<PAGE>
 
                                                                     EXHIBIT 2.1
 
 
                      AGREEMENT AND PLAN OF REORGANIZATION
 
                                  BY AND AMONG
 
                                KERAVISION, INC.
 
                          KVTT ACQUISITION CORPORATION
 
                                      AND
 
                          TRANSCEND THERAPEUTICS, INC.
 
                         Dated as of December 22, 1998
 
 

<PAGE>
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                         Page
                                                                         ----
 <C>     <S>                                                             <C>
 ARTICLE I THE MERGER...................................................   1
 
 
    1.1  The Merger....................................................    1
    1.2  Effective Time; Closing.......................................    2
    1.3  Effect of the Merger..........................................    2
    1.4  Certificate of Incorporation; Bylaws..........................    2
    1.5  Directors and Officers........................................    2
    1.6  Effect on Capital Stock.......................................    2
    1.7  Surrender of Certificates.....................................    3
    1.8  No Further Ownership Rights in Company Common Stock...........    4
    1.9  Lost, Stolen or Destroyed Certificates........................    4
    1.10 Tax and Accounting Consequences...............................    5
    1.11 Taking of Necessary Action; Further Action....................    5
 
 
 ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY...................   5
 
 
    2.1  Organization of Company.......................................    5
    2.2  Company Capital Structure.....................................    5
    2.3  Obligations With Respect to Capital Stock.....................    5
    2.4  Authority.....................................................    6
    2.5  SEC Filings; Company Financial Statements.....................    7
    2.6  Absence of Certain Changes or Events..........................    7
    2.7  Taxes.........................................................    8
    2.8  Title to Properties; Absence of Liens and Encumbrances........    9
    2.9  Intellectual Property.........................................    9
    2.10 Compliance; Permits; Restrictions.............................   11
    2.11 Litigation....................................................   11
    2.12 Brokers' and Finders' Fees....................................   12
    2.13 Employee Benefit Plans........................................   12
    2.14 Environmental Matters.........................................   15
    2.15 Agreements, Contracts and Commitments.........................   15
    2.16 Change of Control Payments....................................   16
    2.17 Statements; proxy statement/prospectus........................   16
    2.19 Board Approval................................................   17
    2.20 Fairness Opinion..............................................   17
    2.21 Section 203 of the Delaware General Corporation Law Not
         Applicable....................................................   17
    2.22 Customs.......................................................   17
 
 
 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB....  17
 
 
    3.1  Organization of Parent and Merger Sub.........................   17
    3.2  Parent and Merger Sub Capital Structure.......................   18
    3.3  Authority.....................................................   18
    3.4  SEC Filings; Parent Financial Statements......................   19
    3.5  Absence of Certain Changes or Events..........................   19
    3.6  Statements; proxy statement/prospectus........................   19
    3.7  Valid Issuance................................................   20
 
 
 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.........................  20
 
 
    4.1  Conduct of Business by Company................................   20
    4.2  Conduct of Business by Parent.................................   21
 
</TABLE>
 
                                       i

<PAGE>
 
                         TABLE OF CONTENTS--(Continued)
 
<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
 <C>     <S>                                                              <C>
 ARTICLE V ADDITIONAL AGREEMENTS........................................   22
 
 
 
    5.1  Proxy statement/prospectus; Registration Statement; Other
         Filings.......................................................    22
    5.2  Meeting of Company Stockholders...............................    23
    5.3  Confidentiality; Access to Information........................    23
    5.4  No Solicitation...............................................    24
    5.5  Public Disclosure.............................................    24
    5.6  Reasonable Efforts Notification...............................    24
    5.7  Third-Party Consents..........................................    25
    5.8  Indemnification...............................................    25
    5.9  Nasdaq Listing................................................    26
    5.10 Affiliate Agreements..........................................    26
    5.11 Regulatory Filings; Reasonable Efforts........................    26
    5.12 Updates to Net Cash...........................................    26
 
 
 ARTICLE VI CONDITIONS TO THE MERGER....................................   27
 
 
    6.1  Conditions to Obligations of Each Party to Effect the Merger..    27
    6.2  Additional Conditions to Obligations of Company...............    27
    6.3  Additional Conditions to the Obligations of Parent and Merger
         Sub...........................................................    28
 
 
 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER..........................   28
 
 
    7.1  Termination...................................................    28
    7.2  Notice of Termination Effect of Termination...................    30
    7.3  Fees and Expenses.............................................    30
    7.4  Amendment.....................................................    30
    7.5  Extension; Waiver.............................................    30
 
 
 ARTICLE VIII GENERAL PROVISIONS........................................   31
 
 
    8.1  Non-Survival of Representations and Warranties................    31
    8.2  Notices.......................................................    31
    8.3  Interpretation of Knowledge...................................    32
    8.4  Counterparts..................................................    32
    8.5  Entire Agreement; Third-Party Beneficiaries...................    32
    8.6  Severability..................................................    32
    8.7  Other Remedies; Specific Performance..........................    33
    8.8  Governing Law.................................................    33
    8.9  Rules of Construction.........................................    33
    8.10 Assignment....................................................    33
</TABLE>
 
                               INDEX OF EXHIBITS
 
<TABLE>
 <C>       <S>
 Exhibit A Form of Voting Agreement
 
 
 Exhibit B Form of Affiliate Agreement
 
 
 Exhibit C Form of Escrow Agreement
</TABLE>
 
                                       ii

<PAGE>
                      AGREEMENT AND PLAN OF REORGANIZATION
 
   This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
December 22, 1998, among KeraVision, Inc., a Delaware corporation ("Parent"),
KVTT Acquisition Corporation., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and Transcend Therapeutics, Inc., a
Delaware corporation ("Company").
 
                                    RECITALS
 
   A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Delaware General
Corporation Law ("Delaware Law"), Parent and Company intend to enter into a
business combination transaction.
 
   B. The board of directors of Company (i) has determined that the Merger (as
defined in Section 1.1) is advisable, fair to, and in the best interests of,
Company and its stockholders, (ii) has approved this Agreement, the Merger and
the other transactions contemplated by this Agreement and (iii) has determined
to recommend that the stockholders of Company adopt and approve this Agreement
and approve the Merger.
 
   C. Concurrently with the execution of this Agreement, and as a condition and
inducement to Parent's willingness to enter into this Agreement, certain
affiliates of Company constituting holders of a majority of the outstanding
shares of Company Common Stock (the "Affiliates") are entering into Voting
Agreements in substantially the form attached hereto as Exhibit A (the "Voting
Agreements").
 
   D. As a condition to the Merger, each Company Affiliate (as defined in
Section 5.10) shall enter into an Affiliate Agreement in substantially the form
attached hereto as Exhibit B (the "Affiliate Agreements").
 
   E. Concurrently with the execution of this Agreement, and as a condition and
inducement to Parent's willingness to enter into this Agreement, Company,
Parent and Chase Manhattan Bank and Trust Company are entering into an Escrow
Agreement in substantially the form attached hereto a Exhibit C (the "Escrow
Agreement").
 
   NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
 
                                   ARTICLE I
 
                                   THE MERGER
 
   1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
Company (the "Merger"), the separate corporate existence of Merger Sub shall
cease and Company shall continue as the surviving corporation. Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
 
   1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "Certificate of
Merger") (the time of such filing (or such later time as may be agreed in
writing by Company and Parent and specified in the Certificate of Merger) being
the "Effective Time") as soon as practicable on or after the Closing Date (as
herein defined). Unless the context otherwise requires, the term "Agreement" as
used herein refers collectively to this Agreement and Plan of Reorganization
and the Certificate of Merger. The closing of the
 
                                      A-1

<PAGE>
 
Merger (the "Closing") shall take place at the offices of Venture Law Group, A
Professional Corporation, at a time and date to be specified by the parties,
which shall be no later than the second business day after the satisfaction or
waiver of the conditions set forth in Article VI, or at such other time, date
and location as the parties hereto agree in writing (the "Closing Date").
 
   1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Company and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Company and Merger Sub shall become
the debts, liabilities and duties of the Surviving Corporation.
 
   1.4 Certificate of Incorporation; Bylaws.
 
    (a) At the Effective Time, the Certificate of Incorporation of Merger
  Sub, as in effect immediately prior to the Effective Time, shall be the
  Certificate of Incorporation of the Surviving Corporation until thereafter
  amended as provided by law and such Certificate of Incorporation of the
  Surviving Corporation; provided, however, that at the Effective Time the
  Certificate of Incorporation of the Surviving Corporation shall be amended
  so that the name of the Surviving Corporation shall be "Transcend
  Therapeutics, Inc."
 
    (b) The Bylaws of Merger Sub, as in effect immediately prior to the
  Effective Time, shall be, at the Effective Time, the Bylaws of the
  Surviving Corporation until thereafter amended.
 
   1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
 
   1.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, Company or the holders of any
of the following securities:
 
    (a) Conversion of Company Common Stock. Each share of Common Stock, $0.01
  par value per share, of Company (the "Company Common Stock") issued and
  outstanding immediately prior to the Effective Time, other than any shares
  of Company Common Stock to be canceled pursuant to Section 1.6(b), will be
  canceled and extinguished and automatically converted (subject to Sections
  1.6(e) and (f)) into the right to receive a number (the "Exchange Ratio")
  of shares of Common Stock of Parent (the "Parent Common Stock") calculated
  as described in Section 1.6(e) upon surrender of the certificate
  representing such share of Company Common Stock in the manner provided in
  Section 1.7 (or in the case of a lost, stolen or destroyed certificate,
  upon delivery of an affidavit (and bond, if required) in the manner
  provided in Section 1.9).
 
    (b) Cancellation of Parent-Owned Stock. Each share of Company Common
  Stock held by Company or owned by Merger Sub, Parent or any direct or
  indirect wholly owned subsidiary of Company or of Parent immediately prior
  to the Effective Time shall be canceled and extinguished without any
  conversion thereof.
 
    (c) Stock Options and Warrants. At the Effective Time, all options to
  purchase Company Common Stock then outstanding under Company's Amended and
  Restated 1994 Equity Incentive Plan (the "Plan") and all warrants to
  purchase Company Common Stock shall be canceled.
 
    (d) Capital Stock of Merger Sub. Each share of Common Stock, $0.00l par
  value per share, of Merger Sub (the "Merger Sub Common Stock") issued and
  outstanding immediately prior to the Effective Time shall be converted into
  one validly issued, fully paid and nonassessable share of Common Stock,
  $0.01 par value per share, of the Surviving Corporation. Each certificate
  evidencing ownership of shares of Merger Sub Common Stock shall evidence
  ownership of such shares of capital stock of the Surviving Corporation.
 
                                      A-2

<PAGE>
 
    (e) Calculation of Exchange Ratio. The Exchange Ratio shall equal the
  quotient obtained by dividing (i) the quotient obtained by dividing (A)
  Company's Net Cash (as defined in Section 2.5(c)) plus the Premium (defined
  below) by (B) the number of shares of Company Common Stock issued and
  outstanding immediately prior to the Effective Time by (ii) the average
  closing price of Parent's Common Stock as reported on the Nasdaq National
  Market System ("Nasdaq") for the ten trading days prior to (but not
  including) the third trading day before the Closing Date (the "Parent
  Closing Price"). The Premium shall equal twenty percent (20%) of Net Cash;
  provided, however, that if the Parent Closing Price is greater than $9
  1/16, then the Premium shall equal the percentage of Net Cash equal to the
  lesser of (i) twenty percent (20%) plus one-third of the percentage
  increase of the KeraVision Closing Price above $9 1/16 or (ii) thirty
  percent (30%). For example, if the KeraVision Closing Price is $10 1/2,
  then the Premium shall equal 25.29%, calculated as follows:
 
<TABLE>
     <C> <C>                                 <S>
     (1) $10.5 - $9.0625 = $1.4375           (difference between Parent Closing
                                             Price and $9 1/16)
     (2) ($1.4375 / $9.0625) * 100 = 15.862% (percentage increase of Parent
                                             Closing Price above $9 1/16)
     (3) 15.862% / 3 = 5.29%                 (one-third of percentage increase
                                             calculated in (2))
     (4) 20% + 5.29% = 25.29%                (twenty percent plus (3))
</TABLE>
 
    (f) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
  to reflect appropriately the effect of any stock split, reverse stock
  split, stock dividend (including any dividend or distribution of securities
  convertible into Parent Common Stock or Company Common Stock),
  reorganization, recapitalization, reclassification or other like change
  with respect to Parent Common Stock or Company Common Stock occurring on or
  after the date hereof and prior to the Effective Time.
 
    (g) Fractional Shares. No fraction of a share of Parent Common Stock will
  be issued by virtue of the Merger, but in lieu thereof each holder of
  shares of Company Common Stock who would otherwise be entitled to a
  fraction of a share of Parent Common Stock (after aggregating all
  fractional shares of Parent Common Stock that otherwise would be received
  by such holder) shall receive from Parent an amount of cash (rounded to the
  nearest whole cent) equal to the product of (i) such fraction, multiplied
  by (ii) the Parent Closing Price.
 
   1.7 Surrender of Certificates.
 
    (a) Exchange Agent. Parent shall select a bank or trust company
  reasonably acceptable to Company to act as the exchange agent (the
  "Exchange Agent") in the Merger.
 
    (b) Parent to Provide Common Stock. Promptly after the Effective Time,
  Parent shall make available to the Exchange Agent for exchange in
  accordance with this Article I, the shares of Parent Common Stock issuable
  pursuant to Section 1.6 in exchange for outstanding shares of Company
  Common Stock, and cash in an amount sufficient for payment in lieu of
  fractional shares pursuant to Section 1.6(g) and any dividends or
  distributions to which holders of shares of Company Common Stock may be
  entitled pursuant to Section 1.7(d).
 
    (c) Exchange Procedures. Promptly after the Effective Time, Parent shall
  cause the Exchange Agent to mail to each holder of record (as of the
  Effective Time) of a certificate or certificates (the "Certificates"),
  which immediately prior to the Effective Time represented outstanding
  shares of Company Common Stock whose shares were converted into shares of
  Parent Common Stock pursuant to Section 1.6, cash in lieu of any fractional
  shares pursuant to Section 1.6(g) and any dividends or other distributions
  pursuant to Section 1.7(d), (i) a letter of transmittal in customary form
  (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 contain such other provisions
  as Parent may reasonably specify) and (ii) instructions for use in
  effecting the surrender of the Certificates in exchange for certificates
  representing shares of Parent Common Stock, cash in lieu of any fractional
  shares pursuant to Section 1.6(g) and any dividends or other distributions
  pursuant to Section 1.7(d). Upon surrender of Certificates for cancellation
  to the Exchange 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 in accordance with
 
                                      A-3

<PAGE>
 
  the instructions thereto, the holders of such Certificates shall be
  entitled to receive in exchange therefor certificates representing the
  number of whole shares of Parent Common Stock into which their shares of
  Company Common Stock were converted at the Effective Time, payment in lieu
  of fractional shares which such holders have the right to receive pursuant
  to Section 1.6(g) and any dividends or distributions payable pursuant to
  Section 1.7(d), and the Certificates so surrendered shall forthwith be
  canceled. Until so surrendered, outstanding Certificates will be deemed
  from and after the Effective Time, for all corporate purposes, subject to
  Section 1.7(d) as to the payment of dividends, to evidence only the
  ownership of the number of full shares of Parent Common Stock into which
  such shares of Company Common Stock shall have been so converted and the
  right to receive an amount in cash in lieu of the issuance of any
  fractional shares in accordance with Section 1.6(g) and any dividends or
  distributions payable pursuant to Section 1.7(d).
 
    (d) Distributions With Respect to Unexchanged Shares. No dividends or
  other distributions declared or made after the date of this Agreement with
  respect to Parent Common Stock with a record date after the Effective Time
  will be paid to the holders of any unsurrendered Certificates with respect
  to the shares of Parent Common Stock represented thereby until the holders
  of record of such Certificates shall surrender such Certificates. Subject
  to applicable law, following surrender of any such Certificates, the
  Exchange Agent shall deliver to the record holders thereof, without
  interest, certificates representing whole shares of Parent Common Stock
  issued in exchange therefor along with payment in lieu of fractional shares
  pursuant to Section 1.6(g) hereof and the amount of any such dividends or
  other distributions with a record date after the Effective Time payable
  with respect to such whole shares of Parent Common Stock.
 
    (e) Transfers of Ownership. If certificates representing shares of Parent
  Common Stock are to be issued in a name other than that in which the
  Certificates surrendered in exchange therefor are registered, it will be a
  condition of the issuance thereof that the Certificates so surrendered will
  be properly endorsed and otherwise in proper form for transfer and that the
  persons requesting such exchange will have paid to Parent or any agent
  designated by it any transfer or other taxes required by reason of the
  issuance of certificates representing shares of Parent Common Stock in any
  name other than that of the registered holder of the Certificates
  surrendered, or established to the satisfaction of Parent or any agent
  designated by it that such tax has been paid or is not payable.
 
    (f) No Liability. Notwithstanding anything to the contrary in this
  Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation
  nor any party hereto shall be liable to a holder of shares of Parent Common
  Stock or Company Common Stock for any amount properly paid to a public
  official pursuant to any applicable abandoned property, escheat or similar
  law.
 
   1.8 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Company Common Stock, and there shall be no further registration
of transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If
after the Effective Time Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
 
   1.9 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to
Section 1.6, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(g) and any dividends or distributions payable pursuant to Section
1.7(d); provided, however, that Parent may, in its discretion and as a
condition precedent to the issuance of such certificates representing shares of
Parent Common Stock, cash and other distributions, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may
 
                                      A-4

<PAGE>
 
be made against Parent, the Surviving Corporation or the Exchange Agent with
respect to the Certificates alleged to have been lost, stolen or destroyed.
 
   1.10 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall not constitute a reorganization within the meaning of
Section 368 of the Code, provided that no party makes any representation to any
other party or its Shareholders as to the tax consequences of the Merger or
commits to take any action to effect the foregoing intent except as may be
expressly provided herein.
 
   1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action. Parent shall
cause Merger Sub to perform all of its obligations relating to this Agreement
and the transactions contemplated thereby.
 
                                   ARTICLE II
 
                   REPRESENTATIONS AND WARRANTIES OF COMPANY
 
   Company represents and warrants to Parent and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter and
referencing a specific representation supplied by Company to Parent dated as of
the date hereof (the "Company Disclosure Letter"), as follows:
 
   2.1 Organization of Company.
 
    (a) Company (i) is a corporation or other legal entity duly organized,
  validly existing and in good standing under the laws of the jurisdiction in
  which it is organized; (ii) has the corporate or other power and authority
  to own, lease and operate its assets and property and to carry on its
  business as now being conducted; and (iii), except as would not be material
  to Company, is duly qualified or licensed to do business in each
  jurisdiction where the character of the properties owned, leased or
  operated by it or the nature of its activities makes such qualification or
  licensing necessary.
 
    (b) Company has no subsidiaries and has never had any subsidiaries.
 
    (c) Company has delivered or made available to Parent a true and correct
  copy of the Certificate of Incorporation and Bylaws of Company, each as
  amended to date, and each such instrument is in full force and effect.
  Company is not in violation of any of the provisions of its Certificate of
  Incorporation or Bylaws or equivalent governing instruments.
 
   2.2 Company Capital Structure. The authorized capital stock of Company
consists of 25,000,000 shares of Common Stock, $0.01 par value per share, of
which there were 5,763,091 shares issued and outstanding as of November 30,
1998, and 5,000,000 shares of Preferred Stock, $0.01 par value per share, of
which no shares are issued or outstanding. All outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid and nonassessable,
are not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Company or any agreement or document to which
Company is a party or by which it is bound and were issued in compliance with
applicable federal and state securities laws. As of November 30, 1998, Company
had reserved an aggregate of 665,745 shares of Company Common Stock, net of
exercises, for issuance pursuant to the Plan. As of November 30, 1998, there
were options outstanding to purchase an aggregate of 201,800 shares of Company
Common Stock pursuant to the Plan.
 
   2.3 Obligations With Respect to Capital Stock. There are no equity
securities, partnership interests or similar ownership interests of any class
of Company equity security, or any securities exchangeable or convertible into
or exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as
set forth in Section 2.2 of the Company Disclosure
 
                                      A-5

<PAGE>
 
Letter, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Company
is a party or by which it is bound obligating Company to issue, deliver or
sell, or cause to be issued, delivered or sold, or repurchase, redeem or
otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests or similar ownership interests
of Company or obligating Company to grant, extend, accelerate the vesting of or
enter into any such subscription, option, warrant, equity security, call,
right, commitment or agreement. As of the date of this Agreement, except as
contemplated by this Agreement, there are no registration rights and there is
no voting trust, proxy, rights plan, antitakeover plan or other agreement or
understanding to which Company is a party or by which it is bound with respect
to any equity security of any class of Company or with respect to any equity
security, partnership interest or similar ownership interest of any class of
any of its subsidiaries. Stockholders of Company will not be entitled to
dissenters' rights under applicable state law in connection with the Merger.
 
   2.4 Authority.
 
    (a) Company has all requisite corporate power and authority to enter into
  this Agreement and to consummate the transactions contemplated hereby. The
  execution and delivery of this Agreement and the consummation of the
  transactions contemplated hereby have been duly authorized by all necessary
  corporate action on the part of Company, subject only to the approval and
  adoption of this Agreement and the approval of the Merger by Company's
  stockholders and the filing of the Certificate of Merger pursuant to
  Delaware Law. A vote of the holders of a majority of the outstanding shares
  of the Company Common Stock is sufficient for Company's stockholders to
  approve and adopt this Agreement and approve the Merger. This Agreement has
  been duly executed and delivered by Company and, upon execution and
  delivery by Parent and Merger Sub, shall constitute a valid and binding
  obligation of Company, enforceable against Company in accordance with its
  terms, except as enforceability may be limited by bankruptcy and other
  similar laws and general principles of equity. The execution and delivery
  of this Agreement by Company does not, and the performance of this
  Agreement by Company will not, (i) conflict with or violate the Certificate
  of Incorporation or Bylaws of Company or the equivalent organizational
  documents of any of its subsidiaries, (ii) subject to obtaining the
  approval and adoption of this Agreement and the approval of the Merger by
  Company's stockholders as contemplated in Section 5.2 and compliance with
  the requirements set forth in Section 2.4(b) below, conflict with or
  violate any law, rule, regulation, order, judgment or decree applicable to
  Company or by which Company or any of its properties is bound or affected,
  or (iii) result in any material breach of or constitute a material default
  (or an event that with notice or lapse of time or both would become a
  material default) under, or impair Company's rights or alter the rights or
  obligations of any third party under, or give to others any rights of
  termination, amendment, acceleration or cancellation of, or result in the
  creation of a material lien or encumbrance on any of the material
  properties or assets of Company pursuant to, any material note, bond,
  mortgage, indenture, contract, agreement, lease, license, permit,
  franchise, concession, or other instrument or obligation to which Company
  is a party or by which Company or its or any of their respective assets are
  bound or affected. The Company Disclosure Letter list all consents, waivers
  and approvals under any of Company's agreements, contracts, licenses or
  leases required to be obtained in connection with the consummation of the
  transactions contemplated hereby, which, if individually or in the
  aggregate not obtained, would result in a material loss of benefits to
  Company, Parent or the Surviving Corporation as a result of the Merger.
 
    (b) No consent, approval, order or authorization of, or registration,
  declaration or filing with any court, administrative agency or commission
  or other governmental authority or instrumentality, foreign or domestic
  ("Governmental Entity"), is required to be obtained or made by Company in
  connection with the execution and delivery of this Agreement or the
  consummation of the Merger, except for (i) the filing of the Certificate of
  Merger with the Secretary of State of the State of Delaware, (ii) the
  filing of the proxy statement/prospectus (as defined in Section 2.17) with
  the Securities and Exchange Commission ("SEC") in accordance with the
  Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iii)
  such consents, approvals, orders, authorizations, registrations,
  declarations and filings as may be required under
 
                                      A-6

<PAGE>
 
  applicable federal, foreign and state securities (or related) laws and the
  Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
  Act"), and the securities or antitrust laws of any foreign country, and
  (iv) such other consents, authorizations, filings, approvals and
  registrations which if not obtained or made would not be material to
  Company or Parent or have a material adverse effect on the ability of the
  parties hereto to consummate the Merger.
 
   2.5 SEC Filings; Company Financial Statements.
 
    (a) Company has filed all forms, reports and documents required to be
  filed by Company with the SEC since July 2, 1997. All such required forms,
  reports and documents (including those that Company may file subsequent to
  the date hereof) are referred to herein as the "Company SEC Reports." As of
  their respective dates, the Company SEC Reports (i) were prepared in
  accordance with the requirements of the Securities Act of 1933, as amended
  (the "Securities Act"), or the Exchange Act, as the case may be, and the
  rules and regulations of the SEC thereunder applicable to such Company SEC
  Reports and (ii) did not at the time they were filed (or if amended or
  superseded by a filing prior to the date of this Agreement, then on the
  date of such filing) contain any untrue statement of a material fact or
  omit to state a material fact required to be stated therein or necessary in
  order to make the statements therein, in the light of the circumstances
  under which they were made, not misleading. None of Company's subsidiaries
  is required to file any forms, reports or other documents with the SEC.
 
    (b) Each of the financial statements (including, in each case, any
  related notes thereto) contained in the Company SEC Reports (the "Company
  Financials"), including each Company SEC Reports filed after the date
  hereof until the Closing, (i) complied as to form in all material respects
  with the published rules and regulations of the SEC with respect thereto,
  (ii) was prepared in accordance with United States generally accepted
  accounting principles ("GAAP") applied on a consistent basis throughout the
  periods involved (except as may be indicated in the notes thereto or, in
  the case of unaudited interim financial statements, as may be permitted by
  the SEC on Form 10-Q under the Exchange Act) and (iii) fairly presented the
  financial position of Company and its subsidiaries as at the respective
  dates thereof and the results of Company's operations and cash flows for
  the periods indicated, except that the unaudited interim financial
  statements may not contain footnotes and were or are subject to normal and
  recurring year-end adjustments. The unaudited balance sheet of Company
  contained in the Company Disclosure Letter as of November 30, 1998 is
  hereinafter referred to as the "Company Balance Sheet." Company has no
  material obligations or liabilities of any nature (matured or unmatured,
  fixed or contingent) other than (i) those set forth or adequately provided
  for in the Company Balance Sheet, (ii) those not required under GAAP to be
  set forth in the Company Balance Sheet, (iii) those incurred in the
  ordinary course of business since the date of the Company Balance Sheet and
  consistent with past practice and (iv) those incurred in connection with
  the execution and delivery of this Agreement.
 
    (c) Section 2.5(c) of the Company Disclosure Letter contains an itemized
  calculation of Company's Net Cash position as of November 30, 1998 (as
  updated through the Closing Date, "Net Cash"). Net Cash is calculated by
  subtracting from Company's cash balances (as shown on the Company Balance
  Sheet) all restricted cash, current liabilities and other such liabilities
  as set forth in the Section 2.5(c) of the Company Disclosure Letter. Except
  as set forth on Section 2.5(c) of the Company Disclosure Letter, to
  Company's reasonable knowledge, there are no actual or potential
  obligations by Company to pay any cash to any third party.
 
    (d) Company has heretofore furnished to Parent a complete and correct
  copy of any amendments or modifications, which have not yet been filed with
  the SEC but which will be required to be filed, to agreements, documents or
  other instruments which previously had been filed by Company with the SEC
  pursuant to the Securities Act or the Exchange Act.
 
   2.6 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet there has not been: (i) any Material Adverse Effect (as defined
in Section 8.3(c)) on Company, (ii) any declaration, setting aside or payment
of any dividend on, or other distribution (whether in cash, stock or property)
in respect of,
 
                                      A-7

<PAGE>
 
any of Company's capital stock, or any purchase, redemption or other
acquisition by Company of any of Company's capital stock or any other
securities of Company or any options, warrants, calls or rights to acquire any
such shares or other securities, (iii) any split, combination or
reclassification of any of Company's capital stock, (iv) any granting by
Company of any increase in compensation or fringe benefits, or any payment by
Company of any bonus, or any granting by Company of any increase in severance
or termination pay or any entry by Company into any currently effective
employment, severance, termination or indemnification agreement or any
agreement the benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction involving Company of
the nature contemplated hereby, (v) entry by Company into any licensing or
other agreement with regard to the acquisition or disposition of any material
Company Intellectual Property (as defined in Section 2.9) or any amendment or
consent with respect to any licensing agreement filed or required to be filed
by Company with the SEC, (vi) any material change by Company in its accounting
methods, principles or practices, except as required by concurrent changes in
GAAP, or (vii) any revaluation by Company of any of its assets, including,
without limitation, writing down the value of capitalized inventory or writing
off notes or accounts receivable other than in the ordinary course of business.
 
   2.7 Taxes.
 
    (a) Definition of Taxes. For the purposes of this Agreement, "Tax" or
  "Taxes" refers to any and all federal, state, local and foreign taxes,
  assessments and other governmental charges, duties, impositions and
  liabilities relating to taxes, including taxes based upon or measured by
  gross receipts, income, profits, sales, use and occupation, and value
  added, ad valorem, transfer, franchise, withholding, payroll, recapture,
  employment, excise and property taxes, together with all interest,
  penalties and additions imposed with respect to such amounts and any
  obligations under any agreements or arrangements with any other person with
  respect to such amounts and including any liability for taxes of a
  predecessor entity.
 
    (b) Tax Returns and Audits.
 
      (i) Company has timely filed all federal, state, local and foreign
    returns, estimates, information statements and reports ("Returns")
    relating to Taxes required to be filed by Company with any Tax
    authority, except such Returns which are not material to Company, and
    have paid all Taxes shown to be due on such Returns.
 
      (ii) Company as of the Effective Time will have withheld with respect
    to its employees all federal and state income taxes, Taxes pursuant to
    the Federal Insurance Contribution Act ("FICA"), Taxes pursuant to the
    Federal Unemployment Tax Act ("FUTA") and other Taxes required to be
    withheld.
 
      (iii) Company has not been delinquent in the payment of any Tax nor
    is there any Tax deficiency outstanding, proposed or assessed against
    Company or any of its subsidiaries, nor has Company executed any
    unexpired waiver of any statute of limitations on or extending the
    period for the assessment or collection of any Tax.
 
      (iv) No audit or other examination of any Return of Company by any
    Tax authority is presently in progress, nor has Company been notified
    of any request for such an audit or other examination.
 
      (v) No adjustment relating to any Returns filed by Company has been
    proposed in writing formally or informally by any Tax authority to
    Company or any representative thereof.
 
      (vi) Company has no liability for unpaid Taxes which has not been
    accrued for or reserved on the Company Balance Sheet, whether asserted
    or unasserted, contingent or otherwise, which is material to Company,
    other than any liability for unpaid Taxes that may have accrued since
    the date of the Company Balance Sheet in connection with the operation
    of the business of Company in the ordinary course.
 
      (vii) There is no contract, agreement, plan or arrangement to which
    Company is a party as of the date of this Agreement, including but not
    limited to the provisions of this Agreement, covering
 
                                      A-8

<PAGE>
 
    any employee or former employee of Company, individually or
    collectively, could give rise to the payment of any amount that would
    not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
 
      (viii) Company has not filed any consent agreement under Section
    341(f) of the Code or agreed to have Section 341(f)(2) of the Code
    apply to any disposition of a subsection (f) asset (as defined in
    Section 341(f)(4) of the Code) owned by Company.
 
      (ix) Company is not a party to or has any obligation under any tax-
    sharing, tax indemnity or tax allocation agreement or arrangement.
 
      (x) Except as may be required as a result of the Merger, Company has
    not been and will not be required to include any adjustment in Taxable
    income for any Tax period (or portion thereof) pursuant to Section 481
    or Section 263A of the Code or any comparable provision under state or
    foreign Tax laws as a result of transactions, events or accounting
    methods employed prior to the Closing T.
 
      (xi) Company's assets are not tax exempt use property within the
    meaning of Section 168(h) of the Code.
 
      (xii) The Company Disclosure Letter lists (A) any foreign Tax
    holidays, (B) any intercompany transfer pricing agreements, or other
    arrangements that have been established by Company or any of its
    subsidiaries with any Tax authority and (C) any expatriate programs or
    policies affecting Company.
 
   2.8 Title to Properties; Absence of Liens and Encumbrances.
 
    (a) Company owns no real property and has never owned any real property.
  The Company Disclosure Letter lists all real property leases to which
  Company is a party as of the date of this Agreement and each amendment
  thereto that is in effect as of the date of this Agreement. All such
  current leases are in full force and effect, are valid and effective in
  accordance with their respective terms, and there is not, under any of such
  leases, any existing default or event of default (or event which with
  notice or lapse of time, or both, would constitute a default) that would
  give rise to a claim in an amount greater than $15,000.
 
    (b) Company has good and valid title to, or, in the case of leased
  properties and assets, valid leasehold interests in, all of its tangible
  properties and assets, real, personal and mixed, used or held for use in
  its business, free and clear of any liens, pledges, charges, claims,
  security interests or other encumbrances of any sort ("Liens"), except as
  reflected in the Company Financials and except for liens for taxes not yet
  due and payable and such Liens or other imperfections of title and
  encumbrances, if any, which are not material in character, amount or
  extent, and which do not materially detract from the value, or materially
  interfere with the present use, of the property subject thereto or affected
  thereby.
 
   2.9 Intellectual Property. For the purposes of this Agreement, the following
terms have the following definitions:
 
    "Intellectual Property" shall mean any or all of the following and all
  rights in, arising out of, or associated therewith: (i) all United States,
  international and foreign patents and applications therefor and all
  reissues, divisions, renewals, extensions, provisionals, continuations and
  continuations-in-part thereof; (ii) all inventions (whether patentable or
  not), invention disclosures, improvements, trade secrets, proprietary
  information, know how, technology, technical data and customer lists, and
  all documentation relating to any of the foregoing; (iii) all copyrights,
  copyright registrations and applications therefor, and all other rights
  corresponding thereto throughout the world; (iv) all industrial designs and
  any registrations and applications therefor throughout the world; (v) all
  trade names, logos, common law trademarks and service marks, trademark and
  service mark registrations and applications therefor throughout the world;
  (vi) all databases and data collections and all rights therein throughout
  the world; (vii) all moral and
 
                                      A-9

<PAGE>
 
  economic rights of authors and inventors, however denominated, throughout
  the world, and (viii) any similar or equivalent rights to any of the
  foregoing anywhere in the world.
 
    "Company Intellectual Property" shall mean any Intellectual Property that
  is owned by, or exclusively licensed to, Company.
 
    "Registered Intellectual Property" means all United States, international
  and foreign: (i) patents and patent applications (including provisional
  applications); (ii) registered trademarks, applications to register
  trademarks, intent-to-use applications, or other registrations or
  applications related to trademarks; (iii) registered copyrights and
  applications for copyright registration; and (iv) any other Intellectual
  Property that is the subject of an application, certificate, filing,
  registration or other document issued, filed with, or recorded by any
  state, government or other public legal authority.
 
    "Company Registered Intellectual Property" means all of the Registered
  Intellectual Property owned by, or filed in the name of, Company.
 
    (a) No material Company Intellectual Property or product or service of
  Company is subject to any proceeding or outstanding decree, order,
  judgment, agreement, or stipulation restricting in any manner the use,
  transfer, or licensing thereof by Company, or which may affect the
  validity, use or enforceability of such Company Intellectual Property.
 
    (b) To Company's knowledge, each material item of Company Registered
  Intellectual Property is valid and subsisting, all necessary registration,
  maintenance and renewal fees currently due in connection with such
  Registered Intellectual Property have been made and all necessary
  documents, recordations and certificates in connection with such Registered
  Intellectual Property have been filed with the relevant patent, copyright,
  trademark or other authorities in the United States or foreign
  jurisdictions, as the case may be, for the purposes of maintaining such
  Registered Intellectual Property.
 
    (c) Company owns and has good and exclusive title to, or has license
  (sufficient for the conduct of its business as currently conducted and as
  proposed to be conducted) to, each material item of Company Intellectual
  Property free and clear of any lien or encumbrance (excluding licenses and
  related restrictions); and Company is the exclusive owner of all trademarks
  and trade names used in connection with the operation or conduct of the
  business of Company, including the sale of any products or the provision of
  any services by Company.
 
    (d) Company owns exclusively, and has good title to, all copyrighted
  works that are Company products or which Company otherwise expressly
  purports to own.
 
    (e) To the extent that any material Intellectual Property has been
  developed or created by a third party for Company, Company has a written
  agreement with such third party with respect thereto and Company thereby
  either (i) has obtained ownership of, and is the exclusive owner of, or
  (ii) has obtained a license (sufficient for the conduct of its business as
  currently conducted and as proposed to be conducted) to all such third
  party's Intellectual Property in such work, material or invention by
  operation of law or by valid assignment, to the fullest extent it is
  legally possible to do so.
 
    (f) Company has not transferred ownership of, or granted any exclusive
  license with respect to, any Intellectual Property that is or was material
  Company Intellectual Property, to any third party.
 
    (g) The Company Disclosure Letter lists all material contracts, licenses
  and agreements to which Company is a party (i) with respect to Company
  Intellectual Property licensed or transferred to any third party (other
  than end-user licenses in the ordinary course), or (ii) pursuant to which a
  third party has licensed or transferred any material Intellectual Property
  to Company.
 
    (h) All material contracts, licenses and agreements relating to the
  Company Intellectual Property are in full force and effect. The
  consummation of the transactions contemplated by this Agreement will
  neither violate nor result in the breach, modification, cancellation,
  termination, or suspension of such contracts, licenses and agreements.
  Company is in material compliance with, and has not materially breached any
 
                                      A-10
 

<PAGE>
 
  term any of, such contracts, licenses and agreements and, to the knowledge
  of Company, all other parties to such contracts, licenses and agreements
  are in compliance with, and have not materially breached any term of, such
  contracts, licenses and agreements. Following the Closing Date, the
  Surviving Corporation will be permitted to exercise all of Company's rights
  under such contracts, licenses and agreements to the same extent Company
  would have been able to had the transactions contemplated by this Agreement
  not occurred and without the payment of any additional amounts or
  consideration other than ongoing fees, royalties or payments which Company
  would otherwise be required to pay.
 
    (i) The operation of the business of Company as such business has been
  conducted, including Company's design, development, manufacture, marketing
  and sale of the products or services of Company (including with respect to
  products currently under development) has not, does not and will not
  infringe or misappropriate the Intellectual Property of any third party or,
  to its knowledge, constitute unfair competition or trade practices under
  the laws of any jurisdiction.
 
    (j) Company has not received notice from any third party that the
  operation of the business of Company or any act, product or service of
  Company, infringes or misappropriates the Intellectual Property of any
  third party or constitutes unfair competition or trade practices under the
  laws of any jurisdiction.
 
    (k) To the knowledge of Company, no person has or is infringing or
  misappropriating any Company Intellectual Property.
 
    (l) Company has taken reasonable steps to protect Company's rights in
  Company's confidential information and trade secrets that it wishes to
  protect or any trade secrets or confidential information of third parties
  provided to Company, and, without limiting the foregoing, Company has and
  enforces a policy requiring each employee and contractor to execute a
  proprietary information/confidentiality agreement substantially in the form
  provided to Parent and all current and former employees and contractors of
  Company have executed such an agreement, except where the failure to do so
  is not reasonably expected to be material to Company.
 
   2.10 Compliance; Permits; Restrictions.
 
    (a) Company is not in conflict with, or in default or in violation of (i)
  any law, rule, regulation, order, judgment or decree applicable to Company
  or by which Company or any of its subsidiaries or any of their respective
  properties is bound or affected, or (ii) any material note, bond, mortgage,
  indenture, contract, agreement, lease, license, permit, franchise or other
  instrument or obligation to which Company is a party or by which Company or
  any of its properties is bound or affected, except for conflicts,
  violations and defaults that (individually or in the aggregate) would not
  cause Company to lose any material benefit or incur any material liability.
  No investigation or review by any Governmental Entity is pending or, to
  Company's knowledge, has been threatened. Company is not aware of any facts
  or circumstances concerning Company that could reasonably be expected to
  give rise to any investigation of Company by any Government Entity. There
  is no material agreement, judgment, injunction, order or decree binding
  upon Company or any of its subsidiaries which has or could reasonably be
  expected to have the effect of prohibiting or materially impairing any
  business practice of Company or any of its subsidiaries, any acquisition of
  material property by Company or any of its subsidiaries or the conduct of
  business by Company as currently conducted.
 
    (b) Company holds, to the extent legally required, all permits, licenses,
  variances, exemptions, orders and approvals from governmental authorities
  that are material to and required for the operation of the business of
  Company as currently conducted (collectively, the "Company Permits").
  Company is in compliance in all material respects with the terms of the
  Company Permits, except where the failure to be in compliance with the
  terms of the Company Permits would not be material to Company.
 
   2.11 Litigation. There are no claims, suits, actions or proceedings pending
or, to the knowledge of the Company, threatened against, relating to or
affecting Company, before any court, governmental department, commission,
agency, instrumentality or authority, or any arbitrator that seeks to restrain
or enjoin the
 
                                      A-11

<PAGE>
 
consummation of the transactions contemplated by this Agreement or which could
reasonably be expected, either singularly or in the aggregate with all such
claims, actions or proceedings, to have a material effect. Company is not aware
of any facts or circumstances concerning Company that could reasonably be
expected to give rise to any claim, suit, action or proceeding against Company
by any third party. Except for the United States Food and Drug Administration
and similar agencies of foreign governments, no Governmental Entity has at any
time challenged or questioned in a writing delivered to Company the legal right
of Company to design, manufacture, offer or sell any of its products in the
present manner or style thereof.
 
   Company has never been subject to an audit, compliance review, investigation
or like contract review by the GSA Office of the Inspector General or other
Governmental Entity or agent thereof in connection with any government contract
(a "Government Audit"). To Company's knowledge, no Government Audit is
threatened, and in the event of such Government Audit, to the knowledge of
Company no basis exists for a finding of noncompliance with any material
provision of any government contract or a refund of any amounts paid or owed by
any Governmental Entity pursuant to such government contract. Company is not
aware of any facts or circumstances concerning Company that could reasonably be
expected to give rise to any Government Audit. For each item disclosed in the
Company Schedule pursuant to this Section 2.11 a true and complete copy of all
correspondence and documentation with respect thereto has been provided to
Parent.
 
   2.12 Brokers' and Finders' Fees. Except for fees payable to EVEREN
Securities, Inc. pursuant to an engagement letter dated August 20, 1998, a copy
of which has been provided to Parent, Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
 
   2.13 Employee Benefit Plans.
 
  (a) Definitions. With the exception of the definition of "Affiliate" set
  forth in Section 2.13(a)(i) below (which definition shall apply only to
  this Section 2.13), for purposes of this Agreement, the following terms
  shall have the meanings set forth below:
 
      (i) "Affiliate" shall mean any other person or entity under common
    control with Company within the meaning of Section 414(b), (c), (m) or
    (o) of the Code and the regulations issued thereunder;
 
      (ii) "Company Employee Plan" shall mean any plan, program, policy,
    practice, contract, agreement or other arrangement providing for
    compensation, severance, termination pay, performance awards, stock or
    stock-related awards, fringe benefits or other employee benefits or
    remuneration of any kind, whether written or unwritten or otherwise,
    funded or unfunded, including without limitation, each "employee
    benefit plan," within the meaning of Section 3(3) of ERISA which is or
    has been maintained, contributed to, or required to be contributed to,
    by Company or any Affiliate for the benefit of any Employee;
 
      (iii) "COBRA" shall mean the Consolidated Omnibus Budget
    Reconciliation Act of 1985, as amended;
 
      (iv) "DOL" shall mean the Department of Labor;
 
      (v) "Employee" shall mean any current, former, or retired employee,
    officer, or director of Company or any Affiliate;
 
      (vi) "Employee Agreement" shall mean each management, employment,
    severance, consulting, relocation, repatriation, expatriation, visas,
    work permit or similar agreement or contract between Company or any
    Affiliate and any Employee or consultant;
 
      (vii) "ERISA" shall mean the Employee Retirement Income Security Act
    of 1974, as amended;
 
      (viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
    amended;
 
      (ix) "IRS" shall mean the Internal Revenue Service;
 
                                      A-12
<PAGE>
 
      (x) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
    below) which is a "multiemployer plan," as defined in Section 3(37) of
    ERISA;
 
      (xi) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
 
      (xii) "Pension Plan" shall mean each Company Employee Plan which is
    an "employee pension benefit plan," within the meaning of Section 3(2)
    of ERISA.
 
    (b) Schedule. The Company Disclosure Letter contains an accurate and
  complete list of each Company Employee Plan and each material Employee
  Agreement. Company does not have any plan or commitment to establish any
  new Company Employee Plan, to modify any Company Employee Plan or Employee
  Agreement (except to the extent required by law or to conform any such
  Company Employee Plan or Employee Agreement to the requirements of any
  applicable law, in each case as previously disclosed to Parent in writing,
  or as required by this Agreement), or to enter into any Company Employee
  Plan or material Employee Agreement, nor does it have any intention or
  commitment to do any of the foregoing.
 
    (c) Documents. Company has provided or made available to Parent: (i)
  correct and complete copies of all documents embodying to each Company
  Employee Plan and each Employee Agreement including all amendments thereto
  and written interpretations thereof; (ii) the most recent annual actuarial
  valuations, if any, prepared for each Company Employee Plan; (iii) the
  three (3) most recent annual reports (Form Series 5500 and all schedules
  and financial statements attached thereto), if any, required under ERISA or
  the Code in connection with each Company Employee Plan or related trust;
  (iv) if the Company Employee Plan is funded, the most recent annual and
  periodic accounting of Company Employee Plan assets; (v) the most recent
  summary plan description together with the summary of material
  modifications thereto, if any, required under ERISA with respect to each
  Company Employee Plan; (vi) all IRS determination, opinion, notification
  and advisory letters, and rulings relating to Company Employee Plans and
  copies of all applications and correspondence to or from the IRS or the DOL
  with respect to any Company Employee Plan; (vii) all material written
  agreements and contracts relating to each Company Employee Plan, including,
  but not limited to, administrative service agreements, group annuity
  contracts and group insurance contracts; (viii) all communications material
  to any Employee or Employees relating to any Company Employee Plan and any
  proposed Company Employee Plans, in each case, relating to any amendments,
  terminations, establishments, increases or decreases in benefits,
  acceleration of payments or vesting schedules or other events which would
  result in any material liability to Company; (ix) all COBRA forms and
  related notices; and (x) all registration statements and prospectuses
  prepared in connection with each Company Employee Plan.
 
    (d) Employee Plan Compliance. (i) Company has performed in all material
  respects all obligations required to be performed by it under, is not in
  any material respect in default or violation of, and has no knowledge of
  any default or violation by any other party to, each Company Employee Plan,
  and each Company Employee Plan has been established and maintained in all
  material respects in accordance with its terms and in compliance with all
  applicable laws, statutes, orders, rules and regulations, including but not
  limited to ERISA or the Code; (ii) each Company Employee Plan intended to
  qualify under Section 401(a) of the Code and each trust intended to qualify
  under Section 501(a) of the Code has either received a favorable
  determination letter from the IRS with respect to each such Plan as to its
  qualified status under the Code, including all amendments to the Code
  effected by the Tax Reform Act of 1986 and subsequent legislation, or has
  remaining a period of time under applicable Treasury regulations or IRS
  pronouncements in which to apply for such a determination letter and make
  any amendments necessary to obtain a favorable determination, or is
  maintained pursuant to a standardized prototype plan; (iii) no "prohibited
  transaction," within the meaning of Section 4975 of the Code or Sections
  406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA,
  has occurred with respect to any Company Employee Plan; (iv) there are no
  actions, suits or claims pending, or, to the knowledge of Company,
  threatened or reasonably anticipated (other than routine claims for
  benefits) against any Company Employee Plan or against the assets of any
  Company Employee Plan; (v) each Company
 
                                      A-13

<PAGE>
 
  Employee Plan can be amended, terminated or otherwise discontinued
  immediately prior to the Effective Time in accordance with its terms,
  without liability to Parent, Company or any of its Affiliates (other than
  ordinary administration expenses typically incurred in a termination event
  or benefits accrued through the date of such amendment, termination or
  discontinuance); (vi) there are no audits, inquiries or proceedings pending
  or, to the knowledge of Company or any Affiliates, threatened by the IRS or
  DOL with respect to any Company Employee Plan; and (vii) neither Company
  nor any Affiliate is subject to any material penalty or tax with respect to
  any Company Employee Plan under Section 402(i) of ERISA or Sections 4975
  through 4980 of the Code.
 
    (e) Pension Plans. Company does not now, nor has it ever, maintained,
  established, sponsored, participated in, or contributed to, any Pension
  Plan which is subject to Title IV of ERISA or Section 412 of the Code.
 
    (f) Multiemployer Plans. At no time has Company contributed to or been
  required to contribute to any Multiemployer Plan.
 
    (g) No Post-Employment Obligations. No Company Employee Plan provides, or
  has any liability to provide, retiree life insurance, retiree health or
  other retiree employee welfare benefits to any person for any reason,
  except as may be required by COBRA or other applicable statute, and Company
  has never represented, promised or contracted (whether in oral or written
  form) to any Employee (either individually or to Employees as a group) or
  any other person that such Employee(s) or other person would be provided
  with retiree life insurance, retiree health or other retiree employee
  welfare benefit, except to the extent required by statute. Except for
  obligations set forth on Schedule 2.5(c), Parent shall incur no liability
  with respect to or on account of any Company Employee Plan, including
  without limitation liabilities Company may have to employees or former
  employees under all Company Employee Plans, or to any employee as a result
  of termination of employment by Company.
 
    (h) Neither Company nor any Affiliate has, prior to the Effective Time,
  and in any material respect, violated any of the health care continuation
  requirements of COBRA, the requirements of FMLA or any similar provisions
  of state law applicable to its Employees.
 
    (i) Effect of Transaction.
 
      (i) The execution of this Agreement and the consummation of the
    transactions contemplated hereby will not (either alone or upon the
    occurrence of any additional or subsequent events) constitute an event
    under any Company Employee Plan, Employee Agreement, trust or loan that
    will or may result in any payment (whether of severance pay or
    otherwise), acceleration, forgiveness of indebtedness, vesting,
    distribution, increase in benefits or obligation to fund benefits with
    respect to any Employee.
 
      (ii) No payment or benefit which will or may be made by Company or
    its Affiliates with respect to any Employee as a result of the
    transactions contemplated by this Agreement will be characterized as an
    "excess parachute payment," within the meaning of Section 280G(b)(1) of
    the Code.
 
    (j) Employment Matters. Company: (i) is in compliance in all material
  respects with all applicable foreign, federal, state and local laws, rules
  and regulations respecting employment, employment practices, terms and
  conditions of employment and wages and hours, in each case, with respect to
  Employees; (ii) has withheld all amounts required by law or by agreement to
  be withheld from the wages, salaries and other payments to Employees; (iii)
  is not liable for any arrears of wages or any taxes or any penalty for
  failure to comply with any of the foregoing; and (iv) is not liable for any
  material payment to any trust or other fund or to any governmental or
  administrative authority, with respect to unemployment compensation
  benefits, social security or other benefits or obligations for Employees
  (other than routine payments to be made in the normal course of business
  and consistent with past practice). There are no pending, threatened or
  reasonably anticipated claims or actions against Company under any worker's
  compensation policy or long-term disability policy. To Company's knowledge,
  no employee of Company has violated any employment contract, nondisclosure
  agreement or noncompetition agreement by which
 
                                      A-14

<PAGE>
 
  such employee is bound due to such employee being employed by Company and
  disclosing to Company or using trade secrets or proprietary information of
  any other person or entity.
 
    (k) Labor. No work stoppage or labor strike against Company is pending,
  threatened or reasonably anticipated. Company does not know of any
  activities or proceedings of any labor union to organize any Employees.
  There are no actions, suits, claims, labor disputes or grievances pending,
  or, to the knowledge of Company, threatened or reasonably anticipated
  relating to any labor, safety or discrimination matters involving any
  Employee, including, without limitation, charges of unfair labor practices
  or discrimination complaints. Neither Company nor any of its subsidiaries
  has engaged in any unfair labor practices within the meaning of the
  National Labor Relations Act. Company is not presently, nor has it been in
  the past, a party to, or bound by, any collective bargaining agreement or
  union contract with respect to Employees and no collective bargaining
  agreement is being negotiated by Company.
 
   2.14 Environmental Matters.
 
    (a) Hazardous Material. Except as would not result in material liability
  to Company, no underground storage tanks and no amount of any substance
  that has been designated by any Governmental Entity or by applicable
  federal, state or local law to be radioactive, toxic, hazardous or
  otherwise a danger to health or the environment, including, without
  limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
  listed as hazardous substances pursuant to the Comprehensive Environmental
  Response, Compensation, and Liability Act of 1980, as amended, or defined
  as a hazardous waste pursuant to the United States Resource Conservation
  and Recovery Act of 1976, as amended, and the regulations promulgated
  pursuant to said laws, but excluding office and janitorial supplies, (a
  "Hazardous Material") are present, as a result of the actions of Company or
  any affiliate of Company, or, to Company's knowledge, as a result of any
  actions of any third party involving Company or its properties, in, on or
  under any property, including the land and the improvements, ground water
  and surface water thereof that Company has at any time owned, operated,
  occupied or leased.
 
    (b) Hazardous Materials Activities. Except as would not result in a
  material liability to Company (in any individual case or in the aggregate)
  (i) Company has not transported, stored, used, manufactured, disposed of
  released or exposed its employees or others to Hazardous Materials in
  violation of any law in effect on or before the Closing Date, and (ii)
  Company has not disposed of, transported, sold, used, released, exposed its
  employees or others to or manufactured any product containing a Hazardous
  Material (collectively "Hazardous Materials Activities") in violation of
  any rule, regulation, treaty or statute promulgated by any Governmental
  Entity in effect prior to or as of the date hereof to prohibit, regulate or
  control Hazardous Materials or any Hazardous Material Activity.
 
    (c) Permits. Company currently holds all environmental approvals,
  permits, licenses, clearances and consents (the "Company Environmental
  Permits") necessary for the conduct of Company's Hazardous Material
  Activities (if any) and other businesses of Company as such activities and
  businesses are currently being conducted.
 
    (d) Environmental Liabilities. No action, proceeding, revocation
  proceeding, amendment procedure, writ or injunction is pending, and to
  Company's knowledge, no action, proceeding, revocation proceeding,
  amendment procedure, writ or injunction has been threatened by any
  Governmental Entity against Company in a writing delivered to Company
  concerning any Company Environmental Permit, Hazardous Material or any
  Hazardous Materials Activity of Company. To Company's knowledge, there is
  no fact or circumstance which is reasonably likely to involve Company in
  any environmental litigation or impose upon Company any material
  environmental liability.
 
   2.15 Agreements, Contracts and Commitments. Company is not a party to or is
bound by:
 
    (a) any employment or consulting agreement, contract or commitment with
  any officer or director or higher level employee or member of Company's
  board of directors, other than those that are terminable by Company or any
  of its subsidiaries on no more than thirty (30) days notice without
  liability or financial
 
                                      A-15

<PAGE>
 
  obligation, except to the extent general principles of wrongful termination
  law may limit Company's or any of its subsidiaries' ability to terminate
  employees at will;
 
    (b) any agreement or plan, including, without limitation, any stock
  option plan, stock appreciation right plan or stock purchase plan, any of
  the benefits of which will be increased, or the vesting of benefits of
  which will be accelerated, by the occurrence of any of the transactions
  contemplated by this Agreement or the value of any of the benefits of which
  will be calculated on the basis of any of the transactions contemplated by
  this Agreement;
 
    (c) any agreement of indemnification or any guaranty other than any
  agreement of indemnification entered into in connection with Phase III
  clinical trials of Procysteine;
 
    (d) any agreement, contract or commitment containing any covenant
  limiting in any respect the right of Company to engage in any line of
  business or to compete with any person or granting any exclusive
  distribution rights;
 
    (e) ny agreement, contract or commitment currently in force relating to
  the disposition or acquisition by Company after the date of this Agreement
  of a material amount of assets or pursuant to which Company has any
  material ownership interest in any corporation, partnership, joint venture
  or other business enterprise;
 
    (f) ny joint marketing or development agreement currently in force under
  which Company has continuing material obligations to jointly market any
  product, technology or service and which may not be canceled without
  penalty upon notice of thirty (30) days or less, or any material agreement
  pursuant to which Company has continuing material obligations to jointly
  develop any intellectual property that will not be owned, in whole or in
  part, by Company and which may not be canceled without penalty upon notice
  of thirty (30) days or less;
 
    (g) any agreement, contract or commitment currently in force under which
  Company is required to pay any fees, costs or expenses related to the
  preparation, filing, prosecution or maintenance of any patent applications
  in the United States or elsewhere;
 
    (h) any agreement, contract or commitment currently in force to license
  any third party to manufacture or reproduce any Company product, service or
  technology;
 
    (i) any agreement, contract or commitment currently in force under which
  Company is required to pay any amount in connection with the completion,
  continuation or termination of any clinical studies or trials; or
 
    (j) any agreement, contract or commitment currently in force under which
  Company is required to pay any third party any amount in connection with
  any financing, merger, acquisition, joint development, or other strategic
  partnering activity.
 
   Neither Company, nor to Company's knowledge any other party to a Company
Contract (as defined below), is in breach, violation or default under, and
Company has not received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments listed in Section 2.16 of the Company
Disclosure Letter (any such agreement, contract or commitment, a "Company
Contract") in such a manner as would permit any other party to seek material
damages or other remedies (for any or all of such breaches, violations or
defaults, in the aggregate).
 
   2.16 Change of Control Payments. The Company Disclosure Letter sets forth
each plan or agreement pursuant to which any amounts may become payable
(whether currently or in the future) to current or former officers and
directors of Company as a result of or in connection with the Merger.
 
   2.17 Statements; proxy statement/prospectus. The information supplied by
Company for inclusion in the Registration Statement (as defined in Section
3.3(b)) shall not, at the time the Registration Statement is filed with the SEC
or at the time it becomes effective under the Securities Act, contain any
untrue statement of a
 
                                      A-16

<PAGE>
 
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. The
information supplied by Company for inclusion in the proxy statement/prospectus
to be sent to (a) the stockholders of Company in connection with the meeting of
Company's stockholders to consider the approval and adoption of this Agreement
and the approval of the Merger (the "Company Stockholders' Meeting") (such
proxy statement/prospectus as amended or supplemented is referred to herein as
the "proxy statement/prospectus") shall not, on the date the proxy
statement/prospectus is first mailed to Company's stockholders or at the time
of the Company Stockholders' Meeting, 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. The proxy
statement/prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time any event
relating to Company or any of its affiliates, officers or directors should be
discovered by Company which is required to be set forth in an amendment to the
Registration Statement or a supplement to the proxy statement/prospectus,
Company shall promptly inform Parent. Notwithstanding the foregoing, Company
makes no representation or warranty with respect to any information supplied by
Parent or Merger Sub which is contained in any of the foregoing documents.
 
   2.19 Board Approval. The board of directors of Company has, as of the date
of this Agreement, unanimously (i) approved the Merger and the execution and
delivery of this Agreement, (ii) declared that the Merger is advisable and
(iii) recommended that the stockholders of Company approve and adopt this
Agreement and approve the Merger.
 
   2.20 Fairness Opinion. Company's board of directors has received a written
opinion from EVEREN Securities, Inc. dated as of the date hereof, to the effect
that as of the date hereof, the Merger and the Exchange Ratio are fair to
Company's stockholders from a financial point of view and has delivered to
Parent a copy of such opinion.
 
   2.21 Section 203 of the Delaware General Corporation Law Not Applicable. The
board of directors of Company has taken all actions so that the restrictions
contained in Section 203 of the Delaware General Corporation Law applicable to
a "business combination" (as defined in such Section 203) will not apply to the
execution, delivery or performance of this Agreement or to the consummation of
the Merger or the other transactions contemplated by this Agreement.
 
   2.22 Customs. Company has acted with reasonable care to properly value and
classify, in accordance with applicable tariff laws, rules and regulations, all
goods that Company imports into the United States or into any other country
(the "Imported Goods"). To Company's knowledge, there are currently no material
claims pending against Company by the U.S. Customs Service (or other foreign
customs authorities) relating to the valuation, classification or marking of
the Imported Goods.
 
                                  ARTICLE III
 
            REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
 
   Parent and Merger Sub, jointly and severally, represent and warrant to
Company, subject to the exceptions specifically disclosed in writing in the
disclosure letter and referencing a specific representation supplied by Parent
to Company dated as of the date hereof and certified by a duly authorized
officer of Parent (the "Parent Disclosure Letter"), as follows:
 
   3.1 Organization of Parent and Merger Sub.
 
    (a) Each of Parent and Merger Sub (i) is a corporation duly organized,
  validly existing and in good standing under the laws of the jurisdiction in
  which it is organized; (ii) has the corporate or other power and authority
  to own, lease and operate its assets and property and to carry on its
  business as now being
 
                                      A-17

<PAGE>
 
  conducted; and (iii), except as would not be material to Parent, is duly
  qualified or licensed to do business in each jurisdiction where the
  character of the properties owned, leased or operated by it or the nature
  of its activities makes such qualification or licensing necessary.
 
    (b) Parent has delivered or made available to Company a true and correct
  copy of the Certificate of Incorporation, Certificate of Designation of
  Rights Preferences and Privileges of Series B Convertible Preferred Stock
  (the "Certificate of Designation") and Bylaws of Parent, each as amended to
  date, and each such instrument is in full force and effect. Neither Parent
  nor any of its subsidiaries is in violation of any of the provisions of its
  Certificate of Incorporation, Certificate of Designation or Bylaws or
  equivalent governing instruments.
 
   3.2 Parent and Merger Sub Capital Structure. The authorized capital stock of
Parent consists of 30,000,000 shares of Common Stock, of which there were
12,748,179 shares issued and outstanding as of November 6, 1998 and 2,000,000
shares of Preferred Stock, 30,000 of which have been designated Series A
Preferred Stock, none of which are issued and outstanding, and 662,500 of which
have been designated Series B Convertible Preferred Stock, 562,000 of which are
issued and outstanding. As of November 6, 1998, there were outstanding options
to purchase 1,425,565 shares of Parent Common Stock. Except as described herein
and as set forth in Section 3.2 of the Parent Disclosure Letter, there are no
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which Parent is a party or by
which it is bound obligating Parent to issue, deliver or sell, or cause to be
issued delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition of, any shares of capital stock,
partnerships interests or similar ownership interest of Parent. All outstanding
shares of Parent Common Stock and Series B Convertible Preferred Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation,
Certificate of Designation or Bylaws of Parent or any agreement or document to
which Parent is a party or by which it is bound. The authorized capital stock
of Merger Sub consists of 1000 shares of Common Stock, $0.001 par value, all of
which, as of the date hereof, are issued and outstanding and are held by
Parent. Merger Sub was formed on or about December 17, 1998 for the purpose of
consummating the Merger and has no material assets or liabilities except as
necessary for such purpose.
 
   3.3 Authority.
 
    (a) Each of Parent and Merger Sub has all requisite corporate power and
  authority to enter into, as applicable, this Agreement and to consummate
  the transactions contemplated hereby. The execution and delivery of this
  Agreement and the consummation of the transactions contemplated hereby have
  been duly authorized by all necessary corporate action on the part of
  Parent and Merger Sub, subject only to the filing of the Certificate of
  Merger pursuant to Delaware Law. This Agreement has been duly executed and
  delivered by each of Parent and Merger Sub and, assuming the due
  authorization, execution and delivery by Company, constitutes the valid and
  binding obligation of Parent and Merger Sub, enforceable against Parent and
  Merger Sub in accordance with its terms, except as enforceability may be
  limited by bankruptcy and other similar laws and general principles of
  equity. The execution and delivery of this Agreement by each of Parent and
  Merger Sub does not, and the performance of this Agreement by each of
  Parent and Merger Sub will not, (i) conflict with or violate the
  Certificate of Incorporation, Certificate of Designation or Bylaws of
  Parent or Merger Sub, (ii) conflict with or violate any law, rule,
  regulation, order, judgment or decree applicable to Parent or Merger Sub or
  by which any of their respective properties is bound or affected or (iii)
  result in any material breach of or constitute a material default (or an
  event that with notice or lapse of time or both would become a material
  default) under, or impair Parent's rights or alter the rights or
  obligations of any third party under, or give to others any rights of
  termination, amendment, acceleration or cancellation of, or result in the
  creation of a material lien or encumbrance on any of the material
  properties or assets of Parent or Merger Sub pursuant to, any material
  note, bond, mortgage, indenture, contract, agreement, lease, license,
  permit, franchise or other instrument
 
                                      A-18

<PAGE>
 
  or obligation to which Parent or Merger Sub is a party or by which Parent
  or Merger Sub or any of their respective properties are bound or affected.
 
    (b) No consent, approval, order or authorization of, or registration,
  declaration or filing with any Governmental Entity is required to be
  obtained or made by Parent or Merger Sub in connection with the execution
  and delivery of this Agreement or the consummation of the Merger, except
  for (i) the filing of a Form S-4 (or any similar successor form thereto)
  Registration Statement (the "Registration Statement") with the SEC in
  accordance with the Securities Act, (ii) the filing of the Certificate of
  Merger with the Secretary of State of the State of Delaware, (iii) such
  consents, approvals, orders, authorizations, registrations, declarations
  and filings as may be required under applicable federal, foreign and state
  securities (or related) laws and the HSR Act and the securities or
  antitrust laws of any foreign country, (iv) such filings as are required by
  the Nasdaq National Market or other exchange to permit the trading of
  shares of Parent Company stock issued in connection with the Merger
  (subject to the terms of the Affiliate Agreements) and (v) such other
  consents, authorizations, filings, approvals and registrations which if not
  obtained or made would not be material to Parent or Company or have a
  material adverse effect on the ability of the parties hereto to consummate
  the Merger.
 
   3.4 SEC Filings; Parent Financial Statements.
 
    (a) Parent has filed all forms, reports and documents required to be
  filed by Parent with the SEC since January 1, 1997. All such required
  forms, reports and documents (including those that Parent may file
  subsequent to the date hereof) are referred to herein as the "Parent SEC
  Reports." As of their respective dates, the Parent SEC Reports (i) were
  prepared in accordance with the requirements of the Securities Act or the
  Exchange Act, as the case may be, and the rules and regulations of the SEC
  thereunder applicable to such Parent SEC Reports, and (ii) did not at the
  time they were filed (or if amended or superseded by a filing prior to the
  date of this Agreement, then on the date of such filing) contain any untrue
  statement of a material fact or omit to state a material fact required to
  be stated therein or necessary in order to make the statements therein, in
  the light of the circumstances under which they were made, not misleading.
 
    (b) Each of the consolidated financial statements (including, in each
  case, any related notes thereto) contained in the Parent SEC Reports (the
  "Parent Financials"), including any Parent SEC Reports filed after the date
  hereof until the Closing, (i) complied as to form in all material respects
  with the published rules and regulations of the SEC with respect thereto,
  (ii) was prepared in accordance with GAAP applied on a consistent basis
  throughout the periods involved (except as may be indicated in the notes
  thereto or, in the case of unaudited interim financial statements, as may
  be permitted by the SEC on Form 1O-Q under the Exchange Act) and (iii)
  fairly presented the consolidated financial position of Parent as at the
  respective dates thereof and the consolidated results of Parent's
  operations and cash flows for the periods indicated, except that the
  unaudited interim financial statements may not contain footnotes and were
  or are subject to normal and recurring year-end adjustments. The balance
  sheet of Parent contained in Parent SEC Reports as of December 31, 1997, is
  hereinafter referred to as the "Parent Balance Sheet."
 
   3.5 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet there has not been any Material Adverse Effect on Parent. Parent
has no material obligations or liabilities of any nature (matured or unmatured,
fixed or contingent) other than (i) those set forth or adequately provided for
in the Parent Balance Sheet, (ii) those not required under GAAP to be set forth
in the Parent Balance Sheet, (iii) those incurred in the ordinary course of
business since the date of the Parent Balance Sheet and consistent with past
practice, and (iv) those incurred in connection with the execution and delivery
of this Agreement.
 
   3.6 Statements; proxy statement/prospectus. The information supplied by
Parent for inclusion in the Registration Statement shall not at, the time the
Registration Statement is filed with the SEC or at the time it becomes
effective under the Securities Act, 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 not misleading. The
information supplied by Parent for inclusion in the proxy statement/prospectus
shall not, on the date the
 
                                      A-19

<PAGE>
 
proxy statement/prospectus is first mailed to Company's stockholders or at the
time of the Company Stockholders' Meeting, 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. The proxy
statement/prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time, any event
relating to Parent or any of its affiliates, officers or directors should be
discovered by Parent which is required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement Prospectus,
Parent shall promptly inform Company. Notwithstanding the foregoing, Parent
makes no representation or warranty with respect to any information supplied by
Company which is contained in any of the foregoing documents.
 
   3.7 Valid Issuance. The Parent Common Stock to be issued in the Merger, when
issued in accordance with the provisions of this Agreement: (a) will be validly
issued, fully paid and nonassessable, and (b) will not be subject to any
restrictions on resale under the Securities Act, other than restrictions
imposed by Rule 145 promulgated under the Securities Act.
 
                                   ARTICLE IV
 
                      CONDUCT PRIOR TO THE EFFECTIVE TIME
 
   4.1 Conduct of Business by Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Company shall, except to the
extent that Parent shall otherwise consent in writing, carry on its business,
in all material respects, in a manner consistent with the winding down of
Company and in compliance with all applicable laws and regulations, pay its
debts and taxes when due subject to good faith disputes over such debts or
taxes and pay or perform other material obligations when due. In addition,
Company will promptly notify Parent of any material event involving its
business or operations.
 
   In addition, except as permitted by the terms of this Agreement, and except
as provided in Article 4 of the Company Disclosure Letter, without the prior
written consent of Parent, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, Company shall not do any of the following
and shall not permit its subsidiaries to do any of the following:
 
    (a) Waive any stock repurchase rights, accelerate, amend or change the
  period of exercisability of options or restricted stock, or reprice options
  granted under any employee, consultant, director or other stock plans or
  authorize cash payments in exchange for any options granted under any of
  such plans;
 
    (b) Grant any severance or termination pay to any officer or employee
  except pursuant to written agreements outstanding, or policies existing, on
  the date hereof and as previously disclosed in writing or made available to
  Parent, or adopt any new severance plan;
 
    (c) Transfer or license to any person or entity or otherwise extend,
  amend or modify in any material respect any rights to the Company
  Intellectual Property, or enter into grants to future patent rights;
 
    (d) Declare, set aside or pay any dividends on or make any other
  distributions (whether in cash, stock, equity securities or property) in
  respect of any capital stock or split, combine or reclassify any capital
  stock or issue or authorize the issuance of any other securities in respect
  of; in lieu of or in substitution for any capital stock;
 
    (e) Purchase, redeem or otherwise acquire, directly or indirectly, any
  shares of capital stock of Company or its subsidiaries, except repurchases
  of unvested shares at cost in connection with the termination of the
  employment relationship with any employee pursuant to stock option or
  purchase agreements in effect on the date hereof;
 
                                      A-20

<PAGE>
 
    (f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
  propose any of the foregoing of any shares of capital stock or any
  securities convertible into shares of capital stock, or subscriptions,
  rights, warrants or options to acquire any shares of capital stock or any
  securities convertible into shares of capital stock, or enter into other
  agreements or commitments of any character obligating it to issue any such
  shares or convertible securities, other than the issuance delivery and/or
  sale of shares of Company Common Stock pursuant to the exercise of stock
  options therefor outstanding as of the date of this Agreement;
 
    (g) Cause, permit or propose any amendments to its Certificate of
  Incorporation, Bylaws or other charter documents (or similar governing
  instruments of any of its subsidiaries);
 
    (h) Acquire or agree to acquire by merging or consolidating with, or by
  purchasing any equity interest in or a portion of the assets of, or by any
  other manner, any business or any corporation, partnership, association or
  other business organization or division thereof; or otherwise acquire or
  agree to acquire any assets which are material, individually or in the
  aggregate, to the business of Company or enter into any material joint
  ventures, strategic partnerships or alliances;
 
    (i) Sell, lease, license, encumber or otherwise dispose of any properties
  or assets which are material, individually or in the aggregate, to the
  business of Company, except for the destruction of Procysteine according to
  terms or agreements disclosed to Parent prior to such destruction;
 
    (j) Incur any indebtedness for borrowed money or guarantee any such
  indebtedness of another person, issue or sell any debt securities or
  options, warrants, calls or other rights to acquire any debt securities of
  Company, enter into any "keep well" or other agreement to maintain any
  financial statement condition or enter into any arrangement having the
  economic effect of any of the foregoing;
 
    (k) Adopt or amend any employee benefit plan or employee stock purchase
  or employee stock option plan, or enter into any employment contract or
  collective bargaining agreement (other than offer letters and letter
  agreements entered into in the ordinary course of business consistent with
  past practice with employees who are terminable "at will,"), pay any
  special bonus or special remuneration to any director or employee, or
  increase the salaries or wage rates or fringe benefits (including rights to
  severance or indemnification) of its directors, officers, employees or
  consultants other than in the ordinary course of business, consistent with
  past practice, or change in any material respect any management policies or
  procedures;
 
    (1) Except for payments listed on Schedule 2.5(c) of the Company
  Disclosure Letter, make any payments individually in excess of $25,000 or
  in the aggregate in excess of $50,000;
 
    (m) except in the ordinary course of business, modify, amend or terminate
  any Company Contract or waive, release or assign any material rights or
  claims thereunder;
 
    (n) enter into any contracts, agreements, or obligations that would be
  required to be included in Section 2.15 of the Company Disclosure Letter as
  a Company Contract;
 
    (o) materially revalue any of its assets or, except as required by GAAP,
  make any change in accounting methods, principles or practices;
 
    (p) engage in any action with the intent to directly or indirectly
  adversely impact any of the transactions contemplated by this Agreement; or
 
    (q) make or change any Tax or accounting election, change any annual
  accounting period, adopt or change any accounting method, file any amended
  Return, enter into any closing agreement, settle any Tax claim or
  assessment relating to Company, surrender any right to claim refund of
  Taxes, consent to any extension or waiver of the limitation period
  applicable to any Tax claim or assessment relating to Company, or take any
  other action or omit to take any action if any such other action or
  omission would have the effect of increasing the Tax liability of Company
  or Parent; or
 
                                      A-21

<PAGE>
 
    (r) agree in writing or otherwise to take any of the actions described in
  Article 4 (a) through (r) above.
 
   4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, except as permitted by the terms
of this Agreement and except as provided in Article 4 of the Parent Disclosure
Letter, without the prior written consent of Company (which consent shall not
be unreasonably withheld), during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, Parent shall not, except for the payment of
dividends to the holders of Parent's Series B Convertible Preferred Stock
pursuant to the Certificate of Designation, declare, set aside or pay any
dividends on or make any other distributions (whether in cash, stock, equity
securities or property) in respect of any capital stock or split, combine or
reclassify any capital stock or issue or authorize the issuance of any other
securities in respect of in lieu of or in substitution for any capital stock.
 
   4.3 No Right to Continued Employment or Benefits. Parent does not intend to
offer employment to any employees of Company. No provision in this Agreement
shall create any third party beneficiary or other right in any person
(including any beneficiary or dependent thereof) for any reason, including,
without limitation, in respect of continued employment with Company (or any
affiliate of Company) or in respect of any benefits that may be provided,
directly or indirectly, under any plan or arrangement maintained by Parent or
any affiliate of Company or Parent. Except for costs and liabilities that are
included in the calculation of Net Cash, there are no costs and liabilities
arising as a result of the termination and/or transfer of Company's employees,
including without limitation, with respect to any employee benefits, the
Company Employee Plans, vacation and sick pay accruals, salaries and bonuses,
and any severance or termination arrangements.
 
                                   ARTICLE V
 
                             ADDITIONAL AGREEMENTS
 
   5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings.
 
    (a) As promptly as practicable after the execution of this Agreement,
  Company and Parent will prepare, and file with the SEC, the proxy
  statement/prospectus and Parent will prepare and file with the SEC the
  Registration Statement in which the proxy statement/prospectus will be
  included as a prospectus; provided, however, that the proxy
  statement/prospectus shall not be filed with the SEC until Company has
  received a final report from its auditors for Company's financial
  statements for the period ended November 30, 1998 and any contingencies
  regarding such financial statements have been finally resolved. Each of
  Company and Parent will respond to any comments of the SEC, will use its
  respective commercially reasonable efforts to have the Registration
  Statement declared effective under the Securities Act as promptly as
  practicable after such filing, and Company will cause the proxy
  statement/prospectus to be mailed to its stockholders at the earliest
  practicable time after the Registration Statement is declared effective by
  the SEC. As promptly as practicable after the date of this Agreement, each
  of Company and Parent will prepare and file any other filings required to
  be filed by it under the Exchange Act, the Securities Act or any other
  Federal, foreign or Blue Sky or related laws relating to the Merger and the
  transactions contemplated by this Agreement (the "Other Filings"). Each of
  Company and Parent will notify the other promptly upon the receipt of any
  comments from the SEC or its staff or any other government officials and of
  any request by the SEC or its staff or any other government officials for
  amendments or supplements to the Registration Statement, the proxy
  statement/prospectus or any Other Filing or for additional information and
  will supply the other with copies of all correspondence between such party
  or any of its representatives, on the one hand, and the SEC, or its staff
  or any other government officials, on the other hand, with respect to the
  Registration Statement, the proxy statement/prospectus, the Merger or any
  Other Filing. Each of Company and Parent will cause all documents that it
  is responsible for filing with the SEC or other regulatory authorities
  under this Section 5.1(a) to comply in all material
 
                                      A-22
 

<PAGE>
 
  respects with all applicable requirements of law and the rules and
  regulations promulgated thereunder. Whenever any event occurs which is
  required to be set forth in an amendment or supplement to the proxy
  statement/prospectus, the Registration Statement or any Other Filing,
  Company or Parent, as the case may be, will promptly inform the other of
  such occurrence and cooperate in filing with the SEC or its staff or any
  other government officials, and/or mailing to stockholders of Company, such
  amendment or supplement.
 
    (b) Notwithstanding Section 5.1(a) of this Agreement, in the event that
  the Registration Statement has not been declared effective by the SEC and
  the proxy statement/prospectus mailed to Company's stockholders by February
  12, 1999, Parent, in its sole discretion, may delay the effectiveness of
  the Registration Statement until the earlier of (i) the date Parent files
  its Form 10-k for the year ended December 31, 1998, with the SEC or (ii)
  April 15, 1999, provided, that Parent shall have filed a Form 12b-25 with
  the SEC pursuant to the Exchange Act and such From 12b-25 shall be
  effective in order for Parent to delay effectiveness of the Registration
  Statement beyond March 31, 1999. Company shall mail the proxy
  statement/prospectus to Company stockholders as soon as practicable after
  the effective date of the Registration Statement.
 
   5.2 Meeting of Company Stockholders.
 
    (a) Promptly after the date hereof, Company will take all action
  necessary in accordance with the Delaware Law and its Certificate of
  Incorporation and Bylaws to convene the Company Stockholders' Meeting to be
  held as promptly as practicable, and in any event (to the extent
  permissible under applicable law) within 35 days after the declaration of
  effectiveness of the Registration Statement, for the purpose of voting upon
  this Agreement and the Merger. Company will use its commercially reasonable
  efforts to solicit from its stockholders proxies. Notwithstanding anything
  to the contrary contained in this Agreement, Company may adjourn or
  postpone the Company Stockholders' Meeting to the extent necessary to
  ensure that any necessary supplement or amendment to the proxy
  statement/prospectus is provided to Company's stockholders in advance of a
  vote on the Merger and this Agreement or if, as of the time for which
  Company Stockholders' Meeting is originally scheduled (as set forth in the
  proxy statement/prospectus), there are insufficient shares of Company
  Common Stock represented (either in person or by proxy) to constitute a
  quorum necessary to conduct the business of the Company Stockholders'
  Meeting. Company shall ensure that the Company Stockholders' Meeting is
  called, noticed, convened, held and conducted, and that all proxies
  solicited by the Company in connection with the Company Stockholders'
  Meeting are solicited, in compliance with the Delaware Law, its Certificate
  of Incorporation and Bylaws, the rules of Nasdaq and all other applicable
  legal requirements. Company's obligation to call, give notice of, convene
  and hold the Company Stockholders' Meeting in accordance with this Section
  5.2(a) shall not be limited to or otherwise affected by the commencement,
  disclosure, announcement or submission to Company of any Acquisition
  Proposal (as defined in Section 5.4(c)), or by any withdrawal, amendment or
  modification of the recommendation of the board of directors of Company
  with respect to the Merger.
 
    (b) The board of directors of Company shall unanimously recommend that
  Company's stockholders vote in favor of and adopt and approve this
  Agreement and the Merger at the Company Stockholders' Meeting. The
  Prospectus/Proxy Statement shall include a statement to the effect that the
  board of directors of the Company has unanimously recommended that
  Company's stockholders vote in favor of and adopt and approve this
  Agreement and the Merger at the Company Stockholders' Meeting.
 
   5.3 Confidentiality; Access to Information.
 
    (a) The parties acknowledge that Company and Parent have previously
  executed a Confidentiality Agreement, dated as of November 30, 1998 (the
  "Confidentiality Agreement"), which Confidentiality Agreement will continue
  in full force and effect in accordance with its terms.
 
    (b) Access to Information. Company will afford Parent and its
  accountants, counsel and other representatives reasonable access during
  normal business hours to the properties, books, records and
 
                                      A-23

<PAGE>
 
  personnel of Company during the period prior to the Effective Time to
  obtain all information concerning the business, properties, results of
  operations and personnel of Company, as Parent may reasonably request. No
  information or knowledge obtained by Parent in any investigation pursuant
  to this Section 5.3 will affect or be deemed to modify any representation
  or warranty contained herein or the conditions to the obligations of the
  parties to consummate the Merger.
 
   5.4 No Solicitation.
 
    (a) Company and its officers, directors, employees or other agents of
  Company (i) shall not, directly or indirectly, take any action to solicit,
  initiate or encourage any inquiries or proposals that constitute, or which
  could reasonably be expected to lead to, an Acquisition Proposal (as
  defined in Section 5.4(c)), (ii) shall not, directly or indirectly, subject
  to the terms of the immediately following sentence, engage in negotiations
  or discussions with, or disclose any nonpublic information relating to
  Company to, or afford access to the properties, books or records of Company
  to, any person with regard to an Acquisition Proposal and (iii) shall
  immediately cease and cause to be terminated any existing activities,
  discussions or negotiations with any person, firm or entity conducted
  heretofore with respect to any of the foregoing; provided, however, that
  nothing herein shall prohibit the Company board of directors from taking
  and disclosing to Company's stockholders a position with respect to a
  tender offer as required under Rules 14d-9 and 14e-2 promulgated under the
  Exchange Act.
 
    (b) Company shall notify Parent promptly (and, in any event, no later
  than 48 hours), orally and in writing, after receipt by Company (or its
  advisors) of any Acquisition Proposal or obtaining actual knowledge that
  any person is submitting an Acquisition Proposal or any request for non-
  public information relating to Company or for access to the properties,
  books or records of Company by any person that has advised Company that it
  may be considering making, or that has made, an Acquisition Proposal and
  will keep Parent informed of the status and details of any such Acquisition
  Proposal, notice, request or any correspondence or communications related
  thereto and shall provide Parent with a written summary in reasonable
  detail of such Acquisition Proposal, notice or request or correspondence or
  communications related thereto (including the identity of the offeror and a
  summary of the terms and conditions of such Acquisition Proposal).
 
    (c) For purposes of this Agreement, "Acquisition Proposal" means any
  written offer or proposal for, or any written indication of interest in, a
  merger or other business combination involving Company or the acquisition
  of 35% or more of the outstanding shares of capital stock of Company, or
  the sale or transfer of all or substantially all of the assets (excluding
  the sale or disposition of assets in the ordinary course of business) of
  Company, other than the transactions contemplated by this Agreement.
 
   5.5 Public Disclosure. Parent and Company will consult with each other, and
to the extent practicable, agree, before issuing any press release or otherwise
making any public statement with respect to the Merger, this Agreement or an
Acquisition Proposal and will not issue any such press release or make any such
public statement prior to such consultation, except as may be required by law
or any listing agreement with a national securities exchange. The parties have
agreed to the text of the joint press release announcing the signing of this
Agreement.
 
   5.6 Reasonable Efforts Notification.
 
    (a) Upon the terms and subject to the conditions set forth in this
  Agreement, each of the parties agrees to use all reasonable efforts to
  take, or cause to be taken, all actions, and to do, or cause to be done,
  and to assist and cooperate with the other parties in doing, all things
  necessary, proper or advisable to consummate and make effective, in the
  most expeditious manner practicable, the Merger and the other transactions
  contemplated by this Agreement, including using reasonable efforts to
  accomplish the following: (i) the taking of all reasonable action necessary
  to cause the conditions precedent set forth in Article VI to be satisfied,
  (ii) the obtaining of all necessary actions or nonactions, waivers,
  consents, approvals, orders and authorizations from Governmental Entities
  and the making of all necessary
 
                                      A-24

<PAGE>
 
  registrations, declarations and filings (including registrations,
  declarations and filings with Governmental Entities, if any) and the taking
  of all reasonable steps as may be necessary to avoid any suit, claim,
  action, investigation or proceeding by any Governmental Entity, (iii) the
  obtaining of all necessary consents, approvals or waivers from third
  parties, (iv) the defending of any suits, claims, actions, investigations
  or proceedings, whether judicial or administrative, challenging this
  Agreement or the consummation of the transactions contemplated hereby,
  including seeking to have any stay or temporary restraining order entered
  by any court or other Governmental Entity vacated or reversed and (v) the
  execution or delivery of any additional instruments necessary to consummate
  the transactions contemplated by, and to fully carry out the purposes of,
  this Agreement. In connection with and without limiting the foregoing,
  Company and its board of directors shall, if any state takeover statute or
  similar statute or regulation is or becomes applicable to the Merger, this
  Agreement or any of the transactions contemplated by this Agreement, use
  all reasonable efforts to ensure that the Merger and the other transactions
  contemplated by this Agreement may be consummated as promptly as
  practicable on the terms contemplated by this Agreement and otherwise to
  minimize the effect of such statute or regulation on the Merger, this
  Agreement and the transactions contemplated hereby. Notwithstanding
  anything herein to the contrary, nothing in this Agreement shall be deemed
  to require Parent or Company or any subsidiary or affiliate thereof to
  agree to any divestiture by itself or any of its affiliates of shares of
  capital stock or of any business, assets or property, or the imposition of
  any material limitation on the ability of any of them to conduct their
  businesses or to own or exercise control of such assets, properties and
  stock.
 
    (b) Company shall give prompt notice to Parent of any representation or
  warranty made by it contained in this Agreement becoming untrue or
  inaccurate in any material respect, or any failure of Company to comply
  with or satisfy in any material respect any covenant, condition or
  agreement to be complied with or satisfied by it under this Agreement, in
  each case, such that the conditions set forth in Section 6.3(a) or 6.3(b)
  would not be satisfied; provided, however, that no such notification shall
  affect the representations, warranties, covenants or agreements of the
  parties or the conditions to the obligations of the parties under this
  Agreement.
 
    (c) Parent shall give prompt notice to Company of any representation or
  warranty made by it or Merger Sub contained in this Agreement becoming
  untrue or inaccurate in any material respect, or any failure of Parent or
  Merger Sub to comply with or satisfy in any material respect any covenant,
  condition or agreement to be complied with or satisfied by it under this
  Agreement, in each case, such that the conditions set forth in Section
  6.2(a) or 6.2(b) would not be satisfied; provided, however, that no such
  notification shall affect the representations, warranties, covenants or
  agreements of the parties or the conditions to the obligations of the
  parties under this Agreement.
 
   5.7 Third-Party Consents. As soon as practicable following the date hereof,
Parent and Company will each use its commercially reasonable efforts to obtain
any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
 
   5.8 Indemnification.
 
    (a) From and after the Effective Time, Parent will, and will cause the
  Surviving Corporation to, fulfill and honor in all respects the obligations
  of Company pursuant to any indemnification agreements between Company and
  its directors and officers as of the Effective Time (the "Indemnified
  Parties") and any indemnification provisions under Company's Certificate of
  Incorporation or Bylaws as in effect on the date hereof. The Certificate of
  Incorporation and Bylaws of the Surviving Corporation will contain
  provisions with respect to exculpation and indemnification that are at
  least as favorable to the Indemnified Parties as those contained in the
  Certificate of Incorporation and Bylaws of Company as in effect on the date
  hereof, which provisions will not be amended, repealed or otherwise
  modified for a period of five years from the Effective Time in any manner
  that would adversely affect the rights thereunder of individuals who,
  immediately prior to the Effective Time, were directors, officers,
  employees or agents of Company, unless such modification is required by
  law.
 
                                      A-25

<PAGE>
 
    (b) For a period of five years after the Effective Time, Parent will, and
  will cause the Surviving Corporation to use its commercially reasonable
  efforts to, maintain in effect, directors' and officers' liability
  insurance covering those persons who are currently covered by Company's
  directors' and officers' liability insurance policy on terms comparable to
  those applicable to the current directors and officers of Company;
  provided, however, that in no event will Parent or the Surviving
  Corporation be required to expend in excess of 125% of the annual premium
  currently paid by Company for such coverage (or such coverage as is
  available for such 125% of such annual premium).
 
   5.9 Nasdaq Listing. Parent agrees to authorize, prior to the Effective Time,
for listing on Nasdaq the shares of Parent Common Stock issuable, and those
required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.
 
   5.10 Affiliate Agreements. Set forth on the Company Disclosure Letter is a
list of the Affiliates (each a "Company Affiliate"). Company will provide
Parent with such information and documents as Parent reasonably requests for
purposes of reviewing such list. Company will use its commercially reasonable
efforts to deliver or cause to be delivered to Parent, as promptly as
practicable on or following the date hereof, from each Company Affiliate an
executed Affiliate Agreement, each of which will be in full force and effect as
of the Effective Time. Parent will be entitled to place appropriate legends on
the certificates evidencing any Parent Common Stock to be received by a Company
Affiliate pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of the Company Affiliate Agreement.
 
   5.11 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, Company and Parent each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by
the parties. Company and Parent each shall promptly (a) supply the other with
any information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate. Company
shall file a final clinical report with the United States Food and Drug
Administration ("FDA") and shall provide Parent a copy of such report. Company
shall take all such actions as are required to terminate any obligations to
file any reports with the FDA or equivalent foreign agencies.
 
   5.12 Updates to Net Cash. Within fifteen (15) days of the end of each month
following the date of this Agreement until the earlier of the Closing Date or
the termination of this Agreement, Company shall provide Parent a Statement of
Net Cash in the form of Section 2.5(c) of the Company Disclosure Letter,
stating Company's Net Cash as of the last day of the month just ended. Company
shall provide Parent a final statement of Net Cash in the same form as used in
Section 2.5(c) of the Company Disclosure Letter on the Closing Date, showing
Company's Net Cash as of such date. Each statement of Net Cash provided under
this Section 5.12 shall be accompanied by a certificate signed by the President
of Company certifying that such statement is true and correct and accurately
reflects Company's Net Cash as of such date. Parent has the right to have its
auditors review such updates, and Company shall reasonably cooperate with such
review.
 
                                      A-26

<PAGE>
 
                                   ARTICLE VI
 
                            CONDITIONS TO THE MERGER
 
   6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
 
    (a) Company Stockholder Approval. This Agreement shall have been approved
  and adopted, and the Merger shall have been duly approved, by the requisite
  vote under applicable law, by the stockholders of Company.
 
    (b) Registration Statement Effective; Proxy Statement. The SEC shall have
  declared the Registration Statement effective. No stop order suspending the
  effectiveness of the Registration Statement or any part thereof shall have
  been issued and no proceeding for that purpose, and no similar proceeding
  in respect of the proxy statement/prospectus, shall have been initiated or
  threatened in writing by the SEC.
 
    (c) No Order; HSR Act. No Governmental Entity shall have enacted, issued,
  promulgated, enforced or entered any statute, rule, regulation, executive
  order, decree, injunction or other order (whether temporary, preliminary or
  permanent) which is in effect and which has the effect of making the Merger
  illegal or otherwise prohibiting consummation of the Merger. All waiting
  periods, if any, under the HSR Act relating to the transactions
  contemplated hereby will have expired or terminated early and all material
  foreign antitrust approvals required to be obtained prior to the Merger in
  connection with the transactions contemplated hereby shall have been
  obtained.
 
    (d) Listing of Shares. The shares of Parent Common Stock issuable, and
  reserved for issuance, in connection with the Merger shall have been
  authorized for listing on Nasdaq upon official notice of insurance.
 
   6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Company:
 
    (a) Representations and Warranties. Each representation and warranty of
  Parent and Merger Sub contained in this Agreement (i) shall have been true
  and correct as of the date of this Agreement and (ii) shall be true and
  correct on and as of the Closing Date with the same force and effect as if
  made on the Closing Date except (A) in each case, or in the aggregate, as
  does not constitute a Material Adverse Effect on Parent and Merger Sub, (B)
  for changes contemplated by this Agreement and (C) for those
  representations and warranties which address matters only as of a
  particular date (it being understood that, for purposes of determining the
  accuracy of such representations and warranties, (i) all "Material Adverse
  Effect" qualifications and other qualifications based on the word
  "material" or similar phrases contained in such representations and
  warranties shall be disregarded and (ii) any update of or modification to
  the Parent Disclosure Letter made or purported to have been made after the
  date of this Agreement shall be disregarded). Company shall have received a
  certificate with respect to the foregoing signed on behalf of Parent by an
  authorized officer of Parent.
 
    (b) Agreements and Covenants. Parent and Merger Sub shall have performed
  or complied with all agreements and covenants required by this Agreement to
  be performed or complied with by them on or prior to the Closing Date,
  except where the failure to do so would not (individually or in the
  aggregate) have a Material Adverse Effect on Parent and Merger Sub, and
  Company shall have received a certificate to such effect signed on behalf
  of Parent by an authorized officer of Parent.
 
    (c) Material Adverse Effect. No Material Adverse Effect with respect to
  Parent shall have occurred since the date of this Agreement.
 
                                      A-27
 

<PAGE>
 
   6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
 
    (a) Representations and Warranties. Each representation and warranty of
  Company contained in this Agreement (i) shall have been true and correct as
  of the date of this Agreement and (ii) shall be true and correct on and as
  of the Closing Date with the same force and effect as if made on and as of
  the Closing Date except (A) in each case, or in the aggregate, as does not
  constitute a Material Adverse Effect on Company, (B) for changes
  contemplated by this Agreement and (C) for those representations and
  warranties which address matters only as of a particular (it being
  understood that, for purposes of determining the accuracy of such
  representations and warranties, (i) all "Material Adverse Effect"
  qualifications and other qualifications based on the word "material" or
  similar phrases contained in such representations and warranties shall be
  disregarded and (ii) any update of or modification to the Company
  Disclosure Letter made or purported to have been made after the date of
  this Agreement shall be disregarded). Parent shall have received a
  certificate with respect to the foregoing signed on behalf of Company by
  the President of Company.
 
    (b) Agreements and Covenants. Company shall have performed or complied
  with all agreements and covenants required by this Agreement to be
  performed or complied with by it at or prior to the Closing Date, except
  where the failure to do so would not (individually or in the aggregate)
  have a Material Adverse Effect on Company, and Parent shall have received a
  certificate to such effect signed on behalf of Company by the President of
  Company.
 
    (c) Material Adverse Effect. No Material Adverse Effect with respect to
  Company and its subsidiaries shall have occurred since the date of this
  Agreement.
 
    (d) Affiliate Agreements. Each of the persons set forth on Section 5.10
  of the Company Disclosure Letter shall have entered into an Affiliate
  Agreement and each of such agreements will be in full force and effect as
  of the Effective Time.
 
    (e) Consents. Company shall have obtained all consents, waivers and
  approvals required in connection with the consummation of the transactions
  contemplated hereby in connection with the agreements, contracts, licenses
  or leases set forth on Schedule 6.3(e).
 
    (f) Termination. Company shall have obtained notices of termination in
  form acceptable to Parent of the agreements, contracts, licenses or leases
  set forth on Schedule 6.3(f).
 
    (g) Company shall provide a certificate of destruction or a bill of sale
  in form satisfactory to Parent for all Procysteine owned or controlled by
  Company, in bulk form or otherwise.
 
    (h) Company shall provide evidence of abandonment or a bill of sale of
  all Company Registered Intellectual Property in form satisfactory to
  Parent.
 
    (i) Company shall have entered into severance agreements acceptable to
  Parent with any and all employees.
 
    (j) The costs associated or incurred in connection with any actions or
  inactions required by this Agreement shall be included in the calculation
  of Net Cash.
 
                                  ARTICLE VII
 
                       TERMINATION, AMENDMENT AND WAIVER
 
   7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approvals of the
stockholders of Company or Parent:
 
    (a) by mutual written consent duly authorized by the Boards of Directors
  of both Parent and Company;
 
                                      A-28

<PAGE>
 
    (b) by either Company or Parent if the Merger shall not have been
  consummated by March 31, 1999 (the "Closing Deadline"); provided, however,
  that if the Registration Statement shall not have been declared effective,
  or the proxy statement/prospectus shall not have been mailed to Company
  stockholders, by February 12, 1999, then the Closing Deadline shall be May
  31, 1999, and provided further that the right to terminate this Agreement
  under this Section 7.1(b) shall not be available to any party whose action
  or failure to act has been a principal cause of or resulted in the failure
  of the Merger to occur on or before such date and such action or failure to
  act constitutes a breach of this Agreement;
 
    (c) by either Company or Parent if a Governmental Entity shall have
  issued an order, decree or ruling or taken any other action, in any case
  having the effect of permanently restraining, enjoining or otherwise
  prohibiting the Merger, which order, decree, ruling or other action is
  final and nonappealable;
 
    (d) by Parent if the required approval of the stockholders of Company
  contemplated by this Agreement shall not have been obtained by reason of
  the failure to obtain the required vote at a meeting of Company
  stockholders duly convened therefor or at any adjournment thereof;
 
    (e) by Parent (at any time prior to the adoption and approval of this
  Agreement and the Merger by the required vote of the stockholders of
  Company) if a Triggering Event (as defined below) shall have occurred;
 
    (f) by Parent (at any time prior to the adoption and approval of this
  Agreement and the Merger by the required vote of the stockholders of
  Company) if a Termination Event (as defined below) shall have occurred;
 
    (g) by Company if the conditions set forth in Section 6.2(a) or Section
  6.2(b) are not satisfied as of the date of this Agreement or the earlier of
  (i) the Closing Date, provided that if such failure is curable by Parent,
  then Company may not terminate this Agreement under this Section 7.1(g)(i)
  for thirty days after delivery of written notice from Company to Parent of
  such failure setting forth a description of such failure in reasonable
  detail, provided Parent continues to exercise commercially reasonable
  efforts to cure such failure (it being understood that Company may not
  terminate this Agreement pursuant to this paragraph (g) if Company shall
  have violated the conditions of Section 6.3(a) or Section 6.3(b) of this
  Agreement, materially breached this Agreement or if such failure by Parent
  is cured during such thirty day period), or (ii) the Closing Deadline; or
 
    (h) by Parent if the conditions set forth in Section 6.3(a) or Section
  6.3(b) are not satisfied as of the date of this Agreement or the earlier of
  (i) the Closing Date, provided that if such failure is curable by Company,
  then Parent may not terminate this Agreement under this Section 7.1(h)(i)
  for thirty days after delivery of written notice from Parent to Company of
  such failure setting forth a description of such failure in reasonable
  detail, provided Company continues to exercise commercially reasonable
  efforts to cure such failure (it being understood that Parent may not
  terminate this Agreement pursuant to this paragraph (h) if Parent shall
  have violated the conditions of Section 6.2(a) or Section 6.2(b) of this
  Agreement, materially breached this Agreement or if such failure by Company
  is cured during such thirty day period), or (ii) the Closing Deadline.
 
   For the purposes of this Agreement, a "Termination Event" shall be deemed to
occur if Company shall not have held the Company Stockholder's Meeting by the
Closing Deadline.
 
   For the purposes of this Agreement, a "Triggering Event" shall be deemed to
have occurred if: (i) the board of directors of Company or any committee
thereof shall for any reason have withdrawn or shall have amended or modified
in a manner adverse to Parent its unanimous recommendation in favor of the
adoption and approval of the Agreement or the approval of the Merger; (ii)
Company shall have failed to include in the proxy statement/prospectus the
unanimous recommendation of the board of directors of Company in favor of the
adoption and approval of the Agreement and the approval of the Merger; (iii)
the board of directors of Company fails to reaffirm its unanimous
recommendation in favor of the adoption and approval of the Agreement and the
approval of the Merger within five (5) business days after Parent requests in
writing that
 
                                      A-29

<PAGE>
 
such recommendation be reaffirmed at any time following the public announcement
of an Acquisition Proposal; (iv) the board of directors of Company or any
committee thereof shall have approved or publicly recommended any Acquisition
Proposal; (v) Company shall have entered into any letter of intent or similar
document or any agreement, contract or commitment accepting any Acquisition
Proposal; (vi) a tender or exchange offer relating to securities of Company
shall have been commenced by a Person unaffiliated with Parent and Company
shall not have sent to its securityholders pursuant to Rule 14e-2 promulgated
under the Securities Act, within ten (10) business days after such tender or
exchange offer is first published sent or given, a statement disclosing that
Company recommends rejection of such tender or exchange offer; or (vii) Company
shall have otherwise breached its obligations under Sections 5.2 and/or 5.4
hereof.
 
   7.2 Notice of Termination Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in
Section 7.1, this Agreement shall be of no further force or effect, except (i)
as set forth in this Section 7.2, Section 7.3 and Article 8 (miscellaneous),
each of which shall survive the termination of this Agreement, and (ii) nothing
herein shall relieve any party from liability for any willful breach of this
Agreement. No termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.
 
   7.3 Fees and Expenses.
 
    (a) General. Except as set forth in this Section 7.3, all fees and
  expenses incurred in connection with this Agreement and the transactions
  contemplated hereby shall be paid by the party incurring such expenses
  whether or not the Merger is consummated; provided, however, that Parent
  and Company shall share equally all fees and expenses, other than
  attorneys' and accountants fees and expenses, incurred in relation to the
  printing and filing (with the SEC) of the proxy statement/prospectus
  (including any preliminary materials related thereto) and the Registration
  Statement (including financial statements and exhibits) and any amendments
  or supplements thereto.
 
    (b) Company Payments. In the event that this Agreement is terminated by
  Parent or Company, as applicable, pursuant to Section 7.1(d), (e), (f),
  provided that the Registration Statement shall have been declared effective
  by April 15, 1999, or (h), Company shall promptly, but in no event later
  than two days after the date of such termination, pay Parent a fee equal to
  $500,000 in immediately available funds (the "Termination Fee"); provided,
  however, that such payment shall not be due if in the case of termination
  under Section 7.1(d), the failure to obtain the required stockholder
  approval is primarily the result of a Material Adverse Effect on Parent.
  Company acknowledges that the agreements contained in this Section 7.3(b)
  are an integral part of the transactions contemplated by this Agreement,
  and that, without these agreements, Parent would not enter into this
  Agreement; accordingly, if Company fails promptly to pay the amounts due
  pursuant to this Section 7.3(b), and, in order to obtain such payment,
  Parent commences a suit which results in a judgment against Company for the
  amounts set forth in this Section 7.3(b), Company shall pay to Parent its
  reasonable costs and expenses (including attorneys' fees and expenses) in
  connection with such suit, together with interest on the amounts set forth
  in this Section 7.3(b) at the prime rate of The Chase Manhattan Bank in
  effect on the date such payment was required to be made. Except as provided
  by law, payments pursuant to this Section 7.3(b) are the sole remedy for
  termination or breach of this Agreement.
 
   7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and Company.
 
   7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto 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 made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or
 
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<PAGE>
 
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. Delay in
exercising any right under this Agreement shall not constitute a waiver of such
right.
 
                                  ARTICLE VIII
 
                               GENERAL PROVISIONS
 
   8.1 Non-Survival of Representations and Warranties. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
 
   8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
 
    (a) if to Parent or Merger Sub, to:
 
      KeraVision, Inc.
      48630 Milmont Drive
      Fremont, California 94538
      Attention: Mark Fischer-Colbrie
      Telephone No.: (510) 353-3008
      Telecopy No.: (510) 353-3030
 
      with a copy to:
 
      Venture Law Group
      A Professional Corporation
      2800 Sand Hill Road
      Menlo Park, California 94025
      Attention: Michael W. Hall
      Telephone No.: (650) 854-4488
      Telecopy No.: (650) 233-8386
 
    (b) if to Company, to:
 
      Transcend Therapeutics, Inc.
      640 Memorial Drive
      Cambridge, Massachusetts 02139
      Attention: B. Nicholas Harvey
      Telephone No.: (617) 374-1211
      Telecopy No.: (617) 374-1202
 
      with a copy to:
 
      Hale and Dorr LLP
      60 State Street
      Boston, Massachusetts 02109
      Attention: Steven D. Singer
      Telephone No.: (617) 526-6439
      Telecopy No.: (617) 526-5000
 
   Notices by personal delivery or via nationally recognized overnight delivery
service shall be effective on receipt. Telecopied notices shall be effective on
the date of receipt if received by 5:00 p.m. local time where received, and on
the next business day if received thereafter.
 
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<PAGE>
 
   8.3 Interpretation of Knowledge.
 
    (a) When a reference is made in this Agreement to Exhibits, such
  reference shall be to an Exhibit to this Agreement unless otherwise
  indicated. When a reference is made in this Agreement to Sections, such
  reference shall be to a Section of this Agreement. Unless otherwise
  indicated the words "include," "includes" and "including" when used herein
  shall be deemed in each case to be followed by the words "without
  limitations." The table of contents and headings contained in this
  Agreement are for reference purposes only and shall not affect in any way
  the meaning or interpretation of this Agreement. When reference is made
  herein to "the business of" an entity, such reference shall be deemed to
  include the business of all direct and indirect subsidiaries of such
  entity. Reference to the subsidiaries of an entity shall be deemed to
  include all direct and indirect subsidiaries of such entity.
 
    (b) For purposes of this Agreement the term "knowledge" means with
  respect to a party hereto, with respect to any matter in question, that any
  of the Chief Executive Officer, Chief Financial Officer or Controller of
  such party, has actual knowledge of such matter.
 
    (c) For purposes of this Agreement, the term "Material Adverse Effect"
  when used in connection with an entity means any change, event, violation,
  inaccuracy, circumstance or effect that is materially adverse to the
  business, assets (including intangible assets), capitalization, financial
  condition or results of operations of such entity and its subsidiaries
  taken as a whole, except for those changes, events, violations,
  inaccuracies, circumstances and effects that (i) are caused by conditions
  affecting the United States economy as a whole, which conditions do not
  affect such entity in a disproportionate manner, or (ii) are related to or
  result from announcement or pendency of the Merger. With respect to
  Company, a Material Adverse Effect shall have occurred if Net Cash as of
  the Closing Date is less than $7 million, regardless of how caused.
 
    Notwithstanding anything to the contrary herein, no change, event,
  violation, inaccuracy, circumstance or effect arising from or relating to
  Company's clinical trials shall constitute a Material Adverse Effect with
  respect to Company, except to the extent such change, event violation,
  inaccuracy, circumstance or effect is based on events taking place after,
  or based on information materially different from that given to Parent by
  Company on or before, the date of this Agreement.
 
    (d) For purposes of this Agreement, the term "person" shall mean any
  individual, corporation (including any non-profit corporation), general
  partnership, limited partnership, limited liability partnership, joint
  venture, estate, trust, company (including any limited liability company or
  joint stock company), firm or other enterprise, association, organization,
  entity or Governmental Entity.
 
   8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
 
   8.5 Entire Agreement; Third-Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Letter
and the Parent Disclosure Letter (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.8.
 
   8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in lull force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
 
                                      A-32

<PAGE>
 
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
 
   8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
 
   8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof;
provided that issues involving the corporate governance of any of the parties
hereto shall be governed by their respective jurisdictions of incorporation.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
of any state or federal court within the State of Delaware, in connection with
any matter based upon or arising out of this Agreement or the matters
contemplated herein, other than issues involving the corporate governance of
any of the parties hereto, agrees that process may be served upon them in any
manner authorized by the laws of the State of Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
 
   8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
 
   8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
 
                                   * * * * *
 
                                      A-33
 

<PAGE>
 
   IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
 
                                          KERAVISION, INC.
 
                                                   /s/ Thomas M. Loarie
                                          By: _________________________________
 
                                                     Thomas M. Loarie
                                          Name: _______________________________
 
                                                      Chairman & CEO
                                          Title: ______________________________
 
                                          KVTT ACQUISITION CORPORATION
 
                                                   /s/ Thomas M. Loarie
                                          By: _________________________________
 
                                                     Thomas M. Loarie
                                          Name: _______________________________
 
                                                      Chairman & CEO
                                          Title: ______________________________
 
                                          TRANSCEND THERAPEUTICS, INC.
 
                                                  /s/ B. Nicholas Harvey
                                          By: _________________________________
 
                                                    B. Nicholas Harvey
                                          Name: _______________________________
 
                                                         President
                                          Title: ______________________________
 
 
                   SIGNATURE PAGE TO REORGANIZATION AGREEMENT
 
                                      A-34