EXHIBIT 10.29

 

SALE AGREEMENT

 

AMONG

 

SIRNA THERAPEUTICS, INC.,

 

SKINETICS BIOSCIENCES, INC.,

 

EACH OF THE SELLERS PARTY HERETO

 

AND

 

DAVID SHAW, AS SELLER AGENT

 

Dated as of October 12, 2004, as amended by Amendment No. 1, dated as of
November 19,

2004 and by Amendment No. 2, dated as of December 6, 2004 [conformed copy]

 

 

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TABLE OF CONTENTS

 

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ARTICLE I     PURCHASE AND SALE

   2

Section 1.1

   Purchase and Sale    2

Section 1.2

   Other Seller Deliveries    2

Section 1.3

   Closing    2

Section 1.4

   Resignation of Directors and Officers    3

Section 1.5

   Purchase Price    3

Section 1.6

   Escrow Shares    4

Section 1.7

   Fractional Shares    4

Section 1.8

   Adjustments    4

Section 1.9

   Exemption From Registration; California Permit    5

Section 1.10

   Additional Consideration    5

Section 1.11

   Payment of Shaw Note    9

ARTICLE II     REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   9

Section 2.1

   Organization and Qualification; Subsidiaries; Investments    9

Section 2.2

   Capitalization of the Company    9

Section 2.3

   Authority Relative to this Agreement    10

Section 2.4

   Balance Sheet; Statement of Income; Assets    10

Section 2.5

   Consents and Approvals; No Violations    10

Section 2.6

   No Default    11

Section 2.7

   No Undisclosed Liabilities    11

Section 2.8

   Litigation    11

Section 2.9

   Compliance with Applicable Law    11

Section 2.10

   Intellectual Property    11

Section 2.11

   Contracts    13

Section 2.12

   Interested Party Transactions    14

Section 2.13

   Other Negotiations; Brokers    14

Section 2.14

   Banks and Brokerage Accounts    14

Section 2.15

   Permit Application    14

Section 2.16

   No Solicitation    15

Section 2.17

   Disclosure    15

ARTICLE II-A     REPRESENTATIONS AND WARRANTIES OF THE SELLERS

   15

Section 2A.1

   Authority    15

Section 2A.2

   No Conflicts    15

Section 2A.3

   Consents and Approvals    15

Section 2A.4

   Title to Company Shares    15

Section 2A.5

   Third-Party Consents    16

Section 2A.6

   Restricted Securities; Purchase Entirely for Own Account; Investment
Experience    16

 

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TABLE OF CONTENTS

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ARTICLE III     REPRESENTATIONS AND WARRANTIES OF PARENT

   16

Section 3.1

   Organization and Qualification    16

Section 3.2

   Authority Relative to this Agreement    17

Section 3.3

   Consents and Approvals; No Violations    17

Section 3.4

   Capitalization    17

Section 3.5

   S-3 Eligibility    17

Section 3.6

   Disclosure; No Material Adverse Effect    17

Section 3.7

   Private Offering; Investment Intent    18

ARTICLE IV     COVENANTS

   18

Section 4.1

   Conduct of Business of the Company    18

Section 4.2

   No Solicitation    20

Section 4.3

   Permit Application; Private Placement    21

Section 4.4

   [Intentionally Left Blank]    22

Section 4.5

   Access to Information    22

Section 4.6

   Registration of Registrable Securities    22

Section 4.7

   Suspension Events    27

Section 4.8

   Lockup    28

Section 4.9

   License Back    28

Section 4.10

   Confidentiality    29

Section 4.11

   Expenses    29

Section 4.12

   Stock Restriction Agreements    30

Section 4.13

   In Vivo Efficacy    30

Section 4.14

   Parent Insider Policy    31

Section 4.15

   Location of Acquired Corporation    31

Section 4.16

   License of Trade Name    31

Section 4.17

   Public Disclosure    31

Section 4.18

   Approvals    31

Section 4.19

   Notification of Certain Matters    31

Section 4.20

   Company Affiliate Agreements    32

Section 4.21

   Additional Documents and Further Assurances; Cooperation    32

Section 4.22

   Tax Matters    32

Section 4.23

   Delivery of Stock Ledger and Minute Book of the Company    33

Section 4.24

   FIRPTA    33

Section 4.25

   Columbia License    33

ARTICLE V     CONDITIONS TO CLOSING

   34

Section 5.1

   Conditions to Obligations of Each Party Consummate Transaction    34

Section 5.2

   Additional Conditions to Obligations of the Company    34

Section 5.3

   Additional Conditions to the Obligations of Parent    35

 

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TABLE OF CONTENTS

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ARTICLE VI     INDEMNIFICATION

   36

Section 6.1

   Indemnification by the Sellers    36

Section 6.2

   Indemnification by Parent    38

Section 6.3

   Procedure    39

Section 6.4

   Survival    39

Section 6.5

   Survival of Representations and Warranties; Investigation    39

Section 6.6

   No Right of Contribution    40

Section 6.7

   Seller Agent    40

Section 6.8

   Exclusive Remedy    41

ARTICLE VII     TERMINATION

   41

Section 7.1

   Termination of Agreement    41

Section 7.2

   Effect of Termination    42

Section 7.3

   Termination Fee    42

Section 7.4

   Treatment of Sirna Enabled Data upon Termination    43

Section 7.5

   Competition Restrictions Upon Termination    43

ARTICLE VIII     MISCELLANEOUS

   43

Section 8.1

   Entire Agreement; Assignment    43

Section 8.2

   Invalid Provisions    44

Section 8.3

   Notices    44

Section 8.4

   Arbitration    44

Section 8.5

   Governing Law    45

Section 8.6

   Right to Withhold; Offset    45

Section 8.7

   Descriptive Headings; Section References    46

Section 8.8

   Parties in Interest    46

Section 8.9

   Personal Liability    46

Section 8.10

   Specific Performance    46

Section 8.11

   Counterparts    46

Section 8.12

   Amendment    46

Section 8.13

   Extension; Waiver    46

Section 8.14

   Tax Withholding    46

ARTICLE IX     DEFINITIONS

   47

 

 

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TABLE OF CONTENTS

(Continued)

 

Schedule    1.1*

       Seller Share Ownership

Schedule    4.25*

       Columbia License

Exhibits*

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Exhibit A

  Estimated Timeline

Exhibit B

  Non-Competition Agreement

Exhibit C

  Christiano Consulting Agreement

Exhibit D

  Carroll Employment Agreement

Exhibit E

  Payment for Purchase Price and Contingent Consideration

Exhibit F

  Escrow Agreement

Exhibit G

  Form of Investor Questionnaire

Exhibit H

  Christiano Stock Restriction Agreement

Exhibit I

  Carroll Stock Restriction Agreement

Exhibit J

  Jahoda Stock Restriction Agreement

Exhibit K

  Form of Parent Insider Trading Policy

Exhibit L

  Form of Company Affiliate Agreement

Exhibit M

  Form of Parent Officer’s Certificate

Exhibit N-1

  Form of Company Officer’s Certificate

Exhibit N-2

  Form of Seller Certificate

Exhibit O

  Form of Invention Agreement

Exhibit P

  Form of Settlement and Release Agreement

Exhibit Q

  Research Plan

Exhibit R

  Standard SAB Agreement

 

* Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and schedules to
this Sale Agreement have been omitted. Sirna Therapeutics, Inc. agrees to
supplementally furnish such schedules upon request from the Securities and
Exchange Commission.

 

 

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TABLE OF CONTENTS

TO

COMPANY DISCLOSURE SCHEDULE

 

Schedules*

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     Schedule 2.1    Qualification Schedule 2.2    Capitalization of the Company
Schedule 2.3    Authority Relative to this Agreement Schedule 2.4    Assets
Schedule 2.5    Approval Schedule 2.6    No Default Schedule 2.7    Liabilities
Schedule 2.9    Compliance Schedule 2.10    Intellectual Property Schedule 2.11
   Contracts Schedule 2.12    Interested Party Transactions Schedule 2.13   
Other Negotiations Schedule 2.14    Banks and Brokerage Accounts Schedule 2A.3
   Consents and Approvals Schedule 2A.6    Purchase Entirely for Own Account
Schedule 4.1    Conduct of Business of the Company Schedule 4.20    Company
Affiliate Agreements Schedule 8.3    Notices

 

* Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and schedules to
this Sale Agreement have been omitted. Sirna Therapeutics, Inc. agrees to
supplementally furnish such schedules upon request from the Securities and
Exchange Commission.

 

 

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TABLE OF DEFINED TERMS

 

Term

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Cross Reference

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   Page

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100% cap

   Section 6.1(c)    37

20% cap

   Section 6.1(a)    37

60% Limit

   Section 1.10(b)    7

75% Limit

   Section 1.10(a)(i)    6

Acquired Assets

   Section 1.2(c)    2

Acquired Corporation

   Article IX    46

Affiliate

   Article IX    46

Agreement

   Preamble    1

Ancillary Agreements

   Article IX    46

Approvals

   Article IX    46

Attaining Entity

   Section 1.10(a)    6

Average Parent Common Stock Price

   Section 1.5(b)    3

Best Efforts Effective Date

   Section 4.6(d)    24

Business

   Article IX    46

Business Day

   Article IX    46

California Permit

   Section 1.9    5

Capital Stock

   Article IX    48

Carroll

   Preamble    1

Carroll Employment Agreement

   Preamble    1

Christiano

   Preamble    1

Christiano Consulting Agreement

   Preamble    1

Clinical IP

   Article IX    48

Closing

   Section 1.3    2

Closing Date

   Section 1.3    2

Closing Shares

   Section 1.5(b)    3

Columbia License

   Section 4.25(a)    33

Columbia License Amount

   Article IX    47

Company

   Preamble    1

Company Affiliate Agreement

   Section 4.20    31

Company affiliates

   Section 4.20    31

Company Disclosure Schedule

   Article II    9

Company IP

   Article IX    47

Company Permits

   Section 2.9    11

Company Products

   Article IX    47

Company Registered IP

   Article IX    47

Company Shares

   Preamble    1

Company Transaction Expenses

   Section 4.11    29

Competing Proposed Transaction

   Section 4.2    21

Confidential Information

   Section 4.10    28

Contingent Consideration

   Section 1.10(a)    6

Contingent Payments

   Section 1.10(a)    6

Contingent Shares

   Section 1.10(a)    6

Contract

   Section 2.11(a)    14

Deferral

   Section 4.6(c)    22

 

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TABLE OF DEFINED TERMS

(continued)

 

Term

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Cross Reference

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   Page

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Earnout Notice

   Section 1.10(c)(i)(B)    8

Effective Period

   Section 4.2    19

Escrow Agent

   Article IX    47

Escrow Shares

   Section 1.6    4

Excess Amount

   Section 1.8(d)    5

Exchange Act

   Section 3.3    18

Exchange Ratio

   Section 1.5(b)    3

Experts

   Section 1.8(a)    5

Fairness Hearing

   Section 1.9    5

FDA

   Article IX    47

FDC Act

   Article IX    47

Field of Use

   Article IX    47

Filing Date

   Section 4.6(a)    21

Final Allocation

   Section 1.5(c)    3

GLP

   Article IX    49

GLP Toxicology Studies

   Article IX    47

Governmental or Regulatory Authority

   Section 2.5    10

In Vivo Efficacy

   Section 4.13    29

In Vivo Efficacy Study

   Preamble    1

Inbound Licenses

   Section 2.10(f)    12

include

   Article IX    49

including

   Article IX    49

Income Tax

   Article IX    49

IND

   Article IX    49

Indemnified Party

   Section 6.3    38

Indemnifying Party

   Section 6.3    38

Initial Purchase Price

   Section 1.5(b)    3

Intellectual Property

   Article IX    48

Invention Agreement

   Section 5.3(f)(iv)    35

Investor Questionnaire

   Section 4.3(b)    22

Jahoda

   Preamble    1

JAMS

   Section 8.4    45

Know-How

   Article IX    50

Knowledge

   Article IX    48

known

   Article IX    48

Lab

   Preamble    1

Law

   Article IX    50

Laws

   Article IX    50

Lien

   Article IX    49

Loss

   Article IX    49

Material Adverse Effect

   Article IX    49

Materials

   Preamble    1

NDA

   Article IX    51

NDA Submission Package

   Article IX    51

Net Sales

   Article IX    50

 

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TABLE OF DEFINED TERMS

(continued)

 

Term

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Cross Reference

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  Page

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Net Sales Earnout

  Section 1.10(b)   7

Net Sales Earnout Consideration

  Section 1.10(b)   7

Net Sales Earnout Payments

  Section 1.10(b)   7

Net Sales Earnout Shares

  Section 1.10(b)   7

Non-Competition Agreement

  Preamble   1

Notice of Objection

  Section 1.10(c)(ii)   8

Outbound Licenses

  Section 2.10(e)   12

Parent

  Preamble   1

Parent Common Shares

  Section 1.5(b)   3

Parent Insider Trading Policy

  Section 4.14   30

Parent Paid Expenses

  Preamble   1

Parent’s Proposed Allocation

  Section 1.5(c)   3

Patent Rights

  Article IX   50

Permit Application

  Section 2.15   15

Person

  Article IX   50

Phase II Trial

  Article IX   50

Phase III Trial

  Article IX   50

Product

  Article IX   50

Purchase Price

  Section 1.5   3

Qualifying Request

  ARTICLE IX   52

Registrable Securities

  Section 4.6(a)   23

Registration Statement

  Section 4.6(a)   23

Release Agreement

  Section 7.3(c)   41

Representatives

  Section 2.16   15

Research Loan

  Preamble   1

Research Plan

  Article IX   52

Rights in Materials

  Section 4.13(a)   31

SAB

  Section 1.8(a)(i)   4

SEC

  Section 2A.6(a)   16

SEC Documents

  Section 3.6   17

Securities Act

  Section 2.2   10

Seller Agent

  Preamble   1

Seller’s Percentage

  Section 1.5(a)   3

Seller’s Proposed Allocation

  Section 1.5(c)   3

Sellers

  Preamble   1

Share Termination Fee

  Section 7.3(a)   41

Shares

  Section 2A.6(a)   16

Shaw

  Preamble   1

Shaw Note

  Section 1.11   9

Sirna Enabled Data

  Article IX   52

Standard SAB Agreement

  Article IX   52

Stock Restriction Agreement

  Section 4.12   29

Stockholder Expense Amount

  Section 4.11   30

Subsidiaries

  Article IX   51

Subsidiary

  Article IX   51

 

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TABLE OF DEFINED TERMS

(continued)

 

Term

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Cross Reference

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   Page

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Suspension Event

   Section 4.7    28

Tax

   Article IX    51

Tax Return

   Article IX    51

Taxes

   Article IX    51

Transaction Consideration

   ARTICLE IX(qq)    53

Unreimbursed Losses

   Article IX    51

Valid Claim

   Article IX    53

 

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SALE AGREEMENT

 

THIS SALE AGREEMENT (this “Agreement”), dated as of October 12, 2004, is by and
among Skinetics Biosciences, Inc., a Delaware corporation (the “Company”), Sirna
Therapeutics, Inc., a Delaware corporation (“Parent”), and Dr. Joseph Carroll
(“Carroll”), Dr. Angela M. Christiano (“Christiano”), Dr. Colin Jahoda
(“Jahoda”) and Mr. David Shaw (“Shaw”), each a natural person, collectively, as
“Sellers”; and, solely with respect to Article VI and Article VIII, Shaw, as
agent for the Sellers (in such capacity, the “Seller Agent”). Capitalized terms
used in this Agreement and not defined herein shall have the meanings ascribed
to them in Article IX.

 

WHEREAS, Parent desires to purchase, and Christiano, Carroll and Shaw desire to
sell, all of the outstanding common stock, par value $0.001 per share, of the
Company (the “Company Shares”);

 

WHEREAS, concurrently with execution of this Agreement, each Seller has executed
and delivered to Parent a non-competition agreement (each, a “Non-Competition
Agreement”) in the form attached hereto as Exhibit B;

 

WHEREAS, concurrently with the execution of this Agreement, Christiano has
executed and delivered to Parent a consulting agreement between the Company and
Christiano with an effective date as of the date hereof (the “Christiano
Consulting Agreement”) in the form attached hereto as Exhibit C;

 

WHEREAS, concurrently with the execution of this Agreement, Carroll has executed
and delivered to Parent an employment agreement with an effective date as of the
date hereof (the “Carroll Employment Agreement”) attached hereto as Exhibit D;

 

WHEREAS, Parent has on and prior to the date hereof paid certain of the legal
expenses incurred by the Company in connection with the transactions
contemplated hereby in the aggregate amount of $100,000 (the “Parent Paid
Expenses”);

 

WHEREAS, Parent has loaned the Company $190,000 (the “Research Loan”) for
certain, among other things, In Vivo Efficacy research activities (the “InVivo
Efficacy Study”) of the Company to take place at the Audubon research facility
(the “Lab”), (ii) Parent agreed to provide to the Company certain siRNA reagents
and formulation for use in such In Vivo Efficacy Study (the “Materials”) and
(iii) Parent and the Company agreed to certain co-ownership rights with respect
to the Sirna Enabled Data in certain circumstances, which rights are set forth
in full herein; and

 

WHEREAS, in consideration of the Company Shares, the Non-Competition Agreements,
and other instruments to be delivered pursuant to this Agreement and subject to
terms and conditions set forth herein, Parent will make the payments to the
Sellers described in Article I of this Agreement.

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NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent, and the Sellers
hereby agree as follows:

 

ARTICLE I

PURCHASE AND SALE

 

Section 1.1 Purchase and Sale. On the terms and subject to the conditions of
this Agreement, at the Closing, each Seller shall sell, assign, transfer, convey
and deliver to Parent, and Parent shall purchase from each Seller all of such
Seller’s right, title and interest in and to the number of Company Shares set
forth next to each such Seller’s name on Schedule 1.1.

 

Section 1.2 Other Seller Deliveries. To the extent not previously delivered, at
the Closing,

 

(a) each Seller will execute and deliver a:

 

(i) Non-Competition Agreement; and

 

(ii) Invention Agreement; and

 

(iii) Certificates or other incidences of ownership representing such Seller’s
Company Shares endorsed over to Parent or accompanied by duly executed powers or
similar instruments of transfer; and

 

(b) Christiano will execute and delivery the Christiano Consulting Agreement;
and

 

(c) Carroll will execute and deliver the Carroll Employment Agreement.

 

The Company Shares, Non-Competition Agreements, Invention Agreements, Christiano
Consulting Agreement and Carroll Employment Agreement are, collectively, the
“Acquired Assets.”

 

Section 1.3 Closing. Unless this Agreement is earlier terminated pursuant to
Section 7.1, the closing of the transactions contemplated hereby (the “Closing”)
will take place as promptly as reasonably practicable but no later than five (5)
Business Days following satisfaction or waiver of the conditions set forth in
ARTICLE V (other than conditions contemplated to be satisfied by the delivery of
agreements, certificates or other instruments on the Closing Date), at the
offices of O’Melveny & Myers, LLP, 2765 Sand Hill Road, Menlo Park, California
94025, unless another place or time is agreed to by Parent and the Company;
provided, however, that the Closing shall not occur before January 1, 2005
unless the California Permit has been obtained or Parent provides a loan due no
earlier than three (3) months after such Seller can first publicly sell Closing
Shares to repay such loan, such loan to bear interest at the applicable federal
rate of interest to each Seller requesting such a loan in an amount equal to the
expected amount of the tax payment, if any, as estimated in good faith by the
Seller, that the Seller would be required to make for the fourth quarter of 2004
to the extent such tax payment results solely from the payment of the Closing
Shares to such Seller on the Closing Date. The

 

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date upon which the Closing actually occurs is herein referred to as the
“Closing Date.” At the Closing, the parties shall deliver the agreements,
certificates and other instruments and documents required to be delivered at or
prior to the Closing pursuant to Section 1.2 and ARTICLE V.

 

Section 1.4 Resignation of Directors and Officers. The directors and officers of
the Company in office immediately prior to the Closing shall resign as directors
and officers, as applicable, of the Company effective as of the Closing.

 

Section 1.5 Purchase Price. The purchase price (the “Purchase Price”) for the
Acquired Assets shall consist of the Closing Shares, the Contingent
Consideration and the Net Sales Earnout Consideration, and shall be paid in
accordance with this Section 1.5 and Section 1.10.

 

(a) Pro Rata Payments. All payments of the Purchase Price to the Sellers under
this Section 1.5 and Section 1.10(a) and (b) shall be made to the Sellers pro
rata in accordance with the relative proportions of the number set forth next to
each Seller’s name under the caption “Seller’s Percentage” as set forth in
Schedule 1.1 (such Seller’s percentage ownership, the “Seller’s Percentage”),
except that if the amount of the payment has been reduced to set off for a Loss
under Schedule 8.6 that is not borne in the same pro rata manner, then such
alternative allocation shall be reflected in the allocation of such payment to
the Sellers.

 

(b) Closing Shares. At the Closing, Parent shall pay to the Sellers, subject to
adjustment as set forth in Section 1.8, such number of shares (the “Closing
Shares”) of common stock of Parent, par value $0.01 (“Parent Common Shares”), as
is equal to the excess of (aa) the result obtained by dividing (i) $2,000,000
(the “Initial Purchase Price”) by (ii) the average closing selling price of a
share of Parent Common Stock traded on the Nasdaq National Market, as quoted in
The Wall Street Journal, over the 15 day period (the “Average Parent Common
Stock Price”) ending on the date of the execution of this Agreement (such
resulting ratio hereinafter the “Exchange Ratio”) over (bb) (1) one hundred
seventy thousand sixty-eight (170,068) or (2) if the number of shares to be paid
to the Sellers at the Closing is adjusted pursuant to the third to last sentence
of this paragraph (b), 500,000 divided by the Average Parent Common Stock Price
ending on the Closing Date. For the avoidance of doubt, the Average Parent
Common Stock Price ending on the date of the execution of this Agreement is
$2.94. Notwithstanding the foregoing, if the Average Parent Common Stock Price
ending on the Closing Date (x) exceeds the product of 1.2 multiplied by the
Average Parent Common Stock Price ending on the date of execution of this
Agreement or (y) is less than the product of 0.8 multiplied by the Average
Parent Common Stock Price ending on the date of execution of this Agreement,
then the number of Closing Shares shall be calculated using the Average Parent
Common Stock Price ending on the Closing Date instead of the Average Parent
Common Stock Price ending on the date of the execution of this Agreement. The
Exchange Ratio shall be subject to equitable adjustment in the event of a stock
split, stock dividend, reverse stock split or similar event affecting the Parent
Common Shares between the date of this Agreement and the Closing Date. At the
Closing, Parent will have the option to pay in cash to each Seller in accordance
with Section 1.5(a) the value of any Closing Shares not to exceed twenty
thousand dollars ($20,000) in the aggregate for all Sellers, in each case using
the applicable Average Parent Common Stock Price.

 

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(c) Allocation. Within ninety (90) days following the date of this Agreement,
Parent shall deliver to Seller Agent a written schedule for each Seller setting
forth a proposed allocation of the Purchase Price payable to such Seller among
the Acquired Assets to be acquired from such Seller which schedule shall be
consistent with the provisions of Exhibit E (“Parent’s Proposed Allocation”).
Within thirty (30) days following the receipt by Seller Agent of Parent’s
Proposed Allocation, Seller Agent shall deliver to Parent a revised schedule,
consistent with Exhibit E (“Seller’s Proposed Allocation”), reflecting any
proposed changes to Parent’s Proposed Allocation, which if accepted by Parent
shall be the final allocation (the “Final Allocation”). If Parent does not agree
to Seller’s Proposed Allocation, the parties shall endeavor, in good faith, to
agree to a Final Allocation within thirty (30) days of such delivery. If
agreement cannot be reached the Final Allocation shall be determined pursuant to
the arbitration provisions of Section 8.4; provided that for purposes of that
arbitration (i) the provisions of Exhibit E shall be applied by the arbitrator
(except to the to the extent the arbitrator determines that they must be varied
to result in allocations which would be considered reasonable for tax and
accounting purposes, in which case they shall be varied to the minimum extent
necessary) and (ii) the arbitrator shall take into consideration, as a factor
(but not a strict limitation) in reaching its conclusion the standards regularly
applied by Parent’s independent public accountants and the desire for
consistency between parties. The parties shall report for all tax and accounting
purposes consistently with the Final Allocation, except to the extent required
to do otherwise by Parent’s auditors or independent accountants or following a
determination by any taxing authority that such reporting position is contrary
to applicable tax law.

 

Section 1.6 Escrow Shares. Within seven (7) Business Days after the execution of
this Agreement, as security for Parent’s obligation to pay to the Company the
Share Termination Fee in accordance with Section 7.3 herein, Parent will place
such number of Closing Shares into an escrow account (the “Escrow Shares”) as is
equal to the result obtained by dividing (i) $500,000 by (ii) the Average Parent
Common Stock Price ending on the date of the execution of this Agreement. The
administration and disposition of the Escrow Shares will be governed by the
Escrow Agreement attached hereto as Exhibit F, any agreements relating to the
Escrow Shares executed by the Seller Agent and Parent, and Schedule 4.25.

 

Section 1.7 Fractional Shares. No certificates or scrip representing fractional
shares shall be issued to the Sellers and such Sellers shall not be entitled to
any voting rights, rights to receive any dividends or distributions or other
rights as a stockholder of Parent with respect to any fractional shares that
would have otherwise been issued to Sellers. In lieu of any fractional Closing
Shares, fractional Contingent Shares, or fractional Net Sales Earnout Shares
that would have otherwise been issued to a Seller, such Seller shall be entitled
to receive a cash payment equal to the applicable Average Parent Common Stock
Price multiplied by the fraction of a share that such Seller would otherwise be
entitled to receive.

 

Section 1.8 Adjustments. The Initial Purchase Price shall be adjusted in the
manner and under the circumstances set forth in this Section 1.8; provided that
such adjustment shall in no event result in the Initial Purchase Price being
below zero dollars ($0).

 

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(a) Scientific Advisory Board. If, on or prior to the Closing Date:

 

(i) Four or more of the Experts have agreed to join Parent’s Scientific Advisory
Board (the “SAB”) pursuant to the Standard SAB Agreement, the Initial Purchase
Price shall not be reduced solely on such account;

 

(ii) Any three (but less than four) of the Experts have agreed to join the SAB
pursuant to the Standard SAB Agreement, the Initial Purchase Price shall be
reduced by Two Hundred Fifty Thousand Dollars ($250,000); and

 

(iii) Less than three of the Experts agree to join the SAB pursuant to the
Standard SAB Agreement, the Initial Purchase Price shall be reduced by Five
Hundred Thousand Dollars ($500,000).

 

As used in this Section 1.8(a), “Experts” means, collectively, Elaine Fuchs,
Ph.D., Rockefeller University; James Krueger, M.D., Ph.D., Rockefeller
University; Thomas S. Kupper, M.D., Harvard University; Fiona Watt, Ph.D.,
Imperial Cancer Research Fund and Paul Khavari, M.D., Ph.D., Stanford University
(and such additional individuals of similar stature in the industry proposed by
the Company and reasonable acceptable to Parent).

 

(b) Columbia License Amount. In addition to the adjustments, if any, to the
Initial Purchase Price pursuant to Section 1.8(a), the Initial Purchase Price
shall be further reduced by the amount of the Columbia License Amount as
provided in Section 4.25.

 

(c) Excess Company Transaction Expenses. In addition to the adjustments, if any,
to the Initial Purchase Price pursuant to Section 1.8(a) and Section 1.8(b), the
Initial Purchase Price shall be reduced by the amount of the Stockholder Expense
Amount.

 

(d) Other Excess Liabilities. In addition to the adjustments, if any, to the
Initial Purchase Price pursuant to Section 1.8(a), Section 1.8(b), and Section
1.8(c), the Initial Purchase Price shall be reduced by the aggregate amount of
all outstanding liabilities and obligations of the Company as of immediately
prior to the Closing (including those liabilities set forth on Section 2.7 of
the Company Disclosure Schedule but not including those liabilities that
constitute Company Transaction Expenses) that exceed the principal amount of the
Research Loan (such excess, the “Excess Amount”).

 

Section 1.9 Exemption From Registration; California Permit. Subject to the
provisions of Section 4.3, the parties intend that the Closing Shares,
Contingent Shares, and Net Sales Earnout Shares will be issued or are issuable,
as applicable, in a transaction exempt from registration under the Securities
Act by reason of Section 3(a)(10) thereof. Subject to the provisions of Section
4.3, the parties intend that the Closing Shares, Contingent Shares, and Net
Sales Earnout Shares will be qualified under the California Corporations Code
pursuant to Section 25121 thereof after a fairness hearing has been held
pursuant to the authority granted by Section 25142 of the California Code (the
“Fairness Hearing”). Parent, with and subject to the cooperation of the Company,
shall use commercially reasonable efforts (i) to file promptly (and, to the
extent reasonably practicable, within fifteen (15) Business Days) following the
execution and delivery of this Agreement, an application for issuance of a
permit pursuant to Section 25121

 

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of the California Code to issue such securities (the “California Permit”) and
(ii) to obtain the California Permit promptly thereafter.

 

Section 1.10 Additional Consideration.

 

(a) Achievement of Milestones. Subject to the terms and conditions set forth in
this Section 1.10, the Sellers shall receive an additional amount (the
“Contingent Consideration”) payable either in Parent Common Shares (the
“Contingent Shares”), in cash (the “Contingent Payments”), or in a combination
thereof, such combination to be determined in the sole discretion of Parent
(subject to the 75% Limit), in the amounts described in this Section 1.10(a)
upon the attainment of specified milestones as follows by the Acquired
Corporation, Parent, their Affiliates acting on their behalf or under their
actual control, their acquirors (if any), for this express purpose their
licensees in the Field of Use, or, in each case, any successor thereto (the
“Attaining Entity”):

 

1.    Completion of GLP Toxicology Studies for the first Product:

   $ 500,000

2.    Filing of IND for the first Product (unless otherwise provided in Schedule
4.25)

   $ 600,000

3.    Initiation of Phase II Trial for the first Product:

   $ 1,000,000

4.    Initiation of Phase III Trial for the first Product:

   $ 1,000,000

5.    Approval of NDA for the first Product:

   $ 1,000,000

 

(i) Calculation of Earnout Amount. For purposes of calculating the aggregate
number of Contingent Shares to be issued to the Sellers in the event the
Attaining Entity attains any of the milestones set forth above, the price of
such Contingent Shares shall be equal to the dollar amounts set forth above next
to the applicable milestone divided by the Average Parent Common Stock Price
ending on the date such applicable milestone is reached; except that milestones
4 and 5 above, respectively, shall be priced based on the Average Parent Common
Stock Price ending on the date milestones 3 and 4 above, respectively, are
reached. The aggregate number of Contingent Shares shall, in each case, be
subject to equitable adjustment in the event of a stock split, stock dividend,
reverse stock split or similar event affecting the Parent Common Shares between
the date of determination of such Average Parent Common Stock Price and the date
of such payment. Notwithstanding anything to the contrary in this Section
1.10(a), unless a California Permit is obtained prior to the Closing Date and
the Contingent Shares are exempt from registration under the Securities Act by
reason of Section 3(a)(10) of such act, no more than seventy-five percent (75%)
of the value of the Contingent Consideration paid for any of the milestones set
forth above shall be paid using Contingent Shares (the “75% Limit”).

 

(ii) Progress Reports on Milestones. As soon as reasonably practicable following
a request by the Seller Agent, Parent will provide the Seller Agent with a
summary of

 

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Parent’s progress toward attaining the milestones above, including Parent’s
non-binding estimate of whether, and if so, when it estimates attaining any
remaining milestones. Such summary shall be prepared in good faith but shall not
constitute any representation, warranty or covenant of Parent or Acquired
Corporation regarding whether or when any remaining milestones will be obtained
and each Seller acknowledges and agrees that such summary will be subject to
significant uncertainties and that achievement of any remaining milestones could
take significantly longer than may be presented in such summary or may not occur
at all.

 

(b) Net Sales Earnout Shares. In addition to the Closing Shares and the
Contingent Shares, the Sellers shall receive on a quarterly basis after the
Closing, an additional amount (the “Net Sales Earnout”) payable either in Parent
Common Shares (the “Net Sales Earnout Shares”), in cash (“Net Sales Earnout
Payments” and together with the Net Sales Earnout Shares, the “Net Sales Earnout
Consideration”), or in a combination thereof, such combination to be determined
in the sole discretion of Parent (subject to the 60% Limit), in each quarter in
which the value of then accrued but unpaid Net Sales Earnout Shares and/or Net
Sales Earnout Payments (as applicable) are equal to an aggregate of: (i) 1% of
the Net Sales in each country where such sales are covered by a Valid Claim
under a patent or patent application of Parent, the Acquired Corporation, or any
of their Affiliates acting on their behalf or under their actual control
(“Patent Sales”), or (ii) 0.5% of the Net Sales in each country where (x) either
no Patent Sales have occurred or (y) Patent Sales have ceased (the “Non-Patent
Sales”); provided, however, that, the Sellers shall receive no Net Sales Earnout
(aa) for any Patent Sale in any country after there has ceased to be any Valid
Claim in such country or (bb) for any Non-Patent Sale in a country after the
twelfth (12th) anniversary of the date of the earlier of the first Patent Sale
or Non-Patent Sale in such country; and provided further that, unless a
California Permit is obtained prior to the Closing Date and the Net Sales
Earnout Shares are exempt from registration under the Securities Act by reason
of Section 3(a)(10) of such act, no more than sixty percent (60%) of the value
of the Net Sales Earnout in any quarter shall be paid using Net Sales Earnout
Shares (the “60% Limit”).

 

(i) Calculation of Net Sales Earnout Shares. For purposes of calculating the
number of Net Sales Earnout Shares to be issued and for purposes of calculating
whether the 60% Limit has been met, the value of each Net Sales Earnout Share
shall be equal to the Average Parent Common Stock Price ending on the last day
of the calendar quarter for which payment of the Net Sales Earnout has been
earned but unpaid, subject to equitable adjustment in the event of a stock
split, stock dividend, reverse stock split or similar event affecting the Parent
Common Shares between the date of determination of such Average Parent Common
Stock Price and the date of such payment.

 

(c) Earnout Distributions; Seller Agent Objections.

 

(i) Earnout Distribution.

 

(A) Contingent Shares. Within thirty (30) days after any milestone set forth in
Section 1.10(a) above is attained, Parent shall deliver to the Sellers the
Contingent Shares.

 

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(B) Net Sales Earnout. Within fifteen days following the end of each calendar
quarter from and after the date the Acquired Corporation launches a commercial
Product, Parent shall send to the Seller Agent a memorandum (the “Earnout
Notice”) specifying (i) in reasonable detail the Net Sales for such period, (ii)
if applicable, any proposed set off for Losses in accordance with Section 8.6
and (iii) the net aggregate amount, if any, to be distributed to the Sellers for
such period pursuant to Section 1.10(b) hereof, indicating the portion thereof
that will be paid in cash and/or Parent Common Shares. The Net Sales Earnout
shall be paid to the Sellers within thirty (30) days following the earlier of:
(A) written acceptance by the Seller Agent of the applicable Earnout Notice, (B)
failure of the Seller Agent to make a timely Notice of Objection (as defined
below) pursuant to subsection (ii) of this Section 1.10(c) and (C) resolution of
any dispute with respect to such Net Sales Earnout pursuant to subsection (ii)
of this Section 1.10(c).

 

(ii) Seller Agent Objection. The Seller Agent shall have thirty (30) days to
make an objection (in writing) to any item in the Earnout Notice, specifying in
reasonable detail the item objected to and the basis for such objection (the
“Notice of Objection”) and shall have reasonable access to records, other
information, or personnel as reasonably requested by the Seller Agent, subject
to confidentiality restrictions as reasonably requested by Parent (it being
agreed that such confidentiality restrictions will place no restrictions or
inhibitions on the Seller Agent’s ability to use such information in connection
with any dispute over the Net Sales Earnout pursuant to the procedures set forth
in Section 8.4). If a timely Notice of Objection is not received or to the
extent an item is not objected to in the Notice of Objection, the Earnout Notice
and the portion of the Net Sales Earnout to be paid shall be deemed to have been
accepted and final and binding on the parties. If the Seller Agent delivers a
timely Notice of Objection to the Earnout Notice, Parent and the Seller Agent
shall resolve such conflict in accordance with the procedures set forth in
Section 8.4.

 

(d) Support for Earnout Milestones.

 

(i) Resources and Support. Parent shall use all commercially reasonable efforts
to achieve the milestones set forth in Section 1.10. Parent shall provide, or
facilitate the provision of, a commercially reasonable amount of working capital
for the Acquired Corporation to seek to achieve the milestones. Parent shall
provide, or facilitate the provision of, sufficient personnel for the Acquired
Corporation to seek to achieve the milestones and shall not divert existing
personnel of the Acquired Corporation to projects unrelated to the milestones
without providing substitute personnel sufficient so that any such diversion of
existing personnel does not materially impair the Acquired Corporation’s ability
to seek to achieve the milestones. Parent has prepared in good faith an
estimated, non-binding timeline for commercialization of the first Product
attached hereto as Exhibit A but neither Parent nor the Acquired Corporation
make any representations, warranties or covenants regarding the accuracy of such
timeline and each Seller acknowledges and agrees that such timeline is subject
to significant uncertainties and that commercialization could take significantly
longer than presented in such timeline or may not occur at all.

 

(ii) Impairment. Without in any way limiting Parent’s obligations or the
Sellers’ rights pursuant to Section 1.10(a)(i), the parties agree that the
achievement of the milestones set forth in Section 1.10 shall be subject to
renegotiation in good faith if Parent takes

 

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any action after the Closing Date that materially and adversely alters the
resources or support available to the Acquired Corporation for achieving the
milestones set forth in Section 1.10.

 

(iii) Business Decisions. Without in any way limiting Parent’s obligations or
the Sellers’ rights pursuant to Section 1.10(d)(i), Section 1.10(d)(ii) and
Section 4.9, the Company, the Sellers and Parent agree and acknowledge that the
Acquired Corporation and Parent may make from time to time such business
decisions as they deem appropriate in the conduct of the Acquired Corporation’s
and Parent’s businesses, including actions that may have an impact on Net Sales,
including, without limitation, closure of the Acquired Corporation’s business,
and the Sellers will have no right to claim any lost earnout or other damages as
a result of such decisions so long as the actions were not taken by the Acquired
Corporation or Parent in bad faith or for the purpose of frustrating the
provisions of this Section 1.10.

 

(e) Earnout Rights Not Transferable. Except with the prior written consent of
Parent, no Seller may sell, exchange, transfer or otherwise dispose of his, her
or its right to receive any portion of the earnout amounts payable pursuant to
this Section 1.10, other than by the laws of descent and distribution or
succession or a transfer to a trust for the benefit of such Seller’s family
members. Any transfer in violation of this Section 1.10(e)(ii) shall be null and
void and need not be recognized by Parent or the Acquired Corporation.

 

Section 1.11 Payment of Shaw Note. At the Closing, Parent shall pay all amounts
outstanding under the Promissory Note and Security Agreement, effective August
5, 2004 (the “Shaw Note”). Upon such payment, Shaw shall deliver to Parent a
satisfaction and receipt in the form reasonable acceptable to Parent; provided,
however, that in no event shall Parent pay any amount to Shaw not fully offset
by a corresponding reduction in the number of Closing Shares.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants as of the date hereof and the Closing
Date to each of Parent, subject solely to the exceptions set forth in the
Disclosure Schedule dated as the date hereof (the “Company Disclosure Schedule”)
delivered by the Company to Parent (which exceptions shall specifically identify
the section, subsection, paragraph or clause of a single section or subsection
hereof, as applicable, to which such exception relates and be limited in their
effect to such identified sections, subsections, paragraphs or clauses except
where disclosure to other sections is clear from a reading of such sections and
without relying on extrinsic information), that:

 

Section 2.1 Organization and Qualification; Subsidiaries; Investments.

 

(a) Organization. The Company is duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted and as proposed to be conducted. The Company has
delivered to Parent accurate and complete copies of its Certificate of
Incorporation and Bylaws (or similar governing documents), as currently in full
force and effect. The Company never has had and currently does not have any
subsidiaries.

 

9

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(b) Qualifications. The Company is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary.

 

(c) Other Investments. The Company has not made investments in the equity or
other securities of any other Person.

 

Section 2.2 Capitalization of the Company. The authorized capital stock of the
Company consists of 15,000,000 shares of common stock, par value $0.001 per
share, and 5,000,000 shares of preferred stock, par value $0.001 per share, of
which 1,000 shares of common stock are issued and outstanding and no shares of
preferred stock are issued and outstanding. No outstanding shares of common
stock of the Company are subject to any rights of repurchase by the Company. All
of the outstanding shares of common stock of the Company have been validly
issued and fully paid, nonassessable and free of preemptive rights. Except for
the Company Shares, there are not outstanding any (i) shares of capital stock or
other voting securities of the Company (including any shares of preferred
stock), (ii) securities of the Company convertible into, or exchangeable or
exercisable for, shares of capital stock or voting securities of the Company,
(iii) options, warrants or other rights to acquire from the Company and no
obligations of the Company to issue any capital stock, voting securities or
securities convertible into or exchangeable or exercisable for capital stock or
voting securities of the Company or (iv) equity equivalent interests in the
ownership or earnings of the Company or other similar rights. All of the
outstanding Company Shares were issued in compliance with the Securities Act of
1933, as amended (the “Securities Act”), and applicable state securities laws.
As of the date hereof, there are no outstanding rights or obligations of the
Company to repurchase, redeem or otherwise acquire any Company Shares. There are
no stockholder agreements, voting trusts or other arrangements or understandings
to which the Company is a party or by which it is bound, and to its Knowledge
there are no other agreements, voting trusts or other arrangements or
understandings, relating to the voting or registration of any shares of capital
stock or other voting securities of the Company or to the issuance of capital
stock, options, warrants or any other rights to any person, including any sales
representatives, consultants, contractors, employees, stockholders of the
Company or distributors of the Company’s products. Attached hereto as Section
2.2 of the Disclosure Schedule is a true and complete list as of the date hereof
and as of the Closing Date of all holders of outstanding Company Shares, which
list sets forth the names, addresses and primary residences, and the number of
Company Shares held by each Seller. No Company Shares are owned by the Company.

 

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Section 2.3 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations under this Agreement. The execution and delivery of this
Agreement and the performance of the Company’s obligations under this Agreement
have been duly and validly authorized by the Board of Directors of the Company
and the stockholders of the Company, and no other corporate proceedings on the
part of the Company are necessary to authorize and adopt this Agreement or
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the Company and constitutes, assuming the
due authorization, execution and delivery hereof by Parent, a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors’ rights generally or to general principles of equity.

 

Section 2.4 Balance Sheet; Statement of Income; Assets. The Company has not
prepared a balance statement or statement of income for any period. Except as
set forth in Section 2.4 of the Company Disclosure Schedule as of the date
hereof, the Company has no assets of any nature.

 

Section 2.5 Consents and Approvals; No Violations. Except for the California
Permit and filings in connection with the Fairness Hearing and the California
Permit, no filing with or notice to, and no permit, authorization, consent or
approval of, any United States or foreign court or tribunal, governmental or
regulatory body, or administrative agency or authority (each, a “Governmental or
Regulatory Authority”) is necessary for the execution and delivery by the
Company of this Agreement and the performance of its obligations hereunder.
Neither the execution, delivery and performance of its obligations under this
Agreement by the Company or the consummation of the transactions contemplated
hereby will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws of the Company (or similar governing
documents), (ii) result in a violation or breach of or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or Lien) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company is a party or by which any of its properties or assets may be bound
and which is material to the Company or its properties or assets, or (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company or any of its properties or assets.

 

Section 2.6 No Default. The Company is not in breach, default or violation (and
no event has occurred that with notice or the lapse of time or both would
constitute a breach, default or violation) of any term, condition or provision
of (i) its Certificate of Incorporation or Bylaws of the Company (or similar
governing documents), (ii) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company is
now a party or by which it or any of its properties or assets may be bound and
which is material to the Company or its properties or assets, or (iii) any
order, writ, injunction or decree of any Governmental or Regulatory Authority
applicable to the Company or any of its properties or assets.

 

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Section 2.7 No Undisclosed Liabilities. As of the date hereof, the Company does
not have any liabilities or obligations of any nature, known or unknown, whether
or not accrued, contingent or otherwise, other than as set forth on Section 2.7
of the Company Disclosure Schedule.

 

Section 2.8 Litigation. As of the date hereof, there are no suits, claims,
actions, proceedings or investigations pending or, to the Knowledge of the
Company, threatened against the Company or any of its properties or assets of
any nature or initiated, filed or otherwise brought by or on behalf of the
Company. As of the date hereof, neither the Company nor any of its properties or
assets of any nature is subject to any outstanding order, writ, injunction or
decree of any Governmental or Regulatory Authority. As of the Closing Date,
there are no material suits, claims, actions, proceedings or investigations
pending or, to the Knowledge of the Company, threatened against the Company or
any of its properties or assets of any nature or initiated, filed or otherwise
brought by or on behalf of the Company. As of the Closing Date, neither the
Company nor any of its properties or assets of any nature is subject to any
material outstanding order, writ, injunction or decree of any Governmental or
Regulatory Authority.

 

Section 2.9 Compliance with Applicable Law. The Company holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of its business (collectively, the
“Company Permits”). The Company is in compliance with the terms of the Company
Permits held by it or to which it is subject. The business of the Company is
conducted in all material respects in compliance with all applicable laws,
ordinances and regulations of the United States or any foreign country, or any
political subdivision thereof, or of any Governmental Entity.

 

Section 2.10 Intellectual Property.

 

        (a) Section 2.10(a) of the Company Disclosure Schedule contains a
complete and accurate list of all Company Products. Company has provided Parent
with all documentation and materials with respect to the Company Products,
including any documentation and materials related to Clinical IP and Know-How.

 

        (b) Company is the exclusive owner of all right, title and interest in
and to the Company IP, free and clear of all Liens, and has the exclusive rights
to use, sell, license, assign, transfer, convey, dispose of, or otherwise
commercially exploit the Company IP. Without limiting the generality of the
foregoing, to the extent that any Patent Rights would be infringed by any
Company Product (including but not limited to the manufacture, sale or use
thereof), Company is the exclusive owner of such Patent Rights.

 

        (c) Company has taken all steps to protect and preserve the
confidentiality of all confidential and proprietary information of Company.
Company has delivered to Parent copies of all nondisclosure agreements or other
agreements relating to the handling, disclosure, and use of Company’s
confidential and proprietary information. Company has not permitted any Company
IP or any confidential or proprietary information of Company to lapse or enter
the public domain.

 

        (d) There is no Company Registered IP.

 

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        (e) Section 2.10(e) of the Company Disclosure Schedule separately lists
all licenses, sublicenses and other agreements to which Company is a party and
pursuant to which any third party is authorized to use, exercise or receive any
benefit from the Company IP (“Outbound Licenses”). Company has delivered to
Parent accurate and complete copies of all Outbound Licenses and is in
compliance with all material terms and conditions thereof. Other than the
Outbound Licenses, Company has not transferred ownership of, or granted or
agreed to grant any license of or right to use, or authorized the retention of
any rights to use or joint ownership of, any Intellectual Property that is or
was Company IP to any third party.

 

        (f) Section 2.10(f) of the Company Disclosure Schedule separately lists
all licenses, sublicenses and other agreements to which Company is a party and
pursuant to which Company is authorized to use, exercise, or receive any benefit
from any Intellectual Property of any third party (“Inbound Licenses”). Company
has delivered to Parent accurate and complete copies of all Inbound Licenses and
is in compliance with all material terms and conditions thereof. To the
Knowledge of Company, there is no assertion, claim or threatened claim, or facts
that could serve as a basis for any assertion or claim, that Company has
breached any terms or conditions of any Inbound Licenses.

 

        (g) (i) No employee of or consultant to the Company whose duties or
responsibilities relate to the Business is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for the Company or to promote the interests of the
Company or that would conflict with the Business. (ii) The carrying on of the
Business by such employees of and contractors to the Company and the conduct of
the Business will not conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees of or consultants to
the Company is now obligated. (iii) At no time during the conception of or
reduction to practice of any Company IP was any developer, inventor or other
contributor to such Company IP operating under any grants from any Governmental
Entity or private source (whether or not academic), performing research
sponsored by any Governmental Entity or private source (whether or not academic)
or subject to any employment agreement or invention assignment or nondisclosure
agreement or other obligation with any third party that could adversely affect
the Company’s rights in Company IP. (iv) All developers, inventors and other
contributors to the conception of or reduction to practice of any Company IP,
whether or not presently employed by or under contract with the Company or not,
have entered into proprietary information, confidentiality and assignment
agreements substantially in the Company’s standard forms (true, correct and
complete copies of which have been delivered to Parent) that assign to the
Company any Intellectual Property rights relating to the Business and that
otherwise appropriately protect the Company IP. (v) There exist no inventions by
current and former employees or consultants of the Company, made or otherwise
conceived prior to their beginning employment or consultation with the Company,
that have been or will be incorporated into any of Company IP or Company
Products.

 

        (h) As of the date hereof, no Person has asserted or, to the Knowledge
of the Company, threatened to assert any claims (i) contesting the right of
Company to use, exercise, sell, license, transfer or dispose of any Company IP
or any Company Product or (ii) challenging

 

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the ownership, validity or enforceability of any of the Company IP. As of the
date hereof, no Company IP is subject to any outstanding order, judgment,
decree, stipulation or agreement related to or restricting in any manner the
licensing, assignment, transfer, use or conveyance thereof by Company. As of the
Closing Date, no Person has asserted or, to the Knowledge of the Company,
threatened to assert any material claims (i) contesting the right of Company to
use, exercise, sell, license, transfer or dispose of any Company IP or any
Company Product or (ii) challenging the ownership, validity or enforceability of
any of the Company IP. As of the Closing Date, no Company IP is subject to any
material outstanding order, judgment, decree, stipulation or agreement related
to or restricting in any manner the licensing, assignment, transfer, use or
conveyance thereof by Company. Company has not received any opinion of counsel
regarding any third party patents.

 

        (i) The operation of the Business (including any disposition of Company
Product) does not, to the Knowledge of the Company, infringe or misappropriate
any Intellectual Property of any third party, violate any right of any third
party (including any right to privacy or publicity), or constitute unfair
competition or trade practices under the laws of any jurisdiction. Company has
not received notice from any third party that the operation of the Business or
disposition of any Company Product infringes or misappropriates the Intellectual
Property of any third party, violates any right of any third party (including
any right to privacy or publicity), or constitutes unfair competition or trade
practices under the laws of any jurisdiction.

 

        (j) Company is not a party to any non-competition or other similar
restrictive agreement or arrangement relating to any business or service
anywhere in the world.

 

Section 2.11 Contracts.

 

        (a) Section 2.11 of the Company Disclosure Schedule sets forth a
complete and accurate list of all written or oral contracts, agreements,
options, leases, licenses, sales and purchase orders, warranties, guarantees,
indemnities, commitments and other instruments of any kind (each a “Contract”),
to which the Company is a party or to which the Company, or any of its
properties, is otherwise bound as of the date hereof.

 

        (b) Each Contract is a legal, valid and binding obligation of the
Company and, to the Company’s Knowledge, each other Person who is a party
thereto, enforceable against the Company and each such Person in accordance with
its terms, and neither the Company nor, to the Company’s Knowledge, any other
party thereto is in default thereunder.

 

Section 2.12 Interested Party Transactions. No director, officer or other
affiliate of the Company, has or has had, directly or indirectly, (i) an
economic interest in any Person which has furnished or sold, or furnishes or
sells, services or products that the Company furnishes or sells; (ii) an
economic interest in any Person that purchases from or sells or furnishes to,
the Company, any goods or services; (iii) a beneficial interest in any Contract
included in Section 2.10 or Section 2.11 of the Company Disclosure Schedule or
(iv) any contractual or other arrangement with the Company; provided, however,
that ownership of no more than one percent (1%) of the outstanding voting stock
of a publicly traded corporation shall not be deemed an “economic interest in
any person” for purposes of this Section 2.12.

 

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Section 2.13 Other Negotiations; Brokers. Neither the Company nor any of its
officers, directors, employees, or, to the Knowledge of the Company, any of its
stockholders or affiliates (nor any agent or any investment banker, financial
advisor, attorney, accountant or other Person retained by or acting for or on
behalf of the Company or any such affiliate) (a) have entered into any Contract
that conflicts with any of the transactions contemplated by this Agreement or
(b) except for the Company’s obligations to Parent under this Agreement, have
entered into any Contract regarding any transaction involving the Company which
could result in Parent, the Company or any general partner, limited partner,
manager, officer, director, employee, agent or affiliate of any of them being
subject to any claim for liability to any Person as a result of entering into
this Agreement or consummating the transactions contemplated hereby. No broker,
investment banker, financial advisor or other Person is entitled to any
broker’s, finder’s, financial advisor’s or similar fee or commission in
connection with this Agreement and the transactions contemplated hereby based on
arrangements made by or on behalf of the Company.

 

Section 2.14 Banks and Brokerage Accounts. Section 2.14 of the Company
Disclosure Schedule sets forth (a) a true and complete list of the names and
locations of all banks, trust companies, securities brokers and other financial
institutions at which the Company has an account or a safe deposit box or
maintains a banking, custodial, trading or other similar relationship and (b) a
true and complete list and description of each such account, safe deposit box
and relationship, indicating in each case the account number and the names of
the respective officers, employees, agents or other similar representatives of
the Company having signatory power with respect thereto.

 

Section 2.15 Permit Application. The information supplied by the Company for
inclusion in the application for issuance of a California Permit pursuant to
which the Closing Shares, Contingent Shares, and Net Sales Earnout Shares will
be qualified under the California Code (the “Permit Application”) shall at the
time the Fairness Hearing is held pursuant to Section 25142 of the California
Code and the time the qualification of such securities is effective under
Section 25122 of the California Code be accurate in all material respects.
Notwithstanding the foregoing, the Company makes no representation, warranty or
covenant with respect to any information supplied by Parent which is contained
in the Permit Application.

 

Section 2.16 No Solicitation. Since August 19, 2004, the Company has not taken
nor has the Company permitted any of the Company’s officers, directors,
employees, stockholders, attorneys, investment advisors, agents,
representatives, affiliates or associates (collectively, “Representatives”) to
(directly or indirectly), take any of the actions prohibited from being taken on
or after the date of this Agreement by Section 4.2 with any Person other than
Parent and its designees.

 

Section 2.17 Disclosure. No representation or warranty made by the Company
contained in this Agreement and no statement contained in the Company Disclosure
Schedule or in any certificate furnished to Parent pursuant to Section 5.3(d)
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.

 

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ARTICLE II-A

REPRESENTATIONS AND WARRANTIES OF THE SELLERS

 

Each of the Sellers, severally but not jointly, hereby represents and warrants
to Parent as of the date hereof and as of the Closing Date that:

 

Section 2A.1 Authority. Such Seller has the capacity to enter into this
Agreement, to execute, deliver and perform its obligations hereunder, including
the surrender of any stock certificates, and to consummate the transactions
contemplated hereby. This Agreement is a legal, valid and binding obligation of
such Seller, enforceable against such Seller in accordance with its terms,
subject to any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors’ rights generally
or to general principles of equity.

 

Section 2A.2 No Conflicts. The execution and delivery of this Agreement by such
Seller does not and the performance and consummation of the transactions
contemplated hereby by such Seller will not, conflict with or result in any
violation of any material agreement to which such Seller is a party or to which
the Company Shares held by such Seller are subject or any order, writ,
injunction, decree, law, statute, rule or regulation applicable to such Seller.

 

Section 2A.3 Consents and Approvals. Except for the California Permit and
filings in connection with the Fairness Hearing and the California Permit, no
filing with or notice to, and no permit, authorization, consent or approval of,
any Governmental or Regulatory Authority is necessary for the execution and
delivery by such Seller of this Agreement or the consummation of the
transactions contemplated hereby.

 

Section 2A.4 Title to Company Shares. Good and marketable title to all of the
Company Shares held by such Seller shall pass to Parent free and clear of all
Liens upon consummation of the transactions set forth in this Agreement. The
Company Shares held by such Seller were fully paid for by such Seller. The
Company Shares set forth on Schedule 1.1 next to such Seller’s name represents
all shares of common stock of the Company held by such Seller and neither such
Seller nor any Affiliate of such Seller has any other ownership interest in the
Company or any right to acquire any such ownership interest.

 

Section 2A.5 Third-Party Consents. Such Seller is not required to obtain any
consent or approval from any third party in order to effect the sale of the
Company Shares held by such Seller.

 

Section 2A.6 Restricted Securities; Purchase Entirely for Own Account;
Investment Experience.

 

        (a) Restricted Securities. Such Seller hereby confirms that such Seller
has been informed that the Closing Shares, the Contingent Shares and the Net
Sales Earnout Shares (collectively, the “Shares”), in the absence of an
exemption under Section 3(a)(10) of the Securities Act, will be restricted
securities under the Securities Act, and may not be resold or transferred unless
the Shares are first registered under the federal securities laws or unless an
exemption from such registration is available. In this regard, such Seller
understands Rule 144

 

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and is aware of its volume limitations, manner of sale and notice requirements
and holding period requirements. Accordingly, such Seller hereby acknowledges
that such Seller is prepared to hold the Shares for an indefinite period, unless
the Shares are registered under the Securities Act or an exemption therefrom is
available and that the Seller is aware that Rule 144 of the Securities and
Exchange Commission (the “SEC”) issued under the Securities Act is not presently
available to exempt the sale of the Shares from the registration requirements of
the Securities Act.

 

        (b) Purchase Entirely for Own Account. The Shares are being acquired for
investment for such Seller’s own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof; provided,
however, that by making the representations and warranties herein, such Seller
is not agreeing to hold the Shares for any minimum period of time and is not
prohibited from selling or otherwise disposing of any of such Seller’s Shares in
compliance with applicable federal and state securities Laws and as otherwise
contemplated by this Agreement. Such Seller does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to any person with respect to any of the Shares. Such Seller
represents that such Seller has capacity to enter into this Agreement.

 

        (c) Investment Experience. Such Seller acknowledges that such Seller can
bear the economic risk of the investment and has such knowledge and experience
in financial or business matters that such Seller is capable of evaluating the
merits and risks of the investment in the Shares.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF

PARENT

 

Parent hereby represent and warrant to the Company as of the date hereof and as
of the Closing Date that:

 

Section 3.1 Organization and Qualification. Parent is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to own, lease and operate its properties and
to carry on its businesses as now being conducted. Parent is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary.

 

Section 3.2 Authority Relative to this Agreement. Parent has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations under this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized and adopted by the board of directors of Parent. This Agreement has
been duly and validly executed and delivered by Parent and constitutes, assuming
the due authorization, execution and delivery hereof by the Company and the
Sellers, a valid, legal and binding agreement of Parent enforceable against
Parent in accordance with its terms,

 

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subject to any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors’ rights generally
or to general principles of equity.

 

Section 3.3 Consents and Approvals; No Violations. Except for filings, permits,
authorizations, consents, and approvals as may be required under and other
applicable requirements of the Securities Act, the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and state securities or blue sky laws, no
filing with or notice to, and no permit, authorization, consent or approval of
any Governmental or Regulatory Authority is necessary for the execution and
delivery by Parent of this Agreement or the consummation by Parent of the
transactions contemplated hereby. Neither the execution, delivery and
performance of this Agreement by Parent nor the consummation by Parent of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the Certificate of Incorporation or Bylaws (or similar
governing documents) of Parent, (ii) result in a violation or breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent is a party or by which it or any of its properties or
assets may be bound or (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to Parent or any of its properties or
assets except, in the case of the foregoing clause (ii) or (iii), for
violations, breaches or defaults that would not, individually or in the
aggregate, be material to Parent.

 

Section 3.4 Capitalization. The Closing Shares, Contingent Shares, and Earnout
Shares, when issued by Parent in accordance with Section 1.7 and Section 1.9
hereof, will be duly and validly issued, fully paid, and non-assessable,
provided, however that such Shares will not be registered for sale or resale
under the Securities Act, the Exchange Act, state securities or blue sky laws,
subject to Section 4.6 hereof.

 

Section 3.5 S-3 Eligibility. Parent satisfies the applicable registrant
requirements set forth in the general instructions for resale registration
statements on Form S-3 under the Securities Act contemplated by Section 4.6.

 

Section 3.6 Disclosure; No Material Adverse Effect. Since December 31, 2003,
Parent has timely filed all forms, reports and documents with the SEC (including
all exhibits thereto) required under the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder (collectively, the “SEC
Documents”), each of which complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act as in effect on the
dates so filed. None of the SEC Documents (as of their respective filing dates
and with respect to the most recently filed SEC Documents, as of the date hereof
and the Closing) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. Since June 30, 2004, there has been no material
adverse effect on Parent or Parent’s ability to perform its obligations
hereunder.

 

Section 3.7 Private Offering; Investment Intent. Neither Parent nor anyone
acting on its behalf has offered or sold or will offer or sell any securities,
or has taken or will take any

 

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other action, which would reasonably be expected to subject the offer, issuance
or sale of the Closing Shares, Contingent Shares or Net Sales Earnout Shares as
contemplated hereby, to the registration provisions of the Securities Act.
Parent is purchasing the Company Shares pursuant to this Agreement for
investment and not with a view to or in connection with any distribution of the
Company Shares.

 

ARTICLE IV

COVENANTS

 

Section 4.1 Conduct of Business of the Company. During the period from the
execution and delivery of this Agreement by the Company and continuing until the
earlier of the termination of this Agreement pursuant to Section 7.1 and the
Closing, the Company agrees (unless it is required to take such action pursuant
to this Agreement or Parent shall give its prior consent in writing, which
consent shall not be unreasonably withheld or delayed) to carry on its business
in the ordinary course, to pay its liabilities and Taxes and perform its
obligations when due unless (i) paid or performed prior to the Closing and (ii)
neither the Company nor Parent suffers any Loss as a result of such liabilities,
Taxes, or performance being past due, (other than liabilities, Taxes and other
obligations, if any, contested in good faith through appropriate proceedings),
and, to the extent consistent with such business, to use commercially reasonable
efforts to preserve intact its present business organization and, keep available
the services of its present officers and employees. Without limiting the
generality of the foregoing, during the period from the execution and delivery
of this Agreement by the Company and continuing until the earlier of the
termination of this Agreement pursuant to Section 7.1 or the Closing, except as
set forth on Section 4.1 of the Company Disclosure Schedule or as contemplated
by this Agreement, the Company shall not do, cause or permit any of the
following actions, without the prior written consent of Parent, which consent
shall not be unreasonably withheld or delayed:

 

        (a) Charter Documents: cause or permit any amendment to its Certificate
of Incorporation or Bylaws (other than to eliminate “Skinetics” from its name);

 

        (b) Dividends; Changes in Capital Stock: declare or pay any dividend on
or make any other distribution (whether in cash, stock or property) in respect
of any of its capital stock, or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for any of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of such capital stock in connection with any
termination of service to the Company;

 

        (c) Contracts: enter into any Contract or commitment, or violate, amend
or otherwise modify or waive any of the terms of any of its Contracts;

 

        (d) Issuance of Securities: issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, any Company Shares or other capital
stock of the Company or securities convertible into, or any subscription, right,
warrant or option to acquire, or any other agreement or commitment of any
character obligating it to issue any Company Shares or other capital stock of
the Company or other convertible securities;

 

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        (e) Intellectual Property: dispose of, license or transfer to any Person
or entity any right to any Intellectual Property;

 

        (f) Exclusive Rights: enter into or amend any agreement pursuant to
which any other party is granted any exclusive marketing or other exclusive
right of any type or scope with respect to any of the Company’s products or
technology;

 

        (g) Dispositions: sell, lease, license or otherwise dispose of or
encumber any material amount of the Company’s assets or properties;

 

        (h) Indebtedness: incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or guarantee any debt
securities of any Person (other than further borrowings under (and within the
limitations of) existing lines of credit in effect as of the date hereof),
except that the Company may incur up to Five Thousand Dollars ($5,000), in the
aggregate, it being agreed that any such indebtedness will, without duplication,
result in a decrease in the number of Closing Shares issued to the Sellers
pursuant to Section 1.5(b);

 

        (i) Leases: enter into any operating lease;

 

        (j) Payment of Obligations: volitionally incur, in an amount in excess
of Five Thousand Dollars ($5,000) in the aggregate any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise);

 

        (k) Capital Expenditures: make any capital expenditure, capital addition
or capital improvement;

 

        (l) Insurance: reduce the amount of any insurance coverage provided by
its existing insurance policies;

 

        (m) Termination or Waiver: terminate or waive any right of substantial
value;

 

        (n) Employee Benefit Plans; New Hires; Pay Increases: adopt or amend any
employee benefit or stock purchase or option plan, or hire any new
director-level or officer-level employee or consultant, pay any special bonus or
special remuneration to any employee, consultant, director or officer or
increase the salary, wage rate or compensation of any employee, consultant,
director or officer;

 

        (o) Severance Arrangements: grant any severance or termination pay (i)
to any director or officer or (ii) to any other employee or consultant;

 

        (p) Lawsuits: commence a lawsuit (other than against Parent);

 

        (q) Acquisitions/Subsidiaries: acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof; or from any subsidiary;

 

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(r) Taxes: make or change any election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any amendment to a Tax Return, enter
into any closing agreement, settle any claim or assessment in respect of Taxes,
or consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;

 

(s) Revaluation: revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable or

 

(t) Other: agree in writing or otherwise to take any of the actions described in
Section 4.1(a) through Section 4.1(s).

 

Section 4.2 No Solicitation. Until the earlier of the termination of this
Agreement or Closing Date (the “Effective Period”), neither the Company nor any
Seller shall, directly or indirectly, through any officer, director, employee,
affiliate, attorney, financial adviser or other agent, take any action to
solicit, initiate, seek, or encourage any inquiry, proposal or offer from,
furnish any information to, or participate in any discussions or negotiations
with, any third party (other than Parent or its Affiliates designated by Parent)
regarding any acquisition of the Company, any merger or consolidation involving
the Company, any acquisition of any portion of the stock or assets of the
Company, any exclusive license or license entered into outside the ordinary
course of the Company’s business, or the raising of any equity or debt financing
by the Company (any such transaction being a “Competing Proposed Transaction”).
In no event shall the Company nor any Seller accept or enter into any agreement
concerning a Competing Proposed Transaction during the Effective Period. During
the Effective Period, the Company will notify Parent immediately after receipt
by the Company (or any of its officers, directors, employees, affiliates,
attorneys, financial advisers or other agents) or any Seller of any proposal
for, or inquiry respecting, any Competing Proposed Transaction or any request
for nonpublic information in connection with such a proposal or inquiry, or for
access to the properties, books or records of the Company by any person or
entity that informs or has informed the Company or any Seller that it is
considering making or has made such a proposal or inquiry. Such notice to Parent
shall indicate in reasonable detail the identity of the person making the
proposal or inquiry and the terms and conditions of such proposal or inquiry.

 

Section 4.3 Permit Application; Private Placement.

 

        (a) Promptly (and to the extent reasonably practicable within fifteen
(15) Business Days) after the date hereof, Parent shall prepare, with the
cooperation of the Company, and file the Permit Application. Parent and the
Company shall each use commercially reasonable efforts to cause the Permit
Application to comply with the requirements of applicable federal and state
Laws. Each of Parent and the Company shall provide promptly to the other such
information concerning its business and financial statements (if any) and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Permit Application, or in
any amendments or supplements thereto, and to cause its counsel and auditors (if
any) to cooperate with the other’s counsel and auditors (if any) in the
preparation and completion of the Permit Application. The Company shall promptly
advise Parent, and Parent shall promptly advise the Company, in writing if at
any time prior to the Closing, either the Company or Parent, as applicable,
shall obtain Knowledge of any fact that

 

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might make it necessary or appropriate to amend or supplement the Permit
Application in order to make the statements contained or incorporated by
reference therein accurate or to comply with applicable law. Anything to the
contrary contained herein notwithstanding, Parent shall not include in the
Permit Application any information with respect to the Company or its
Affiliates, the form and content of which information shall not have been
approved by the Company prior to such inclusion. Parent will pay the Company’s
reasonable out-of-pocket expenses incurred in connection with the filing of the
Permit Application and the undertaking to obtain the California Permit;
provided, however, that Parent will not pay any legal expenses of the Company or
Sellers thereunder except as provided in Section 4.11.

 

(b) Unless the California Permit is obtained prior to the Closing Date and the
Closing Shares, Contingent Shares, and Net Earnout Shares are exempt from
registration under the Securities Act by reason of Section 3(a)(10) of such act,
or if Parent and the Company determine that the California Permit cannot be
obtained, or cannot reasonably be expected to be obtained, in time to permit the
Closing to occur on or before April 1, 2005, then in either case Parent shall
use commercially reasonable efforts to effect the issuance of the Closing
Shares, Contingent Shares, and Net Sales Earnout Shares either in a private
placement pursuant to Section 4(2) of the Securities Act or such other exemption
(if any) from the registration requirements of the Securities Act as may be
available and, in such case, following the Closing Date Parent shall file a
registration statement(s) on Form S-3 pursuant to Section 4.6.

 

(c) The parties hereto acknowledge and agree that (i) in order to comply with
state securities or blue sky laws and as a condition to effecting the issuance
of the Closing Shares, Contingent Shares, and Net Earnout Shares as a private
placement pursuant to Section 4(2) of the Securities Act, each Seller shall
deliver to Parent prior to the Closing an executed investor questionnaire in the
form set forth in Exhibit G (the “Investor Questionnaire”) hereto and Parent may
rely on the representations of each Seller therein; (ii) until registered
pursuant to Section 4.6 or transferred pursuant to Rule 144 of the Securities
Act or another applicable exemption from registration such privately placed
shares will constitute “restricted securities” within the meaning of the
Securities Act and (iii) the certificates representing such shares shall bear
appropriate legends to identify such shares as being restricted under the
Securities Act, to comply with applicable state securities or blue sky laws and,
if applicable, to notice the restrictions on transfer of such shares.

 

Section 4.4 [Intentionally Left Blank]

 

Section 4.5 Access to Information. Between the date of this Agreement and the
earlier of the Closing Date or the termination of this Agreement pursuant to
Section 7.1, upon reasonable notice, the Company shall, to the extent permitted
by law, (a) provide Parent and its officers, employees, accountants, counsel,
financing sources and other agents and Representatives reasonable access to all
facilities and to all books and records of the Company, whether located on the
premises of the Company or at another location within the Company’s control; (b)
permit Parent to make such inspections as Parent may reasonably require; (c)
cause its officers to furnish Parent such financial, operating, technical and
product data and other information with respect to the business and assets of
the Company as the Company may possess and Parent from time to time may
reasonably request; (d) allow Parent the opportunity to interview such employees
and other personnel and affiliates of the Company with the

 

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Company’s prior written consent, which consent shall not be unreasonably
withheld or delayed and (e) assist and cooperate with Parent in the development
of integration plans for implementation by Parent and the Acquired Corporation
following the Closing Date; provided, however, that no investigation pursuant to
this Section 4.5 shall affect or be deemed to modify any representation or
warranty made by the Company herein.

 

Section 4.6 Registration of Registrable Securities.

 

In the event registration is required pursuant to Section 4.3(b), Parent agrees
to the following:

 

(a) Parent shall, subject to receipt of necessary information in writing from
the Sellers, including an Investor Questionnaire from each Seller, (i) in no
event later than sixty (60) calendar days following the Closing Date, with
respect to the Closing Shares (including the Escrow Shares), if the Closing
occurs, (ii) in no event later than sixty (60) calendar days following the date
of termination, with respect to the Escrow Shares, if the Agreement is
terminated, (iii) in no event later than ninety (90) calendar days following the
issuance of any Contingent Shares or a Qualifying Request in respect of any Net
Sales Earnout Shares (each such filing date, a “Filing Date”) prepare and file
with the SEC one or more Registration Statements on Form S-3 relating to the
sale of such shares (in each case, the “Registrable Securities”) by the Sellers
from time to time on the Nasdaq National Market System or the facilities of any
national securities exchange on which the Parent Common Stock is then traded or
in privately negotiated transactions, or such other manner of sale described in
the registration statement, which registration statement shall comply as to form
in all material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed therewith (each
such registration statement, a “Registration Statement”), and thereafter use its
best efforts to cause such Registration Statement to become and remain
effective:

 

(i) with respect to the Closing Shares (including the Escrow Shares) if the
Closing occurs, at least until the earlier of the one (1) year anniversary of
the date such shares become Unvested Shares (as defined in the Stock Restriction
Agreement), the date such shares may be sold under Rule 144(d) of the Securities
Act, and the date all shares subject to such registration statement have been
sold;

 

(ii) with respect to Escrow Shares if the Agreement is terminated or any
Contingent Shares if the Closing occurs, at least until the earliest of the one
(1) year anniversary of the issuance of such shares, the date such shares may be
sold under Rule 144(d) of the Securities Act, and the date all shares subject to
such registration statement have been sold;

 

(iii) with respect to any Net Sales Earnout Shares, at least until the earlier
of the expiration of a period of ninety (90) calendar days and the date all
shares subject to such registration statement have been sold; provided, however,
Parent shall have no obligation to file a Registration Statement with respect to
any Net Sales Earnout Shares more than once in any twelve (12) month period.

 

(b) If Form S-3 is not available at that time, Parent shall file a Registration
Statement on such form as is then available to effect a registration of the
Shares.

 

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(c) Notwithstanding the foregoing, if Parent determines in good faith that
effecting, or taking action to effect, any registration statement pursuant to
this Section 4.6 would require, under the Securities Act, disclosure in the
registration statement of material, non-public information concerning Parent,
its business or prospects or any proposed material transaction involving Parent
before Parent would otherwise be required to publicly disclose such information,
that such accelerated disclosure is detrimental to Parent and that it is
necessary to defer the filing or affecting of a Registration Statement for
purposes of effecting offers or sales of Registrable Securities pursuant
thereto, then Parent will have the right to defer (a “Deferral”) its obligations
to effect or to take action to effect a registration statement under this
Section 4.6 for a period of not more than sixty (60) days with respect to any
particular event or circumstances after written notice of such Deferral is given
to the Seller Agent, such written notice to include an estimate, subject to the
Knowledge of Parent, of the duration of such Deferral; provided, however, that
in any one (1) year period Parent may take no more than three (3) Deferrals and
the aggregate period of such Deferrals shall not exceed one hundred fifty (150)
days.

 

(d) Parent shall use its best efforts, subject to receipt of necessary
information from the Sellers, to cause the SEC to declare the Registration
Statement effective within thirty (30) calendar days of the Filing Date (the
“Best Efforts Effective Date”). However, so long as the Company has filed the
Registration Statement by the Filing Date, if the Registration Statement
receives SEC review, then the Best Efforts Effective Date will be the one
hundred twentieth (120th) calendar day after the Closing Date. Parent’s best
efforts will include, but not be limited to, promptly responding to all comments
received from the staff of the SEC. If Parent receives notification from the SEC
that the Registration Statement will receive no action or review from the SEC,
then Parent will, subject to its rights under this Agreement, use its best
efforts to cause the Registration Statement to become effective within five (5)
business days after such SEC notification.

 

(e) Parent shall prepare and file with the SEC any amendments and supplements to
the Registration Statement and the prospectus used in connection therewith as
may be necessary to keep the Registration Statement effective and to comply with
the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement in accordance with
the intended methods of disposition by the Sellers set forth in the Registration
Statement.

 

(f) Parent shall furnish to the Seller Agent, on behalf of each Seller with
respect to the Registrable Securities registered under the Registration
Statement, such number of copies of prospectuses and such other documents as
each such Seller may reasonably request, in order to facilitate the public sale
or other disposition of all or any of the Registrable Securities by such Seller;
provided, however, that such materials may be delivered in electronic format.

 

(g) Parent shall use its best efforts to (i) file documents required of Parent
for normal blue sky clearance in all states where an exemption is not available
and as the Sellers may reasonably request, (ii) to keep such registration or
qualification in effect for so long as the Registration Statement remains in
effect, and (iii) to take any and all other actions which may be necessary or
advisable to enable the Sellers to consummate the disposition in such
jurisdictions of the Registrable Securities to be sold by the Sellers; provided,
however, that Parent shall not be

 

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required to qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 4.6.

 

(h) Parent shall promptly notify the Seller Agent, on behalf of each Seller:

 

(i) when the Registration Statement, any pre-effective amendment, the prospectus
or any prospectus supplement related thereto or post-effective amendment to the
Registration Statement has been filed, and, with respect to the Registration or
any post-effective amendment, when the same has become effective;

 

(ii) of the receipt by Parent of any written comments from the SEC or receipt of
any written request by the SEC for additional information with respect to any
registration statement or the prospectus related thereto or any written request
by the SEC for amending or supplementing the registration statement and the
prospectus used in connection therewith;

 

(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of such registration statement or the initiation of any proceedings for that
purpose;

 

(iv) of the receipt by Parent of any notification with respect to the suspension
of the qualification of any of the Registrable Securities for sale under the
securities or blue sky laws of any jurisdiction or the initiation of any
proceeding for such purpose; and

 

(v) at any time when a prospectus relating thereto is required to be delivered
under the Securities Act, upon discovery that, or upon the happening of any
event as a result of which, the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, in the light of the circumstances
under which they were made, and in the event of the occurrence of any such
event, promptly prepare and furnish, at Parent’s expense, to the Sellers, a
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, provided, however, that that such materials may be delivered in
electronic format.

 

(i) Parent shall provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement.

 

(j) Parent shall use its best efforts to cause all Registrable Securities
covered by the Registration Statement to be listed on the principal securities
exchange on which similar securities issued by Parent are then listed (if any),
if the listing of such Registrable Securities is then permitted under the rules
of such exchange.

 

(k) Parent shall use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement.

 

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(l) Parent shall cause its officers and employees to participate in, and to
otherwise facilitate and cooperate with the preparation of the Registration
Statement and prospectus and any amendments or supplements thereto, taking into
account the Company’s business needs.

 

(m) Parent shall, if Parent and its counsel conclude that any such action does
not violate or will not result in the violation of, any applicable law,
regulation or regulatory instruction, cooperate with the Sellers to facilitate
the timely preparation and delivery of certificates not bearing any restrictive
legends representing the Registrable Securities to be sold, and cause such
Registrable Securities to be issued in such denominations and registered in such
names in accordance in accordance with the instructions of the Sellers prior to
the settlement of any sale of Registrable Securities and instruct any transfer
agent or registrar of Registrable Securities to release any stop transfer orders
in respect thereof.

 

(n) Parent shall bear all expenses in connection with the procedures in
paragraphs (a) through (n) of this Section 4.6 and the registration of the
Registrable Securities pursuant to the Registration Statement, other than fees
and expenses, if any, of counsel or other advisers to the Sellers with respect
thereto, or underwriting fees or discounts, brokerage fees and commissions
incurred by the Sellers, if any.

 

(o) In the event of a registration of any offering of any of the Registrable
Securities under the Securities Act pursuant to this Section 4.6, Parent will
indemnify and hold harmless the Sellers and their permitted assign(s) against
any Losses, to which the Seller or their assignees may become subject under the
Securities Act or otherwise, insofar as such Losses arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller or assignee for
any legal or other expenses reasonably incurred by the Seller or assignee in
connection therewith, including reasonable attorneys’ fees; provided, however,
that Parent will not be liable in any such case if and to the extent that any
such Loss arises out of or is based upon an untrue statement or omission so made
in conformity with information furnished in the Investor Questionnaire or in
writing by the Sellers or assignee in the or specifically for use in such
Registration Statement.

 

(p) In the event of a registration of any offering of any Registrable Securities
under the Securities Act pursuant to this Section 4.6, each Seller will
severally, and not jointly, indemnify and hold harmless Parent, its directors,
officers, agents and employees, each Person who controls Parent (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents and employees of such controlling Persons,
against any Losses, to which Parent or such Person may become subject under the
Securities Act or otherwise, if and to the extent such Losses arise out of or
are based upon any untrue statement or omission made in conformity with
information furnished in the Investor Questionnaire or in writing by such Seller
or his or her permitted assignee(s) specifically for use in such Registration
Statement, and will reimburse Parent or such Person for any legal or other
expenses reasonably incurred by Parent or such Person in connection therewith,
including reasonable attorneys’ fees,

 

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provided, however, the liability of the Seller or assignee hereunder, shall not
in any event exceed the proceeds from the sale of the Registrable Securities
covered by such Registration Statement.

 

(q) Contribution. If for any reason the indemnification provided for in this
Section 4.6 is unavailable to an indemnified party or insufficient in respect of
any Losses referred to therein, then, in lieu of the amount paid or payable
under this Section 4.6, the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such Loss (i) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand, and the indemnified party on the other, with respect to
the statements or omissions which resulted in such Loss, as well as any other
relevant equitable considerations, or (ii) if the allocation provided clause (i)
above is not permitted by applicable law or if the allocation provided in this
clause (ii) provides a greater amount to the indemnified party than clause (i)
above, in such proportion as shall be appropriate to reflect not only the
relative fault but also the relative benefits received by the indemnifying party
and the indemnified party from the offering of the securities covered by such
registration statement as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties’
relative intent, Knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 4.6(q)
were to be determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to in the preceding sentence of this Section 4.6(q). No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The amount paid or payable by an
indemnified party as a result of the Losses referred to in Section 4.6 shall be
deemed to include any legal or other expenses reasonably incurred.

 

(r) For so long as Parent is subject to the reporting requirements of Section 13
or 15 of the Exchange Act and any of Parent Common Stock constituting the
Registrable Securities is not freely tradable under Rule 144(k) of the
Securities Act, Parent will use reasonable efforts to file the reports required
to be filed by it under the Securities Act and Section 13(a) or 15(d) of the
Exchange Act and the rules and regulations adopted by the SEC thereunder, or, if
Parent ceases to be so required to file such reports, it will, upon the request
of the Sellers, (i) make publicly available such information as is necessary to
permit sales of the Registrable Securities pursuant to Rule 144 under the
Securities Act and (ii) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
the Sellers to sell the Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
under the Securities Act. Parent agrees that it will not effect any disposition
of the Registrable Securities except as contemplated in the Registration
Statement or as otherwise permitted by applicable law and by this Agreement.

 

Notwithstanding any of the foregoing, it shall be a condition precedent to the
obligations of Parent to take any action pursuant to paragraphs (a) through (r)
of this Section 4.6 that (i) each Seller shall furnish to Parent such
information regarding itself, the Registrable Securities to be

 

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sold by each Seller, and the intended method of disposition of such Registrable
Securities as shall be required to effect the registration of the Registrable
Securities, all of which information shall be furnished to Parent in writing
specifically for use in the Registration Statement and (ii) registration
pursuant to this Section 4.6 is expressly required by Section 4.3(b) hereof.

 

Section 4.7 Suspension Events. Notwithstanding anything to the contrary in
Section 4.6, each Seller agrees that upon a Suspension Event and Parent’s
delivery of notice pertaining thereto, then each Seller and its assignees will
forthwith refrain from and discontinue such Seller’s or assignee’s disposition
of any Registrable Securities pursuant to the Registration Statement until the
time of such Seller’s receipt of copies of a supplement to or an amendment of
such prospectus that has been prepared and filed by Parent or until such Seller
is advised in writing by Parent that the current Registration Statement may be
used. The notice shall include an estimate, subject to the Knowledge of Parent,
of the duration of the Suspension Event. The receipt of any notice by the
Sellers with respect to a Suspension Event shall not be disclosed, and shall be
kept in strict confidence, by the Sellers or their assignees, except to the
extent necessary to enable the Sellers or their assignees to comply with this
Section 4.7 or to comply with applicable law or legal process. For the purposes
of this Agreement, a suspension event shall mean any of the following events
(each, a “Suspension Event”):

 

(a) the issuance by the SEC or any other Governmental or Regulatory Authority of
any stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose,

 

(b) the receipt by Parent of any notification with respect to the suspension or
the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation of any proceeding for
such purpose,

 

(c) any event or circumstance which necessitates the making of any changes in
the Registration Statement, or any document incorporated or deemed to be
incorporated therein by reference, so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and that in the case of the
prospectus included in the Registration Statement, it will not contain any
untrue statement of a material fact or any omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or

 

(d) a good faith determination of Parent that continued use by the Sellers of
the Registration Statement for purposes of effecting offers or sales of the
Registrable Securities pursuant thereto would require, under the Securities Act,
premature disclosure in the Registration Statement of material, nonpublic
information concerning Parent, its business or prospects or any proposed
material transaction involving Parent and that it is necessary to suspend the
use by the Sellers of such Registration Statement for purposes of effecting
offers or sales of the Registrable Securities thereto.

 

Section 4.8 Lockup. Each Seller agrees that for a period of one hundred eighty
(180) days after the Closing Date, such Seller will not, without the prior
written consent of Parent,

 

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which consent may be withheld by Parent in its sole discretion, (i) sell, offer
to sell, contract or agree to sell, hypothecate, pledge, grant any option to
purchase or otherwise dispose of or agree to dispose of, directly or indirectly,
or, except pursuant to Section 4.6, file (or participate in the filing of) a
registration statement with the SEC in respect of, or establish or increase a
put equivalent position or liquidate or decrease a call equivalent position
within the meaning of Section 16 of the Exchange Act, and the rules and
regulations of the SEC promulgated thereunder with respect to, any Parent Common
Stock or any securities convertible into or exercisable or exchangeable for
Parent Common Stock, or warrants or other rights to purchase Parent Common
Stock; (ii) enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of Parent
Common Stock or any securities convertible into or exercisable or exchangeable
for Parent Common Stock, or warrants or other rights to purchase Parent Common
Stock, whether any such transaction is to be settled by delivery of Parent
Common Stock or such other securities, in cash or otherwise or (iii) publicly
announce an intention to effect, within such 180-day period, any transaction
specified in clause (i) or (ii); provided, however, that each Seller may sell up
to forty percent (40%) of the Closing Shares received by such Seller.

 

Section 4.9 License Back. Contingent upon the occurrence of the Closing, in the
event that Parent (including its Affiliates acting on their behalf or under its
control, licensees and strategic partners) abandons development of all Products
in the Field of Use, upon a written request from the Seller Agent Parent shall,
and shall use commercially reasonable efforts to cause its Affiliates and
licensees and strategic partners in the Field of Use, pursuant to a
noncancelable, perpetual, world-wide, sublicensable and exclusive license to be
granted to an entity owned by the Sellers or by their designee, license to such
entity the Columbia License and the Intellectual Property of Parent, its
Affiliates, its licensees and strategic partners in the Field of Use that, in
each case, is related solely to such Products, solely for utilization in the
Field of Use and consistent with the Columbia License. In exchange for such
license, the Sellers, through such entity owned by them, shall pay to Parent the
following payments:

 

1.    Filing of IND or equivalent for the first Product:

   $5,000,000

2.    Approval of NDA or equivalent for the first Product:

   $5,000,000

3.    Approval in EU for the first Product:

   $2,000,000

4.    Approval in Japan for the first Product:

   $2,000,000

5.    Royalties:

   7% of Net Sales of all Products

 

Section 4.10 Confidentiality. Any information obtained by any party hereto, or
its officers, directors, employees, agents or representatives, regarding the
other party hereto (including, without limitation, its business, operations and
projections) in connection with the negotiation, execution and performance of
this Agreement, the consummation of the transactions contemplated hereby, or
otherwise, shall be referred to herein as “Confidential Information.” The
Parties hereto agree to keep confidential the Confidential Information;
provided, however, that such Confidential Information may be disclosed to a
representative of a party hereto (or to

 

29

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Columbia University as required in connection with the Columbia License,
provided that Columbia agrees in writing to be bound by confidentiality
obligations substantially similar to the obligations contained in this Section
4.10) for the purpose of consummating the transactions contemplated by this
Agreement (it being agreed that all such representatives shall be informed by
such party of the confidential nature of such information and each party shall
be liable for any breach of this Section 4.10 by its representatives).
Confidential Information shall not include those portions of the Confidential
Information that a party can demonstrate (i) are or have become generally
available to the public other than as a result of the disclosure by such party
or such party’s representatives in violation of this Section 4.10; (ii) become
available to a party on a nonconfidential basis from a source (other than
another party hereto or its representatives) which, to such party’s Knowledge,
is not prohibited from disclosing such Confidential Information by a legal,
contractual or fiduciary obligation or (iii) was in such party’s possession
prior to being furnished to such party or such party’s representatives by
another party hereto or another party’s representatives. Notwithstanding the
foregoing, no party shall be prohibited from disclosing Confidential Information
after such party has been advised by legal counsel that such party is required
by Law or legal process to disclose such Confidential Information and to the
extent required by the policies or procedures of any university that employs any
Seller, such Seller may disclose the existence and terms of this Agreement to
such university, provided, that, such Seller makes good faith efforts to obtain
university’s agreement not to use such Confidential Information except in
assessing such Seller’s compliance with the policies and procedures of such
university, and not to disclose all or any part of the Confidential Information
in any form to any third party. Should this occur, the disclosing party shall
notify the other party in writing of this fact prior to making any such
disclosure and provide the other party with an opportunity to seek a protective
order or other permission from the applicable Governmental or Regulatory
Authority to avoid making such disclosure.

 

Section 4.11 Expenses. Each party shall bear its own expenses in connection with
this Agreement and the transactions contemplated hereby; except that if the
Closing occurs, Parent shall pay all reasonable and documented fees and expenses
incurred by the Company in connection with the transactions contemplated by this
Agreement (including legal, Seller Agent and accounting fees and any bonuses
paid to officers or other employees of the Company in connection with the
consummation of the transaction contemplated hereby) (collectively, “Company
Transaction Expenses”); provided that any excess of Company Transaction Expenses
above One Hundred Ninety Thousand Dollars ($190,000) in the aggregate (such
excess amount, which includes the Parent Paid Expenses, and any expenses payable
by the Company with respect to legal services as set forth in the Disclosure
Schedule, including, without limitation, Section 2.6 thereof, the “Stockholder
Expense Amount”) shall reduce the number of Closing Shares payable to the
Sellers as of the Closing in accordance with Section 1.8, and, if the Closing
does not occur, be borne by the Company. Notwithstanding the foregoing, in no
event shall Parent be obligated for any portion of the Stockholder Expense
Amount not fully offset by a corresponding reduction in the number of Closing
Shares.

 

Section 4.12 Stock Restriction Agreements. On or before the Closing Date, the
Company shall cause each of Christiano, Carroll, and Jahoda to, and each of
Christiano, Carroll and Jahoda shall, execute a stock restriction agreement
substantially in the forms attached as Exhibits H, I and J, respectively (each,
a “Stock Restriction Agreement”);

 

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Section 4.13 In Vivo Efficacy. The Company shall use its best efforts to achieve
In Vivo Efficacy on or before the Closing Date provided that reasonable expenses
of such efforts shall be funded and borne by Parent, it being agreed that all
expenses incurred in accordance with the Research Plan will be deemed prima
facie reasonable. As used in this Agreement and any Exhibits hereto, “In Vivo
Efficacy” means reproducible efficacy (at least as efficacious with siRNA as the
data published in the March 2004 publication from Christiano’s lab (Exp.
Dermatology, 2004, 13, 155) with DNAzymes) pursuant to the Research Plan using
Parent’s chemically modified siRNAs targeting the hairless gene. In addition to
funding and bearing the foregoing expenses, Parent shall pay the Company at the
Closing a consulting fee, at the rate of twenty-five thousand dollars ($25,000)
per annum for the period from the date hereof until the earlier of the Closing
or termination of this Agreement pursuant to Section 7.1, in consideration of
the Company’s services with respect to the In Vivo Efficacy study to be
conducted by the Company.

 

(a) The Company shall only use the Materials as required to execute the Research
Plan and for no other purpose. The Company acknowledges and agrees that the
Materials (including any progeny or derivatives thereof) and all of Sirna’s
Intellectual Property associated with the Materials shall be exclusively owned
by Parent (collectively, “Rights in Materials”). In the event the Company
acquires any rights in or to any Rights in Materials, the Company hereby assigns
all such rights to Parent with no additional consideration and agrees perform
all reasonable acts necessary to perfect or enforce such rights. Rights in
Materials shall be considered Parent’s Confidential Information under this
Agreement.

 

(b) For purposes of assisting Parent in assessing the progress of the Company
towards achieving In Vivo Efficacy, the Company shall provide to Parent
reasonable access to all Sirna Enabled Data and shall promptly deliver to Parent
all reports and other documentation related to or including any Sirna Enabled
Data. Except for its interest in the Sirna Enabled Data, Company shall have no
right to Parent’s Intellectual Property of any kind, including without
limitation any of Parent’s Rights in Materials. Except as set forth in Section
7.4, the parties agree that the Company will own any and all data, results,
intellectual property and all other rights arising out of, or in connection
with, the inhibition of hair growth arising out of the research, development or
other activities of the Company at the Lab (regardless of whether such rights
result from Parent’s funding or provision of the Materials), including, without
limitation, all data, research, intellectual property and other rights arising
out of, or as a result of, the In Vivo Efficacy Study and any and all Sirna
Enabled Data.

 

Section 4.14 Parent Insider Policy. The Company shall cause, on or before the
Closing Date, all Sellers who agree to provide services to, or be employed by,
Parent or the Acquired Corporation, to execute the form of Parent Insider
Trading Policy attached hereto as Exhibit K (the “Parent Insider Trading
Policy”).

 

Section 4.15 Location of Acquired Corporation. Immediately following the
Closing, Parent will hold the Acquired Corporation as a subsidiary, which will
be used to research and develop RNAi-based products for promotion or inhibition
of hair growth. Subject to the occurrence of Closing, Parent will ensure that
the operations of the Acquired Corporation will be based in Boulder, Colorado,
at a minimum for the nine (9) months following the Closing Date. Subsequent to
such nine-month period, Parent will make commercially reasonable efforts to

 

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relocate the operations of the Acquired Corporation to a major biotechnology
center in the United States.

 

Section 4.16 License of Trade Name. Parent will and will cause the Acquired
Corporation to enter into a licensing agreement with Christiano, in form and
substance reasonably acceptable to the parties thereto, and effective upon the
Closing, pursuant to which Parent will grant a perpetual, fully paid, worldwide
exclusive license to the trade name “Skinetics” and “Skinetics Biosciences” to
Christiano for no additional consideration and will, if not already the case,
rename the Acquired Corporation to a name which does not include “Skinetics”.

 

Section 4.17 Public Disclosure. Unless otherwise required by Law (including
federal and state securities Laws) or legal process or, as to Parent, by the
rules and regulations of the National Association of Securities Dealers, Inc.,
prior to the Closing Date, no public disclosure (whether or not in response to
any inquiry) of the existence of any subject matter of, or the terms and
conditions of, this Agreement shall be made by any party hereto unless approved
by Parent and the Company prior to release. Parent and the Company agree to
consult with each other as to the contents of the public disclosure prior to its
release.

 

Section 4.18 Approvals. The Company shall use commercially reasonable efforts to
obtain all Approvals from Governmental or Regulatory Authorities or under any of
the Contracts, licenses or other agreements to which it is a party as may be
required in connection with the transactions contemplated hereby (all of which
Approvals are identified in the Company Disclosure Schedule) so as to preserve
all rights of and benefits to the Company thereunder, and Parent shall provide
the Company with such assistance and information as is reasonably required to
obtain such Approvals.

 

Section 4.19 Notification of Certain Matters. (a) The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, after it
becomes known to the Company or Parent, as applicable, of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of the Company or Parent, respectively,
contained in this Agreement to be untrue or inaccurate in any material respect
at the Closing Date and (ii) any failure of the Company or Parent, respectively,
to comply with or satisfy any covenant or agreement to be complied with or
satisfied by it hereunder; and (b) each Seller shall give prompt notice to
Parent after (i) the occurrence or non-occurrence of any event, the occurrence
or non-occurrence of which is likely to cause any representation or warranty of
such Seller contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Closing Date and (ii) any failure of such
Seller to comply with or satisfy any covenant or agreement to be complied with
or satisfied by him and her hereunder; provided, however, that the delivery of
any notice pursuant to this Section 4.19 shall not limit or otherwise affect any
remedies available to the party receiving such notice.

 

Section 4.20 Company Affiliate Agreements. Section 4.20 of the Company
Disclosure Schedule sets forth those persons who, in the Company’s reasonable
judgment following consultation with legal counsel and accounting advisors, are
or may be “affiliates” of the Company within the meaning of Rule 145 under the
Securities Act (the “Company affiliates”) and includes each “Affiliate” of the
Company as such term is defined in ARTICLE IX. The

 

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Company shall provide Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company shall use
its commercially reasonable efforts to deliver or cause to be delivered to
Parent on or prior to the Closing from each of the Company affiliates an
executed Company Affiliate Agreement, in the form attached hereto as Exhibit L
(each, a “Company Affiliate Agreement”), to the extent such Company affiliates
have not executed and delivered Company Affiliate Agreements contemporaneously
with the execution and delivery of this Agreement. The Company agrees that if
any Person would have been a Company Affiliate had such Person been an officer,
director or stockholder of the Company as of the date of this Agreement, the
Company shall cause such Person to execute and deliver to the Company and Parent
a Company Affiliate Agreement promptly upon such Person attaining such status.

 

Section 4.21 Additional Documents and Further Assurances; Cooperation. Parent,
each of the Sellers and the Company, at the request of Parent (in the case of
the Company or any Seller) or the Company (in the case of Parent), shall execute
and deliver such other instruments and shall use commercially reasonable efforts
to do and perform such other acts and things (including all action reasonably
necessary to seek and obtain any and all Approvals of any Governmental or
Regulatory Authority or Person required in connection with this Agreement and
the transactions contemplated hereby; provided, however, that Parent shall not
be obligated to consent to any divestiture or operational limitation or activity
in connection therewith and no party shall be obligated to make a payment of
money as a condition to obtaining any such Approval) as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby. Each party agrees to use commercially
reasonable efforts to cause the conditions set forth in ARTICLE V to be
satisfied, where the satisfaction of such conditions depends on action or
forbearance from action by such party.

 

Section 4.22 Tax Matters.

 

(a) Parent shall have no liability, and Parent makes no representations or
warranties to the Company or to any Seller regarding (i) the Tax treatment of
the transactions contemplated by this Agreement or (ii) any of the Tax
consequences to the Company or any Seller in connection with this Agreement or
any of the other transactions or agreements contemplated hereby. The Company and
the Sellers acknowledge that the Company and the Sellers are relying solely on
their own Tax advisors in connection with this Agreement and the other
transactions or agreements contemplated hereby.

 

(b) The Sellers and Parent agree that the Acquired Corporation will file its Tax
Returns for Income Tax for the period commencing January 1, 2004 (and, as the
case may be, for the period commencing January 1, 2005) and ending on the
Closing Date. The Tax Returns for Income Tax for such short taxable year shall
be prepared by the Seller Agent, at the reasonable expense of the Acquired
Corporation. Parent and the Acquired Corporation will execute such consents and
other documents as may be necessary or appropriate in order to effect the
foregoing under the Internal Revenue Code of 1986, as amended, and regulations
thereunder and under the laws of the State and City of New York.

 

(c) Parent shall promptly notify the Seller Agent in writing upon receipt of
notice of any pending or threatened Tax audits or assessments which to the
Knowledge of Parent

 

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affect the Tax liabilities of the Company or the Sellers. The Seller Agent shall
have the sole right to represent the Company’s interest and the Sellers’
interest in any Tax audit or administrative or court proceeding relating to
income taxes for periods ending on or before the Closing Date, provided that
Parent shall be entitled to participate in any audit or proceeding and to
approve the disposition thereof to the extent it could affect the liability of
Parent, the Company or Acquired Corporation for any Taxes that are not fully
covered by the Sellers’ indemnification obligations under this Agreement.

 

(d) After the Closing Date, each of Parent and the Acquired Corporation shall
make available to the other and to any Tax authority, as reasonably requested,
all information, books, records, and documents relating to Tax liabilities or
potential Tax liabilities of the Company and shall preserve all such
information, books, records, and documents until the expiration of any
applicable statute of limitations or extension thereof.

 

Section 4.23 Delivery of Stock Ledger and Minute Book of the Company. The
Company shall deliver its stock ledger and minute book to Parent at the Closing.

 

Section 4.24 FIRPTA. On or prior to the Closing Date, the Company shall deliver
to Parent a properly executed statement in a form reasonably acceptable to
Parent for purposes of satisfying Parent’s obligations under Treasury Regulation
Section 1.1445-2(c)(3).

 

Section 4.25 Columbia License.

 

(a) Subject to Schedule 4.25, Parent and the Company shall in good faith use
commercially reasonable efforts to negotiate a license agreement with Columbia
University on behalf of Parent (and to be entered into between Columbia
University and Parent), pursuant to which Columbia University will grant to
Parent the exclusive rights to all of Columbia University’s Intellectual
Property relating to RNAi-based targeting of genes involved in the hair growth
pathway for the purposes of inhibition of hair growth and other human
applications, under terms and conditions reasonably acceptable to Parent and the
Sellers (the “Columbia License”). This Section 4.25(a) shall survive the Closing
Date until the Expiration Date.

 

(b) Except as contemplated by Section 4.25(a), each of Parent and the Company
agree that neither it nor any controlled Affiliate shall, without the other
party’s prior written consent (which consent shall not be unreasonably withheld)
enter into an agreement with Columbia University with respect to the
acquisition, license, or other transfer of Columbia University’s intellectual
property rights in the Field of Use prior to the Closing.

 

ARTICLE V

CONDITIONS TO CLOSING

 

Section 5.1 Conditions to Obligations of Each Party Consummate Transaction. The
respective obligations of Parent and the Company to consummate the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of the following conditions:

 

(a) Governmental and Regulatory Authority Approvals. All Governmental or
Regulatory Authority Approvals necessary for consummation of the transactions
contemplated hereby shall have been obtained.

 

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(b) No Injunctions or Regulatory Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or Governmental or Regulatory Authority or
other legal or regulatory restraint or prohibition preventing the consummation
of the transactions contemplated hereby shall be in effect; nor shall any law or
order enacted, entered, enforced or deemed applicable to the transactions
contemplated hereby that would prohibit the consummation of such transactions.

 

(c) Stockholder Approval. Each stockholder of the Company shall have consented
to and approved the transactions contemplated hereby and no such consent or
approval shall have been revoked, in whole or in part.

 

Section 5.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:

 

(a) Representations and Warranties. The representations and warranties of Parent
contained in this Agreement shall each be true, accurate, correct and complete
in all material respects as of the Closing Date as if made on and as of the
Closing Date (other than representations and warranties which by their express
terms are made solely as of a specified earlier date, which shall be true,
accurate, correct and complete in all material respects as of such specified
earlier date).

 

(b) Performance. Parent shall have performed and complied with in all material
respects each agreement, covenant and obligation required by this Agreement to
be so performed or complied with by Parent at or before the Closing.

 

(c) Officers’ Certificate. Parent shall have delivered to the Company a
certificate, dated the Closing Date and executed by its President and Chief
Executive Officer, substantially in the form set forth in Exhibit M hereto.

 

Section 5.3 Additional Conditions to the Obligations of Parent. The obligations
of Parent to consummate the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:

 

(a) In Vivo Efficacy. Parent shall have received evidence to its reasonable
satisfaction that the Company has achieved In Vivo Efficacy.

 

(b) Representations and Warranties. The representations and warranties of each
of the Sellers and the Company contained in this Agreement shall each be true,
accurate, correct and complete in all material respects as of the Closing Date
(other than representations and warranties which by their express terms are made
solely as of a specified earlier date, which shall be true, accurate, correct
and complete in all material respects as of such specified earlier date).

 

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(c) Performance. The Company shall have performed and complied with in all
material respects each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by the Company on or before the
Closing Date.

 

(d) Officers’ Certificates; Sellers’ Certificates. The Company shall have
delivered to Parent a certificate, dated the Closing Date and executed by the
President and Chief Executive Officer of the Company, substantially in the form
set forth in Exhibit N-1 hereto. Each Seller shall have delivered to Parent a
certificate, dated the Closing Date and executed by such Seller, substantially
in the form set forth in Exhibit N-2 hereto.

 

(e) Outstanding Liabilities. The Company shall have delivered to Parent a
correct and complete list, certified by its President and Chief Executive
Officer, setting forth (i) the aggregate amount of the Company’s outstanding
payables, and any other amounts owing by the Company, whether or not then due,
(broken down by each individual payable or any such other amount owing) as of
the Closing, and the Excess Amount, if any, and (ii) the aggregate amount of the
Company Transaction Expenses (broken down by each individual expense) as of the
Closing, and the Stockholder Expense Amount, if any.

 

(f) Delivery of Agreements.

 

(i) Each Seller who intends to provide services to, or be employed by, Parent or
the Acquired Corporation shall have executed and delivered to Parent a Parent
Insider Trading Policy.

 

(ii) Each of Christiano, Carroll and Jahoda shall have entered into the
respective Stock Restriction Agreement.

 

(iii) Each Seller shall have executed and delivered to Parent an Investor
Questionnaire; and each Investor Questionnaire shall be true and correct in all
material respects as of the Closing Date.

 

(iv) Each Seller shall have executed a non-solicitation and inventions agreement
with the Company in the form attached hereto as Exhibit O (each, an “Invention
Agreement”) and each such Invention Agreement shall be in full force and effect.

 

(g) No Breach of Agreements; Agreements in Full Force and Effect.

 

(i) No breach of any Company Affiliate Agreement shall have occurred and be
continuing, and each Company Affiliate Agreement shall be in full force and
effect.

 

(ii) No breach of the Christiano Consulting Agreement shall have occurred and be
continuing; and the Christiano Consulting Agreement shall be in full force and
effect.

 

(iii) No breach of the Carroll Employment Agreement shall have occurred and be
continuing; and the Carroll Employment Agreement shall be in full force and
effect.

 

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(iv) No breach of any Non-Competition Agreement shall have occurred and be
continuing; and each Non-Competition Agreement shall be in full force and
effect.

 

(h) No Material Adverse Effect. No Material Adverse Effect shall have occurred
with respect to the Company.

 

ARTICLE VI

INDEMNIFICATION

 

Section 6.1 Indemnification by the Sellers. The Sellers shall severally but not
jointly indemnify Parent in respect of, and hold it harmless against, any and
all Losses incurred or suffered by the Acquired Corporation, Parent or any
Affiliate thereof (such indemnity obligations, other than pursuant to Section
6.1(b) and Section 6.1(d), to be apportioned pro rata in accordance with the
Seller’s respective Seller’s Percentage) resulting from, relating to or
constituting:

 

(a) (i) any breach of any representation or warranty of the Company contained in
this Agreement, any Ancillary Agreement, or any other agreement or instrument
furnished by the Company or any Seller to Parent pursuant to this Agreement, and
(ii) any Excess Amount to the extent not deducted from the Closing Shares, but
only, in the case of this clause (a)(ii), if a claim in respect of such Loss is
made pursuant to Section 6.3 prior to the date that is eighteen (18) months
following the Closing Date; provided, however, in no event shall the Sellers’
aggregate liability under this Section 6.1(a) and Section 6.1(b) exceed twenty
percent (20%) of the aggregate value of all Closing Shares and Contingent
Consideration paid to the Sellers (the “20% cap”);

 

(b) any breach of any representation or warranty of any Seller contained in
Article 2A of this Agreement, provided, however, (i) a Seller shall have an
indemnification obligation only with respect to a breach of his or her
representation or warranty and (ii) in no event shall the Sellers’ aggregate
liability under this Section 6.1(b) and Section 6.1(a) exceed the 20% cap;

 

(c) any failure to perform any covenant or agreement of the Company contained in
this Agreement, any Ancillary Agreement, or any other agreement or instrument
furnished by the Company or any Seller to Parent pursuant to this Agreement;
provided, however, in no event shall the Sellers’ liability under this Section
6.1(c) exceed the aggregate value of all Closing Shares and Contingent
Consideration paid to the Sellers (the “100% cap”);

 

(d) a breach by any Seller of the representations and warranties under Section
2A.4; provided that a Seller shall have an indemnification obligation only with
respect to his or her own breach (up to the full amount of the Transaction
Consideration received by such Seller, notwithstanding anything to the contrary
in this Agreement) and not for the breach of any other Seller;

 

(e) any claim by a stockholder or former stockholder of the Company, or any
other Person or entity, seeking to assert, or based upon: (i) ownership or
rights to ownership of any shares of stock of the Company; (ii) any rights of a
stockholder, including any option, preemptive rights or rights to notice or to
vote; (iii) any rights under the Certificate of

 

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Incorporation or Bylaws of the Company or (iv) any claim that his, her or its
shares were wrongfully repurchased by the Company;

 

(f) any Stockholder Expense Amount to the extent not deducted from the Closing
Shares; or

 

(g) any liability for Taxes required to be paid (or to have been withheld) with
respect to the receipt of the Transaction Consideration paid to the Sellers
pursuant to this Agreement, and any Taxes of the Company for periods (or
portions thereof) ending on or prior to the Closing Date; provided, however, in
no event shall the Sellers’ liability under this Section 6.1(g) (other than with
respect to withholding tax) exceed twenty percent (20%) of the aggregate value
of all Closing Shares and Contingent Consideration paid or payable to the
Sellers; provided further that Sellers shall not be liable with respect to the
Transaction Consideration paid to the Sellers pursuant to this Agreement for (i)
the employer’s share of any FICA, Medicare Taxes or other Taxes imposed on the
employer or (ii) interest or penalties for failure to withhold (a) to the extent
such withholding was required consistent with the Final Allocation or (b) to the
extent such failure to withhold would not have occurred had withholding been
done consistent with Seller’s Proposed Allocation; it being understood that
reference to penalties does not include the amount of tax required to be
withheld. Each Seller’s liability for any withholding Taxes pursuant to this
Section 6.1(g) shall be limited to withholding Taxes with respect to the
consideration paid to such Seller and no Seller shall have an indemnification
obligation hereunder for withholding Taxes with respect to consideration paid to
another Seller.

 

In the event that Parent suffers an Unreimbursed Loss and the Sellers
subsequently become entitled to Contingent Consideration, then the 20% cap and
the 100% cap shall be re-calculated to include any such additional consideration
and Parent shall be entitled to additional payments under Section 6.1(a),
Section 6.1(b), or Section 6.1(c), as applicable, subject to the re-calculated
caps, in which case Parent shall be entitled to exercise its right of offset
pursuant to Section 8.6 (a) in the case of Unreimbursed Losses relating to
Section 6.1(a) or Section 6.1(b), against 20% of any subsequent payments of
Contingent Consideration that would otherwise be paid to the Sellers, until all
such Unreimbursed Losses in respect thereof have been satisfied and (b) in the
case of Unreimbursed Losses relating to Section 6.1(c), against all of any
subsequent payment of Contingent Consideration that would otherwise be paid to
the Sellers, until all such Unreimbursed Losses in respect thereof have been
satisfied.

 

Except in the case of fraud or willful misrepresentation, no Seller shall be
liable under this Agreement for more than his or her pro rata share (based on
his or her Seller’s Percentage) of (a) the Transaction Consideration paid if the
Closing occurs and (b) the Share Termination Fee, if any, paid to the Company
pursuant to Section 7.3 of this Agreement. If the Company is unable to satisfy
any of the closing conditions set forth in Section 5.1 or Section 5.3 and
provides written notice of such inability in an exhibit to (or in lieu of) the
officer’s certificate to be delivered by the Company to Parent pursuant to
Section 5.3(d), which notice explains in reasonable detail the existence of and
the circumstances surrounding such inability, and Parent waives the applicable
closing condition and allows the Closing to occur, then Parent shall have no
claim for indemnification under this Section 6.1 with respect to any Losses
resulting from such failure if the aggregate value of such Losses equals or is
less than two-hundred fifty thousand dollars ($250,000) but if the aggregate
value of such Losses exceeds two-hundred fifty

 

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thousand dollars ($250,000) Parent shall be indemnified for the full amount of
such Losses, subject to any applicable limitations in this Section 6.1 other
than the limitations of this sentence. Notwithstanding anything herein to the
contrary, Sellers have no obligation to indemnify or hold harmless Parent under
this ARTICLE VI unless and until the aggregate Losses for which Sellers would
have an indemnification obligation under this Agreement Article VI exceed
twenty-five thousand dollars ($25,000), in which case Sellers’ indemnification
obligations shall be for the full amount of the Losses subject to the applicable
limitations in this Section 6.1 other than the limitations of this sentence.

 

Any Seller may satisfy any of its indemnification obligations hereunder by
payment to Parent in cash, in shares of Parent Common Stock, or in any
combination of cash or shares of Parent Common Stock. To the extent that a
Seller uses shares of Parent Common Stock, the “value” of the Closing Shares,
Contingent Shares and Net Sales Earnout Shares shall be the price assigned to
such shares for purposes of determining the number of such shares Parent issued
to the Sellers. Any Seller satisfying any of his or her indemnification
obligations hereunder by payment to Parent in shares of his or her Parent Common
Stock may pay such obligations in shares that are Unvested Shares (as defined in
the Restriction Agreement) provided that the ratio the value of such payment
comprised of Unvested Shares to the total value of such payment may not exceed
the ratio, as of the date Parent (as determined pursuant to Section 8.3 gives
written notice of a claim or proceeding to the Indemnifying Party pursuant to
Section 6.3) of such Seller’s Unvested Shares to the sum of all Closing Shares,
Contingent Shares and Net Earnout Shares received by such Seller.

 

Section 6.2 Indemnification by Parent. Parent shall indemnify the Sellers in
respect of, and hold them harmless against, any and all Losses incurred or
suffered by the Sellers resulting from, relating to or constituting:

 

(a) any breach of any representation or warranty of Parent contained in this
Agreement, any Ancillary Agreement or any other agreement or instrument
furnished by Parent to the Company pursuant to this Agreement or

 

(b) any failure to perform any covenant or agreement of Parent contained in this
Agreement, any Ancillary Agreement or any agreement or instrument furnished by
Parent to the Company pursuant to this Agreement.

 

Section 6.3 Procedure. The party who is seeking indemnification with respect to
any Loss (the “Indemnified Party”) shall give written notice to the party or
parties from whom indemnification is sought (the “Indemnifying Party”) promptly
after the Indemnified Party learns of the claim or proceeding, which notice
shall provide reasonable detail and specificity as to the claim or proceeding
and the amount of damages sought in such claim or proceeding; provided that, the
failure to give such notice shall not relieve the Indemnifying Party of its
obligations hereunder except to the extent it is actually damaged thereby. With
respect to any third-party claim or proceeding as to which the Indemnified Party
is entitled to indemnification, the Indemnifying Party shall have the right to
elect in writing to defend such claim or proceeding, to select and employ
counsel of its own choosing to defend against any such claim or proceeding, to
assume control of the defense of such claim or proceeding, and to compromise,
settle or otherwise dispose of the same, if the Indemnifying Party deems it
advisable to do so, all

 

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at the sole cost and expense of the Indemnifying Party. The parties will fully
cooperate in any such action, and shall make available to each other any books
or records useful for the defense of any such claim or proceeding. The
Indemnified Party may elect to participate in the defense of any such
third-party claim, and may, at its sole expense, retain separate counsel in
connection therewith. Notwithstanding the foregoing, if, within three (3) days
of receiving written notice of a claim or proceeding from the Indemnified Party,
the Indemnifying Party elects in writing not to contest such claim or proceeding
or fails to make any election, the Indemnified Party will (upon notice to the
Indemnifying Party) have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk, and at the
expense of, the Indemnifying Party; provided that, (i) the Indemnified Party,
even if undertaking its own defense, shall not settle or compromise any
third-party claim without the prior written consent of the Indemnifying Party
and (ii) in the event that the Indemnifying Party elects to defend such claim or
proceeding in accordance with this Section 6.3, the Indemnifying Party shall not
settle or compromise any third-party claim without the prior written consent of
the Indemnified Party, in each case of clauses (i) and (ii) which consent shall
not be unreasonably withheld or delayed; provided, however, that the
Indemnifying Party may settle a third-party claim without the prior written
consent of the Indemnified Party if (x) the Indemnified Party is not required to
make any payment, (y) the party or parties making the claim execute a full
release of the Indemnified Party and (z) there is not in effect any injunction
applicable to the Indemnified Party related to the third-party claim.

 

Section 6.4 Survival. This Article VI shall survive any termination of this
Agreement.

 

Section 6.5 Survival of Representations and Warranties; Investigation. All
representations and warranties that are covered by the indemnification
agreements in Section 6.1(a) and Section 6.2(a) shall (a) survive the Closing
and (b) expire on the date eighteen (18) months following the Closing Date
except that (i) the representations and warranties set forth in Section 2.1,
Section 2.2, Section 2.3, Section 3.1 and Section 3.2 shall survive the Closing
without limitation. If an Indemnified Party delivers to an Indemnifying Party,
before expiration of a representation or warranty, a written notice of a claim
pursuant to Section 6.3 hereof based upon a breach of such representation or
warranty, then the applicable representation or warranty shall survive until,
but only for purposes of, the resolution of the matter covered by such notice.
If the legal proceeding or written claim with respect to which such written
notice of claim has been given is definitively withdrawn or resolved in favor of
the Indemnified Party, the Indemnified Party shall promptly so notify the
Indemnifying Party. Except as otherwise expressly set forth in the second
sentence of the last paragraph of Section 6.1, the rights to indemnification set
forth in this ARTICLE VI shall not be affected by (i) any investigation
conducted by or on behalf of an Indemnified Party or any Knowledge acquired (or
capable of being acquired) by an Indemnified Party, whether before or after the
date of this Agreement or the Closing Date, with respect to the inaccuracy or
noncompliance with any representation, warranty, covenant or obligation which is
the subject of indemnification hereunder or (ii) any waiver by an Indemnified
Party of any closing condition relating to the accuracy of representations and
warranties or the performance of or compliance with agreements and covenants.

 

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Section 6.6 No Right of Contribution. No Seller shall have any right of
contribution against the Company or the Acquired Corporation with respect to any
breach by the Company prior to the Closing Date of any of its representations,
warranties, covenants or agreements.

 

Section 6.7 Seller Agent. For purposes of this Agreement, each Seller appoints
Shaw as his or her representative and the attorney-in-fact for and on behalf of
each such Seller, and the taking by the Seller Agent of any and all actions and
the making of any decisions required or permitted to be taken by him or her
under this Agreement, including the exercise of the power to (i) agree to,
negotiate, enter into settlements and compromises of and comply with orders of
courts and awards of arbitrators with respect to any claims pursuant to this
Agreement; (ii) resolve any claims pursuant to this Agreement; (iii) without
limiting the generality of the foregoing, agree to, negotiate, enter into
settlements and compromises of any matters pursuant to Section 1.6 hereof, and
(iv) take all actions necessary in the judgment of the Seller Agent for the
accomplishment of the foregoing and all of the other terms, conditions and
limitations of this Agreement. Accordingly, the Seller Agent shall have
unlimited authority and power to act on behalf of each Seller with respect to
this Agreement and the disposition, settlement or other handling of all claims
with respect hereto, including, claims with respect to the Contingent
Consideration or Net Sales Earnout Consideration, and other rights or
obligations arising from and taken pursuant to this Agreement. The Sellers will
be bound by all actions taken by the Seller Agent in connection with this
Agreement, and Parent shall be entitled to rely on any action or decision of the
Seller Agent. Without limiting the generality of the foregoing, each decision,
act, consent or instruction of the Seller Agent will constitute a decision of
all the Sellers to whom a portion of the Contingent Consideration or Net Sales
Earnout Consideration may otherwise be payable and will be final, binding and
conclusive upon each of such Sellers, and Parent may rely upon any such
decision, act, consent or instruction of the Seller Agent as being the decision,
act, consent or instruction of each and every such Seller. Parent is hereby
relieved from any liability to any Seller for any acts done by it in accordance
with such decision, act, consent or instruction of the Seller Agent. The Seller
Agent will incur no liability with respect to any action taken or suffered by
her in reliance upon any notice, direction, instruction, consent, statement or
other document believed by her to be genuine and to have been signed by the
proper Person (and shall have no responsibility to determine the authenticity
thereof), nor for any other action or inaction, except for action or inaction
constituting willful misconduct or bad faith. In all questions arising under
this Agreement, the Seller Agent may rely on the advice of counsel, and the
Seller Agent will not be liable to anyone for anything done, omitted or suffered
in good faith by the Seller Agent based on such advice. The Seller Agent will
not be required to take any action involving any expense unless the payment of
such expense is made or provided for in a manner satisfactory to him. At any
time, a majority in interest of the Sellers may appoint a new Seller Agent by
written consent by sending notice and a copy of the written consent appointing
such new Seller Agent(s) signed by holders of a majority in interest of the
Sellers to Parent. Such appointment will be effective upon the later of the date
indicated in the consent or the date such consent is received by Parent (or, if
after the Closing, the Acquired Corporation).

 

Section 6.8 Exclusive Remedy. Except as expressly provided otherwise in this
Agreement, equitable or injunctive relief or specific performance, or remedies
for fraud or willful misrepresentation, the indemnification provisions set forth
in this ARTICLE VI shall be the sole and exclusive remedy for breaches of
representations, warranties, or covenants of the Company or the Sellers prior to
the Closing.

 

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ARTICLE VII

TERMINATION

 

Section 7.1 Termination of Agreement. The parties may terminate this Agreement
prior to the Closing, as provided below:

 

(a) the parties may terminate this Agreement by mutual written consent;

 

(b) Parent may terminate this Agreement by giving written notice to the Company
in the event the Company is in breach of any representation, warranty or
covenant contained in this Agreement, and such breach (i) individually or in
combination with any other such breach, would cause the conditions set forth in
Section 5.1 or Section 5.3 not to be satisfied and (ii) is not cured within
thirty (30) days following delivery by Parent to the Company of written notice
of such breach;

 

(c) the Company may terminate this Agreement by giving written notice to Parent
in the event Parent is in breach of any representation, warranty or covenant
contained in this Agreement, and such breach (i) individually or in combination
with any other such breach, would cause the conditions set forth in Section 5.1
or Section 5.2 not to be satisfied and (ii) is not cured within thirty (30) days
(or ten (10) days with respect to Section 1.8) following delivery by the Company
to Parent of written notice of such breach;

 

(d) Parent may terminate this Agreement by giving written notice to the Company
if the Closing shall not have occurred on or before April 1, 2005 by reason of
the failure of any condition precedent under Section 5.1 or Section 5.3 (unless
the failure results primarily from a breach by Parent of any representation,
warranty or covenant contained in this Agreement) or

 

(e) the Company may terminate this Agreement by giving written notice to Parent
if the Closing shall not have occurred on or before April 1, 2005 by reason of
the failure of any condition precedent under Section 5.1 or Section 5.2 (unless
the failure results primarily from a breach by the Company of any
representation, warranty or covenant contained in this Agreement).

 

Section 7.2 Effect of Termination. If any party terminates this Agreement
pursuant to Section 7.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any party for breaches of this Agreement, Section 7.3, any
Ancillary Agreement that pursuant to its terms survives termination of this
Agreement, or Section 4.6, Section 4.7, 0, Section 4.11, Section 4.13, Section
4.17, ARTICLE VI, this Section 7.2, Section 7.4, Section 7.5, Section 8.3,
Section 8.4, Section 8.5, or Section 8.9 ).

 

Section 7.3 Termination Fee.

 

(a) Upon the termination of this Agreement pursuant to Section 7.1, the Company
shall have the right to receive the Escrow Shares or a portion thereof (the
“Share Termination Fee”) in accordance with the following provisions:

 

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(i) Escrow Shares having a value of One Hundred Thousand Dollars ($100,000)
(calculated in accordance with Section 1.7(a) shall be released to the Company
if this Agreement is terminated by Parent pursuant to Section 7.1(b) and the
remaining Escrow Shares held in Escrow shall be released to Parent.

 

(ii) The full amount of the Escrow Shares shall be released to the Company if
this Agreement is terminated pursuant to Section 7.1(a), Section 7.1(c), Section
7.1(d) or Section 7.1(e).

 

(b) Additionally, upon the termination of this Agreement pursuant to Section
7.1, all amounts outstanding under the Research Loan payable by the Company
shall be forgiven by Parent.

 

(c) Any payment of the Share Termination Fee under this Section 7.3 shall be
conditioned upon and subject to the execution by the Company and each of the
Sellers of the Company of a Settlement and Release Agreement, a form of which is
attached hereto as Exhibit P (each a “Release Agreement”); if either the Company
or any of the Sellers fail to execute and deliver to Parent a Release Agreement
within thirty (30) days after the date this Agreement is terminated, the Escrow
Agent shall release all the Escrow Shares to Parent and Parent will have no
obligation to pay the Share Termination Fee or any part thereof; provided,
however, that if a Release Agreement has not been executed by any of the Sellers
within thirty (30) days after the date this Agreement is terminated because such
Seller has died or become incapacitated, such Seller or the guardian, estate, or
authorized representatives of such Seller, as applicable, shall have an
additional thirty (30) days to execute and deliver a Release Agreement before
the release of all of the Escrow Shares to Parent.

 

(d) Any dispute related to the payment of the Share Termination Fee will be
settled by binding arbitration in accordance with Section 8.4 hereof and the
Escrow Agent will not release all or any portion of the Escrow Shares to the
extent such Escrow Shares are disputed in good faith by any party hereto until
such dispute is resolved pursuant to such arbitration, all as set forth in the
Escrow Agreement.

 

Section 7.4 Treatment of Sirna Enabled Data upon Termination. Notwithstanding
anything herein to the contrary, in the event that Parent terminates this
Agreement pursuant to Section 7.1(b) due to a material, willful breach by the
Company or willful actions by the Sellers that result in a material breach by
the Company, Parent and the Company shall be co-owners of the Sirna Enabled Data
and each may exploit, license, disclose and otherwise use the Sirna Enabled Data
without the consent of the other.

 

Section 7.5 Competition Restrictions Upon Termination.

 

(a) In the event that (i) this Agreement is terminated for reasons other than by
Parent pursuant to Section 7.1(b), (ii) there are no material breaches by any
Seller under any Ancillary Agreement, and (iii) the Company has satisfied the
condition set forth in Section 5.3(a), Parent, for a period of three (3) years
from the date of termination of this Agreement, shall not, either directly or
indirectly through a Subsidiary or any entity Parent controls, compete with the
Company in the field of research, development, manufacture, license, sale,

 

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commercialization or distribution of products using RNA interference technology
for the inhibition (but not promotion) of hair growth.

 

(b) In the event that (i) this Agreement is terminated other than by Parent
pursuant to Section 7.1(b) due to a willful, material breach by the Company and
(ii) at the time of such termination, there exists no willful, material breaches
by any Seller under any Ancillary Agreement, then Parent, for a period of three
(3) years from the date of termination of this Agreement, shall neither
participate in any discussions or negotiations with Columbia University
regarding the acquisition, license or other transfer of Columbia University’s
intellectual property in the Field of Use, nor enter into any agreement
regarding any such acquisition, license or transfer relating to the Field of
Use.

 

ARTICLE VIII

MISCELLANEOUS

 

Section 8.1 Entire Agreement; Assignment. This Agreement (including the Company
Disclosure Schedule, the Exhibits hereto, and the agreements the form of which
are provided in the Exhibits) (a) constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings both written and oral between the
parties with respect to the subject matter hereof (including all of the
provisions of the Confidential Term Sheet for Proposed Transaction between
Parent and the Company, dated as of August 19, 2004) and (b) shall not be
assigned by operation of law or otherwise; provided, however, that Parent may
assign any or all of its rights and obligations under this Agreement to any
Affiliate of Parent or, after the Closing, to any person or entity in connection
with any change of control, merger or acquisition of Parent or of a sale of all
or substantially all of Parent’s assets, but no such assignment shall relieve
Parent of its obligations hereunder if such assignee does not perform such
obligations and any Seller may assign his or her rights to receive any payments
hereunder.

 

Section 8.2 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom, and (d) in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.

 

Section 8.3 Notices. All notices, requests, claims, consents, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given, in the case of delivery in person, upon
delivery, in the case of delivery by overnight courier, one (1) day after
obtaining confirmation of delivery or that delivery was rejected or refused by
the recipient, or, in the case of a facsimile, upon confirmation of receipt or,
in the case of delivery by registered or certified mail, seven (7) days after
mailing) by delivery in

 

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person, nationally recognized overnight courier, by facsimile or by registered
or certified mail (postage prepaid, return receipt requested) to each other
party as follows:

 

if to Parent:

    

Sirna Therapeutics, Inc.

      

2950 Wilderness Place

      

Boulder, CO 80301

      

Telecopier: (303) 449-6995

      

Attention: Vice President, Legal Affairs

with a copy to:

    

O’Melveny & Myers LLP

      

2765 Sand Hill Road

      

Menlo Park, CA 94025

      

Telecopier: (650) 473-2601

      

Attention: Sam Zucker, Esq.

 

if to the Company, the Seller Agent or any Seller, as provided in Section 8.3 of
the Company Disclosure Schedule or to such other address as the Person to whom
notice is given may have previously furnished to the others in writing in the
manner set forth above.

 

Section 8.4 Arbitration. All claims, disputes and other matters in question
arising out of, or relating to, this Agreement or the performance hereof shall
be submitted to, and determined by, arbitration if good faith negotiations
between the parties hereto, if any, does not resolve such claim, dispute or
other matter. Such arbitration shall proceed in accordance with the then-current
rules for arbitration established by Judicial Arbitration Mediation Services,
Inc./ENDISPUTE (“JAMS”), unless the parties hereto mutually agree otherwise, and
pursuant to the following procedures:

 

(a) Parent on the one hand and Sellers on the other hand shall each appoint an
arbitrator from the JAMS panel of retired judges, and those party-appointed
arbitrators shall appoint a third arbitrator from the JAMS panel of retired
judges within ten (10) days. If the party-appointed arbitrators fail to appoint
a third arbitrator within the ten (10) days, such third arbitrator shall be
appointed by JAMS in accordance with its rules.

 

(b) Reasonable discovery shall be allowed in arbitration.

 

(c) All proceedings before the arbitrators shall be held in New York City, New
York. The governing law shall be as specified in Section 8.5.

 

(d) The award rendered by the arbitrators shall be final and binding, and
judgment may be entered in accordance with applicable Law and in any court
having jurisdiction thereof.

 

(e) The award rendered by the arbitrators shall include (i) a provision that the
prevailing party in such arbitration recover its costs relating to the
arbitration and reasonable attorneys’ fees from the other party, (ii) the amount
of such costs and fees, and (iii) an order that the losing party pay the fees
and expenses of the arbitrators.

 

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Notwithstanding the provisions of this Section 8.4, either party may seek
injunctive or other equitable relief to maintain the status quo before any court
of competent jurisdiction in connection with any claims, disputes and other
matters in question arising out of, or relating to, this Agreement or the
performance hereof, without breach of this Section 8.4 or abridgement of the
powers of the arbitrators.

 

Section 8.5 Governing Law. This Agreement (including the validity and
applicability of the arbitration provisions of this Agreement, the conduct of
any arbitration of a Dispute, the enforcement of any arbitral award made
hereunder and any other questions of arbitration law or procedure arising
hereunder) shall be governed by and construed in accordance with the internal
laws of the State of New York without giving effect to any choice or conflict of
law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of laws of any jurisdictions
other than those of the State of New York.

 

Section 8.6 Right to Withhold; Offset. If any matter as to which Parent has
asserted a claim hereunder is pending or unresolved at the time any Closing
Shares or Contingent Shares are due from Parent to any Seller under this
Agreement, Parent shall have the right to withhold from such payments otherwise
due from Parent an amount equal, in the aggregate, to the amount of such
asserted claim until such matters are resolved. Any dispute over the amount of
such withheld portion will be settled by binding arbitration in accordance with
Section 8.4 hereof, and the parties will use their best efforts to have the
arbitrator determine the reasonableness of such withheld portion (but need not
have the arbitrator determine that the final amount of any indemnity claims) no
later than thirty (30) days following the date the applicable Shares would have
been paid but for the withheld portion. Upon the resolution of any such claims
of Parent pursuant to the provisions of this Agreement, the amount of Losses
with respect to such claims to the extent resolved in Parent’s favor shall be
retained by Parent pursuant to this Section 8.6 and any portion of such withheld
amounts not so retained by Parent shall be delivered to the Seller Agent
pursuant to this Agreement together with interest on such portion payable from
the date such portion was withheld until paid at the rate of five percent (5%)
per annum.

 

Section 8.7 Descriptive Headings; Section References. The descriptive headings
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement. All
references herein to Articles, Sections, subsections, paragraphs and clauses are
references to Articles, Sections, subsections, paragraphs and clauses,
respectively, of this Agreement unless specified otherwise.

 

Section 8.8 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and permitted
assigns and, except as expressly provided herein, nothing in this Agreement is
intended to or shall confer upon any other Person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.

 

Section 8.9 Personal Liability. Except as expressly set forth herein with
respect to the Sellers, this Agreement shall not create or be deemed to create
or permit any personal liability or obligation on the part of any officer,
director, employee, agent, stockholder, representative or investor of any party
hereto.

 

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Section 8.10 Specific Performance. The parties hereby acknowledge and agree that
the failure of any party to perform its agreements and covenants hereunder,
including its failure to take all actions as are necessary on its part to
occurrence of Closing in accordance with its obligations hereunder, will cause
irreparable injury to the other parties, for which damages, even if available,
will not be an adequate remedy. Accordingly, each party hereby consents to the
issuance of injunctive relief by any court of competent jurisdiction to compel
performance of such party’s obligations and to the granting by any court of the
remedy of specific performance of its obligations hereunder, including specific
performance to compel the occurrence of Closing.

 

Section 8.11 Counterparts. This Agreement may be executed by facsimile and in
one or more counterparts, each of which shall be deemed to be an original but
all of which shall constitute one and the same Agreement.

 

Section 8.12 Amendment. This Agreement (including the Company Disclosure
Schedule) may be amended only by an instrument in writing signed on behalf of
the parties hereto.

 

Section 8.13 Extension; Waiver. Each party hereto may (i) extend the time for
the performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document, certificate or writing delivered pursuant
hereto or (iii) waive compliance by another party with any of the agreements or
conditions contained herein. Any agreement on the part of any party hereto to
any such extension or waiver shall be valid only if set forth in an instrument,
in writing, signed by such party; provided, however, the Seller Agent may
execute such instrument on behalf of the Sellers. The failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights.

 

Section 8.14 Tax Withholding. Notwithstanding any other provision in this
Agreement, all amounts payable pursuant to the terms of this Agreement and the
release of Closing Shares from applicable vesting restrictions shall be subject
to applicable Tax withholding requirements. Each of Parent, the Acquired
Corporation and the Company shall be entitled to deduct and withhold from the
payments to be made pursuant to this Agreement any Taxes reasonably required to
be deducted and withheld with respect to the making of such payments under the
Internal Revenue Code or any other applicable provision of law and to collect
Forms W-8 or W-9, as applicable, or similar information from the Sellers and any
other recipients of payments hereunder. To the extent that amounts are so
withheld, such amounts shall be treated for all purposes of this Agreement as
having been paid to the former stockholders with respect to whom such amounts
were withheld.

 

ARTICLE IX

DEFINITIONS

 

For the purposes of this Agreement the term:

 

(a) “Acquired Corporation” shall mean the Company from and after the Closing
Date.

 

47

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(b) “Affiliate” means a Person that, directly or indirectly, through one or more
intermediaries controls, is controlled by or is under common control with the
first-mentioned person;

 

(c) “Ancillary Agreements” means collectively, each of the Non-Competition
Agreements, the Inventions Agreements, the Stock Restriction Agreements, the
Christiano Consulting Agreement and the Carroll Employment Agreement.

 

(d) “Approvals” mean any approval, authorization, consent, qualification or
registration, or any waiver of any of the foregoing, required to be obtained
from, or any notice, statement or other communication required to be filed with
or delivered to, any Governmental or Regulatory Authority or any other Person.

 

(e) “Business” means business of the Company as currently being conducted by
Company.

 

(f) “Business Day” means any day other than a day on which banks in the City of
New York, New York are closed.

 

(g) “Capital Stock” means common stock, preferred stock, partnership interests,
limited liability company interests or other ownership interests entitling the
holder thereof to vote with respect to matters involving the issuer thereof.

 

(h) “Clinical IP” means (i) pre-clinical or clinical protocols and data
resulting from or relating to pre-clinical or clinical trials incorporating any
Company Product or component thereof, and (ii) all INDs, NDAs (including any NDA
Submission Package) and other regulatory applications and approvals.

 

(i) “Columbia License Amount” means the portion of any up-front equity payment
payable by the Company with respect to the Columbia License, as set forth on
Schedule 4.25.

 

(j) “Company IP” means all Intellectual Property used or currently proposed to
be used in the Business, including those embodied in the Company Products.

 

(k) “Company Products” means all products or services sold, distributed or
otherwise disposed of by Company.

 

(l) “Company Registered IP” means United States and foreign: (i) Patent Rights,
including applications therefore, (ii) registered trademarks, applications to
register trademarks, including intent-to-use applications, or other
registrations or applications related to trademarks, (iii) copyright
registrations and applications to register copyrights, (iv) registered mask
works and applications to register mask works, and (v) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued by, filed with, or recorded by, any
private, state, government or other public or quasi-public legal authority at
any time; owned by, filed in the name of, or applied for, Company.

 

48

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(m) “Escrow Agent” means U.S. Bank National Association, a national banking
association.

 

(n) “FDA” means the United States Food and Drug Administration and/or any other
Governmental or Regulatory Authority which may regulate or control the sale of
cosmetics and/or drugs, including, without limitation, any of the Company
Products.

 

(o) “FDC Act” means the Federal Food, Drug and Cosmetic Act, as amended from
time to time, and all regulations promulgated pursuant thereto.

 

(p) “Field of Use” means the research, development, manufacture, license, sale,
commercialization or distribution of products using RNA interference technology
for the promotion or inhibition of hair growth.

 

(q) “GLP Toxicology Studies” means the preclinical toxicology and biosafety
studies of novel drugs and biologics in compliance with the then current Good
Laboratory Practice Standards (“GLP”) promulgated or endorsed by the FDA in the
United States (or in the case of foreign jurisdictions, comparable regulatory
standards), as each may be amended from time to time.

 

(r) “include” or “including” means “include, without limitation” or “including,
without limitation,” as the case may be, and the language following “include” or
“including” shall not be deemed to set forth an exhaustive list.

 

(s) “Income Tax” means any tax imposed on, or measured by income.

 

(t) “IND” means any Investigational New Drug Application relating to any of the
Company Products and all associated documents to support such applications, as
submitted to the FDA, or a similar application and supporting documents
submitted to any other Governmental or Regulatory Authority.

 

(u) “Intellectual Property” means any or all of the following and all worldwide
rights therein, arising therefrom, or associated therewith: (A) Patent Rights;
(B) Know-How; (C) inventions (whether patentable or not), invention disclosures,
improvements, customer lists and other trade secrets or proprietary information;
(D) Clinical IP; (E) copyrights, copyright registrations and applications
therefore and all other rights corresponding thereto throughout the world; (F)
computer software, including all source code, object code, firmware, development
tools, files, records and data, all media on which any of the foregoing is
recorded, all Web addresses, sites and domain names; (G) mask works and
registrations and applications therefore; (H) industrial designs and any
registrations and applications therefore throughout the world; (I) trade names,
logos, common law trademarks and service marks, trademark and service mark
registrations and applications therefore and all goodwill associated therewith
throughout the world; (J) databases and data collections and all rights therein
throughout the world; (K) processes, devices, prototypes, schematics, test
methodologies, and development tools; (L) any similar, corresponding or
equivalent rights to any of the foregoing and (M) documentation related to any
of the foregoing.

 

49

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(v) “Knowledge” or “known” means, with respect to any matter in question, the
actual knowledge of such matter of any employee, director, officer or Seller or
any director or executive officer of the Company or Parent, as the case may be.
Any such individual will be deemed to have knowledge of a particular fact,
circumstance, event or other matter if (i) such individual has actual knowledge
of such fact, circumstance, event or other matter; (ii) such fact, circumstance,
event or other matter is reflected in one or more documents (whether written or
electronic, including e-mails sent to or by such individual) in, or that have
been in, such individual’s possession, including personal files of such person
or (iii) such fact, circumstance, event or other matter is reflected in one or
more documents (whether written or electronic) contained in books and records of
the Company (in the case of knowledge of the Company) or Parent (in the case of
knowledge of Parent) that would reasonably be expected to be reviewed by a
Person who has the duties and responsibilities of such individual in the
customary performance of such duties and responsibilities.

 

(w) “Know-How” means all technology, engineering data, protocol, processes,
trade secrets, technical data, manufacturing information, pre-clinical and
clinical data and any other information or experience (other than as disclosed
in the Patent Rights) that Company owns or has the right to license that is used
in the Business, as well as any direct improvements or modifications thereto
(other than disclosed in the Patent Rights) developed by or for Company.

 

(x) “Law” or “Laws” mean any federal, state, local, municipal, foreign or other
law, statute, legislation, constitution, principle of common law, resolution,
ordinance, code, order, edict, decree, proclamation, treaty, convention, rule,
regulation, permit, ruling, directive, pronouncement, requirement (licensing or
otherwise), specification, determination, decision, opinion or interpretation
issued, enacted, adopted, passed, approved, promulgated, made, implemented or
otherwise put into effect by or under the authority of any Governmental or
Regulatory Authority.

 

(y) “Lien” means, with respect to any asset (including any security), any
mortgage, lien, pledge, charge, license, adverse claim of title, ownership or
right to use, deed of trust, mortgage, title retention device, collateral
assignment, claim, security interest or encumbrance of any kind in respect of
such asset; provided, however, that the term “Lien” shall not include (i)
statutory liens for Taxes, which are not yet due and payable or are being
contested in good faith by appropriate proceedings and disclosed in the Company
Disclosure Schedule; (ii) statutory or common law liens to secure landlords,
lessors or renters under leases or rental agreements confined to the premises
rented; (iii) deposits or pledges made in connection with, or to secure payment
of, workers’ compensation, unemployment insurance, old age pension or other
social security programs mandated under applicable laws; (iv) statutory or
common law liens in favor of carriers, warehousemen, mechanics and materialmen
to secure claims for labor, materials or supplies and other like liens and (v)
restrictions on transfer of securities imposed by applicable state and federal
securities laws.

 

(z) “Loss” means any action, cost, damage, disbursement, expense, Tax,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including interest or other carrying costs, penalties, legal, accounting and
other professional fees and expenses incurred in the investigation,

 

50

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collection, prosecution and defense of claims and amounts paid in settlement,
that may be imposed on or otherwise incurred or suffered by the specified
Person; provided, however, that “Loss” shall not include special or
consequential damages.

 

(aa) “Material Adverse Effect” means, any circumstance involving, change in or
effect on (or any circumstance, change or effect involving a prospective change
in or effect on) the Company or Parent (as the case may be) (A) that is, or is
reasonably likely in the future to be, materially adverse to the operations,
tangible or intangible assets, liabilities (including contingent liabilities),
earnings, other results of operations, the condition (financial or otherwise) of
the Company or Parent (as the case may be), or prospects for the Company or
Parent (as the case may be) or (B) that would reasonably be expected to prevent
or materially delay or impair the ability of the Company or Parent (as the case
may be) to consummate the transactions contemplated by this Agreement

 

(bb) “NDA” means any New Drug Application relating to any of the Products and
all associated documents to support such applications, as submitted to the FDA,
or a similar application and supporting documents submitted to any other
Governmental or Regulatory Authority.

 

(cc) “NDA Submission Package” means all pre-clinical, laboratory, clinical,
biocompatibility and other testing data; labeling; processing; material and
packaging specifications; and supplements or amendments to any of the foregoing;
and all other information used by Company for submitting, obtaining and
maintaining approval of an NDA in accordance with the requirements of the FDC
Act.

 

(dd) “Net Sales” means the total of the gross revenue received by Parent,
Acquired Corporation or any of their Affiliates for the sale, transfer, lease,
exchange or other disposition or provision of the Products by any of such
entities, less the following deductions (to the extent included in and not
already deducted from the gross revenue): cash, trade or quantity discounts
actually granted to customers; sales, use, tariff, import/export duties or other
excise taxes imposed on particular sales (excepting value added taxes or income
taxes); royalties and other payments due to third party licensors;
transportation charges, including insurance costs to the extent actually paid by
the Company; and allowances or credits to customers because of rejections or
returns.

 

(ee) “Patent Rights” means all United States and foreign patents and
applications therefore and all reissues, divisions, renewals, reexaminations,
extensions, provisionals, continuations, continuing prosecution applications and
continuations-in-part thereof.

 

(ff) “Person” means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization or other legal entity
including any Governmental or Regulatory Authority.

 

(gg) “Phase II Trial” means a phase II clinical trial conducted in compliance
with the then current regulations or standards promulgated or endorsed by the
FDA in the United

 

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States (or in the case of foreign jurisdictions, comparable regulatory
standards), as each may be amended from time to time.

 

(hh) “Phase III Trial” means a phase III clinical trial conducted in compliance
with the then current regulations or standards promulgated or endorsed by the
FDA in the United States (or in the case of foreign jurisdictions, comparable
regulatory standards), as each may be amended from time to time.

 

(ii) “Product” means an RNAi-based product intended for use in the Field of Use,
developed pursuant to rights granted to Parent under the Columbia License or
directly resulting from the collaboration between Parent, any entity that
acquires Parent, any of their Affiliates acting on their behalf or under their
actual control, or entities they control and any of the Sellers.

 

(jj) “Qualifying Request” means a request by the Seller Agent for the
registration of Net Sales Earnout Shares with an estimated offering price in
excess of $200,000.

 

(kk) “Research Plan” means the research plan for the In Vivo Efficacy Study
attached hereto as Exhibit Q, as such may be amended from time to time upon
mutual written agreement by Parent and Company.

 

(ll) “Sirna Enabled Data” means any and all data and results arising out of, in
connection with, or as a result of the In Vivo Efficacy Study or arising out of
the research, development or other activities of the Company at the Lab, to the
extent funded by Parent including, pursuant to the Research Loan, or using the
Materials.

 

(mm) “Standard SAB Agreement” means Parent’s standard scientific advisory board
agreement, the form of which is attached hereto as Exhibit R.

 

(nn) “Subsidiary” or “Subsidiaries” of the Company, Parent, the Acquired
Corporation or any other Person means any corporation, partnership, limited
liability company, association, trust, unincorporated association or other legal
entity of which the Company, Parent, the Acquired Corporation or any such other
person, as the case may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, more than fifty percent (50%) of the
capital stock the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity. For the avoidance of doubt, Subsidiaries will be deemed
“Affiliates under actual control.”

 

(oo) “Tax” (and, with correlative meaning, “Taxes”) means any federal, state,
local or foreign net income, gross income, gross receipts, windfall profit,
severance, property, production, sales, use, license, excise, franchise,
employment, payroll, withholding, or any other tax, custom, duty, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
Governmental or Regulatory Authority and any attorney and accounting fees
incurred in defending any claim with respect thereto.

 

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(pp) “Tax Return” means any return, declaration, report, statement, information
statement and other document required to be filed with respect to Taxes,
including any claims for refunds of Taxes and any amendments or supplements of
any of the foregoing.

 

(qq) “Transaction Consideration” means, collectively, the Closing Shares, the
Contingent Shares, the Contingent Payments, the Net Sales Earnout Shares and the
Net Sales Earnout Payments.

 

(rr) “Unreimbursed Losses” means any Losses that would be indemnifiable under
Section 6.1(a) or Section 6.1(b), but for the 20% cap or that would be
indemnifiable under Section 6.1Section 6.1(c), but for the 100% cap, in either
case, for which Parent has not been indemnified.

 

(ss) “Valid Claim” means (a) an issued claim of an issued patent, which has not
(i) expired or been canceled, (ii) been declared invalid by an unreversed and
unappealable decision of a court or other appropriate body of competent
jurisdiction, (iii) been admitted to be invalid or unenforceable through
reissue, disclaimer or otherwise, and/or (iv) been abandoned; or (b) a claim
included in a pending patent application that is being actively prosecuted and
which has not been (i) canceled, (ii) withdrawn from consideration, (iii)
finally determined to be unallowable by the applicable government authority (and
from which no appeal is or can be taken), and/or (iv) abandoned.

 

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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.

 

SELLERS:       SIRNA THERAPEUTICS, INC.

Signature:

 

/s/ Joseph Carroll

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

     

By:

 

/s/ Howard Robin

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

   

Joseph Carroll

     

Name:

Title:

 

Howard W. Robin

President & CEO

            SKINETICS BIOSCIENCES, INC.

Signature:

 

/s/ Angela Christiano

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

     

By:

 

/s/ David Shaw

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

   

Angela Christiano

         

Name: David Shaw

Title: CEO

            SELLER AGENT

Signature:

 

/s/ Colin Jahoda

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

     

By:

 

/s/ David Shaw

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

   

Colin Jahoda

         

David Shaw

Signature:

 

/s/ David Shaw

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

               

David Shaw