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EXHIBIT 10.38
 
 
AGREEMENT AND PLAN OF MERGER
 
BY AND AMONG
 
GENENTECH, INC.
 
GREEN ACQUISITION CORPORATION
 
and
 
TANOX, INC.
 
Dated as of November 9, 2006
 
 

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TABLE OF CONTENTS
 

 
Page
ARTICLE I THE MERGER
1
 
    1.1
The Merger
1
    1.2
Effective Time; Closing
1
    1.3
Effect of the Merger
2
    1.4
Certificate of Incorporation and Bylaws of Surviving Corporation
2
    1.5
Directors and Officers of Surviving Corporation
2
    1.6
Effect on Capital Stock
2
    1.7
Dissenting Shares
3
    1.8
Surrender of Certificates
4
    1.9
No Further Ownership Rights in Company Common Stock
5
    1.10
Lost, Stolen or Destroyed Certificates
5
    1.11
Adjustments
5
    1.12
Taking of Necessary Action; Further Action
5
 
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY
5
 
    2.1
Organization and Qualification; Subsidiaries
6
    2.2
Certificate of Incorporation and Bylaws; Minutes
6
    2.3
Capitalization
7
    2.4
Authority Relative to this Agreement
8
    2.5
No Conflict; Required Filings and Consents
8
    2.6
Compliance with Health Care Laws
9
    2.7
Permits
10
    2.8
FDA; Global Regulation Compliance; Company Products and Company Research
Programs
10
    2.9
SEC Filings; Financial Statements
12
    2.10
No Undisclosed Liabilities
15
    2.11
Absence of Certain Changes or Events
15
    2.12
Absence of Litigation
16
    2.13
Employee Benefit Plans
16
    2.14
Proxy Statement
21
    2.15
Title to Property
21
    2.16
Taxes
23
    2.17
Environmental Matters
25
    2.18
Brokers; Third Party Expenses
26
    2.19
Intellectual Property
26
    2.20
Contracts
32
    2.21
Product Liability Claims
34
    2.22
Insurance
34
    2.23
Opinion of Financial Advisor
35
    2.24
Board Approval
35
    2.25
Rights Agreement
35
    2.26
State Takeover Statutes
35
    2.27
Interested Party Transactions
35
 
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
36
 
    3.1
Corporate Organization
36
    3.2
Authority Relative to this Agreement
36
    3.3
No Conflict; Required Filings and Consents
36
    3.4
Proxy Statement
37
    3.5
Sufficient Funds
37

 
 
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Page
    3.6
No Prior Merger Sub Operations
37
     
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME
37
     
    4.1
Conduct of Business by Company
37
     
ARTICLE V ADDITIONAL AGREEMENTS
       
    5.1
Proxy Statement
41
    5.2
Meeting of Company Stockholders
42
    5.3
Confidentiality; Access to Information
43
    5.4
No Solicitation
43
    5.5
Public Disclosure
46
    5.6
Reasonable Efforts; Regulatory Matters
47
    5.7
Notification
48
    5.8
Third Party Consents and Notices
48
    5.9
Indemnification
49
    5.10
Termination of Certain Benefit Plans
49
    5.11
Section 16 Matters
50
    5.12
Disqualified Individuals
50
    5.13
Company Rights Agreement
50
    5.14
Takeover Statutes
50
    5.15
FIRPTA Compliance
50
     
ARTICLE VI CONDITIONS TO THE MERGER
51
     
    6.1
Conditions to Obligations of Each Party to Effect the Merger
51
    6.2
Additional Conditions to Obligations of the Company
51
    6.3
Additional Conditions to the Obligations of Parent and Merger Sub
51
     
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER
52
     
    7.1
Termination
52
    7.2
Notice of Termination; Effect of Termination
54
    7.3
Fees and Expenses
54
    7.4
Amendment
56
    7.5
Extension; Waiver
56
     
ARTICLE VIII GENERAL PROVISIONS
56
     
    8.1
Non-Survival of Representations and Warranties
56
    8.2
Notices
56
    8.3
Interpretation; Knowledge
57
    8.4
Counterparts
58
    8.5
Entire Agreement; Third Party Beneficiaries
58
    8.6
Severability
59
    8.7
Other Remedies; Specific Performance
59
    8.8
Governing Law; Jurisdiction
59
    8.9
Rules of Construction
59
    8.10
Assignment
59
    8.11
Waiver of Jury Trial
60

INDEX OF EXHIBITS

Exhibit A
Form of Company Voting Agreement

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AGREEMENT AND PLAN OF MERGER
 
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of November 9,
2006 (the “Agreement”), by and among Genentech, Inc., a Delaware corporation
(“Parent”), Green Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent (“Merger Sub”), and Tanox, Inc., a Delaware
corporation (the “Company”).
 
RECITALS
 
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have each
determined that it is in the best interests of their respective stockholders for
Parent to acquire the Company upon the terms and subject to the conditions set
forth herein.
 
WHEREAS, the Board of Directors of the Company (the “Board”) has unanimously
(i) determined that the Merger (as defined in Section 1.1) is advisable and fair
to, and in the best interests of, the Company and its stockholders,
(ii) approved this Agreement and the other transactions contemplated by this
Agreement, including the Merger and the transactions contemplated by the Company
Voting Agreements, and (iii) determined to recommend that the stockholders of
the Company adopt this Agreement.
 
WHEREAS, the Board of Directors of Parent has (i) determined that the Merger is
advisable and fair to, and in the best interest of, Parent and its stockholders,
and (ii) approved this Agreement.
 
WHEREAS, concurrently with the execution of this Agreement, as a condition and
inducement to Parent’s willingness to enter into this Agreement, certain
stockholders of the Company are entering into Voting Agreements, dated as of the
date hereof, in substantially the form attached hereto as Exhibit A (the
“Company Voting Agreements”).
 
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe certain conditions to the Merger.
 
NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
 
ARTICLE I
THE MERGER
 
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to
and upon the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (“Delaware Law”), Merger Sub
shall be merged with and into the Company (the “Merger”), the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation. The Company, as the surviving corporation after the
Merger, is hereinafter sometimes referred to as the “Surviving Corporation.”
 
1.2 Effective Time; Closing. Upon the terms and subject to the conditions of
this Agreement, the parties hereto shall cause the Merger to be consummated by
filing with the Secretary of State of the State of Delaware a certificate of
merger (the “Certificate of Merger”) executed in accordance with the relevant
provisions of Delaware Law (the time of such filing, or such later time as may
be agreed in writing by the Company and Parent and specified in the Certificate
of Merger, being the “Effective Time”) on, or as soon as practicable after, the
Closing Date (as herein defined). The closing of the Merger (the “Closing”)
shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California, at a time
and date to be specified by the parties hereto, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set forth
in Article VI (other than those conditions which, by their terms,

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are to be satisfied or waived on the Closing Date, but subject to the
satisfaction or waiver thereof), or at such other time, date and location as the
parties hereto agree in writing. The date on which the Closing occurs is
referred to in this Agreement as the “Closing Date”.
 
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall
be as provided in this Agreement and the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all of the assets, properties, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all of the debts, liabilities, obligations, restrictions and
duties of the Company and Merger Sub shall become the debts, liabilities,
obligations, restrictions and duties of the Surviving Corporation.
 
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation.
 
(a) Certificate of Incorporation. As of the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub or the Company, the
Certificate of Incorporation of the Surviving Corporation shall be amended and
restated to read the same as the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, subject to Section 5.9(a),
until thereafter amended in accordance with Delaware Law and such Certificate of
Incorporation; provided, however, that as of the Effective Time the Certificate
of Incorporation shall provide that the name of the Surviving Corporation is
“Tanox, Inc.”
 
(b) Bylaws. As of the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub or the Company, the Bylaws of the Surviving
Corporation shall be amended and restated to read the same as the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, subject to
Section 5.9(a), until thereafter amended in accordance with Delaware Law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws;
provided, however, that all references in such Bylaws to Merger Sub shall be
amended to refer to “Tanox, Inc.”
 
1.5 Directors and Officers of Surviving Corporation.
 
(a) Directors. The initial directors of the Surviving Corporation shall be the
directors of Merger Sub as of immediately prior to the Effective Time, until
their respective successors are duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Certificate
of Incorporation and the Bylaws of the Surviving Corporation.
 
(b) Officers. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub as of immediately prior to the Effective Time, until
their respective successors are duly appointed and qualified or until their
earlier death, resignation or removal in accordance with the Certificate of
Incorporation and the Bylaws of the Surviving Corporation.
 
1.6 Effect on Capital Stock. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, the Company or the holders of any of the
following securities, the following shall occur:
 
(a) Conversion of Shares. Each share of common stock, par value $0.01 per share,
of the Company (“Company Common Stock”) issued and outstanding immediately prior
to the Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 1.6(b) and any Dissenting Shares, as defined in
Section 1.7), will be canceled and extinguished and automatically converted into
the right to receive, upon surrender of the certificate(s) representing such
Company Common Stock in the manner provided in Section 1.8 (or in the case of a
lost, stolen or destroyed certificate, upon delivery of an affidavit, and bond,
if required, in the manner provided in Section 1.10), cash in an amount equal to
$20.00 per share, without interest (the “Per Share Merger Consideration” and the
aggregate of all Per Share Merger Consideration, the “Merger Consideration”).
 

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(b) Cancellation of Treasury and Parent-Owned Shares. All Company Common Stock
held by the Company or owned by Merger Sub, Parent or any direct or indirect
wholly-owned subsidiary of the Company or of Parent immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
 
(c) Capital Stock of Merger Sub. Each share of common stock, par value $0.01 per
share, of Merger Sub (the “Merger Sub Common Stock”) issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of common stock, par value $0.01 per
share, of the Surviving Corporation. Each certificate evidencing ownership of
shares of Merger Sub Common Stock outstanding immediately prior to the Effective
Time shall evidence ownership of such shares of capital stock of the Surviving
Corporation.
 
(d) Stock Options. Except as set forth on Section 1.6(d) of the Company
Disclosure Letter (as defined in Article II), each option to purchase Company
Common Stock (the “Company Stock Options”), whether vested or unvested, and all
stock option plans or other equity-related plans of the Company (the “Company
Stock Plans”), that are unexpired, unexercised and outstanding as of the
Effective Time shall on the terms and subject to the conditions set forth in
this Agreement, be cancelled in its entirety at the Effective Time, and the
holder of each shall be fully vested in such Company Stock Options, and the
Parent shall pay or cause to be paid, as soon as reasonably practicable after
the Effective Time, to each such holder of Company Stock Options an amount of
cash equal to the product of (i) the number of shares of Company Common Stock as
to which such Company Stock Option remains unexercised immediately prior to the
Effective Time, multiplied by (ii) the Per Share Merger Consideration minus the
exercise price of such Company Stock Option immediately prior to the Effective
Time (the “Option Merger Consideration”); provided, however, that if the Per
Share Merger Consideration does not exceed the exercise price of such Company
Stock Option immediately prior to the Effective Time, the Option Merger
Consideration for such Company Stock Option shall be zero; and provided further,
that nothing in this Section 1.6(d) shall prohibit the holder of a Company Stock
Option from exercising such Company Stock Option prior to the Effective Time in
accordance with its terms and applicable Legal Requirements. Prior to the
Effective Time, the Company shall timely deliver any notices to holders of
Company Stock Options as may be required by the terms of the Company Stock Plans
and take any and all actions necessary or appropriate to effectuate the
foregoing, including, without limitation, using all reasonable efforts to obtain
any applicable consents or waivers from holders of Company Stock Options that
were granted under the Company’s 2000 Non-Employee Directors’ Stock Option Plan.
The payment of the Option Merger Consideration to the holder of a Company Stock
Option shall be reduced by any income, employment or other Tax withholding
required under the Code (as defined in Section 2.13(a)(ii)) or any provision of
state, local or foreign Tax law.
 
1.7 Dissenting Shares.
 
(a) Notwithstanding any provision of this Agreement to the contrary, shares of
Company Common Stock that are outstanding immediately prior to the Effective
Time and that are held by stockholders who shall have not voted in favor of the
Merger and who shall have demanded properly in writing appraisal for such
Company Common Stock in accordance with Section 262 of Delaware Law
(collectively, the “Dissenting Shares”) shall not be converted into, or
represent the right to receive, the Per Share Merger Consideration payable for
each such share of Company Common Stock. Such stockholders shall be entitled to
receive payment of the appraised value of such Company Common Stock held by them
in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
Company Common Stock under such Section 262 shall thereupon be deemed to have
been converted into, and to have become exchangeable for, as of the Effective
Time, the right to receive the Per Share Merger Consideration payable for each
such share of Company Common Stock, without any interest thereon, upon
surrender, in the manner provided in Section 1.8, of the certificate or
certificates that formerly evidenced such Company Common Stock.
 

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(b) The Company shall give Parent (i) prompt notice of any demands for appraisal
received by the Company, withdrawals of such demands, and any other instruments
served pursuant to Delaware Law and received by the Company and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under Delaware Law. The Company shall not, except with the prior
written consent of Parent, make any payment with respect to any demands for
appraisal or offer to settle or settle any such demands.
 
1.8 Surrender of Certificates.
 
(a) Paying Agent. At the Effective Time, Parent shall deposit or cause to be
deposited with a bank or trust company reasonably acceptable to the Company to
act as agent (the “Paying Agent”), for the benefit of the holders of Company
Common Stock to receive the funds to which holders of Company Common Stock shall
become entitled pursuant to Section 1.6(a), a cash amount sufficient to pay the
Merger Consideration. Such funds shall be invested by the Paying Agent as
directed by Parent; earnings from such investments shall be the sole and
exclusive property of Parent and the Surviving Corporation, and no part of such
earnings shall accrue to the benefit of holders of the shares of Company Common
Stock.
 
(b) Payment Procedures. As soon as reasonably practicable after the Effective
Time, Parent shall cause the Paying Agent to mail to each holder of record (as
of the Effective Time) of a certificate or certificates (the “Certificates”),
which immediately prior to the Effective Time represented the outstanding shares
of Company Common Stock, (i) a letter of transmittal in customary form (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall contain such other provisions as Parent shall reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the portion of the Merger Consideration payable
upon surrender of said Certificates. Upon surrender of Certificates for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to those instructions, the holders of such
Certificates formerly representing the Company Common Stock shall be entitled to
receive in exchange therefor the portion of the Merger Consideration payable for
such shares of Company Common Stock, and the Certificates so surrendered shall
forthwith be canceled. Until so surrendered, outstanding Certificates shall be
deemed from and after the Effective Time, for all corporate purposes, to
evidence only the ownership of the respective portion of the Merger
Consideration to which the record holder of such Certificate is entitled by
virtue thereof. Promptly following surrender of any such Certificates and the
duly executed letters of transmittal, the Paying Agent shall deliver to the
record holders thereof, without interest, the portion of the Merger
Consideration to which such holder is entitled upon surrender of said
Certificates, subject to the restrictions set forth herein.
 
(c) Payments with respect to Unsurrendered Company Common Stock; No Liability.
At any time following the 180th day after the Effective Time, the Surviving
Corporation shall be entitled to require the Paying Agent to deliver to it any
funds which had been made available to the Paying Agent and not disbursed to
holders of Company Common Stock (including all interest and other income
received by the Paying Agent in respect of all funds made available to it), and,
thereafter, such holders shall be entitled to look to Parent (subject to
abandoned property, escheat and other similar laws) only as general creditors
thereof with respect to any portion of the Merger Consideration that may be
payable upon due surrender of the Certificates held by them. Notwithstanding the
foregoing, none of Parent, the Surviving Corporation nor the Paying Agent shall
be liable to any former holder of Company Common Stock for any portion of the
Merger Consideration delivered in respect of such Company Common Stock to a
public official pursuant to any abandoned property, escheat or other similar
Legal Requirement.
 
(d) Transfers of Ownership. If the payment of the portion of the Merger
Consideration to which such holder is entitled is to be paid to a person other
than the person in whose name the Certificates surrendered in exchange therefor
are registered, it will be a condition of payment that the Certificates so
surrendered be properly endorsed and otherwise in proper form for transfer
(including, if requested by Parent or the Paying

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Agent, a medallion guarantee), and that the persons requesting such payment will
have paid to Parent or any agent designated by it any transfer or other Taxes
required by reason of the payment of a portion of the Merger Consideration to a
person other than the registered holder of the Certificates surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such Tax has been paid or is not applicable.
 
(e) Required Withholding. Each of the Paying Agent, Parent and the Surviving
Corporation shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable pursuant to this Agreement to any holder or
former holder of the Company Common Stock such amounts as may be required to be
deducted or withheld therefrom under the Code or under any provision of state,
local or foreign Tax law or under any other applicable Legal Requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the person to whom
such amounts would otherwise have been paid.
 
1.9 No Further Ownership Rights in Company Common Stock. Payment of the Merger
Consideration shall constitute payment in full satisfaction of all rights
pertaining to the Company Common Stock. From and after the Effective Time, there
shall be no further registration of transfers on the records of the Surviving
Corporation of shares of the Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
 
1.10 Lost, Stolen or Destroyed Certificates. In the event that any Certificates
shall have been lost, stolen or destroyed, the Paying Agent shall pay in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, the portion of the Merger
Consideration payable with respect thereto; provided, however, that Parent or
the Paying Agent may, in its discretion and as a condition precedent to the
payment of such portion of the Merger Consideration, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond (at the sole expense of
the holder of such Certificate) in such reasonable and customary amount as it
may direct as indemnity against any claim that may be made against Parent, the
Surviving Corporation or the Paying Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
 
1.11 Adjustments. In the event of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible into
Company Common Stock, whether directly or indirectly), reorganization,
reclassification, combination, recapitalization or other like change with
respect to the Company Common Stock occurring after the date of this Agreement
and prior to the Effective Time, all references in this Agreement to specified
numbers of shares of any class or series affected thereby, and all calculations
provided for that are based upon numbers of shares of any class or series (or
trading prices therefor) affected thereby, shall be equitably adjusted to the
extent necessary to provide the parties the same economic effect as contemplated
by this Agreement prior to such stock split, reverse stock split, stock
dividend, reorganization, reclassification, combination, recapitalization or
other like change.
 
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and necessary action.
 
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
 
The Company hereby represents and warrants to Parent and Merger Sub, except as
are specifically disclosed in writing in the disclosure schedule supplied by the
Company to Parent (which such exceptions shall reference

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the specific section and, if applicable, subsection number of this Article II to
which it applies, and, if applicable, any information disclosed in any such
section or subsection shall also be deemed to be disclosed with respect to each
other such section or subsection to the extent that it is reasonably apparent on
its face that such disclosure should also apply to such other section or
subsection), dated as of the date hereof and certified by a duly authorized
officer of the Company (the “Company Disclosure Letter”), as follows:
 
2.1 Organization and Qualification; Subsidiaries.
 
(a) Each of the Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing (with respect to jurisdictions that
recognize the concept of good standing) under the laws of its respective
jurisdiction of organization and has the requisite corporate power and authority
to own, lease and operate its assets and properties and to carry on its business
as it is now being conducted, except for such failures to be so organized,
existing and in good standing (with respect to such jurisdictions that recognize
the concept of good standing) or to have such power and authority that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company.
 
(b) The Company has no subsidiaries except for the persons identified in
Section 2.1(b) of the Company Disclosure Letter. Section 2.1(b) of the Company
Disclosure Letter also sets forth the form of ownership and percentage voting
and/or equity interest of the Company in its subsidiaries and, to the extent
that a subsidiary set forth thereon is not wholly owned by the Company, lists
the other persons that have an ownership interest in such subsidiary and sets
forth the percentage of each such ownership interest. Neither the Company nor
any of its subsidiaries has agreed to make nor is obligated to make nor is bound
by any written, oral, express or implied agreement, contract, subcontract,
lease, mortgage, indenture, understanding, arrangement, instrument, note, bond,
warranty, purchase order, license, sublicense, benefit plan, franchise or other
instrument, obligation, commitment or undertaking that is legally binding and
with respect to which there are continuing obligations, rights, or liabilities,
including any amendments thereto (a “Contract”) or Legal Requirement (as defined
in Section 2.3(a) below), in effect as of the date hereof, to make any future
investment in or capital contribution to any other person or any sale or other
disposition of the capital stock or any of the assets or operations of any such
person.
 
(c) Other than the subsidiaries set forth in Section 2.1(b) of the Company
Disclosure Letter, neither the Company nor any of its subsidiaries directly or
indirectly owns any equity or similar interest in or any interest convertible,
exchangeable or exercisable for, any equity or similar interest in, any person.
 
(d) The Company and each of its subsidiaries is duly qualified to do business as
a foreign corporation, and is in good standing (with respect to jurisdictions
that recognize the concept of good standing), under the laws of all
jurisdictions where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified and in good standing has not had, and would
not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect on the Company. Section 2.1(d) of the Company Disclosure
Letter sets forth a true and complete list of each state and other jurisdiction
which the Company and each of its subsidiaries is qualified to do business as a
foreign corporation.
 
2.2 Certificate of Incorporation and Bylaws; Minutes.
 
(a) The Company has previously furnished to Parent (i) a complete and correct
copy of its Certificate of Incorporation and Bylaws as amended to date
(together, the “Company Charter Documents”) and (ii) the equivalent
organizational documents for each subsidiary of the Company, each as amended to
date. The Company Charter Documents and equivalent organizational documents of
each subsidiary of the Company are in full force and effect. The Company is not
in violation of any of the provisions of the Company Charter Documents, and no
subsidiary of the Company is in violation of its equivalent organizational
documents.
 
(b) The Company has delivered to Parent and its representatives true and
complete copies of the minutes (or, in the case of minutes that have not yet
been finalized, the most recent drafts thereof) of all meetings of the
stockholders, the Board of Directors and each committee of such Board of
Directors of the Company and each of its subsidiaries held since January 1,
2000.

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2.3 Capitalization.
 
(a) The authorized capital stock of the Company consists of 120,000,000 shares
of Company Common Stock and 10,000,000 shares of Preferred Stock, par value of
$0.01 per share (“Company Preferred Stock”). At the close of business on the
date of this Agreement (i) 45,258,927 shares of Company Common Stock were issued
and outstanding, all of which are validly issued, fully paid and nonassessable;
(ii) no shares of Company Common Stock were held by subsidiaries of the Company;
(iii) 554,700 shares of Company Common Stock were held in treasury by the
Company; (iv) 2,677,418 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding options to purchase Company Common
Stock under the Company Stock Plans and (v) 5,248,185 additional shares of
Company Common Stock were reserved for future issuance pursuant to the Company
Stock Plans. The Company does not have any employee stock purchase plan, as such
term is defined in Section 423 of the Code. As of the date hereof, no shares of
Company Preferred Stock were issued or outstanding and there are no outstanding
shares of Company Common Stock that are subject to risk of forfeiture. All
shares of Company Common Stock subject to issuance upon exercise of such Company
Stock Options, upon issuance on the terms and conditions specified in the
instrument pursuant to which they are issuable, will be duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in Section 2.3(a) of
the Company Disclosure Letter, there are no Contracts to which the Company is
bound obligating the Company to accelerate the vesting of any Company Stock
Option as a result of the transactions contemplated hereby (the “Transactions”)
or upon termination of employment or service with the Company or with any of its
subsidiaries following the Merger (whether alone or in combination with any
other events) or otherwise. All outstanding shares of Company Common Stock, all
outstanding Company Stock Options and all outstanding shares of capital stock of
each subsidiary of the Company have been issued and granted in compliance with
all applicable securities laws and other applicable Legal Requirements (as
defined below). The exercise price of each Company Stock Option is no less than
the fair market value of a share of Company Common Stock as determined on the
date of grant of such Company Stock Option. All grants of Company Stock Options
were properly approved by the Board or a duly and validly appointed committee of
the Board in compliance with all applicable Legal Requirements and recorded on
the Financial Statements (as defined in Section 2.9(b)) in accordance with GAAP,
and no such grants involved any inappropriate “back dating,” “forward dating” or
similar practices with respect to the effective date of grant. All repurchases
of Company securities have been made in compliance with all applicable Legal
Requirements. For the purposes of this Agreement, “Legal Requirements” means any
federal, state, local, municipal, foreign or other law, statute, legislation,
constitution, principle of common law, binding resolution, ordinance, code,
edict, order, injunction, judgment, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Entity (as defined in
Section 2.5(b)) hereof. There are no declared or accrued but unpaid dividends
with respect to any shares of Company Common Stock.
 
(b) Section 2.3(b) of the Company Disclosure Letter sets forth, as of the date
of this Agreement the following information with respect to each Company Stock
Option outstanding as of the date of this Agreement: (i) the name and address of
the optionee; (ii) the particular plan pursuant to which such Company Stock
Option was granted; (iii) the number of shares of Company Common Stock subject
to such Company Stock Option; (iv) the exercise price of such Company Stock
Option; (v) the date on which such Company Stock Option was granted; (vi) the
applicable vesting schedule; (vii) the date on which such Company Stock Option
expires; (viii) whether the exercisability of such Company Stock Option will be
accelerated in any way by the transactions contemplated by this Agreement, and
indicates the extent of acceleration; and (ix) whether such Company Stock Option
is intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code.
 
(c) Except for the Company Stock Options and the rights designated in connection
with the Rights Agreement, dated July 27, 2001 between the Company and American
Stock Transfer & Trust Company as rights agent (the “Rights Agreement”), there
are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), Contracts to

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which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound obligating the Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or other
similar rights, contingent or accrued, to receive shares of Company Common Stock
or benefits measured in whole or part by the value of a number of shares of
Company Common Stock with respect to the Company or any of its subsidiaries.
Except for the Company Stock Options, the Company Voting Agreements and the
Rights Agreement, there are no voting trusts, proxies, rights plans,
anti-takeover plans or Contracts to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound with
respect to the voting, acquisition, disposition of or imposition of any
Encumbrance on (i) any class of equity security of the Company or (ii) any
equity security, partnership interest or similar ownership interest of any of
its subsidiaries.
 
(d) True, correct and complete copies of (i) each of the Company Stock Plans,
(ii) the standard form of all Contracts and instruments relating to or issued
under the Company Stock Plans or Company Stock Option, (iii) each Contract or
instrument relating to or issued under the Company Stock Plans or Company Stock
Option where the terms of such grant differ in any material respect from such
standard form agreements, and (iv) Contracts relating to unvested shares, have
been made available to Parent, and such Contracts and instruments have not been
amended, modified or supplemented since being made available to Parent, and,
except as contemplated by this Agreement, there are no Contracts to amend,
modify or supplement such agreements or instruments in any case from those made
available to Parent.
 
2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Transactions, subject, with
respect to the Merger, to the Company Stockholder Approval (as defined below).
The execution and delivery of this Agreement by the Company and the consummation
by the Company of the Transactions have been duly and validly authorized by all
necessary corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the Transactions other than (i) with respect to the Merger, the
filing with the Securities and Exchange Commission (the “SEC”) of a proxy
statement with respect to, and the receipt of, the Company Stockholder Approval
and (ii) the filing of the Certificate of Merger as required by Delaware Law,
subject, in each case, to the receipt of the Required Consents. The affirmative
vote of the holders of a majority of the shares of Company Common Stock issued
and outstanding on the record date set for the meeting of the Company’s
stockholders to adopt this Agreement is the only vote of the holders of capital
stock of the Company necessary to adopt this Agreement and approve and adopt the
Merger under applicable Legal Requirements and the Company Charter Documents
(the “Company Stockholder Approval”). This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes a legal and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or similar Legal Requirements affecting the rights of creditors
generally and the availability of equitable remedies (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
 
2.5 No Conflict; Required Filings and Consents.
 
(a) The execution and delivery of this Agreement by the Company does not, and
the performance of this Agreement by the Company will not, (i) result in the
creation of any material Encumbrance (as defined below) on any of the material
properties or assets of the Company or any of its subsidiaries, (ii) conflict
with or violate the Company Charter Documents or the equivalent organizational
documents of any of the Company’s subsidiaries, (iii) subject, (A) with respect
to the Merger, to the Company Stockholder Approval and (B) to compliance with
the requirements set forth in Section 2.5(b), conflict with or violate in any

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material respect any Legal Requirements applicable to the Company or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, (iv) conflict with or violate, or result in any breach, impermissible
assignment or non-transferability of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or
materially impair the Company’s or any of its subsidiaries’ rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of any Company Contract (as
defined in Section 2.20(a)) or (v) except to the extent that such conflicts,
violations, breaches, defaults, impairments, rights of termination,
cancellation, acceleration, Encumbrance or other effects would not in the
aggregate have a material negative impact on the Company, conflict with or
violate, or result in any breach, impermissible assignment or
non-transferability of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair the Company’s or
any of its subsidiaries’ rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of any Contract (other than a Company Contract) to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or its or any of their respective properties are
bound or affected. “Encumbrance” means, with respect to any asset, mortgage,
deed of trust, lien, pledge, charge, security interest, title retention device,
conditional sale or other security arrangement, collateral assignment, claim,
charge, adverse claim of title, third person ownership or right to use,
restriction or other encumbrance of any kind in respect of such asset (including
any restriction on (1) the voting of any security or the transfer of any
security or other asset, (2) the receipt of any income derived from any asset,
(3) the use of any asset, and (4) the possession, exercise or transfer of any
other attribute of ownership of any asset, but excluding current Taxes not yet
due and payable).
 
(b) The execution and delivery of this Agreement by the Company does not, and
the performance of this Agreement by the Company shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
supranational, national, state, municipal, local or foreign government, any
instrumentality, subdivision, court, administrative agency or commission or
other governmental authority or instrumentality, or any quasi-governmental or
private body exercising any regulatory, taxing, importing or other governmental
or quasi-governmental authority (a “Governmental Entity”), except (i) for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), state securities laws (“Blue Sky Laws”) and state
takeover laws, such filings as may be required under, and compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”)
and any other applicable Antitrust Law (as defined herein), the rules and
regulations of Nasdaq, and the filing and recordation of the Certificate of
Merger as required by Delaware Law, (ii) as set forth in Section 2.5(b) of the
Company Disclosure Letter and (iii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
could not, individually or in the aggregate, be material to the Company or its
subsidiaries or prevent or materially delay consummation of the Transactions or
otherwise prevent the Company from performing its obligations under this
Agreement (collectively, the “Required Consents”).
 
2.6 Compliance with Health Care Laws.
 
(a) Neither the Company nor any of its subsidiaries has been the subject of any
investigation by a Governmental Entity as a result of or in connection with the
Company’s or any of its subsidiaries’ research, development, clinical
activities, production or distribution activities related to the Company
Products.
 
(b) The Company and each of its subsidiaries are in material compliance and,
except for any non-compliance that occurred prior to January 1, 2003 which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company, have at all times been in material
compliance with all relevant federal and other Legal Requirements applicable to
the Company and its subsidiaries, including the federal Anti-kickback and Fraud
and Abuse Prohibition Statutes (42 U.S.C. § 1320a-7b) and all other Legal
Requirements prohibiting false statements and improper remuneration for
purchasing products or services, the civil False Claims Act (31 U.S.C. §§ 3729
et seq.), the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)), the
Health Insurance Portability and

9

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Accountability Act of 1996 (42 U.S.C. § 1301 et seq. and implementing
regulations), the exclusion laws, SSA § 1128 (42 U.S.C. 1320a-7) and the
regulations promulgated pursuant to such laws and regulations, relating to the
regulation of the Company and its subsidiaries (including the pertinent
requirements of Good Laboratory Practices, Good Clinical Practices, Good
Manufacturing Practices and the U.S. Food, Drug and Cosmetic Act and its
implementing regulations, including 21 CFR Parts 50, 54, 56, 58, 210, and 211
and the respective counterparts thereof promulgated by Governmental Entities in
countries outside the United States) (collectively, “Health Care Laws”). To its
knowledge, the Company and each of its subsidiaries are in material compliance
and have at all times been in material compliance with all Health Care Laws.
Since January 1, 2003, neither the Company nor any of its subsidiaries has
received any written notice or communication and, to the knowledge of the
Company, prior to January 1, 2003, neither the Company nor any of its
subsidiaries received a written notice or communication, in each case, from any
Governmental Entity with respect to the Company regarding, and, to the knowledge
of the Company, there are no facts or circumstances that would reasonably be
expected to give rise to, any material violation of applicable Health Care Laws
or any other applicable Legal Requirement. To the knowledge of the Company, no
change in the current conduct of the Company or its subsidiaries, or their
internal procedures or processes, is required in order to materially comply with
Health Care Laws.
 
2.7 Permits. The Company and each of its subsidiaries have obtained all federal,
state, county, local or foreign permits, authorizations, licenses, grants,
variances certifications, clearances, consents, franchises, exemptions, orders
and approvals (a) that are required by the Federal Food and Drug Administration
(the “FDA”), any other Governmental Entity engaged in the regulation of the
Company Research Programs, Company Products or the Company’s or its
subsidiaries’ manufacturing and quality system or that are required by Health
Care Laws or (b) that are otherwise material to the Company and its subsidiaries
(other than those specified in Section 2.7(a) above) and that are required for
operating the Company or its subsidiaries in the manner currently conducted in
any location in which they currently operate (including those required to be
obtained under Environmental and Safety Laws (as defined in Section 2.17(a))
(each, a “Company Permit” and collectively, the “Company Permits”). All such
Company Permits are valid and in full force and effect. Section 2.7 of the
Company Disclosure Letter lists all Company Permits. The Company and its
subsidiaries are in compliance in all material respects with all covenants,
terms and conditions of such Company Permits. Neither the Company nor any of its
subsidiaries has received any written notice or communication with respect to
the Company from any Governmental Entity regarding, and, to the knowledge of the
Company, there are no facts or circumstances that could give rise to, (i) any
violation of any Company Permit or (ii) any revocation, non-renewal, withdrawal,
suspension, cancellation, limitation, termination or adverse modification of any
Company Permit. No such Company Permit will be terminated or impaired, or will
become terminable, in whole or in part, as a result of the consummation of the
Transactions.
 
2.8 FDA; Global Regulation Compliance; Company Products and Company Research
Programs.
 
(a) The operation of the Company and the operation of its subsidiaries,
including the research, manufacture, import, export, testing, development,
processing, packaging, labeling, storage and distribution of all Company
Products, is in material compliance and, except for non-compliance prior to
January 1, 2003 which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect, have at all times been in material
compliance with all applicable Health Care Laws and other applicable Legal
Requirements, including to the extent applicable (1) those administered by the
FDA and (2) those administered by Governmental Entities in countries outside the
United States (including requirements for the manufacture of Company Products
for administration in human subjects). To the Company’s knowledge, the operation
of the Company and the operation of its subsidiaries are in material compliance
and have at all times been in material compliance with all applicable Health
Care Laws and other applicable Legal Requirements, including to the extent
applicable (1) those administered by the FDA and (2) those administered by
Governmental Entities in countries outside the United States (including
requirements for the manufacture of Company Products for administration in human
subjects). There is no pending or, to the knowledge of the Company, threatened
Action in respect of the Company or Company Products by the FDA or any other
Governmental Entity which has jurisdiction over the Company Products

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or the operations, properties or processes of the Company or the Company’s
subsidiaries, or, to the knowledge of the Company, in respect of any third
person’s activities on behalf of the Company or its subsidiaries (excluding
Parent and Parent’s subsidiaries). The Company has no knowledge of any facts or
circumstances that are likely to give rise to any such Action.
 
(b) (A) Except for non-compliance prior to January 1, 2003 which, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Company, and (B) at all times to the Company’s knowledge, neither
the Company nor any of its subsidiaries has had any Company owned or leased
manufacturing site (nor, to the knowledge of the Company, has any third person
(other than Parent and Parent’s subsidiaries) had any manufacturing site that
produces Company Products) subject to a Governmental Entity (including FDA)
shutdown or import or export prohibition, nor received any FDA Form 483 notice
or similar notification from a Governmental Entity, “warning letters,” “untitled
letter” or, to the knowledge of the Company, requests or requirements to make
changes to the operations of the Company, a Company Research Program or the
Company Products that have not been complied with and, if not complied with,
would reasonably be expected to result in a material effect that is adverse to
the Company’s or any of its subsidiaries’ ability to continue with the planned
activities at that manufacturing site, and, to the knowledge of the Company,
neither the FDA nor any Governmental Entity is considering such action. To the
knowledge of the Company, no vigilance report or adverse event report is under
investigation by any Governmental Entity with respect to any Company Products,
the Company or its subsidiaries.
 
(c) All activities (including, without limitation, clinical trials and any
studies, tests, and other preclinical activities the results of which have been
or will be submitted to a Governmental Entity (such as the FDA or its
counterparts worldwide), but excluding clinical trials conducted or being
conducted by Parent or Parent’s subsidiaries) conducted by the Company in
connection with any Company Product or Company Research Program, and, to the
Company’s knowledge, all such activities conducted by third persons on behalf of
the Company, which activities are required or purported to be conducted under
statutory or regulatory “good practices” applicable to biopharmaceutical
companies (e.g., Good Laboratory Practices, Good Clinical Practices and Good
Manufacturing Practices), have been conducted in compliance in all material
respects with the required experimental protocols required by applicable
Institutional Review Boards, applicable Health Care Laws, and other applicable
Legal Requirements.
 
(d) Neither the Company nor any of its subsidiaries has received any notices,
correspondence or other communication in respect of the Company, any subsidiary,
or any Company Product from the FDA or any other Governmental Entity requiring
the termination or suspension of any clinical trials of any Company Product, or
any clinical trials conducted by, or on behalf of, the Company or any of its
subsidiaries and, to the knowledge of the Company, neither the FDA nor any other
Governmental Entity is considering such action. Neither the Company nor any of
its subsidiaries has received notification from a Governmental Entity of the
rejection of data obtained from any clinical trials conducted by, or at the
request of, the Company with respect to any Company Products, which data was
submitted to the Governmental Entity and which was necessary to obtain
regulatory approval of a particular Company Product or to move such Company
Product to the next phase of clinical development.
 
(e) The manufacture of the Company Products by or, to the knowledge of the
Company, on behalf of, the Company or any of its subsidiaries (other than by
Parent or Parent’s subsidiaries) is being conducted in compliance in all
material respects with all applicable Health Care Laws and other applicable
Legal Requirements, including the FDA’s Good Manufacturing Practices at 21 CFR
§§210-211 and applicable guidelines for products sold or used for clinical
trials in the United States, and the respective counterparts thereof promulgated
by Governmental Entities in countries outside the United States.
 
(f) Neither the Company nor any of its subsidiaries is the subject of any
pending or, to the knowledge of the Company, threatened investigation in respect
of the Company by the FDA pursuant to its “Fraud, Untrue Statements of Material
Facts, Bribery, and Illegal Gratuities” Final Policy set forth in 56 Fed. Reg.
46191 (September 10, 1991) and any amendments thereto. Neither the Company nor
any of its subsidiaries has

11

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committed any act, made any statement, or failed to make any statement, in each
case in respect of the Company or a subsidiary and that would provide a basis
for the FDA to invoke its policy with respect to “Fraud, Untrue Statements of
Material Facts, Bribery and Illegal Gratuities” and any amendments thereto.
Neither the Company nor any of its subsidiaries nor any of their respective
officers or, to the knowledge of the Company after reasonable inquiry by the
Company of its Employees (other than Consultants) on or about the date of hire
for each such Employee, its Employees (other than Consultants) has been
convicted of any crime or engaged in any conduct that could result in a
debarment or exclusion (i) under 21 U.S.C. Section 335a, or (ii) similar
applicable Legal Requirement. The Company and its subsidiaries have implemented
reasonable practices (consistent with prevailing industry standards) to
determine whether any of its Employees (other than Consultants who are not
Significant Consultants) have been convicted of any crime or engaged in any
conduct that could result in a debarment or exclusion (i) under 21 U.S.C.
Section 335a, or (ii) similar applicable Legal Requirement. To the knowledge of
the Company, no debarment or exclusionary claims, actions, proceedings or
investigations in respect of the Company or any of its subsidiaries is pending
or threatened against the Company, any of its subsidiaries or any of their
respective officers, employees or agents. For purposes of this Agreement, a
“Significant Consultant” is a Consultant (as defined in Section 2.13(a)(iv)) who
(i) has responsibility for a function that is regulated by Health Care Laws (as
opposed to advising a regular Company employee who has such responsibility) or
(ii) devotes more than eighty (80) hours per month for three or more months, in
each case performing functions for the Company or its subsidiaries.
 
(g) The Company has delivered or made available to Parent true and complete
copies of all data, studies, results, and other information set forth in
Section 2.8(g) of the Company Disclosure Letter. Such information provided or
made available by the Company fairly represents all of the material ongoing
research and development of the Company Products and Company Research Programs
(as defined in Section 2.19), and, to the knowledge of the Company, there is no
scientific information, data or results in the Company’s possession or control
that have not been provided to Parent that a reasonable scientist would conclude
is necessary to accurately assess or value such program or project.
 
(h) As of the date of this Agreement, the Company has in its control the amounts
of each Company Product set forth in Section 2.8(g) of the Company Disclosure
Letter (including TNX 355, TNX 650, TNX 234, and any other anti-CD4 product), in
the form described therein (whether filled containers, drug product, bulk drug
substance or otherwise) (“Product Inventory”). All such Product Inventory has
stability sufficient (and, where applicable, approved by applicable Governmental
Entities) such that it will not expire prior to use in the study or research for
which it was manufactured, and all such Product Inventory has been manufactured
and stored in accordance with Good Manufacturing Practices and applicable Health
Care Laws.
 
(i) Where data with respect to a particular Company Product or a product
candidate being studied in a Company Research Program has been provided to
Parent (a) the underlying Company Product or product candidate is in Company’s
possession and control as of the date hereof, along with any cell lines,
reagents or other materials necessary to produce that Company Product or product
candidate in its current form, and (b) the Company has in its possession and
control the reagents and other materials required to reproduce the experiments
that generated the data provided to Parent, except to the extent such reagents
or other materials are readily commercially available and are identified as
such.
 
2.9 SEC Filings; Financial Statements.
 
(a) Since January 1, 2004, the Company has filed or furnished each form, report,
document, schedule, registration statement and definitive proxy statement with
the SEC required to be filed or furnished by the Company with the SEC under the
Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act,
as then in effect (the “Company SEC Reports”). The Company SEC Reports (i) were
filed or furnished on a timely basis, (ii) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act and the rules and
regulations of the SEC then in effect, as the case may be, and (iii) did not at
the time they were filed or furnished (and if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such amended or
superseding filing) contain any untrue statement of a

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material fact or omit 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. None of the Company’s subsidiaries
is required to file or furnish any reports or other documents with the SEC.
 
(b) Each set of consolidated financial statements (including, in each case, any
related notes thereto) contained in the Company SEC Reports (the “Financial
Statements”) (including any Company SEC Report filed after the date of this
Agreement): (i) complied and will comply as to form in all material respects
with the published rules and regulations of the SEC with respect thereto in
effect at the time of such filing; (ii) was and will be prepared in accordance
with United States generally accepted accounting principles (“GAAP”) applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto or, in the case of unaudited statements, may not contain
footnotes as permitted by Form 10-Q or Form 8-K) and fairly presented and will
fairly present in all material respects the consolidated financial position of
the Company and its consolidated subsidiaries at the respective dates thereof
and the consolidated results of the Company’s and its subsidiaries’ operations
and cash flows for the periods indicated. Except as reflected in the Financial
Statements, neither the Company nor any of its subsidiaries is a party to any
material off-balance sheet arrangement (as defined in Item 303 of Regulation S-K
promulgated under the Securities Act (“Regulation S-K”)). All reserves that are
set forth in or reflected in the Interim Balance Sheet (as defined below) have
been established in accordance with GAAP consistently applied. At June 30, 2006
(the “Interim Balance Sheet Date”), there were no material loss contingencies
(as such term is used in Statement of Financial Accounting Standards No. 5
(“Statement No. 5”) issued by the Financial Accounting Standards Board in March
1975) that are not adequately provided for in the balance sheet as of the
Interim Balance Sheet Date (the “Interim Balance Sheet”) as required by
Statement No. 5. The Company has not had any dispute with any of its auditors
regarding accounting matters or policies during any of its past three full
fiscal years or during the current fiscal year-to-date. The books and records of
the Company and each of its subsidiaries have been, and are being maintained in
all material respects in accordance with applicable legal and accounting
requirements.
 
(c) To the Company’s knowledge, no fact, event or circumstance currently exists
that will prevent any material amount of the cash, investments or securities
represented by the line items “Cash and cash equivalents” and “Short-term
investments” on the face of the Company’s Condensed Consolidated Balance Sheet
included in the Company’s Quarterly Report on Form 10-Q for the period ended
June 30, 2006 (collectively, the “Closing Cash Items”) from being available as
cash in the United States and the repatriation to the Company of any such cash
held outside of the United States will not result in the imposition of any
material United States or foreign Tax Liability.
 
(d) Section 2.9(d) of the Company Disclosure Letter sets forth the Company’s
forecasted expenses for Tanox West for the Company’s fiscal year 2006 as of the
date hereof (the “Forecast”). The Company prepared the Forecast in good faith.
 
(e) The Company has previously furnished to Parent a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
 
(f) The Company has established and maintains “disclosure controls and
procedures” (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
Exchange Act) that are reasonably designed to ensure that material information
(both financial and non-financial) relating to the Company and its subsidiaries
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC, and that such
information is accumulated and communicated to the Company’s principal executive
officer and principal financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure and to make the certifications of the principal executive officer and
the principal financial officer of the Company required by Section 302 of the
Sarbanes-Oxley Act of 2002 (“SOX”) with respect to such reports. For purposes of
this Agreement, “principal executive officer” and “principal financial officer”
shall have the meanings given to such terms in SOX.
 

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(g) The Company and each of its subsidiaries has established and maintains,
adheres to and enforces a system of internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act)
which is effective in providing reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements in accordance
with GAAP and SEC rules and regulations (including the Financial Statements),
including policies and procedures that (i) require the maintenance of records
that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company and its subsidiaries, (ii) provide
reasonable assurance that material information relating to the Company and its
subsidiaries is promptly made known to the officers responsible for establishing
and maintaining the system of internal controls; (iii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and expenditures
of the Company and its subsidiaries are being made only in accordance with
appropriate authorizations of management and the Board; (iv) provide reasonable
assurance that access to assets is permitted only in accordance with
management’s general or specific authorization; (v) provide reasonable assurance
that the reporting of assets is compared with existing assets at regular
intervals and appropriate action is taken with respect to any differences;
(vi) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the assets of the Company and
its subsidiaries; and (vii) provide reasonable assurance that any “significant
deficiencies” or “material weaknesses” (as such terms are defined in Auditing
Standard No. 2, promulgated by the Public Company Accounting Oversight Board,
(“AS-2”) in the design or operation of internal controls which are reasonably
likely to materially and adversely affect the ability to record, process,
summarize and report financial information, and any fraud, whether or not
material, that involves the Company’s management or other Employees (other than
Consultants who are not Significant Consultants) who have a role in the
preparation of financial statements or the internal controls used by the Company
and its subsidiaries, are adequately and promptly disclosed to the Company’s
independent auditors and the audit committee of the Board. There (i) are no
significant deficiencies or material weaknesses in the system of internal
control over financial reporting used by the Company and its subsidiaries,
(ii) is no fraud, whether or not material, that involves the Company’s
management or other Employees (other than Consultants who are not Significant
Consultants) who have a role in the preparation of financial statements or the
internal control over financial reporting used by the Company and its
subsidiaries or (iii) is no claim or allegation regarding any of the foregoing.
Section 2.9(g) of the Company Disclosure Letter summarizes each “control
deficiency” (as defined in AS-2) identified by the Company’s independent
auditors since January 1, 2004 through the date of this Agreement and not
disclosed in the Company SEC Reports.
 
(h) Each of the principal executive officer of the Company and the principal
financial officer of the Company (or each former principal executive officer of
the Company and each former principal financial officer of the Company, as
applicable) has made all certifications required by Sections 302 and 906 of SOX
and the rules and regulations promulgated thereunder with respect to the Company
SEC Reports. The Company’s management has completed an assessment of the
effectiveness of the Company’s system of internal control over financial
reporting in compliance with the requirements of Section 404 of SOX for the
fiscal year ended December 31, 2005, and such assessment concluded that such
controls were effective and the Company’s independent registered accountant has
issued (and not subsequently withdrawn or qualified) and attestation report
concluding the Company maintained effective internal control over financial
reporting as of December 31, 2005. Since December 31, 2005 and through the date
hereof, to the knowledge of the Company, no events, facts or circumstances have
occurred, or exist, such that management would not be able to complete its
assessment of the effectiveness of the Company’s system of internal control over
financial reporting in compliance with the requirements of Section 404 of SOX
for the fiscal year ended December 31, 2006, and conclude, after such
assessment, that such controls were effective.
 
(i) To the Company’s knowledge, Ernst & Young LLP, which has expressed its
opinion with respect to the financial statements of the Company and its
subsidiaries as of December 31, 2005, December 31, 2004 and December 31, 2003
and for each of the fiscal years in the three fiscal year period ended
December 31, 2005 included in the Company SEC Reports (including the related
notes), is “independent” with respect to the Company and each of its
subsidiaries within the meaning of Regulation S-X since the appointment of

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Ernst & Young LLP in that capacity. The Company is in compliance with the
applicable criteria for continued listing of the Company Common Stock on Nasdaq
and has not since January 1, 2004 received any written notice from Nasdaq
asserting any non-compliance with such rules and regulations.
 
(j) The Company has timely responded to all comment letters of the staff of the
SEC relating to the Company SEC Reports, and the SEC has not advised the Company
that any final responses are inadequate, insufficient or otherwise
non-responsive. The Company has made available to Parent true, correct and
complete copies of all correspondence between the SEC, on the one hand, and the
Company and any of its subsidiaries, on the other, since January 1, 2004,
including all SEC comment letters and responses to such comment letters by or on
behalf of the Company. To the Company’s knowledge, none of the Company SEC
Reports is the subject of ongoing SEC review or outstanding SEC comment.
 
(k) No attorney representing the Company or any of its subsidiaries, whether or
not employed by the Company or any of its subsidiaries, or Employee has reported
to the Board or any committee thereof or to any director or officer of the
Company evidence of a material violation of securities laws, breach of fiduciary
duty, fraudulent conduct (whether or not material) or similar violation by an
Employee or agent (while acting in that capacity).
 
2.10 No Undisclosed Liabilities. Neither the Company nor any of its subsidiaries
has any liability, indebtedness, obligation, deficiency, guaranty or endorsement
of any type (whether absolute, accrued, contingent, direct, indirect, or
otherwise) (collectively, “Liabilities”) of a nature required to be disclosed on
a balance sheet or in the related notes to the consolidated financial statements
prepared in accordance with GAAP and which are, individually or in the aggregate
with such other items, material to the business, assets, financial condition,
results of operations or cash flows of the Company and its subsidiaries taken as
a whole, except (i) Liabilities reflected or reserved in the Interim Balance
Sheet, (ii) Liabilities incurred since the Interim Balance Sheet Date in the
ordinary course of business consistent with past practices, (iii) Liabilities
incurred since the Interim Balance Sheet date which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company, or (iii) Liabilities permitted under Section 4.1 hereof or
otherwise reasonably incurred in connection with the Company’s performance of
its obligations hereunder.
 
2.11 Absence of Certain Changes or Events. From the Interim Balance Sheet Date
through the date hereof, there has not been, occurred or arisen: (a) any event
or condition of any character that has had or would be reasonably expected to
have a Material Adverse Effect on the Company; (b) any declaration, setting
aside or payment of any dividend on, or other distribution (whether in cash,
stock or property) in respect of, any of the Company’s or any of its
subsidiaries’ capital stock, or any purchase, redemption or other acquisition by
the Company of any of the Company’s capital stock or any other securities of the
Company or its subsidiaries or any options, warrants, calls or rights to acquire
any such shares or other securities, except for repurchases from Employees
following their termination pursuant to the terms of stock option or purchase
agreements existing as of the Interim Balance Sheet Date; (c) any split,
combination or reclassification of any of the Company’s or any of its
subsidiaries’ capital stock; (d) any granting by the Company or any of its
subsidiaries of any increase in compensation or fringe benefits to any Employee
(other than Consultants who are not Significant Consultants) or any payment by
the Company or any of its subsidiaries of any bonus or any entry by the Company
or one of its subsidiaries into any Contract (or amendment of an existing
Contract) to grant or provide severance, acceleration of vesting, termination
pay or other similar benefits; (e) the execution of any employment Contract or
service Contract, the extension of the term of any existing employment Contract
or service Contract with any Employee, or any entry or other modification by the
Company or any of its subsidiaries of any employment, severance, termination or
indemnification Contract or any Contract the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving the Company of the nature contemplated hereby; (f) entry
by the Company or any of its subsidiaries into (i) any licensing or other
Contract providing for the use, acquisition or disposition of any Intellectual
Property (as defined in Section 2.19 hereof) other than (A) licenses of
commercially available third party software applications for internal use by the
Company or otherwise in the Company’s ordinary course of business consistent
with past practice and (B) confidentiality agreements in the ordinary course of
business consistent with past practice, or (ii) any

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amendment or consent with respect to any material licensing or other Contract
providing for the use, acquisition or disposition of any Intellectual Property,
other than confidentiality agreements in the ordinary course of business
consistent with past practice; (g) any change by the Company in its accounting
methods, principles or practices (including any change in depreciation or
amortization policies or rates or revenue recognition policies), except as
required by concurrent changes in GAAP; (h) any revaluation by the Company of
any of its assets, including writing off promissory notes or accounts
receivable, or any sale of assets of the Company; (i) entry by the Company or
any of its subsidiaries into any Contract (other than the Voting Agreements)
filed or required to be filed by the Company with the SEC; (j) the incurrence,
creation or assumption of any material Encumbrance (other than a Permitted
Encumbrance) or any discharge of any material Encumbrance, any material
Liability for borrowed money or any material Liability or obligation as guaranty
or surety with respect to the obligations of others who are not wholly-owned
subsidiaries of the Company, (k) any purchase, offer to purchase, sale, offer to
sell, option to purchase or sell, agreement to transfer any interest in, or any
lease, right to use, sublease or other occupancy, of any Company Real Estate (as
defined in Section 2.15(a)) by the Company or its subsidiaries; and (l) any
announcement of or any agreement by the Company, any of its subsidiaries, or any
Employee on behalf of the Company, to do any of the things described in the
preceding clauses (a) through (k) (other than negotiations or agreements with
Parent and Merger Sub regarding the Transactions).
 
2.12 Absence of Litigation. Except as would not result in a material Liability,
there are no claims, actions, charges, investigations or other proceedings
pending or, to the knowledge of the Company, threatened against the Company or
any of its subsidiaries, or any of their respective properties or any of the
executive officers or directors of the Company or any of its subsidiaries before
any Governmental Entity or otherwise (each, an “Action”). No investigation or
review by any Governmental Entity is pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries, or any of
their respective properties or any of the executive officers or directors of the
Company or any of its subsidiaries, nor has any Governmental Entity indicated to
the Company an intention to conduct the same. The Company has provided or made
available to Parent true, correct and complete copies of all complaints
regarding the litigation referred to in Section 2.12 of the Company Disclosure
Letter and has made available to Parent true, correct and complete copies of all
pleadings, motions and non-privileged written correspondence regarding the
litigation referred to in Section 2.12 of the Company Disclosure Letter. There
has not been since January 1, 2000, nor are there currently any internal
investigations being conducted by the Company, the Board (or any committee
thereof) or any third party at the request of any of the foregoing concerning
any financial, accounting, auditing, Tax, conflict of interest, illegal
activity, fraudulent or deceptive conduct or other misfeasance or malfeasance
issues with respect to the Company or any of its subsidiaries.
 
2.13 Employee Benefit Plans.
 
(a) Definitions. Except as otherwise provided for herein, for purposes of this
Agreement, the following terms shall have the meanings set forth below:
 
(i) “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended and as codified in Section 4980B of the Code and Section 601
et. seq. of ERISA;
 
(ii) “Code” shall mean the Internal Revenue Code of 1986, as amended;
 
(iii) “Company Employee Plan” shall mean any Employee Plan, including all
International Employee Plans;
 
(iv) “Consultant” shall mean any current or former independent contractor or
leased employee who is (i) a natural person or (ii) a staffing agency or other
entity that leases or otherwise supplies employees to third persons on a
consulting, contract or project basis;
 
(v) “DOL” shall mean the U.S. Department of Labor;
 
(vi) “Employee” shall mean any current or former or retired employee, officer,
Consultant or director of the Company or any ERISA Affiliate;
 

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(vii) “Employment Agreement” shall mean each management, employment, severance,
change of control, retention, consulting (with a Consultant), relocation,
repatriation, expatriation, visas, work permit or other agreement, contract or
understanding, written or otherwise, between the Company or any ERISA Affiliate
and any Employee under which the Company has current or future obligations;
 
(viii) “Employee Plan” shall mean any plan, program, policy, practice, Contract
or other arrangement, providing for compensation, severance, termination pay,
deferred compensation, performance awards, bonuses, stock or stock-related
awards or purchases, fringe benefits, loans, or other employee benefits or
remuneration of any kind, whether written or unwritten, funded or unfunded,
including each “employee benefit plan,” within the meaning of Section 3(3) of
ERISA which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any ERISA Affiliate for the benefit of any
Employee, and with respect to which the Company or any ERISA Affiliate has or
may have any Liability, including all International Employee Plans;
 
(ix) “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended;
 
(x) “ERISA Affiliate” shall mean any other person or entity under common control
with the Company within the meaning of Section 414(b), (c), (m) or (o) of the
Code and the regulations issued thereunder;
 
(xi) “FMLA” shall mean the Family and Medical Leave Act of 1993, as amended;
 
(xii) International Employee Plan” shall mean each Employee Plan that has been
adopted or maintained by the Company or any ERISA Affiliate pursuant to the laws
of any country outside the United States, whether informally or formally, or
with respect to which the Company or any ERISA Affiliate will or may have any
Liability, for the benefit of Employees who perform services outside the United
States;
 
(xiii) “IRS” shall mean the U.S. Internal Revenue Service;
 
(xiv) “Multiemployer Plan” shall mean any “Pension Plan” (as defined below)
which is a “multiemployer plan,” as defined in Section 3(37) of ERISA;
 
(xv) “Pension Plan” shall mean each Company Employee Plan which is an “employee
pension benefit plan,” within the meaning of Section 3(2) of ERISA.
 
(b) Schedule. Section 2.13(b) of the Company Disclosure Letter contains an
accurate and complete list of each Company Employee Plan, and each Employment
Agreement existing as of the date of this Agreement. Neither the Company nor any
ERISA Affiliate has any plan or commitment to establish any new Company Employee
Plan or Employment Agreement, to modify any Company Employee Plan or Employment
Agreement (except to the extent required by applicable Legal Requirements, in
each case as previously disclosed to Parent in writing, or as required by this
Agreement), or to adopt or enter into any Company Employee Plan or Employment
Agreement.
 
(c) Documents. The Company has provided or made available to Parent correct and
complete copies of: (i) all material documents embodying each Company Employee
Plan and each Employment Agreement including all amendments thereto and all
related trust documents; (ii) the most recent annual actuarial valuations and
annual and periodic accounting, if any, prepared for each Company Employee Plan;
(iii) the three (3) most recent annual reports (Form Series 5500 and all
schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each Company Employee Plan; (iv) the most
recent summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan; (v) the most recent IRS determination or opinion letter issued
with respect to each Company Employee Plan, if applicable, and all applications
and correspondence to or from the IRS or the DOL with respect to any such
application or letter; (vi) all communications material to any Employee or
Employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other

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events which would result in any material Liability to the Company; (vii) all
correspondence to or from any Governmental Entity relating to any Company
Employee Plan; (viii) all COBRA forms and related notices (or such forms and
notices as required under comparable law); (ix) the three (3) most recent plan
years discrimination tests for each Company Employee Plan, where applicable;
(x) all material written agreements and contracts relating to each Company
Employee Plan, including administrative service agreements and group insurance
contracts and group annuity contracts; and (xi) all registration statements,
annual reports (Form 11-K and all attachments thereto, if applicable to be
filed) and prospectuses prepared in connection with each Company Employee Plan,
as applicable.
 
(d) Employee Plan Compliance. Company and its ERISA Affiliates have performed,
in all material respects, all obligations required to be performed by them
under, are not in material default or violation of, and neither Company nor its
ERISA Affiliates have any knowledge of any material default or violation by any
other party to, any Company Employee Plan, and each Company Employee Plan has
been established and maintained in all material respects (i) in accordance with
its terms and (ii) in compliance with all applicable laws, statutes, orders,
rules and regulations, including but not limited to ERISA and the Code. Any
Company Employee Plan intended to be qualified under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code (i) has
either applied for, prior to the expiration of the requisite period under
applicable U.S. Department of the Treasury (“Treasury”) Regulations or IRS
pronouncements, or obtained a favorable determination, notification, advisory
and/or opinion letter, as applicable, as to its qualified status from the IRS,
and (ii) incorporates or has been amended to incorporate all provisions required
to comply with the Tax Reform Act of 1986 and subsequent legislation. For each
Company Employee Plan that is intended to be qualified under Section 401(a) of
the Code, there has been no event, condition or circumstance that has adversely
affected or would reasonably be expected to adversely affect the qualified
status of such Company Employee Plan. No “prohibited transaction,” within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA, has occurred with respect to any
Company Employee Plan. There are no Actions pending or, to Company’s or any
ERISA Affiliates’ knowledge, threatened (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan. Each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, and the act
of amending, terminating or discontinuing any Company Employee Plan will not
result in any Liability to Parent, Company or any of its ERISA Affiliates (other
than routine administration expenses incurred with respect to any such
amendment, termination or discontinuance). There are no audits, inquiries or
proceedings pending or to Company’s or any of its ERISA Affiliates’ knowledge
threatened by the IRS, DOL, or any other Governmental Entity with respect to any
Company Employee Plan. Neither Company nor any ERISA Affiliate is subject to any
penalty or Tax with respect to any Company Employee Plan under Section 502(i) of
ERISA or Sections 4975 through 4980 of the Code. The Company and its ERISA
Affiliates have, in all material respects, each timely made all contributions
and other payments required by and due under the terms of each Company Employee
Plan.
 
(e) No Pension or Funded Welfare Plans. Neither the Company nor any ERISA
Affiliate has ever maintained, established, sponsored, participated in, or
contributed to, or could have any obligation to, any (i) Pension Plan which is
subject to Title IV of ERISA or Section 412 of the Code, or (ii) “funded welfare
plan” within the meaning of Section 419 of the Code. Neither the Company nor any
Company subsidiary or ERISA Affiliate has incurred or expects to incur any
Liability under Title IV of ERISA or Section 412 of the Code. No Company
Employee Plan provides health benefits that are not fully insured through an
insurance contract.
 
(f) Collectively Bargained, Multiemployer and Multiple Employer Plans. At no
time has the Company or any ERISA Affiliate contributed to or been obligated to
contribute to any Multiemployer Plan. Neither the Company, nor any affiliate has
at any time ever maintained, established, sponsored, participated in, or
contributed to any multiple employer plan, or to any plan described in
Section 413 of the Code.
 
(g) Deferred Compensation Compliance. The Company does not have a Company
Benefit Plan that is a “nonqualified deferred compensation plan” (as defined in
Section 409A(d)(1) of the Code).
 

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(h) Executive Loans. Neither the Company nor any ERISA Affiliate has violated
the provisions of Section 402 of SOX applicable to loans to key executives, and
the execution of this Agreement and the consummation of the transactions
contemplated hereby will not, to the knowledge of the Company, cause such a
violation of such provisions of Section 402 of SOX.
 
(i) Fair Market Value. No Company Stock Option or other right to acquire Company
Common Stock or other equity of the Company (i) has an exercise price that has
been or may be determined to be less than the fair market value of the
underlying equity as of the date such Company Stock Option or other equity right
was granted, (ii) has any feature for the deferral of compensation other than
the deferral of recognition of income until the later of exercise or disposition
of such Company Stock Options or other equity rights, or (iii) has been granted
after December 31, 2004, with respect to any class of stock of the Company that
is not “service recipient stock” (within the meaning of applicable regulations
under Section 409A).
 
(j) Plan Contributions. With respect to the Company Employee Plans, there are no
benefit or funding obligations for which contributions have not been made or
properly accrued to the extent required by GAAP or will not be offset by
insurance. The assets of each Company Employee Plan which is fully funded are
reported at their fair market value in the books and records of such Company
Plan, the applicable related trust as indicated on the Financial Statements and,
if applicable, on Forms 5500, and/or the Company and its subsidiaries.
 
(k) No Post-Employment Obligations. No Company Employee Plan provides, or
reflects or represents any Liability to provide retiree insurance or other
retiree benefits to any person for any reason, except as may be required by
COBRA or other applicable statute, and the Company has never represented,
promised or contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) or any other person that such
Employee(s) or other person would be provided with retiree insurance or other
benefits, except to the extent required by applicable Legal Requirements.
 
(l) Effect of Transaction.
 
(i) The execution of this Agreement and the consummation of the Transactions or
any termination of employment or service in connection therewith will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employment Agreement, trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any Employee
other than accrued payments.
 
(ii) No payment or benefit could give rise, directly or indirectly, to the
payment of any amount that could reasonably be expected to be (i) non-deductible
to Company under Section 280G of the Code, (ii) characterized as a “parachute
payment” within the meaning of Section 280G of the Code or (iii) subject to the
excise Tax under Section 4999 of the Code. The Company is not a party to or
bound by any Tax indemnity agreement or any other agreement that will require
Parent or the Surviving Corporation to “gross-up” or otherwise compensate any
Employee because of the imposition of any excise Tax. Section 2.13(l)(ii) of the
Company Disclosure Letter lists as of the date of this Agreement each person who
the Company reasonably believes is, with respect to the Company, any Company
subsidiary and/or any ERISA affiliate, a “disqualified individual” (within the
meaning of Section 280G of the Code and the regulations promulgated thereunder).
 
(m) Employment Matters. The Company: (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules,
regulations and ordinances respecting employment, employment practices, terms
and conditions of employment, discrimination in employment, worker
classification, wages, benefits, hours, working conditions and occupational
safety and health and employment practices, in each case, with respect to
Employees; (ii) has, in all material respects, withheld and reported all amounts
required by Legal Requirements or by agreement to be withheld and reported with
respect to wages, benefits, salaries and other payments to Employees (excluding
Consultants); (iii) is not liable for any material arrears of wages, salaries,
commissions, bonuses, benefits or other compensation due or any Taxes or any
penalty for

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failure to comply with any of the foregoing; and (iv) is not liable for any
payment to any trust or other fund governed by or maintained by or on behalf of
any governmental authority, with respect to unemployment compensation benefits,
social security or other retiree benefits, or other benefits or obligations for
Employees (excluding Consultants) (other than routine payments to be made in the
normal course of business and consistent with past practice). There are no
pending or reasonably anticipated or, to the knowledge of the Company,
threatened Actions, audits or administrative matters against the Company or any
ERISA Affiliate relating to any Employee, Employee Agreement, or Company
Employee Plan, or under any workers’ compensation policy or long-term disability
policy. The employment or services of each of the Employees located in the
United States is terminable at the will of the Company or its ERISA Affiliates
and any such termination would result in no Liability to the Company or to any
ERISA Affiliate. Neither the Company nor any ERISA Affiliate has direct or
indirect material Liability with respect to any misclassification of any person
as an independent contractor rather than as an employee, or with respect to any
worker leased from another employer.
 
(n) Labor. No work stoppage or labor strike against the Company is pending or
reasonably anticipated or, to the knowledge of the Company, threatened. The
Company does not know of any current activities or proceedings of any labor
union to organize any Employees (excluding Consultants) or of any such
activities or proceedings within the preceding three (3) years. There are no
Actions, audits, administrative matters, labor disputes or grievances pending,
or, to the knowledge of the Company, threatened or reasonably anticipated
relating to any wage, benefit, medical or family leave, labor, safety or
discrimination matters involving any Employee, including charges of wage and/or
hour violations, unfair labor practices, discrimination, or wrongful termination
complaints. Neither the Company nor any ERISA Affiliate is party to a current
conciliation agreement, consent decree, or other agreement or order with any
federal, state, or local agency or Governmental Entity with regard to employment
practices. Neither the Company nor any ERISA Affiliate has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act. The
Company is not presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees,
no collective bargaining agreement is being negotiated by the Company or any of
its subsidiaries and neither the Company or any of its subsidiaries has any duty
to bargain with any labor organization.
 
(o) International Employee Plan. Each International Employee Plan has been
established, maintained and administered in compliance with its terms and
conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities, that as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by applicable Legal Requirements, no condition exists that would
prevent the Company or Parent from terminating or amending any International
Employee Plan at any time for any reason without Liability to the Company or its
affiliates (other than ordinary administration expenses or routine claims for
benefits). Each International Employee Plan has obtained from the Governmental
Entity having jurisdiction with respect to such International Employee Plan any
required determinations, if any, that such International Employee Plan is in
compliance with the laws of the relevant jurisdiction if such determinations are
required in order to give effect to such International Employee Plan.
 
(p) WARN Act. The Company and any ERISA Affiliate have complied with the Workers
Adjustment and Retraining Notification Act of 1988, as amended (“WARN Act”) and
all similar state or local laws, including applicable provisions of state or
local law. All Liabilities relating to the employment, termination or employee
benefits of any former Employees (excluding Consultants) previously terminated
by the Company or an affiliate including all termination pay, severance pay or
other amounts in connection with the WARN Act and all similar state laws, have
been paid, and no terminations prior to the Closing Date shall result in
unsatisfied Liability under WARN or any similar state or local law.
 
(q) Employee Information. The Company and each of its subsidiaries has made
available to Parent a true, correct and complete list of the names of all
current officers, directors, and employees of the Company and each subsidiary
showing each such person’s name, position, date of hire, work location, and each
such person’s annualized salary and target commission (as applicable), status as
exempt/non-exempt, status as

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full-/part-time, target bonus(es) and fringe benefits for the current fiscal
year and the most recently completed fiscal year. The Company and each of its
subsidiaries has made available to Parent the following additional information
for each of its current international employees: city/country of employment;
citizenship; date of hire; manager’s name and work location; date of birth; any
material special circumstances; and whether the employee was recruited from a
previous employer.
 
(r) True and Correct Copies. In addition to the documents referred to in
Section 2.13(c) above, the Company and each of its subsidiaries has made
available to Parent true, correct and complete copies of each of the following:
(i) all affirmative action plans; (ii) all forms of offer letters currently in
use; (iii) all forms of employment agreements and severance agreements for
current Employees (excluding Consultants); (iv) all forms of consultant and/or
independent contractor agreements currently in effect, (v) all forms of
confidentiality, non-disclosure, non-solicitation, non-competition or inventions
agreements between Employees and the Company or any of its subsidiaries
currently in use for such matters (and a true, correct and complete list of
current Employees not subject thereto); (vi) any agreements that deviate in any
material respect from forms described in (i) through (v) above; (vi) all current
management organization chart(s); (vii) all current, in force agreements and/or
insurance policies providing for the indemnification of any officers or
directors of the Company or any of its subsidiaries; (viii) summary of the
Company’s current standard severance policy and any policy in existence or
effect during the immediately preceding twelve (12) months; (ix) summary of
outstanding Liability for termination payments and benefits to Employees; and
(x) a schedule of bonus commitments made to Employees.
 
2.14 Proxy Statement. The proxy statement to be sent to the stockholders of the
Company in connection with the Stockholders’ Meeting (as hereinafter defined)
(such proxy statement, as amended or supplemented, being referred to herein as
the “Proxy Statement”), shall not, at the date the Proxy Statement (or any
amendment or supplement thereto) is first mailed to stockholders of the Company,
at the time of the Stockholders’ Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
was made, is false or misleading with respect to any material fact, or which
omits to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies, if any, for
the Stockholders’ Meeting which shall have become false or misleading.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent, Merger Sub or any of
Parent’s or Merger Sub’s representatives in writing for inclusion in the Proxy
Statement. The Proxy Statement shall comply in all material respects as to form
with the requirements of the Exchange Act and the rules and regulations
thereunder.
 
2.15 Title to Property.
 
(a) Section 2.15(a) of the Company Disclosure Letter sets forth a complete and
accurate list as of the date of this Agreement of all real property owned by the
Company or any of its subsidiaries, or in which the Company or any of its
subsidiaries has an ownership interest, including, without limitation, any
rights, contracts or options to acquire real property other than the Leased Real
Estate defined below (the “Owned Real Estate”).
 
(b) Section 2.15(b) of the Company Disclosure Letter sets forth a list of all
real property currently leased, subleased by or from the Company or any of its
subsidiaries or otherwise used or occupied by the Company or any of its
subsidiaries (the “Leased Real Estate” and together with the Owned Real Estate,
the “Company Real Estate”), the name of the lessor, sublessor, master lessor
and/or lessee, the date and term of the lease, sublease or other occupancy right
and each amendment thereto, the aggregate annual rental payable thereunder, the
size of the Leased Real Estate and a description of renewal options contained in
such lease. The Company has provided or made available to Parent true, correct
and complete copies of all leases, lease guaranties, subleases, agreements for
the leasing, use or occupancy of, or otherwise granting a right in or relating
to the Leased Real Estate, including all amendments, terminations and
modifications thereof (the “Real Estate Leases”). All such Real Estate Leases
are in full force and effect, are valid and enforceable in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization,

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moratorium and similar state and federal laws affecting the rights of creditors
generally and equitable limitations, and there is not, under any such leases,
any existing material breach, default or event of default (or event which with
notice or lapse of time, or both, would constitute a material default) of the
Company or any of its subsidiaries, or to the Company’s knowledge, of any other
party thereto.
 
(c) To the knowledge of the Company, neither the operations of the Company nor
any of its subsidiaries on the Company Real Estate nor such Company Real Estate,
violate in any material respect any Legal Requirement or Company Permit relating
to the particular property or such operations. The Company or its subsidiaries
currently occupies all of the Company Real Estate for the operation of its
business and there are no other parties occupying, or with a right to occupy,
the Company Real Estate. Section 2.15(c)(i) of the Company Disclosure Letter
sets forth a list of all leasehold improvements to real property and
improvements and other capital equipment used or held for use by the Company and
its subsidiaries in their business operations as of September 30, 2006. Such
list includes pertinent information related to property, plant and equipment
(including leasehold improvements) such as asset identification, location,
acquisition date, original cost, accumulated depreciation and net book value.
 
(d) To the knowledge of the Company, the covenants, conditions, rights-of-way,
easements and similar restrictions affecting all or any portion of the Company
Real Estate (the “Exceptions to Title”) do not, in each case, materially impair
the ability to use any such Company Real Estate in the operation of the
businesses of the Company or its subsidiaries as presently conducted, and no
material default or breach exists thereunder by the Company or any of its
subsidiaries.
 
(e) To the knowledge of the Company, there are no requirements (including any
Legal Requirements) imposed on the Owned Real Estate that require the Company or
any of its subsidiaries to construct or pay for the cost of construction of any
off-site improvements or pay any other impact fee.
 
(f) Neither the Company, nor any subsidiary of the Company has received any
written notice from any insurance company of any material defects or
inadequacies in any Company Real Estate or any part thereof which could
materially and adversely affect the insurability of such property or the
premiums for the insurance thereof, nor has any written notice been given by any
insurer of any such property requesting the performance of any repairs,
alterations or other work with which substantial compliance has not been made.
 
(g) The Company has received no written notice with respect to pending, and, to
the knowledge of the Company, there are no threatened, condemnation or eminent
domain actions or proceedings, or any special assessments or other activities of
any public or quasi-public body that would materially adversely affect the
Company Real Estate for use in the operations of its business as currently
conducted.
 
(h) The Company and each of its subsidiaries has good and indefeasible title to
all Owned Real Estate, or, in the case of leased properties and assets, valid
leasehold interests in or other valid contractual rights of use with respect to,
all of its other properties and assets, used or held for use in its business,
free and clear of all Encumbrances except for the Exceptions to Title and
indebtedness that is reflected on the Interim Balance Sheet and (i) Encumbrances
for Taxes (as herein defined) not yet due and payable, (ii) statutory
Encumbrances which arise in the ordinary course of business, are not material in
amount and do not materially impair the Company’s or its subsidiaries’ ownership
or use of such properties and assets, (iii) liens securing indebtedness that are
reflected on the Interim Balance Sheet or (iv) with respect to Owned Real
Estate, minor imperfections of title, if any, and land use laws which do not
materially impair the use, occupancy or value of the Company’s or its
subsidiaries’ ownership of the Owned Real Estate for its current purpose (each
of (i) through (iv), a “Permitted Encumbrance”).
 
(i) To the knowledge of the Company, all the Company Real Estate and material
equipment of the Company and its subsidiaries, are in good operating condition
and repair, in all material respects (subject to ordinary wear and tear), free
from material defects which would adversely affect their use in the conduct of
the business as currently conducted, and are otherwise suitable for the conduct
of business as currently conducted.
 

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2.16 Taxes.
 
(a) Definition of Taxes. For the purposes of this Agreement, “Tax” or “Taxes,”
means (i) any and all federal, state, local and foreign taxes, assessments and
other governmental charges, duties and impositions, including taxes based upon
or measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts; (ii) any Liability for the
payment of any amounts of the type described in clause (i) as a result of being
a member of an affiliated, consolidated, combined or unitary group for any
period; and (iii) any Liability for the payment of any amounts of the type
described in clause (i) or (ii) as a result of any express or implied obligation
to indemnify any other person or as a result of any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any Liability for taxes of a predecessor entity.
 
(b) Tax Returns and Audits. 
 
(i) The Company and each of its subsidiaries have timely filed all federal,
state, local and foreign returns, forms, estimates, information statements and
reports (“Returns”) relating to Taxes required to be filed by the Company and
each of its subsidiaries with any Tax authority, except such Returns which are
not, individually or in the aggregate, material to the Company (“Company
Returns”). The Company and each of its subsidiaries have paid all Taxes shown to
be due on such Company Returns. All Company Returns were complete and accurate
in all material respects and have been prepared in substantial compliance with
all applicable Legal Requirements. The Company’s net operating losses and other
Tax attributes are accurately reflected on the Company Returns and, to the
knowledge of the Company, are not currently subject to any limitation under
Sections 382 or 383 of the Code. The Company has made available to Parent
correct and complete copies of all Company Returns, examination reports, closing
agreements and statements of deficiencies assessed against or agreed to by the
Company or any of its subsidiaries.
 
(ii) Neither the Company nor any of its subsidiaries is delinquent in the
payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against the Company or any of its
subsidiaries, nor has the Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extension of any the period
for the assessment or collection of any Tax.
 
(iii) No audit, or pending audit of, or other examination of any Company Return
by any Tax authority is presently in progress, nor has the Company or any of its
subsidiaries been notified of any request for such an audit or other
examination.
 
(iv) No adjustment relating to any Company Returns has been proposed in writing,
formally or informally, by any Tax authority to the Company or any of its
subsidiaries or any representative thereof.
 
(v) Neither the Company nor any of its subsidiaries has any Liability for any
material unpaid Taxes (whether or not shown to be due on any Company Return)
which has not been accrued for or reserved on the Company’s Interim Balance
Sheet in accordance with GAAP, whether asserted or unasserted, whether or not
shown on any Company Return, contingent or otherwise, other than any Liability
for unpaid Taxes that may have accrued since the Interim Balance Sheet Date in
connection with the operation of the business of the Company and its
subsidiaries in the ordinary course. There are no claims for Taxes being
asserted against the Company or any of its subsidiaries that have resulted in,
and there are no, Encumbrances with respect to Taxes on any of the assets of the
Company or any of its subsidiaries, other than Encumbrances which are not,
individually or in the aggregate, material, or customary Encumbrances for Taxes
not yet due and payable.

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(vi) There is no Contract, plan or arrangement to which the Company or any of
its subsidiaries is a party as of the date of this Agreement, including but not
limited to the provisions of this Agreement, covering any Employee (other than a
Consultant who is not a Significant Consultant) that, individually or
collectively, would reasonably be expected to give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of
the Code or that would give rise to a penalty under Section 409A of the Code.
There is no Contract, plan or arrangement to which the Company or any of its
subsidiaries is a party or by which it is bound to compensate any individual for
excise Taxes paid pursuant to Section 4999 of the Code.
 
(vii) Neither the Company nor any of its subsidiaries is party to or has any
obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement or
arrangement, nor does the Company or any of its subsidiaries have any Liability
or potential Liability to another party under any such agreement or arrangement.
Neither the Company nor any of its subsidiaries has ever been a member of a
group filing a consolidated, unitary, combined or similar Return (other than
such Company Returns which include only the Company and any of its subsidiaries)
under any federal, state, local or foreign law. Neither the Company nor any of
its subsidiaries is party to any joint venture, partnership or other arrangement
that could be treated as a partnership for federal and applicable state, local
or foreign Tax purposes.
 
(viii) None of the Company’s or its subsidiaries’ assets are Tax exempt use
property within the meaning of Section 168(h) of the Code.
 
(ix) Neither the Company nor any of its subsidiaries has constituted either a
“distributing corporation” or a “controlled corporation” in a distribution of
stock intended to qualify for tax-free treatment under Section 355 of the Code
(x) in the two years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a “plan” or “series of
related transactions” (within the meaning of Section 355(e) of the Code) in
conjunction with the Transactions.
 
(x) Neither the Company nor any of its subsidiaries has consummated, has
participated in, or is currently participating in any transaction which was or
is a “Tax shelter,” “listed transaction” or “reportable transaction” as defined
in Sections 6662, 6662A, 6011, 6012, 6111 or 6707A of the Code or the Treasury
Regulations promulgated thereunder, including, but not limited to, transactions
identified by the IRS by notice, regulation or other form of published guidance
as set forth in Treasury Regulation Section 1.6011-4(b)(2).
 
(xi) Each of the Company and each of its subsidiaries has in its possession
official foreign government receipts for any Taxes paid by it to any foreign Tax
authorities.
 
(xii) The Company has made available to the Parent all documentation relating to
any Tax holidays or incentives applicable to itself or its subsidiaries. The
Company and its subsidiaries are in compliance with the requirements for any
such Tax holidays or incentives.
 
(xiii) Neither the Company nor any of its subsidiaries is or has ever been a
“United States real property holding corporation” within the meaning of
Section 897 of the Code.
 
(xiv) The Company and each of its subsidiaries has complied (and until the
Effective Time will comply) in all material respects with all applicable Legal
Requirements relating to the payment and withholding of Taxes (including
withholding of Taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code
or similar provisions under any foreign law), has, in all material respects
within the time and in the manner prescribed by law, withheld from the wages or
compensation of Employees (other than Consultants) and paid over to the proper
Governmental Entities (or is properly holding for such timely payment) all
amounts required to be so withheld and paid over under all applicable Legal
Requirements, including federal and state income Taxes, Federal Insurance
Contribution Act, Medicare Federal Unemployment Tax Act, relevant state income
and employment Tax withholding laws, and has in all material respects timely
filed all withholding Returns required to be filed.

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2.17 Environmental Matters.
 
(a) Hazardous Material. No underground storage tanks, nor to the knowledge of
the Company, any sumps, vaults, clarifiers, wells or septic systems are present,
in, on, under or about any property, including the land and the improvements,
ground water and surface water thereof, that the Company or any of its
subsidiaries has at any time owned, nor to the Company’s knowledge, on any
property leased by the Company or any of its subsidiaries (all owned and leased
facilities collectively referred to as the “Company Business Facilities”).
Except as would not be reasonably expected to result in material Liability to
the Company or its subsidiaries, no Hazardous Materials (as defined below) are
present, in, on, under or about any property, including the land and the
improvements, ground water and surface water thereof, that the Company or any of
its subsidiaries has at any time owned or on any property leased by the Company
or any of its subsidiaries. For purposes of this Section 2.17, “Environmental
and Safety Laws” shall mean any applicable foreign, federal, state or local
laws, ordinances, codes, regulations, rules, policies, directives, requirements,
treaties, and orders and all other permits, approvals, clearances, consents and
conditions associated therewith, which prohibit, regulate or control any
Hazardous Material or that are intended to assure the protection of the
environment, health or safety of Employees, workers or other persons, including
the public. For the purposes of this Agreement, “Hazardous Materials” shall mean
any material or substance that is prohibited or regulated by Environmental and
Safety Laws or that has been designated by any Governmental Entity to be
radioactive, toxic, hazardous, or otherwise a danger to health, reproduction or
the environment, including PCBs, asbestos, petroleum, mold, and urea
formaldehyde.
 
(b) Hazardous Materials Activities. Except in compliance in all material
respects with all Environmental and Safety Laws and in a manner that would not
reasonably be expected to result in a material Liability to the Company, neither
the Company nor any of its subsidiaries has transported, transferred, recycled,
treated, manufactured, distributed, stored, used, disposed of, released or
exposed its Employees or others to Hazardous Materials or, to the knowledge of
the Company, any product containing a Hazardous Material or any product
manufactured with Ozone depleting substances (collectively “Hazardous Materials
Activities”). The Hazardous Materials Activities of the Company prior to the
Closing have not resulted in the exposure of any person to a Hazardous Material
in a manner which has caused or could reasonably be expected to cause an adverse
health effect to any such person.
 
(c) Environmental Liabilities; Compliance with Environmental and Safety Laws. No
action, proceeding, revocation proceeding, amendment procedure, writ or
injunction is pending, nor, to the Company’s knowledge, threatened by any
Governmental Entity against the Company or any of its subsidiaries concerning
any Company Environmental Permit, Hazardous Material or any Hazardous Materials
Activity of the Company or any of its subsidiaries. The Company has no knowledge
of any fact or circumstance which could reasonably be expected to involve the
Company or any of its subsidiaries in any environmental litigation or impose
upon the Company any material environmental Liability. Except as would not
reasonably be expected to result in a material Liability to the Company,
(i) neither the Company nor any of its subsidiaries has received any notice
(verbal or written) of any past or present noncompliance of its operations,
facilities, buildings or improvements located on any Company Business Facility
with Environmental and Safety Laws, (ii) no notices, administrative actions or
suits are pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries or any such property relating to an actual or
alleged violation of any Environmental and Safety Laws, (iii) neither the
Company nor any of its subsidiaries is a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq. (“CERCLA”), or any analogous state, local or foreign laws
arising out of events occurring prior to the Closing Date, and (iv) the
operations, facilities, buildings or improvements located on any Company
Business Facility have complied in all material respects with all Environmental
and Safety Laws.
 
(d) Environmental Indemnities. Neither the Company nor any of its subsidiaries
have entered into any agreement that may require it to guarantee, reimburse,
pledge, defend, hold harmless or indemnify any other party with respect to
liabilities arising out of Environmental and Safety Laws, or the Hazardous
Materials Activities of the Company, any of its subsidiaries or any other
individual or entity.

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(e) Decommissioning. The Company does not have any material Liabilities with
respect to decommissioning associated with any use of or equipment using
radioactive materials.
 
(f) Reports and Records. The Company has delivered or made available to Parent
all environmental audits and environmental assessments of any facility that is
in the possession or control of the Company or any of its subsidiaries.
 
2.18 Brokers; Third Party Expenses. Except for fees payable to Credit Suisse
Securities (USA) LLC pursuant to an engagement letter between the Company and
Credit Suisse Securities (USA) LLC dated as of January 31, 2006, a correct and
complete copy of which has been provided to Parent, neither the Company nor any
of its subsidiaries or affiliates has incurred, nor will it incur, directly or
indirectly, any Liability for brokerage or finders fees or agent’s commissions
or any similar charges in connection with this Agreement or the Transactions,
and Parent will not incur any such Liability, either directly or indirectly, as
a result of this Agreement or the Merger as a result of any Contract entered by
the Company, any of its subsidiaries or affiliates or any of their respective
directors, officers, employees, stockholders or agents. An itemized good faith
estimate as of the date of this Agreement of the fees and expenses that may be
payable to any investment banker, broker, advisor or similar party, and any
accountant, legal counsel or other person retained by the Company in connection
with this Agreement or the Transactions contemplated hereby, including the
expenses of investment bank referenced above, is set forth on Section 2.18 of
the Company Disclosure Letter, including a list of all Contracts with such
persons that involve the payment by the Company or any of its subsidiaries of
fees that are based on anything other than “time and materials” (which shall
include a summary of the terms under which such fees are earned and become
payable).
 
2.19 Intellectual Property.
 
(a) Definitions. For all purposes of this Agreement, the following terms shall
have the following respective meanings:
 
“Company Intellectual Property” shall mean (i) any and all Company-Owned
Intellectual Property and/or (ii) any and all Company-Controlled Intellectual
Property used or otherwise exploited by the Company or any of its subsidiaries
in the Conduct of the Business of the Company, including in either of the
foregoing (i) or (ii) any Intellectual Property covering anti-IgE products.
 
For purposes of this Section 2.19 and Section 2.20, “Conduct of the Business of
the Company” shall mean (i) the conduct of the Company Research Programs and/or
(ii) the research, discovery, development, manufacture or use of Company
Products and/or (iii) the grant of license rights (including any option or other
contingent right to obtain such rights) under Intellectual Property to third
persons, in the case of clauses (i) and (ii), (a) as conducted on or before the
date of this Agreement and/or (b) as conducted during from the date hereof to
immediately prior to the Closing.
 
“Company-Controlled Intellectual Property” shall mean any and all Intellectual
Property to which the Company or any of its subsidiaries has valid rights
granted by a third person to use or otherwise exploit for the application(s) for
which such Intellectual Property is used or otherwise exploited in the Conduct
of the Business of the Company, in each case other than Company-Owned
Intellectual Property.
 
“Company-Owned Intellectual Property” shall mean any and all Intellectual
Property that is owned by the Company or any of its subsidiaries (whether solely
or jointly with any third person).
 
“Company Products” shall mean any and all products or service offerings of the
Company or any of its subsidiaries that are the subject of the any of the
following (whether by the Company or any of its subsidiaries or third person on
behalf or under authority of or in cooperation with the Company or any of its
subsidiaries) (A) an IND (as defined in 21 C.F.R. §312.3) filed with the United
States FDA (or counterpart thereof filed with any ex-U.S. regulatory authority),
or (B) other testing in human subjects in clinical studies anywhere in the
world.

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Company Research Programs” shall mean any and all of the Company’s or its
subsidiaries’ research programs ongoing immediately prior to the date of this
Agreement in one or more specific therapeutic areas (i.e., immune-mediated
diseases, infectious disease, inflammation and cancer) or one or more specific
biological pathways or targets (regardless of whether the expected product is an
agonist, antagonist or otherwise modulates the pathway or target which have been
identified by Company to Parent (specifically, such programs that are related or
directed to IL13, CD4, Tissue Factor, Factor D or Complement C5a)).
 
“Company Registered Intellectual Property” shall mean all Registered
Intellectual Property owned (in whole or part) by the Company or any of its
subsidiaries.
 
“Intellectual Property” shall mean any or all of the following and all rights
(whether common law, statutory or otherwise) in, arising out of, or associated
therewith existing anywhere in the world: (1) United States and foreign patents,
inventor’s certificates and utility models (including any substitutions,
extensions, confirmations, reissues, divisions, re-examinations, renewals and
extensions thereof) and any and all applications (including any utility,
continuation, divisional, substitution, continuations-in-part, provisional,
reissue, or reexamination application) and registrations therefor, and
equivalent or similar rights anywhere in the world in inventions and discoveries
(“Patents”); (2) copyrights and any and all applications and registrations
therefor; (3) domain names, uniform resource locators and other names and
locators associated with the Internet, and any and all applications or
registrations therefor (“Domain Names”); (4) trade names, logos, business
symbols, trade dress, assumed names, fictitious names, corporate names,
certification marks, collective marks, d/b/a’s, trademarks and service marks,
(in each case together with any and all related goodwill) and any and all
applications and registrations therefor (“Trademarks”); (5) all rights in
databases and data collections; (6) all inventions (whether or not patentable),
trade secrets, and other confidential information including technology, know
how, data, processes, schematics, business methods, formulae, drawings,
prototypes, models, designs, compositions of matter, techniques, improvements,
methods (including manufacturing methods), clinical and regulatory strategies,
formulations, manufacturing data and processes specifications, manuals, research
and development/clinical proposals and customer and supplier lists and other
industry information, and all documentation relating to any of the foregoing
(“Trade Secrets and Confidential Information”), in each case to the extent
recognized as intellectual property under applicable law.
 
“IP Contracts” shall mean all Contracts to which the Company or any of its
subsidiaries is a party and pursuant to which (1) Company-Owned Intellectual
Property or Company-Controlled Intellectual Property is licensed (including by
way of any sublicense, grant of an option or other future contingent right,
covenant of non-assertion or covenant not to sue) or otherwise transferred
(including as a result of assignment, novation or otherwise, provided that a
non-disclosure or confidentiality agreement, without more, shall not be
considered a “transfer”) to any third person, (2) any third person has licensed
(including any sublicense) or otherwise transferred to the Company any rights
under Intellectual Property used or otherwise exploited in the Conduct of the
Business of the Company or (3) Company has an option or right to obtain a
non-exclusive or exclusive license to or other transfer of Intellectual Property
of a third person, or a third person has an option or right to obtain a
non-exclusive or exclusive license to or other transfer of Company Intellectual
Property.
 
“Registered Intellectual Property” shall mean Intellectual Property that is duly
registered with or issued by an appropriate Governmental Entity of which the
rights conveyed by the registration or issuance are in effect as of the date
hereof, and any application filed with an appropriate Governmental Entity for
registration or issuance.
 
(b) Representations.
 
(i) Company Intellectual Property.
 
(1) Company Products and Company Research Programs. Section 2.19(b)(i)(1) of the
Company Disclosure Letter contains a complete and accurate list of all Company
Products and all Company Research Programs.

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(2) Company Registered Intellectual Property. 
 
a) Section 2.19(b)(i)(2) of the Company Disclosure Letter contains a complete
and accurate list of all Company Registered Intellectual Property and lists,
where applicable, (I) the jurisdictions in which each such item of Company
Registered Intellectual Property has been issued or registered, or in which an
application for registration or issuance is pending, (II) whether such
Registered Intellectual Property is owned solely by Company or jointly with
third persons, and (III) current actions for each Company Registered
Intellectual Property that, to the knowledge of the Company, must be taken
within ten (10) months after October 1, 2006 for the purposes of obtaining,
maintaining, perfecting, preserving or renewing any Company Registered
Intellectual Property to the maximum extent legally available, including the
payment of any registration, maintenance, annuity or renewal fees, or the filing
of any responses to formality requirements or office actions to avoid any
derogation of rights under the Company Registered Intellectual Property,
including preserving maximal patent term adjustment rights.
 
b) Section 2.19(b)(i)(2) of the Company Disclosure Letter contains a complete
and accurate list by jurisdiction of any litigation, opposition, reexamination,
interference proceeding, nullity action, reissue proceeding, cancellation,
objection, claim or other equivalent proceeding or action pending, asserted or
threatened against the Company or its subsidiaries with respect to the
ownership, validity, registerability, enforceability, infringement or use of, or
right to license, any Company Registered Intellectual Property. To the knowledge
of the Company, no valid basis for any such litigation, opposition,
reexamination, interference proceeding, nullity action, reissue proceeding,
cancellation, objection, claim or other equivalent proceeding or action exists.
 
(3) IP Contracts. Neither the Company nor any of its subsidiaries is a party to
or is bound by any IP Contracts that meet any of the following descriptions,
except to the extent those IP Contracts are listed in Section 2.19(b)(i)(3) of
the Company Disclosure Letter and are identified thereon using the categories
below, in each case listing (i) the person(s) with whom such IP Contract is
made, (ii) the date thereof, and (iii) the Company Product or Company Research
Program to which such IP Contract applies, if applicable:
 
a) material transfer agreements under which the Company or any of its
subsidiaries has received or has a right to receive information or materials
related to actual or potential pharmaceutical products, biological pathways,
disease states, research tools, or other scientific or medical information;
 
b) pursuant to which the Company or any of its subsidiaries has granted a third
person the right to practice any Company Intellectual Property, except for
rights to conduct internal research for a limited period of time or rights under
a material transfer agreement where the Company owns any resulting inventions or
intellectual property;
 
c) pursuant to which the Company or any of its subsidiaries has obtained any
Intellectual Property (or has obtained any option to obtain any Intellectual
Property or license thereto) required or used for research, discovery,
development, manufacture, use, import, sale, offer for sale or other
exploitation of any Company Product or for engaging in any Company Research
Program;
 
d) pursuant to which the Company or any of its subsidiaries has granted any
exclusive rights (or an option to obtain exclusive rights) to any third person
under any Company Intellectual Property;
 
e) pursuant to which the Company or any of its subsidiaries is engaging in
scientific research or other activities that are likely to create Intellectual
Property, where that Intellectual Property is not solely owned by the Company or
any of its subsidiaries, except

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where the research or other activities have been completed and, to the knowledge
of the Company, no Intellectual Property was created;
 
f) pursuant to which the Company or any of its subsidiaries is obligated to pay
any royalty, milestones, or other similar payments, including but not limited to
profit sharing, manufacturing or similar payments (i) that are contingent on the
occurrence of future events or (ii) that vary with the amount of any Company
Product produced, sold or otherwise exploited;
 
g) pursuant to which a third person is obligated to pay to the Company or any of
its subsidiaries any royalty, milestones, or make any other payments that are
contingent on the occurrence of future events or that vary with the amount of
product produced, sold or otherwise exploited (including sharing of profits).
 
In addition, Section 2.19(b)(i)(3) of the Company Disclosure Letter contains the
Company’s and its subsidiaries’ current forms of the following (where “current”
includes any of the following used by the Company or any of its subsidiaries
during the 12-month period prior to the date of this Agreement): employment
agreement, nondisclosure agreement, assignment of invention agreement or similar
Contracts relating to the protection, ownership, development, use or transfer of
Company Intellectual Property (collectively, “IPR Form Agreements”).
 
(ii) Validity. To the knowledge of the Company, the Company has materially
complied with all the requirements of each applicable Governmental Entity
(including the United States Patent and Trademark Office and foreign
counterparts thereof) with respect to the filing and prosecution of the Company
Registered Intellectual Property, including timely payment of all required fees
and filing of all documents, recordations and certificates to such Governmental
Entity. Neither the Company nor any of its subsidiaries has received written
notice from a third person of or has obtained an opinion of counsel addressing
and the Company has no knowledge of any (i) prior art or prior public uses,
sales, offers for sale or disclosures which would invalidate any Company
Registered Intellectual Property (in whole or in part) or (ii) conduct the
result of which would render the Company Registered Intellectual Property (in
whole or in part) invalid or unenforceable.
 
(iii) Ownership.
 
(1) To the knowledge of the Company no Company Intellectual Property, Company
Research Program or Company Product is subject to, and the Company and its
subsidiaries are not a party to, any proceeding or outstanding decree, order,
judgment or settlement agreement or stipulation that (i) restricts or may
restrict in any manner the use, transfer or licensing thereof by the Company or
any of its subsidiaries or may adversely affect the validity, use or
enforceability of such Company Intellectual Property, or (ii) restricts or may
restrict the Conduct of the Business of the Company in order to accommodate
Intellectual Property rights of any third person.
 
(2) To the knowledge of the Company (I) all Company-Owned Intellectual Property
is fully transferable, alienable or licensable by Surviving Corporation without
restriction and without payment of any kind to any person and (II) except as
otherwise set forth in the respective IP Contract, all of the Company’s rights
in Company-Controlled Intellectual Property are fully transferable, alienable or
licensable by Surviving Corporation without restriction and without payment of
any kind to any person.
 
(3) To the knowledge of the Company, the Company or its subsidiaries owns, and
has good and exclusive title to, each item of Company-Owned Intellectual
Property free and clear of any Encumbrance, except for any Encumbrance which
would not reasonably be expected to have a material negative impact on (A) the
Conduct of the Business of the Company, (B) the value or use of any material
Company Intellectual Property or (C) the sale, offer for sale, importation or
other commercial exploitation of any Company Product anywhere in the world.
Without limiting the

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foregoing, to the knowledge of the Company: (i) the Company or a subsidiary of
the Company is the exclusive owner of all registrations obtained by the Company
for Trademarks that are used to designate the source or origin of the Company
Products; and (ii) the Company or a subsidiary of the Company owns exclusively,
and has good title to, or has the right to use, all copyrighted works that are
embodied in any Company Product.
 
(4) To the knowledge of the Company, no person other than the Company or its
subsidiaries has ownership rights or license rights granted by the Company or
its subsidiaries to improvements made by or for the Company or its subsidiaries
to any Company Intellectual Property, Company Product, or subject of any Company
Research Program.
 
(5) To the knowledge of the Company, except where Patents claiming or covering
the composition of matter of any pharmaceutically or biologically active
ingredient incorporated into any Company Product is licensed or acquired from a
third person, the Company or its subsidiaries has filed applications for one or
more Patents claiming or covering patentable compositions of matter, in each
case with respect to Company Products that are as of the date of this Agreement,
the subject of an IND (or equivalent), or the subject of a clinical trial or
other study involving human subjects.
 
(6) To the knowledge of the Company, within the twelve (12) months immediately
prior to the date hereof, neither the Company nor any of its subsidiaries has
(i) transferred ownership of, or granted any exclusive license of or exclusive
right to use, Company Intellectual Property, to any third person, or
(ii) permitted the Company’s rights in any Company Intellectual Property to
lapse or enter the public domain, except to the extent such failure would not
adversely affect the Conduct of the Business of the Company.
 
(7) To the knowledge of the Company, in each case in which the Company or any of
its subsidiaries has acquired sole ownership of any Intellectual Property from
any person, the Company or such subsidiary has obtained a valid and enforceable
assignment sufficient to irrevocably transfer all rights in and to all such
Intellectual Property and the associated rights therein (including the right to
seek future damages with respect thereto) and has recorded each assignment of
Registered Intellectual Property assigned to the Company or such subsidiary with
the relevant Governmental Entity.
 
(8) To the knowledge of the Company, no employee, independent contractor or
agent of the Company or any of its subsidiaries, past or present, is in material
default or breach of any term relating to the protection, ownership,
development, use or transfer of Company-Owned Intellectual Property in any
Employment Agreement, nondisclosure agreement, assignment of invention agreement
or similar Contracts. To the knowledge of the Company, all employees of,
consultants to or vendors of the Company or any of its subsidiaries with
permitted access to Trade Secrets and Confidential Information of the Company or
any of its subsidiaries that are used in Conduct of the Business of the Company
are a party to written Contracts under which, among other things, each such
employee, consultant or vendor is obligated to maintain the confidentiality of
such Trade Secrets and Confidential Information and, in the case of employees
and consultants of the Company or any of its subsidiaries, assign to the Company
or its subsidiary all Intellectual Property created by such employee or
consultant in the scope of employment or consultancy with the Company or its
subsidiaries. To the knowledge of the Company, none of the Company’s nor its
subsidiaries’ current employees is the owner of any Patent for any device,
process, design or invention of any kind that is now used or needed by the
Company or any of its subsidiaries in the Conduct of the Business of the Company
and was conceived during the course of his or her employment with the Company,
which Patent has not been assigned or licensed to the Company or its
subsidiary. To the knowledge of the Company, all Company-Owned Intellectual
Property developed under Contract to the Company or its subsidiaries have been
assigned to the Company or its subsidiary or are contractually obligated to be
assigned. To the knowledge of the Company,

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the Company’s and its subsidiaries’ employees’ performance of their employment
activities does not violate such employees’ contractual obligations to any third
person.
 
(iv) Non-Infringement. 
 
(1) Neither the Company nor its subsidiaries has received a written notice from
any third person alleging, or an opinion of counsel directed to, and the Company
has no knowledge that, the Conduct of the Business of the Company or the
manufacture, use, sale, offer for sale importation or other commercial
exploitation, if occurring as of the date hereof, of any Company Product in its
current form, infringes, without reference to any research or development
exemption therefrom or misappropriates any Intellectual Property of any third
person or constitutes unfair competition or trade practices under the laws of
any jurisdiction.
 
(2) To the knowledge of the Company, all Intellectual Property incorporated into
or embodied in any Company Product was developed solely by either (A) employees
of the Company acting within the scope of their employment or (B) by third
persons who have licensed to the Company or validly assigned or are under an
obligation to assign all of their rights in or to such Intellectual Property to
the Company. To the extent any such Intellectual Property comprises Company
Registered Intellectual Property, the Company or its subsidiaries, to the
knowledge of the Company, has recorded each such assignment with the relevant
Governmental Entity.
 
(3) Neither the Company nor any of its subsidiaries have entered into any
Contract that may require it to reimburse, defend, hold harmless or indemnify
any third person with respect to Liabilities arising out of the infringement or
misappropriation of any Intellectual Property, except to the extent those
Contracts are listed in Section 2.19(b)(iv)(3) of the Company Disclosure Letter.
 
(v) IP Contracts.
 
(1) To the knowledge of the Company, all of the IP Contracts listed in
Section 2.19(b)(i)(3) of the Company Disclosure Letter are in full force and
effect.
 
(2) To the knowledge of the Company, the consummation of the transactions
contemplated by this Agreement will neither violate nor result in the breach,
modification, cancellation, termination or suspension of any IP Contract.
Following the Effective Time, Surviving Corporation will be permitted to
exercise all of the Company’s rights under all IP Contracts (including, without
limitation, the right to receive royalties), to the same extent the Company
would have been able to had the transactions contemplated by this Agreement not
occurred and without being required to pay any additional amounts or
consideration other than fees, royalties or payments which the Company would
otherwise be required to pay had such transactions contemplated hereby not
occurred.
 
(3) Neither this Agreement nor the transactions contemplated by this Agreement,
will result in (A) Surviving Corporation granting to any third person any right
in any Intellectual Property, or (B) Surviving Corporation being obligated to
pay any royalties or other amounts to any third person in excess of those
payable by Company prior to the Closing.
 
(vi) Sufficiency of Intellectual Property. To the knowledge of the Company as of
the date hereof, the Company Intellectual Property constitutes (A) the
Intellectual Property that is currently used or otherwise exploited by the
Company in the Conduct of the Business of the Company and (B) the Intellectual
Property that would be necessary for the manufacture, use, sale, offer for sale,
importation or other commercial exploitation of any Company Product in its
current form, if such manufacture, use, sale, offer for sale, importation or
other commercial exploitation were occurring as of the date hereof.
 
(vii) Government Rights. To the knowledge of the Company, no government funding,
facilities of a university, college, other educational institution or research
center or funding from third persons was used in the development of any
Company-Owned Intellectual Property that is material to the Conduct

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of the Business of the Company and would result in any march-in rights,
ownership rights or any future obligation by the Company to make any payment or
grant any license.
 
(viii) Third-Party Infringement. To the knowledge of the Company, no person has
infringed or misappropriated, or is infringing or misappropriating, any
Company-Owned Intellectual Property in a manner that would be expected to
adversely affect the Conduct of the Business of the Company or the sale, offer
for sale, importation or other commercial exploitation of any Company Product.
 
(ix) Trade Secret Protection. To the knowledge of the Company, the Company and
its subsidiaries have taken all reasonable and customary steps to protect the
rights of the Company and its subsidiaries in their Trade Secrets and
Confidential Information, and any Trade Secrets and Confidential Information of
third persons provided to the Company under an obligation of confidentiality.
 
(x) Maintenance of Invention Materials. To the knowledge of the Company, the
Company and its subsidiaries have maintained and secured (or cause to be
maintained and secured) all documentation and other materials (including signed,
dated and witnessed laboratory notebooks) necessary or appropriate to establish
conception, reduction to practice or other matters of inventorship (including
timing thereof) or ownership with respect to Company-Owned Intellectual Property
in accordance with practices standard and customary in the biopharmaceutical
industry.
 
2.20 Contracts.
 
(a) Except for Contracts between the Company or its subsidiaries on the one hand
and Parent or a subsidiary of Parent on the other hand, neither the Company nor
any of its subsidiaries is a party to or is bound by any of the following
Contracts as of the date of this Agreement, except to the extent those Contracts
are listed in Section 2.20(a) of the Company Disclosure Letter and are
identified thereon using the numbering below, in each case listing (i) the
person(s) with whom such Contract is made and (ii) the date thereof:
 
(i) any employment or consulting Contract with any officer or director, or any
Employee (excluding offer letters for “at-will” Employees) or any other type of
Contract (whether or not such Contract is an Employment Agreement, as defined in
Section 2.13(a)(vi)) with any Employee that is not terminable within thirty
(30) days by the Company without Liability to the Company or Parent, including
any Contract requiring it to make or accelerate a payment to any Employee on
account of the Merger, any Transaction or any Contract that is entered into in
connection with this Agreement;
 
(ii) any Contract or plan, including any stock option plan, stock appreciation
right plan or stock purchase plan (A) relating to the sale, issuance, grant,
exercise, award, purchase, repurchase or redemption of any shares of Company
Common Stock or any other securities of the Company or any of its subsidiaries
or any options, warrants, convertible notes or other rights to purchase or
otherwise acquire any such shares of stock, other securities or options,
warrants or other rights therefor, except for the Company Stock Plans, or
(B) any of the benefits of which will be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the Transactions or
the value of any of the benefits of which will be calculated on the basis of any
of the Transactions;
 
(iii) any Contract requiring the Company to engage in ongoing research or
development, which obligations extend beyond January 1, 2007 and are not
terminable by the Company (with or without penalty) on less than ninety
(90) days prior notice;
 
(iv) any Contract (whether non-compete or otherwise) containing provisions which
have or would reasonably be expected to have the effect of prohibiting or
impairing any business practice of the Company or any of its subsidiaries
(including engaging in research and development or the development or
commercialization of any Company Product), any acquisition of property (tangible
or intangible) by the Company or any of its subsidiaries, any other conduct of
business by the Company or any of its subsidiaries, or otherwise limiting the
freedom of the Company or any of its subsidiaries to engage in any line of
business in any geographical area or to compete with any person. Without

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limiting the generality of the foregoing, neither the Company nor any of its
subsidiaries has entered into any Contract under which the Company or any of its
subsidiaries is prohibited or impaired from engaging in any areas of research or
development or from the licensing, manufacturing, selling or distributing any
Company Intellectual Property or exploiting any Technology of the Company;
 
(v) any Contract under which the Company has granted or is obligated to grant
any person any “opt-in” rights, exclusive rights, rights of refusal or similar
rights;
 
(vi) any Contract under which the Company is obliged to enter into any further
agreement or license, under which the Company is obligated to accept or use
manufacturing (including cell culture, bulk manufacturing or fill and finish)
capacity or to pay for manufacturing capacity not used or accepted, or under
which the Company has any material “take or pay” commitment;
 
(vii) any Contract relating to the disposition by the Company or any of its
subsidiaries of a material amount of assets not in the ordinary course of
business, or pursuant to which the Company or its subsidiaries has acquired a
business or entity, or material assets of a person (other than purchases in the
ordinary course of business that are customarily effected on a purchase order
basis), whether by way of merger, consolidation, purchase of stock, purchase of
assets, exclusive license or otherwise, or any Contract pursuant to which the
Company or any of its subsidiaries has any material ownership interest in any
person other than the Company’s subsidiaries;
 
(viii) any Contract currently in force under which the Company or any of its
subsidiaries has continuing obligations to provide to a third person information
about any Company Research Program or any other scientific or clinical data
produced by the Company, including research, characterization, manufacturing,
clinical, pre-clinical or other information and including information regarding
the Company’s planned research and development activities;
 
(ix) any joint venture Contract, collaboration Contract or any other Contract
that involves a sharing of revenues, profits, cash flows, expenses (including
development expenses) or losses with other persons;
 
(x) any Contract requiring the Company or any of its subsidiaries to undertake a
clinical trial (or to have a third person undertake a clinical trial on the
Company’s or its subsidiaries’ behalf) of an existing Company Product or the
subject of a Company Research Program;
 
(xi) any Contract that authorizes any third person to sell, offer for sale,
market or otherwise distribute any Company Products or results of any Company
Research Programs;
 
(xii) any mortgages, indentures, guarantees, promissory notes, loans or credit
agreements, security Contracts or other Contracts or instruments relating to the
borrowing of money or extension of credit, or any currency exchange, commodities
or other hedging arrangement or any leasing transaction of the type required to
be capitalized in accordance with GAAP;
 
(xiii) any settlement or litigation “standstill” Contract;
 
(xiv) any Contract of guarantee, support, assumption or endorsement of, or any
similar commitment with respect to, the obligations, liabilities (whether
accrued, absolute, contingent or otherwise) or indebtedness of any other person;
 
(xv) any Contract (including open purchase orders) under which the Company has a
commitment to purchase goods, capital equipment, services or other items in
excess of $50,000 for any Contract or series of Contracts;
 
(xvi) any Contract (i) pursuant to which any third person is required to make
payments to the Company in excess of $20,000 per annum, (ii) pursuant to which
the Company or any of its subsidiaries is obligated to pay any royalty or
similar payments, including but not limited to profit sharing or similar
payments, or (iii) pursuant to which the Company or any of its subsidiaries is
obligated to pay any milestone payment or similar payment, including any payment
of a

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pre-determined amount in excess of $100,000, which payment is contingent on the
occurrence of a future event, but excluding any fee-for-service Contract;
 
(xvii) any Contract pursuant to which the Company or any of its subsidiaries is
a lessor or lessee of any equipment or other fixed assets, including machinery,
equipment, motor vehicles, office furniture, fixtures or other personal property
involving payments in excess of $20,000 per annum or involving any manufacturing
equipment with a value in excess of $10,000;
 
(xviii) any Contract with any person with whom the Company or any of its
subsidiaries does not deal at arm’s length;
 
(xix) any Contract with any investment banker, broker, advisor or similar party,
or any accountant, legal counsel or other person retained by the Company, in
connection with this Agreement and the Transactions;
 
(xx) any Contract with any Governmental Entity (a “Government Contract”) or any
material federal, state, county, local or foreign governmental consent, license,
permit, grant, or other authorization of a Governmental Entity (excluding
Company Permits) that is required for the operation in all material respects of
the Company’s or any of its subsidiaries’ businesses;
 
(xxi) any Contract entitling a third person (other than an Employee) to a
commission or “finder’s fee” payable by the Company or any of its subsidiaries;
or
 
(xxii) any Contract not otherwise disclosed in Section 2.20 of the Company
Disclosure Letter (i) under which the consequences of a default could reasonably
be expected to be material to the Company, (ii) that is of the nature required
to be filed by Company as an exhibit to an Annual Report on Form 10-K under the
Exchange Act; (iii) involving in excess of $100,000 being paid by or to the
Company over the term thereof, or (iv) that is otherwise material to the Company
or any of its subsidiaries or their respective businesses, operations,
properties, assets, financial condition, results of operations or cash flows;
any such Contract listed or required to be listed in Section 2.19(b)(iii) or
Section 2.20(a) of the Company Disclosure Letter being a “Company Contract”.
 
(b) Neither the Company nor any of its subsidiaries, nor, to the Company’s
knowledge, any other person that is a party to a Company Contract, is in breach,
violation or default under, and neither the Company nor any of its subsidiaries
has received notice that it has breached, violated or defaulted under, any of
the material terms or conditions of any Company Contract. The Company or the
applicable Company subsidiary is entitled to all benefits under any Company
Contract. Each of the Company Contracts is in full force and effect, and has not
been amended in any material respect, except to the extent that such amendment
is described in Section 2.20(a) of the Company Disclosure Letter. Except as
noted in Section 2.20(b), the Company has delivered or made available to Parent
or its representatives true, correct and complete copies of each of the Company
Contracts required to be listed in Section 2.20(a) of the Company Disclosure
Letter; provided that, to the extent that third party confidentiality
restrictions expressly prohibit disclosure of such Company Contract to Parent,
Section 2.20(b) of the Company Disclosure Letter sets forth a description of the
subject matter of each such Company Contract and a general indication of the
nature of the rights and obligations granted thereunder. The Company is not a
party to any Government Contract (other than Company Permits).
 
2.21 Product Liability. The Company has made available to Parent a true and
correct list of all serious adverse events reported to the Company in connection
with clinical trials of any Company Product (other than Xolair). The Company has
never made payments in respect of a product liability matter that relates to the
administration of substances to humans. There is no current product liability
claim made against the Company or its subsidiaries.
 
2.22 Insurance. Section 2.22 of the Company Disclosure Letter lists all
insurance policies (including fire and casualty, general liability, director &
officer liability, business interruption, product liability and sprinkler and
water damage insurance policies) and/or fidelity bonds covering the assets,
business, equipment, properties,

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operations, and Employees of the Company (collectively, the “Insurance
Policies”) and includes for each such Insurance Policy, the amount of the annual
premium and the maximum coverage amounts per incident and per year. The Company
and each of its subsidiaries have made available to Parent true, correct and
complete copies of all Insurance Policies. There is no claim by the Company or
any of its subsidiaries pending under any of the Insurance Policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such Insurance
Policies have been paid, and the Company and each of its subsidiaries, as the
case may be, is otherwise in material compliance with the terms of such
Insurance Policies. The Company has not made any untrue statement about itself
or its business in any application for insurance. All Insurance Policies remain
in full force and effect, and neither the Company nor any of its subsidiaries
has knowledge of any threatened termination of, or premium increase with respect
to, any such Insurance Policies.
 
2.23 Opinion of Financial Advisor. The Board has received the opinion of Credit
Suisse Securities (USA) LLC, to the effect that, as of the date of this
Agreement, the Per Share Merger Consideration is fair, from a financial point of
view, to the stockholders of Company Common Stock. A copy of the written opinion
delivered by Credit Suisse Securities (USA) LLC shall be delivered to Parent
following the signing of this Agreement.
 
2.24 Board Approval. The full Board, by resolutions duly adopted (and not
thereafter modified or rescinded) as of the date of this Agreement, has
unanimously (a) approved this Agreement and the Merger and determined that this
Agreement and the Merger are advisable and fair to, and in the best interests
of, the Company and its stockholders, (b) approved, subject to stockholder
approval of this Agreement, the Transactions, and (c) directed that adoption of
this Agreement be submitted to the Company stockholders for consideration and
recommended that the stockholders of the Company adopt this Agreement.
 
2.25 Rights Agreement. The Company has taken all action so that (i) Parent shall
not be an “Acquiring Person” under the Rights Agreement for so long as this
Agreement is in effect and (ii) the entering into of this Agreement and the
Merger and the other transactions contemplated hereby will not result in the
grant of any rights to any person under the Rights Agreement or enable or
require the Rights (as defined therein) to be exercised, distributed or
triggered as a result thereof. The Rights Agreement shall terminate in
accordance with its terms and be of no further force or effect at the Effective
Time.
 
2.26 State Takeover Statutes. The Board has approved the Merger, this Agreement
and the Company Voting Agreements and taken all actions sufficient to render
inapplicable to the Merger, the execution, delivery and performance of this
Agreement and the Company Voting Agreements and the Transactions and the
transactions contemplated by the Company Voting Agreements, the provisions of
Section 203 of Delaware Law applicable to a “business combination” (as defined
in such Section 203). No other state takeover statute or similar statute or
regulation or anti-takeover provision in the Company Charter Documents applies
to, purports to apply or at the Effective Time will be applicable to the Merger,
this Agreement and the Company Voting Agreements or the Transactions and the
transactions contemplated by the Company Voting Agreements.
 
2.27 Interested Party Transactions. Except as set forth in the Company SEC
Reports, since the date of the Company’s last proxy statement filed with the
SEC, no event has occurred that would be required to be reported by the Company
pursuant to Item 404 of Regulation S-K promulgated by the SEC. Section 2.27 of
the Company Disclosure Letter identifies each person who is an “affiliate” (as
that term is used in Rule 145 promulgated under the Securities Act) of the
Company as of the date hereof.

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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
 
Parent and Merger Sub hereby jointly and severally represent and warrant to the
Company, as follows:
 
3.1 Corporate Organization. Each of Parent and Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals would not prevent or materially delay consummation of the
Transactions, or otherwise prevent Parent or Merger Sub from performing their
respective material obligations under this Agreement.
 
3.2 Authority Relative to this Agreement. Each of Parent and Merger Sub has all
necessary corporate power and authority to execute and deliver this Agreement,
and to perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the Transactions have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, and no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement, or to consummate the Transactions
(other than, with respect to the Merger, the filing of the Certificate of Merger
as required by Delaware Law). This Agreement has been duly and validly executed
and delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal and binding
obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization or similar Legal Requirements affecting the
rights of creditors generally and the availability of equitable remedies
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
 
3.3 No Conflict; Required Filings and Consents. 
 
(a) The execution and delivery of this Agreement by Parent and Merger Sub does
not, and the performance of this Agreement by Parent and Merger Sub will not,
(i) conflict with or violate the Parent’s or Merger Sub’s Certificate of
Incorporation or Bylaws, each as amended to date, (ii) subject to compliance
with the requirements set forth in Section 3.3(b) hereof, conflict with or
violate any Legal Requirements applicable to Parent, or (iii) conflict with or
violate, result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or impair
Parent’s rights under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Encumbrance on
any of the properties or assets of Parent pursuant to any Contract to which
Parent is a party or by which Parent or its properties are bound or affected,
except to the extent such conflict, violation, breach, default, impairment or
other effect could not in the case of clause (ii) or (iii) individually or in
the aggregate, prevent or materially delay consummation of the Transactions or
otherwise prevent Parent or Merger Sub from performing their respective material
obligations under this Agreement.
 
(b) The execution and delivery of this Agreement by Parent and Merger Sub does
not, and the performance of this Agreement by Parent and Merger Sub shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity except (i) for applicable requirements,
if any, of the Exchange Act, Blue Sky Laws and state takeover laws, the
pre-merger notification requirements under the HSR Act and of foreign
Governmental Entities, the rules and regulations of the NYSE, and the filing and
recordation of the Certificate of Merger as required by Delaware Law and
(ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, could not, individually or in
the aggregate, prevent or materially delay consummation of the Transactions or
otherwise prevent Parent or Merger Sub from performing their respective material
obligations under this Agreement.

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3.4 Proxy Statement. The information supplied by Parent and Merger Sub for
inclusion in the Proxy Statement shall not, at the date the Proxy Statement (or
any amendment or supplement thereto) is first mailed to stockholders of the
Company, at the time of the Stockholders’ Meeting or at the Effective Time,
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not false or
misleading, or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Stockholders’ Meeting which
shall have become false or misleading. Notwithstanding the foregoing, Parent and
Merger Sub make no representation or warranty with respect to any information
supplied by the Company or any of its representatives for inclusion in the Proxy
Statement.
 
3.5 Sufficient Funds. Parent will have at the Effective Time sufficient cash or
cash-equivalent funds to consummate the Transactions, including acquiring all of
the outstanding shares of Company Common Stock in the Merger.
 
3.6 No Prior Merger Sub Operations. Merger Sub was formed solely for the purpose
of effecting the Merger and has not engaged in any business activities or
conducted any operations other than in connection with the transactions
contemplated hereby.
 
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
 
4.1 Conduct of Business by Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, the Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing or as otherwise required by this Agreement or by applicable Legal
Requirements, (i) carry on its business in the ordinary course in substantially
the same manner as heretofore conducted and in compliance with all applicable
Legal Requirements, (ii) pay its Liabilities and Taxes when due in the ordinary
course in substantially the same manner as heretofore conducted and in
compliance with all applicable Legal Requirements, (iii) pay or perform other
obligations when due, (iv) use all reasonable efforts to assure that each such
Contract entered into after the date hereof will not require the procurement of
any consent, waiver or novation or provide for any material change in the
obligations of any party hereto in connection with, or terminate as a result of
the consummation of, the Merger, and shall give reasonable advance notice to
Parent prior to allowing any Company Contract, IP Contract or material right
thereunder to lapse or terminate by its terms (it being understood that, after
the date of this Agreement, the Company may only enter into an IP Contract if
the entry into such IP Contract is not otherwise prohibited by this Section 4.1,
including Section 4.1(f) below), (v) maintain each of its leased premises in
accordance with the terms of the applicable lease in all material respects,
(vi) use all reasonable efforts to maintain in good condition, consistent with
standard industry practices, Company’s procedures and Good Laboratory Practices,
Good Clinical Practices and Good Manufacturing Practices, any and all Product
Inventory (as defined in Section 2.8) not used in the ordinary course of
business for clinical trials or compassionate use, (vii) use all reasonable
efforts to maintain in accordance with standard industry practices and the
Company’s procedures and pursuant to Company Contracts in effect as of the date
of this Agreement, any DNA, protein, expression product, cell line, reagent,
know-how or other material that constitutes a Company Product or product
candidate, or that is necessary to produce any Company Product or product
candidate or perform research or clinical trials with regard to any product
candidate being pursued as of the date of this Agreement; (ix) notify and give
Parent the opportunity to participate in the defense or settlement of any
litigation to which the Company is a party, and (x) use all reasonable efforts
to (A) preserve intact its present business organization, (B) keep available the
services of any Employees identified in writing by Parent to the Company as a
“key employee”, and (C) preserve its relationships with customers, suppliers,
distributors, consultants, licensors, licensees and others with which it has
business dealings.

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In addition, without the prior written consent of Parent, except as required by
this Agreement or Legal Requirements and except as disclosed in Section 4.1 of
the Company Disclosure Letter, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, the Company shall not do any of the
following and shall not permit its subsidiaries to do any of the following:
 
(a) Waive any stock repurchase rights, accelerate, amend or change the period of
exercisability or vesting of any Company Stock Options or other rights granted
under any Company Stock Plan or the vesting of the securities purchased or
purchasable under such Company Stock Options or other rights or the vesting
schedule or repurchase rights applicable to any unvested shares;
 
(b) Amend or change any other terms of Company Stock Options or other rights
granted under the Company Stock Plans;
 
(c) Authorize cash payments in exchange for any Company Stock Options or other
rights granted under Company Stock Plans or the securities purchased or
purchasable under those Company Stock Options or rights;
 
(d) Grant or pay, or enter into any Contract or amendment to an existing
Contract providing for the granting of, any severance or termination pay
(whether in cash, stock, equity securities, or property) or the acceleration of
vesting or other benefits to any Employee, except pursuant to written agreements
outstanding on the date hereof and as identified in Section 4.1(d) of the
Company Disclosure Letter, or adopt any new severance or termination plan,
program or arrangement, or amend or modify or alter in any manner any severance
or termination plan or Contract existing on the date hereof (including any
retention, change of control or similar agreement), or grant any equity-based
compensation, whether payable in cash or stock;
 
(e) Transfer or make available to a third person any research materials or
product candidates owned by the Company except, with respect only to materials
and product candidates that are not Company Products or necessary for
manufacturing or use of Company Products, Company may distribute such research
materials or product candidates under a material transfer agreement on the form
provided to Parent;
 
(f) (i) sell, lease, license or transfer any right in or to any Company
Intellectual Property (including by way of option) or take any action or enter
into any option that would have the same effect, or otherwise take actions which
would reasonably be expected to materially impair the value of any Company
Intellectual Property, (ii) modify or amend any IP Contract existing as of the
date of this Agreement (including any financial provision thereof) or enter into
any IP Contract with any person which would have been required to be included on
any schedule set forth in Section 2.19 of the Company Disclosure Letter,
(iii) purchase, license or otherwise acquire any rights to any Intellectual
Property of a third person (including through exercise of any option) or
(iv) exercise any option to obtain a license to the Intellectual Property of a
third person to the extent the exercise of such option would create a future
payment obligation or other Liability on the part of Parent after the Closing;
 
(g) Except for non-capital purchases in the ordinary course of business that are
customarily effected on a purchase order basis, enter into any Contract or
series of Contracts involving commitments by the Company and its subsidiaries in
excess of $250,000 over the life of such Contract or series of Contracts;
 
(h) Enter into any Contract requiring the Company to provide to any person any
Intellectual Property, Company Product or a product candidate being studied in a
Company Research Program (in any form, including antibodies, proteins, fragments
or drug substances);
 
(i) Conduct the Company’s business such that its operating cash expenditures
(excluding capital expenditures permitted under Section 4.1(bb) and expenditures
for toxicology studies) exceed $4.5 million on a monthly basis;
 
(j) Declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;

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(k) Purchase, redeem or otherwise acquire, directly or indirectly, any shares of
capital stock of the Company or its subsidiaries, except repurchases of unvested
shares at or below cost in connection with the termination of the employment
relationship with any Employee pursuant to stock option or purchase Contracts in
effect on the date of this Agreement, provided that no such repurchase shall be
permitted in the event the per share repurchase price is greater than the Per
Share Merger Consideration;
 
(l) Issue, deliver, sell, purchase, authorize, grant or designate (including by
certificate of designation) or pledge or otherwise encumber, or propose any of
the foregoing with respect to any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities convertible
into shares of capital stock, or enter into other Contracts of any character
obligating it to issue any such shares or convertible securities, other than the
issuance, delivery and/or sale of Company Common Stock pursuant to the exercise
of Company Stock Options outstanding as of the date of this Agreement;
 
(m) Cause, permit or submit to a vote of the Company’s stockholders any
amendments to the Company Charter Documents (or similar governing instruments of
any of its subsidiaries);
 
(n) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any other
manner, any person or division thereof, or otherwise acquire or agree to enter
into any joint ventures, strategic partnerships or similar alliances;
 
(o)(i) Sell or otherwise dispose of any physical properties or physical assets,
except in the ordinary course of business and at no less than the fair market
value of such physical assets or physical properties, (ii) lease, license or
encumber any Company-owned or controlled physical properties or physical assets,
or (iii) enter into any Contract for the purchase or sale of any interest in
real property, grant any security interest in any real property, enter into any
lease, sublease, license or other occupancy Contract with respect to any real
property or violate (in any material respect), alter, amend, modify, or
terminate any of the terms of any Real Estate Leases;
 
(p) Make any loan, advance or capital contribution to or investment in any
person, incur any indebtedness for borrowed money or guarantee any such
indebtedness or the indebtedness of another person, issue or sell any debt
securities or options, warrants, calls or other rights to acquire any debt
securities of the Company, enter into any “keep well” or other Contract to
maintain any financial statement condition, forgive or discharge in whole or in
part any outstanding loans or advances, modify any loan previously granted,
enter into any hedging agreement or other financial Contract designed to protect
the Company or its subsidiaries against fluctuations in commodities prices or
exchange rates, or enter into any arrangement having the economic effect of any
of the foregoing;
 
(q)(i) Adopt, terminate or amend any Company Employee Plan or enter into any
Company Employee Plan, or amend any compensation, bonus, commission, insurance
coverage (except (A) as contemplated by this Agreement and (B) for any Company
Employee Plan with a Consultant, which shall be governed by Section 4.1(t) and
any other applicable provisions of this Section 4.1), benefit, entitlement,
grant or award provided or made under any Company Employee Plan; (ii) enter into
any employment Contract or collective bargaining agreement; (iii) pay any
special bonus, commission or special remuneration to any Employee (cash, equity
or otherwise); (iv) increase the salaries, bonuses, commissions or wage rates or
fringe benefits (including rights to severance or indemnification) of its
Employees; (v) pay any benefit not provided for as of the date of this Agreement
under any Company Employee Plan (provided that nothing herein is intended to
preclude the accrual of benefits under the terms of such Company Employee Plans
in effect as of the date of this Agreement); or (vi) add any new members to the
Board or any scientific or other advisory board; (v) pay any benefit not
provided for as of the date of this Agreement under any Company Employee Plan;
or (vi) add any new members to the Board;
 
(r) discuss, announce or otherwise disseminate information to the Company’s
employees regarding any severance plan or practice of the Company, whether or
not the terms of such plan or practice would be triggered by the Closing, except
for announcements or other communications regarding such matters as are provided
by Parent;

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(s) (i) Pay, discharge, settle or satisfy any Liabilities, other than the
payment, discharge, settlement or satisfaction of Liabilities (I) recognized or
disclosed in the most recent financial statements (or the notes thereto) of the
Company included in the Company SEC Reports, (II) incurred since the date of the
Interim Balance Sheet in the ordinary course of business consistent with past
practices or (III) incurred since the date of the Interim Balance Sheet pursuant
to and in accordance with Contracts in effect as of the date hereof or permitted
to be entered into pursuant to this Section 4.1; provided, however, that the
payment, discharge, settlement or satisfaction of any Liability relating to or
arising out of any Action shall be governed by Section 4.1(z));
 
(t) (i) Enter into (unless otherwise permitted by this Section 4.1), modify or
amend (unless such amendment, if it were a new Contract, would be otherwise
permitted by this Section 4.1), or terminate any Contract (including an IP
Contract) of a nature required to be listed as a Company Contract in
Section 2.19 or Section 2.20 of the Company Disclosure Letter or waive, delay
the exercise of, release or assign any material rights or claims thereunder or
knowingly fail to enforce any Company Contract (including the confidentiality or
nondisclosure provisions of any such Company Contract), or (ii) enter into or
amend any Contract pursuant to which any other person is granted exclusive
rights or “most favored party” rights of any type or scope with respect to any
Company Research Programs, Company Products or Company Intellectual Property or
containing any non-competition covenants or other material restrictions relating
to the Company’s, any of its subsidiaries or Parent’s business activities or the
effect of which would be to grant to a third person following the Merger the
actual or potential right to license any Intellectual Property owned by Parent
or its subsidiaries or otherwise would have the effect of prohibiting or
impairing any business practice of the Company, any of its subsidiaries or
Parent or limiting the freedom of the Company, any of its subsidiaries or Parent
to engage in any line of business or to compete with any person or in any market
or geography;
 
(u) Except as required by GAAP or SEC rules and regulations as concurred with by
its independent auditors and after notice to Parent, revalue any of its assets
or make any change in accounting methods, principles or practices;
 
(v) (i) Enter into or materially modify any Contract relating to the
distribution, sale, license, manufacture or marketing by third persons of the
Company Products or any subject or product of a Company Research Program; or
(ii) renew any Contract relating to the distribution, sale, license, manufacture
or marketing by third persons of the Company Products or any subject or product
of a Company Research Program, except to the extent that such renewals are on
terms substantially similar to the terms of such Contracts in effect as of the
date hereof;
 
(w) Make or change any material Tax election or accounting method, enter into
any Tax sharing or similar agreement or closing agreement, settle or compromise
any material Tax Liability or consent to any extension or waiver of any
limitation period with respect to Taxes;
 
(x) (i) hire any officers or employees or enter into, or amend or extend the
term of, any Employment Agreement with any officer or employee (except that, in
the event an employee is terminated pursuant to clause (ii) hereof or
voluntarily terminates, including by death or disability, his or her employment,
a replacement may be engaged to fill such terminated employee’s position,
provided (A) any consideration payable for services rendered by such replacement
is of a kind and amount not otherwise prohibited by this Section 4.1 and
substantially similar in kind and amount to the consideration paid for such
terminated employee, and (B) any arrangement with any such replacement shall be
terminable, at the sole option of Parent, without payment or penalty at the
Effective Time, other than payment as may be required by applicable Legal
Requirements or the Company’s employee handbook), (ii) terminate any Employee
(other than Consultants who are not Significant Consultants) identified in
writing by Parent to the Company as a “key employee” (except for termination for
cause), or take any action that would allow any employee to claim a constructive
termination or termination for “good reason”; or (iii) hire any consultants or
independent contractors or enter into, or amend or extend the term of, any
consulting Contract with any consultant or independent contractor unless any
such Contract is on customary terms and rates and is either (A) scheduled to be
completed within 90 days after the date of this Agreement or (B) terminable at
the sole option of Parent, without payment or penalty at the Effective Time;

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(y) Make any individual or series of related payments outside of the ordinary
course of business (including payments to legal, accounting or other
professional service advisors) in excess of $100,000 in the aggregate, other
than (i) pursuant to Contracts existing on the date hereof and made available to
Parent prior to the date hereof and (ii) payment to legal counsel and other
advisers as set forth in Section 2.18 of the Company Disclosure Letter;
 
(z) Commence or settle any threatened or pending Action (including material
litigation or any other material disputes), whether or not commenced prior to
the date of this Agreement;
 
(aa) Adopt, implement or amend any stockholder rights plan (including the Rights
Agreement), “poison pill” anti-takeover plan or other similar plan, device or
arrangement that, in each case, is applicable to Parent or any of its affiliates
or the transactions contemplated by this Agreement;
 
(bb) Make any capital expenditures, capital additions, capital improvements or
other expenditures in excess of $200,000 in the aggregate;
 
(cc) Materially change the amount of any insurance coverage;
 
(dd) Fail to timely file any of the forms, reports or documents required to be
filed with the SEC;
 
(ee) Enter into any Contract or transaction in which any officer, director or
Employee of the Company or any of its subsidiaries (or, to the knowledge of the
Company, any member of their families) has an interest under circumstances that,
if entered immediately prior to the date of this Agreement, would require that
such Contract be listed on Section 2.20(a) of the Company Disclosure Letter; or
 
(ff) Agree to take any of the actions described in Section 4.1(a) through
Section 4.1(ee).
 
ARTICLE V
ADDITIONAL AGREEMENTS
 
5.1 Proxy Statement.
 
(a) As promptly as practicable after the execution of this Agreement, the
Company shall prepare, and file with the SEC, preliminary proxy materials
relating to the Company Stockholder Approval; provided that the parties
acknowledge that the parties’ goal is that the Company file the Proxy Statement
within 15 days after execution of this Agreement and that if the Company does
not file the Proxy Statement within such period, the Company’s senior executives
shall discuss the reasons for the failure to meet such goals with Parent’s duly
appointed representatives. Parent shall provide promptly to the Company such
information concerning Parent as, in the reasonable judgment of Parent or its
counsel, may be required or appropriate for inclusion in the Proxy Statement, or
in any amendments or supplements thereto. At the earliest practicable time
following the later of (i) receipt and resolution of SEC comments thereon, or
(ii) the expiration of the 10-day waiting period provided in Rule 14a-6(a)
promulgated under the Exchange Act, the Company shall file definitive proxy
materials with the SEC and cause the Proxy Statement to be mailed to its
stockholders. The Company will cause the Proxy Statement to comply with all
applicable Legal Requirements. Prior to filing the preliminary proxy materials,
definitive proxy materials or any other filing with the SEC or any other
Governmental Entity, the Company shall provide Parent (which term shall in all
instances in this Section 5.1 also include Parent’s counsel) with reasonable
opportunity to review and comment on each such filing in advance and the Company
shall in good faith consider including in such filings all comments reasonably
proposed by Parent; provided that Parent shall have provided to the Company its
comments as promptly as practicable after the Proxy Statement has been
transmitted to Parent for its review.
 
(b) The Company will notify Parent promptly of the receipt of any comments from
the SEC or its staff (or of notice of the SEC’s intent to review the Proxy
Statement) and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Proxy Statement or any other
filing or for additional/supplemental information, and will supply Parent with
copies of all correspondence between

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the Company or any of its representatives, on the one hand, and the SEC, or its
staff or any other government officials, on the other hand, with respect to the
Proxy Statement or other filing. The Company and its outside counsel shall
permit Parent and its outside counsel to participate in all planned
communications with the SEC and its staff (including all meetings and telephone
conferences) relating to the Proxy Statement, this Agreement or the Merger. The
Company shall consult with Parent prior to responding to any comments or
inquiries by the SEC or any other Governmental Entity with respect to the Proxy
Statement and shall provide Parent with reasonable opportunity to review and
comment on any such written response in advance and shall include in such
response all comments reasonably proposed by Parent (provided that Parent shall
have provided its comments to the Company as promptly as practicable after such
written response has been transmitted to Parent for its review). Whenever any
event occurs prior to the Effective Time (including events relating to the
Company or any of its affiliates, directors or officers) that is required to be
set forth in an amendment or supplement to the Proxy Statement or any other
filing, the Company shall promptly inform Parent of such occurrence, provide
Parent with reasonable opportunity to review and comment on any such amendment
or supplement in advance, shall in good faith consider including in such
amendment or supplement all comments reasonably proposed by Parent, and shall
cooperate in filing with the SEC or its staff or any other government officials,
and/or mailing to the stockholders of the Company, such amendment or supplement;
provided that Parent shall have provided to the Company its comments as promptly
as practicable after the Proxy Statement has been transmitted to Parent for its
review.
 
(c) If at any time prior to the Effective Time Parent should discover any
information relating to itself or to any of its affiliates, directors or
officers which should be set forth in an amendment or supplement to the Proxy
Statement, so that the Proxy Statement would not include any misstatement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading, Parent shall promptly notify the Company and an appropriate
amendment or supplement describing such information shall be promptly filed with
the SEC and, to the extent required by Legal Requirements, disseminated to the
stockholders of the Company.
 
5.2 Meeting of Company Stockholders.
 
(a) Promptly after the date hereof, the Company shall take all action necessary
in accordance with Delaware Law, the rules of Nasdaq and the Company Charter
Documents to convene a special meeting of its stockholders for the purpose of
considering and taking action with respect to the Company Stockholder Approval
(the “Stockholders’ Meeting”), to be held as promptly as practicable after
execution of this Agreement; provided that the parties acknowledge that the
Company’s goal is (to the extent permissible under applicable law) to convene
such special meeting within 45 days after the Proxy Statement is cleared by the
SEC (or, if no SEC comments are received on or prior to the tenth day after the
initial filing of the Proxy Statement, within 55 days after such initial
filing), and that if the Stockholders’ Meeting is not convened within such
period, the Company’s senior executives shall discuss the reasons for the
failure to meet such goals with Parent’s duly appointed representatives. The
Company shall use all reasonable efforts to solicit from its stockholders
proxies in favor of the adoption of this Agreement and shall take all other
action necessary or advisable to secure the vote or consent of its stockholders
required by the rules of Nasdaq or Delaware Law to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, the
Company may adjourn or postpone the Stockholders’ Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Proxy
Statement is provided to the Company’s stockholders in advance of a vote on this
Agreement or, if as of the time for which the Stockholders’ Meeting is
originally scheduled (as set forth in the Proxy Statement) there are
insufficient shares of Company Common Stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the
Stockholders’ Meeting. The Company shall ensure that the Stockholders’ Meeting
is called, noticed, convened, held and conducted, and that all proxies solicited
by the Company in connection with the Stockholders’ Meeting are solicited, in
compliance with Delaware Law, the Company Charter Documents, the rules of Nasdaq
and all other applicable Legal Requirements.
 

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(b) Subject to the terms of Section 5.4(d): (i) the Board shall unanimously
recommend that the Company’s stockholders adopt this Agreement at the
Stockholders’ Meeting; (ii) the Proxy Statement shall include (A) the fairness
opinion referred to in Section 2.23 and (B) a statement to the effect that the
Board has unanimously recommended that the Company’s stockholders vote in favor
of the Company Stockholder Approval at the Stockholders’ Meeting; and
(iii) neither the Board nor any committee thereof shall withdraw, amend, change
or modify, or propose or resolve to withdraw, amend, change or modify in any
manner adverse to Parent, the unanimous recommendation of the Board that the
Company’s stockholders vote in favor of the Company Stockholder Approval. For
purposes of this Agreement, said recommendation of the Board shall be deemed to
have been modified in a manner adverse to Parent if said recommendation shall no
longer be unanimous.
 
5.3 Confidentiality; Access to Information. 
 
(a) The parties acknowledge that Parent and the Company have previously executed
a mutual confidentiality agreement, dated as of June 22, 2006 (the
“Confidentiality Agreement”), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms, and each of Parent and the
Company will hold, and will cause their respective directors, officers,
employees, agents and advisors (including attorneys, accountants, consultants,
bankers, and financial advisors) to hold any Information (as defined in the
Confidentiality Agreement) confidential in accordance with the terms thereof.
 
(b) The Company shall: (i) afford Parent and its accountants, counsel, advisors
and other representatives reasonable access, upon reasonable notice, to the
properties (including for the purpose of performing such environmental tests and
due diligence review as Parent may desire), books, records and personnel of the
Company during the period prior to the Effective Time to obtain all information
concerning the business, including the status of product development efforts,
properties, financial positions, results of operations and personnel of the
Company, as Parent may reasonably request (it being understood that Parent shall
use all reasonable efforts to conduct such access during normal business hours),
and (ii) furnish Parent on a timely basis with such financial and operating data
and other information with respect to the business, operations and properties of
the Company and its subsidiaries as Parent may from time to time reasonably
request, except for information covered by attorney-client privilege or subject
to confidentiality (which information shall be treated in accordance with the
procedures put in place by Parent and the Company on or prior to the date
hereof). Except for disclosures expressly permitted by the terms of the
Confidentiality Agreement, Parent shall hold, and shall cause its
representatives to hold, all information received from the Company, directly or
indirectly, in confidence in accordance with the Confidentiality Agreement.
 
(c) No information or knowledge obtained by Parent pursuant to this Section 5.3
will affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Transactions.
 
5.4 No Solicitation. 
 
(a) No Solicitation. The Company and its subsidiaries shall not, nor shall they
permit any of their respective officers and directors (or affiliates of any of
such officers or directors), controlled affiliates, or employees or any
investment banker, attorney, accountant or other advisor or representative
retained by (or otherwise working on behalf of) the Company or any of its
subsidiaries (collectively, “Representatives”) to directly or indirectly:
(i) solicit, initiate, knowingly encourage, knowingly facilitate, or induce any
inquiry with respect to, or the making, submission or announcement of, any
Acquisition Proposal (as defined in Section 5.4(g)(i)), (ii) participate or
otherwise engage in any discussions or negotiations regarding, or furnish to any
person any nonpublic information with respect to, or take any other action
(including granting any person a waiver or release under any standstill or
similar agreement with respect to any class of equity security of the Company or
any of its subsidiaries or amending, waiving or terminating the Rights
Agreement, other than as contemplated by this Agreement, or redeeming any rights
under the Rights Agreement, other than as contemplated by this Agreement) to
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any Acquisition Proposal, (iii) engage in

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discussions with any person with respect to any Acquisition Proposal, except as
to the existence of these provisions, (iv) approve, endorse or recommend any
Acquisition Proposal (except to the extent specifically permitted pursuant to
Section 5.4(d)), or (v) enter into any letter of intent or similar document or
any Contract relating to an Acquisition Proposal (other than a confidentiality
agreement entered into with a party making an Acquisition Proposal as permitted
by Section 5.4(c)(i) below). The Company and its subsidiaries will immediately
cease, and will cause its Representatives to immediately cease, any and all
existing activities, discussions or negotiations with any third parties
conducted heretofore with respect to any Acquisition Proposal.
 
(b) Notification of Unsolicited Acquisition Proposals. 
 
(i) As promptly as practicable (but in no event more than 36 hours thereafter)
after receipt of any Acquisition Proposal or any request for nonpublic
information or inquiry which it reasonably believes would lead to an Acquisition
Proposal, the Company shall provide to Parent written notice of the material
terms and conditions of such Acquisition Proposal, request or inquiry, and the
identity of the person or group making any such Acquisition Proposal, request or
inquiry, a copy of all written materials provided in connection with such
Acquisition Proposal, request or inquiry and a written summary of any such
Acquisition Proposal, request or inquiry, if it is not in writing. After receipt
of the Acquisition Proposal, request or inquiry, the Company shall continue to
provide to Parent as promptly as practicable (but in no event more than 48 hours
thereafter) written notice setting forth all such information as is reasonably
necessary to keep Parent informed in all material respects of the status and
material terms (including material amendments or proposed material amendments)
of any such Acquisition Proposal, request or inquiry and shall promptly provide
to Parent a copy of all written materials provided in connection with such
Acquisition Proposal, request or inquiry.
 
(ii) The Company shall provide Parent with at least 48 hours prior notice (or
such lesser prior notice as is provided to the members of the Board) of any
meeting at which the Board is reasonably expected to consider any Acquisition
Proposal.
 
(c) Superior Offers. Notwithstanding anything to the contrary contained in
Section 5.4, in the event that the Company or any of its subsidiaries receives a
bona fide written Acquisition Proposal from a third party that is not solicited
or otherwise procured in violation of Section 5.4(a) that the Board has in good
faith concluded (following consultation with its outside legal counsel and its
financial advisor) is, or is reasonably likely to be, a Superior Offer (as
defined in Section 5.4(g)(ii)), it may then take the following actions:
 
(i) Furnish nonpublic information to the third party making such Acquisition
Proposal (and its Representatives), provided that (A) (1) concurrently with
furnishing any such nonpublic information to such party, it gives Parent at
least one business day prior written notice of its intention to furnish
nonpublic information and (2) it receives from the third party an executed
confidentiality and standstill agreement, the terms of which are at least as
restrictive as the terms contained in the Confidentiality Agreement and
(B) contemporaneously with furnishing any such nonpublic information to such
third party, the Company furnishes such nonpublic information to Parent (to the
extent such nonpublic information has not been previously so furnished); and
 
(ii) Engage in negotiations with the third party with respect to the Acquisition
Proposal, provided that concurrently with entering into negotiations with such
third party, the Company gives Parent at least one business day prior written
notice of its intention to enter into negotiations with such third party.
 
(d) Changes of Recommendation. In response to the receipt of a Superior Offer,
the Board may withhold, withdraw, amend or modify its unanimous recommendation
in favor of the Merger, and, in the case of a Superior Offer that is a tender or
exchange offer made directly to its stockholders, may recommend that its
stockholders accept the tender or exchange offer (any of the foregoing actions,
whether by the Board or a committee thereof, a “Change of Recommendation”) or
terminate this Agreement pursuant to Section 7.1(h) of this Agreement (provided,
however, that the Company shall not terminate this Agreement

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pursuant to Section 7.1(h) and any purported termination pursuant to
Section 7.1(h) shall be void and of no further force or effect, unless prior to
or concurrently with such termination, the Company pays the Termination Fee),
only if all of the following conditions in clauses (i) through (v) are met:
 
(i) A Superior Offer with respect to the Company has been made and has not been
withdrawn;
 
(ii) The Stockholders’ Meeting has not occurred;
 
(iii) The Company shall have (A) provided to Parent five business days prior
written notice which shall state expressly (1) that the Company has received a
Superior Offer, (2) the material terms and conditions of the Superior Offer and
the identity of the person or group making the Superior Offer, and (3) that the
Board intends to effect a Change of Recommendation and the manner in which it
intends to do so or terminate this Agreement and enter into a definitive
agreement with respect to such Superior Offer, (B) provided to Parent a copy of
all written materials delivered to the person or group making the Superior Offer
in connection with such Superior Offer that have not already been provided to
Parent, (C) made available to Parent all materials and information made
available to the person or group making the Superior Offer in connection with
such Superior Offer and (D) during such five business day period, engaged in
good faith negotiations to amend this Agreement in a manner as would enable the
Company to proceed with the Board’s recommendation to the Company’s stockholders
in favor of the Company Stockholder Approval with respect to this Agreement, as
it may be amended (and the Company shall make its Chairman and senior executives
available for discussions with Parent and otherwise negotiate in good faith with
Parent with respect thereto during such five business day period);
 
(iv) The Board has concluded in good faith, following consultation with its
outside legal counsel and financial adviser, that, in light of such Superior
Offer and notwithstanding any adjustments or negotiations pursuant to
Section 5.4(d)(iii)(D), the failure of the Board to effect a Change of
Recommendation is reasonably likely to constitute a breach of its fiduciary
duties to the Company’s stockholders under applicable law; and
 
(v) It shall not have materially breached Section 5.2.
 
Provided however, that in the event of any material revisions to the Superior
Offer, the Company shall deliver a new written notice to Parent and comply with
the requirements of this Section 5.4(d), including the five-day good faith
notice period provided for, with respect to such new written notice.
 
(e) Continuing Obligation to Call, Hold and Convene Stockholders’ Meeting; No
Other Vote. Notwithstanding anything to the contrary contained in this
Agreement, the obligation of the Company to call, give notice of, convene and
hold the Stockholders’ Meeting shall not be limited or otherwise affected by the
commencement, disclosure, announcement or submission to it of any Acquisition
Proposal with respect to it, or by any Change of Recommendation. The Company
shall not submit to the vote of its stockholders any Acquisition Proposal, or
propose to do so.
 
(f) Compliance with Tender Offer Rules. Nothing contained in this Agreement
shall prohibit the Board from taking and disclosing to its stockholders a
position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange
Act. Without limiting the foregoing proviso, the Company shall not effect a
Change of Recommendation unless specifically permitted pursuant to the terms of
Section 5.4(d).
 
(g) Certain Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
 
(i) “Acquisition Proposal” shall mean any offer or proposal (whether written,
oral or otherwise), relating to any transaction or series of related
transactions involving: (A) any purchase or acquisition by any person or “group”
(as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a fifteen percent (15%) interest in the
total outstanding voting securities of the Company or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
person or group beneficially owning fifteen percent (15%) or more

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of the total outstanding voting securities of the Company or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving the Company or any of its subsidiaries, (B) any sale,
lease (other than in the ordinary course of business), exchange, transfer,
license (other than in the ordinary course of business) or disposition of more
than fifteen percent (15%) of the assets of the Company (including its
subsidiaries taken as a whole), or (C) any liquidation or dissolution of the
Company, in each case other than the Transactions; and
 
(ii) “Superior Offer” shall mean a bona fide written offer that is made by a
third party to acquire, directly or indirectly, pursuant to a tender offer,
exchange offer, merger, consolidation or other business combination, all or
substantially all of the assets of the Company or a majority of the total
outstanding voting securities of the Company and as a result of which the
stockholders of the Company immediately preceding such transaction would hold
less than fifty percent (50%) of the equity interests in the surviving or
resulting entity of such transaction or any direct or indirect parent or
subsidiary thereof, on terms that the Board has in good faith concluded
(following the receipt of advice of its outside legal counsel and its financial
adviser), taking into account, among other things, all legal, financial,
regulatory and other aspects of the offer and the person making the offer, to be
more favorable, from a financial point of view, to the Company’s stockholders
(in their capacities as stockholders) than the terms of the Merger (as they may
be amended in accordance with Section 5.4(d)(iii)(D)) and is reasonably capable
of being consummated and for which financing, to the extent required, is then
fully committed or reasonably determined by the Board to be available to
consummate such a transaction.
 
(h) Without limiting the foregoing, it is understood that (i) any violation of
the restrictions set forth above by any officer or director of the Company and
(ii) any violation of the restrictions set forth above by any agent or
representative of the Company of which the Company has knowledge (prior to such
violation) shall be deemed to be a breach of this Agreement by the Company. The
Company and its subsidiaries shall not (A) authorize, direct or permit any of
the persons identified in clauses (i) and (ii) of this Section 5.4(h) or
(B) authorize or direct any affiliate of the Company to violate the provisions
of this Section 5.4 and shall promptly inform all such Representatives of the
restrictions set forth in this Section 5.4.
 
5.5 Public Disclosure. 
 
(a) The initial press release with respect to the execution of this Agreement
shall be a joint press release to be reasonably agreed upon by Parent and the
Company. Thereafter, the Company shall not issue or cause the publication of any
press release or other public announcement (to the extent not previously issued
or made in accordance with this Agreement) with respect to the Merger, this
Agreement or the other Transactions without the prior consent of Parent, except:
(a) as may be required by applicable Legal Requirements or by the rules and
regulations of Nasdaq, in which case the Company shall not issue or cause the
publication of such press release or other public announcement without prior
consultation with Parent, to the extent practicable and (b) as may be consistent
with actions taken by the Company or the Board (or any committee thereof)
pursuant to Section 5.4(d).
 
(b) Subject to Parent’s compliance with applicable Legal Requirements or the
rules and regulations of the New York Stock Exchange, from the date hereof until
the earlier to occur of the Closing and the termination of this Agreement
pursuant to Section 7.1 hereof, Parent shall inform the Company prior to issuing
or causing the publication of any press release or other public announcement
with respect to the Merger, this Agreement or the other Transactions; provided,
however, that nothing in this Section 5.5(b) shall prohibit Parent from
responding to questions and inquiries from third parties regarding the Merger,
this Agreement or the other Transactions.
 
(c) The Company shall consult with Parent before issuing any press release or
otherwise making any public statement with respect to the Company’s earnings or
results of operations, and shall not issue any such press release or make any
such public statement prior to such consultation.
 

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5.6 Reasonable Efforts; Regulatory Matters. 
 
(a) Other than taking any action permitted by Section 5.4(d) and subject to the
limitations set forth in Section 5.6(d), upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Transactions, including using all
reasonable efforts to accomplish the following: (i) the taking of all reasonable
acts necessary to cause the conditions precedent set forth in Article VI to be
satisfied, (ii) the obtaining of all necessary actions or non-actions, waivers,
consents, approvals, orders and authorizations from Governmental Entities and
the making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if any) and
the taking of all reasonable steps as may be necessary to avoid any suit, claim,
action, investigation or proceeding by any Governmental Entity, (iii) the
obtaining of all consents, approvals or waivers from third parties required as a
result of the Transactions, (iv) responding to any investigations or proceedings
related to this Agreement or the consummation of the Transactions, including a
request for additional information or documents, and (v) the execution or
delivery of any additional instruments reasonably necessary to consummate the
Transactions, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, the Company and its Board
shall, if any state takeover statute or similar statute or regulation is or
becomes applicable to the Transactions or this Agreement, use all reasonable
efforts to ensure that the Transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Transactions and this
Agreement.
 
(b) Each of Parent and the Company shall, as soon as practicable, make any
initial filings required under the HSR Act, and as promptly as practicable make
any other additional filings required by any other applicable Antitrust Laws (as
defined below). Subject to the limitations set forth in Section 5.6(d), each of
Parent and the Company shall use all reasonable efforts to take such action as
may be required to cause the expiration or early termination of the waiting or
notice periods under the HSR Act or other Antitrust Laws with respect to the
Transactions as promptly as possible after execution of this Agreement. To the
extent permitted by applicable law, the parties shall consult and cooperate with
one another, and consider in good faith the views of one another, in connection
with any analyses, appearances, presentations, memoranda, briefs, arguments,
opinions and proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to the HSR Act or any foreign or
other Antitrust Law; provided, that with respect to any such analyses,
appearances, presentations, memoranda, briefs, arguments, opinions or proposals,
each of Parent and the Company need not supply the other (or its counsel) with
copies (or in case of oral presentations, a summary) to the extent that any law,
treaty, rule or regulation of any Governmental Entity applicable to such party
or confidentiality agreement to which such party is bound (which shall be
governed in accordance with the procedures put in place by Parent and the
Company on or prior to the date hereof) requires such party or its subsidiaries
to restrict or prohibit access to any such properties or information. For
purposes of this Agreement, “Antitrust Laws” shall mean the HSR Act and any
other federal, state or foreign statutes, rules, regulations, orders or decrees
that are designed to prohibit, restrict or regulate actions having the purpose
or effect of monopolization or restraint of trade.
 
(c) Each party will notify the other promptly upon the receipt of: (i) any
comments from any officials of any Governmental Entity in connection with any
filings made pursuant to this Section 5.6, and (ii) any request by any officials
of any Governmental Entity for amendments or supplements to any filings made
pursuant to, or information provided to comply in all material respects with,
any Legal Requirements. Whenever any event occurs that is required to be set
forth in an amendment or supplement to any filing made pursuant to
Section 5.6(b), each party will promptly inform the other of such occurrence and
cooperate in filing with the applicable Governmental Entity such amendment or
supplement. To the extent reasonably practicable, neither the Company nor Parent
shall, nor shall they permit their respective representatives to, participate
independently in any substantive meeting or discussion, either in person or by
telephone, with any Governmental Entity in connection with the proposed
Transactions unless it consults with the other party in advance and, to the
extent not prohibited by such Governmental Entity, gives the other party the
opportunity to attend and participate.
 

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(d) Notwithstanding anything in this Agreement to the contrary (including the
other provisions of this Section 5.6), if any administrative or judicial action
or proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust Law, it
is expressly understood and agreed that: (i) Parent shall not have any
obligation to litigate or contest any administrative or judicial Action or any
decree, judgment, injunction or other order, whether temporary, preliminary or
permanent brought by or before an administrative tribunal, court or other
similar tribunal or body; (ii) Parent shall be under no obligation to make
proposals, execute or carry out agreements or submit to orders providing for a
Divestiture and (iii) the Company may not conduct or agree to conduct a
Divestiture without the prior written consent of Parent. “Divestiture” shall
mean (1) the sale, license or other disposition or holding separate (through the
establishment of a trust or otherwise) of any assets or categories of assets of
Parent or any of its affiliates or the Company, (2) the imposition of any
limitation or restriction on the ability of Parent or any of its affiliates to
freely conduct their business or the Company’s business or own such assets, or
(3) the holding separate of the shares of Company Common Stock or any limitation
or regulation on the ability of Parent or any of its affiliates to exercise full
rights of ownership of the shares of Company Common Stock.
 
5.7 Notification. Each party shall give prompt notice to the other party upon
becoming aware that any representation or warranty made by it contained in this
Agreement has become untrue or inaccurate or of any failure to comply with or
satisfy in any respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement, in each case such that the conditions
set forth in Section 6.2(a) or Section 6.2(b) (as it relates to knowledge
acquired by Parent) or Section 6.3(a) or Section 6.3(b) (as it relates to
knowledge acquired by the Company), as applicable, would not be satisfied;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement. Each party shall promptly
notify the other party of (i) any change, event, violation, inaccuracy,
circumstance or effect that has had or would reasonably be expected to have a
Material Adverse Effect on such party and (ii) any Actions commenced or, to such
party’s knowledge, threatened against, relating to or involving or otherwise
affecting such party or any of its subsidiaries that relate to the consummation
of the Merger.
 
5.8 Third Party Consents and Notices. 
 
(a) As soon as practicable following the date hereof, the Company shall use all
reasonable efforts to obtain any consents, waivers and approvals under any
Company Contracts required to be obtained in connection with the consummation of
the Transactions, as set forth on Section 5.8 of the Company Disclosure Letter;
provided that neither the Company nor any of its subsidiaries shall, without the
prior written consent of Parent, expend any material amount, assume any material
Liability or suffer or permit the loss of any material right or benefit in
connection with obtaining any of the foregoing consents, waivers or approvals.
 
(b) As soon as practicable following the date hereof, the Company shall deliver
any notices required under any Company Contracts that are required to be
provided in connection with the execution of this Agreement or prior to the
effectiveness of the Merger.
 
(c) With respect to all Employees (other than Consultants), the Company and/or
any of its subsidiaries shall be responsible for providing any notices required
to be given and otherwise complying with WARN or similar statutes or regulations
of any jurisdiction relating to any plant closing or mass layoff (or similar
triggering event) caused by the Company or any of its subsidiaries, and Parent
shall have no responsibility or Liability under WARN (or any other similar
statute or regulation) with respect to such Employees. If Parent determines that
an event would trigger WARN obligations (or obligations arising under similar
statutes or regulations) within 60 days following the Effective Time, the
Company or the Company’s subsidiaries shall, at Parent’s request, provide
notices to all Employees (other than Consultants) as are required to be provided
under WARN (or any similar statute or regulation), in a form approved by and as
directed by Parent.

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5.9 Indemnification. 
 
(a) From and after the Effective Time, Parent shall, and shall cause the
Surviving Corporation to fulfill and honor in all respects the obligations with
respect to all rights to indemnification and exculpation from liabilities,
including advancement of expenses, for acts or omissions occurring at or prior
to the Effective Time now existing in favor of the current and former directors
or officers of the Company pursuant to any indemnification agreements between
the Company and its directors and officers (in each case, as in effect on the
date hereof and listed on the Company Disclosure Letter), and any
indemnification provisions under the Company Charter Documents as in effect on
the date hereof in favor of the Company’s directors and officers and Employees
(the “Indemnified Parties”), and such obligations shall survive the Merger and
shall continue in full force and effect in accordance with their terms. The
Certificate of Incorporation and Bylaws of the Surviving Corporation will
contain provisions with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those contained in the Company
Charter Documents as in effect on the date hereof, which provisions will not be
amended, repealed or otherwise modified for a period of six (6) years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who, immediately prior to the Effective Time, were Employees or
agents of the Company, unless such modification is required by applicable law.
 
(b) At any time prior to the Closing, Company may purchase, for a price (which
shall in no event exceed the Cap Amount regardless of any amounts credited
against premium payments previously paid by the Company) not to exceed the
amount set forth on Section 5.9(b) of the Company Disclosure Letter (the “Cap
Amount”), directors’ and officers’ liability tail coverage (for a period of six
(6) years following the Effective Time), covering those persons who are
currently covered by the Company’s directors’ and officers’ liability insurance
policy, on terms comparable to those applicable to the current directors and
officers of the Company, and covering all periods prior to the Effective Time
(the “Tail Coverage”). Following the Closing, in the event Company shall not
have purchased the Tail Coverage, Parent shall (or shall cause the Surviving
Corporation to) purchase the Tail Coverage, provided that in no event shall
Parent or the Surviving Corporation be required to expend in the aggregate in
connection with the purchase of such Tail Coverage an amount in excess of the
Cap Amount and, in the event a comparable level of directors’ and officers’
liability Tail Coverage is not readily available for the Cap Amount without
undue effort or expense, Parent (or the Surviving Corporation, as the case may
be) shall only be obligated to purchase such Tail Coverage as may be purchased
for the Cap Amount.
 
(c) If the Surviving Corporation or any of its successors or assigns
(i) consolidates with or merges into any other person and is not the continuing
or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and other
assets to any person, then, and in each such case, Parent shall cause proper
provision to be made so that the successors and assigns of the Surviving
Corporation shall expressly assume the obligations set forth in this
Section 5.9. If (A) the Surviving Corporation transfers any material portion of
its assets, in a single transaction or in a series of transactions or (B) Parent
takes any action to materially impair the financial ability of the Surviving
Corporation to satisfy the obligations referred to in this Section 5.9, Parent
will either guarantee such obligations or take such other action to insure that
the ability of the Surviving Corporation, legal and financial, to satisfy such
obligations will not be diminished in any material respect.
 
(d) This Section 5.9 is (i) intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties and shall be binding on all
successors and assigns of Parent, the Company and the Surviving Corporation and
(ii) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by Contract or
otherwise. Each of the Indemnified Parties shall be entitled to enforce the
covenants contained in this Section 5.9.
 
5.10 Termination of Certain Benefit Plans. Except as set forth on Section 5.10
of the Company Disclosure Letter, effective no later than the day immediately
preceding the Closing Date, the Company and its ERISA Affiliates, as applicable,
shall each terminate any and all group severance, separation or salary
continuation plans, programs or arrangements and any and all plans intended to
include a Code Section 401(k) arrangement

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(unless Parent provides written notice to the Company that such 401(k) plans
shall not be terminated) (collectively, for purposes of this
Section 5.10“Company Group Employee Plans”). Unless Parent provides such written
notice to the Company, no later than five (5) business days prior to the Closing
Date, the Company shall provide Parent with evidence that such Company Group
Employee Plan(s) have been terminated (effective no later than the day
immediately preceding the Closing Date) pursuant to resolutions of the Board.
The form and substance of such resolutions shall be subject to advance review
and approval of Parent. The Company also shall take such other actions in
furtherance of terminating such Company Group Employee Plan(s) as Parent may
reasonably require.
 
5.11 Section 16 Matters. The Company shall take all such steps as may be
required (to the extent permitted under applicable law) to cause any disposition
of Company Common Stock (including derivative securities with respect to Company
Common Stock) resulting from the transactions contemplated by Article I of this
Agreement by each Company Insider to be exempt under Rule 16b-3 promulgated
under the Exchange Act. “Company Insiders” shall mean those individuals who are
subject to the reporting requirement of Section 16(b) of the Exchange Act with
respect to the Company.
 
5.12 Disqualified Individuals. At least five (5) business days prior to the
Closing Date, the Company shall, to the extent not already disclosed on
Section 2.13(l)(ii) of the Company Disclosure Letter, deliver to Parent a
schedule which sets forth each person who the Company reasonably believes is,
with respect to the Company or any ERISA Affiliate, a “disqualified individual”
within the meaning of Section 280G of the Code and the regulations promulgated
thereunder, as of the date such schedule is delivered to Parent.
 
5.13 Company Rights Agreement. The Company shall not redeem the Rights or amend
or modify (including by delay of the “Distribution Date” thereunder) or
terminate the Company Rights Agreement prior to the Effective Time unless, and
only to the extent that: (i) it is required to do so by order of a court of
competent jurisdiction or (ii) the Board has concluded in good faith, following
consultation with its outside legal counsel, that the failure of the Board to
effect such an amendment, modification or termination is reasonably likely to
constitute a breach of its fiduciary duties to the Company’s stockholders under
applicable law.
 
5.14 Takeover Statutes. 
 
(a) The Board shall take all actions sufficient to render inapplicable to the
Merger, the execution, delivery and performance of this Agreement and the
Company Voting Agreements and the Transactions and the transactions contemplated
by the Company Voting Agreements, the provisions of Section 203 of Delaware Law
applicable to a “business combination” (as defined in such Section 203 and any
other state takeover statue or similar statute or regulation).
 
(b) If any “fair price”, “moratorium”, “control share acquisition” or other form
of anti-takeover statute or regulation shall become applicable to the
Transactions, the Company and the members of the Board shall grant such
approvals and take such actions as are reasonably necessary so that the
Transactions may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
such statute or regulation on the Transactions.
 
5.15 FIRPTA Compliance. On the Closing Date, the Company shall deliver to Parent
a properly executed statement prepared in accordance with the certification
requirements set forth in Treasury Regulations Section 1.1445-2(c)(3) certifying
that the shares of Company Common Stock are not U.S. real property interests.

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ARTICLE VI
CONDITIONS TO THE MERGER
 
6.1 Conditions to Obligations of Each Party to Effect the Merger. The respective
obligations of each party to this Agreement to effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions. any and all of which may be waived in whole or in part by
Parent, Merger Sub and the Company, as the case may be, to the extent permitted
by applicable Legal Requirements:
 
(a) Company Stockholder Approval. The Company Stockholder Approval shall have
been obtained.
 
(b) No Order. No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger; provided, however, that the right to
assert this condition shall not be available to any party whose breach of any
provision of this Agreement results in the imposition of any such statute, rule,
regulation, executive order, decree, injunction or other order or the failure of
any the foregoing to be resisted, resolved or lifted, as applicable.
 
(c) Governmental Approvals. All applicable waiting periods under the HSR Act
shall have expired or been terminated and all other material regulatory
consents, approvals, expiration of waiting periods, and clearances of
Governmental Entities under any applicable material foreign or other Legal
Requirements (including other Antitrust Laws) in connection with this Agreement
and the transactions contemplated hereby (including the Merger) (other than the
filing of the Certificate of Merger) shall have been obtained, and if the SEC
shall have reviewed and/or provided comments to the Proxy Statement, such
comments and any related issues or matters with the SEC shall have been
resolved.
 
6.2 Additional Conditions to Obligations of the Company. The obligation of the
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by the Company:
 
(a) The representations and warranties of Parent and Merger Sub contained in
this Agreement shall be (i) true and correct in all material respects at and as
of the date of this Agreement (except for those representations and warranties
that are qualified by the word “material”, “Material Adverse Effect” or a
similar phrase, which shall be true and correct in all respects at and as of the
date of this Agreement) and (ii) true and correct at and as of the Closing Date
as though made at and as of the Closing Date, except for such failures to be
true and correct at and as of the Closing Date as would not have, in each case
or in the aggregate, a Material Adverse Effect on Parent (it being understood
and agreed that, for purposes of this clause (ii), all materiality
qualifications and other qualifications based on the word “material”, “Material
Adverse Effect” or similar phrases contained in such representations and
warranties shall be disregarded); provided, however, notwithstanding the
foregoing, the representations and warranties that are made as of a particular
date or period shall be true and correct only at and as of such date or period.
The Company shall have received a certificate to such effect signed on behalf of
Parent and Merger Sub by a duly authorized officer of Parent and Merger Sub.
 
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and the Company shall have received a certificate to such effect
signed on behalf of Parent and Merger Sub by an authorized officer of Parent and
Merger Sub.
 
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
 
(a) Representations and Warranties. The representations and warranties of the
Company contained in this Agreement shall be (i) true and correct in all
material respects at and as of the date of this Agreement

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(except for those representations and warranties that are qualified by the word
“material”, “Material Adverse Effect” or a similar phrase, which shall be true
and correct in all respects at and as of the date of this Agreement) and
(ii) true and correct at and as of the Closing Date as though made at and as of
the Closing Date, except for such failures to be true and correct at and as of
the Closing Date as would not have, in each case or in the aggregate, a Material
Adverse Effect on the Company (it being understood and agreed that, for purposes
of this clause (ii), all materiality qualifications and other qualifications
based on the word “material”, “Material Adverse Effect” or similar phrases
contained in such representations and warranties shall be disregarded and any
purported update of or modification to the Company Disclosure Letter made after
the execution of this Agreement shall be disregarded); provided, however,
notwithstanding the foregoing, (i) the representations and warranties that are
made as of a particular date or period shall be true and correct only at and as
of such date or period and (ii) the representations and warranties contained in
Section 2.3(a), Section 2.4, Section 2.23 and Section 2.25 shall be true and
correct in all material respects at and as of the date of this Agreement and at
as of the Closing Date. Parent shall have received a certificate to such effect
signed on behalf of the Company by the Chief Executive Officer and the Vice
President of Finance of the Company.
 
(b) Agreements and Covenants. The Company shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of the Company by the Chief Executive Officer and the Chief Financial
Officer of the Company.
 
(c) Material Adverse Effect. No Material Adverse Effect with respect to the
Company and its subsidiaries shall have occurred since the date of this
Agreement and not been cured, and Parent shall have received a certificate to
such effect signed on behalf of the Company by the Chief Executive Officer and
the Vice President of Finance of the Company.
 
(d) No Governmental Restriction. There shall not be any pending or threatened
Action by any Governmental Entity (i) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the Transactions or
(ii) seeking to require Parent or the Company, or any subsidiary or affiliate of
either of them, to effect a Divestiture.
 
(e) Sarbanes-Oxley Certifications; No Restatement. With respect to any Company
SEC Reports filed with the SEC after the date of this Agreement, neither the
principal executive officer nor the principal financial officer of the Company
shall have failed to provide the necessary certifications in the form required
under Section 302 and Section 906 of the SOX. There shall not have been any
restatement of the Company’s consolidated financial statements, and the Company
shall not be aware of any event that would reasonably be expected to result in
any such restatement. The Company’s auditors shall not have resigned or
threatened to resign.
 
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
 
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, and the Merger may be abandoned, notwithstanding any requisite
adoption of this Agreement by the stockholders of the Company:
 
(a) by mutual written consent of the Company and Parent;
 
(b) by either the Company or Parent if the Effective Time shall not have
occurred on or before May 9, 2007 (the “Initial Termination Date”) for any
reason; provided, however, that in the event that a condition to the Merger set
forth in Section 6.1(b) (solely if such condition has not been satisfied as a
result of an Action by a Governmental Entity to enforce Antitrust Laws),
Section 6.1(c) or Section 6.3(d) (solely if such condition has not been
satisfied as a result of an Action by a Governmental Entity to enforce Antitrust
Laws) shall not have been satisfied on or prior to the Initial Termination Date
and all of the other conditions

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to the Merger set forth in Article VI (other than those conditions that are
capable of being waived by the party seeking to terminate) shall have been
satisfied on or prior to the Initial Termination Date, either Parent or the
Company may elect to extend the Initial Termination Date, by written notice to
the other prior to or on the Initial Termination Date, until August 9, 2007 (the
“Extended Termination Date”); provided, further, that, in each case, the right
to terminate this Agreement under this Section 7.1(b) shall not be available to
any party whose action or failure to act has been a principal cause of or
resulted in the failure of the Effective Time to occur on or before such date
and such action or failure to act constitutes a breach of this Agreement;
 
(c) by either the Company or Parent if any Legal Requirement makes consummation
of the Merger illegal or if a Governmental Entity of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action, in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is final and
nonappealable;
 
(d) by either the Company or Parent if the Company Stockholder Approval shall
not have been obtained by reason of the failure to obtain the required vote at
the Stockholders’ Meeting or at any adjournment or postponement thereof;
provided, however, that the right to terminate this Agreement under this
Section 7.1(d) shall not be available to a party where the failure to obtain the
Company Stockholder Approval shall have been caused by the action or failure to
act of such party and such action or failure to act constitutes a breach by such
party of this Agreement;
 
(e) by the Company, upon a breach of any representation, warranty, covenant or
agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b) would not
be satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue; provided, however, that if such inaccuracy
in Parent’s representations and warranties or breach by Parent is capable of
being cured by Parent through the exercise of all reasonable efforts, then the
Company may not terminate this Agreement under this Section 7.1(e) until 30 days
after delivery of written notice from the Company to Parent of such breach or
inaccuracy, provided Parent continues to exercise all reasonable efforts to cure
such breach or inaccuracy (it being understood that the Company may not
terminate this Agreement pursuant to this Section 7.1(e) if it shall have
materially breached this Agreement or if such breach or inaccuracy by Parent is
cured during such 30-day period);
 
(f) by Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue; provided, however, that if
such inaccuracy in the Company’s representations and warranties or breach by the
Company is capable of being cured by the Company through the exercise of all
reasonable efforts, then Parent may not terminate this Agreement under this
Section 7.1(f) until 30 days after delivery of written notice from Parent to the
Company of such breach or inaccuracy, provided the Company continues to exercise
all reasonable efforts to cure such breach or inaccuracy (it being understood
that Parent may not terminate this Agreement pursuant to this Section 7.1(f) if
such breach or inaccuracy by the Company is cured during such 30-day period);
 
(g) by Parent, if a Material Adverse Effect on the Company shall have occurred
since the date hereof and shall not have been cured;
 
(h) by the Company, in accordance with Section 5.4(d) of this Agreement,
provided, that, in order for the termination of this Agreement pursuant to this
Section 7.1(h) to be deemed effective, the Company shall have complied with
Section 5.4(d) of this Agreement and paid the Termination Fee referred to in
Section 7.3(b)(i) of this Agreement concurrently with or prior to such
termination; or
 
(i) by Parent if a Triggering Event (as defined below) shall have occurred prior
to obtaining the Company Stockholder Approval. For the purposes of this
Agreement, a “Triggering Event” shall be deemed to have occurred if: (i) the
Board or any committee thereof shall for any reason have withdrawn or

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withheld, or shall have amended, changed, qualified or modified in a manner
adverse to Parent the Board’s or committee’s unanimous recommendation in favor
of the adoption of this Agreement (it being understood that the taking of a
neutral position or no position with respect to an Acquisition Proposal beyond
the Acquisition Proposal Assessment Period, as defined below, shall be
considered an adverse modification), except in connection with a material breach
of this Agreement by Parent or Merger Sub; (ii) the Company shall have failed to
include in the Proxy Statement the unanimous recommendation of the Board that
holders of Company Common Stock vote in favor of the adoption of this Agreement;
(iii) the Board or any committee thereof shall have approved or recommended any
Acquisition Proposal; (iv) the Company shall have entered into any letter of
intent or similar document or any Contract accepting any Acquisition Proposal;
(v) a tender or exchange offer relating to securities of the Company shall have
been commenced by a person unaffiliated with Parent and the Company shall not
have sent to its securityholders pursuant to Rule 14e-2 promulgated under the
Securities Act, within ten (10) business days (such ten (10) business day
period, the “Acquisition Proposal Assessment Period”) after such tender or
exchange offer is first published sent or given, a statement disclosing that the
Board recommends rejection of such tender or exchange offer; (vi) the Board
shall have failed to reaffirm its approval or recommendation of this Agreement
as promptly as practicable (but in any event within five (5) business days)
after receipt of a written request to do so from Parent; or (vii) the Company
shall have materially breached Section 5.2 or Section 5.4. 
 
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under and in accordance with Section 7.1 will be effective immediately
upon (subject to, in the case of Section 7.1(e) or Section 7.1(f), if the
proviso therein is applicable, prior delivery of notice of the breach 30 days
prior to notice of termination) the delivery of written notice of the
terminating party to the other parties hereto. In the event of the termination
of this Agreement as provided in Section 7.1, this Agreement shall be of no
further force or effect and there shall be no Liability to any party hereunder
in connection with the Agreement or the Transactions, except (i) as set forth in
Section 5.3(a), this Section 7.2, Section 7.3 and Article VIII, each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from Liability for any intentional or willful breach of, or
any intentional misrepresentation made in this Agreement. No termination of this
Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement in accordance with their terms.
 
7.3 Fees and Expenses.
 
(a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such expenses whether or not the Merger is consummated;
provided that Parent and the Company shall share equally the filing fees for the
Notification and Report Forms filed with the FTC and DOJ under the HSR Act and
premerger notification and report forms under similar applicable Legal
Requirements of other jurisdictions.
 
(b) Company Payments. 
 
(i) Provided no Termination Fee is payable pursuant to clauses (ii) or
(iii) below, the Company shall pay to Parent in immediately available funds
prior to or concurrently with such termination an amount equal to Thirty-Two
Million Dollars ($32,000,000) (the “Termination Fee”) if this Agreement is
terminated by the Company pursuant to Section 7.1(h).
 
(ii) Provided no Termination Fee is payable pursuant to clause (i) above or
(iii) below, the Company shall pay to Parent in immediately available funds,
within one (1) business day thereafter the Termination Fee if this Agreement is
terminated by Parent or the Company and prior to such termination a Triggering
Event shall have occurred.
 
(iii) Provided no Termination Fee is payable pursuant to clauses (i) or
(ii) above, the Company shall pay to Parent in immediately available funds,
within two (2) business days thereafter, an amount equal to the Termination Fee,
if this Agreement is terminated by Parent or the Company pursuant to

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Section 7.1(b) or the Company Stockholder Approval shall not have been obtained
at the Stockholders’ Meeting or any adjournment or postponement thereof and any
of the following shall occur:
 
(1) if following the date hereof and prior to the termination of this Agreement,
a third party has announced an Acquisition Proposal, and within 12 months
following the termination of this Agreement, any Company Acquisition (as defined
below) is consummated; or
 
(2) if following the date hereof and prior to the termination of this Agreement,
a third party has announced an Acquisition Proposal, and within 12 months
following the termination of this Agreement, the Company enters into a letter of
intent or similar document or any Contract providing for any Company Acquisition
and a Company Acquisition is ultimately consummated (whether prior to or after
such twelve-month period).
 
(iv) The Company hereby acknowledges and agrees that the agreements set forth in
this Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not enter into
this Agreement. Accordingly, if the Company fails to pay in a timely manner the
amounts due pursuant to this Section 7.3(b) and, in order to obtain such
payment, Parent makes a claim that results in a judgment against the Company for
the amounts set forth in this Section 7.3(b), the Company shall pay to Parent
its reasonable costs and expenses (including reasonable attorneys’ fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 7.3(b) at the prime rate of Citibank in effect on the
date such payment was required to be made. Payment of the fees described in this
Section 7.3(b) shall not be in lieu of damages incurred in the event of any
intentional or willful breach of, or any intentional misrepresentation made in,
this Agreement.
 
(v) No payment under this Section 7.3 shall limit in any respect any rights or
remedies available to Parent and Merger Sub relating to any breach or failure to
perform any representation, warranty, covenant or agreement set forth in this
Agreement resulting, directly or indirectly, in the right to receive any payment
under this Section 7.3. Notwithstanding any other provision of Section 7.3(b)
(other than the immediately preceding sentence) to the contrary, in no event
shall the Company be required to pay Parent any amounts under this
Section 7.3(b) in excess of the Termination Fee.
 
(vi) For the purposes of this Agreement, “Company Acquisition” shall mean any of
the following transactions (other than the transactions contemplated by this
Agreement): (A) a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company pursuant
to which the stockholders of the Company immediately preceding such transaction
hold less than 80% of the aggregate equity interests in the surviving or
resulting entity of such transaction or any direct or indirect parent thereof,
(B) a sale or other disposition by the Company of assets representing in excess
of 20% of the aggregate fair market value of the Company’s business immediately
prior to such sale or (C) the acquisition by any person or group (including by
way of a tender offer or an exchange offer or issuance by the Company), directly
or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of 20% of the voting power of the
then outstanding shares of capital stock of the Company.
 
(c) Parent Payment. In the event that (i) this Agreement is terminated by Parent
or the Company pursuant to Section 7.1(b) or Section 7.1(c); provided, with
respect to Section 7.1(c), solely to the extent such order, decree, ruling or
other action is based on an Action brought by a Governmental Entity under
Antitrust Laws and (ii) all of the conditions set forth in Section 6.1 are
satisfied (other than (A) Section 6.1(b) solely to the extent the existence of
such statute, rule, regulation, executive order, decree, injunction or other
order is based upon Antitrust Laws in an Action brought by a Governmental Entity
and (B) Section 6.1(c) solely to the extent such Legal Requirements are
Antitrust Laws) and Section 6.3 (other than Section 6.3(d)) are satisfied,
Parent shall promptly, but in no event later than three (3) business days
following the receipt by Parent of documentation (in detail) of such expenses in
form and substance reasonably satisfactory to Parent, reimburse the Company for
its out-of-pocket fees and expenses, up to an aggregate of five million dollars
($5,000,000), incurred by Company after the filing of Company’s initial HSR
notification and in connection with or relating

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to the review pursuant to the HSR Act of the Transactions contemplated hereby
(including fees and expenses of all attorneys, consultants, economists and other
experts retained by Company and all duplicating and travel and related
expenses), provided that Company will consult in advance with Parent, and
consider in good faith the advice of Parent, regarding the retention of any
consultants, economists and other experts.
 
7.4 Amendment. Subject to applicable law, this Agreement may be amended by the
parties hereto at any time by execution of an instrument in writing signed on
behalf of each of Parent and the Company.
 
7.5 Extension; Waiver. At any time prior to the Effective Time, the Company, on
the one hand, or Parent and Merger Sub, on the other hand, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein; provided that any condition set forth in Section 6.1(a) may not be
waived without the express written consent of Parent and the Company. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. Delay in exercising any right under this Agreement shall not constitute a
waiver of such right.
 
ARTICLE VIII
GENERAL PROVISIONS
 
8.1 Non-Survival of Representations and Warranties. The representations and
warranties of the Company, Parent and Merger Sub contained in this Agreement and
the other agreements, certificates and documents contemplated hereby shall
terminate and be of no further force or effect at, and as of, the Effective
Time. The covenants and agreements in this Agreement and the other agreements,
certificates and documents contemplated hereby shall terminate at the Effective
Time unless such covenants or agreements by its terms contemplated performance
after the Effective Time, it being understood this Section 8.1 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
 
8.2 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by commercial delivery
service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
 
(a) if to Parent or Merger Sub, to:
 
   Genentech, Inc.
   1 DNA Way
   South San Francisco, California 94080
   Attention: Corporate Secretary
   Telephone No.: (650) 225-1000
   Telecopy No.: (650) 467-9146
 
  with a copy to:
 
   Wilson Sonsini Goodrich & Rosati
   Professional Corporation
   650 Page Mill Road
   Palo Alto, California 94304
   Attention:   Martin W. Korman, Esq.
         Bradley L Finkelstein, Esq.
   Telephone No.: (650) 493-9300
   Telecopy No.: (650) 493-6811

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(b) if to the Company, to:
 
   Tanox, Inc.
   10555 Stella Link
   Houston, Texas 77025-5631
   Attention: General Counsel
   Telephone No.: (713) 578-4000
   Telecopy No.: (713) 578-5000
 
   with a copy to:
 
   Winstead Sechrest & Minick
   Professional Corporation
   919 Milam Street
   Houston, TX 77002
   Attention: Frank S. Wu, Esq.
   Telephone No.: (713) 650-8400
   Telecopy No.: (713) 650-2400
 
8.3 Interpretation; Knowledge.
 
(a) When a reference is made in this Agreement to Exhibits, such reference shall
be to an Exhibit to this Agreement unless otherwise indicated. When a reference
is made in this Agreement to Articles or Sections, such reference shall be to an
Article or Section, respectively, of this Agreement unless otherwise indicated.
Unless otherwise indicated the words “include,” “includes” and “including” when
used herein shall be deemed in each case to be followed by the words “without
limitation.” As used herein, an item shall be deemed to have been “furnished” to
Parent if such item has been sent to Parent or its representatives, provided to
Parent or its representatives or made available to Parent or its representatives
for review, in a data room or otherwise. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to “the business of” an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity. Where a reference is made to a law,
such reference is to such law, as amended, and all rules and regulations
promulgated thereunder, unless the context requires otherwise.
 
(b) For purposes of this Agreement, the term “knowledge” means with respect to a
party hereto, with respect to any matter in question, that any of the executive
officers or directors of such party has actual knowledge of such matter;
provided that with respect to any executive officer or director, such executive
officer or director shall have made reasonable inquiry of the current Employees
(other than Consultants who are not Significant Consultants) responsible for
such matter in question.
 
(c) For purposes of this Agreement, the term “Material Adverse Effect” when used
in connection with any entity, including the Company and its subsidiaries, means
(1) any change, event, violation, inaccuracy, circumstance or effect,
individually or when aggregated with other changes, events, violations,
inaccuracies, circumstances or effects, that is or is reasonably expected to be
materially adverse to (i) the business, assets (including intangible assets),
liabilities, financial condition, or results of operations of such entity and
its subsidiaries taken as a whole, (ii) the ability of such entity to perform
its obligations under this Agreement and to timely consummate the Transactions,
and (2) with respect to the Company or its subsidiaries, any event arising after
the date of this Agreement relating to Omalizumab (Xolair) that would reasonably
be expected to have a material adverse impact on the sales, future value or
revenue of Omalizumab (Xolair); provided, however, that, except otherwise
provided below, none of the following shall be deemed either alone or in
combination to constitute, and none of the following shall be taken into account
in determining whether there has been or will be, a Material Adverse Effect:
(A) changes in the financial markets generally in the United States or that are
the result of acts of war or terrorism; (B) general national or international

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economic, financial, political or business conditions (including changes in
Legal Requirements or GAAP or the interpretation thereof) in each case affecting
generally the biopharmaceutical industry, which do not have a materially
disproportionate effect (relative to other industry participants) on the Company
and its subsidiaries taken as a whole; (C) the execution, announcement and
performance of this Agreement by the Company or its subsidiaries, or any actions
taken, delayed or omitted to be taken by the Company (and the results thereof)
that are required or prohibited (but only in the event that the Company has
sought a waiver from Parent, and Parent has failed to agree to such waiver
within a reasonable period of time after such request), as the case may be,
pursuant to this Agreement or at the specific request of Parent or Merger Sub
(it being understood that the provision of consent contemplated under
Section 5.1 hereof shall not be deemed to be at the specific request of Parent);
(D) the failure of the applicable party to this Agreement to meet projections of
earnings, cash burn rates, revenues or other financial measures (whether such
projections were made by such party or independent third parties), in and of
itself (it being understood that the facts or occurrences giving rise or
contributing to such failure may be deemed to constitute, or be taken into
account in determining whether there has been, or will be, a Material Adverse
Effect); (E) any change in the stock price or trading volume of the applicable
party to this Agreement, in and of itself (it being understood that the facts or
occurrences giving rise or contributing to such failure may be deemed to
constitute, or be taken into account in determining whether there has been, or
will be, a Material Adverse Effect); (F) any item set forth on Schedule 8.3(F);
(G) the results of any clinical trial (excluding Omalizumab (Xolair)); or
(H) any change after the date hereof of Parent’s projections for the sale of
Omalizumab (Xolair), in and of itself (it being understood that the facts or
occurrences giving rise or contributing to such change may be deemed to
constitute, or be taken into account in determining whether there has been, or
will be, a Material Adverse Effect).
 
(d) For purposes of this Agreement, the term “person” shall mean any individual,
corporation (including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company), firm
or other enterprise, association, organization, entity or Governmental Entity.
 
(e) For purposes of this Agreement, the term “business day” shall mean each day
that is not a Saturday, Sunday or other day on which banking institutions
located in San Francisco, California are authorized or obligated by law or
executive order to close, and the term “day” when not immediately preceded by
the word “business” shall mean a calendar day.
 
(f) For purposes of this Agreement, the terms “subsidiary” and “subsidiaries”
with respect to any party shall mean (i) solely with respect to the Company,
Tanox Biotech (Shanghai) Co. Ltd. and (ii) any corporation, partnership,
association, trust or other form of legal entity of which (A) more than 50% of
the outstanding voting securities are directly or indirectly owned by such
party, or (B) such party or any subsidiary of such party is a general partner
(excluding partnerships in which such party or any subsidiary of such party does
not have a majority of the voting interest of such partnership).
 
(g) Unless the context of this Agreement otherwise requires: (i) words of any
gender include each other gender; (ii) words using the singular or plural number
also include the plural or singular number, respectively; and (iii) the terms
“hereof,” “herein,” “hereunder” and derivative or similar words refer to this
entire Agreement.
 
8.4 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
 
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Letter,
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to

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the subject matter hereof, it being understood that the Confidentiality
Agreement shall continue in full force and effect and shall survive any
termination of this Agreement as modified by Section 5.3(a) and
Section 5.3(b) are not intended to confer, and shall not be construed as
conferring, upon any other person any rights or remedies hereunder, except as
specifically provided in Section 5.9(d).
 
8.6 Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
 
8.7 Other Remedies; Specific Performance. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy, and nothing in this
Agreement shall be deemed a waiver by any party of any right to specific
performance or injunctive relief. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to seek an
injunction or injunctions without the necessity of proving the inadequacy of
money damages as a remedy and without the necessity of posting any bond or other
security in order to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
 
8.8 Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof. The parties hereto hereby irrevocably submit to the exclusive
jurisdiction of the Court of Chancery in Newcastle County in the state of
Delaware (and any appellate courts therefrom), or if such jurisdiction shall be
unavailable, any court in the State of Delaware and the Federal courts of the
United States of America, each located within Newcastle County in the State of
Delaware., solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby and thereby, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or thereof, that it is not subject
thereto or that such action, suit or proceeding may not be brought or is not
maintainable in said courts or that the venue thereof may not be appropriate or
that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in the Court of Chancery
in the State of Delaware or, if jurisdiction is not available in the Court of
Chancery, any other Delaware state court or Federal court, each located in
Newcastle, County Delaware. The parties hereby consent to and grant any such
court jurisdiction over the person of such parties and over the subject matter
of such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 8.2 or in
such other manner as may be permitted by applicable law, shall be valid and
sufficient service thereof. With respect to any particular action, suit or
proceeding, venue shall lie solely in Newcastle County, Delaware.
 
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
 
8.10 Assignment. No party may assign or delegate, in whole or in part, by
operation of law or otherwise, either this Agreement or any of the rights,
interests, or obligations hereunder without the prior written approval of the
other parties, and any such assignment without such prior written consent shall
be null and void, except

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that Parent may assign its rights (but not its obligations) under this Agreement
to any direct or indirect wholly-owned subsidiary of Parent without the prior
written consent of the Company. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
 
8.11 Waiver of Jury Trial. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
 
[Remainder of Page Intentionally Left Blank]

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

 
GENENTECH, INC.
       
By:
/s/  ARTHUR LEVINSON
   
Arthur Levinson, Chairman and
Chief Executive Officer
             
GREEN ACQUISITION CORPORATION
       
By:
/s/  STEPHEN JUELSGAARD
   
Stephen Juelsgaard, President and
Chief Executive Officer
             
TANOX, INC.
       
By:
/s/  NANCY T. CHANG
   
Nancy Chang,
Chairman of the Board of Directors

****Signature Page to Agreement and Plan of Merger****

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