EXHIBIT 10.42
Execution Version
NOVARTIS PHARMA AG
AND
SGX PHARMACEUTICALS, INC.
STOCK PURCHASE AGREEMENT

 

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TABLE OF CONTENTS

                                      Page 1.   Purchase and Sale of Common
Stock     1  
 
                   
 
    1.1     Sale of the Common Stock     1  
 
                    2.   Closing Date; Deliveries     1  
 
                   
 
    2.1     Closing Date     1  
 
    2.2     Deliveries     1  
 
    2.3     Further Assurances     1  
 
                    3.   Representations and Warranties of the Company     2  
 
                   
 
    3.1     Organization, Good Standing and Qualification     2  
 
    3.2     Capitalization and Voting Rights     2  
 
    3.3     Subsidiaries     3  
 
    3.4     Authorization     3  
 
    3.5     No Conflict     3  
 
    3.6     Valid Issuance of Common Stock     4  
 
    3.7     Liabilities     4  
 
    3.8     Governmental Consents     4  
 
    3.9     Litigation     4  
 
    3.10     Employees and Consultants     5  
 
    3.11     Proprietary Rights.     5  
 
    3.12     Agreements; Action     6  
 
    3.13     Registration Rights     7  
 
    3.14     Title to Property and Assets     7  
 
    3.15     Financial Statements and SEC Filings     7  
 
    3.16     Disclosure Controls and Procedures     8  
 
    3.17     Accounting Controls     8  
 
    3.18     Employee Benefit Plans     8  
 
    3.19     Tax Returns, Payments and Elections     8  
 
    3.20     Insurance     9  
 
    3.21     Labor Agreements and Actions     9  
 
    3.22     Real Property Holding Corporation     9  
 
 
3.23
3.24
  Investment Company
Offering     9
9  
 
    3.25     Environmental Matters     10  
 
    3.26     Securities Laws     10  
 
    3.27     Licenses and Other Rights; Compliance with Laws     11  
 
    3.28     Broker or Finders     11  
 
    3.29     Market Listing     11  
 
    3.30     Related Party Transactions     11  

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                                      Page
 
    3.31     No Material Adverse Effect     11  
 
                    4.   Representations and Warranties of the Investor     11  
 
                   
 
    4.1     Authorization, Governmental Consents and Compliance with Other
Instruments     11  
 
    4.2     Purchase Entirely for Own Account     12  
 
    4.3     Disclosure of Information     12  
 
    4.4     Investment Experience and Accredited Investor Status     12  
 
    4.5     No Governmental Review     12  
 
    4.6     Residency     12  
 
    4.7     Foreign Investors     12  
 
    4.8     No Short Sales     13  
 
    4.9     Restricted Securities     13  
 
    4.10     Legends     13  
 
                    5.   Conditions to Closing of Investor     13  
 
                   
 
    5.1     Representations and Warranties Correct     14  
 
    5.2     Covenants     14  
 
    5.3     Compliance Certificate     14  
 
    5.4     Certification of Resolutions and Officers     14  
 
    5.5     Organizational Documents     14  
 
    5.6     Good Standing Certificate     14  
 
    5.7     Cross Receipt     14  
 
    5.8     Other Agreements     15  
 
    5.9     Proceedings and Documents     15  
 
    5.10     Continued Market Listing     15  
 
    5.11     Registration Rights Consent     15  
 
                    6.   Conditions to Closing of the Company     15  
 
                   
 
    6.1     Representations and Warranties Correct     15  
 
    6.2     Cross Receipt     15  
 
    6.3     Other Agreements     15  
 
    6.4     Lock-Up Agreement     15  
 
                    7.   Mutual Conditions to Closing     15  
 
                   
 
    7.1     Qualifications     16  
 
    7.2     Absence of Litigation     16  
 
                    8.   Additional Covenants and Agreements     16  
 
                   
 
    8.1     Share Legend Removal     16  
 
    8.2     Use of Proceeds     16  
 
    8.3     Standstill Agreement     16  
 
    8.4     Termination of Standstill     17  

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                                      Page
 
    8.5     Share Ownership     18  
 
                    9.   Miscellaneous     18  
 
                   
 
    9.1     Termination     18  
 
    9.2     Effect of Termination     18  
 
    9.3     Survival of Warranties     18  
 
    9.4     Attorney’s Fees     19  
 
    9.5     Remedies     19  
 
    9.6     Successors and Assigns     19  
 
    9.7     Entire Agreement     19  
 
    9.8     Governing Law and Consent to Jurisdiction     19  
 
    9.9     Counterparts     19  
 
    9.10     Titles and Subtitles     20  
 
    9.11     Nouns and Pronouns     20  
 
    9.12     Notices     20  
 
    9.13     Finder’s Fee     21  
 
    9.14     Expenses     21  
 
    9.15     Amendments and Waivers     21  
 
    9.16     Severability     21  
 
    9.17     Confidentiality and Publicity     21  
 
    9.18     Definitions     22  
 
                        Annex A — Disclosure Schedule             Exhibit A —
Cross Receipt             Exhibit B — Investor Rights Agreement Amendment      
      Exhibit C — Lock-Up Agreement        

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STOCK PURCHASE AGREEMENT
     THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is made as of the 27th day
of March, 2006, by and between Novartis Pharma AG (“Novartis” or the
“Investor”), a corporation organized under the laws of Switzerland, with its
principal place of business at Lichtstrasse 35, CH-4002, Basel, Switzerland, and
SGX Pharmaceuticals, Inc., (the “Company”), a Delaware corporation with its
principal place of business at 10505 Roselle Street, San Diego, California
92121.
     THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Common Stock.
     1.1 Sale of the Common Stock.
          (a) Subject to the terms and conditions of this Agreement, the Company
shall issue and sell to the Investor and the Investor shall purchase from the
Company that number of shares of common stock (the “Shares”), par value $0.001
per share of the Company (the “Common Stock”) equal to the quotient obtained by
dividing (i) Five Million U.S. Dollars (US$5,000,000) (the “Purchase Price”) by
(ii) the Share Price determined in accordance with Section 1.1(b) below.
          (b) The “Share Price” means $7.84.
2. Closing Date; Deliveries.
     2.1 Closing Date. Subject to the terms and conditions of this Agreement,
the closing of the purchase and sale of the Shares (the “Closing”) shall be held
on or prior to the second (2nd) business day after the satisfaction or waiver of
all of the conditions to the Closing (other than those conditions that by their
nature are to be satisfied or waived at the Closing) or such other date upon
which the Company and the Investor may agree. The date of the Closing is
hereinafter referred to as the “Closing Date.”
     2.2 Deliveries.
          (a) Deliveries by the Company. At the Closing, the Company shall
deliver to the Investor a stock certificate, registered in the Investor’s name,
representing the Shares purchased by the Investor. The Company will also make
all such deliveries as are contemplated by Section 5 of this Agreement prior to
or in connection with the Closing.
          (b) Deliveries by the Investor. At the Closing, the Investor shall
deliver the Purchase Price by wire transfer of same day funds per the Company’s
wiring instructions (which shall have been delivered to the Investor not less
than two business days before the Closing Date). The Investor will also make all
such deliveries as are contemplated by Section 6 of this Agreement prior to or
in connection with the Closing.
     2.3 Further Assurances. The Company and the Investor hereby covenant and
agree without the necessity of any further consideration, to execute,
acknowledge and deliver any and

 

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all such other documents and take any such other action as may be reasonably
necessary to carry out the intent and purposes of this Agreement.
3. Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investor that, except as set forth in the corresponding
section of the Disclosure Schedule delivered to Investor concurrently with the
execution hereof (the “Disclosure Schedule”) or in another section of the
Disclosure Schedule, but only to the extent the relevance to any other Section
is reasonably apparent from the actual text of such disclosure, or as otherwise
set forth in the Company’s Amendment No. 8 to Registration Statement on Form S-1
filed with the SEC on January 31, 2006 (the “Registration Statement”) or any
Annual Report on Form 10-K or Current Report on Form 8-K filed by the Company
with the SEC at least two (2) business days prior to the date hereof, the
statements contained in this Section 3 are true and correct as of the date
hereof:
     3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
corporate authority to own and operate its properties and assets, to carry on
its business as now conducted and as currently proposed to be conducted, to
enter into this Agreement, to sell the Shares in accordance with the terms
hereof and to perform its obligations hereunder. The Company, and each of its
Subsidiaries, is qualified to transact business and is in good standing in each
jurisdiction in which the failure to qualify would reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
business, properties, financial condition or results of operations of the
Company and its Subsidiaries taken as a whole (a “Material Adverse Effect”). The
Company has delivered to the Investor true, correct and complete copies of the
Company’s Amended and Restated Certificate of Incorporation (the “Certificate of
Incorporation”) and the Company’s Bylaws in effect on the date hereof.
     3.2 Capitalization and Voting Rights.
          (a) The authorized capital of the Company as of the date of this
Agreement consists of:
     (i) Preferred Stock. 5,000,000 shares of Preferred Stock, par value $0.001
per share (the “Preferred Stock”), of which no shares are issued and
outstanding.
     (ii) Common Stock. 75,000,000 shares of Common Stock, of which 14,375,940
shares are issued and outstanding as of March 22, 2006.
          (b) There are (i) other than lock-up restrictions with the Company or
the underwriters in the Company’s initial public offering and the restrictions
set forth in the Investor Rights Agreement, no restrictions on the transfer of
capital stock of the Company imposed by the Certificate of Incorporation or
Bylaws of the Company, or any agreement to which the Company is a party, any
order of any court or any governmental agency to which the Company is subject,
or any statute other than those imposed by relevant state and federal securities
laws; and (ii) no cumulative voting rights for any of the Company’s capital
stock.

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          (c) As of March 22, 2006, of the authorized Common Stock (i) 195,629
shares have been reserved for issuance upon exercise of outstanding warrants,
and (ii) 1,706,045 shares have been reserved for issuance upon exercise of
outstanding options or other stock-based awards under the 2000 Equity Incentive
Plan, 2005 Equity Incentive Plan, 2005 Non-Employee Directors’ Stock Option Plan
and the 2005 Employee Stock Purchase Plan, and (iii) an aggregate of 866,009
shares remain available for future issuance of options or other stock-based
awards under the 2005 Equity Incentive Plan, the 2005 Non-Employee Directors’
Stock Option Plan and the 2005 Employee Stock Purchase Plan. Other than as set
forth in the preceding sentence, there are no other shares of Common Stock
reserved for issuance. There are no outstanding options, warrants, or agreements
pursuant to which the Company is or may become obligated to issue or sell any
shares of its capital stock or any other securities of the Company in respect of
which a sufficient number of such shares or securities have not been reserved
for issuance upon exercise or conversion thereof.
     3.3 Subsidiaries. All the outstanding shares of capital stock of each
Subsidiary are validly issued, fully paid and nonassessable, and are owned by
the Company free and clear of any Encumbrances. There are no options, warrants,
convertible securities, or other rights, agreements, arrangements or commitments
of any character relating to the capital stock of any Subsidiary. There are no
voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any shares of
capital stock of or any other interests in any Subsidiary.
     3.4 Authorization. All corporate action on the part of the Company, its
officers, directors and its stockholders necessary for the authorization,
execution and delivery of this Agreement and the Investor Rights Agreement
Amendment, the performance of all obligations of the Company hereunder and under
the Investor Rights Agreement and the authorization, issuance and delivery of
the Shares to be sold hereunder, has been taken. This Agreement and the Investor
Rights Agreement Amendment have been duly executed and delivered by the Company
and this Agreement and the Investor Rights Agreement constitute valid and
legally binding obligations of the Company, enforceable against the Company in
accordance with their terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors rights, or
by equitable principles and except as rights to indemnity and contribution may
be limited by state or federal securities laws or public policy underlying such
laws).
     3.5 No Conflict. The execution and delivery of this Agreement and the
Investor Rights Agreement Amendment, the performance of this Agreement and the
Investor Rights Agreement and compliance with the provisions hereof and thereof
by the Company, will not:
          (a) violate any provision of law, statute, ordinance, rule or
regulation or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other Governmental Authority (as used herein,
“Governmental Authority” shall mean any nation or government, any federal,
state, municipal, local, provincial, regional or other political subdivision
thereof, and any Person exercising executive, legislative, judicial regulatory
or administrative functions of or pertaining to government), the violation of
which would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;

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          (b) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time, or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under (i) any material agreement, document, instrument, contract,
understanding, arrangement, note, indenture, mortgage or lease to which the
Company is a party or under which the Company or any of its assets is bound or
affected, other than conflicts or breaches which would not have, individually or
in the aggregate, a Material Adverse Effect, (ii) the Company’s Certificate of
Incorporation, or (iii) the Bylaws of the Company; or
          (c) result in the creation of any Encumbrance upon any of the Shares
or on any of the properties or assets of the Company or any Subsidiary, other
than Encumbrances on any properties or assets which would not have, individually
or in the aggregate, a Material Adverse Effect.
     3.6 Valid Issuance of Common Stock. When issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, the
Shares will be duly authorized, validly issued, fully paid and nonassessable,
and, other than as set forth or contemplated herein or in the Investor Rights
Agreement, will not be subject to any preemptive rights, rights of first refusal
or other similar rights.
     3.7 Liabilities. Since September 30, 2005, the Company has not incurred any
unpaid indebtedness for money borrowed or any other contractual liabilities of
the type required to be disclosed on a balance sheet prepared in accordance with
United States generally accepted accounting principles (“GAAP”), in excess of
$200,000 in any instance, or $500,000 in the aggregate, other than liabilities
incurred in the ordinary course of business.
     3.8 Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration, notification or filing
with, any federal, state or local Governmental Authority, the National
Association of Securities Dealers or such other self-regulatory organization or
stock exchange on which the Common Stock is listed, on the part of the Company
is required in connection with the valid execution, delivery and performance of
this Agreement or the valid execution and delivery of the Investor Rights
Agreement Amendment, the offer, sale, or issuance of the Shares or the
consummation of any other transaction contemplated hereby, except the filing
required to be made under federal securities laws and the qualification (or the
taking of such action as may be necessary to secure an exemption from
qualification) of the offer and sale of the Shares under applicable Blue Sky
laws, which filings and qualifications, if required to be made prior to the
Closing, shall be accomplished prior to the Closing.
     3.9 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company’s knowledge, currently threatened against the Company
or any Subsidiary which questions the validity of this Agreement or the Investor
Rights Agreement or the right of the Company to enter into such agreements, or
to consummate the transactions contemplated hereby or thereby, or which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, or result in any material change in the current equity ownership
of the Company. To the Company’s knowledge, there are no legal actions pending
or threatened in writing involving the violation by any current or former
employee of the Company of any

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employment contract or proprietary information agreement with any prior employer
of such employee relating to their employment with the Company or any
Proprietary Rights used by the Company. To the Company’s knowledge, there has
not been, nor is there pending or contemplated, any investigation by the SEC
involving the Company or any current or former director or officer of the
Company relating to such officer’s or director’s activities with the Company.
The Company has not received any stop order or other order suspending the
effectiveness of the Registration Statement and, to the Company’s knowledge, the
SEC has not issued any such order. The Company is not a party to any order,
writ, injunction, judgment or decree of any court. There is no action, suit,
proceeding or investigation initiated by the Company currently pending.
     3.10 Employees and Consultants.
          (a) Each employee of, or consultant to, the Company or its
Subsidiaries, who has access to confidential or proprietary information of the
Company or its Subsidiaries, is a signatory to, and, to the Company’s knowledge,
is bound by, an agreement with the Company relating to nondisclosure,
proprietary information and assignment of patent, copyright and other
intellectual property rights.
          (b) To the Company’s knowledge, no employee of, or consultant to, the
Company or its Subsidiaries is in violation of any term of any employment
contract, patent disclosure agreement or any other contract or agreement with
the Company or any Subsidiary including, but not limited to, those matters
relating to (i) the relationship of any such employee with the Company or any
Subsidiary, or (ii) unfair competition, trade secrets or proprietary
information.
     3.11 Proprietary Rights.
          (a) Except as set forth in Section 3.11(a) of the Disclosure Schedule,
to the knowledge of the Company, the Company owns or possesses, or believes it
can obtain, rights to use all U.S. and non-U.S. patents, trade secrets,
know-how, trademarks, service marks copyrights, and other proprietary and
intellectual property rights (collectively, the “Proprietary Rights”) necessary
for the conduct of the Company’s and its Subsidiaries’ business as now conducted
(such Propriety Rights owned by or licensed to the Company or its Subsidiaries
collectively, the “Company Rights”). To the knowledge of the Company, (i) the
Company’s rights in the Company Rights are valid and enforceable; (ii) except to
the extent not yet due, all necessary and material registration, maintenance and
renewal fees in respect of the Company Rights in existence as of the date hereof
have been paid; (iii) none of the Company or its Subsidiaries have infringed or
are infringing the issued patents of any Person in existence as of the date
hereof, and have not received any written notice and are not subject to any
actual or threatened (in writing) proceedings alleging such, that would
reasonably be expected to have a Material Adverse Effect; (iv) no Person is
infringing or otherwise violating any Company Rights; and (v) there are no
material breaches or defaults of, or any disputes or threatened disputes
concerning, any of the Material IP Contracts.
          (b) Schedule 3.11(b) contains a complete and accurate list of all
material agreements required to be filed by the Company pursuant to Item 601 of
Regulation S-K that

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have not been so filed by the Company prior to the date hereof granting any
rights (including, without limitation, licenses, options and covenants not to
sue) with respect to any of the Company Rights (collectively, the “Material IP
Contracts”), specifically indicating, as applicable, each amendment thereto.
     3.12 Agreements; Action.
          (a) There are no agreements, understandings, transactions or proposed
transactions between the Company or any Subsidiary and any of its officers,
directors, or affiliates of a nature required to be disclosed pursuant to the
provisions of Item 404 of Regulation S-K, and none of any such individuals or
entities has any material interest in any such agreement, understanding,
transaction or proposed transaction of a nature required to be disclosed
pursuant to the provisions of Item 404 of Regulation S-K.
          (b) Neither the Company nor any Subsidiary thereof has (i) declared or
paid any dividends, or authorized or made any distribution upon or with respect
to any class or series of its capital stock (other than a dividend or
distribution by a wholly-owned Subsidiary to the Company or to another
wholly-owned Subsidiary of the Company), (ii) since September 30, 2005, made any
loans or advances to any Person in excess of $200,000 in any one instance and
$500,000 in the aggregate, other than ordinary advances to employees for travel
expenses or in the ordinary course of business, or (iii) since September 30,
2005, sold, exchanged or otherwise disposed of any of its assets or rights that
would have been required to be disclosed by the Company in a Current Report on
Form 8-K.
          (c) Neither the Company nor any Subsidiary thereof has admitted in
writing its inability to pay its debts generally as they become due, filed or
consented to the filing against it of a petition in bankruptcy or a petition to
take advantage of any insolvency act, made an assignment for the benefit of
creditors, consented to the appointment of a receiver for itself or for the
whole or any substantial part of its property, or had a petition in bankruptcy
filed against it, been adjudicated as bankrupt, or filed a petition or answer
seeking reorganization or arrangement under the federal bankruptcy laws or any
other laws of the United States or any other jurisdiction.
          (d) Each of the Company and its Subsidiaries is in compliance with all
obligations, agreements and conditions contained in any evidence of indebtedness
or any loan agreement or other contract or agreement (whether or not relating to
indebtedness) to which the Company or such Subsidiary is a party or is subject
(collectively, the “Obligations”), the lack of compliance with which could
afford any Person the right to (i) accelerate any indebtedness or (ii) terminate
any right or agreement of the Company or such Subsidiary, the acceleration or
termination of which would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect. To the Company’s knowledge, all other
parties to such Obligations are in compliance with the terms and conditions of
such Obligations, except where such failure to be in compliance would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
          (e) There are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any Subsidiary is a party or by
which it is bound

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that are required to be filed by the Company as material exhibits pursuant to
Item 601 of Regulation S-K that have not been so filed and may involve
(i) obligations (contingent or otherwise) of, or payments to, the Company or
such Subsidiary in excess of $500,000, other than obligations of, or payments
to, the Company or a Subsidiary arising from purchase or sale agreements entered
into in the ordinary course of business or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company or a
Subsidiary, other than licenses arising from the purchase of “off the shelf” or
other standard products.
     3.13 Registration Rights. Other than pursuant to the Investor Rights
Agreement, the Company does not have any obligation to provide registration
rights with respect to shares of the Company’s capital stock under the
Securities Act of 1933, as amended (the “Securities Act”), including piggyback
rights, to any Person.
     3.14 Title to Property and Assets. The Company has good title to, or has
valid rights to lease or otherwise use, all of the property and assets reflected
on its balance sheet as of September 30, 2005, except those assets sold,
consumed or otherwise disposed of since the date of such balance sheet in the
ordinary course of business, none of which assets sold, consumed or otherwise
disposed of since the date of such balance sheet, either alone or in the
aggregate are material, either in nature or amount, to the business of the
Company and its Subsidiaries. With respect to the property and assets they
lease, each of the Company and its Subsidiaries is in all respects in compliance
with such leases, has not received written notice of any allegations that it is
in default thereunder in any respect and holds a valid leasehold interest in
such property and assets free of any Encumbrances, except where such failure to
be in compliance, or such default or Encumbrance would not reasonably be
expected to have a Material Adverse Effect.
     3.15 Financial Statements and SEC Filings.
          (a) The Company has (i) made available to the Investor the
Registration Statement containing its audited financial statements at and for
the fiscal year ended December 31, 2004 (the “Audited Financial Statements”) and
its unaudited financial statements at and for the nine-month period ended
September 30, 2005 (the “Interim Financial Statements”) and (ii) delivered to
the Investor its unaudited financial statements at and for the fiscal year ended
December 31, 2005 (the “2005 Unaudited Financial Statements” and together with
the Audited Financial Statements and the Interim Financial Statements,
collectively, the “Financial Statements”), and with respect to the Audited
Financial Statements, the notes thereto. The Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods indicated and fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
except as may be otherwise indicated in the Financial Statements or notes
thereto or, in the case of the Interim Financial Statements or the 2005
Unaudited Financial Statements, to the extent they may not include footnotes, do
not reflect year-end adjustments or may conform to the SEC’s rules and
instructions for disclosure with respect to interim periods. The Company’s
audited financial statements at and for the end of the year ended December 31,
2005, as they will be filed in the Company’s Annual Report on Form 10-K, will
not differ in the aggregate in any material respect in any manner adverse to the
Company from the 2005 Unaudited Financial Statements, except for the completion
of footnotes. The Company maintains and consistently applies and will

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continue to maintain and consistently apply a standard system of accounting
established and administered in accordance with GAAP.
          (b) Since January 31, 2006, the Company has filed with the SEC all
reports, schedules, forms, statements and other documents, including the
Registration Statement and the prospectus contained therein (including exhibits
and all other information incorporated therein) required by federal securities
laws to be filed with the SEC (“Company SEC Documents”). As of their respective
dates, the Company SEC Documents complied in all material respects with the
requirements of the Securities Act or the Securities Exchange Act, as the case
may be, and the rules and regulations of the SEC applicable to such Company SEC
Documents, and no Company SEC Documents when filed 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 therein, in light of
the circumstances under which they were made, not misleading.
     3.16 Disclosure Controls and Procedures. The Company has established and
maintains disclosure controls and procedures (as defined in Securities Exchange
Act Rules 13a-15(e) and 15d-15(e)) that are effective in all material respects
to ensure that material information relating to the Company, including any
consolidated Subsidiaries, is made known to its chief executive officer and
chief financial officer by others within those entities.
     3.17 Accounting Controls. The Company maintains a system of accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management’s general or specific authorization,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
     3.18 Employee Benefit Plans. There are no “employee benefit plans” as such
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 (“ERISA”) maintained by the Company or any Subsidiary or any stock
purchase plan, stock option plan, fringe benefit plan, bonus plan or any other
deferred compensation agreement, plan, practice or pending arrangement
sponsored, maintained or to which contributions are made by the Company by or on
behalf of current or former employees of the Company or any Subsidiary, their
dependents or any other party. The Company has no current plans to substantially
alter the benefits or coverage available under any of the employee benefit,
employee pension benefit or other plans, arrangements or practices referred to
above.
     3.19 Tax Returns, Payments and Elections . The Company and each of its
Subsidiaries has filed all tax returns and reports as required, and within the
time prescribed by law (including, for this purpose, any permitted extension),
including without limitation, all federal, state and local income, excise or
franchise tax returns, real estate and personal property tax returns, sales and
use tax returns, payroll tax returns and other tax returns or reports required
to be filed by it. These returns and reports are true and correct in all
material respects. The Company and each of its Subsidiaries has paid or made
provision for the payment of all accrued and unpaid taxes and other charges to
which the Company or any Subsidiary is subject and

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which are not currently due and payable. The federal income tax returns of the
Company have never been audited, and none of the Company’s Subsidiaries are
currently subject to any audit, by the Internal Revenue Service, and neither the
Company nor any Subsidiary has agreed to an extension of the statute of
limitations with respect to any of its tax years. Neither the Internal Revenue
Service nor any other taxing authority is now asserting, nor is threatening to
assert, against the Company or any Subsidiary any deficiency or claim for
additional taxes or interest thereon or penalties in connection therewith.
     3.20 Insurance. The Company has in full force and effect fire, casualty and
liability insurance policies, with coverage, in the case of property insurance,
in such amount (subject to reasonable deductibles) as the Company believes is
necessary to allow it to replace any of its properties that might be damaged or
destroyed, and in the case of casualty and liability insurance, in such amounts
as the Company believes is customary and adequate for businesses similar to the
business of the Company, with the resources of the Company and at the stage of
development of the Company.
     3.21 Labor Agreements and Actions. Neither the Company nor any of its
Subsidiaries has any collective bargaining agreements covering any of its
employees, nor is the Company or any of its Subsidiaries bound by or subject to
(and none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the knowledge of the Company, has
sought to represent any of the employees, representatives or agents of the
Company or any of its Subsidiaries. There is no strike or other labor dispute
involving the Company or any of its Subsidiaries pending, or to the knowledge of
the Company threatened, nor is the Company or any of its Subsidiaries aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee or that any group of key employees
intends to terminate their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any of the foregoing.
     3.22 Real Property Holding Corporation. The Company is not, and has not
been at any time, a United States real property holding corporation as defined
in Section 897 of the Code.
     3.23 Investment Company. The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an “investment company” as such
term is defined in the Investment Company Act of 1940, as amended (the
“Investment Company Act”). The Company shall conduct its business in a manner so
that it will not become subject to the Investment Company Act.
     3.24 Offering. Subject to the accuracy of the Investor’s representations
set forth in Section 4 of this Agreement, the offer, sale and issuance of the
Shares to be issued in conformity with the terms of this Agreement constitute
transactions which are: (i) in full compliance with all applicable laws; and
(ii) exempt from the registration requirements of the Securities Act and from
all applicable state registration or qualification requirements, other than
those with which the Company has complied or will comply with prior to the
Closing or those that are permitted to be complied with following the Closing.

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     3.25 Environmental Matters.
          (a) To the Company’s knowledge, neither the Company nor any of its
Subsidiaries is in material violation of any Environmental Law (as hereinafter
defined). As used in this Agreement, “Environmental Law” shall mean any
applicable federal, state and local law, ordinance, rule or regulation that
regulates, fixes liability for, or otherwise relates to, the handling, use
(including use in industrial processes, in construction, as building materials,
or otherwise), treatment, storage and disposal of hazardous and toxic wastes and
substances, and to the discharge, leakage, presence, migration, actual Release
(as hereinafter defined) or threatened Release (whether by disposal, a discharge
into any water source or system or into the air, or otherwise) of any pollutant
or effluent.
          (b) To the Company’s knowledge, neither the Company nor any of its
Subsidiaries has used, generated, manufactured, refined, treated, transported,
stored, handled, disposed, transferred, produced, processed or released
(hereinafter together defined as “Release”) any Hazardous Materials (as
hereinafter defined) on, from or affecting any Property (as hereinafter defined)
in any manner or by any means in material violation of any Environmental Laws
and to the Company’s knowledge after due investigation, there is no threat of
such Release in material violation of Environmental Laws. As used herein, the
term “Property” shall include, without limitation, land, buildings and
laboratory facilities owned or leased by the Company or as to which the Company
now has any duties, responsibilities (for cleanup, remedy or otherwise) or
liabilities under any Environmental Laws, or as to which the Company or any
Subsidiary of the Company may have such duties, responsibilities or liabilities
because of past acts or omissions of the Company or any such Subsidiary or their
predecessors, or because the Company or any such Subsidiary or their
predecessors in the past was such an owner or operator of, or bore some other
relationship with, such land, buildings or laboratory facilities. The term
“Hazardous Materials” shall include, without limitation, any flammable
explosives, petroleum products, petroleum by-products, radioactive materials,
hazardous wastes, hazardous substances, toxic substances or related materials as
defined by Environmental Laws.
          (c) The Company has not received written notice that the Company or
any of its Subsidiaries is a party potentially responsible for costs incurred at
a cleanup site or corrective action under any Environmental Laws. The Company
has not received any written requests for information in connection with any
inquiry by any Governmental Authority concerning disposal sites or with respect
to the violation of Environmental Laws.
          (d) The stockholders of the Company, other than those that are
officers or employees of the Company, have had no control over, or authority
with respect to, the waste disposal operations of the Company or any of its
Subsidiaries.
     3.26 Securities Laws. Neither the Company nor anyone acting on its behalf
has offered the Shares for sale to, or solicited any offers to buy the Shares
from any Person, in any case so as to subject the Company, its promoter,
directors or officers to any liability under the Securities Act, the Securities
Exchange Act of 1934, as amended (the “Securities Exchange Act”), or any state
securities or blue sky law (collectively, the “Securities Laws” ).

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     3.27 Licenses and Other Rights; Compliance with Laws. Each of the Company
and its Subsidiaries has all franchises, permits, licenses and other rights and
privileges necessary to permit it to own its properties and to conduct its
business as presently conducted and is in compliance thereunder, except where
the failure to have any such franchise, permit, license, right or privilege or
such non-compliance would not reasonably be expected to have a Material Adverse
Effect. Each of the Company and its Subsidiaries is in compliance in all
material respects with all laws and governmental rules and regulations
applicable to its business, properties and assets, including, without
limitation, all such rules, laws and regulations relating to fair employment
practices, occupational safety and health and public safety. Neither the Company
nor any Subsidiary (i) is subject to any material judgment, consent decree,
compliance order or administrative order with respect to any aspect of the
business, affairs, properties or assets of the Company or such Subsidiary,
(ii) has, since December 31, 2004, received any written request for information,
notice, demand letter or administrative inquiry with respect to any aspect of
the business, affairs, properties or assets of the Company or such Subsidiary
relating to any matter which, in the case of this clause (ii) would reasonably
be expected to have a Material Adverse Effect, or (iii) has, since December 31,
2004, received any formal or informal complaint or claim from any regulatory
agency with respect to any material aspect of the business, affairs, properties
or assets of the Company or such Subsidiary.
     3.28 Broker or Finders. The Company has not incurred, nor will incur,
directly or indirectly, as a result of any action taken by the Company, any
liability for brokerage or finders’ fees or agents’ commissions or any similar
charges in connection with this Agreement.
     3.29 Market Listing. The Common Stock is listed for trading on the NASDAQ
National Market and the Company is in compliance with the rules, regulations and
requirements of the NASDAQ National Market relating to the continued listing of
the Common Stock.
     3.30 Related Party Transactions. Except with respect to the transactions
that are not required to be disclosed, all transactions that have occurred
between or among the Company, on the one hand, and any of its officers or
directors, or any affiliate or affiliates of any such officer or director, on
the other hand, prior to the date hereof have been disclosed in the Company SEC
Documents.
     3.31 No Material Adverse Effect. Since September 30, 2005, no event or
events have occurred that have had or would, individually or in the aggregate,
reasonably be expected to have, a Material Adverse Effect.
4. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that the statements contained in
Section 4 are true and correct as of the date hereof and as of the Closing Date:
     4.1 Authorization, Governmental Consents and Compliance with Other
Instruments. All corporate action on the part of the Investor necessary for the
authorization, execution and delivery of this Agreement and the Investor Rights
Agreement Amendment and the performance of all obligations of the Investor
hereunder and under the Investor Rights Agreement has been taken or will be
taken prior to the Closing. Each of this Agreement and the Investor Rights
Agreement constitute a valid and legally binding obligation of the Investor,

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enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors rights or by equitable principles and except as rights to indemnity
and contribution may be limited by state or federal securities laws or public
policy underlying such laws. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local Governmental Authority on the part of the Investor is
required in connection with the consummation of the transactions contemplated by
this Agreement and the Investor Rights Agreement, except for filings required
pursuant to securities laws. The execution, delivery and performance of this
Agreement and the Investor Rights Agreement Amendment and the consummation of
the transactions contemplated hereby and thereby will not result in any
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any provision of the
Investor’s corporate charter or bylaws or any instrument, judgment, order, writ,
decree or contract to which the Investor is a party or by which it is bound.
     4.2 Purchase Entirely for Own Account. By the Investor’s execution of this
Agreement, the Investor hereby confirms that the Shares will be acquired for
investment for the Investor’s own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and the Investor
has no present intention of selling, granting any participation, or otherwise
distributing the Shares.
     4.3 Disclosure of Information. The Investor has received all the
information from the Company and its management that the Investor considers
necessary or appropriate for deciding whether to purchase the Shares hereunder.
The Investor further represents that it has had an opportunity to ask questions
and receive answers from the Company regarding the terms and conditions of the
offering of the Shares. Neither the foregoing nor any information disclosed to
the Investor shall limit or modify the representations and warranties of the
Company in Section 3 of this Agreement.
     4.4 Investment Experience and Accredited Investor Status. The Investor is
an accredited investor (as defined in Regulation D promulgated under the
Securities Act) and is not acquiring the Shares for the account or benefit of
any United States Person. The Investor is an investor in securities of companies
in the development stage and acknowledges that it is able to fend for itself,
and bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Shares hereunder.
     4.5 No Governmental Review. The Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Shares or an
investment therein.
     4.6 Residency. The Investor is a resident of Switzerland.
     4.7 Foreign Investors. If the Investor is not a United States person (as
defined by Section 7701(a)(30) of the Code), the Investor hereby represents that
it has satisfied itself as to the full observance of the laws of its
jurisdiction in connection with any invitation to subscribe

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for the Shares or any use of this Agreement, including (i) the legal
requirements within its jurisdiction for the purchase of the Shares, (ii) any
foreign exchange restrictions applicable to such purchase, (iii) any government
or other consents that may need to be obtained, and (iv) the income tax and
other tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale or transfer of the Shares. The Company’s offer and sale and the
Investor’s subscription and payment for and continued beneficial ownership of
the Shares will not violate any applicable securities or other laws of the
Investor’s jurisdiction.
     4.8 No Short Sales. Prior to the date hereof, Investor has not engaged in
any short sales or similar transactions with respect to shares of Common Stock,
nor has the Investor, directly or indirectly, caused any Person to engage in any
short sales or similar transactions with respect to shares of Common Stock.
     4.9 Restricted Securities. The Investor understands that the Shares, when
issued, will be restricted securities under the federal securities laws inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable regulations, such
securities may be resold without registration under the Securities Act only in
certain limited circumstances. The Investor understands that the Shares will not
be registered under the Securities Act by reason of a specific exemption
therefrom, that such securities must be held by it indefinitely and that the
Investor must, therefore, bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration. In this respect, the
Investor represents that it is familiar with Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the Securities
Act.
     4.10 Legends. It is understood that the certificates evidencing the Shares
will bear any legend required to be placed thereon under applicable state
securities laws, any lock-up legend or legend referring to any restriction on
transfer or sale (solely for so long as the Shares are subject to such lock-up
or restriction, as applicable), and the following legend until such legend is
removed in accordance with Section 8.1:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION
AS PROVIDED FOR IN SUCH ACT.
Investor acknowledges that the Company will instruct the Company’s transfer
agent not to register the transfer of the Shares (or any portion thereof) during
any period in which the Shares are subject to a lock-up or other restriction on
transfer. The Securities Act legend shall not be removed from the Shares unless
the conditions specified in Section 8.1 for the removal of such legend are
satisfied.
5. Conditions to Closing of Investor. The Investor’s obligation to purchase the
Shares and consummate the other transactions contemplated hereby at the Closing
is subject to the

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fulfillment as of the Closing of the following conditions (unless waived in
writing by the Investor):
     5.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all respects as of the date of this Agreement, and as of the Closing Date with
the same force and effect as though such representations and warranties had been
made on such Closing Date.
     5.2 Covenants. All covenants, agreements and conditions contained in this
Agreement and the Investor Rights Agreement to be performed by the Company on or
prior to the Closing Date shall have been performed or complied with in all
material respects.
     5.3 Compliance Certificate. The Company shall have delivered to the
Investor a certificate, dated as of the Closing Date, executed by the President
and Chief Executive Officer of the Company, certifying to the fulfillment of the
conditions specified in Sections 5.1 and 5.2 of this Agreement.
     5.4 Certification of Resolutions and Officers. The Company shall have
delivered to the Investor a certificate or certificates, dated the Closing Date,
of the Secretary of the Company certifying as to (a) the resolutions of the
Company’s Board of Directors authorizing the execution and delivery of this
Agreement and the Investor Rights Agreement Amendment, the issuance of the
Shares to the Investor, the execution and delivery of such other documents and
instruments as may be required by this Agreement or the Investor Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby and certifying that such resolutions were duly adopted and have not been
rescinded or amended as of said date, (b) the name and the signature of the
officers of the Company authorized to sign, as appropriate, this Agreement, the
Investor Rights Agreement Amendment and the other documents and certificates to
be delivered pursuant to this Agreement or the Investor Rights Agreement by
either the Company or any of its officers, and (c) a specimen certificate
representing the Shares.
     5.5 Organizational Documents. The Company shall have delivered to the
Investor copies of (i) the Certificate of Incorporation, certified by the
Secretary of State of Delaware as of a date not earlier than five (5) business
days prior to the Closing Date and accompanied by a certificate of the Secretary
of the Company, dated as of the Closing Date, stating that no amendments have
been made to such Certificate of Incorporation since such date, and (ii) the
Bylaws of the Company certified by the Secretary of the Company.
     5.6 Good Standing Certificate. The Company shall have delivered to the
Investor (i) a good standing certificate dated as of a date not earlier than
five (5) business days prior to the Closing Date issued with respect to the
Company and each of its Subsidiaries by the Secretary of State of Delaware and
(ii) good standing certificates as of a date not earlier than five (5) business
days prior to the Closing Date issued with respect to the Company by the
Secretary of State of California.
     5.7 Cross Receipt. The Company shall have delivered to the Investor a duly
executed Cross Receipt setting forth the number of Shares, the Share Price and
the Purchase

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Price determined in accordance with Section 1.1 substantially in the form of
Exhibit A attached hereto.
     5.8 Other Agreements. The Company shall have delivered to the Investor the
duly executed License and Collaboration Agreement and the Investor Rights
Agreement Amendment and such agreements shall be in full force and effect.
     5.9 Proceedings and Documents. All corporate and other proceedings to have
been taken and all waivers and consents to be obtained in connection with the
transactions contemplated by this Agreement and the Ancillary Agreements shall
have been taken or obtained, and all documents incidental hereto and thereto
shall be satisfactory to the Investor and its counsel.
     5.10 Continued Market Listing. On the Closing Date, the Common Stock shall
be listed for trading on the NASDAQ National Market and the Shares shall be
approved for listing on the NASDAQ National Market.
     5.11 Registration Rights Consent. The Company shall have delivered written
consents from the requisite parties to the Investor Rights Agreement consenting
to the rights granted to the Investor in the Investor Rights Agreement
Amendment, such written consents to be in form and substance reasonably
acceptable to the Investor and sufficient to effectively amend the Investor
Rights Agreement in accordance with its terms.
6. Conditions to Closing of the Company. The Company’s obligation to sell the
Shares and consummate the other transactions contemplated hereby at the Closing
is subject to the fulfillment as of the Closing of the following conditions:
     6.1 Representations and Warranties Correct. The representations and
warranties made by the Investor in Section 4 hereof shall be true and correct in
all respects as of the date of this Agreement, and as of the Closing Date with
the same force and effect as though such representations and warranties had been
made on such date.
     6.2 Cross Receipt. The Investor shall have delivered to the Company a duly
executed Cross Receipt setting forth the number of Shares, the Share Price and
the Purchase Price determined in accordance with Section 1.1 substantially in
the form of Exhibit A attached hereto.
     6.3 Other Agreements. The Investor shall have delivered to the Company the
duly executed License and Collaboration Agreement and the Investor Rights
Agreement Amendment and such agreements shall be in full force and effect.
     6.4 Lock-Up Agreement. The Investor shall have delivered to the Company a
duly executed lock-up letter substantially in the form of Exhibit C attached
hereto.
7. Mutual Conditions to Closing. The obligations of each of the Investor and the
Company to consummate the Closing are subject to the fulfillment as of the
Closing Date of the following conditions:

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     7.1 Qualifications. All authorizations, consents, waivers, permits,
approvals, qualifications and registrations required to be obtained or effected
with any Governmental Authority prior to the Closing Date shall have been duly
obtained and be effective as of the Closing Date.
     7.2 Absence of Litigation. There shall be no injunction, action, suit,
proceeding or investigation pending or currently threatened in writing against
the Company or the Investor which questions the validity of this Agreement or
the Investor Rights Agreement Amendment, or the right of the Company or the
Investor to enter into this Agreement or the Investor Rights Agreement or to
consummate the transactions contemplated hereby or thereby.
8. Additional Covenants and Agreements.
     8.1 Share Legend Removal. The Securities Act legend set forth in
Section 4.10 hereof shall be removed from the certificate evidencing the Shares
and the Company shall, or shall cause its transfer agent to, issue, no later
than two (2) business days from receipt of a request from the Investor pursuant
to this Section 8.1, a certificate or certificates evidencing all or a portion
of the Shares, as requested by the Investor, without such legend if: (i) such
securities have been resold under an effective registration statement under the
Securities Act, (ii) such securities have been transferred in compliance with
Rule 144 under the Securities Act, (iii) such securities are eligible for resale
pursuant to Rule 144(k) under the Securities Act or (iv) the Investor shall have
provided the Company with an opinion of counsel, reasonably satisfactory to the
Company, stating that such securities may lawfully be transferred without
registration under Rule 144(k) promulgated under the Securities Act.
     8.2 Use of Proceeds. The Company shall use the proceeds from the sale of
the Shares for working capital and other general corporate purposes.
     8.3 Standstill Agreement.
          (a) Provided that nothing contained herein will prevent or prohibit
the Investor from acquiring the Shares or any other securities of the Company to
be acquired in connection with any future collaboration agreement with the
Company, the Investor will not, directly or indirectly, without the prior
consent of a majority of the Board of Directors of the Company (the “Board”),
(i) acquire (or offer or agree to acquire) any shares of Common Stock or
Preferred Stock possessing rights to vote together with Common Stock (each a
“Company Equity Security”); (ii) engage in any “solicitation” of “proxies” (as
such terms are defined in Regulation 14A under the Securities Exchange Act) or
consents to vote any Company Equity Security; or (iii) transfer to any third
party (other than to its “affiliates,” “associates” (as such terms are defined
in Rule 12b-2 under the Securities Exchange Act), officers, directors or
employees and other than pursuant to a proxy solicitation conducted by or on
behalf of the Board), the right to vote any Company Equity Security except in
connection with a sale by the Investor of such Company Equity Security in a
transaction not otherwise prohibited by this Agreement. The Investor also agrees
that it will not advise, assist or encourage any third party to do any of the
foregoing. Subject to Section 8.4, the covenants in this Section 8.3 shall
remain in effect until the earlier of (i) the second anniversary of the Closing
Date and (ii) the termination of this Agreement.

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          (b) Nothing contained herein shall prevent the Investor or its
affiliates from (i) investing in fixed income investments made in money-market
mutual funds or direct debt investments, (ii) acquiring any Company Equity
Security if after such acquisition, the Investor and its affiliates would
“beneficially own” (as defined in Rule 13d-3 under the Securities Exchange Act)
ten percent (10%) or less of the voting power of the outstanding Company Equity
Securities, provided, that it shall not be a violation of this Section 8.3 if
the Investor and its affiliates beneficially own more than ten percent (10%) of
the voting power of the outstanding Company Equity Securities as a result of any
share repurchase, redemption, cancellation or other change in the Company’s
capital structure reducing the number or altering the voting power of the
outstanding Company Equity Securities, (iii) acquiring Company Equity Securities
distributed or issued with respect to or in exchange for any Company Equity
Securities beneficially owned by the Investor or its affiliates or distributed
or issued with respect thereto or in exchange therefor without any cash payment
therefor, (iv) acquiring securities of any biotechnology or pharmaceutical
company that beneficially owns Company Equity Securities or (v) making any
request to the Board to amend or waive any of the restrictions set forth in this
Section 8.3.
     8.4 Termination of Standstill. Notwithstanding the foregoing, the
obligations of the Investor under Section 8.3 shall terminate in the event
(i) of any bona fide third party tender or exchange offer for at least 50% of
the voting power of the outstanding Company Equity Securities, (ii) the Company
enters into any agreement to merge, consolidate or enter into a business
combination or other extraordinary corporate transaction with any Person not
affiliated with the Investor in which the holders of the outstanding Company
Equity Securities immediately prior to such merger, consolidation, business
combination or other transaction (other than the beneficial owners of such
Person, if applicable) hold less than a majority of the voting power of the
outstanding voting securities of the surviving or resulting company, (iii) the
Company enters into any agreement to sell all or substantially all of its assets
to any Person not affiliated with the Investor, (iv) any Person not affiliated
with the Investor acquires Company Equity Securities which, together with any
Company Equity Securities previously owned by such Person, represent more than
twenty-five percent (25%) of the voting power of the outstanding Company Equity
Securities, or (v) the individuals who on the date hereof constituted the Board
(together with any new directors whose election by the Board or nomination for
election by the stockholders of the Company was approved by a majority of the
directors of the Company then still in office or whose election or nomination
for election was previously so approved by the directors in office on the date
hereof, other than any director designated by any Person that has made a tender
or exchange offer described in clause (i) above or has entered into an agreement
described in clause (ii) or (iii) above) ceasing for any reason to constitute a
majority of the Board. All of the provisions of Section 8.3 shall be reinstated
and shall apply in full force according to their terms in the event that: (x) if
the provisions of Section 8.3 shall have terminated as the result of a tender or
exchange offer, such tender or exchange offer (as originally made or as amended
or modified) shall have terminated (without closing) prior to the commencement
of a tender or exchange offer by the Investor that would have been permitted to
be made pursuant to the first sentence of this Section 8.4 as a result of such
third-party tender or exchange offer; (y) any tender or exchange offer by the
Investor (as originally made or as extended or modified) that was permitted to
be made pursuant to this Section 8.4 shall have terminated (without closing); or
(z) if the provisions of Section 8.3 shall have terminated as a result of any
action by the Company referred to in this Section 8.4, the Company shall have

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determined, prior to the taking of any action by the Investor that would have
been permitted to be made pursuant to the first sentence of this Section 8.4 as
a result of such Company action, not to take any of such actions (and no such
transaction shall have closed). Upon reinstatement of the provisions of
Section 8.3, the provisions of this Section 8.4 shall continue to govern in the
event that any of the events described in this Section 8.4 shall occur.
     8.5 Share Ownership. In the event the Investor becomes a beneficial owner
of more than 19% of the outstanding voting equity securities of the Company
(other than as a result of the Investor’s purchase of additional shares of
Common Stock of the Company after the date hereof), upon written request of the
Investor, the Company shall (i) release any contractual limitation or
restriction in favor of the Company, if any, on the sale or transfer of shares
with respect to a sufficient number of shares of voting equity securities held
by the Investor to permit the Investor to reduce the Investor’s beneficial
ownership of the Company’s voting equity securities to 19% of the voting equity
securities of the Company then outstanding, and (ii) cooperate with the Investor
to permit the Investor to effect such sale or transfer provided such sale or
transfer is made in compliance with applicable securities laws.
9. Miscellaneous.
     9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
          (a) By mutual written agreement of the Company and the Investor;
          (b) By either the Company or the Investor, by written notice to the
other party (provided the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained in this
Agreement if the Closing shall not have been consummated on or before April 30,
2006; or
          (c) By either the Company or the Investor by giving written notice to
the other party if any governmental entity shall have issued an injunction or
other ruling prohibiting the consummation of any of the transactions
contemplated by this Agreement, the Investor Rights Agreement or the License and
Collaboration Agreement and such injunction or other ruling shall not be subject
to appeal or shall have become final and unappealable.
     9.2 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 9.1, all rights and obligations of the parties
hereunder shall terminate without any liability on the part of any party or its
Affiliates in respect thereof; provided, however, that (i) Sections 9.4, 9.5,
9.6, 9.7. 9.8, 9.13, 9.14 and 9.17 shall survive any such termination and
(ii) such termination shall not relieve the Company or the Investor of any
liability on account of any willful breach of this Agreement.
     9.3 Survival of Warranties. The representations and warranties of the
Company and the Investor contained in this Agreement shall survive the Closing
until thirty (30) days after the Company has filed its Annual Report on Form
10-K for the fiscal year ended December 31, 2006; provided however, that the
representations and warranties contained in Sections 3.2, 3.6 and 3.25 shall
survive until the expiration of the statute of limitations applicable to claims
with respect to the matters contained therein.

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     9.4 Attorney’s Fees. In the event that a final, binding and non-appealable
ruling by a court of competent jurisdiction holds that the Company breached its
obligations under this Agreement, the Company shall pay all reasonable legal
fees and expenses of the Investor.
     9.5 Remedies. In case any one or more of the covenants or agreements set
forth in this Agreement shall have been breached by any party hereto, the party
or parties entitled to the benefit of such covenants or agreements may proceed
to protect and enforce their rights either by suit in equity or action at law,
including, but not limited to, an action for damages as a result of any such
breach or an action for specific performance of any such covenant or agreement
contained in this Agreement. The rights, powers and remedies of the parties
under this Agreement are cumulative and not exclusive of any other right, power
or remedy which such parties may have under any other agreement or law. No
single or partial assertion or exercise of any right, power or remedy of a party
hereunder shall preclude any other or further assertion or exercise thereof.
     9.6 Successors and Assigns. Except as otherwise expressly provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties,
including, without limitation, successors through merger, consolidation,
reorganization, recapitalization, any similar transaction or otherwise. Neither
this Agreement nor any rights or duties of a party hereto may be assigned by the
Company, in whole or in part, without the prior written consent of the Investor,
except in a sale to a purchaser of the Company’s business, whether by way of a
sale of all or substantially all of the Company’s assets, merger, business
combination or otherwise. This Agreement or any rights and/or obligations
hereunder may be assigned by the Investor without the prior written consent of
the Company; provided, however, that until the earlier of (i) the second
anniversary of the date hereof and (ii) the termination of the License and
Collaboration Agreement, the Investor may not assign any claim for breach of
this Agreement or its obligations under Section 8.3 hereof, other than (x) to an
Affiliate of the Investor, (y) to any permitted assignee of the obligations
under the License and Collaboration Agreement or an Affiliate thereof, or (z) in
connection with the sale of a division or business unit by the Investor or any
Affiliate thereof.
     9.7 Entire Agreement. This Agreement and the annexes, exhibits and
schedules hereto which form a part hereof contain the entire agreement among the
parties with respect to the subject matter hereof and thereof and supersede all
prior and contemporaneous arrangements or understandings, whether written or
oral, with respect thereto; provided, however, that this Agreement is not
intended to supersede the License and Collaboration Agreement.
     9.8 Governing Law and Consent to Jurisdiction. This Agreement shall be
governed by and construed under the laws of the State of New York (without
regard to the conflict of law principles thereof).
     9.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

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     9.10 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
     9.11 Nouns and Pronouns. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and
vice-versa.
     9.12 Notices. Unless otherwise provided, all notices, requests, consents
and other communications hereunder to any party shall be given in writing and
shall be deemed effectively given upon personal delivery to the party to be
notified or five business days after being duly sent by first class registered
or certified mail, or other courier service, postage prepaid, or the following
business day after being telecopied with a confirmation copy by regular mail,
and addressed or telecopied to the party to be notified at the address or
telecopier number indicated for such party, as the case may be, set forth below
or such other address or telecopier number, as the case may be, as may hereafter
be designated in writing by the addressees to the addressor listing all parties:
     To the Company:
SGX Pharmaceuticals, Inc.
10505 Roselle Street
San Diego, California 92121
Attention: Chief Financial Officer
Attention: Legal Department
Fax:           (858) 558-4859
     With a copy (which shall not constitute notice) to:
Cooley Godward llp
4401 Eastgate Mall
San Diego, CA 92121
Attention: Kay Chandler
Fax:           (858) 550-6420
     To the Investor:
Novartis Pharma AG
Lichtstrasse 35
CH-4002 Basel
Switzerland
Attention: Joseph E. Mamie
Fax:          41 61 324 8111
     With a copy (which shall not constitute notice) to:
Novartis Institutes for BioMedical Research, Inc.
400 Technology Square

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Cambridge, Massachusetts 02139
Attention: Robert L. Thompson, Vice President and General Counsel
Fax:           (617) 871-3354
     With a copy (which shall not constitute notice) to:
Kaye Scholer LLP
425 Park Avenue
New York, New York 10022
Attention: Adam H. Golden, Esq.
Fax:           (212) 836-8689
     9.13 Finder’s Fee. The Investor agrees to indemnify and to hold harmless
the Company from any liability for any commission or compensation in the nature
of a finder’s fee (and the reasonable costs and expenses of defending against
such liability or asserted liability) for which the Investor or any of its
officers, partners, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless the Investor from any liability for any
commission or compensation in the nature of a finder’s fee (and the reasonable
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives is
responsible.
     9.14 Expenses. Except as otherwise contemplated herein, each party shall
pay its own fees and expenses with respect to this Agreement.
     9.15 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Investor (other than the waiver of
any condition set forth in Section 5, which may be waived in the sole discretion
of the Investor, and other than the waiver of any condition set forth in
Section 6, which may be waived in the sole discretion of the Company).
     9.16 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, in any jurisdiction, such provision shall
be ineffective, as to such jurisdiction, and the balance of the Agreement shall
be interpreted as if such provision were so excluded, without invalidating the
remaining provisions of this Agreement; and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
     9.17 Confidentiality and Publicity.
          (a) All confidential information disclosed by a party hereto or its
Affiliates to the other party hereto or its Affiliates under this Agreement will
be maintained in confidence and otherwise safeguarded by the recipient party.
Each party shall hold as confidential such confidential information of the other
party or its Affiliates in the same manner and with the same protection as such
recipient party maintains its own confidential information, but no less than a
reasonable standard of care. A recipient party may only disclose confidential
information of the other party to employees, agents, contractors, consultants
and advisers of the party and its Affiliates, licensees and sublicensees;
provided that such persons are bound to maintain the

21

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confidentiality of the confidential information in a manner consistent with the
confidentiality provisions of this Agreement. The mutual obligations under this
Section 9.17 shall not apply to any information to the extent the recipient
party can demonstrate by competent evidence that such information: (i) is (at
the time of disclosure) or becomes (after the time of disclosure) known to the
public or part of the public domain through no breach of this Agreement by the
recipient party or its Affiliates; (ii) was known to, or was otherwise in the
possession of, the recipient party or its Affiliates prior to the time of
disclosure by the disclosing party; (iii) is disclosed to the recipient party or
an Affiliate on a non-confidential basis by a third party who is entitled to
disclose it without breaching any confidentiality obligation to the disclosing
party or any of its Affiliates; or (iv) is independently developed by or on
behalf of the recipient party or its Affiliates, as evidenced by its written
records, without reference to the confidential information disclosed by the
disclosing party or its Affiliates under this Agreement. In addition to
disclosures allowed hereunder, each party hereto may disclose confidential
information belonging to the other party to the extent such disclosure is
necessary in the following instances: (i) complying with applicable court orders
or governmental regulations; and (ii) disclosure to consultants, investors,
bankers, lawyers, accountants, agents or other third parties in connection with
due diligence or similar investigations by such third parties, provided, in each
case, that any such consultant, investor, banker, lawyer, accountant, agent or
third party is bound to maintain the confidentiality of the confidential
information in a manner consistent with the confidentiality provisions of this
Agreement.
          (b) Each party hereto agrees not to issue any press release or other
public statement, whether oral or written, disclosing the existence of this
Agreement, the terms hereof or any information relating to this Agreement
without the prior written consent of the other party; provided however, that
neither party hereto will be prevented from complying with any duty of
disclosure it may have pursuant to law or governmental regulation or pursuant to
the rules of any recognized stock exchange or quotation system. A party hereto
who desires to issue a press release or make any other public disclosure
relating to this Agreement shall notify the other in writing at least ten
(10) business days (or such shorter period where legally required) before the
time of the proposed release. Such party shall provide a draft of any of the
proposed documents containing any such reference (including without limitation,
a copy of this Agreement or any excerpt hereof, proposed to be filed with any
securities regulatory authority or any securities exchange) to the other party
and its counsel in sufficient time for review of such documents. In the event
such other party objects to any such reference, the applicable document will be
modified to such party’s reasonable satisfaction.
     9.18 Definitions. As used in this Agreement, the following terms shall have
the following meanings:
     “2005 Unaudited Financial Statements” shall have meaning set forth in
Section 3.15(a).
     “Affiliate” shall mean, with respect to any Person, any other Person that
directly or indirectly, by itself or through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person. The
term “control” means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise. Control
will be

22

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presumed if one Person owns, either of record or beneficially, at least 50% of
the voting stock of any other Person.
     “Audited Financial Statements” shall have the meaning set forth in
Section 3.15(a).
     “Board” shall have the meaning set forth in Section 8.3(a).
     “Certificate of Incorporation” shall have the meaning set forth in
Section 3.1.
     “Closing Date” shall have the meaning set forth in Section 2.1.
     “Closing” shall have the meaning set forth in Section 2.1.
     “Code” shall mean the U.S. Internal Revenue Code of 1986, as amended.
     “Common Stock” shall have the meaning set forth in Section 1.1(a).
     “Company” shall have the meaning set forth in the Preamble.
     “Company Equity Security” shall have the meaning set forth in
Section 8.3(a).
     “Company Rights” shall have the meaning set forth in Section 3.11(a).
     “Company SEC Documents” shall have the meaning set forth in
Section 3.15(b).
     “Disclosure Schedule” shall have the meaning set forth in the introductory
paragraph of Section 3.
     “Encumbrance(s)” shall mean any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, or restriction of any kind, including, without
limitation, any restriction on the use, voting, transfer, receipt of income or
other exercise of any attributes of ownership.
     “Environmental Law” shall have the meaning set forth in Section 3.25(a).
     “ERISA” shall have the meaning set forth in Section 3.18.
     “Financial Statements” shall have the meaning set forth in Section 3.15(a).
     “GAAP” shall have the meaning set forth in Section 3.15(a).
     “Governmental Authority” shall have the meaning set forth in
Section 3.5(a).
     “Hazardous Materials” shall have the meaning set forth in Section 3.25(b).
     “Interim Financial Statements” shall have meaning set forth in
Section 3.15(a).
     “Investment Company Act” shall have the meaning set forth in Section 3.23.

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     “Investor” shall have the meaning set forth in the Preamble and
Section 1.1(c).
     “Investor Rights Agreement” shall mean that certain Amended and Restated
Investor Rights Agreement, dated as of April 21, 2005, by and among the Company
and each of the investors named therein, as amended by the First Amendment to
Amended and Restated Investor Rights Agreement, dated as of October 31, 2005,
and by the Investor Rights Agreement Amendment.
     “Investor Rights Agreement Amendment” shall mean that certain Amendment to
Amended and Restated Investor Rights Agreement, dated as of the date hereof, by
and between the Company, the Investor and the other stockholders of the Company
parties thereto, a copy of which is attached as Exhibit B hereto.
     “License and Collaboration Agreement” shall mean that certain License and
Collaboration Agreement, dated as of the date hereof, between the Company and
Novartis Institutes for BioMedical Research, Inc.
     “Material Adverse Effect” shall have the meaning set forth in Section 3.1.
     “Material IP Contracts” shall have the meaning set forth in
Section 3.11(b).
     “Novartis” shall have the meaning set forth in the Preamble.
     “Obligations” shall have the meaning set forth in Section 3.12(d).
     “Person” means any individual, partnership, firm, corporation, association,
trust, unincorporated organization, government or any department or agency
thereof or other entity, as well as any syndicate or group that would be deemed
to be a Person under Section 13(d)(3) of the Securities Exchange Act.
     “Preferred Stock” shall have the meaning set forth in Section 3.2(a)(i).
     “Property” shall have the meaning set forth in Section 3.25(b).
     “Proprietary Rights” shall have the meaning set forth in Section 3.11(a).
     “Purchase Price” shall have the meaning set forth in Section 1.1(a).
     “Registration Statement” shall have the meaning set forth in the
introductory paragraph of Section 3.
     “Release” shall have the meaning set forth in Section 3.25(b).
     “SEC” shall mean the U.S. Securities and Exchange Commission.
     “Securities Act” shall have the meaning set forth in Section 3.13.
     “Securities Exchange Act” shall have the meaning set forth in Section 3.26.

24

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     “Securities Laws” shall have the meaning set forth in Section 3.26.
     “Shares” shall have the meaning set forth in Section 1.1(a).
     “Share Price” shall have the meaning set forth in Section 1.1(b).
     “Subsidiary” shall mean any and all corporations, partnerships, joint
ventures, associations and other entities controlled by the Company directly or
indirectly through one or more intermediaries.

25

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     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.

                  NOVARTIS PHARMA AG    
 
           
 
  By:
Name:   /s/ Joseph E. Mamie
 
Joseph E. Mamie    
 
  Title:   Head Operational Treasury    
 
           
 
  By:   /s/ Dr. Matthias S. Runge    
 
           
 
  Name:   Dr. Matthias S. Runge    
 
  Title:   Head Legal Pharma Ophthalmics & Oncology
Region Europe    
 
                SGX PHARMACEUTICALS, INC.    
 
           
 
  By:   /s/ Michael Grey    
 
           
 
  Name:   Michael Grey    
 
  Title:   President and Chief Executive Officer    

[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]

 

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Annex A
Disclosure Schedule
(Delivered herewith)

 

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Exhibit A
Cross Receipt
SGX PHARMACEUTICALS, INC.
637,755 SHARES OF COMMON STOCK
CROSS-RECEIPT
     Reference is made to the Stock Purchase Agreement, dated as of March 27,
2006 (the “Purchase Agreement”), by and between SGX Pharmaceuticals, Inc., a
Delaware corporation (the “Company”) and Novartis Pharma AG, a corporation
organized under the laws of Switzerland (“Novartis”).
     Capitalized terms used but not defined herein shall have the meanings set
forth in the Purchase Agreement.
     1. Novartis hereby acknowledges receipt of an aggregate of 637,755 shares
of the Company’s common stock, par value $0.001 per share (the “Shares”).
     2. The Company hereby acknowledges receipt from Novartis in Federal or
other immediately available funds by wire transfer in the aggregate amount of
U.S. $5,000,000.00 (the “Purchase Price”) to purchase and pay for the Shares
delivered by the Company at a per share price of $7.84 (the “Share Price”)
pursuant to Section 1.1 of the Purchase Agreement.

 

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Dated: March 27, 2006
New York, New York

                  SGX PHARMACEUTICALS, INC.    
 
           
 
  By:
Name:   /s/ Michael Grey
 
Michael Grey    
 
  Title:   President and Chief Executive Officer    
 
                NOVARTIS PHARMA AG    
 
           
 
  By:   /s/ Joseph E. Mamie    
 
           
 
  Name:   Joseph E. Mamie    
 
  Title:   Head Operational Treasury    
 
           
 
  By:   /s/ Dr. Matthias S. Runge    
 
           
 
  Name:   Dr. Matthias S. Runge    
 
  Title:   Head Legal Pharma Ophthalmics &
Oncology Region Europe    

[Signature to Cross Receipt]

 

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Exhibit B
Investor Rights Agreement Amendment

 

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Exhibit C
Lock-Up Agreement
LOCK-UP AGREEMENT
March 27, 2006
CIBC World Markets Corp.
Piper Jaffray & Co.
JMP Securities LLC
As Representative of the Several Underwriters
c/o CIBC World Markets Corp.
300 Madison Avenue
New York, New York 10017
     Re: Public Offering of SGX Pharmaceuticals, Inc.
Ladies and Gentlemen:
     The undersigned, a holder of common stock, par value $0.001 per share
(“Common Stock”) or rights to acquire Common Stock of SGX Pharmaceuticals, Inc.
(the “Company”), understands that you, as Representative of the several
Underwriters, propose to enter into an Underwriting Agreement (the “Underwriting
Agreement”) with the Company, providing for the public offering (the “Public
Offering”) by the several Underwriters named in Schedule I to the Underwriting
Agreement (the “Underwriters”), of shares of Common Stock of the Company (the
“Securities”). Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in the Underwriting Agreement.
     In consideration of the Underwriters’ agreement to enter into the
Underwriting Agreement and to proceed with the Public Offering of the
Securities, and for other good and valuable consideration receipt of which is
hereby acknowledged, the undersigned hereby agrees for the benefit of the
Company, you and the other Underwriters that, without the prior written consent
of CIBC World Markets Corp. on behalf of the Underwriters, the undersigned will
not, during the period ending 180 days after the date of the prospectus relating
to the Public Offering (the “Lock-Up Period”), directly or indirectly (1) offer,
pledge, assign, encumber, announce the intention to sell, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, any shares of Common Stock of the Company or any securities
convertible into or exercisable or exchangeable for Common Stock owned either of
record or beneficially (as defined in the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) by the undersigned on the date hereof or hereafter
acquired or (2) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise, or publicly announce an intention

 

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to do any of the foregoing. In addition, the undersigned agrees that, without
the prior written consent of CIBC World Markets Corp. on behalf of the
Underwriters, it will not, during the Lock-Up Period, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock. The foregoing shall not apply to: (i) the sale of the Securities to be
sold pursuant to the prospectus relating to the Public Offering; (ii) sales
under any 10b-5 plan; or (iii) transfers of Common Stock (A) as a bona fide gift
or gifts, (B) to any trust for the direct or indirect benefit of the undersigned
or the immediate family of the undersigned, (C) if the undersigned is a
corporation, to any “affiliate” (as such term is defined in Rule 12b-2
promulgated under the Exchange Act) of such corporation, (D) if the undersigned
is a limited liability company, to a member or affiliated limited liability
company, or (E) if the undersigned is a partnership, to a partner or affiliated
partnership; provided, however, that in each such case under clause (iii) above,
(1) it shall be a condition to the transfer that the donee or transferee execute
an agreement stating that the donee or transferee is receiving and holding such
capital stock subject to the provisions of this Lock-Up Agreement and there
shall be no further transfer of such capital stock except in accordance with
this Lock-Up Agreement, (2) any such transfer shall not involve a disposition
for value, (3) no filing by any party (donor, donee, transferor or transferee)
under the Exchange Act shall be required or shall be voluntarily made in
connection with such transfer (other than a filing on a Form 5, Schedule 13D (or
amendment thereto) or Schedule 13G (or amendment thereto)), (4) each party
(donor, donee, transferor or transferee) shall not be required by law (including
without limitation the disclosure requirements of the Securities Act of 1933, as
amended (the “Securities Act”), and the Exchange Act) to make, and shall agree
to not voluntarily make, any public announcement of the transfer or disposition,
and (5) the undersigned notifies CIBC World Markets Corp. at least two business
days prior to the proposed transfer or disposition. For purposes of this Lock-Up
Agreement, “immediate family” shall mean any relationship by blood, marriage or
adoption, not more remote than first cousin.
     Notwithstanding the foregoing, if (1) during the last 17 days of the
Lock-Up Period the Company issues an earnings release or material news or a
material event relating to the Company occurs; or (2) prior to the expiration of
the Lock-Up Period, the Company announces that it will release earnings results
during the 16-day period beginning on the last day of the Lock-Up Period, the
restrictions imposed in this Lock-Up Agreement shall continue to apply until the
expiration of the 18-day period beginning on the issuance of the earnings
release or the occurrence of the material news or material event; provided,
however, that this sentence shall not apply if the research published or
distributed on the Company is compliant under Rule 139 of the Securities Act and
the Company’s securities are actively traded as defined in Rule 101(c)(1) of
Regulation M of the Exchange Act.
     In furtherance of the foregoing, the Company, and any duly appointed
transfer agent for the registration or transfer of the securities described
herein, are hereby authorized to decline to make any transfer of securities if
such transfer would constitute a violation or breach of this Lock-Up Agreement.
     The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up Agreement. All authority
herein conferred or agreed to be

 

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conferred and any obligations of the undersigned shall be binding upon the
successors, assigns, heirs or personal representatives of the undersigned.
     The undersigned understands that, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Common Stock to be sold thereunder, the
undersigned shall be released form all obligations under this Lock-Up Agreement.
     The undersigned, whether or not participating in the Public Offering,
understands that the Underwriters are entering into the Underwriting Agreement
and proceeding with the Public Offering in reliance upon this Lock-Up Agreement.
[signature page follows]

 

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     This Lock-Up Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to the conflict of laws
principles thereof.

                  Very truly yours,    
 
                NOVARTIS PHARMA AG    
 
           
 
  By:
Name:   /s/ Joseph E. Mamie
 
Joseph E. Mamie    
 
  Title:   Head Operational Treasury    
 
           
 
  By:   /s/ Dr. Matthias S. Runge    
 
           
 
  Name:   Dr. Matthias S. Runge    
 
  Title:   Head Legal Pharma Ophthalmics &
Oncology Region Europe