**TABLE OF CONTENTS**       **Page** Article 1 THE MERGER  1      1.1 The Merger  1 1.2 Closing; Effective Time  2 1.3 Effects of the Merger  2 1.4 Further Assurances  2      Article 2 MERGER CONSIDERATION; CONVERSION OF SECURITIES  3      2.1 Merger Consideration  3 2.2 Effect on Company Capital Stock, Company Stock Options  3 2.3 Payment of Merger Consideration and Closing Payments  5 2.4 No Further Ownership Rights in Company Common Stock or Company StockOptions   8 2.5 Lost Certificates  8 2.6 Dissenters’ Rights  8 2.7 Withholding  9 2.8 Determination of Closing Working Capital  9 2.9 Working Capital Adjustment  11 2.10 Milestone Payments  12 2.11 IDP-111 Royalty  17 2.12 Claims for Milestone Payments and IDP-111 Royalty Amounts  19      Article 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY  20      3.1 Organization and Good Standing  20 3.2 Capitalization  21 3.3 Subsidiaries of the Company  23 3.4 Authority and Enforceability  24 3.5 No Conflict; Authorizations  24 3.6 Financial Statements  25 3.7 No Undisclosed Liabilities  26 3.8 Accounts Receivable  26 3.9 Taxes  27 3.10 Compliance with Law  30 3.11 Regulatory  30 3.12 Authorizations  35 3.13 Title to Personal Properties  36 3.14 Condition of Tangible Assets  36 3.15 Leased Real Property  36 3.16 Intellectual Property  38 3.17 Absence of Certain Changes or Events  43 3.18 Contracts  44 3.19 Litigation  47 3.20 Employee Benefits  47 3.21 Labor and Employment Matters  51 
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**TABLEOF CONTENTS**(continued)       **Page** 3.22 Environmental  52 3.23 Related Party Transactions  52 3.24 Insurance  53 3.25 Books and Records  53 3.26 Brokers or Finders  54 3.27 No Illegal Payments  54 3.28 Bank Accounts  54      Article 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB  54      4.1 Organization and Good Standing  54 4.2 Authority and Enforceability  55 4.3 No Conflicts; Authorizations  55 4.4 Interim Operations of Merger Sub  56 4.5 Availability of Funds  56 4.6 Litigation  56 4.7 Brokerage  56 4.8 No Reliance  56      Article 5 COVENANTS OF THE COMPANY  56      5.1 Conduct of Business  56 5.2 Negative Covenants  57 5.3 Access to Information  59 5.4 Consents  60 5.5 Notification of Certain Matters  60 5.6 Exclusivity  60 5.7 Allocation Certificate  61 5.8 CFO Certificate  61 5.9 FIRPTA Certificate  61 5.10 Section 280G of the Code  61 5.11 Termination of 401(k) Plan and Company Stock Plan  62      Article 6 COVENANTS OF THE COMPANY AND PARENT  62      6.1 Regulatory Approvals  62 6.2 Public Announcements  64 6.3 Expenses  64 6.4 Further Assurances  64 6.5 Directors and Officers Indemnification  64 6.6 Employee Matters  65      Article 7 CONDITIONS TO MERGER  65      7.1 Conditions to Each Party’s Obligation to Effect the Merger  65 7.2 Conditions to Obligations of Parent and Merger Sub to Effect the Merger  66 7.3 Conditions to Obligation of the Company to Effect the Merger  67 
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**TABLE OF CONTENTS**(continued)       **Page** Article 8 TERMINATION  68      8.1 Termination  68 8.2 Effect of Termination  69 8.3 Remedies  70      Article 9 INDEMNIFICATION  70      9.1 Survival  70 9.2 Indemnification by Company Securityholders  71 9.3 Indemnity Escrow Fund  72 9.4 Indemnification Claims; Indemnity Escrow Arrangements  73 9.5 Third Party Claims  76 9.6 Non-Third Party Claims  79 9.7 Effect of Investigation; Waiver  79      Article 10 MISCELLANEOUS  80      10.1 Notices  80 10.2 Amendments and Waivers  81 10.3 Successors and Assigns  82 10.4 Governing Law; Venue  82 10.5 Counterparts  82 10.6 Third Party Beneficiaries  83 10.7 Entire Agreement  83 10.8 Captions  83 10.9 Severability  83 10.10 Specific Performance  83 10.11 Waiver of Jury Trial  83 10.12 Disclosure Schedule  83 10.13 Stockholder Representative  84      Article 11 DEFINITIONS  86      11.1 Definitions  86 11.2 Other Defined Terms  91 11.3 Interpretation  96 
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**TABLE OF CONTENTS**(continued)       **Page** **ANNEXES**†         Principal Company Stockholders  Annex AKey Employees  Annex B[Reserved]  Annex CWorking Capital Methodology  Annex D     **EXHIBITS**         Form of Escrow Agreement  Exhibit AForm of Security Agreement  Exhibit B † Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. TheCompany hereby undertakes to furnish supplementally copies of any of the omitted schedules andexhibits upon request by the Securities and Exchange Commission.

 
AGREEMENT AND PLAN OF MERGER     THIS AGREEMENT AND PLAN OF MERGER (**“Agreement”**), dated as of December 9, 2008, is by and amongValeant Pharmaceuticals International, a Delaware corporation (**“Parent”**), Descartes AcquisitionCorp., a Delaware corporation and a wholly owned subsidiary of Parent (**“Merger Sub”**), and DowPharmaceutical Sciences, Inc., a Delaware corporation (the **“Company”**), and Harris Goodman, in hisor her capacity as representative of the Company Securityholders (the **“StockholderRepresentative”**). Capitalized terms used in this Agreement are defined in Section 11.1, or in theapplicable Section of this Agreement to which reference is made inSection 11.2.RECITALS:     WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the Company deem itadvisable and in the best interests of their respective stockholders to consummate the businesscombination provided for herein;     WHEREAS, concurrently with the execution of this Agreement and as an inducement to Parent toenter into this Agreement, certain employees listed on Annex B (the **“Key Employees”**) haveexecuted an employment and noncompetition agreement in form and substance satisfactory to Parent(collectively, the **“Employment and Noncompetition Agreements”**);     WHEREAS, immediately following the execution and delivery of this Agreement, and as acondition and inducement to Parent and Merger Sub to enter into this Agreement, each stockholder ofthe Company listed on Annex A (each, a **“Principal Company Stockholder”**) is executing and deliveringto Parent an action by written consent of the Company Stockholders voting in favor of the adoptionof this Agreement and approval of the transactions contemplated hereby, which approval issufficient to constitute the Company Stockholder Approval (together with an irrevocable votingproxy in favor of Parent) and such action by written consent shall be certified by the Secretary ofthe Company as having been filed with the Company;     NOW, THEREFORE, in consideration of the foregoing premises and the respective representations,warranties, covenants and agreements contained herein, and of other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto,intending to be legally bound hereby, agree as follows:**ARTICLE 1****THE MERGER**     1.1 The Merger. Subject to the terms and conditions of this Agreement and theCertificate of Merger in such form as is required by the relevant provisions of the DelawareGeneral Corporation Law (the **“DGCL”**), at the Effective Time, Merger Sub shall be merged with andinto the Company and the separate corporate existence of Merger Sub shall thereupon cease (the**“Merger”**). As a result of the Merger, the outstanding shares of capital stock of Merger Sub andthe Company shall be converted or canceled in the manner provided in Article II
 

 
of this Agreement, the separate corporate existence of Merger Sub shall cease and the Companyshall be the surviving corporation following the Merger (the **“Surviving Corporation”**).     1.2 Closing; Effective Time. The closing of the Merger (the **“Closing”**) shall takeplace at the offices of Morgan, Lewis & Bockius LLP, One Market, Spear Tower, San Francisco,California, at 10:00 a.m. on a date to be specified by the parties which shall be no later thanthree (3) Business Days after the satisfaction (or waiver as provided herein) of the conditions setforth in Article VII (other than those conditions that by their nature will be satisfied at theClosing), unless another time, date and/or place is agreed to in writing by the parties. The dateupon which the Closing occurs is herein referred to as the **“Closing Date.”**Simultaneously with, oras soon as practicable following, the Closing, the Company as the surviving corporation shall filethe Certificate of Merger with the Secretary of State of the State of Delaware as provided inSection 252(c) of the DGCL. The Merger shall become effective at such time as the Certificate ofMerger is so filed or at such later time as is set forth in the Certificate of Merger, ifdifferent, which time is hereinafter referred to as the **“Effective Time.”**     1.3 Effects of the Merger.          (a) At and after the Effective Time, the Merger shall have the effects specified in the DGCL.          (b) At the Effective Time, the Certificate of Incorporation of the Company shall be amendedand restated in its entirety to be identical to the Certificate of Incorporation of Merger Sub asin effect immediately prior to the Effective Time, except that Article I of the Certificate ofIncorporation shall read: “The name of this corporation is Dow Pharmaceutical Sciences, Inc.”. Asso amended and restated, the Certificate of Incorporation of the Company shall be the Certificateof Incorporation of the Surviving Corporation, until amended thereafter in accordance withapplicable Law.          (c) At the Effective Time, the Bylaws of Merger Sub as in effect immediately prior to theEffective Time shall be the Bylaws of the Surviving Corporation (except that all references toMerger Sub in the Bylaws of the Surviving Corporation shall be changed to reflect the name changeof Merger Sub), until amended thereafter in accordance with applicable Law.          (d) At the Effective Time, each of the directors and officers of Merger Sub immediately priorto the Effective Time shall be the directors and officers of the Surviving Corporation, each tohold office until their respective death, permanent disability, resignation or removal or until hisor her respective successor is duly elected and qualified, all in accordance with the Certificateof Incorporation and Bylaws of the Surviving Corporation and applicable Law.     1.4 Further Assurances. If, at any time after the Effective Time, the SurvivingCorporation shall consider or be advised that any deeds, bills of sale, assignments or assurancesor any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, ofrecord or otherwise, in the Surviving Corporation its right, title and interest in, to or under anyof the rights, privileges, powers, franchises, properties or assets of either of the ConstituentCorporations, or (b) otherwise to carry out the purposes of this Agreement, the Surviving
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Corporation and its proper officers and directors or their designees shall be authorized toexecute and deliver, in the name and on behalf of either Constituent Corporation, all such deeds,bills of sale, assignments and assurances and to do, in the name and on behalf of eitherConstituent Corporation, all such other acts and things as may be necessary, desirable or proper tovest, perfect or confirm the Surviving Corporation’s right, title and interest in, to and under anyof the rights, privileges, powers, franchises, properties or assets of such Constituent Corporationand otherwise to carry out the purposes of this Agreement.**ARTICLE 2****MERGER CONSIDERATION; CONVERSION OF SECURITIES**     2.1 Merger Consideration. The aggregate amount to be paid by Parent on the ClosingDate with respect to all of the outstanding shares of capital stock of the Company and any optionsor other rights to acquire any securities of the Company (including (a) the Company’s Class ACommon Stock, par value $.001 (the **“Class A Common Stock”**), (b) the Company’s Class B Common Stock,par value $.001 (the **“Class B Common Stock,”**and together with the Class A Common Stock, the**“Company Common Stock”**), (c) the Company’s Series A Convertible Participating Preferred Stock, parvalue $.001 (the **“Company Preferred Stock”**) and (d) the Company Stock Options, shall equal: (i)$285,000,000 (subject to adjustment as set forth in Section 2.8), (ii) less the IndemnityEscrow Amount, (iii) less the Company’s Net Debt if the Company’s Net Debt is a positiveamount, or plus the absolute value of the Company’s Net Debt if the Company’s Net Debt is anegative amount, each as set forth in the CFO Certificate, (iv) less the [***], (v) lessthe Retention Escrow Amount (the **“Closing Consideration”**); *provided, however*, notwithstanding theforegoing, with respect to any portion of Closing Consideration payable as a result of the absolutevalue of the Company’s Net Debt being a negative amount, the parties agree that Parent may opt todeposit all or a portion of such portion of the Closing Consideration with the Paying Agent afterthe Closing (instead of at the Closing), in which case Parent, subject to the following proviso,may cause the Surviving Corporation to deposit all or a portion of such amount with the PayingAgent and Parent shall deposit any remainder of such amount with the Paying Agent, in each case assoon as practicable, and in any event within one (1) Business Day, after the Closing Date,*provided, further*, that Parent shall not cause the Surviving Corporation to deposit with the PayingAgent any amount of cash that, after such deposit, would cause the Surviving Corporation: (i) to beunable to pay its debts (including trade debts) as they mature; (ii) to have the fair value of theSurviving Corporation’s liabilities exceed the fair value of its assets as a going concern; or(iii) to be left with less than a reasonable amount of capital. Such amount equal to $285,000,000(subject to adjustment as set forth in this Section 2.1, Section 2.8 and Section 2.9), plus anyMilestone Payments paid pursuant to Section 2.10, plus any IDP-111 Revenue paid pursuant toSection 2.11 shall be referred to herein as the **“Merger Consideration”**).     2.2 Effect on Company Capital Stock, Company Stock Options.          (a) The Company agrees that, prior to the Effective Time, all outstanding Company Common StockEquivalents other than Company Stock Options, shall be terminated or converted into, or exercisedor exchanged for, shares of Company Common Stock. **“Company Common Stock Equivalents”**meansoptions, warrants, purchase rights, subscription rights, *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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conversion rights, exchange rights or any other Contracts that, directly or indirectly, couldrequire the Company to issue, sell or otherwise cause to become outstanding shares of CompanyCommon Stock. “Company Stock Options” means options to purchase shares of Company Common Stockissued pursuant to the Company’s 2001 Stock Plan (the **“Company Stock Plan”**).          (b) Subject to Section 2.1, at the Effective Time, by virtue of the Merger and without anyfurther action on the part of Parent, Merger Sub, the Company or any Company Securityholder:               (i) each share of Class A Common Stock issued and outstanding immediately prior to theEffective Time (other than Dissenting Shares and Treasury Shares) shall be converted into the rightto receive: (A) at Closing, an amount in cash equal to the quotient obtained by dividing (1)$17,500,000 by (2) the sum of the number of issued and outstanding shares of Class A Common Stockand the number of shares of Class A Common Stock subject to vested Company Stock Option as ofimmediately prior to the Effective Time (after giving effect to the 50% vesting acceleration ofthen unvested Company Stock Options pursuant to the Company Stock Plan) (such quotient, the **“ClassA Fixed Closing Payment Per Share”**); and (B) any amounts to be distributed with respect to suchshare pursuant to Section 2.3;               (ii) each share of Class B Common Stock issued and outstanding immediately prior to theEffective Time (other than Dissenting Shares and Treasury Shares) shall be converted into the rightto receive any amounts to be distributed with respect to such share pursuant to Section 2.3;               (iii) each share of Company Preferred Stock issued and outstanding immediately prior to theEffective Time (other than Dissenting Shares and Treasury Shares) shall be converted into the rightto receive: (A) at Closing, an amount in cash equal to $5.10345 plus the amount of the cumulatedpreferred dividend between July 1, 2006 and the Closing with respect to such share as provided forin the Company’s certificate of incorporation; and (B) any amounts to be distributed with respectto such share pursuant to Section 2.3;               (iv) each Company Stock Option to purchase shares of Common Stock under the Company Stock Planwhich is outstanding immediately prior to the Closing Date shall not be assumed by Parent and,accordingly, at the Effective Time, shall terminate and cease to be outstanding immediately uponthe Effective Time in accordance with Company Stock Plan. The holders of the Company Stock Optionsshall cease to have any further right or entitlement to acquire shares of common stock of theCompany or any shares of capital stock of Parent under their cancelled Company Stock Options. Inexchange for each such cancelled Company Stock Option, the holder shall be entitled to receive: (A)in the case of Company Stock Options to purchase Class A Common Shares, at Closing, an amount incash equal to the Class A Fixed Closing Payment Per Share multiplied by the number of shares ofCompany Common Stock subject to the cancelled Company Stock Option that were vested as ofimmediately prior to the Effective Time (after giving effect to the 50% vesting accelerationpursuant to the Company Stock Plan); and (B) in the case of all Company Stock Options (and in thecase of Company Stock Options to purchase Class A Common Shares, in addition to the amount providedfor in clause “(A)” of this sentence), any amounts to be distributed pursuant to Section 2.3 withrespect
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to the shares underlying such Company Stock Option that were vested as of immediately prior tothe Effective Time (after giving effect to the 50% vesting acceleration pursuant to the CompanyStock Plan), provided, however, that the aggregate exercise price payable for such vested sharesshall be deducted from the amount otherwise payable to the holder of such Company Stock Option (itbeing understood that the amount to be so deducted shall not be returned to Parent but shall remainwith the Paying Agent as an amount to be distributed by the Paying Agent in accordance with Section2.3(g)); *provided, further, however*, that no such payments shall be made prior to January 1, 2009.The payments to be made in respect of Company Stock Options shall be subject to the collection ofall applicable withholding taxes, and the amount remaining after such taxes are collected shall bepaid to the holder of the cancelled Company Stock Option;               (v) each share of Company Common Stock and Company Preferred Stock held in the Company’streasury (**“Treasury Shares”**) immediately prior to the Effective Time and each share owned by anysubsidiary of the Company shall not represent the right to receive any Merger Consideration, andeach such share shall be canceled and retired and shall cease to exist, and no cash, securities orother property shall be payable in respect thereof; and               (vi) each share of common stock of Merger Sub, par value $.0001 per share, issued andoutstanding immediately prior to the Effective Time shall be converted into and become one fullypaid and non-assessable share of common stock, par value $.0001 per share, of the SurvivingCorporation.     2.3 Payment of Merger Consideration and Closing Payments.          (a) Prior to the Closing, Parent shall enter into an agreement reasonably acceptable to theCompany and Parent with American Stock Transfer and Trust Company, or such other bank or trustcompany of recognized standing that is acceptable to the Company and Parent (the **“Paying Agent”**).          (b) No later than five Business Days prior to the Closing, the Company shall furnish to Parenta computer file containing the names and addresses of Company Securityholders. Promptly followingreceipt of such list (but in no event later than two Business Days prior to the Closing Date),Parent shall cause the Paying Agent to mail to each Company Stockholder a letter of transmittal ina form reasonably satisfactory to Parent and the Company (the **“Transmittal Letter”**). At theClosing, Parent shall deposit, or shall cause to be deposited, with the Paying Agent, in an accountto be maintained solely for the benefit of Parent and its creditors until the later of secondBusiness Day in 2009 or the Closing, and thereafter for the benefit of the Securityholders, theClosing Consideration issuable pursuant to Section 2.1 as of the Effective Time in respect of theCompany Shares (other than Dissenting Shares) and Company Stock Options. Effective the secondBusiness Day in January 2009, the Paying Agent shall be authorized to pay to the Company SecurityHolders amounts from the deposited funds to which they become entitled under Section 2.3(c) on thelater of second Business Day in 2009 or the Closing.          (c) Upon surrender by Company Stockholders to the Paying Agent of a certificate orcertificates representing all of such Company Stockholder’s outstanding shares of Company CommonStock, if applicable, and Company Preferred Stock, if applicable,
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(collectively, **“Certificates”**), and delivery by the Company Stockholders of a duly executedTransmittal Letter, each Company Stockholder shall be entitled to receive in exchange therefor, butin no event prior to the second business day in January 2009, the portion of the ClosingConsideration which such Company Stockholder has the right to receive in respect of the Certificatesurrendered pursuant to the provisions of this Article II. Each Certificate so surrendered shallforthwith be canceled. Parent shall cause the Paying Agent to deliver to each Company Stockholder,promptly following satisfaction of the conditions set forth in this Section 2.3(c), but in no eventprior to the second Business Day in January 2009, such Company Stockholder’s portion of the ClosingConsideration. The Option Payments to which holders of the Company Stock Options are entitledpursuant to Section 2.2(b)(iv) shall be paid by the Paying Agent to them on the second Business Dayin January 2009.          (d) Between the Closing Date and the date six (6) months following the Closing Date, Parentshall cause to be delivered to US Bank as escrow agent (the **“Escrow Agent”**) for the benefit of theCompany Securityholders [***] an aggregate amount equal to $35,000,000 (the **“Indemnity EscrowAmount”**), subject to and in accordance with the provisions of Section 9.3 hereof; *provided*, that ifthe entire Indemnity Escrow Amount is not delivered to the Escrow Agent prior to the date six (6)months from the Closing Date, Parent shall cause the difference between the Indemnity Escrow Amountand such aggregate amount previously delivered to the Escrow Agent (such amount, the **“EscrowShortfall Amount”**) to be delivered to the Escrow Agent on the date six (6) months following theClosing Date; *provided further*, that either the Escrow Agent or the Stockholders Representativeshall deliver to Parent (with a copy to the Stockholders Representative or Escrow Agent, asapplicable) written notice of Parent’s failure to deliver the Escrow Shortfall Amount to the EscrowAgent by the date six (6) months following the Closing Date. If within ten (10) Business Daysafter receipt of such written notice Parent has not delivered such Escrow Shortfall Amount to theEscrow Agent, then [***]. The Indemnity Escrow Amount, together with any and all income andproceeds thereon, in the possession of the Escrow Agent at any given time shall be referred tohereinafter as the **“Indemnity Escrow Fund.”**The Indemnity Escrow Fund shall be held in escrow (the**“Indemnity Escrow Account”**) by the Escrow Agent in accordance with the Escrow Agreementsubstantially in the form attached as **Exhibit A**hereto (the **“Escrow Agreement”**) and shall beavailable to compensate Parent for certain damages as provided in Article IX and any adjustment asprovided in Section 2.9 hereto. To the extent not used for such purposes, the Indemnity EscrowFund shall be released as provided in Article IX and the Escrow Agreement. *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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          (e) None of Parent, Merger Sub or the Company shall be liable to any Person in respect of any cashor other property delivered to a public official pursuant to any applicable abandoned property,escheat or similar Law. If any Certificates shall not have been surrendered prior to eighteenmonths after the Effective Time (or immediately prior to such earlier date on which any paymentpursuant to this Article II would otherwise escheat to or become the property of any GovernmentalEntity), the portion of the Merger Consideration in respect of such Certificate shall be returnedto Parent and, to the extent not claimed by the appropriate Company Securityholder and to theextent permitted by applicable Law, shall become the property of Parent, free and clear of allclaims or interest of any Person previously entitled thereto.          (f) Immediately prior to the Closing, the Company shall pay (i) all Company TransactionExpenses set forth in the CFO Certificate, and (ii) any amounts payable by the Company to employeesof the Company as a result of the consummation of the transactions contemplated by this Agreement,including without limitation, amounts payable under any management retention bonus plan butexcluding any payments pursuant to Sections 2.2, 2.3, 2.8, 2.9, 2.10 and 2.11 (**“Employee ClosingPayments”**), the distribution of such amounts to employees shall be conditioned upon the receipt ofa release in form and substance reasonably satisfactory to Parent from each such employee releasingall claims to amounts described in clause (ii) hereof. The Employee Closing Payments shall besubject to the collection of all applicable federal, state, local and foreign income and employmentwithholding taxes by the Company arising in connection therewith and the cash amount paid to eachsuch recipient shall accordingly be reduced by the amount of those withholding taxes.          (g) [***].          (h) Subject to Section 2.1, Section 2.3(c) and Section 2.2(b)(iv), no later than seven (7)Business Days following receipt by the Paying Agent of a deposit from Parent, the Escrow Agent orthe Retention Plan Escrow Agent, the Paying Agent shall distribute such amount to the CompanySecurityholders as follows:               (i) first, the payments to be made at Closing to the holders of Class A Common Stock, CompanyStock Options to purchase shares of Class A Common Stock and Company Preferred Stock pursuant toSections 2.2(b)(i), 2.2(b)(iii) and 2.2(b)(iv); then               (ii) to the Company Securityholders on a pro rata (i.e. on a relative as converted/exercisedto Common Stock) basis (treating the Company Stock Options as though they had been exercised to theextent vested as of immediately prior to the Effective Time (after giving effect to the 50% vestingacceleration of then unvested Company Stock Options pursuant to the Company Stock Plan)) up to anaggregate distribution to the Company Securityholders (including distributions pursuant to Section2.3(h)(i)) of [***]; then *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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               (iii) to the holders of Class A Common Stock, Class B Common Stock and Company Stock Optionson a pro rata basis (treating the Company Stock Options as though they had been exercised to theextent vested as of immediately prior to the Effective Time (after giving effect to the 50% vestingacceleration of then unvested Options pursuant to the Company Stock Plan)) up to an aggregatedistribution to the Company Securityholders (including distributions pursuant to Section 2.3(h)(i)and 2.3(h)(ii)) of [***]; then               (iv) to the Company Securityholders on a pro rata basis (treating the Company Stock Optionsas though they had been exercised to the extent vested as of immediately prior to the EffectiveTime (after giving effect to the 50% vesting acceleration of then unvested Company Stock Optionspursuant to the Company Stock Plan)). At Closing, Parent and the Company shall deliver to thePaying Agent a schedule listing the amount each Company Securityholder is to receive at Closingpursuant to Section 2.3(h)(i) and each Company Securityholder’s pro rata percentage for each ofthe distributions referred to in Sections 2.3(h)(ii), (iii) and (iv).          (i) At the Closing, Parent shall deposit, or shall cause to be deposited, cash in the amountof [***] (the **“Retention Escrow Amount”**) with the escrow agent (the **“Retention Plan Escrow Agent”**)identified in the Company’s employee retention plan to be established by the Company prior to theClosing as contemplated by Section 5.2 of the Disclosure Schedule.     2.4 No Further Ownership Rights in Company Common Stock or Company Stock Options. Thepayment of the Merger Consideration pursuant to the terms of this ARTICLE II in respect of eachshare of Company Common Stock and each Company Stock Option owned by the Company Securityholdersshall be deemed to have been paid in full satisfaction of all rights pertaining to each such shareof Company Common Stock and each Company Stock Option, and there shall be no further registrationof transfers on the stock transfer books of the Surviving Corporation of the shares of CompanyCommon Stock which were outstanding immediately prior to the Effective Time. If, after theEffective Time, Certificates are presented for transfer to the Surviving Corporation, they shall becanceled and exchanged in accordance with the procedures set forth in this Article II.     2.5 Lost Certificates. In the event any Certificate shall have been lost, stolen ordestroyed, Parent may, in its reasonable discretion and as a condition precedent to thedisbursement of the Merger Consideration in respect of shares of Company Common Stock representedby such Certificate, require the owner of such lost, stolen or destroyed Certificate to make anaffidavit of that fact containing such indemnification provisions as Parent may reasonably request,including the posting of a standard bond required by Parent’s transfer agent as indemnity againstany claim that may be made against it or the Surviving Corporation with respect to suchCertificate.     2.6 Dissenters’ Rights.          (a) Notwithstanding anything in this Agreement to the contrary, any Company Shares held by anyCompany Stockholder who shall have demanded and not lost or withdrawn, or who shall be eligible todemand, appraisal or dissenter rights with respect to such Company *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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Shares in the manner provided in the California General Corporate Law (the “CGCL”) or the DGCL(**“Dissenting Shares”**) shall not represent the right to receive the Merger Consideration. If anyCompany Stockholder shall fail to perfect or shall effectively withdraw or lose his or her right toappraisal and payment under the CGCL or the DGCL, as the case may be, each Company Share held bysuch Company Stockholder shall thereupon, in accordance with and subject to the provisions setforth in this Article II, represent the right to receive the Merger Consideration and Parent shallpromptly deposit such Company Stockholder’s portion of the Closing Consideration with the PayingAgent.          (b) The Company shall give Parent prompt notice of any demands for appraisal received by theCompany, withdrawals of such demands, and any other communications received by the Company inconnection with any demands for appraisal. The Company shall not, except with the written consentof Parent, voluntarily make any payment with respect to any such demands. Parent shall have theright to control all negotiations and proceedings with respect to demands for appraisal, provided,however, that if Parent settles such demand without the consent of the Company (or the StockholderRepresentative if post Closing), which consent shall not be unreasonably withheld, then no ParentIndemnitee shall have a right for indemnification with respect to such demand pursuant to Section9.2(a)(iii).     2.7 Withholding. Paying Agent, on behalf of Parent, shall be entitled to deduct andwithhold from the consideration payable pursuant to this Agreement to any holder of shares ofCompany Common Stock or Dissenting Shares such amounts as it is required to deduct and withholdwith respect to the making of such payment under the Code or any provision of applicable Tax Law.To the extent that amounts are so withheld by Paying Agent or Parent, such withheld amounts shallbe treated for all purposes of this Agreement as having been paid to the holder of shares ofCompany Common Stock or Dissenting Shares in respect of which such deduction and withholding wasmade by Paying Agent or Parent.     2.8 Determination of Closing Working Capital.          (a) No later than two (2) Business Days prior to the Closing Date, the Company shall deliverto Parent an estimated balance sheet as of the Closing Date, which shall include a good faithcalculation of the estimated Working Capital as of the Closing Date prepared in accordance with theWorking Capital Methodology applied on a basis consistent with its application in the preparationof the Balance Sheet (except as otherwise provided in the following sentence) (the **“EstimatedClosing Working Capital”**). **“Working Capital”**as of any date means the amount equal to the AcquiredCorporations’ Current Assets minus Current Liabilities. For purposes of clarity, the definition ofWorking Capital is after the subtraction of all cash, cash equivalents and short term investmentsfrom the balance sheet as consistent with the definition of Current Assets.               (i) If the Estimated Closing Working Capital is less than [***], the Closing Consideration shallbe reduced by the difference between [***] and the Estimated Closing Working Capital. *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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               (ii) If the Estimated Closing Working Capital is greater than [***], the Closing Considerationshall be increased by the difference between the Estimated Closing Working Capital and [***].          (b) Within 60 days after the Closing Date, Parent will prepare, or cause to be prepared, anddeliver to the Stockholder Representative an unaudited statement (the **“Closing Working CapitalStatement”**), which shall set forth Parent’s good faith calculation of Working Capital as of theClosing Date (**“Closing Working Capital”**). The Closing Working Capital Statement shall be preparedin accordance with Working Capital Methodology applied on a basis consistent with its applicationin the preparation of the Balance Sheet (except as otherwise provided in Section 2.8(a)). Parentshall make available to the Stockholder Representative or any of its agents or representatives allrelevant books, records, supporting calculations and other items reasonably requested by theStockholder Representative or any of its agents or representative.          (c) Upon receipt from Parent, the Stockholder Representative shall have 30 days to review theClosing Working Capital Statement (the **“Review Period”**). If the Stockholder Representativedisagrees with Parent’s computation of Closing Working Capital, the Stockholder Representative may,on or prior to the last day of the Review Period, deliver a notice to Parent (the **“Notice ofObjection”**), which sets forth the Stockholder Representative’s objections to Parent’s calculationof Closing Working Capital. Any Notice of Objection shall specify those items or amounts withwhich the Stockholder Representative disagrees, together with a reasonably detailed writtenexplanation of the reasons for disagreement with each such item or amount, and shall set forth theStockholder Representative’s calculation of Closing Working Capital based on such objections. Tothe extent Parent has not made available to the Stockholder Representative or any of its agents orrepresentatives all relevant books, records, supporting calculations and other items reasonablyrequested by the Stockholder Representative or any of its agents or representative, the Notice ofObjection shall specify such fact in the Notice of Objection. Promptly after receiving such Noticeof Objection Parent shall make available to the Stockholder Representative items reasonablyrequested by the Stockholder Representative in such Notice of Objection. To the extent not setforth in the Notice of Objection, the Stockholder Representative shall be deemed, on behalf of allCompany Securityholders, to have agreed with Parent’s calculation of all other items and amountscontained in the Closing Working Capital Statement.          (d) Unless the Stockholder Representative delivers the Notice of Objection to Parent within theReview Period, the Stockholder Representative shall be deemed, on behalf of all CompanySecurityholders, to have accepted Parent’s calculation of Closing Working Capital and the ClosingWorking Capital Statement shall be final, conclusive and binding. If the StockholderRepresentative delivers the Notice of Objection to Parent within the Review Period, Parent and theStockholder Representative shall, during the 30 days following such delivery or any mutually agreedextension thereof, use their commercially reasonable efforts to reach agreement on the disputeditems and amounts in order to determine the amount of Closing Working Capital. If, at the end ofsuch period or any mutually agreed extension thereof, Parent and the Stockholder Representative areunable to resolve their disagreements, they shall jointly retain and refer their disagreements to anationally recognized independent accounting firm mutually acceptable to Parent and the StockholderRepresentative (neither of which will *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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unreasonably withhold consent thereto) (the **“Independent Expert”**). Parent and the StockholderRepresentative shall instruct the Independent Expert promptly to review this Section 2.8 and todetermine solely with respect to the disputed items and amounts so submitted whether and to whatextent, if any, the Closing Working Capital set forth in the Closing Working Capital Statementrequires adjustment. The Independent Expert shall base its determination solely on writtensubmissions by Parent and the Stockholder Representative and not on an independent review. Parentand the Stockholder Representative shall make available to the Independent Expert all relevantbooks and records and other items reasonably requested by the Independent Expert. Parent and theStockholder Representative shall request that the Independent Expert deliver to Parent and theStockholder Representative, as promptly as practicable but in no event later than 45 days after itsretention, a report which sets forth its resolution of the disputed items and amounts and itscalculation of Closing Working Capital; *provided*, that in no event shall Closing Working Capital asdetermined by the Independent Expert be less than Parent’s calculation of Closing Working Capitalset forth in the Closing Working Capital Statement nor more than the Stockholder Representative’scalculation of Closing Working Capital set forth in the Notice of Objection. The decision of theIndependent Expert shall be final, conclusive and binding on the parties. The costs and expensesof the Independent Expert shall be allocated between Parent and the Stockholder Representativebased upon the percentage which the portion of the contested amount not awarded to each such Partybears to the amount actually contested by such Party; provided, that the portion allocated to theStockholder Representative shall be recoverable only from the Escrow Fund, and the StockholderRepresentative shall not be personally liable therefor. Each of the Parent and the StockholderRepresentative agrees to execute, if requested by the Independent Expert, a reasonable engagementletter, including customary indemnities in favor of the Independent Expert.     2.9 Working Capital Adjustment.          (a) Definitions: For purposes of this Agreement:               (i) **“Final Working Capital”**means the Closing Working Capital (A) as shown in the ClosingWorking Capital Statement delivered by Parent to the Stockholder Representative pursuant to Section2.8(a), if no Notice of Objection with respect thereto is timely delivered by the StockholderRepresentative to Parent pursuant to Section 2.8(c); or (B) if a Notice of Objection is sodelivered, (x) as agreed by Parent and the Stockholder Representative pursuant to Section 2.8(c) or(y) in the absence of such agreement, as shown in the Independent Expert’s calculation deliveredpursuant to Section 2.8(c).               (ii) **“Resolution of the Final Working Capital”**means: (A) if no Notice of Objection is timelydelivered by the Stockholder Representative pursuant to Section 2.8(c), the day following thetermination of the Review Period; or (B) if a Notice of Objection is so delivered, (x) and theParent and the Stockholder Representative reach an agreement pursuant to Section 2.8(c), then onsuch date that the parties reach such an agreement, or (y) in the absence of such agreement, on thedate when the final decision with respect to the Final Working Capital is delivered by theIndependent Expert pursuant to Section 2.8(c).          (b) Within 3 Business Days following the Resolution of the Final Working Capital:
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               (i) Parent shall be entitled to receive a distribution from the Indemnity Escrow Fund as anadjustment to the Merger Consideration, equal to the positive amount, if any, by which FinalWorking Capital is less than the Estimated Closing Working Capital (**“Working Capital Deficit”**),together with interest from and including the Closing Date to but excluding the date of payment ata rate per annum equal to the Prime Rate as published in *The Wall Street Journal*, Eastern Editionin effect from time to time during the period from the Closing Date to the date of payment (the**“Interest Rate”**). Interest shall be calculated daily on the basis of a year of 365 days and theactual number of days elapsed, without compounding. The Stockholder Representative and the Parentshall promptly execute joint written notice instructing the Escrow Agent to release the WorkingCapital Deficit, if any, and the applicable Interest Rate pursuant to this Section 2.9(b)(i) fromthe Indemnity Escrow Fund.               (ii) The Parent shall deposit with and cause the Paying Agent to distribute to the CompanySecurityholders an amount equal to the positive amount, if any, by which Final Working Capital ismore than the Estimated Closing Working Capital (the **“Positive Capital Adjustment”**), together withinterest from and including the Closing Date to but excluding the date of payment at the at a rateper annum equal to the Interest Rate (such interest together with the Positive Capital Adjustment,the **“Total Adjustment Increase”**). The Paying Agent shall distribute to each Company Securityholderan amount equal to such Company Securityholder’s Escrow Participation Percentage multiplied by theTotal Adjustment Increase.          (c) Any payment made pursuant to this Section 2.8(a) shall be deemed to be an adjustment tothe Merger Consideration. Any rights accruing to a party under this Section 2.8(a) shall be inaddition to and independent of the rights to indemnification under ARTICLE IX. Any payments madeto any party under this Section 2.8(a) shall not be subject to the terms of ARTICLE IX.     2.10 Milestone Payments.          (a) Subject to the terms and conditions of this Agreement, the Company Securityholders shallbe entitled to a milestone payment (each payment as it relates to a particular event for a product,a **“Milestone Payment”**) in respect of each of the following events (each, a **“Milestone”**) for theproducts in development listed below (the **“Milestone Products”**) in the particular amounts specifiedbelow after the occurrence of the corresponding Milestone:
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[***]          (b) Definitions: For purposes of Milestone Payments:               (i) **“Annual Net Sales”**means [***].               (ii) [***].               (iii) **“Net Sales”**means, with respect to each Milestone Product, the gross invoiced UnitedStates commercial sales of the Milestone Product by any of Parent, the Acquired Companies, anypurchaser or transferee of any of the Intellectual Property material to a Milestone Product, or anyof their respective Affiliates successors or permitted assigns to third parties, commencing withthe first commercial sale less the following normal and customary, as consistently applied,deductions to the extent included in the gross invoiced sales price for the Milestone Product: (i)normal and customary trade, cash and quantity discounts actually given, coupons actually taken,credits, price adjustments or allowances for damaged products, returns or rejections of products;(ii) adjustments, allowances, credits, fees, reimbursements, chargeback payments and rebates (orthe equivalent thereof) for the Milestone Product granted to group purchasing organizations orother buying groups, managed health care organizations, pharmacy benefit management companies,health maintenance organizations and any other providers of health insurance coverage, health careorganizations or other health care institutions (including hospitals), third party health careadministrators or patient assistance or other similar programs, or to federal, state/provincial,local and other governments, including their agencies, or to wholesalers, distributors or othertrade customers; (iii) reasonable and customary freight, shipping insurance and othertransportation expenses (if actually borne by the Acquired Companies without reimbursement from anythird party) to the extent included in the gross invoiced amount and separately itemized in theinvoice; (iv) required distribution commission/fees payable to any third party providingdistribution services to the extent included in the gross invoiced amount and separately itemizedin the invoice, (v) sales, value-added, excise taxes, tariffs and duties, and other taxes andgovernment charges directly related to the sale, to the extent that such items are included in thegross invoice price of the Products (but not *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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including taxes assessed against the income derived from such sale); and (vi) any itemsubstantially similar in character or substance to any of the foregoing permitted by generallyaccepted accounting principles and customary in the pharmaceutical industry. The transfer ofMilestone Products by an Acquired Company to another Acquired Company shall not be considered asale. [***].               (iv)  [***].               (v)   [***].               (vi)  [***].               (vii) [***].          (c) Milestones Payable Only Once. The Parties understand and agree that each of the MilestonePayments referenced under Section 2.10(a), shall be payable only once, upon the first occurrence ofthe applicable Milestone, and are subject to the terms and conditions set forth in this Section2.10; *provided*, [***]. *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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     (d) Reports. Parent shall provide a written report to the Stockholder Representative withinthirty (30) days following the end of each calendar quarter in which there are Net Sales, the NetSales for such calendar quarter, together with information in sufficient detail in order to allowthe Stockholder Representative to confirm such Net Sales. At the end of each calendar quarterbeginning with the end of the fourth quarter following the Closing, Parent shall provide a writtenreport to the Stockholder Representative within thirty (30) days following the end of such quarterspecifying the aggregate Net Sales [***] and the amount of the Milestone Payment, if any, to whichthe Company Securityholders are entitled with respect thereto. Parent shall provide written noticeto the Stockholder Representative of the occurrence of, and the amount of the Milestone Payment towhich the Company Securityholders are entitled with respect thereto, any of the following withinten (10) Business Days following its occurrence: [***]. Any date on which Parent is to provide awritten report pursuant this Section 2.10(d) is referred to as a **“Milestone Notice Date.”**          (e) Payment of Milestone Payments. Parent shall use, and shall cause the SurvivingCorporation and their respective affiliates to use, their commercially reasonable efforts todevelop and commercialize each Milestone Product and not to take any action primarily designed toavoid payment of any Milestone Payment. Parent shall cause each Milestone Payment to bedistributed to the Paying Agent for distribution to the Company Securityholders within seven (7)Business Days following a Milestone Notice Date relating thereto; provided, that any such MilestonePayment shall be net of any expenses of the Paying Agent incurred or reasonably expected to beincurred (as estimated in good faith by the Paying Agent) by Parent with respect thereto.Notwithstanding the foregoing:               (i) [***];               (ii) for purposes of clause “(i)” of this sentence, in the event any payment or portion of a payment toParent or any of its Affiliates is [***];               (iii) for purposes of clause “(i)” of this sentence, in the event any payment or portion of apayment to Parent or any of its Affiliates is [***]; and *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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               (iv) for purposes of clause “(i)” of this sentence, in the event any payment or portion of apayment to Parent or any of its Affiliates is [***].          (f) Notwithstanding the foregoing, to the extent it has been determined pursuant to Section9.4 that Parent is entitled to be indemnified for [***], such indemnification obligation may besatisfied, at Parent’s election, [***]; *provided*, that [***]; *provided further*, [***].          (g) Notwithstanding the foregoing, to the extent it has been determined pursuant to Section9.4 that Parent is entitled to be indemnified for any Losses with respect to [***] after thetermination of the Indemnity Escrow Fund, [***].          (h) Notwithstanding anything to the contrary contained in this Agreement, [***] shall relieveParent of its obligations to make Milestone Payments upon achievement of the Milestones.          (i)[***]:               (i) Each of Parent and the Stockholder Representative shall appoint and pay for their ownindependent bank of international reputation to determine [***]; *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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               (ii) Indetermining the [***] each bank shall be granted [***].               (iii) [***] calculated by the bank appointed by such party within 10 days of the receipt of therespective reports.               (iv) [***].               (v)  [***].     2.11  IDP-111 Royalty.          (a) Subject to the terms and conditions of this Agreement, the Company Securityholders shallbe entitled to the Company Securityholder’s Escrow Participation Percentage of the IDP-111 RoyaltyAmount.          (b) **“IDP-111 Royalty Amount”**means [***].          (c) **“IDP-111 Royalty Payments”**means [***].          (d) IDP-111 Royalty Reports. Parent shall report to the Stockholder Representative withinthirty (30) days following each six-month period ending June 30 and December 31 in which Parent,the Surviving Corporation or any of their affiliates is entitled to receive a royalty payment[***], the amount of such royalties for such six-month period, the amount of the IDP-111 RoyaltyPayments, together with information in sufficient detail in order to allow the StockholderRepresentative to confirm the amount of such royalties, and calculation of the IDP-111 RoyaltyAmount to which the Company Securityholders are entitled. Any date on which Parent is to provide awritten semi-annual report pursuant this Section 2.11(c) is referred to as a **“Royalty Notice Date.”**          (e) Payment of IDP-111 Royalty Amounts. Parent shall cause each payment of IDP-111 RoyaltyAmounts to be distributed, within seven (7) Business Days following a *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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Royalty Notice Date relating thereto, to the Paying Agent to be distributed to the CompanySecurityholders; *provided*, that notwithstanding the foregoing Parent shall cause any [***] to bedistributed, within seven (7) Business Days following the date Parent or its Affiliate receiveswritten notice [***], to the Paying Agent to be distributed to the Company Securityholders;*provided further*, that any such payments shall be net of any expenses of the Paying Agent incurredor reasonably expected to be incurred (as estimated in good faith by the Paying Agent) by Parentwith respect thereto.          (f) Notwithstanding the foregoing, to the extent it has been determined pursuant to Section9.4 that Parent is entitled to be indemnified for [***], such indemnification obligation may besatisfied, at Parent’s election, out of the Indemnity Escrow Fund, [***]; *provided, that*[***].          (g) Notwithstanding the foregoing, to the extent it has been determined pursuant to Section9.4 that Parent is entitled to be indemnified for any Losses with respect to [***] after thetermination of the Indemnity Escrow Fund, [***].          (h) Parent shall not, and shall cause the Surviving Corporation and Parent’s other affiliatesnot to: (i) amend, modify or assign the [***]. Upon delivery of such notice, the parties shallnegotiate in good faith [***].          (i) Parent shall, and shall cause the Surviving Corporation and Parent’s other Affiliates, asapplicable, to use commercially reasonable efforts to collect the royalty payments owed [***]. *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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     2.12 Claims for Milestone Payments and IDP-111 Royalty Amounts.          (a) If the Stockholder Representative desires to audit compliance with Section 2.10 or Section2.11, the Shareholder Representative shall give written notice to Parent of its desire to conductsuch audit (the **“Audit Notice”**).          (b) The Stockholder Representative shall promptly (and in any event within ten (10) BusinessDays after the date of the Audit Notice) be afforded, during normal business hours, upon thereasonable request by the Stockholder Representative, access to such information as may reasonablybe required for the purposes of determining compliance with Section 2.10 or 2.11 in the possessionof Parent or its affiliates or any professional adviser of any of them, upon request, with therights to make copies thereof (at the cost of the Stockholder Representative), and such personsshall generally provide all reasonable assistance and information necessary for the purpose ofverifying compliance with Sections 2.10 and 2.11.          (c) At any time prior to the date (the **“Claim Deadline”**) ten (10) Business Days following thereceipt by the Stockholder Representative of a written notice from Parent pursuant to Section 2.10or 2.11 as to whether or not the Company Securityholders are entitled to a Milestone Payment orIDP-111 Royalty Amount (the **“Royalty/Milestone Notice”**, the Stockholder Representative may deliverto Parent a written notice (the **“Royalty/Milestone Response”**) in which the StockholderRepresentative claims that a Milestone Payment or IDP-111 Royalty Amount is owed or disagrees withthe Royalty/Milestone Notice. If the Stockholder Representative asserts in the Royalty/MilestoneResponse that a Milestone Payment or IDP-111 Royalty Amount is owed or that it disagrees with theRoyalty/Milestone Notice, such claim or disagreement shall be referred to as the **“ContestedRoyalty/Milestone Claim.”**If no Royalty/Milestone Response is delivered by the applicable ClaimDeadline, then, for purposes of this Agreement, the Stockholder Representative shall be deemed tohave agreed that the amount, if any, of the Milestone Payment or IDP-111 Royalty Amount, asapplicable, stated in the Royalty/Milestone Notice is owed to the Company Securityholders.          (d) The Stockholder Representative and Parent shall attempt in good faith to resolve thedispute related to any Contested Royalty/Milestone Claim. If Parent and the StockholderRepresentative resolve such dispute and agree on the amount owed to the Company Securityholders(the **“Stipulated Royalty/Milestone Amount”**), then within seven (7) Business Days of such agreementParent shall cause the Stipulated Royalty/Milestone Amount (less any amount previously paid withrespect to the applicable Royalty/Milestone Notice) to be distributed to the Paying Agent to bedistributed to the Company Securityholders; *provided*, that any such payment shall be net of anyexpenses of the Paying Agent incurred or reasonably expected to be incurred (as estimated in goodfaith by the Paying Agent) by Parent with respect thereto.          (e) If the Stockholder Representative and Parent are unable to resolve the dispute relating toany Contested Royalty/Milestone Amount during the 30-day period commencing upon the receipt of theRoyalty/Milestone Response Notice by Parent, then either Parent or the Stockholder Representativemay submit the contested portion of the claim to binding arbitration in Santa Clara County,California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then ineffect and as described more fully in
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Section 9.4 hereof. The decision of the arbitrator shall relate solely: (i) to whether theCompany Securityholders are entitled to a Milestone Payment or IDP-111 Royalty Amount, asapplicable, and the amount, if any, thereof; and (ii) to the determination of whether theStockholder Representative is the prevailing party as provided below. The final decision of thearbitrator shall be furnished to the Stockholder Representative in writing, shall constitute aconclusive determination of the issues in question, binding upon the Stockholder Representative,the Company Securityholders (other than holders of Dissenting Shares) and Parent and shall not becontested by any of them. If the Stockholder Representative is determined by the arbitrator to bethe prevailing party, then the aggregate dollar amount of the arbitrator’s award to the CompanySecurityholders shall be increased by the amount of the reasonable expenses (including attorneys’fees) of the Stockholder Representative, and the fees and expenses associated with the arbitration(including the arbitrator’s fees and expenses). If the arbitrator determines that Parent is theprevailing party, then any amount awarded by the arbitrator to the Company Securityholders shall bereduced by the amount of the reasonable expenses (including attorneys’ fees) of Parent, and thefees and expenses associated with the arbitration (including the arbitrator’s fees and expenses),and if no amount is awarded to the Company Securityholders, the Stockholder Representative shallreimburse Parent for its reasonable expenses (including attorneys’ fees) and pay the fees andexpenses associated with the arbitration (including the arbitrator’s fees and expenses). The finaldecision of the arbitrator shall include the total dollar amount of the award to Parent or to theSecurityholders, if any (the **“Royalty/Milestone Award Amount”**), and shall be furnished to theStockholder Representative and Parent in writing. Within seven (7) Business Days following thereceipt of the final award of the arbitrator setting forth the Award Amount in favor of the CompanySecurityholders, Parent shall cause the Royalty/Milestone Award Amount to be distributed to thePaying Agent to be distributed to the Company Securityholders; *provided*, that any such paymentshall be net of any expenses of the Paying Agent incurred or reasonably expected to be incurred (asestimated in good faith by the Paying Agent) by Parent with respect thereto.**ARTICLE 3****REPRESENTATIONS AND WARRANTIES OF THE COMPANY**     Except as set forth in the disclosure schedule dated and delivered as of the date hereof bythe Company to Parent (the **“Company Disclosure Schedule”**) (in accordance with Section 10.12) theCompany represents and warrants to Parent and Merger Sub as follows:     3.1 Organization and Good Standing.          (a) The Company is a corporation duly organized, validly existing and in good standing underthe Laws of the jurisdiction of its incorporation, has all requisite power to own, lease andoperate its properties and to carry on its business as now being conducted, and is duly qualifiedto do business and is in good standing as a foreign corporation in each jurisdiction in which itowns or leases property or conducts any business so as to require such qualification, except forsuch failures to qualify that could not reasonably be expected to cause, individually or in theaggregate, a Company Material Adverse Effect. Section 3.1(a) of the Company Disclosure Schedulelists each jurisdiction in which the Company is qualified to do business.
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          (b) The Company is not in default under its Charter Documents. The Charter Documents of theCompany in the forms attached to Section 3.1(b) of the Company Disclosure Schedule are the CharterDocuments of the Company as in effect on the date of this Agreement and as of the Closing Date.     3.2 Capitalization.          (a) The authorized capital stock of the Company consists of (i) 27,200,000 shares of CommonStock, of which 7,200,000 shares are Class A Common Stock and 20,000,000 shares are Class B CommonStock, and (ii) 7,400,000 shares of Company Preferred Stock, of which 7,400,000 shares are Series APreferred Stock. As of the date of this Agreement, there are (i) 5,080,250, shares of Class ACommon Stock issued and outstanding, (ii) 11,878 shares of Class B Common Stock issued andoutstanding, and (iii) 7,399,996 shares of shares of Series A Preferred Stock issued andoutstanding, and no other shares of Common Stock or Company Preferred Stock are issued oroutstanding. All issued and outstanding shares of Company Common Stock and Company Preferred Stock(collectively, the **“Company Shares”**) have been duly authorized and validly issued, are fully paidand non-assessable, and were issued in compliance with all applicable federal and state securitiesLaws.          (b) Section 3.2(b) of the Company Disclosure Schedule contains a true and complete list of therecord holders of the Company Shares and sets forth the name, address on record and number andclass of Company Shares owned by each holder.          (c) The Company has duly reserved 3,045,647 shares of Common Stock for future issuancepursuant to the Company Stock Plan, 1,845,647 of which are Company Class A Common Stock and1,200,000 of which are Class B Common Stock, of which Company Stock Options to purchase 1,207,959shares of Class A Common Stock are outstanding as of the date of this Agreement and 1,034,092shares of Class B Common Stock are outstanding as of the date of this Agreement. The Company doesnot have any outstanding warrants to purchase shares of the Company’s capital stock. Section3.2(c) of the Company Disclosure Schedule sets forth with respect to each Company Stock Option thatis outstanding as of the date of this Agreement: (i) the name of the holder of such Company StockOption; (ii) the date on which such Company Stock Option was granted; (iii) the expiration date ofsuch Company Stock Option; (iv) the total number of shares of each class of Company Common Stockthat were originally subject to such Company Stock Option; (v) the number of shares of each classof Company Common Stock that remain subject to such Company Stock Option and the number of suchshares of Company Common Stock that have vested; (vi) the vesting schedule for such Company StockOption; (vii) the exercise price per share of each class and series of Company Common Stockpurchasable under such Company Stock Option; and (viii) whether such Company Stock Option has beendesignated an “incentive stock option” as defined in section 422 of the Code. The Company has madeavailable to Parent accurate and complete copies of (A) its standard form of option agreement, (B)any option agreement that deviates in any material respect from the standard form of optionagreement, and (C) the Company Stock Plan. There are no issued or outstanding shares of CompanyCommon Stock that are subject to vesting or a repurchase option in favor of the Company.
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          (d) Except for (i) the Company Shares outstanding as of the date hereof, and (ii) the CompanyStock Options under the Company Stock Plan outstanding as of the date hereof, the Company does nothave outstanding securities of any kind. Except as set forth in the preceding sentence, theCompany is not a party to any Contract obligating the Company, directly or indirectly, to issueadditional securities and there is no circumstance or condition that may give rise to a claim byany Person that such Person is entitled to acquire any securities of the Company.          (e) All outstanding Company Stock Options have been duly authorized and validly issued andwere issued in compliance with all applicable federal and state securities Laws. All shares ofCompany Common Stock subject to issuance upon exercise, conversion and/or exchange of Company StockOptions, upon issuance in accordance with the terms and conditions specified in the instrumentspursuant to which they are issuable, will be duly authorized, validly issued, fully paid andnonassessable.          (f) Neither the consummation of the transactions contemplated by this Agreement, nor anyaction taken or to be taken by the Company in connection with such transactions, will result in (i)any acceleration of exercisability or vesting (including, without limiting the foregoing, any rightto acceleration of vesting that is contingent upon the occurrence of a subsequent event) in favorof any holder of any Company Stock Option or (ii) any additional benefits for any holder of anyCompany Stock Option with respect to such Company Stock Option. Each holder of a Company StockOption has been or will be given, or shall have properly waived, any required notice of the Mergerprior thereto, and all such rights of notice will terminate at or prior to the Effective Time.          (g) None of the Company Shares and Company Stock Options were issued, or, to the Company’sKnowledge as of the date of this Agreement, have been transferred, in violation of, or are subjectto, any preemptive rights, rights of first offer or subscription agreements. The Company is not aparty to any stockholder agreements, voting agreements, voting trusts or any such other similararrangements with respect to the transfer, voting or other rights associated with its securities,and there are no such agreements to which the Company is not a party.          (h) The conversion, exercise and/or exchange of Company Stock Options prior to the EffectiveTime will be in compliance with the terms of the agreement pursuant to which such securities wereissued and in compliance with all federal and state securities Laws, and the issuance of shares ofCompany Common Stock upon conversion, exercise and/or exchange of such securities shall have beenduly authorized by all requisite corporate action on the part of the Company. Any such issuance ofshares of Company Common Stock upon conversion, exercise and/or exchange of such securities shallbe in accordance with the Company’s Charter Documents and shall not violate the rights of anyCompany Stockholder under the Company’s Charter Documents or, to the Company’s actual knowledge,any other agreement.          (i) The Company has not repurchased or otherwise reacquired any of its securities. There areno obligations, contingent or otherwise, of the Company to repurchase,
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redeem or otherwise acquire any of its securities. There are no declared or accrued unpaiddividends with respect to any of the Company’s securities.          (j) The Company does not have outstanding or authorized stock appreciation, phantom stock,profit participation or similar rights.          (k) The Company does not have outstanding any bonds, debentures, notes or other obligations ordebt securities the holders of which have the right to vote (or convertible into, or exercisable orexchangeable for, securities having the right to vote) on any matter.     3.3 Subsidiaries of the Company.          (a) Section 3.3(a) of the Company Disclosure Schedule contains a true and correct list of theSubsidiaries of the Company and sets forth with respect to each such Subsidiary the jurisdiction offormation. Each of the Subsidiaries is a wholly-owned subsidiary of the Company. The outstandingshares of capital stock of each Subsidiary of the Company have been duly authorized and validlyissued, are fully paid and non-assessable and are owned by the Company or another Subsidiary of theCompany free and clear of all liens, charges, security interests, mortgages, pledges, easements,conditional sale or other title retention agreements, defects in title, covenants or otherrestrictions on the use, voting, transfer or other attributes of ownership (collectively, **“Liens”**).          (b) Each Subsidiary of the Company is validly existing and in good standing under the Laws ofthe jurisdiction of its formation, has all requisite power to own, lease and operate its propertiesand to carry on its business as now being conducted, and is duly qualified to do business and is ingood standing in each jurisdiction in which it owns or leases property or conducts any business soas to require such qualification, except for such failures to qualify that would not reasonably beexpected to cause, individually or in the aggregate, a Company Material Adverse Effect.          (c) Other than the shares of capital stock owned by the Company, no Subsidiary of the Companyhas outstanding securities of any kind. No Subsidiary of the Company is party to any Contractobligating such Subsidiary, directly or indirectly, to issue any additional securities and, to theCompany’s Knowledge, there is no circumstance or condition that may give rise to a claim by anyPerson that such Person is entitled to acquire the securities of any such Subsidiary. No Subsidiaryof the Company has outstanding or authorized any stock appreciation, phantom stock, profitparticipation or similar rights.          (d) No Subsidiary of the Company has any outstanding bonds, debentures, notes or otherobligations or debt securities the holders of which have the right to vote (or convertible into, orexercisable or exchangeable for, securities having the right to vote) on any matter.          (e) Other than the Subsidiaries set forth in Section 3.3(a) of the Company DisclosureSchedule, neither the Company nor any Subsidiary of the Company, directly or indirectly, owns anysecurities or other interest in any corporation, partnership, joint venture or other businessassociation or entity, or to provide funds to or make any investment.
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          (f) There are no obligations, contingent or otherwise, of the Company or any Subsidiary of theCompany to provide funds to or make an investment (in the form of a loan, capital contribution orotherwise) in any entity.     3.4 Authority and Enforceability.          (a) The Company has all necessary corporate power and authority to enter into this Agreement,to perform its obligations hereunder and to consummate the transactions contemplated hereby,subject to the Company Stockholder Approval. The execution and delivery of this Agreement by theCompany and the consummation by the Company of the transactions contemplated hereby have been dulyauthorized by all necessary corporate action on the part of the Company, subject to the CompanyStockholder Approval. This Agreement has been duly executed and delivered by the Company and,assuming due authorization, execution and delivery by Parent and Merger Sub, constitutes the validand binding obligation of the Company, enforceable against it in accordance with its terms, exceptas such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium orother similar Laws affecting or relating to creditors’ rights generally, and (ii) the availabilityof injunctive relief and other equitable remedies.          (b) The only stockholder votes required to adopt this Agreement and approve the transactionscontemplated hereby are the affirmative vote of the holders of (i) a majority of the thenoutstanding Company Shares voting as a single class, (ii) sixty-six and two-thirds percent (662/3%) of the then outstanding shares of Preferred Stock, (iii) a majority of the then outstandingshares of Class A Common Stock and (iv) a majority of the then outstanding shares of Class B CommonStock, on the record date of a duly convened meeting of the Company Stockholders, or by writtenconsent in lieu of such meeting (the **“Company Stockholder Approval”**).          (c) The Board of Directors of the Company has, by the unanimous vote of all directors inoffice, (i) duly approved this Agreement, the Merger and the transactions contemplated hereby, (ii)determined that the Merger is advisable and in the best interests of the Company Stockholders and(iii) recommended that the Company Stockholders adopt this Agreement and directed that thisAgreement be submitted to the Company Stockholders for adoption.     3.5 No Conflict; Authorizations.          (a) The execution and delivery of this Agreement by the Company do not, and the performance bythe Company of its obligations hereunder and the consummation by the Company of the transactionscontemplated hereby (in each case, with or without the giving of notice or lapse of time, or both)will not (i) violate the provisions of the Company’s or any of its Subsidiaries’ Charter Documents,(ii) violate or conflict with, in any material respect, or constitute a material default, amaterial event of default or an event creating rights of acceleration, termination, cancellation,imposition of additional obligations or loss of rights, or require a consent to assignment, underany Material Contract, (iii) assuming compliance by the Company with the matters referred to inSection 3.5(b), violate or conflict, in any material respects, with any Law, Material Authorizationor material Order applicable to the Company or
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any of its Subsidiaries, or give any Governmental Entity or other Person the right tochallenge any of the transactions contemplated hereby or to exercise any material remedy, obtainany material relief under or revoke or otherwise materially modify any material rights held under,any such Law, Material Authorization or material Order, or (iv) result in the creation of anymaterial Liens upon any of the assets owned or used by the Company or any of its Subsidiaries.Section 3.5(a) of the Company Disclosure Schedule sets forth all Material Contracts that mayrequire consents, waivers, assignments and other approvals and actions in connection with thetransactions contemplated by this Agreement (collectively, **“Consents”**) in order to preserve allmaterial rights of, and material benefits to, the Surviving Corporation and its Subsidiariesthereunder.          (b) No Material Authorization or Order , or notice to, any domestic or foreign GovernmentalEntity, is required to be made or obtained by the Company or any of its Subsidiaries at or prior tothe Effective Time in connection with the execution and delivery of this Agreement or theconsummation by the Company of the transactions contemplated hereby and thereby or compliance bythe Company with the provisions hereof and thereof, except for (A) the filing of a premergernotification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Actof 1976, as amended (the **“HSR Act”**) or similar Laws in foreign jurisdictions and (B) the filing ofthe Certificate of Merger with the Delaware Secretary of State and appropriate documents with therelevant authorities of other states or other jurisdictions in which the Company or any of itsSubsidiaries is qualified to do business, including such customary filings regarding any change ofbeneficial ownership or similar filings in foreign jurisdictions that would not reasonably beexpected to preclude or materially impede the Company’s ability to consummate the transactionscontemplated hereby and thereby.     3.6 Financial Statements.          (a) Section 3.6(a) of the Company Disclosure Schedule attaches the Company’s consolidatedfinancial statements consisting of the following: (i) the consolidated balance sheet of the Companyand its Subsidiaries as of December 31, 2005, 2006 and 2007 and the related statements of incomeand retained earnings, stockholders’ equity and cash flow, for the year then ended (the **“AuditedFinancial Statements”**), and (ii) unaudited consolidated financial statements consisting of thebalance sheet of the Company and its Subsidiaries as of September 30, 2008 and the relatedstatements of income and cash flow for the nine-month period then ended (the **“Interim FinancialStatements”**). The Audited Financial Statements and the Interim Financial Statements arecollectively referred to herein as the **“Financial Statements”**.          (b) The Financial Statements have been prepared in accordance with United States generallyaccepted accounting principles (**“GAAP”**) applied on a consistent basis throughout the periodsinvolved, subject, in the case of the Interim Financial Statements, to normal year-end adjustments(the effect of which will not be materially adverse) and the absence of notes (that, if present,would not differ materially from those presented in the Audited Financials). The FinancialStatements are based on the books and records of the Company and its Subsidiaries, and fairlypresent, in all material respects, the financial condition of the Company and its Subsidiaries, asof the respective dates they were prepared and the results of the operations of the Company and itsSubsidiaries for the periods indicated. The consolidated
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balance sheet of the Company and its Subsidiaries as of September 30, 2008 is referred toherein as the **“Balance Sheet”**and the date thereof as the **“Balance Sheet Date.”**Each of theCompany and its Subsidiaries maintains a standard system of accounting established and administeredin accordance with GAAP.          (c) The Company and its Subsidiaries maintain a system of internal control over financialreporting which provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with GAAP. To theCompany’s Knowledge, there are no significant deficiencies or material weaknesses in the design oroperation of Company’s internal controls which could adversely affect Company’s ability to record,process, summarize and report financial data. To the Company’s Knowledge, there is and has been nofraud, whether or not material, that involves management or other employees who have a significantrole in Company’s internal controls. The Company has made available to Parent, accurate andcomplete copies of, all formally written descriptions of, and all policies, manuals and otherdocuments promulgating, its material internal controls and procedures.     3.7 No Undisclosed Liabilities.          (a) The Company and its Subsidiaries have no liabilities, obligations or commitments of anynature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued orunaccrued, matured or unmatured or otherwise (**“Liabilities”**), except (a) those which are adequatelyreflected or reserved against in the Balance Sheet as of the Balance Sheet Date, and (b) thosewhich have been incurred in the ordinary course of business and consistent with past practice sincethe Balance Sheet Date and which are not, individually or in the aggregate, material in amount.          (b) As of the date of this Agreement, the Company and its Subsidiaries have no knownliabilities of the type to be reflected or disclosed in a balance sheet prepared in accordance withGAAP, except (a) those which are adequately reflected or reserved against in the Balance Sheet asof the Balance Sheet Date, (b) those which have been incurred in the ordinary course of businessand consistent with past practice since the Balance Sheet Date and which are not individually,material in amount, and (c) those that would not reasonably be expected to cause, individually orin the aggregate, a Company Material Adverse Effect.     3.8 Accounts Receivable. The accounts receivable of the Company and its Subsidiariesas set forth on the Balance Sheet or arising since the date thereof are, to the extent not paid infull by the account debtor prior to the date hereof, (a) valid and genuine, have arisen solely outof bona fide sales and deliveries of goods, performance of services and other business transactionsin the ordinary course of business consistent with past practice, and (b) not subject to validdefenses, set offs or counterclaims. The allowance for collection losses on the Balance Sheet and,with respect to Accounts Receivable arising since the Balance Sheet Date, the allowance forcollection losses shown on the accounting records of the Company and its Subsidiaries, have beendetermined in accordance with GAAP consistent with past practice.
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     3.9 Taxes.          (a) As used in this Agreement, the following words and terms have the following definitions:               (i) **“Tax”**or **“Taxes”**means (i) any income, alternative or add-on minimum tax, gross income,estimated, gross receipts, sales, use, ad valorem, value added, transfer, franchise, capital stock,profits, license, registration, withholding, payroll, social security (or equivalent), employment,unemployment, disability, excise, severance, stamp, occupation, premium, property (real, tangibleor intangible), environmental or windfall profit tax, custom duty or other tax, governmental fee orother like assessment or charge of any kind whatsoever, together with any interest or any penalty,addition to tax or additional amount (whether disputed or not) imposed by any Governmental Entityresponsible for the imposition of any such tax (domestic or foreign) (each, a **“Tax Authority”**),(ii) any liability for the payment of any amounts of the type described in clause (i) of thissentence as a result of being a member of an affiliated, consolidated, combined, unitary oraggregate group for any Taxable period, and (iii) any liability for the payment of any amounts ofthe type described in clause (i) or (ii) of this sentence as a result of being a transferee of orsuccessor to any Person or as a result of any express or implied obligation to assume such Taxes orto indemnify any other Person.               (ii) **“Tax Returns”**means any return, declaration, report, claim for refund, or informationreturn or statement relating to Taxes, including any schedule or attachment thereto, and includingany amendment thereof.          (b) Each of the Company and its Subsidiaries has duly and timely filed all Tax Returns (orextensions thereof) required to have been filed by or with respect to the Company or suchSubsidiary and will duly and timely file all Tax Returns due between the date hereof and theClosing Date. Each such Tax Return correctly and completely reflects, in all material respects,all liability for Taxes and all other information required to be reported thereon under applicablelaws and regulations. All Taxes owed by the Company and each Subsidiary of the Company (whether ornot shown on any Tax Return) have been timely paid (or, if due between the date hereof and theClosing Date, will be duly and timely paid, or will establish an adequate accrual or reserve forsuch payment). Each of the Company and its Subsidiaries has adequately provided for, in its booksof account and related records, all liability for all unpaid Taxes, that are current Taxes not yetdue and payable.          (c) Each of the Company and its Subsidiaries has withheld and timely paid all Taxes requiredto have been withheld and paid by it and has complied, in all material respects, with allinformation reporting and backup withholding requirements, including maintenance of requiredrecords with respect thereto, and has timely filed all withholding Tax Returns, for all periodsthrough and including the Effective Time.          (d) Neither the Company nor any of its Subsidiaries is the beneficiary of any extension oftime within which to file any Tax Return, nor has the Company or any of its Subsidiaries made (orhad made on its behalf) any requests for such extensions. Neither the Company nor any of itsSubsidiaries has waived (or is subject to a waiver of) any statute of
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limitations in respect of Taxes or has agreed to (or is subject to) any extension of time withrespect to a Tax assessment or deficiency.          (e) The Company Disclosure Schedule indicates those Tax Returns that have been audited by aTax Authority and those Tax Returns for which the Company has received notice that it is thesubject of audit. Except as set forth in the Company Disclosure Schedule there is no Action nowpending or, to the Company’s Knowledge, threatened against or with respect to the Company or any ofits Subsidiaries in respect of any Tax or any assessment or deficiency. There are no liens forTaxes (other than current Taxes not yet due and payable) upon the assets of the Company. TheCompany has made available to Parent copies of all Tax Returns, examination reports, and statementsof deficiencies assessed against or agreed to by the Company or any of its Subsidiaries, providedthat Form 1099s, W-2s and other non-material information Tax Returns shall be considered madeavailable if access is provided to them upon Buyer’s request at the Company’s place of business andshall not be required to be delivered to the Buyer or posted to the Virtual Data Room.          (f) The Company Disclosure Schedule lists, as of the date of this Agreement, all jurisdictionsin which the Company or any of its Subsidiaries currently files Tax Returns. No claim has been madeby an authority in a jurisdiction where the Company or any of its Subsidiaries does not file TaxReturns that any of them is or may be subject to taxation by that jurisdiction or that any of themmust file Tax Returns.          (g) None of the assets or properties of the Company or any of its Subsidiaries constitutestax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 ofthe Code. Neither the Company nor any of its Subsidiaries is a party to any “safe harbor lease”within the meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by the TaxEquity and Fiscal Responsibility Act of 1982, or to any “long-term contract” within the meaning ofSection 460 of the Code. Neither the Company nor any of its Subsidiaries has ever been a UnitedStates real property holding corporation within the meaning of Section 897(c)(2) of the Code. TheCompany is not a “foreign person” within the meaning of Section 1445 of the Code. Neither theCompany nor any of its Subsidiaries has made any payments, is obligated to make any payments, or isa party to any agreement that under certain circumstances could obligate it to make payments of (i)any “excess parachute payment” within the meaning of Section 280G of the Code, (ii) any amount thatwill not be fully deductible as a result of Section 162(m) of the Code, or (iii) an excise tax tothe recipient of such payments pursuant to Section 4999 of the Code, other than payments for whichCompany Stockholder approval has been obtained pursuant to Section 5.10(i) of this Agreement.          (h) Neither the Company nor any of its Subsidiaries has been or will be required to includeany adjustment in Taxable income for any Tax period (or portion thereof) ending after the EffectiveTime pursuant to Section 481 or Section 263A of the Code (or any comparable provision under state,local or foreign Tax laws) as a result of transactions, events or accounting methods employed priorto the Effective Time. Neither the Company nor any of its Subsidiaries has received (or is subjectto) any ruling from any Taxing Authority, requested any ruling from any Taxing Authority, or hasentered into (or is subject to) any agreement with a Taxing Authority. Each of the Company and itsSubsidiaries have disclosed on its federal income Tax Returns all positions taken therein thatcould give rise to a substantial
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understatement of federal income Tax within the meaning of Section 6662 of the Code or anycomparable provisions of state, local or foreign law.          (i) Neither the Company nor any of its Subsidiaries (i) has ever been a party to any Taxallocation or sharing agreement or Tax indemnification agreement, (ii) has ever been a member of anaffiliated, consolidated, condensed or unitary group, or (iii) has any liability for or obligationto pay Taxes of any other Person under Treas. Reg. 1.1502-6 (or any similar provision of Tax Law),or as transferee or successor, by contract or otherwise. Neither the Company nor any of itsSubsidiaries is a party to any joint venture, partnership, or other arrangement that is treated asa partnership for federal income tax purposes.          (j) Neither the Company nor any of its Subsidiaries will be required to include any item ofincome in, or exclude any item of deduction from, taxable income for any taxable period (or portionthereof) ending after the Effective Time as a result of any: (i) change in method of accounting fora Taxable period ending on or prior to the Effective Time, (ii) closing agreement as described inSection 7121 (or any corresponding or similar provision of state, local, or foreign Tax law)executed prior to the Effective Time, (iii) intercompany transactions or excess loss accountsdescribed in Treasury regulations under Section 1502 of the Code (or any similar provision ofstate, local, or foreign Tax Law), (iv) installment sale or open transaction disposition made on orprior to the Effective Time, or (v) prepaid amount received on or prior to the Effective Time.          (k) Neither the Company nor any of its Subsidiaries has consummated, has participated in, oris currently participating in any transaction which was or is a “Tax shelter” transaction asdefined in Sections 6662 or 6111 of the Code or the Treasury Regulations promulgated thereunder.Neither the Company nor any of its Subsidiaries has consummated, has participated in, or iscurrently participating in any transaction which was or is a “listed transaction” or a “reportabletransaction” as defined in Section 6707A of the Code or Treasury Regulation Section 1.6011-4(b) orany transaction requiring disclosure under a corresponding or similar provision of state, local orforeign law.          (l) The Company Disclosure Schedule lists each person who Company reasonably believes is, withrespect to Company or any Affiliate of the Company, a “disqualified individual” (within the meaningof Section 280G of the Code and the Regulations thereunder).          (m) The unpaid Taxes of the Company (i) did not, as of the Balance Sheet Date, exceed thereserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timingdifferences between book and Tax income) set forth on the face of the Balance Sheet (rather than inany notes thereto) and (ii) will not exceed that reserve as adjusted for the passage of timethrough the Closing Date in accordance with the past custom and practice of Company in filing itsTax Returns. Since the Balance Sheet Date the Company has not incurred any liability for Taxesarising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinarycourse of business consistent with past custom and practice.          (n) The Company has in its possession official foreign government receipts for any Taxes paidby it and any of its Subsidiaries to any foreign Tax Authorities.
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          (o) Neither the Company nor any Subsidiary has constituted either a “distributing corporation”or a “controlled corporation” in a distribution of stock qualifying for Tax-free treatment underSection 355 of the Code (i) in the two years prior to the date of this Agreement or (ii) in adistribution that 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 Merger.     3.10 Compliance with Law.          (a) Each of the Company and its Subsidiaries has complied within the last five years in allmaterial respects with each, and is not in material violation of, any applicable Law to which theCompany or any of its Subsidiaries or its business, operations, assets or properties is or has beensubject, including, but not limited to, the Health Insurance Portability and Accountability Act of1996 and implementing regulations promulgated thereunder (45 C.F.R. Parts 160-164) (**“HIPAA”**).          (b) To the Knowledge of the Company, no event has occurred and no circumstances exist that(with or without the passage of time or the giving of notice) may result in a violation of,conflict with or failure on the part of the Company or any of its Subsidiaries to comply with, anyLaw. Neither the Company nor any of its Subsidiaries has received written notice regarding any suchviolation of, conflict with, or failure to comply with, any Law.     3.11 Regulatory.          (a) When used in this Agreement, the following terms shall have the meanings assigned to themin this Section 3.11(a):               (i) **“Biological Materials”**means any tissues, cells, cell lines, organisms, blood samples,genetic material, antibodies and other biological substances, materials, constituents, extracts,progeny, mutants, derivatives or replications thereof or therefrom (including, but not limited to,human- or animal-derived), in each case that are collected, used or sold by the Company or itsSubsidiaries.               (ii) **“Company Activities”**means those tests, studies, and other topical product developmentactivities and services conducted by or on behalf of the Company or its Subsidiaries, includingevaluating drug candidates; conducting in vitro and in vivo human clinical studies, Manufacturing,buying and Exploiting products, including, without limitation, any activities conducted pursuant toa CLIA Certificate.               (iii) **“CLIA Certificate”**means the certificate(s) conferred by the Centers for Medicare andMedicaid Services, pursuant to Section 353 of the Public Health Services Act (42 U.S.C. § 263a) asamended by the Clinical Laboratory Improvement Amendments, authorizing the acceptance of humanspecimens for the purpose of performing laboratory examinations or procedures.               (iv) **“Distribution”**means any and all activities related to the distribution, storing,handling, shipping and communicating with Governmental Entities and third parties in connectiontherewith.
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               (v) **“EMEA”**means the European Medicines Agency.               (vi) **“Exploit”**or **“Exploitation”**means to make, have made, import, use, sell, offer for sale,or otherwise dispose of, including all discovery, research, development, registration,modification, enhancement, improvement, manufacture, storage, formulation, optimization,importation, exportation, transportation, Distribution, commercialization, promotion and marketingactivities related thereto.               (vii) **“FDA”**means the United States Food and Drug Administration.               (viii) **“FFDCA”**or “the **Act”**means the U.S. Federal Food, Drug, and Cosmetic Act.               (ix) **“IND”**means (a) an Investigational New Drug Application, as defined in the Act, which isrequired to be submitted to the FDA before beginning clinical testing of a product in humansubjects, and its equivalent in other countries or regulatory jurisdictions or any successorapplication or procedure, and (b) all supplements and amendments that may be filed with respect tothe foregoing.               (x) **“Know-How”**means all technical, scientific and other know-how and information, tradesecrets, knowledge, technology, means, methods, processes, practices, formulas, instructions,skills, techniques, procedures, experiences, ideas, technical assistance, designs, drawings,assembly procedures, computer programs, apparatuses, specifications, data (including biological,chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, clinical,safety, manufacturing and quality control data), results and other material, includinghigh-throughput screening, gene expression, genomics, proteomics and other drug discovery anddevelopment technology, assays and any other biological methodology, pre-clinical and clinicaltrial results, manufacturing procedures, test procedures and purification and isolation techniques,(whether or not confidential, proprietary, patented or patentable) in written, electronic or anyother form now known or hereafter developed, and all improvements, whether to the foregoing orotherwise, and other discoveries, developments, inventions.               (xi) **“Labeling”**means the applicable Company’s product’s label, packaging and package insertsaccompanying such product, and any other written, printed, or graphic materials accompanying suchproduct, including safety data sheets, instructions or guides.               (xii) **“Manufacture”**and **“Manufacturing”**means, with respect to a product or compound, themanufacturing, processing, formulating, packaging, labeling, holding and quality control testing ofsuch product or compound.               (xiii) **“Medical Product Regulatory Authority”**means any Governmental Entity that is concernedwith the safety, efficacy, reliability, manufacture, investigation, sale or marketing ofpharmaceuticals, medical products, biologics or biopharmaceuticals, including, without limitation,the FDA, the EMEA, and state and local government authorities.
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               (xiv) **“Patient Information”**means individually identifiable information pertaining to patientsand/or research subjects.               (xv) **“Regulatory Documentation”**means any and all Material Authorizations relating to CompanyActivities, including, without limitation, applications, registrations, licenses, authorizations,approvals, non-clinical and clinical study authorization applications or notifications (includingall supporting files, writings, data, studies and reports), correspondence to or with any MedicalProduct Regulatory Authority with respect to the Company Activities (including minutes and officialcontact reports relating to any communications with any Medical Product Regulatory Authority), andall data contained in any of the foregoing, including all adverse event files and Manufacturingrecords.          (b) The Company and its Subsidiaries have conducted the Company Activities in accordance withcurrent good manufacturing practices, current good clinical practices and current good laboratorypractices and other applicable Laws.          (c) All the Company’s products are manufactured, tested, packaged, labeled, held, Distributed,and provided in all material respects in accordance with (i) the specifications and standardscontained in the relevant Material Authorization (defined in Section 3.12(a), below); and (ii) theapplicable Laws, rules, regulations and guidelines, including, but not limited to, the applicablerequirements of current good clinical practices and current good laboratory practices.          (d) No Governmental Entity has notified any Acquired Corporation, and the AcquiredCorporations are not aware, nor should otherwise be aware, that the conduct of the CompanyActivities was or is in violation of any applicable Law or the subject of any investigation. Therehas not been, nor is there currently under consideration by the Company or any Governmental Entity,any recall or corrective action with respect to any Company product.          (e) Neither any Acquired Corporation nor any of its or their officers, directors, or employeeshas (i) been disqualified, debarred or voluntarily excluded by the FDA or any other GovernmentalEntity for any purpose, or received notice of action or threat of action with respect to debarmentunder the provisions of 21 U.S.C. §§ 335a, 335b, or 335c as amended by the Generic Drug EnforcementAct of 1992, 42 U.S.C. § 1320a-7, 45 C.F.R. Part 76 or any equivalent provisions in any otherjurisdiction; (ii) been subject to any other material enforcement action involving the FDA orsimilar Governmental Entity in any other jurisdiction, including any suspension, consent decree,notice of criminal investigation, indictment, sentencing memorandum, plea agreement, court order ortarget or no-target letter, and none of the foregoing is pending, asserted, or threatened againstsame; or (iii) been charged with or convicted under United States federal law for conduct relatingto the development or approval, or otherwise relating to the regulation, of any drug product underthe Generic Drug Enforcement Act of 1992 or any other applicable Law.          (f) The Acquired Corporations have made available, or have caused to be made available, toParent all material Regulatory Documentation, Company Know-How and any other data, clinicalstudies, pre-clinical studies and other Company Know-How in the Company’s or its Subsidiaries’possession or control regarding or related to any of the Company’s products
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or services or its business, and all such Regulatory Documentation and Company Know-How wereand are true, complete and correct at such time and as of the Closing. Each of the Company and itsSubsidiaries has prepared, maintained and retained all Regulatory Documentation that is required tobe maintained or reported pursuant to and in accordance with good laboratory and clinical practicesand other applicable Law and all such information is true, complete and correct and what itpurports to be.          (g) Each of the Acquired Corporation has conducted, and if still pending is conducting, allpre-clinical and clinical trials in compliance, in all material respects, with (i) all work orders,customer protocols, specifications, and if necessary, approvals by institutional review boards andsimilar authorities, (ii) procedures and controls pursuant to standards generally accepted andobserved in the pharmaceutical industry, and (iii) all Laws, regulations, orders, guidances, andpolicies, including those implemented by the FDA or any counterpart Medical Product RegulatoryAuthorities in any other applicable jurisdiction, including regulations and guidances relating toManufacture, Distribution, pre-clinical and clinical investigations, pre- and post-marketingadverse drug experience reporting, and all other pre- and post-marketing reporting requirements, asapplicable.          (h) No Acquired Corporation, nor any of its or their officers, directors, or employees hasmade any false statements on, or material omissions from, any representations, reports or othersubmissions, whether oral, written, or electronically delivered, to any customer or to anyapplicable Medical Product Regulatory Authority or in or from any other records and documentationprepared or maintained to comply with the requirements of any customer or any applicable MedicalProduct Regulatory Authority relating to the Acquired Corporations, the products of any AcquiredCorporation, or any Company Activities (whether in any submission to such Medical ProductRegulatory Authority or otherwise). No Acquired Corporation, nor any of its or their officers,directors, or employees has committed any act, made any statement or failed to make any statementthat would breach the FDA’s policy with respect to “Fraud, Untrue Statements of Material Facts,Bribery, and Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or anysimilar Laws, rules, regulations or policies, whether under the jurisdiction of the FDA or anycounterpart regulatory authority in any other applicable jurisdiction, and any amendments or othermodifications thereto. No Acquired Corporation, nor any of its or their officers, directors, oremployees has received, nor is aware of any basis for the issuance of, any notice to such effect.          (i) Neither any Acquired Corporation nor the facilities owned or used by the AcquiredCorporations are or have been subject to any material adverse inspection, finding of deficiency,finding of non-compliance, regulatory or warning letter, investigation, Section 305 notice, orother compliance or enforcement action, from or by the FDA or any counterpart regulatory authorityin any other applicable jurisdiction. There are no pending or threatened civil, criminal oradministrative actions, suits, demands, claims, hearings, investigations, demand letters,proceedings, complaints or requests for information by the FDA or any counterpart regulatoryauthority related to the Company and its Subsidiaries. There is no act, omission, event, orcircumstance that would reasonably be expected to give rise to any such action, suit, demand,claim, hearing, investigation, demand letter, proceeding, complaint or request for information orany such liability. Neither the FDA nor any counterpart regulatory authority has commenced orthreatened to initiate any action to place a clinical hold order on, or otherwise
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terminate, delay or suspend, any currently proposed or ongoing clinical investigationconducted by the Company. Neither the Company nor its Subsidiaries has received any notice orcorrespondence from any institutional review board or similar authority requiring the terminationor suspension or denying approval of a clinical trial conducted by the Company and its Subsidiariespursuant to any of the Material Contracts.          (j) As required by current good clinical practices and, to the extent applicable, comparablefederal, foreign, state and local rules and regulations, the Company and its Subsidiaries haveretained all source documentation, including case histories, and all records related to receipt,shipment or other disposition of tested product; and have stored all reserve samples or otherquantity of tested product.          (k) As required by current good laboratory practices and corresponding regulations andguidance, and to the extent applicable, comparable federal, foreign, state and local rules andregulations, the Company and its Subsidiaries have in all material respects (i) maintainedappropriate facilities; (ii) retained personnel that have education, training, and experienceadequate to enable such personnel to perform the assigned functions; (iii) developed andimplemented a quality assurance monitoring program to ensure compliance of Company facilities,equipment, personnel, methods, practices, records, and controls; and (iv) adequately maintainedprotocols, records, reports, data, documentation, and specimens. The Company has not conducted,and does not currently conduct, animal clinical studies.          (l) The Acquired Corporations are conducting the Company Activities and have always conductedthe Company Activities in compliance with the Anti-Kickback Statute (42 U.S.C. § 1320a-7b), CivilMonetary Penalty Statute (42 U.S.C. § 1320a-7a), the Stark Law (42 U.S.C. § 1395nn), the FalseClaims Act (31 U.S.C. § 3729 et seq.) and all of the regulations promulgated under all suchstatutes.          (m) The Company is and has been in compliance with all applicable Laws, regulations andcontractual commitments concerning privacy, security, coding, and transaction standards for PatientInformation, including any applicable requirements of HIPAA.          (n) Any Patient Information obtained by the Company, or its Subsidiaries was so obtainedeither (i) from the patient in connection with treatment, (ii) from a health care provider fortreatment purposes, (iii) in accordance with a valid patient authorization under 45 C.F.R. §164.508, (iv) pursuant to a waiver of such authorization under 45 C.F.R. § 164.512(i) or (v) as alimited data set pursuant to 45 C.F.R. § 164.514(e).          (o) Neither the Company nor its Subsidiaries have received any inquiries from any federal,state or other Governmental Entity regarding the Company’s or its Subsidiaries’ handling of PatientInformation, and neither the Company’s, nor its Subsidiaries’ policies and practices regardingPatient Information have been rejected by any governmental or non-Governmental Entity orcertification organization that has reviewed them, if applicable.          (p) There has been no unauthorized acquisition of Patient Information by any Person. TheCompany and its Subsidiaries have implemented and maintain written policies and proceduresreasonably designed to protect the privacy and security of Patient Information; to
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identify and respond to, and notify individuals of, any breaches of security of PatientInformation; and to comply with all applicable Laws, regulations, and contractual commitmentsconcerning Patient Information.          (q) The Company and its Subsidiaries use, store, transfer, convey or dispose of BiologicalMaterials only in compliance with and pursuant to contracts requiring compliance with (i) any andall donor consents by which such Biological Materials was originally obtained and (ii) anyapplicable federal or state Law, rule or regulation. To the Company’s Knowledge, no AcquiredCompany has transferred any Biological Materials or any product derived from any BiologicalMaterials other than pursuant to a written contract obligating the counter-party thereto to use ordistribute any Biological Materials or any product derived therefrom only in compliance with (i)any and all donor consents by which such biological materials was originally donated, (ii) anyapplicable federal or state law, rule or regulation, and (iii) any applicable rule or regulationdisseminated by an applicable non-governmental regulatory body.          (r) All Biological Materials derived in whole or in part from non-human sources were and are(i) obtained from suppliers (whether domestic or foreign) accredited by the Association forAssessment and Accreditation of Laboratory Animal Care; and (ii) compliant with and are shipped,stored, and used in compliance with all applicable Laws, including, but not limited to those Lawsenforced by the U.S. Centers for Disease Control and Prevention and the U.S. Fish and WildlifeService. To the extent applicable, the Company and its Subsidiaries have obtained any necessaryMaterial Authorizations in order to use, process, ship, and store animal-derived BiologicalMaterials.     3.12 Authorizations.          (a) Each of the Company and its Subsidiaries owns, holds or lawfully uses in the operation ofits business all material Authorizations which are necessary for it to conduct its business,including all Company Activities, as currently conducted or for the ownership and use of the assetsowned or used by the Company or such Subsidiary in the conduct of its business free and clear ofall Liens (each such Authorization shall be referred to as a **“Material Authorization”**). SuchMaterial Authorizations are valid and in full force and effect and none of such MaterialAuthorizations will be terminated or impaired or become terminable as a result of the transactionscontemplated by this Agreement. All such Material Authorizations are listed in Section 3.12(a) ofthe Company Disclosure Schedule.          (b) To the Company’s Knowledge, no event has occurred and no circumstances exist that (with orwithout the passage of time or the giving of notice) may result in a violation of, conflict with,failure on the part of the Company or any of its Subsidiaries to comply with the terms of, or therevocation, withdrawal, termination, cancellation, suspension or modification of any MaterialAuthorization. Neither the Company nor any of its Subsidiaries has received written noticeregarding any violation of, conflict with, failure to comply with the terms of, or any revocation,withdrawal, termination, cancellation, suspension or modification of, any Authorization. Neitherthe Company nor any of its Subsidiaries is in default, and neither the Company nor any of itsSubsidiaries received written notice of any claim of default, with respect to any MaterialAuthorization.
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          (c) No Person other than the Company or its Subsidiaries owns or has any proprietary,financial or other interest (direct or indirect) in any Material Authorization which the Company orany of its Subsidiaries owns, possesses or uses in the operation of its business as now beingconducted.     3.13 Title to Personal Properties.          (a) Section 3.13(a) of the Company Disclosure Schedule sets forth a complete and accurate listof all the personal properties and assets owned or leased by the Company or any of itsSubsidiaries or otherwise used in the businesses of the Company and its Subsidiaries as of the dateof this Agreement, with a current fair market value in excess of $100,000 as of the date of thisAgreement (collectively, the **“Material Personal Properties and Assets”**), specifying whether and bywhom each such asset is owned or leased and, in the case of leased assets, indicating the partiesto, execution dates of and annual payments under, the lease.          (b) The Company owns or has the right to use all Material Personal Properties and Assets usedin and/or necessary for the conduct and operation of the business of the Company following theClosing in the same manner as conducted and operated on the Balance Sheet Date, in the period sincethe Balance Sheet Date and as currently conducted.          (c) With respect to the Material Personal Properties and Assets that they purport to own(other than inventory sold in the ordinary course of business since the date thereof), the Companyor one of its Subsidiaries has good and valid title to all of such properties and assets, free andclear of all Liens other than Permitted Liens.          (d) With respect to the Material Personal Properties and Assets that are leased, the Companyor one of its Subsidiaries has a valid leasehold interest in such properties and assets and allsuch leases are in full force and effect and constitute valid and binding obligations of the otherparty(ies) thereto. Neither the Company nor any of its Subsidiaries nor, to the Knowledge of theCompany, any other party thereto is in violation of any of the terms of any such lease.     3.14 Condition of Tangible Assets. To the Knowledge of the Company, all materials,buildings, plants, leasehold improvements, structures, facilities, equipment and other materialitems of tangible property and assets which are owned, leased or used by the Company or any of itsSubsidiaries are in good operating condition and repair (subject to normal wear and tear given theuse and age of such assets), and are usable in the regular and ordinary course of business.     3.15 Leased Real Property.          (a) Section 3.15(a) of the Company Disclosure Schedule contains a list of all real propertyand interests in real property leased by the Company or any of its Subsidiaries (the **“Leased RealProperty”**). The Leased Real Property listed on Section 3.15(a) of the Company Disclosure Scheduleincludes all interests in real property used in or necessary for the conduct of the businesses andoperations of the Company and its Subsidiaries as currently conducted.          (b) Neither the Company nor any of its Subsidiaries own any real property or interests in realproperty.
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          (c) With respect to Leased Real Property, the Company has made available to Parent a true andcomplete copy of every lease and sublease pursuant to which the Company or any Subsidiary of theCompany is a party or by which any of them is bound (each, a **“Lease”**). Each Lease is in full forceand effect and valid and enforceable in accordance with its terms. Neither the Company nor any ofits Subsidiaries is in default in any material respect under any Lease. The Company or one of itsSubsidiaries has peaceful, undisturbed and exclusive possession of the Leased Real Property.          (d) To the Knowledge of the Company, the uses for which the buildings, facilities and otherimprovements located on the Leased Real Property are zoned do not restrict, or impair, the use ofthe Leased Real Property for purposes of the business. Neither the Company nor any of itsSubsidiaries has received any written notice from any Governmental Entity or other Person that theLeased Real Property does not comply with all applicable building and zoning codes, deedrestrictions, ordinances and rules.          (e) To the Company’s Knowledge, no Governmental Entity having the power of eminent domain overthe Leased Real Property has commenced or intends to exercise the power of eminent domain or asimilar power with respect to all or any part of the Leased Real Property. To the Knowledge of theCompany, there are no pending or threatened condemnation, fire, health, safety, building, zoning orother land use regulatory proceedings, lawsuits or administrative actions relating to any portionof the Leased Real Property or any other matters which do or may materially adversely effect thecurrent use, occupancy or value thereof. Neither the Company nor any of its Subsidiaries hasreceived written notice of any pending or threatened special assessment proceedings affecting anyportion of the Leased Real Property.          (f) To the Company’s Knowledge, the Leased Real Property and all present uses and operationsof the Leased Real Property comply, in all material respects, with all Laws, Authorizations,covenants, conditions, restrictions, easements, disposition agreements and similar mattersaffecting the Leased Real Property. To the Company’s Knowledge, the continued use, occupancy andoperation of the Leased Real Property as currently used, occupied and operated do not constitute anonconforming use and are not the subject of a special use permit under any Law.          (g) To the Knowledge of the Company, the Leased Real Property is in suitable condition for thebusinesses of the Company and its Subsidiaries as currently conducted.          (h) No Person other than the Company or a Subsidiary of the Company is in possession of any ofthe Leased Real Property or any portion thereof, and to the Company’s Knowledge there are noleases, subleases, licenses, concessions or other agreements, written or oral, granting to anyPerson other than the Company or a Subsidiary of the Company the right of use or occupancy of theLeased Real Property or any portion thereof. To the Knowledge of the Company, no easement, utilitytransmission line or water main located on the Leased Real Property adversely affects the use ofthe Leased Real Property or any improvement on the Leased Real Property.
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     3.16 Intellectual Property.          (a) As used in this Agreement, **“Intellectual Property”**means: (i) inventions (whether or notpatentable), trade secrets, technical data, databases, customer lists, designs, tools, methods,processes, technology, ideas, Know-How, source code, product road maps and other proprietaryinformation and materials (**“Proprietary Information”**); (ii) trademarks and service marks (whetheror not registered), trade names, logos, trade dress and other proprietary indicia and all goodwillassociated therewith; (iii) documentation, advertising copy, marketing materials, web-sites,specifications, mask works, drawings, graphics, databases, recordings and other works ofauthorship, whether or not protected by Copyright; (iv) computer programs, including any and allsoftware implementations of algorithms, models and methodologies, whether in source code or objectcode, firmware, development tools, files, records and data, design documents, flow-charts, usermanuals and training materials relating thereto and any translations thereof and all media on whichany of the foregoing is recorded (collectively, **“Software”**); (v) domain names, uniform resourcelocators (**“URLs”**) and other names and locators associated with the Internet (collectively, **“DomainNames”**); and (vi) all forms of legal rights and protections that may be obtained for, or maypertain to, the Intellectual Property set forth in clauses (i) through (v) in any country of theworld (**“Intellectual Property Rights”**), including all letters patent, patent applications,provisional patents, design patents, PCT filings, invention disclosures and other rights toinventions or designs (**“Patents”**), all registered and unregistered copyrights in both published andunpublished works (**“Copyrights”**), all trademarks, service marks, trade names and other proprietaryindicia (whether or not registered) (**“Marks”**), trade secret rights, mask works, moral rights orother literary property or authors rights, and all applications, registrations, issuances,divisions, continuations, renewals, reissuances and extensions of the foregoing.          (b) Section 3.16(b) of the Company Disclosure Schedule contains a complete and accurate listof (by name, owner and, where applicable, registration number and jurisdiction of registration,application, certification or filing) all Intellectual Property that is owned by or filed in thename of the Company and/or one or more of its Subsidiaries (whether exclusively, jointly withanother Person or otherwise) (**“Company Owned Intellectual Property”**); provided that the CompanyDisclosure Schedule is not required to list items of Company Owned Intellectual Property which arenot registered or the subject of an application for registration. Except as specificallyidentified and described in the Company Disclosure Schedule, the Company or one of its Subsidiariesexclusively owns the entire right, title and interest to all Company Owned Intellectual Propertyfree and clear of all Liens (other than Permitted Liens).          (c) Section 3.16(c) of the Company Disclosure Schedule contains a complete and accurate listof (i) all licenses, sublicenses and other Contracts (**“In-Bound Licenses”**) pursuant to which athird party authorizes the Company or any of its Subsidiaries to use, practice any rights under, orgrant sublicenses with respect to, any Intellectual Property owned by such third party, includingthe incorporation of any such Intellectual Property into the Company’s or any of its Subsidiaries’products and, with respect to each In-Bound License, whether the In-Bound License is exclusive ornon-exclusive; provided, however, that the Company Disclosure Schedule is not required to listIn-Bound Licenses that consist solely of “shrink-wrap” and similar commercially available end userlicenses or agreements for contract services between the Company and other Persons in the Company’scurrent standard form thereof without material modification; and (ii) all such In-Bound Licensesthat require the Company to license, assign, or
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otherwise transfer rights to additions, modifications or improvements to such licensedIntellectual Property made by or for Company to any third party.          (d) Section 3.16(d) of the Company Disclosure Schedule contains a complete and accurate listof all currently in-force licenses, sublicenses and other Contracts (**“Out-Bound Licenses”**) pursuantto which the Company or any of its Subsidiaries authorizes a third party to use, practice anyrights under, or grant sublicenses with respect to, any Company Owned Intellectual Property orpursuant to which the Company or any of its Subsidiaries grants rights to use or practice anyrights under any Intellectual Property owned by a third party and, with respect to each Out-BoundLicense, whether the Out-Bound License is exclusive or non-exclusive; provided, however, that theCompany Disclosure Schedule is not required to list agreements for contract services between theCompany and other Persons in the Company’s current standard form thereof without materialmodification. Both (i) the Amended and Restated Development and License Agreement (Mometasone)between the Company and SkinMedica, Inc. dated March 31, 2006 and (ii) the Development and LicenseOption Agreement (Third Steroid and Other Steroid Products) between the Company and SkinMedica,Inc. dated March 31, 2006 have been terminated and such terminated agreements will be properlyreflected in the statement of Estimated Closing Working Capital.          (e) Except as specifically identified and described in the Company Disclosure Schedule,Company is the exclusive owner of all Marks used in connection with the operation or conduct of thebusiness of Company, including the sale, distribution or provision of any Company product.          (f) The Company Owned Intellectual Property, together with the Company’s and its Subsidiaries’rights under the In-Bound Licenses listed in the Company Disclosure Schedule or that are“shrink-wrap” and similar commercially available end-user licenses or that are agreements betweenthe Company and its employees in the Company’s standard form thereof without modification or thatare agreements for contract services between the Company and other Persons in the Company’s currentstandard form thereof without material modification (collectively, the **“Company IntellectualProperty”**), constitutes all the Intellectual Property used in or necessary for the operation of theCompany’s and its Subsidiaries’ businesses (A) as they are currently conducted, including, withoutlimitation with respect to IDP-107, IDP-108, IDP-110, IDP-111, IDP-113, IDP-115 and other productsunder development by the Company or its Subsidiaries for which the company has filed aninvestigational new drug application or equivalent (the **“Company Pipeline Products”**); and (B) asthe Company or its Subsidiaries currently propose to develop the Company Pipeline Products.          (g) All registration, maintenance and renewal fees related to Patents, Marks, Copyrights andany other certifications, filings or registrations related to Intellectual Property that are ownedby the Company or any of its Subsidiaries (**“Company Registered Items”**) that are currently due havebeen paid and all documents and certificates related to such Company Registered Items have beenfiled with the relevant Governmental Entity or other authorities in the United States or foreignjurisdictions, as the case may be, for the purposes of maintaining such Company Registered Itemsand perfecting Company’s or its Subsidiary’s ownership interests therein. All Company RegisteredItems are in good standing, held in compliance with all applicable legal requirements and, to theKnowledge of the Company as of the date of this
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Agreement, enforceable by the Company and/or one or more of its Subsidiaries. To theKnowledge of the Company as of the date of this Agreement, all Patents that have been issued to theCompany or any of its Subsidiaries are valid.          (h) To the Knowledge of the Company, there are no challenges (or any reasonable basistherefor) with respect to the validity or enforceability of any Company Intellectual Property. TheCompany Disclosure Schedule lists the status of any Actions currently pending before the UnitedStates Patent and Trademark Office or any other Governmental Entity anywhere in the world relatedto any of the Company Registered Items, including the due date for any outstanding response by theCompany or any of its Subsidiaries in such Actions. Except as specifically identified anddescribed in the Company Disclosure Schedule, there are no actions that are required to be taken bythe Company within ninety (90) days of the Closing Date with respect to any Company RegisteredItems, and Company has taken steps to assure that all scheduled actions that are required to betaken by the Company within ninety (90) days of the Closing Date with respect to any CompanyRegistered Items will be taken. Except as specifically identified and described in the CompanyDisclosure Schedule, neither the Company nor any of its Subsidiaries has taken any action or failedto take any action, in either case, in the twelve (12) months prior to the date of this Agreement,that could reasonably be expected to result in the abandonment, cancellation, forfeiture,relinquishment, invalidation, waiver or unenforceability of any Company Registered Items. TheCompany Disclosure Schedule lists all previously held Company Registered Items that the Company orany of its Subsidiaries has abandoned, cancelled, forfeited or relinquished during the twelve (12)months prior to the date of this Agreement.          (i) To the Knowledge of the Company, none of the products or services currently or formerlydeveloped, manufactured, sold, distributed, provided, shipped or licensed, by the Company or any ofits Subsidiaries, or the Company Pipeline Products, has infringed or infringes upon, hasmisappropriated or misappropriates or otherwise unlawfully used or uses, the Intellectual PropertyRights of any third party. To the Knowledge of the Company, neither the Company nor any of itsSubsidiaries, by conducting its business as currently conducted or as proposed to be conductedunder current development plans of the Company or its Subsidiaries, has infringed or infringesupon, has misappropriated or misappropriates or otherwise unlawfully used or uses, any IntellectualProperty Rights of a third party.          (j) During the seven years prior to the date of this Agreement, neither the Company nor any ofits Subsidiaries has received any written communication alleging that the Company or any of itsSubsidiaries or any of their respective products, services, activities or operations infringe upon,misappropriates or otherwise unlawfully use any Intellectual Property Rights of a third party, nor,to the Knowledge of the Company, is there any reasonable basis therefor. During the seven yearsprior to the date of this Agreement, no Action has been instituted, or, to the Company’s Knowledge,threatened, against the Company or any of its Subsidiaries relating to any Intellectual Propertyformerly or currently used by the Company or any of its Subsidiaries and none of the Company OwnedIntellectual Property (and to the Knowledge of the Company, no other Company Intellectual Property)is subject to any outstanding Order. During the seven years prior to the date of this Agreement,neither Company nor any of its Subsidiaries has received any opinion of counsel regarding any thirdparty patents.
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          (k) To the Company’s Knowledge, during the seven years prior to the date of this Agreement, noPerson has infringed or is infringing any Intellectual Property Rights of the Company or any of itsSubsidiaries or has otherwise misappropriated or is otherwise misappropriating any CompanyIntellectual Property, including any employee or former employee of Company, or has breached anylicense or agreement involving any Company Intellectual Property. The Company is not party to anyin-force agreement granting any third party the right to bring infringement actions with respectto, or otherwise enforce rights with respect to any Intellectual Property Rights of the Company.Except as provided in Section 3.16(k) of the Company Disclosure Schedule, the Company is not partyto any in-force agreement which includes a release, covenant not to sue or similar provisionpursuant to which the Company or any of its Subsidiaries has waived, granted any rights orimmunities under, or agreed not to use or enforce any Company Owned Intellectual Property.          (l) With respect to the Company’s or any of its Subsidiaries’ Proprietary Information, thedocumentation relating thereto is current, accurate (other than inaccuracies that do not materiallyaffect the value of such Proprietary Information) and sufficient in detail and content to identifyand explain it and to allow its full and proper use by individuals reasonably skilled in therelevant arts without reliance on the special knowledge or memory of particular individuals. TheCompany and its Subsidiaries have taken steps to protect and preserve the confidentiality of allProprietary Information owned by the Company or any of its Subsidiaries that is not covered by anissued Patent. Any receipt or use by, or disclosure to, a third party of Proprietary Informationowned by the Company or any of its Subsidiaries has been pursuant to the terms of binding writtenconfidentiality agreement between the Company or such Subsidiary and such third party(**“Nondisclosure Agreements”**). True and complete copies of the Company’s standard form ofNondisclosure Agreement and Nondisclosure Agreements with the top ten (10) service customers (suchservices shall include but are not limited to conducting clinical studies or designing and managingclinical studies) with the greatest dollar volume of revenue from the Company and its Subsidiariesin (i) the ten-month period ended October 31, 2008, and (ii) the year ended December 31, 2007 havebeen provided or made available to Parent. The Company and its Subsidiaries are, and to theCompany’s Knowledge, all other parties thereto are, in compliance with the provisions of theNondisclosure Agreements. The Company and its Subsidiaries are in material compliance with theconfidentiality terms of all Contracts pursuant to which a third party has disclosed to, orauthorized the Company or any of its Subsidiaries to use, Proprietary Information owned by suchthird party.          (m) All current and former employees, consultants and contractors (with respect to consultantsand contractors, only those who are or were involved in the conception or development ofIntellectual Property), of the Company and its Subsidiaries have executed and delivered, and to theCompany’s Knowledge are in material compliance with, enforceable agreements regarding theprotection of Proprietary Information and providing valid written assignments (or including a validwritten obligation of such employee, consultant or contractor to execute such a written assignment)of all Intellectual Property conceived or developed by such employees, consultants or contractorsin connection with their services for the Company and its Subsidiaries (**“Work Product Agreements”**).No current or former employee, consultant or contractor or any other Person (except for the ownersof in-licensed Company Intellectual Property and except for co-owners of Company Owned IntellectualProperty identified in Section
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3.16(b) of the Company Disclosure Schedule), has any right, claim or interest to any of theCompany Intellectual Property.          (n) To the Company’s Knowledge, no employee, consultant or contractor of the Company or any ofits Subsidiaries has been or is by performing services for the Company or such Subsidiary, inviolation of any term of any employment, invention disclosure or assignment, confidentiality,noncompetition agreement or other restrictive covenant or any Order as a result of such employee’s,consultant’s or independent contractor’s employment by the Company or such Subsidiary or anyservices rendered by such employee, consultant or independent contractor to the Company or suchSubsidiary.          (o) True and complete copies have been provided to Parent of all Contracts pursuant to whichthe Company or any of its Subsidiaries has agreed to indemnify a third party against any charge ofinfringement or misappropriation resulting from the use of any Intellectual Property that has beendistributed, sold or licensed by the Company or any of its Subsidiaries.          (p) Except as specifically identified and described in the Company Disclosure Schedule: (i)the execution and delivery of this Agreement by the Company does not, and the consummation of theMerger (in each case, with or without the giving of notice or lapse of time, or both) will not,directly or indirectly, result in breach, modification, cancellation, termination, suspension of,the loss or impairment of, or give rise to any right of any third party to terminate, or re-priceor otherwise renegotiate any of the Company’s or any of its Subsidiaries’ rights to own any of theCompany-Owned Intellectual Property or their respective rights under any Out-Bound License orIn-Bound License, nor to require the consent of any Governmental Entity or other third party inrespect of such Intellectual Property; (ii) each of the Company and its Subsidiaries is in materialcompliance with, and has not materially breached any term of any Contract referenced in subsection(i); (iii) to the Knowledge of the Company there is no assertion, claim or threatened claim thatCompany or any of its Subsidiaries has materially breached any terms or conditions of suchContracts; (iv) to the Knowledge of the Company, all other parties to such Contracts, are incompliance with, and have not materially breached any term of, such Contracts; and (v) followingthe Closing Date, the Surviving Corporation will be permitted to exercise all of the Company’s andits Subsidiaries’ rights under such Contracts to the same extent the Company and its Subsidiarieswould have been able to had the transactions contemplated by this Agreement not occurred andwithout the obligation to grant any rights in excess of those that would have been granted by theCompany or its Subsidiaries had the transactions contemplated by this Agreement not occurred andwithout the obligation to pay any additional amounts or other consideration other than ongoingfees, royalties or payments which the Company or any of its Subsidiaries would have been requiredto pay had the transactions contemplated by this Agreement not occurred.          (q) Except as specifically identified and described in the Company Disclosure Schedule,neither this Agreement nor the transactions contemplated by this Agreement, including theassignment to Parent or Merger Sub by operation of law or otherwise of any contracts or agreementsto which the Company or any of its subsidiaries are a party, will result in (i) either the Parent’sor the Merger Sub’s being bound by, or subject to, any non-compete or other material restriction onthe operation or scope of their respective businesses contained in an Out-Bound License or anIn-Bound License, or (ii) either the Parent’s or the Merger Sub’s being
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obligated, under an Out-Bound License or an In-Bound License, to pay any royalties or othermaterial amounts to any third party in excess of those payable by Company prior to the Closing.          (r) The Company and its Subsidiaries use commercially available antivirus software with theintention of protecting Company’s software products from becoming infected by viruses and otherharmful code. To the Company’s Knowledge, the Company’s software products do not contain anycomputer code that is designed and has the ability to disrupt, disable, harm, distort or otherwiseimpede the legitimate operations of such software products by or for the Company or its authorizedusers.          (s) No government funding, nor any facilities of a university, college, other educationalinstitution or research center, was used in the development of the computer software programs orapplications, or any other Intellectual Property owned by Company or its Subsidiaries. To theKnowledge of Company, no current or former employee, and no consultant or independent contractor ofCompany or its Subsidiaries, who was involved in, or who contributed to, the creation ordevelopment of any Company Owned Intellectual Property, has performed services for the government,or any university, college, or other educational institution or research center during a period oftime during which such employee, consultant or independent contractor was also performing servicesfor Company or its Subsidiaries.          (t) Except as specifically identified and described in the Company Disclosure Schedule,Company has not entered into any license that requires, as a condition of use, modification and/ordistribution of software subject to such license, that such software or other software combinedand/or distributed with such software must be: (a) disclosed or distributed in source code form;(b) licensed for the purpose of making derivative works; or (c) redistributable at no charge (eachsuch license, a **“Viral License”**) nor has Company distributed the Company Intellectual Property orCompany products in a manner that would cause any component of the Company Intellectual Property orCompany products to become subject to any of the terms of a Viral License.     3.17 Absence of Certain Changes or Events. Since the Balance Sheet Date to the dateof this Agreement:          (a) there has not been any Company Material Adverse Effect;          (b) neither the Company nor any of its Subsidiaries has amended or otherwise modified itsCharter Documents;          (c) neither the Company nor any of its Subsidiaries has declared, set aside or paid anydividend or other distribution (whether in cash, stock or property) with respect to any of itssecurities;          (d) neither the Company nor any of its Subsidiaries has altered any term of any of theirrespective outstanding securities;          (e) neither the Company nor any of its Subsidiaries has sold, leased, transferred or assignedany property or assets of the Company or any of its Subsidiaries, except
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for the sale of inventory and the grant of Out-Bound Licenses on a non-exclusive basis, ineach case in the ordinary course of business consistent with past practice;          (f) neither the Company nor any of its Subsidiaries has incurred, assumed or guaranteedIndebtedness for a material amount, or materially modified the terms of any material Indebtednessoutstanding as of the Balance Sheet Date in each case other then in the ordinary course of businessconsistent with past practice ;          (g) neither the Company nor any of its Subsidiaries has incurred any material Liability orcreated or assumed any Lien on any asset, except for Permitted Liens, Liens arising under leasefinancing arrangements existing as of the Balance Sheet Date and Liens for taxes not yet due andpayable with respect to which the Company maintains adequate reserves;          (h) neither the Company nor any of its Subsidiaries has made any loan, advance or capitalcontribution to, or investment in, a material amount in any Person other than travel loans oradvances in the ordinary course of business consistent with past practice;          (i) there has not been any labor dispute, other than individual grievances, or any activity orproceeding by a labor union or representative thereof to organize any employees of the Company orany of its Subsidiaries;          (j) there has not been any material damage, destruction or loss with respect to materialproperty and assets of the Company or any of its Subsidiaries, whether or not covered by insurance;          (k) neither the Company nor any of its Subsidiaries has made any material change in accountingpractices;          (l) neither the Company nor any of its Subsidiaries has made any Tax election, changed itsmethod of Tax accounting or settled any claim for Taxes; or          (m) neither the Company nor any of its Subsidiaries has agreed, whether in writing orotherwise, to do any of the foregoing.     3.18 Contracts.          (a) Section 3.18(a) of the Company Disclosure Schedule contains a complete and accurate listof each Contract to which the Company or any of its Subsidiaries is a party, or by which any of theAcquired Corporations is bound:               (i) for the purchase of materials, supplies, goods, services, equipment or other assets andthat involves or would reasonably be expected to involve aggregate payments by the Company or anyof its Subsidiaries of $250,000 or more in the year ended December 31, 2008 (other than thosearrangements disclosed in subparagraph (xv) or purchased solely on a purchase order basis);
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               (ii) for the sale by the Company or any of its Subsidiaries of materials, supplies, goods,services, equipment or other assets, that involves a specified annual minimum dollar sales amountby the Company or any of its Subsidiaries of $100,000 or more;               (iii) that requires the Company or any of its Subsidiaries to purchase its total requirementsof any product or service from a third party or that contains “take or pay” provisions;               (iv) pursuant to which (A) the Company or any of its Subsidiaries purchases components forinclusion into its products other than components purchased solely on a purchase order basis or (B)pursuant to which a third party manufactures or assembles products on behalf of the Company or anyof its Subsidiaries;               (v) that is an employment, consulting, termination or severance Contract, other than any suchContract that is terminable at-will by the Company or any of its Subsidiaries without liability tothe Company or such Subsidiary;               (vi) that is a partnership, joint venture or similar Contract;               (vii) that is a distribution, dealer, representative or sales agency Contract, which involvesor would reasonably be expected to involve aggregate payments to or by the Company and any of itsSubsidiaries of $100,000 or more in the year ended December 31, 2008 (other than those arrangementsdisclosed in subparagraphs (xv) or (xvi));               (viii) that is a (A) Lease or (B) Contract for the lease of personal property, in either casewhich provide for payments to or by the Company or any of its Subsidiaries in any one case of$100,000 or more than $250,000 over the term of such Lease or Contract;               (ix) that is otherwise a Material Contract and which also provides for the indemnification bythe Company or any of its Subsidiaries of any Person, the undertaking by the Company or any of itsSubsidiaries to be responsible for consequential damages, or the assumption by the Company or anyof its Subsidiaries of any Tax, environmental or other Liability, other than pursuant to theindemnification provisions set forth in the Company’s Charter Documents, the Company’s standardform customer Contracts (including its confidentiality agreement) or the Company’s standard formInvestigator Clinical Study Agreement;               (x) with any Governmental Entity (other than a university, college, other educationalinstitution or research or medical center);               (xi) that is a note, debenture, bond, letter of credit, loan or other Contract forIndebtedness or lending of money (other than to employees for travel expenses in the ordinarycourse of business) or Contract for a line of credit or guarantee, pledge or undertaking of theIndebtedness of any other Person;               (xii) for a charitable or political contribution that involved the payment of $50,000 or moreby the Company or any of its subsidiaries;
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               (xiii) for any future capital expenditure or leasehold improvement in any one case in excessof $100,000, other than arrangements disclosed pursuant to the preceding subparagraph (i);               (xiv) that restricts or purports to restrict the right of the Company or any of itsSubsidiaries to engage in any line of business, acquire any property, develop or distribute anyproduct or provide any service (including geographic restrictions) or to compete with any Person orgranting any exclusive distribution rights, in any market, field or territory;               (xv) that is an In-Bound License pursuant to which the Company or any of its Subsidiaries madepayments of more than $100,000 for the ten-month period ended October 31, 2008;               (xvi) that is an Out-Bound License pursuant to which the Company or any of its Subsidiariesreceived payments of more than $250,000 for the ten-month period ended October 31, 2008;               (xvii) with any of the top ten (10) service customers (such services shall include but are notlimited to conducting clinical studies or designing and managing clinical studies) with thegreatest dollar volume of revenue from the Company and its Subsidiaries in (x) the ten-month periodended October 31, 2008, and (ii) the year ended December 31, 2007; and               (xviii) that relates to a material investment in the Company or the acquisition or dispositionof any material business (whether by merger, sale of stock, sale of assets or otherwise).          (b) Each Contract required to be listed in Section 3.16 (c) and (d) and Section 3.18 of theCompany Disclosure Schedule (collectively, the **“Material Contracts”**) is in full force and effectand valid and enforceable in accordance with its terms, except as such enforceability may belimited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar Laws affectingor relating to creditors’ rights generally, and (b) the availability of injunctive relief and otherequitable remedies.          (c) No customer under a Material Contract has canceled or otherwise terminated, or, to theKnowledge of the Company, threatened to cancel or otherwise terminate, its relationship with theCompany and its Subsidiaries. Neither the Company nor any of its Subsidiaries has received writtennotice that any such customer may cancel or otherwise materially and adversely modify itsrelationship with the Company or such Subsidiary or limit its services, supplies or material to theCompany or such Subsidiary, as a result of the Merger or otherwise.          (d) Neither the Company nor any of its Subsidiaries is, and to the Company’s Knowledge, noother party thereto is, in default in any material respect in the performance, observance orfulfillment of any obligation, covenant, condition or other term contained in any MaterialContract, and neither the Company nor any of its Subsidiaries has given or received written noticeto or from any Person relating to any such alleged or potential default that has not been cured.To the Knowledge of the Company, no event has occurred which with or without the giving of noticeor lapse of time, or both, may conflict with or result in a violation or breach
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of, or give any Person the right to exercise any remedy under or accelerate the maturity orperformance of, or cancel, terminate or modify, any Material Contract.          (e) The Company has made available accurate and complete copies of each Material Contract toParent other than purchase orders in the ordinary course of business that do not containoutstanding obligations of the Company.     3.19 Litigation.          (a) There is no action, suit or proceeding, claim, arbitration, litigation or investigation(each, an **“Action”**) pending or, to the Company’s Knowledge, threatened (i) against the Company orany of its Subsidiaries, or (ii) that challenges or seeks to prevent, enjoin or otherwise delay theMerger. To the Company’s Knowledge, no event has occurred or circumstances exist that may give riseor serve as a basis for any such Action. To the Company’s Knowledge, there is no Action againstany current or former director or employee of the Company or any of its Subsidiaries with respectto which the Company or any of its Subsidiaries has or is reasonably likely to have anindemnification obligation.          (b) There is no unsatisfied judgment, penalty, award, decree, injunction, rule or order of anyGovernmental Entity, court or arbitrator, outstanding or pending against the Company or any of itsSubsidiaries. There is no Order to which the Company or any of its Subsidiaries or any of theirrespective properties or assets are subject.     3.20 Employee Benefits.          (a) The Company Disclosure Schedule sets forth a complete and accurate list of all CompanyBenefit Plans. A current, accurate and complete copy of each Company Benefit Plan has been madeavailable to Parent. Neither the Company nor any of its Subsidiaries has any intent or commitmentto create any additional Company Benefit Plan or amend any Company Benefit Plan. **“Company BenefitPlan”**means any “employee benefit plan” as defined in Section 3 (3) of the Employee RetirementIncome Security Act of 1974 (**“ERISA”**), including any (a) nonqualified deferred compensation orretirement plan or arrangement which is an Employee Pension Benefit Plan (as defined in ERISASection 3(2)), (b) qualified defined contribution retirement plan or arrangement which is anEmployee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement whichis an Employee Pension Benefit Plan (including any Multiemployer Plan (as defined in ERISA Section3(37)), (d) Employee Welfare Benefit Plan (as defined in ERISA Section 3(1)) or material fringebenefit plan or program, or (e) stock purchase, stock option, severance pay, employment,change-in-control, vacation pay, company awards, salary continuation, sick leave, excess benefit,bonus or other incentive compensation, life insurance, or other employee benefit plan, contract,program, policy or other arrangement, whether or not subject to ERISA, in each case which issponsored, maintained or contributed to by the Company, any of its Subsidiaries or any ERISAAffiliate, or with respect to which the Company, any of its Subsidiaries or any ERISA Affiliateotherwise has any present or future Liability. **“ERISA Affiliate”**means any entity which is amember of a “controlled group of corporations” with, under “common control” with or a member of an“affiliated services group” with, the Company or any of its Subsidiaries, as defined in Section414(b), (c), (m) or (o) of the Code.
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          (b) Each Company Benefit Plan has been and is currently administered in compliance in allmaterial respects with its constituent documents and with all reporting, disclosure and otherrequirements of ERISA and the Code applicable to such Company Benefit Plan. Each Company BenefitPlan that is an Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA) and which isintended to be qualified under Section 401(a) of the Code (a **“Pension Plan”**), has been determinedby the Internal Revenue Service to be so qualified and no condition exists that would adverselyaffect any such determination. No Company Benefit Plan is a “defined benefit plan” as defined inSection 3(35) of ERISA.          (c) None of the Acquired Corporations, any ERISA Affiliate or any trustee or agent of anyCompany Benefit Plan has been or is currently engaged in any prohibited transactions as defined bySection 406 of ERISA or Section 4975 of the Code for which an exemption is not applicable whichcould subject Company, any Subsidiary of the Company, any ERISA Affiliate or any trustee or agentof any Company Benefit Plan to the tax or penalty imposed by Section 4975 of the Code or Section502 of ERISA.          (d) There is no event or condition existing which could be deemed a “reportable event” (withinthe meaning of Section 4043 of ERISA) with respect to which the 30-day notice requirement has notbeen waived. To the Company’s Knowledge, no condition exists which could subject the Company orany of its Subsidiaries to a penalty under Section 4071 of ERISA.          (e) None of the Company, any Subsidiary of the Company or any ERISA Affiliate is, or has been,party to any “multi-employer plan,” as that term is defined in Section 3(37) of ERISA.          (f) True and correct copies of the most recent annual report on Form 5500 and any attachedschedules for each Company Benefit Plan (if any such report was required by applicable Law) and atrue and correct copy of the most recent determination letter issued by the Internal RevenueService for each Pension Plan have been made available to Parent.          (g) With respect to each Company Benefit Plan, there are no actions, suits or claims (otherthan routine claims for benefits in the ordinary course) pending or, to the Company’s Knowledge,threatened against any Company Benefit Plan, the Company, any Subsidiary of the Company, any ERISAAffiliate or any trustee or agent of any Company Benefit Plan.          (h) With respect to each Company Benefit Plan to which the Company, any Subsidiary of theCompany or any ERISA Affiliate is a party which constitutes a group health plan or a group benefitplan subject to Section 4980B of the Code or Section 10128.50 *et seq*. of the California InsuranceCode, each such Company Benefit Plan complies, and in each case has complied, in all materialrespects, with all applicable requirements of Section 4980B of the Code and Section 10128.50 *etseq*. of the California Insurance Code.          (i) Full payment has been made of all amounts which the Company, any Subsidiary of the Companyor any ERISA Affiliate was required to have paid as a contribution to any Company Benefit Plan asof the last day of the most recent fiscal year of each of the
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Company Benefit Plans ended prior to the date of this Agreement, and none of the CompanyBenefit Plans has incurred any “accumulated funding deficiency” (as defined in Section 302 of ERISAand Section 412 of the Code), whether or not waived, as of the last day of the most recent fiscalyear of each such Company Benefit Plan ended prior to the date of this Agreement.          (j) Each Company Benefit Plan is, and its administration is and has been during the six-yearperiod preceding the date of this Agreement, in compliance in all material respects with, and noneof Company, any Subsidiary of the Company or any ERISA Affiliate has received any claim or noticethat any such Company Benefit Plan is not in compliance with, all applicable Laws and Orders andprohibited transaction exemptions, including to the extent applicable, the requirements of ERISA.          (k) None of the Company, any Subsidiary of the Company and any ERISA Affiliate is in defaultin performing any of its contractual obligations under any of the Company Benefit Plans or anyrelated trust agreement or insurance contract.          (l) There are no material outstanding Liabilities of any Company Benefit Plan other thanLiabilities for benefits to be paid to participants in any Company Benefit Plan and theirbeneficiaries in accordance with the terms of such Company Benefit Plan.          (m) Subject to ERISA and the Code, each Company Benefit Plan may be amended, modified,terminated or otherwise discontinued by the Company, a Subsidiary of the Company or an ERISAAffiliate at any time without liability for the Company or an ERISA Affiliate, other than thenormal and reasonable administrative fees associated with the termination of benefit plans.          (n) The consummation of the Merger will not (either alone or in conjunction with any otherevent) (i) entitle any current or former director, employee, contractor or consultant of theCompany or any of its Subsidiaries to severance pay, unemployment compensation or any other paymentor benefit, (ii) accelerate the time of payment or vesting, or increase the amount of compensationdue to any such director, employee, contractor or consultant, or result in the payment of any otherbenefits to any Person or the forgiveness of any Indebtedness of any Person, (iii) result in anyprohibited transaction described in Section 406 of ERISA or Section 4975 of the Code for which anexemption is not available, or (iv) result in the payment or series of payments by the Company orany of its Affiliates to any person of an “excess parachute payment” within the meaning of Section280G of the Code.          (o) With respect to each Company Benefit Plan that is funded wholly or partially through aninsurance policy, all premiums required to have been paid to date under the insurance policy havebeen paid, all premiums required to be paid under the insurance policy through the Closing willhave been paid on or before the Closing and, as of the Closing, there will be no liability of theCompany, any Subsidiary of the Company or any ERISA Affiliate under any insurance policy orancillary agreement with respect to such insurance policy in the nature of a retroactive rateadjustment, loss sharing arrangement or other actual or contingent liability arising wholly orpartially out of events occurring prior to the Closing.
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          (p) Each Company Benefit Plan that constitutes a “welfare benefit plan,” within the meaning ofSection 3(1) of ERISA, and for which contributions are claimed by the Company, any Subsidiary ofthe Company or any ERISA Affiliate as deductions under any provision of the Code, is in compliancein all material respects with all applicable requirements pertaining to such deduction. Withrespect to any welfare benefit fund (within the meaning of Section 419 of the Code) related to awelfare benefit plan, there is no disqualified benefit (within the meaning of Section 4976(b) ofthe Code) that would result in the imposition of a tax under Section 4976(a) of the Code. Allwelfare benefit funds intended to be exempt from tax under Section 501(a) of the Code have beendetermined by the Internal Revenue Service to be so exempt and no event or condition exists whichwould adversely affect any such determination.          (q) The Company Disclosure Schedule sets forth all Company Benefit Plans covering employees ofthe Company or any of its Subsidiaries outside of the United States (the **“Foreign Plans”**). TheForeign Plans have been operated in accordance, and are in compliance, in all material respects,with their constituent documents and all applicable Laws. There are no unfunded Liabilities underor in respect of the Foreign Plans, and all contributions or other payments required to be made toor in respect of the Foreign Plans prior to the Closing Date have been made or will be made priorto the Closing Date.          (r) Section 3.20(r) of the Company Disclosure Schedule sets forth a list of all plans,programs Contracts or arrangements to which the Company or any of its Subsidiaries is a party, orto which either is subject, which the Company believes in good faith provide for the payment ofdeferred compensation subject to Section 409A of the Code;          (s) Each Benefit Plan that is a “nonqualified deferred compensation plan” (as defined underSection 409A(d)(1) of the Code) has been operated and administered in good faith compliance withSection 409A of the Code during the period beginning January 1, 2005 through the date hereof andhas not been materially modified since October 2, 2004. With respect to stock options granted afterDecember 31, 2004, the Company’s Board of Directors or its duly constituted committee set theexercise price at or above the dollar amount which it determined in good faith to be the fairmarket value of the underlying shares on the date of grant based on the reasonable application of areasonable valuation method. With respect to stock options granted before January 1, 2005, theCompany’s Board of Directors or its duly constituted committee made a good faith attempt to set theexercise price at or above the fair market value of the underlying shares on the date of grant.The Company believes in good faith that any amounts paid or payable pursuant to each CompanyBenefit Plan subject to Section 409A of the Code is not includible in the gross income of a serviceprovider (within the meaning of Section 409A) until received by the service provider and is notsubject to interest or the additional tax imposed by Section 409A of the Code, and there are noagreements in place that would entitle a participant in any such plan to reimbursement for any suchadditional tax; and          (t) Each individual that renders services to the Company who is classified by the Company as(i) an independent contractor or other non employee status, or (ii) an exempt or non-exemptemployee, is properly so classified for all purposes, including (w) taxation and Tax reporting, (x)eligibility to participate in the Company Benefit Plans, (y) Fair Labor Standards Act purposes, and(z) applicable Law governing the payment of wages.
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     3.21 Labor and Employment Matters.          (a) Section 3.21(a) of the Company Disclosure Schedule sets forth (i) (A) a list of alldirectors, employees, contractors and consultants of the Company and its Subsidiaries (includingtitle and position) as of the date hereof, and (B) the base compensation and benefits of each suchdirector, employee, consultant and consultant whose annual base compensation and target bonusexceeds $100,000 in the year ending 2007, and (ii) a list of all former directors, employees,contractors and consultants of the Company and each of its Subsidiaries who are receiving benefitsor scheduled to receive benefits in the future, and the pension benefit, medical insurance coverageand other benefits of each such director, employee, contractor and consultant. All directors,employees, contractors and consultants of the Company and its Subsidiaries may be terminated by theCompany or the relevant Subsidiary at any time with or without cause and without any severance orother Liability to the Company or such Subsidiary.          (b) Section 3.21(b) of the Company Disclosure Schedule sets forth a list of all payments thatare due and payable, or will become due and payable as of the Closing Date, including any and allpayments that are required to be made as a result of the consummation of the transactionscontemplated by this Agreement, to each director, employee, contractor and consultant of theCompany and its Subsidiaries.          (c) Neither the Company nor any of its Subsidiaries is a party or subject to any labor unionor collective bargaining Contract. There have not been and there are not pending or, to theCompany’s Knowledge, threatened any labor disputes, work stoppages, requests for representation,pickets, work slow-downs due to labor disagreements or any actions or arbitrations which involvethe labor or employment relations of the Company or any of its Subsidiaries. There is no unfairlabor practice, charge or complaint pending, unresolved or, to the Company’s Knowledge, threatenedbefore the National Labor Relations Board. No event has occurred or circumstance exist that mayprovide the basis of any work stoppage or other labor dispute.          (d) Each of the Company and its Subsidiaries has complied in all material respects with each,and is not in violation of any, Law relating to anti-discrimination and equal employmentopportunities and there are, and have been, no violations of any other Law respecting the hiring,hours, wages, occupational safety and health, employment, promotion, termination or benefits of anyemployee or other Person. Each of the Company and its Subsidiaries has filed all reports,information and notices required under any Law respecting the hiring, hours, wages, occupationalsafety and health, employment, promotion, termination or benefits of any employee or other Person,and will timely file prior to Closing all such reports, information and notices required by any Lawto be given prior to Closing.          (e) Each of the Company and its Subsidiaries has paid or properly accrued in the ordinarycourse of business all wages and compensation due to employees, including all vacations or vacationpay, holidays or holiday pay, sick days or sick pay, and bonuses.          (f) Neither the Company nor any of its Subsidiaries is a party to any Contract which restrictsthe Company or any of its Subsidiaries from relocating, closing or terminating any of itsoperations or facilities or any portion thereof. Neither the Company nor any of its
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Subsidiaries have effectuated a “plant closing” (as defined in the Worker Adjustment andRetraining Notification Act of 1988 (the **“WARN Act”**)) or (ii) a “mass lay-off” (as defined in theWARN Act), in either case affecting any site of employment or facility of the Company or any of itsSubsidiaries, except in accordance with the WARN Act. The consummation of the Merger will notcreate liability for any act by the Company or any of its Subsidiaries on or prior to the ClosingDate under the WARN Act or any other Law respecting reductions in force or the impact on employeeson plant closings or sales of businesses.          (g) Each of the Acquired Corporations is in compliance with the requirements of theImmigration Reform and Control Act of 1986. Section 3.21 of the Company Disclosure Schedule setsforth a true and complete list of all employees working in the United States who are not U.S.citizens or permanent residents and a description of the legal status under which each suchemployee is permitted to work in the United States. All employees of the Company and itsSubsidiaries who are performing services for the Company or any of its Subsidiaries in the UnitedStates are legally able to work in the United States and will be able to continue to work in theUnited States following the Merger.     3.22 Environmental.          (a) Since January 1, 2007 each of the Acquired Corporations has been, and is currently, incompliance in all material respects with all Environmental Laws. Since January 1, 2007, none ofthe Acquired Corporations has received notice alleging that the Company or any of its Subsidiariesis not in such compliance with Environmental Laws. To the Company’s Knowledge there are no past,pending or threatened Environmental Actions against the Company or any of its Subsidiaries.          (b) The Company has provided or made available to Parent true and complete copies of, oraccess to, all written environmental assessment materials and reports that have been prepared by oron behalf of the Company or any of its Subsidiaries.     3.23 Related Party Transactions. There are no Contracts of any kind, entered into bythe Company or any of its Subsidiaries with any current or former officer, director or stockholder(collectively, **“Related Parties”**) or, to the Knowledge of the Company, any Affiliate of any ofthem, except in each case, for (a) employment agreements, fringe benefits and other compensationpaid to directors, officers and employees consistent with previously established policies(including normal merit increases in such compensation in the ordinary course of business) andcopies of which have been provided or made available to Parent (unless such agreement does notmaterially deviates from the form of employment agreement used by the applicable AcquiredCorporation, which form have been provided or made available to the Parent), (b) reimbursements ofordinary and necessary expenses incurred in connection with their employment or service, and (c)amounts paid pursuant to Company Benefit Plans of which copies have been provided to Parent. Tothe Knowledge of the Company, none of such Related Parties has any material direct ownershipinterest in any firm or corporation with which the Company or any of its Subsidiaries has abusiness relationship, or with any firm or corporation that competes with the Company or any of itsSubsidiaries (other than ownership of securities in a publicly traded company representing lessthan one percent of the outstanding stock of such
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company). No officer or director, or to the Company’s Knowledge, no other Related Party, isdirectly or indirectly interested in any Material Contract.     3.24 Insurance.          (a) Section 3.24(a) of the Company Disclosure Schedule sets forth (i) an accurate and completelist of each insurance policy maintained by the Company or any of its Subsidiaries with respect totheir respective businesses, properties, assets, directors or employees as of the date of thisAgreement (the **“Policies”**) and (ii) a list of all pending claims and the claims history for theCompany and each Subsidiary during the current year and the preceding year (including with respectto any such insurance policies maintained by any of the Acquired Corporations in the past year andpreceding year but not currently maintained). There are no pending claims under any of suchPolicies as to which coverage has been questioned, denied or disputed by the insurer or in respectof which the insurer has reserved its rights.          (b) None of the Acquired Corporations has any self-insurance arrangements.          (c) All Policies are issued by an insurer that, to the Company’s Knowledge, is reputable, arein full force and effect and are enforceable in accordance with their terms and will continue infull force and effect with respect to the Acquired Companies following the Merger, except as suchenforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or othersimilar Laws affecting or relating to creditors’ rights generally, and (ii) the availability ofinjunctive relief and other equitable remedies. Such Policies provide coverage customary forentities engaged in similar lines of business.          (d) All premiums due under the Policies have been paid in full or have been accrued. Neitherthe Company nor any of its Subsidiaries has received a written notice of cancellation of any Policyor of any material changes that are required in the conduct of the business of the Company or anyof its Subsidiaries as a condition to the continuation of coverage under, or renewal of, any suchPolicy. There is no existing default or event which, with the giving of notice or lapse of time orboth, would constitute a default under any Policy or entitle any insurer to terminate or cancel anyPolicy. The Company has not received any written notice notifying it of the termination of, ormaterial premium increase with respect to, any Policy and none of such Policies provides forretroactive premium adjustments.     3.25 Books and Records. The books, records and accounts of the Company and itsSubsidiaries are maintained in good faith and in accordance with commercially reasonable businesspractices. Neither the Company nor any of its Subsidiaries has engaged in any materialtransaction, maintained any bank account or used any of the funds of the Company or any of itsSubsidiaries other than transactions, bank accounts and funds which have been and are reflected inthe normally maintained books and records of the business. The minute books (containing therecords of the meetings, or written consents in lieu of such meetings, of the stockholders, theboard of directors and any committees of the board of directors), the stock certificate books, andthe stock record books of the Company and its Subsidiaries have been maintained in accordance withcommercially reasonable business practices. There are no material resolutions or other actions ofthe stockholders, the board of directors or any committee of the board of directors other than asdisclosed in the records of the meetings and written consents contained in the
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minute books or those relating to the approval of this Agreement and the transactionscontemplated hereby.     3.26 Brokers or Finders. Other than the fee payable to Deutsche Bank Securities Inc.pursuant to its agreement with the Company dated July 19, 2007 (the **“Finder Agreement”**), there isno investment banker, broker, finder, financial advisor or other intermediary that has beenretained by or is authorized to act on behalf of the Company who is entitled to any fee orcommission in connection with the transactions contemplated by this Agreement. The Company hasprovided or made available to Parent a copy of the Finder Agreement. No claim exists or will existagainst the Company, any of its Subsidiaries or the Surviving Corporation or, based on any actionby the Company or any of its Subsidiaries, against Parent for payment of any “topping,” “break up”or “bust—up” fee or any similar compensation or payment arrangement as a result of thetransactions contemplated hereby.     3.27 No Illegal Payments. None of the Company, any of its Subsidiaries or, to theKnowledge of the Company, any Affiliate, officer, agent or employee thereof, directly orindirectly, has, on behalf of or with respect to the Company or any of its Subsidiaries, (a) madeany unlawful domestic or foreign political contributions, (b) made any payment or provided serviceswhich were not legal to make or provide and which the maker or provider of such payment or servicesshould reasonably have known were not legal for the payee or the recipient of such services toreceive, (c) received any payment or any services which were not legal for the payer or theprovider of such services to make or provide, or (d) had any off-book bank or cash accounts or“slush funds.”     3.28 Bank Accounts. Section 3.28 of the Company Disclosure Schedule sets forth thename of each bank, safe deposit company or other financial institution in which the Company or anyof its Subsidiaries has an account, lock box or safe deposit box and the names of all personsauthorized to draw thereon.**ARTICLE 4****REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB**     Except as set forth in the disclosure schedule dated and delivered as of the date hereof byParent and Merger Sub to the Company (the **“Parent Disclosure Schedule”**) (in accordance with Section10.12) each of Parent and Merger Sub represents and warrants to the Company as follows:     4.1 Organization and Good Standing. Each of Parent and Merger Sub is a corporationduly organized, validly existing and in good standing under the Laws of the jurisdiction of itsincorporation, has all requisite power to own, lease and operate its properties and to carry on itsbusiness as now being conducted, and is duly qualified to do business and is in good standing as aforeign corporation in each jurisdiction in which it owns or leases property or conducts anybusiness so as to require such qualification, except for those jurisdictions where the failure tobe so qualified and in good standing would not reasonably be expected to be, individually or in theaggregate, material to Parent and its Subsidiaries taken as a whole or affect the ability of Parentand Merger Sub to perform their obligations under this Agreement.
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     4.2 Authority and Enforceability. Each of Parent and Merger Sub, as applicable, hasthe requisite power and authority to enter into this Agreement and the Security Agreement, toperform its obligations hereunder and thereunder and to consummate the Merger and the transactionscontemplated hereby and thereby. The execution and delivery of the Security Agreement by Parentand this Agreement by Parent and Merger Sub and the consummation of the transactions contemplatedhereby and thereby have been duly authorized by all necessary corporate action on the part ofParent and Merger Sub. This Agreement and the Security Agreement have been duly executed anddelivered by Parent and, as applicable, Merger Sub and, assuming due authorization, execution anddelivery by the Company, constitute the valid and binding obligations of Parent and, as applicable,Merger Sub, enforceable against each of them in accordance with its terms, except as suchenforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or othersimilar Laws affecting or relating to creditors’ rights generally, and (b) the availability ofinjunctive relief and other equitable remedies.     4.3 No Conflicts; Authorizations.          (a) The execution and delivery of this Agreement and the Security Agreement by Parent and, asapplicable, Merger Sub do not, and the performance by Parent and Merger Sub of their obligationshereunder and thereunder and the consummation by Parent and Merger Sub of the transactionscontemplated hereby and thereby will not, (i) violate the provisions of any of the CharterDocuments of Parent or Merger Sub, (ii) violate or conflict with, in any material respects, orconstitute a material default or a material event creating rights of acceleration, termination,cancellation, imposition of additional obligations or loss of right, or require a consent under anymaterial Contract to which Parent or Merger Sub is a party, (iii) assuming compliance by Parentwith the matters referred to Section 4.4(b), violate or conflict, in any material respects, withany Law, Material Authorization or material Order applicable to Parent or Merger Sub or give anyGovernmental Entity or other Person the right to challenge any of the transaction contemplatedhereby or to exercise any material remedy, obtain any material relief under or revoke or otherwisematerially modify any material rights held under, any such Law, Material Authorization or materialOrder, or (iv) result in the creation of any material Liens upon any of the assets owned or used byParent or Merger Sub, other than such violations referred to in clauses (i), (ii) and (iii) andsuch Liens referred to in clause (iv) which would not reasonably be expected, individually or inthe aggregate, materially to impair or delay the ability of Parent or Merger Sub to perform itsobligations under this Agreement and consummate the Merger or to be material to Parent and itsSubsidiaries taken as a whole.          (b) No Material Authorization or Order of, registration, declaration or filing with, or noticeto any Governmental Entity is required by or with respect to Parent in connection with theexecution and delivery of this Agreement and the consummation of the Merger and the othertransactions contemplated hereby and thereby, except for (i) the filing of the Certificate ofMerger with the Secretary of State of Delaware, (ii) the filing of a premerger notification andreport form by Parent under the HSR Act or similar Laws in foreign jurisdictions and (iii) suchAuthorizations, Orders, registrations, declarations, filings and notices the failure to obtain ormake which is not and would not reasonably be expected to materially impair the ability of Parentor Merger Sub to perform its obligations under this Agreement and consummate the Merger or to bematerial to Parent and its Subsidiaries taken as a whole.
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     4.4 Interim Operations of Merger Sub. Merger Sub was formed solely for the purpose ofengaging in the transactions contemplated by this Agreement, has engaged in no other businessactivities and has conducted its operations only as contemplated by this Agreement.     4.5 Availability of Funds. Parent has cash available which is sufficient to enable itto consummate the transactions and perform its obligations contemplated by this Agreement that aredue on or before the date six months after the Closing Date and expects to have such cash availableat the time such transactions are consummated and such obligations are due to be performed.     4.6 Litigation. There are no actions, suits, proceedings or orders pending or, toParent’s or Merger Sub’s knowledge, threatened against or affecting Parent or Merger Sub at law orin equity, or before or by any Governmental Entity, domestic or foreign, which would adverselyaffect Parent’s or Merger Sub’s performance under this Agreement or the consummation of thetransactions contemplated hereby or thereby and there is no basis for any of the foregoing.     4.7 Brokerage. There are no claims for brokerage commissions, finders’ fees orsimilar compensation in connection with the transactions contemplated by this Agreement based onany arrangement or agreement made by or on behalf of Parent or Merger Sub.     4.8 No Reliance. In connection with its decision to enter into this Agreement,Parent, for itself and on behalf of its Affiliates and related parties, acknowledges, understandsand agrees that (a) Parent is a sophisticated party with such knowledge and experience in businessmatters that it appreciates the merits and risks of consummating the transactions contemplatedhereby; (b) Parent is not relying upon any representations and warranties and information otherthan that set forth herein or the other documents executed in connection with this Agreement; (c)Parent is not relying upon any forward-looking projections, forecasts, budgets, financial data orany other forward-looking information (written or oral) with respect to the Company or itsSubsidiaries and/or their respective businesses, or prospects prepared by or furnished to Parent byor on behalf of the Company or any of its Subsidiaries(**“Forward Looking Data”**); (d) Parentrecognizes that significant uncertainties are inherent in the Forward Looking Data and that theAcquired Corporations have not made any representations or warranties, express or implied, relatingto the Forward Looking Data; and (e) Parent takes full responsibility for making its own evaluationas to the adequacy and accuracy of the Forward Looking Data.**ARTICLE 5****COVENANTS OF THE COMPANY**     5.1 Conduct of Business. During the period from the date of this Agreement andcontinuing until the earlier of the termination of this Agreement or the Closing Date (the**“Pre-Closing Period”**), except with the prior written consent of Parent (not to be unreasonablywithheld, conditioned or delayed), the Company shall, and it shall cause each of its Subsidiariesto:
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          (a) maintain its corporate existence, pay its debts and taxes when due, pay or perform otherobligations when due, and carry on its business in the ordinary course in a manner consistent withpast practice and in accordance with the provisions of this Agreement and in compliance with allLaws, Authorizations and Contracts;          (b) use its commercially reasonable efforts consistent with past practices and policies topreserve intact its present business organization and keep available the services of its presentemployees and preserve its relationships with customers, suppliers, distributors, licensors,licensees, and others having business dealings with it; *provided*, that the Company is notauthorized to, and shall not, make any commitments to any of the foregoing Persons on behalf ofParent;          (c) use its commercially reasonable efforts consistent with past practices and policies tomaintain its facilities and assets in the same state of repair order and conditions as they are onthe date hereof, reasonable wear and tear excepted;          (d) maintain its books and records in accordance with past practice, and maintain in fullforce and effect all Material Authorizations and Policies;          (e) promptly notify Parent of any material event or occurrence not in the ordinary course ofbusiness, including but not limited to, any communication from a governmental entity;          (f) not employ or engage the services of any Person that is debarred or subject to debarmentproceedings by the FDA; and          (g) provide Parent with a list of actions that must be taken by the Company or any of itsSubsidiaries within 60 calendar days immediately following the Closing Date for the purposes ofobtaining, maintaining, perfecting, preserving or renewing any Company Registered Items.     5.2 Negative Covenants. During the Pre-Closing Period, except with the prior writtenconsent of Parent (not to be unreasonably withheld, conditioned or delayed), and except as setforth in Section 5.2 of the Company Disclosure Schedule, the Company shall not, and it shall notpermit any of its Subsidiaries to:          (a) adopt or propose any amendment to the Charter Documents of the Company or any of itsSubsidiaries;          (b) declare, set aside or pay any dividend or other distribution (whether in cash, stock orother property) with respect to any securities;          (c) (i) issue or authorize for issuance any securities, except upon the exercise of CompanyStock Options in accordance with their respective terms, or (ii) make any change in any issued andoutstanding securities, or redeem, purchase or otherwise acquire any securities other than therepurchase at cost from employees of shares of Company Common Stock in connection with thetermination of their employment pursuant to the Company’s standard form of option/restricted stockagreement;
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          (d) (i) modify the compensation or benefits payable or to become payable by the Company or anyof its Subsidiaries to any of its current or former directors, employees, contractors orconsultants, or modify any bonus, severance, termination, pension, insurance or other employeebenefit plan, payment or arrangement made to, for or with any current or former directors,employees, contractors or consultants of the Company or any of its Subsidiaries, or (ii) enter intoany employment (other than the Employment and Noncompetition Agreements and letter agreementsentered into in the ordinary course of business consistent with past practice with employees whoare terminable “at-will”), severance or termination agreement;          (e) other than as specifically set forth herein, establish, adopt, enter into, amend orterminate any Company Benefit Plan, or any collective bargaining, thrift, compensation or otherplan, agreement, trust, fund, policy or arrangement for the benefit of any current or formerdirectors, employees, contractors or consultants of the Company or any of its Subsidiaries;          (f) sell, lease, transfer or assign any material property or material assets of the Company orany of its Subsidiaries, including any transfer of the assets; *provided*, that the Company mayconvert to cash the assets constituting Company’s Charles Schwab Money Market and InvestmentAccount.          (g) (i) assume, incur or guarantee any Indebtedness, other than endorsements for collection inthe ordinary course of business, (ii) modify the terms of any existing Indebtedness or (iii) repayany existing Indebtedness in advance of its maturity date (except for assets sold, leased,transferred or assigned by the Company pursuant to contracts that are not Material Contracts),other than in the ordinary course of business;          (h) mortgage, pledge or permit to become subject to Liens (other than Permitted Liens) anyproperties or assets of the Company or any of its Subsidiaries;          (i) other than travel loans or advances in the ordinary course of business consistent withpast practice, make any loans, advances or capital contributions to, or investments in, any otherPerson;          (j) cancel any debts or waive any claims or rights of substantial value;          (k) (i) amend, modify or terminate, or waive, release or assign any rights under, any MaterialContract or (ii) enter into any Contract which, if entered into prior to the date hereof, wouldhave been required to be set forth in Section 3.18 of the Company Disclosure Schedule, other thanContracts executed in the ordinary course of business;          (l) (i) make any capital expenditure, or commit to make any capital expenditure which in anyone case exceeds $250,000 or capital expenditures which in the aggregate exceed $500,000, or (ii)except as permitted by clause (i), acquire any assets, properties or rights other than Inventory inthe ordinary course of business consistent with past practice;          (m) not settle or compromise any litigation other than settlements or compromises oflitigation where the settlement is limited solely to the release of claims and the
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monetary payment by the Company or any of its Subsidiaries does not exceed $100,000 in theaggregate or $50,000 in any individual case;          (n) amend any Company Stock Option or authorize cash payments in exchange for any of theforegoing;          (o) make any filings or registrations, with any Governmental Entity, except routine filingsand registrations (including filings in connection with the prosecution or maintenance of Patentsor Patent applications) made in the ordinary course of business;          (p) be party to (i) any merger, acquisition, consolidation, recapitalization, liquidation,dissolution or similar transaction involving the Company or any of its Subsidiaries or (ii) anypurchase of all or any substantial portion of the assets or securities of the Company or any of itsSubsidiaries;          (q) take any actions outside the ordinary course of business;          (r) make any changes in its accounting methods, principles or practices;          (s) make or change any material election in respect of Taxes, adopt or change any accountingmethod in respect of Taxes, file any Tax Return or any amendment to a Tax Return, enter into anyTax sharing or similar agreement or closing agreement, settle any claim or assessment in respect ofTaxes, surrender any right to claim a refund of Taxes, consent to any extension or waiver of thelimitation period applicable to any claim or assessment in respect of Taxes, enter intointercompany transactions giving rise to deferred gain or loss of any kind or take any othersimilar action relating to the filing of any Tax Return or the payment of any Tax, if suchelection, adoption, change, amendment, agreement, settlement, surrender, consent or other actionwould have the effect of increasing the Tax liability of the Company or any of its Subsidiaries forany period ending after the Effective Time or decreasing any Tax attribute of the Company or any ofits Subsidiaries existing as of the Effective Time;          (t) enter into any license agreement with any Person to obtain any Intellectual Property,other than any license agreement that is not a Material Contract or, other than Contracts executedin the ordinary course of business;          (u) on or before January 31, 2009, initiate any Phase III Trials that would constitute, orwith the passage of time, lead to the achievement of a Milestone; or          (v) agree, whether in writing or otherwise, to do any of the foregoing.     5.3 Access to Information. Subject to the terms of the Confidentiality Agreement byand between Parent and the Company dated September 23, 2008 (the**“Confidentiality Agreement”**) andexcept as prohibited by applicable law or governmental regulation, during the Pre-Closing Periodthe Company shall, and shall cause its Subsidiaries to, afford to Parent’s officers, directors,employees, accountants, counsel, consultants, advisors and agents(**“Representatives”**) reasonableaccess, during normal business hours and upon reasonable advance notice, to all of the Leased RealProperty, properties, assets, books and records, the
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Company’s officers, employees, accountants, Contracts and other documents related to theCompany and its Subsidiaries,     5.4 Consents. The Company shall, and shall cause each of its Subsidiaries to, use itscommercially reasonable efforts to obtain all Consents; provided that no Indebtedness is requiredto be repaid, except as otherwise required pursuant to the terms of any applicable loan Contract,and no Contract is required to be amended nor any right thereunder be waived and no money or otherconsideration is required to be expended in order to comply with this covenant.     5.5 Notification of Certain Matters. The Company shall give prompt notice to Parentof any fact, event or circumstance known to it that (a) individually or taken together with allother facts, events and circumstances known to it, has had or would reasonably be expected to have,individually or in the aggregate, a Company Material Adverse Effect, (b) would cause or constitutea breach of any of its representations, warranties, covenants or agreements contained herein, (c)constitute a failure of any condition precedent to Parent’s and Merger Sub’s obligations. TheCompany shall give prompt notice to parent of: (i) any notice or other communication from any thirdparty alleging that the consent of such third party is or may be required in connection with theMerger, (ii) any written notice or other written communication received by the Company from anyGovernmental Entity in connection with the Merger or (f) any Actions commenced against the Companyor any of its Subsidiaries that, if pending on the date of this Agreement, would have been requiredto have been disclosed pursuant to Section 3.19. The delivery of any notice pursuant to thisSection 5.6 shall not limit or otherwise affect any remedies available to Parent or prevent or cureany misrepresentations, breach of warranty or breach of covenant and disclosure by the Companyshall not be deemed to amend or supplement the Company Disclosure Schedule or constitute anexception to any representation or warranty.     5.6 Exclusivity. Except with respect to this Agreement and the transactionscontemplated hereby, the Company agrees that it will not, and it will cause its Subsidiaries andits and their respective directors and officers, employees not to, and it will not authorize ordirect its Affiliates and other agents and representatives (including any investment banking, legalor accounting firm retained by it or any of them and any individual member or employee of theforegoing) (each, an **“Agent”**) to: (a) initiate, knowingly encourage, solicit or seek, directly orindirectly, any inquiries or the making of any proposal or offer (including any proposal or offerto its stockholders or any of them) with respect to a merger, acquisition, consolidation,recapitalization, liquidation, dissolution, equity investment or similar transaction involving, orany purchase of, all or any substantial portion of the assets or the securities of, the Company orany of its Subsidiaries (any such proposal or offer being hereinafterreferred to as a **“Proposal”**);(b) engage in any negotiations concerning, or provide any confidential information or data to, orhave any substantive discussions with, any person relating to a Proposal; (c) otherwise facilitateor cooperate in any effort or attempt to make, implement or accept a Proposal; or (d) enter intoContract with any Person relating to a Proposal. If the Company, any of its Subsidiaries or anyAgent has provided any Person (other than Parent or the Company’s or its Subsidiaries’ Agents) withany confidential information or data relating to a Proposal, they shall request the immediatereturn thereof to the extent possible under the contract governing the relationship with suchparty. The Company shall promptly (and in any event within one Business Day following the day adirector or officer of the Company obtains knowledge of such event) notify Parent orally and inwriting, if any inquiries, proposals or offers related to a Proposal are received by, any
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confidential information or data is requested from, or any negotiations or discussions relatedto a Proposal are sought to be initiated or continued with, it, any of its Subsidiaries or any oftheir respective directors, officers, employees and Affiliates or, to its Knowledge, any otherAgent, but only to the extent Company reasonably determines that it can do so without violating anon-disclosure agreement by and between the Company and a third party that was in effect as of thedate of this Agreement (an **“Existing Non-DisclosureAgreement”**). Such notice shall disclose theidentity of the party making, and the terms and conditions of, any such Proposal, inquiry orrequest, and shall include a true and complete copy of such Proposal, inquiry or request, if inwriting, but only to the extent Company reasonably determines that it can do so without violatingthe applicable Existing Non-Disclosure Agreement.     5.7 Allocation Certificate. The Company shall prepare and deliver to Parent at theClosing a certificate signed by the Chief Executive Officer and Secretary of the Company in a formreasonably acceptable to Parent as to the capitalization of the Company immediately prior to theEffective Time, the amount each Company Securityholder is to receive at Closing pursuant to Section2.3(h)(i) and each Company Securityholder’s pro rata percentage for each of the distributionsreferred to in Sections 2.3(h)(ii), (iii) and (iv) (the**“Allocation Certificate”**). The AllocationCertificate shall set forth a true and complete list of the Company Securityholders immediatelyprior to the Effective Time and the number of shares of Company Preferred Stock, Company CommonStock and/or Company Stock Options owned by each such Company Securityholder and, with respect toCompany Stock Options, the extent to which such Company Stock Options will be vested as ofimmediately prior to the Effective Time (after giving effect to the 50% vesting acceleration ofthen unvested Company Stock Options pursuant to the Company Stock Plan)).     5.8 CFO Certificate. The Company shall prepare and deliver to Parent prior to theClosing a certificate from the Chief Financial Officer of the Company certifying an attachedestimated balance sheet as of the Closing Date which shall include the Estimated Closing WorkingCapital and certifying as to the amount of Net Debt and Company Transaction Expenses as of Closingin a form reasonably satisfactory to Parent (the **“CFOCertificate”**).     5.9 FIRPTA Certificate. The Company shall prepare and deliver to Parent at theClosing a properly executed statement in a form satisfactory to Parent, for purposes of satisfyingParent’s obligations under TreasuryRegulation Section 1.1445-2(c)(3) (the **“FIRPTA Certificate”**).     5.10 Section 280G of the Code. Prior to the Closing Date, the Company shall deliverto Parent evidence reasonably satisfactory to Parent that either (i) with respect to any paymentsor benefits that would constitute “parachute payments” within the meaning of Section 280G(b)(2) ofthe Code (**“Potential 280G Benefit”**), the Company’s stockholders have approved (in a mannerconsistent with the regulations under Section 280G of the Code) each Potential 280G Benefit, or(ii) that such requisite stockholder approval has not been sought or obtained with respect to anyPotential 280G Benefit, and such Potential 280G Benefit has been waived by the applicable“disqualified individual” and therefore has ceased to be payable or provided.
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     5.11 Termination of 401(k) Plan and Company Stock Plan. Unless otherwise notified byParent at least five (5) Business Days prior to the Closing, the Company shall prepare and,pursuant to a duly authorized action of its Board, adopt a resolution whereby conditioned upon theClosing and effective immediately prior to the Effective Time the Company’s qualified definedcontribution retirement plan and the Company Stock Plan shall be terminated, such actions shall beevidenced by a certificate signed by the Chief Executive Officer or Secretary of the Company in aform reasonably acceptable to Parent and delivered to the Parent at the Closing. In order toeffectuate the orderly termination and distribution of the Company’s qualified defined contributionretirement plan, the Company shall, and it shall cause each of its Subsidiaries to, use itscommercially reasonable efforts to assist Parent in evaluating and planning for such termination.If the qualified defined contribution retirement plan shall be terminated in the circumstancesdescribed in this Section 5.11, all participants and former participants in such plan shall becomefully vested in their account balances under the plan to the extent required by law.**ARTICLE 6****COVENANTS OF THE COMPANY AND PARENT**     6.1 Regulatory Approvals.          (a) Each of Parent, Merger Sub and the Company shall promptly apply for, and use reasonableefforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assistand cooperate with the other Parties in doing, all things that are necessary or advisable toconsummate and make effective the Merger and the other transactions contemplated by this Agreement,including (i) the use of reasonable efforts to cause the conditions in Article VII to be satisfied,(ii) the obtaining of all necessary actions or nonactions, waivers, consents and approvals fromGovernmental Entities and the making of all necessary registrations, filings and notices and thetaking of all reasonable steps as may be necessary to obtain an approval or waiver from, or toavoid an action or proceeding by, any Governmental Entity, (iii) the obtaining of all necessaryconsents, approvals or waivers from third parties and (iv) the execution and delivery of anyadditional instruments necessary to consummate the transactions contemplated by, and to fully carryout the purposes of, this Agreement.          (b) Without limiting the generality of the foregoing, each of Parent and the Company shall, aspromptly as practicable, make or cause to be made any filing, in any jurisdiction, with anyGovernmental Entity, which the Parties deem to be necessary or advisable in connection with theMerger or any of the other transactions contemplated by this Agreement and which relate to the HSRAct or any other statute, regulation, order, or decree, whether foreign or based on United Stateslaw, that is designed to prohibit, restrict, or regulate actions having the potential purpose oreffect of monopolization or restraint of trade (collectively,**“Antitrust Laws”**). Furthermore, eachof the Company and Parent shall also, no later than seven business days after the date of thisAgreement, make or cause to be made any other filings which the Parties deem to be necessary oradvisable in connection with the Merger or any of the other transactions contemplated by thisAgreement and which relate to any of the Antitrust Laws other than the HSR Act. Each of theCompany and Parent shall furnish to each other’s counsel
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such necessary information and reasonable assistance as the other may request in connectionwith its preparation of any filing or submission relating to any of the Antitrust Laws.          (c) Each of Parent and the Company shall use reasonable efforts to obtain promptly anyclearance, under any of the Antitrust Laws, such clearance deemed necessary or advisable by theParties for the consummation of the Merger or any of the transactions contemplated by thisAgreement,. Without limiting the generality of the foregoing, each of Parent and the Company shall,if any administrative, regulatory, or judicial action or proceeding is instituted (or overtlythreatened to be instituted) challenging the Merger or any of the transactions contemplated by theAgreement as violative of any Antitrust Laws, use reasonable efforts to cooperate to vigorouslycontest and resist any such action or proceeding and to have vacated, lifted, reversed, oroverturned any decree, judgment, injunction, or other order, whether temporary, preliminary, orpermanent, that is in effect and that prohibits, prevents, or restricts consummation of the Mergeror any of the transactions contemplated by this Agreement, or to fully carry out the purposes ofthis Agreement.          (d) Each of Parent and the Company shall keep the other apprised of the status of anycommunications with, and any inquiries or requests for additional information from, the UnitedStates Federal Trade Commission (the **“FTC”**) and the United States Department of Justice (the **“DOJ”**)and shall use its commercially reasonable efforts to comply promptly with any such inquiry orrequest. No party hereto shall independently participate in any meeting or discussion with anyGovernmental Entity in respect of any filings, applications, investigations, or other inquirywithout giving the other parties hereto prior notice of the meeting and, to the extent permitted bythe relevant Governmental Entity, the opportunity to attend and participate (which shall be limitedto outside antitrust counsel only). Parent will consult with the Company in connection with thepreparation of all written presentations, memoranda, briefs, arguments, opinions, proposals, orother written submissions to any Government Entity that are prepared in connection with obtainingany clearances deemed necessary or advisable by the parties under any of the Antitrust Laws for theconsummation of the Merger or any of the transactions contemplated by this Agreement. Withoutlimiting the generality of the foregoing, Parent agrees to use reasonable efforts to take all stepsnecessary to receive regulatory clearance under all applicable Antitrust Laws to close the Mergerand all other transactions contemplated by this Agreement, unless the taking of such actions wouldhave (or would reasonably be expected to have) a material adverse effect on the business condition(financial or otherwise) of Parent, its Subsidiaries, and the Surviving Corporation taken as awhole. Notwithstanding the foregoing, Parent shall not be required to (A) consent to thedivestiture, license or other disposition or holding separate (through the establishment of a trustor otherwise) of any of its or its Affiliates’ assets or any assets of the Surviving Corporation orany of its Subsidiaries or (B) consent to any other structural or conduct remedy or enter into anysettlement or agree to any Order regarding antitrust matters respecting the transactionscontemplated by this Agreement.          (e) Parent and the Company shall instruct their respective counsel to cooperate with eachother and use their best efforts to facilitate and expedite the identification and resolution ofany issues arising under any of the filings made pursuant to Section 6.1 of this Agreement and topromote the expiration of any applicable waiting period at the earliest practicable date. Suchbest efforts and cooperation include counsels’ (i) to keeping each other informed of all materialcommunications from and to personnel of the reviewing Governmental
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Entity and (ii) conferring with each other regarding appropriate contacts with and responseto personnel of any Governmental Entity.     6.2 Public Announcements. Except as otherwise contemplated by this Agreement, neitherParent, Merger Sub nor the Company shall make, or cause to be made, any press release or otherpublic statement or any statement to any analyst or member of the press concerning the transactionscontemplated by this Agreement without the approval of the other party hereto, except for anypublic disclosure which is required by Law (in which case the disclosure shall be prepared jointlyby the Company and Parent). Notwithstanding the foregoing, the Company shall be permitted todisclose the existence of this Agreement to the Company Securityholders and to its customers,suppliers and other contacts in connection with the solicitation and procurement of any approvalsor Consents in connection with this Agreement.     6.3 Expenses. Each of Parent and the Company shall bear its own costs and expenses inconnection with this Agreement and the transactions contemplated hereby, including all legal,accounting, financial advisory, consulting and all other fees and expenses of third parties,whether or not the Merger is consummated.     6.4 Further Assurances. Upon the terms and subject to the conditions hereof each ofthe parties hereto shall execute such documents and other instruments and take such further actionsas may be reasonably required to carry out the provisions hereof and consummate the Merger and thetransactions contemplated hereby. Each of the parties hereto shall make commercially reasonableefforts to consummate the Merger on or by December 31, 2008.     6.5 Directors and Officers Indemnification.          (a) From and after the Effective Time, Parent shall cause the Surviving Company and itsSubsidiaries to fulfill and honor (and the Parent guarantees that the Surviving Corporation willfulfill and honor) all rights to indemnification or exculpation existing in favor of present andformer directors, officers, employees, and agents of Company or any of its Subsidiaries and allother Persons who may presently serve or have served at Company’s request as a director, officer,employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise(collectively, the **“Indemnified Parties”**) in the applicable certificate of incorporation, bylaws orother similar charter documents of the Company and its Subsidiaries as in effect on the date hereofand in any indemnification agreements with each person who is a current or former director orofficer of the Company or its Subsidiaries.          (b) During the period commencing on the Effective Time and ending on the sixth anniversary ofthe Effective Time (the **“Coverage Period”**), Parent shall, at Parent expense, cause the SurvivingCorporation to maintain Company’s existing insurance policies’ indemnification provisions(including with respect to advancement of expenses) as of the date hereof with respect to theIndemnified Parties with a coverage and scope at least as beneficial as the current liabilityinsurance coverage; provided, however, that Parent and the Surviving Corporation shall not berequired to pay annual premiums for such insurance coverage (or for any substitute or “tail”policies) in excess of an amount equal to 250% of the most recently paid annual premium withrespect to such insurance (the **“Maximum Amount”**). In the event any future annual premiums exceedsuch maximum payment, the Surviving Corporation shall be
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entitled to reduce the amount of coverage to the amount of coverage that can be obtained for apremium equal to such Maximum Amount.          (c) Parent may obtain (or Parent may cause Surviving Corporation to elect) comparable “tail”coverage with regard to any insurance policies of Company, with the amount of coverage andplacement consistent with the level and scope of coverage of the current liability insurance, andsuch coverage cost shall be at Parent’s expense. At or before the Effective Date, with respect toDirectors and Officers liability coverage for Company officers and directors in place before givingeffect to the Merger, Parent may obtain (or the Company shall obtain) at Parent’s expensecomparable “tail” coverage for the Coverage Period with regard to any directors and officersinsurance policies of the Company, with the amount of coverage and placement consistent with thescope and coverage of the current liability insurance.          (d) The provisions of this Section 6.5 are intended to be for the benefit of, and shall beenforceable by, each of the Indemnified Parties, their heirs, and their representatives.     6.6 Employee Matters. Following the Closing Date, Parent shall provide the employeesof the Company and any Subsidiary of the Company who are employed by Parent or any Affiliate ofParent after the Closing Date (**“Continuing Employees”**) with substantially the same benefits (otherthan compensation including salary, bonus and equity compensation(**“Compensation”**), which shall besubstantially the same as such Continuing Employee’s Compensation immediately prior to theEffective Time) in the aggregate as those provided to similarly situated employees of Parent. Forpurposes of determining eligibility to participate, vesting and entitlement to benefits wherelength of service is relevant (including for purposes of vacation accrual) under any Parentemployee benefit plan (other than a defined benefit plan) and to the extent permitted by applicableLaw, Parent shall provide that the Continuing Employees shall receive service credit under eachParent employee benefit plan (other than a defined benefit plan) for their period of service withthe Company prior to the Closing, except where doing so would cause a duplication of benefits.Parent shall use all commercially reasonable efforts to waive all limitations as to preexistingconditions exclusions (or actively at work or similar limitations), evidence of insurabilityrequirements and waiting periods with respect to participation and coverage requirements applicableto the Continuing Employees and their eligible dependents under any health and welfare plan thatsuch employees may be eligible to participate in after the Closing Date.**ARTICLE 7****CONDITIONS TO MERGER**     7.1 Conditions to Each Party’s Obligation to Effect the Merger. The obligations ofParent, Merger Sub and the Company to consummate the Merger are subject to the satisfaction on orprior to the Closing Date of the following conditions:          (a) Any waiting period (and any extension thereof) applicable to the Merger under the HSR Actshall have been terminated or shall have expired.
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          (b) All Authorizations and Orders of, declarations and filings with, and notices to anyGovernmental Entity required to permit the consummation of the Merger shall have been obtained ormade and shall be in full force and effect.          (c) No temporary restraining order, preliminary or permanent injunction or other Orderpreventing the consummation of the Merger shall be issued by any Government Entity of competentjurisdiction and shall be in effect. No Law shall have been enacted which makes the consummationof the Merger illegal as of the Closing Date.     7.2 Conditions to Obligations of Parent and Merger Sub to Effect the Merger. Theobligations of Parent and Merger Sub to effect the Merger are subject to the satisfaction (orwaiver by Parent in its sole discretion) of the following further conditions:          (a) Except as set forth below, the representations and warranties of the Company set forth inthis Agreement shall have been true and correct at and as of the date hereof and shall be true andcorrect at and as of the Closing Date as if made at and as of the Closing Date (except that theaccuracy of those representations and warranties that address matters only as of a particular dateshall be measured as of such date), except that any inaccuracies in such representations andwarranties will be disregarded for purposes of this Section 7.2(a) if such inaccuracies (consideredindividually or collectively) do not have a Company Material Adverse Effect; *provided, however*,that, for purposes of determining the accuracy of such representations and warranties all “CompanyMaterial Adverse Effect” and other materiality qualifications limiting the scope of suchrepresentations and warranties shall be disregarded; *provided further*, that notwithstanding theforegoing, the representations and warranties of the Company set forth in Section 3.2(a), (d), (j),(k) and the first sentence of Section 3.2(b) (Capitalization), Section 3.4 (Authority andEnforceability), Section 3.6 (Financial Statements), Section 3.7(b) (No Undisclosed Liabilities),Section 3.11(b), (c), (f), (g), (l), (m), (n), (q) and (r) (Regulatory) and Section 3.16(b), (e)and (g) (Intellectual Property) that are qualified by materiality (considered collectively andindividually) shall have been true and correct at and as of the date hereof and shall be true andcorrect at and as of the Closing Date as if made at and as of the Closing Date, and suchrepresentations and warranties that are not so qualified (considered collectively and individually)shall have been true and correct in all material respects at and as of the date hereof and shall betrue and correct in all material respects at and as of the Closing Date as if made at and as of theClosing Date, except to the extent that such representations and warranties refer specifically toan earlier date, in which case such representations and warranties shall have been true and correctas of such earlier date, and Parent shall have received a certificate dated the Closing Date signedon behalf of the Company by the President of the Company to such effect.          (b) The Company shall have performed the obligations required to be performed by it under thisAgreement at or prior to the Closing Date in all material respects. Parent shall have received acertificate signed on behalf of the Company by the President of the Company to such effect.          (c) The Company shall have taken all corporate actions necessary to approve the transactionscontemplated by this Agreement. The Company shall have furnished Parent and Merger Sub with acertificate of the Secretary of the Company, dated the Closing Date, certifying that: (i) attachedthereto is a true and complete copy of resolutions adopted
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unanimously by the Board of Directors of the Company approving this Agreement and the Merger(such resolutions to be in form and substance reasonably satisfactory to Parent); (ii) attachedthereto is a true and complete copy of resolutions adopted by the holders of at least a majority ofthe then outstanding Company Shares voting as a single class, holders of at least sixty-six andtwo-thirds percent (66 2/3%) of the then outstanding shares of Preferred Stock, holders of at leasta majority of the then outstanding shares of Class A Common Stock and holders of at least amajority of the then outstanding shares of Class B Common Stock adopting and approving thisAgreement and the Merger (such resolutions to be in form and substance reasonably satisfactory toParent); and (iii) that such resolutions have not been amended and are in full force and effect asof the Closing Date.          (d) There shall not have occurred since the date of this Agreement any event, occurrence orchange that has had or would reasonably be expected to have, individually or in the aggregate, aCompany Material Adverse Effect.          (e) No action, proceeding or litigation brought by any Government Entity of competentjurisdiction shall be pending before any court or other Governmental Entity seeking to (i) preventconsummation of the Merger, (ii) affect adversely the right of Parent to control the Company andthe Subsidiaries of the Company in a material way; or (iii) restrain or prohibit Parent’s ownershipor operation of all or any material portion of the business or assets of the Company and itsSubsidiaries, taken as a whole, or compel Parent or any of its Subsidiaries or Affiliates todispose of all or any material portion of the business or assets of the Company and itsSubsidiaries, taken as a whole, or of Parent and its Subsidiaries, taken as a whole. No Order wasgiven by a Government Entity of competent jurisdiction that has theeffect mentioned in sub-clauses “(i)” through “(iii).”          (f) The Chief Executive Officer and the Secretary of the Company shall have executed anddelivered to Parent the Allocation Certificate.          (g) The Stockholder Representative shall have duly executed and delivered the Escrow Agreementto Parent.          (h) Each of the Employment and Noncompetition Agreements executed by the Key Employees shallbe in full force and effect as of the Closing Date, except as may be caused by the Death andDisability (as defined in the applicable Employment and Noncompetition Agreement) of such KeyEmployee.          (i) The Company shall have delivered to Parent a duly executed and certified FIRPTACertificate.          (j) The Company shall have delivered to Parent a duly executed CFO Certificate.     7.3 Conditions to Obligation of the Company to Effect the Merger. The obligation ofthe Company to effect the Merger is subject to the satisfaction (or waiver by the Company in itssole discretion) of the following further conditions:
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          (a) The representations and warranties of Parent and Merger Sub set forth in this Agreementthat are qualified by materiality (considered collectively and individually) shall have been trueand correct at and as of the date hereof and shall be true and correct at and as of the ClosingDate as if made at and as of the Closing Date, and the representations and warranties that are notso qualified (considered collectively and individually) shall have been true and correct in allmaterial respects at and as of the date hereof and shall be true and correct in all materialrespects at and as of the Closing Date as if made at and as of the Closing Date, except to theextent that such representations and warranties refer specifically to an earlier date, in whichcase such representations and warranties shall have been true and correct as of such earlier date;provided, that the representation of Parent set forth in Section 4.5 shall have been true andcorrect in all respects at and as of the date hereof and shall be true and correct in all respectsat and as of the Closing Date as if made at and as of the Closing Date.          (b) Parent and Merger Sub shall have performed in all material respects all obligationsrequired to be performed by them under this Agreement at or prior to the Closing Date. The Companyshall have received a certificate signed on behalf of Parent by the President or Chief FinancialOfficer of Parent to such effect.          (c) The Escrow Agreement shall have been duly executed and delivered by Parent and the EscrowAgent.          (d) Parent and its applicable Affiliate shall have executed and delivered to the StockholderRepresentative a security agreement (the **“SecurityAgreement”**) in substantially the form attachedas Exhibit B.**ARTICLE 8****TERMINATION**     8.1 Termination.          (a) This Agreement may be terminated and the Merger abandoned at any time prior to theEffective Time (with any termination by Parent also being an effective termination by Merger Sub):               (i) by mutual written consent of Parent and the Company;               (ii) by Parent or the Company if:                    (1) the Merger is not consummated on or before March 15, 2009; provided,however, that the right to terminate this Agreement under this clause (ii)(A) shall not beavailable to any party whose breach of a representation, warranty, covenant or agreement under thisAgreement has been the cause of or resulted in the failure of the Closing to occur on or beforesuch date; or                    (2) a Governmental Entity shall have issued an Order or taken any other action, in any casehaving the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, whichOrder or other action is final and non-appealable, *provided,*
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*however*, that the right to terminate this Agreement under this Section shall not be availableto a party if the imposition of such Order or other action was caused by the failure of such partyto perform any of its obligations under this Agreement;               (iii) by Parent if:                    (1) there has been a breach by the Company of any representation, warranty, covenant oragreement contained in this Agreement or if any representation or warranty of the Company shallhave become untrue, in either case such that the conditions set forth in Section 7.2(a) or Section7.2(b) would not be satisfied, provided, however, that if such breach in the Company’srepresentations and warranties or breach by the Company is curable by the Company through exerciseof commercially reasonable efforts, then this Agreement may not be terminated pursuant to thisSection until the expiration of a fifteen (15) day period after delivery of written notice of suchbreach (it being understood that this Agreement may not be terminated pursuant to this Section ifsuch breach is cured during such fifteen (15) day period); or                    (2) in the event that changes or developments occur which, individually or in the aggregate,have resulted, or are reasonably likely to result in, a Company Material Adverse Effect; *provided,however*, that if such Company Material Adverse Effect is curable by the Company through exercise ofcommercially reasonable efforts, then this Agreement may not be terminated pursuant to this Sectionuntil the expiration of a [***] after delivery of written notice of such Company Material AdverseEffect (it being understood that this Agreement may not be terminated pursuant to this Section ifsuch Company Material Adverse Effect is cured during such [***]).               (iv) by the Company if:                    (1) there has been a breach by Parent of any representation, warranty, covenant or agreementcontained in this Agreement or if any representation or warranty of Parent shall have becomeuntrue, in either case such that the conditions set forth in Section 7.3(a) or Section 7.3(a) wouldnot be satisfied, *provided, however*, that if such breach in the Company’s representations andwarranties or breach by the Company is curable by the Company through exercise of commerciallyreasonable efforts, then this Agreement may not be terminated pursuant to this Section until theexpiration of a [***] after delivery of written notice of such breach (it being understood thatthis Agreement may not be terminated pursuant to this Section if such breach is cured during such[***]).          (b) The party desiring to terminate this Agreement pursuant to Section 8.1(a)(ii), (iii) or(iv) shall give written notice of such termination to the other parties hereto.     8.2 Effect of Termination. In the event of termination of this Agreement as provided inSection 8.1, this Agreement shall immediately become void and there shall be no liability orobligation on the part of the Company or Parent or their respective officers, directors,stockholders or Affiliates, except as set forth in Section 8.3; *provided, however*, that theprovisions of Section 6.3 (Public Announcements) and Section 8.3 (Remedies) and Article X of *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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this Agreement shall remain in full force and effect and survive any termination of thisAgreement.     8.3 Remedies. Any party terminating this Agreement pursuant to Section 8.1 shall havethe right to recover damages sustained by such party as a result of any willful breach by the otherparty of any representation, warranty, covenant or agreement contained in this Agreement or fraudor willful misrepresentation; *provided, however*, that the party seeking relief is not in breach ofany representation, warranty, covenant or agreement contained in this Agreement under circumstanceswhich would have permitted the other party to terminate the Agreement under Section 8.1.**ARTICLE 9****INDEMNIFICATION**     9.1 Survival.          (a) Except as specifically set forth herein, all representations and warranties, covenants andagreements of the Company contained in this Agreement, or in any certificate or other documentdelivered pursuant hereto (the **“Company’sRepresentations”**), shall survive the Closing and shall bein full force and effect until 11:59 p.m. (California time) on the date that is eighteen (18)months following the Closing Date. The representations and warranties of the Company contained inSection 3.9 (Taxes) shall survive the Closing until 60 days after the expiration of the applicablestatute of limitations period (after giving effect to any waivers and extensions thereof). Theperiod for which a representation or warranty, covenant or agreement survives the Closing isreferred to herein as the **“Applicable Survival Period.”**Except as specifically set forth herein,following the Applicable Survival Period: (i) the Company’s Representations shall have no force oreffect; (ii) no Parent Indemnitee shall be entitled to any indemnification rights directly orindirectly relating to any inaccuracy or breach of any Company’s Representations; and (iii) noindemnification claim directly or indirectly relating to any Company’s Representations may be madeor provided. For the avoidance of doubt it is hereby clarified that, except as specifically setforth herein, the parties hereto expressly agree pursuant to this Section 9.1(a) to shorten thestatute of limitation applicable to all claims and causes of action based directly or indirectlyupon inaccuracies in or breaches of the Company’s Representations to the Applicable SurvivalPeriod.          (b) In the event a Notice of Claim for indemnification under Section 9.1(c) is given withinthe Applicable Survival Period, the representation or warranty, covenant or agreement that is thesubject of such indemnification claim (whether or not formal legal action shall have been commencedbased upon such claim) shall survive, but solely with respect to the Indemnification Claim, whichis the subject of such Notice of Claim, until such Indemnification Claim is finally resolved.          (c) All representations and warranties of Parent contained in this Agreement, or in anycertificate or other document delivered pursuant hereto, shall survive the Closing and shall be infull force and effect until 11:59 p.m. (California time) on the date that is eighteen (18) monthsfollowing the Closing Date.
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     9.2 Indemnification by Company Securityholders.          (a) Subject to the limitations set forth in this Article IX, the Indemnity Escrow Fund shallbe available to indemnify Parent and its Affiliates and their respective stockholders, members,managers, officers, directors and employees (collectively, the**“Parent Indemnitees”**) against, andhold them harmless from, any and all losses, damages, liabilities, claims (including third partyclaims), charges, interest, penalties, Taxes, diminution in value, costs and expenses (includingreasonable legal, consultant, accounting and other professional fees, costs of sampling, testing,investigation, removal, treatment and remediation of contamination and fees and costs incurred inenforcing rights under this Section 9, but excluding: (i) [***]; and (iii) any amounts to be takeninto account in the calculation of the Company’s Net Debt or the Final Working Capital,(collectively, **“Losses”**) resulting from, arising out of, or incurred by any Parent Indemnitee inconnection with, or otherwise with respect to:               (i) the failure of any representation and warranty by the Company contained in this Agreementor the Allocation Certificate to be true and correct in all respects as of the date of thisAgreement and as of the Closing Date; and               (ii) any breach of any covenant or agreement of the Company required to be performed prior tothe Closing Date contained in this Agreement or any certificate or other document furnished or tobe furnished to Parent in connection with the transactions contemplated hereby;               (iii) any Tax imposed on or relating to the Company or any of its Subsidiaries for all taxableperiods ending on or before the Closing Date and the portion through the end of the Closing Datefor any taxable period (a **“Straddle Period”**) that includes (but does not end on) the Closing Date(with Taxes for a Straddle Period treated as attributable to the portion of the Straddle Periodthrough the Closing Date (A) in the case of Taxes measured by income or receipts, based on aninterim closing of the books as of the close of business on the Closing Date, and (B) in the caseof other Taxes, based on the proportion of the Taxes for the entire Straddle Period that equalsthe ratio of the number of days from the start of the Straddle Period through the Closing Date tothe entire number of days in the Straddle Period); *provided, however*, that the Indemnitors shall beliable only to the extent that such Taxes exceed the amount, if any, reserved for such Taxes(excluding any reserve for deferred Taxes established to reflect timing differences between bookand Tax income) on the face of the Balance Sheet (rather than in any notes thereto) and as adjustedto reflect Taxes incurred between the Balance Sheet Date and the Closing Date that are not due andpayable on or before the Closing Date;               (iv) [***]; *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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               (v) [***];               (vi) Company Transaction Expenses, to the extent such Company Transaction Expenses have notbeen paid pursuant to Section 2.3(f);               (vii) any Tax Credit Deficit;               (viii) any IDP-111 Liabilities;               (ix) any Royalty Product Liabilities;               (x) any 409A Option Liabilities;               (xi) [***]; and               (xii) [***].          (b) Notwithstanding anything to the contrary in this Agreement, the Company Securityholdersshall not be liable for any [***] or any other amounts payable under any management retention bonusplan in effect immediately prior to the Effective Time, unless and until the aggregate amount ofall Losses incurred by the Parent Indemnitees exceeds [***](the **“Indemnification Threshold”**), inwhich event the Parent Indemnitees shall, subject to the other limitations set forth in thisAgreement, be entitled to be indemnified for all Losses [***].     9.3 Indemnity Escrow Fund.          (a) The Indemnity Escrow Fund shall be held until the eighteen month anniversary of the ClosingDate and disbursed by the Escrow Agent in accordance with the Escrow Agreement and the provisionsof Section 9.4. The Escrow Fund, [***], shall be available to compensate the Parent Indemniteespursuant to the indemnification obligations of the Indemnitors; *provided*that [***]. *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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          (b) Except as set forth in Section 6.5 the Company Securityholders shall not have any right ofindemnification or contribution from Parent or the Surviving Corporation with respect to any Lossclaimed by any Parent Indemnitee after the Effective Time. If the Surviving Corporation suffers,incurs or otherwise becomes subject to any Losses as a result of or in connection with anyinaccuracy in or breach of any representation, warranty, covenant or agreement, then (withoutlimiting any of the rights of the Surviving Corporation as a Parent Indemnitee) Parent shall alsobe deemed, by virtue of its ownership of the stock of the Surviving Corporation, to have incurredLosses as a result of and in connection with such inaccuracy or breach.          (c) Except as provided in Section 9.3(d), the Parent Indemnitees’ rights pursuant to thisArticle IX, and their recourse to the Indemnity Escrow Fund [***], shall be the sole and exclusiverecourse and remedies for Losses available to Parent Indemnitees for any breach of anyrepresentation, warranty, covenant or agreement contained in this Agreement or certificate or otherdocument furnished or to be furnished to Parent in connection with the transactions contemplatedhereby; *provided*that [***].          (d) Nothing contained in this Article IX shall be deemed to limit or restrict in any mannerany rights or remedies which the Parent Indemnitees have, or might have, at Law, in equity orotherwise, based on (i) fraud (or, to the extent California law is applicable, actual fraud withintent to deceive, or to induce a party to enter into this Agreement) in connection with thetransactions contemplated hereby or (ii) any breach by a Company Securityholder of anyrepresentation and warranty and covenant or agreement contained in any other agreement entered intoby such Company Securityholder with or the benefit of Parent in connection with the Merger.     9.4 Indemnification Claims; Indemnity Escrow Arrangements.          (a) Notwithstanding anything to the contrary herein (but subject to Section 9.3(d)), no ParentIndemnitee shall be entitled to indemnification under this Article IX (or to exercise its rights ofsetoff pursuant to Section 2.10(f) or 2.11(f)) unless it has duly delivered a written notice to theStockholder Representative and the Escrow Agent (any such notice being referred to as a **“Notice ofClaim,”**and the claim for indemnification described in such Notice of Claim being referred to as an**“Indemnification Claim”**) before the end of the Applicable Survival Period (in the case of claimsbased on the Company’s Representations), setting forth: (i) the subsection of Section 9.2(a) suchclaim is based upon and, if based upon Section 9.2(a)(i), the specific representation and warrantyof the Company alleged to have been inaccurate, and, if based upon Section 9.2(a)(ii), the specificcovenant or agreement alleged to have been breached; (ii) a detailed description of the facts andcircumstances giving rise to the indemnification obligation; (iii) the aggregate dollar amount ofthe Losses that have been incurred by such Parent Indemnitee or if unknown a good faith estimate ofsuch Losses (the aggregate amount of such estimate being referred toas the **“Claimed Amount”**); and(iv) in the event of a Third Party *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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Claim, a copy of such Third Party Claim (if available) and a description of the basis for suchThird Party Claim.          (b) During the 30-Business Day period commencing upon the receipt by the StockholderRepresentative of a Notice of Claim, the Stockholder Representative may deliver to the ParentIndemnitee and the Escrow Agent (if funds are then still held in the Indemnity Escrow Fund) awritten response (the **“Response Notice”**) in which the Stockholder Representative: (i) agrees thatthe full Claimed Amount is owed to such Parent Indemnitee; (ii) agrees that part (but not all) ofthe Claimed Amount (the **“Agreed Amount”**) is owed to such Parent Indemnitee; or (iii) asserts thatno part of the Claimed Amount is owed to such Parent Indemnitee. Any part of the Claimed Amountthat is not agreed by the Stockholder Representative to be owed to such Parent Indemnitee pursuantto the Response Notice (or the entire Claimed Amount, if the Stockholder Representative asserts inthe Response Notice that no part of the Claimed Amount is owed to such Parent Indemnitee) shall bereferred to as the **“Contested Amount.”**If no Response Notice is delivered during such 30-BusinessDay period, then, for purposes of this Agreement, the Stockholder Representative shall be deemed tohave agreed that the full Claimed Amount is owed to such Parent Indemnitee.          (c) If the Stockholder Representative delivers a Response Notice to a Parent Indemniteeagreeing that the full Claimed Amount is owed to such Parent Indemnitee, then [***], within threeBusiness Days following the receipt of such Response Notice by such Parent Indemnitee, Parent andthe Stockholder Representative shall jointly execute and deliver to the Escrow Agent a writtennotice instructing the Escrow Agent to release the full Claimed Amount (or such lesser amount asmay remain in the Indemnity Escrow Fund) to such Parent Indemnitee from the Indemnity Escrow Fund.          (d) If the Stockholder Representative delivers a Response Notice to the Parent Indemniteeagreeing that less than the full Claimed Amount is owed to such Parent Indemnitee, then [***],within three Business Days following the receipt of such Response Notice by such Parent Indemnitee,the Parent and the Stockholder Representative shall jointly execute and deliver to the Escrow Agenta written notice instructing the Escrow Agent to release the Agreed Amount (or such lesser amountas may remain in the Indemnity Escrow Fund) to such Parent Indemnitee from the Indemnity EscrowFund.          (e) If the Stockholder Representative delivers a Response Notice to a Parent Indemniteeindicating that there is a Contested Amount, the Stockholder Representative and such ParentIndemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. Ifsuch Parent Indemnitee and the Stockholder Representative resolve such dispute in writing, then asettlement agreement stipulating the amount owed to such Parent Indemnitee (the **“StipulatedAmount”**) shall be signed by such Parent Indemnitee and the Stockholder Representative. Withinthree Business Days after the execution of such settlement agreement,[***], *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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Parent and the Stockholder Representative shall jointly execute and deliver to the Escrow Agent awritten notice instructing the Escrow Agent to release the Stipulated Amount (or such lesser amountas may remain in the Indemnity Escrow Fund) to such Parent Indemnitee from the Indemnity EscrowFund.          (f) If the Stockholder Representative and Parent Indemnitee are unable to resolve the disputerelating to any Contested Amount during the 30-day period commencing upon the receipt of theResponse Notice by the Parent Indemnitee, then either the Parent Indemnitee or the StockholderRepresentative may submit the contested portion of the indemnification claim to binding arbitrationin Santa Clara County, California in accordance with the JAMS Comprehensive Arbitration Rules andProcedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected byParent and the Stockholder Representative; *provided, however*, that if Parent and the StockholderRepresentative fail to mutually select an arbitrator within 15 Business Days after the contestedportion of the indemnification claim is submitted to arbitration, then the arbitrator shall beselected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then ineffect. The arbitrator may take into account interest and a party’s efforts to mitigate Losses incalculating Losses. The parties agree to use commercially reasonable efforts to cause thearbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and touse commercially reasonable efforts to cause the decision of the arbitrator to be furnished within15 days after the conclusion of the arbitration hearing. The parties shall be entitled to onlylimited discovery at the discretion of the arbitrator, and agree that any discovery shall becompleted at least 10 days prior to the commencement of the arbitration hearing. The decision ofthe arbitrator shall relate solely: (i) to whether the Parent Indemnitee is entitled to recover theContested Amount (or a portion thereof), and the portion of such Contested Amount the ParentIndemnitee is entitled to recover; and (ii) to the determination of whether the Parent Indemniteeis the prevailing party as provided below. The final decision of the arbitrator shall be furnishedto the Stockholder Representative, the Parent Indemnitee, the Parent (if different then the ParentIndemnitee) and the Escrow Agent in writing, shall constitute a conclusive determination of theissues in question, binding upon the Stockholder Representative, the Company Securityholders (otherthan holders of Dissenting Shares) and all the Parent Indemnitees and shall not be contested by anyof them. If the Parent Indemnitee is determined by the arbitrator to be the prevailing party, thenthe aggregate dollar amount of the arbitrator’s award to the Parent Indemnitee shall be increasedby the amount of the reasonable expenses (including attorneys’ fees) of the Parent Indemnitee, andthe fees and expenses associated with the arbitration (including the arbitrator’s fees andexpenses). If the Parent Indemnitee is determined by the arbitrator not to be the prevailing partyand the arbitrator determines that the Stockholder Representative is the prevailing party, then anyamount awarded by the arbitrator to the Parent Indemnitee shall be reduced by the amount of thereasonable expenses (including attorneys’ fees) of the Stockholder Representative, and the fees andexpenses associated with the arbitration (including the arbitrator’s fees and expenses), and if noamount is awarded to the Parent Indemnitee, the Parent Indemnitee shall reimburse the StockholderRepresentative for its reasonable expenses (including attorneys’ fees) and pay the fees andexpenses associated with the arbitration (including the arbitrator’s fees and expenses). The finaldecision of the arbitrator shall include the total dollar amount of the award to the ParentIndemnitee or to the Securityholders, if any (the **“AwardAmount”**), and shall be furnished to theStockholder Representative and the Parent Indemnitee in writing. Within three Business Daysfollowing the receipt of the final award of the arbitrator setting forth the Award Amount,
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(i) if the Award Amount is to be paid to the Parent Indemnitee, then [***], Parent and theStockholder Representative shall jointly execute and deliver to the Escrow Agent a written noticeinstructing the Escrow Agent to release the Award Amount (or such lesser amount as may remain inthe Indemnity Escrow Fund) to the Parent Indemnitee or (ii) if the Award Amount is to be paid tothe Company Securityholders, Parent and the Stockholder Representative shall jointly execute anddeliver to the Escrow Agent a written notice instructing the Escrow Agent to release the AwardAmount (or such lesser amount as may remain in the Indemnity Escrow Fund) fromthe Indemnity Escrow Fund to the Paying Agent.          (g) If the aggregate amount remaining in the Indemnity Escrow Fund, including any interestaccrued or income otherwise earned thereon, as of the eighteen-month anniversary of the Closing(the **“Aggregate Escrow Balance”**) exceeds the aggregate dollar amount, as of the eighteen-monthanniversary of the Closing, of the Contested Amounts associated with all indemnification claimsthat have not been finally resolved and paid prior to such date in accordance with this Section 9.4(each, an **“Unresolved Escrow Claim”**, and the aggregate dollar amount of such Contested Amounts asof the eighteen-month anniversary of the Closing being referred to as the **“Aggregate Pending ClaimAmount”**), then the Parent and the Stockholder Representative shall jointly execute and deliver tothe Escrow Agent a written notice instructing the Escrow Agent to release the AggregateDistribution Amount to the Paying Agent from the Indemnity Escrow Fund For purposes of thisSection 9.4, the **“Aggregate Distribution Amount”**shall be the Aggregate Escrow Balance as of theSurvival Termination Date *minus*the Aggregate Pending Claim Amount.          (h) Following the eighteen-month anniversary of the Closing, if an Unresolved Escrow Claim isfinally resolved, Parent and the Stockholder Representative shall jointly execute and deliver tothe Escrow Agent, within three Business Days after the final resolution of such Unresolved EscrowClaim, a written notice instructing the Escrow Agent to release the Excess Escrow Amount to thePaying Agent. For purposes of this Section 9.4(h), the **“Excess Escrow Amount”**shall mean theamount (if any) by which the aggregate amount remaining in the Indemnity Escrow Fund, including anyinterest accrued or income otherwise earned thereon, as of the date of resolution of suchUnresolved Escrow Claim exceeds the aggregate amount of the Contested Amounts associated with allother remaining Unresolved Escrow Claims.     9.5 Third Party Claims.          (a) Promptly following the receipt by a Parent Indemnitee of notice of the assertion of anyclaim or the commencement of any Action by a third party in respect of which indemnity may besought under the provisions of this Article IX (**“ThirdParty Claim”**), Parent shall provide a Noticeof Claim with respect to such Third Party Claim to the Stockholder Representative and a duplicatecopy of such Notice of Claim to the Escrow Agent. Subject to Section 9.4(a), failure or delay innotifying the Stockholder Representative will not relieve the Company Securityholders of anyliability they may have to the Parent Indemnitee, except to the *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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extent that such failure or delay causes actual harm to the Company Securityholders with respect tosuch Third Party Claim.          (b) Subject to the further provisions of this Section 9.4, the Stockholder Representative willhave 10 Business Days (or less if the nature of the Third Party Claim requires and such necessaryshortened deadline is specified in the Notice of Claim) from the date on which the StockholderRepresentative received the Notice of Claim to notify the Parent Indemnitee that the StockholderRepresentative will assume the defense or prosecution of such Third Party Claim and any litigationresulting therefrom with counsel of its choice (reasonably satisfactory to the Parent Indemnitee)and at its sole cost and expense (a **“Third Party Defense”**). Except to the extent the ParentIndemnitee and the Stockholder Representative agree in writing otherwise, if the StockholderRepresentative assumes the Third Party Defense in accordance with the preceding sentence, theIndemnitors shall be conclusively deemed to have acknowledged that the Third Party Claim is withinthe scope of their indemnity obligation hereunder and shall hold the Parent Indemnitee harmlessfrom and against the full amount of any Losses resulting therefrom (subject to the terms andconditions of this Agreement). Any Parent Indemnitee shall have the right to employ separatecounsel in any such Action and to participate in the defense thereof, but the fees and expenses ofsuch counsel shall not be at the expense of the Company Securityholders unless (A) the StockholderRepresentative shall have failed, within the time after having been notified by the ParentIndemnitee of the existence of the Third Party Claim as provided in the first sentence of thisparagraph (b), to assume the defense of such Third Party Claim, or (ii) the employment of suchcounsel has been specifically authorized in writing by the Stockholder Representative.          (c) The Stockholder Representative will not be entitled to assume the Third Party Defense if:               (i) a Third Party Claim seeks, in addition to or in lieu of monetary damages, any injunctiveor other equitable relief (except where non-monetary relief is merely incidental to a primary claimor claims for monetary damages);               (ii) the claim for indemnification relates to or arises in connection with any criminalproceeding, action, indictment, allegation or investigation;               (iii) the claim for indemnification relates to or arises in connection with any EnvironmentalAction or any Taxes;               (iv) under applicable standards of professional conduct, a conflict on any significant issueexists between the Parent Indemnitee and the Stockholder Representative in respect of such ThirdParty Claim;               (v) the Third Party Claim involves a customer or supplier of the Company or any of itsSubsidiaries;               (vi) the Parent Indemnitee reasonably believes an adverse determination with respect to theThird Party Claim would be detrimental to or injure the Parent Indemnitee’s reputation or futurebusiness prospects;
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               (vii) upon petition by the Parent Indemnitee, the appropriate court rules that the StockholderRepresentative failed or is failing to vigorously prosecute or defend such Third Party Claim; or               (viii) the amount of claimed Losses subject to all outstanding Notices of Claim exceeds thevalue of the Indemnity Escrow Fund.          (d) If the Stockholder Representative assumes a Third Party Defense, it will take all stepsnecessary in the defense, prosecution, or settlement of such claim or litigation and the CompanySecurityholders shall reimburse the Parent Indemnitees promptly for any and all Losses caused by orarising out of such Third Party Claim (subject to the last sentence of Section 9.5(b)). TheStockholder Representative will not consent to the entry of any judgment or enter into anysettlement except with the written consent of the Parent Indemnitee (which consent shall not beunreasonably withheld or delayed); provided, however, the consent of the Parent Indemnitee shallnot be required if all of the following conditions are met: (i) the terms of the judgment orproposed settlement include as an unconditional term thereof the giving to the Parent Indemnitee bythe third party of a release of the Parent Indemnitee from all liability in respect of such ThirdParty Claim; (ii) there is no finding or admission of (A) any violation of Law by the ParentIndemnitee (or any Affiliate thereof), and (B) any violation of the rights of any Person; (iii)there is no effect on any other Action or claims of a similar nature that may be made against theParent Indemnitee (or any Affiliate thereof); and (iv) the sole form of relief is monetary damageswhich are paid in full by the Stockholder Representative. The Stockholder Representative shallconduct the defense of the Third Party Claim actively and diligently, and the Parent Indemniteewill provide reasonable cooperation in the defense of the Third Party Claim. Notwithstanding theforegoing, the Parent Indemnitee shall have the right to pay or settle any Third Party Claim,*provided*that in such event, subject to the following sentence, it shall waive any right toindemnity therefor by the Company Securityholders for such claim unless the StockholderRepresentative shall have consented to such payment or settlement (such consent not to beunreasonably withheld or delayed).          (e) In the event that (i) a Parent Indemnitee gives Notice of Claim to the StockholderRepresentative and the Stockholder Representative fails or elects not to assume a Third PartyDefense which the Stockholder Representative had the right to assume under this Section 9.4 or (ii)the Stockholder Representative is not entitled to assume the Third Party Defense pursuant to thisSection 9.4, the Parent Indemnitee shall have the right, with counsel of its choice, to defend,conduct and control the Third Party Defense, at the sole cost and expense of the CompanySecurityholders. In each case, the Parent Indemnitee shall conduct the Third Party Defenseactively and diligently, and the Stockholder Representative will provide reasonable cooperation inthe Third Party Defense and use his commercially reasonable efforts to cause the former CompanySecurityholders to cooperate in the Third Party Defense. The Parent Indemnitee shall have theright to consent to the entry of any judgment or enter into any settlement with respect to theThird Party Claim on such terms as it may deem appropriate; *provided, however*, that the amount ofany settlement made or entry of any judgment consented to by the Parent Indemnitee without theconsent of the Stockholder Representative shall not be determinative of the validity of the claimagainst the Indemnity Escrow Fund, except with the consent of the Stockholder Representative (whichshall not be unreasonably withheld or delayed). Notwithstanding Section 10.5 hereof, in connectionwith any Third Party Claim, the
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Stockholder Representative hereby consents to the nonexclusive jurisdiction of any court inwhich an Action in respect of a Third Party Claim is brought against any Parent Indemnitee forpurposes of any claim that a Parent Indemnitee may have under this Article IX with respect to suchAction or the matters alleged therein and agrees that process may be served on the StockholderRepresentative with respect to such a claim anywhere in the world. If the StockholderRepresentative does not elect to assume a Third Party Defense which it has the right to assumehereunder, the Parent Indemnitee shall have no obligation to do so.     9.6 Non-Third Party Claims. Parent will send a Notice of Claim to the StockholderRepresentative promptly following discovery by any Parent Indemnitee of any matter that gives riseto a claim of indemnity pursuant hereto and that does not involve a Third Party Claim beingasserted against it. Concurrently therewith Parent shall send a duplicate copy of such Notice ofClaim to the Escrow Agent. Subject to Section 9.4(a), failure or delay in notifying theStockholder Representative will not relieve the Company Securityholders of any liability they mayhave to the Parent Indemnitee, except and only to the extent that such failure or delay causes harmto the Company Securityholders with respect to such claim. The Stockholder Representative willreasonably cooperate and assist the Parent Indemnitee in determining the validity of the claim forindemnity. Nothing in this Agreement shall be deemed to prevent a Parent Indemnitee from making aclaim hereunder for potential or contingent claims or demands that may be made by a third party;*provided*, that the Notice of Claim sets forth the specific basis for any such contingent claim tothe extent then feasible and the Parent Indemnitee has reasonable grounds to believe that it ismore likely than not that such a claim will be made by a third party and Parent has established areserve for such a claim on its financial statements in accordance with GAAP; *provided, further*that with respect to any such claim made either after the date that is eighteen (18) monthsfollowing the Closing Date [***], Parent may cause a portion of [***] equal or up to the ClaimedAmount with respect thereto to be placed in a separate escrow account, established and paid for byParent with the Escrow Agent, which shall remain available to indemnify Parent for such Lossesuntil the resolution of such Indemnification Claim pursuant to the procedures set forth herein;*provided, further*that, for the avoidance of doubt, no Parent Indemnitee will be entitled toreceive an indemnification payment (or exercise a right of setoff) pursuant to Section 9.4 withrespect to Losses for matters specified in such a Notice of Claim unless and until it actuallyincurs such Losses.     9.7 Effect of Investigation; Waiver.          (a) A Parent Indemnitee’s right to indemnification or other remedies based upon therepresentations and warranties and covenants and agreements of the Company will not be affected byany investigation, knowledge or waiver of any condition by the Parent Indemnitee. Suchrepresentations and warranties and covenants and agreements shall not be affected or deemed waivedby reason of the fact that the Parent Indemnitee knew or should have known that any representationor warranty might be inaccurate or that the Company failed to comply with any agreement orcovenant. Any investigation by such party shall be for its own protection only and shall notaffect or impair any right or remedy hereunder. *** **CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION**
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          (b) The waiver by any Parent Indemnitee of any condition based on the accuracy of anyrepresentation or warranty, or compliance with any covenant or agreement, will not affect any rightto indemnification or other remedy based on such representations and warranties and covenants andagreements unless otherwise expressly agreed in writing by the Parent Indemnitee.          (c) Parent and the Surviving Corporation shall use commercially reasonable efforts to seek,and shall cause each of their respective affiliates to use commercially reasonable efforts to seek,full recovery under all insurance policies covering any Losses to the same extent they would ifsuch Losses were not subject to indemnification under this Agreement. In the event that aninsurance recovery is made by Parent, the Surviving Corporation or any Parent Indemnitee withrespect to any Losses for which Parent has previously been indemnified under this Agreement, then arefund equal to the aggregate amount of any recovery (less any expenses incurred in obtaining suchrecovery) shall be made promptly to the Company Securityholders on a pro rata basis based on theirrespective Company Securityholders’ Escrow Participation Percentages.**ARTICLE 10****MISCELLANEOUS**     10.1 Notices. Any notice, request, demand, waiver, consent, approval or othercommunication which is required or permitted hereunder shall be in writing and shall be deemedgiven: (a) on the date established by the sender as the date of actual personal delivery; (b) onthe date delivered by a private courier as established by the sender by evidence obtained from thecourier; (c) on the date sent by facsimile, with confirmation of transmission, if sent duringnormal business hours of the recipient, if not, then on the next business day; or (d) on the fifthday after the date mailed, by certified or registered mail, return receipt requested, postageprepaid. Such communications, to be valid, must be addressed as follows:     If to Parent or Merger Sub, to:Valeant Pharmaceuticals International