Targacept and Catalyst Biosciences Amend Definitive Merger Agreement

Targacept, Inc. TRGT and Catalyst Biosciences, Inc., a privately held biopharmaceutical company, jointly announced that they have entered into an amendment to the definitive agreement to merge the two companies. Targacept and Catalyst previously announced entering into the definitive merger agreement on March 5, 2015. On April 6, 2015, Targacept disclosed the termination, effective June 1, 2015, of the research and license agreement between Catalyst and Wyeth LLC (a wholly owned subsidiary of Pfizer), which governs the development and commercialization of Catalyst's lead product candidate CB 813d/PF-05280602, an engineered Factor VIIa in development for severe hemophilia A and B. The amended agreement between Targacept and Catalyst considers the effect on the combined company of the termination of Catalyst's research and license agreement with Wyeth. The boards of directors of both companies have unanimously approved the amendment to the merger agreement, which is subject to customary closing conditions, including approval by the stockholders of each of Targacept and Catalyst. Shareholders representing approximately 41 percent of Targacept's common stock and 82 percent of Catalyst's voting stock have signed voting agreements supporting the transaction. The agreement has been amended to reflect the following revised terms: Targacept stockholders would retain common stock representing approximately 42 percent of the combined company, as compared to approximately 35 percent under the original agreement; Targacept stockholders would own, on a pro-forma basis, approximately 57 percent of the outstanding capital of the combined company if the redeemable convertible notes to be issued to Targacept stockholders as a component of a pre-closing dividend are fully converted to common stock, as compared to 49 percent under the original agreement; A 30-month period for Targacept stockholders to convert the $37 million of redeemable convertible notes into the combined company's common stock or redeem them for cash, as compared to a 24-month period under the original agreement; and Any NNR Therapeutics™ assets not sold or otherwise disposed of prior to the closing date will remain with the combined company, rather than being placed in a liquidating trust for the benefit of Targacept stockholders. As announced on March 5, 2015, as part of the proposed merger, the operations of both companies will be combined. Targacept cash remaining in the combined company will be approximately $35 million, along with approximately $5 million of cash anticipated from Catalyst. In addition to retaining common stock representing approximately 42 percent of the combined company, Targacept stockholders will receive a dividend of an aggregate of $37 million in non-interest bearing redeemable convertible notes and approximately $19 million in cash. The notes will be convertible into the combined company's common stock or redeemable for cash at any time after closing through 30 months from closing, at the noteholders' discretion. The conversion price of the notes is equal to $1.31 per share, which represents 130 percent of the negotiated per-share value of Targacept's assets following the anticipated distribution of the dividend of approximately $19 million in cash and $37 million principal amount of the notes. The conversion price is subject to adjustment in the event of a reverse stock split of the combined company's common stock. The combined company will establish an escrow fund of cash sufficient for repayment of any notes that are not converted to stock during the conversion period. If the redeemable convertible notes are fully converted prior to their expiration, the amount held in escrow would be made available to the combined company, and on a pro-forma basis as of the anticipated closing date, the former Targacept stockholders would own approximately 57% of the outstanding capital of the combined company. The initial ownership percentages are subject to adjustment based on Catalyst's cash balance at closing. Additional Information About the Proposed Merger Stifel, Nicolaus & Company, Incorporated is acting as exclusive financial advisor to Targacept and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. is serving as its legal counsel. Morrison & Foerster LLP is serving as legal counsel for Catalyst.