Discovery a reasonably opportunity to review and comment on the Proxy Statement prior to its distribution. To the greatest extent practicable, information required to be disclosed in both the Proxy Statement and the consent solicitation to be distributed by Discovery to its stockholders pursuant to Section 2.7 shall be disclosed in an identical manner. Ansan shall also take any action required to be taken under any applicable state securities or "blue sky" laws in connection with the issuance of the Ansan Stock in the Merger. Discovery shall furnish to Ansan all information in Discovery's possession and reasonably accessible by Discovery concerning Discovery and ATI and the holders of Discovery Stock as may be reasonably requested in connection with any action contemplated by this Section 2.6.


2.7. Information Statement. Discovery shall afford Ansan a
--------------------- reasonable opportunity to review and comment on any solicitation materials, including solicitation of action by written consent, that Discovery distributes to its stockholders in connection with the Merger. To the greatest extent practicable, information required to be disclosed in both the Proxy Statement and any such solicitation materials shall be disclosed in an identical manner.


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2.8. Tax Free Reorganization. The parties intend to adopt this
----------------------- Agreement as a tax free plan of reorganization and to consummate the Merger in accordance with the provisions of Section 368(a) of the Code.


2.9. Ansan Common Stock Split. If mutually agreed upon by Ansan and
------------------------ Discovery, prior to the Effective Time, Ansan shall file a Restated Certificate of Incorporation with the Delaware Secretary of State for the recombination of each authorized share of Ansan Common Stock into such lesser number of shares of Ansan Common Stock as shall be mutually agreed upon by Ansan and Discovery to maintain the listing of the Ansan Common Stock on the Nasdaq SmallCap Market. Such recombined Ansan Common Stock shall have the same rights, privileges and restrictions as the currently authorized Ansan Common Stock with Ansan being authorized to pay in cash, in lieu of any resulting fractional share, the Fair Market Value of Ansan Common Stock so as to eliminate the necessity for the issuance of fractional shares upon such recombination. The exchange ratios and provisions in the preceding sections of this Article II shall be adjusted to reflect any recombination of Ansan Common Stock pursuant to this Section 2.9 of the Agreement.


ARTICLE III


MUTUAL REPRESENTATIONS AND WARRANTIES

Each of Ansan, Discovery and ATI is a "Company" as contemplated by this Article III. Any disclosure delivered by one Company to the other hereto pursuant to this Article shall have been delivered on or prior to the date hereof shall specifically refer to this Agreement and shall identify the Section of this Agreement requiring the delivery of such disclosure (each such disclosure being referred to herein as a " Disclosure Statement"). Except as set forth in the Disclosure Statement of such Company and except for the transactions contemplated by this Agreement, Ansan hereby represents and warrants to Discovery and Discovery hereby represents and warrants to Ansan, that:


3.1. Organization and Authority. The Company and each of its
-------------------------- Subsidiaries: (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) has all necessary corporate power to own and lease its properties, to carry on its business as now being conducted and to enter into and perform this Agreement and all agreements to which the Company is or will be a party that are exhibits to this Agreement; and (iii) is qualified to do business in all jurisdictions in which the failure to so qualify would have a material adverse effect on its business or financial condition. The Company has made available to the other party for inspection complete and correct copies of its Certificate of Incorporation, as amended, Bylaws as in effect on the date hereof and a record of any and all proceedings and actions at all meetings of, or taken by written consent by, its Board of Directors and stockholders,


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since its inception, in each case, certified as true, complete and correct copies by the Company's Secretary.


3.2. Authority Relating to this Agreement; No Violation of Other
----------------------------------------------------------- Instruments. - -----------


3.2.1 The execution and delivery of this Agreement and all agreements to which the Company is or will be a party that are exhibits to this Agreement and the performance hereunder and thereunder by the Company have been duly authorized by all necessary corporate action on the part of the Company, other than stockholder approval as is contemplated by this Agreement, and, assuming execution of this Agreement and such other agreements by the other party thereto, this Agreement and such other agreements will constitute legal, vali
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