Exhibit 10.1

 

CONFIDENTIAL TREATMENT

REQUESTED PURSUANT TO RULE 24b-2

 

Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934,
as amended. The omitted materials have been filed separately with the Securities
and Exchange Commission

 

 

 

 

 

MERGER AGREEMENT

 

by and among

 

SHAPE PHARMACEUTICALS, INC.

 

TETRALOGIC PHARMACEUTICALS CORPORATION,

 

TLOG ACQUISITION SUB, INC.,

 

and

 

AUGUSTINE LAWLOR

 

as

 

HOLDER REPRESENTATIVE,

 

April 7, 2014

 

 

 

 

 

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TABLE OF CONTENTS

 

 

Page

 

 

ARTICLE I DEFINITIONS

1

 

 

 

1.1

Certain Definitions

1

 

 

 

1.2

Other Definitional and Interpretive Matters

15

 

 

 

ARTICLE II THE MERGER

16

 

 

 

2.1

The Merger

16

 

 

 

2.2

Closing and Effective Time

16

 

 

 

2.3

Effect of the Merger

16

 

 

 

2.4

Certificate of Incorporation; By-laws

17

 

 

 

2.5

Directors and Officers

17

 

 

 

2.6

Merger Consideration; Effect on Company Capital Stock; Merger Sub Capital Stock

17

 

 

 

2.7

Further Action

18

 

 

 

ARTICLE III

 

18

 

 

 

3.1

Preliminary Cash Purchase Price

18

 

 

 

3.2

Milestones

18

 

 

 

3.3

Earn-Out

22

 

 

 

3.4

Sublicenses

23

 

 

 

3.5

Audits

23

 

 

 

3.6

Payment of Purchase Price

24

 

 

 

3.7

Initial Purchase Price Adjustment

26

 

 

 

3.8

Company Options; Company Option Plan and Company 401(k) Plan

28

 

 

 

3.9

Withholding

29

 

 

 

3.10

Dissenting Shares

29

 

 

 

3.11

Survival of Payment Obligations

30

 

 

 

3.12

Closure Stock Transfer Books

30

 

 

 

ARTICLE IV REPRESENTATIONS AND WARRANTIES RELATING TO THE BUSINESS

30

 

 

 

4.1

Organization and Good Standing

30

 

 

 

4.2

Authorization of Agreement

31

 

 

 

4.3

Conflicts; Consents of Third Parties

31

 

 

 

4.4

Capitalization

31

 

 

 

4.5

Subsidiaries

33

 

 

 

4.6

Corporate Records

33

 

ii

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Page

 

 

4.7

Financial Statements

33

 

 

 

4.8

No Undisclosed Liabilities

34

 

 

 

4.9

Absence of Certain Developments

34

 

 

 

4.10

Taxes

34

 

 

 

4.11

Real Property

35

 

 

 

4.12

Tangible Personal Property

36

 

 

 

4.13

Intellectual Property

36

 

 

 

4.14

Material Contracts

37

 

 

 

4.15

Employee Benefits Plans

39

 

 

 

4.16

Labor

41

 

 

 

4.17

Litigation

42

 

 

 

4.18

Compliance with Laws; Regulatory Matters

42

 

 

 

4.19

Foreign Corrupt Practices Act

44

 

 

 

4.20

Permits

44

 

 

 

4.21

Environmental Matters

45

 

 

 

4.22

Related Party Transactions

45

 

 

 

4.23

Insurance

46

 

 

 

4.24

Financial Advisors

46

 

 

 

4.25

Due Diligence of the Company

46

 

 

 

ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

46

 

 

 

5.1

Organization and Good Standing of Parent and Merger Sub.

46

 

 

 

5.2

Authorization of Agreement

47

 

 

 

5.3

Conflicts; Consents of Third Parties

47

 

 

 

5.4

No Parent Material Adverse Effect

47

 

 

 

5.5

Financial Advisors

47

 

 

 

5.6

Litigation

48

 

 

 

5.7

Availability of Funds

48

 

 

 

5.8

Due Diligence of Parent

48

 

 

 

ARTICLE VI COVENANTS

48

 

 

 

6.1

Access to Information; Confidentiality

48

 

 

 

6.2

Conduct of the Business Pending the Closing

49

 

 

 

6.3

Third Party Consents

52

 

 

 

6.4

Governmental Consents and Approvals

52

 

 

 

6.5

Further Assurances

53

 

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Page

 

 

6.6

Publicity

53

 

 

 

6.7

Notification of Certain Matters

53

 

 

 

6.8

Tax Matters

53

 

 

 

6.9

Update of Company Schedules

55

 

 

 

6.10

Indemnification of Directors and Officers; Insurance

55

 

 

 

6.11

License Compliance

56

 

 

 

6.12

Control of Operations

56

 

 

 

6.13

Written Consent; Board Recommendation

57

 

 

 

ARTICLE VII CONDITIONS TO CLOSING

57

 

 

 

7.1

Conditions Precedent to Obligations of Parent and Merger Sub.

57

 

 

 

7.2

Conditions Precedent to Obligations of the Company

58

 

 

 

ARTICLE VIII INDEMNIFICATION

59

 

 

 

8.1

Survival of Representations, Warranties and Covenants

59

 

 

 

8.2

Indemnification

60

 

 

 

8.3

Indemnification Procedures

61

 

 

 

8.4

Limitations on Indemnification

62

 

 

 

8.5

Payment of Claims

64

 

 

 

8.6

Insurance Collection

65

 

 

 

8.7

Tax Treatment of Indemnity Payments

65

 

 

 

8.8

Role and Liability of Holder Representative

65

 

 

 

8.9

Sole and Exclusive Remedy

65

 

 

 

ARTICLE IX TERMINATION

66

 

 

 

9.1

Termination of Agreement

66

 

 

 

9.2

Procedure Upon Termination

66

 

 

 

9.3

Effect of Termination

67

 

 

 

ARTICLE X MISCELLANEOUS

67

 

 

 

10.1

Expenses

67

 

 

 

10.2

Holder Representative

67

 

 

 

10.3

Specific Performance

69

 

 

 

10.4

Submission to Jurisdiction; Consent to Service of Process; Waiver of Jury Trial

69

 

 

 

10.5

Entire Agreement; Amendments and Waivers

70

 

 

 

10.6

Governing Law

70

 

 

 

10.7

Notices

70

 

 

 

10.8

Severability

71

 

iv

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Page

 

 

10.9

Binding Effect; Assignment

71

 

 

 

10.10

Non-Recourse

72

 

 

 

10.11

Disclosure in Schedules

72

 

 

 

10.12

Parent Guaranty

72

 

 

 

10.13

Role of Bingham McCutchen LLP

72

 

 

 

10.14

Counterparts

72

 

Annexes

 

Annex A - Milestones

Annex B — Clinical Study Synopsis

Annex C — Board of Directors and Officers of Surviving Corporation

 

Exhibits

 

Exhibit A — Written Consent of the Stockholders

Exhibit B — Form of Certificate of Incorporation of the Surviving Corporation

Exhibit C — Form of Letter of Transmittal

Exhibit D — Form of Option Cancellation Agreement

 

v

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MERGER AGREEMENT

 

This MERGER AGREEMENT, dated as of April 7, 2014 (this “Agreement”), by and
among (i) TetraLogic Pharmaceuticals Corporation, a Delaware corporation
(“Parent”), (ii) TLOG Acquisition Sub, Inc., a Delaware corporation and wholly
owned subsidiary of Parent (“Merger Sub”), (iii) Shape Pharmaceuticals, Inc., a
Delaware corporation (the “Company”), and (iv) Augustine Lawlor, solely in his
capacity as Holder Representative (the “Holder Representative”).

 

RECITALS:

 

A.                                    Parent, Merger Sub and the Company intend
to effectuate a merger (the “Merger”) of Merger Sub with and into the Company in
accordance with this Agreement and the General Corporation Law of the State of
Delaware, as amended (the “DGCL”), with the Company to be the surviving
corporation of the Merger.

 

B.                                    The board of directors of the Company (the
“Board”) has (i) determined that the Merger is fair to, and in the best
interests of, the Company and the Stockholders, (ii) adopted and approved this
Agreement, the Merger and the other Transactions, and (iii) recommended that the
Stockholders adopt and approve this Agreement, the Merger and the Transactions
(collectively, the “Company Board Approval”).

 

C.                                    The boards of directors of each of Parent
and Merger Sub have approved this Agreement, the Merger and the other
Transactions, and determined that this Agreement, the Merger and the other
Transactions are fair to, and in the best interests of, each such company and
its respective stockholders.

 

D.                                    Within ten (10) Business Days following
the execution of this Agreement, the Stockholders will have executed and
delivered a written consent substantially in the form attached hereto as Exhibit
A, which shall, among other things, approve this Agreement and the Transactions,
including the Merger (“Written Consent”).

 

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 is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.1                               Certain Definitions. For purposes of this
Agreement, the following terms shall have the meanings specified in this Section
1.1:

 

“Accountant” is defined in Section 3.5.

 

“Actual Closing Date Net Free Cash Amount” is defined in Section 3.7(b)(ii).

 

“Actual Unpaid Company Transaction Expenses” is defined in Section 3.7(b)(ii).

 

“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, such

 

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Person, and the term “control” (including the terms “controlled by” and “under
common control with”) means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through ownership of voting securities, by contract or otherwise.

 

“Agreement” is defined in the Preamble.

 

“Amended Company Schedules” is defined in Section 6.9.

 

“API Patents” means the active pharmaceutical ingredient patents and patent
applications included among the Company Intellectual Property.

 

“Arbiter” is defined in Section 3.7(b)(iii).

 

“Balance Sheet” is defined in Section 4.7(a).

 

“Balance Sheet Date” is defined in Section 4.7(a).

 

“Balance Sheet Liabilities” means, as of the date of determination, all “current
liabilities” that would be reflected on a balance sheet of the Company prepared
as of the date of determination in accordance with GAAP (for the avoidance of
doubt, not including the any Closing Indebtedness, whether current or not).

 

“Base Price” is defined in Section 3.1(a).

 

“Board” is defined in Recital B.

 

“Business” means the business and operation of the Company and its Subsidiaries
as operated by the Company and its Subsidiaries as of the Closing Date.

 

“Business Day” means any day of the year on which national banking institutions
in Boston, Massachusetts, are open to the public for conducting business and are
not required or authorized to close.

 

“Certificate of Merger” is defined in Section 2.2.

 

“Clinical Study Synopsis” means the Clinical Study Synopsis attached to this
Agreement as Annex B.

 

“Closing” is defined in Section 2.2.

 

“Closing Date” is defined in Section 2.2.

 

“Closing Date Net Free Cash Amount Statement” is defined in Section 3.7(b)(ii).

 

“Closing Date Unpaid Company Transaction Expenses Statement” is defined in
Section 3.7(b)(ii).

 

“Closing Indebtedness” is defined in Section 3.6(a)(i).

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

2

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“Commercialize”, “Commercialized” “Commercialization” and words of similar
import mean any and all activities directed to the offering for sale or sale of
a pharmaceutical product, including activities relating to marketing, promotion,
distributing, manufacturing commercial supplies, importing, exporting, selling
and offering to sell a pharmaceutical product.  For clarity, Commercialization
activities shall also include planning and implementation, booking of sales and
pricing and reimbursement activities and sublicensing.

 

“Company” is defined in the preamble.

 

“Company Accounting Methodologies” is defined in Section 3.7(a).

 

“Company Board Approval” is defined in Recital B.

 

“Company Capital Stock” means the Company Common Stock and the Company Preferred
Stock, collectively.

 

“Company Common Stock” means the common stock, $0.001 par value per share, of
the Company.

 

“Company Documents” is defined in Section 4.2.

 

“Company Employee Plans” is defined in Section 4.15(a).

 

“Company Fundamental Representations” is defined in Section 8.1.

 

“Company Intellectual Property” means any Intellectual Property owned by or
licensed to the Company.

 

“Company Material Adverse Effect” means any change, event, effect or development
that (i) has, or is reasonably likely to have, a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its Subsidiaries, taken as a whole, or the Business, or (ii) prevents or
materially impedes the ability of the Company to consummate the Transactions;
provided, however, that none of the following, or any change, event,
circumstance or development resulting or arising from the following, shall
constitute, or shall be considered in determining whether there has occurred, a
Company Material Adverse Effect:

 

(a)                                 changes in conditions in the United States
or global economy or capital or financial markets generally, including changes
in interest or exchange rates (except to the extent that such changes affect the
Company or the Business in a materially disproportionate manner as compared to
other biotechnology companies that operate in the same industry segment as the
Company);

 

(b)                                 changes in general legal, tax, regulatory,
political or business conditions in the countries in which the Company or its
Subsidiaries operate (except to the extent that such changes affect the Company
or the Business in a materially disproportionate manner as compared to other
biotechnology companies that operate in the same industry segment as the
Company);

 

(c)                                  general market or economic conditions in
the pharmaceutical or biotechnology industries (except to the extent that such
conditions affect the Company or the Business in a materially disproportionate
manner as compared to other biotechnology companies that operate in the same
industry segment as the Company);

 

3

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(d)                                 the announcement or pendency of this
Agreement or the Transactions (it being understood that this clause (d) shall
not apply with respect to the representation set forth in Section 4.3(a), any
public communication by Parent regarding this Agreement or the Transactions or
any public communication by the Company that is permitted under this Agreement
or is otherwise approved by Parent);

 

(e)                                  changes in GAAP or the interpretation
thereof (except to the extent that such changes affect the Company or the
Business in a materially disproportionate manner as compared to other
biotechnology companies that operate in the same industry segment as the
Company); and

 

(f)                                   acts of war, armed hostilities, sabotage
or terrorism, or any escalation or worsening of any such acts of war, armed
hostilities, sabotage or terrorism threatened or underway as of the Execution
Date (except to the extent that such acts affect the Company or the Business in
a materially disproportionate manner as compared to other biotechnology
companies that operate in the same industry segment as the Company).

 

“Company Materials” means all clinical trial materials, raw materials,
molecules, compounds, products, product candidates, and other items developed,
manufactured, processed, sold, offered for sale, imported or exported by or on
behalf of the Company.

 

“Company Option Plan” is defined in Section 3.8(a).

 

“Company Options” is defined in Section 4.4(a).

 

“Company Permits” is defined in Section 4.20.

 

“Company Preferred Stock” means the Series A Convertible Redeemable Company
Preferred Stock and the Series B Convertible Redeemable Company Preferred Stock,
collectively.

 

“Company Recommendation” is defined in Section 6.13.

 

“Company Schedules” is defined in Article IV.

 

“Confidential Information” is defined in Section 6.1.

 

“Consent” means any consent, approval, authorization, waiver, grant, franchise,
concession, certificate, exemption, Order, registration, declaration, filing,
report, notice or exception with, to or from any Person.

 

“Contract” means any contract, agreement, indenture, note, bond, mortgage, loan,
instrument, lease, license, commitment or other arrangement, understanding,
undertaking or obligation, whether written or oral, provided that in the case of
any such commitment or other arrangement, understanding, undertaking or
obligation, which commitment or other arrangement, understanding, undertaking or
obligation is legally binding and enforceable.

 

“Contract Manufacturing Agreement” means any manufacturing or supply agreement
with a manufacturer or supplier of raw materials, bulk product, final packaged
doses, or any intermediate form of any drug product to which the Company is a
party.

 

“Contractors” is defined in 4.16(c).

 

4

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“Copyrights” is defined in Section 4.13(a).

 

“CTCL” means cutaneous T cell lymphoma.

 

“Debarred” is defined in Section 4.18(b).

 

“Deductible” is defined in Section 8.4(a).

 

“Default” means, with respect to a Contract, Order, Law, Employee Benefit Plan,
organizational document or other instrument or agreement, (i) a violation,
breach or default, (ii) the occurrence of an event that (with or without the
passage of time or the giving of notice or both) would constitute a violation,
breach or default, or (iii) the occurrence of an event, that (with or without
the passage of time or the giving of notice or both) would give rise to a right
of damages, specific performance, termination, renegotiation or acceleration
(including the acceleration of payment).

 

“Develop”, “Developed”, “Development” and words of similar import mean drug
development activities, including test method development and stability testing,
assay development and audit development, toxic formulation, clinical
manufacture, quality assurance/quality control development, statistical
analysis, clinical studies, packaging development, regulatory affairs, and the
preparation, filing and prosecution of regulatory filings and approvals.

 

“Development Plan” is defined in Section 3.2(c)(ii).

 

“DGCL” is defined in Recital A.

 

“Dissenting Shares” is defined in Section 3.10(a).

 

“Earn-Out Payments” is defined in Section 3.3(a).

 

“Earn-Out Term” means that period of time beginning on the Effective Date and
continuing in full force and effect until expiration of the last to expire Valid
Claim.

 

“Effective Time” is defined in Section 2.2.

 

“EMEA” means the European Medicines Agency.

 

“Employee Benefit Plans” is defined in Section 4.15(a).

 

“Employees” means all Persons employed by the Company on a full or part-time
basis, whether on active status or on leaves of absence.

 

“Enforceability Exceptions” means (i) any applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting the enforcement of
creditors’ rights generally, and (ii) general equitable principles, regardless
of whether such enforceability is considered in a proceeding at law or in
equity.

 

“Environmental Costs and Liabilities” means, with respect to any Person, all
Liabilities, Remedial Actions, losses, damages (including punitive damages and
consequential damages), costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts and consultants and costs of
investigation and feasibility studies), fines, penalties, sanctions and interest
incurred as a result of any claim or demand by any other Person or in response
to any violation of or requirement under Environmental Law, whether known or
unknown, accrued or contingent, whether

 

5

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based in contract, tort, implied or express warranty, strict liability, criminal
or civil statute or otherwise, to the extent based upon, related to, or arising
under or pursuant to any Environmental Law, Environmental Permit, Order or
agreement with any Governmental Body or other Person, which relates to any
environmental, health or safety condition, violation of or requirement under
Environmental Law or a Release or threatened Release of Hazardous Materials.

 

“Environmental Law” means any Law, as now or hereafter in effect, in any way
relating to pollution, the protection of human health and safety, the
environment, the preservation or restoration of natural resources, the
environmental content of raw materials, constituents, compounds, goods or
products, or the protection of worker health and safety, including the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
§ 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App.
§ 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et
seq.), the Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act
(42 U.S.C. § 7401 et seq.) the Toxic Substances Control Act (15 U.S.C. § 2601 et
seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136
et seq.), the Atomic Energy Act (42 U.S.C. § 2011 et seq.), and the Occupational
Safety and Health Act (29 U.S.C. § 651 et seq.), and all similar Laws of any
Governmental Body with jurisdiction over the Company, its Business, the Company
Materials or the Company’s facilities, as each has been or may be amended.

 

“Environmental Permit” means any Permit required by Environmental Laws for the
operation of the Business or for any Company Materials.

 

“Equityholder” means, as applicable, (i) a Stockholder, or (ii) a holder of
Company Options if and to the extent that such Company Options entitle such
holder to receive a portion of the Initial Purchase Price or any portion of any
Future Payments pursuant to, and in accordance with, this Agreement.

 

“Equityholder Indemnified Parties” is defined in Section 8.2(b).

 

“ERISA” is defined in Section 4.15(a).

 

“ERISA Affiliate” is defined in Section 4.15(a).

 

“Estimated Closing Date Net Free Cash Amount” is defined in Section 3.7(a).

 

“Estimated Unpaid Company Transaction Expenses” is defined in Section 3.7(a).

 

“Execution Date” is defined in Section 6.9.

 

“FDA” means the United States Food and Drug Administration.

 

“FDA Act” means the Federal Food, Drug and Cosmetic Act, as amended.

 

“FDA Ethics Policy” is defined in Section 4.18(i).

 

“Financial Statements” is defined in Section 4.7(a).

 

“First Commercial Sale” means, on a Product-by-Product basis, the first sale of
a Product by an Invoicing Entity or sublicensee to a third party for end use or
consumption of such Product.

 

6

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“Free Cash” means (a) all cash and cash equivalents held by the Company,
including the amount of cash and bank deposits as reflected in bank statements,
and certificates of deposit less (i) the amounts of any unpaid checks, drafts
and wire transfers issued on or prior to the date of determination, calculated
in accordance with GAAP, and (ii) the amount of invoices that are unpaid and
overdue immediately after Closing (where “overdue” means not paid after ninety
(90) calendar days from the date of invoice); (b) all accounts receivable of the
Company outstanding as of the Closing Date and (c) and as of the date of
determination, all “current assets” that would be reflected on a balance sheet
of the Company prepared as of the date of determination in accordance with GAAP.

 

“Free Cash Excess” is defined in Section 3.7(b)(iv)(A).

 

“Free Cash Shortfall” is defined in Section 3.7(b)(iv)(A).

 

“Future Payments” means the Purchase Price Adjustment Payments, the Milestone
Payments, the Earn-Out Payments and the Sublicense Payments.

 

“Future Payment Allocation Schedule” is defined in Section 3.6(a)(iii).

 

“GAAP” means generally accepted accounting principles as applied in the United
States, consistently applied and maintained throughout the applicable periods.

 

“Governmental Body” means any government or governmental or regulatory body
thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).

 

“Harvard/DFCI Agreement” is defined in Section 6.10(c).

 

“Hazardous Material” means any chemical, substance, material or waste, whether
solid, gaseous or liquid, that (a) is regulated, classified, or otherwise
characterized under or pursuant to any Environmental Law as “hazardous,”
“toxic,” “pollutant,” “contaminant,” “radioactive,” or words of similar meaning
or effect, or (b) may pose a present or potential hazard to human health or the
environment when improperly handled, Released, treated, stored, transported or
otherwise managed, including source material, by-product material, and special
nuclear material, mixed wastes, explosive, medical or biohazardous materials or
wastes, petroleum and its by-products, asbestos and asbestos-containing
materials, polychlorinated biphenyls, radon, mold and urea formaldehyde
insulation.

 

“Holder Representative” is defined in the Preamble.

 

“Indebtedness” of any Person means, without duplication, (i) the principal,
accreted value, accrued and unpaid interest, prepayment and redemption premiums
or penalties (if any), unpaid fees or expenses and other monetary obligations in
respect of (A) indebtedness of such Person for borrowed money, and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable;
(ii) all obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement (but excluding
trade accounts payable and other accrued current liabilities arising in the
Ordinary Course of Business (other than the current liability portion of any
indebtedness for borrowed money)); (iii) all obligations of such Person under
leases required to be capitalized in accordance with GAAP; (iv) all obligations
of such Person for the reimbursement of any obligor on any letter of credit,
banker’s acceptance or similar credit transaction; (v) all obligations of such
Person under interest rate or currency swap transactions (valued at the
termination value thereof); (vi) all obligations of the type referred to in
clauses (i) through (v) of any

 

7

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Persons for the payment of which such Person is responsible or liable, directly
or indirectly, as obligor, guarantor, surety or otherwise, including guarantees
of such obligations; and (vii) all obligations of the type referred to in
clauses (i) through (vi) of other Persons secured by (or for which the holder of
such obligations has an existing right, contingent or otherwise, to be secured
by) any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person).

 

“Initial Development Plan” is defined in Section 3.2(c)(iii).

 

“Initial Payment Allocation Schedule” is defined in Section 3.6(a).

 

“Initial Purchase Price” is defined in 3.1.

 

“Insurance Policies” is defined in Section 4.23.

 

“Intellectual Property” is defined in Section 4.13(a).

 

“Invoicing Entity” is defined in Section 1.1 in the definition of “Net Sales.”

 

“IRS” means the Internal Revenue Service.

 

“Key Product Candidate” means SHP-141.

 

“Knowledge” (including any derivation thereof such as “known” or “knowing”)
means the actual knowledge (i) after such inquiries as would be deemed
reasonable and appropriate in the prudent management of the Business, of any of
the officers and directors of such Person and its subsidiaries, if such Person
is an entity, and (ii) of such Person, if such Person is an individual.

 

“Law” means any foreign, federal, state, provincial or local law (including
common law), statute, code, ordinance, rule, regulation or guidance having the
binding effect of law, Order or other requirement of a Government Body.

 

“Legal Proceeding” means any judicial, administrative or arbitral actions,
suits, mediation, investigation, inquiry, proceedings or claims (including
counterclaims) by or before a Governmental Body.

 

“Letter of Transmittal” is defined in Section 3.6(a)(ii).

 

“Liability” means any debt, loss, damage, adverse claim, fines, penalties,
liability or obligation (whether direct or indirect, known or unknown, asserted
or unasserted, absolute or contingent, accrued or unaccrued, matured or
unmatured, determined or determinable, liquidated or unliquidated, or due or to
become due, and whether in contract, tort, strict liability or otherwise), and
including all costs and expenses relating thereto, including all fees,
disbursements and expenses of legal counsel, experts, engineers and consultants
and costs of investigation).

 

“Lien” means any lien, pledge, mortgage, deed of trust, security interest,
lease, charge, option, right of first refusal, easement, servitude, proxy,
voting trust or agreement, transfer restriction under any shareholder or similar
agreement, encumbrance or any other restriction or limitation on transfer
whatsoever.

 

“LLS Agreement” is defined in Section 6.10(c).

 

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“Loss” or “Losses” means any and all Liabilities, Encumbrances, penalties,
fines, settlements, or Claims, including reasonable attorneys’, experts’ and
accountants’ fees, expenses and disbursements and court costs in connection with
any of the foregoing (including any costs of defense incurred by an Indemnified
Party in the event it is required or entitled to defend a Third Party Claim
under Section 8.3, incurred by a Person in connection with such fact, event or
circumstance, including any such Loss Event), including any of the foregoing
arising out of events, facts or circumstances that have occurred on or prior to
the Closing Date, even though the Claim in connection with such events, facts or
circumstances may not be filed or come to light until after the Closing Date;
provided, however, that except in the case of any Third Party Claims, Losses
relating to any breach shall not include any damages based on speculative
damages, special damages, lost profits, consequential damages and/or punitive
damages, in each case, that are not the reasonably foreseeable consequence of
such breach.

 

“Loss Event” means any fact, event or circumstance which has resulted in or is
reasonably likely to result in a Loss or a Third Party Claim.

 

“Material Contracts” is defined in Section 4.14(a).

 

“Merger” is defined in Recital A.

 

“Merger Clearance Laws” is defined in Section 5.2.

 

“Merger Consideration” is defined in Section 2.6(a).

 

“Merger Sub” is defined in the Preamble.

 

“Milestones” means the US Milestones and ROW Milestones, collectively.

 

“Milestone Activities” means the research, development, regulatory,
manufacturing, selling and Commercialization activities necessary to achieve the
Milestones.

 

“Milestone Payment” has the meaning set forth in Annex A.

 

“Milestone Report” is defined in Section 3.2(f).

 

“Milestone Target Achievement Date” is defined in Section 3.2(c)(ii).

 

“Net Free Cash” means, as of the date of determination, the difference between
(a) the Free Cash of the Company, and (b) the Balance Sheet Liabilities of the
Company.

 

“Net Sales” means the gross amount billed or invoiced by Parent or the Surviving
Corporation, any of their respective Affiliates, licensees or sublicensees, or
on behalf of any such entities (in each case, the “Invoicing Entity”) on sales,
leases or other transfers of Products, less the following to the extent
applicable on such sales, leases or other transfers of Products and not
previously deducted from the gross invoice price:  (a) customary trade,
quantity, cash or other actual discounts or rebates to the extent actually
allowed and taken; (b) amounts actually repaid or credited by reason of
rejection or return of any previously sold, leased or otherwise transferred
Products; (c) customer freight, insurance and handling charges that are paid by
or on behalf of the Invoicing Entity; and (d) to the extent separately stated on
purchase orders, invoices or other documents of sale, any sales, value added or
similar taxes, custom duties or other similar governmental charges levied
directly on the production, sale, transportation, delivery or use of a Product
that are paid by or on behalf of the Invoicing Entity, but not including any tax
levied with respect to income; provided, that:

 

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(a)                                 in any transfers of Products between an
Invoicing Entity and an Affiliate of such Invoicing Entity not for the purpose
of resale by such affiliate, Net Sales shall be equal to the fair market value
of the Products so transferred, assuming an arm’s length transaction made in the
ordinary course of business, and

 

(b)                                 in the event that an Invoicing Entity
receives non-cash consideration for any Products or in the case of transactions
not at arm’s length with a non-affiliate of Invoicing Entity, Net Sales shall be
calculated based on the fair market value of such consideration or transaction,
assuming an arm’s length transaction made in the ordinary course of business.

 

Sales of Products by an Invoicing Entity to its Affiliate, licensees or
sublicensees for resale by such Affiliate, licensee or sublicensee shall not be
deemed Net Sales.  Instead, Net Sales shall be determined based on the gross
amount billed or invoiced by such Affiliate, licensee or sublicensee on resale
of Products to a third party purchaser.  Net Sales shall not be generated on the
supply of Products by an Invoicing Entity for use in clinical trials or
compassionate use programs or as samples.

 

“Option Cancellation Agreement” is defined in Section 3.8(b).

 

“Order” means any order, injunction, judgment, decree, ruling, writ, assessment
or arbitration award of a Governmental Body.

 

“Ordinary Course of Business” means the ordinary and usual course of day-to-day
operations of the Business consistent with past practice.

 

“Parent” is defined in the Preamble.

 

“Parent Documents” is defined in Section 5.2.

 

“Parent Fundamental Representations” is defined in Section 8.1.

 

“Parent Indemnified Parties” is defined in Section 8.2(a).

 

“Parent Material Adverse Effect” means any change, event, effect or development
that (i) has, or is reasonably likely to have, a material adverse effect on the
business, financial condition or results of operations of Parent or Merger Sub,
or (ii) prevents or materially impedes the ability of Parent or Merger Sub to
consummate the Transactions; provided, however, that none of the following, or
any change, event, circumstance or development resulting or arising from the
following, shall constitute, or shall be considered in determining whether there
has occurred, a Parent Material Adverse Effect:

 

(c)                                  changes in conditions in the United States
or global economy or capital or financial markets generally, including changes
in interest or exchange rates (except to the extent that such changes affect
Parent or its business in a materially disproportionate manner as compared to
other biotechnology companies that operate in the same industry segment as
Parent);

 

(d)                                 changes in general legal, tax, regulatory,
political or business conditions in the countries in which Parent operates
(except to the extent that such changes affect Parent or its business in a
materially disproportionate manner as compared to other biotechnology companies
that operate in the same industry segment as Parent);

 

(e)                                  general market or economic conditions in
the pharmaceutical or biotechnology industries (except to the extent that such
conditions affect Parent or its business in a materially

 

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disproportionate manner as compared to other biotechnology companies that
operate in the same industry segment as Parent);

 

(f)                                   changes in GAAP or the interpretation
thereof (except to the extent that such changes affect Parent or its business in
a materially disproportionate manner as compared to other biotechnology
companies that operate in the same industry segment as Parent); and

 

(g)                                  acts of war, armed hostilities, sabotage or
terrorism, or any escalation or worsening of any such acts of war, armed
hostilities, sabotage or terrorism threatened or underway as of the Execution
Date (except to the extent that such acts affect Parent and its business in a
materially disproportionate manner as compared to other biotechnology companies
that operate in the same industry segment as Parent).

 

“Patents” is defined in Section 4.13(a).

 

“Permits” means any approvals, authorizations, consents, licenses, permits,
exemptions or certificates of a Governmental Body.

 

“Permitted Exceptions” means (i) all defects, exceptions, restrictions,
easements, rights of way and encumbrances disclosed in policies of title
insurance which have been delivered to Parent; (ii) statutory liens for current
Taxes, assessments or other governmental charges not yet delinquent or the
amount or validity of which is being contested in good faith by appropriate
proceedings, provided that an appropriate reserve has been established therefor
in the Financial Statements in accordance with GAAP; (iii) mechanics’,
carriers’, workers’, and repairers’ Liens arising or incurred in the Ordinary
Course of Business that are not material to the Business and that are not
resulting from a Default by the Company or any of its Subsidiaries of any
Contract or Law; (iv) zoning, entitlement and other land use and environmental
regulations by any Governmental Body, provided that such regulations have not
been violated in any material respect; (v) liens or other encumbrances set forth
on Schedule 1.1, (vi) liens for purchase money indebtedness; (vii) minor
imperfections of title, none of which imperfections, individually or in the
aggregate, materially detracts from the value of the affected properties, or
materially impairs the use of the affected properties in the manner such
properties currently are being used or materially impairs the operations of the
Company; (viii) any right of first refusal, proxy, voting trust or agreement,
transfer restriction under any shareholder or similar agreement or any other
restriction or limitation on transfer whatsoever that, in each case, will
expire, terminate or be terminated at or prior to the Closing; and (ix) any
restrictions on transfer imposed on the Shares under applicable federal and
state securities laws.

 

“Person” means any individual, corporation, limited liability company,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.

 

“Phase II Study” is defined in Section 3.2(c)(i).

 

“Phase II Study Deadline” is defined in 3.2(c)(i).

 

“Phase III Study” is defined in Section 3.2(g).

 

“Phase III Study Deadline” is defined in Section 3.2(g).

 

“Phase III Study Formulation” is defined in Section 3.2(g).

 

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“Pre-Closing Tax Period” means any Tax Period (and that portion of any Straddle
Period) ending on or before the Closing Date.

 

“Prime Rate” means the “prime” rate, as announced by The Wall Street Journal,
Eastern Edition, from time to time in effect.

 

“Privacy Laws” is defined in Section 4.18(m).

 

“Privacy Policies” is defined in Section 4.18(m).

 

“Product” shall mean any product, the manufacture, use, sale, marketing or
importation of which falls within the scope of or is otherwise covered by a
Valid Claim, including the Key Product Candidate.

 

“Proprietary Information” means at any date, any information of a Person, that
is not already generally available to the public (unless such information has
entered the public domain and become available to the public through fault on
the part of the party to be charged hereunder), which constitute trade secrets,
personally identifiable financial information, or personal health information
under governing Law.

 

“Purchase Price Adjustment Payments” is defined in Section 3.7(b)(iv)(B).

 

“Related Documents” means the Company Documents, the Seller Documents and any
other documents or agreements delivered together with or related to this
Agreement, the Company Documents or the Seller Documents.

 

“Related Persons” is defined in Section 4.22.

 

“Release” means any release, spill, emission, leaking, pumping, poring,
injection, deposit, dumping, emptying, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment (including ambient air,
surface water, groundwater, land surface or subsurface strata), or into or out
of any property.

 

“Remedial Action” means all actions including any capital expenditures
undertaken to (i) clean up, remove, treat or in any other way address any
Hazardous Material; (ii) prevent the Release or threat of Release, or minimize
the further Release of any Hazardous Material so it does not migrate or endanger
or threaten to endanger public health or welfare or the indoor or outdoor
environment; (iii) perform pre-remedial studies and investigations or
post-remedial monitoring and care; or (iv) respond to or correct a condition of
noncompliance with Environmental Laws.

 

“Representatives” is defined in Section 4.18(b).

 

“ROW Milestones” has the meaning set forth in Annex A.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“Section 6.10 Indemnified Persons” is defined in Section 6.10.

 

“Series A Convertible Redeemable Company Preferred Stock” means the Series A
Convertible Redeemable Company Preferred Stock of the Company, par value $0.001
per share.

 

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“Series B Convertible Redeemable Company Preferred Stock” means the Series B
Convertible Redeemable Company Preferred Stock of the Company, par value $0.001
per share.

 

“Shares” means shares of the Company Capital Stock.

 

“Stockholder Approval” means, promptly following the execution of this
Agreement, the affirmative vote of the Stockholders necessary to approve this
Agreement and the Merger in accordance with the applicable provisions of the
Company’s organizational documents and the DGCL, which shall be evidenced by
execution of the Written Consent.

 

“Stockholders” means the holders of the Shares.

 

“Straddle Period” means any Tax Period beginning before the Closing Date and
ending after the Closing Date.

 

“Sublicense Agreement” means any license agreement, sublicense agreement or
other agreement pursuant to which Parent, the Surviving Corporation or any of
their respective Affiliates transfers or grants to any third party the right
(pursuant to any license, sublicense or other transfer of Company Intellectual
Property) to Develop or Commercialize any Company Intellectual Property other
than vendors working on behalf of Parent, the Surviving Corporation of any of
their Affiliates such as contract research organizations and contract
manufacturing organizations.

 

“Sublicense Income” means payments actually received by Parent, the Surviving
Corporation or any of their respective Affiliates under a Sublicense Agreement
other than:  (i) royalties received by Parent, the Surviving Corporation or any
of their respective Affiliates based on Net Sales; (ii) milestone payments that
correspond to any of the Milestones related to the Harvard/DFCI Agreement, but
only up to the amount of the corresponding Milestone Payment to the extent
actually paid to the Equityholders pursuant to this Agreement (with any amount
in excess thereof not excluded by this clause (ii)); (iii) amounts paid by
Parent, the Surviving Corporation or any of their respective Affiliates under
the Harvard/DFCI Agreement related to the milestone payments referred to in
clause (ii) above; (iv) amounts received in respect of bona fide research and
development activities performed by or on behalf of Parent, the Surviving
Corporation or any of their respective Affiliates; (v) reimbursement of
pass-through or out-of-pocket expenses; (vi) fees received for the supply of
active pharmaceutical product or Product by or on behalf of Parent, the
Surviving Corporation or any of their respective Affiliates capped at Parent’s,
the Surviving Corporation’s or any of their respective Affiliates’ fully
burdened cost of such supply; or (vi) loans to, or amounts paid for debt or
equity securities of, Parent, the Surviving Corporation or any of their
respective Affiliates at arms-length pricing.  In the event that Parent, the
Surviving Corporation or any of their respective Affiliates receives non-cash
consideration in connection with a Sublicense Agreement or in the case of
transactions not at arm’s length, Sublicense Income shall be calculated based on
the fair market value of such consideration or transaction, at the time of the
transaction, assuming an arm’s length transaction made in the ordinary course of
business.

 

“Sublicense Payments” is defined in Section 3.4(a).

 

“Subsidiary” means any Person of which (i) a majority of the outstanding share
capital, voting securities or other equity interests are owned, directly or
indirectly, by the Company or (ii) the Company is entitled, directly or
indirectly, to appoint a majority of the board of directors, board of managers
or comparable body of such Person.

 

“Surviving Corporation” is defined in Section 2.1.

 

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“Taxes” means (i) all federal, state, local or foreign taxes, charges, fees,
imposts, levies or other assessments, including all income, gross receipts,
capital, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation, property and
estimated taxes, customs duties, fees, assessments and charges of any kind
whatsoever, (ii) all interest, penalties, fines, additions to tax or additional
amounts imposed by any Taxing Authority in connection with any item described in
clause (i).

 

“Taxing Authority” means the IRS and any other Governmental Body responsible for
the administration of any Tax.

 

“Tax Claim” is defined in Section 6.8(c).

 

“Tax Contest” is defined in Section 6.8(b).

 

“Tax Period” means any period prescribed by any Taxing Authority for which a Tax
Return is required to be filed or a Tax is required to be paid.

 

“Tax Return” means any return, report or statement required to be filed with
respect to any Tax (including any elections, declarations, schedules or
attachments thereto, and any amendment thereof) including any information
return, claim for refund, amended return or declaration of estimated Tax,
including Form TD F 90-22.1, and including, where permitted or required,
combined, consolidated or unitary returns for any group of entities that
includes the Company or any of their Affiliates.

 

“Termination Date” is defined in Section 9.1(a).

 

“Third Party” means any Person other than Parent, Merger Sub, the Company, the
Holder Representative, or an Affiliate of any of the foregoing.

 

“Third Party Claim” means any Claim asserted by a Third Party that is based on
facts, events or circumstances that would result or would reasonably be likely
to result in an Indemnified Party incurring a Loss which, assuming such Claim is
bona fide, would be or would reasonably be likely to be an indemnifiable Losses
under Article VIII.

 

“Trademarks” is defined in Section 4.13(a).

 

“Transaction Expense Shortfall” is defined in Section 3.7(b)(iv)(B).

 

“Transaction Expense Excess” is defined in Section 3.7(b)(iv)(B).

 

“Transactions” is defined in Section 2.2.

 

“Transfer Taxes” is defined in Section 6.8(d).

 

“Unpaid Company Transaction Expenses” means, except as otherwise expressly set
forth in this Agreement, the aggregate amount of all documented out-of-pocket
fees and expenses, reasonably incurred by or on behalf of and paid or to be paid
by, the Company in connection with the process of consummating the Merger or
otherwise relating to the negotiation, preparation or execution of this
Agreement or any documents or agreements contemplated hereby or the performance
or consummation of the Transactions, including (a) any fees and expenses
associated with obtaining necessary or appropriate waivers, Consents or
approvals of any Governmental Body or third parties on

 

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behalf of the Company at any time on or prior to the Closing, and (b) fees and
expenses of counsel, accountants, and auditors; provided that, the definition of
“Unpaid Company Transaction Expenses” shall not include (i) any such fees,
expenses, bonuses or payments that have been or are paid by the Company at or
prior to the Closing, and (ii) any such fees, expenses, or payments that are
included in the definition of “Balance Sheet Liabilities” as of the date of
determination, (iii) any brokers’ or finders’ fees, or (iv) any sale or similar
bonuses or payments to current or former directors, officers, employees and
consultants paid as a result of or in connection with the Transactions.

 

“US Milestones” has the meaning set forth in Annex A.

 

“Valid Claim” means:  (a) a claim of an issued and unexpired patent within the
API Patents that has not been (i) held permanently revoked, unenforceable,
unpatentable or invalid by a decision of a court or governmental body of
competent jurisdiction, unappealable or unappealed within the time allowed for
appeal, (ii) rendered unenforceable through disclaimer or otherwise,
(iii) abandoned, or (iv) lost through an interference proceeding; or (b) a
pending claim of a pending patent application within the API Patents that
(i) has been asserted and continues to be prosecuted in good faith, (ii) has not
been abandoned or finally rejected without the possibility of appeal or refiling
and (iii) has not been pending for more than five (5) years from the date of
issuance of the first substantive patent office action considering the
patentability of such claim by the applicable patent office in such country (at
which time such pending claim shall cease to be a Valid Claim for purposes of
this Agreement unless and until such claim becomes a claim of an issued patent).

 

“WARN” is defined in Section 4.16(e).

 

“Written Consent” is defined in Recital D.

 

1.2                               Other Definitional and Interpretive Matters.

 

(a)                                 Unless otherwise expressly provided, for
purposes of this Agreement, the following rules of interpretation shall apply:

 

Calculation of Time Period.  When calculating the period of time before which,
within which or following which any act is to be done or step taken pursuant to
this Agreement, the date that is the reference date in calculating such period
shall be excluded.  If the last day of such period is a non-Business Day, the
period in question shall end on the next succeeding Business Day.

 

Dollars.  Any reference in this Agreement to $ shall mean U.S. dollars.

 

Exhibits/Schedules.  The Annexes, Exhibits and Schedules to this Agreement are
hereby incorporated and made a part hereof and are an integral part of this
Agreement.  All Annexes, Exhibits and Schedules annexed hereto or referred to
herein are hereby incorporated in and made a part of this Agreement as if set
forth in full herein.  Any capitalized terms used in any Annex, Exhibit or
Schedule but not otherwise defined therein shall be defined as set forth in this
Agreement.  Subject to Section 10.11 hereof, the Schedules are numbered to
correspond to the various Sections and subsections of this Agreement setting
forth certain exceptions to the representations and warranties contained in this
Agreement and certain other information called for by this Agreement.

 

Gender and Number.  Any reference in this Agreement to gender shall include all
genders, and words imparting the singular number only shall include the plural
and vice versa.

 

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Headings.  The provision of a Table of Contents, the division of this Agreement
into Articles, Sections and other subdivisions and the insertion of headings are
for convenience of reference only and shall not affect or be utilized in
construing or interpreting this Agreement.  All references in this Agreement to
any “Section” are to the corresponding Section of this Agreement unless
otherwise specified.

 

Herein.  The words such as “herein,” “hereinafter,” “hereof,” and “hereunder”
refer to this Agreement as a whole and not merely to a subdivision in which such
words appear unless the context otherwise requires.

 

Including.  The word “including” or any variation thereof means “including,
without limitation” and shall not be construed to limit any general statement
that it follows to the specific or similar items or matters immediately
following it.

 

(b)                                 The parties hereto have participated jointly
in the negotiation and drafting of this Agreement and, in the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as jointly drafted by the parties hereto and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement.

 

ARTICLE II

 

THE MERGER

 

2.1                               The Merger. At the Effective Time, and subject
to and upon the terms and conditions of this Agreement and the provisions of the
DGCL, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving corporation and as a wholly owned subsidiary of Parent.  The
surviving corporation after the Merger is sometimes referred to herein as the
“Surviving Corporation”.

 

2.2                               Closing and Effective Time. Unless this
Agreement is earlier terminated pursuant to Section 9.1, the consummation (the
“Closing”) of the Merger and the other transactions contemplated by this
Agreement and the Related Documents (collectively, the “Transactions”) will take
place as promptly as practicable, but no later than three (3) Business Days,
following the satisfaction or waiver of the conditions set forth in Article VII
(other than conditions that by their nature are to be satisfied at the Closing,
but subject to the satisfaction or waiver of such conditions), remotely via the
exchange of documents and signatures, unless another place or time is agreed to
by Parent and the Company.  The date upon which the Closing occurs is herein
referred to as the “Closing Date.”  On the Closing Date, the parties hereto
shall cause the Merger to be consummated by filing a properly completed and
executed Certificate of Merger satisfying the requirements of the DGCL (the
“Certificate of Merger”) with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of the DGCL (the time of acceptance by
the Secretary of State of the State of Delaware of such filing being referred to
herein as the “Effective Time”).

 

2.3                               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 the DGCL.  Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all rights and property
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts and liabilities of the Company and Merger Sub shall become debts and
liabilities of the Surviving Corporation.

 

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2.4                               Certificate of Incorporation; By-laws.

 

(a)                                 At the Effective Time, the Certificate of
Incorporation of the Surviving Corporation shall be amended and restated in its
entirety in the form set forth on Exhibit B until thereafter amended as provided
by applicable Law and such Certificate of Incorporation.

 

(b)                                 At the Effective Time, the By-laws of Merger
Sub shall become the By-laws of the Surviving Corporation until thereafter
amended.

 

2.5                               Directors and Officers. The members of the
Board of Directors and officers of the Surviving Corporation at and immediately
after the Effective Time shall be as set forth on Annex C, each to hold office
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation until such applicable director’s or officer’s successor is duly
elected or appointed and qualified.

 

2.6                               Merger Consideration; Effect on Company
Capital Stock; Merger Sub Capital Stock.

 

(a)                                 Merger Consideration.  The maximum aggregate
consideration in the Merger, payable by Parent and Merger Sub in accordance with
terms and conditions set forth in this Agreement, including those set forth in
Article III, to the Equityholders shall be:  (i) Thirteen Million Dollars
($13,000,000) in cash, subject to adjustment as set forth in Article III, plus
(ii) those certain Future Payments (collectively, the “Merger Consideration”).

 

(b)                                 Effect on Company Capital Stock.  At the
Effective Time, by virtue of the Merger and without any action on the part of
Parent, Merger Sub, the Company or the Equityholders:

 

(i)                                     each share of Company Capital Stock held
in the treasury of the Company at the Effective Time shall be cancelled and
extinguished without any conversion thereof, and no payment or distribution
shall be made with respect thereto;

 

(ii)                                  each share of Company Common Stock and
each share of Company Preferred Stock issued and outstanding immediately prior
to the Effective Time (other than any shares of Company Capital Stock to be
cancelled pursuant to Section 2.6(b)(i) and any Dissenting Shares) shall be
converted into the right to receive its applicable portion of the Merger
Consideration in each case, in amounts equal to the amounts contemplated by the
provisions of the Company’ Certificate of Incorporation, as in effect
immediately prior to the Effective Time, governing distributions to Stockholders
upon a liquidation of Company, upon the terms and subject to the conditions set
forth in this Agreement, including the indemnification provisions set forth in
Article VIII, in each case after giving effect to the payments payable to the
holders of Company Options pursuant to Section 3.8, in each case, as set forth
in the Initial Payment Allocation Schedule and Future Payment Allocation
Schedule, as applicable; and

 

(iii)                               At the Closing, the Company shall deliver or
cause each of the Stockholders to deliver, as applicable, to Parent either an
(A) original stock certificate, or (B) affidavit of lost stock certificate in
form and substance reasonably acceptable to Parent, which collectively represent
all of the then issued and outstanding Shares.  All original stock certificates
delivered pursuant to the foregoing sentence shall be cancelled.

 

(c)                                  Capital Stock of Merger Sub.  At the
Effective Time, by virtue of the Merger and without any action on the part of
Parent, Merger Sub, the Company or the Equityholders, each share of common stock
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall be

 

17

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converted into and exchanged for one validly issued, fully paid and
non-assessable share of common stock of the Surviving Corporation.

 

(d)                                 No Further Ownership Rights in Company
Capital Stock.  The Initial Purchase Price paid or payable upon the surrender
for exchange of shares of Company Capital Stock in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock that 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 cancelled and exchanged or
extinguished as provided in this Article II.

 

2.7                               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 Parent with full right, title and
possession to all the property, rights, privileges, power and franchises of the
Company, the officers and directors of the Surviving Corporation are fully
authorized in the name of the Company and Merger Sub to take all such lawful and
necessary action.

 

PURCHASE PRICE; MILESTONES; FUTURE PAYMENTS; ADJUSTMENTS

 

3.1                               Preliminary Cash Purchase Price. Subject to
adjustment as provided in Section 3.7, the portion of the Merger Consideration
to be paid by Parent at the Closing, shall be an amount in cash, in immediately
available funds, equal to the sum of (such amount, the “Initial Purchase
Price”):

 

(a)                                 Thirteen Million Dollars ($13,000,000) (the
“Base Price”); minus

 

(b)                                 the amount of any Closing Indebtedness (if
any); minus

 

(c)                                  the Estimated Unpaid Company Transaction
Expenses (if any); and minus

 

(d)                                 the amount, if any, by which the Estimated
Closing Date Net Free Cash Amount is less than $250,000.

 

Upon payment of the Initial Purchase Price in accordance with the terms and
conditions of this Article III, Parent, Merger Sub and the Surviving Corporation
shall be fully released and discharged of any obligation with respect to any
Equityholder, except for Future Payments and indemnification obligations under
Article VIII, if any.

 

3.2                               Milestones. As additional consideration,
Parent shall make Milestone Payments on the terms and subject to the conditions
set forth in this Section 3.2, Section 3.6, Section 8.5 and Annex A.

 

(a)                                 Milestones Generally.  The parties
acknowledge and agree that achievement of the Milestones are material factors in
determining the valuation of the Company by Parent.  Therefore, the
Equityholders shall have no right to receive any portion of any Milestone
Payment unless and until the corresponding Milestone is achieved as determined
pursuant to this Section 3.2 or otherwise becomes due and payable as provided in
Section 3.2(b).  Similarly, the parties acknowledge and agree that achievement
of the Milestones are material factors in the determination of the Company and
the Equityholders to enter into this Agreement and approve the Merger and the
Transactions.

 

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(b)                                 Milestone Payments.  Promptly, and in any
event within five (5) Business Days following a written notice by Parent to the
Holder Representative that a Milestone has been achieved (such written notice
shall be sent to the Holder Representative within thirty (30) days following the
achievement of such Milestone), subject to Section 8.5, Parent shall make
payment to the Equityholders of an amount equal to the corresponding Milestone
Payment in accordance with the applicable Future Payment Allocation Schedule to
be provided by the Holder Representative in accordance with Section 3.6(a)(iii).

 

(c)                                  Obligation to Pursue Milestone Activities
and Achieve Milestones.

 

(i)                                     Parent shall, or shall cause the
Surviving Corporation to, use commercially reasonable efforts, in accordance
with industry custom and practice, to commence the clinical study contemplated
by the Clinical Study Synopsis (the “Phase II Study”) no later than the last day
of the month that is at least nine (9) months after the Closing Date (the “Phase
II Study Deadline”).  Parent shall not be in breach of this Section 3.2(c)(i) if
either (1) Parent is unable to acquire and distribute sufficient supply of the
Product for use in the Phase II Study by the Phase II Study Deadline, (2) FDA
recommends or requires additional toxicology studies prior to the commencement
of the Phase II Study or (3) FDA places a clinical hold on the Phase II Study;
provided that Parent shall continue to use commercially reasonable efforts to
(a) in the case of clause (1), acquire and distribute sufficient supply
(including, without limitation, sourcing from alternative suppliers), and (b) in
the case of clauses (2) and (3), perform such additional toxicology studies or
pursue reasonable and customary regulatory efforts to lift any clinical hold
(including, without limitation, engaging special FDA counsel), in which case
such nine (9)-month period and the Phase II Study Deadline shall be tolled
during the period in which Parent is continuing to expend such commercially
reasonable efforts, but in no event shall it be tolled longer than nine
(9) months; provided, however, that such nine (9)-month tolling period shall be
extended based on the number of days elapsed from the date of delivery of the
Initial Development Plan by Parent to Holder Representative until the date of
acceptance of such Initial Development Plan by Holder Representative pursuant to
Section 3.2(c)(iii).  At such time as Parent is no longer expending commercially
reasonable efforts to commence and complete the Phase II Study or the tolling
period has terminated, whichever is earlier, Parent (or any applicable successor
entity) shall assign and transfer all of the Company Intellectual Property
(whether or not the Company Intellectual Property is then owned by the Surviving
Corporation), to the Holder Representative (for the benefit of the
Equityholders) for no consideration, on terms and conditions acceptable to the
Holder Representative (in his sole discretion).  The parties hereby acknowledge
and agree that time is of the essence with respect to this Section 3.2(c)(i).

 

(ii)                                  Without limiting the obligations of Parent
under Section 3.2(c)(i) above, Parent shall, or shall cause the Surviving
Corporation to, use commercially reasonable efforts, in accordance with industry
custom and practice, (x) to carry out and perform those Milestone Activities
described in the Initial Development Plan, as updated and in effect from time to
time pursuant to Section 3.2(c)(iii) (the “Development Plan”), within the
timetables set forth in the Development Plan, (y) to carry out and perform any
and all other Milestone Activities that are necessary or required for the
achievement of each Milestone consistent with the exercise of such commercially
reasonable efforts, and (z) to achieve each Milestone no later than the date
specified next to such Milestone in Annex A under the caption “Milestone Target
Achievement Date” (with respect to each Milestone, the “Milestone Target
Achievement Date”) or as soon thereafter as reasonably possible consistent with
the exercise of such commercially reasonable efforts.  For the purposes of this
Section 3.2, “commercially reasonable efforts” shall mean a level of efforts and
resources appropriate to carry out and perform the Milestone Activities
applicable to each Milestone (including the research, development, manufacturing
and regulatory activities described in the Development Plan with respect to each
Milestone) and achieve each Milestone that is consistent with the efforts that a
pharmaceutical company of similar size (on a consolidated basis)

 

19

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as Parent would typically expend for a product in its drug development portfolio
with similar commercial and profit potential, similar stage of development and
similar level of risks.

 

(iii)                               On or prior to January 1 of each year during
the period following the Closing and ending on the date on which the first NDA
or equivalent regulatory filing has been accepted for the first Product by a
regulatory authority in each of the US, EU and Japan, Parent shall, or shall
cause the Surviving Corporation to, prepare and deliver to the Holder
Representative the initial plan of Parent or the Surviving Corporation for the
research, development, manufacturing and regulatory activities for the Product
and commercially reasonable indications (in the case of the plan due on
January 1, 2015, the “Initial Development Plan”, which Initial Development Plan
shall be in form and substance reasonably acceptable to the Holder
Representative, such acceptance not to be unreasonably withheld, conditioned or
delayed) or an updated Development Plan (in the case of plans due after
January 1, 2015) that implements changes or updates to the prior Development
Plan or the Initial Development Plan, as the case may be, to reflect (1) changes
in the research, development, manufacturing or regulatory activities previously
being pursued by Parent, the Surviving Corporation or any of their respective
licensees, sublicensees or Affiliates in order to achieve the Milestones,
(2) changes in the timetable or timetables associated with the activities
described in the foregoing clause (1), (3) new research, development,
manufacturing or regulatory activities being pursued by Parent, the Surviving
Corporation or any of their respective licensees, sublicensees or Affiliates in
order to achieve the Milestones, and (4) the timetable or timetables associated
with the activities described in the foregoing clause (3).  Each amended and
updated Development Plan prepared and delivered pursuant to this
Section 3.2(c)(iii) shall, at the least, (a) provide reasonably detailed
description of the level of effort and resources that will be used or provided
by Parent, the Surviving Corporation and their respective licensees,
sublicensees or Affiliates during the next year period in pursuing the research,
development, manufacturing or regulatory activities described in such amended
and updated Development Plan, and (b) otherwise be consistent with the format of
the Initial Development Plan and provide a level of detail with respect to the
Milestone Activities set forth in such amended and updated Development Plan that
is at least equal to the level of detail provided in the Initial Development
Plan with respect to the Milestone Activities set forth in the Initial
Development Plan. In the event that the anticipated date for the achievement of
any Milestone is a date later than the applicable date set forth in the
Milestone Target Achievement Date with respect to such Milestone, such amended
and updated Development Plan shall set forth (x) such new anticipated date for
the achievement of such Milestone and (y) the reasons for such Milestone not
being achievable by the Milestone Target Achievement Date applicable to such
Milestone.  Promptly following the delivery of the Initial Development Plan and
each amended and updated Development Plan pursuant to this Section 3.2(c)(iii),
Parent and the Surviving Corporation, at a mutually agreeable time and location,
but in any event no later than twenty (20) Business Days, shall afford the
Holder Representative access to knowledgeable, senior-level representatives of
Parent and the Surviving Corporation to review and discuss such amended and
updated Development Plan.  Parent, the Surviving Corporation and Holder
Representative shall discuss in good faith the appropriateness of the changes
and updates reflected in each amended and updated Development Plan in place
delivered pursuant to this Section 3.2(c)(ii), any effect that they may have on
the achievement of the Milestones or the timetable for such achievement and
alternative approaches, consistent with Parent’s obligation under
Section 3.2(c)(ii), that may have less of an impact on the achievement of the
Milestones or the timetable for such achievement. Each of Parent and the
Surviving Corporation shall consider in good faith the suggestions and input
provided by the Holder Representative pursuant to this Section 3.2(c)(ii), and,
if appropriate in the good faith discretion of Parent and the Surviving
Corporation, to the extent consistent with the terms of the then-current
Development Plan, Parent shall revise any Development Plan in place to reflect
such suggestions and input by the Holder Representative

 

(iv)                              Subject to the foregoing obligations set forth
in this Section 3.2, from and after the Closing, Parent shall, in its sole and
independent discretion (and at its sole cost and

 

20

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expense), manage and control the Milestone Activities with respect to the
achievement of the Milestones.  Without limiting Parent’s obligations under this
Section 3.2(c), Parent makes no representation, warranty or guarantee with
respect to the actual achievement of any of the Milestones.

 

(v)                                 Nothing in this Agreement or the Development
Plan shall require Parent, the Surviving Corporation or any of their Affiliates
to engage in any activities to develop or commercialize any Product, either
directly or through a licensee or sublicensee, for any indication whatsoever at
any time or to any extent in countries outside of the U.S., EU and Japan, and
any such development or commercialization activities shall only be undertaken in
the sole discretion of Parent, the Surviving Corporation or any of their
Affiliates.  In addition, neither Parent, the Surviving Corporation or any of
their Affiliates shall be required to undertake or continue to develop or
commercialize any Product for any indication in the EU and/or Japan, either
directly or through a licensee or sublicensee, if in the reasonable exercise of
its business judgment it determines in good faith that the incremental Earn-Out
Payment costs to Parent arising as a result of the aggregation called for by
Section 3.3(a), clause (x) below, as well as its other costs and expenses, the
size or character of the available market, and/or other factors, make it
commercially unreasonable to do.

 

(vi)                              Parent acknowledges and agrees that the
covenants, agreements and obligations of Parent and the Surviving Corporation
under this Section 3.2 are a material basis upon which the Company and the
Equityholders have agreed to the terms of this Agreement.

 

(d)                                 Patent Prosecution.  Parent shall use its
commercially reasonable efforts to diligently prosecute and/or maintain, or
shall cause the Surviving Corporation to use commercially reasonable efforts to
diligently prosecute and/or maintain, all Patents within Company Intellectual
Property in the following countries: United States and any other countries of
the world in which the Company was prosecuting any of such Patents prior to the
Closing.  In no way limiting the foregoing sentence, Parent makes no
representation, warranty or guarantee with respect to the issuance of any patent
from any of the API Patents.

 

(e)                                  Licensing.  Any license, assignment or
written agreement that licenses or assigns to a third party any rights to
(i) the Key Product Candidate, (ii) any other compound or product in respect of
which any of the Milestones has been, is to be, or is required to be, achieved
or (iii) any Patent or other Company Intellectual Property, then Parent shall
ensure, or shall cause the Company to ensure, as the case may be, that, as a
condition to any such license or assignment, such third party shall have agreed
in writing (x) to diligence and other obligations, covenants and efforts that
are consistent with the diligence and other obligations, covenants and efforts
of Parent and the Surviving Corporation set forth in this Section 3.2 and
(y) either to assume Parent’s and/or the Surviving Corporation’s obligations
under this Section 3.2 or to take such actions as may be required or necessary
in order to enable Parent and/or the Surviving Corporation to comply with all of
their obligations under this Section 3.2.

 

(f)                                   Milestone Reports.  Until the date on
which the first NDA or equivalent regulatory filing has been accepted for the
first Product by the regulatory authority in either the US, EU or Japan, on
(i) February 1, and (ii) August 1 of each year (or, if such day is not a
Business Day, then on the next successive Business Day), Parent shall, or shall
cause the Surviving Corporation to, provide the Holder Representative with a
written report for the prior six (6) months ended December 31 and June 30,
respectively (or, if such day is not a Business Day, then on the next successive
Business Day) (each, a “Milestone Report”), in each case, setting forth in
summary form all material developments relating to the progress towards
achieving the Milestones that may occur from time to time from Execution Date
(in respect of the first report) and from the date of the preceding report (in
respect of subsequent reports) in

 

21

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CONFIDENTIAL TREATMENT

REQUESTED PURSUANT TO RULE 24b-2

 

connection with (1) the pre-clinical and clinical activities, developments and
results, (2) regulatory activities and developments, and (3) pre-launch and
launch planning and activities and sales performance, of the Key Product
Candidate or any other compound or product in respect of which any of the
Milestones has been, is to be, or is required to be, achieved.  Promptly
following the delivery of each Milestone Report, Parent and the Surviving
Corporation, at a mutually agreeable time and location, but in any event no
later than twenty (20) Business Days, shall afford the Holder Representative
access to a knowledgeable, senior-level representative of Parent or the
Surviving Corporation to review and discuss the Milestone Report.

 

(g)                                  Phase III Study Deadline.  Parent and
Merger Sub hereby covenant and agree that Parent will, or will cause the
Surviving Corporation to, initiate a randomized Phase III clinical trial of the
Key Product Candidate, which is designed to evaluate safety and therapeutic
activity in accordance with the specifications set forth in the then-current
Development Plan (the “Phase III Study”) no later than the date that is the last
day of the month that is at least twelve (12) months after the date that final
six (6) month efficacy data from the Phase II Study is made available to Parent
or the Surviving Corporation (the “Phase III Study Deadline”).  The obligation
of this Section 3.2(g) are contingent upon: (i) Parent being reasonably
satisfied with the formulation of the Product to be used in the Phase III Study,
based on a reasonableness standard consistent with industry custom and practice
(the “Phase III Study Formulation”); (ii) Parent being able to acquire at a
commercially reasonable cost and to distribute sufficient supply of the Phase
III Study Formulation for use in the Phase III Study by the Phase III Study
Deadline; (iii) Parent being reasonably satisfied that, based on the safety and
efficacy profile of the Product based on all available data, it is commercially
reasonable to continue development via the Phase III Study, based on a
reasonableness standard consistent with industry custom and practice; (iv) FDA
does not require additional studies beyond the Phase II Study and those set
forth in the Development Plan identified as required to proceed with the Phase
III Study; or (v) FDA not placing a clinical hold on the Phase III Study;
provided that Parent shall continue to use commercially reasonable efforts to
(A) in the case of clause (ii), acquire and distribute supply (including,
without limitation, sourcing from alternative suppliers), (B) in the case of
clause (iv), perform such additional studies, and (C) in the case of clause (v),
pursue reasonable and customary regulatory efforts to lift any clinical hold
(including, without limitation, engaging special FDA counsel), in which case the
Phase II Study Deadline shall be tolled during the period in which Parent is
continuing to expend such commercially reasonable efforts, but in no event shall
it be tolled longer than twelve (12) months.  At such time as Parent is no
longer expending commercially reasonable efforts to initiate the Phase III Study
or the tolling period has terminated, whichever is earlier, Parent (or any
applicable successor entity) shall assign and transfer all of the Company
Intellectual Property (whether or not the Company Intellectual Property is then
owned by the Surviving Corporation), to the Holder Representative (for the
benefit of the Equityholders) for no consideration, on terms and conditions
acceptable to the Holder Representative (in his sole discretion).  The parties
hereby acknowledge and agree that time is of the essence with respect to this
Section 3.2(g).

 

3.3                               Earn-Out.

 

(a)                                 Earn-Out Generally.  On a Product-by-Product
and indication-by-indication basis, (x) in the U.S., Japan and any European
country subject to EMEA approval on an aggregate basis and (y) in all other
jurisdictions, on a country-by-country basis, Parent shall make quarterly
payments (the “Earn-Out Payments”) on Net Sales during the applicable Earn-Out
Term of all Products Commercialized by any Invoicing Entity, at a rate
corresponding to the table below of the Net Sales of the applicable Product:

 

******

******

******

******

 

 

******

******

******

******

******

******

******

******

 

--------------------------------------------------------------------------------

****** — Material has been omitted and filed separately with the Securities and
Exchange Commission

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CONFIDENTIAL TREATMENT

REQUESTED PURSUANT TO RULE 24b-2

 

(b)                                 Earn-Out Payments.  Within ninety (90) days
after each calendar year and sixty (60) days after each calendar quarter during
the applicable Earn-Out Term following the First Commercial Sale of a Product,
Parent shall deliver or cause to be delivered to the Holder Representative a
written report showing each of:  (i) the Net Sales of each Product in each
country during the reporting period by any Invoicing Entity, and (ii) the
Earn-Out Payments, in United States Dollars, which shall have accrued hereunder
with respect to such Net Sales.  Parent shall pay all such Earn-Out Payments
within sixty (60) days after delivery of such report, in accordance with the
applicable Future Payment Allocation Schedule to be provided by the Holder
Representative in accordance with Section 3.6(a)(iii).

 

(c)                                  Treatment of Earn-Out Payments.  The amount
of any Earn-Out Payments pursuant to this Section 3.3, if any, shall be treated
by each of the parties as an adjustment to the Initial Purchase Price (except to
the extent treated as interest pursuant to Law).

 

3.4                               Sublicenses.

 

(a)                                 Sublicenses Generally. Parent shall pay an
amount (the “Sublicense Payments”) equal to ****** of all Sublicense Income
actually received after the Closing Date by Parent, the Surviving Corporation or
any of their respective Affiliates.

 

(b)                                 Sublicense Payments.  Within sixty (60) days
after each calendar year during the period or periods in which Parent, the
Surviving Corporation or any of their respective Affiliates are subject to any
Sublicense Agreement, Parent shall deliver or cause to be delivered to the
Holder Representative a written report showing each of:  (i) the aggregate
amounts of Sublicense Income actually received by Parent, the Surviving
Corporation or any of their respective Affiliates in respect of each Sublicense
Agreement, and (ii) the Sublicense Payments, in United States Dollars, which
shall have accrued hereunder with respect to such aggregate amounts.  Parent
shall pay all such Sublicense Payments within sixty (60) days after delivery of
such report, in accordance with the applicable Future Payment Allocation
Schedule to be provided by the Holder Representative in accordance with
Section 3.6(a)(iii).  For the avoidance of doubt, amounts actually received are
after deduction for any Taxes withheld from the Sublicense Payments received by
the Parent, the Surviving Corporation or any of their respective Affiliates.

 

3.5                               Audits. From and after the Closing Date, the
Holder Representative shall have the right, exercisable at the Holder
Representative’s sole cost and expense (subject to the final sentence of this
Section 3.5), no more than two times during each calendar year (subject to the
final sentence of this Section 3.5), to have an independent certified public
accountant selected by the Holder Representative and reasonably acceptable to
Parent (the “Accountant”) to examine and have reasonable access to the books and
records of Parent, the Surviving Corporation or any of their respective
Affiliates (or any other Invoicing Entity over which such parties have control)
during the preceding three (3) year period, provided, however, that no period
shall be audited more than once, for the purpose of determining (i) whether any
Net Sales were made by any Invoicing Entity, and the accuracy of the reports
delivered to

 

--------------------------------------------------------------------------------

****** — Material has been omitted and filed separately with the Securities and
Exchange Commission

 

23

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Holder Representative related thereto (if any), (ii) the accuracy of the related
Earn-Out Payments, (iii) whether any Sublicense Income was received by Parent,
the Surviving Corporation or any of their respective Affiliates under any
Sublicense Agreement and the accuracy of the reports delivered to Holder
Representative related thereto (if any), and (vi) the accuracy of the related
Sublicense Payments.  Parent hereby acknowledges and agrees that EisnerAmper LLP
is and shall be a reasonably acceptable Accountant.  The Accountant must enter
into a confidentiality agreement acceptable to and in favor of Parent before
being granted access to any such books and records; provided that such
confidentiality agreement will permit the Accountant to disclose to the Holder
Representative sufficient information to detail any discrepancies between the
reports delivered to the Holder Representative and the Accountant’s findings. 
Except in the case of fraud, any given period shall only be subject to audit or
inspection under this Section 3.5 once.  In the event that any such audit by the
Accountant under this Section 3.5 correctly reveals that any Earn-Out Payment
and/or Sublicense Payment was not paid as required hereunder (including any
failure to pay or underpayment), then, in addition to Parent promptly making
payment of such Earn-Out Payment and/or Sublicense Payment, as applicable, to
the Equityholders, Parent shall pay interest on such overdue Earn-Out Payment
and/or Sublicense Payment at an annual rate equal to the Prime Rate plus six
percent (6%) commencing on the applicable date on which such Earn-Out Payment
and/or Sublicense Payment was required to be paid under this Agreement and
continuing under such Earn-Out Payment and/or Sublicense Payment and all accrued
interest thereon is paid in full.  Interest shall be calculated based on a
three-hundred-and-sixty-five (365) day year and the actual number of days
elapsed.  All amounts that Parent may be required to pay under this Section 3.5
shall be paid in cash, in immediately available funds, to the Equityholders in
accordance with the applicable Future Payment Allocation Schedule to be provided
by the Holder Representative in accordance with Section 3.6(a)(iii).  If any
audit conducted in accordance with this Section 3.5 reveals a failure to timely
pay or an underpayment of any Earn-Out Payment and/or Sublicense Payment in the
aggregate amount of at least five percent (5%) of amounts due and owing for all
the audited periods, then, in addition to the other payments required to be paid
by Parent in accordance with this Section 3.5, (i) Parent shall also be required
to promptly fully reimburse the Holder Representative for all fees and expenses
of the Accountant associated with such audit and (ii) such audit shall not count
towards the once per calendar year cap on Holder Representative’s ability to
conduct audits.

 

3.6                               Payment of Purchase Price.

 

(a)                                 Initial Payment.

 

(i)                                     The Company has provided Parent with a
payment schedule (the “Initial Payment Allocation Schedule”) which sets forth an
illustrative allocation of the Initial Purchase Price payable at the Closing
among the Equityholders and any holders of Indebtedness of the Company
immediately prior to the Closing (such amount, the “Closing Indebtedness”).  The
Company shall deliver to Parent an updated Initial Payment Allocation Schedule
not less than three (3) Business Days prior to the anticipated Closing Date to
reflect any changes thereto.  The Initial Payment Allocation Schedule has been
(and any update thereof will be), after reduction of the Closing Indebtedness,
prepared in accordance with the Certificate of Incorporation of the Company, the
terms and conditions of this Agreement and the terms of the Company Option Plan
and all agreements related thereto, each as in effect immediately prior to the
Closing, and Parent shall be permitted to rely, without further inquiry, on the
Initial Payment Allocation Schedule (and any update thereof) in making payment
of the Initial Purchase Price to the Equityholders and any holders of Closing
Indebtedness.

 

(ii)                                  As soon as practicable following the
execution of this Agreement, the Company shall deliver to each Stockholder a
Letter of Transmittal in substantially the form attached hereto as Exhibit C
(each, a “Letter of Transmittal”) (which Letter of Transmittal may have been
circulated by the Company prior to execution of this Agreement).  Following the
receipt by Parent of a

 

24

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duly completed and executed Letter of Transmittal from a Stockholder together
with (A) the surrender of the certificates relating to the Company Capital Stock
cancelled by such Letter of Transmittal or (B) an affidavit of lost stock
certificate in form and substance reasonably acceptable to Parent relating to
the Company Capital Stock cancelled by such Letter of Transmittal, but in no
event later than three (3) Business Days following receipt by Parent of such
Letter of Transmittal (provided that no such payment shall be due prior to the
Effective Time), Parent shall deliver to such Stockholder and such Stockholder
shall be entitled to receive, in exchange therefore, by check or wire transfer
(as selected by such Stockholder) an amount in cash equal to such portion of the
Merger Consideration to which such Stockholder is entitled in accordance with
the Initial Payment Allocation Schedule relating to the Shares which are the
subject of such Letter of Transmittal.  If, and to the extent that, any
Stockholder delivers, or has delivered, to Parent a duly completed and executed
Letter of Transmittal and the other items called for by this
Section 3.6(a)(ii) at least one (1) Business Day prior to the Closing, Parent
shall deliver the Merger Consideration on the Closing Date or within one
(1) Business Day thereafter to such Stockholder.

 

(iii)                               On the Closing Date, Parent shall pay the
Closing Indebtedness to the holders of Indebtedness of the Company in accordance
with the updated Initial Payment Allocation Schedule.  The payment shall be made
to the holders of Indebtedness of the Company in cash by wire transfer of
immediately available funds into accounts designated on the Initial Payment
Allocation Schedule.

 

(iv)                              On the Closing Date, Parent shall pay the
Estimated Unpaid Company Transaction Expenses (if any) in accordance with the
updated Initial Payment Allocation Schedule.  The payment shall be made in cash
by wire transfer of immediately available funds into accounts designated on the
Initial Payment Allocation Schedule.

 

(b)                                 Future Payments.

 

(i)                                     The Holder Representative shall prepare
a schedule, substantially similar in form to the Initial Payment Allocation
Schedule (the “Future Payment Allocation Schedule”), which sets forth the
allocation of each Future Payment (including each Equityholder’s portion of any
Purchase Price Adjustment Payments).  The Holder Representative shall deliver to
Parent each applicable Future Payment Allocation Schedule (i) with respect to
any Purchase Price Adjustment Payments, not less than three (3) Business Days
prior to the scheduled payment date of such Purchase Price Adjustment Payments,
(ii) with respect to each Milestone Payment, not less than three (3) Business
Days after receipt of the written notice required by Section 3.2(b) with respect
to the achievement of the applicable Milestone, (iii) with respect to any
Earn-Out Payments, not less than three (3) Business Days prior to the scheduled
payment date of such Earn-Out Payments, and (iv) with respect to any Sublicense
Payments, not less than three (3) Business Days prior to the scheduled payment
date of such Sublicense Payments.  Each Future Payment Allocation Schedule will
be prepared in accordance with the provisions of the Certificate of
Incorporation of the Company, the terms and conditions of this Agreement and the
terms of the Company Option Plan and all agreements related thereto, each as in
effect immediately prior to the Closing and certified by the Holder
Representative in his capacity as such, and Parent shall be permitted to rely,
without further inquiry, on the Future Payment Allocation Schedule in making
payment of any Future Payments. Notwithstanding the foregoing, the Holder
Representative shall take all action necessary or required (including
appropriately preparing any Future Payment Allocation Schedule modifications) to
appropriately adjust the aggregate amount of each Future Payment that is payable
to the Equityholders and to adjust the allocation and distribution among the
Equityholders of such aggregate amount of such Future Payment if any such
adjustment is required pursuant to, and in accordance with, the other provisions
of this Agreement, including the provisions of this Section 3.6(a)(iii) and
Sections 8.4(c) and 8.4(d).  At such time as each Future Payment is due and
payable pursuant to the terms and conditions of this Agreement, Parent shall
make payment of such Future Payment to the Equityholders in

 

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accordance with the Future Payment Allocation Schedule that is applicable to
such Future Payment.  Subject to this Section 3.6(a)(iii), Section 3.7 and
Article VIII, each Future Payment shall be made to the Equityholders in cash by
wire transfer of immediately available funds into accounts designated on the
applicable Future Payment Allocation Schedule.

 

3.7                               Initial Purchase Price Adjustment.

 

(a)                                 Closing Date Purchase Price Adjustment.  Not
later than two (2) Business Days prior to the Closing Date, the Company shall
provide Parent with (A) a good faith written estimate of the Net Free Cash as of
the Closing Date (the “Estimated Closing Date Net Free Cash Amount”) and (B) a
good faith written estimate of the Unpaid Company Transaction Expenses as of the
Closing Date (if any) (the “Estimated Unpaid Company Transaction Expenses”). 
The Estimated Closing Date Net Free Cash Amount shall be prepared by the Company
in accordance with GAAP applied using the same accounting methods, practices,
principles, policies and procedures, with consistent classifications, judgments
and valuation and estimation and accrual methodologies that were used in the
preparation of the Company’s audited Financial Statements for the most recent
fiscal year end as if such Actual Closing Date Net Free Cash Amount was being
prepared and audited as of such most recent fiscal year end (the “Company
Accounting Methodologies”).  By agreeing to consummate the Transactions on the
Closing Date, Parent shall not be deemed to have accepted the Company’s
determination of the Estimated Closing Date Net Free Cash Amount or the
Estimated Unpaid Company Transaction Expenses, and the parties agree that the
Estimated Closing Date Net Free Cash Amount or the Estimated Unpaid Company
Transaction Expenses shall be adjusted after the Closing in accordance with the
procedures set forth in Section 3.7(b).

 

(b)                                 Post-Closing Date Purchase Price Adjustment.

 

(i)                                     Following the Closing, the Initial
Purchase Price shall be adjusted as provided herein to reflect the difference
between the amount of Actual Closing Date Net Free Cash Amount and the Estimated
Closing Date Net Free Cash Amount and the Actual Unpaid Company Transaction
Expenses (if any) and the Estimated Unpaid Company Transaction Expenses (if
any); provided, however, that there shall be no adjustment to the Initial
Purchase Price in the event that there is any Free Cash Excess.

 

(ii)                                  Within sixty (60) days following the
Closing Date, Parent shall deliver to the Holder Representative (A) a statement
containing a calculation of the actual Net Cash as of the Closing Date (the
“Actual Closing Date Net Free Cash Amount” and such statement, the “Closing Date
Net Free Cash Amount Statement”), which shall be prepared by Parent in
accordance with Company Accounting Methodologies and (B) a statement containing
a calculation of the Unpaid Company Transaction Expenses as of the Closing Date
(billed to the Company on or after the Closing Date) (the “Actual Unpaid Company
Transaction Expenses” and such statement, the “Closing Date Unpaid Company
Transaction Expenses Statement”).

 

(iii)                               Acceptance of Statements; Dispute
Procedures.  The Closing Date Net Free Cash Amount Statement and the Closing
Date Unpaid Company Transaction Expenses Statement delivered by Parent to the
Holder Representative shall be conclusive and binding upon the parties unless
the Holder Representative, within thirty (30) days after receipt by the Holder
Representative of the Closing Date Net Free Cash Amount Statement and the
Closing Date Unpaid Company Transaction Expenses Statement, notifies Parent in
writing that the Holder Representative disputes any of the amounts set forth
therein, specifying the nature of the dispute and the basis therefor.  During
such thirty (30) day period, the Holder Representative and its advisors,
designees and/or agents shall be given reasonable access to the books, records
and other data of Parent and the Surviving Corporation necessary for the

 

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purpose of reviewing Parent’s Closing Date Net Free Cash Amount Statement and
Closing Date Unpaid Company Transaction Expenses Statement and reasonable access
to the personnel of Parent and the Surviving Corporation to consult as to the
procedures and determinations made by the Surviving Corporation in Parent’s
Closing Date Net Free Cash Amount Statement and Closing Date Unpaid Company
Transaction Expenses Statement. The parties shall in good faith attempt to
resolve any dispute and, if the parties so resolve all disputes, the Closing
Date Net Free Cash Amount Statement and the Closing Date Unpaid Company
Transaction Expenses Statement, as amended to the extent necessary to reflect
the resolution of the dispute, shall be conclusive and binding on the parties. 
If the parties do not reach agreement in resolving the dispute within twenty
(20) days after notice is given by the Holder Representative to Parent pursuant
to the first sentence of this Section 3.7(b)(iii) (or such longer period as the
parties may agree), the parties shall submit the dispute to a nationally
recognized independent accounting firm which is not the regular accounting firm
for any of the parties and which is mutually agreeable to all of the parties
(the “Arbiter”) for resolution.  If the parties cannot agree on the selection of
an independent accounting firm to act as Arbiter, the parties shall request the
American Arbitration Association to appoint such firm, and such appointment
shall be conclusive and binding on the parties.  The parties shall cooperate
fully with the Arbiter, including providing the Arbitrator with access to, and
copies of, all books and records that the Arbiter reasonably requests.  The
determination of the Arbiter shall be conclusive and binding upon the parties. 
The parties shall request that the Arbiter use its commercially reasonable
efforts to reach a resolution (it being understood that the Arbiter shall be
functioning as an expert and not as an arbitrator) of the dispute as to the
computation of the Actual Closing Date Net Free Cash Amount and/or the Actual
Unpaid Company Transactions Expenses and render a written report with respect to
such findings within thirty (30) calendar days after the submission to the
Arbiter.  In resolving any disputed item, the Arbiter (x) shall be bound by the
provisions of this Section 3.7 and (y) may not assign a value to any item
greater than the greatest value for such items claimed by either party or less
than the smallest value for such items claimed by either party.  Subject to the
provisions set forth further below in this Section 3.7(b)(iii), the fees, costs
and expenses of the Arbiter shall be allocated to and borne by Parent and the
Equityholders based on the inverse of the percentage that the Arbiter’s
determination (before such allocation) bears to the total amount of the total
items in dispute as originally submitted to the Arbiter.  For example, should
the items in dispute total in amount to one thousand dollars ($1,000) and the
Arbiter awards Six Hundred dollars ($600) in favor of the Equityholders’
position, sixty percent (60%) of the costs of its review would be borne by
Parent and forty percent (40%) of the costs would be borne by the
Equityholders.  Parent shall pay for any and all fees, costs and expenses of the
Arbiter that are to be borne by the Equityholders in accordance with the
preceding two sentences, and Parent shall be entitled to reimbursement of any
such fees, costs and expenses paid by Parent that are to be borne by the
Equityholders by exercising a right of set-off against a portion of each
Milestone Payment that would thereafter otherwise be payable to the
Equityholders pursuant to this Agreement equal to the amount of such fees, costs
and expenses.  Notwithstanding anything express or implied in the foregoing
provisions of this Section 3.7(b)(iii) to the contrary, (i) neither the Holder
Representative nor the Equityholders shall have any personal liability or
obligation to make payment of such fees, costs and expenses to be borne by the
Equityholders, and (ii) the sole recourse and remedy of Parent to obtain
reimbursement of any such fees, costs and expenses to be borne by the
Equityholders and paid by Parent pursuant to this Section 3.7(b)(iii) shall be
by exercising a right of set-off against a portion of each Milestone Payment
that would thereafter otherwise be payable to the Equityholders pursuant to this
Agreement pursuant to the foregoing provisions of this Section 3.7(b)(iii).

 

(iv)                              Payment of Adjustments.

 

(A)                               Upon final determination of the Actual Closing
Date Net Free Cash Amount as provided in Section 3.7(b)(iii) above, (A) if the
Actual Closing Date Net Free Cash Amount is greater than the Estimated Closing
Date Net Free Cash Amount (a “Free Cash Excess”), the Initial Purchase Price
shall not be increased by the Free Cash

 

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Excess and no payment shall be made with respect to such Free Cash Excess, and
(B) if the Actual Closing Date Net Cash Amount is less than Estimated Closing
Date Net Free Cash Amount (a “Free Cash Shortfall”), the Initial Purchase Price
shall be decreased by the Free Cash Shortfall and the sole recourse and remedy
of Parent with respect to such Free Cash Shortfall, together with interest
thereon as determined below from the Closing Date to the date of payment
thereof, shall be by exercising a right of set-off against a portion of each
Milestone Payment that would thereafter otherwise be payable to the
Equityholders pursuant to this Agreement.  The sole recourse and remedy of
Parent with respect to any Free Cash Shortfall shall be a right of set-off
against a portion of each Milestone Payment that would thereafter otherwise be
payable to the Equityholders pursuant to this Agreement pursuant to the
foregoing provisions of this Section 3.7(b)(iv)(A), and in no event shall either
the Holder Representative or the Equityholders have any personal liability or
obligation to make payment of such Free Cash Shortfall.

 

(B)                               Upon final determination of the Actual Unpaid
Company Transaction Expenses as provided in Section 3.7(b)(iii) above (A) if the
Estimated Unpaid Company Transaction Expenses is greater than the Actual Unpaid
Company Transaction Expenses (a “Transaction Expense Excess”), the Initial
Purchase Price shall be increased by the Transaction Expense Excess and Parent
shall promptly, but no later than ten (10) Business Days after such final
determination, pay the amount of such difference, together with interest thereon
as determined below from the Closing Date to the date of payment thereof, to the
Equityholders in accordance with the Future Payment Allocation Schedule that is
applicable to such payment (such payment, the “Purchase Price Adjustment
Payments”), and (B) if the Actual Unpaid Company Transaction Expenses is greater
than the Estimated Unpaid Company Transaction Expenses (a “Transaction Expense
Shortfall”), the Initial Purchase Price shall be decreased by the Transaction
Expense Shortfall and the sole recourse and remedy of Parent with respect to
such Transaction Expense Shortfall, together with interest thereon as determined
below from the Closing Date to the date of payment thereof, shall be by
exercising a right of set-off against a portion of each Milestone Payment that
would thereafter otherwise be payable to the Equityholders pursuant to this
Agreement.  The sole recourse and remedy of Parent with respect to any
Transaction Expense Shortfall shall be a right of set-off against a portion of
each Milestone Payment that would thereafter otherwise be payable to the
Equityholders pursuant to this Agreement pursuant to the foregoing provisions of
this Section 3.7(b)(iv)(B), and in no event shall either the Holder
Representative or the Equityholders have any personal liability or obligation to
make payment of such Transaction Expense Shortfall.

 

(v)                                 Interest.  For the purposes of this
Section 3.7(b), interest will be payable at an annual rate equal to the Prime
Rate, calculated based on a three-hundred-and-sixty-five (365) day year and the
actual number of days elapsed.

 

3.8                               Company Options; Company Option Plan and
Company 401(k) Plan.

 

(a)                                 Not later than immediately before the
Closing, the Board (or, if appropriate, any committee thereof), shall adopt such
resolutions or take such other actions as may be required to provide that,
effective as of the Closing: (i) each Company Option that remains outstanding
and unexercised immediately prior to the Closing, whether or not such Company
Option is then exercisable or vested, shall be cancelled and the holder of such
Company Option shall have the right to receive the amount, if any, allocated to
such Company Option pursuant to Section 3.6(a) in respect of the Initial
Purchase Price, as well as any allocation to such Company Option made pursuant
to Section 3.6(a)(iii) in respect of any

 

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Future Payments and (ii) the Company’s 2008 Equity Incentive Plan (the “Company
Option Plan”) shall terminate and all rights under the Company Option Plan shall
be cancelled.  It is understood and agreed that the (x) the determination
whether any Company Option that is cancelled in accordance with the provisions
of this Section 3.8(a) shall be entitled to receive any portion of the Initial
Purchase Price or any portion of any Future Payments shall be made in accordance
with the terms of the Company Option Plan and all agreements related thereto,
each as in effect immediately prior to the Closing, and otherwise shall be made
by the Board (or, if appropriate, any committee thereof) in its sole and
absolute discretion, and (y) if any Company Option is entitled to receive any
portion of the Initial Purchase Price or any portion of any Future Payments,
such portion shall be net of the aggregate exercise price of such Company
Option. The Board (or, if appropriate, any committee thereof) will take all
requisite action to ensure compliance with and the taking of all actions set
forth herein in accordance with the Company Option Plan, including providing any
necessary notices and obtaining any necessary consents from holders of Company
Options.

 

(b)                                 As soon as practicable following the
execution of this Agreement, the Company shall deliver to each holder of a
Company Option an option cancellation agreement and release document
substantially in the form attached hereto as Exhibit D (an “Option Cancellation
Agreement”) describing the treatment of such Company Option pursuant to this
Section 3.8, and providing instructions for obtaining payment for such Company
Option following the Closing Date, which payment shall be conditioned on such
holder executing a written (i) waiver of liability as to the allocation or
distribution of any consideration to be received by any Equityholder pursuant to
this Agreement (including in accordance with this Article III), (ii) consent
authorizing the Holder Representative to act as the agent of such holder as set
forth in Section 10.2, and (iii) agreement to be bound by all of the provisions
of this Agreement that, by their express terms, are applicable to the
Equityholders, including this Article III and Article VIII.  Following receipt
by the Company of a duly completed and executed Option Cancellation Agreement
from a holder of Company Options, but in no event later than three (3) Business
Days following receipt by Parent of such Option Cancellation Agreement (provided
that no such payment shall be due prior to the Effective Time), Parent shall
deliver to each such holder of a Company Option, and each such holder of a
Company Option shall be entitled to receive, in cancellation thereof, by check
or wire transfer an amount in cash equal to such portion of the Merger
Consideration to which such holder of Options is entitled in accordance with the
Initial Payment Allocation Schedule relating to the Options which are the
subject of such Option Cancellation Agreement.

 

(c)                                  Not later than immediately before the
Closing, the Company’s Board (or, if appropriate, any committee thereof), shall
adopt such resolutions and take any such other actions as may be required to
provide that, effective as of the day immediately prior to the Closing, the
Company’s 401(k) plan shall terminate.

 

3.9                               Withholding.

 

Each of Parent and the Surviving Corporation shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any Equityholder such amounts as it is required to deduct and withhold under the
Code, or any Tax Laws, with respect to the making of such payment.  To the
extent that amounts are so withheld by Parent or the Surviving Corporation, as
the case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Equityholders in respect of whom such
deduction and withholding was made by Parent or the Surviving Corporation, as
the case may be.

 

3.10                        Dissenting Shares.

 

(a)                                 Notwithstanding any provision of this
Agreement to the contrary, any shares of Company Capital Stock held by a
Stockholder who demands and perfects appraisal or dissenters’ rights for such
shares in accordance with the DGCL and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters’ rights
(collectively, “Dissenting Shares”), shall not be

 

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converted into or represent the right to receive any portion of the Merger
Consideration pursuant to Section 2.6(b), but the holder thereof shall only be
entitled to such rights as are granted by the DGCL.

 

(b)                                 If any Stockholder who holds Dissenting
Shares as of the Effective Time effectively withdraws or loses (through passage
of time, failure to demand or perfect, or otherwise) the right to demand and
perfect appraisal or dissenters’ rights under the DGCL, then, as of the later of
the Effective Time and the occurrence of such event, such holder’s shares that
were Dissenting Shares shall automatically be converted into and represent only
the right to receive a portion of the Merger Consideration, if applicable,
pursuant to and subject Section 2.6(b) (subject to the indemnification
provisions set forth in Article VIII) without interest thereon upon surrender of
the certificate representing such shares.

 

(c)                                  The Company shall give Parent (i) prompt
written notice of any demands for appraisal of any shares of Company Capital
Stock pursuant to the exercise of appraisal or dissenters’ rights, withdrawals
of such demands, and any other instruments or notices served pursuant to the
DGCL on the Company and (ii) the opportunity to participate in all negotiations
and proceedings with respect to demands for appraisal under the DGCL.  The
Company shall not, except with the prior written consent of Parent, voluntarily
make or agree to make any payment with respect to any demands for appraisal of
Company Capital Stock, or settle or offer to settle any such demands.

 

3.11                        Survival of Payment Obligations. Subject to
Section 10.9, Parent’s payment obligations set forth in this Article III shall
survive the Closing. In the event Parent or the Surviving Corporation or any of
its successors (i) consolidates with or merges into any other Person and shall
not be the continuing or surviving corporation or entity of such consolidation
or merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any Person, then, and in each such case, to the extent
necessary, proper provision shall be made to the extent not otherwise effected
by operation of law so that the successors of Parent or the Surviving
Corporation, as the case may be, assume the payment obligations of Parent or the
Surviving Corporation, as the case may be, set forth in this Article III.

 

3.12                        Closure Stock Transfer Books. At the Effective Time,
the stock transfer books of the Company shall be closed and thereafter there
shall be no transfers of any Company Capital Stock.

 

ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES RELATING TO THE BUSINESS

 

In further of any references to Subsidiaries or the Business in this Article IV,
any references to the Company in this Article IV shall be deemed to include, and
the representations and warranties in this Article IV shall apply to, the
Company and its Subsidiaries other than references to the Company in Sections
4.1, 4.2, 4.4, 4.5, 4.7, 4.24 and 4.25.  Except as set forth in the Schedules
(the “Company Schedules”) and subject to the provisions of Section 1.2(a),
Section 6.9 and Section 10.11, the Company hereby represents and warrants to
Parent as of the date hereof (unless otherwise provided in this Article IV)
that:

 

4.1                               Organization and Good Standing. The Company is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now conducted and as currently proposed to be conducted.  The Company is duly
qualified or authorized to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which it owns or leases real
property and each other jurisdiction in which the conduct of its business or the
ownership of its properties requires such qualification or authorization, except
where the

 

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failure to be so qualified, authorized or in good standing would not have, or
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.

 

4.2                               Authorization of Agreement. The Company has
all requisite power, authority and legal capacity to execute and deliver this
Agreement and each other agreement, document, or instrument or certificate
contemplated by this Agreement or to be executed by the Company in connection
with the Transactions (the “Company Documents”), to perform its obligations
hereunder and thereunder and to consummate the Transactions.  Other than
obtaining the Stockholder Approval, the execution, delivery and performance of
this Agreement and each of the Company Documents and the consummation of the
Transactions have been duly authorized and approved by all required corporate
action on the part of the Company, including the approval of its Stockholders,
which approval includes approval of: (i) the indemnification obligations of the
Equityholders set forth in this Agreement, and (ii) the appointment of Augustine
Lawlor as the Holder Representative, with the rights and responsibilities set
forth in this Agreement.  No other proceedings on the part of the Company and
the Stockholders are necessary to authorize this Agreement and the Company
Documents and the Transactions, other than obtaining the Stockholder Approval. 
This Agreement has been, and each of the Company Documents will be at or prior
to the Closing, duly and validly executed and delivered by the Company and
(assuming due authorization, execution and delivery by Parent and Merger Sub)
this Agreement constitutes, and each of the Company Documents when so executed
and delivered will constitute, legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except to the extent that enforceability may be subject to, and limited
by the effect of any Enforceability Exceptions.

 

4.3                               Conflicts; Consents of Third Parties.

 

(a)                                 None of the execution and delivery by the
Company of this Agreement or the Company Documents, the consummation of the
Transactions, or compliance by the Company with any of the provisions hereof or
thereof will conflict with, or result in any Default under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or give rise to any obligation of the Company to
make any payment under, or to the increased, additional, accelerated or
guaranteed rights or entitlements of any Person under, or result in the creation
of any Liens upon any of the properties or material assets of Company under, any
provision of (i) the certificate of incorporation and by-laws or comparable
organizational documents of the Company; (ii) any Material Contract or Permit to
which the Company is a party or by which any of the properties or assets of the
Company is bound; (iii) any Order applicable to the Company or any of the
properties or assets of the Company; or (iv) any applicable Law, except with
respect to clauses (ii) through (iv), as would not, individually or in the
aggregate, reasonably be expected to be material to the Company and to prevent,
impair or delay, the ability of the parties hereto to consummate the
Transactions.

 

(b)                                 Except as set forth on Schedule 4.4(b), no
Consent is required on the part of the Company in connection with (i) the
execution and delivery of this Agreement, the Company Documents, respectively,
the compliance by the Company with any of the provisions hereof and thereof, or
the consummation of the Transactions, or (ii) the continuing validity and
effectiveness immediately following the Closing of any Permit or Contract of the
Company, except for such Consents that would not, individually or in the
aggregate, reasonably be expected to be material to the Company and to prevent,
impair or delay, in any material respect, the ability of the parties hereto to
consummate the Transactions.

 

4.4                               Capitalization.

 

(a)                                 The authorized capital stock of the Company
consists of 8,000,000 shares of Company Common Stock and 5,600,000 shares of
Company Preferred Stock, (i) 2,000,000 of which are

 

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designated as Series A Convertible Redeemable Company Preferred Stock, and
(ii) 3,600,000 of which are designated as Series B Convertible Redeemable
Company Preferred Stock.  As of the date hereof, there are 2,000,000 shares of
Company Common Stock issued and outstanding, and 5,600,000 shares of Company
Preferred Stock are issued and outstanding.  All of the issued and outstanding
shares of Company Common Stock and Company Preferred Stock (i) were duly
authorized for issuance and are validly issued, fully paid and non-assessable,
(ii) were not issued in violation of any purchase or call option, right of first
refusal, subscription right, preemptive right or any similar rights and
(iii) were issued in compliance with all applicable federal and state securities
Laws.  All of the outstanding shares of Company Common Stock and Company
Preferred Stock are owned of record by the holders and in the respective amounts
as are set forth on Schedule 4.4(a) and were not issued or acquired in violation
of any Law or agreement.

 

(b)                                 Schedule 4.4(b) sets forth a list of the
holders of options to purchase shares of Company Common Stock (“Company
Options”) and the respective number of shares of Company Common Stock subject to
each outstanding Company Option, and the applicable exercise price, expiration
date and vesting date.  Except for the Company Preferred Stock and Company
Options described in Schedule 4.4(b), there is no existing option, warrant,
call, right or Contract to which any Stockholder or the Company is a party
requiring, and there are no securities of the Company outstanding which upon
conversion or exchange would require, the issuance, sale or transfer of any
Company Capital Stock or other equity securities of the Company or other
securities convertible into, exchangeable for or evidencing the right to
subscribe for or purchase shares of capital stock or other equity securities of
the Company.  Except as set forth in Schedule 4.4(b), there are no obligations,
contingent or otherwise, of the Company to (i) repurchase, redeem or otherwise
acquire any shares of the capital stock of the Company, or (ii) provide material
funds to, or make any material investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any Person.  There are no outstanding stock appreciation,
phantom stock, profit participation or similar rights with respect to the
Company.  Except as set forth in Schedule 4.4(b), there are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
or consent (or, convertible into, or exchangeable for, securities having the
right to vote or consent) on any matters on which stockholders (or other
equityholders) of the Company may vote.  Except as set forth in Schedule 4.4(b),
there are no voting trusts, irrevocable proxies or other Contracts or
understandings to which the Company or any Stockholder is a party or is bound
with respect to the voting or consent of any shares of Company Common Stock.

 

(c)                                  The Initial Payment Allocation Schedule
(and any updates thereof) does and will set forth a correct and complete list of
each Equityholder and the payments to which each such Person is entitled at the
Closing.  The Initial Payment Allocation Schedule provides for allocation of the
Initial Purchase Price among the Equityholders in accordance with the provisions
of the Certificate of Incorporation of the Company, the by-laws of the Company,
the Company Option Plan and all agreements relating thereto, each as in effect
immediately prior to the Closing.  Each Future Payment Allocation Schedule
delivered to Parent in respect of any Future Payment will (i) be a true, correct
and complete list of each Equityholder and the payments to which each such
Person is entitled at such time and (ii) provide for allocation of the
applicable Future Payment among the Equityholders in accordance with the
provisions of the Certificate of Incorporation of the Company, the by-laws of
the Company, the Company Option Plan and all agreements relating thereto, each
as in effect immediately prior to the Closing, and subject to any expressly
permitted adjustment to such allocation pursuant to, and in accordance with, the
provisions of this Agreement as in effect at the time of payment of such Future
Payment.

 

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4.5                               Subsidiaries.

 

(a)                                 Except as set forth on Schedule 4.5(a), the
Company does not have any Subsidiaries and does not, directly or indirectly, own
any equity securities of any other corporation, partnership, limited liability
company, limited partnership, joint venture or other business association or
entity.  Each Subsidiary is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization as set forth on
Schedule 4.5, with full power and authority to conduct its business as it is
currently being conducted and to own, lease or license, as applicable, its
assets.  Each Subsidiary is duly qualified to transact business as a foreign
entity and is in good standing in each jurisdiction where the character of its
assets owned, leased or licensed or the nature of its activities, makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not have a Company Material Adverse Effect.  Schedule 4.5
contains a correct and complete list of the jurisdictions in which the
Subsidiaries are qualified or registered to do business as a foreign corporation
or limited liability company, as applicable as of the date hereof.  No
Subsidiary is in violation of any of its organizational documents.

 

(b)                                 All of the outstanding equity securities of
each of the Subsidiaries are owned beneficially and of record by the Company,
and have been duly authorized and validly issued, are fully paid and
nonassessable.  There are no outstanding options, warrants, rights or other
commitments to issue or purchase any equity securities of any of the
Subsidiaries, and there are no outstanding equity securities which are
convertible or exchangeable into or for equity securities of any of the
Subsidiaries.

 

4.6                               Corporate Records.

 

(a)                                 The Company has delivered to Parent true,
correct and complete copies of the Certificates of Incorporation (certified by
the Secretary of State of the State of Delaware) and by-laws (certified by the
secretary, assistant secretary or other appropriate officer) of the Company, in
each case as amended and in effect on the date hereof, including all amendments
thereto.

 

(b)                                 The minute books of the Company previously
made available to Parent contain in all material respects true, correct and
complete records of all meetings and accurately reflect in all material respects
all corporate action of the stockholders and Board (including committees
thereof).  The stock certificate books and stock transfer ledgers of the Company
previously made available to Parent are true, correct and complete in all
respects.  To the Knowledge of the Company, all stock transfer taxes levied, if
any, or payable with respect to all transfers of shares of the Company prior to
the date hereof have been paid and appropriate transfer tax stamps affixed.

 

4.7                               Financial Statements.

 

(a)                                 The Company has delivered to Parent copies
of (i) the audited balance sheets of the Company as of December 31, 2012 and
December 31, 2013 and the related statements of income and cash flows of the
Company for the years then ended and (ii) the unaudited balance sheet of the
Company as at March 31, 2014 and the related statements of income and cash flows
of the Company for the three month period then ended (such audited and unaudited
statements are referred to herein as the “Financial Statements”), copies of
which are attached to Schedule 4.7(a).  Each of the Financial Statements is
complete and correct in all material respects, has been prepared in accordance
with GAAP throughout the periods presented and presents fairly in all material
respects the consolidated financial position, results of operations and cash
flows of the Company as of the dates and for the periods indicated therein
(subject to, in the case of unaudited Financial Statements, normal audit
adjustments, that are not material in scope or amount, and the absence of any
footnotes thereto).

 

The audited balance sheet of the Company as of December 31, 2013, is referred to
herein as the “Balance Sheet” and December 31, 2013 is referred to herein as the
“Balance Sheet Date.”

 

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(b)                                 All books, records and accounts of the
Company are accurate and complete in all material respects and are maintained in
accordance with good business practice and all applicable Laws.  The Company
maintains systems of internal accounting controls sufficient to provide
reasonable assurances that:  (i) transactions are executed in accordance with
management’s general or specific authorization; and (ii) transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP and to maintain accountability for assets.

 

(c)                                  The Company does not have any “off-balance
sheet arrangements” (as such term is defined in Item 303(a)(4) of Regulation S-K
promulgated under the Securities and Exchange Act of 1934, as amended).

 

4.8                               No Undisclosed Liabilities. The Company does
not have any Liabilities other than those (i) specifically reflected on and
fully reserved against in the Balance Sheet or the notes thereto, (ii) incurred
in the Ordinary Course of Business since the Balance Sheet Date, (iii) incurred
for legal, accounting, financial advising fees, filing fees and out-of-pocket
expenses in connection with the Transactions, (iv) that are disclosed on
Schedule 4.8 or (v) that, individually or in the aggregate, would not reasonably
be expected to be material to the Company.

 

4.9                               Absence of Certain Developments. Except as
expressly contemplated by this Agreement or as set forth on Schedule 4.9, since
the Balance Sheet Date (i) the Company has conducted its Business only in the
Ordinary Course of Business, (ii) there has not been any event, change,
occurrence or circumstance that, individually or in the aggregate with any such
events, changes, occurrences or circumstances, has had or could reasonably be
expected to have a Company Material Adverse Effect and (iii) the Company has not
taken any action (or committed to take any action) that, if taken after the date
hereof without the written consent of Parent, would constitute a breach of any
of the covenants set forth in Section 6.2.

 

4.10                        Taxes.

 

(a)                                 The Company has timely filed all Tax Returns
that it was required to file, and all such Tax Returns are complete and correct
in all material respects.  The Company is not currently the beneficiary of any
extension of time within which to file any Tax Return.

 

(b)                                 The Company has (i) timely paid all Taxes
due; and (ii) withheld and paid over all federal, state, local and foreign Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other third
party.  No claim has ever been made in writing by a Taxing Authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to taxation by that jurisdiction.  There are no Liens for Taxes
(other than Permitted Exceptions) upon any asset of the Company.

 

(c)                                  The Company has not been notified in
writing of a Tax deficiency claimed or assessed against the Company, nor has the
Company executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax which waiver or extension is
currently in effect.  The Company has not been notified in writing of any
pending or threatened audits, assessments or other actions for or relating to
any Taxes of the Company.  No issues have been raised in writing by the relevant
Taxing Authority in any completed audit or examination of the Company that are
reasonably expected to result in a Liability on the part of the Company for a
material amount of Taxes in a later taxable period.

 

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(d)                                 The Company does not have any Liability for
unpaid income or other material Taxes as of the dates of the Financial
Statements that has not been properly reflected in the Financial Statements in
conformity with GAAP.

 

(e)                                  The Company has delivered or made available
to Parent complete and accurate copies of all federal, state and local income
Tax Returns filed with respect to the Company for taxable periods ended 2009
through 2013, and complete and accurate copies of all Tax audit or examination
reports and statements of deficiencies assessed against or agreed to by the
Company since January 1, 2009.

 

(f)                                   The Company (i) has not agreed, or is
required, to make any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise, for any taxable period (or portion
thereof) ending after the Closing Date; (ii) has not executed or entered into a
closing agreement with respect to Taxes pursuant to Section 7121 of the Code or
similar provision of Law; and (iii) has not been a party to a transaction that
is a “listed transaction,” as such term is defined in Section 6707A(c)2 of the
Code and Treasury Regulations Section 1.6011-4(b)(2).

 

(g)                                  The Company has not been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which is the Company).  The Company does not have
(i) any material Liability for the Taxes of any Person (other than Taxes of the
Company) (A) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local, or foreign Law), (B) as a transferee or successor,
(C) by Contract, or (D) otherwise or (ii) been a party to, or bound by, any Tax
indemnity agreement, Tax sharing agreement, Tax allocation agreement or similar
Contract.

 

(h)                                 The Company has not distributed stock of
another Person, or had its stock distributed by another Person in a transaction
that was purported or intended to be governed in whole or in part by Section 355
of the Code.

 

(i)                                     The Company is not, and has not been, a
United States real property holding corporation (as defined in
Section 897(c)(2) of the Code) during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.

 

(j)                                    The Subsidiary has elected to be treated
as a disregarded entity as that term is defined in Treasury Regulation
Section 301.7701-3.

 

(k)                                 The Company has filed all income Tax Returns
for the period ending December 31, 2013.

 

(l)                                     The Subsidiary has complied with all
requirements to be eligible to claim the incentives claimed on its Tax Returns
for R&D work in Australia.

 

(m)                             The representations in this Section 4.10 shall
constitute the only representations of the Company under this Agreement relating
to Taxes.  The representations in the other sections of this Article IV shall
not extend to matters relating to Taxes.

 

4.11                        Real Property.

 

The Company does not currently nor has it ever owned or leased any real
property.

 

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4.12                        Tangible Personal Property.

 

(a)                                 The Company has good and marketable title to
all of the material items of tangible personal property used in the Business
(except as sold or disposed of subsequent to the date thereof in the Ordinary
Course of Business and not in violation of this Agreement), free and clear of
any and all Liens, other than the Permitted Exceptions.  The Company does not
lease any personal property.

 

(b)                                 The tangible personal property used in the
Business (including equipment), taken as a whole, is in good working order and
fit for its intended use, reasonable wear and tear excepted and, taken as a
whole, is adequate to conduct the Business as currently conducted.  Except as
set forth on Schedule 4.12(b), the tangible personal property used in the
Business consists of all of the assets that are incremental or related to, or
used in connection with, the operation of the Business.  Except as set forth on
Schedule 4.12(b), all of the material tangible personal property used in the
Business is set forth in the Financial Statements.  No current or former holder
of Company Capital Stock has any rights to or interest in any tangible personal
property set forth in the Financial Statements used in the Business (other than
through his ownership of Company Capital Stock).

 

4.13                        Intellectual Property.

 

(a)                                 Schedule 4.13(a) sets forth a complete and
correct list as of the Execution Date of all Patents, Trademarks and registered
Copyrights owned or exclusively licensed to the Company including for each such
item the application or registration number, applicable jurisdiction,
application date, issue date (if applicable) and owner thereof.  For purposes of
this Agreement, the term “Intellectual Property” means (i) patents, patent
applications (whether or not provisional or multinational) and similar
instruments (including any and all substitutions, divisions, continuations,
continuations-in-part, reissues, renewals, extensions, reexaminations, patents
of addition, supplementary protection certificates, utility models, inventors’
certificates, pediatric data package exclusivity extensions or the like) and any
foreign equivalents of the foregoing (including certificates of invention and
any applications therefor) (collectively, “Patents”) (ii) domestic and foreign
copyrights, copyright registrations and copyright applications (collectively,
“Copyrights”); (iii) trademarks, service marks, trade names, trade dress and
domain names, including registrations and applications for registration therefor
(collectively, “Trademarks”); (iv) trade secrets; (v) processes, formulae,
methods, schematics, technology, discoveries, inventions, any biological,
chemical, biochemical, toxicological, pharmacological and metabolic material and
information and data relating thereto and formulation, clinical, analytical and
stability information and data; know-how, original works of authorship fixed in
any tangible medium of expression, including literary works and all forms of
computer software programs and applications and (vi) other intangible
proprietary or confidential information and materials.

 

(b)                                 To the extent the Company has been granted
licenses to Patents owned by a third party, such licenses are Material Contracts
and the Company has made available to Parent or Parent’s legal advisor copies of
all such licenses, including any amendments thereto.

 

(c)                                  The execution and delivery of this
Agreement by the Company and the consummation of the Transactions will not: 
(i) result in the breach of, or create on behalf of any third party the right to
terminate or modify in any material respect, (x) any agreement relating to
Company Intellectual Property or (y) any agreement as to which the Company is a
party and pursuant to which the Company is authorized to use any Intellectual
Property of any third party that is material to the Business as currently
conducted, excluding in each case generally commercially available,
off-the-shelf software programs; (ii) result in or require the grant, assignment
or transfer to any other Person of any license or other right or interest under,
to or in any of the Company Intellectual Property; or (iii) cause a loss or
impairment of any Company Intellectual Property.

 

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(d)                                 To the Knowledge of the Company, all
Patents, Trademarks and registered Copyrights included in the Company
Intellectual Property are subsisting, valid and enforceable and have not expired
or been cancelled.  To the Knowledge of the Company, (i) none of the Company
Intellectual Property has expired, been cancelled or abandoned and (ii) all
maintenance and renewal fees necessary to preserve the material rights of the
Company in connection with such Company Intellectual Property have been paid. 
The Company has not received any written claim or notice from any Person
advising that such Person is challenging or threatening to challenge the
ownership, use, validity or enforceability of any Company Intellectual
Property.  There are no actions, suits, proceedings, or arbitrations, or, to the
Knowledge of the Company, claims or investigations, pending with respect to the
Company Intellectual Property.

 

(e)                                  Since its incorporation, the Company has
not received any written claim or notice from any Person (i) alleging any such
infringement, violation or misappropriation or (ii) advising that such Person is
challenging or threatening to challenge the ownership, use, validity or
enforceability of any Company Intellectual Property.

 

(f)                                   The Company has implemented commercially
reasonable measures to maintain the confidentiality of the Company Intellectual
Property of a nature that the Company intends to keep confidential or the public
disclosure of which would or would reasonably be likely to be material to the
Company taken as a whole.  Each past or present Employee and Contractor
performing material activities related to the manufacture, use, sale, offer for
sale or importation of products marketed by or under development by the Company
has entered into a proprietary information and confidentiality agreement,
substantially in the Company’s standard form applicable to Employees and
Contractors, as the case may be.  The Company has made available to Parent or
Parent’s legal advisor copies of such standard forms.

 

(g)                                  Schedule 4.13(g) describes all instances in
which the Company has received government funding and/or the Company has
contracted for the use of facilities of a university, college, other educational
institution or research center in the development of any Company Intellectual
Property, where, as a result of such funding or the use of such facilities, the
government or any university, college, other educational institution or research
center has any rights in such Company Intellectual Property.

 

4.14                        Material Contracts.

 

(a)                                 Schedule 4.14(a) sets forth, by reference to
the applicable subsection of this Section 4.14(a), all of the following
Contracts to which the Company or any Subsidiary is a party or by which they or
their respective assets or properties are bound (collectively, the “Material
Contracts”):

 

(i)                                     any Contract pursuant to which the
Company spent or received, in the aggregate, more than $100,000 with respect to
any such agreement during the 2013 fiscal year;

 

(ii)                                  any Contract pursuant to which the Company
is reasonably likely to spend or receive, in the aggregate, more than $100,000
with respect to any such agreement during the 2014 fiscal year or any subsequent
fiscal year (except for sales orders or purchase orders entered into by the
Company in the Ordinary Course of Business);

 

(iii)                               any non-competition, standstill or other
Contract that prohibits or otherwise restricts the Company from freely engaging
in business anywhere in the world;

 

(iv)                              any research and development project, clinical
trial agreements, product formulation agreements, manufacturing agreements or
similar Contract or arrangement;

 

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(v)                                 any loan or credit agreement, indenture,
mortgage, note or other Contract evidencing Indebtedness for money borrowed by
the Company from a third party lender, and each contract pursuant to which any
such Indebtedness for borrowed money is guaranteed by the Company;

 

(vi)                              any sales representative or distribution
Contract;

 

(vii)                           any Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Intellectual Property, other than (1) confidentiality agreements, (2) employment
agreements, (3) consulting or advisory agreements, and (4) license agreements
for off-the-shelf software licensed for an aggregate fee of not more than
$10,000, in each case entered into in the Ordinary Course of Business;

 

(viii)                        any Contract (A) in which the Company has granted
development rights, “most favored nation” pricing provisions or marketing or
distribution rights relating to any product or product candidate or (B) in which
the Company has agreed to purchase a minimum quantity of goods or supplies
relating to any product or product candidate or has agreed to purchase goods or
supplies relating to any product or product candidate exclusively from a certain
party;

 

(ix)                              any Contract for the disposition of any
significant portion of the assets, the Business (including any business unit or
product line) or any Contract for the acquisition, directly or indirectly, of a
material portion of the assets or business of any other person, in each case
within the last three (3) years;

 

(x)                                 any partnership, joint venture or other
similar Contract;

 

(xi)                              any Contract with (A) any Affiliate of the
Company, (B) any Person directly or indirectly owning, controlling or holding
with power to vote any outstanding voting securities of the Company, (C) any
Person whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by the Company or any of its Affiliates,
or (D) any director or officer of the Company or any of its Affiliates or any
“associates” or members of the “immediate family” (as such terms are
respectively defined in Rule 12b-2 and Rule 16a-1 of the Securities and Exchange
Act of 1934, as amended) of any such director or officer (other than contracts
relating to the employment or compensation of any employee);

 

(xii)                           any Contract to which a Governmental Authority
is a party;

 

(xiii)                        any Contract Manufacturing Agreement;

 

(xiv)                       any Contract granting to any third party any rights
to use, sell or Commercialize the Key Product Candidate or any other product or
product candidates of the Company (including co-commercialization and
co-marketing contracts); and

 

(xv)                          any Contracts that are otherwise material to the
Company and which are not required to be disclosed by clauses (i) —(xiv) above.

 

(b)                                 Each of the Material Contracts is in full
force and effect and is the legal, valid and binding obligation of the Company
and, to the Knowledge of the Company, of the other parties thereto enforceable
against each of them in accordance with its terms (except to the extent that
enforceability may be subject to, and limited by the effect of Enforceability
Exceptions and, upon consummation of the Transactions, shall continue in full
force and effect without penalty or other adverse consequence.  The Company is
not in Default under any Material Contract, nor, to the Knowledge of the

 

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Company, is any other party to any Material Contract in Default thereunder, and,
to the Knowledge of the Company, no event has occurred that with the lapse of
time or the giving of notice or both would constitute a Default on the Company
or any other party thereunder.  No party to any of the Material Contracts has
given notice to the Company that such party has exercised any termination rights
with respect thereto, and no party has given notice to the Company of any
significant dispute with respect to any Material Contract.  The Company has
delivered to Parent true, correct and complete copies of all of the Material
Contracts, together with all amendments, modifications or supplements thereto.

 

4.15                        Employee Benefits Plans.

 

(a)                                 Schedule 4.15(a) sets forth a list of all
Employee Benefit Plans established, maintained, sponsored or contributed to (on
a contingent basis or otherwise) or required to be established, maintained,
sponsored or contributed to, by the Company or under which the Company has
liability, contingent or otherwise (including by reason of being an ERISA
Affiliate with any other person) (the “Company Employee Plans”).  For purposes
of this Agreement, the following terms shall have the following meanings: 
(i) “Employee Benefit Plan” means any “employee benefit plan” (as defined in
Section 3(3) of ERISA), and any other plan, policy, program, practice,
agreement, understanding or arrangement (whether written or unwritten, qualified
or nonqualified), providing compensation or benefits to any current or former
Employee, director, officer or independent contractor of the Company including
all employment agreements, individual consulting agreements and all incentive
compensation, bonus, retirement, profit-sharing, pension, deferred compensation,
vacation, holiday, cafeteria, medical, disability, sick leave, life insurance,
equity or equity-based (whether real or phantom), change in control, retention,
transaction, termination or severance plan, policy, program, practice,
understanding or arrangement; (ii) “ERISA” means the Employee Retirement Income
Security Act of 1974 as amended; and (iii) “ERISA Affiliate” means any entity
which is a member of (A) a controlled group of corporations (as defined in
Section 414(b) of the Code), (B) a group of trades or businesses under common
control (as defined in Section 414(c) of the Code) or (C) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or, within the immediately
preceding six years, included the Company.

 

(b)                                 With respect to each Company Employee Plan,
the Company has made available to Parent a copy of (i) such Company Employee
Plan, including all plan documents and amendments and any trust agreements or
other funding vehicles, (ii) the most recent summary plan descriptions,
including any summary of material modifications, (iii) the most recent annual
report (Form 5500) filed with the IRS with respect to each such Company Employee
Plan, if any, (iv) the most recent actuarial report or other financial statement
relating to each Company Employee Plan, if any and (v) the most recent IRS
determination or opinion letter, if applicable, and any pending request for such
a determination letter.

 

(c)                                  Each Company Employee Plan has been and is
in material compliance with its terms, ERISA, the Code and all other applicable
laws and the regulations thereunder.

 

(d)                                 With respect to the Company Employee Plans,
there are no material benefit obligations for which contributions are owed that
have not been made or properly accrued to the extent required by GAAP.  To the
Company’s Knowledge, there has not been any prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any
Company Employee Plan.  Each Company Employee Plan may be amended, terminated or
otherwise discontinued after the Closing in accordance with its terms, without
material liability.

 

(e)                                  All the Company Employee Plans that are
intended to be qualified under Section 401(a) of the Code have received
determination, opinion or advisory letters (as applicable) from the IRS to the
effect that such Company Employee Plans are qualified and the plans and trusts
related thereto are

 

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exempt from federal income taxes under Sections 401(a) and 501(a), respectively,
of the Code, or are based on prototype or volume submitter documents that have
received such letters, and no such determination, opinion or advisory letters
(as applicable) have been revoked and revocation has not been threatened, and,
to the Knowledge of the Company, nothing has occurred and no condition exists
which could reasonably be expected to result in the loss of such qualification
or the imposition of any material liability, penalty or tax under ERISA or the
Code.

 

(f)                                   Neither the Company nor any of their ERISA
Affiliates has within the immediately preceding six years (i) maintained an
Employee Benefit Plan which was ever subject to Section 412 of the Code or Title
IV of ERISA or (ii) been obligated to contribute (on a contingent basis or
otherwise) to a “multiemployer plan” (as defined in Section 4001(a)(3) of
ERISA).

 

(g)                                  Except as set forth on Schedule 4.15(g),
the Company is not a party to any (i) compensatory agreement with any director,
executive officer or other key Employee of the Company (A) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company of the nature of any of the
Transactions, (B) providing any term of employment or compensation guarantee (in
either case, that cannot be terminated by the Company without penalty or
liability by giving thirty days or less prior written notice of termination) or
(C) providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key Employee; or
(ii) agreement or plan binding the Company, including any Company Employee Plan,
stock option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan or severance benefit plan, any of the benefits of which shall be
increased, or the vesting, funding or payment of the benefits of which shall be
accelerated, by the occurrence of any of the Transactions (alone or in
connection with other events) or the value of any of the benefits of which shall
be calculated on the basis of any of the Transactions (alone or in connection
with other events).  The Company is not a party to any contract or arrangement
that has resulted, or would result, separately or in the aggregate, in the
payment of any “excess parachute payments” within the meaning of Section 280G of
the Code, and the consummation of the Transactions will not be a factor causing
payments to be made by the Company to be non-deductible (either in whole or in
part) under Section 280G of the Code.

 

(h)                                 Each Company Employee Plan that is a
“non-qualified deferred compensation plan” within the meaning of Section 409A of
the Code has been established, maintained and operated in compliance with
Section 409A of the Code and the applicable guidance issued thereunder.  Each
Company Option was granted with an exercise price that was not less than the
fair market value of the underlying Company Common Stock on the date the option
was granted.

 

(i)                                     None of the Company Employee Plans
promises or provides retiree or post-employment health, welfare or similar
benefits to any Person, except as required by applicable law or as set forth in
Schedule 4.15(i).

 

(j)                                    There are no Employee Benefit Plans
(1) that the Company is required to maintain, or contribute to, for the benefit
of any employee of the Company and that are material to the Company or (2) under
which the Company has any material liability, in either case under the Laws of
any jurisdiction outside the United States (but excluding plans maintained by a
Governmental Body).

 

(k)                                 There are (1) to the Knowledge of the
Company, no pending investigations by any Governmental Body involving the
Company Employee Plans and (2) no claims pending or threatened in writing
(except for claims for benefits payable in the normal operation of such plans),
suits or Legal Proceedings against any Company Employee Plan or asserting any
rights or claims to benefits under any Company Employee Plan which could give
rise to any material liability. No material liability exists or could reasonably
be expected to be imposed upon the assets of the Company or any ERISA Affiliate
by

 

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reason of a Company Employee Plan (including any such liability due to any
failure by the Company to make any required contribution with respect to such
Company Employee Plan).

 

4.16                        Labor.

 

(a)                                 The Company is not and has not ever been
party to any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is any such contract
or agreement presently being negotiated.  There is no strike, slowdown, lockout
or material labor dispute, or threats related to the foregoing, involving
Company and there have been no such actions or disputes in the past three
(3) years.

 

(b)                                 Schedule 4.16(b) sets forth a complete and
accurate list of all Employees of Company including for each such employee:
name, responsibility, current annual base salary, Fair Labor Standards Act
classification (e.g. exempt or non-exempt) and date of hire.  Except as set
forth on Schedule 4.16(b), all Employees are employed on an “at-will” basis and
their employment can be terminated at any time for any reason by and without any
amounts being owed to such individual other than with respect to wages accrued
before termination.  Except as set forth on Schedule 4.16(b), no Employee is on
disability or other leave of absence.

 

(c)                                  Schedule 4.16(c) contains a complete and
accurate listing of the following information for each independent contractor,
consultant or freelancer who is currently rendering services to the Company
(collectively, the “Contractors”): name (if an entity, including the name of the
individuals at such entity performing services for Company) and fees paid or
payable in the twelve (12) months immediately preceding the date hereof. 
Company has properly treated all Contractors as non-employees for all federal,
state, local and foreign Tax purposes, all ERISA and employee benefits purposes,
and in compliance with applicable Law.  There has been no determination by any
Governmental Body that any Contractor is or was an employee of Company.  Other
than as set forth on Schedule 4.16(c), the Company’s relationships with all
Contractors can be terminated at any time for any reason by giving prior written
notice of termination no more than thirty (30) days prior to the effective date
of termination and without any amounts being owed to such Contractors, other
than with respect to compensation or payment accrued before the effective date
of termination.

 

(d)                                 The Company is in compliance in all material
respects with all Laws governing the employment of its Employees, including
those relating to wages, hours, benefits, labor, immigration and the Immigration
and Nationality Act, 8 U.S.C. Sections 1101 et seq. and its implementing
regulations.  The Company is not a party to, or otherwise bound by, any consent
decree or settlement agreement with, or citation by, any Governmental Body
relating to employees and employee practices.

 

(e)                                  The Company has complied with its
obligations, if any, under the Worker Adjustment and Retraining Notification Act
and any similar state or local “mass layoff” or “plant closing” law (“WARN”).

 

(f)                                   All source deductions and other amounts
required by applicable Laws to be deducted or withheld from remuneration payable
to Employees, and all employer premiums, contributions or amounts payable by the
Company thereon or in respect thereof, have been so deducted and withheld and
remitted, paid or contributed in compliance in all material respects with
applicable Laws to the appropriate Governmental Body.

 

(g)                                  The Company has not used the services of
workers provided by third party contract labor suppliers, temporary employees or
“leased employees” (as that term is defined in Section 414(n) of the Code).  All
Employees are employed in the United States, and none of the written terms and

 

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conditions of their employment provide for the application of the law of any
jurisdiction outside the United States.

 

4.17                        Litigation. There is no Legal Proceeding pending or,
to the Knowledge of the Company, threatened against the Company (or to the
Knowledge of the Company, pending or threatened, against any of the officers,
directors, Contractors or Employees of the Company with respect to their
business activities on behalf of the Company), or to which the Company is
otherwise a party.  The Company is not subject to any Order, and the Company is
not in breach or violation of any Order.  There are no Legal Proceedings pending
or, to the Knowledge of the Company, threatened against the Company or to which
the Company is otherwise a party relating to this Agreement or any Company
Document or the Transactions.  The Company has not received any written notice
that it is under investigation with respect to any violation or alleged
violation of any Law.  Neither the Company nor any of its Subsidiaries is
currently planning to initiate any Legal Proceeding.

 

4.18                        Compliance with Laws; Regulatory Matters.

 

(a)                                 The Company is, and since January 1, 2011
has been, in material compliance with, and is not in violation of, any
applicable Law with respect to the conduct of the Business, or the ownership or
operation of its properties or assets.

 

(b)                                 (i) None of the Company or, to the Company’s
Knowledge, any of its officers, directors, Employees or agents, including third
party contractors (collectively, “Representatives”) has been debarred or
suspended from participation in any activities or programs related to
pharmaceutical product candidates or pharmaceutical products pursuant to 21
U.S.C. Section 335a (a) or (b) (“Debarred”), (ii) the Company does not employ or
is a party to a Contract with any person who is, to the Knowledge of the
Company, Debarred and (iii) to the Knowledge of the Company, the Company has not
employed or been a party to a Contract with any person who, during the time when
such person was employed by the Company, was Debarred.

 

(c)                                  Each of the product candidates of the
Company (including the Key Product Candidate) is, among other things, being
developed, tested, manufactured and stored, as applicable, by the Company, and
to the Knowledge of the Company, by the Representatives, in material compliance
with the FDA Act and/or applicable Law, regulations and guidances issued by the
FDA and/or other Governmental Bodies, including Governmental Bodies in foreign
jurisdictions, as applicable.  No product candidate (including the Key Product
Candidate) developed, manufactured, tested, or held by the Company has been
recalled, withdrawn, suspended or discontinued (whether voluntarily or
otherwise).  No proceedings (whether completed or pending) seeking the recall,
withdrawal, suspension or seizure of any such product candidate or pre-market
approvals or marketing authorizations are pending, or to the Knowledge of the
Company, threatened, against the Company, nor have any such proceedings been
pending at any time.

 

(d)                                 All reports, documents, claims, notices and
other submissions required to be filed, maintained, or furnished to the FDA or
other Governmental Body by the Company have been so filed, maintained or
furnished and were complete and correct in all respects on the date filed (or
were corrected in or supplemented by a subsequent filing), except for any such
reports, documents, claims or notices the failure of which to so file, maintain
or furnish would not have a Company Material Adverse Effect.

 

(e)                                  The Company has made available to Parent
each annual report filed by the Company with the FDA and any similar
Governmental Body with respect to any product candidates (including the Key
Product Candidate) of the Company that is the subject of clinical
investigations, if

 

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any.  The Company has made available to Parent all material information in its
possession about adverse drug experiences obtained or otherwise received by the
Company from any source, including information derived from clinical
investigations, and reports in the scientific literature, and unpublished
scientific papers relating to any product candidate (including the Key Product
Candidate) manufactured, tested, or held by the Company.

 

(f)                                   The Company has made available to Parent
as of the date hereof (i) complete and correct copies of each investigational
new drug application filed with the FDA and each similar regulatory filing made
by or on behalf of the Company with any other Governmental Body, including all
supplements and amendments thereto with respect to each product candidate
(including the Key Product Candidate), in each case, if any (ii) all material
correspondence sent to and received from the FDA and similar foreign
Governmental Bodies by the Company that concerns or would reasonably be expected
to impact a product candidate (including the Key Product Candidate) of the
Company, if any and (iii) all existing written records relating to all material
discussions and all meetings between the Company and the FDA or similar foreign
Governmental Bodies with respect to each product candidate (including the Key
Product Candidate), if any.

 

(g)                                  The clinical trials, animal studies and
other preclinical tests that have been and are being conducted by, or on behalf
of, the Company, if any, have been and are being conducted in all material
respects in accordance with all applicable Law, regulations and requirements of
the FDA and similar foreign Governmental Bodies.  The Company has not received
any written notice from the FDA or any other Governmental Body requiring the
termination or suspension or material modification of any animal study,
preclinical study or clinical trial being conducted by or on behalf of the
Company.  Neither the FDA nor any other applicable Governmental Body nor any
clinical investigator that has participated or is participating in, or
institutional review board that has or has had jurisdiction over, a clinical
trial conducted by or on behalf of the Company has commenced or, to the
Knowledge of the Company, threatened in writing to initiate, any action to place
a clinical hold order on, or otherwise terminate, delay, suspend or materially
restrict, any proposed or ongoing clinical trial conducted or proposed to be
conducted by or on behalf of the Company in respect of any product candidate
(including the Key Product Candidate).  Schedule 4.18(g) lists all clinical
trial investigatory sites with respect to the Key Product Candidate, identifying
as to each such site whether the Company has conducted a regulatory and quality
assessment and audit of such site.  Each such site has been, and is in material
compliance with applicable Law, regulations, and requirements of the FDA or
similar foreign Governmental Body.

 

(h)                                 Schedule 4.18(h) lists all pharmaceutical
investigational product manufacturing sites with respect to the Key Product
Candidate.  Each site has been, and is in compliance with applicable Law,
regulations, and requirements of the FDA or similar foreign Governmental Body,
and has not received any 483s or other notices of violations issued by the FDA,
or other Governmental Body.  The Company is not a party to any corporate
integrity agreements, monitoring agreements, consent decrees, settlement orders,
or similar agreements with, or imposed by, any Governmental Body.

 

(i)                                     The Company has not, and to the
Knowledge of the Company, none of its Representatives, has committed an act,
made a statement, or failed to make a statement that, would reasonably be
expected to provide a basis for the FDA to invoke its policy respecting “Fraud,
Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” Final
Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments
thereto (the “FDA Ethics Policy”).  The Company is not the subject of any
pending or, to the Knowledge of the Company, threatened investigation pursuant
to the FDA Ethics Policy.

 

(j)                                    The Company is in compliance with, and
since January 1, 2011 has complied with, in all material respects, all
applicable security and privacy standards regarding protected health

 

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information under (i) the Health Insurance Portability and Accountability Act of
1996, as amended by the Health Information Technology for Economic and Clinical
Health Act of 2009, including the regulations promulgated thereunder and
(ii) any applicable state privacy Laws.

 

(k)                                 To the Knowledge of the Company, there are
no investigations, lawsuits, or regulatory proceedings, pending or threatened,
brought by or before the FDA, the Centers for Medicare and Medicaid Services,
the U.S. Office of Inspector General of the U.S. Health and Human Services, or
the U.S. Department of Justice in which the Company is or will be made the
defendant or respondent, nor are there any adverse judgments, decrees, or
orders, currently in effect that have been issued by such Governmental Bodies
against the Company.

 

(l)                                     The Company does not participate in
(i) Medicare (42 U.S.C. §1395 et seq.), (ii) Medicaid (42 U.S.C. § 1396 et
seq.), or other governmental payment program; and no income or revenue of the
Company is derived from any of the foregoing.

 

(m)                             The Company is in material compliance with, and
since January 1, 2011 has complied with, in all material respects, all
applicable Laws of all Governmental Bodies, or any self-regulating organization,
regarding privacy, security and/or data protection (collectively, “Privacy
Laws”).  The Company has maintained, enforced and complied with in all material
respects written privacy, security and data protection policies (the “Privacy
Policies”) with respect to any Proprietary Information providing for, without
limitation: (i) clear and conspicuous disclosure of the Company’s privacy,
security and data protection practices, including collection, storage, use and
disclosure of, and provision of access and corrections to any Proprietary
Information, and (ii) protection from loss, misappropriation, disclosure or
corruption of, and unauthorized access to any Proprietary Information.  Neither
this Agreement nor the Transactions violate or will violate the terms and
conditions of any Privacy Policies, any applicable Privacy Laws or the privacy
rights of any Person.  To the Knowledge of the Company, no Proprietary
Information has been subject to any breach, misappropriation, unauthorized
disclosure, or unauthorized access or use by any Person.

 

4.19                        Foreign Corrupt Practices Act. The Company has not
and, to the Knowledge of the Company, no Representative or other Person
associated with or acting on behalf of the Company has, directly or indirectly: 
(a) made any unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity and related in any way to the Business;
(b) made or offered any payment or transfer of anything of value to any foreign
or domestic government official or employee, foreign or domestic political party
or campaign, official or employee of any public international organization, or
official or employee of any government-owned enterprise or institution
(including any government hospitals or academic institutions) to obtain or
retain business or secure an improper advantage; (c) violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended, or any other applicable
anti-corruption statute; (d) established or maintained any unlawful fund of
corporate monies or other properties; or (e) made or proposed to make any bribe,
payoff, influence payment, kickback, unlawful rebate, or other similar unlawful
payment of any nature, including to healthcare providers or those employed by
any governmental institutions.

 

4.20                        Permits. The Company has all material Permits
necessary to conduct its Business as now being conducted (the “Company Permits”)
(including all material Permits that may be required by the FDA or any other
Governmental Body engaged in the regulation of the products or operations of the
Business).  The Company Permits are valid and in full force and effect and will
continue to be so upon consummation of the Transactions, except for such
invalidity or failure to be in full force and effect that, individually or in
the aggregate, would not be material to the Company taken as a whole.  The
Company is in compliance with the terms of the Company Permits, except for such
failures to

 

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comply that, individually or in the aggregate, would not be material to the
Company taken as a whole.  The Company has not received any notice with respect
to the operation of the Business from any Governmental Body regarding (i) any
material adverse change in any Company Permit, or any failure to comply with any
applicable laws of any Governmental Body or any term or requirement of any
Company Permit or (ii) any revocation, withdrawal, suspension, cancellation,
limitation, termination or material modification of any Company Permit.

 

4.21                        Environmental Matters.

 

(a)                                 The operations of the Company and the
Business, and all Company Materials, are and have been in compliance in all
material respects with all applicable Environmental Laws.  To the Knowledge of
the Company, no facts, circumstances or conditions currently exist that could
materially adversely affect such continued compliance with Environmental Laws or
that require that the Company incur currently unbudgeted material capital
expenditures to achieve or maintain such continued compliance with Environmental
Laws.

 

(b)                                 Neither the Company nor any Company Material
is the subject of (i) any Order or Contract with any Governmental Body with
respect to Environmental Laws, any Remedial Action or any Release or threatened
Release of a Hazardous Material, or (ii) any Contract with any Person that is
not a Governmental Body with respect to any Remedial Action.

 

(c)                                  To the Knowledge of the Company, no facts,
circumstances or conditions exist with respect to the Company or any Company
Materials or any property to which the Company arranged for the disposal or
treatment of Hazardous Materials that could reasonably be expected to result in
the Company incurring unbudgeted material Environmental Costs and Liabilities.

 

(d)                                 The Company has not Released any Hazardous
Materials into the environment except in compliance in all material respects
with Law.

 

(e)                                  There are no investigations pending or, to
the Knowledge of the Company, threatened against the Company with respect to the
Business or the Company Materials that could reasonably be expected to result in
the Company incurring or suffering material Environmental Costs and Liabilities
or material Liens under Environmental Law.

 

(f)                                   The Transactions do not require the
Consent of or filings with any Governmental Body with jurisdiction over the
Company or any Company Materials with respect to environmental matters.

 

(g)                                  The Company has no audits, studies,
reports, analyses, or results of investigations related to matters arising under
Environmental Laws, Environmental Costs and Liabilities, or Hazardous Materials
(including human exposure to Hazardous Materials) that have been performed by or
on behalf of the Company with respect to the operation of the Business or any
Company Materials.

 

4.22                        Related Party Transactions. Except as set forth on
Schedule 4.22, no Employee, officer, director or stockholder, of the Company,
any member of his or her immediate family or any of their respective Affiliates
(“Related Persons”) (i) owes any amount to the Company nor does the Company owe
any amount to, or has the Company committed to make any loan or extend or
guarantee credit to or for the benefit of, any Related Person (other than any
normal and customary compensation owed by the Company to any such Employee,
officer or director for services rendered), (ii) is involved in any business
arrangement or other relationship with the Company (whether written or oral)
other than, in the case of any such Employee, officer, director or stockholder,
such Person’s arrangement or relationship

 

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with the Company as an employee, officer, director or stockholder of the
Company, (iii) owns any property or right, tangible or intangible, that is used
by the Company, (iv) to the Knowledge of the Company, has any cause of action
against the Company or (v) to the Knowledge of the Company, owns any direct or
indirect interest of any kind (other than the direct or indirect ownership of an
equity interests in a publicly traded company of such equity interest is less
than five percent (5%) of such publicly traded company’s equity interests) in,
or controls or is a director, officer, employee or partner of, or consultant to,
or lender to or borrower from or has the right to participate in the profits of,
any Person which is a supplier, customer, landlord, tenant, creditor or debtor
of the Company.

 

4.23                        Insurance. Schedule 4.23 sets forth a list, as of
the date of this Agreement, of each insurance policy of the Company (the
“Insurance Policies”).  Schedule 4.23 contains a list, including policy number,
amount and type of coverage, of all policies or binders of insurance maintained
by the Company on the Business or the assets of the Company as of the date
hereof.  All such Insurance Policies are in full force and effect and all
premiums due and payable under the Insurance Policies have been paid on a timely
basis and the Company is otherwise in compliance in all material respects with
all other terms thereof.  No written notice of cancellation, termination or
non-renewal has been received by the Company with respect to any such policy. 
There have been no claims against insurance by the Company as to which the
insurers have denied coverage or otherwise reserved rights.

 

4.24                        Financial Advisors. No Person has acted, directly or
indirectly, as a broker, finder or financial advisor for the Company in
connection with the Transactions and no Person is or will be entitled to any fee
or commission or like payment in respect thereof.

 

4.25                        Due Diligence of the Company. The Company
acknowledges that, as of the Closing, it will have conducted to its satisfaction
an independent investigation of the Parent and, in making its determination to
proceed with the Transactions, and the Company will have relied solely on the
results of its own independent investigation and the representations and
warranties of Parent and Merger Sub set forth in Article V.  Such
representations and warranties by Parent and Merger Sub constitute the sole and
exclusive representations and warranties of Parent and Merger Sub to the Company
in connection with the Transactions, and the Company acknowledges and agrees
that Parent and Merger Sub are not making any representation or warranty
whatsoever, express or implied, beyond those expressly given in this Agreement.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

Parent and Merger Sub hereby jointly and severally represent and warrant to the
Company as of the date hereof as follows:

 

5.1                               Organization and Good Standing of Parent and
Merger Sub. Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.  Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.  Each of Parent and Merger Sub has the full corporate power
and authority to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the conduct of its business or the ownership, leasing,
holding or use of its properties makes such qualification necessary, except such
jurisdictions where the failure to be so qualified or licensed or in good
standing could not individually or in the aggregate, reasonably be expected to
(i) result in a Parent Material Adverse Effect or (ii) prevent, impair or delay,
in any material respect, the ability of the parties hereto to consummate the
Transactions.

 

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5.2                               Authorization of Agreement. Each of Parent and
Merger Sub has all requisite corporate power and authority to enter into this
Agreement and each other agreement, document, instrument or certificate
contemplated by this Agreement or to be executed by Parent or Merger Sub in
connection with the consummation of the Transactions (the “Parent Documents”)
and to consummate the Transactions.  The execution and delivery of this
Agreement and the Parent Documents and the consummation of the Transactions have
been duly authorized by all necessary corporate action on the part of Parent and
Merger Sub.  This Agreement has been, and each of the Parent Documents will be
at the Closing, duly executed and delivered by Parent and Merger Sub and,
assuming the due authorization, execution and delivery by the other parties
hereto and thereto (other than Parent and Merger Sub), this Agreement
constitutes, and in the case of the Parent Documents they will at Closing
constitute, valid and binding obligations of Parent and Merger Sub, enforceable
against each of Parent and Merger Sub in accordance with their respective terms,
except as such enforceability may be subject to any Enforceability Exceptions. 
No Consent is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement and the Parent Documents by
Parent and Merger Sub or the consummation by Parent and Merger Sub of the
Transactions except for (i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, and (ii) such other Consents as may
be required under applicable securities Laws.  Parent has performed the
valuation analysis required under the Hart Scott Rodino Antitrust Improvements
Act, of 1976, as amended (and any foreign equivalents) (collectively, the
“Merger Clearance Laws”), and has determined that the Transactions are valued
below the current applicable reporting threshold(s) provided in any applicable
Merger Clearance Law.

 

5.3                               Conflicts; Consents of Third Parties.

 

(a)                                 None of the execution and delivery by Parent
and Merger Sub of this Agreement and of Parent Documents, the consummation of
the Transactions, or the compliance by Parent and Merger Sub with any of the
provisions hereof or thereof will conflict with, or result in violation of or
Default under, or give rise to a right of termination or cancellation under any
provision of (i) the certificate of incorporation and by-laws or comparable
organizational documents of Parent or Merger Sub; (ii) any Contract, or Permit
to which Parent or Merger Sub is a party or by which any of the properties or
assets of Parent or Merger Sub are bound; (iii) any Order of any Governmental
Body applicable to Parent or Merger Sub or by which any of the properties or
assets of Parent or Merger Sub are bound; or (iv) any applicable Law, except
with respect to clauses (ii) through (iv), as would not, individually or in the
aggregate, reasonably be expected to (a) result in a Parent Material Adverse
Effect or (b) prevent, impair or delay, in any material respect, the ability of
the parties hereto to consummate the Transactions.

 

(b)                                 No Consent is required on the part of Parent
or Merger Sub in connection with the execution and delivery of this Agreement or
Parent Documents or the compliance by Parent with any of the provisions hereof
or thereof, except for such Consents, the absence of which would not,
individually or in the aggregate, (i) result in a Parent Material Adverse Effect
or (ii) reasonably be expected to prevent, impair or delay, in any material
respect, the ability of the parties hereto to consummate the Transactions.

 

5.4                               No Parent Material Adverse Effect. Since
January 1, 2013, and through and including the Execution Date, neither Parent
nor Merger Sub has undergone a Parent Material Adverse Effect.

 

5.5                               Financial Advisors. No Person has acted,
directly or indirectly, as a broker, finder or financial advisor for Parent or
Merger Sub in connection with the Transactions and no Person is entitled to any
fee or commission or like payment in respect thereof.

 

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5.6                               Litigation. There is no action, suit or
proceeding of any nature pending or, to Parent or Merger Sub’s knowledge,
threatened against Parent or Merger Sub, or any of their respective properties,
that would have a material adverse effect on the ability of Parent or Merger Sub
to perform its obligations pursuant to this Agreement and to consummate the
Merger and the Transactions in accordance with the terms of this Agreement and
the Related Documents.  There is no investigation pending or, to Parent or
Merger Sub’s knowledge, threatened against Parent or Merger Sub, any of their
respective properties by or before any Governmental Body, that would have a
material adverse effect on the ability of Parent or Merger Sub to perform its
obligations pursuant to this Agreement and to consummate the Merger and the
Transactions.

 

5.7                               Availability of Funds. Parent currently has
access to sufficient, legally distributable funds, and will on the Closing Date
have sufficient, legally distributable funds, to pay the Initial Purchase Price
in cash.

 

5.8                               Due Diligence of Parent. Parent acknowledges
that, as of the Closing, it will have conducted to its satisfaction an
independent investigation of the financial condition, results of operations,
assets, liabilities, properties and projected operations of the Company and, in
making its determination to proceed with the Transactions, and Parent will have
relied on the results of its own independent investigation and the
representations and warranties of the Company set forth in Article IV, including
the Company Schedules and the Amended Company Schedules, as applicable.  Such
representations and warranties by the Company constitute the sole and exclusive
representations and warranties of the Company to Parent in connection with the
Transactions, and Parent acknowledges and agrees that the Company is not making
any representation or warranty whatsoever, express or implied, beyond those
expressly given in this Agreement, including any implied warranty as to
condition, merchantability, or suitability as to any of the assets of the
Company or the Shares.  Parent further acknowledges and agrees that any cost
estimates, projections or other predictions that may have been provided to
Parent or any of its employees, agents or representatives are not
representations or warranties of the Company or any of its Affiliates.

 

ARTICLE VI

 

COVENANTS

 

6.1                               Access to Information; Confidentiality. The
Company shall afford to Parent and its accountants, counsel, financial advisors
and other representatives, reasonable access, during normal business hours upon
reasonable notice throughout the period prior to the Closing, to the Company’s
books, financial information (including working papers and data in the
possession of the Company’s or its independent public accountants, internal
audit reports, and “management letters” from such accountants with respect to
the Company’s systems of internal control), Contracts and records of the Company
and, during such period, shall furnish promptly such information concerning the
Business, properties and personnel of the Company as Parent shall reasonably
request; provided, however, such investigation shall be carried out in a manner
that does not disrupt in any material respect the Company’s operations.  The
Company shall authorize and direct the appropriate directors, managers,
Employees, consultants and other advisors (including contract research
organizations and contract manufacture organizations) of the Company to discuss
matters involving the operations and Business with representatives of Parent,
provided that the timing of such discussions shall be coordinated between the
Company and Parent to comply with the foregoing provisions of this Section 6.1. 
From and after the Closing, each Equityholder shall treat and hold as such any
and all confidential information concerning the Business and affairs of the
Company (“Confidential Information”), refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
Parent or destroy, at the request and option of

 

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Parent, all tangible embodiments (and all copies) of the Confidential
Information which are in such Equityholder’s possession.  If any Equityholder is
ever requested or required to disclose any Confidential Information, such
Equityholder shall notify Parent promptly of such request or requirement so that
Parent may seek an appropriate protective order or waive compliance with this
Section 6.1.  If, in the absence of a protective order or the receipt of a
waiver hereunder, such Equityholder, on the written advice of counsel, is
compelled to disclose any Confidential Information to any Governmental Body,
arbitrator, or mediator or else stand liable for contempt, such Equityholder may
disclose such Confidential Information to the extent so required. 
Notwithstanding anything express or implied in the foregoing provisions of this
Section 6.1 to the contrary, the Company shall not be required to disclose or
provide access to any information if such disclosure or access would contravene
any applicable Law.  No information provided to or obtained by Parent pursuant
to this Section 6.1 shall limit or otherwise affect the remedies available
hereunder to Parent (including Parent’s right to seek indemnification pursuant
to Article VIII), or the representations or warranties of, or the conditions to
the obligations of, the parties hereto.

 

6.2                               Conduct of the Business Pending the Closing.

 

(a)                                 Except as otherwise expressly provided in
this Agreement or with the prior written consent of Parent (which shall not be
unreasonably withheld, conditioned or delayed), between the date hereof and the
Closing, the Company and its Subsidiaries, as applicable, shall:

 

(i)                                     conduct its Business only in the
Ordinary Course of Business;

 

(ii)                                  use its commercially reasonable efforts 
to (A) preserve the present Business operations, organization (including
officers and employees) and goodwill of the Company and its Subsidiaries and
(B) preserve the present relationships with Persons having business dealings
with the Company and its Subsidiaries (including customers and suppliers),
provided that nothing in this subparagraph (ii) shall be construed as requiring
the Company and its Subsidiaries to make any payment or to provide any
consideration in order to comply with its obligations under this subparagraph
(ii);

 

(iii)                               maintain (A) all of the material tangible
assets and properties of, or used by, the Company and its Subsidiaries in their
current condition, ordinary wear and tear excepted, and (B) insurance upon all
of the properties and assets of the Company and its Subsidiaries in such amounts
and of such kinds comparable to that in effect on the Execution Date; and

 

(iv)                              (A) maintain the books, accounts and records
of the Company and its Subsidiaries in the Ordinary Course of Business,
(B) continue to collect accounts receivable and pay accounts payable in the
Ordinary Course of Business, and (C) comply with all material contractual and
other obligations of the Company and its Subsidiaries.

 

(b)                                 Without limiting the generality of the
foregoing, except as otherwise expressly provided in this Agreement or with the
prior written consent of Parent (which shall not be unreasonably withheld,
conditioned or delayed) or as set forth in Schedule 6.2(b), the Company and its
Subsidiaries shall not:

 

(i)                                     incur or modify in any material respect
the terms of any Indebtedness, or assume, guarantee, endorse (other than
endorsements for deposit or collection in the Ordinary Course of Business), or
otherwise become responsible for obligations of any other Person, except for
(1) Indebtedness incurred, assumed or guaranteed in the Ordinary Course of
Business in amounts not in excess of One Hundred Thousand Dollars ($100,000) in
the aggregate;

 

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(ii)                                  grant, sell or issue, or commit to grant,
sell or issue, any equity or equity based award or rights to acquire, any shares
of capital stock or any other securities or any securities convertible into
shares of capital stock or any other securities (including any options to
acquire capital stock and other equity awards), except for (1) the issuance of
shares of Company Common Stock pursuant to the terms of any shares of Company
Preferred Stock outstanding on the Execution Date and disclosed on Schedule
4.4(a) that are convertible into shares of Company Common Stock, (2) the sale or
issuance of shares of Company Common Stock pursuant to the exercise of Company
Options outstanding on the Execution Date and disclosed on Schedule 4.4(b), or
(3) any commitment by the Company or its Subsidiaries to do any of the matters
described in the foregoing clauses (1)-(2);

 

(iii)                               declare, pay or incur any obligation to pay
any dividend or other distribution (whether payable in cash, stock or property)
on its capital stock or other securities or declare, make or incur any
obligation to make any distribution or redemption with respect to capital stock
or other securities, except that the provisions of this clause (iii) shall not
limit, prohibit or prevent the Company or its Subsidiaries from (1) repaying any
Indebtedness in accordance with its terms so long as the Company or its
Subsidiaries incurred such Indebtedness prior to the Execution Date or
(2) paying or incurring any obligation to pay any accruing dividend with respect
to the Company Preferred Stock if the Company and its Subsidiaries is required
to do so under its certificate of incorporation;

 

(iv)                              mortgage, pledge or otherwise encumber
(including by creating any Lien that is not a Permitted Exception) any assets of
the Company or its Subsidiaries or sell, transfer, license or otherwise dispose
of any assets of the Company or its Subsidiaries except in the Ordinary Course
of Business;

 

(v)                                 amend or propose to amend its certificate of
incorporation, bylaws or other comparable organizational documents;

 

(vi)                              incur or authorize any capital expenditures or
any obligations or liabilities in respect of capital expenditures;

 

(vii)                           make any loans, advances or capital
contributions to, or investments in, any other Person;

 

(viii)                        assign, release or forgive any Indebtedness;

 

(ix)                              split, combine, reclassify, repurchase, redeem
or otherwise acquire any shares of Company Capital Stock, except for repurchases
of unvested shares of Company Common Stock held by employees, directors,
consultants or advisors to the Company, at cost or less, in connection with
termination of employment or other service relationship with the Company or the
occurrence or non-occurrence of other events in accordance with the applicable
vesting terms of such unvested shares;

 

(x)                                 abandon, cease to prosecute, fail to
maintain, sell, license, assign or encumber any Company Permit or other material
assets (other than with respect to Company Intellectual Property);

 

(xi)                              merge or consolidate with any Person or adopt
a plan of complete or partial liquidation (or resolutions providing for or
authorizing such liquidation), dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization;

 

(xii)                           form any Subsidiary or acquire (including by
merger, consolidation, acquisition of stock or assets or otherwise), directly or
indirectly, any assets, securities, properties,

 

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interests or businesses other than the acquisition of assets in the Ordinary
Course of Business with a purchase price (including assumed Indebtedness) that
does not exceed One Hundred Thousand Dollars ($100,000) in the aggregate;

 

(xiii)                        enter into or renew any Material Contract, unless
such Material Contract is entered into or renewed by the Company in the Ordinary
Course of Business or unless such Material Contract can be terminated by the
Company from and after the Closing without any penalty, payment or Liability by
giving prior written notice of terminate of ninety (90) days or less;

 

(xiv)                       make any change in (whether by amendment or
modification or otherwise) any material right under any Material Contract,
unless such Material Contract can be terminated by the Company from and after
the Closing without any penalty, payment or Liability by giving prior written
notice of terminate of ninety (90) days or less;

 

(xv)                          terminate any Material Contract or waive, release
or assign any material right under any Material Contract;

 

(xvi)                       make any change in any method of accounting or
accounting practice;

 

(xvii)                    (A) make, change or revoke any material Tax election;
(B) adopt or change any accounting method in respect of Taxes; (C) file any
amended Tax Return; (D) enter into any Tax allocation agreement, Tax sharing
agreement, pre-filing or advance pricing agreement or Tax indemnity agreement;
(E) settle or compromise any claim, notice, audit report or assessment in
respect of any Taxes; (F) surrender or forfeit any material Tax refund; or
(G) Consent to any extension or waiver of the limitation period applicable to
any Tax Return or any claim or assessment in respect of any Taxes;

 

(xviii)                 waive, release, assign, compromise, settle or agree to
settle any Legal Proceeding involving a Person other than Parent, Merger Sub or
any of their respective Affiliates (including any Legal Proceeding relating to
this Agreement or the Transactions);

 

(xix)                       (A) sell, assign, license, sublicense, encumber,
impair, abandon, fail to use commercially reasonable efforts to diligently
maintain, transfer or otherwise dispose of any right, title or interest of the
Company in any Company Intellectual Property (other than non-exclusive licenses
or sublicenses of Company Intellectual Property to contractors of the Company
for purposes of carrying out research, development and manufacturing activities
for and on behalf of the Company), (B) amend, waive, cancel or modify any rights
in or to the Company Intellectual Property, (C) fail to use commercially
reasonable efforts to diligently prosecute the patent applications owned by the
Company or (D) divulge, furnish to or make accessible any trade secrets within
Company Intellectual Property to any third party who is not subject to an
enforceable written agreement to maintain the confidentiality of such trade
secrets;

 

(xx)                          (A) establish, adopt, enter into, amend or
terminate any Company Employee Plan or any plan, agreement, program, policy,
trust, fund or other arrangement that would be a Company Employee Plan if it
were in existence as of the Execution Date (other than amendments required by
law or to comply with the Code), (B) increase the compensation or fringe
benefits of any current or former employee, director, officer or independent
contractor of the Company (except for (x) increases required to comply with
applicable Law, (y) increases required pursuant to any Company Employee Plan in
effect on the date hereof, and (z) bonuses paid out of Initial Purchase Price
amounts, as disclosed to Parent prior to the date hereof and set forth in the
Initial Payment Allocation Schedule), (C) grant any severance or termination pay
to any present or former director, officer, employee or

 

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independent contractor of the Company, or (D) loan or advance any money or other
property to any present or former director, officer or employee of the Company;

 

(xxi)                       hire any employee, independent contractor or
consultant to be employed by or perform services on behalf of the Company;

 

(xxii)                    correspond, communicate or consult with the FDA or
similar Governmental Body outside the Ordinary Course of Business without
providing Parent with prior written notice and the opportunity to consult with
the Company with respect to such correspondence, communication or consultation;
and

 

(xxiii)                 directly or indirectly take, agree to take or otherwise
permit to occur any of the actions described in Sections 6.2(b)(i) through
6.2(b)(xxii).

 

6.3                               Third Party Consents. The Company shall use
its commercially reasonable efforts to obtain at the earliest practicable date
all Consents from, and provide all notices to, all Persons that are not a
Governmental Body, which Consents, waivers, approvals and notices are set forth
on Schedule 6.3.  All such Consents, waivers, approvals and notices shall be in
writing and in form and substance reasonably satisfactory to Parent, and
executed counterparts of such Consents, waivers and approvals shall be delivered
to Parent promptly after receipt thereof, and copies of such notices shall be
delivered to Parent promptly after the making thereof.  Notwithstanding anything
to the contrary in this Agreement, none of the Company, Parent or any of their
respective Affiliates shall be required to pay any amounts or offer any value in
connection with obtaining any such Consent, waiver or approval.

 

6.4                               Governmental Consents and Approvals.

 

(a)                                 Each of Parent, Merger Sub, and the Company
shall use their respective commercially reasonable efforts to obtain at the
earliest practical date all Consents, Orders, Permits, authorizations and
declarations from, make all filings with, and provide all notices to, all
Governmental Bodies that are required from Parent, Merger Sub or the Company, as
the case may be, to consummate, or in connection with, the Transactions,
including the Consents, Orders, Permits, authorizations, declarations, filings
and notices referred to in Section 4.3(b).  Each such party shall use
commercially reasonable efforts to furnish to each other party hereto all
information required for any application or other filing to be made pursuant to
any applicable Law in connection with the Transactions.  Each such party shall
promptly inform the other parties hereto of any oral communication with, and
provide copies of written communications with, any Governmental Body regarding
any such filings or any such transaction and permit the other party to review in
advance any proposed communication by such party to any Governmental Body.  No
party hereto shall independently participate in any formal meeting with any
Governmental Body in respect of any such filings, investigation, or other
inquiry without giving the other parties hereto prior notice of the meeting and,
to the extent permitted by such Governmental Body, the opportunity to attend
and/or participate.  Subject to applicable Law, the parties hereto shall consult
and cooperate with one another in connection with the matters described in this
Section 6.4, including in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto relating to proceedings described
in this Section 6.4.

 

(b)                                 Each of Parent, Merger Sub and the Company
shall use commercially reasonable efforts to resolve such objections, if any, as
may be asserted by any Governmental Body with respect to the Transactions under
any Law.

 

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6.5                               Further Assurances. Subject to, and not in
limitation of, Section 6.4, each of Parent, Merger Sub and the Company shall use
its commercially reasonable efforts to (i) take, or cause to be taken, all
actions necessary or appropriate to consummate the Transactions and (ii) cause
the fulfillment at the earliest practicable date of all of the conditions to
their respective obligations to consummate the Transactions.

 

6.6                               Publicity.

 

(a)                                 None of Parent, Merger Sub or the Company
shall issue any press release or public announcement concerning this Agreement
or the Transactions without obtaining the prior written approval of the other
party hereto, which approval will not be unreasonably withheld, conditioned or
delayed, unless disclosure is otherwise required by applicable Law or unless, in
the sole judgment of Parent, disclosure is required by the applicable rules of
any stock exchange or self-regulatory organization on which Parent or its
Affiliates lists securities, provided that to the extent required by applicable
Law, the party intending to make such release shall use its commercially
reasonable efforts consistent with such applicable Law to consult with the other
parties with respect to the text thereof.  Notwithstanding the foregoing, that
parties acknowledge and agree that it is their intention to issue a press
release, in form and substance to be mutually agreed upon by Parent, Company and
Holder Representative, disclosing the existence of this Agreement and describing
certain financial and other information concerning the Transactions.

 

(b)                                 Each of Parent, the Holder Representative
and the Company agrees that they shall agree on appropriate disclosure of the
financial terms of this Agreement; provided that, subject to the provisions of
Section 6.6(a) and this Section 6.6(b), this Agreement shall not be publicly
disclosed or otherwise made available to the public and that copies of this
Agreement shall not be publicly filed or otherwise made available to the public,
except where such disclosure, availability or filing is required by applicable
Law and only to the extent required by such Law; provided further that the
Holder Representative shall be entitled to share the financial terms of this
Agreement under confidentiality with its advisors and representatives as
necessary or desirable.

 

6.7                               Notification of Certain Matters. Each of the
Holder Representative and the Company shall give notice to Parent and Parent
shall give notice to the Holder Representative and the Company, as promptly as
reasonably practicable upon becoming aware of (a) any fact, change, condition,
circumstance, event, occurrence or non-occurrence that has caused or is
reasonably likely to cause any representation or warranty in this Agreement made
by it to be untrue or inaccurate in any respect at any time after the date
hereof and prior to the Closing, (b) any material failure on its part to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder or (c) the institution of or the threat of institution
of any Legal Proceeding against the Company, Parent or their respective
Affiliates related to this Agreement or the Transactions; provided that the
delivery of any notice pursuant to this Section 6.7 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice, or
the representations or warranties of, or the conditions to the obligations of,
the parties hereto; and provided further that nothing in the foregoing
provisions of this Section 6.7 shall be construed as limiting, waiving,
terminating or superseding the provisions of Section 6.9.

 

6.8                               Tax Matters.

 

(a)                                 Preparation and Filing of Tax Returns;
Payment of Taxes.

 

(i)                                     Subject to Section 6.2(b)(xvii) of this
Agreement, the Company shall prepare or cause to be prepared and timely file or
cause to be timely filed all Tax Returns of the Company that are due on or
before the Closing Date and shall pay or cause to be paid all Taxes shown due
thereon. 

 

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Such Tax Returns shall be prepared in accordance with the past custom and
practice of the Company in preparing its Tax Returns.

 

(ii)                                  Parent shall prepare or cause to be
prepared and timely file or cause to be timely filed all Tax Returns of the
Company that are due after the Closing Date and shall pay or cause to be paid
all Taxes shown due thereon, without limitation to its rights to indemnification
pursuant to Article VIII.  Tax Returns  for any Tax Period ending on or before
the Closing Date and that portion of any Straddle Period through the end of the
Closing Date shall be prepared in a manner consistent with prior Tax Returns,
except as otherwise required by applicable Law.  Parent shall permit the Holder
Representative to review and comment on each such income Tax Return for any Tax
Period ending on or before the Closing Date and that portion of any Straddle
Period through the end of the Closing Date at least fifteen (15) days prior to
filing and shall give due regard to any timely and reasonable comments requested
by the Holder Representative.  No Tax Returns of the Company that were filed
prior to the Closing Date shall be amended without the Holder Representative’s
written consent, which shall not be unreasonably withheld, conditioned or
delayed unless otherwise required by applicable Law.

 

(b)                                 Cooperation on Tax Matters.  Parent, the
Company and the Holder Representative shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing of
Tax Returns pursuant to this Agreement and any audit, other administrative
proceeding or inquiry or judicial proceeding with respect to Taxes (a “Tax
Contest”).  Such cooperation shall include the retention and (upon the other
party’s request) the provision of records and information which may be
reasonably relevant to any such Tax Contest and making appropriate persons
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder.  Parent, the Company and the
Holder Representative agree (A) to retain all books and records with respect to
Tax matters pertinent to the Company relating to any Tax Period beginning before
the Closing Date until the expiration of the applicable statute of limitations
(and, to the extent notified by Parent, any extensions thereof), and to abide by
all record retention agreements entered into with any Governmental Body and
(B) to give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party so
requests, Parent, the Company and the Holder Representative, as the case may be,
shall allow the other party to take possession of such books and records at such
other party’s expense.  If any dispute with respect to a Tax Return is not
resolved prior to the due date of such Tax Return, such Tax Return shall be
filed in the manner which the party responsible for preparing such Tax Return
deems correct, without prejudice to the rights of the other party.

 

(c)                                  Tax Claims.  If, subsequent to the Closing,
Parent or the Company receives notice of a Tax Contest that, if successful,
would result in an indemnity payment by the Equityholders (a “Tax Claim”), then
within fifteen (15) days after receipt of such notice, Parent shall provide the
Holder Representative with a copy of such notice, and if Parent fails to do so
no Parent Indemnified Party shall be entitled to indemnification under this
Agreement with respect to any Damages arising from such Tax Claim, unless the
failure did not substantially prejudice the ability of the Holder Representative
to assert its rights under this paragraph.  Parent shall have the right, at its
own expense, to control the conduct and resolution of any Tax Claim relating to
a Pre-Closing Tax Period, provided, however, that (a) Parent shall keep the
Holder Representative informed of all material developments on a timely basis
and Parent shall not resolve such Tax Claim in a manner that could reasonably be
expected to have an adverse impact on the indemnifying parties’ indemnification
obligations under this Agreement without the Holder Representative’s written
consent, which consent shall not be unreasonably withheld and (b) the Holder
Representative will have the right, but not the obligation, by written notice to
Parent within ten (10) days after receipt of notice of the Tax Claim to assume
the defense of such Tax Claim at its own expense, in which case the Holder
Representative shall keep Parent reasonably informed of all material
developments

 

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on a timely basis and shall not resolve such Tax Claim without Parent’s written
consent, which consent shall not be unreasonably withheld.

 

(d)                                 Transfer Taxes.  All transfer, documentary,
sales, use, stamp, registration and other such Taxes, and all conveyance fees,
recording charges and other fees and charges (including any penalties and
interest) incurred in connection with the consummation of the Transactions
(collectively, “Transfer Taxes”) shall be borne and paid 50% by Parent and 50%
by the Equityholders, and Parent will, at its own expense, file all necessary
Tax Returns and other documentation with respect to all such Transfer Taxes.

 

(e)                                  Convention for Allocating Taxes.  To the
extent permitted under applicable Laws, the Company shall close the taxable year
of the Company as of the close of business on the Closing Date, provided that if
the Company is required to file a Tax Return for a Straddle Period, the portion
of Taxes for a Straddle Period that relate to the Pre-Closing Tax Period shall
be calculated as though the taxable period of the Company terminated as of the
close of the Closing Date; provided further that in the case of real property,
personal property and similar ad valorem Taxes, the portion of the Tax for a
Pre-Closing Tax Period shall be equal to the amount of Tax for the entire
Straddle Period multiplied by a fraction, the numerator of which is the total
number of days from the beginning of the Straddle Period through (and including)
the Closing Date and the denominator of which is the total number of days in the
Straddle Period.

 

6.9                               Update of Company Schedules. In the event of
any matter arising at any time after the execution of this Agreement (the
“Execution Date”) that, if existing or occurring at or before the Execution
Date, would have been required to be set forth or described in the Company
Schedules as of the Execution Date or that is necessary to correct any
information in the Company Schedules that is or has become inaccurate as a
result of such matter arising at any time after the Execution Date, then the
Company shall, at the Closing, deliver to Parent an amended, updated and/or
supplemented version of the Company Schedules (such amended, updated and/or
supplemented version of the Company Schedules being hereinafter referred to in
this Agreement as the “Amended Company Schedules”) for purposes of disclosing
such matter or correcting such inaccuracy.  The Amended Company Schedules and
any changes made therein to any of the disclosures previously made in the
Company Schedules shall not be taken into account in determining whether the
conditions set forth in Section 7.1(a) have been satisfied (for purposes of
clarity, it being understood and agreed that, for purposes of satisfying the
conditions set forth in Section 7.1(a), the representations and warranties made
by the Company in this Agreement shall only be qualified and subject to such
disclosures and exceptions as were set forth in the Company Schedules).  If the
Closing occurs, (i) the Amended Company Schedules shall be deemed and treated as
superseding the Company Schedules in its entirety (except with respect to any
matter which constituted a breach of the representations and warranties of the
Company set forth in this Agreement as of the Execution Date) and (ii) for
purposes of this Agreement (including the indemnification provisions of
Article VIII hereof), the representations and warranties made by the Company in
this Agreement shall be qualified and subject to such disclosures and exceptions
as are set forth in the Amended Company Schedules (except with respect to any
matter which constituted a breach of the representations and warranties of the
Company set forth in this Agreement as of the Execution Date).

 

6.10                        Indemnification of Directors and Officers;
Insurance.

 

(a)                                 For a period of six (6) years from and after
the Closing, Parent shall cause the Surviving Corporation to indemnify and hold
harmless (including advancement of expenses) all past and present officers and
directors of the Company to the same extent such persons are permitted to be
indemnified by the Company as of the date of this Agreement pursuant to the
Company’s certificate of incorporation and bylaws, employment agreements,
indemnification agreements identified on the

 

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Disclosure Schedules or under applicable Law, in each case, as existing on the
Closing Date, for acts or omissions which occurred at or prior to the Effective
Time (the persons entitled to be indemnified pursuant to such indemnification
provisions being referred to, collectively, as the “Section 6.10 Indemnified
Person” and each individually as a “Section 6.10 Indemnified Person”).  For a
period of six (6) years from and after the Closing, each of the Surviving
Corporation and Parent shall cause the certificate of incorporation and bylaws
of the Company to contain provisions with respect to indemnification,
advancement of expenses and exculpation from liability that are at least as
favorable as those set forth in the certificate of incorporation and bylaws of
the Company as in effect immediately prior to the Closing, which provisions of
the certificate of incorporation and bylaws of the Surviving Corporation shall
not to be amended, repealed or otherwise modified for a period of six (6) years
after the Closing in any manner that would adversely affect, in any material
respect, the rights of any Section 6.10 Indemnified Person under such provisions
(unless such amendment or modification is required by Law).

 

(b)                                 Parent, in its sole discretion, either
(a) shall cause the Surviving Corporation to maintain the Company’s directors
and officers insurance policies’ as in effect immediately prior to the Closing
for a period of six (6) years after the Closing, or (b) shall cause the
Surviving Corporation to obtain, at the expense of Parent or the Surviving
Corporation, a non-cancellation run-off insurance policy for a period of six
(6) years after the Closing, to provide insurance coverage for events, acts or
omissions occurring on or prior to the Closing for all Persons who were
Section 6.10 Indemnified Person on or prior to the Closing providing the same
level of coverage as that in existence under Company’s directors and officers
insurance policies’ in effect immediately prior to the Closing; provided that,
in lieu of the foregoing, and notwithstanding anything to the contrary contained
in this Agreement, Parent may obtain a prepaid tail policy, which provides
directors’ and officers’ liability insurance tail coverage for a period ending
no earlier than the sixth (6th) anniversary of the Effective Time.

 

(c)                                  The provisions of this Section 6.10 shall
survive the Closing and are (i) expressly intended to benefit of, and shall be
enforceable by, each Section 6.10 Indemnified Person (or his or her heirs,
successors or representatives) and (ii) in addition to, and not in substitution
for, any other rights to indemnification or contribution that any such
Section 6.10 Indemnified Person may have by contract or otherwise. Subject to
Section 10.9, in the event Parent or the Surviving Corporation or any of its
successors (i) consolidates with or merges into any other Person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any Person, then, and in each such case, to the extent necessary,
proper provision shall be made to the extent not otherwise effected by operation
of law so that the successors of Parent or the Surviving Corporation, as the
case may be, assume the obligations of Parent or the Surviving Corporation, as
the case may be, set forth in this Section 6.10.

 

6.11                        License Compliance. Parent hereby covenants and
agrees that it shall and shall cause the Surviving Corporation, from and after
the Closing Date, to comply with the terms and conditions of that certain
(i) Definitive Agreement, by and between the Leukemia & Lymphoma Society and the
Company, dated as of June 24, 2010, as amended (the “LLS Agreement”), and
(ii) License Agreement, dated as of October 7, 2008, by and among the Company,
the President and Fellows of Harvard College, and Dana-Farber Cancer
Institute, Inc., as amended to date (the “Harvard/DFCI Agreement”), including
all development and commercialization obligations thereunder.

 

6.12                        Control of Operations. Nothing contained in this
Agreement shall give to Parent or Merger Sub, directly or indirectly, rights to
control or direct the operations of the Company prior to the Closing to the
extent such control or direction would violate any Law.  Prior to the Closing,
the Company shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision of its operations.

 

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6.13                        Written Consent; Board Recommendation.    The Board
shall recommend the adoption of this Agreement by the Stockholders (the “Company
Recommendation”) and shall not withdraw, modify or qualify in any manner adverse
to Parent the Company Recommendation.  Promptly following its receipt of the
Written Consents, but in no event later than ten (10) Business Days following
the execution of this Agreement, the Company will deliver copies of such Written
Consents constituting the Stockholder Approval to Parent, together with a
certificate executed on behalf of the Company by its corporate Secretary,
certifying, in his or her capacity as such, that such Written Consents
constitute the Stockholder Approval.

 

ARTICLE VII

 

CONDITIONS TO CLOSING

 

7.1                               Conditions Precedent to Obligations of Parent
and Merger Sub.    The obligations of Parent and Merger Sub to consummate the
Transactions is subject to the fulfillment, on or prior to the Closing Date, of
each of the following conditions precedent (any or all of which may be waived by
Parent in whole or in part to the extent permitted by applicable Law):

 

(a)                                 the representations and warranties of the
Company set forth in Article IV that are qualified as to materiality or Company
Material Adverse Effect shall be true and correct in all respects, and those not
so qualified shall be true and correct in all material respects, in each case
both as of the Execution Date and as of the Closing as though made at and as of
the Closing (except with respect to representations and warranties of the
Company in Article IV that address matters only as of an earlier date, in which
case such representations and warranties qualified as to materiality or Company
Material Adverse Effect shall be true and correct in all respects, and those not
so qualified shall be true and correct in all material respects, on and as of
such earlier date);

 

(b)                                 the Company shall have performed and
complied in all material respects with all obligations and agreements required
in this Agreement to be performed or complied with by them on or prior to the
Closing Date;

 

(c)                                  there shall not have occurred a Company
Material Adverse Effect since the Balance Sheet Date that is pending or
continuing;

 

(d)                                 there shall not be in effect any Order by a
Governmental Body of competent jurisdiction restraining, enjoining or otherwise
prohibiting the consummation of the Transactions;

 

(e)                                  Parent shall have received a certificate
signed by the Chief Executive Officer of the Company, each in form and substance
reasonably satisfactory to Parent, dated the Closing Date, to the effect that
each of the conditions specified above in Sections 7.1(a) and (b) have been
satisfied in all respects;

 

(f)                                   the Company shall have obtained or made
any other Consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Body required to be obtained or
made by it in connection with the execution and delivery of this Agreement or
the consummation of the Transactions;

 

(g)                                  the Company shall have obtained those
Consents listed on Schedule 7.1(g) that the Company is required to obtain as
indicated on Schedule 7.1(g), each such Consent to be in a form reasonably
satisfactory to Parent and copies thereof shall have been delivered to Parent;

 

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(h)                                 the Company shall have received (and
provided Parent with copies of) resignation letters executed and delivered by
each of the officers and directors of the Company prior to the Effective Time,
in each case effective as of the Effective Time;

 

(i)                                     Parent shall have received:

 

(i)                                     certificates of good standing dated not
more than ten (10) Business Days prior to the Closing Date with respect to the
Company, issued by the Secretary of State of the State of Delaware and for each
state in which the Company is qualified to do business as a foreign corporation;

 

(ii)                                  affidavits in a form reasonably acceptable
to the Parent that the Company is not a U.S. real property holding corporation
as defined in Section 897, and that no withholding is required under
Section 1445 of the Code;

 

(iii)                               copies of the Company Board Approval,
certified by the Secretary of the Company, as to the authorization of this
Agreement and the Transactions;

 

(iv)                              copies of the Company Board Approval,
certified by the Secretary of the Company, as to the termination of the
401(k) Plan of the Company;

 

(v)                                 copies of each of the Initial Payment
Allocation Schedule;

 

(vi)                              estimates of the Estimated Closing Date Net
Free Cash Amount and the Estimated Unpaid Company Transaction Expenses as
required by Section 3.7;

 

(vii)                           copies of payment and satisfaction in full of
any intercompany Indebtedness (including Indebtedness between the Company and
any of its Subsidiaries) in a form reasonably satisfactory to Parent;

 

(viii)                        copies of the Merger Certificate executed by the
Company; and

 

(ix)                              such other customary documents as Parent shall
reasonably request in good faith for the purpose of facilitating the
consummation of the Merger and the other Transactions; and

 

(j)                                    the Company Board Approval shall be in
full force and effect.  Stockholders holding at least (i) a majority of the
outstanding shares of Company Preferred Stock (calculated on an as-converted
basis) and (ii) a majority of the outstanding shares of Company Common Stock
shall have approved this Agreement, the Merger and the other Transactions and
such approval shall be in full force and effect.  Stockholders holding not more
than five percent (5%) of the outstanding shares of Company Capital Stock
(calculated on an as-converted basis) shall have exercised, or have continuing
rights to exercise, appraisal or dissenters’ rights under the DGCL with respect
to the Transactions.

 

7.2                               Conditions Precedent to Obligations of the
Company.    The obligations of the Company to consummate the Transactions are
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions precedent (any or all of which may be waived by the Company
in whole or in part to the extent permitted by applicable Law):

 

(a)                                 the representations and warranties of Parent
and Merger Sub set forth in this Agreement qualified as to materiality shall be
true and correct in all respects, and those not so qualified shall be true and
correct in all material respects, in each case as of the Execution Date and as
of the Closing as though made at and as of the Closing, except to the extent
such representations and warranties

 

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expressly relate to an earlier date (in which case such representations and
warranties qualified as to materiality shall be true and correct in all
respects, and those not so qualified shall be true and correct in all material
respects, on and as of such earlier date);

 

(b)                                 Parent and Merger Sub shall have each
performed and complied in all material respects with all obligations and
agreements required by this Agreement to be performed or complied with by Parent
and Merger Sub on or prior to the Closing Date;

 

(c)                                  there shall not be in effect any Order by a
Governmental Body of competent jurisdiction restraining, enjoining or otherwise
prohibiting the consummation of the Transactions;

 

(d)                                 the Company shall have received a
certificate signed by the Chief Executive Officer of Parent and the President of
Merger Sub, in form and substance reasonably satisfactory to the Company and the
Holder Representative, dated the Closing Date, to the effect that each of the
conditions specified above in Sections 7.2(a) and 7.2(b) have been satisfied in
all respects;

 

(e)                                  Parent and Merger Sub shall have obtained
or made any other Consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Body required to be obtained or
made by them in connection with the execution and delivery of this Agreement or
the consummation of the Transactions; and

 

(f)                                   the Company shall have received such
customary documents from Parent and Merger Sub as the Company may reasonably
request in good faith for the purpose of facilitating the consummation of the
Merger and the other Transactions.

 

ARTICLE VIII

 

INDEMNIFICATION

 

8.1                               Survival of Representations, Warranties and
Covenants.    The representations and warranties of the parties contained in
this Agreement shall survive the Closing through and including the 18-month
anniversary of the Closing Date; provided, however, that the representations and
warranties (i) of the Company set forth in Sections 4.1 (Organization and Good
Standing), 4.2 (Authorization of Agreement), 4.4 (Capitalization), 4.5
(Subsidiaries), 4.10 (Taxes) and 4.24 (Financial Advisors) (collectively, the
“Company Fundamental Representations”) shall survive the Closing until thirty
(30) days following the expiration of the applicable statute of limitations, and
(ii) of Parent set forth in Sections 5.1 (Organization and Good Standing), 5.2
(Authorization of Agreement) and 5.5 (Financial Advisors) (collectively, the
“Parent Fundamental Representations”) shall survive the Closing until thirty
(30) days following the expiration of the applicable statute of limitations. 
All covenants and agreements of the parties contained in this Agreement shall
survive the Closing for an indefinite period of time unless and until such
covenants or agreements expire or terminate in accordance with their respective
terms.  Each representation, warranty, covenant or agreement set forth in this
Agreement shall expire and terminate at the end of the applicable survival
period of such representation, warranty, covenant or agreement as specified
above in this Section 8.1; provided, however, that no representation, warranty,
covenant or agreement of any party contained in this Agreement shall expire or
terminate with respect to any claim or Losses as to which the Person to be
indemnified in connection with the failure or breach of such representation,
warranty, covenant or agreement shall have given notice (stating in reasonable
detail the basis of the claim for indemnification) to the indemnifying party in
accordance with this Article VIII before the expiration or termination of the
survival period applicable to such representation, warranty, covenant or
agreement as specified in this Section 8.1.

 

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8.2                               Indemnification.

 

(a)                                 From and after the Closing, and subject to
the terms and conditions set forth in this Article VIII, each Equityholder,
severally and not jointly hereby agrees to indemnify and hold Parent, the
Surviving Corporation, and their respective directors, officers, employees,
Affiliates, stockholders, agents, attorneys, representatives, successors and
assigns (collectively, the “Parent Indemnified Parties”) harmless from and
against, and pay to the applicable Parent Indemnified Parties the amount of, any
and all Losses:

 

(i)                                     based on, attributable to or resulting
from the failure of any of the representations or warranties made by the Company
in Article IV of this Agreement to be true and correct as of the date hereof and
at and as of the Closing Date;

 

(ii)                                  based on, attributable to or resulting
from the breach on the part of the Company of any covenant or other agreement
contained in this Agreement if, but only if and to the extent that, the express
terms of such covenant or other agreement provide for or require performance by
the Company of such covenant or agreement at or prior to the Closing; and

 

(iii)                               based upon, attributable to or resulting
from (A) any breach by any officer, manager or director of the Company or any of
its Subsidiaries of any fiduciary duty owed by such officer, manager or director
to any Stockholder, which breach occurred prior to, in connection with or as a
result of the Merger and the Transactions, (B) any claim by any Person claiming
to be entitled to a payment of any portion of the Merger Consideration as a
result of the Transactions, other than any claims (x) relating to Parent’s
failure to pay any portion of the Merger Consideration pursuant to this
Agreement, and (y) against Parent arising under this Article VIII, or (C) any
claim or Liability relating to any employee or consultant, or former employee or
consultant, of the Company relating to or arising out of such individual’s
employment (or service) or termination thereof by the Company prior to the
Closing.

 

(b)                                 From and after the Closing, and subject to
the terms and conditions set forth in this Article VIII, Parent hereby agrees to
indemnify and hold each of the Equityholders, the Holder Representative and each
of their respective Affiliates, stockholders, agents, attorneys,
representatives, successors and permitted assigns (collectively, the
“Equityholder Indemnified Parties”) harmless from and against, and pay to the
applicable Equityholder Indemnified Parties the amount of any and all Losses:

 

(i)                                     based on, attributable to or resulting
from the failure of any of the representations or warranties made by Parent and
Merger Sub in this Agreement or in any Parent Document to be true and correct at
the date hereof and as of the Closing Date; and

 

(ii)                                  based on, attributable to or resulting
from the breach of any covenant or other agreement on the part of Parent or
Merger Sub under this Agreement.

 

(c)                                  The right to indemnification or any other
remedy based on representations, warranties, covenants and agreements in this
Agreement shall not be affected by any investigation conducted at any time,
whether before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of, or compliance with,
any such representation, warranty, covenant or agreement.  Except if and to the
extent otherwise provided in Section 6.9 (Update of Company Schedules), the
waiver of any condition based on the accuracy of any such representation or
warranty, or on the performance of or compliance with any such covenant or
agreements, will not affect the right to indemnification or any other remedy
based on such representations, warranties, covenants and agreements.

 

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(d)                                 Notwithstanding the foregoing, Losses shall
be calculated net of the amount of any insurance proceeds actually received by
any indemnified party (off-set by any deductible and any increase in premium
resulting therefrom), and any indemnity or contribution amounts actually
recovered by an indemnified party for the applicable matter hereunder, and net
of the amount of any Tax benefits actually realized as a result of such Losses
in the year of the Loss (calculated using the highest marginal tax rates
applicable to taxpayers of the same type and resident or doing business in the
same jurisdictions as the person realizing the Tax benefit).  For purposes of
the preceding sentence, a Tax benefit shall be “actually realized” if such
benefit is available to an indemnified party for the Tax year in which the
applicable Loss occurs, regardless of whether such indemnified party claims such
benefit on a Tax Return.

 

8.3                               Indemnification Procedures.

 

(a)                                 A claim for indemnification for any matter
not involving a third party claim may be asserted by notice to the party from
whom indemnification is sought; provided, however, that failure to so notify the
indemnifying party shall not preclude the indemnified party from any
indemnification which it may claim in accordance with this Article VIII except
and only to the extent that, the indemnifying party demonstrates actual material
damage caused by such failure, and then only to the extent thereof.

 

(b)                                 In the event of a Third Party Claim, the
indemnified party shall promptly cause written notice of the assertion of any
Third Party Claim of which it has knowledge which is covered by this indemnity
to be forwarded to the indemnifying party.  The failure of the indemnified party
to give reasonably prompt notice of any Third Party Claim shall not release,
waive or otherwise affect the indemnifying party’s obligations with respect
thereto except to the extent that the indemnifying party can demonstrate actual
loss and prejudice as a result of such failure, and then only to the extent
thereof.  Subject to the provisions of this Section 8.3, the indemnifying party
shall have the right, at its sole expense, to be represented by counsel of its
choice, which must be reasonably satisfactory to the indemnified party, and to
conduct and control the defense of, negotiate, settle or otherwise deal with,
any Third Party Claim which relates to any Losses indemnified against hereunder;
provided that the indemnifying party shall have acknowledged in writing to the
indemnified party its unqualified obligation to indemnify the indemnified party
as provided hereunder.  If the indemnifying party elects to defend against,
negotiate, settle or otherwise deal with any Third Party Claim which relates to
any Losses indemnified by it hereunder, it shall within thirty (30) days of the
indemnified party’s written notice of the assertion of such Third Party Claim
(or sooner, if the nature of the Third Party Claim so requires) notify the
indemnified party of its intent to do so; provided that the indemnifying party
must conduct the defense of the Third Party Claim actively and diligently
thereafter in order to preserve its rights in this regard.  If (i) the
indemnifying party elects not to defend against, negotiate, settle or otherwise
deal with any Third Party Claim which relates to any Losses indemnified against
hereunder, (ii) the indemnifying party fails to notify the indemnified party of
its election as herein provided or contests its obligation to indemnify the
indemnified party for such Losses under this Agreement, or (iii) in the case of
any Third Party Claim which seeks an injunction (including specific performance)
against any Parent Indemnified Party, the indemnified party may defend against,
negotiate, settle or otherwise deal with such Third Party Claim and the
indemnifying party may still participate in, but not control, the defense of
such Third Party Claim.  If the

 

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indemnifying party assumes such defense as provided in this Section 8.3(b), the
indemnifying party will not be liable (and the indemnified party may not seek
indemnification under this Article VIII) for any legal expenses incurred by any
indemnified party in connection with the defense of such claim.  If the
indemnifying party does not assume the defense of any Third Party Claim and the
indemnified party defends such Third Party Claim, then the reasonable out of
pocket expenses of counsel for such indemnified party with respect to defending
such Third Party Claim shall constitute Losses for which such indemnified party
may seek indemnification under this Article VIII if such indemnified party is
entitled to indemnification under this Article VIII with respect to such Third
Party Claim.  If the indemnifying party shall assume the defense of any Third
Party Claim, the indemnified party may participate, at his or its own expense,
in the defense of such Third Party Claim; provided, however, that such
indemnified party shall be entitled to participate in any such defense with
separate counsel at the expense of the indemnifying party if in the reasonable
opinion of counsel to the indemnified party, a conflict or potential conflict
exists between the indemnified party and the indemnifying party that would make
such separate representation advisable; and provided further that the
indemnifying party shall not be required to pay for more than one such counsel
for all indemnified parties in connection with any Third Party Claim.  The
parties hereto agree to provide reasonable access to the other to such documents
and information as may be reasonably requested in connection with the defense,
negotiation or settlement of any such Third Party Claim; provided that the
Parent Indemnified Parties shall not be obligated to provide information or
documents that are subject to attorney-client privilege, attorney work-product
or other information or documents regarding a Parent Indemnified Party’s
strategy regarding the obligations of the indemnifying party with respect to
such Third Party Claim, unless and until the relevant Parent Indemnified Parties
and the Holder Representative have entered into a joint-defense agreement or
other such arrangement permitting the confidential sharing of such information
or documents, which each agrees to use commercial reasonable efforts to execute
and deliver promptly.  Notwithstanding anything in this Section 8.3 to the
contrary, neither the indemnifying party nor the indemnified party shall,
without the written consent (such consents not to be unreasonably withheld,
conditioned or delayed) of the other party, settle or compromise any Third Party
Claim or permit a Default or Consent to entry of any judgment unless the
claimant or claimants and such party provide to such other party an unqualified
release from all liability in respect of the Third Party Claim.  If the
indemnifying party makes any payment on any Third Party Claim, the indemnifying
party shall be subrogated, to the extent of such payment, to all rights and
remedies of the indemnified party to any insurance benefits or other claims of
the indemnified party with respect to such Third Party Claim.  To the extent the
Third Party Claim is a Tax Claim, the procedures in Section 6.8(c) shall
control, and not those in this Section 8.3(b).

 

(c)                                  After any final decision, judgment or award
shall have been rendered by a Governmental Body of competent jurisdiction and
the expiration of the time in which to appeal therefrom, or a settlement shall
have been consummated, or the indemnified party and the indemnifying party shall
have reached a written agreement, in each case with respect to an indemnifiable
claim hereunder, the indemnified party shall forward to the indemnifying party
notice of any sums due and owing by the indemnifying party pursuant to this
Agreement with respect to such matter and the indemnifying party shall pay all
of such remaining sums so due and owing to the indemnified party in accordance
with Sections 8.4 and 8.5.

 

(d)                                 For purposes of clarification, and
notwithstanding anything express or implied in the foregoing provisions of this
Section 8.3 to the contrary, the Equityholders, as indemnifying parties, shall
not have any personal liability for the payment of any costs and expenses
incurred by the indemnified party in defending or participating in the defense
of any Third Party Claim.  If one or more Equityholders is the indemnifying
party, then any obligation that such Equityholders may have under this
Section 8.3 for the payment of any costs and expenses incurred by the
indemnified party in defending or participating in the defense of any Third
Party Claim shall itself be treated as a Loss for which the indemnified party is
entitled to indemnification under this Article VIII and such Loss shall be
satisfied solely in the manner provided in, and subject to the provisions of,
Sections 8.4 and 8.5, to the extent applicable.

 

8.4                               Limitations on Indemnification.

 

(a)                                 No Equityholder shall have any liability
under Section 8.2(a)(i) unless the aggregate amount of Losses incurred by the
Parent Indemnified Parties and indemnifiable thereunder based upon, attributable
to or resulting from the failure of any of the representations or warranties

 

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thereunder to be true and correct exceeds an amount equal to One Percent (1.0%)
of the Base Price (the “Deductible”) and, in such event, the Equityholders shall
be required to pay, subject to all of the limitations set forth in this
Section 8.4, the amount of all such Losses in excess of the Deductible; provided
that the Deductible limitation shall not apply to Losses related to the failure
to be true and correct of any of the Company Fundamental Representations.

 

(b)                                 Parent shall not have any liability under
Section 8.2(b)(i) unless the aggregate amount of Losses incurred by the
Equityholder Indemnified Parties and indemnifiable thereunder based upon,
attributable to or resulting from the failure of any of the representations or
warranties thereunder to be true and correct exceeds an amount equal to the
Deductible and, in such event, Parent shall be required to pay, subject to all
of the limitations set forth in this Section 8.4, the amount of all such Losses
in excess of the Deductible; provided that the Deductible limitation shall not
apply to Losses related to the failure to be true and correct of any of the
Parent Fundamental Representations.

 

(c)                                  Subject to Section 8.9, the sole recourse
and remedy of the Parent Indemnified Parties to satisfy those Losses for which
the Parent Indemnified Parties are entitled to indemnification under
Section 8.2(a)(i) (after giving effect to all applicable limitations set forth
in this Section 8.4) based upon, attributable to or resulting from the failure
of any of the representations or warranties of the Company under Article IV to
be true and correct (other than the Company Fundamental Representations which
shall be subject to the limitations on recourse and remedies set forth in
Section 8.4(d) below) shall be to seek to satisfy up to the amount of such
Losses by exercising, in accordance with the provisions of Section 8.5, a right
of set-off against a portion of each Milestone Payment that would thereafter
otherwise be payable to the Equityholders pursuant to this Agreement; provided,
however, that in no event shall any such Milestone Payment be reduced by more
than Ten Percent (10%) in the aggregate as a result of the exercise of such
right of set-off in connection with any and all Losses that are subject to the
limitations set forth in this Section 8.4(c).  Except if and to the extent
otherwise provided in Section 8.9 and in the foregoing provisions of this
Section 8.4(c), none of the Equityholders shall have any liability for any and
all Losses that are subject to the limitations set forth in this Section 8.4(c).

 

(d)                                 Subject to Section 8.9, the sole recourse
and remedy of the Parent Indemnified Parties to satisfy those Losses for which
the Parent Indemnified Parties are entitled to indemnification (after giving
effect to all applicable limitations set forth in this Section 8.4) (x) under
Section 8.2(a)(i) based upon, attributable to or resulting from the failure of
any of the Company Fundamental Representations or (y) under
Section 8.2(a)(ii) and 8.2(a)(iii), shall be to seek to satisfy up to the amount
of such remaining Losses by exercising, in accordance with the provisions of
Section 8.5, a right of set-off against the amount of each Milestone Payment
that would thereafter otherwise be payable to the Equityholders pursuant to this
Agreement; provided, however, that in no event shall any such Milestone Payment
be reduced by more than Twenty Percent (20%) until the 18-month anniversary of
the Closing Date, and from and after the 18-month anniversary of the Closing
Date, by more than Ten Percent (10%).  Except if and to the extent otherwise
provided in Section 8.9 and in the foregoing provisions of this Section 8.4(d),
none of the Equityholders shall have any liability for any and all Losses that
are subject to the limitations set forth in this Section 8.4(d).

 

(e)                                  Subject to Section 8.9, in no event shall
the aggregate amount of the Losses for which the Equityholder Indemnified
Parties are entitled to indemnification under Section 8.2(b)(i) (after giving
effect to all applicable limitations set forth in this Section 8.4) based upon,
attributable to or resulting from the failure of any of the representations or
warranties of Parent and Merger Sub under Article V to be true and correct
exceed Ten Million Dollars ($10,000,000).  Notwithstanding the foregoing
sentence or anything in this Agreement to the contrary, nothing shall limit (or
be deemed to limit) the aggregate amount of the Losses for which the
Equityholder Indemnified Parties are entitled to indemnification under
Section 8.2(b)(ii).

 

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(f)                                   No Parent Indemnified Parties shall make
any claim for, or have any right to, indemnification under Section 8.2(a) in
connection with any failure or breach of any representation, warranty, covenant
or agreement otherwise subject to indemnification thereunder unless such claim
for indemnification is made prior to the expiration or termination of such
representation, warranty, covenant or agreement pursuant to Section 8.1.

 

(g)                                  No Equityholder Indemnified Parties shall
make any claim for, or have any right to, indemnification under
Section 8.2(b) in connection with any failure or breach of any representation,
warranty, covenant or agreement otherwise subject to indemnification thereunder
unless such claim for indemnification is made prior to the expiration or
termination of such representation, warranty, covenant or agreement pursuant to
Section 8.1.

 

(h)                                 Solely for purposes of calculating the
amount of Losses that are subject to indemnification pursuant to this
Article VIII based upon, attributable to or resulting from the failure or breach
of any representation, warranty, covenant or agreement contained in this
Agreement, any materiality or Company Material Adverse Effect qualifications in
such representation, warranty, covenant or agreement shall be disregarded.  Any
materiality or Company Material Adverse Effect qualifications in any
representation, warranty, covenant or agreement contained in this Agreement
shall be given full force and effect for purposes of determining whether there
has been any failure or breach of such representation, warranty, covenant or
agreement that entitles an indemnified party to make a claim for indemnification
under this Article VIII.

 

(i)                                     After the Closing, the Equityholders
shall have no right of contribution or other recourse against Parent or the
Surviving Corporation or its respective directors, officers, employees,
Affiliates, agents, attorneys, representatives, assigns or successors for any
breach of any representation, warranty, covenant or agreement of the Company, it
being acknowledged and agreed that the covenants and agreements of the Company,
to the extent they are required to be performed prior to or at the Closing, are
solely for the benefit of Parent Indemnified Parties.

 

(j)                                    For the avoidance of doubt, there shall
be no liability in connection with any claim for indemnification under this
Article VIII by any Parent Indemnified Party with respect to any matter to the
extent that such matter has already been taken into account and reflected in
full in calculating the Purchase Price Adjustment in accordance with Article III
(it being understood and agreed by the parties that their intent in this
Section 8.4(j) is to agree to avoid duplicative claims or adjustments for the
same Losses).

 

(k)                                 Notwithstanding any other provision
contained in this Agreement, the Parent Indemnified Parties right of set-off
pursuant to Sections 8.4(c) and 8.4(d) shall apply to any Losses identified in,
or that arise out of, relate to or are based on any Loss Event identified in, an
indemnity notice given prior to the expiration or termination of the survival
period applicable to such representation, warranty, covenant or agreement as
specified in Section 8.1, even if the Milestone Payments have not yet been
determined pursuant to Section 3.2.

 

8.5                               Payment of Claims.    In the event of any
claim for indemnification pursuant to Section 8.2 hereof, the indemnified party
will advise the indemnifying party in writing with reasonable specificity, to
the extent known, of the amount and circumstances surrounding such claim.  If,
after the indemnified party delivers a claim for indemnification to the
indemnifying party in accordance with the immediately preceding sentence of this
Section 8.5 the indemnifying party accepts such claim in writing, the full
amount thereof shall be satisfied by Parent exercising a right of set-off
against any unpaid Milestone Payment that is otherwise due and payable by Parent
pursuant to Article III (subject to the provisions of Section 8.4 that may
impose limitations on such right of set-off), and (ii) with respect to any

 

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Equityholder Indemnified Party, by Parent making a cash payment to the
Equityholders promptly after Parent has accepted such claim for indemnification,
which cash payment shall be in accordance with the Future Payment Allocation
Schedule that is applicable to such payment and shall be made by wire transfer
of immediately available funds into accounts designated on the applicable Future
Payment Allocation Schedule.  If, within thirty (30) days after the indemnified
party delivers a claim for indemnification to the indemnifying party in
accordance with the first sentence of this Section 8.5, Section 8.3(a) or
Section 8.3(b), the indemnifying party has not accepted such claim for
indemnification, then, (A) if the indemnified party is a Parent Indemnified
Party, such claim may be satisfied by Parent exercising a right of set-off of
any additional sums due and owing to any Parent Indemnified Party against any
Milestone Payment that is due and payable by Parent pursuant to Article III
(subject to the provisions of Section 8.4 that may impose limitations on such
claim), and (B) if the indemnified party is either a Parent Indemnified Party or
a Equityholder Indemnified Party, such indemnified party may commence an action
or proceeding in a court of competent jurisdiction seeking to enforce the
indemnified party’s right to indemnification subject to, and in accordance with,
the provisions of this Article VIII (including the provisions of Section 8.4,
which impose limitations on the indemnified party’s right to indemnification
under this Article VIII).

 

8.6                               Insurance Collection.    If any indemnified
party recovers any amount from any insurer in connection with any matter in
respect of which such indemnified party obtained indemnification under this
Article VIII, then such indemnified party will promptly pay over, in the case of
a Parent Indemnified Party to the Equityholders in accordance with the Future
Payment Allocation Schedule that is applicable to such payment (and such payment
shall be made to the Equityholders in cash by wire transfer of immediately
available funds into accounts designated on the applicable Future Payment
Allocation Schedule), and in the case of an Equityholder Indemnified Party to
Parent, the amount so recovered from such insurer to the extent not in excess of
the amount of the indemnification obtained by such indemnified party under this
Article VIII in respect of such matter.

 

8.7                               Tax Treatment of Indemnity Payments.    The
Equityholders and Parent agree to treat any indemnity payment made pursuant to
this Article VIII as an adjustment to the Purchase Price for all income tax
purposes to the extent permitted by Law.

 

8.8                               Role and Liability of Holder
Representative.    Notwithstanding anything express or implied in this
Article VIII to the contrary, Holder Representative, acting in its capacity as
representative of the Equityholders, is hereby authorized to exercise all of the
rights, and perform all of the obligations, of the Equityholders under this
Article VIII.  Without limiting the generality of the foregoing, (a) any and all
notices that any or all of the Equityholders are entitled or required to give
under this Article VIII may be given by the Holder Representative for and on
behalf of the Equityholders and (b) the Holder Representative is hereby
authorized to receive notices for and on behalf of any and all of Equityholders
under this Article VIII.  The Holder Representative, in its capacity as a
representative of the Equityholders, shall have no liability or obligation to
any Parent Indemnified Person under this Article VIII or under any other
provision of this Agreement.

 

8.9                               Sole and Exclusive Remedy.    From and after
the Closing Date, the indemnification provisions contained in this Article VIII
shall be the sole and exclusive remedy following the Closing as to all money
damages or amounts which otherwise might be due under the indemnification
provisions contained, and for any breach of any provision contained in, this
Agreement, or otherwise for any action arising out of the subject matter of this
Agreement (it being understood and agreed that nothing in this Section 8.9 or
elsewhere in this Agreement shall affect the parties’ rights to specific
performance or other equitable remedies to enforce the parties’ obligations
under this Agreement and it being further understood and agreed that nothing in
this Section 8.99 shall limit the rights or remedies, at law or in

 

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equity, of any Person against any other Person for such other Person’s common
law fraud or intentional misrepresentation in bad faith.

 

ARTICLE IX

 

TERMINATION

 

9.1                               Termination of Agreement.    This Agreement
may only be terminated prior to the Closing as follows:

 

(a)                                 At the election of the Holder Representative
or Parent on or after April 30, 2014  (the “Termination Date”), if the Closing
shall not have occurred by the close of business on such date, provided that
(i) in the case of any such termination by the Holder Representative, the
Equityholders are not in material breach of any of their covenants or agreements
hereunder and (ii) in the case of any such termination by Parent, Parent is not
in material breach of any of its covenants or agreements hereunder;

 

(b)                                 by mutual written consent of the Holder
Representative and Parent;

 

(c)                                  by the Holder Representative or Parent if
there shall be in effect a final nonappealable Order of a Governmental Body of
competent jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of the Transactions; provided, however, that the right to terminate
this Agreement under this Section 9.1(c) shall not be available to a party if
such Order was primarily due to the failure of such party to perform any of its
obligations under this Agreement;

 

(d)                                 by Parent (provided that it is not then in
material breach of any of its representations, warranties, covenants or
agreements under this Agreement) if the Company shall have breached or failed to
perform any of its representations, warranties, covenants or agreements set
forth in this Agreement, or if any representation or warranty of the Company
shall have become untrue, in either case such that the conditions set forth in
Sections 7.1(a) or 7.1(b) would not be satisfied and such breach or failure to
perform is incapable of being cured or, if capable of being cured, shall not
have been cured within fifteen (15) days following receipt by the Holder
Representative of notice of such breach from Parent;

 

(e)                                  by the Holder Representative (provided that
the Company is not then in material breach of any of its representations,
warranties, covenants or agreements under this Agreement) if Parent shall have
breached or failed to perform any of its representations, warranties, covenants
or agreements set forth in this Agreement, or if any representation or warranty
of Parent shall have become untrue, in either case such that the conditions set
forth in Sections 7.2(a) or 7.2(b) would not be satisfied and such breach or
failure to perform is incapable of being cured or, if capable of being cured,
shall not have been cured within fifteen (15) days following receipt by Parent
of notice of such breach from Holder Representative; or

 

(f)                                   by Parent if the Company has not by
5:00 P.M. Boston, Massachusetts time on the tenth (10th) Business Day (or, if
such day is not a Business Day, then on the next successive Business Day)
following the execution of this Agreement, obtained the Stockholder Approval.

 

9.2                               Procedure Upon Termination.    In the event of
termination and abandonment by Parent or the Holder Representative, or both,
pursuant to Section 9.1, written notice thereof shall forthwith be given to the
other party or parties, and this Agreement shall terminate, and the purchase of
the Shares hereunder shall be abandoned, without further action by Parent, the
Company or the Equityholders.

 

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9.3                               Effect of Termination.    In the event that
this Agreement is validly terminated as provided herein, then each of the
parties shall be relieved of their duties and obligations arising under this
Agreement after the date of such termination and such termination shall be
without liability to Parent, any Equityholder or the Company;  provided,
however, that the obligations of the parties set forth in Section 6.6, this
Section 9.3 and Article X shall survive any such termination and shall be
enforceable hereunder; provided further, however, that nothing in this
Section 9.3 shall relieve Parent or the Company of any liability for a breach of
this Agreement prior to the effective date of termination.

 

ARTICLE X

 

MISCELLANEOUS

 

10.1                        Expenses.    Except as otherwise provided in this
Agreement and subject to the provisions of this Agreement that pertain to the
treatment of the Closing Date Net Free Cash Amount and the Unpaid Company
Transaction Expenses, Parent and Merger Sub shall bear their own expenses, and
the Company shall bear its own expenses (including any portion of such expenses
that benefit or are for the benefit of the Equityholders), in either case to the
extent incurred in connection with the negotiation and execution of this
Agreement and each other agreement, document and instrument contemplated by this
Agreement and the consummation of the Transactions.

 

10.2                        Holder Representative.

 

(a)                                 Each Equityholder hereby irrevocably
appoints Augustine Lawlor (in his capacity as Holder Representative, together
with his permitted successors) as such Equityholder’s representative,
attorney-in-fact and agent, with full power of substitution to act in the name,
place and stead of such Equityholder, including with respect to the cancellation
of such Equityholder’s Company Options and the receipt by such Equityholder of
all the consideration that such Equityholder is entitled to receive in
connection with such transfer and/or cancellation, all in accordance with the
terms and provisions of this Agreement, and to act on behalf of such
Equityholder in any amendment of or litigation or arbitration involving this
Agreement and to do or refrain from doing all such further acts and things, and
to execute all such documents, as such Holder Representative shall deem
necessary or appropriate in conjunction with any of the Transactions, including
the power:

 

(i)                                     to take all action necessary or
desirable in connection with the waiver of any condition to the obligations of
the Equityholders to consummate the Transactions;

 

(ii)                                  to take all action necessary or desirable
for and on behalf of the Equityholders in connection with this Agreement and to
take all action expressly contemplated, permitted or reserved to be taken by the
Holder Representative under this Agreement;

 

(iii)                               to object to, negotiate, assume and control
the defense of, and settle, claims for indemnification made against the
Equityholders pursuant to Article VIII;

 

(iv)                              to deliver instructions and authorizations to
Parent with respect to the allocation of the Initial Purchase Price or any
Future Payment among the Equityholders pursuant to, and in accordance with, the
terms and conditions of this Agreement;

 

(v)                                 to take all actions necessary or appropriate
in the judgment of the Holder Representative to enforce (including by seeking
legal or equitable remedies against Parent, Merger Sub or the Surviving
Corporation by or on behalf of the Equityholders) this Agreement, the
obligations of Parent, Merger Sub or the Surviving Corporation hereunder and
thereunder;

 

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(vi)                              to make, prosecute, negotiate and settle
claims for indemnification for and on behalf of the Equityholders against
Parent, Merger Sub or the Surviving Corporation pursuant to this Agreement;

 

(vii)                           to negotiate, execute and deliver all ancillary
agreements, statements, certificates, statements, notices, approvals,
extensions, waivers, undertakings, amendments and other documents required or
permitted to be given in connection with the consummation of the Transactions
contemplated by this Agreement (it being understood that such Equityholder shall
execute and deliver any such documents which the Holder Representative agrees to
execute);

 

(viii)                        to negotiate, execute and deliver any amendment or
amendments to this Agreement;

 

(ix)                              to terminate this Agreement if the
Equityholders are entitled to do so;

 

(x)                                 to give and receive all notices and
communications to be given or received under this Agreement and to receive ,
including service of process in connection with arbitration;

 

(xi)                              to take all actions which under this Agreement
may be taken by the Equityholders and to do or refrain from doing any further
act or deed on behalf of the Equityholders which the Holder Representative deems
necessary or appropriate in his sole discretion relating to the subject matter
of this Agreement as fully and completely as such Equityholder could do if
personally present; and

 

(xii)                           to take all actions necessary or appropriate in
the judgment of the Holder Representative for the accomplishment of the
foregoing clauses (i) - (xi).

 

(b)                                 If Augustine Lawlor becomes unwilling or
unable to serve as Holder Representative, such other Person or Persons as may be
designated by either Augustine Lawlor or Healthcare Ventures VIII, L.P., shall
succeed as the Holder Representative.

 

(c)                                  The Holder Representative shall receive no
compensation for his services under this Agreement.  The fees, costs and
expenses of the Holder Representative incurred following the Effective Time,
including any fees and expenses incurred by it in connection with the retention
of any legal counsel, experts (including expert witnesses), consultants and
other representatives engaged by it whether involving a claim for
indemnification or otherwise, shall be the sole responsibility of the
Equityholders.  Prior to any Milestone Payment being made, the Holder
Representative shall be entitled to direct Parent to remit to the Holder
Representative, from fees and expenses otherwise payable to the Equityholders
pursuant to such Milestone Payment, an amount equal to any fees and expenses
incurred by the Holder Representative arising out of or in connection with the
acceptance or administration of its duties under this Agreement and such amount
shall be remitted to the Holder Representative together with payment of the
balance of the Milestone Payment when due under the terms of this Agreement.

 

(d)                                 Holder Representative shall not be liable to
any Equityholder for any act done or omitted under this Agreement in its
capacity as the Holder Representative while acting in good faith, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith.  The Holder Representative shall be indemnified and held
harmless from any and all Losses incurred by the Holder Representative arising
out of or in connection with the acceptance or administration of its duties
under this Agreement, provided that the Holder Representative has performed such
duties without gross negligence or bad faith on its part, and provided further
that no Equityholder shall be personally liable for any such indemnification of
the Holder Representative.

 

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(e)                                  Any notice or communication delivered by
Parent, Merger Sub or the Surviving Corporation to the Holder Representative
shall, as between Parent, Merger Sub and the Surviving Corporation, on the one
hand, and the Equityholders, on the other hand, be deemed to have been delivered
to all Equityholders.  Parent, Merger Sub and the Surviving Corporation shall be
entitled to rely exclusively upon any communication or writings given or
executed by the Holder Representative in connection with any matters hereunder
and shall not be liable in any manner whatsoever for any action taken or not
taken in reliance upon the actions taken or not taken or communications or
writings given or executed by the Holder Representative.  Parent, Merger Sub and
the Surviving Corporation shall be entitled to disregard any notices or
communications given or made by the Equityholders in connection with any claims
for indemnity unless given or made through the Holder Representative.

 

(f)                                   The power of attorney granted in this
Section 10.2 and all authority hereby conferred is granted and shall be
irrevocable and shall not be terminated by any act of any Equityholder or by
operation of Law.  Each Equityholder hereby confirms each and every action to be
taken by the Holder Representative pursuant to this power of attorney as if it
were its own and waives any right to make any claim against the Holder
Representative that may arise, directly or indirectly, as a result of the Holder
Representative’s actions by virtue of this power of attorney.

 

10.3                        Specific Performance.    The Company and Parent
acknowledge and agree that a breach of this Agreement would cause irreparable
damage to the Company or Parent, as applicable, and that each such party will
not have an adequate remedy at law.  Therefore, the obligations of the Company,
Parent and Merger Sub under this Agreement, shall be enforceable by a decree of
specific performance issued by any court of competent jurisdiction, and
appropriate injunctive relief may be applied for and granted in connection
therewith.  Such remedies shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise.

 

10.4                        Submission to Jurisdiction; Consent to Service of
Process; Waiver of Jury Trial.

 

(a)                                 The parties hereto hereby irrevocably submit
to the non-exclusive jurisdiction of any federal or state court located within
the Commonwealth of Massachusetts over any dispute arising out of or relating to
this Agreement or any of the Transactions and each party hereby irrevocably
agrees that all claims in respect of such dispute or any suit, action proceeding
related thereto may be heard and determined in such courts.  The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute.  Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.

 

(b)                                 Each of the parties hereto hereby consents
to process being served by any party to this Agreement in any suit, action or
proceeding by delivery of a copy thereof in accordance with the provisions of
Section 10.7.

 

(c)                                  THE PARTIES TO THIS AGREEMENT EACH HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT
OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE.  THE PARTIES TO THIS AGREEMENT
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY

 

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AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

10.5                        Entire Agreement; Amendments and Waivers.    This
Agreement (including the schedules, annex and exhibits hereto) and the Related
Documents represent the entire understanding and agreement between the parties
hereto with respect to the subject matter hereof and can be amended,
supplemented or changed, and any provision hereof can be waived, only by written
instrument making specific reference to this Agreement signed by the party
against whom enforcement of any such amendment, supplement, modification or
waiver is sought; provided, however, that, from and after the Closing, the
Holder Representative shall be authorized to execute any such written instrument
by and on behalf of any and all Equityholders against whom enforcement of any
such amendment, supplement, modification or waiver is sought.  No action taken
pursuant to this Agreement, including any investigation by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking such action of
compliance with any representation, warranty, covenant or agreement contained
herein.  The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach.  No failure on the
part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any other
or further exercise thereof or the exercise of any other right, power or
remedy.  All remedies hereunder are cumulative and are not exclusive of any
other remedies provided by law.  Notwithstanding anything to the contrary in
this Section 10.5, following receipt of the Stockholder Approval, no amendment,
modification or supplement to this Agreement that under applicable Law requires
the further approval of the Stockholders shall be made without first obtaining
such approval.

 

10.6                        Governing Law.    This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware applicable
to contracts made and performed in such state, without regard to the conflicts
of law principles of any jurisdiction.

 

10.7                        Notices.    All notices and other communications
under this Agreement shall be in writing and shall be deemed given (i) when
delivered personally by hand (with written confirmation of receipt), (ii) when
sent by facsimile (with written confirmation of transmission) or (iii) one
(1) Business Day following the day sent by overnight courier (with written
confirmation of receipt), in each case at the following addresses and facsimile
numbers (or to such other address or facsimile number as a party may have
specified by notice given to the other party pursuant to this provision):

 

 

If to the Company, any Equityholder or the Holder Representative, to:

 

 

 

Shape Pharmaceuticals, Inc.

 

c/o Healthcare Ventures LLC

 

47 Thorndike St. Suite B1-1

 

Cambridge, MA 02141

 

Facsimile: 609.436.4733

 

Attention: Augustine Lawlor

 

 

 

With a copy, which shall not constitute notice, to:

 

 

 

Bingham McCutchen LLP

 

One Federal Street

 

Boston, MA 02110

 

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Facsimile: 617.951.8736

 

Attention: William S. Perkins, Esq. and Jason M. Rodriguez, Esq.

 

 

 

If to Parent or Merger Sub, to:

 

 

 

TetraLogic Pharmaceuticals Corporation

 

343 Phoenixville Pike

 

Malvern PA 19355

 

Facsimile: 610.889.9994

 

Attention: Richard Sherman, Esq., General Counsel

 

 

 

With a copy, which shall not constitute notice, to:

 

 

 

Pepper Hamilton LLP

 

3000 Two Logan Square

 

Eighteenth and Arch Streets

 

Philadelphia, PA 19103

 

Facsimile: 866.422.3671

 

Attention: Steven J. Abrams, Esq. and James B. Jumper, Esq.

 

10.8                        Severability.    If any term or other provision of
this Agreement is invalid, illegal, or incapable of being enforced by any law or
public policy, all other terms or provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party.  Upon such determination that any term or other provision is
invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the Transactions are consummated as originally contemplated to the greatest
extent possible.

 

10.9                        Binding Effect; Assignment.    This Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns.  Nothing in this Agreement shall create or be
deemed to create any third party beneficiary rights in any person or entity not
a party to this Agreement except as provided below.  If the Closing is
consummated, (i) the provisions of this Agreement (including Article III and
Article VIII) that pertain to Equityholders are intended, and shall be, for the
benefit of those Equityholders that are not parties to this Agreement as third
party beneficiaries, (ii) the provisions of this Agreement (including
Article VIII and Section 10.2 are intended, and shall be, for the benefit of the
Holder Representative as a third party beneficiary and (iii) the provisions of
Section 6.10 are intended, and shall be, for the benefit of the Section 6.10
Indemnified Persons as third party beneficiaries.  No assignment of this
Agreement or of any rights or obligations hereunder may be made by any party to
this Agreement (by operation of law or otherwise) without the prior written
consent of the other parties hereto and any attempted assignment without the
required consents shall be void.  From and after the Closing, the Holder
Representative shall be authorized to execute, for and on behalf of each
Equityholder, any written consent by such Equityholder to any assignment by any
other party to this Agreement as required by the foregoing provisions of this
Section 0.  Notwithstanding the foregoing, (a) Parent may assign its rights and
obligations under this Agreement to any Affiliate of Parent; and (b) any or all
of the rights and interests of Parent and the Surviving Corporation under this
Agreement (i) may be assigned to any purchaser of substantially all of the
assets of Parent or any of its Affiliates, (ii) may be assigned as a matter of
Law to the surviving entity in any merger, consolidation, share exchange or
reorganization involving Parent or any of its Affiliates, and (iii) may be
assigned as collateral security to any lender or lenders (including any agent
for any such lender or lenders) or to any assignee or assignees of such lender,
lenders or agent; provided that in the case of

 

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clause (a) and subclause (b)(i), Parent shall remain responsible for its
obligations set forth in this Agreement, the LLS Agreement and the Harvard/DFCI
Agreement, and, in the case of subclause (b)(ii) and (iii), Parent shall make
proper provision so that the successors and assigns shall assume the obligations
set forth in this Agreement, the LLS Agreement and the Harvard/DFCI Agreement.

 

10.10                 Non-Recourse.    No past, present or future director,
officer, employee, agent, attorney or representative of Parent shall have any
liability for any obligations or liabilities of Parent under this Agreement or
for any claim based on, in respect of, or by reason of, the Transactions.  No
past, present or future director, officer, employee, agent, attorney or
representative of Company or any Equityholder shall have any liability for any
obligations or liabilities of Company or such Equityholder under this Agreement
or for any claim based on, in respect of, or by reason of, the Transactions.

 

10.11                 Disclosure in Schedules.    The Disclosure Schedules are
numbered to correspond to the various Sections and subsections of Article IV
setting forth certain exceptions to the representations and warranties contained
in Article IV and certain other information called for by this Agreement.  For
purposes of this Agreement, with respect to any matter that is clearly disclosed
on any Schedule, in such a way as to make its relevance to the information
called for by another Section of this Agreement or another Schedule readily
apparent (without further investigation), such matter shall be deemed to have
been disclosed in response to such other Section, notwithstanding the omission
of any appropriate cross-reference thereto.

 

10.12                 Parent Guaranty.    Parent shall cause Merger Sub, and
after the Closing, the Surviving Corporation to perform all of its agreements
and obligations under this Agreement and to make payment, when due, of any
amounts that Merger Sub or the Surviving Corporation, as applicable, is required
to pay to the Company, the Holder Representative or the Equityholders under this
Agreement, and Parent hereby guarantees to the Company, the Holder
Representative and the Equityholders the performance by Merger Sub, an after the
Closing, the Surviving Corporation, of all of such agreements and obligations
and the payment of all of such amounts as and to the extent set forth in this
Agreement.  Parent’s obligations under this Section 10.12 shall be subject to
all rights, claims, counterclaims, causes of action, defenses and remedies to
which Parent, Merger Sub or, after the Closing, the Surviving Corporation, may
be entitled, other than any defense arising by reason of Parent’s bankruptcy or
insolvency.

 

10.13                 Role of Bingham McCutchen LLP.    Each of Parent, Merger
Sub, the Company, the Surviving Corporation, the Holder Representative and the
Equityholders hereby (i) acknowledges that attorneys with the firm of Bingham
McCutchen LLP have acted or may act as legal counsel for the Company, the Holder
Representative and the Equityholders in connection with this Agreement and the
Transactions; (ii) also acknowledges and agrees that Bingham McCutchen LLP and
its attorneys may continue to provide legal counsel and representation to the
Company, the Holder Representative, the Equityholders and their respective
Affiliates, or any of them, at all times prior to the Closing; and (iii) further
acknowledges and agrees that Bingham McCutchen LLP and its attorneys may
continue to provide legal counsel and representation to the Holder
Representative, the Equityholders and their respective Affiliates, or any of
them, at all times after the Closing, including in connection with any dispute
that may arise among any of the parties to this Agreement in connection with
this Agreement or the Transactions.

 

10.14                 Counterparts.    This Agreement may be executed in one or
more counterparts, including execution by facsimile or other electronic means,
each of which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.

 

** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK**

 

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IN WITNESS WHEREOF, the parties hereto have caused this Merger Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.

 

 

TETRALOGIC PHARMACEUTICALS CORPORATION

 

 

 

 

 

By:

/s/ J. Kevin Buchi

 

 

Name: J. Kevin Buchi

 

 

Title: President and Chief Executive Officer

 

 

 

 

 

TLOG ACQUISITION SUB, INC.

 

 

 

 

 

By:

/s/ Richard Sheman

 

 

Name: Richard Sheman

 

 

Title: President, Treasurer and Secretary

 

[Signature page follows]

 

[Signature Page to Merger Agreement]

 

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SHAPE PHARMACEUTICALS, INC.

 

 

 

 

 

By:

/s/ Douglas E. Onsi

 

 

Name:  Douglas E. Onsi

 

 

Title:  President

 

 

 

 

 

HOLDER REPRESENTATIVE:

 

 

 

 

 

/s/ Augustine Lawlor

 

Name:  Augustine Lawlor

 

[Signature Page to Merger Agreement]

 

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