Document:

exv10w51

 

Exhibit 10.51

Execution Copy

INSTALLMENT LOAN MARKETING AND SERVICING AGREEMENT

     This Installment Loan Marketing and Servicing Agreement (this “Agreement”) is dated as
of July 21, 2005, between First Bank of Delaware, a Delaware state bank (“BANK”), and ACE
Cash Express, Inc., a Texas corporation (“ACE”).

     WHEREAS, BANK is a Delaware state bank insured by the Federal Deposit Insurance Corporation
(the “FDIC”), and as such, is authorized to extend credit to borrowers, subject to the
federal and Delaware financial institution and credit regulations in effect and as applicable;

     WHEREAS, ACE or its affiliate, in performing duties under this Agreement, is a duly authorized
and validly existing corporation, authorized to do business in the states of Texas, Arkansas and
Pennsylvania;

     WHEREAS, in accordance with its established lending criteria as may be amended by BANK from
time to time, BANK desires to originate short-term installment loans (the “Loans”) to
consumers (“Borrowers”) in principal amounts not to exceed an amount mutually agreed to by
BANK and ACE (the “Max Loan Amount”), which Loans shall be secured by delivery of the
Borrowers’ personal checks (made payable to BANK) to ACE to hold in trust and as bailee for BANK or
by Borrowers’ Automated Clearing House (“ACH”) debit authorization; and

     WHEREAS, ACE, or its affiliate, in performing duties under this Agreement, desires to market
and service the Loans on BANK’s behalf;

     NOW, THEREFORE, in consideration of the foregoing and of the mutual promises contained in this
Agreement, and other valuable consideration, the sufficiency of which is hereby acknowledged, and
intending to be legally bound, BANK and ACE (together, the “Parties”) agree as follows:

     1. BANK’s Responsibilities and Rights.

          (a) BANK in its sole discretion shall determine all of the conditions, terms and features of
the Loans, including, without limitation, loan amounts (subject to the Max Loan Amount), fees and
charges, interest rates, credit limits, credit standards and all other terms and conditions of the
Loans, and shall be responsible for the form of all Loan Documents (as that term is defined in
Section 2(d)(iii)). BANK shall make Loans to all Applicants (as that term is defined in
Section 2(a)) who apply for Loans at retail locations of ACE that (i) are located in the
States of Texas, Arkansas or Pennsylvania (the “Market”), (ii) are designated by ACE, in
its sole discretion, and (iii) meet BANK’s credit standards and other qualifications, as determined
by BANK in its sole discretion (each an “ACE Designated Location”); provided, however, BANK
shall not be required to make any Loan if it has reason to believe that the making of the Loan or
its solicitation

 

 

will violate, or has violated, any applicable federal or state statutes, regulations,
interpretations, orders, court decisions or other applicable rules (collectively, “Laws”).
Neither ACE, nor BANK, nor their respective employees shall indicate, directly or indirectly, to
Applicants that Loans are made or approved by ACE or that ACE (or any employee of ACE) can improve
an Applicant’s prospect of obtaining a Loan. BANK shall maintain computer terminals at its offices
in Delaware that connect to its third party service provider (“Service Provider”), which
Service Provider is Teletrack, Inc. as of the date of this Agreement, from which BANK may reject
any Loan at any time in its sole discretion.

          (b) ACE acknowledges that all rights of ownership in the Loans and Loan Documents, including,
without limitation, any Borrower Checks (as defined in Section 2(c)(iv)) or proceeds
thereof, Borrower Authorizations (as defined in Section 2(c)(iv)) or proceeds thereof,
Notes (as defined in Section 2(c)(iii)), and payments on the Loans or other collateral or
security for the Loans, are and remain the sole property of BANK, and ACE shall have no ownership
or other rights to or interests in, whether legal or equitable, such Loans, Loan Documents,
Borrower Checks or proceeds thereof, Borrower Authorizations or proceeds thereof, and payments on
the Loans or other collateral or security for the Loans during the term of this Agreement, and all
such Loans, Loan Documents, Borrower Checks or Borrower Authorizations, proceeds thereof, payments
on the Loans or other collateral or security for the Loans shall not be considered property of
ACE’s estate if a bankruptcy petition is filed by or against ACE.

          (c) In its sole discretion, BANK may sell, transfer, grant an interest in, or otherwise assign
any Loan, or any portion of any Loan, to a third party or parties. Any sale, transfer or
assignment by BANK of any such Loan shall comply with applicable Delaware and federal law. ACE
expressly and irrevocably consents to BANK’s sale, assignment, and grant of a participation
interest in and to the Loans, as BANK may transact from time to time.

          (d) BANK shall forward to ACE via facsimile (with a copy by first-class mail) as soon as
possible, but no later than within three (3) business days of receipt, any written notices it
receives that bankruptcy proceedings have been initiated with respect to any Borrower.

          (e) Upon request of ACE, BANK shall, within forty five (45) days of the last day of any
calendar quarter, provide ACE with BANK’s quarterly financial statements and, on or before each
April 15, shall provide ACE with BANK’s annual audited financial statements, each to be prepared in
accordance with generally accepted accounting principles then in effect.

          (f) BANK shall deliver to ACE, as soon as possible following the execution of this Agreement,
an opinion of BANK’s counsel, in form and substance reasonably satisfactory to ACE, confirming the
legality of the activities of BANK contemplated by this Agreement under applicable law. ACE may,
at its discretion, waive this requirement.

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          (g) BANK shall develop and implement reasonable and lawful practices, policies and procedures
that are communicated in writing to ACE from time to time with respect to the Loans (the “BANK
Policies”), which BANK Policies shall (i) incorporate, without limitation, the Best Practices
of the Community Financial Services Association of America or the Code of Conduct of the Financial
Service Centers of America (the “Industry Practices”), and any guidelines and
recommendations governing installment loans and sub-prime lending and loan classification
promulgated or adopted by reference by the FDIC or the Delaware Bank Commissioner, as the same may
from time to time be amended, and (ii) comply with all applicable Laws. The BANK Policies shall
include, but shall not be limited to, developing guidelines and procedures for the Loan program
contemplated under this Agreement (the “Program”), performing routine audits of ACE and
providing ACE with helpline service to quickly respond to customer and Program inquiries.

     2. ACE’s Responsibilities and Services.

          (a) General Duties of ACE; Standards of Performance: Commencing upon the date that
each of ACE and BANK agree upon the terms of the Loans, agree upon the manner in which such Loans
shall be approved by BANK and serviced by ACE and execute a document designating such date (the
“Product Definition Date”), ACE shall perform all services reasonably required to market
and service the Loans made by BANK at a minimum of 200 ACE Designated Locations on or before the
date sixty (60) days after the Product Definition Date, and at a minimum of 300 ACE Designated
Locations on or before the date ninety (90) days after the Product Definition Date, where Loan
applicants (“Applicants”) may submit Loan applications (“Applications”) and receive
disclosures required by applicable Laws and where Borrowers may execute and deliver Loan
documentation and deliver Borrower Checks, Borrower Authorizations or other payment on the Loans.
In marketing the Loans and performing its services hereunder, the Parties shall at all times and in
all material respects comply with applicable Laws. Before initiating any marketing efforts in the
Market, ACE shall agree with BANK on a mutually agreeable protocol for communicating with the
appropriate regulatory authorities, and the Parties shall reasonably cooperate with each other in
implementing the Program in such manner as to minimize the potential for regulatory objections.
Further, ACE shall use all of the reasonable documentation provided by BANK and follow the Bank
Policies. ACE shall train and supervise its employees to act in conformity with the BANK Policies
and the requirements of applicable Laws pertaining to the employees’ duties. ACE will not accept
any consideration from any Applicant and will not agree or promise to procure a Loan for any
Applicant from BANK.

          (b) Marketing of Loans:

               (i) BANK hereby authorizes ACE during the term of this Agreement to market Loans to Borrowers
in compliance with all applicable Laws and BANK Policies. BANK hereby grants to ACE a
non-exclusive license to reproduce the name, trade name, trademarks and logos of BANK
(collectively, the “BANK Properties”) during the term of this Agreement in connection with
this Agreement on letters, print

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advertisements, the Internet, television and radio communications and other advertising and
promotional materials (all such letters, advertising and promotional materials incorporating BANK
Properties and all related designs, artwork, logos, slogans, copy and other similar materials shall
be referred to collectively herein as the “Promotional Materials”); provided, however, (x)
ACE shall submit all Promotional Materials to BANK for its written approval prior to any use
thereof, and (y) BANK shall not unreasonably withhold or delay such approval. All rights not
expressly granted to ACE herein are reserved by BANK. Regardless of whether they incorporate the
BANK Properties, all advertising and promotional materials for the Loans (A) shall prominently
identify BANK as maker of the Loans, (B) shall be accurate, (C) shall not be misleading, (D) shall
comply with all applicable Laws, and (E) shall be submitted to BANK for approval in accordance with
this Section 2(b)(i).

               (ii) In connection with ACE’s performance of its obligations under this Agreement, it is
expressly agreed that (A) BANK shall not hold any ownership or leasehold interest in any ACE retail
location (including, without limitation, the ACE Designated Locations), or any personal property
located therein, except that BANK shall be the exclusive owner of all Borrower Checks and proceeds
thereof, Borrower Authorizations and proceeds thereof, Notes, Loan Documents, and cash reflecting
Loan repayments as may be located at an ACE Designated Location from time to time, (B) no BANK
employees shall work in any ACE retail location (except for BANK auditors who may examine ACE
Designated Locations from time to time for compliance with BANK Policies), and (C) other than as
may be necessary to effectuate Section 2, BANK shall exercise no authority or control over
ACE’s employees or methods of operation. ACE will not post signage at its ACE Designated Locations
showing BANK’s name or logo unless expressly authorized by BANK in its sole discretion; provided,
however, that this provision shall not prohibit ACE from (x) providing documents or information to
customers with BANK’s name or logo that have been approved by BANK or (y) posting fees and other
information as required at ACE Designated Locations to carry out its obligations under this
Agreement or pursuant to the Laws. Neither ACE nor any of its employees, officers, directors,
representatives or agents will hold themselves out as an agent or employee of BANK.

               (iii) The Note shall disclose to the Borrower that BANK shall pay ACE a fee for ACE’s
services.

               (iv) ACE will make any reasonable change to its business operations and information technology
systems as reasonably requested by BANK, or any regulatory agency that has authority over BANK,
that is reasonably necessary to comply with BANK Policies or Laws governing the Loans contemplated
in the Agreement as determined through the audits and compliance reviews of BANK or any regulatory
agency that has authority over BANK. ACE agrees to maintain minimum IT standards equal to or higher
than those standards in place at ACE as of the date of this Agreement.

               (v) In connection with the ongoing use of the Teletrack Extended Underwriting System or other
replacement system, BANK and ACE agree that

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BANK shall have no more than one Loan outstanding to a customer who is marketed and serviced
by ACE or any affiliate of ACE.

          (c) Servicing of Loan Applications:

               (i) BANK also hereby authorizes ACE to accept Applications from Applicants, using an
Application form approved by BANK. ACE shall make Applications available to prospective Applicants
and shall not discourage any prospective Applicant from submitting an Application and shall provide
reasonable assistance to each prospective Applicant in completing an Application. Without limiting
the generality of the foregoing, ACE shall not discriminate against or discourage any Applicant in
any aspect of the credit process on any “prohibited basis,” as such term is defined in the
federal Equal Credit Opportunity Act (“ECOA”) and Federal Reserve Regulation B. ACE shall
forward all completed Applications to BANK (or its designated loan processing agent)
electronically, by telephone, or by other appropriate means agreeable to both Parties.

               (ii) Based upon the information provided by Applicants to BANK in the Applications and such
other credit-related information as obtained by ACE at the direction of BANK, or by BANK directly,
and pursuant to the credit granting standards adopted by BANK in its sole discretion, BANK shall be
solely responsible for determining whether to extend credit to Applicants. BANK shall, either
itself or through the Service Provider, communicate to ACE its credit decision on any Application,
together with the reason for any negative credit decision, electronically or by other means
acceptable to both Parties.

     ACE shall, in compliance with Regulation B and applicable state law, deliver an appropriately
completed adverse action notice (the “Adverse Action Notice”) to any Applicant whose
Application is rejected by BANK. In addition to containing the information required by the ECOA,
the Adverse Action Notice shall contain any information required by the Fair Credit Reporting Act
(the “FCRA”) or by any applicable state credit reporting law. Adverse Action Notices shall
be developed by BANK and provided to ACE prior to origination of Loans under this Agreement. In
compliance with the ECOA, the Adverse Action Notice shall contain contact information for BANK and
the Service Provider.

               (iii) Each Loan hereunder shall be evidenced by a promissory note (“Note”) containing
disclosures required by the federal Truth-in-Lending Act and applicable state law (the
“Disclosures”). The Note shall be issued for the amount shown as the “Total of
Payments” on the Note (which shall be the sum of the amount shown as the “Amount
Financed” plus the amount shown as the “Finance Charge,” and which amount shown as the
“Finance Charge” shall equal a variable amount based solely on the term of the Loan. The
amount of the Finance Charge on each Loan Note shall be pre-computed. In the case where BANK’s
credit granting standards indicate that an Applicant qualifies for a Loan, ACE shall provide to
Borrower a check or a voucher for the Amount Financed.

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               (iv) ACE shall (A) deliver a copy of the Note to the Borrower; (B) deliver a copy of the
Bank’s privacy policy to the Borrower; (C) obtain from the Borrower the executed Note; (D) obtain
from Borrower his or her signed personal check or checks, dated the due date of the final
installment due under the Note, made payable to BANK for the Total of Payments set forth in the
Note (the “Borrower Check”), or the Borrower’s ACH debit authorization (the “Borrower
Authorization”); and (E) in accordance with Section 1(b), hold in trust and as bailee
for BANK, separate and apart from ACE’s own assets, the Borrower Check or Borrower Authorization
and Note.

          (d) Additional Servicing and Collection of Loans. ACE shall perform the following
servicing functions:

               (i) ACE shall be responsible for collecting payments on the Loans prior to, at and after
maturity thereof (said collection efforts will include, but shall not be limited to, the
presentment of Borrower Checks or Borrower Authorizations, as applicable). ACE shall ensure that
for Borrowers who repay their entire Loan early, that such Borrower’s interest will be accurately
rebated according to the actuarial method. In collecting payments owed under the Notes, ACE shall
comply with applicable Laws, including, without limitation, where applicable, the Fair Debt
Collection Practices Act (the “FDCPA”), the operating rules of the National Automated
Clearing House Association (the “NACHA Rules”), as well as debt collection regulations and
consumer protection laws applicable to BANK or ACE, and the Industry Practices. ACE shall not
encourage or allow its employees to threaten or imply that failure to honor any payment instrument
in connection with any Loan shall subject the Borrower to potential criminal prosecution and will
not impose any charge for cashing a check provided to a Borrower for the Amount Financed.

               (ii) ACE shall remit, to a bank account designated by BANK (“BANK’s Deposit Account”),
all Borrower payments on Loans recorded as collected by ACE, by no later than the next business day
following ACE’s receipt of such payment.

               (iii) ACE shall maintain and retain all original Applications and copies of all Adverse Action
Notices and other documents relating to rejected Applications for the period required by applicable
Laws. ACE shall maintain in a secure environment originals or copies, as applicable, of all (x)
Applications and copies of all Adverse Action Notices and other documents relating to rejected and
incomplete Applications; and (y) originals or copies, as applicable, of all Applications, Notes
(including Disclosures), Borrower Checks, Borrower Authorizations and other documents provided to
or received from Borrowers (all such documents referenced in clauses (x) and (y) collectively, the
“Loan Documents”) for the period required by applicable Laws. The obligations of ACE under
this Section 2(d)(iii) shall survive termination of this Agreement. ACE will work with
Service Provider to ensure that BANK is provided timely information concerning the basis for each
Adverse Action Notice relating to a rejected Application.

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          (e) Reports; Access to Stores, Books and Records and Employees:

               (i) During the term of this Agreement, ACE shall provide to BANK data submissions and reports
reasonably required by BANK in order to maintain effective internal controls and to monitor results
under this Agreement, including, without limitation, the performance of the Loans and ACE’s
obligations hereunder. Such reports shall include a daily report showing those Loans originated
through ACE, the Loans outstanding, the Loans repaid, the Loans charged-off, the Loan charge-off
recoveries, a daily interest accrual report that includes information on each Loan and ACH
information required to collect Loan repayments, as well as ACE’s monthly compliance review
checklists and periodic internal audit reports for ACE Designated Locations marketing and servicing
the Loans.

               (ii) Upon request of BANK, ACE shall, within forty-five (45) days of the last day of any
calendar quarter, provide BANK with ACE’s quarterly financial statements and, on or before each
April 15, shall provide BANK with ACE’s annual unaudited financial statements, each to be prepared
in accordance with generally accepted accounting principles then in effect.

               (iii) Unless otherwise directed by BANK, BANK agrees to allow ACE, as its bailee, to maintain
and retain possession of the Loan Documents in trust for BANK for the term of the Agreement and any
additional period required by applicable Law. ACE agrees to use such Loan Documents solely to
service the Loans. Such Loan Documents shall be held by ACE in trust and as bailee for BANK, which
has and shall continue to have constructive possession and legal title to such documents, files and
records. At such time or times as BANK may reasonably request, and at BANK’s cost, ACE shall
deliver a copy of all Loan Documents to BANK at its headquarters or such other location or
locations as BANK shall direct in writing. All such documents shall be maintained segregated from
other books and records of ACE and otherwise in such a manner as to facilitate their inspection by
and delivery to BANK, if so requested in writing. During the term of this Agreement and at all
times thereafter as it relates to information pursuant to this Agreement, BANK and banking agencies
with regulatory authority over BANK shall have reasonable access to ACE Designated Locations, to
the books and records of ACE (to the extent that such books and records pertain to the Loans), to
the officers, employees and accountants of ACE, and to copies of Loan Documents, all for the same
purposes of ensuring that ACE is carrying out the BANK Policies and is otherwise complying fully
with its obligations under this Agreement. Such access shall include permission to maintain
employees or agents of BANK, at BANK’s expense, and any banking agency with regulatory authority
over BANK, at BANK’s expense, on the premises of ACE during regular business hours to audit ACE’s
services contemplated by this Agreement. In addition, and not as a limitation of the foregoing,
BANK and any banking agency with regulatory authority over BANK shall have the right, from time to
time during the term of this Agreement, to conduct audits and/or compliance reviews of the services
provided hereunder, and the records generated thereunder; provided, that such audit and review
rights shall be conducted during normal business hours in a manner which does not unreasonably
interfere with ACE’s normal business operations and customer and employee relations.

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               (iv) ACE will comply, as determined by BANK in BANK’s reasonable discretion, with the Service
Provider’s extended loan underwriting system as administered by BANK.

          (f) Fees and Costs: In consideration for ACE’s performance of its obligations under
this Agreement, BANK shall pay ACE the marketing and servicing fees set forth on Exhibit A
(the “Fees”), as such Fees may be changed from time to time by mutual written agreement of
the Parties. ACE shall deliver to BANK the Invoices (as defined in Exhibit A) on the times
and with the details required in Exhibit A. Based on those Invoices, BANK will pay to ACE
the Fees in accordance with the terms set forth in Exhibit A. ACE will be responsible for
all principal and fee losses related to the Loans. ACE will be responsible for all costs associated
with ACE Designated Locations and its services under this Agreement, including without limitation
rental and occupancy costs; costs of up-fit and leasehold improvements; equipment costs; processing
costs; printing costs; maintenance costs; staffing costs; taxes assessed to ACE; signage costs; and
advertising costs. BANK will be responsible for all banking agency audit costs billed to BANK by
such banking agency which result from an audit of ACE by any banking agency with regulatory
authority over BANK. ACE will be responsible for any information technology audits required by
BANK to comply with FDIC guidelines.

          (g) Set-Off. In the event of an indemnifiable event as contemplated under Section
4 of this Agreement, ACE shall have no right of set off for any fees or costs owing to ACE
under this Agreement, against any monies in ACE’s possession in trust or as bailee for BANK,
including without limitation any cash payments on the Loans made directly by the Borrower to ACE or
as a result of deposit of any Borrower Checks or realization on any other collateral or security
for the Loans. In the event of an indemnifiable event as contemplated under Section 4 of
this Agreement, BANK shall have a right of set off for any fees owing to ACE for Losses (as defined
in Section 4(a)) incurred by BANK and not otherwise paid by ACE pursuant to the terms and
conditions set forth in Section 4(h).

          (h) Notice. Each Party shall provide the other with written notice promptly (but not
later than 5 business days) after becoming aware of any threatened or actual investigation,
regulatory action, arbitration, lawsuit, fees or penalties pertaining to the Loans, this Agreement
or any similar marketing and servicing agreements of third Parties, the effect of which may
materially impact the obligations or rights of the Parties under this Agreement.

          (i) Opinion of Counsel. ACE shall deliver to BANK, as soon as possible following the
execution of this Agreement, memoranda of law prepared by ACE’s counsel, in form and substance
reasonably satisfactory to BANK, confirming the legality of the activities of ACE contemplated by
this Agreement under the laws of the States of Texas, Pennsylvania and Arkansas or as that law may
be preempted by federal law. BANK may, at its discretion, waive this requirement.

          (j) Banking Regulation. If BANK is required to make any notification to, or pay any
costs or fees, excluding taxes, to the Texas Secretary of State,

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the Texas Finance Commission, the Texas Department of Banking, the Texas Office of the
Consumer Credit Commissioner, the Comptroller of the State of Texas, or any other person or office
with the power to enforce the laws of Texas, including, without limitation the Attorney General of
Texas, related to the Loans or the Program, ACE shall promptly reimburse BANK for all costs and
fees related thereto after receipt of written notice of such costs and fees. ACE shall reimburse
the Bank for costs or fees, excluding taxes related to any state or local agencies in Pennsylvania
or Arkansas.

          (k) Maintain Required Licenses and Registrations. ACE will maintain its licenses at
ACE Designated Locations from the Office of the Consumer Credit Commissioner of Texas as an
arranger of loans under Chapter 342 of the Texas Finance Code and, if required, will obtain any
other appropriate business license for each ACE Designated Location. ACE will also maintain
necessary licenses in Pennsylvania and Arkansas. In addition, ACE will obtain and maintain all
licenses and registrations required by any Laws and applicable to the activities of ACE (or its
affiliates) under and throughout the term of this Agreement. ACE will provide copies of these
licenses and registrations if so requested by BANK.

          (l) Regulatory Examinations and Audits. ACE agrees to submit to any examination which
may be required by any regulatory authority with audit and examination authority over BANK, to the
fullest extent that such regulatory authority may require, and ACE specifically agrees and
acknowledges that it will permit examination by the FDIC to the extent required for BANK to remain
in compliance with law.

     3. Representations and Warranties.

          (a) BANK hereby represents and warrants to ACE as of the date hereof that:

               (i) BANK is a duly organized Delaware state bank validly existing under the laws of the State
of Delaware, and is authorized, as a matter of Delaware law, to conduct its business as described
in this Agreement The deposits of BANK are insured by the FDIC up to applicable limits. BANK has
the corporate power and authority and all requisite licenses, permits and authorizations to execute
and deliver this Agreement and perform its obligations contemplated hereunder.

               (ii) BANK is authorized under applicable Law to make the Loans under this Agreement and is not
prohibited by applicable Law from contracting with a third party to provide the services which ACE
will provide under this Agreement.

               (iii) BANK is authorized under applicable Law to contract with Service Provider, and
transmission by and between ACE and Service Provider of information required for and provided
solely for the purpose of processing the Loans does not violate applicable Law.

               (iv) This Agreement has been duly authorized by BANK’s Board of Directors, executed and
delivered by BANK and constitutes its legal, valid and

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binding agreement, enforceable against BANK in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, and the rights and obligations of receivers and conservators under 12 U.S.C.
§§1821 (d) and (e), and any other laws affecting creditors’ rights and remedies generally and by
general principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).

               (v) The execution, delivery and performance of this Agreement by BANK does not violate or
conflict with (A) any provision of the articles of incorporation or other governance documents of
BANK or (B) any Delaware or federal law, or any order, arbitration award, judgment or decree to
which BANK is a party or by which BANK or any of its assets may be bound.

               (vi) Except as may be set forth on Exhibit B hereto, there are no claims, actions,
suits, orders or investigations, either at law or in equity, or any proceedings by or before any
court or governmental authority or arbitrator pending, or to the knowledge of BANK threatened,
against BANK or any of its affiliates that (A) if asserted and decided adversely to BANK or any
affiliate, would materially and adversely affect BANK or its affiliate or the Program, or (B)
questions the validity of this Agreement, the Program or the Loans, or (C) seeks to delay, prohibit
or restrict the activities of ACE or BANK contemplated by this Agreement.

               (vii) BANK has delivered to ACE true and correct copies of BANK’s audited financial statements
as of and for the year ended December 31, 2004. Such financial statements and notes fairly present
the financial condition and the results of operations, stockholders’ equity, and cash flow of BANK
as at December 31, 2004 and for the year then ended, all in accordance with generally accepted
accounting principles. BANK has also delivered to ACE true and correct copies of BANK’s unaudited
financial statements as of and for the three month period ended March 31, 2005. Such financial
statements fairly present the financial condition and the results of operations, stockholders’
equity, and cash flow of BANK as at March 31, 2005 and for the three month period then ended, all
in accordance with generally accepted accounting principles (other than the omission of notes).

               (viii) BANK has all consents and approvals necessary to enter into this Agreement and carry
out its obligations hereunder and the execution, delivery and performance of this Agreement does
not violate or conflict with, or permit the cancellation of, or constitute a default under, any
agreement to which BANK is a party, or by which BANK is bound and BANK has no contractual agreement
with any other company that markets and services loans for BANK that would prohibit or otherwise
restrict BANK from entering into this Agreement.

          (b) ACE hereby represents and warrants to BANK, as of the date hereof that:

               (i) ACE is duly organized and validly existing under the laws of the state of Texas, and ACE
and/or its affiliate performing duties under this Agreement

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is duly qualified to do business as contemplated under this Agreement and has all requisite
licenses, permits and authorizations under Texas and federal law to execute and deliver this
Agreement and perform its obligations contemplated hereunder.

               (ii) ACE has the corporate power and authority, and ACE and/or its affiliate performing duties
under this Agreement, has all requisite licenses, permits and authorizations, to execute and
deliver this Agreement and to perform its obligations contemplated hereunder. This Agreement has
been duly authorized, executed and delivered by ACE and constitutes its legal, valid and binding
agreement, enforceable against ACE in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights and
remedies generally and by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).

               (iii) The execution, delivery and performance of this Agreement by ACE does not violate or
conflict with (A) any provision of the governance documents of ACE or (B) any Texas or federal law,
or any order, arbitration award, judgment or decree to which ACE is a party or by which ACE or any
of its assets may be bound.

               (iv) Except as may be set forth on Exhibit C hereto, there are no claims, actions,
suits, orders or investigations, either at law or in equity, or any proceedings by or before any
court or governmental authority or arbitrator pending, or to the knowledge of ACE threatened,
against ACE or any of its affiliates that (i) if asserted and decided adversely to ACE or any
affiliate, would materially and adversely affect ACE or its affiliate or the Program, or (ii)
questions the validity of this Agreement, the Program or the Loans, or (iii) seeks to delay,
prohibit or restrict the activities of ACE or BANK contemplated by this Agreement.

               (v) ACE has delivered to BANK true and correct copies of ACE’s audited financial statements as
of and for the year ended June 30, 2004. Such financial statements and notes fairly present the
financial condition and the results of operations, stockholders’ equity, and cash flow of ACE as at
June 30, 2004 and for the year then ended, all in accordance with generally accepted accounting
principles then in effect (other than the omission of notes). ACE has also delivered to Bank true
and correct copies of ACE’s unaudited financial statements as of and for the nine months period
ended March 31, 2005. Such financial statements fairly present the financial condition and the
results of operations, stockholders’ equity, and cash flow of ACE as of March 31, 2005 and for the
nine month period then ended, all in accordance with generally accepted accounting principles
(other than the omission of notes).

               (vi) ACE has all consents and approvals necessary to enter into this Agreement and carry out
its obligations hereunder and the execution, delivery and performance of this Agreement does not
violate or conflict with, or permit the cancellation of, or constitute a default under, any
agreement to which ACE is a party, or by which ACE is bound and ACE has no contractual agreement
with any other financial or similar institution for which ACE markets and services loans that would
prohibit or otherwise restrict ACE from entering into this Agreement.

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     4. Indemnification.

          (a) ACE hereby indemnifies and agrees to hold harmless (i) BANK, (ii) BANK’s parent,
subsidiaries, and affiliates, (iii) any person obtaining an interest (whether in the form of a
participation interest, a whole loan, or as pledged collateral, and whether or not ACE has notice
of any such interest) in any Loan subject to this Agreement (to the extent required in accordance
with the contract pursuant to which such person obtained an interest in such Loans), and (iv) each
of the respective officers, directors, employees, representatives, agents, and attorneys of the
persons or entities described in clauses (i), (ii) and (iii) above (collectively the “BANK
Indemnified Parties”) from and against any and all claims, losses, liabilities, damages,
penalties, demands, suits, arbitrations, actions, judgments, settlements, costs, and expenses,
including, without limitation, any claims or losses related to security breaches or identity theft,
those costs and expenses relating to any investigation or any defense or prosecution of any
proceedings, and reasonable fees and expenses of attorneys, accountants, experts, investigators,
and other consultants incurred in connection therewith (collectively “Losses”) suffered or
incurred by the BANK Indemnified Parties as a result of, or in connection with:

               (i) the services to be provided by ACE under this Agreement;

               (ii) ACE’s conduct under the Program constituting a violation by ACE of any consumer
protection, consumer lending or privacy law or regulation or any other Law;

               (iii) ACE’s or its employees’ burglary, fraud, theft, gross negligence, willful misconduct or
breach of this Agreement, including, without limitation, the inaccuracy in any material respect of
any representation or warranty made by ACE contained in this Agreement;

               (iv) BANK’s conduct under the Program in compliance with the terms of this Agreement
including, without limitation, any alleged violation by BANK of any consumer protection, consumer
lending or regulation or any other Law or BANK’s negligence (but not gross negligence or willful
misconduct); or

               (v) the Program, including, without limitation, Losses incurred (A) as a result of any class
action or other suits by Borrowers, attorney generals, state or federal banking or regulatory
agencies or others, (B) as a result of any alleged violation of any Law applicable to the Program.

          (b) Provided, however, that notwithstanding the foregoing, ACE shall have no obligation to
indemnify BANK for any Losses which are incurred by BANK as a result of the following:

               (i) BANK’s or its employees’ burglary, theft, negligence, gross negligence, willful misconduct
or breach of this Agreement, including the inaccuracy in any material respect of any representation
or warranty made by BANK contained in this Agreement;

12

 

               (ii) BANK’s or its employees failure to act in accordance with the Program;

               (iii) Actions or omissions which conflict, or are not consistent, with the Program.

               (iv) BANK’s or its employees’ fraud or misconduct (related to specific actions of BANK or its
employees and not arising from or related to general claims of fraud or misconduct related to the
Program or the Loans);

               (v) ACE complying with BANK Policies or taking specific action under a specific request by
BANK that ACE would not otherwise take without the specific request of BANK;

               (vi) any claim by any Delaware regulatory authority, the FDIC, or any other federal regulatory
agency or other governmental body having supervisory authority over BANK;

               (vii) any claim by any third party of service mark or trade mark infringement based upon ACE’s
use of the BANK Properties;

               (viii) violation by BANK of ECOA or any similar Delaware law governing BANK’s decisions
regarding whether to accept or reject a proposed Loan; or

               (ix) violation by BANK of any federal law.

     ACE acknowledges that this indemnification and risk allocation is a material inducement to
BANK to enter into this Agreement and is a material factor in BANK’s determination of the
compensation to be paid to ACE. ACE expressly agrees and intends that this risk allocation includes
any such risk arising in whole and or part from the alleged or actual negligence (but not gross
negligence or willful misconduct) of BANK. “Losses” shall include the failure of a
Borrower to repay a Loan if such failure is related to a Collateral Event (as defined below) or any
other reason other than a Borrower’s financial ability. For example, but not by way of limitation,
if a Loan is not required to be repaid as a result of a suit alleging that the Program violates a
prescribed law, Losses will include the principal amount of the Loan.

          (c) BANK hereby indemnifies and agrees to hold harmless ACE and its parent, subsidiaries and
affiliates, and each of their officers, directors, employees, representatives, agents and attorneys
(the “ACE Indemnified Parties”) from and against any and all Losses suffered or incurred by
such ACE Indemnified Parties as a result of, or in connection with, those matters specified in
clauses (i) through (ix) of Section 4(b).

          (d) The BANK Indemnified Parties and the ACE Indemnified Parties are sometimes referred to
herein as the “Indemnified Parties,” and ACE or BANK, as indemnitor hereunder, are
sometimes referred to herein as the “Indemnifying Party.”

13

 

          (e) Any Indemnified Party seeking indemnification hereunder shall promptly notify the
Indemnifying Party, in writing, of any notice of the assertion by any third party of any claim or
of the commencement by any third party of any legal or regulatory proceeding, arbitration or
action, or if the Indemnified Party determines the existence of any such claim or the commencement
by any third party of any such legal or regulatory proceeding, arbitration or action, whether or
not the same shall have been asserted or initiated, in any case with respect to which the
Indemnifying Party is or may be obligated to provide indemnification (an “Indemnifiable
Claim”) specifying in reasonable detail the nature of the Loss, and, if known, the amount, or
an estimate of the amount, of the Loss, provided that failure to promptly give such notice shall
only limit the liability of the Indemnifying Party to the extent of the actual prejudice, if any,
suffered by such Indemnifying Party as a result of such failure. The Indemnified Party shall
provide to the Indemnifying Party as promptly as practicable thereafter information and
documentation reasonably requested by such Indemnifying Party to support and verify the
Indemnifiable Claim asserted.

          (f) The Indemnifying Party shall have thirty (30) days after receipt of any notification of an
Indemnifiable Claim (a “Claim Notice”) to undertake, conduct and control, through counsel
of its own choosing, and at its own expense, the settlement or defense thereof, and the Indemnified
Party shall cooperate with the Indemnifying Party in connection therewith if such cooperation is so
requested and the request is reasonable; provided that the Indemnifying Party shall hold the
Indemnified Party harmless from all of its reasonable out-of-pocket expenses, including reasonable
attorneys’ fees incurred in connection with the Indemnified Party’s cooperation. If the
Indemnifying Party assumes responsibility for the settlement or defense of any such claim, (i) the
Indemnifying Party shall permit the Indemnified Party to participate in such settlement or defense
through counsel chosen by the Indemnified Party (subject to the consent of the Indemnifying Party
to such counsel, which consent shall not be unreasonably withheld) and engage under a mutually
agreed upon legal budget where the costs of the Indemnified Party’s counsel shall be split equally
between the Indemnifying Party and the Indemnified Party); and (ii) the Indemnifying Party shall
not settle any Indemnifiable Claim without the Indemnified Party’s consent, which consent shall not
be unreasonably withheld or delayed for any reason if the settlement involves only payment of
money, and which consent may be withheld for any reason if the settlement involves more than the
payment of money, including any admission by the Indemnified Party. So long as the Indemnifying
Party is vigorously contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party’s consent, which consent shall
not be unreasonably withheld.

          (g) If the Indemnifying Party does not notify the Indemnified Party within thirty (30) days
after receipt of the Claim Notice that it elects to undertake the defense of the Indemnifiable
Claim described therein, or if the Indemnifying Party fails to contest vigorously any such
Indemnifiable Claim, the Indemnified Party shall have the right, upon notice to the Indemnifying
Party, to contest, settle or compromise the Indemnifiable Claim in the exercise of its reasonable
discretion; provided that the Indemnified Party shall notify the Indemnifying Party of any
compromise or settlement of any such Indemnifiable Claim. No action taken by the Indemnified Party
pursuant to

14

 

this Section 4(g) shall deprive the Indemnified Party of its rights to indemnification
pursuant to this Section 4. The Indemnifying Party shall pay to the Indemnified Party all
Losses which the Indemnified Party has incurred within 30 days of receipt of written demand
therefor, including, without limitation, reasonable attorneys fees of the Indemnified Party
incurred in connection with defense of any Indemnifiable Claim.

          (h) If ACE does not make timely payment to BANK as required under this Section 4, BANK
may set off against the fees owed to ACE by BANK pursuant to Section 2(g) above. In
addition, upon the occurrence of a Collateral Event (as defined below), ACE shall post collateral
(cash or cash equivalent) with BANK in an amount reasonably determined by BANK (the “Collateral
Amount”), with such Collateral Amount not to exceed the greater of (X) 15% of the highest daily
balance of all outstanding Loans in the 30 calendar days preceding the Collateral Event or (Y)
$250,000. Such collateral shall be held in an interest bearing account (or applied in BANK’s sole
discretion against any monies owed by ACE to BANK and not paid timely) until either (I) all of
ACE’s obligations under this Agreement have been discharged to the reasonable satisfaction
of BANK and all Loans have been collected or written off by BANK or (II) the Collateral Event has
been resolved. In addition, until either (I) ACE’s obligations under this Agreement have been
discharged to the reasonable satisfaction of BANK and all Loans have been collected or written off
by BANK or (II) the Collateral Event has been resolved, it shall be the obligation of ACE to
maintain the value of such collateral being held by BANK at an amount that is at all times equal to
the Collateral Amount. A “Collateral Event” shall have occurred when: (1) the Program is
for any reason suspended or terminated as a result of or in connection with an Indemnifiable Claim
against ACE or (2) a suit or other proceeding is initiated against BANK and BANK is entitled to
indemnification under this Section 4 for such suit or other proceeding. If for any reason
ACE does not post such collateral within 30 days, BANK shall be permitted to immediately set off
against all of the fees owed to ACE by BANK hereunder until all indemnification claims have been
satisfied in full and until collateral representing the Collateral Amount has been established.
If ACE fails to make any payments in a timely manner to BANK under this Agreement, BANK, in its
sole discretion, may (but is not required to) from time to time distribute to itself from the
interest bearing account (including any interest earned thereon) an amount equal to any monies ACE
owes to BANK).

     5. Term and Termination.

          (a) Term. The term of this Agreement shall commence as of the date of this Agreement,
and shall continue for a term of 36 months. The Agreement shall automatically renew for an
additional 12-month term unless either Party provides written notice to the other Party that it
does not wish to so renew the Agreement no less than 90 days prior to the expiration of the
original term of the Agreement.

          (b) Change in Circumstances. If ACE determines that it can profitably engage in
installment loan or deferred deposit transactions in any of the States of Texas, Arkansas or
Pennsylvania independent of BANK, then ACE, in its sole discretion upon sixty (60) days notice to
BANK, may (i) in the event of such a determination by ACE

15

 

with respect to any of the States of Arkansas or Pennsylvania, elect to modify this Agreement
to remove such State from the definition of “Market” or (ii) in the event of such a determination
by ACE with respect to the State of Texas, elect to either (A) modify this Agreement to remove the
State of Texas from the definition of “Market” or (B) terminate this Agreement. In the event of a
termination of this Agreement in accordance with Section 5(b)(ii)(B) on or prior to December 31,
2006, ACE shall pay BANK a termination fee of $100,000.

          (c) Insolvency. Upon the occurrence of an Insolvency Event (as defined below in this
Section 5(c)) by either Party, this Agreement shall automatically and immediately
terminate. It shall constitute an Insolvency Event by BANK hereunder if BANK shall file for
protection under any state or federal liquidation provision, or BANK is placed into conservatorship
or receivership with the FDIC or any other duly appointed person or entity. It shall constitute an
Insolvency Event by ACE hereunder if ACE shall file for protection under Texas law or federal
bankruptcy or similar law, an involuntary petition is filed against ACE under any such laws and is
not dismissed within thirty (30) days of such filing, or a receiver or any regulatory authority
takes control of ACE.

          (d) Event of Default. Upon the occurrence of an Event of Default (as hereinafter
defined) by either Party, the other Party may terminate this Agreement by giving written notice at
least thirty (30) days in advance of termination and an opportunity for the defaulting Party to
cure the Event of Default. It shall constitute an Event of Default by BANK hereunder if: (i) BANK
shall be in material breach of any duty, obligation, representation, warranty or covenant hereunder
or if BANK fails to make any payment due hereunder within the time period specified in this
Agreement; (ii) ACE has not materially defaulted hereunder and BANK nonetheless discontinues making
Loans; (iii) BANK terminates its agreement with the Service Provider and, as a result and through
no fault of ACE, ACE is not able to market and service the Loans for a period of five or more
business days, or (iv) BANK ceases generally to fund Loans marketed by ACE pursuant to this
Agreement. It shall constitute an Event of Default by ACE hereunder if (i) ACE shall be in
material breach of any duty, obligation, representation, warranty, or covenant hereunder, or (ii)
BANK has not defaulted hereunder and ACE nonetheless discontinues marketing and servicing the Loans
other than pursuant to Section 5(b).

          (e) Adverse Impact to BANK. BANK may terminate this Agreement on ninety (90) days
written notice to ACE in the event BANK becomes aware of any adverse legal, regulatory or other
developments (either federal or state), whether inside or outside of the state of Texas and
regardless of whether it involves any Party or is related to the Program, and which could have a
material adverse impact on BANK, the profitability of its activities under this Agreement or its
litigation or risk exposure. This provision shall not apply to events or circumstances covered by
Section 5(b).

          (f) Adverse Impact to ACE. ACE may terminate this Agreement on ninety (90) days’
written notice to BANK in the event that either (i) BANK changes the BANK Policies in a manner
which is reasonably likely to have a material adverse impact

16

 

on ACE, the profitability of its activities under this Agreement or its litigation or risk
exposure or (ii) ACE becomes aware of any adverse legal, regulatory or other developments (either
federal or state), whether inside or outside of the state of Texas and regardless of whether it
involves any Party, or is related to the Program, and which could have a material adverse impact on
ACE, the profitability of its activities under this Agreement or its litigation or risk exposure.

          (g) Effect of Termination. Upon termination or expiration of this Agreement for any
reason, BANK shall pay ACE any monies that are owed by BANK to ACE then due and payable under this
Agreement, including, without limitation, any Fees. In addition, ACE will pay to BANK any monies
that are owed by ACE to BANK then due and payable under this Agreement, including, without
limitation, any monies owed under Section 4. In order to preserve the goodwill of each
Party with its customers, both Parties shall act in good faith and cooperate in order to ensure a
smooth and orderly termination of their relationship and the termination of the Loan origination
and marketing program contemplated hereunder. Unless prohibited by applicable Laws, or as
otherwise provided in this Agreement, upon BANK’s written request ACE shall continue to service
outstanding Loans following termination or expiration of this Agreement until all Loans are repaid
or charged off in accordance with BANK Policies. Upon the termination or expiration of this
Agreement, all rights in BANK Properties granted to ACE shall revert to BANK, and ACE shall
immediately cease using the BANK Properties. In addition, upon termination or expiration of this
Agreement, BANK will negotiate in good faith with ACE to sell to ACE all Loans marketed and
serviced by ACE in and previously charged off by BANK for a nominal amount, provided that ACE
executes and delivers to BANK an indemnification agreement to indemnify and hold BANK harmless for
any and all actions taken by ACE in connection with collection of any such Loans and that ACE
agrees to comply with all laws regarding any attempts to collect such Loans.

          (h) Survival. Sections 1(b), 2(d)(iii), 2(e)(iii),
2(g), 2(j) and 4 through 10 hereof shall survive the termination of
this Agreement subject to any time limitations set forth in such Sections.

          (i) Right of First Refusal. If, during the term of this Agreement, ACE reaches an
agreement with a federally insured financial institution other than BANK (a “Third-Party
Financial Institution”) to offer short-term multiple installment loans (as opposed to
single-installment loans) in any state other than the States of Texas, Arkansas or Pennsylvania
(the “Proposed Third-Party Arrangement”), and if BANK is not then in default under this
Agreement, ACE shall give written notice (the “Offering Notice”) to BANK of such Proposed
Third-Party Arrangement before ACE and the Third-Party Financial Institution agree to effect the
Proposed Third-Party Arrangement. Such Offering Notice shall (a) described the Proposed
Third-Party Arrangement and (b) offer to BANK the right to enter into an agreement with ACE
identical to the Proposed Third-Party Arrangement (the “ROFR Offer”). BANK must give
written notice to ACE of its election to accept or reject the ROFR Offer within thirty (30) days
after the date of receipt of the Offering Notice. If BANK gives timely notice to ACE of its
acceptance of the ROFR Offer, ACE and BANK will enter into an agreement or amendment to this

17

 

Agreement providing for the Proposed Third-Party Arrangement. If BANK fails to accept or
gives written notice to ACE of its rejection of the ROFR Offer in a timely manner, the ROFR Offer
shall lapse and Seller shall be free to enter into the Proposed Third-Party Arrangement with the
Third-Party Financial Institution upon the terms described in the Offering Notice.

     6. Notices.

     Any notice hereunder by a Party shall be given to the other Party at its address set forth
below or at such other address designated by notice in the manner provided in this Section
6, by personal delivery, certified mail or private courier service, or by facsimile with a
confirmation copy by first class mail, postage prepaid. Any written notice or demand to be given
under this Agreement shall be duly and properly given if delivered as described in this Section
6. Such notice shall be deemed to have been given (a) when received, if by personal delivery
or private courier service, (b) when faxed, if by facsimile, and (c) three days after mailing, if
sent by certified mail; provided, however, that any notice given by a Party changing its address
for notice shall be deemed given only upon actual receipt by the other Party. Unless otherwise
agreed, notice shall be sent to the contact persons at the addresses or facsimile numbers, as the
case may be, set forth below:

	 	 	 
	If to ACE:

	 	ACE Cash Express, Inc.
	 

	 	Attention: General Counsel
	 

	 	1231 Greenway Drive, Suite 600
	 

	 	Irving, Texas 75038
	 

	 	Telephone: (972) 550-5000
	 

	 	Facsimile: (972) 582-1426
	 
	 	 
	If to BANK:

	 	First Bank of Delaware
	 

	 	Attention: Alonzo J. Primus, CPA
	 

	 	1000 Rocky Run Parkway
	 

	 	Wilmington, De 19803
	 

	 	Telephone: (215) 735-4422, ext. 5260
	 

	 	Facsimile: (215) 735-0212
	 
	 	 
	with a copy to:

	 	First Bank of Delaware
	 

	 	Attention: Paul Frenkiel, CFO
	 

	 	1000 Rocky Run Parkway
	 

	 	Wilmington, De 19803
	 

	 	Telephone: (215) 735-4422, ext. 5255
	 

	 	Facsimile: (215) 735-0508

     7. Confidentiality and Use of Customer Information.

          (a) Consistent with the limitations imposed by the Gramm-Leach-Bliley Act (“GLBA”),
Federal Reserve Board regulations and Federal Trade Commission regulations implementing the GLBA,
and other applicable federal and state privacy laws,

18

 

ACE may disclose or otherwise use all information collected on the Application regarding all
Applicants (“Applicant Information”), including, without limitation, names, addresses,
demographic information and financial information, for any lawful purpose. ACE shall not disclose
or otherwise use information concerning an Applicant, other than Applicant Information, that is
received by ACE as a result of the Applicant’s receipt of a Loan from BANK pursuant to this
Agreement for any purpose other than to perform ACE’s services as set forth in Section 2.
Consistent with the limitations imposed by the GLBA, Federal Reserve Board regulations and Federal
Trade Commission regulations implementing the GLBA, and other applicable federal and state privacy
laws, BANK may use the Applicant Information for any Applicant to whom it extends a Loan, or
considers extending a Loan, only for the purposes authorized by, and subject to the provisions of,
this Agreement.

          (b) BANK and ACE agree to treat in confidence the provisions of this Agreement and all
documents, materials and other information related to this Agreement which shall have been obtained
during the course of the negotiations leading to, and during the performance of, this Agreement
(collectively, “Confidential Information”), including without limitation the reports
referenced in Section 2(e), and not to communicate Confidential Information to any third
party, except that Confidential Information may be provided to a regulatory agency having or
asserting jurisdiction over a Party or the Loans, a Party’s affiliates, as such term is defined in
the Securities Exchange Act of 1934, counsel, accountants, financial or tax advisors without the
consent of the other Party; provided that such Parties agree to hold such Confidential Information
in confidence. As used herein, the term “Confidential Information” does not include
information which (i) becomes generally available to the public other than as a result of a
disclosure by a Party receiving such information (a “Restricted Party”), (ii) is
independently developed by a Restricted Party without violating this Agreement, (iii) was available
to the Restricted Party on a non-confidential basis prior to its disclosure to the Restricted
Party, (iv) becomes available to the Restricted Party on a non-confidential basis from a source
other than the other Party; provided that such source is not bound by a confidentiality agreement
with the other Party or otherwise prohibited from transmitting the information to the Restricted
Party by a contractual, legal or fiduciary obligation or (v) is required by Law to be disclosed.

          (c) In the event that a Restricted Party is requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena, Civil Investigative Demand or
similar process) to disclose any Confidential Information, the Restricted Party will provide the
other Party with prompt notice of such request(s) so that the other Party may seek an appropriate
protective order or other appropriate remedy and/or waive the Restricted Party’s compliance with
the provisions of this Agreement. In the event that the other Party does not seek such a
protective order or other remedy, or such protective order or other remedy is not obtained, or the
other Party grants a waiver hereunder, the Restricted Party may furnish that portion (and only that
portion) of the Confidential Information which the Restricted Party is legally compelled to
disclose and will exercise such efforts to obtain reasonable assurance that confidential treatment
will be accorded any Confidential Information so furnished as a Restricted Party would

19

 

reasonably exercise in assuring the confidentiality of any of its own confidential
information.

     8. Specific Performance in the Event of Breach.

          (a) The Parties agree that monetary damages would not be adequate compensation in the event of
a breach by a Restricted Party of its obligations under Section 7 and, therefore, the
Parties agree that in the event of any such breach the Restricted Party, in addition to its other
remedies at law or in equity, shall be entitled to an order requiring the Restricted Party to
specifically perform its obligations under Section 7 or enjoining the Restricted Party from
breaching Section 7, and the Restricted Party shall not plead in defense thereto that there
would be an adequate remedy at law.

     9. Miscellaneous.

          (a) Neither the existence of this Agreement or any related agreements, nor their execution, is
intended to be, nor shall it be construed to be, the formation of a partnership, joint venture or
agency relationship between BANK and ACE. No employee of ACE shall be deemed to be an employee of
BANK, nor shall any employee of BANK be deemed an employee of ACE.

          (b) This Agreement and any related agreements supersede any negotiations, discussions or
communications between BANK and ACE and constitute the entire agreement of BANK and ACE with
respect to the subject matter hereof.

          (c) Failure of any Party to insist, in one or more instances, on performance by any other
Party in accordance with the terms and conditions of this Agreement shall not be deemed a waiver or
relinquishment of any right granted hereunder or of the future performance of any such term or
condition or of any other term or condition of this Agreement unless and to the extent that such
waiver is in a writing signed by or on behalf of the Party alleged to have granted such waiver.

          (d) ACE shall not assign any of its rights or delegate any of its obligations hereunder
without BANK’s prior written consent, which shall not be unreasonably withheld, in which event ACE
shall remain directly liable to BANK for all of ACE’s obligations hereunder. BANK shall not assign
any of its rights or delegate any of its obligations hereunder without ACE’s prior written consent,
which shall not be unreasonably withheld. This Section 9(d) shall not be deemed to apply
to Section 1(c). Notwithstanding the foregoing, ACE may assign this Agreement in whole or
in part to an affiliate of ACE, so long as ACE agrees to remain directly liable to BANK for all of
ACE’s obligations hereunder.

          (e) This Agreement is for the sole and exclusive benefit of the Parties and shall not be
deemed to be for the benefit of any third party, including any Borrower, except for ACE
Indemnified Parties as provided in Section 4. Except as provided in the previous sentence,
no such third party shall be deemed to be a third-party beneficiary hereunder.

20

 

          (f) The headings of the several sections and subsections of this Agreement are inserted for
convenience only and shall not in any way affect the meaning or construction of any provision of
this Agreement.

          (g) When used in this Agreement, (i) “including” shall not signify any limitation or
restriction, (ii) “hereof,” “herein,” “hereby” and similar terms shall be
deemed references to this Agreement as a whole, (iii) “person” shall include natural
persons, entities of any kind, and governmental authorities, (iv) “Section,”
“Exhibit” and “Schedule” shall refer to a Section, an Exhibit and a Schedule,
respectively, of or to this Agreement, unless otherwise stated, and (v) “business day”
shall mean any Monday through Friday other than any such day that banks are authorized to be closed
in the State of Texas. Pronouns referring to any gender shall be deemed references to each other
gender as appropriate.

          (h) This Agreement may be executed by the Parties in separate counterparts, each of which is
an original but all of which together shall constitute one and the same document. Facsimile
signatures and photocopies shall be deemed as valid as though they were originals.

          (i) ACE shall provide to BANK any copies of written customer complaints regarding any Loan or
the Program received by U.S. Mail from consumers within five (5) business days of receipt by ACE.

     10. Choice of Law; Forum Selection; Attorneys Fees and Waiver of Jury Trial

          (a) Choice of Law. This Agreement and the rights and duties described herein shall be
governed by, and interpreted in accordance with, the laws of the State of Delaware, without
reference to Delaware choice of law or conflict of law rules.

          (b) Forum Selection. Any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, this Agreement shall be brought against any of the Parties in
the courts of the State of Delaware, County of New Castle, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of Delaware, and each of the
Parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in
any such action or proceeding and waives any objection to venue laid therein. Process in any
action or proceeding referred to in the preceding sentence may be served on any Party anywhere in
the world.

          (c) Attorneys Fees. Any person who is the successful Party in any proceeding brought
to enforce such Party’s rights under this Agreement shall be entitled to recover attorneys’ fees
and costs from the other Party.

          (d) WAIVER OF RIGHTS TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER
THIS AGREEMENT OR IN ANYWAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO WITH

21

 

RESPECT TO THIS AGREEMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH
PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

IN WITNESS WHEREOF, BANK and ACE, intending to be legally bound hereby, have caused this Agreement
to be executed by their duly authorized officers as of the day and year first set forth above.

	 	 	 	 	 	 	 
	FIRST BANK OF DELAWARE	 	ACE CASH EXPRESS, INC.
	 
	 	 	 	 	 	 
	By:

	 	/s/ Harry M. Maddona
	 	By:
	 	/s/ Walter E. Evans
	 

	 	 
	 	 	 	 
	Its:

	 	President & CEO
	 	Its:
	 	SVP & General Counsel
	Date:

	 	7/21/05
	 	Date:
	 	7/21/05

22

 

EXHIBIT A

COMPUTATION OF SERVICING FEES

     1. This is Exhibit A to that certain Marketing and Servicing Agreement dated as of
July 21, 2005 (the “Agreement”) between First Bank of Delaware (“BANK”) and ACE
Cash Express, Inc. (“ACE”). All capitalized terms used herein and not otherwise defined
are defined in the Agreement.

     2. As ACE’s sole compensation under the Agreement, BANK shall pay ACE the marketing and
servicing fees (the “Fees”) set forth below. BANK shall only be obligated to pay the Fees
on Loans actually paid during the period.

     3. Commencing on the first business day following the cashing of a voucher by ACE in
connection with a Loan and continuing on each business day thereafter, ACE shall deliver to BANK a
daily report of business (the “Daily Report”) outlining the total amount of vouchers cashed
by ACE on any day prior to such Daily Report and not included in a prior Daily Report (the
aggregate amount of vouchers cashed referred to as the “Voucher Proceeds”), the fees earned
by BANK, the Fees projected to be earned by ACE upon full repayment of the Loan, and the total
Loans held as receivable as a result of the transactions. Additionally, the report will detail the
Loans collected from each Borrower together with the applicable fees that pertain to BANK and
applicable Fees that pertain to ACE, as well as such other information as is reasonably required by
BANK to manage the Program. On each such business day that such a report is delivered, BANK shall
pay ACE, by an ACH transfer, the Voucher Proceeds reflected in such report.

     4. On the first and fifteenth calendar day of each calendar month following a Loan repayment,
and continuing on the first and fifteenth calendar day of each calendar month thereafter, ACE shall
deliver to BANK an invoice that details, by the day, the total Loans collected, the total fees
earned by BANK, and the total amount of Fees due to ACE for the 15-day period included in such
invoice (an “Invoice”). Based on each Invoice, BANK will pay to ACE, by ACH transfer (or
by other means agreeable to ACE and BANK) on the day following the delivery of the Invoice, the
Fees owed by BANK to ACE as a result of ACE’s activities for the Invoice period; provided, however,
that if any payment date is not a business day for BANK, then BANK’s payment shall be made on the
next day that is a business day for BANK. Each Invoice shall show (i) the total of payments on
Loans actually received by BANK during the Invoice period; and (ii) the Fees owed by BANK to ACE,
together with the calculation of such Fees in such detail and in a manner mutually agreeable to the
Parties. ACE and BANK agree that the calculation of the Fees owed by BANK shall be submitted with
each Invoice. ACE shall be responsible for all principal and fee losses on Loans. For each invoice
period, BANK will reduce the amount of fees payable to ACE by the amount of the principal and fee
losses on Loans.

 

 

     5. Each Borrower shall be charged an annual percentage rate of between * — * % depending on
the term of the Loan.

     6. As provided in Section 2(f) of the Agreement, BANK must pay ACE Fees calculated as
follows: (a) all returned item charges paid by Borrowers plus (b) all finance charges paid by
Borrowers, less (i) $ * per Loan, (ii) * % of all fees recorded as paid by Borrowers, except
returned item charges, and (iii) all principal and fee losses on Loans. If the principal losses on
Loans exceed the amount due to ACE, ACE agrees to remit the amount of the shortfall to BANK via
wire transfer within three business days.

     7. ACE shall reimburse BANK on a monthly basis for all of BANK’s charges and actual costs
associated with BANK’s local Texas bank accounts, which BANK establishes to conduct the Program,
including, without limitation, actual NSF charges, services fees, and any miscellaneous monthly
fees. BANK will submit an invoice to ACE for these charges on a monthly basis.

     8. On a monthly basis, BANK will invoice ACE for * % of the Credit Scoring Fees, Base Rate
fees, Discount Rate fees and OFAC fees (each as described below) (collectively, the “Service
Provider Fees”) charged by the Service Provider. BANK will be responsible for * % of the
Service Provider Fees. While the Service Provider used by BANK may change during the term of this
Agreement, and while the Service Provider Fees charged by such vendor may change during this
period, the Parties contemplate that BANK 1will use Teletrack, Inc. as the Service
Provider and that Teletrack will charge the following fees in connection with its services to BANK:

Credit Scoring Fees: The Banks Service Provider is estimated to charge
$1.85 for each loan submitted for approval. The Credit Scoring information to be
gathered is the FICO score and the Borrowers Debt to

Income ratio.

Base Rate: So long as Service Provider does not already receive a fee with
respect to any ACE retail location from ACE or another institution offering loans
at such ACE retail location, $75.00 per month for each ACE retail location offering
Loans under this Agreement. This Base Rate includes only the first 75 transactions
per month made at each such ACE retail location.

Discount Rate: After the “Base Rate” is satisfied per location,
each transaction in excess of 75 transactions will be charged a rate of
approximately $0.20 cents per transaction.

OFAC Testing: the Service Provider costs for OFAC testing of Applicants.

 

			
	1	 	Confidential treatment has been requested
for certain portions of this document pursuant to an application
for confidential treatment to the Securities and Exchange Commission.
Such portions are omitted from
this filing and filed separately with the Securities and Exchange
Commission.

 

 

Credit Reporting Fees: To the extent BANK elects to provide Borrowers with
the ability to report their transaction information to credit reporting agencies,
BANK will bear all of the costs related thereto.

     9. ACE shall reimburse BANK for the costs of an annual IT audit of ACE’s information
technology system. Such costs shall not exceed $15,000. In addition, ACE shall reimburse BANK for
any audit costs related to reviews of any third parties (i.e. collection agencies) it contemplates
using for this agreement. Such costs shall not exceed $7,500 per 12-month period during the term of
this Agreement unless ACE requests that additional third party collectors be reviewed.

 

 

EXHIBIT B

CLAIMS, ACTIONS, SUITS, ORDER, OR INVESTIGATION ASSERTED AGAINST THE BANK

     1. The following is a list of each claim, action, suit, order, investigation, or proceeding by
or before any court, governmental authority, or arbitrator that is pending or, to the knowledge of
BANK, threatened against BANK or any of its affiliates (collectively a “BANK claim”), which
BANK claim (i) could materially and adversely affect BANK, any BANK affiliate, or the Program if
the claim is decided adversely to BANK or its affiliate; or (ii) seeks to delay, prohibit, or
restrict the activities of ACE or BANK contemplated by this Agreement:

As part of its “Memorandum of Understanding” (“MOU”) with the FDIC, BANK would be
required to exit the payday loan business upon request of the FDIC.

 

 

EXHIBIT C

CLAIMS, ACTIONS, SUITS, ORDER, OR INVESTIGATION ASSERTED AGAINST ACE

None<PAGE>
                                                                    Exhibit 10.1

                                                                  EXECUTION COPY

                               NOVARTIS PHARMA AG

                                       AND

                          ALNYLAM PHARMACEUTICALS, INC.

                            STOCK PURCHASE AGREEMENT
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>   <C>                                                                   <C>
1.    Purchase and Sale of Common Stock..................................     1
      1.1     SALE OF THE COMMON SHARES..................................     1

2.    Closing Date; Deliveries...........................................     2
      2.1     CLOSING DATE...............................................     2
      2.2     DELIVERIES.................................................     2
      2.3     FURTHER ASSURANCES.........................................     3

3.    Representations and Warranties of the Company......................     3
      3.1     ORGANIZATION, GOOD STANDING AND QUALIFICATION..............     3
      3.2     CAPITALIZATION AND VOTING RIGHTS...........................     4
      3.3     SUBSIDIARIES...............................................     5
      3.4     AUTHORIZATION..............................................     6
      3.5     NO CONFLICT................................................     6
      3.6     VALID ISSUANCE OF COMMON STOCK.............................     6
      3.7     GOVERNMENTAL CONSENTS......................................     7
      3.8     LITIGATION.................................................     7
      3.9     EMPLOYEES AND CONSULTANTS..................................     7
      3.10    PROPRIETARY RIGHTS.........................................     8
      3.11    AGREEMENTS; ACTION.........................................     8
      3.12    REGISTRATION RIGHTS........................................     9
      3.13    TITLE TO PROPERTY AND ASSETS...............................     9
      3.14    FINANCIAL STATEMENTS AND SEC FILINGS.......................     9
      3.15    EMPLOYEE BENEFIT PLANS.....................................    10
      3.16    TAX RETURNS, PAYMENTS AND ELECTIONS........................    10
      3.17    INSURANCE..................................................    11
      3.18    LABOR AGREEMENTS AND ACTIONS...............................    11
      3.19    REAL PROPERTY HOLDING CORPORATION..........................    11
      3.20    OFFERING...................................................    11
      3.21    ENVIRONMENTAL MATTERS......................................    11
      3.22    LICENSES AND OTHER RIGHTS; COMPLIANCE WITH LAWS............    12
      3.23    BROKER OR FINDERS..........................................    13
      3.24    MARKET LISTING.............................................    13
      3.25    RELIANCE...................................................    13

4.    Representations and Warranties of the Investor.....................    13
      4.1     AUTHORIZATION, GOVERNMENTAL CONSENTS AND COMPLIANCE WITH
              OTHER INSTRUMENTS..........................................    13
</TABLE>
<PAGE>
<TABLE>
<S>   <C>                                                                    <C>
      4.2     PURCHASE ENTIRELY FOR OWN ACCOUNT..........................    13
      4.3     DISCLOSURE OF INFORMATION..................................    14
      4.4     INVESTMENT EXPERIENCE AND ACCREDITED INVESTOR STATUS.......    14
      4.5     RESTRICTED SECURITIES......................................    14
      4.6     LEGENDS....................................................    14

5.    Conditions to Closing of Investor..................................    15
      5.1     REPRESENTATIONS AND WARRANTIES CORRECT.....................    15
      5.2     COVENANTS..................................................    15
      5.3     LEGAL OPINION..............................................    15
      5.4     NO MATERIAL ADVERSE EFFECT.................................    15
      5.5     RESEARCH COLLABORATION AND LICENSE AGREEMENT...............    15
      5.6     MARKET LISTING.............................................    15

6.    Conditions to Closing of the Company...............................    15
      6.1     REPRESENTATIONS AND WARRANTIES CORRECT.....................    15
      6.2     COVENANTS..................................................    16
      6.3     RESEARCH COLLABORATION AND LICENSE AGREEMENT...............    16

7.    Mutual Conditions to Closing.......................................    16
      7.1     HSR ACT AND OTHER QUALIFICATIONS...........................    16
      7.2     ABSENCE OF LITIGATION......................................    16

8.    Additional Covenants and Agreements................................    16
      8.1     UPDATES FROM COMPANY.......................................    16
      8.2     HSR FILING.................................................    16
      8.3     MARKET LISTING.............................................    17
      8.4     SHARE LEGEND REMOVAL.......................................    17
      8.5     USE OF PROCEEDS............................................    17
      8.6     CONSENTS...................................................    17
      8.7     OTHER AGREEMENTS...........................................    17
      8.8     WRITTEN INTERPRETATION OR STOCKHOLDER APPROVAL.............    18

9.    Termination........................................................    18

10.   Miscellaneous......................................................    18
      10.1    SURVIVAL OF WARRANTIES.....................................    18
      10.2    REMEDIES...................................................    18
      10.3    SUCCESSORS AND ASSIGNS.....................................    18
      10.4    ENTIRE AGREEMENT...........................................    19
      10.5    GOVERNING LAW AND CONSENT TO JURISDICTION..................    19
      10.6    COUNTERPARTS...............................................    19
</TABLE>

                                       ii
<PAGE>
<TABLE>
<S>   <C>                                                                    <C>
      10.7    TITLES AND SUBTITLES.......................................    19
      10.8    NOUNS AND PRONOUNS.........................................    19
      10.9    NOTICES....................................................    19
      10.10   FINDER'S FEE...............................................    20
      10.11   EXPENSES...................................................    20
      10.12   AMENDMENTS AND WAIVERS.....................................    20
      10.13   SEVERABILITY...............................................    21
      10.14   CONFIDENTIALITY AND PUBLICITY..............................    21
      10.15   DISCLOSURE SCHEDULE........................................    21
      10.16   DEFINITIONS................................................    22
</TABLE>

Annex A - Disclosure Schedule
Exhibit A - Legal Opinion
Exhibit B - Cross Receipt
Exhibit C - Research Collaboration and License Agreement
Exhibit D - Redacted Research Collaboration and License Agreement

                                      iii
<PAGE>
                            STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of September 6,
2005, by and between Novartis Pharma AG ("Novartis" or the "Investor"), a
corporation organized under the laws of Switzerland, with its principal place of
business at Lichtstrasse 35, CH-4002, Basel, Switzerland, and Alnylam
Pharmaceuticals, Inc., (the "Company"), a Delaware corporation with its
principal place of business at 300 Third Street, 3rd Floor, Cambridge,
Massachusetts 02142, U.S.A.

     THE PARTIES HEREBY AGREE AS FOLLOWS:

1. PURCHASE AND SALE OF COMMON STOCK.

     1.1  SALE OF THE COMMON SHARES.

          (a) Subject to the terms and conditions of this Agreement, the Company
shall issue and sell to the Investor and the Investor shall purchase from the
Company:

               (i) at the First Closing (as defined below) subject to Section
          2.1(c), that number of shares of common stock, par value $0.01 per
          share of the Company (the "Common Stock") representing 19.9% of the
          outstanding equity securities of the Company immediately prior to such
          issuance (the "Initial Shares") for an aggregate purchase price (the
          "Initial Purchase Price") equal to the product obtained by multiplying
          the number of Initial Shares by $11.11 (the "Share Price"); provided,
          however, that in the event of any stock dividend, stock split,
          combination of shares, recapitalization or other similar change in the
          capital structure of the Company after the date hereof and on or prior
          to the First Closing which affects or relates to the Common Stock, the
          Share Price shall be adjusted proportionately; and

               (ii) at the Second Closing (as defined below) subject to 2.1(c),
          that number of shares of Common Stock such that the percentage of the
          outstanding shares of Common Stock held by the Investor immediately
          following, and giving effect to, such issuance and the issuance of the
          Initial Shares is 19.9% of the outstanding equity securities of the
          Company (such amount of shares, the "Remaining Shares") for an
          aggregate purchase price (the "Remaining Purchase Price") equal to the
          product obtained by multiplying the number of Remaining Shares by the
          Share Price; provided, however, that in the event of any stock
          dividend, stock split, combination of shares, recapitalization or
          other similar change in the capital structure of the Company after the
          date hereof and on or prior to the Second Closing which affects or
          relates to the Common Stock, the Share Price shall be adjusted
          proportionately.

          (b) The applicable number of Initial Shares, Remaining Shares, the
Initial Purchase Price and the Remaining Purchase Price, as applicable, shall be
set forth on a Cross Receipt in the form of Exhibit B attached hereto delivered
at each Closing.

          (c) The parties agree that, prior to the First Closing, Novartis may
assign the right and obligation to purchase the Shares and all of its other
rights and obligations under this
<PAGE>
Agreement, to an Affiliate, in which case the term "Investor" shall refer herein
to such Affiliate; provided that in the event of any such assignment Novartis
shall remain liable for all its obligations under this Agreement.

2. CLOSING DATE; DELIVERIES.

     2.1 CLOSING DATE.

          (a) FIRST CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the purchase and sale of the Initial Shares (the
"First Closing") shall be held on or prior to the second business day after the
satisfaction or waiver of all of the conditions to the First Closing (other than
those conditions that by their nature are to be satisfied or waived at the First
Closing) or such other date as the Company and the Investor may agree upon at
10:00 a.m. at the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas,
New York, New York, 10019. The date of the First Closing is hereinafter referred
to as the "First Closing Date."

          (b) SECOND CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the purchase and sale of the Remaining Shares (the
"Second Closing") shall be held on or prior to the second business day after the
satisfaction or waiver of all of the conditions to the Second Closing (other
than those conditions that by their nature are to be satisfied or waived at the
Second Closing) or such other date as the Company and the Investor may agree
upon at 10:00 a.m. at the offices of Dewey Ballantine LLP, 1301 Avenue of the
Americas, New York, New York, 10019. The date of the Second Closing is
hereinafter referred to as the "Second Closing Date."

          (c) The parties agree that, in the event that the Company has obtained
the Written Interpretation or the Stockholder Approval, as applicable, before
the First Closing Date and has provided to the Investor written evidence
reasonably satisfactory to the Investor that the Company has obtained the
Written Interpretation or the Stockholder Approval, as applicable, the closing
of the purchase and sale of all the Shares shall occur in a single closing on
the First Closing Date. In such event, the Company shall not be obligated to
issue or sell, and the Investor shall not be obligated to purchase, any other
securities of the Company pursuant to this Agreement.

     2.2 DELIVERIES.

          (a) DELIVERIES BY THE COMPANY. At each Closing, the Company shall
deliver to the Investor a facsimile of the stock certificate (front and back),
registered in the Investor's name, representing the Shares being purchased by
the Investor at that Closing and the Company shall instruct its transfer agent
to deliver by overnight courier to the Investor the original certificate prior
to the end of the fifth business day after the applicable Closing Date. The
Company will also make the following deliveries in connection with each Closing:
(i) a certificate, signed by an officer of the Company, which contains the
representation and warranty set forth in Section 3.2(a) but substituting the
then-current numbers of shares for the numbers of shares set forth in Section
3.2(a) and attaching a pro forma capitalization table showing the outstanding
capital stock of the Company after giving effect to the applicable Closing; (ii)
a certificate or certificates, dated the applicable Closing Date, of the
Secretary or Assistant

                                       2
<PAGE>
Secretary of the Company certifying as to (A) the resolutions of the Company's
Board of Directors authorizing the execution and delivery of this Agreement and
the Investor Rights Agreement, the issuance of the applicable Shares to the
Investor, the execution and delivery of such other documents and instruments as
may be required by this Agreement or the Investor Rights Agreement and the
consummation of the transactions contemplated hereby and thereby and certifying
that such resolutions were duly adopted and have not been rescinded or amended
as of said date, and (B) the name and the signature of the officers of the
Company authorized to sign, as appropriate, this Agreement, the Investor Rights
Agreement and the other documents and certificates to be delivered pursuant to
this Agreement or the Investor Rights Agreement by either the Company or any of
its officers; (iii) copies of (A) the Restated Certificate, certified by the
Secretary of State of Delaware as of a date not earlier than five (5) business
days prior to the applicable Closing Date and accompanied by a certificate of
the Secretary or Assistant Secretary of the Company, dated as of the applicable
Closing Date, stating that no amendments have been made to such Restated
Certificate since such date, and (B) the By-laws of the Company certified by the
Secretary or Assistant Secretary of the Company; (iv) (A) a good standing
certificate dated as of a date not earlier than five (5) business days prior to
the applicable Closing Date issued with respect to the Company by the Secretary
of State of Delaware and (B) good standing certificates as of a date not earlier
than five (5) business days prior to the applicable Closing Date issued with
respect to the Company by the Secretary of State (or other applicable
Governmental Authority) in each state in where the Company is qualified as a
foreign corporation; and (v) a duly executed Cross Receipt setting forth the
number of Shares being purchased at that Closing, the applicable Share Price and
the applicable Purchase Price determined in accordance with Section 1.1
substantially in the form of Exhibit B attached hereto.

          (b) DELIVERIES BY THE INVESTOR. At each Closing, the Investor shall
deliver the applicable Purchase Price by wire transfer of same day funds per the
Company's wiring instructions (which shall have been delivered to the Investor
not less than two business days before the applicable Closing Date). The
Investor will also make all the following delivery in connection with each
Closing: a duly executed Cross Receipt setting forth the number of Shares being
purchased at that Closing, the applicable Share Price and the applicable
Purchase Price determined in accordance with Section 1.1 substantially in the
form of Exhibit B attached hereto.

     2.3 FURTHER ASSURANCES. The Company and the Investor hereby covenant and
agree without the necessity of any further consideration, to execute,
acknowledge and deliver any and all such other documents, obtain waivers and
consents and take any such other action and corporate and other proceedings as
may be reasonably necessary to carry out the intent and purposes of this
Agreement and to provide to the other party copies (executed or certified, as
may be appropriate) of all documents which they or their counsel may reasonably
have requested in connection with the transactions contemplated by this
Agreement.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to the Investor that the statements contained in this Section 3 are
true and correct as of the date hereof, except as set forth herein or in the
disclosure schedule delivered by the Company to the Investor dated as of the
date of this Agreement (the "Disclosure Schedule"):

     3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of

                                       3
<PAGE>
Delaware. The Company has all requisite corporate power and corporate authority
to own and operate its properties and assets, to carry on its business as now
conducted and as proposed to be conducted, to enter into this Agreement, to sell
the Shares and to carry out the other transactions contemplated hereunder, which
shall include in the case of the Remaining Shares, receipt on or prior to the
Second Closing of either (i) approval of the Company's stockholders for the
issuance and sale to the Investor of the Remaining Shares in compliance with
Rule 4350(i) of the Marketplace Rules of the National Association of Securities
Dealers, Inc. (the "Stockholder Approval") or (ii) a written interpretative
opinion from the National Association of Securities Dealers to the effect that
such Stockholder Approval is not required (the "Written Interpretation"). The
Company is qualified to transact business and is in good standing in each
jurisdiction in which the failure to qualify could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. For purposes
of this Agreement, the term "Material Adverse Effect" means a material adverse
effect on the business, properties, financial condition or results of operations
of the Company and its Subsidiaries, taken as a whole; provided, however, that
none of the following shall constitute, or shall be considered in determining
whether there has occurred, a Material Adverse Effect: (a) changes that are the
result of general economic or political factors affecting the national, or world
economy or acts of war or terrorism (except to the extent that such changes have
a disproportionate effect on the Company and its Subsidiaries, taken as a
whole); (b) changes that are the result of factors generally affecting the
industries or markets in which the Company operates (except to the extent that
such changes have a disproportionate effect on the Company and its Subsidiaries,
taken as a whole); (c) any adverse change, effect or circumstance arising out of
or resulting from actions contemplated by the parties in connection with this
Agreement or the pendency or announcement of the transactions contemplated by
this Agreement; (d) changes in law, rule or regulations or generally accepted
accounting principles and (e) any action taken pursuant to or in accordance with
this Agreement or at the request of the Investor. The Company has made available
to the Investor true, correct and complete copies of the Company's Restated
Certificate of Incorporation (the "Restated Certificate") and the Company's
By-laws in effect on the date hereof.

     3.2 CAPITALIZATION AND VOTING RIGHTS.

          (a) As of September 2, 2005, the authorized capital of the Company
consists of:

               (i) Preferred Stock. 5,000,000 shares of Preferred Stock, par
          value $0.01 per share (the "Preferred Stock"), of which 125,000 shares
          have been designated Series A Junior Participating Preferred Stock
          (the "Series A Preferred Stock"), none of which are issued and
          outstanding; and

               (ii) Common Stock. 125,000,000 shares of Common Stock, of which
          21,200,676 shares are issued and outstanding.

          (b) Except as set forth in Section 3.2(b) of the Disclosure Schedule,
as of the date hereof, there are: (i) no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements pursuant to which the
Company is or may become obligated to issue, sell or repurchase any shares of
its capital stock or any other securities of the Company; (ii) no restrictions
on the transfer of capital stock of the Company imposed by the Restated

                                       4
<PAGE>
Certificate or By-laws of the Company, any agreement to which the Company is a
party, or any order of any court or any governmental agency to which the Company
is subject; and (iii) no cumulative voting rights for any of the Company's
capital stock.

          (c) As of September 2, 2005, of the authorized Common Stock (i) 52,630
shares have been reserved for issuance upon exercise of outstanding warrants,
and (ii) 3,163,710 shares have been reserved for issuance upon exercise of
outstanding options or other stock-based awards under the 2002 Employee Director
and Consultant Stock Plan, 2003 Employee Director and Consultant Stock Plan,
2004 Stock Incentive Plan and 2004 Employee Stock Purchase Plan. Other than as
set forth in the preceding sentence, there are no other shares of Common Stock
reserved for issuance. There is no capital stock of the Company held by the
Company. As of the date hereof, all of the Series A Preferred Stock is reserved
for issuance under the Shareholder Rights Plan and is the only Preferred Stock
reserved for issuance.

          (d) Except as set forth in the Company's Annual Report on Form 10-K
for the year ended December 31, 2004, the Company's Quarterly Report on Form
10-Q for the period ended March 31, 2005 and the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2005 (collectively, the "Company's
Public Filings"), or in Section 3.2(d) of the Disclosure Schedule, the Company
is not a party to or is not subject to any agreement or understanding relating
to, and to the Company's knowledge there is no agreement or understanding
between any Persons which affects or relates to, the voting of shares of capital
stock of the Company or the giving of written consents by a stockholder or
director of the Company.

     3.3 SUBSIDIARIES. Except as set forth in the Company's Public Filings or in
Section 3.3 of the Disclosure Schedule:

          (a) The Company does not presently own or control, directly or
indirectly, any other corporation, association, partnership, trust, joint
venture or other business entity and does not currently own or control, directly
or indirectly, any capital stock or other ownership interest, directly or
indirectly, in any corporation, association, partnership, trust, joint venture
or other entity, other than securities in a publicly traded company or mutual
fund held for investment by the Company or any of its Subsidiaries and
consisting of less than five percent of the outstanding capital stock of such
company. Each of the Subsidiaries is duly organized and existing under the laws
of its jurisdiction or organization, is in good standing under such laws and is
duly qualified to do business as a foreign corporation in each jurisdiction in
which a failure to so qualify would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect.

          (b) All the outstanding shares of capital stock of each Subsidiary are
validly issued, fully paid and nonassessable, and are owned by the Company free
and clear of any Encumbrances, other than restrictions under securities laws.

          (c) There are no options, warrants, convertible securities, or other
rights, agreement, arrangements or commitments of any character relating to the
capital stock of any Subsidiary.

                                       5
<PAGE>
          (d) No Subsidiary is a member of (nor is any part of its business
conducted through) any partnership, nor is it a participant in any joint venture
or similar arrangement.

          (e) There are no voting trust, stockholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any shares of capital stock of or any other interests in any
Subsidiary.

     3.4 AUTHORIZATION. All corporate action on the part of the Company
necessary for the authorization, execution and delivery of this Agreement and
the Investor Rights Agreement, the performance of all obligations of the Company
hereunder and thereunder and the authorization, issuance and delivery of the
Shares to be sold hereunder, has been taken or will be taken prior to the
applicable Closing. This Agreement and the Investor Rights Agreement have been
duly executed and delivered by the Company and constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors rights and subject to general equity
principles.

     3.5 NO CONFLICT. The execution, delivery and performance of this Agreement
and the Investor Rights Agreement and compliance with the provisions hereof and
thereof by the Company, will not:

          (a) violate any provision of law, statute, ordinance, rule or
regulation or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body, the violation of which
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;

          (b) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time, or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under (i) any agreement, document, instrument, contract,
understanding, arrangement, note, indenture, mortgage or lease to which the
Company is a party or under which the Company or any of its assets is bound or
affected, except for any such conflicts, breaches, defaults, terminations,
cancellations or accelerations that could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, (ii) the Company's
Restated Certificate, or (iii) the By-laws of the Company; or

          (c) result in the creation of any Encumbrance upon any of the Shares,
other than restrictions on resale pursuant to securities laws, or on any of the
properties or assets of the Company or any Subsidiary.

     3.6 VALID ISSUANCE OF COMMON STOCK.

     When issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, the Shares will be duly authorized, validly
issued, fully paid and nonassessable, and will not be subject to any
antidilution rights, rights of first refusal or other similar rights or
restrictions on transfer, other than under securities laws.

                                       6
<PAGE>
     3.7 GOVERNMENTAL CONSENTS. Assuming the accuracy of the Investor's
representations contained in Section 4 of this Agreement, no consent, approval,
order or authorization of, or registration, qualification, designation,
declaration, notification or filing with, any federal, state or local
Governmental Authority, the National Association of Securities Dealers or such
other self-regulatory organization or stock exchange on which the Common Stock
is listed, on the part of the Company, is required in connection with the
execution, delivery and performance of this Agreement, the execution and
delivery of the Investors Rights Agreement, the offer, sale, or issuance of the
Shares or the consummation of any other transactions contemplated hereby, except
(i) the qualification (or the taking of such action as may be necessary to
secure an exemption from qualification) of the offer and sale of the Shares
under applicable Blue Sky laws, which filings and qualifications, if required,
shall be accomplished prior to the applicable Closing, (ii) as may be required
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act, as amended ("HSR
Act"), if applicable, (iii) a notice of (A) listing of additional shares with
respect to the Shares and (B) a change in the number of outstanding shares of
the Company, each to the NASDAQ Stock Market, Inc and (iv) in the case of the
Remaining Shares, receipt of either the Stockholder Approval or the Written
Interpretation.

     3.8 LITIGATION. Except as set forth in Section 3.8 of the Disclosure
Schedule or in the Company's Public Filings, there is no action, suit,
proceeding or investigation pending or, to the Company's knowledge, currently
threatened against the Company or any Subsidiary which questions the validity of
this Agreement or the Investor Rights Agreement or the right of the Company to
enter into such agreements, or to consummate the transactions contemplated
hereby or thereby, or which could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect, or result in any change in the
current equity ownership of the Company, nor is the Company aware that there is
any basis for the foregoing. To the Company's knowledge, there are no legal
actions or investigations pending or threatened involving the employment by or
with the Company of any of the Company's current or former employees, their use
in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers or alleging a violation of any
federal, state or local statute or common law relationship with the Company. The
Company is not a party to any order, writ, injunction, judgment or decree of any
court. There is no action, suit, proceeding or investigation by the Company
currently pending or that the Company intends to initiate.

     3.9 EMPLOYEES AND CONSULTANTS. Except as set forth in Section 3.9 of the
Disclosure Schedule:

          (a) To the Company's knowledge, none of its employees is obligated
under any contract (including licenses, covenants or contracts of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted.

          (b) Except as set forth in Section 3.9 of the Disclosure Schedule,
each employee of, or consultant to, the Company, who has or is proposed to have
access to material confidential or proprietary information of the Company, is a
signatory to, and is bound by, an

                                       7
<PAGE>
agreement with the Company relating to nondisclosure, proprietary information
and assignment of patent, copyright and other intellectual property rights.

     3.10 PROPRIETARY RIGHTS.

          (a) Except as set forth in the Company's Public Filings or Section
3.10(a) of the Disclosure Schedule: (i) the Company or one of its Subsidiaries
owns, free and clear of any lien or encumbrance, or has a valid license to, or
has an enforceable right to use, without the payment of any royalty except
pursuant to the Material IP Contracts (defined below) listed on Section 3.10(b)
of the Disclosure Schedule, all U.S. and non-U.S. patents, trade secrets,
know-how, trademarks, service marks, copyrights, and other proprietary and
intellectual property rights, and all grants and applications with respect to
the foregoing (collectively, the "Proprietary Rights") necessary for the conduct
of the Company's business as now conducted, the absence of which would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect (such Proprietary Rights owned by or licensed to the Company
collectively, the "Company Rights"); (ii) to the Company's knowledge, the
Company's rights in the Company Rights are valid and enforceable; (iii) to the
Company's knowledge, all necessary registration, maintenance and renewal fees in
respect of the Company Rights have been paid on time; (iv) none of the Company
or its Subsidiaries have or are infringing or otherwise violating the
appropriate Proprietary Rights of any Person, and have not received any notice
or are subject to any actual or threatened proceedings alleging such, except for
infringements or other violations that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect; (v) the Company and
its Subsidiaries have taken reasonable measures to protect the Company Rights,
consistent with prudent commercial practices in the biotechnology industry; (vi)
other than the Material IP Contracts, there are no outstanding material options,
licenses or agreements of any kind relating or affecting to the Company Rights
except for options, licenses or agreements specifically referenced in the
Research Collaboration and License Agreement; and (vii) there are no breaches or
defaults of, or any disputes or threatened disputes concerning, any of the
Material IP Contracts, except for breaches, defaults and disputes in Material IP
Contracts which are not and will not be sublicensed to NIBRI pursuant to the
Research Collaboration and License Agreement that would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

          (b) Schedule 3.10(b) contains a complete and accurate list of (i) all
patents, registered trademarks, registered copyrights and applications for the
foregoing included in the Company Rights that are owned by the Company or one of
its Subsidiaries, indicating the owner(s) thereof, and all applications,
registrations and grants with respect thereto, except that such list does not
include registered trademarks and applications therefor that the Company has
determined that it will abandon, and (ii) all material agreements granting any
rights (whether to or by the Company or any of its Subsidiaries) with respect to
any of the Company Rights (collectively, the "Material IP Contracts"),
specifically indicating, as applicable, each amendment thereto.

     3.11 AGREEMENTS; ACTION.

          (a) Except as set forth in the Company's Public Filings or in Section
3.11(a) of the Disclosure Schedule, since December 31, 2004, the Company has not
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or

                                       8
<PAGE>
series of its capital stock, or (ii) sold, exchanged or otherwise disposed of
any of its material assets or rights, other than in the ordinary course of
business.

          (b) Since December 31, 2004, the Company has not admitted in writing
its inability to pay its debts generally as they become due, filed or consented
to the filing against it of a petition in bankruptcy or a petition to take
advantage of any insolvency act, made an assignment for the benefit of
creditors, consented to the appointment of a receiver for itself or for the
whole or any substantial part of its property, or had a petition in bankruptcy
filed against it, been adjudicated a bankrupt, or filed a petition or answer
seeking reorganization or arrangement under the federal bankruptcy laws or any
other laws of the United States or any other jurisdiction.

          (c) The Company is in compliance with all obligations, agreements and
conditions contained in any evidence of indebtedness or any loan agreement or
other contract or agreement (whether or not relating to indebtedness) to which
the Company is a party or is subject (collectively, the "Obligations"), the lack
of compliance with which would afford to any Person the right to (i) accelerate
any material indebtedness or (ii) terminate any right or agreement of the
Company, the termination of which would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. To the Company's
knowledge, all other parties to such Obligations are in compliance with the
terms and conditions of such Obligations, except for any non-compliance that
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.

     3.12 REGISTRATION RIGHTS. Except as provided in Section 3.12 of the
Disclosure Schedule, the Company has not granted or agreed to grant any
registration rights with respect to shares of the Company's capital stock under
the Securities Act of 1933, as amended (the "Securities Act"), including
piggyback rights, to any Person.

     3.13 TITLE TO PROPERTY AND ASSETS. Except as provided in the Company's
Public Filings, the Company or one of its Subsidiaries has good title to, a
valid leasehold interest in, or a valid license to use, all of the material
tangible property and assets reflected on the Company's balance sheet as of June
30, 2005, free and clear of all material liens, claims, restrictions or
Encumbrances, except those assets sold, consumed or otherwise disposed of since
the date of such balance sheet in the ordinary course of business, none of which
either alone or in the aggregate are material, either in nature or amount, to
the business of the Company and its Subsidiaries taken as a whole.

     3.14 FINANCIAL STATEMENTS AND SEC FILINGS.

          (a) The Company has made available to the Investor (i) the Company's
audited financial statements for the year ended December 31, 2004 contained in
the Company's annual report on Form 10-K (the "Audited Financial Statements");
and (ii) the Company's unaudited financial statements for the quarter ended
March 31, 2005 and the quarter ended June 30, 2005 contained in the Company's
quarterly reports on Form 10-Q (collectively with the Audited Financial
Statements, the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the

                                       9
<PAGE>
periods indicated (except as may be indicated in notes or as permitted by Form
10-Q) and fairly present in all material respects the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Since December 31, 2004, the Company has conducted its business in
the ordinary course, and there has not been any Material Adverse Effect. Since
June 30, 2005, the Company has incurred no liabilities (contingent or otherwise)
outside the ordinary course of business that would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. Except as
disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation that
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.

          (b) Since May 27, 2004, the Company has filed all required reports,
schedules, forms, statements and other documents (including exhibits and all
other information incorporated therein) with the SEC ("Company SEC Documents").
As of their respective dates, the Company SEC Documents complied as to form in
all material respects with the requirements of the Securities Act or the
Securities Exchange Act, as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such Company SEC Documents, and no
Company SEC Documents when filed contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in Company SEC Documents complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto.

     3.15 EMPLOYEE BENEFIT PLANS. Except as set forth in Section 3.15 of the
Disclosure Schedule or the Company's Public Filings, there are no "employee
benefit plans" as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA") maintained by the Company or
any Subsidiary or any stock purchase plan, stock option plan, fringe benefit
plan, bonus plan or any other deferred compensation agreement, plan, practice or
pending arrangement involving more than one person sponsored, maintained or to
which contributions are made by the Company by or on behalf of current or former
employees of the Company or their dependents. Any of the foregoing that involve
an "officer" of the Company, as defined in Section 16 of the Securities Exchange
Act, are described in the Company's Public Filings. The Company is in compliance
in all material respects with applicable laws governing such employee benefit,
employee pension benefit or other plans arrangements or practices, except for
any failure to comply that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

     3.16 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all
material tax returns and reports as required, and within the time prescribed, by
law. These returns and reports are true and correct in all material respects.
The Company has paid or made provision for the payment of all accrued and unpaid
taxes and other charges to which the Company is subject and which are not
currently due and payable. The federal income tax returns of the Company have
never been audited by the Internal Revenue Service, and the Company has not
agreed to an

                                       10
<PAGE>
extension of the statute of limitations with respect to any of its tax years.
Neither the Internal Revenue Service nor any other taxing authority is now
asserting against the Company any deficiency or claim for additional material
taxes or interest thereon or penalties in connection therewith. The Company has
not made any elections pursuant to the Code (other than elections which relate
solely to methods of accounting, depreciation or amortization) which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

     3.17 INSURANCE. The Company has in full force and effect fire, casualty and
liability insurance policies, with coverage, in the case of property insurance,
sufficient in amount (subject to reasonable deductibles) to allow it to replace
any of its properties that might be damaged or destroyed, and in the case of
casualty and liability insurance, in amounts customary for businesses similar to
the business of the Company.

     3.18 LABOR AGREEMENTS AND ACTIONS. The Company does not have any collective
bargaining agreements covering any of its employees, nor is the Company bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the knowledge of the Company threatened, nor is the
Company aware of any labor organization activity involving its employees. The
Company is not aware that any officer or key employee or that any group of key
employees intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing.

     3.19 REAL PROPERTY HOLDING CORPORATION. The Company is not, and has not
been during the applicable period specified in Section 897 of the Code, a United
States real property holding corporation, as defined in Section 897 of the Code.

     3.20 OFFERING. Subject to the accuracy of the Investor's representations
set forth in Section 4 of this Agreement, the offer, sale and issuance of the
Shares to be issued in conformity with the terms of this Agreement constitute
transactions which are exempt from the registration requirements of the
Securities Act and from all applicable state registration or qualification
requirements, other than those with which the Company has complied or will
comply with prior to the applicable Closing.

     3.21 ENVIRONMENTAL MATTERS. Notwithstanding any other term of this
Agreement, all representations relating to or arising from Environmental Laws
(as defined below) are contained only in this Section 3.21.

          (a) To the Company's knowledge, the Company is not in violation of any
Environmental Law and to its knowledge, no material expenditures are or will be
required in order to comply with any Environmental Law. As used in this
Agreement, "Environmental Law" shall mean any applicable law, ordinance, rule or
regulation of any Governmental Authority that regulates, fixes liability for, or
otherwise relates to, the handling, use (including use in industrial processes,
in construction, as building materials, or otherwise), treatment, storage and
disposal of hazardous and toxic wastes and substances, and to the discharge,
leakage,

                                       11
<PAGE>
presence, migration, actual Release (as hereinafter defined) or threatened
Release (whether by disposal, a discharge into any water source or system or
into the air, or otherwise) of any pollutant or effluent.

          (b) To the Company's knowledge, the Company has not used, generated,
manufactured, refined, treated, transported, stored, handled, disposed,
transferred, produced, processed or released (hereinafter together defined as
"Release") any Hazardous Materials (as hereinafter defined) on, from or
affecting any Property (as hereinafter defined) in any manner or by any means in
violation of any Environmental Laws and to the Company's knowledge there is no
threat of such Release. As used herein, the term "Property" shall include,
without limitation, land, buildings and laboratory facilities owned or leased by
the Company or as to which the Company now has any duties, responsibilities (for
cleanup, remedy or otherwise) or liabilities under any Environmental Laws, or as
to which the Company or any Subsidiary of the Company may have such duties,
responsibilities or liabilities because of past acts or omissions of the Company
or any such Subsidiary or their predecessors, or because the Company or any such
Subsidiary or their predecessors in the past was such an owner or operator of,
or bore some other relationship with, such land, buildings or laboratory
facilities. The term "Hazardous Materials" shall include, without limitation,
any flammable explosives, petroleum products, petroleum by-products, radioactive
materials, hazardous wastes, hazardous substances and toxic substances, all as
defined by Environmental Laws.

          (c) The Company has not received written notice that the Company is a
party potentially responsible for costs incurred at a cleanup site or corrective
action under any Environmental Laws. The Company has not received any written
requests for information in connection with any inquiry by any Governmental
Authority (as hereinafter defined) concerning disposal sites or other
environmental matters. As used herein, "Governmental Authority" shall mean any
nation or government, any federal, state, municipal, local, provincial, regional
or other political subdivision thereof, and any Person exercising executive,
legislative, judicial regulatory or administrative functions of or pertaining to
government.

          (d) The stockholders of the Company have had no control over, or
authority with respect to, the waste disposal operations of the Company, in
their capacity as stockholders of the Company.

     3.22 LICENSES AND OTHER RIGHTS; COMPLIANCE WITH LAWS. The Company has all
franchises, permits, licenses and other rights and privileges from Governmental
Authorities necessary to permit it to own its properties and to conduct its
business as presently conducted and is in compliance in all material respects
thereunder. The Company and each Subsidiary are in compliance with all laws and
governmental rules and regulations applicable to its business, properties and
assets, including, without limitation, all such rules, laws and regulations
relating to fair employment practices, occupational safety and health and public
safety, except for any non-compliance that would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. The Company
has never received any request for information, notice, demand letter,
administrative inquiry or formal or informal complaint or claim from any
regulatory agency with respect to any aspect of the business, affairs,
properties or assets of the Company, outside the ordinary course of business of
the Company.

                                       12
<PAGE>
     3.23 BROKER OR FINDERS. The Company has not incurred, nor will incur,
directly or indirectly, as a result of any action taken by the Company, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement, the Investor Rights Agreement or any
transaction contemplated hereby or thereby.

     3.24 MARKET LISTING. The Common Stock is listed for trading on the NASDAQ
National Market and the Company is in compliance in all material respects with
the rules, regulations and requirements of the NASDAQ National Market relating
to the continued listing of the Common Stock.

     3.25 RELIANCE. The Company understands that the foregoing representations
and warranties and the certificates to be delivered pursuant to Sections 5.1 and
5.2 shall be deemed material and to have been relied upon by the Investor.

4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
represents and warrants to the Company that the statements contained in Section
4 are true and correct as of the date hereof and as of each Closing Date:

     4.1 AUTHORIZATION, GOVERNMENTAL CONSENTS AND COMPLIANCE WITH OTHER
INSTRUMENTS. All corporate action on the part of the Investor necessary for the
authorization, execution and delivery of this Agreement and the Investors Rights
Agreement and the performance of all obligations of the Investor hereunder and
thereunder has been taken or will be taken prior to the applicable Closing. This
Agreement and the Investors Rights Agreement have been duly executed and
delivered by the Investor and constitute valid and legally binding obligations
of the Investor, enforceable against the Investor in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of creditors
rights and subject to general equity principles. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration,
notification or filing with, any federal, state or local Governmental Authority
on the part of the Investor is required in connection with the consummation of
the transactions contemplated by this Agreement and the Investors Rights
Agreement, except as may be required by the HSR Act. The execution, delivery and
performance of this Agreement and the Investors Rights Agreement and compliance
with the provisions hereof and thereof by the Investor, will not (a) violate any
provision of law, statute, ordinance, rule or regulation or any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body; or (b) conflict with or result in any breach of any of
the terms, conditions or provisions of, or constitute (with due notice or lapse
of time, or both) a default (or give rise to any right of termination,
cancellation or acceleration) under (i) any agreement, document, instrument,
contract, understanding, arrangement, note, indenture, mortgage or lease to
which the Investor is a party or under which the Investor or any of its assets
is bound or affected, except for any violations, conflicts, breaches or defaults
which would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the ability of the Investor to
consummate the transactions contemplated by this Agreement, or (ii) the
governing documents of the Investor.

     4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Investor is acquiring the Shares
for investment for the Investor's own account, not as a nominee or agent, and
not with a view to the

                                       13
<PAGE>
resale or distribution of any part thereof, and the Investor has no present
intention of selling, granting any participation, or otherwise distributing the
Shares. To the Investor's knowledge, the Investor does not own of record or
beneficially own (as defined in Rule 13d-3 of the Securities Exchange Act) any
voting securities of the Company, or any securities convertible into or
exercisable for any such voting securities.

     4.3 DISCLOSURE OF INFORMATION. The Investor has received all the
information from the Company and its management that the Investor considers
necessary or appropriate for deciding whether to purchase the Shares hereunder.
The Investor further represents that it has had an opportunity to ask questions
and receive answers from the Company regarding the terms and conditions of the
offering of the Shares. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 3 of this Agreement.

     4.4 INVESTMENT EXPERIENCE AND ACCREDITED INVESTOR STATUS. The Investor
either (i) is an accredited investor (as defined in Regulation D promulgated
under the Securities Act) or (ii) is not a United States Person as that term is
defined in Regulation S of the Securities Act, as amended and is not acquiring
the Shares for the account or benefit of any United States Person. The Investor
is an investor in securities of companies in the development stage and
acknowledges that it is able to fend for itself, and bear the economic risk of
its investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Shares hereunder.

     4.5 RESTRICTED SECURITIES. The Investor understands that the Shares, when
issued, will be restricted securities under the federal securities laws inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act only in
certain limited circumstances. In this connection, the Investor represents that
it is familiar with Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.

     4.6 LEGENDS. The Shares shall not be sold or transferred unless either (i)
they first shall have been registered under the Securities Act, (ii) they are
sold pursuant to Rule 144 under the Securities Act and, if requested by the
Company's transfer agent, the Company is furnished with an opinion of Dewey
Ballantine LLP, or other legal counsel reasonably satisfactory to the Company,
to the effect that such sale or transfer is exempt from the registration
requirements of the Securities Act or (iii) the Company first shall have been
furnished with an opinion of Dewey Ballantine LLP, or other legal counsel
reasonably satisfactory to the Company, to the effect that such sale or transfer
is exempt from the registration requirements of the Securities Act. It is
understood that the certificates evidencing the Shares will bear the following
legend until such legend is removed in accordance with Section 8.4:

          "These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold, offered for sale, pledged, hypothecated
or otherwise transferred in the absence of a registration statement in effect
with respect to the securities under such Act or, if requested, an opinion of
counsel satisfactory to the Company is obtained to the effect that such
registration is not required."

                                       14
<PAGE>
5. CONDITIONS TO CLOSING OF INVESTOR. The Investor's obligation to purchase the
applicable Shares at each Closing is subject to the fulfillment as of such
Closing of the following conditions (unless waived in writing by the Investor):

     5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct as
of the date of this Agreement and as of such Closing Date as though made on and
as of such Closing Date (except (i) to the extent such representations and
warranties are specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of such date, and
(ii) where the failure to be true and correct (without regard to any materiality
or Material Adverse Effect qualifications contained therein), individually or in
the aggregate, has not had and could not reasonably be expected to have a
Material Adverse Effect), and the Company shall have delivered to the Investor a
certificate, dated as of the applicable Closing Date, executed by the President
and Chief Executive Officer of the Company, certifying to the fulfillment of the
foregoing.

     5.2 COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to the applicable Closing
Date shall have been performed or complied with in all material respects, and
the Company shall have delivered to the Investor a certificate, dated as of the
applicable Closing Date, executed by the President and Chief Executive Officer
of the Company, certifying to the fulfillment of the foregoing.

     5.3 LEGAL OPINION. The Investor shall have received an opinion from Wilmer
Cutler Pickering Hale and Dorr LLP (or other legal counsel to the Company
reasonably satisfactory to the Investor) addressed to the Investor and dated as
of the applicable Closing Date, in the form of Exhibit A attached hereto.

     5.4 NO MATERIAL ADVERSE EFFECT. There shall not have occurred any event or
events that have had or would, individually or in the aggregate, reasonably be
expected to have, a Material Adverse Effect.

     5.5 RESEARCH COLLABORATION AND LICENSE AGREEMENT. On the First Closing
Date, the Company shall have duly executed and delivered to the Investor the
Research Collaboration and License Agreement in the form of Exhibit C attached
hereto and thereafter such agreement shall be in full force and effect.

     5.6 MARKET LISTING. On each Closing Date, the Shares to be delivered at
that Closing shall be approved for listing on the NASDAQ National Market.

6. CONDITIONS TO CLOSING OF THE COMPANY. The Company's obligation to sell the
applicable Shares at each Closing is subject to the fulfillment as of such
Closing of the following conditions (unless waived in writing by the Company):

     6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Investor in Section 4 hereof shall be true and correct as
of the date of this Agreement and as of such Closing Date as though made on and
as of such Closing Date (except (i) to the extent such representations and
warranties are specifically made as of a particular date,

                                       15
<PAGE>
in which case such representations and warranties shall be true and correct as
of such date, and (ii) where the failure to be true and correct (without regard
to any materiality qualifications contained therein), individually or in the
aggregate, has not had and could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the ability of
the Investor to consummate the transactions contemplated by this Agreement.

     6.2 COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by the Investor on or prior to the applicable Closing
Date shall have been performed or complied with in all material respects.

     6.3 RESEARCH COLLABORATION AND LICENSE AGREEMENT. On the First Closing,
NIBRI shall have duly executed and delivered to the Company the Research
Collaboration and License Agreement in the form of Exhibit C attached hereto and
thereafter such agreement shall be in full force and effect.

7. MUTUAL CONDITIONS TO CLOSING. The obligations of each of the Investor and the
Company to consummate the Closings are subject to the fulfillment as of the
applicable Closing Date of the following conditions:

     7.1 HSR ACT AND OTHER QUALIFICATIONS. The filings required under the HSR
Act shall have been made and the required waiting period shall have elapsed as
of the First Closing Date and the Second Closing Date, and all other
authorizations, consents, waivers, permits, approvals, qualifications and
registrations to be obtained or effected with any Governmental Authority,
including, without limitation, necessary Blue Sky law permits and qualifications
required by any state, for the offer and sale to the Investor of the applicable
Shares shall have been duly obtained and effective as of the applicable Closing
Date, and in the case of the closing relating to the issuance of the Remaining
Shares, the Company shall have received either the Stockholder Approval or the
Written Interpretation.

     7.2 ABSENCE OF LITIGATION. There shall be no injunction, action, suit,
proceeding or investigation pending or currently threatened in writing against
the Company or the Investor which questions the validity of this Agreement or
the Investor Rights Agreement, the right of the Company or the Investor to enter
into this Agreement or the Investor Rights Agreement or to consummate the
transactions contemplated hereby or thereby.

8. ADDITIONAL COVENANTS AND AGREEMENTS.

     8.1 UPDATES FROM COMPANY. The Company shall permit the Investor from time
to time, at the Investor's expense, to visit the Company's properties and to
discuss the Company's affairs, finances and accounts with its officers, all at
such reasonable times as may be requested by the Investor; provided, however,
that the Company shall not be obligated pursuant to this Section 8.1 to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information, the disclosure of which would unfairly
competitively disadvantage the Company.

     8.2 HSR FILING. The Investor and the Company shall, to the extent required,
within five business days after the date hereof, make an initial filing of
notification and report form pursuant to the HSR Act, and thereafter make any
other required submissions with respect to this

                                       16
<PAGE>
Agreement and the consummation of the transactions contemplated hereby, if
required under the HSR Act. The Investor and the Company shall promptly furnish
each other (or their counsel) all such necessary information and reasonable
assistance as the other may request in connection with its preparation of the
necessary filings or submissions under the HSR Act. Each of the Investor and the
Company shall use its commercially reasonable efforts to take such actions as
may be required to cause the expiration of the notice periods under the HSR Act
as promptly as possible after the execution of this Agreement.

     8.3 MARKET LISTING. The Company shall use commercially reasonable efforts
to maintain the listing and trading of the Common Stock on the NASDAQ National
Market. The Company shall use its best efforts to effect the listing of the
Shares on the NASDAQ National Market, including submitting a notice of listing
of additional shares with respect to the Shares to the NASDAQ Stock Market, Inc.
no later than 15 calendar days prior to the First Closing Date.

     8.4 SHARE LEGEND REMOVAL. The legend set forth in Section 4.6 hereof shall
be removed from the certificate evidencing the Shares and the Company shall, or
shall cause its transfer agent to, issue, no later than five business days from
receipt of a request from the Investor pursuant to this Section 8.4, a
certificate or certificates evidencing all or a portion of the Shares, as
requested by the Investor, without such legend if: (i) such securities have been
resold under an effective registration statement under the Securities Act, (ii)
such securities have been or will be transferred in compliance with Rule 144
under the Securities Act, (iii) such securities are eligible for resale pursuant
to Rule 144(k) under the Securities Act or (iv) the Investor shall have provided
the Company with an opinion of counsel, reasonably satisfactory to the Company,
stating that such securities may lawfully be transferred without registration
under the Securities Act.

     8.5 USE OF PROCEEDS. The Company shall use all payments received from the
Investor pursuant to this Agreement primarily for the purpose of funding
research and development activities, including the activities that are the
subject matter of the Research Collaboration and License Agreement.

     8.6 CONSENTS. The Company shall not, prior to the Second Closing, take any
action or enter into any material contract, arrangement, agreement or
understanding that would require the consent, waiver, approval or authorization
of any third party to effect the transactions contemplated by this Agreement and
the Investor Rights Agreement.

     8.7 OTHER AGREEMENTS.

          (a) Upon the satisfaction or waiver of all the conditions to the First
Closing set forth in Sections 5 and 7, the Investor shall cause NIBRI to execute
and deliver to the Company the Research Collaboration and License Agreement.

          (b) Upon the satisfaction or waiver of all the conditions to the First
Closing set forth in Sections 6 and 7, the Company shall execute and deliver to
NIBRI the Research Collaboration and License Agreement.

                                       17
<PAGE>
     8.8 WRITTEN INTERPRETATION OR STOCKHOLDER APPROVAL. The Company shall
provide to the Investor, at least three (3) days before the Second Closing;
written evidence reasonably satisfactory to the Investor that the Company has
obtained the Written Interpretation or Stockholder Approval, as applicable.

9. TERMINATION.

          (a) This Agreement may be terminated at any time prior to the Second
Closing:

               (i) by mutual written consent of the Company and the Investor;

               (ii) the Investor may terminate this Agreement by giving written
          notice to the Company if (i) the First Closing shall not have occurred
          on or before March 31, 2006 or (ii) the Second Closing shall not have
          occurred within one hundred and twenty (120) days of the First Closing
          Date, in each case by reason of the failure of any condition precedent
          under Section 5 or 7; or

               (iii) the Company may terminate this Agreement by giving written
          notice to the Investor if (i) the First Closing shall not have
          occurred on or before March 31, 2006 or (ii) the Second Closing shall
          not have occurred within one hundred and twenty (120) days of the
          First Closing Date, in each case by reason of the failure of any
          condition precedent under Section 6 or 7.

          (b) In the event that this Agreement is terminated after the First
Closing, the respective obligations of the Company and the Investor to sell and
purchase the Remaining Shares and other deliveries contemplated by Sections
2.2(a), 2.2(b) and 5 at the Second Closing shall become void and be of no
further force or effect with respect to the Second Closing only and the
remaining provisions of this Agreement shall survive such termination and remain
in full force and effect.

10. MISCELLANEOUS.

     10.1 SURVIVAL OF WARRANTIES. The representations and warranties of the
Company and the Investor contained in this Agreement (except for those contained
in Section 3.16 and Section 3.21) shall survive the First Closing for three
years. The representations and warranties of the Company set forth in Section
3.16 shall survive until the expiration of the applicable statute of limitations
and those set forth in Section 3.21 shall survive indefinitely.

     10.2 REMEDIES. The rights, powers and remedies of the parties under this
Agreement are cumulative and not exclusive of any other right, power or remedy
which such parties may have under any other agreement or law. No single or
partial assertion or exercise of any right, power or remedy of a party hereunder
shall preclude any other or further assertion or exercise thereof.

     10.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the

                                       18
<PAGE>
respective successors and assigns of the parties, including, without limitation,
successors through merger, consolidation, reorganization, recapitalization, any
similar transaction or otherwise. Neither this Agreement nor any rights or
duties of a party hereto may be assigned by such party, in whole or in part,
without the prior written consent of the other party hereto (which consent may
not be unreasonably withheld), other than, in the case of an assignment, in
whole or in part, by the Investor, to an Affiliate of the Investor as set forth
in Section 1.1(c), in which case consent of the Company shall not be required.

     10.4 ENTIRE AGREEMENT. This Agreement and the other writings referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous arrangements or
understandings, whether written or oral, with respect thereto.

     10.5 GOVERNING LAW AND CONSENT TO JURISDICTION. This Agreement shall be
governed by and construed under the laws of the State of Delaware (without
regard to the conflict of law principles thereof).

     10.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     10.7 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.

     10.8 NOUNS AND PRONOUNS. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and
vice-versa.

     10.9 NOTICES. Unless otherwise provided, all notices, requests, consents
and other communications hereunder to any party shall be given in writing and
shall be deemed effectively given upon personal delivery to the party to be
notified or five business days after being duly sent by first class registered
or certified mail, or other courier service, postage prepaid, or the following
business day after being telecopied with a confirmation copy by regular mail,
and addressed or telecopied to the party to be notified at the address or
telecopier number indicated for such party, as the case may be, set forth below
or such other address or telecopier number, as the case may be, as may hereafter
be designated in writing by the addressees to the addressor listing all parties:

     To the Company:

          Alnylam Pharmaceuticals, Inc.
          300 Third Street
          Cambridge, MA 02142

          Attention: Chief Operating Officer

          Fax: (617) 551-8101

                                       19
<PAGE>
     With a copy (which shall not constitute notice) to:

          Wilmer Cutler Pickering Hale and Dorr LLP
          60 State Street
          Boston, Massachusetts 02109
          Attention: Steven D. Singer, Esq.
          Fax: (617) 526-5000

     To the Investor:

          Novartis Pharma AG
          Lichtstrasse 35
          CH-4002 Basel
          Switzerland
          Attention: Joseph E. Mamie
          Fax: 41 61 324 8111

     With a copy (which shall not constitute notice) to:

          Novartis Institutes for BioMedical Research, Inc.
          400 Technology Square
          Cambridge, Massachusetts 02139
          Attention: General Counsel
          Fax: (617) 871-3354

     With a copy (which shall not constitute notice) to:

          Dewey Ballantine LLP
          1301 Avenue of the Americas
          New York, New York 10019
          Attention: Morton A. Pierce, Esq.
          Fax: (212) 259-6333

     10.10 FINDER'S FEE. The Investor agrees to indemnify and to hold harmless
the Company from any liability for any commission or compensation in the nature
of a finder's fee (and the reasonable costs and expenses of defending against
such liability or asserted liability) for which the Investor or any of its
officers, partners, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless the Investor from any liability for any
commission or compensation in the nature of a finder's fee (and the reasonable
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives is
responsible.

     10.11 EXPENSES. Except as otherwise contemplated herein, each party shall
pay its own fees and expenses with respect to this Agreement.

     10.12 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular

                                       20
<PAGE>
instance and either retroactively or prospectively), only with the written
consent of the Company and the Investor (other than the waiver of any condition
set forth in Section 5, which may be waived in the sole discretion of the
Investor, and other than the waiver of any condition set forth in Section 6,
which may be waived in the sole discretion of the Company).

     10.13 SEVERABILITY. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, in any jurisdiction, such provision shall
be ineffective, as to such jurisdiction, and the balance of the Agreement shall
be interpreted as if such provision were so excluded, without invalidating the
remaining provisions of this Agreement; and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     10.14 CONFIDENTIALITY AND PUBLICITY. The Company and the Investor will
consult with one another as to the form and substance of any press release
relating to the terms of this Agreement, the Research License and Collaboration
Agreement or the transactions contemplated hereby or thereby prior to issuing
any such press release. Either party may only disclose the terms of the Research
Collaboration and License Agreement if such party reasonably determines, based
on advice from its counsel, that it is required to make such disclosure by
applicable law, regulation or legal process (whether in connection with its
ongoing disclosure obligations, in connection with a corporate activity or
otherwise), including without limitation by the rules or regulations of the SEC
or similar regulatory agency in a country other than the United States or of any
stock exchange or NASDAQ, in which event such party shall provide prior notice
of such intended disclosure to the other party sufficiently in advance to enable
the other party to seek confidential treatment or other protection for such
information unless the disclosing party is prevented by law or regulation from
providing such advance notice and shall disclose only such terms of the Research
Collaboration and License Agreement as such disclosing party reasonably
determines, based on advice from its counsel, are required by applicable law,
regulation or legal process to be disclosed (whether in connection with its
ongoing disclosure obligations, in connection with a corporate activity or
otherwise). In the event that either party determines that it must publicly file
the Research Collaboration and License Agreement with the SEC such party shall
(i) initially file a redacted copy of the Research Collaboration and License
Agreement (the "Redacted Research Collaboration and License Agreement") in the
form of Exhibit D attached hereto, (ii) request, and use commercially reasonable
efforts to obtain, confidential treatment of all terms redacted from such
Redacted Research Collaboration and License Agreement; provided that the
redaction of such terms is permitted by the applicable rules and regulations of
the SEC, (iii) permit the other party to review and approve such initial request
for confidential treatment and any subsequent correspondence with respect
thereto at least two (2) Business Days prior to its submission to the SEC, and
(iv) promptly deliver to the other party any written correspondence received by
it or its representatives from the SEC with respect to such confidential
treatment request and promptly advise the other party of any other material
communications between it or its representatives with SEC with respect to such
confidential treatment request.

     10.15 DISCLOSURE SCHEDULE. The Disclosure Schedule shall be arranged in
Subsections corresponding to the numbered Subsections contained in Section 3,
and the disclosure in any Subsection of the Disclosure Schedule shall qualify
the corresponding Subsection in Section 3. The inclusion of any information in
the Disclosure Schedule shall not be deemed to be an

                                       21
<PAGE>
admission or acknowledgment, in and of itself, that such information is required
by the terms hereof to be disclosed, is material, has resulted in or would
result in a Material Adverse Effect, or is outside the ordinary course of
business.

     10.16 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:

     "Affiliate" shall mean, with respect to any Person, any other Person which
directly or indirectly, by itself or through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person. The
term "control" means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise. Control
will be presumed if one Person owns, either of record or beneficially, at least
50% of the voting stock of any other Person.

     "Audited Financial Statements" shall have the meaning set forth in Section
3.14(a).

     "Closing Date" shall mean the First Closing Date or the Second Closing
Date, as applicable.

     "Closing" shall mean the First Closing or the Second Closing, as
applicable.

     "Code" shall mean the U.S. Internal Revenue Code of 1986, as amended.

     "Common Stock" shall have the meaning set forth in Section 1.1(a).

     "Company" shall have the meaning set forth in the Preamble.

     "Company's Public Filings" shall have the meaning set forth in Section
3.2(d).

     "Company Rights" shall have the meaning set forth in Section 3.10(a).

     "Company SEC Documents" shall have the meaning set forth in Section
3.14(b).

     "Disclosure Schedule" shall have the meaning set forth in Section 3.

     "Encumbrance(s)" shall mean any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, or restriction of any kind, including, without
limitation, any restriction on the use, voting, transfer, receipt of income or
other exercise of any attributes of ownership.

     "Environmental Law" shall have the meaning set forth in Section 3.21(a).

     "ERISA" shall have the meaning set forth in Section 3.15.

     "Financial Statements" shall have the meaning set forth in Section 3.14(a).

     "GAAP" shall have the meaning set forth in Section 3.14(a).

                                       22
<PAGE>
     "Governmental Authority" shall have the meaning set forth in Section
3.21(c).

     "Hazardous Materials" shall have the meaning set forth in Section 3.21(b).

     "HSR Act" shall have the meaning set forth in Section 3.7.

     "Initial Purchase Price" shall have the meaning set forth in Section
1.1(a)(i).

     "Investor" shall have the meaning set forth in the Preamble and Section
1.1(b).

     "Investor Rights Agreement" shall mean that certain Investor Rights
Agreement between the Company and the Investor dated as of the date hereof.

     "Material Adverse Effect" shall have the meaning set forth in Section 3.1.

     "Material IP Contracts" shall have the meaning set forth in Section
3.10(b).

     "NIBRI" means Novartis Institutes for BioMedical Research, Inc.

     "Novartis" shall have the meaning set forth in the Preamble.

     "Obligations" shall have the meaning set forth in Section 3.11(c).

     "Person" means any individual, partnership, firm, corporation, association,
trust, unincorporated organization, government or any department or agency
thereof or other entity, as well as any syndicate or group that would be deemed
to be a Person under Section 13(d)(3) of the Securities Exchange Act.

     "Preferred Stock" shall have the meaning set forth in Section 3.2(a)(i).

     "Property" shall have the meaning set forth in Section 3.21(b).

     "Proprietary Rights" shall have the meaning set forth in Section 3.10(a).

     "Purchase Price" shall mean the Initial Purchase Price and/or the Remaining
Purchase Price, as applicable.

     "Redacted Research Collaboration and License Agreement" shall have the
meaning set forth in Section 10.14.

     "Release" shall have the meaning set forth in Section 3.21(b).

     "Remaining Purchase Price" shall have the meaning set forth in Section
1.1(a)(ii).

     "Remaining Shares" shall have the meaning set forth in Section 1.1(a)(ii).

     "Research Collaboration and License Agreement" shall mean that certain
Research Collaboration and License Agreement between the Company and NIBRI to be
dated as of the First Closing Date, the form of which is attached as Exhibit C
hereto.

                                       23
<PAGE>
     "Restated Certificate" shall have the meaning set forth in Section 3.1.

     "SEC" shall mean the U.S. Securities and Exchange Commission.

     "Second Closing" shall have the meaning set forth in Section 1.1(a)(ii).

     "Securities Act" shall have the meaning set forth in Section 3.12.

     "Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

     "Series A Preferred Stock" shall have the meaning set forth in Section
3.2(a)(i).

     "Shares" shall mean the Initial Shares and/or the Remaining Shares, as
applicable.

     "Share Price" shall have the meaning set forth in Section 1.1(a).

     "Shareholder Rights Plan" shall mean the rights agreement between the
Company and Equiserve Trust Company, N.A., as rights agent, dated as of July 13,
2005.

     "Stockholder Approval" shall have the meaning set forth in Section 3.1.

     "Subsidiary" shall mean any and all corporations, partnerships, joint
ventures, associations and other entities controlled by the Company directly or
indirectly through one or more intermediaries, including, without limitation,
Alnylam U.S., Inc. and Alnylam Europe, AG.

     "Written Interpretation" shall have the meaning set forth in Section 3.1.

                            (Signature Page Follows)

                                       24
<PAGE>
     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.

                                        NOVARTIS PHARMA AG

                                        By: /s/ Joseph E. Mamie
                                            ------------------------------------
                                        Name: Joseph E. Mamie
                                        Title: Head Operational Treasury

                                        By: /s/ Christina Ackermann
                                            ------------------------------------
                                        Name: Christina Ackermann
                                        Title: Head Legal Pharma
                                               General Medicine

                                        ALNYLAM PHARMACEUTICALS, INC.

                                        By: /s/ John Maraganore
                                            ------------------------------------
                                        Name: John Maraganore
                                        Title: President and CEO

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