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AGREEMENT & PLAN OF REORGANIZATION

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Sectors: Biotechnology / Pharmaceuticals
Governing Law: Colorado , View Colorado State Laws
Effective Date: November 24, 1998
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AGREEMENT AND PLAN OF REORGANIZATION







BY AND AMONG







ATRIX LABORATORIES, INC.



ATRIX ACQUISITION CORPORATION





VIROTEX CORPORATION















Dated as of November 24, 1998











TABLE OF CONTENTS







Page No.



ARTICLE I DEFINITIONS.............................................................................................2





ARTICLE II THE MERGER.............................................................................................8



Section 2.01. The Merger.......................................................................................8

Section 2.02. Effective Time...................................................................................8

Section 2.03. Effect of the Merger.............................................................................8

Section 2.04. Effect of Merger on the Capital Stock of the Constituent Corporations............................9

Section 2.05. Merger Consideration............................................................................11

Section 2.06. Payment of Merger Consideration.................................................................16

Section 2.07. Escrow Deposit..................................................................................17

Section 2.08. Dissenting Shares...............................................................................17

Section 2.09. No Further Ownership Rights in Company Capital Stock............................................18

Section 2.10. Lost, Stolen or Destroyed Certificates..........................................................18

Section 2.11. Fractional Shares...............................................................................18

Section 2.12. No Liability....................................................................................18

Section 2.13. Closing Deliveries..............................................................................19

Section 2.14. Taking of Necessary Action; Further Action......................................................20



ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................20



Section 3.01. Organization of the Company.....................................................................20

Section 3.02. Subsidiaries....................................................................................21

Section 3.03. Company Capital Structure.......................................................................21

Section 3.04. Authority.......................................................................................22

Section 3.05. No Conflict.....................................................................................23

Section 3.06. Consents........................................................................................23

Section 3.07. Company Financial Statements....................................................................23

Section 3.08. No Undisclosed Liabilities......................................................................24

Section 3.09. Products/Product Liability......................................................................24

Section 3.10. Loans, Notes, Cash, Accounts Receivable and Accounts Payable....................................25

Section 3.11. Projections.....................................................................................25

Section 3.12. Absence of Certain Changes......................................................................26

Section 3.13. Tax Matters.....................................................................................27

Section 3.14. Restrictions on Business Activities.............................................................30



Page No.



Section 3.15. Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment..................30

Section 3.16. Intellectual Property...........................................................................31

Section 3.17. Agreements, Contracts and Commitments...........................................................35

Section 3.18. Interested Party Transactions...................................................................37

Section 3.19. Governmental Authorization......................................................................37

Section 3.20. Regulatory Reports..............................................................................37

Section 3.21. Litigation......................................................................................38

Section 3.22. Minute Books....................................................................................38

Section 3.23. Environmental Matters...........................................................................38

Section 3.24. Brokers' and Finders' Fees and Third Party Expenses.............................................38

Section 3.25. Employee Benefit Plans and Compensation.........................................................39

Section 3.26. Insurance.......................................................................................42

Section 3.27. Compliance with Laws............................................................................43

Section 3.28. Warranties; Indemnities.........................................................................43

Section 3.29. Conflicts of Interest...........................................................................43

Section 3.30. Complete Copies of Materials....................................................................43

Section 3.31. Representations Complete........................................................................43



ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...............................................44



Section 4.01. Organization, Standing and Power................................................................44

Section 4.02. Authority.......................................................................................44

Section 4.03. Brokers' and Finders Fees.......................................................................44

Section 4.04. No Conflict.....................................................................................44

Section 4.05. Consents........................................................................................45

Section 4.06. Compliance with Laws............................................................................45

Section 4.07. SEC Reports.....................................................................................45

Section 4.08. Financial Capability............................................................................46

Section 4.09. Parent Capital Structure........................................................................46



ARTICLE V ADDITIONAL AGREEMENTS..................................................................................47



Section 5.01. Expenses........................................................................................47

Section 5.02. Public Disclosure...............................................................................47

Section 5.03. S-8 Registration................................................................................47

Section 5.04. Registration Statement..........................................................................47

Section 5.05. Registration Procedures.........................................................................48

Section 5.06. Indemnification.................................................................................50

Section 5.07. Exculpation for Director Liability..............................................................50

Section 5.08. Lease Termination...............................................................................50

Section 5.09. Products Liability Insurance....................................................................51



ARTICLE VI SURVIVAL, INDEMNIFICATION.............................................................................51







Page No.



ARTICLE VII GENERAL PROVISIONS...................................................................................52



Section 7.01. Notices.........................................................................................52

Section 7.02. Disclosure Schedule.............................................................................53

Section 7.03. Interpretation..................................................................................53

Section 7.04. Counterparts....................................................................................54

Section 7.05. Entire Agreement; Assignment....................................................................54

Section 7.06. Third Party Beneficiaries.......................................................................54

Section 7.07. Severability....................................................................................54

Section 7.08. Other Remedies..................................................................................54

Section 7.09. Governing Law...................................................................................55

Section 7.10. Arbitration.....................................................................................55

Section 7.11. Amendment.......................................................................................55

Section 7.12. Extension: Waiver...............................................................................56

Section 7.13. Rules of Construction...........................................................................56

Section 7.14. Knowledge.......................................................................................56









Exhibit A Form of Personal Services Agreement..................................................A-1

Exhibit B Form of Investment Letter............................................................B-1

Exhibit C Forms of Transmittal Letters.........................................................C-1

Exhibit D Form of Certificate of Merger........................................................D-1

Exhibit E Form of Contingent Escrow Agreement..................................................E-1

Exhibit F Form of Indemnity and Escrow Agreement...............................................F-1

Exhibit G Financial Projections................................................................G-1

Exhibit H Form of Cooley Godward LLP Opinion...................................................H-1

Exhibit I Key Employees........................................................................I-1

Exhibit J Form of Non-Competition Agreement....................................................J-1

Exhibit K Person Executing Personal Services Agreement.........................................K-1

Exhibit L Form of Company Officer's Certificate................................................L-1

Exhibit M [Reserved]...........................................................................M-1

Exhibit N Form of Parent Officer's Certificate.................................................N-1

Exhibit O Form of Morrison & Foerster LLP Opinion..............................................O-1

Exhibit P Form of Assignment and Transfer Agreement............................................P-1

Exhibit Q Form of Consent to Conversion of Preferred Stock.....................................Q-1

Exhibit R Form of Substitute Option Agreement..................................................R-1

Exhibit S Form of Parent Warrant...............................................................S-1

Exhibit T Form of Option Exercise..............................................................T-1











AGREEMENT AND PLAN OF REORGANIZATION



This Agreement and Plan of Reorganization (the "Agreement") is made and entered into as of November 24, 1998 among Atrix Laboratories, Inc., a Delaware corporation ("Parent"), Atrix Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and ViroTex Corporation, a Delaware corporation (the "Company").





A. The Boards of Directors of each of the Company, Parent and Merger Sub believe it is in the best interests of each company and its respective shareholders that Parent acquire the Company through the statutory merger of Merger Sub with and into the Company (the "Merger") and, in furtherance thereof, have approved the Merger.



B. Pursuant to the Merger, among other things, all of the issued and outstanding common stock of the Company shall be converted into the right to receive cash and/or shares of the $.001 par value common stock of Parent ("Parent Common Stock"). All outstanding preferred stock, warrants, Cash-Out Options (defined below) and other securities or instruments convertible into capital stock of the Company that are not converted into common stock of the Company or exercised, as applicable, on or prior to the Closing Date shall be assumed by Parent as set forth herein.



C. A portion of the cash consideration otherwise payable by Parent to the Principal Stockholders (defined below) in connection with the Merger shall be placed in escrow by Parent for purposes of satisfying damages, losses, expenses and other similar charges which result from breaches of representations, warranties and covenants.



D. The Company and the Principal Stockholders, on the one hand, and Parent and Merger Sub, on the other hand, desire to make certain representations, warranties, covenants and other agreements in connection with the Merger.



NOW, THEREFORE, in consideration of the foregoing recitals and the covenants, promises and representations set forth herein, and for other good and valuable consideration, the parties agree as follows:









ARTICLE I





(a) The following terms, as used herein, have the following meanings:



"Acne Product" means the product using the Company's

solvent/microparticulate drug delivery technology containing dapsone

for the topical treatment of human skin disease with an initial

indication for acne.



"Affiliate" means, with respect to any Person, any other Person

directly or indirectly controlling, controlled by, or under common

control with such Person or an officer, director, holder of 10% or

more of the outstanding equity securities of such Person, or an

Immediate Family Member of any of the foregoing.



"Assumed Options" shall mean all unexercised Company Options held

by Jeffrey M. Soinski, Anthony A. Brown, David W. Osborne, Ph.D.,

Meidong Yang, Ph.D. and Gilles Tapolsky, Ph.D. immediately prior to

the Effective Time.



"Balance Sheet Date" means September 30, 1998.



"BEMA" means the Company's proprietary bioerodible mucoadhesive



"BEMA-Dyclonine Canker Sore Disc" means a product using BEMA

technology containing dyclonine cut into discs for the treatment of

canker sores under the OTC monograph for oral care topical analgesics.



"BEMA-Dyclonine Strips" means a proposed Rx product using BEMA

technology containing dyclonine cut into strips for local dental

anesthesia, and requiring submission of a New Drug Application under

current FDA regulations.



"BEMA-Nicotine" means a proposed Rx product using BEMA technology

containing nicotine for smoking cessation, and requiring submission of

a New Drug Application under current FDA regulations.



"Benzocaine Canker Sore Product" means a product using the

Company's proprietary mucocutaneous absorption gel drug delivery

technology containing benzocaine for the topical treatment of canker



"Cash-Out Options" shall mean all Company Options that are not

Assumed Options.



"CERCLA" means the Comprehensive Environmental Response,

Compensation and Liability Act of 1980, as amended, and any

regulations promulgated thereunder.









"Closing Date" means the date of the Closing.



"Code" means the Internal Revenue Code of 1986, as amended.



"Commercialized" means the date on which the Company, its

Affiliates or its sublicensee first sells the relevant Company Product

for use or consumption to an unaffiliated third party in an arms'

length transaction.



"Company Capital Stock" shall mean (i) shares of Company Common

Stock, (ii) shares of Preferred Stock, and (iii) any other capital

stock of the Company.



"Company Common Stock" shall mean shares of common stock of the

Company, $.001 par value per share.



"Company Options" shall mean all issued and outstanding options,

warrants (other than the GulfStar Warrant) or other rights to purchase

Company Capital Stock (whether or not vested) held by consultants,

employees or directors of the Company or any other person.



"Confidential Information" means any information relating to the

properties, prospects, products, services or operations of the Company

or any direct or indirect Affiliate thereof that is not generally

known, is proprietary to the Company or such Affiliate and is made

known to such Person or learned or acquired by such Person while such

Person was an officer, director, employee or independent contractor of

the Company, including, without limitation, information relating to

the software developed by the Company, information as to sources of,

and arrangements for, hardware supplied to customers or clients of the

Company, submission and proposal procedures of the Company, customer

or contact lists, information concerning trade secrets of the Company,

or any of its Affiliates, any improvements relating to the products of

the Company in accounting, marketing, selling, leasing, financing and

other business methods and techniques, and any information obtained by

the Stockholders' Representatives under Section 2.05(e), whether such

information relates to the Company or Parent.



However, Confidential Information shall not include (i) at the

time of disclosure to any Person such information that was in the

public domain or later entered the public domain other than as a

result of a breach of an obligation herein; or (ii) subsequent to

disclosure to any Person, such Person received such information from a

third party under no obligation to maintain such information in

confidence, and the third party came into possession of such

information other than as a result of a breach of an obligation



"Current Balance Sheet" means the balance sheet of the Company as

of September 30, 1998.









"Environmental Laws" means any and all federal, state, local and

foreign statutes, laws, judicial decisions, regulations, ordinances,

rules, judgments, orders, decrees, codes, plans, injunctions, permits,

concessions, grants, franchises, licenses, agreements and governmental

restrictions, now in effect, relating to human health, the environment

or to emissions, discharges or releases of pollutants, contaminants,

Hazardous Substances or wastes into the environment, including without

limitation ambient air, surface water, ground water or land, or

otherwise relating to the manufacture, processing, distribution, use,

treatment, storage, disposal, transport or handling of pollutants,

contaminants, Hazardous Substances or wastes or the clean-up or other

remediation thereof.



"Environmental Liabilities" means any and all liabilities of or

relating to the Company (including any entity which is, in whole or in

part, a predecessor of the Company), whether vested or unvested,

contingent or fixed, actual or potential, known or unknown, which (a)

arise under or relate to matters covered by Environmental Laws and (b)

relate to actions occurring or conditions existing on or prior to the

Closing Date.



"Environmental Permits" means all permits, licenses,

authorizations, certificates and approvals of governmental authorities

relating to or required by Environmental Laws and necessary or proper

for the business of the Company as currently conducted.



"ERISA" means the Employee Retirement Income Security Act of

1974, as amended, together with all regulations promulgated



"Estimated Third Party Expenses" shall equal the amount of Third

Party Expenses of the Company estimated in good faith and based on

reasonable assumptions as of the Closing Date.



"Exchange Act" means the Securities Exchange Act of 1934, as

amended, and the rules and regulations promulgated thereunder.



"External Analgesic Product" means a product using the Company's

proprietary mucocutaneous absorption gel drug delivery technology

using the currently monographed OTC external analgesics as set forth

in 21 CFR section 348 for the topical treatment of arthritis pain,

bursitis, tendonitis, backaches, muscle stains and sprains and muscle



"GAAP" means United States generally accepted accounting

principles, consistently applied on a basis consistent throughout the

periods indicated and consistent with each other.



"GulfStar Warrant" means that certain warrant to purchase up to

52,936 shares of Company Common Stock held by the GulfStar Group.



"Hazardous Substances" means any toxic, radioactive, corrosive or

otherwise hazardous substance, including petroleum, its derivatives,

by-products and other hydrocarbons, or any substance having any

constituent elements displaying any of the foregoing characteristics,

including, without limitation, any substance regulated under

Environmental Laws.









"Immediate Family Member" means, with respect to any Person, such

Person's spouse, parents, children and siblings.



"Investment Letter" means the investment letter in the form

attached hereto as Exhibit B.



"Lien" means, with respect to any property or asset, any

mortgage, lien, pledge, charge, security interest, encumbrance or

other adverse claim of any kind in respect of such property or asset.

For the purposes of this Agreement, a Person shall be deemed to own

subject to a Lien any property or asset which it has acquired or holds

subject to the interest of a vendor or lessor under any conditional

sale agreement, capital lease or other title retention agreement

relating to such property or asset.



"Material Adverse Effect" means, with respect to any Person, any

material adverse change in, or material adverse effect on, the

business, assets, results of operations, value or financial or other

condition of the Person, or any event or circumstance that would

likely prevent, hinder or materially delay the consummation of any of

the transactions contemplated by this Agreement and the Related



"Minority Stockholder(s)" means those Stockholders of the Company

that individually own 1% or less of the Total Outstanding Shares.



"Parent Common Stock" shall mean unregistered shares of the

common stock, $.001 par value, of Parent.



"Parent Option" shall mean any option to purchase shares of

Parent Common Stock issued pursuant to Section 2.04(c) in connection

with the substitution of an Assumed Option, without any material

changes to the Assumed Option within the meaning of Section 422 of the



"Parent Warrant" shall mean a warrant to purchase shares of

Parent Common Stock issued pursuant to Section 2.04(f) in connection

with the substitution of the GulfStar Warrant in substantially the

form attached hereto as Exhibit S.



"Person" means an individual, corporation, partnership,

association, trust or other entity or organization, including a

government or political subdivision or an agen
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