Document:

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EXHIBIT 10.17

                       AGREEMENT FOR TERMINATION OF LEASE
                           AND EXECUTION OF NEW LEASE

         This Agreement for Termination of Lease and Execution of New Lease is
entered into by and between Veritek Manufacturing Services, LLC, a Delaware
limited liability company ("Veritek") and Amistar Corporation, a California
corporation ("Amistar") with reference to the following facts:

         A. RCI Corona Corporate, LLC ("RCI") and Veritek are parties to a
         certain Purchase and Sale Agreement dated ("Purchase Agreement") for
         the purchase of certain land and an approximate 80,257 square foot
         building located at 237 Via Vera Cruz, San Marcos, as more particularly
         described on Exhibit A attached hereto ("Property").

         B. Amistar, as Lessee, and RCI, as Lessor, are parties to a certain AIR
         Commercial Real Estate Association Standard Industrial/Commercial
         Single Tenant Lease - Net dated September 15, 2004, as amended by that
         First Amendment to Lease dated January 7, 2005, for all of the Property
         (collectively, "Existing Lease").

         C. An escrow for Veritek's purchase and sale of the Property has been
         established at First American Title Insurance Company, 3625 14th
         Street, Riverside, California, Escrow No. 246335400 ("Escrow").

         D. Veritek and Amistar have negotiated the terms of a new lease ("New
         Lease") for less than all of the square footage in the existing
         building on the Property as such are described in the New Lease
         ("Premises") which the parties intend to be effective upon the Close of
         Escrow for Veritek's purchase of the Property from RCI.

         Now, Therefore, the parties hereby agree as follows:

1. Concurrently with execution of this Agreement, Veritek and Amistar shall
execute that certain Standard Industrial Commercial Multi Tenant Lease - Net
dated September 20, 2006 for a portion of the Property in the form of Exhibit B
attached hereto ("New Lease"). The parties agree that the New Lease shall become
effective, if, and only if, Escrow for Veritek's purchase of the Property from
RCI closes, which date of close of Escrow shall be deemed to be the date fee
title to the Property is transferred to Veritek. If Escrow for Veritek's
purchase of the Property from RCI fails to close and Veritek fails to acquire
the Property on or before October 1, 2006, the New Lease shall be void and of no
further force and effect.

2. Veritek and Amistar agree that effective upon the close of Escrow for
Veritek's purchase of the Property from RCI, RCI shall assign its rights in the
Existing Lease to Veritek and thereafter the Existing Lease shall immediately be
terminated and of no future force and effect, and any and all rent obligations
of Amistar under the Existing Lease shall cease as of the close of Escrow.
Except as provided in Paragraph 3 below, in the event obligations, claims or
liabilities arose under the Existing Lease prior to the date of the close of
Escrow, Amistar shall remain liable to Veritek under the terms of the Existing
Lease for such prior obligations irrespective of the fact that the Existing
Lease has been terminated and has no future force and effect from an after the
date of Close of Escrow. In the event Escrow does not close and Veritek does not
acquire fee ownership title to the Property then the Existing Lease shall remain
in full force and effect.

3. (a) Amistar acknowledges it shall vacate all of the Property except the
Premises, (the "Vacated Space") on or before September 20, 2006 and leave the
Property in broom clean good repair and operating condition, including without
limitation the equipment and HVAC, and except for ordinary wear and tear as to
items other than equipment and HVAC, except that as to the roof, Amistar's sole
responsibility shall be to allow RCI to retain $50,000 of its Security Deposit
under the Existing Lease as provided below in Paragraph 4. Notwithstanding the
above, Amistar shall have no liability to Veritek in excess of $50,000 with
regard to its repair and maintenance of the Vacated Space under this Paragraph 3
and the Existing Lease as of the Close of Escrow, except that said limitation
shall not apply to its obligations with regard to (i) Hazardous Substances; (ii)
the repair of all equipment serving the Vacated Space, including without
limitation, HVAC, cooling towers, and compressed air equipment; (iii) the roof,
which is being handled separately as provided in Paragraph 4 below; and (iv)
Amistar's obligations set forth in Paragraph (b) below. As to any claim by
Veritek against Amistar for failing to satisfy such obligations not subject to

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subitems and (iv) above, Veritek shall be required to give written notice to
Amistar of such claim within six (6) months after the Commencement Date of the
New Lease or be barred from bringing an action against Amistar with regard to
such a claim. Amistar acknowledges that it is accepting the Premises in its "as
is" condition with regard to all physical components of the Premises, including
without limitation, electrical, plumbing, fire, sprinkler, lighting, heating,
ventilation and air conditioning, loading doors, sump pumps and any other
elements of the Premises, including whether or not the Premises are in
conformance with Applicable Requirements including the Americans with
Disabilities Act, or any similar laws.

(b) Except for the Premises, Amistar shall remove all of its Trade Fixtures (as
defined in the Existing Lease), Utility Installations (as defined in the
Existing Lease) and personal property. Amistar shall reasonably repair any
damage occasioned by the installation, maintenance or removal of Trade Fixtures,
Amistar owned Alterations and/or Utility Installations, furnishings, and
equipment as well as the removal of any storage tank installed by or for
Amistar. Amistar shall also reasonably remove any and all Hazardous Substances
(as defined in the Existing Lease) brought onto the Property (other than the
Premises) by or for Amistar.

4. If the Close of Escrow occurs, pursuant to the Purchase Agreement, RCI is to
transfer to Veritek the security deposit totaling $367,336 plus any interest due
Amistar under the terms of the Existing Lease held by RCI. Veritek shall retain
a total $252,700 to be used as a security deposit and for the first month of the
Base Rent and CAM charges due under Section 1.7 of the New Lease. Within two
days after the Close of Escrow, Veritek shall transfer the remaining balance of
$114,636 of the previous security deposit held by RCI plus any interest due
Amistar under the terms of the Existing Lease to Amistar. Amistar acknowledges
that RCI has the right to withhold $50,000 of the previous security deposit held
by RCI for roof repairs which were the obligation of Amistar under the Existing
Lease.

5. In the event of any conflict among the Existing Lease, the New Lease and this
Agreement shall control.

Veritek Manufacturing Services, LLC          Amistar Corporation
By: /s/ signature                            /s/ signature
Its: President                               Its: President

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EXHIBIT "A"

Real property in the City of San Marcos, County of San Diego, State of
California, described as follows:

Parcel 1 of Parcel Map No. 14643, in the City of San Marcos, County of San
Diego, State of California, filed in the Office of the Recorder of San Diego
County, January 22, 1987 as instrument no. 87-034618 of Official Records.

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EXHIBIT "B"

             STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET
                     AIR COMMERCIAL REAL ESTATE ASSOCIATION

1. BASIC PROVISIONS ("Basic Provisions").

     1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only
September 20, 2006 is made by and between Veritek Real Estate Holdings, LLC
("Lessor") and Amistar Corporation, a California corporation ("Lessee"),
(collectively the "Parties", or individually a "Party").

     1.2(a) PREMISES: That certain portion of the Project (as defined below),
including all improvements therein or to be provided by Lessor under the terms
of this Lease, commonly known by the street address of 237 Via Vera Cruz located
in the City of San Marcos, County of San Diego, State of California, with zip
code 92078,as outlined on Exhibit A attached hereto ("Premises") and generally
described as (describe briefly the nature of the Premises): see paragraph 50 of
Addendum.

In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the any utility raceways of
the building containing the Premises ("Building") and to the common Areas (as
defined in Paragraph 2.7 below), but shall not have any rights to the roof or
exterior walls of the Building or to any other buildings in the Project. The
Premises, the Building, the Common Areas, the land upon which they are located,
along with all other buildings and improvements thereon, are herein collectively
referred to as the "Project." (See also Paragraph 2)

     1.2(b) PARKING: 60 unreserved vehicle parking spaces. (See also Paragraph
2.6)

     1.3 TERM: approximately 60 months ("Original Term") commencing on the date
Lessor acquires the fee title to the Premises ("Commencement Date") and ending
the last day of the month sixty months after the first day of the first month
occuring after the Commencement Date ('"Expiration Date"). (See also Paragraph
3)

     1.4 EARLY POSSESSION: N/A ("Early Possession Date"). (See also Paragraphs
3.2 and 3.3)

     1.5 BASE RENT: $ see paragraph 51 of Addendum per month ("Base Rent"),
payable on the ______ day of each month commencing ______________________. (See
also Paragraph 4)

[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.

     1.6 LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES:38.52% and then 37.42%
after subtenant vacates (see Paragraph 54) ("Lessee's Share"). Lessee's Share
has been calculated by dividing the approximate square footage of the Premises
by the approximate square footage of the Project. In the event that the size of
the Premises and/or the Project are modified during the term of this Lease,
Lessor shall recalculate Lessee's Share to reflect such modification.

     1.7 BASE RENT AND OTHER MONIES PAID UPON EXECUTION:

          (a) Base Rent: $32,100.00 for the period of the first month of the
Original Term.

          (b) Common Area Operating Expenses: $4,000.00 for the period of the
first month of the Original Term.

          (c) Security Deposit: $216,600.00 ("Security Deposit"). (See also
Paragraph 5)

          (d) Other: $_______________ for _____________________________________.

          (e) Total Due Upon Execution of this Lease: $252,700.00

     1.8 AGREED USE: Corporate headquarters, manufacturing, assembly, facility,
and all legal related uses (See also Paragraph 6)

     1.9 INSURING PARTY. Lessor is the "Insuring Party". (See also Paragraph 8)

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     1.10 REAL ESTATE BROKERS: (See also Paragraph 15)

          (a) REPRESENTATION: The following real estate brokers (the "Brokers")
and brokerage relationships exist in this transaction (check applicable boxes):

[_] N/A represents Lessor exclusively ("Lessor's Broker");

[_] N/A represents Lessee exclusively ("Lessee's Broker"); or

[_] N/A represents both Lessor and Lessee ("Dual Agency").

          (b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a
separate written agreement (or if there is no such agreement, the sum of N/Aor
_% of the total Base Rent for the brokerage services rendered by the Brokers).

     1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See also Paragraph 37)

     1.12 ATTACHMENTS. Attached hereto are the following, all of which
constitute a part of this Lease:

[_] an Addendum consisting of Paragraphs 50 through 57.
[X] a site plan depicting the Premises; Exhibit A [_] a site plan depicting the
    Project,
[_] a current set of the Rules and Regulations for the Project;
[_] a current set of the Rules and Regulations adopted by the owners'
    association;
[_] a Work Letter;
[_] a other (specify),

2. PREMISES.

     2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of size set forth in this Lease, or that may have been
used in calculating Rent, is an approximation which the Parties agree is
reasonable and any payments based thereon are not subject to revision whether or
not the actual size is more or less. NOTE: Lessee is advised to verify the
actual size prior to executing this Lease.

     2.2 Crossed out

     2.3 COMPLIANCE. Subject to changes to the applicable requirements as
provided below, correction of any items (excluding major structural items) not
in compliance with all applicable laws, covenants of record, ________ and
ordinances ("Applicable Requirements") shall be the obligation of Lessee at
Lessee's sole cost and expense. Lessor and not Lessee shall cure violations of
legal requirements relating to the condition of the major structural elements of
the Premises as long as the violations are not caused by Lessee's or its agent's
willful misconduct or negligence specific and unique use or of the Premises or
misuse of the Premises. If the Applicable Requirements are hereafter changed so
as to require during the term of this Lease the construction of an addition to
or an alteration of the Unit, Premises and/or Building, the remediation of any
Hazardous Substance, or the reinforcement or other physical modification of the
Unit, Premises and/or Building ("Capital Expenditure"), Lessor and Lessee shall
allocate the cost of such work as follows:

          (a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last 2 years of this Lease and the cost
thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease
unless Lessor notifies Lessee, in writing, within 10 days after receipt of
Lessee's termination notice that Lessor has elected to pay the difference
between the actual cost thereof and the amount equal to 6 months' Base Rent. If
Lessee elects termination. Lessee shall immediately cease the use of the
Premises which requires such Capital Expenditure and deliver to Lessor written
notice specifying a termination date at least 90 days thereafter. Such
termination date shall, however, in no event be earlier than the last day that
Lessee could legally utilize the Premises without commencing such Capital
Expenditure.

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          (b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated seismic
modifications), then Lessor and Lessee shall allocate the obligation to pay for
the portion of such costs reasonably attributable to the Premises pursuant to
the formula set out in Paragraph 7.1(d): provided, however, that if such Capital
Expenditure is required during the last 2 years of this Lease or if Lessor
reasonably determines that it is not economically feasible to pay its share
thereof, Lessor shall have the option to terminate this Lease upon 90 days prior
written notice to Lessee unless Lessee notifies Lessor, in writing, within 10
days after receipt of Lessor's termination notice that Lessee will pay for such
Capital Expenditure. If Lessor does not elect to terminate, and fails to tender
its share of any such Capital Expenditure, Lessee may advance such funds and
deduct same, with Interest, from Rent until Lessor's share of such costs have
been fully paid. If Lessee is unable to finance Lessor's share, or if the
balance of the Rent due and payable for the remainder of this Lease is not
sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the
right to terminate this Lease upon 30 days written notice to Lessor.

          (c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall
either: (i) immediately cease such changed use or intensity of use and/or take
such other steps as may be necessary to eliminate the requirement for such
Capital Expenditure, or (ii) complete such Capital Expenditure at its own
expense. Lessee shall not have any right to terminate this Lease.

     2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects. and compliance with Applicable
Requirements and the Americans with Disabilities Act), and their suitability for
Lessee's intended use, (b) Lessee has made such investigation as it deems
necessary with reference to such matters and assumes all responsibility therefor
as the same relate to its occupancy of the Premises, and (c) neither Lessor,
Lessor's agents, nor Brokers have made any oral or written representations or
warranties with respect to said matters other than as set forth in this Lease.

     2.5 crossed out

     2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of parking
spaces specified in Paragraph 1.2(b) on those portions of the Common Areas
designated from time to time by Lessor for parking. Lessee shall not use more
parking spaces than said number. Said parking spaces shall be used for parking
by vehicles no larger than full-size passenger automobiles, vans or pick-up
trucks, herein called "Permitted Size Vehicles." Lessor may regulate the loading
and unloading of vehicles by adopting Rules and Regulations as provided in
Paragraph 2.9: provided that no less than 20 spaces shall be in the parking lot
closest to the main entrance of the building pick up and delivery shall be by
the roll up door by Lessee's Premises and Lessee's employees, permitees and
invitees shall have access to the handicapped spaces. No vehicles other than
Permitted Size Vehicles may be parked in the Common Area without the prior
written permission of Lessor. In addition:

          (a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.

          (b) Lessee shall not service or store any vehicles in the Common
Areas.

          (c) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.

     2.7 COMMON AREAS - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Project and interior utility raceways and installations within the Unit
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other tenants of the Project and their
respective employees, suppliers, shippers, customers, contractors and invitees,
including parking areas, loading and unloading areas, trash areas, roadways,
walkways, driveways and landscaped areas.

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     2.8 COMMON AREAS - Lessee's Rights. Lessor grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Project. Under no circumstances shall the
right herein granted to use the Common Areas be deemed to include the right to
store any property, temporarily or permanently, in the Common Areas. Any such
storage shall be permitted only by the prior written consent of Lessor or
Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.

     2.9 COMMON AREAS - Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable rules and regulations ("Rules and Regulations") for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of the Building and the Project and
their invitees. Lessee shall not be required to observe rules and regulations
except for rules and regulations that are reasonable and uniformly enforced.
Lessee shall not be required to observe a rule or regulation until thirty (30)
days after Lessor gives Lessee notice that the rule or regulation has been
promulgated. Lessee may notify Lessor that Lessee contends that the proposed
rule or regulation is unreasonable. Unless Lessee notifies Lessor of the
contention within the thirty day period, the proposed rule or regulation shall
conclusively be deemed reasonable. If Lessee advises Lessor within the thirty
day period that it contends that the proposed rule or regulation is
unreasonable, the question whether the rule or regulation is reasonable shall be
resolved by arbitration. Lessee agrees to abide by and conform to all such Rules
and Regulations, and shall use its best efforts to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said Rules and Regulations by other tenants of the Project.

     2.10 COMMON AREAS - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:

          (a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;

          (b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;

          (c) To designate other land outside the boundaries of the Project to
be a part of the Common Areas;

          (d) To add additional buildings and improvements to the Common Areas;

          (e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Project, or any portion thereof; and

          (f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Project as Lessor may, in the
exercise of sound business judgment, deem to be appropriate.

3. TERM.

     3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.

     3.2 crossed out

     3.3 crossed out

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     3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of
the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.

4. RENT.

     4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("Rent").

     4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:

          (a) "Common Area Operating Expenses" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Project, including, but not limited to, the following:

               (i) The operation, repair and maintenance, in neat, clean, good
order and condition , and if necessary the replacement, of the following:

                    (aa) The Common Areas and Common Area improvements,
including parking areas, loading and unloading areas, trash areas, roadways,
parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates. elevators, roofs, and roof
drainage systems.

                    (bb) Exterior signs and any tenant directories.

                    (cc) Any fire sprinkler systems and compressed air systems.

               (ii) The cost of water, gas, electricity and telephone to service
the Common Areas and any utilities not separately metered. See Paragraph 53 of
Addendum.

               (iii) Trash disposal, pest control services, property management,
security services, owners' association dues and fees, the cost to repaint the
exterior of any structures and the cost of any environmental inspections.

               (iv) Reserves set aside for maintenance, repair and/or
replacement of Common Area improvements and equipment.

               (v) Real Property Taxes (as defined in Paragraph 10).

               (vi) The cost of the premiums for the insurance maintained by
Lessor pursuant to Paragraph 8.

               (vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.

               (viii) Auditors', accountants' and attorneys' fees and costs
related to the operation, maintenance, repair and replacement of the Project.

               (ix) The cost of any capital improvement to the Building or the
Project not covered under the provisions of Paragraph 2.3 provided: however.
that Lessor shall allocate the cost of any such capital improvement over a 12
year period and Lessee shall not be required to pay more than Lessee's Share of
1/144th of the cost of such capital improvement in any given month.

               (x) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.

          (b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Unit, the Building or to any other building
in the Project or to the operation, repair and maintenance thereof, shall be
allocated entirely to such Unit, Building. or other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation.
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Project.

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          (c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Project already has the same. Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.

          (d) Lessee's Share of Common Area Operating Expenses is payable
monthly on the same day as the Base Rent is due hereunder. The amount of such
payments shall be based on Lessor's estimate of the annual Common Area Operating
Expenses. Within 60 days after written request (but not more than once each
year) Lessor shall deliver to Lessee a reasonably detailed statement showing
Lessee's Share of the actual Common Area Operating Expenses incurred during the
preceding year. If Lessee's payments during such year exceed Lessee's Share,
Lessor shall credit the amount of such over-payment against Lessee's future
payments. If Lessee's payments during such year were less than Lessee's Share,
Lessee shall pay to Lessor the amount of the deficiency within 10 days after
delivery by Lessor to Lessee of the statement.

          (e)Common Area Operating Expenses shall not include any expenses paid
by any tenant directly to third parties, or as to which Lessor is otherwise
reimbursed by any third party, other tenant, or insurance proceeds.

     4.3 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in
lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
All monetary amounts shall be rounded to the nearest whole dollar. In the event
that any invoice prepared by Lessor is inaccurate such inaccuracy shall not
constitute a waiver and Lessee shall be obligated to pay the amount set forth in
this Lease. Rent for any period during the term hereof which is for less than
one full calendar month shall be prorated based upon the actual number of days
of said month. Payment of Rent shall be made to Lessor at its address stated
herein or to such other persons or place as Lessor may from time to time
designate in writing. Acceptance of a payment which is less than the amount then
due shall not be a waiver of Lessor's rights to the balance of such Rent,
regardless of Lessor's endorsement of any check so stating. In the event that
any check, draft, or other instrument of payment given by Lessee to Lessor is
dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in
addition to any Late Charge and Lessor, at its option, may require all future
Rent be paid by cashier's check. Payments will be applied first to accrued late
charges and attorney's fees, second to accrued interest, then to Base Rent and
Common Area Operating Expenses, and any remaining amount to any other
outstanding charges or costs.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of the Security Deposit, Lessee shall within 10 days after written request
therefor deposit monies with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Should the Agreed Use be amended to
accommodate a material change in the business of Lessee or to accommodate a
sublessee or[GRAPHIC OMITTED][GRAPHIC OMITTED][GRAPHIC OMITTED][GRAPHIC OMITTED]
assignee, Lessor shall have the right to increase the Security Deposit to the
extent necessary, in Lessor's reasonable judgment, to account for any increased
wear and tear that the Premises may suffer as a result thereof. Lessor shall not
be required to keep the Security Deposit separate from its general accounts.
Within 14 days after the expiration or termination of this Lease, if Lessor
elects to apply the Security Deposit only to unpaid Rent, and otherwise within
30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below,
Lessor shall return that portion of the Security Deposit together with interest
calculated at 4% per annum on any unused portion not used or applied by Lessor.
No part of the Security Deposit shall be considered to be held in trust, to bear
interest or to be prepayment for any monies to be paid by Lessee under this
Lease.

<PAGE>

6. USE.

     6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose. Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of
or causes damage to neighboring premises or properties. Other than guide, signal
and seeing eye dogs. Lessee shall not keep or allow in the Premises any pets,
animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or
delay its consent to any written request for a modification of the Agreed Use,
so long as the same will not impair the structural integrity of the Building or
the mechanical or electrical systems therein, and/or is not significantly more
burdensome to the Project. If Lessor elects to withhold consent, Lessor shall
within 7 days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in the Agreed
Use.

     6.2 HAZARDOUS SUBSTANCES.

          (a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, or waste whose presence,
use, manufacture, disposal, transportation, or release, either by itself or in
combination with other materials expected to be on the Premises, is either: (i)
potentially injurious to the public health, safety or welfare, the environment
or the Premises, (ii) regulated or monitored by any governmental authority, or
(iii) a basis for potential liability of Lessor to any governmental agency or
third party under any applicable statute or common law theory. Hazardous
Substances shall include. but not be limited to, hydrocarbons, petroleum,
gasoline, and/or crude oil or any products, by-products or fractions thereof.
Lessee shall not engage in any activity in or on the Premises which constitutes
a Reportable Use of Hazardous Substances without the express prior written
consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "Reportable Use" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, ordinary office
supplies (copier toner, liquid paper, glue, etc.) and common household cleaning
materials, so long as such use is in compliance with all Applicable
Requirements. is not a Reportable Use, and does not expose the Premises or
neighboring property to any meaningful risk of contamination or damage or expose
Lessor to any liability therefor. In addition, Lessor may condition its consent
to any Reportable Use upon receiving such additional assurances as Lessor
reasonably deems necessary to protect itself, the public, the Premises and/or
the environment against damage, contamination, injury and/or liability,
including, but not limited to, the installation (and removal on or before Lease
expiration or termination) of protective modifications (such as concrete
encasements) and/or increasing the Security Deposit. Notwithstanding anything to
the contrary, Lessor hereby consents to the storage and use of such Reportable
use of hazardous Substances as are currently used in Lessee's operations,
including but not limited to lead based solder dress, machine coolant and oil,
isopropyl alcohol, and lead solder debris; provided that such Hazardous
Substances are maintained, used and disposed of in compliance with Applicable
Requirements, including but not limited to maintaining any necessary Material
Data Sheets, obtaining necessary permits, and making all required regulatory
filings.

          (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.

<PAGE>

          (c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under, or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's expense, comply with all Applicable Requirements and take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance brought onto the Premises
during the term of this Lease, by or for Lessee, or any third party, except for
the negligence or willful misconduct of Lessor, its employees or agents.

                   (d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend
  and hold Lessor, its agents, employees, lenders and ground lessor, if any,
  harmless from and against any and all loss of rents and/or damages,
  liabilities, judgments, claims, expenses, penalties, and attorneys' and
  consultants' fees arising out of or involving any Hazardous Substance brought
  onto the Premises by or for Lessee, or any third party (provided, however,
  that Lessee shall have no liability under this Lease with respect to
  underground migration of any Hazardous Substance under the Premises from areas
  outside of the Project not caused or contributed to by Lessee). Lessee's
  obligations shall include, but not be limited to. the effects of any
  contamination or injury to person, property or the environment created or
  suffered by Lessee, and the cost of investigation, removal, remediation.
  restoration and/or abatement, and shall survive the expiration or termination
  of this Lease. No termination, cancellation or release agreement entered into
  by Lessor and Lessee shall release Lessee from its obligations under this
  Lease with respect to Hazardous Substances, unless specifically so agreed by
  Lessor in writing at the time of such agreement. Lessor shall indemnify,
  protect, defend and hold Lessee, its agents, employees and lenders harmless
  from and against any and all damages, liabilities, judgments, costs, claims,
  liens, expenses, penalties, loss of permits and attorneys' and consultants'
  fees arising out of or involving any Hazardous Substances at the Building
  other than those brought onto the Premises by or for Lessee or by anyone under
  Lessee's control.

          (e) crossed out

          (f) crossed out

          (g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition (see
Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee Js legally
responsible therefor (in which case Lessee shall make the investigation and
remediation thereof required by the Applicable Requirements and this Lease shall
continue in full force and effect, but subject to Lessor's rights under
Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to remediate
such condition exceeds 12 times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee, within 30 days after
receipt by Lessor of knowledge of the occurrence of such Hazardous Substance
Condition, of Lessor's desire to terminate this Lease as of the date 60 days
following the date of such notice. In the event Lessor elects to give a
termination notice, Lessee may, within 10 days thereafter, give written notice
to Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to 12
times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall
provide Lessor with said funds or satisfactory assurance thereof within 30 days
following such commitment. In such event, this Lease shall continue in full
force and effect, and Lessor shall proceed to make such remediation as soon as
reasonably possible after the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within the
time provided, this Lease shall terminate as of the date specified in Lessor's
notice of termination.

     6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease. Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to such Requirements, without regard to whether said
Requirements are now in effect or become effective after the Start Date. Lessee
shall, within 10 days after receipt of Lessor's written request, provide Lessor
with copies of all permits and other documents, and other information evidencing

<PAGE>

Lessee's compliance with any Applicable Requirements specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving the failure of Lessee or
the Premises to comply with any Applicable Requirements. Likewise, Lessee shall
immediately give written notice to Lessor of: (i) any water damage to the
Premises and any suspected seepage, pooling, dampness or other condition
conducive to the production of mold; or (ii) any mustiness or other odors that
might indicate the presence of mold in the Premises.

     6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in
Paragraph 30) and consultants shall have the right to enter into Premises at any
time, in the case of an emergency, and otherwise at reasonable times after
reasonable notice, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease. The cost of any such
inspections shall be paid by Lessor, unless a violation of Applicable
Requirements, or a Hazardous Substance condition (see Paragraph 9.1) is found to
exist or be imminent. or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request reimburse Lessor
for the cost of such inspection, so long as such inspection is reasonably
related to the violation or contamination. In addition, Lessee shall provide
copies of all relevant material safety data sheets (MSDS) to Lessor within 10
days of the receipt of written request therefor.

7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.

     7.1 LESSEE'S OBLIGATIONS.

          (a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the interior,
nonstructural portions of the Premises, Utility Installations (intended for
Lessee's exclusive use, no matter where located), and Alterations in good order,
condition and repair (whether or not the portion of the Premises requiring
repairs, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as a
result of Lessee's use, any prior use, the elements or the age of such portion
of the Premises), including, but not limited to, all equipment or facilities,
such as plumbing, HVAC equipment, electrical, lighting facilities, boilers,
pressure vessels, fixtures, interior walls, interior surfaces of exterior walls,
ceilings, floors, windows, doors, plate glass, and skylights but excluding any
items which are the responsibility of Lessor pursuant to Paragraph 7.2 normal
wear and tear and casualty excepted. Lessee's obligation to repair plumbing,
pipes and fixtures, lines, ducts, electrical wiring, switches and fixtures or
other conduits contained in the Premises shall be limited to those on the
Premises. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices, specifically including
the procurement and maintenance of the service contracts required by Paragraph
7.1(b) below. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.

          (b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure
and maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in the maintenance of the
following equipment and improvements, if any, if and when installed on the
Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, (iii)
clarifiers, and (iv) any other equipment, if reasonably required by Lessor.
However, Lessor reserves the right, upon notice to Lessee, to procure and
maintain any or all of such service contracts, and Lessee shall reimburse
Lessor, upon demand, for the cost thereof.

          (c) FAILURE TO PERFORM. If Lessee fails to perform Lessee's
obligations under this Paragraph 7.1 and such failure shall continue for a
period of thirty (30) days after a written notice by Lessor to Lessee to
commence such work. Lessor may enter upon the Premises after 10 days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order. condition and repair, and Lessee shall promptly pay
to Lessor a sum equal to 115% of the cost thereof.

<PAGE>

          (d) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set
forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if an item described in Paragraph 7.1(b) cannot be repaired other
than at a cost which is in excess of 50% of the cost of replacing such item,
then such item shall be replaced by Lessor, and the cost thereof shall be
prorated between the Parties and Lessee shall only be obligated to pay, each
month during the remainder of the term of this Lease, on the date on which Base
Rent is due, an amount equal to the product of multiplying the cost of such
replacement by a fraction, the numerator of which is one, and the denominator of
which is 144 (ie. 1/144th of the cost per month). Lessee shall pay Interest on
the unamortized balance but may prepay its obligation at any time.

     7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition). 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use),
7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation),
Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good
order, condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, exterior roof, fire sprinkler system,
Common Area fire alarm and/or smoke detection systems, fire hydrants, parking
lots, walkways, parkways, driveways, landscaping, fences, signs and utility
systems serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease.

     7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.

          (a) DEFINITIONS. The term "Utility Installations" refers to all floor
and window coverings, air and/or vacuum lines, power panels, electrical
distribution, security and fire protection systems, communication cabling,
lighting fixtures. HVAC equipment, plumbing, and fencing in[GRAPHIC
OMITTED][GRAPHIC OMITTED] or on the Premises. The term "Trade Fixtures" shall
mean Lessee's machinery and equipment that can be removed without doing material
damage to the Premises. The term "Alterations" shall mean any modification of
the improvements, other than Utility Installations or Trade Fixtures, whether by
addition or deletion. "Lessee Owned Alterations and/or Utility Installations"
are defined as Alterations and/or Utility Installations made by Lessee that are
not yet owned by Lessor pursuant to Paragraph 7.4(a).

          (b) CONSENT. Lessee shall not make any Alterations or Utility
Installations to the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor, as
long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, will not affect the
electrical, plumbing. HVAC, and/or life safety systems, and the cumulative cost
thereof during this Lease as extended does not exceed a sum equal to 3 month's
Base Rent in the aggregate or a sum equal to one month's Base Rent in any one
year. Notwithstanding the foregoing, Lessee shall not make or permit any roof
penetrations and/or install anything on the roof without the prior written
approval of Lessor. Lessor may, as a precondition to granting such approval,
require Lessee to utilize a contractor chosen and/or approved by Lessor. Any
Alterations or Utility Installations that Lessee shall desire to make and which
require the consent of the Lessor shall be presented to Lessor in written form
with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i)
acquiring all applicable governmental permits, (ii) furnishing Lessor with
copies of both the permits and the plans and specifications prior to
commencement of the work, and (iii) compliance with all conditions of said
permits and other Applicable Requirements in a prompt and expeditious manner.
Any Alterations or Utility Installations shall be performed in a workmanlike
manner with good and sufficient materials. Lessee shall promptly upon completion
furnish Lessor with as-built plans and specifications. For work which costs an
amount in excess of one month's Base Rent, Lessor may condition its consent upon
Lessee providing a lien and completion bond in an amount equal to 150% of the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor.

<PAGE>

          (c) LIENS; BONDS. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises. which claims are or may be secured by any mechanic's or
materialman's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than 10 days notice prior to the commencement of any work
in, on or about the Premises, and Lessor shall have the right to post notices of
non-responsibility. If Lessee shall contest the validity of any such lien, claim
or demand, then Lessee shall, at its sole expense defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof. If
Lessor shall require, Lessee shall furnish a surety bond in an amount equal to
150% of the amount of such contested lien, claim or demand, indemnifying Lessor
against liability for the same. If Lessor elects to participate in any such
action. Lessee shall pay Lessor's attorneys' fees and costs.

     7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.

          (a) OWNERSHIP. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the properly of Lessor and be surrendered by Lessee with the
Premises.

          (b) REMOVAL. By delivery to Lessee of written notice from Lessor not
earlier than 90 and not later than 30 days prior to the end of the term of this
Lease. Lessor may require that any or all Lessee Owned Alterations or Utility
Installations be removed by the expiration or termination of this Lease. Lessor
may require the removal at any time of all or any part of any Lessee Owned
Alterations or Utility Installations made without the required consent.

          (c) SURRENDER; RESTORATION. Lessee shall surrender the Premises by the
Expiration Date or any earlier termination date, with all of the improvements,
parts and surfaces thereof broom clean and free of debris, and in good operating
order, condition and state of repair, ordinary wear and tear and casualty
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice. Notwithstanding the
foregoing, if this Lease is for 12 months or less, then Lessee shall surrender
the Premises in the same condition as delivered to Lessee on the Start Date with
NO allowance for ordinary wear and tear. Lessee shall repair any damage
occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee
owned Alterations and/or Utility Installations, furnishings, and equipment as
well as the removal of any storage tank installed by or for Lessee. Lessee shall
also use all reasonable efforts to completely remove from the Premises any and
all Hazardous Substances brought onto the Premises by or for Lessee (except
Hazardous Substances which were deposited via underground migration from areas
outside of the Project) even if such removal would require Lessee to perform or
pay for work that exceeds statutory requirements. Trade Fixtures shall remain
the property of Lessee and shall be removed by Lessee. Any personal property of
Lessee not removed on or before the Expiration Date or any earlier termination
date shall be deemed to have been abandoned by Lessee and may be disposed of or
retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate
the Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of Paragraph
26 below.

8. INSURANCE; INDEMNITY.

     8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a)
and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy
periods commencing prior to, or extending beyond, the term of this Lease shall
be prorated to coincide with the corresponding Start Date or Expiration Date.

     8.2 LIABILITY INSURANCE.

          (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability policy of insurance protecting Lessee and Lessor as
an additional insured against claims for bodily injury, personal injury and
property damage based upon or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence with an annual aggregate of not less than

<PAGE>

$2,000,000. Lessee shall add Lessor as an additional insured by means of an
endorsement at least as broad as the Insurance Service Organization's
"Additional Insured-Managers or Lessors of Premises" Endorsement and coverage
shall also be extended to include damage caused by heat, smoke or fumes from a
hostile fire. The policy shall not contain any intra-insured exclusions as
between insured persons or organizations, but shall include coverage for
liability assumed under this Lease as an "insured contract" for the performance
of Lessee's indemnity obligations under this Lease. The limits of said insurance
shall not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. Lessee shall provide an endorsement on its liability
policy(ies) which provides that its insurance shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.

          (b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.

     8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.

          (a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force a
policy or policies of insurance in the name of Lessor, with loss payable to
Lessor, any ground-lessor, and to any Lender insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full insurable
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by any Lender. but in no event more than the commercially
reasonable and available insurable value thereof. Lessee Owned Alterations and
Utility Installations. Trade Fixtures, and Lessee's personal property shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence.

          (b) RENTAL VALUE. Lessor shall also obtain and keep in force a policy
or policies in the name of Lessor with loss payable to Lessor and any Lender,
insuring the loss of the full Rent for one year with an extended period of
indemnity for an additional 180 days ("Rental Value insurance"). Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next 12 month period.

          (c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Project if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.

          (d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.

     8.4 LESSEE'S PROPERTY; BUSINESS INTERRUPTION INSURANCE.

          (a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $10,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.

          (b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to ail perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.

<PAGE>

          (c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.

     8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least A-. VI, as set forth in the most current issue of "Best's
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after 30 days prior written notice
to Lessor. Lessee shall, at least 10 days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand. Such policies shall be for a term of at least one year, or the length of
the remaining term of this Lease, whichever is less. If either Party shall fail
to procure and maintain the insurance required to be carried by it, the other
Party may, but shall not be required to, procure and maintain the same.

     8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee.
as the case may be, so long as the insurance is not invalidated thereby.

     8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct,
Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor
and its agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims. loss of rents and/or damages, liens, judgments,
penalties, attorneys' and consultants' fees, expenses and/or liabilities arising
out of, involving, or in connection with, the use and/or occupancy of the
Premises by Lessee. If any action or proceeding is brought against Lessor by
reason of any of the foregoing matters, Lessee shall upon notice defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be defended or indemnified.

     8.8 EXEMPTION OF LESSOR AND ITS AGENTS FROM LIABILITY. Notwithstanding the
negligence or breach of this Lease by Lessor or its agents, neither Lessor nor
its agents shall be liable under any circumstances for: (i) injury or damage to
the person or goods, wares. merchandise or other property of Lessee, Lessee's
employees, contractors, invitees, customers, or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, indoor air quality, the presence of mold
or from the breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the Building, or from other sources
or places, (ii) any damages arising from any act or neglect of any other tenant
of Lessor or from the failure of Lessor or its agents to enforce the provisions
of any other lease in the Project, or (iii) injury to Lessee's business or for
any loss of income or profit therefrom. Instead, it is intended that Lessee's
sole recourse in the event of such damages or injury be to file a claim on the
insurance policy(ies) that Lessee is required to maintain pursuant to the
provisions of paragraph 8.

     8.9 FAILURE TO PROVIDE INSURANCE. Lessee acknowledges that any failure on
its part to obtain or maintain the insurance required herein will expose Lessor
to risks and potentially cause Lessor to incur costs not contemplated by this
Lease, the extent of which will be extremely difficult to ascertain.
Accordingly, for any month or portion thereof that Lessee does not maintain the
required insurance and/or does not provide Lessor with the required binders or
certificates evidencing the existence of the required insurance, the Base Rent
shall be automatically increased, without any requirement for notice to Lessee,
by an amount equal to 10% of the then existing Base Rent or $100, whichever is
greater. The parties agree that such increase in Base Rent represents fair and

<PAGE>

reasonable compensation for the additional risk/costs that Lessor will incur by
reason of Lessee's failure to maintain the required insurance. Such increase in
Base Rent shall in no event constitute a waiver of Lessee's Default or Breach
with respect to the failure to maintain such insurance, prevent the exercise of
any of the other rights and remedies granted hereunder, nor relieve Lessee of
its obligation to maintain the insurance specified in this Lease.

9. DAMAGE OR DESTRUCTION.

     9.1 DEFINITIONS.

          (a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which can reasonably be repaired in 3 months or less from the
date of the damage or destruction, and the cost thereof does not exceed a sum
equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30
days from the date of the damage or destruction as to whether or not the damage
is Partial or Total. Notwithstanding the foregoing, Premises Partial Damage
shall not include damage to windows, doors, and/or other similar items which
Lessee has the responsibility to repair or replace pursuant to the provisions of
Paragraph 7.1.

          (b) "Premises Total Destruction" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations and Trade Fixtures, which cannot reasonably be repaired in
3 months or less from the date of the damage or destruction and/or the cost
thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall notify Lessee
in writing within 30 days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.

          (c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.

          (d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.

          (e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises which requires repair, remediation, or restoration.

     9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided. however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds as and when
required to complete said repairs. In the event, however, such shortage was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within 10 days following receipt of written nonce of such shortage and request
therefor. If Lessor receives said funds or adequate assurance thereof within
said 10 day period, the party responsible for making the repairs shall complete
them as soon as reasonably possible and this Lease shall remain in full force
and effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within 10 days thereafter to: (i) make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not
be entitled to reimbursement of any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake
shall be subject to Paragraph 9.3. notwithstanding that there may be some
insurance coverage, but the net proceeds of any such insurance shall be made
available for the repairs if made by either Party.

<PAGE>

     9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessors expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
30 days after receipt by Lessor of knowledge of the occurrence of such damage.
Such termination shall be effective 60 days following the date of such notice.
In the event Lessor elects to terminate this Lease, Lessee shall have the right
within 10 days after receipt of the termination notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within 30 days after making such commitment. In
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible after the required
funds are available. If Lessee does not make the required commitment, this Lease
shall terminate as of the date specified in the termination notice.

     9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs. this Lease shall terminate 60 days following
such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

     9.5 DAMAGE NEAR END OF TERM. If at any time during the last 6 months of
this Lease there is damage for which the cost to repair exceeds one month's Base
Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective
60 days following the date of occurrence of such damage by giving a written
termination notice to Lessee within 30 days after the date of occurrence of such
damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, (a) exercising such option and (b) providing Lessor with
any shortage in insurance proceeds (or adequate assurance thereof) needed to
make the repairs on or before the earlier of (i) the date which is 10 days after
Lessee's receipt of Lessor's written notice purporting to terminate this Lease,
or (ii) the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's commercially reasonable expense, repair such damage as soon
as reasonably possible and this Lease shall continue in full force and effect.
If Lessee fails to exercise such option and provide such funds or assurance
during such period, then this Lease shall terminate on the date specified in the
termination notice and Lessee's option shall be extinguished.

     9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.

          (a) ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.

          (b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within 90 days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice, of
Lessee's election to terminate this Lease on a date not less than 60 days
following the giving of such notice. If Lessee gives such notice and such repair
or restoration is not commenced within 30 days thereafter, this Lease shall
terminate as of the date specified in said notice. If the repair or restoration
is commenced within such 30 days, this Lease shall continue in full force and
effect. "Commence" shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.

     9.7 TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor.

<PAGE>

     9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.

10. REAL PROPERTY TAXES.PHIC OMITTED]

     10.1, DEFINITION. As used herein, the term "Real Property Taxes" shall
include any form of assessment; real estate, general, special, ordinary or
extraordinary, or rental levy or tax (other than inheritance, personal income or
estate taxes); improvement bond; and/or license fee imposed upon or levied
against any legal or equitable interest of Lessor in the Project, Lessor's right
to other income therefrom, and/or Lessor's business of leasing, by any authority
having the direct or indirect power to tax and where the funds are generated
with reference to the Project address and where the proceeds so generated are to
be applied by the city, county or other local taxing authority of a jurisdiction
within which the Project is located. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein: (i)
imposed by reason of events occurring during the term of this Lease, including
but not limited to, a change in the ownership of the Project, (ii) a change in
the improvements thereon, and/or (iii) levied or assessed on machinery or
equipment provided by Lessor to Lessee pursuant to this Lease. In calculating
Real Property Taxes for any calendar year, the Real Property Taxes for any real
estate tax year shall be included in the calculation of Real Property Taxes for
such calendar year based upon the number of days which such calendar year and
tax year have in common.

     10.2 PAYMENT OF TAXES. Except as otherwise provided in Paragraph 10.3,
Lessor shall pay the Real Property Taxes applicable to the Project, and said
payments shall be included in the calculation of Common Area Operating Expenses
in accordance with the provisions of Paragraph 4.2.

     10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Project by
other lessees or by Lessor for the exclusive enjoyment of such other lessees.
Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at
the time Common Area Operating Expenses are payable under Paragraph 4.2, the
entirety of any increase in Real Property Taxes if assessed solely by reason of
Alterations, Trade Fixtures or Utility Installations placed upon the Premises by
Lessee or at Lessee's request or by reason of any alterations or improvements to
the Premises made by Lessor subsequent to the execution of this Lease by the
Parties.

     10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.

     10.5 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises. When possible, Lessee shall cause its
Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor. If any of Lessee's said property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee's property within 10 days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.

11. UTILITIES AND SERVICES. Lessee shall pay for all water, gas, heat, light,
power, telephone, trash disposal and other utilities and services supplied to
the Premises, together with any taxes thereon. Notwithstanding the provisions of
Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines that
Lessee is using a disproportionate amount of water, electricity or other
commonly metered utilities, or that Lessee is generating such a large volume of
trash as to require an increase in the size of the trash receptacle and/or an
increase in the number of times per month that it is emptied, then Lessor may
increase Lessee's Base Rent by an amount equal to such increased costs. There
shall be no abatement of Rent and Lessor shall not be liable in any respect
whatsoever for the inadequacy, stoppage, interruption or discontinuance of any
utility or service due to riot, strike, labor dispute, breakdown, accident,
repair or other cause beyond Lessor's reasonable control or in cooperation with
governmental request or directions.

<PAGE>

12. ASSIGNMENT AND SUBLETTING.

     12.1 LESSOR'S CONSENT REQUIRED.

          (a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior reasonable written consent.

          (b) crossed out

          (c) crossed out

          (d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period. If Lessor elects to
treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may either: (i) terminate this Lease, or (ii) upon 30 days written notice,
increase the monthly Base Rent to 110% of the Base Rent then in effect. Further,
in the event of such Breach and rental adjustment, (i) the purchase price of any
option to purchase the Premises held by Lessee shall be subject to similar
adjustment to 110% of the price previously in effect, and (ii) all fixed and
non-fixed rental adjustments scheduled during the remainder of the Lease term
shall be increased to 110% of the scheduled adjusted rent.

          (e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.

          (f) Lessor may reasonably withhold consent to a proposed assignment or
subletting if Lessee is in Default at the time consent is requested.

          (g) Notwithstanding the foregoing, allowing a diminimus portion of the
Premises, ie. 20 square feet or less, to be used by a third party vendor in
connection with the installation of a vending machine or payphone shall not
constitute a subletting.

     12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

          (a) Regardless of Lessor's consent, no assignment or subletting shall:
(i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Rent or for the performance of any other obligations to be
performed by Lessee.

          (b) Lessor may accept Rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of Rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for Lessee's Default or Breach.

          (c) Lessor's consent to any assignment or subletting shall not
constitute consent to any subsequent assignment or subletting.

          (d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsibly for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.

          (e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessors determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a fee of $500 as
consideration for Lessor's considering and processing said request. Lessee
agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested. (See also Paragraph 36)

          (f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment, entering into such sublease, or entering into
possession of the Premises or any portion thereof, be deemed to have assumed and
agreed to conform and comply with each and every term, covenant, condition and
obligation herein to be observed or performed by Lessee during the term of said
assignment or sublease, other than such obligations as are contrary to or
inconsistent with provisions of an assignment or sublease to which Lessor has
specifically consented to in writing.

<PAGE>

          (g) Lessor's consent to any assignment or subletting shall not
transfer to the assignee or sublessee any Option granted to the original Lessee
by this Lease unless such transfer is specifically consented to by Lessor in
writing. (See Paragraph 39.2)

     12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:

          (a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shalt occur in the performance of Lessee's obligations,
Lessee may collect said Rent. In the event that the amount collected by Lessor
exceeds Lessee's then outstanding obligations any such excess shall be refunded
to Lessee. Lessor shall not, by reason of the foregoing or any assignment of
such sublease, nor by reason of the collection of Rent, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee. Lessee hereby irrevocably authorizes and directs
any such sublessee, upon receipt of a written notice from Lessor stating that a
Breach exists in the performance of Lessee's obligations under this Lease, to
pay to Lessor all Rent due and to become due under the sublease. Sublessee shall
rely upon any such notice from Lessor and shall pay all Rents to Lessor without
any obligation or right to inquire as to whether such Breach exists,
notwithstanding any claim from Lessee to the contrary.

          (b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.

          (c) Any matter requiring the consent of the sublessor under a sublease
shall also require the consent of Lessor.

          (d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.

          (e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.

13. DEFAULT; BREACH; REMEDIES.

     13.1 DEFAULT; BREACH. A "Default" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or Rules and
Regulations under this Lease. A "Breach" is defined as the occurrence of one or
more of the following Defaults, and the failure of Lessee to cure such Default
within any applicable grace period:

          (a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security, or where the
coverage of the property insurance described in Paragraph 8.3 is jeopardized as
a result thereof, or without providing reasonable assurances to minimize
potential vandalism.

          (b) The failure of Lessee to make any payment of Rent or any Security
Deposit required to be made by Lessee hereunder, whether to Lessor or to a third
party, when due, to provide reasonable evidence of insurance or surety bond, or
to fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of 3 business days following
written notice to Lessee provided that the first time that Lessee shall fail to
pay as and when due, Lessor agrees to provide the ten (10) days written notice
to Lessee of such failure and it shall not be a breach hereof unless Lessee
fails to pay the same within said ten day period).

          (c) The commission of waste, act or acts constituting public or
private nuisance, and/or an illegal activity on the Premises by Lessee, where
such actions continue for a period of 3 business days following written notice
to Lessee.

<PAGE>

          (d) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
the rescission of an unauthorized assignment or subletting, (iv) an Estoppel
Certificate, (v) a requested subordination, (vi) evidence concerning any
guaranty and/or Guarantor. (vii) any document requested under Paragraph 41,
(viii) material data safety sheets (MSDS), or (ix) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of 10 days following
written notice to Lessee.

          (e) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof,
other than those described in subparagraphs 13.1(a), (b), (c) or (d), above,
where such Default continues for a period of 30 days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
30 days are reasonably required for its cure. then it shall not be deemed to be
a Breach if Lessee commences such cure within said 30 day period and thereafter
diligently prosecutes such cure to completion.

          (f) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "debtor" as defined in 11 U.S.C. ss. 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within 60 days): (iii) the appointment of a trustee or receiver to
take possession of substantially all of Lessees assets located at the Premises
or of Lessee's interest in this Lease, where possession is not restored to
Lessee within 30 days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within 30
days: provided, however, in the event that any provision of this subparagraph is
contrary to any applicable law, such provision shall be of no force or effect,
and not affect the validity of the remaining provisions.

          (g) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.

          (h) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor. (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure. within 60 days following written notice of any such event, to
provide written alternative assurance or security, which, when coupled with the
then existing resources of Lessee, equals or exceeds the combined financial
resources of Lessee and the Guarantors that existed at the time of execution of
this Lease.

     13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or
obligations, within 10 days after written notice (or in case of an emergency,
without notice), Lessor may, at its option, perform such duty or obligation on
Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and
expenses incurred by Lessor in such performance upon receipt of an invoice
therefor. In the event of a Breach, Lessor may, with or without further notice
or demand, and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such Breach.

          (a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental toss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided, and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises. expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease

<PAGE>

applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent. Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer. Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.

          (b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign. subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.

          (c) Pursue any other remedy now or hereafter available under the laws
or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.

     13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other
charges, or for the giving or paying by Lessor to or for Lessee of any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease,
all of which concessions are hereinafter referred to as "Inducement Provisions",
shall be deemed conditioned upon Lessee's full and faithful performance of all
of the terms, covenants and conditions of this Lease. Upon Breach of this Lease
by Lessee. any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other charge,
bonus, inducement or consideration theretofore abated, given or paid by Lessor
under such an Inducement Provision shall be immediately due and payable by
Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.
The acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this paragraph shall not be deemed a waiver by Lessor of the
provisions of this paragraph unless specifically so stated in writing by Lessor
at the time of such acceptance.

     13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges. and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within 5 days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall immediately pay
to Lessor a one-time late charge equal to 10% of each such overdue amount or
$100, whichever is greater. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of such late payment. Acceptance of such late charge by Lessor shall in
no event constitute a waiver of Lessee's Default or Breach with respect to such
overdue amount, nor prevent the exercise of any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder, whether
or not collected, for 3 consecutive installments of Base Rent, then
notwithstanding any provision of this Lease to the contrary. Base Rent shall, at
Lessor's option, become due and payable quarterly in advance.

     13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments (such as Base
Rent) or within 30 days following the date on which it was due for non-scheduled
payment, shall bear interest from the date when due, as to scheduled payments,
or the 31st day after it was due as to non-scheduled payments. The interest
("Interest") charged shall be computed at the rate of 10% per annum but shall
not exceed the maximum rate allowed by law. Interest is payable in addition to
the potential late charge provided for in Paragraph 13.4.

<PAGE>

     13.6 BREACH BY LESSOR.

          (a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than 30 days after receipt by Lessor, and any
Lender whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than 30 days are reasonably required for its performance, then
Lessor shall not be in breach if performance is commenced within such 30 day
period and thereafter diligently pursued to completion.

          (b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within 30 days after receipt of said
notice, or if having commenced said cure they do not diligently pursue it to
completion, then Lessee may elect to cure said breach at Lessee's expense and
offset from Rent the actual and reasonable cost to perform such cure, provided
however, that such offset shall not exceed an amount equal to the greater of one
month's Base Rent or the Security Deposit, reserving Lessee's right to
reimbursement from Lessor for any such expense in excess of such offset. Lessee
shall document the cost of said cure and supply said documentation to Lessor.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "Condemnation"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than 10% of the floor area of the Unit, or more than 25%
of Lessee's Reserved Parking Spaces, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within 10 days after Lessor shall
have given Lessee written notice of such taking (or in the absence of such
notice, within 10 days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.

15. crossed out

16. ESTOPPEL CERTIFICATES.

          (a) Each Party (as "Responding Party") shall within 10 days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Estoppel Certificate" form published by the
AIR Commercial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.

          (b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such 10 day period, the Requesting Party may execute
an Estoppel Certificate stating that: (i) the Lease is in full force and effect
without modification except as may be represented by the Requesting Party, (ii)
there are no uncured defaults in the Requesting Party's performance, and (iii)
if Lessor is the Requesting Party, not more than one month's rent has been paid
in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.

          (c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past 3 years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.

<PAGE>

17. DEFINITION OF LESSOR. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or this Lease. Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.

18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.

19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.

20. LIMITATION ON LIABILITY. The obligations of Lessor under this Lease shall
not constitute personal obligations of Lessor, or its partners, members,
directors, officers or shareholders, and Lessee shall look to the Premises, and
to no other assets of Lessor, for the satisfaction of any liability of Lessor
with respect to this Lease, and shall not seek recourse against Lessor's
partners, members, directors, officers or shareholders, or any of their personal
assets for such satisfaction.

21. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.

22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.

23. NOTICES.

     23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
or applicable law shall be in writing and may be delivered in person (by hand or
by courier) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission,
and shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notices. Either Party
may by written notice to the other specify a different address for notice,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.

     23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail the notice shall be deemed given 72 hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantee next day
delivery shall be deemed given 24 hours after delivery of the same to the Postal
Service or courier. Notices transmitted by facsimile transmission or similar
means shall be deemed delivered upon telephone confirmation of receipt
(confirmation report from fax machine is sufficient), provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.

24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. The acceptance of Rent by
Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by
Lessee may be accepted by Lessor on account of moneys or damages due Lessor,
notwithstanding any qualifying statements or conditions made by Lessee in
connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.

<PAGE>

25. CROSSED OUT

26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
150% of the Base Rent applicable immediately preceding the expiration or
termination. Nothing contained herein shall be construed as consent by Lessor to
any holding over by Lessee.

27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.

28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this
Lease to be observed or performed by Lessee are both covenants and conditions.
In construing this Lease, all headings and titles are for the convenience of the
Parties only and shall not be considered a part of this Lease. Whenever required
by the context, the singular shall include the plural and vice versa. This Lease
shall not be construed as if prepared by one of the Parties, but rather
according to its fair meaning as a whole, as if both Parties had prepared it.

29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.

30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.

     30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lender") shall have no liability or obligation to perform any of
the obligations of Lessor under this Lease. Any Lender may elect to have this
Lease and/or any Option granted hereby superior to the lien of its Security
Device by giving written notice thereof to Lessee, whereupon this Lease and such
Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.

     30.2 ATTORNMENT. In the event that Lessor transfers title to the Premises,
or the Premises are acquired by another upon the foreclosure or termination of a
Security Device to which this Lease is subordinated (i) Lessee shall, subject to
the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and
upon request, enter into a new lease, containing all of the terms and provisions
of this Lease, with such new owner for the remainder of the term hereof, or, at
the election of the new owner, this Lease will automatically become a new lease
between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved
of any further obligations hereunder and such new owner shall assume all of
Lessor's obligations, except that such new owner shall not: (a) be liable for
any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (b) be subject to any offsets or defenses
which Lessee might have against any prior lessor, (c) be bound by prepayment of
more than one month's rent, or (d) be liable for the return of any security
deposit paid to any prior lesser.

     30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor. Lessee's subordination of this Lease shall be subject to receiving a
commercially reasonable non-disturbance agreement (a "Non-Disturbance
Agreement") from the Lender which Non-Disturbance Agreement provides that
Lessee's possession of the Premises, and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in Breach
hereof and attorns to the record owner of the Premises.

     30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents: provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.

<PAGE>

31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises whether founded in tort, contract or equity, or to
declare rights hereunder, the Prevailing Party (as hereafter defined) in any
such proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision
or judgment. The term, "Prevailing Party" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense The attorneys' fees award
shall not be computed in accordance with any court fee schedule. but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In addition,
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach ($200 is a reasonable minimum per
occurrence for such services and consultation).

32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times after reasonable prior notice for the purpose
of showing the same to prospective purchasers, lenders, or tenants, and making
such alterations, repairs, improvements or additions to the Premises as Lessor
may deem necessary or desirable and the erecting, using and maintaining of
utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect on Lessee's use of the
Premises. All such activities shall be without abatement of rent or liability to
Lessee.

33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction
upon the Premises without Lessor's prior written consent. Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether to
permit an auction.

34. SIGNS. Lessor may place on the Premises ordinary "For Sale" signs at any
time and ordinary "For Lease" signs during the last 6 months of the term hereof.
Except for ordinary "For Sublease" signs which may be placed only on the
Premises, Lessee shall not place any sign upon the Project without Lessor's
prior written consent. All signs must comply with all Applicable Requirements.

35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises: provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within 10 days following any such event
to elect to the contrary by written notice to the holder of any such lesser
interest, shall constitute Lessor's election to have such event constitute the
termination of such interest.

36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including but not limited to architects'. attorneys', engineers'
and other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within 10 business days following such request.

37. crossed out

38. QUIET POSSESSION. So long as Lessee shall not be in Breach hereof, Lessee
shall have quiet possession and quiet enjoyment of the Premises during the term
hereof.

<PAGE>

39. crossed out

40. SECURITY MEASURES. Lessee hereby acknowledges that the Rent payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.

41. RESERVATIONS. Lessor reserves the right: (i) to grant, without the consent
or joinder of Lessee, such easements, rights and dedications that Lessor deems
necessary, (ii) to cause the recordation of parcel maps and restrictions, and
(iii) to create and/or install new utility raceways, so long as such easements,
rights, dedications, maps, restrictions, and utility raceways do not
unreasonably interfere with the use of the Premises by Lessee Lessee agrees to
sign any documents reasonably requested by Lessor to effectuate such rights.

42. PERFORMANCE UNDER PROTEST.. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay. A Party who does not initiate
suit for the recovery of sums paid "under protest" within 6 months shall be
deemed to have waived its right to protest such payment.

43. AUTHORITY; MULTIPLE PARTIES; EXECUTION.

          (a) If either Party hereto is a corporation, trust, limited liability
company, partnership, or similar entity, each individual executing this Lease on
behalf of such entity represents and warrants that he or she is duly authorized
to execute and deliver this Lease on its behalf. Each Party shall, within 30
days after request, deliver to the other Party satisfactory evidence of such
authority.

          (b) If this Lease is executed by more than one person or entity as
"Lessee each such person or entity shall be jointly and severally liable
hereunder. It is agreed that any one of the named Lessees shall be empowered to
execute any amendment to this Lease, or other document ancillary thereto and
bind all of the named Lessees, and Lessor may rely on the same as if all of the
named Lessees had executed such document.

          (c) This Lease may be executed by the Parties in counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.

44. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.

45. OFFER. Preparation of this Lease by either party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.

46. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.

47. WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT
OF THIS AGREEMENT.

48. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease [X] is [_] is not attached to this Lease.

<PAGE>

49. AMERICANS WITH DISABILITIES ACT. Since compliance with the Americans with
Disabilities Act (ADA) is dependent upon Lessee's specific use of the Premises,
Lessor makes no warranty or representation as to whether or not the Premises
comply with ADA or any similar legislation. In the event that Lessee's use of
the Premises requires modifications or additions to the Premises in order to be
in ADA compliance. Lessee agrees to make any such necessary modifications and/or
additions at Lessee's expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED. THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL
REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE
PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL
INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE
AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S
INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES ARE LOCATED.

The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.

Executed at: _______________________     Executed at:  _________________________
On: ________________________________     On: ___________________________________

BY LESSOR:                               BY LESSEE:

Veriteck Real Estate Holdings, LLC       Amistar Corporation
a Delaware limited liability company     a California corporation

By: /s/ Keith Butler                     By: /s/ Stuart Baker
    --------------------------------         -----------------------------------
Name Printed: Keith Butler               Name Printed: Stuart Baker
Title: President                         Title: President

By: ________________________________     By: ___________________________________
Name Printed: ______________________     Name Printed: _________________________

<PAGE>

                   ADDENDUM TO STANDARD INDUSTRIAL COMMERCIAL
                            MULTI TENANT LEASE - NET

          This Addendum to Standard Industrial Commercial Multi Tenant Lease -
Net is by and between Veritek Real Estate Holding, LLC, a Delaware limited
liability company ("Lessor") and Amistar Corporation, a California corporation
("Lessee").

          Lessor and Lessee agree that any portions of the preprinted Lease form
that may appear to be partially underlined are intended to be deleted by the
parties. The following additional paragraphs shall be incorporated into the
Standard Industrial Commercial Multi Tenant Lease - Net dated September 20, 2006
by and between Lessor and Lessee:

50. Until May 10, 2007, or such later date as provided below, the Premises shall
consist of a total of 30,918 square feet, which includes 11,885 square feet of
first floor office area and approximately 19,033 square feet of warehouse area.
After May 10, 2007, or such later date as provided below, the Premises shall
consist of 30,031 square feet, which includes approximately 11,885 square feet
of first floor office area and 18,146 square feet of warehouse area. The
Premises are more particularly described on Exhibit A attached hereto. The size
of the Premises will be reduced after May 10, 2007 as a result of the current
subtenant of Lessee, Claridy Solutions, Inc. ("Subtenant") sublease expiring and
Subtenant vacating the Premises. In the event the Subtenant does not vacate the
Premises on May 10, 2007, then the Premises will include the original area of
30,918 square feet until such time Subtenant vacates the Premises. Lessee agrees
that it shall not allow Subtenant to extend its sublease or otherwise holdover
and shall take all actions to insure that Subtenant vacates the Premises on May
10, 2007, or as soon thereafter as possible. Notwithstanding any provision of
the Lease to the contrary, Lessor hereby acknowledges and approves the Sublease
and agrees that the Sublease shall continue in full force and effect following
the date hereof.

51. Base Rent until May 10, 2007, or such later date that Subtenant vacates, if
such occurs after May 10, 2007, shall be $32,100 per month. Following the date
of May 10, 2007, or such later date that Subtenant vacates, Base Rent shall be
$31,183.21. Base Rent shall increase on the first anniversary of the
Commencement Date to an amount equal to 103% of the Base Rent and on each
anniversary of the Commencement Date thereafter to an amount equal to 103% of
the previous Base Rent.

52. Lessee shall be responsible for paying Lessee's Share of Common Area
Operating Expenses and, as a separate expense, all trash and all utility and
water expenses, to the extent separately metered to the Premises. If water and
utilities, including electrical, cannot be separately metered to the Premises,
then Lessee shall pay as part of Common Area Operating Expenses Lessee's Share
of such expenses.

53. Lessee acknowledges that it is in possession and use of the Premises prior
to the Commencement Date under the terms of a prior lease with the previous
owner.

<PAGE>

54. The existing marquis sign on the Project contains only the name of Lessee.
Lessee hereby agrees that the sign shall be modified to include the names of
both Lessor and Lessee, provided that if Lessor decides to replace or change the
sign of Lessee, Lessor shall obtain the prior written approval of Lessee, which
shall not be unreasonably withheld. The costs thereof shall be shared on an
equal basis, provided that Lessee not be responsible for any costs in excess of
$2,000 without Lessee's prior written approval in its sole discretion. Lessor
may arrange for such work to be done and Lessee shall (subject to the
limitations of this Paragraph 54) pay its share costs of such within thirty (30)
days of receipt of an invoice from Lessor.

55. Lessee shall, at its sole cost and expense, within forty-five (45) days
after the Commencement Date complete construction for the extension of the
machine shop wall to the end of the factory area with a section to provide a
secure pathway to both Lessor and Lessee's warehouse areas. Such construction
shall be performed in accordance with the general plan shown on Exhibit B
attached hereto.

56. Lessor and Lessee agree that Lessor shall construct a secure chain link
fenced area in the back parking lot of the Premises for vehicle storage. Lessee
and Lessor shall share the costs of such on a basis proportional to the agreed
to use of such area by each party. Lessor may arrange for such work to be done,
subject to the prior written review and approval of Lessee as to any proposed
alterations, which consent shall not be unreasonably withheld, and Lessee shall
pay its share costs of such within thirty (30) days of receipt of an invoice
from Lessor. Amistar's consent shall be required, if its share of costs are
expected to exceed $2,000.

57. Lessor and Lessee agree that they shall share the current lobby area located
on the Project for access and for visitor reception. Lessor shall have the only
personnel and staff in the lobby area. Lessor and Lessee shall also share wall
space in the lobby area for appropriate signage for Lessor and Lessee. In
addition, Lessee shall transfer and convey to Lessor on the Commencement Date,
that certain furniture and equipment located in the Lobby for use in the Lobby
by Lessor (and Lessee), at no cost or charge to Lessor in consideration of
Lessee's right to co-use of the lobby and reception area. LESSOR ACKNOWLEDGES
AND AGREES THAT THE FURNITURE IS DELIVERED "AS-IS" AND THAT LESSEE DOES NOT
MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR
RESPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
FURNITURE OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY
AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR
WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE USE OPERATION OR SAFETY.
Additionally, the parties agree that they shall share use of compressed air.
Lessor shall also allow Lessee access, upon notice to Lessor for pallet access
to Lessee's demo room. The parties shall, within thirty (30) days after the
Commencement Date, further memorialize their agreement as set forth in this
paragraph with additional specifics on the exact method for sharing as provided
herein.

LESSOR:                                    LESSEE:

Veritek Real Estate Holdings, LLC,         Amistar Corporation
A Delaware limited liability company       a California corporation

By: /s/ Keith Butler                       By: /s/ Stuart Baker
-----------------------------------        -------------------------------------
    Keith Butler                               Stuart Bakerexv10w1

 

Exhibit 10.1

EXECUTION COPY 

AGREEMENT AND PLAN OF MERGER

by and among

PHARMION CORPORATION,

CARLSBAD ACQUISITION CORPORATION

CABRELLIS PHARMACEUTICALS CORPORATION

and

Stuart J. M. Collinson

as the

EQUITYHOLDER REPRESENTATIVE

November 15, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	ARTICLE I. DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	1.1. Defined Terms
	 	 	1	 
	1.2. Terms Defined Elsewhere
	 	 	8	 
	1.3. Other Terms
	 	 	9	 
	1.4. Interpretation
	 	 	9	 
	 
	 	 	 	 
	ARTICLE II. THE MERGER
	 	 	10	 
	 
	 	 	 	 
	2.1. The Merger
	 	 	10	 
	2.2. Effective Time
	 	 	10	 
	2.3. Closing of the Merger
	 	 	10	 
	2.4. Effects of the Merger
	 	 	10	 
	2.5. Certificate of Incorporation and Bylaws
	 	 	10	 
	2.6. Directors
	 	 	11	 
	2.7. Officers
	 	 	11	 
	2.8. Conversion of Shares; Treatment of Company Options
	 	 	11	 
	2.9. Escrow Amount
	 	 	12	 
	2.10. Distribution of the Merger Consideration
	 	 	13	 
	2.11. Dissenting Shares
	 	 	15	 
	2.12. Withholding Rights
	 	 	15	 
	2.13. Equityholder Representative
	 	 	15	 
	2.14. Transaction Fees
	 	 	19	 
	 
	 	 	 	 
	ARTICLE III. CLOSING DELIVERIES
	 	 	19	 
	 
	 	 	 	 
	3.1. Deliveries by the Company at the Closing
	 	 	19	 
	3.2. Deliveries by Parent and Merger Sub at the Closing
	 	 	20	 
	 
	 	 	 	 
	ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	20	 
	 
	 	 	 	 
	4.1. Organization of the Company
	 	 	21	 
	4.2. Subsidiaries
	 	 	21	 
	4.3. Authorization
	 	 	21	 
	4.4. Capitalization
	 	 	22	 
	4.5. Title to Properties and Assets
	 	 	22	 
	4.6. Absence of Certain Activities
	 	 	23	 
	4.7. Certain Actions
	 	 	23	 
	4.8. Material Contracts
	 	 	25	 
	4.9. Compliance with Other Instruments
	 	 	26	 
	4.10. Financial Statements
	 	 	26	 
	4.11. Liabilities
	 	 	27	 
	4.12. Taxes
	 	 	27	 
	4.13. Environmental Matters
	 	 	29	 

(i)

 

	 	 	 	 	 
	 	 	Page
	4.14. Employee Benefits
	 	 	29	 
	4.15. Compliance with Law
	 	 	31	 
	4.16. Permits
	 	 	32	 
	4.17. Consents and Approvals
	 	 	32	 
	4.18. Litigation
	 	 	32	 
	4.19. Labor Matters
	 	 	32	 
	4.20. Intellectual Property
	 	 	33	 
	4.21. Transactions with Certain Persons
	 	 	34	 
	4.22. Insurance
	 	 	34	 
	4.23. Certain Business Practices
	 	 	35	 
	4.24. No Brokers
	 	 	35	 
	4.25. Books and Records
	 	 	35	 
	4.26. Bank Accounts
	 	 	35	 
	4.27. FDA and Related Matters
	 	 	35	 
	4.28. HSR Act
	 	 	37	 
	 
	 	 	 	 
	ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
	 	 	37	 
	 
	 	 	 	 
	5.1. Organization
	 	 	37	 
	5.2. Authorization
	 	 	37	 
	5.3. Compliance with Other Instruments
	 	 	37	 
	5.4. Consents and Approvals
	 	 	38	 
	5.5. Litigation
	 	 	38	 
	5.6. No Brokers
	 	 	38	 
	5.7. Available Funds
	 	 	38	 
	 
	 	 	 	 
	ARTICLE VI. POST-CLOSING COVENANTS OF ALL PARTIES
	 	 	38	 
	 
	 	 	 	 
	6.1. Indemnification of Directors and Officers
	 	 	38	 
	6.2. Tax Matters
	 	 	39	 
	6.3. Development and Commercialization of the Compound
	 	 	40	 
	6.4. Conduct of Business
	 	 	41	 
	 
	 	 	 	 
	ARTICLE VII. CONDITIONS TO OBLIGATIONS
	 	 	41	 
	 
	 	 	 	 
	7.1. Conditions to the Company’s Obligations to Effect the Merger
	 	 	41	 
	7.2. Conditions to the Obligations of Parent and Merger Sub to Effect the Merger
	 	 	41	 
	 
	 	 	 	 
	ARTICLE
VIII. INDEMNIFICATION
	 	 	42	 
	 
	 	 	 	 
	8.1. Survival of Representations
	 	 	42	 
	8.2. Indemnification
	 	 	43	 
	8.3. Notice of Claims
	 	 	43	 
	8.4. Third Person Claims
	 	 	44	 
	8.5. Limitation on Indemnity; Payments Out of Subsequent Merger Consideration
	 	 	45	 

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	 	 	Page
	8.6. Remedies
	 	 	46	 
	8.7. Per Diem Taxes; Straddle Periods
	 	 	46	 
	8.8. Transfer Taxes
	 	 	47	 
	 
	 	 	 	 
	ARTICLE IX. MISCELLANEOUS
	 	 	47	 
	 
	 	 	 	 
	9.1. Termination
	 	 	47	 
	9.2. Binding Effect; Assignment
	 	 	47	 
	9.3. Notices
	 	 	47	 
	9.4. Choice of Law
	 	 	48	 
	9.5. Entire Agreement; Amendments and Waivers
	 	 	48	 
	9.6. Counterparts
	 	 	49	 
	9.7. Severability
	 	 	49	 
	9.8. Headings
	 	 	49	 
	9.9. Schedules
	 	 	49	 
	9.10. No Third Party Beneficiaries
	 	 	49	 
	9.11. Specific Performance
	 	 	49	 
	9.12. No Strict Construction
	 	 	49	 
	9.13. Expenses
	 	 	49	 
	9.14. Submission to Jurisdiction; Waivers; Consent to Service of Process
	 	 	50	 
	9.15. WAIVER OF JURY TRIAL
	 	 	50	 

(iii)

 

LIST OF EXHIBITS

	 	 	 
	Exhibit A

	 	Form of Merger Certificate
	Exhibit B

	 	Certificate of Incorporation of the Surviving Corporation
	Exhibit C

	 	Bylaws of the Surviving Corporation
	Exhibit D

	 	Form of Letter of Transmittal
	 
	Exhibit 2.8

	 	Merger Consideration Schedule

LIST OF SCHEDULES

	 	 	 
	Transaction Fee Schedule

	Company Disclosure Schedule

	Schedule 6.1
	 	Indemnification Provision
	Schedule 7.2(d)
	 	Required Nongovernmental Third-Party Consents

(iv)

 

AGREEMENT AND PLAN OF MERGER

     This AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of November 15, 2006, is
entered into by and among Pharmion Corporation, a Delaware corporation (“Parent”), Carlsbad
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Parent (“Merger
Sub”), Cabrellis Pharmaceuticals Corporation, a Delaware corporation (the “Company”), and Stuart J.
M. Collinson, acting in his capacity as Equityholder Representative in connection with the
transactions contemplated by this Agreement (the “Equityholder Representative”). (Hereafter, the
Parent, the Company, and the Equityholder Representative shall sometimes be referred to as the
“Parties.”)

RECITALS

     WHEREAS, the Boards of Directors of the Company, Parent and Merger Sub have each (i)
determined that the Merger (as defined below) is fair, advisable and in the best interests of their
respective companies and stockholders and (ii) approved this Agreement and the transactions
contemplated hereby, including the Merger, upon the terms and subject to the conditions set forth
in this Agreement.

     WHEREAS, the stockholders of the Company (the “Stockholders”) have approved and adopted this
Agreement and the consummation of the transactions contemplated hereby in accordance with
Applicable Law (as hereinafter defined) and the Company’s Certificate of Incorporation and Bylaws.

AGREEMENT

     NOW THEREFORE, in consideration of the respective covenants and promises contained herein and
for other good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

     1.1. Defined Terms. As used herein, the terms below shall have the following
meanings. Any of such terms, unless the context otherwise requires, may be used in the singular or
plural, depending upon the reference.

     “Affiliate” means, with respect to any Person, any other Person which directly or indirectly
controls, is controlled by or is under common control with such Person.

     “Applicable Law(s)” means, with respect to any Person, any federal, state, local or other
domestic or foreign statute, law, ordinance, rule, regulation, order, writ, injunction, judgment,
award, decree or other requirement of any Governmental Authority applicable to such Person or any
of such Person’s property, assets, officers, directors, employees, consultants or agents.

     “Business” means the business of the Company.

 

 

     “Business Day” means a day other than a Saturday, Sunday or other day on which commercial
banks in New York, New York are authorized or required by law to close.

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

     “Company Option Plan” means the Company’s 2006 Equity Incentive Plan.

     “Company Option Schedule” means Schedule 4.4(d) of the Company Disclosure Schedule

     “Company Option Shares” means, with respect to any Company Option, the shares of Common Stock
into which such Company Option (whether or not vested) is exercisable.

     “Company Options” means options to purchase Common Stock pursuant to the terms of the Company
Option Plan.

     “Compound” shall mean the compound known as Amrubicin (international nonproprietary name)
hydrochloride which is generically known as (+)-(7S,
9S)-9-acetyl-9-amino-7-[(2-deoxy-ß-D-erythro-pentopyranosyl)
oxy]-7,8,9,10-tetrahydro-6,11-dihydroxy-5,12-naphthacenedione hydrochloride.

     “Court Order” means any judgment, decision, consent decree, injunction, ruling or order of any
federal, state, local or other domestic or foreign court or Governmental Authority that is binding
on any Person or its property under Applicable Law.

     “Default” means (a) any actual breach or default, (b) the occurrence of an event that with the
passage of time or the giving of notice or both would constitute a breach or default or (c) the
occurrence of an event that, with or without the passage of time or the giving of notice or both,
would give rise to a right of termination, renegotiation or acceleration.

     “EMEA” means the European Medicines Evaluation Agency.

     “EMEA Approval” means any and all approvals, licenses, registrations or authorizations granted
or issued by the EMEA, necessary to commercially distribute, promote and sell the Compound.

     “Encumbrance” means any claim, lien, pledge, option, charge, easement, security interest, deed
of trust, mortgage, conditional sales agreement, encumbrance or other right of third parties,
whether voluntarily incurred or arising by operation of law, and includes any agreement to give any
of the foregoing in the future.

     “Environmental Claim” means, in respect of any Person, (i) any and all administrative,
regulatory or judicial actions, suits, orders, decrees, demands, directives, claims, liens,
proceedings or written notices of noncompliance or violation by any Governmental Authority,
alleging potential presence or release of, or exposure to, any Hazardous Materials at any location,
whether or not owned, operated, leased or managed by such Person, or (ii) any and all
indemnification, cost recovery, compensation or injunctive relief resulting from the presence or
release of, or exposure to, any Hazardous Materials.

- 2 -

 

     “Escrow Expiration Date” means the date that is twelve (12) months after the Effective Time.

     “FDA” means the United States Food and Drug Administration or any successor agency.

     “FDA Approval” means any and all approvals, licenses, registrations, or authorizations granted
or issued by the FDA, necessary to commercially distribute, promote and sell the Compound.

     “FDCA” means the Federal Food, Drug, and Cosmetic Act of 1938, as amended.

     “Financial Statements” means the unaudited balance sheet of the Company dated as of September
30, 2006, and the related unaudited statements of operations, changes in stockholders’ equity and
cash flow for the five-month period ended September 30, 2006.

     “First MAA Subsequent Payment Date” means the date upon which the first EMEA Approval of an
MAA is obtained by or on behalf of Parent or any of its Affiliates or sublicensees for the use of a
product containing the Compound in a single tumor type (the “First MAA Indication”), the receipt of
such EMEA Approval being the “First MAA Milestone.”

     “First NDA Subsequent Payment Date” means the date upon which the first FDA Approval of an NDA
is obtained by or on behalf of Parent or any of its Affiliates or sublicensees for the use of a
product containing the Compound in a single tumor type (the “First NDA Indication”), the receipt of
such FDA Approval being the “First NDA Milestone.”

     “GAAP” means generally accepted United States accounting principles consistently applied over
all relevant periods.

     “Good Clinical Practices” means the then current standards for clinical trials for
pharmaceuticals, as set forth in the FDCA and applicable regulations promulgated thereunder, as
amended from time to time, and such standards of good clinical practice as are required by the
regulatory authorities of the European Union and other organizations and governmental agencies in
any other countries in which the products containing the Compound are sold or intended to be sold,
to the extent such standards are not less stringent than in the United States.

     “Good Laboratory Practices” means the then current standards for pharmaceutical laboratories,
as set forth in the FDCA and applicable regulations promulgated thereunder, as amended from time to
time, and such standards of good laboratory practices as are required by the regulatory authorities
of the European Union and other organizations and governmental agencies in any other countries in
which the products containing the Compound are sold or intended to be sold, to the extent such
standards are not less stringent than in the United States.

     “Good Manufacturing Practices” means the then current standards for the manufacture,
processing, packaging, testing and holding of drug products, as set forth in the FDCA and
applicable regulations promulgated thereunder, as amended from time to time, and such standards of
good manufacturing practices as are required by the regulatory authorities of the European Union
and other organizations and governmental agencies in any other countries in

- 3 -

 

which the products containing the Compound are sold or intended to be sold, to the extent such
standards are not less stringent than in the United States.

     “Governmental Authority” means any court, administrative agency, regulatory body, commission
or other governmental authority or instrumentality of the United States or any other country or any
state, county, municipality or other governmental division of any country.

     “Initial Merger Consideration” means $59,000,000.

     “Intellectual Property” means patents and patent applications, trademarks, service marks,
trade names, copyrights, trade secrets, inventions, disclosures, technology, know-how, software,
designs, formulae, confidential and proprietary information and similar proprietary rights and
registrations and applications for registration of copyrights, trademarks, service marks, trade
names, trade dress, domain names, and invention disclosures.

     “Knowledge” of the Company means the actual knowledge of the officers of the Company.

     “Liabilities” means any direct or indirect liability, indebtedness, obligation, commitment,
expense, claim, deficiency, guaranty or endorsement of or by any Person of any type, known or
unknown, and whether accrued, absolute, contingent, matured, unmatured or other, including
“off-balance sheet” Liabilities.

     “MAA” means a Marketing Authorization Application.

     “Material Adverse Effect” will be deemed to occur if any event (whether specific to the
applicable party or generally applicable to multiple parties), violation, inaccuracy, circumstance
or other matter has, or would, individually or in the aggregate with other events, reasonably be
expected to have or give rise to, a material adverse effect on or material adverse change to (a)
the condition (financial or otherwise), business, results of operations, assets, liabilities,
capitalization or financial performance of the party making the representations and warranties, or
(b) the ability of such party to consummate the transactions contemplated by this Agreement or to
perform any of its obligations under this Agreement; provided, however, that any
adverse effects attributable to any of the following as they relate to the Company shall not be
deemed to constitute, and the following shall not be taken into account in determining whether
there has been or will be, a Material Adverse Effect of the Company: (i) conditions affecting the
industries in which the Company participates or the U.S. economy as a whole (other than those that
disproportionately affect the Company); and (ii) actions taken by the Company at Parent’s express
written direction or with Parent’s express written consent.

     “Merger Consideration” means (i) the Initial Merger Consideration plus (ii) the
Subsequent Merger Consideration.

     “Milestone” means any of the First MAA Milestone, First NDA Milestone, Second MAA Milestone or
Second NDA Milestone.

     “Most Recent Balance Sheet” means the unaudited balance sheet of the Company dated as of
September 30, 2006.

- 4 -

 

     “NDA” means a new drug application filed with the FDA for authorization to market a
pharmaceutical product or its equivalent.

     “Ordinary Course of Business” or “Ordinary Course” or any similar phrase means the ordinary
course of the Business, consistent with the past practice of the Company.

     “Participating Rights Holders” means those Persons (other than the holders of Company
Dissenting Shares) who, immediately prior to the Effective Time, were holders of Common Stock,
Preferred Stock or Company Options, and whose interests therein, as the result of the Merger, are
converted into rights to receive a portion of the Merger Consideration.

     “Paying Agent” means JPMorgan Chase Bank, N.A.

     “Paying Agent Agreement” means the Paying Agent Agreement entered into as of the date hereof
between Parent and the Paying Agent pursuant to which the Stockholders and the holders of the
Company Options shall receive consideration for their shares of capital stock of the Company and/or
Company Options, as the case may be, that are surrendered in accordance with this Agreement and the
Paying Agent Agreement.

     “Permits” means all licenses, permits, franchises, approvals, authorizations, consents or
orders of, or filings with, any Governmental Authority, whether foreign, federal, state or local,
or any other Person, necessary for the conduct of, or relating to, the operation of the Business.

     “Permitted Encumbrances” means (a) liens, taxes, assessments and other governmental charges,
in each case, not yet due and payable, or which are being contested in good faith by appropriate
proceedings, (b) statutory, mechanics’, laborers’ and materialmen liens arising in the Ordinary
Course of Business for sums not yet due, (c) statutory and contractual landlord liens under leases
pursuant to which the Company is a lessee and not in default, (d) with regard to real property, any
and all matters of record in the jurisdiction where the real property is located including
restrictions, reservations, covenants, conditions, oil and gas leases, mineral severances and
liens; (e) with regard to real property, any easements, rights-of-way, building or use
restrictions, prescriptive rights, encroachments, protrusions, rights and party walls, and liens
for taxes, assessments, and other governmental charges, in each case, not yet due; (f) liens
securing rental payments under capital lease arrangements to the extent they are imposed only upon
the leased equipment; (g) pledges or deposits made in the Ordinary Course of Business which do not
in the aggregate materially detract from the value of the related assets or properties or
materially impair the use thereof in the operation of the Business; and (h) similar liens and
encumbrances which are incurred in the Ordinary Course of Business and which do not in the
aggregate materially detract from the value of the related assets or properties or materially
impair the use thereof in the operation of the Business.

     “Person” means any person or entity, whether an individual, trustee, corporation, partnership,
limited partnership, limited liability company, trust, unincorporated organization, business
association, firm, joint venture or Governmental Authority.

     “Post-Closing Tax Period” means any Tax Period beginning after the Closing Date and that
portion of a Straddle Period beginning after the Closing Date.

- 5 -

 

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

     “Pre-Closing Taxes” means (i) all liability for Taxes (other than franchise taxes in the State
of California) of the Company for any Pre-Closing Tax Period and (ii) all liability resulting by
reason of the several liability of the Company pursuant to Treasury Regulations § 1.1502-6(a).

     “Regulations” means any laws, statutes, ordinances, regulations, rules, notice requirements,
court decisions, agency guidelines, principles of law and orders of any foreign, federal, state or
local government and any other Governmental Authority, and including environmental laws, energy and
public utility laws and regulations, health codes, occupational safety and health regulations and
laws respecting employment practices, employee documentation, terms and conditions of employment
and wages and hours.

     “Representative” means, with respect to any Person, any officer, director, principal,
attorney, agent, employee or other representative of such Person.

     “Second MAA Subsequent Payment Date” means the date upon which an EMEA Approval of an MAA is
obtained by or on behalf of Parent or any of its Affiliates or sublicensees for the use of a
product containing the Compound in a tumor type other than the First MAA Indication, the receipt of
such EMEA Approval being the “Second MAA Milestone.” For the avoidance of doubt and for all
purposes under this Agreement, small cell lung cancer and non-small cell lung cancer shall be
considered distinct tumor types.

     “Second NDA Subsequent Payment Date” means the date upon which an FDA Approval of an NDA is
obtained by or on behalf of Parent or any of its Affiliates or sublicensees for the use of a
product containing the Compound in a tumor type other than the First NDA Indication, the receipt of
such FDA Approval being the “Second NDA Milestone.”

     “Series A Financing Documents” means each of (i) the Series A Preferred Stock Purchase
Agreement, (ii) the Investor Rights Agreement, (iii) the Co-Sale Agreement, and (iv) the Voting
Agreement, each dated as of August 4, 2006, between the Company and the parties listed on the
signature pages thereto.

     “Serious Adverse Event” means any adverse drug experience occurring at any dose that results
in any of the following outcomes: death, a life-threatening adverse drug experience, inpatient
hospitalization or prolongation of existing hospitalization, a persistent or significant
disability/ incapacity, or a congenital anomaly/ birth defect.

     “Shares” means, collectively, the shares of Common Stock and Preferred Stock.

     “Straddle Period” means a taxable period which begins prior to the Closing Date but ends after
the Closing Date.

     “Subsequent Merger Consideration” means the sum of the First MAA Subsequent Payment Amount,
the First NDA Subsequent Payment Amount, the Second MAA Subsequent Payment Amount and the Second
NDA Subsequent Payment Amount.

- 6 -

 

     “Subsidiary” means (a) any corporation in an unbroken chain of corporations beginning with the
Company if each of the corporations other than the last corporation in the unbroken chain then owns
stock possessing 50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain, (b) any partnership in which the Company is a general partner
or (c) any limited liability company, partnership or other entity in which the Company possesses a
50% or greater interest in the total capital or total income of such limited liability company,
partnership or other entity.

     “Tax” (including with correlative meaning, the terms “Taxes” and “Taxable”) means (A) all
taxes, duties, or similar governmental charges, levies, imposts, or withholdings (including net
income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other taxes, duties, charges,
levies, imposts withholdings or charges of any kind whatsoever) whenever and by whatever
Governmental Authority imposed, and whether of the United States or elsewhere, whether or not any
such taxes, duties, charges, levies, imposts or withholdings are directly or primarily chargeable
against or to the Company, together with in any such case any interest, fines, penalties,
surcharges and charges incidental or relating to the imposing of any of such Taxes and any
additions to tax or additional amounts with respect thereto, (B) any liability for payment of
amounts described in clause (A) whether as a result of transferee liability, of being a member of
an affiliated, consolidated, combined or unitary group for any period, or otherwise through
operation of law, and (C) any liability for the payment of amounts described in clauses (A) or (B)
as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person.

     “Tax Claim” means any claim relating to Taxes that, if successful, might result in an
indemnification payment pursuant to Section 8.2.

     “Tax Return” means any return, declaration, report, statement, information statement and other
document required to be filed with respect to Taxes.

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

     “Territory” means North America and Europe.

     “Transaction Fees” means fees and expenses incident to this Agreement and the transactions
contemplated hereby, including legal and accounting fees, investment banking fees, and related
disbursements in connection with any of the foregoing.

     “Treasury Regulation” or “Treasury Regulation Section” means the Treasury regulations
promulgated under the Code.

- 7 -

 

     1.2. Terms Defined Elsewhere. The following is a list of additional terms used in
this Agreement and a reference to the Section hereof in which such term is defined:

	 	 	 
	Term	 	Section
	Aggregate Outstanding Claims

	 	Section 2.9(b)
	Agreement

	 	Preamble
	Basket Amount

	 	Section 8.5(a)
	Benefit Plan(s)

	 	Section 4.14(a)
	CERCLA

	 	Section 4.13
	Claim Notice

	 	Section 8.3(a)
	Closing

	 	Section 2.3
	Closing Amount

	 	Section 2.10(a)
	Closing Date

	 	Section 2.3
	Common Stock

	 	Section 2.8(a)
	Company

	 	Preamble
	Company Disclosure Schedule

	 	Article IV
	Company Dissenting Shares

	 	Section 2.11
	Company Partner

	 	Section 4.27
	Covered Party (Parties)

	 	Section 8.2(a)
	Damages

	 	Section 8.2(a)
	DGCL

	 	Section 2.1
	Dispute Notice

	 	Section 2.13(h)
	Drug Regulatory Agency

	 	Section 4.27
	Effective Time

	 	Section 2.2
	Employee Loans

	 	Section 4.8(a)
	Environmental Laws

	 	Section 4.13
	Equityholder Representative

	 	Preamble
	ERISA

	 	Section 4.14(a)
	ERISA Affiliate

	 	Section 4.14(a)
	Escrow Account

	 	Section 2.9(a)
	Escrow Agent

	 	Section 2.9(a)
	Escrow Agreement

	 	Section 2.9(a)
	Escrow Amount

	 	Section 2.9(a)
	Escrow Earnings

	 	Section 2.9(c)
	First MAA Subsequent Payment Amount

	 	Section 2.10(e)
	First NDA Subsequent Payment Amount

	 	Section 2.10(f)
	Hazardous Materials

	 	Section 4.13
	HSR Act

	 	Section 4.17
	Instrument

	 	Section 2.13(c)
	IRS

	 	Section 4.14(d)
	Majority

	 	Section 2.13(b)
	Material Contracts

	 	Section 4.8(a)
	Merger

	 	Section 2.1
	Merger Certificate

	 	Section 2.2
	Merger Sub

	 	Preamble
	Net Cash

	 	Section 4.10(b)
	Parent

	 	Preamble

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	Term	 	Section
	Parent-Prepared Tax Return

	 	Section 6.2(a)
	Per Diem Taxes

	 	Section 8.7(a)
	Preferred Stock

	 	Section 2.8(a)
	Proceeding

	 	Section 4.18
	Real Property

	 	Section 4.5(c)
	Required Company Stockholder Vote

	 	Section 4.3
	Retained Escrow Amount

	 	Section 2.9(b)
	Rules

	 	Section 4.28
	Second MAA Subsequent Payment Amount

	 	Section 2.10(g)
	Second NDA Subsequent Payment Amount

	 	Section 2.10(h)
	Series A Preferred Stock

	 	Section 2.8(a)
	Stockholder(s)

	 	Recitals
	Surviving Corporation

	 	Section 2.1
	Tax Consent

	 	Section 6.2(c)
	Transaction Fee Schedule

	 	Section 2.14

     1.3. Other Terms. Other terms may be defined elsewhere in the text of this Agreement
and, unless otherwise indicated, shall have such meaning indicated throughout this Agreement.

     1.4. Interpretation. (a) In this Agreement, unless the context otherwise requires,
references:

	 	1)	 	to the Recitals, Articles, Sections, Exhibits or Schedules are to a
Recital, Article or Section of, or Exhibit or Schedule to, this Agreement;
	 
	 	2)	 	to any agreement (including this Agreement), contract, statute or
regulation are to the agreement, contract, statute or regulation as amended,
modified, supplemented or replaced from time to time, and to any section of any
statute or regulation are to any successor to the section;
	 
	 	3)	 	to any Governmental Authority include any successor to that
Governmental Authority; and
	 
	 	4)	 	to this Agreement are to this Agreement and the exhibits and schedules
to it, taken as a whole.

          (b) The table of contents and headings contained herein are for reference purposes only and do
not limit or otherwise affect any of the provisions of this Agreement.

          (c) Whenever the words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without limitation.”

          (d) Whenever the words “herein” or “hereunder” are used in this Agreement, they shall be
deemed to refer to this Agreement as a whole and not to any specific Section, unless otherwise
indicated.

          (e) The terms defined in the singular shall have a comparable meaning when used in the plural,
and vice versa.

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          (f) The terms “dollars” and “$” shall mean dollars of the United States of America.

          (g) It is understood and agreed that neither the specifications of any dollar amount in this
Agreement nor the inclusion of any specific item in the Schedules or Exhibits is intended to imply
that such amounts or higher or lower amounts, or the items so included or other items, are or are
not material, and neither party shall use the fact of setting of such amounts or the fact of the
inclusion of such item in the Schedules or Exhibits in any dispute or controversy between the
parties as to whether any obligation, item or matter is or is not material for purposes hereof.

ARTICLE II.

THE MERGER

     2.1. The Merger. At the Effective Time (as defined below) and upon the terms and
subject to the conditions of this Agreement and in accordance with the General Corporation Law of
the State of Delaware (the “DGCL”), Merger Sub shall be merged with and into the Company (the
“Merger”). Following the Merger, the Company shall continue as the surviving corporation (the
“Surviving Corporation”) and the separate corporate existence of Merger Sub shall cease.

     2.2. Effective Time. Subject to the terms and conditions set forth in this Agreement,
on the Closing Date (as defined below), a certificate of merger substantially in the form attached
hereto as Exhibit A (the “Merger Certificate”), shall be duly executed and acknowledged by
the Company and thereafter delivered to the Secretary of State of the State of Delaware for filing
pursuant to the DGCL. The Merger shall become effective at such time as a properly executed copy
of the Merger Certificate is duly filed with the Secretary of State in accordance with the DGCL or
such later time as Parent and the Company may agree upon and as set forth in the Merger Certificate
(the time the Merger becomes effective being referred to herein as the “Effective Time”).

     2.3. Closing of the Merger. The closing of the transactions contemplated hereby (the
“Closing”) will take place at the offices of Latham & Watkins LLP, 12636 High Bluff Drive, Suite
400, San Diego, CA 92130, on the date hereof, or such later date as the parties may agree (the
“Closing Date”).

     2.4. Effects of the Merger. From and after the Effective Time, the Surviving
Corporation shall possess all the property, rights, privileges, immunities, powers and franchises
and be subject to all of the debts, liabilities, obligations, restrictions, disabilities and duties
of the Company and Merger Sub, all as provided under the DGCL.

     2.5. Certificate of Incorporation and Bylaws. The Certificate of Incorporation of
Merger Sub in effect immediately prior to the Effective Time, the form of which is attached hereto
as Exhibit B, shall be the Certificate of Incorporation of the Surviving Corporation until
amended in accordance with Applicable Law. The bylaws of Merger Sub in effect immediately prior to
the Effective Time, the form of which is attached hereto as Exhibit C, shall be the bylaws
of the Surviving Corporation until amended in accordance with Applicable Law.

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     2.6. Directors. The directors of Merger Sub at the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and bylaws of the Surviving Corporation until such director’s
successor is duly elected or appointed and qualified.

     2.7. Officers. The officers of the Company at the Effective Time shall be the initial
officers of the Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and bylaws of the Surviving Corporation until such officer’s successor is duly
elected or appointed and qualified.

     2.8. Conversion of Shares; Treatment of Company Options.

          (a) Conversion of Shares. At the Effective Time, without any action on the part of
Parent, Merger Sub or the Company or the holder of any capital stock of Parent, Merger Sub or the
Company, all shares of common stock, par value $0.0001, of the Company (the “Common Stock”) and
shares of Series A convertible preferred stock, par value $0.0001, of the Company (the “Preferred
Stock”) (but excluding shares to be cancelled in accordance with Section 2.8(d) and shares that are
Dissenting Shares) shall no longer be outstanding and shall be cancelled automatically and shall
cease to exist, and each holder of a certificate representing any Shares shall cease to have any
rights with respect thereto, except the right to receive, without interest, the applicable Merger
Consideration, upon the surrender of such certificate in accordance with Section 2.10. Exhibit
2.8 hereof sets forth: (i) the name of each Stockholder and holder of a Company Option; (ii)
the portion of the Initial Merger Consideration payable pursuant to this Section 2.8 to each
Stockholder and holder of a Company Option at Closing assuming full compliance with the payment
procedures contained in Section 2.10 (as set forth in column ii of Exhibit 2.8); (iii) the portion
of the Initial Merger Consideration to be withheld from each Stockholder and holder of a Company
Option pursuant to Section 2.10(a) in establishing the Escrow Account (as set forth in column iii
of Exhibit 2.8) and the Equityholder Representative’s Fund (as set forth in column iv of Exhibit
2.8); (iv) the portion of the Initial Merger Consideration to be paid to each Stockholder and
holder of a Company Option at Closing after deduction for the amounts set forth in (iii) above and
any amounts owed to the Company by any Stockholder (as set forth in column v of Exhibit 2.8); (v)
the amount to be paid to each Stockholder and each holder of a Company Option at Closing upon the
Escrow Expiration Date, expressed as a percentage of the amount remaining in the Escrow Account at
the Escrow Expiration Date (as set forth in column vi of Exhibit 2.8); (vi) the amount to be paid
to each Stockholder and each holder of a Company Option at Closing upon the termination of the
Equityholder Representative’s Fund, expressed as a percentage of the amount remaining in the
Equityholder Representative’s Fund upon termination of the Equityholder Representative’s Fund (as
set forth in column vi of Exhibit 2.8); (viii) the amount, expressed as a percentage, payable to
each Stockholder and holder of a Company Option at Closing for the First MAA Subsequent Payment
Amount, if any, after payment of the applicable Montgomery & Co., LLC fee (as set forth in column
vii or viii, as applicable, of Exhibit 2.8); (ix) the amount, expressed as a percentage, payable to
each Stockholder and holder of a Company Option at Closing for the First NDA Subsequent Payment
Amount, if any after payment of the applicable Montgomery & Co., LLC fee (as set forth in column
vii or viii, as applicable, of Exhibit 2.8); (x) the amount, expressed as a percentage, payable to
each Stockholder and holder of a Company Option at Closing for the Second MAA Subsequent Payment
Amount, if any, after payment of the

- 11 -

 

applicable Montgomery & Co., LLC fee (as set forth in column ix of Exhibit 2.8); and (xi) the
amount, expressed as a percentage, payable to each Stockholder and holder of a Company Option at
Closing for the Second NDA Subsequent Payment Amount, if any, after payment of the applicable
Montgomery & Co., LLC fee (as set forth in column ix of Exhibit 2.8).

          (b) Treatment of Options. Effective immediately prior to the Effective Time, each
unexpired and unexercised Company Option shall become fully vested and exercisable; provided,
however, that the exercise of any accelerated portion of any such Company Option shall be subject
to and conditioned upon the consummation of the Merger. As of the Effective Time, by virtue of the
Merger and without any action on the part of the Company or the holders of Company Options, each
unexpired and unexercised Company Option shall terminate, be cancelled and cease to be outstanding
and in exchange therefor, each holder of a Company Option shall, have the right to receive an
amount in cash from Parent in respect thereof as set forth in Exhibit 2.8 equal to the
product of (x) the total number of shares of Common Stock subject or related to such Company
Option, and (y) the excess, if any, of the Initial Merger Consideration applicable to the Common
Stock over the exercise price or purchase price, as the case may be, per share of Common Stock
subject or related to such Company Option (subject to any applicable withholding taxes, the “Cash
Option Payment”) plus the Subsequent Merger Consideration, if any, to be paid on such Company
Option in accordance with Sections 2.10(e), (f), (g) and (h) as if such Company Option had been
exercised and converted into Common Stock immediately prior to the Effective Time.

          (c) At the Effective Time, each of the 100 outstanding shares of the common stock, $0.0001 par
value, of Merger Sub shall be converted into one share of common stock, $0.0001 par value, of the
Surviving Corporation.

          (d) At the Effective Time, each share of Common Stock and Preferred Stock held in the treasury
of the Company or owned by the Company, Parent or Merger Sub immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the
Company or the holder thereof, be canceled and extinguished and no payment shall be made with
respect thereto.

          (e) Notwithstanding anything herein to the contrary, including Exhibit 2.8, the
aggregate Initial Merger Consideration payable by Parent pursuant to this Agreement shall not
exceed $59,000,000.

     2.9. Escrow Amount.

          (a) Escrow Amount. At the Closing, ten percent (10%) of the Initial Merger
Consideration (the “Escrow Amount”) shall be deposited into an escrow account (the “Escrow
Account”) to be established by Parent with JPMorgan Chase Bank, N.A. (the “Escrow Agent”) to be
held by the Escrow Agent, pursuant to the terms of an escrow agreement mutually agreeable to Parent
and the Company (the “Escrow Agreement”), to serve as a source of payment and remedy for any claim
for Damages for which any Parent Indemnified Party is entitled to recovery pursuant to Article
VIII.

- 12 -

 

          (b) Release of Escrow Amount. Promptly following the Escrow Expiration Date, the
Escrow Agent shall distribute to Paying Agent, who shall distribute to the Participating Rights
Holders, in accordance with the percentage amounts to which each Participating Rights Holder is
entitled under this Agreement and the Escrow Agreement as set forth on Exhibit 2.8, the
Escrow Amount then remaining in the Escrow Account minus an amount equal to the aggregate
dollar amount of claims for Damages made by all Parent Indemnified Parties pursuant to Section
8.2(a)(i) hereof (the “Aggregate Outstanding Claims”) which are then outstanding and unresolved
(such amount of the retained Escrow Amount, as it may be further reduced after the Escrow
Expiration Date by distributions to Participating Rights Holders as set forth below and recoveries
by Parent Indemnified Parties pursuant to Section 8.2(a)(i) hereof and the Escrow
Agreement, the “Retained Escrow Amount”). For purposes of clarification, in the event that the
amount of the Aggregate Outstanding Claims exceeds the remaining Escrow Amount, all the remaining
Escrow Amount shall be retained in the Escrow Account as the Retained Escrow Amount. In the event
and to the extent that after the Escrow Expiration Date any outstanding claim made by any Parent
Indemnified Party pursuant to Section 8.2(a)(i) hereof is resolved against such Parent
Indemnified Party, the Escrow Agent shall distribute to the Paying Agent, who shall distribute to
the Participating Rights Holders, in accordance with the percentage amounts to which each
Participating Rights Holder is entitled under this Agreement and the Escrow Agreement, as set forth
on Exhibit 2.8, an aggregate amount of the Retained Escrow Amount equal to the amount of
the outstanding claim resolved against such Parent Indemnified Party; provided, however, that such
distribution shall only be made to the extent that the Retained Escrow Amount remaining after such
distribution would be sufficient to cover the amount of the Aggregate Outstanding Claims that are
still unresolved at such time. In the event and to the extent that after the Escrow Expiration
Date any outstanding claim made by any Parent Indemnified Party pursuant to Section
8.2(a)(i) hereof is resolved in favor of such Parent Indemnified Party, such Parent Indemnified
Party shall be entitled to recover pursuant to Section 8.2(a)(i) hereof an amount equal to
the amount of the outstanding claim resolved in favor of such Parent Indemnified Party.

          (c) Escrow Agent Fees and Expenses. Any fees and expenses of the Escrow Agent shall
be paid by Parent. During the period in which the Escrow Amount (including any Retained Escrow
Amount) is retained in the Escrow Account, all interest or other income earned from the investment
of the Escrow Amount (the “Escrow Earnings”) shall be retained as additional amounts in the Escrow
Account.

     2.10. Distribution of the Merger Consideration.

          (a) At the Closing, Parent shall deliver to the Paying Agent an amount (the “Closing Amount”)
equal to the Initial Merger Consideration, less the Escrow Amount and less the Equityholder
Representative Fund of Two Hundred Thousand Dollars ($200,000) to be deposited with an escrow agent
for the purpose of paying the expenses if any, incurred by the Equityholder Representative in
connection with this Agreement (the “Equityholder Representative’s Fund”), and the Paying Agent
shall, at or as soon as reasonably practicable after the Effective Time, subject to the provisions
of the Paying Agent Agreement, pay and distribute to each Participating Rights Holder the portion
of the Closing Amount set forth on Exhibit 2.8 for such Participating Rights Holder.

- 13 -

 

          (b) Each holder of Shares that have been converted into a right to receive a portion of the
Merger Consideration, upon surrender to the Paying Agent of a certificate or certificates formerly
representing such Shares, together with a properly completed letter of transmittal covering such
Shares in the form attached hereto as Exhibit D, will be entitled to receive from the
Paying Agent payment of the portion of the Closing Amount set forth on Exhibit 2.8 opposite
such holder’s name in column v. Each certificate that is surrendered pursuant to this Section
2.10(b) shall forthwith be canceled. Until so surrendered and except as otherwise set forth in
Section 2.12, each such certificate shall, after the Effective Time, represent for all
purposes, only the right to receive the applicable portion of the Merger Consideration. No
interest will be paid or will accrue on such portion of the Initial Merger Consideration.

          (c) After the Effective Time, there shall be no further registration of transfers of Shares.
If, after the Effective Time, certificates formerly representing Shares are presented to the
Surviving Corporation, they shall be cancelled and exchanged for the portion of the Merger
Consideration provided for, and in accordance with the procedures set forth, in this Article
II.

          (d) In the event that any certificate evidencing Shares shall have been lost, stolen or
destroyed, the Paying Agent shall pay in exchange therefor, upon making of an affidavit of that
fact by the holder thereof, a portion of the Closing Amount due in respect of such Shares that is
payable pursuant to this Agreement; provided, however, that the Paying Agent or Parent may, in its
respective discretion and as a condition precedent to the issuance thereof, require the delivery of
a suitable bond or indemnity agreement by the owner of such lost, stolen or destroyed certificate.

          (e) Upon the First MAA Subsequent Payment Date, Parent shall deliver an aggregate payment of
$12,500,000 (the “First MAA Subsequent Payment Amount”), with such payment allocated to (i) the
holders of Shares and holders of Company Options who have complied with the procedures set forth in
this Section 2.10, with each such holder’s portion of the First MAA Subsequent Payment
Amount determined in accordance with Section 2.8 and (ii) Montgomery & Co., LLC as set forth in
Exhibit 2.8.

          (f) Upon the First NDA Subsequent Payment Date, Parent shall deliver an aggregate payment of
$12,500,000 (the “First NDA Subsequent Payment Amount"), with such payment allocated to (i) the
holders of Shares and holders of Company Options who have complied with the procedures set forth in
this Section 2.10, with each such holder’s portion of the First NDA Subsequent Payment
Amount determined in accordance with Section 2.8 and (ii) Montgomery & Co., LLC as set forth in
Exhibit 2.8.

          (g) Upon the Second MAA Subsequent Payment Date, Parent shall deliver an aggregate payment of
$10,000,000 (the “Second MAA Subsequent Payment Amount"), with such payment allocated to (i) the
holders of Shares and holders of Company Options who have complied with the procedures set forth in
this Section 2.10, with each such holder’s portion of the Second MAA Subsequent Payment
Amount determined in accordance with Section 2.8 and (ii) Montgomery & Co., LLC as set forth in
Exhibit 2.8.

          (h) Upon the Second NDA Subsequent Payment Date, Parent shall deliver an aggregate payment of
$10,000,000 (the “Second NDA Subsequent Payment Amount"), with

- 14 -

 

such payment allocated to (i) the holders of Shares and holders of Company Options who have
complied with the procedures set forth in this Section 2.10, with each such holder’s
portion of the Second NDA Subsequent Payment Amount determined in accordance with Section 2.8 and
(ii) Montgomery & Co., LLC as set forth in Exhibit 2.8.

          (i) Neither Parent nor the Surviving Corporation shall be liable to any holder of Shares for
any portion of the Merger Consideration delivered to a public official pursuant to any applicable
abandoned property escheat or similar law. If any certificate formerly representing Shares shall
not have been surrendered prior to eighteen months after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration would otherwise escheat to or become the
property of any Governmental Authority), any such Merger Consideration shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation, free and clear of
all claims or interest of any Person previously entitled thereto.

     2.11. Dissenting Shares. Any holder of Shares issued and outstanding immediately
prior to the Effective Time with respect to which appraisal and/or dissenter’s rights, if any, are
available by reason of the Merger pursuant to Section 262 of the DGCL (“Company Dissenting Shares”)
shall not be entitled to receive any portion of the Merger Consideration pursuant to Section
2.8, unless such holder fails to perfect, effectively withdraws or loses its appraisal rights
and/or rights to dissent from the Merger under the DGCL. Such holder shall be entitled to receive
only such rights as are granted under Section 262 of the DGCL. If any such holder fails to
perfect, effectively withdraws or loses such appraisal and/or dissenter’s rights under the DGCL,
such Company Dissenting Shares shall thereupon be deemed to have been converted as of the Effective
Time into the right to receive (without interest) that portion of the Merger Consideration due
pursuant to the provisions of Section 2.8. Any payments made with respect to Company
Dissenting Shares shall be made solely by the Surviving Corporation, and no funds or other property
have been or shall be provided by Parent, Merger Sub or any of Parent’s Affiliates for such
payment.

     2.12. Withholding Rights. Each of the Surviving Corporation and Parent shall be
entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this
Agreement such amounts as it is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of United States federal, state or local, or any foreign,
Tax law. To the extent that amounts are so withheld and paid over to or deposited with the
relevant Governmental Authority by Parent or the Surviving Corporation, as the case may be, such
amounts shall be treated for all purposes of this Agreement as having been paid to the applicable
holder of Shares or Company Options in respect of which Parent made such deduction and withholding.

     2.13. Equityholder Representative.

          (a) Appointment. As used in this Agreement, the term “Equityholder Representative”
shall mean Stuart J. M. Collinson, or any Person appointed as a successor Equityholder
Representative pursuant to Section 2.13(b) hereof. Effective upon Closing, without any
further action by any other Person, the Equityholder Representative shall be appointed and
constituted in respect of each Participating Rights Holder, as his, her or its agent, to act in
his,

- 15 -

 

her or its name, place and stead, as such Participating Rights Holder’s attorney-in-fact, as
more fully set forth in Section 2.13(c).

          (b) Election and Replacement. From and after the Effective Time until the date when
all obligations under this Agreement have been discharged (including all indemnification
obligations under Article VIII hereof), Participating Rights Holders who are entitled to receive in
excess of 50% of the Initial Merger Consideration (the “Majority”), may, from time to time upon
written notice to the Equityholder Representative and Parent, remove any Equityholder
Representative (including any appointed by Parent as provided below) or appoint a new Equityholder
Representative to fill any vacancy created by the death, incapacitation, resignation or removal of
any Equityholder Representative. If the Majority is required to but has not appointed a successor
Equityholder Representative to fill any vacancy within twenty (20) Business Days from written
notice from Parent to all Participating Rights Holders and a request by Parent to appoint a
successor Equityholder Representative, Parent shall have the right to appoint an Equityholder
Representative to fill any such vacancy from the directors of the Company prior to the Merger, and
shall use commercially reasonable efforts to advise all Participating Rights Holders of such
appointment by written notice; provided, however, that a Majority shall thereafter
retain the right to remove the Equityholder Representative or appoint a new Equityholder
Representative pursuant to this Section 2.13. A copy of any appointment by the Majority of
any successor Equityholder Representative shall be provided to Parent promptly after it shall have
been effected. Each successor Equityholder Representative shall have all of the power, authority,
rights and privileges conferred by this Agreement upon the original Equityholder Representative,
and the term “Equityholder Representative” as used herein shall be deemed to include any successor
Equityholder Representative.

          (c) Authority. The Equityholder Representative shall be authorized (i) to determine
the occurrence of any Milestone, (ii) to resolve any disputes related to the occurrence of any
Milestone, including the authorization to demand mediation or arbitration in accordance with the
terms of this Agreement and to comply with orders of courts and awards of arbitrators related
thereto, (iii) to discuss, negotiate, resolve and fully and finally settle on behalf of the
Participating Rights Holders any claims for indemnification by Parent under Article VIII hereof,
including the authorization to demand mediation in accordance with the terms of this Agreement and
to comply with orders of courts with respect to any such claim for indemnification, (iv) to take
any action, including litigating, defending or enforcing any actions, and to make, deliver and sign
any certificate, notice, consent or instrument required or permitted to be made or delivered under
this Agreement or under the documents referred to in this Agreement (an “Instrument”) which the
Equityholder Representative determines in his or her discretion to be necessary, appropriate or
desirable, and, in connection therewith (provided however if any individual
Participating Rights Holder is named in such litigation, the Participating Rights Holder shall have
the right to tender defense), (v) to hire or retain, at the sole expense of the Participating
Rights Holders, such counsel, investment bankers, accountants, representatives and other
professional advisors as he or she determines in his or her sole and absolute discretion to be
necessary, advisable or appropriate in order to carry out and perform his or her rights and
obligations hereunder, (vi) to act as disbursement agent for any payments to the Company
Indemnified Parties pursuant to Article VIII, (vii) to act as disbursement agent for any payments
to the D&O Indemnified Parties pursuant to Section 6.1, and (viii) to receive all
documents, certificates and notices and make all determinations on behalf of the Participating
Rights Holders

- 16 -

 

required under this Agreement. A decision, act, consent or instruction of the Equityholder
Representative shall constitute a decision of the Participating Rights Holders, and shall be final,
binding and conclusive upon the Participating Rights Holders, as the case may be. Any party
receiving an Instrument from the Equityholder Representative shall have the right to rely in good
faith upon such Instrument, and to act in accordance with the Instrument without independent
investigation. The Equityholder Representative shall promptly, and in any event within five
Business Days, provide written notice to each Participating Rights Holder of any action taken on
behalf of the Participating Rights Holders by the Equityholder Representative pursuant to the
authority delegated to the Equityholder Representative under this Section 2.13.

          (d) No Liability of Equityholder Representative or Parent. Neither the Equityholder
Representative (nor any of the directors, officers, agents or employees of Equityholder
Representative, if applicable) shall be liable to any Participating Rights Holder or any other
Person for any error of judgment, or any action taken, suffered or omitted to be taken, under this
Agreement, except in the case of the Equityholder Representative’s gross negligence or willful
misconduct. The Equityholder Representative may consult with legal counsel, independent public
accountants and other experts selected by the Equityholder Representative and shall not be liable
for any action taken or omitted to be taken in good faith in accordance with the advice of such
counsel, accountants or experts. As to any matters not expressly provided for in this Agreement,
the Equityholder Representative shall not be required to exercise any discretion or take any
action. Parent (and the Surviving Corporation) shall have no Liability to any of the Participating
Rights Holders or otherwise arising out of the acts or omissions of the Equityholder Representative
or any disputes among the Participating Rights Holders or between the Participating Rights Holders
and the Equityholder Representative. Parent may rely entirely on its dealings with, and notices to
and from, the Equityholder Representative to satisfy any obligations it might have under this
Agreement or otherwise to the Participating Rights Holders.

          (e) Indemnity; Fees, Costs and Expenses. Each Participating Rights Holder shall, only
to the extent of and in proportion to the portion of the Merger Consideration received by such
Participating Rights Holder, indemnify and defend the Equityholder Representative and hold the
Equityholder Representative harmless against any loss, damage, cost, liability or expense incurred
without fraud, gross negligence or willful misconduct by the Equityholder Representative and
arising out of or in connection with the acceptance, performance or administration of the
Equityholder Representative’s duties under this Agreement. Any liabilities, losses, penalties,
fines, claims, damages, out-of-pocket costs or expenses incurred by or reasonably expected to be
incurred by the Equityholder Representative in connection with the acceptance, performance and
administration of his or her duties as the Equityholder Representative pursuant to this Agreement
(including the hiring of legal counsel, accountants or auditors and other advisors pursuant to the
terms of this Agreement but excluding any of the foregoing arising out of the Equityholder
Representative’s fraud, gross negligence or willful misconduct) and all fees payable hereunder to
the Equityholder Representative by the Participating Rights Holders (collectively, the
“Equityholder Representative’s Fees and Costs”), shall be paid as follows: (i) first by recourse
to the Equityholder Representative’s Fund, and (ii) if such amounts held in the Equityholder
Representative’s Fund are insufficient to pay for such Equityholder Representative’s Fees and
Costs, then by recourse to the Subsequent Merger Consideration and (iii) if such amounts are
insufficient to pay such Equityholder Representative’s Fees and Costs, then by recourse directly to
the Participating Rights Holders (in

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proportion to the pro rata portion of the Closing Amount otherwise to be received by such
Participating Rights Holders).

          (f) Compensation. In consideration for the services to be rendered pursuant to this
Agreement, the Participating Rights Holders shall pay the Equityholder Representative fees in the
amount of $500 per hour in connection with the duties authorized pursuant to Section 2.13(c). The
Equityholder Representative shall keep itemized records of all fees, costs and expenses incurred in
connection with the acceptance, performance and administration of his duties pursuant to this
Agreement and, at the written request of a Participating Rights Holder, shall promptly make such
records available for review. The Equityholder Representative shall be responsible for all
withholding and deductions for taxes and shall pay, when and as due, any and all taxes incurred as
a result of his compensation hereunder, including estimated taxes, and if reasonably requested by a
Participating Rights Holder, provide proof of said payments. The Equityholder Representative
further agrees to indemnify and hold harmless in all respects the Participating Rights Holders with
respect to withholding or deductions of payment of such amounts and with respect to all costs,
expenses or penalties that may be assessed in the event of the Equityholder Representative’s
failure to comply with Applicable Law, Regulations and governing agreements in making such
deductions and corresponding payments.

          (g) Access to Information. Parent shall provide to the Equityholder Representative on
a quarterly basis a written report concerning the status of any unachieved Milestones. Parent
shall promptly (but no later than five Business Days following the achievement of a Milestone)
notify the Equityholder Representative of the achievement of any Milestone. At the request of the
Equityholder Representative, upon reasonable notice and at a reasonable time and location on no
more than a semi-annual basis, the Equityholder Representative shall be entitled to ask, and have
answered, reasonable questions arising from their review of the quarterly updates provided by
Parent.

          (h) Dispute Resolution.

               (1) In the event that the Equityholder Representative shall dispute the occurrence of a
Milestone or a request for indemnification or setoff under Article VIII, then the Equityholder
Representative shall provide written notice to Parent (the “Dispute Notice”) specifying the amount
disputed and the basis for the dispute, together with supporting documentation reflecting the
analysis and justification thereof. Parent and the Equityholder Representative shall thereafter
attempt to resolve the dispute as set forth in this Section 2.13(h).

               (2) The Participating Rights Holders and Parent shall attempt to resolve any dispute arising
out of or relating to this Agreement promptly by negotiation in good faith between an agent chosen
by the Equityholder Representative and an executive officer of Parent who has authority to settle
the dispute. Each Party shall give the other party involved written notice of any dispute not
resolved in the ordinary course of business. Within seven (7) days after delivery of such notice,
the party receiving notice shall submit to the other a written response thereto. The notice and
the response shall include: (i) a statement of each party’s position(s) regarding the matter(s) in
dispute and a summary of arguments in support thereof, and (ii) the name and title of the executive
officer who will represent Parent and any other Person who will accompany that executive officer,
in the case of Parent, or the name of the agent

- 18 -

 

who will represent the Participating Rights Holders and any other Person who will accompany
that agent, in the case of the Participating Rights Holders.

          (3) Within fourteen (14) days after delivery of the notice, the designated agent chosen by the
Equityholder Representative and the designated executive officer of Parent shall meet at a mutually
acceptable time and place, and thereafter, as often as they reasonably deem necessary, to attempt
to resolve the dispute. All reasonable requests for information made by one party to the other
shall be honored in a timely fashion. All negotiations conducted pursuant to this Section 2.13(h)
(and any of the parties’ submissions in contemplation hereof) shall be kept confidential by the
parties and shall be treated by the parties and their representatives as compromise and settlement
negotiations under the Federal Rules of Evidence and any similar state rules.

          (4) With regard to a dispute regarding the occurrence of a Milestone, if the parties are
unable to reach an agreement within thirty (30) days following the initiation of discussions
between them, such dispute shall be finally settled by binding arbitration. Any arbitration
hereunder shall be conducted under the rules of the American Arbitration Association. The
arbitration shall be conducted before one (1) arbitrator chosen by mutual agreement of the parties.
If the parties cannot agree on the choice of the arbitrator within a period of thirty (30) days
after submission, then the arbitrator shall be appointed by the Court of Arbitration of the
American Arbitration Association. Any such arbitration shall be held in San Francisco, California.
The arbitrator shall have the authority to grant specific performance, and to allocate between the
parties the costs of arbitration in such equitable manner as he or she may determine. The arbitral
decision shall be final and binding upon the parties.

          (5) With regard to all other disputes, including those regarding a request for indemnification
or setoff under Article VIII, if the parties are unable to reach an agreement within thirty (30)
days following the initiation of discussions between them, the parties shall thereafter enter into
mediation with one (1) mediator chosen by mutual agreement of the parties. If the parties are
unable to reach an agreement within fifteen (15) days after entering into mediation, the dispute
shall be resolved pursuant to Sections 9.14 and 9.15 hereof.

     2.14. Transaction Fees. On the day prior to the Closing Date, the Company shall
provide to Parent an itemized and complete schedule of the Transaction Fees of the Company and, to
the extent agreed or required to be paid by the Company, the Stockholders (the “Transaction Fee
Schedule”). The Company shall pay the Transaction Fees set forth on the Transaction Fee Schedule
prior to the Closing Date.

ARTICLE III.

CLOSING DELIVERIES

     3.1. Deliveries by the Company at the Closing. At the Closing, the Company shall
deliver, or cause to be delivered:

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          (a) certified organizational documents and certificates of good standing (i) issued by the
Secretary of State of the State of Delaware for the Company, and (ii) issued by the states in which
the Company is qualified to do business as a foreign corporation;

          (b) a certificate, dated as of the Closing Date and signed by the Company’s Chief Financial
and Administrative Officer, as to the fulfillment of the conditions set forth in Section
7.2;

          (c) a certificate executed by the Secretary of the Company, dated as of the Closing Date,
certifying resolutions adopted by the Company’s board of directors and stockholders relating to the
transactions contemplated by this Agreement;

          (d) a copy of the Escrow Agreement, executed by the Equityholder Representative;

          (e) an executed copy of that certain Escrow Agreement, dated as of the date hereof, by and
between the Equityholder Representative and JPMorgan Chase Bank, N.A.; and

          (f) such other documents and items as Parent may reasonably request.

     3.2. Deliveries by Parent and Merger Sub at the Closing. At the Closing, Parent and
Merger Sub shall deliver, or cause to be delivered:

          (a) the Closing Amount to the Paying Agent to be distributed pursuant to Section 2.8;

          (b) the Equityholder Representative’s Fund to the JPMorgan Chase Bank, N.A.;

          (c) the Escrow Amount to the Escrow Agent to be held pursuant to the terms of the Escrow
Agreement;

          (d) a certificate, dated as of the Closing Date and signed by an officer of Parent, as to the
fulfillment of the conditions set forth in Section 7.1;

          (e) a copy of the Escrow Agreement, executed by Parent;

          (f) a copy of the Paying Agent Agreement, executed by Parent; and

          (g) such other documents and items as the Company may reasonably request.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF

THE COMPANY

     As a material inducement to Parent and Merger Sub to enter into this Agreement, except as
disclosed in the disclosure schedules delivered to Parent and Merger Sub by the Company

 - 20 - 

 

concurrently herewith (the “Company Disclosure Schedule”) (it being understood that the
Company Disclosure Schedule shall be arranged in sections corresponding to the sections contained
in this Agreement, and the disclosures in any section of the Company Disclosure Schedule shall
qualify the representations in the corresponding section of this Article IV and shall be deemed
made in any other section or sections of the Company Disclosure Schedule to the extent the
relevance of such disclosures is readily apparent from the text of such disclosure), the Company
hereby makes the following representations and warranties to Parent and Merger Sub.

     4.1. Organization of the Company. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware with full corporate
power and corporate authority to conduct the Business as it is presently being conducted, to own,
lease or operate, as applicable, its assets and properties, and to perform all its obligations
under its Material Contracts (as defined below). The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the character of its
properties owned, leased or operated or the nature of its activities make such qualification
necessary, except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect on the Company. Copies of the certificate of incorporation and bylaws of
the Company, and all amendments thereto, have heretofore been delivered to Parent and are accurate
and complete as of the date hereof. The Company is not in violation of its certificate of
incorporation or bylaws.

     4.2. Subsidiaries. The Company does not have any Subsidiaries and does not otherwise
own or control, directly or indirectly, any interest in any other corporation, partnership, trust,
joint venture, association, or other entity.

     4.3. Authorization. The Company has all requisite power and authority, and has taken
all action necessary, to execute, deliver and perform this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations hereunder, subject to the adoption
of this Agreement by the Required Company Stockholder Vote. The execution and delivery of this
Agreement and the consummation by the Company of the transactions contemplated hereby have been
duly approved by the board of directors of the Company. Other than the approval of the
stockholders of the Company by the affirmative vote of the (a) holders of a majority of outstanding
shares of Common Stock and Preferred Stock voting together as a single class and (b) holders of at
least fifty percent (50%) of the Company’s Series A Preferred Stock (together, the “Required
Company Stockholder Vote”) in accordance with the DGCL and the certificate of incorporation of the
Company, no other proceeding on the part of the Company or the stockholders of the Company is
necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and is the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms except as enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors’ rights generally and except insofar as the availability of equitable remedies
may be limited by Applicable Law.

 - 21 - 

 

     4.4. Capitalization.

          (a) Schedule 4.4(a) sets forth the name of each Person holding any equity securities
of the Company or securities convertible into or exchangeable or exercisable for equity securities
of the Company and the type and amount of equity security held by such Person. The authorized
capital stock of the Company consists of 12,500,000 shares of Common Stock and 8,600,000 shares of
Preferred Stock. Immediately prior to the Effective Time, there will be issued and outstanding
2,674,571 shares of Common Stock and 3,030,304 shares of Preferred Stock designated as “Series A
Preferred Stock,” which, as of the Effective Time, shall convert into 3,030,304 shares of Common
Stock. All of the issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid and non-assessable. No claim has been made or threatened to
the Company asserting that any Person other than a Person listed on Schedule 4.4(a) is the
holder or beneficial owner of, or has the right to acquire beneficial ownership of, any stock of,
or any other voting, equity or ownership interest in the Company. Except as set forth on
Schedule 4.4(a), there are (i) no accrued and unpaid dividends on any of the Shares and
(ii) no commitments to issue additional shares of Common Stock or Preferred Stock.

          (b) Except as set forth on Schedule 4.4(b), there are no (i) options, warrants,
agreements, convertible, exercisable or exchangeable securities or other commitments pursuant to
which the Company is or may become obligated to issue, sell, transfer, purchase, return or redeem
or otherwise acquire shares or other securities of the Company or to provide funds to, make an
investment in, or contribute capital to, any Person, (ii) securities of the Company reserved for
issuance for any purpose, (iii) agreements pursuant to which registration rights in the shares of
the Company have been granted, (iv) shareholders agreements, whether written or verbal, among any
current or former stockholders of the Company, (v) statutory or contractual preemptive rights or
rights of first refusal with respect to the Shares or (vi) stock appreciation rights,
security-based performance units, “phantom” stock, profit participation or other similar rights or
agreements.

          (c) The Company has not violated any applicable federal or state securities laws in connection
with the offer, sale or issuance of any of its capital stock. Except as set forth on Schedule
4.4(c), to the Company’s Knowledge, there are no agreements between any of the Stockholders
with respect to the voting or transfer of the capital stock of the Company or with respect to any
other aspect of the Company’s affairs.

          (d) Schedule 4.4(d) sets forth a true and complete list as of the date hereof of all
holders of outstanding Company Options, the exercise price per share, the term of each such Company
Option, whether such Company Option is a nonqualified stock option or incentive stock option,
whether the optionee is an employee of the Company on the date of this Agreement and any
restrictions on exercise or sale of such Company Option or underlying shares (other than any
restrictions contained in the agreements listed on Schedule 4.4(b)).

     4.5. Title to Properties and Assets.

          (a) The Company has good and valid title to or, in the case of leased properties or properties
held under license, a good and valid leasehold or license interest in, all of its properties and
assets. The assets, properties and rights of the Company constitute all of the assets, properties
and rights which are necessary for the operation of the Business as currently

 - 22 - 

 

conducted. The Company holds title to each material property and asset which it purports to
own, free and clear of any Encumbrances other than Permitted Encumbrances. The representations in
this Section 4.5 do not apply to the Intellectual Property Rights.

          (b) All of the tangible assets of the Company are in all material respects in reasonably
serviceable operating condition and repair and are adequate for the conduct of the Business in
substantially the same manner as it has heretofore been conducted.

          (c) Schedule 4.5(c) sets forth a true and complete list of all real property owned or
leased by the Company (collectively, the “Real Property”), including the location of, and a brief
description of the nature of the activities conducted on, such Real Property. The Company has good
and marketable fee simple title to or a valid leasehold interest in the Real Property, free and
clear of all Encumbrances, except Permitted Encumbrances. No Person other than the Company has any
right to use, occupy or lease all or any portion of the Real Property during the term of the
Company’s leasehold interest.

     4.6. Absence of Certain Activities. Since May 16, 2006, there has not been:

          (a) any damage, destruction or loss, whether or not covered by insurance, materially and
adversely affecting the assets, properties, financial condition, operating results or prospects of
the Company.

          (b) any waiver by the Company of a valuable right or of a material debt owed to it;

          (c) any satisfaction or discharge of any Encumbrance or payment of any obligation by the
Company, except such a satisfaction, discharge or payment made in the Ordinary Course of Business
that is not material to the assets, properties, financial condition or operating results of the
Company;

          (d) the incurrence of a Liability other than in the Ordinary Course of Business and which
would not have a Material Adverse Effect;

          (e) any change or amendment to a Material Contract (as defined below), except for changes or
amendments which are expressly provided for or disclosed in or pursuant to this Agreement; or

          (f) any creation or assumption by the Company of any Encumbrance on any of its material
assets, other than Permitted Encumbrances.

     4.7. Certain Actions. Prior to May 16, 2006, the Company conducted no activities
other than (i) activities related to the Company’s formation and organization, (ii) the issuance of
1,000,000 shares of founders’ stock and (iii) the execution of that certain Asset Contribution
Agreement dated as of May 2, 2006, by and between the Company and Conforma Therapeutics
Corporation. Since May 16, 2006, there has not been any change, effect, event, occurrence, state of
facts or development known to the Company that, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect on the Company. Without limiting the
generality of the foregoing, except as contemplated hereby, since May 16, 2006:

 - 23 - 

 

          (a) the Company has conducted the Business in the Ordinary Course of Business;

          (b) there has not been any declaration, setting aside or payment of any dividend or other
distribution with respect to any of the shares of the Company;

          (c) there has not been any amendment of any provision of the certificate of incorporation,
bylaws or other organizational document of the Company, or of any material term of any outstanding
security issued by the Company;

          (d) there has not been any incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money, other than borrowings under existing short-term credit facilities;

          (e) there has not been any change in any method of accounting or accounting practice by the
Company, except for any such change required by reason of a change in GAAP and concurred with by
independent public accountants of the Company;

          (f) the Company has not (i) granted any severance or termination pay to any director, officer
or employee of the Company, (ii) entered into any employment, deferred compensation or other
similar agreement with (or any amendment to any such existing agreement) any director, officer or
employee of the Company, (iii) increased the benefits payable under any existing severance or
termination pay policies or employment agreements, or (iv) increased the compensation, bonus or
other benefits payable to directors, officers or employees of the Company, in each case other than
in the Ordinary Course of Business;

          (g) there has been no issuance of equity securities of the Company, other than pursuant to the
conversion of Preferred Stock or the issuance of Common Stock upon exercise of Company Options
outstanding as of September 30, 2006;

          (h) there has not been any acquisition or sale, transfer, abandonment, exclusive license or
other disposition of assets material to the Company or any acquisition or disposition of capital
stock of any third party or any merger or consolidation with any third party, by the Company;

          (i) the Company has not entered into any joint venture, partnership or similar agreement with
any Person;

          (j) the Company has not made any loans or advances to any Person, other than ordinary advances
to employees for travel expenses;

          (k) the Company has not redeemed, repurchased or otherwise acquired for any consideration any
outstanding shares of capital stock, or other membership or ownership interests in, or other equity
securities of the Company, or any securities which are convertible into or exchangeable or
exercisable therefor;

          (l) the Company has not made or changed any election in respect of material Taxes, entered
into any closing agreement, settled any claim or assessment in respect of material
 

 - 24 - 

 

Taxes, or consented to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of material Taxes; and

          (m) the Company has not authorized or committed or agreed to take any of the actions described
in subsections (a) through (l) of this Section 4.7, except as otherwise permitted by this
Agreement.

     4.8. Material Contracts.

          (a) All written agreements, contracts, leases, licenses, instruments, commitments,
indebtedness (including all evidences of indebtedness owed to the Company by any officer, director
or employee of the Company (collectively the “Employee Loans”)), Liabilities and other obligations
to which the Company is a party or by which it is bound that (i) are material to the conduct and
operations of the Business and its properties, (ii) involve the Stockholders or any of the
officers, consultants, directors or employees of the Company, (iii) require the Company to provide
in-kind consideration, (iv) contain covenants (A) to indemnify or hold harmless any Person or (B)
not to (or otherwise restricting or limiting the Company’s ability to) compete in any line of
business or geographical area, including any covenant not to compete with respect to the
manufacture, marketing, distribution or sale of any product or product line, (v) involve real
property, (vi) involve a joint venture, partnership, or limited liability company relationship,
(vii) govern or relate to indebtedness, including guarantees for money borrowed by others, (viii)
are material customer or supplier agreements of the Company, (ix) obligate the Company to develop
any product or technology, (x) relate to the acquisition or disposition of any material assets,
(xi) relate to any rights or obligations to undertake the development or commercialization of any
pharmaceutical product, (xii) requires payments by the Company in excess of $50,000 per annum
containing a “change of control” or similar provision, (xii) relate to the Compound or any products
containing the Compound, (xiii) relate to Intellectual Property (except for commercially available
off-the-shelf software) and (xiv) require capital expenditures or the acquisition or construction
of fixed assets which requires aggregate future payments in excess of $50,000 (collectively, the
“Material Contracts”) are listed in Schedule 4.8 and copies or access to such agreements,
contracts, leases, licenses, instruments, commitments, indebtedness, Liabilities and other
obligations have been provided to Parent and its counsel. To the Knowledge of the Company, there
are no oral agreements, oral commitments, oral Liabilities or other oral obligations to which the
Company is a party or by which it is bound that would constitute a Material Contract. For purposes
of this Section 4.8, “material” shall mean either (x) having an aggregate value, cost or
amount in excess of $150,000, or (y) not terminable upon ninety or fewer days notice without
penalty or additional Liabilities.

          (b) Each Material Contract is in full force and effect and paid in the Ordinary Course of
Business. Except for those Material Contracts denoted with an asterisk (*) as set forth on
Schedule 4.8, no Material Contract requires the consent of any other contracting party to
prevent a breach of, a default under, or a termination, change in the terms or conditions or
modification of, any Material Contract as a result of the consummation of the transactions
contemplated hereunder. All of the Material Contracts are valid, binding and enforceable against
the Company in accordance with their terms except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting enforcement of
creditors’ rights generally and except insofar as the availability of equitable remedies may be

 - 25 - 

 

limited by Applicable Law. The Company is not in Default under any Material Contract. To the
Knowledge of the Company, no other party is in Default under such Material Contracts and, to the
Knowledge of the Company, no event has occurred and no condition or state of facts exists which,
with the passage of time or the giving of notice or both, would constitute such a Default and no
written notice of any claim of Default has been given to the Company. The Company is not currently
paying liquidated damages in lieu of performance under any Material Contract.

     4.9. Compliance with Other Instruments. The execution, delivery and performance of
and compliance with this Agreement and the consummation of the transactions contemplated hereby
will not (a) result in a violation of, or be in conflict with or constitute, with or without the
passage of time or the giving of notice or both, either a violation of, or conflict with the
Certificate of Incorporation or Bylaws of the Company or, assuming the consents and approvals
referred to in Section 4.17 are duly obtained, a violation of, or conflict with any
Applicable Laws, Regulations or Court Orders applicable to the Company or (b) violate, conflict
with, result in any breach of, constitute a Default under, or give to others any rights of
termination or acceleration, or result in the creation of any Encumbrance (other than a Permitted
Encumbrance) upon any of the properties or assets of the Company pursuant to, any Material Contract
or Permit to which the Company is a party or by which any of such properties or assets are bound or
affected, except (in the case of this clause (b) only) for any such violation, conflict, breach or
Default which would not have a Material Adverse Effect on the Company.

     4.10. Financial Statements.

          (a) The Company heretofore has delivered to Parent true and correct copies of the Financial
Statements. The Financial Statements have been prepared in accordance with the books and records
of the Company and GAAP, and fairly and accurately present the financial position of the Company as
of the date and for the period indicated. The Most Recent Balance Sheet discloses all of the debts,
Liabilities and obligations of any nature of the Company, whether due or to become due, as of the
date thereof, and was prepared (i) in accordance with the books and records of the Company in the
Ordinary Course of Business and consistent with the Company’s past practices with respect to the
preparation of its monthly financial statements and (ii) in accordance with GAAP. The Company’s
(i) financial transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of the Company’s
financial statements in conformity with GAAP and to maintain asset accountability and (iii) access
to assets is permitted only in accordance with management’s general or specific authorizations.

          (b) As of the date hereof, the Company has Net Cash of at least $4,500,000. For purposes of
this Agreement, “Net Cash” shall mean difference between (x) cash, cash equivalents and short term
investments of the Company, in each case, determined in accordance with GAAP and (y) (i) the
Transaction Fees and (ii) the accounts payable, accrued liabilities and other indebtedness
orliabilities of the Company, in each case, determined in accordance with GAAP. The Company has no
indebtedness for borrowed money. The Company has provided to Parent an itemized and complete
schedule, as Schedule 4.10(b) attached hereto, setting forth the calculation of Net Cash as
of the date of this Agreement.

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     4.11. Liabilities. Except as disclosed in the Financial Statements as of and for the
period ended September 30, 2006, the Company has not incurred any Liabilities of any nature, except
(i) Liabilities which (A) are accrued or reserved against in such Financial Statements or (B) were
incurred after September 30, 2006 in the Ordinary Course of Business and are not, individually, or
in the aggregate, material, or (ii) Liabilities that have been discharged or paid in full prior to
the date hereof.

     4.12. Taxes.

          (a) The Company has timely filed all Tax Returns they are required to have filed. Such Tax
Returns are accurate, complete and correct in all material respects and do not contain a disclosure
statement under Section 6662 of the Code (or any predecessor provision or comparable provision of
state, local or foreign law).

          (b) The Company has timely paid or will cause to be timely paid all Taxes shown as due on the
Tax Returns, has paid all other material Taxes and has adequately reserved in accordance with GAAP
in the Most Recent Balance Sheet for all Taxes (whether or not shown on any Tax Return) that have
accrued but are not yet due or payable as of the balance sheet date.

          (c) Except as set forth on Schedule 4.12(c):

          (i) no written claim has been made by any taxing authority in any jurisdiction where the
Company does not file Tax Returns that it is or may be subject to Tax by that jurisdiction and the
Company has no Knowledge that any such claim is being contemplated;

          (ii) no extensions or waivers of statutes of limitations with respect to the Tax Returns have
been given by or requested from the Company;

          (iii) no power of attorney has been granted by the Company with respect to any matter relating
to Taxes; and

          (iv) no written claim for assessment or collection of Taxes is presently being asserted
against the Company, and there is no presently pending audit examination, refund claim, litigation,
proceeding, proposed adjustment or matter in controversy with respect to any Taxes of or with
respect to the Company, and the Company has no Knowledge that any such action or proceeding is
being contemplated.

          (d) Schedule 4.12(d) sets forth:

          (i) the taxable years of the Company as to which the applicable statutes of limitations on the
assessment and collection of income Taxes have not expired;

          (ii) those taxable years of the Company for which examinations by taxing authorities are
presently being conducted;

          (iii) those taxable years of the Company for which notice of pending or threatened examination
or adjustment has been received; and

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               (iv) those taxable years of the Company for which required income Tax Returns have not yet
been filed.

          (e) All deficiencies asserted or assessments made against the Company as a result of any
examinations by any taxing authority have been fully paid.

          (f) There are no liens for Taxes (other than for current Taxes not yet due and payable) upon
the assets of the Company.

          (g) The Company is not party to or bound by any tax indemnity, tax sharing, tax allocation or
similar agreement.

          (h) The Company is not party to or bound by any closing agreement, offer in compromise or
other agreement with any taxing authority.

          (i) (i) the Company has never been a member of an affiliated group of corporations, within the
meaning of Section 1504 of the Code (or any predecessor provision or comparable provision of state,
local or foreign law), or a member of a combined, consolidated or unitary group for state, local or
foreign Tax purposes, other than the group of which the Company is the common parent and has no
liability for Taxes of any person (other than the Company) under Treasury Regulations Section
1.1502-6 (or any corresponding provision of state, local or foreign income Tax law), as transferee
or successor, by contract, or otherwise;

               (1) the Company has not participated in an international boycott within the meaning of Section
999 of the Code; and

               (2) the Company has not engaged in a transaction that constitutes a “listed transaction”, as
such term is defined in Treasury Regulation Section 1.6011-4(b)(2).

          (j) The Company has not agreed to make, nor is it required to make, any adjustment for any
full or partial Tax Period after the Closing under Section 481 of the Code or any comparable
provision of state or foreign tax laws by reason of a change in accounting method.

          (k) The Company is not party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership for federal income tax purposes.

          (l) The Company has and will have no accrued liability for material Taxes in respect of
taxable periods or portions thereof following the date of the Most Recent Balance Sheet and ending
on or before the Closing Date other than Taxes incurred in the Ordinary Course of Business or Taxes
incurred as a result of the transactions contemplated by Section 2.8(b).

          (m) The Company has never been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code.

          (n) The Company has never been a “distributing corporation” or a “controlled corporation” in
connection with a distribution described in Section 355 of the Code.

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     4.13. Environmental Matters. (a) There have been no disposals, releases or threatened
releases of Hazardous Materials (as defined below) that would be reasonably likely to form the
basis of a material Environmental Claim against the Company, (b) during the period the Company has
leased the Real Property, no third party has used, generated, manufactured or stored on, under or
about the Real Property or transported to or from the Real Property any Hazardous Materials except
to the extent not in violation of applicable Environmental Laws, (c) the Company is in compliance
with all Environmental Laws applicable to the Company and there are no Environmental Claims pending
or, to the Knowledge of the Company, threatened against the Company, except for such failure to be
in compliance therewith as would not reasonably be expected to have a Material Adverse Effect on
the Company, (d) the Company is not subject to any agreement, order, judgment, decree, letter or
memorandum by or with any Governmental Authority or third party imposing any liability or
obligation under any Environmental Law; and (e) the Company has not retained or assumed, either
contractually or by operation of law, any liability or obligation that would reasonably be expected
to have formed the basis of any material Environmental Claim against the Company. The Company has
no Knowledge of any presence, disposals, releases or threatened releases of Hazardous Materials on,
from or under any of the Real Property, which may have occurred prior to the Company having taken
possession of any of the Real Property. For purposes of this Agreement, the terms “disposal,”
“release” and “threatened release” shall have the definitions assigned thereto by the U.S.
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section
9601 et seq., as amended (“CERCLA”). For the purposes of this Section 4.13, “Hazardous
Materials” shall mean any hazardous or toxic substance, material or waste which is regulated under,
or defined as a “hazardous substance,” “pollutant,” “contaminant,” “toxic chemical,” “hazardous
material,” “toxic substance” or “hazardous chemical” under (i) CERCLA; (ii) the Emergency Planning
and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (iii) the U.S.
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; (iv) the
U.S. Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (v) the U.S.
Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq.; (vi)
regulations promulgated under any of the above statutes or (vii) any applicable state or local
statute, ordinance, rule, or Regulation that has a scope or purpose similar to those statutes
identified above (collectively referred to herein as the “Environmental Laws”).

     4.14. Employee Benefits.

     (a) Schedule 4.14(a) lists as of the date hereof all “employee benefit plans” (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”)), and all bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, health, life, or disability insurance, dependent care, severance and other
similar fringe or employee benefit plans, programs or arrangements and any current or former
employment or executive compensation or severance agreements, written or otherwise maintained or
contributed to by the Company or an ERISA Affiliate (defined below) for the benefit of or relating
to any employee or former employee of the Company (or any dependent thereof), or any trade or
business (whether or not incorporated) that is a member of a controlled group including the Company
or that is under common control with the Company within the meaning of Section 414 of the Code (an
“ERISA Affiliate”), with respect to which the Company or an ERISA Affiliate has any Liability or
could incur any Liability, including any Liability under Section 4069 (if such plan has been or
were terminated) or Section 4212(c) of

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ERISA (each a “Benefit Plan,” collectively, the “Benefit Plans”). Benefit Plans shall include
each Benefit Plan maintained in the U.S. For each Benefit Plan, true and complete copies of, where
applicable, (i) the three (3) most recent annual reports on Form 5500 (with schedules and
attachments), (ii) the actuarial reports and results of all nondiscrimination tests for the last
three (3) plan years and (iii) any plan document, summary plan description, trust agreement,
employment agreement and other governing instrument, document or employee communication, have been
delivered to Parent as of the date hereof.

          (b) No Benefit Plan is subject to Title IV of ERISA or Section 412 of the Code, and neither
the Company nor any ERISA Affiliate has incurred any liability (contingent or otherwise) with
respect to any such Benefit Plan. Neither the Company nor any of its ERISA Affiliates sponsors or
has ever sponsored, maintained, contributed to, or incurred an obligation to contribute or incurred
a liability (contingent or otherwise) with respect to any Multiemployer Plan or to a Multiple
Employer Plan. For these purposes, “Multiemployer Plan” means a multiemployer plan, as defined in
Sections 3(37) and 4001(a)(3) of ERISA, and “Multiple Employer Plan” means any Employee Benefit
Plan sponsored by more than one employer, within the meaning of Sections 4063 or 4064 of ERISA or
Section 413(c) of the Code.

          (c) Each Benefit Plan has been maintained in all material respects, by its terms and in
operation, in accordance with the requirements of Applicable Law (including with the requirements
of ERISA and the Code).

          (d) Each Benefit Plan intended to qualify under Section 401(a) of the Code has been determined
by the Internal Revenue Service (“IRS”) to so qualify and each Benefit Plan has adopted all
amendments necessary to comply with the Code on or before the remedial amendment period deadline
specified for each such amendment pursuant to Section 401(b) of the Code or IRS promulgations and
has obtained a determination or opinion letter from the IRS which give reliance to such Benefit
Plan that it complies with the requirements of the Code, and the trust created thereunder satisfies
the provisions of Section 501(a) of the Code. The Company has provided to Parent a true and
compete copy of the latest IRS determination or opinion letter with respect to each such Benefit
Plan and nothing has since occurred that could cause the loss of such qualification or exemption
and no such Benefit Plan has been operated in a manner which would reasonably be expected to cause
it to be disqualified in operation. No Benefit Plan intended to be or is funded by a trust that is
intended to be exempt from tax under the provisions of Section 501(c)(9) of the Code has been
determined by the IRS to be so exempt.

          (e) No Benefit Plan has participated in, engaged in or been a party to any transaction that is
prohibited under Section 4975 of the Code or Section 406 of ERISA (i) that is not exempt under
Section 4975 of the Code or Section 408 of ERISA, respectively, or (ii) that could result in a
material Liability to the Company or any ERISA Affiliate. With respect to any Benefit Plan, (i)
neither the Company, nor any of its ERISA Affiliates has had asserted against it any material claim
for taxes under Chapter 43 of Subtitle D of the Code and Section 5000 of the Code, or for material
penalties under ERISA Sections 502(c), 502(i) or 502(l), nor, to the Knowledge of the Company, is
there a basis for any such claim, and (ii) no officer, director or employee of the Company has
committed a breach of any fiduciary responsibility or obligation imposed by Title I of ERISA that
could result in a material Liability to the Company or any ERISA Affiliate. Other than routine
claims for benefits, there is no material claim or proceeding

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(including any audit or investigation) pending or, to the Knowledge of the Company,
threatened, involving any Benefit Plan by any Person or any Governmental Authority.

          (f) Schedule 4.14(f) sets forth a list as of the date hereof of all (i) employment
agreements with officers of the Company, (ii) agreements with consultants who are individuals
obligating the Company to make annual cash payments in an amount of Fifty Thousand Dollars
($50,000) or more, (iii) severance agreements, programs and policies of the Company with or
relating to its employees, except such programs and policies required to be maintained by
Applicable Law, (iv) plans, programs, agreements and other arrangements of the Company with or
relating to its employees that contain change in control provisions, and (v) all written agreements
between the Company and any employee of the Company and identifies each such employee whose
employment may be terminated on not less than three months notice without compensation. The
Company has delivered to Parent true and complete copies of all such agreements, plans, programs
and other arrangements.

          (g) Except as set forth on Schedule 4.14(g)(i), there will be no payment, accrual of
additional benefits, acceleration of payments or vesting of any benefit under any Benefit Plan or
any other agreement or arrangement to which the Company is a party, and no employee, officer or
director of the Company will become entitled to severance, termination allowance or similar
payments, solely by reason of entering into or in connection with the transactions contemplated by
this Agreement. Schedule 4.14(g)(ii) sets forth a good faith estimate of the severance
payments and other similar termination payments that may become payable to the employees of the
Company as a result of the transactions contemplated by this Agreement and any subsequent
termination of such employee’s employment with the Surviving Corporation. No payment or benefit
set forth on Schedule 4.14(g)(i) would reasonably be expected to be not deductible by the
Company or the payor thereof under Section 280G of the Code.

          (h) No Benefit Plan that is a “welfare benefit plan” within the meaning of Section 3(1) of
ERISA provides benefits to former employees of the Company or its ERISA Affiliates other than
pursuant to Section 4980B of the Code or similar state laws. The Company and its ERISA Affiliates
have complied in all material respects with the provisions of Part 6 of Title I of ERISA, Sections
4980B, 9801, 9802, 9811 and 9812 of the Code, and the Health Insurance Portability and
Accountability Act (including regulations thereunder).

          (i) The Company and its ERISA Affiliates have in all material respects made full and timely
payment of all amounts required to be contributed or paid as expenses, or accrued such payments in
accordance with normal procedures under the terms of each Benefit Plan, GAAP and applicable law,
and the Company and its ERISA Affiliates shall continue to do so through the Closing.

     4.15. Compliance with Law. The Company is in material compliance with all Regulations
and all Court Orders applicable to the Company and required in the operations of the Business,
except for such failure to be in compliance therewith as would not result in a breach of the
representations and warranties of the Company set forth in Section 4.27 with respect to the
Regulations in such section. The Company has not received any notice to the effect that, or
otherwise been advised that, it is not in compliance with any such Regulations or Court Orders,

 - 31 - 

 

and the Company does not know of any existing circumstances that are likely to result in
violations of any of the foregoing.

     4.16. Permits. Schedule 4.16 sets forth a complete list of all Permits used
in the operation of the Business or otherwise held by the Company in connection with the Business,
all of which are in full force and effect as of the date hereof. The Company has all Permits
required in the operation of the Business and to own, lease and operate its properties and assets,
and such Permits are in full force and effect and are owned by the Company free and clear of all
Encumbrances except Permitted Encumbrances, except such Permits the failure of which to obtain
would not reasonably be expected to have a Material Adverse Effect on the Company. The Company is
not in material Default, nor has it received any notice of any claim of Default, with respect to
any such Permit. Such Permits will not be adversely affected by the completion of the transactions
contemplated by this Agreement. No suspension or cancellation of any such Permits is pending or,
to the Knowledge of the Company, threatened.

     4.17. Consents and Approvals. Except for (i) the approval of this Agreement and the
transactions contemplated hereby by the Company’s stockholders in accordance with the Company’s
Certificate of Incorporation, Bylaws and Applicable Law and (ii) the filing of the Merger
Certificate and other appropriate merger documents as required by the DGCL, no consent, approval or
authorization of, or filing or registration with, any Governmental Authority, or any other Person,
including compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
“HSR Act”), is required to be made, obtained or given by the Company in connection with the
execution, delivery and performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby.

     4.18. Litigation. There is no action, suit, proceeding, claim, arbitration or
investigation (“Proceeding”) pending (or, to the Knowledge of the Company, threatened) against the
Company, its activities, properties or assets or, to the Knowledge of the Company, against any
officer, director or employee of the Company in connection with such officer’s, director’s or
employee’s relationship with, or actions taken on behalf of, the Company. To the Knowledge of the
Company, there is no factual or legal basis for any such Proceeding that would be reasonably likely
to result, individually or in the aggregate, in any Material Adverse Effect on the Company. The
Company is not a party to or subject to the provisions of any Court Order, writ, injunction,
judgment or decree of any court or government agency or instrumentality and there is no material
Proceeding by the Company currently pending or which the Company intends to initiate.

     4.19. Labor Matters.

          (a) The Company is not bound by or subject to (and none of its assets or properties is bound
by or subject to) any written or oral, express or implied, contract, commitment or arrangement with
any labor union, and, to the Knowledge of the Company, no labor union has requested or has sought
to represent any of the employees, representatives or agents of the Company.

          (b) There is no strike or other labor dispute involving the Company, or, to the Knowledge of
the Company, threatened. The Company has not, during the period from the

 - 32 - 

 

Company’s inception through the date of this Agreement, received any material demand letters,
civil rights charges, suits, drafts of suits, administrative or other claims from any of its
employees.

          (c) All individuals who are performing consulting or other services for the Company are
correctly classified by the Company as either “independent contractors” or “employees” as the case
may be and, at the Closing Date, will qualify for such classification with immaterial exceptions,
other than any failure to so correctly classify such individual that could not reasonably be
expected to have a Material Adverse Effect on the Company.

          (d) The Company is in compliance in all material respects with all Applicable Laws respecting
employment, termination of employment, employment practices, terms and conditions of employment and
wages and hours.

          (e) The Company has withheld and reported all material amounts required by Applicable Law or
agreement to be withheld and reported with respect to wages, salaries and other payments to
employees.

          (f) There are no pending or, to the Knowledge of the Company, threatened, claims or actions
against the Company under any workers’ compensation policy or long-term disability policy that has
had, or could reasonably be expected to have, a Material Adverse Effect on the Company.

     4.20. Intellectual Property.

          (a) Schedule 4.20(a) sets forth a complete and accurate list of all (1) patents,
patent applications and patent disclosures issued or filed, together with all reissues, divisions,
continuations, continuations-in-part, revisions, extensions and reexaminations thereof, (2) trade
names, common law trademarks, common law service marks, registered trademarks, registered service
marks, and applications for trademark registration or service mark registration, (3) registered and
unregistered copyrights and (4) domain name registrations and websites used or held for use by the
Company in the conduct of its business specifying as to each such item, as applicable (i) the owner
of the item, (ii) the jurisdictions in which the item is issued or registered or in which any
application for issuance or registration has been filed, (iii) the respective issuance,
registration, or application number of the item, (iv) the date of application and issuance or
registration of the item, the dates of any deadlines associated with any item and a brief
description of the reason for such deadline.

          (b) Schedule 4.20(b) sets forth a complete and accurate list of all material licenses,
sublicenses, consents and other agreements (whether written or otherwise) (i) pertaining to any
Intellectual Property used by the Company in the conduct of its business, and (ii) by which the
Company licenses or otherwise authorizes a third party to use any Intellectual Property of the
Company. Neither the Company nor, to the Company’s Knowledge, any third party is in breach of or
default under any such license or other agreement, and except as set forth on Schedule
4.20(b), each such license or other agreement is now and immediately following the Effective
Time shall be valid and in full force and effect. Any license, sublicense, consent or

 - 33 - 

 

other agreement pertaining to the Compound is deemed “material” for purposes of this Section
4.20(b).

          (c) The Company owns all right, title and interest in and to, or is licensed or otherwise has
the right to use, and has the right to bring actions for the infringement or other violation of,
all Intellectual Property necessary for the operation of business of the Company as it is currently
conducted.

          (d) No claim has been made, notice given, or dispute arisen to the effect that the business
operations of the Company as it is currently conducted infringe, dilute, misappropriate or
otherwise violate the Intellectual Property rights of any third party, or constitute unfair
competition or trade practices under the laws of any jurisdiction nor, to the Company’s Knowledge,
is there a basis for any such claim, notice or dispute. The Company does not have any pending or,
to the Company’s Knowledge, threatened claims that a third party has violated or infringed any
Intellectual Property of the Company. No third party has any pending, or to the Company’s
Knowledge, threatened claims that the Company has violated or infringed any of a third party’s
Intellectual Property rights. The Company has not given any indemnification, release or covenant
to any third party against infringement of such Intellectual Property of the Company.

          (e) All of the items listed in Schedule 4.20(a) are valid and in full force, are held
of record in the name of the Company free and clear of all liens, encumbrances and other claims,
and are not the subject of any cancellation or reexamination proceeding or any other proceeding
challenging their extent or validity. The Company is the applicant of record in all patent
applications, and applications for registration of Intellectual Property rights indicated in
Schedule 4.20(a), and no opposition, extension of time to oppose, interference, rejection,
or refusal to register has been received in connection with any such application.

          (f) To the Company’s Knowledge, none of the material trade secrets, know-how or other
confidential or proprietary information of the Company has been disclosed to any Person unless such
disclosure was necessary and made pursuant to an appropriate confidentiality agreement.

     4.21. Transactions with Certain Persons. No officer, director or 10% or greater
Stockholder of the Company or, to the Knowledge of the Company, any Affiliate of any such person
has or has had, either directly or indirectly, a material interest in: (a) any person or entity
which purchases from or sells, licenses or furnishes to the Company any goods, property,
technology, intellectual or other property rights or (b) any contract or agreement to which the
Company is a party or by which it may be bound or affected.

     4.22. Insurance. Schedule 4.22 sets forth a complete and correct list of all
insurance policies of the Company of any kind currently in force and also sets forth for each
insurance policy the type of coverage, the name of the insureds, the insurer, the premium, the
expiration date, the deductibles and loss retention amounts and the amounts of coverage. True,
correct and complete copies of such insurance policies have been made available to Parent. All
such insurance policies are in full force and effect and insure the Company in reasonably
sufficient amounts against normal risks usually insured against by persons operating similar
businesses or

 - 34 - 

 

properties of similar size in the localities where such businesses or properties are located.
The Company does not have any self-insurance or co-insurance programs. The Company is not in
Default under any provision of any such insurance policy and the Company has not received notice of
cancellation of any such insurance. No event relating specifically to the Company (as opposed to
events affecting the pharmaceuticals industry in general) has occurred that is reasonably likely to
result, after the date of this Agreement, in an increase in premiums under any insurance policies
they maintain. To the Company’s Knowledge, no event has occurred, including the failure by the
Company to give any notice or information or by giving any inaccurate or erroneous notice or
information, which materially limits or impairs the rights of the Company under any such excess
liability or protection and indemnity insurance policies.

     4.23. Certain Business Practices. None of the directors, officers, agents (or any of
their affiliates) or employees of the Company has, in each case in connection with the Business,
(a) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses,
including expenses related to political activity, (b) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political parties or
campaigns, made any bribes or kickback payments or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (c) made any other unlawful payment.

     4.24. No Brokers. Except as set forth on Schedule 4.24, none of the Company
or any of its officers, directors or employees, has entered into nor will enter into any contract,
agreement, arrangement or understanding with any broker, finder or similar agent or any Person
which will result in an obligation of Parent, the Company, or any of their respective Affiliates to
pay any finder’s fee, brokerage fees or commission or similar payment in connection with the
transactions contemplated hereby.

     4.25. Books and Records. The Company has made and kept (and given Parent access to)
its true, correct and complete books and records and accounts, which, in reasonable detail,
accurately and fairly reflect the activities of the Company. The minute books of the Company
previously made available to Parent accurately and adequately reflect in all material respects all
action previously taken by the stockholders, board of directors and committees of the board of
directors of the Company. The copies of the stock book records of the Company previously made
available to Parent are true, correct and complete, and accurately reflect all transactions
effected in the stock of the Company through and including the date hereof.

     4.26. Bank Accounts. Schedule 4.26 contains a true, correct and complete list
of all bank accounts maintained by the Company, including each account number and the name and
address of each bank and the name of each person who has signature power with respect to each such
account or power of attorney to act on behalf of the Company.

     4.27. FDA and Related Matters. (a) The Company has no Knowledge (and has not been
notified by a Company Partner (as defined below)) of any pending regulatory action of any sort
(other than non-material routine or periodic inspections or reviews) against any of the Company or
any Person that manufactures, develops or distributes a product containing the Compound pursuant to
a development, contract research, commercialization, manufacturing, supply or other collaboration
arrangement with the Company (each, a “Company Partner”) by the FDA or any other federal, state,
local or foreign governmental entity in the Territory that is

 - 35 - 

 

concerned with the safety, efficacy, reliability or manufacturing of drug products (each, a
“Drug Regulatory Agency”) or any other duly authorized Governmental Authority which regulates the
sale of drugs in any jurisdiction. None of the Company or, to the Knowledge of the Company, any
Company Partner, has knowingly committed or permitted to exist any material violation of the rules
and regulations of the FDA or any Drug Regulatory Agency or any other duly authorized Governmental
Authority that regulates the sale of drugs which has not been cured by the Company or, to the
Knowledge of the Company, any Company Partner, or waived by the FDA, any Drug Regulatory Agency or
any other Governmental Authority.

          (a) All preclinical studies and clinical trials being conducted as of the date of this
Agreement by the Company are, or, in the case of such studies or trials being conducted as of the
date of this Agreement by a Company Partner, to the Knowledge of the Company are, being conducted
in material compliance with the applicable requirements of Good Laboratory Practices or Good
Clinical Practices, as applicable, and all applicable requirements relating to protection of human
subjects contained in 21 C.F.R. Parts 50, 54, and 56, except for such noncompliance which is not,
individually or in the aggregate, reasonably likely to have a Material Adverse Effect on the
Company.

          (b) The manufacture of products containing the Compound (as such manufacturing is contemplated
as of the date of this Agreement) by the Company is, or, in the case of any products containing the
Compound manufactured (as such manufacturing is contemplated as of the date of this Agreement) by a
Company Partner, to the Knowledge of the Company is, being conducted in compliance with the FDA’s
applicable current Good Manufacturing Practices regulations for drug and biological products,
except for such noncompliance which is not, individually or in the aggregate, reasonably likely to
have a Material Adverse Effect on the Company.

          (c) None of the Company or, to the Knowledge of the Company, any of their respective agents or
subcontractors, has been convicted of any crime or engaged in any conduct which could result in
debarment or disqualification by the FDA or any Drug Regulatory Agency, and there are no
proceedings pending or, to the Knowledge of the Company, threatened in writing that reasonably
might be expected to result in criminal liability or debarment or disqualification by the FDA or
any Drug Regulatory Agency.

          (d) The Company has made available to Parent all material information known to it with respect
to the safety and efficacy of the Compound. The Company has not received notice from any Company
Partner of any material interruption of supply or manufacturing capacity, shortage of raw
materials, components or other manufacturing problems that would have a material effect on the
subsequent development or commercialization (as such development or commercialization is
contemplated as of the date of this Agreement) of the Compound, nor to the Company’s Knowledge do
any conditions exist that reasonably could be expected to lead to such manufacturing problems. The
Company has no Knowledge of any Serious Adverse Event associated with clinical trials of the
products containing the Compound of the Company whether conducted by or on behalf of the Company
that have not been reported to the FDA, applicable Drug Regulatory Agencies and other applicable
Governmental Authorities in accordance with Applicable Law. The Company has made available to
Parent true and complete copies of all Investigational New Drug applications submitted to the FDA
by the

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Company with respect to any product containing the Compound and each such Investigational New
Drug Application is true and correct and complete in all material respects and is in full force and
effect            and has been maintained in compliance with the requirements of 21 C.F.R. Part 312.

     4.28. HSR Act. The Company is its own “ultimate parent entity,” as such term is
defined under the Premerger Notification Rules to the HSR Act.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

OF PARENT AND MERGER SUB

     Parent and Merger Sub hereby represent and warrant to the Company as follows, which
representations and warranties are true and correct, as of the date hereof, that:

     5.1. Organization. Each of Parent and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware with full corporate
power and corporate authority to conduct its business as it is presently being conducted, and to
own, lease or operate, as applicable, its assets and properties. Each of Parent and Merger Sub is
duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction
where the character of its properties owned, leased or operated or the nature of its activities
make such qualification necessary, except where the failure to be so qualified or in good standing
would not have a Material Adverse Effect on Parent or Merger Sub, as the case may be. Each of
Parent and Merger Sub is not in violation of its certificate of incorporation or bylaws.

     5.2. Authorization. Each of Parent and Merger Sub has all requisite power and
authority, and has taken all action necessary, to execute and deliver this Agreement to consummate
the transactions contemplated hereby and to perform its obligations hereunder. The execution and
delivery of this Agreement and the consummation by each of Parent and Merger Sub of the
transactions contemplated hereby have been duly approved by the board of directors of each of
Parent and Merger Sub. No other proceeding on the part of each of Parent and Merger Sub are
necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Parent and Merger Sub and is a legal, valid and binding
obligation of each of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in
accordance with their respective terms except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights
generally and except insofar as the availability of equitable remedies may be limited by Applicable
Law.

     5.3. Compliance with Other Instruments. The execution, delivery and performance of
and compliance with this Agreement and the consummation of the transactions contemplated hereby
will not result in a violation of, or be in conflict with or constitute, with or without the
passage of time or the giving of notice or both, either a violation of, or conflict with the
Certificate of Incorporation or Bylaws of Parent or Merger Sub, or, assuming that the consents and
approvals referred to in Section 5.4 are duly obtained, a violation of, or conflict with
any statutes, laws, Regulations or Court Orders applicable to Parent or Merger Sub.

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     5.4. Consents and Approvals. Except for (i) the filing of the Merger Certificate and
other appropriate merger documents as required by the DGCL, (ii) as may be required by the
Securities Exchange Act of 1934, as amended, and (iii) as may be required by The Nasdaq Stock
Market Inc., no consent, approval or authorization of, declaration to, or filing or registration
with, any Governmental Authority, or any other Person, is required to be made or obtained by each
of Parent or Merger Sub in connection with the execution, delivery and performance by each of
Parent and Merger Sub of this Agreement and the consummation of the transactions contemplated
hereby other than those the failure of which to obtain or make would not have a Material Adverse
Effect on Parent or Merger Sub.

     5.5. Litigation. There are no Proceedings pending, or to the knowledge of Parent,
threatened against or affecting each of Parent and Merger Sub which has or might be reasonably
expected to have a Material Adverse Effect on the ability of each of Parent and Merger Sub to
perform any of its obligations hereunder or on the consummation of the transactions contemplated by
this Agreement.

     5.6. No Brokers. Neither Parent nor Merger Sub nor any of their respective partners,
Representatives or Affiliates has entered into nor will enter into any contract, agreement,
arrangement or understanding with any broker, finder or similar agent or any Person which will
result in the obligation of the Company or the Stockholders to pay any finder’s fee, brokerage fees
or commission or similar payment in connection with the transactions contemplated hereby.

     5.7. Available Funds. Parent and Merger Sub have available to them, or as of the
Effective Time will have available to them, all funds necessary for the payment to the Paying Agent
of the Initial Merger Consideration and to pay such other amounts payable pursuant to this
Agreement.

ARTICLE VI.

POST-CLOSING COVENANTS OF ALL PARTIES

     Each of the Company, Parent, and Merger Sub covenants and agrees as follows:

     6.1. Indemnification of Directors and Officers.

          (a) For a period of six (6) years from and after the Closing Date, Parent and the Surviving
Corporation, jointly and severally, agree to indemnify (including the advancement of expenses) and
hold harmless all past and present officers and directors of the Company (“D&O Indemnified
Parties”) to the same extent such individuals are entitled to indemnification by the Company
pursuant to the Company’s Certificate of Incorporation and Bylaws, employment agreements and/or
indemnification agreements, each as in effect as of the date of this Agreement, and to the fullest
extent permitted under Applicable Law, for any costs or expenses (including attorneys’ fees and
expenses), judgments, fines, losses, claims, settlements, damages or liabilities incurred in
connection with any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to acts or omissions that occurred at
or prior to the Effective Time. This Section 6.1 shall survive the consummation of the Merger, and
is intended to be for the benefit of, and shall be

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enforceable by, all past and present officers and directors of the Company, their respective
heirs and personal representatives and shall be binding upon Parent and the Surviving Corporation.
The obligations of Parent and the Surviving Corporation under this Section 6.1 shall not be
terminated or modified in such a manner as to adversely affect any indemnitee to whom this Section
6.1 applies without the express written consent of such affected indemnitee.

          (b) At the Effective Time and for a period of six (6) years from the Effective Time, the
Surviving Corporation shall cause to be maintained in effect in the certificate of incorporation
and bylaws of it or any successor of it the provision set forth in Schedule 6.1.

          (c) As soon as practicable following the Closing, the Surviving Corporation shall cause to be
purchased a six year “tail” policy of directors’ and officers’ liability insurance for the benefit
of the present and former officers and the present and former directors of the Company in an
aggregate coverage amount not less than those set forth in the policies.

          (d) If Parent, the Surviving Corporation or any of their successors or assigns (i)
consolidates with or merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or
substantially all of their properties and assets to any Person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and assigns of Parent or
the Surviving Corporation, as the case may be, shall assume the obligations set forth in this
Section 6.1.

          (e) The rights of each past and present officer and director of the Company under this Section
6.1 shall be in addition to any rights such individual may have under the Company’s Certificate of
Incorporation and Bylaws or under any applicable Law.

     6.2. Tax Matters.

          (a) Parent shall prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Company for all Taxable Periods ending on or prior to the Closing Date which are filed
after the Closing Date (“Parent-Prepared Tax Returns”). Parent shall permit Equityholder
Representative to review and comment on each Parent-Prepared Tax Returns prior to filing and shall
make such revisions to such Tax Returns as are requested by the Equityholder Representative, unless
contrary to Applicable Law. All Parent-Prepared Tax Returns shall be prepared in a manner
consistent with past practice of the Company. Each Parent-Prepared Tax Return shall be made
available to the Equityholder Representative at least thirty (30) days prior to the filing due date
for each Parent-Prepared Tax Return and Equityholder Representative shall provide Parent with
comments no later than seven (7) days prior to the filing date for each Parent-Prepared Tax Return.

          (b) The Parties shall reasonably cooperate, and shall cause their respective Affiliates, and
Representatives to reasonably cooperate, in preparing and filing all Tax Returns and in resolving
all disputes and audits (including any Tax Claims) with respect to all Tax Periods relating to
Taxes. Such cooperation shall include maintaining and making available to each other all relevant
records relating to Taxes, and making employees available on a mutually convenient basis to provide
additional information or explanation of any material provided

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hereunder, to testify at any proceedings relating to Taxes or to execute Tax Returns. The
Parties agree (i) to retain all books and records with respect to Tax matters pertinent to the
Companies relating to any Tax Period beginning before the Closing Date until the applicable statute
of limitations (as may be extended) has expired and to abide by all record retention agreements
entered into with any Governmental Authority; (ii) to allow the other party and its representatives
at times and dates mutually acceptable to the parties, to inspect, review and make copies of such
records as such party may deem necessary or appropriate from time to time, such activities to be
conducted during normal business hours at such party’s expense; and (iii) to give the other party
reasonable written notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, to allow the other party to take possession of such
books and records.

          (c) If, subsequent to the Closing, Parent or the Company receives notice of a Tax Contest with
respect to any Tax Return for a Tax period beginning before the Closing Date, then within fifteen
(15) days after receipt of such notice, the Parent shall notify the Equityholder Representative of
such notice. The Equityholder Representative shall have the right to control the conduct and
resolution of such Tax Contest, provided, however, that if any of the issues raised
in such Tax Contest could have a material impact on Taxes of Company for a Post-Closing Tax Period,
then the Equityholder Representative shall afford Parent the opportunity to control jointly the
conduct and resolution of the portion of such Tax Contest which could have a material impact on
Taxes of the Company in any Post-Closing Tax Period. If the Equityholder Representative shall have
the right to control the conduct and resolution of a Tax Contest but elects in writing not to do
so, then Parent shall have the right to control the conduct and resolution of such Tax Contest,
provided that Parent shall keep the Equityholder Representative informed of all material
developments on a timely basis. Each party shall bear its own costs for participating in such Tax
Contest. For purposes of this Section, “Tax Contest” means any audit, other administrative
proceeding or inquiry or judicial proceeding involving Taxes. Notwithstanding the foregoing, the
Equityholder Representative shall not be entitled to control any claim relating to Taxes of the
Parent, Company, or their Subsidiaries for any Tax period ending after the Closing Date and shall
not be entitled to settle, either administratively or after the commencement of litigation, any
claim for Taxes which could adversely affect the liability of Parent, the Company or their
Subsidiaries for Taxes for any Tax Period (or portion thereof) after the Closing Date, without the
prior written consent of Parent, such consent not to be unreasonably withheld, delayed or
conditioned.

          (d) Company and/or Parent, as the case may be, will pay to Stockholders any and all refunds or
reimbursements of Taxes attributable to Pre-Closing Tax Periods.

     6.3. Development and Commercialization of the Compound. Notwithstanding anything
herein to the contrary, the Company hereby agrees and acknowledges that Parent has no obligation,
implied or otherwise, and owes no duty to the Surviving Corporation or to the Participating Rights
Holders under this Agreement to pursue the clinical development or commercialization of any product
containing the Compound and no liability to the Surviving Corporation or to the Participating
Rights Holders under this Agreement shall result from any decisions by Parent to terminate the
clinical development and commercialization of any product containing the Compound.

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     6.4. Conduct of Business. The Company covenants and agrees that between the time of
execution of this Agreement and the Effective Time it will conduct its operations only in the
Ordinary Course of Business, and no dividends, distributions or similar payments shall be made to
any Stockholder during such period.

ARTICLE VII.

CONDITIONS TO OBLIGATIONS

     7.1. Conditions to the Company’s Obligations to Effect the Merger. The obligations of
the Company to consummate the transactions provided for hereby are subject to the satisfaction, on
or prior to the Closing Date, of each of the following conditions, any of which may be waived by
the Company:

          (a) Each of (i) the representations and warranties of Parent and Merger Sub contained in
Sections 5.1 (Organization) and 5.2 (Authorization) shall be true and correct in
all respects as of the Effective Time as though made on and as of the Effective Time (except that
those representations and warranties which address matters only as of a particular date need only
be true and correct as of such date), and (ii) all other the representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and correct as of the Effective
Time as though made on and as of the Effective Time (except that those representations and
warranties which address matters only as of a particular date need only be true and correct as of
such date), except to the extent that the failure of any such representation or warranty specified
in this Section 7.1(a)(ii) to be true and correct (without giving effect to any limitation
as to “materiality” or “Material Adverse Effect” set forth therein), individually or taken
together with any other failures of representations and warranties to be so true and correct, has
not had and could not reasonably be expected to have a Material Adverse Effect on Parent.

          (b) Each of Parent and Merger Sub shall have tendered for delivery the documents and other
items to be delivered by such parties pursuant to Article III of this Agreement.

     7.2. Conditions to the Obligations of Parent and Merger Sub to Effect the Merger. The
respective obligations of Parent and Merger Sub to consummate the transactions provided for hereby
are subject to the satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Parent or Merger Sub:

          (a) Each of (i) the representations and warranties of the Company in Sections 4.1
(Organization), 4.2 (Subsidiaries), 4.3 (Authorization), and 4.4
(Capitalization) shall be true and correct in all respects as of the Effective Time as though made
on and as of the Effective Time (except that those representations and warranties which address
matters only as of a particular date need only be true and correct as of such date), and (ii) all
other representations and warranties of the Company contained in this Agreement shall be true and
correct as of the Effective Time as though made on and as of the Effective Time (except that those
representations and warranties which address matters only as of a particular date need only be true
and correct as of such date), except to the extent that the failure of any such representation or
warranty specified in this Section 7.2(a)(ii) to be true and correct (without giving effect
to any

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limitation as to “materiality” or “Material Adverse Effect” set forth therein), individually
or taken together with any other failures of representations and warranties to be so true and
correct, has not had and could not reasonably be expected to have a Material Adverse Effect on the
Company.

          (b) The Company shall have performed, or complied with, the obligations, agreements and
covenants, required to be performed or complied with by it under this Agreement.

          (c) The Company shall have tendered for delivery the documents and other items to be delivered
by such parties pursuant to Article III of this Agreement.

          (d) The Company shall have received all Permits and Consents by Governmental Authorities that
are required for the consummation of the transactions contemplated hereby and the Consents by third
parties set forth on Schedule 7.2(d) hereto.

          (e) Each of the Series A Financing Documents shall have been terminated, or by their terms
shall be terminated as of the Effective Time.

          (f) Each of the directors of the Company shall have resigned as a director of the Company.

          (g) This Agreement, and the other transactions contemplated hereby, including the Merger,
shall have been approved by the Required Company Stockholder Vote.

          (h) The Company shall have delivered a certification dated not more than 30 days prior to the
Closing Date and signed by the Company to the effect that the Company is not, nor has it been
within the shorter of (i) the duration of the Company’s existence or (ii) 5 years from the date of
the certification, a “United States real property holding corporation” as defined in Section 897 of
the Code.

ARTICLE VIII.

INDEMNIFICATION

     8.1. Survival of Representations. The representations and warranties contained herein
shall survive the Effective Time until twelve (12) months thereafter; provided, however, that: (i)
the representations and warranties set forth in Sections 4.1 (“Organization”), 4.3
(“Authorization”), 4.4 (“Capitalization”), 5.1 (“Organization”) and 5.2
(“Authorization”) shall survive in perpetuity, and (ii) the representations and warranties set
forth in Sections 4.12 (“Taxes”), 4.13 (“Environmental Matters”) and 4.14
(Employee Benefits) shall survive the Effective Time until sixty days following the expiration of
any applicable statute of limitations (including any extensions thereof); provided, further,
however, that in the case of actual fraud, intentional misrepresentation or active concealment, the
representations and warranties shall survive until the expiration of the applicable statute of
limitations. Any claims under this Agreement with respect to a breach of a representation and
warranty must be asserted by written notice within the applicable survival period contemplated by
this Section 8.1, and if such a notice is given, the survival period for such
representation and warranty shall continue until the claim is

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fully resolved. The right to indemnification or other remedy based on the representations,
warranties, covenants and agreements herein will not be affected by any investigation conducted
with respect to, or any knowledge (or capable of being acquired) at any time, whether before or
after the execution and delivery of this Agreement, with respect to the accuracy or inaccuracy of
or compliance with, any such representation, warranty, covenant or agreement.

     8.2. Indemnification.

          (a) (i) Subsequent to the Closing, subject to the limitations described below in Section
8.5, each of Parent and its respective Affiliates (including, after the Closing, the Company)
and each of its respective officers, directors, employees, stockholders and agents (the “Parent
Indemnified Parties”) shall be indemnified and reimbursed by the Participating Rights Holders,
solely by means of deductions first from the Escrow Account and, to the extent that such funds in
the Escrow Account (including the Escrow Earnings) are insufficient, as an offset against up to
$5,900,000 of the Subsequent Merger Consideration Payments, when and if payable (as set forth in
Section 8.5), and subject to the provisions of this Article VIII, from and against any and all
damage, claim, loss, cost, liability or expense, including interest, penalties, reasonable
attorneys’ fees and expenses of investigation, response action, removal action or remedial action
(collectively, “Damages”) incurred by such Parent Indemnified Party that arise out of, or relate to
(x) any breach of any representation or warranty made by the Company in this Agreement or in any
certificate delivered to Parent and Merger Sub at Closing; (y) any failure to perform any covenant
or obligation made by the Company in or pursuant to this Agreement; or (z) any Pre-Closing Taxes
(determined as provided in Section 8.7).

               (ii) Subsequent to the Closing, subject to the limitations described below in Section
8.5, Parent and Merger Sub, jointly and severally, shall indemnify and reimburse each
Participating Rights Holder, the Equityholder Representative and each of their respective
representatives, heirs and Affiliates (the “Company Indemnified Parties” and collectively with the
Parent Indemnified Parties, the “Covered Parties”) from and against any and all Damages asserted
against, suffered, sustained, accrued or incurred by such Company Indemnified Party arising out of
or relating to (i) any breach of any representation or warranty made by Parent and/or Merger Sub in
this Agreement or any certificate delivered to the Company at Closing; and (ii) any failure to
perform any covenant or obligation made by Parent and/or Merger Sub in or pursuant to this
Agreement. Parent and Merger Sub’s liability for payments pursuant to this Section 8.2(a)(ii)
shall be limited to the portion of the Initial Merger Consideration and/or any Subsequent Merger
Consideration, as the case may be, that was not paid as a result of such failure to perform.

          (b) The term “Damages” as used in this Article VIII is not limited to matters asserted
by third parties against the Covered Parties, but includes Damages incurred or sustained by such
persons in the absence of third-party claims, and payments by a Covered Party shall not be a
condition precedent to recovery, and shall be net of any insurance proceeds actually received
within 12 months of when such Damages were incurred or sustained by such Covered Party that relate
to the event giving rise to such Damages.

     8.3. Notice of Claims.

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          (a) Except with respect to claims for Taxes, which are addressed in Section 6.2(c), any
Covered Party seeking indemnification hereunder shall, within the relevant limitation period
provided for in Section 8.1 above, give to the Party which is obligated pursuant to this
Article VIII to provide indemnification as set forth herein
(“the “Indemnifying Party”) a notice (a
“Claim Notice”) describing in reasonable detail the facts giving rise to any claims for
indemnification hereunder and shall include in such Claim Notice (if then known) the amount or the
method of computation of the amount of such claim, and a reference to the provision of this
Agreement or any agreement, certificate or instrument executed pursuant hereto or in connection
herewith upon which such claim is based; provided, that a Claim Notice in respect of any action at
law or suit in equity by or against a third Person as to which indemnification will be sought shall
be given promptly after the action or suit is commenced; and provided further, that failure to give
such notice shall not affect such Covered Party’s right to indemnification hereunder except to the
extent the Indemnifying Party shall have been materially prejudiced by such failure.

          (b) The Indemnifying Party shall have thirty days after receipt of any Claim Notice pursuant
hereto to (i) agree to the amount or method of determination set forth in the Claim Notice to pay
such amount to (A) a Parent Indemnified Party in immediately available funds (solely to the extent
that such funds are available in the Escrow Account) or to the extent that no funds are available
in the Escrow Account, solely as an offset against up to $5,900,000 of the Subsequent Merger
Consideration Payments, when and if payable, or (B) a Company Indemnified Party in immediately
available funds or (ii) to provide such Covered Party with notice that they disagree with the
amount or method of determination set forth in the Claim Notice and thereafter comply with the
dispute resolution provisions set forth in Section 2.13(h).

     8.4. Third Person Claims. Except with respect to claims for Taxes, which are
addressed in Section 6.2(c), if a claim by a third Person is made against a Covered Party, and if
such party intends to seek indemnity with respect thereto under this Article VIII, such
Covered Party shall promptly notify the Indemnifying Party in writing of such claims, setting forth
such claims in reasonable detail. The Indemnifying Party shall be relieved of their
indemnification obligations hereunder to the extent that notice is not delivered promptly and the
Indemnifying Party is materially prejudiced thereby. The Indemnifying Party shall have twenty days
after receipt of such notice to deliver to the Covered Party a written acknowledgement that such
claim is an indemnifiable claim under this Article VIII, that it will undertake, conduct
and control (in accordance with the terms hereof), through counsel of their own choosing (provided
that such counsel must be reasonably acceptable to the Covered Party) and at their own expense, the
settlement or defense thereof, and the Covered Party shall cooperate with them in connection
therewith; provided that the Covered Party may participate in such settlement or defense through
counsel chosen by such Covered Party and paid at its own expense, provided further that, if in the
reasonable opinion of counsel for Indemnifying Party, there is a reasonable likelihood of a
conflict of interest between the Indemnifying Party and the Covered Party, the Indemnifying Party
shall be responsible for reasonable fees and expenses of one counsel to such Covered Party in
connection with such defense. So long as the Indemnifying Party is reasonably contesting any such
claim in good faith, the Covered Party shall not pay or settle any such claim without the consent
of the Equityholder Representative with respect to claims where the Participating Rights Holders
are the Indemnifying Party and Parent where Parent and/or Merger Sub are the Indemnifying Party.
If the Indemnifying Party does not notify the Covered Party within ten days after receipt of the
Covered Party’s notice of a claim of indemnity hereunder that it elects to

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undertake the defense thereof, the Covered Party shall have the right to undertake, at the
Indemnifying Party’s cost, risk and expense, the defense, compromise or settlement of the claim but
shall not thereby waive any right to indemnity therefor pursuant to this Agreement. The
Indemnifying Party shall not, except with the consent of the Covered Party, enter into any
settlement that is not exclusively monetary and shall be paid entirely by the Indemnifying Party
and does not include as an unconditional term thereof the giving by the person or persons asserting
such claim to all Covered Parties of an unconditional release from all liability with respect to
such claim or consent to entry of any judgment. Notwithstanding the foregoing, the Indemnifying
Party shall not be entitled to control any claim relating to Taxes of the Parent, Company, or their
Subsidiaries for any Tax period ending after the Closing Date and shall not be entitled to settle,
either administratively or after the commencement of litigation, any claim for Taxes which could
adversely affect the liability of Parent, the Company or their Subsidiaries for Taxes for any Tax
period (or portion thereof) after the Closing Date, without the prior written consent of Parent.

     8.5. Limitation on Indemnity; Payments Out of Subsequent Merger Consideration.

          (a) Notwithstanding anything expressed or implied in this Article VIII to the
contrary, no Covered Party shall be entitled to make a claim for indemnification pursuant to this
Agreement unless and until the aggregate of all Damages suffered by such Covered Parties hereunder
exceeds $500,000 (the “Basket Amount”), whereupon, provided the other requirements of this
Article VIII have been complied with, all subsequent Damages (not including the Basket
Amount), shall become due and payable. Notwithstanding the foregoing, no Basket Amount shall apply
to (i) the Company’s representations and warranties set forth in Sections 4.3, 4.4,
4.10(b), 4.12 and 4.14(g) hereof, (ii) Parent’s and Merger Sub’s
representations and warranties set forth in Section 5.2, (iii) a Covered Party’s claim for
indemnification hereunder to the extent a breach results from actual fraud, intentional
misrepresentation or active concealment or (iv) Section 8.2(a)(i)(z). Notwithstanding
anything herein to the contrary, in all cases determining whether there has been a breach of a
representation or warranty by the Company for purposes of Section 8.2(a)(i)(x), or in determining
the amount of any Damages with respect to such breach, such representations and warranties shall be
read without regard to any materiality qualifier (including, without limitation, any reference to
Material Adverse Effect) contained therein.

          (b) Until the earlier to occur of (x) the disbursement in full of the Escrow Amount and (y)
the termination of the Escrow Agreement pursuant to its terms, all claims for Damages by a Parent
Indemnified Party shall to the fullest extent permitted by law be made first against the Escrow
Amount in accordance with the terms and conditions set forth in this Article VIII and the Escrow
Agreement.

          (c) To the extent permitted by Law, any payment made by a Person indemnifying a Covered Party
pursuant to this Article VIII (any such Covered Party a “Payee” and any such indemnifying Party, a
“Payor”) shall be treated on the parties’ Tax Returns as an adjustment to the purchase price for
all Tax purposes.

          (d) In the event a claim for indemnification or reimbursement under this Article VIII shall
have been finally determined in which the Indemnified Party is Parent and/or

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Merger Sub, the amount of the related Damages (after taking into account the limitations of
Section 8.5(a)) shall be paid pursuant to and solely by means of deductions first from the
Escrow Account and, to the extent that the amount of the Damages are in excess of the amount
available in the Escrow Account, as an offset against up to $5,900,000 of the Subsequent Merger
Consideration Payments, when and if payable, and neither the Equityholder Representative nor any
Participating Rights Holder shall have any responsibility for any Damages resulting from a claim
for indemnification or reimbursement under this Article VIII other than by means of deductions from
the Escrow Account and/or such Subsequent Merger Consideration Payments, if any. Any claim, the
Indemnifying Party’s liability therefor and the amount of the related Damages shall be “finally
determined” when the parties to such claim have so determined by mutual written agreement or, if
disputed, when a final and non-appealable Order of a court of competent jurisdiction shall have
been entered concerning such matters.

     8.6. Remedies. The remedies in this Article VIII shall be the sole and
exclusive remedies of the parties with respect to any breach of the respective representations,
warranties, covenants and agreements pursuant to this Agreement or otherwise arising out of this
Agreement, regardless of the theory or cause of action pled, and shall be paid pursuant to and
solely by means of deductions from the Escrow Account and, to the extent that such funds in the
Escrow Account (including the Escrow Earnings) are insufficient, as an offset against up to
$5,900,000 of the Subsequent Merger Consideration Payments, when and if payable, except for the
remedies of specific performance, injunction and other equitable relief; provided, however, that no
party hereto shall be deemed to have waived any rights, claims, causes of action or remedies if and
to the extent actual fraud, intentional misrepresentation or active concealment is proven on the
part of a party by another party hereto or such rights, claims, causes of action or remedies as may
not be waived under Applicable Law.

     8.7. Per Diem Taxes; Straddle Periods.

          (a) Real, personal and intangible property Taxes or other Taxes levied on a per diem basis
(collectively, “Per Diem Taxes”) for a Straddle Period that are allocable to the Pre-Closing Tax
Period shall be equal to the amount of such Per Diem Taxes for the entire Straddle Period
multiplied by a fraction, the numerator of which is the number of days during the Straddle Period
that are in the Pre-Closing Tax Period and the denominator of which is the total number of days in
the Straddle Period.

          (b) With respect to Taxes other than Per Diem Taxes for a Straddle Period, the Company will,
unless prohibited by Applicable Law, close the Taxable Period of the Company as of the close of
business on the Closing Date. If Applicable Law does not permit the Company to close its Taxable
Period on the Closing Date, then Taxes, if any, attributable to a Straddle Period shall be
allocated (i) to the stockholders of the Company for the Pre-Closing Tax Period, and (ii) to the
Parent for the Post-Closing Tax Period. Any allocation of income or deductions required to
determine any Taxes attributable to a Straddle Period shall be made by means of a closing of the
books and records of the Company as of the close of the Closing Date, provided that exemptions,
allowances or deductions that are calculated on an annual basis (including, but not limited to,
depreciation and amortization deductions) shall be allocated between the Pre-Closing Tax Period and
the period after Post-Closing Tax Period in proportion to the number of days in each such period.

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     8.8. Transfer Taxes. Parent shall pay all state and local sales, transfer or similar
Taxes and all recording costs and fees, however styled or designated, that are required to be paid
in connection with the transactions contemplated by this Agreement, regardless of the Party upon
which such amounts would have been imposed absent this provision, and Parent shall cooperate with
the Equityholder Representative in the preparation and filing of all necessary Tax Returns and
other documentation with respect to all such Taxes, costs and fees.

ARTICLE IX.

MISCELLANEOUS

     9.1. Termination. Notwithstanding anything to the contrary contained herein, this
Agreement may be terminated at any time before the Closing (a) by mutual written consent of the
Company and Parent or (b) by Parent, in the event that the Company fails to obtain the Required
Company Stockholder Vote and deliver evidence thereof satisfactory to Parent in its reasonable
discretion not later than one hour after the execution of this Agreement by the Parties hereto.

     9.2. Binding Effect; Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors and permitted assigns, in accordance with
the terms hereof. Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto, in whole or in part (whether by operation of law or
otherwise), without the prior written consent of the other parties, and any attempt to make any
such assignment without such consent shall be null and void, except that (a) Merger Sub may assign,
in its sole discretion, any or all of its rights, interests and obligations under this Agreement to
any entity that is wholly-owned directly by Parent without the consent of the Company and (b)
Parent or Merger Sub may assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any entity that will acquire substantially all of Parent’s
assets by merger, stock purchase, asset purchase or otherwise. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, and no other Person shall have any right, benefit or obligation hereunder.

     9.3. Notices. Unless otherwise provided herein, any notice, request, instruction or
other document to be given hereunder by any party to the other shall be in writing and delivered in
person or by courier, by facsimile transmission or mailed by registered or certified mail, postage
prepaid, return receipt requested (such mailed notice to be effective on the date of such receipt
is acknowledged), as follows:

     If to Parent or Merger Sub:

Pharmion Corporation

2525 28th Street, Suite 200

Boulder, Colorado 80301

Attn: General Counsel

Fax: (720) 564-9191

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With a copy to:

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, New York 10019

Attention: William H. Gump

          Peter H. Jakes

Fax: (212) 728-8111

If to the Equityholder Representative:

Stuart J. M. Collinson, Ph.D.

c/o Forward Ventures

9393 Towne Centre Dr., Suite 200

San Diego, CA 92121

Fax: (858) 452-8799

With a copy to:

Latham & Watkins LLP

12636 High Bluff Drive, Suite 400

San Diego, California 92130

Attention: Faye H. Russell

Fax: (858) 523-5450

     Any party may, from time to time, designate any other address to which any such notice to such
party shall be sent. Any such notice shall be deemed to have been delivered upon receipt.

     9.4. Choice of Law. This Agreement shall be construed, interpreted and the rights of
the parties determined in accordance with the laws of the State of Delaware, as applied to
agreements among Delaware residents entered into and wholly to be performed within the State of
Delaware (without reference to any choice of law rules that would require the application of the
laws of any other jurisdiction).

     9.5. Entire Agreement; Amendments and Waivers. This Agreement, together with the
other documents and instruments referred to herein and all exhibits and schedules hereto,
constitutes the entire agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. This Agreement may be supplemented, modified or amended by action by each
party hereto, which in the case of the Company and Merger Sub shall be action taken by or on behalf
of the board of directors of such party; provided, however, that any amendment made subsequent to
the adoption and approval of this Agreement by the stockholders of the Company or Merger Sub as
required by the DGCL which, under Applicable Law, requires further approval of such stockholders,
shall not be made without further approval by such stockholders. No supplement, modification or
other amendment or waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof

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(whether or not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.

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

     9.7. Severability. If any provision of this Agreement is deemed or held to be
illegal, invalid or unenforceable, this Agreement shall be considered divisible and inoperative as
to such provision to the extent it is deemed to be illegal, invalid or unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided, however, that if any
provision of this Agreement is deemed or held to be illegal, invalid or unenforceable the parties
agree to replace such illegal, invalid or unenforceable provision with a provision that is legal,
valid and enforceable and that achieves the original intent of the parties as closely as possible.
Further, should any provision contained in this Agreement ever be reformed or rewritten by any
judicial body of competent jurisdiction, such provision as so reformed or rewritten shall be
binding upon all parties hereto.

     9.8. Headings. The headings of the Articles and Sections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.

     9.9. Schedules. The Schedules and the Exhibits referenced in this Agreement are a
material part hereof and shall be treated as if fully incorporated into the body of the Agreement.

     9.10. No Third Party Beneficiaries. Nothing expressed or referred to in this
Agreement, other than pursuant to Article II and Section 6.1, will be construed to give any Person
other than the parties to this Agreement (and their successors and assigns) any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement.

     9.11. Specific Performance. The parties hereto agree that irreparable damage would
occur in the event any provision of this Agreement was not performed in accordance with the terms
hereof and that the parties shall be entitled to seek specific performance of the terms hereof, in
addition to any other remedy at law or equity without the necessity of demonstrating the inadequacy
of monetary damages.

     9.12. No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly by the parties
hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.

     9.13. Expenses. Except as otherwise specifically provided in this Agreement, (a)
Parent will pay its own fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, and (b) the aggregate Transaction Fees of the Company due and
payable prior to Closing shall be paid by the Company prior to the Effective Time.

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     9.14. Submission to Jurisdiction; Waivers; Consent to Service of Process. Except as
provided in Section 2.13(h), each party hereto irrevocably agrees that any legal action or
proceeding with respect to this Agreement or for recognition and enforcement of any judgment in
respect hereof brought by another party hereto or its successors or assigns shall be brought in the
Court of Chancery in the State of Delaware to the fullest extent permitted by Applicable Law and,
to the extent not so permitted, in any court sitting in the State of Delaware, and each of the
parties hereto hereby (x) irrevocably submits with regard to any such action or proceeding for
itself and in respect to its property, generally and unconditionally, to the exclusive personal
jurisdiction of the aforesaid courts in the event any dispute arises out of this Agreement or any
transaction contemplated hereby, (y) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court and (z) agrees that
it will not bring any action relating to this Agreement or any transaction contemplated hereby in
any court other than the aforesaid courts. Any service of process to be made in such action or
proceeding may be made by delivery of process in accordance with the notice provisions contained in
Section 9.3. Each of the parties hereto hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with
respect to this Agreement, (a) the defense of sovereign immunity, (b) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason other than the
failure to serve process in accordance with this Section 9.14, (c) that it or its property
is exempt or immune from jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise), and (d) to the fullest extent permitted
by Applicable Law that (i) the suit, action or proceeding in any such court is brought in an
inconvenient forum, (ii) the venue of such suit, action or proceeding is improper and (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such courts. To the extent
that a party to this Agreement is not otherwise subject to service of process in the State of
Delaware, such party hereby appoints National Registered Agents, Inc., 160 Greentree Drive, Suite
101, Dover, Delaware 19904, as such party’s agent in the State of Delaware for acceptance of legal
process, and agrees that service made on such agent shall have the same legal effect as if served
upon such party personally within the State of Delaware.

     9.15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.

[remainder of page intentionally left blank]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement
to be duly executed on their respective behalf, by their respective officers thereunto duly
authorized, all as of the day and year first above written.

	 	 	 	 	 
	 	PHARMION CORPORATION

 	 
	 	By:  	/s/ Patrick J. Mahaffy
 	 
	 	 	Name:  	Patrick J. Mahaffy 	 
	 	 	Title:  	President and CEO	 
	 
	 	CARLSBAD ACQUISITION CORPORATION

 	 
	 	By:  	/s/ Patrick J. Mahaffy
 	 
	 	 	Name:  	Patrick J. Mahaffy 	 
	 	 	Title:  	President 	 
	 
	 	CABRELLIS PHARMACEUTICALS CORPORATION

 	 
	 	By:  	/s/ John E. Crawford
 	 
	 	 	Name:  	John E. Crawford 	 
	 	 	Title:  	Chief Financial and Administrative Officer 	 
	 
	 	EQUITYHOLDER REPRESENTATIVE:

 	 
	 	/s/ Stuart J. M. Collinson
 	 
	 	Stuart J. M. Collinson, as Equityholder Representative 	 
	 	 	 
	 

[Signature Page to Agreement and Plan of Merger]

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