Document:

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                                                                   EXHIBIT 10.27

                                                                  EXECUTION COPY

                                                                    CONFIDENTIAL

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

                            STOCK PURCHASE AGREEMENT

                                  by and among

             THE STOCKHOLDERS IDENTIFIED ON SIGNATURE PAGES HERETO,

                               NOVARTIS PHARMA AG

                                       and

                          IDENIX PHARMACEUTICALS, INC.

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                                TABLE OF CONTENTS

<TABLE>
<S>      <C>                                                                                      <C>
1.       Purchase and Sale of Stock............................................................   2

     1.1       Sale and Purchase...............................................................   2
     1.2       Subsequent Contingent Payments..................................................   4

2.       Closing Date, Delivery................................................................  10

     2.1       Closing Date....................................................................  10
     2.2       Delivery at Closing.............................................................  11
     2.3       Further Actions.................................................................  12

3.       Representations and Warranties of Each Seller.........................................  13

     3.1       Stock Ownership.................................................................  13
     3.2       Authority; Execution and Delivery...............................................  13
     3.3       No Conflict.....................................................................  13
     3.4       No Other Agreements to Sell Purchased Shares....................................  14
     3.5       Consents........................................................................  14
     3.6       Offering........................................................................  15
     3.7       Qualified Private Offering......................................................  15
     3.8       Accredited Sellers..............................................................  15
     3.9       Disclosure Statement............................................................  16
     3.10      Stockholder Approval............................................................  16
     3.11      Reliance........................................................................  17

4.       Representations and Warranties of the Company.........................................  17

     4.1       Organization, Good Standing and Qualification...................................  17
     4.2       Capitalization and Voting Rights................................................  17
     4.3       Subsidiaries....................................................................  19
     4.4       Authorization, Execution and Delivery...........................................  20
     4.5       No Conflict.....................................................................  21
     4.6       Valid Issuance of Stock.........................................................  21
     4.7       Consents........................................................................  21
     4.8       Absence of Changes..............................................................  22
     4.9       Litigation......................................................................  23
     4.10      Employees and Consultants.......................................................  23
     4.11      Intellectual Property...........................................................  25
     4.12      Compliance with Other Instruments...............................................  25
     4.13      Related Party Agreements; Other Action..........................................  25
     4.14      Material Contracts and Obligations..............................................  25
     4.15      Owned Real Property.............................................................  28
     4.16      Title to Property and Assets....................................................  28
     4.17      Sufficiency of Property and Assets..............................................  28
     4.18      Financial Statements............................................................  28
     4.19      Employee Benefit Plans..........................................................  29
</TABLE>

                                        i

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<TABLE>
<S>            <C>                                                                               <C>
     4.20      Taxes...........................................................................  30
     4.21      Insurance.......................................................................  31
     4.22      Labor Agreements and Actions....................................................  31
     4.23      Governmental Regulations........................................................  31
     4.24      Offering; Securities Laws.......................................................  31
     4.25      Environmental Matters...........................................................  32
     4.26      Commercial Relationships........................................................  33
     4.27      Licenses and Other Rights; Compliance with Laws.................................  33
     4.28      Regulatory Agency Matters.......................................................  34
     4.29      Opinion of Financial Advisor....................................................  35
     4.30      Broker or Finders...............................................................  36
     4.31      Corporate Records...............................................................  36
     4.32      Qualified Private Offering......................................................  36
     4.33      Takeover Statutes...............................................................  36
     4.34      Stockholder Approval............................................................  36
     4.35      Restated Certificates and Amended and Restated By-laws..........................  36
     4.36      Reliance........................................................................  36

5.       Representations and Warranties of Buyer...............................................  36

     5.1       Organization, Compliance and Qualification......................................  37
     5.2       Authorization, Consents and Compliance with Other Instruments...................  37
     5.3       SEC Reports.....................................................................  38
     5.4       Issuance of Shares..............................................................  38
     5.5       Buyer Matters...................................................................  39
     5.6       Purchase Entirely for Own Account...............................................  40
     5.7       Broker or Finders...............................................................  40
     5.8       Disclosure Statement............................................................  40
     5.9       Offer and Sale of Parent ADSs...................................................  40
     5.10      Litigation......................................................................  40
     5.11      Novartis BioVentures Ltd........................................................  40
     5.12      Initial Sellers Disclosure Statement............................................  40
     5.13      Reliance........................................................................  41

6.       Conditions to Closing of Buyer........................................................  41

     6.1       Seller's Representations and Warranties.........................................  41
     6.2       The Company's Representations and Warranties....................................  41
     6.3       Covenants.......................................................................  41
     6.4       Compliance Certificates.........................................................  41
     6.5       Certification of Resolutions and Officers.......................................  41
     6.6       Organizational Documents........................................................  42
     6.7       Restated Certificates...........................................................  42
     6.8       Amended and Restated By-laws....................................................  42
     6.9       Qualified Private Offering......................................................  42
     6.10      Conversion of Preferred Stock...................................................  42
     6.11      No Material Adverse Effect......................................................  42
     6.12      Good Standing Certificates......................................................  43
</TABLE>

                                       ii

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<TABLE>
<S>            <C>                                                                               <C>
     6.13      Other Agreements and Documents..................................................  43
     6.14      Employment Agreements...........................................................  43
     6.15      UAB License Agreement...........................................................  43
     6.16      Purchased Shares................................................................  43
     6.17      Certain Agreements..............................................................  43
     6.18      Consents; Stockholder Approval..................................................  43
     6.19      Compulsory Transfer.............................................................  44
     6.20      Series C Purchase Agreement.....................................................  44
     6.21      Rights of First Refusal/Co-Sale.................................................  44
     6.22      Series C Dividend...............................................................  44
     6.23      FIRPTA Certificate..............................................................  44
     6.24      Second Amended and Restated Stockholders' Agreement Termination.................  44
     6.25      Warrant Amendment...............................................................  44
     6.26      Resignations of Directors.......................................................  44
     6.27      2004 Budget.....................................................................  44
     6.28      Takeover Statutes...............................................................  44

7.       Conditions to Closing of the Company..................................................  45

     7.1       Buyer's Representations and Warranties..........................................  45
     7.2       Covenants.......................................................................  45
     7.3       Compliance Certificates.........................................................  45
     7.4       Other Agreements and Documents..................................................  45
     7.5       Conversion of Preferred Stock...................................................  45
     7.6       Company Stockholder Approval....................................................  45

8.       Conditions to Closing of Sellers......................................................  45

     8.1       Payment of Individual Closing Consideration.....................................  46
     8.2       Buyer's Representations and Warranties Correct..................................  46
     8.3       Covenants.......................................................................  46
     8.4       Other Agreements and Documents..................................................  46
     8.5       Conversion of Preferred Stock...................................................  46
     8.6       Series C Dividend...............................................................  46
     8.7       Joinder Agreements..............................................................  46

9.       Mutual Conditions of Closing..........................................................  46

     9.1       Qualifications..................................................................  47
     9.2       Absence of Litigation...........................................................  47
     9.3       Joinder Period Expiration.......................................................  47

10.      Covenants.............................................................................  47

     10.1      Regulatory Filings..............................................................  47
     10.2      No Solicitation.................................................................  48
     10.3      Notice of Breaches; Updates.....................................................  49
     10.4      Exclusivity of Purchased Shares.................................................  49
</TABLE>

                                       iii

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<TABLE>
<S>            <C>                                                                               <C>
     10.5      Conduct of Business.............................................................  49
     10.6      Delivery of Common Stock Certificates...........................................  52
     10.7      Stockholder Approval............................................................  52
     10.8      Takeover Statutes...............................................................  52
     10.9      Confidentiality Agreements......................................................  53
     10.10     Preparation of Disclosure Statement.............................................  53
     10.11     Inspection of Properties........................................................  53
     10.12     Qualified Private Offering......................................................  53
     10.13     Restated Certificates and Amended and Restated By-laws..........................  54
     10.14     Series C Warrants...............................................................  54
     10.15     Disclosure Statement............................................................  54

11.      Termination...........................................................................  54

12.      Miscellaneous.........................................................................  55

     12.1      Indemnification.................................................................  55
     12.2      Successors and Assigns..........................................................  61
     12.3      Entire Agreement................................................................  62
     12.4      Governing Law and Consent to Jurisdiction.......................................  62
     12.5      Counterparts....................................................................  62
     12.6      Titles and Subtitles............................................................  62
     12.7      Nouns and Pronouns..............................................................  62
     12.8      Notices.........................................................................  63
     12.9      Finder's Fee....................................................................  64
     12.10     Expenses and Fees...............................................................  64
     12.11     Amendments and Waivers..........................................................  64
     12.12     Delays or Omissions.............................................................  65
     12.13     Severability....................................................................  65
     12.14     Confidentiality and Publicity...................................................  65
     12.15     Definitions.....................................................................  66
</TABLE>

ANNEXES

Annex A           Table of Initial Sellers and Initial Shares

Annex B           Management Sellers

Annex C           Accredited Sellers

EXHIBITS

Exhibit A         Form of Custody Agreement

Exhibit B         Form of Joinder Agreement

Exhibit C         Form of Development, License and Commercialization Agreement

Exhibit D         Form of Supply Agreement

                                       iv

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Exhibit E         Form of Stockholders' Agreement

Exhibit F         Form of Restated Certificate of Incorporation (Alternative 1)

Exhibit G         Form of Restated Certificate of Incorporation (Alternative 2)

Exhibit H         Form of Amended and Restated By-laws

Exhibit I         Amendments to Certain License and Related Agreements

Exhibit J         Form of Management Rights Agreement

                                        v

<PAGE>

                            STOCK PURCHASE AGREEMENT

         THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of March 21,
2003, by and among the stockholders identified on the signature pages hereto
(each, an "Initial Seller" and, collectively, the "Initial Sellers"), Novartis
Pharma AG ("Buyer"), a corporation organized under the laws of Switzerland, with
its principal place of business at Lichtstrasse 35, CH-4002, Basel, Switzerland,
Idenix Pharmaceuticals, Inc. (the "Company"), a Delaware corporation with its
principal place of business at 125 CambridgePark Drive, Cambridge, Massachusetts
02140, and the Additional Sellers (as defined in Section 1.1(b)). The Initial
Sellers and the Additional Sellers are collectively referred to herein as the
"Sellers" and the Sellers, Buyer and the Company are collectively referred to
herein as the "Parties."

         WHEREAS, all shares of Company Stock (as defined in Section 12.15(a))
owned by each Initial Seller as of the date hereof are set forth opposite such
Initial Seller's name on Annex A attached hereto (the "Initial Shares") and all
options to purchase shares of Common Stock (as defined in Section 12.15(a))
owned by each Initial Seller also are set forth opposite such Initial Seller's
name on Annex A;

         WHEREAS, the Initial Sellers desire to sell that portion of their
aggregate Initial Shares comprising, together with any shares to be sold by
Additional Sellers, fifty-one percent (51.0%) of the Fully-Diluted Common Stock
Deemed Outstanding (as defined in Section 12.15(a)) as of the Closing Date (as
defined in Section 2.1);

         WHEREAS, during the Joinder Period (as defined in Section 1.1(b)), each
of the holders of Company Stock and the holders of options vested on or prior to
the Closing Date to purchase shares of Common Stock (other than the Initial
Sellers) will be offered the opportunity to participate in the transactions
contemplated by this Agreement and it is expected that certain of such holders
will become Additional Sellers, whereupon the number of shares to be sold by the
Initial Sellers hereunder shall be reduced on a pro rata basis such that Buyer
shall purchase at the Closing (as defined in Section 2.1), an aggregate number
of shares of Company Stock equal to fifty-one percent (51.0%) of the
Fully-Diluted Common Stock Deemed Outstanding as of the Closing Date (which
shares shall not be subject to a right of repurchase in favor of the Company);

         WHEREAS, Buyer wishes to purchase from Sellers and Sellers wish to sell
to Buyer the Purchased Shares (as defined in Section 12.15(a)) upon the terms
and subject to the conditions of this Agreement;

         WHEREAS, the Company is in the process of developing certain (i)
hepatitis B virus drug candidates, including telebuvidine and valtorcitabine
(the "Hepatitis B Drug Candidates") and (ii) hepatitis C virus drug candidates
(the "Hepatitis C Drug Candidates");

         WHEREAS, the Company wishes to license to Buyer, and collaborate with
Buyer in the development of, such Hepatitis B Drug Candidates, and grant Buyer
certain rights with respect to Hepatitis C Drug Candidates and certain other
compounds

<PAGE>
subsequently discovered or developed by the Company under the terms and on the
conditions set forth in the Development, License and Commercialization Agreement
(as defined in Section 4.4), which Buyer and the Company shall enter into on the
Closing Date;

         WHEREAS, in connection with the transactions contemplated by this
Agreement, Buyer wishes that certain key employees of the Company enter into
employment agreements on and as of the Closing Date; and

         WHEREAS,  in  connection  with the  transactions  contemplated  by this
Agreement,  Buyer and the Company have executed,  on the date hereof, the Credit
Agreement  (as defined in Section 4.4)  pursuant to which Buyer will lend to the
Company,  and the Company will borrow from Buyer,  twenty-five  million  dollars
($25,000,000) subject to the terms and conditions contained therein.

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

     1.  PURCHASE AND SALE OF STOCK.

         1.1 SALE AND PURCHASE.

         (a) On the terms and subject to the conditions of this Agreement, at
the Closing, the Sellers shall sell, convey, transfer and deliver to Buyer, and
Buyer shall purchase from such Sellers, the Purchased Shares for an aggregate
purchase price of two hundred fifty-five million dollars ($255,000,000) in cash
plus, if applicable, the Contingent Payments (as defined in Section 12.15(a))
subject to the terms and conditions set forth in Section 1.2 of this Agreement
(the "Aggregate Purchase Price"). As to each Seller, the shares of Company Stock
being sold by such Seller (which shares shall not be subject to a right of
repurchase in favor of the Company) are sometimes referred to herein as
"Seller's Shares." Each Seller agrees to sell, convey, transfer and deliver to
Buyer, and Buyer agrees to purchase from each Seller, at the Closing, that
number of Seller's Shares pursuant to this Section 1.1, which number of shares
shall be set forth opposite such Seller's name on Adjusted Annex A (as defined
in Section 1.1(c)).

         (b) During the period beginning on the first business day after the
date on which the Parties first make available to the holders of Company Stock
and the holders of options to purchase shares of Common Stock (in each case,
other than the Initial Sellers) the opportunity to offer for sale to Buyer, and
Buyer's offer to purchase, shares of Company Stock held by such holders on the
Closing Date that are not subject to a right of repurchase in favor of the
Company on the terms and subject to the conditions of this Agreement and the
procedures set forth in the Disclosure Statement (as defined in Section 1.1(e))
until the Closing Date (but in no event less than 20 business days) (the
"Joinder Period"), each holder of shares of Company Stock and each holder of
options to purchase shares of Common Stock (in each case, other than the Initial
Sellers) that validly executes and delivers to Mellon Investor Services LLC, as
custodian (the

                                        2

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"Custodian"), an irrevocable Power of Attorney and Custody Agreement in the form
of Exhibit A attached hereto made with the Custodian (the "Custody Agreement"),
the Stockholders' Agreement (as defined in Section 4.4) and an appropriate
Consent (as defined in Section 3.5) with respect to the approval of the Restated
Certificates and Amended and Restated By-laws (each of the foregoing two terms
as defined in Section 4.4), together with a Joinder Agreement, to be dated on or
prior to the Closing Date and delivered to Buyer and the Company, in the form of
Exhibit B attached hereto (the "Joinder Agreement" and, together with the other
agreements and Consents to be executed and delivered by such holders, the
"Additional Seller Documents"), which Joinder Agreement shall specify, among
other things, the number of shares of Company Stock and/or the number of shares
of Common Stock issuable upon the exercise of options to purchase shares of
Common Stock owned by such holder and that such holder shall be a party to this
Agreement, shall become an "Additional Seller" for all purposes of this
Agreement (collectively, the "Additional Sellers").

         (c) Immediately prior to the Closing, Annex A shall be amended and
restated such that (i) each Seller (other than Management Sellers (as defined in
Section 12.15(a))) shall sell to Buyer, and Buyer shall purchase from such
Seller, such number of shares of Company Stock as is equal to the Selling
Percentage (as defined in Section 12.15(a)) multiplied by the total number of
shares of Vested Stock (as defined in Section 12.15(a)) owned by such Seller as
of the Closing Date and (ii) each Management Seller shall sell to Buyer, and
Buyer shall purchase from such Management Seller, such number of shares of
Company Stock as is equal to 0.20 multiplied by the total number of shares of
Vested Stock owned by such Management Seller as of the Closing Date (the
aggregate number of shares sold by the Management Sellers, the "Management
Shares Sold"), with appropriate rounding to the nearest whole number of shares
of Company Stock, such that the number of shares of Company Stock sold pursuant
to this Section 1.1(c) shall represent fifty-one percent (51%) of the
Fully-Diluted Common Stock Deemed Outstanding as of the Closing Date (such
amended and restated Annex A, as mutually agreed upon by Buyer, the Company and
the Consenting Sellers (as defined in Section 12.15(a)), the "Adjusted Annex
A"). It is understood and agreed that the Purchased Shares shall not include
shares of Company Stock that are subject to a right of repurchase in favor of
the Company.

         (d) Subject to the terms and conditions of this Agreement, on the
Closing Date, Buyer shall pay to each Seller, pursuant to Section 2.2, in
consideration of such Seller's Shares set forth opposite such Seller's name on
Adjusted Annex A (x) an amount in cash equal to the product of (A) the
Percentage Ownership (as defined in Section 12.15(a)) of such Seller and (B) two
hundred fifty-five million dollars ($255,000,000) (such resulting product, the
"Individual Closing Consideration") and (y) subject to the terms and conditions
set forth in Section 1.2, the right to receive the consideration set forth in
Section 1.2(b) and/or Section 1.2(c).

         (e) On the first day of the Joinder Period, the Company shall mail or
personally deliver to each holder of Company Stock and each holder of options to
purchase shares of Common Stock which will be vested on or prior to the Closing
Date (in each case, other than the Initial Sellers) (i) a disclosure document,
jointly prepared by

                                        3

<PAGE>
the Company, Buyer and Parent (as defined in Section 12.15(a)) making available
to such holders the opportunity to offer for sale to Buyer, and Buyer's offer to
purchase, a portion of the shares of Company Stock held by such holder on the
Closing Date that are not subject to a right of repurchase in favor of the
Company on the terms and subject to the conditions in this Agreement and the
procedures set forth in the disclosure document (the "Disclosure Statement") and
(ii) the Additional Seller Documents.

         1.2 SUBSEQUENT CONTINGENT PAYMENTS.

         (a) As additional consideration for the Purchased Shares, subject to
Buyer's rights of offset pursuant to Section 12.1(p), Buyer will pay Sellers in
cash, Parent ADSs (as defined in Section 12.15(a)) or any combination thereof,
at Buyer's election, the consideration set forth in Sections 1.2(b) and 1.2(c)
subject to the conditions set forth herein and the procedures set forth in this
Section 1.2; provided, however, that each Seller shall be treated in the same
manner with respect to the portion of the consideration paid to each Seller
pursuant to such Sections in Parent ADSs and cash, except that each
Non-Accredited Seller (as defined in Section 12.15(a)) shall receive only cash
in accordance with Sections 1.2(b)(iii) and 1.2(c)(iii).

         (b) If, on or prior to the [**] (as defined in the [**]), (A) the
Company has granted to Buyer the [**] (as defined in the [**]) in accordance
with Section [**] thereof and (B) Buyer has not given notice(s) to the Company
to [**], under Section [**] thereof, [**] (as defined in the [**]; provided that
if any such notice is given to the Company and is revoked in writing by Buyer
(each such date, a [**]) or the [**] pursuant to which such notice under Section
[**] was given is, or are, [**] by the Company (each such date, a [**]), in
either case prior to the effectiveness of such [**], then such notice shall be
deemed not to have been delivered for purposes of this Section 1.2(b) by Buyer;
Buyer (and with respect to clause (i) below, Parent) agrees, not later than [**]
(if such date is not a business day, the next business day, and such date, the
"[**]) after the [**] of the [**], as applicable, to: [**]

         (i) Subject to Section 1.2(d) below, issue and deliver to each
Accredited Seller (as defined in Section 12.15(a)) that number of Parent ADSs
equal to the product of (A) the Accredited Seller Percentage (as defined in
Section 12.15(a)) of such Accredited Seller and (B) the [**] (as defined in
Section 12.15(a)) (such [**] delivered to the [**] shall be referred to herein
as the [**]; provided, however, that if such Accredited Seller notifies Buyer
that a filing pursuant to the requirements of the HSR Act (as defined in Section
3.5), EC Regulation (as defined in Section 12.15(a)) or any other similar
foreign antitrust or trade regulation law is required, Buyer shall delay the
issuance of Parent ADSs to such Accredited Seller pursuant hereto until the
earlier of expiration or termination of any waiting period relating to any such
requirements;

         (ii) pay to each Accredited Seller an amount in cash equal to the
product of (A) the Accredited Seller Percentage of such Accredited Seller and
(B) the [**] (as defined in Section 12.15(a)); and

         (iii) pay to each Non-Accredited Seller an amount in cash equal to the
product of (A) the Percentage Ownership of such Non-Accredited Seller and (B)
one hundred seventy-eight million five hundred thousand dollars ($178,500,000).

                                        4

<PAGE>
             (i) Subject to Section 1.2(d) below, issue and deliver to each
       Accredited Seller (as defined in Section 12.15(a)) that number of Parent
       ADSs equal to the product of (A) the Accredited Seller Percentage (as
       defined in Section 12.15(a)) of such Accredited Seller and (B) the [**]
       (as defined in Section 12.15(a)) (such [**] delivered to the [**] shall
       be referred to herein as the [**]; provided, however, that if such
       Accredited Seller notifies Buyer that a filing pursuant to the
       requirements of the HSR Act (as defined in Section 3.5), EC Regulation
       (as defined in Section 12.15(a)) or any other similar foreign antitrust
       or trade regulation law is required, Buyer shall delay the issuance of
       Parent ADSs to such Accredited Seller pursuant hereto until the earlier
       of expiration or termination of any waiting period relating to any such
       requirements;

            (ii) pay to each Accredited Seller an amount in cash equal to the
      product of (A) the Accredited Seller Percentage of such Accredited Seller
      and (B) the [**] (as defined Section 12.15(a)); and

            (iii) pay to each Non-Accredited Seller an amount in cash equal to
      the product of (A) the Percentage Ownership of such Non-Accredited Seller
      and (B) one hundred seventy-eight million five hundred thousand dollars
      ($178,500,000).

            (c) If, on or prior to the [**], (A) the Company has granted to
      Buyer the [**] and (B) Buyer has not given any notice(s) to [**], under
      Section [**] thereof, (x) in its entirety or with respect to the [**] of
      the [**] or (y) with respect to the [**] that is the jurisdiction in which
      the filing giving rise to such [**] is made; provided that if any such
      notice is given to the Company and is revoked in writing by Buyer (each
      such date, a [**]) or the [**] or [**] pursuant to which such notice under
      [**] was given is, or are, [**] by the Company (each such date, a [**] in
      either case prior to the effectiveness of such [**], then such notice
      shall be deemed not to have been delivered for purposes of this Section
      1.2(c) by Buyer; Buyer (and with respect to clause (i) below, Parent)
      agrees, [**] (if such day is not a business day, the next business day,
      and such date, the [**] after the later of the [**] the [**] or the [**],
      as applicable, to:

            (i) Subject to 1.2(e) below, issue and deliver to each Accredited
      Seller that number of Parent ADSs equal to the product of (A) the
      Accredited Seller Percentage of such Accredited Seller and (B) the [**]
      (as defined in Section 12.15(a)) (such [**] delivered to the [**] shall be
      referred to herein as the [**]);' provided, however, that if such
      Accredited Seller notifies Buyer that a filing pursuant to the
      requirements of the HSR Act, EC Regulation or any other similar foreign
      antitrust or trade

                                       5
<PAGE>
      regulation law is required, Buyer shall delay the issuance of Parent ADSs
      to such Accredited Seller pursuant hereto until the earlier of expiration
      or termination of any waiting period relating to any such requirements;

            (ii) pay to each Accredited Seller an amount in cash equal to the
      product of (A) the Accredited Seller Percentage of such Accredited Seller
      and (B) the [**] as defined in Section 12.15(a); and

            (iii) pay to each Non-Accredited Seller an amount in cash equal to
      the product of (A) the Percentage Ownership of such Non-Accredited Seller
      and (B) one hundred seventy-eight million five hundred thousand dollars
      ($178,500,000).

            (d) If Buyer intends to deliver [**] to the Accredited Sellers in
satisfaction of all or a portion of the Contingent Payment due on the [**], not
less than five (5) days prior to such date Buyer shall deliver written notice
thereof to each Accredited Seller. Buyer agrees that any [**] to be issued to
the Accredited Sellers will be issued on the [**] without any legends thereon
and will be listed for trading on the New York Stock Exchange or such other
exchange on which Parent ADSs are traded at such time (the "ADS Exchange"), if,
to the extent deemed reasonably necessary by Buyer (in which case, the notice
sent to such Accredited Sellers described in the immediately preceding sentence
shall so request), such Accredited Seller delivers, prior to the [**], an
opinion of counsel (which opinion may (x) assume that the representations of
Buyer contained in Section 5.4 are true and correct and (y) rely on a
certificate of such Accredited Seller as to its status as an affiliate of Parent
for purposes of the Securities Act of 1933, as amended (the "Securities Act"))
reasonably acceptable to Parent to the effect that the [**] to be issued to such
Accredited Seller may lawfully be transferred without registration and without
legends thereon under the Securities Act immediately upon their issuance. In the
event that Buyer, in its reasonable discretion, determines that any of the [**]
to be so issued to any Accredited Seller are not eligible for immediate resale
pursuant to Rule 144(k) under the Securities Act, or comparable provision of a
successor rule thereto, cannot be issued without a legend or will not be
immediately transferable on the ADS Exchange, and Buyer intends to deliver [**]
to such Accredited Seller in satisfaction of all or a portion of the Contingent
Payment due on the [**] to such Accredited Seller, Buyer will promptly notify
such Accredited Seller of such fact and shall not be obligated to deliver, and
shall not deliver, such [**] on the [**] and Parent shall use reasonable efforts
to file with the SEC (as defined in Section 5.3) as promptly as practicable, a
registration statement covering the resale to the public by such Accredited
Sellers of such [**] upon issuance of the [**] and to have the [**] declared
effective within 90 days of the [**]. If the [**] is declared effective within
such 90 day period, Buyer shall deliver the [**]

                                       6
<PAGE>
[**] as promptly as practicable after such effective date of the [**] (and in no
event later than the earlier of (i) three business days after the [**] is
declared effective and (ii) 90 days after the [**]); provided, however, that if
such [**] is not declared effective by the SEC within such 90 day period or if
such shares are not listed on the ADS Exchange, Buyer shall not be obligated to
deliver, and shall not deliver, any [**] to such Accredited Seller and shall pay
to such Accredited Seller within such 90 day period an amount in cash equal to
the product of (A) the Accredited Seller Percentage of such Accredited Seller
and (B) [**].

            (e) If Buyer intends to deliver [**] to the Accredited Sellers in
satisfaction of all or a portion of the Contingent Payment due on the [**], not
less than five (5) days prior to such date Buyer shall deliver written notice
thereof to each Accredited Seller. Buyer agrees that any [**] to be issued to
the Accredited Sellers will be issued on the [**] without any legends thereon
and will be listed for trading on the ADS Exchange, if, to the extent deemed
reasonably necessary by Buyer (in which case, the notice sent to such Accredited
Seller as described in the immediately preceding sentence shall so request),
such Accredited Seller delivers, prior to the [**], an opinion of counsel (which
opinion may (x) assume that the representations of Buyer contained in Section
5.4 are true and correct and (y) rely on a certificate of such Accredited Seller
as to its status as an affiliate of Parent for purposes of the Securities Act)
reasonably acceptable to Parent to the effect that the [**] to be issued to such
Accredited Seller may lawfully be transferred without registration and without
any legend thereon under the Securities Act immediately upon their issuance. In
the event that Buyer, in its reasonable discretion, determines that any of the
[**] to be so issued to any Accredited Seller are not eligible for immediate
resale pursuant to Rule 144(k) under the Securities Act, or comparable provision
of a successor rule thereto, or cannot be issued without a legend or will not be
immediately tradeable on the ADS Exchange, and Buyer intends to deliver [**] to
the Accredited Sellers in satisfaction of all or a portion of the Contingent
Payment due on the [**] to such Accredited Seller, Buyer will promptly notify
such Accredited Seller of such fact and shall not be obligated to deliver, and
shall not deliver, such [**] on the [**] and Parent shall use reasonable efforts
to file with the SEC as promptly as practicable, a registration statement
covering the resale to the public by such Accredited Seller of such [**] upon
issuance of the [**] and to have the [**] declared effective within 90 days of
the [**]. If the [**] is declared effective within such 90 day period, Buyer
shall deliver the [**] as promptly as practicable after such effective date of
the [**]

                                       7
<PAGE>
(and in no event later than the earlier of (i) three business days after the
[**] is declared effective and (ii) 90 days after the [**]); provided, however,
that if such [**] is not declared effective by the SEC within such 90 day period
or if such shares are not listed on the ADS Exchange, Buyer shall not be
obligated to deliver, and shall not deliver, any [**] to such Accredited Seller
and shall pay to such Accredited Seller within such 90 day period an amount in
cash equal to the product of (A) the Accredited Seller Percentage of such
Accredited Seller and (B) [**].

            (f) [**] (each, a "Registration Statement") Parent shall:

            (i) promptly furnish to each applicable Accredited Seller such
      number of copies as such Accredited Seller may reasonably request of the
      prospectus relating thereto, including a preliminary prospectus, in
      conformity with the requirements of the Securities Act. Parent shall use
      its reasonable efforts to register or qualify the Parent ADSs covered by
      each Registration Statement under the securities laws of each state of the
      United States; provided, however, that Parent shall not be required in
      connection therewith to qualify as a foreign corporation or execute a
      general consent to service of process in any jurisdiction. If Parent has
      delivered preliminary or final prospectuses to such Accredited Sellers and
      after having done so the prospectus is amended or supplemented to comply
      with the requirements of the Securities Act, Parent shall promptly notify
      such Accredited Sellers and Parent shall promptly provide such Accredited
      Sellers with revised or supplemented prospectuses. Parent shall pay all
      expenses incurred by it in complying with its obligations under this
      Section 1.2, including all registration, qualification and filing fees,
      printing fees, exchange listing fees, fees and expenses of counsel for
      Parent, and fees and expenses of accountants for Parent, but excluding the
      fees and expenses of counsel to such Accredited Sellers and any brokerage
      fees, selling commissions or underwriting discounts incurred by such
      Accredited Sellers in connection with sales under each Registration
      Statement. With respect to each Registration Statement, Parent agrees to
      indemnify such Accredited Sellers in the same manner that the Company is
      obligated to indemnify each Participating Holder (as defined in the
      Stockholders' Agreement) and each such Accredited Seller agrees to
      indemnify Parent in the same manner that each Participating Holder is
      obligated to indemnify the Company, in each case pursuant to Section 2.6
      of the Stockholders' Agreement. Once declared effective, Parent shall
      cause the applicable Registration Statement to remain effective for 180
      days, which 180 day period shall be extended for a period of time equal to
      any period during which such Registration Statement is subject to a stop
      order or otherwise suspended:

                                       8
<PAGE>
            (ii) notify in writing each applicable Accredited Seller at any time
      when a prospectus relating to a Registration Statement is required to be
      delivered under the Securities Act, of the happening of any event as a
      result of which the prospectus included in such Registration Statement, as
      then in effect, includes an untrue statement of a material fact or omits
      to state a material fact required to be stated therein or necessary to
      make the statements therein not misleading in the light of the
      circumstances then existing and of any SEC stop orders or other material
      modifications in connection therewith. In such case, Parent shall promptly
      prepare a supplement or amendment to such prospectus and furnish each such
      Accredited Seller a reasonable number of copies of such supplement to or
      amendment of such prospectus as may be necessary so that, after delivery
      to such purchaser of such Parent ADSs, such prospectus shall not contain
      an untrue statement of a material fact or omit to state any material fact
      required to be stated therein or necessary to make the statements therein,
      in light of the circumstances under which they were made, not misleading;
      and

            (iii) in the event of the issuance of any stop order suspending the
      effectiveness of a Registration Statement, or of any order suspending or
      preventing the use of any related prospectus or suspending the
      qualification of any Parent ADSs included in such Registration Statement
      for sale in any jurisdiction, use its reasonable best efforts promptly to
      obtain the withdrawal of such order.

            (g) Notwithstanding any other provision of this Agreement, each
Accredited Seller entitled to receive a fraction of a Parent ADS under Sections
1.2(b) or 1.2(c) (after taking into account all such Parent ADSs to be issued to
such Accredited Seller) shall receive cash from Buyer on the applicable
Contingent Payment Date in lieu of such fraction of a share, without interest
and less any required withholding Taxes (as defined in Section 12.15(a)), in an
amount equal to the product of (i) such fraction of a Parent ADS (rounded to the
second decimal place) and (ii) [**].

            (h) The Parties hereto acknowledge and agree that the aggregate
consideration payable by Buyer pursuant to (i) Section 1.1 shall in no event
exceed two hundred fifty-five million dollars ($255,000,000) and (ii) a
Contingent Payment shall in no event exceed one hundred seventy-eight million
five hundred thousand dollars ($178,500,000), whether paid in cash, [**], as the
case may be, or any combination thereof; provided, however, that for purposes of
determining compliance with this Section 1.2(h), to the extent a Contingent
Payment is made in [**], the value of each Parent ADS delivered in connection
therewith shall be calculated in accordance with the definitions of [**] and
[**], as the case may be.

                                       9
<PAGE>
         (i) The Parties hereto acknowledge and agree that the right to receive
the consideration set forth in Sections 1.2(b) and/or 1.2(c), if any, (i) is an
integral part of the consideration provided for in this Agreement, (ii) does not
give the Sellers dividend rights, voting rights, liquidation rights, preemptive
rights or other rights of holders of Company Stock or Parent ADSs, (iii) shall
not be evidenced by a certificate or other instrument, (iv) shall not be
assignable or otherwise transferable (other than by operation of law or by will
or descent after the death of a natural holder thereof), (v) shall not accrue or
pay interest on any portion thereof and (vi) does not represent any right other
than the right to receive the consideration set forth in Sections 1.2(b) and/or
1.2(c). Any attempted transfer of the right to a Contingent Payment by any
holder thereof (other than as permitted by the immediately preceding sentence)
shall be null and void.

     2.  CLOSING DATE, DELIVERY.

         2.1 CLOSING DATE. The closing of the purchase and sale of the Purchased
Shares hereunder shall be held after the completion of Adjusted Annex A pursuant
to the terms and conditions of this Agreement and on or prior to the second
business day after the satisfaction or waiver of all of the conditions to the
Closing (other than those conditions that by their nature are to be satisfied at
the Closing, but subject to the satisfaction or waiver of those conditions) or
such later date as the Consenting Sellers, the Company and Buyer may mutually
agree upon in writing (the "Closing") 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 Closing is hereinafter referred to as the "Closing Date." The Closing
shall be deemed to be effective as of 5:00 p.m., New York City time, on the
Closing Date.

                                       10
<PAGE>

         2.2 DELIVERY AT CLOSING.

         (a) Initial Sellers. At the Closing, each Initial Seller shall deliver
(or cause to be delivered) to Buyer one or more stock certificates in form and
substance reasonably satisfactory to Buyer, registered in such Initial Seller's
name, representing the number of Seller's Shares set forth opposite such Initial
Seller's name on Adjusted Annex A, duly endorsed or accompanied by duly executed
stock powers in blank and having all necessary stock transfer tax stamps affixed
thereto at the expense of such Initial Seller in form suitable for transfer of
valid title thereto to Buyer free and clear of any lien, pledge, option,
security interest, claim, third party right or any other restriction or
encumbrance of any nature whatsoever ("Encumbrances") (other than restrictions
on transfer under applicable Securities Laws (as defined in Section 4.24) and
restrictions on transfer contained in Sections 3 and 5 of the Stockholders'
Agreement) against payment of the Individual Closing Consideration payable to
such Initial Seller in same day funds by wire transfer per such Seller's wiring
instructions (such wire instructions to be delivered in writing to Buyer at
least three (3) business days prior to the Closing Date). Payment by Buyer to
the Initial Sellers of that portion of the Aggregate Purchase Price payable to
such Initial Sellers in accordance with this Section 2.2 shall fully satisfy and
discharge Buyer's payment obligations due as of the Closing Date to the Initial
Sellers.

         (b) Additional Sellers. Prior to the Closing, each Additional Seller
shall place (i) one or more stock certificates, registered in such Additional
Seller's name, representing the number of Seller's Shares of such Additional
Seller set forth opposite such Additional Seller's name on Adjusted Annex A,
duly endorsed or accompanied by duly executed stock powers in blank and having
all necessary stock transfer tax stamps affixed thereto at the expense of such
Additional Seller in form suitable for transfer of valid title thereto to Buyer
free and clear of any Encumbrances (other than restrictions on transfer under
applicable Securities Laws and restrictions on transfer contained in Sections 3
and 5 of the Stockholders' Agreement) in custody, for delivery under this
Agreement, under the Custody Agreement and/or (ii) a written notice, in form and
substance acceptable to the Company, specifying that, effective upon
consummation of the transaction contemplated by this Agreement, vested options
to purchase shares of Common Stock held by such Additional Seller shall be
exercised for that number of Seller's Shares of such Additional Seller set forth
opposite such Additional Seller's name on Adjusted Annex A less such number of
Seller's Shares represented by stock certificates placed in custody under the
Custody Agreement pursuant to clause (i) above, accompanied by duly executed
stock powers in blank and having all necessary stock transfer tax stamps affixed
thereto at the expense of such Additional Seller in form suitable for transfer
of valid title to such Seller's Shares to be issued upon exercise of such vested
options to Buyer free and clear of any Encumbrances (other than restrictions on
transfer under applicable Securities Laws and restrictions on transfer contained
in Sections 3 and 5 of the Stockholders' Agreement) in custody, for delivery
under this Agreement, under the Custody Agreement. At the Closing, the Buyer
will deliver to the Custodian the Individual Closing Consideration payable to
all Additional Sellers in same day funds by wire transfer to an account at a
bank acceptable to the Custodian drawn to the order of the Custodian and the
Custodian will (i) deliver to the Company the aggregate exercise price for all
options placed in custody under the Custody Agreement

                                       11

<PAGE>
to be exercised upon consummation of the transaction contemplated by this
Agreement and the aggregate amount of any applicable withholding Taxes, (ii)
deliver to the Buyer all such Seller's Shares of the Additional Sellers
(including Seller's Shares issued upon exercise of options placed in custody
under the Custody Agreement) and (iii) deliver to each Additional Seller the
consideration payable to such Additional Seller pursuant to Section 1.1 and the
Custody Agreement on the Closing Date less the sum of (i) the exercise price for
any options placed in custody under the Custody Agreement by such Additional
Seller and that were exercised upon consummation of the transactions
contemplated hereby and (ii) the amount of any applicable withholding Taxes.
Payment by Buyer to the Custodian of that portion of the Aggregate Purchase
Price payable to the Additional Sellers in accordance with this Section 2.2 and
the Custody Agreement shall fully satisfy and discharge Buyer's payment
obligations due as of the Closing Date to the Additional Sellers.

         (c) In the event that additional cash consideration becomes due and
payable in connection with a Contingent Payment to the Initial Sellers and the
Additional Sellers as set forth in Section 1.2 above, Buyer shall deliver to (i)
the Custodian the appropriate amount of cash consideration to be paid to the
Additional Sellers pursuant thereto by wire transfer of same day funds per the
wiring instructions of the Custodian and the Custodian shall thereafter deliver
an amount of such consideration to each Additional Seller, as determined
pursuant to Section 1.2, and (ii) each Initial Seller an amount of cash
consideration, as determined pursuant to Section 1.2, and paid pursuant thereto
by wire transfer of same day funds per the wiring instructions of the Initial
Sellers, in the case of (i) and (ii) above, against the applicable Contingent
Payment obligation due on the applicable Contingent Payment Date. For purposes
of this Section 2.2(c), it is acknowledged and agreed that the Company may serve
as the Custodian for purposes of receipt of additional cash consideration, if
any, payable to the Additional Sellers as set forth in Section 1.2 above and the
payment of such consideration to the Additional Sellers hereunder.

         (d) In the event that additional consideration becomes due and payable
in connection with a Contingent Payment to the Initial Sellers and the
Additional Sellers as set forth in Section 1.2 above, to the extent such Initial
Sellers or Additional Sellers are Accredited Sellers and Buyer elects to make
all or a portion of such payment in Parent ADSs, Parent shall deliver to each
such Accredited Seller, in accordance with Section 2.2, one or more certificates
representing the appropriate number of validly issued, fully paid and
nonassessable Parent ADSs free and clear from any Encumbrances and registered in
the names of such Accredited Sellers on the applicable Contingent Payment Date.

         2.3 FURTHER ACTIONS. Each of the Sellers, the Company, Buyer and,
solely with respect to its obligations under this Agreement, Parent, hereby
covenants and agrees without the necessity of any further consideration, to
execute, acknowledge and deliver any and all such other documents and take any
such other action as may be reasonably necessary to carry out the intent and
purposes of this Agreement.

                                       12

<PAGE>

     3.  REPRESENTATIONS AND WARRANTIES OF EACH SELLER. Each Seller hereby
severally, and not jointly, represents and warrants, as of the date hereof and
as of the Closing Date, to Buyer as follows:

         3.1 STOCK OWNERSHIP. Such Seller is or, with respect to shares of
Common Stock that will be issued upon such Seller's exercise of outstanding
options to purchase such shares of Common Stock, will be, when such options are
duly exercised and such shares of Common Stock are issued, the beneficial, legal
and record owner of such Seller's Shares and has or, when such options are duly
exercised and such shares of Common Stock are issued, will have, good, valid and
marketable title thereto, free and clear of any Encumbrances, except (i)
restrictions on transfer under applicable Securities Laws and (ii) restrictions
on transfer of such Seller's Shares contained in Sections 3 and 5 of the Second
Amended and Restated Stockholders' Agreement (as defined in Section 3.7), to the
extent such Seller is bound thereby. Upon consummation of the transactions
contemplated hereby, Buyer will acquire good and marketable title to such
Seller's Shares, free and clear of any Encumbrances, except (i) restrictions on
transfer under applicable Securities Laws and (ii) restrictions contained in
Sections 3 and 5 of the Stockholders' Agreement.

         3.2 AUTHORITY; EXECUTION AND DELIVERY. Such Seller has the full power,
capacity and authority to enter into this Agreement and execute the Stockholder
Consent (as defined in Section 12.15(a)) (to the extent such Seller is a
signatory thereto) and to sell such Seller's Shares in accordance with the terms
hereof sufficient to convey to Buyer good, valid and marketable title to said
Seller's Shares, free and clear of any Encumbrances, except (i) restrictions on
transfer under applicable Securities Laws and (ii) restrictions on transfer
contained in Sections 3 and 5 of the Stockholders' Agreement. This Agreement and
the Stockholder Consent (to the extent such Seller is a signatory thereto) have
been, and the Stockholders' Agreement and Custody Agreement (in the case of an
Additional Seller) will be, when executed and delivered by such Seller, duly
authorized, executed and delivered by such Seller and constitute the legal,
valid and binding obligations of such Seller, enforceable against such Seller in
accordance with their terms, except as (i) the enforcement hereof or thereof may
be limited by (A) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally or (B) equitable principles, including those
limiting the availability of specific performance, injunctive relief and other
equitable remedies and those providing for equitable defenses and (ii) to the
extent indemnification provisions contained in this Agreement or the
Stockholders' Agreement may be limited by applicable Securities Laws.

         3.3 NO CONFLICT. Neither the execution, delivery and performance by
such Seller of this Agreement, the Stockholders' Agreement, the Custody
Agreement (in the case of an Additional Seller) or the Stockholder Consent (to
the extent such Seller is a signatory thereto), nor the consummation by such
Seller of the transactions contemplated hereby or thereby, nor compliance by
such Seller with any of the provisions hereof or thereof, will (i) result in the
creation of any Encumbrance other than pursuant to this Agreement and the
Ancillary Agreements (as defined in Section 4.4) upon such Seller's Shares under
any of the terms, conditions or provisions of any agreement, document,

                                       13

<PAGE>

instrument, contract (whether oral or written), license, note, indenture,
mortgage, lease, sublease or other legally binding instrument ("Contract") to
which such Seller is a party or by which such Seller or such Seller's Shares may
be bound or affected, or (ii) violate or conflict with any judgment, injunction,
ruling, charge, order or decree ("Judgment") applicable to such Seller or such
Seller's Shares or any statute, law, rule, ordinance, code, or regulation of any
federal, state, local, municipal or foreign government and all agencies thereof
("Applicable Law") applicable to such Seller or such Seller's Shares, or result
in a breach of, or entitle any party to terminate or call a default with respect
to any material Contract applicable to such Seller or any Contract applicable to
such Seller's Shares.

         3.4 NO OTHER AGREEMENTS TO SELL PURCHASED SHARES. Other than pursuant
to this Agreement and the Ancillary Agreements, such Seller has no legal
obligation, absolute or contingent, to any other individual, corporation,
partnership, trust, limited liability company, association, joint venture, or
any similar entity (each, a "Person") or Governmental Entity (as defined in
Section 3.5) to (i) sell such Seller's Shares or, if applicable, options to
purchase shares of Common Stock that will comprise Seller's Shares (other than
distributions to such Seller's partners or beneficial owners of the proceeds
from the sales contemplated hereby, if any, pursuant to such Seller's
contractual obligations or institutional policies), (ii) issue, sell or
otherwise transfer any capital stock or any security convertible into or
exchangeable for capital stock of the Company, or (iii) enter into any agreement
with respect to any of the foregoing.

         3.5 CONSENTS. No consents, approvals or authorizations ("Consents") of,
(i) or registration, qualification, designation, declaration, notification or
filing with, any federal, state, local, municipal or foreign court of competent
jurisdiction, governmental agency, authority, instrumentality, regulatory body,
stock market or stock exchange (each a "Governmental Entity") or (ii) any party
to any Contract to which such Seller is a party or by which it is bound, is
required in connection with the sale by such Seller of such Seller's Shares or
required on the part of such Seller in connection with the valid execution,
delivery or performance of this Agreement, the Stockholders' Agreement, the
Custody Agreement (in the case of an Additional Seller) and the Stockholder
Consent (to the extent such Seller is a signatory thereto) by such Seller or the
consummation of the transactions contemplated hereby or thereby, except (A) as
may be required pursuant to Securities Laws which registrations, qualifications,
designations, declarations, notifications or filings, if required, shall be
accomplished by such Seller prior to Closing, (B) as may be required pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act")
or the EC Regulation or any other similar foreign antitrust or trade regulation
laws to the extent applicable to such Seller or (C) such Consents of (x) or
registrations, qualifications, designations, declarations, notifications or
filings with, any Governmental Entity or (y) any parties to any Contract to
which such Seller is a party or by which such Seller is bound, in the case of
this clause (C), the failure of which Consents to obtain, or registrations,
qualifications, designations, declarations, notifications or filings to make,
would not be reasonably likely to materially and adversely affect the ability of
the Parties to consummate the transactions contemplated hereby.

                                       14

<PAGE>

         3.6 OFFERING. Subject to the accuracy of Buyer's representations set
forth in Section 5 of this Agreement, the offer and sale by such Seller of such
Seller's Shares in conformity with the terms of this Agreement constitutes a
transaction that is: (i) in full compliance with all Applicable Laws applicable
to such Seller or such Seller's Shares and (ii) exempt from the registration
requirements of the Securities Act and from all applicable state registration or
qualification requirements, other than those with which such Seller has complied
or will comply with prior to Closing. Such Seller or any authorized agent acting
on its behalf has not taken any action, or permitted any action to be taken on
its behalf, that violates or conflicts with Securities Laws in respect of such
Seller's Shares or that would cause the loss of any exemption applicable to the
transactions contemplated by this Agreement or would require such Seller's sale
of the Seller's Shares or the issuance of Parent ADSs to be registered pursuant
to Applicable Law.

         3.7 QUALIFIED PRIVATE OFFERING. The transaction contemplated by this
Agreement shall constitute a Qualified Private Offering (as defined in the
Company's Certificate of Incorporation, as amended (the "Current Certificate"),
and Second Amended and Restated Stockholders' Agreement dated April 24, 2001, by
and between the Company and the other parties thereto, as amended (the "Second
Amended and Restated Stockholders' Agreement")), in accordance with the terms of
the Current Certificate and the Second Amended and Restated Stockholders'
Agreement.

         3.8 ACCREDITED SELLERS. In addition to the other representations and
warranties contained in Section 3, each Accredited Seller hereby severally, and
not jointly, further represents and warrants, as of the date hereof and as of
the Closing Date, to Buyer and Parent as follows:

         (a) Purchase Entirely for Own Account. This Agreement is made with such
Seller in reliance upon such Seller's representation to Buyer and Parent, which
by such Seller's execution of this Agreement such Seller hereby confirms, that
the Parent ADSs, if any, to be received by such Seller will be acquired for
investment for such Seller's own account (or the account of its Affiliates (as
defined in Section 12.15(a)) or general partners, limited partners, retired
partners, shareholders (of a Person not subject to the Exchange Act (as defined
in Section 4.24)), managers, retired managers, members, retired members and any
of its other beneficial owners), not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof (other than distributions
required pursuant to contractual obligations contained in such Seller's
organizational or operational documents or pursuant to such Seller's
institutional policies) in violation of any Applicable Law, and that, such
Seller has no present intention of selling, granting any participation in or
otherwise distributing the same in violation of any Applicable Law. By executing
this Agreement, such Seller represents that, other than pursuant to this
Agreement, such Seller does not have any Contract with any Person to purchase or
otherwise acquire from such Person or to any third person any of the Parent ADSs
in violation of any Applicable Law.

         (b) Disclosure of Information. Such Seller represents that it has had
an opportunity to ask questions and receive answers from Buyer and Parent and
review

                                       15

<PAGE>
and discuss with Buyer and Parent information regarding the terms and conditions
of its receipt of Parent ADSs, if any, and the business, properties, prospects
and financial condition of Parent.

         (c) Investment Experience. Such Seller is an investor in securities of
developed companies and acknowledges that it is able to fend for itself, can
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 Parent ADSs. If other than an individual, such Seller
also represents it has not been organized for the purpose of acquiring Parent
ADSs, if any.

         (d) Accredited Seller. Such Seller is an "accredited investor" within
the meaning of Rule 501 of Regulation D of the Securities Act, as presently in
effect.

         (e) Restricted Securities. Such Seller understands that, unless a
Registration Statement is in effect with respect to Parent ADSs at the time of
issuance, the Parent ADSs, if any, it is purchasing are characterized as
"restricted securities" under the applicable Securities Laws inasmuch as they
are being acquired from Parent in a transaction not involving a public offering
and that under such laws and applicable regulations such Parent ADSs may be
resold without registration under the Securities Act only in certain limited
circumstances. In the absence of an effective registration statement covering
such Parent ADSs or an available exemption from registration under the
Securities Act, such Parent ADSs must be held indefinitely. In this connection,
such Seller represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.

         (f) Sellers' Counsel. Such Seller acknowledges that such Seller has had
the opportunity to review this Agreement and the Ancillary Agreements, the
exhibits and the schedules attached hereto and the transactions contemplated
hereby and thereby with such Seller's own legal counsel. Such Seller is relying
solely on such Seller's legal counsel and not on any statements or
representations of Parent or Buyer (other than those representations set forth
in Section 5) or any of Parent's or Buyer's agents, including Dewey Ballantine
LLP, for legal advice with respect to this investment or the transactions
contemplated by this Agreement and the Ancillary Agreements.

         3.9 DISCLOSURE STATEMENT. None of the information to be supplied by
such Seller expressly for inclusion in the Disclosure Statement will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
representations and warranties contained in this Section 3.9 will not apply to
any other information included in the Disclosure Statement (or other information
omitted to be included in the Disclosure Statement).

         3.10 STOCKHOLDER APPROVAL. Each such Seller which is a signatory to the
Stockholder Consent has delivered such Stockholder Consent to the Company on or
prior to the date hereof to approve the matters, actions and transactions
contemplated therein.

                                       16

<PAGE>

         3.11 RELIANCE. Such Seller understands that the foregoing
representations and warranties shall be deemed material and to have been relied
upon by Buyer and Parent.

     4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants, as of the date hereof and as of the Closing Date, to
Buyer as follows, except as set forth herein or in the disclosure schedule
provided by the Company to Buyer on the date of this Agreement (the "Company
Disclosure Schedule"), which schedule shall be arranged in sections and
subsections corresponding to the numbered and lettered sections and subsections
contained in this Section 4:

         4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
corporate authority to own and operate its properties and assets, to carry on
its business as now conducted and as currently proposed to be conducted, to
enter into this Agreement and the Ancillary Agreements and to carry out its
obligations hereunder and thereunder. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the nature of its
business or property makes such qualification necessary, except where the
failure to be so qualified would not reasonably be expected to result in a
Company Material Adverse Effect (as defined in Section 12.15(a)). Section 4.1 of
the Company Disclosure Schedule sets forth each jurisdiction in which the
Company is duly qualified to transact business. The Company has delivered or
made available to Buyer true, correct and complete copies of the Current
Certificate and the Company's by-laws (the "By-laws"), each as in effect on the
date hereof.

         4.2 CAPITALIZATION AND VOTING RIGHTS.

         (a) The authorized capital of the Company as of the date hereof
consists of:

         (i) Preferred Stock. 27,908,743 shares of Preferred Stock (as defined
     in Section 12.15(a)), of which (A) 12,413,793 shares have been designated
     Series A Convertible Preferred Stock (as defined in Section 12.15(a)), all
     of which are issued and outstanding, (B) 5,555,556 shares have been
     designated Series B Convertible Preferred Stock (as defined in Section
     12.15(a)), all of which are issued and outstanding and (C) 9,939,394 shares
     have been designated Series C Convertible Preferred Stock (as defined in
     Section 12.15(a)), 8,888,890 of which are issued and outstanding.

         (ii) Common Stock. 123,091,257 shares of Common Stock, of which
     7,676,194 shares are issued and outstanding.

         (b) Upon the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements, each share of Series A Convertible
Preferred Stock shall convert into one share of Common Stock, each share of
Series B Convertible Preferred Stock shall convert into one share of Common
Stock, each share of Series C

                                       17

<PAGE>

Convertible Preferred Stock shall convert into the number of shares of Common
Stock as determined by the provisions of the Current Certificate and each
outstanding warrant (except options issued pursuant to a founder's stock
restriction agreement, an employment agreement, a consulting agreement or the
Company's 1998 Equity Incentive Plan, as amended (the "Plan")) to purchase
shares of capital stock of the Company shall expire.

         (c) As of the date hereof, (i) options to purchase 2,500,938 shares of
Common Stock are currently outstanding, of which (x) options to purchase 884,160
shares of Common Stock are vested as of March 19, 2003 and (y) options to
purchase 1,616,778 shares of Common Stock are not vested as of March 19, 2003,
(ii) warrants to subscribe for 5,333,334 shares of Common Stock are currently
outstanding, (iii) 269,817 restricted stock awards are outstanding, and (iv) an
aggregate of 369,566 options, restricted stock awards or other rights to acquire
capital stock of the Company shall vest or accelerate upon the consummation of
the transactions contemplated by this Agreement. Except as set forth in the
immediately preceding sentence, there are: (i) no outstanding options (vested or
unvested), warrants, rights (including conversion, preemptive or other 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 Current Certificate, By-laws, any agreement to which the
Company is a party (other than the Second Amended and Restated Stockholders'
Agreement), any Judgment applicable to the Company, any Governmental Entity or
any Applicable Law (other than (x) applicable Securities Laws restrictions or
(y) with respect to applicable requirements of the HSR Act, EC Regulation and
any other similar foreign antitrust or trade regulation laws applicable to the
Company); (iii) no cumulative voting rights for any of the Company's capital
stock; (iv) no registration rights under the Securities Act with respect to
shares of the Company's capital stock other than those contained in the Second
Amended and Restated Stockholders' Agreement; and (v) to the Company's
knowledge, other than pursuant to this Agreement and the Second Amended and
Restated Stockholders' Agreement, no options or other rights to purchase shares
of capital stock from stockholders of the Company granted by such stockholders.
The Company has reserved up to 1,393,731 shares of its Common Stock (it being
understood that any shares of Common Stock subject to options and other awards
outstanding on the date hereof that expire or terminate unexercised or any
restricted stock repurchased by the Company shall increase such maximum number
of shares reserved for issuance in the future pursuant to the Plan) for the
issuance of Common Stock, restricted stock and other stock-based awards pursuant
to the exercise of options and other awards to be granted in the future pursuant
to the Plan. Section 4.2(c) of the Company Disclosure Schedule sets forth as of
the date of this Agreement (i) the name of each holder of options to purchase
shares of Common Stock, the exercise price of each such option, the number of
shares of Common Stock issuable upon exercise of such option and the number of
options held by such holder that have vested as of March 19, 2003 and the
vesting schedule for options not vested as of March 19, 2003; (ii) the name of
each holder of restricted stock, the number of restricted shares of Company
Stock held by such holder, the number of restricted shares of Company Stock held
by such holder that have vested as of the date hereof and the vesting schedule
for the restricted Common Stock not vested as of the date

                                       18

<PAGE>
hereof; (iii) the name of each holder of stock-based awards (other than options
to purchase shares, and restricted shares, of Common Stock), the number of
shares or units of such stock-based awards held by such holder, whether such
stock-based awards are vested or unvested and, to the extent such stock-based
awards are unvested, the vesting schedule thereof; and (iv) the number of
options, and the names of the holders thereof, that will vest as a result of the
consummation of the transactions contemplated in this Agreement and the
Ancillary Agreements.

         (d) The Company is not a party or subject to any Contract relating to,
and to the Company's knowledge there is no Contract between any Person 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 other
than the Current Certificate and the Second Amended and Restated Stockholders'
Agreement.

         4.3 SUBSIDIARIES.

         (a) The Company has never owned and does not presently own or control,
directly or indirectly, any corporation, partnership, limited liability company,
association, joint venture or similar entity and has never owned or controlled
and does not currently own or control, directly or indirectly, any capital stock
or other ownership interest, directly or indirectly, in any corporation,
partnership, limited liability company, association, joint venture or similar
entity. Each Subsidiary (as defined in Section 12.15(a)) is duly organized,
validly existing and in good standing (or, if "good standing" is not applicable
in the jurisdiction in which such Subsidiary is organized, an equivalent status,
if any) under the laws of its jurisdiction or organization and is duly qualified
as a foreign corporation and authorized to do business in all other
jurisdictions in which the nature of its business or property makes such
qualification necessary, except where the failure of a Subsidiary to be so
qualified or be in good standing (or equivalent status, if any) would not
reasonably be expected to result in a Company Material Adverse Effect. Section
4.3(a) of the Company Disclosure Schedule sets forth each jurisdiction in which
each Subsidiary is duly qualified to transact business. Each of the Subsidiaries
has the corporate power to own its properties and to carry on its business as
now conducted and as currently proposed to be conducted. The Company has
delivered or made available to Buyer true, correct and complete copies of the
certificates of incorporation and by-laws of each domestic Subsidiary or other
similar organizational or operational documents of each foreign Subsidiary.

         (b) All the outstanding shares of capital stock of each Subsidiary are
validly issued, fully paid and nonassessable and, other than director qualifying
shares, are owned by the Company or a wholly-owned Subsidiary free and clear of
any Encumbrances, other than with respect to applicable Securities Laws.

         (c) Other than director qualifying shares, there are no outstanding
securities convertible into, exchangeable for, or carrying the right to acquire,
capital stock of any Subsidiary, or subscriptions, options, warrants,
convertible securities, other rights or Contracts of any character relating to
the capital stock of any Subsidiary.

                                       19

<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) Other than with respect to director qualifying shares, there are no
voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any shares of
capital stock of or any other interests in any Subsidiary.

         (f) Section 4.3(f) of the Company Disclosure Schedule sets forth a
complete and accurate list of the number of director qualifying shares relating
to any Subsidiary and the names of the holders thereof.

         4.4 AUTHORIZATION, EXECUTION AND DELIVERY. All corporate action on the
part of the Company, its officers, directors and stockholders (including the
Consent of the holders of Company Stock set forth in Section 4.7 of the Company
Disclosure Schedule) necessary for the (i) authorization, execution and delivery
of this Agreement, the Development, License and Commercialization Agreement, to
be executed on the Closing Date (as executed on such Closing Date, without
giving effect to any subsequent amendments thereto, the "Development, License
and Commercialization Agreement"), in the form of Exhibit C attached hereto, the
Master Manufacturing and Supply Agreement, to be executed on as of the Closing
Date (the "Supply Agreement"), in the form of Exhibit D attached hereto, the
Stockholders' Agreement, to be executed on the Closing Date (the "Stockholders'
Agreement"), in the form of Exhibit E attached hereto, and the Credit Agreement,
dated as of the date hereof, by and between the Company, as borrower, and Buyer,
as lender (the "Credit Agreement"), any other agreement executed by the Company
in connection with the transactions contemplated hereby or thereby (the
Development, License and Commercialization Agreement, Supply Agreement,
Stockholders' Agreement, Credit Agreement and such other agreements,
collectively the "Ancillary Agreements"), the Company's (x) Restated Certificate
of Incorporation (the "Restated Certificate of Incorporation (Alternative 1)"),
in the form of Exhibit F attached hereto and (y) Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation (Alternative 2)"), in
the form of Exhibit G attached hereto (each, a "Restated Certificate" and,
together, the "Restated Certificates"), the Amended and Restated By-laws of the
Company, in the form of Exhibit H attached hereto (the "Amended and Restated
By-laws"), and (ii) authorization of the actions of the Company contemplated by
the Stockholder Consent, and, in the case of clauses (i) and (ii) above, the
performance of the obligations of the Company contemplated hereby and thereby
have been taken, or will be taken prior to Closing. This Agreement and the
Credit Agreement have been, and the other Ancillary Agreements will be prior to
Closing, validly executed and delivered, and the actions contemplated by the
Stockholder Consent, to the extent such actions are applicable to, or required
on the part of, the Company, have been validly authorized, by the Company and,
assuming this Agreement and each Ancillary Agreement constitute valid and
legally binding obligations of Buyer and the other parties thereto, constitute
or will constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms, except (i) as
the enforcement hereof or thereof may be limited by (A) applicable bankruptcy,

                                       20

<PAGE>
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws relating to or affecting the rights of creditors generally or (B) equitable
principles, including those limiting the availability of specific performance,
injunctive relief and other equitable remedies and those providing for equitable
defenses, or (ii) to the extent the indemnification provisions contained in the
Stockholders' Agreement or this Agreement may be limited by applicable
Securities Law.

         4.5 NO CONFLICT. Subject to compliance with the applicable requirements
of the HSR Act, EC Regulation and any other similar foreign antitrust or trade
regulation laws applicable to the Company and, in the case of (a), (b) and (c)
below, stockholder approval and adoption of the Restated Certificates and the
Amended and Restated By-laws, and the filing of the appropriate Restated
Certificate (as determined pursuant to Section 6.7) with the Secretary of State
of the State of Delaware, neither the execution, delivery and performance by the
Company of this Agreement and the Ancillary Agreements, nor the authorization of
and performance by the Company of the actions contemplated by the Stockholder
Consent, nor the consummation by the Company of the transactions contemplated
hereby or thereby, nor the compliance by the Company with any of the provisions
hereof or thereof, will:

         (a) violate or conflict with any Applicable Law applicable to the
     Company or any Subsidiary or Judgment applicable to the Company or any
     Subsidiary;

         (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 any material Contract to which the
     Company is a party or under which the Company or any of its assets is bound
     or affected;

         (c) conflict with or violate any provision of the Current Certificate
     or By-laws; or

         (d) result in the creation of any Encumbrance upon (i) any of the
     properties or assets of the Company or any Subsidiary (except as
     contemplated by the Credit Agreement) or (ii) to the knowledge of the
     Company, any of the Purchased Shares.

         4.6 VALID ISSUANCE OF STOCK. When originally issued, sold and delivered
by the Company, the Purchased Shares were, and the capital stock of the Company
into which such Purchased Shares are convertible or exchangeable, if any, when
such capital stock is issued upon such conversion or exchange, as the case may
be, will be, duly authorized, validly issued, fully paid and nonassessable.

         4.7 CONSENTS. No Consents of, (i) or registration, qualification,
designation, declaration, notification or filing with, any Governmental Entity
or (ii) any party to any Contract to which the Company or any Subsidiary is a
party or by which it is bound, other than with respect to stockholder approval
and adoption of the Restated

                                       21

<PAGE>
Certificates and the Amended and Restated By-laws, and the filing of the
appropriate Restated Certificate (as determined pursuant to Section 6.7) with
the Secretary of State of the State of Delaware, (x) is required in connection
with the valid execution, delivery or performance of this Agreement or the
Ancillary Agreements by, or (y) was required in connection with the valid
authorization, and performance of the actions contemplated by the Stockholder
Consent, to the extent such actions are applicable to, or require action on the
part of, the Company or the consummation of the transactions contemplated hereby
or thereby, except (A) as may be required pursuant to Securities Laws, which
registrations, qualifications, designations, declarations, notifications or
filings, if required, shall be accomplished by the Company prior to Closing, (B)
as may be required pursuant to the HSR Act or the EC Regulation or any other
similar foreign antitrust or trade regulation laws to the extent applicable to
the Company or (C) such Consents of (x) or registrations, qualifications,
designations, declarations, notifications or filings with, any Governmental
Entity or (y) any parties to any Contract to which the Company is a party or by
which the Company is bound, in the case of this clause (C), the failure of which
Consents to obtain, or registrations, qualifications, designations,
declarations, notifications or filings to make, would not reasonably be expected
to result in a Company Material Adverse Effect.

         4.8 ABSENCE OF CHANGES. From the Balance Sheet Date (as defined in
Section 12.15(a)) through the date of this Agreement, the Company has conducted
its business in the ordinary course and there has not been: (i) a Company
Material Adverse Effect, (ii) any material asset or property of the Company or
any Subsidiary made subject to an Encumbrance of any kind, (iii) any waiver of
any material right of the Company or any Subsidiary, or the cancellation,
payment or discharge of any material debt or claim held by the Company or any
Subsidiary, or the incurrence, guarantee, assumption or creation of any
Indebtedness (as defined in Section 12.15(a)) by the Company or any Subsidiary,
resulting in aggregate Indebtedness of the Company and its Subsidiaries, in
excess of $250,000, (iv) any mortgage, pledge, sale, lease, license, assignment
or transfer of any material tangible or intangible assets of the Company or any
Subsidiary, except in the ordinary course of business, (v) any loan by the
Company to, or any loan to the Company from any officer, director, employee or
stockholder of the Company, or any agreement or commitment therefor except for
travel advances not in excess of (x) $30,000, in the case of the Chief Executive
Officer of the Company, and (y) $15,000, in the case of all others, (vi) any
damage, destruction or loss (whether or not covered by insurance) materially and
adversely affecting the assets, property or business of the Company or any
Subsidiary, (vii) any material change in the accounting methods or practices
followed by the Company, except to conform to changes in GAAP (as defined in
Section 4.18), (viii) any purchase by the Company or any Subsidiary of assets,
other than in the ordinary course of business, or capital stock of another
Person or any agreement by the Company or any Subsidiary to merge or consolidate
with another Person, (ix) any grant by the Company or any Subsidiary of licenses
or sublicenses of, or material modification of, any rights under or with respect
to any Intellectual Property (as defined in Section 4.11(a)), or any settlement
regarding any infringement, misappropriation or alleged infringement or
misappropriation of rights in any Intellectual Property, (x) any issuance, sale
or other disposition or authorization thereof by the Company or any Subsidiary
of any of its capital stock or other securities, or grant of any options,
warrants or other rights to purchase or obtain (including upon conversion,

                                       22

<PAGE>
exercise or exchange) any of its capital stock or other securities, other than
under the Plan, (xi) any declaration, set aside or payment by the Company or any
Subsidiary of any dividend or distribution with respect to its capital stock,
other than with respect to Series C Convertible Preferred Stock, or, directly or
indirectly, any redemption, purchase, or other acquisition by the Company or any
Subsidiary of any of its capital stock, (xii) any employment contracts or
collective bargaining agreements, written or oral, entered into between the
Company or any Subsidiary and its directors, officers, employees or independent
contractors or material modifications of the terms of any existing contracts or
agreements or other material changes in employment or compensation terms for any
of its directors, officers, employees or independent contractors, nor has there
been any labor difficulties or claims of unfair labor practices involving the
Company or any Subsidiary, (xiii) any amendment, modification, acceleration,
waiver, termination or cancellation of any terms of any material Contract (or
series of related material Contracts) to which the Company or any Subsidiary is
a party or by which it is bound, (xiv) any conduct of business which is outside
the ordinary course or (xv) any agreement or understanding by the Company or any
Subsidiary to do any of the foregoing.

         4.9 LITIGATION. Since January 1, 2000, there have been no, and there
currently are no, material actions, suits, hearings, grievances, arbitrations,
proceedings or investigations of, in or before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator ("Proceedings") or, to the Company's knowledge, currently
threatened against the Company or any Subsidiary or any of their respective
assets or properties. There is no Proceeding pending, or to the Company's
knowledge, currently threatened against a stockholder, officer, director, key
employee or founder of the Company in his, her or its capacity as such. To the
knowledge of the Company, there has not occurred any event nor does there exist
any condition on the basis of which any material Proceeding involving the
Company might properly be instituted and there is no reasonable basis for any
such Proceeding. To the Company's knowledge, there are no, and since January 1,
2000 there have not been any, Proceedings involving the employment by or with
the Company or any Subsidiary 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 Applicable Law with respect to their relationship
with the Company or any Subsidiary. There is no material Proceeding by the
Company currently pending and the Company does not currently intend to initiate
any material Proceeding.

         4.10 EMPLOYEES AND CONSULTANTS.

         (a) To the Company's knowledge, none of its officers, employees or
consultants and none of the officers, employees or consultants of any Subsidiary
is obligated under any Contract, or subject to any Judgment applicable to such
persons that would interfere with such person's ability to promote the interests
of the Company or such Subsidiary or that would conflict with the Company's or
such Subsidiary's business as proposed to be conducted. The execution, delivery
and performance of this Agreement and the Ancillary Agreements, the carrying on
of the Company's business or the business of any Subsidiary by the officers,
employees or consultants of the Company

                                       23

<PAGE>
or such Subsidiary, the conduct of the Company's business or the business of any
Subsidiary as proposed, (i) do not, and to the Company's knowledge, will not,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any material Contract to which the Company or any
Subsidiary is a party under which any of such officers, employees or consultants
is now obligated and (ii) to the Company's knowledge, do not and will not
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any material Contract to which neither the
Company nor any Subsidiary is a party under which any of such officers,
employees or consultants is now obligated.

         (b) Each officer or employee of, or consultant to, the Company and any
Subsidiary, who has access to confidential or proprietary information of the
Company or any Subsidiary, is a signatory to, and is bound by, an agreement with
the Company or such Subsidiary relating to confidentiality, nondisclosure,
proprietary information and assignment of patent, copyright and other
intellectual property rights.

         (c) To the Company's knowledge, no officer or employee of, or
consultant to, the Company or any Subsidiary is in violation of any material
term of any employment contract, consulting agreement, patent disclosure
agreement, proprietary information agreement, noncompetition agreement,
nonsolicitation agreement or any other Contract including, but not limited to,
those matters relating to (i) the relationship of any such employee with the
Company or to any other party as a result of the nature of the Company's
business as currently conducted, or (ii) unfair competition, Trade Secrets (as
defined in Section 4.11(a)) or proprietary information, and to the Company's
knowledge, the continued employment or engagement of the Company's or any
Subsidiary's officers, employees and consultants does not subject the Company or
any Subsidiary or Buyer to any liability with respect to any of the foregoing
matters.

         (d) The Company does not believe it is or will be necessary to utilize
any Trade Secrets of any of its employees or employees of any Subsidiary (or
people it currently intends to hire) made prior to their employment by the
Company or any such Subsidiary.

         (e) Since the Balance Sheet Date, the Company and each Subsidiary has
employed employees sufficient to conduct its business as currently conducted and
since such time no officer or key employee of the Company or any of its
Subsidiaries has terminated his employment with the Company or any such
Subsidiary or, to the knowledge of the Company, advised the Company or any of
its Subsidiaries (orally or in writing) that such person intends to terminate
employment with the Company or any such Subsidiaries and the Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company or any of its
Subsidiaries, except to the extent such termination of the employment of any of
the foregoing would not reasonably be expected to result in a Company Material
Adverse Effect, nor does the Company have any present intention to, or cause any
Subsidiary to, terminate the employment of any of the foregoing. As of the date
hereof, to the Company's knowledge, the key employees are available to commit
their full-time employment efforts to the business of the Company or the
Subsidiaries.

                                       24

<PAGE>

         4.11 INTELLECTUAL PROPERTY.

         (a) For purposes of this Agreement: (1) "Intellectual Property" shall
mean, collectively: (i) all U.S. and non-U.S. registered, unregistered and
pending (A) trademarks, trade dress, business and assumed names and internet
domain names, and all registrations and applications therefor, (B) copyrights
(including, without limitation, those in Computer Software (as defined below))
and all grants, registrations and applications therefor, (C) patents and
registered designs, and all registrations and applications therefor
(collectively, "Patents"); (ii) all computer software (including source and
object code), programming tools and interfaces, web sites and web pages, data
files and other specifications and documentation relating thereto (collectively,
"Computer Software"); and (iii) Trade Secrets; (2) "IP Contracts" shall mean,
collectively, all license, assignment, distribution, development or other
agreements relating to any Intellectual Property; (3) "Company Property" shall
mean all (x) Intellectual Property in which the Company or any of its
Subsidiaries has an ownership interest ("Owned Property"), and (y) all
Intellectual Property (other than the Owned Property) which is used or is
currently intended to be used in the business of the Company or any of its
Subsidiaries as now conducted or as intended to be conducted pursuant to the
Development, License and Commercialization Agreement; (4) "Company Patents"
shall mean (x) all Patents included in the Owned Property, and (y) all other
Patents included in the Company Property which the Company has the
responsibility to prosecute and maintain pursuant to IP Contracts; (5)
"Candidates" shall mean the HBV Drug Candidates or the Initial HCV Drug
Candidate as those terms are defined in the Development, License and
Commercialization Agreement; (6) "Candidate Intellectual Property" shall mean
all Company Property covering or used in connection with the Candidates or their
therapeutic use or manufacture; (7) "Registered Intellectual Property" shall
mean any and all U.S. and non-U.S. (i) Patents, (ii) trademark and service mark
registrations and applications therefor, (iii) copyright registrations and
applications therefor, (iv) internet domain names, and (v) any other
Intellectual Property that is the subject matter of an application, certificate,
filing, registration or other document issued by, filed with, or recorded by any
Governmental Entity; (8) "Non-Material IP" shall mean Company Property which is
not material to the business of the Company or its Subsidiaries as now conducted
or as intended to be conducted pursuant to the Development, License and
Commercialization Agreement, it being understood that none of the Candidate
Intellectual Property is included in "Non-Material IP"; (9) "Trade Secrets"
shall mean proprietary inventions, processes, formulae, know-how, concepts,
designs, business plans, strategies, marketing and other information and
customer lists; and (10) "Material Owned Property" shall mean Owned Property
that is not Non-Material IP, excluding Trade Secrets.

         (b) Section 4.11(b) of the Company Disclosure Schedule sets forth a
complete and accurate list of all Registered Intellectual Property that is
Owned Property, indicating the owner thereof, and all material IP Contracts
(other than standard employment agreements and short-form Patent inventor
assignments included in filed Patents) with respect to the Company Property
specifically indicating, as applicable, each amendment to each original
agreement included in such IP Contracts.

         (c) The Company or a Subsidiary is the sole and exclusive owner of
each item of Material Owned Property and is listed in the records of the
appropriate U.S. and/or, to the knowledge of the Company, non-U.S. Governmental
Entity, as the sole and exclusive owner of record for each registration, grant
and application listed in Section 4.11(b) of the Company Disclosure Schedule.

         (d) To the knowledge of the Company, no act has been done or omitted
to be done by the Company or any Subsidiary, or by any direct or indirect
licensee, distributor or collaborator of the Company or any Subsidiary, or any
Person or Governmental Entity with which the Company or any Subsidiary is a
co-owner of any Material Owned Property, which has, had or is reasonably likely
to have the effect of canceling, forfeiting, abandoning or dedicating to the
public, or entitling any U.S. or non-U.S. Governmental Entity or any other
Person to cancel, forfeit, modify or consider abandoned, any Material Owned
Property, or give any Person or Governmental Entity any rights with respect
thereto (other than pursuant to an IP Contract listed in Section 4.11(b) of the
Company Disclosure Schedule). To the knowledge of the Company, all of the
issued claims in the Company Patents included among the Candidate Intellectual
Property, and the Company's and each Subsidiary's rights therein, are valid,
enforceable and free of defects. Neither the Company nor any Subsidiary has any
knowledge of any facts or claims which cause or would cause any Material Owned
Property to be invalid or unenforceable. Neither the Company nor any Subsidiary
has received any written notice that any Person or Governmental Entity may
bring a claim which would cause any Material Owned Property to be invalid or
unenforceable.

         (e) With respect to the Company Patents included among the Candidate
Intellectual Property, and, to the knowledge of the Company, with respect to the
other Company Patents: (i) all necessary registration, maintenance and renewal
fees have been paid and all necessary documents and certificates have been filed
with the relevant Governmental Entities for the purpose of maintaining such
Company Patents; (ii) there are no inventorship challenges or interferences
declared or provoked with respect to such Company Patents; (iii) the Company
and each Subsidiary have [**] with the [**] and [**] with the U.S. Patent and
Trademark Office and similar Governmental Entities (collectively, "Patent
Offices"), including the [**] to the [**] to be [**] under all applicable laws
and regulations; and (iv) other than through an IP Contract listed in Section
4.11(b) of the Company Disclosure Schedule, no third party, including any
academic organization or Governmental Entity, possesses rights to such Company
Patents which, if exercised, could enable such party to develop any of the
Candidates or would otherwise have a Company Material Adverse Effect.

         (f)  The Company and each Subsidiary owns, free and clear of any lien
or encumbrance, or otherwise has the valid right to use through an IP Contract
listed in Section 4.11(b) of the Company Disclosure Schedule, the terms of which
have been fully disclosed to Buyer, all Candidate Intellectual Property and, to
the knowledge of the Company, all other Company Property and third party
Intellectual Property which, in each case, is either used in or currently
intended to be used in, or is reasonably necessary for, the conduct of the
business of the Company or any Subsidiary as now conducted, or as intended to be
conducted pursuant to the Development, License and Commercialization Agreement.

         (g)  (i) none of the Company, any Subsidiary nor the business of the
Company or any Subsidiary as previously conducted, as now conducted or as
intended to be conducted pursuant to the Development, License and
Commercialization Agreement with respect to Candidates, or, to the knowledge of
the Company, any other activity, product or service of the Company or any
Subsidiary, is in violation or infringement of, or has violated or infringed any
rights or asserted rights of any other Person or Governmental Entity with
respect to any Intellectual Property of such other Person or Governmental
Entity; (ii) neither the Company nor any Subsidiary has received any notice of
any conflict with or violation or infringement or, nor are Proceedings or claims
pending with respect to any conflict with or violation or infringement of, nor
have any such Proceedings or claims been instituted or asserted in writing
against the Company or any Subsidiary, nor are any Proceedings threatened,
alleging any violation of any rights or asserted rights of any other Person or
Governmental Entity with respect to any Intellectual Property of such other
Person or Governmental Entity; and (iii) to the knowledge of the Company, there
is no valid basis for any such Proceeding or claim against the Company or any
Subsidiary of any rights or asserted rights of any other Person or Governmental
Entity with respect to any Intellectual Property of such other Person or
Governmental Entity.

         (h)  No Proceedings or claims in which the Company or any Subsidiary
alleges that any Person or Governmental Entity is infringing upon, or otherwise
violating, any Trade Secrets relating to the business of the Company as intended
to be conducted pursuant to the Development, License and Commercialization
Agreement ("Subject Trade Secrets") or Material Owned Property, or, to the
Company's knowledge, any Company Property or Subject Trade Secrets which are not
Material Owned Property, are pending, and none have been served by, instituted
or asserted by the Company or any Subsidiary, nor are any Proceedings threatened
alleging any such violation or infringement, nor does the Company or any such
Subsidiary know of any valid basis for any such proceeding or claim.

         (i)  All key personnel employed by the Company and any Subsidiary have
signed an enforceable agreement of confidentiality. The Company has obtained
from all individuals who are or have been involved in the development or
invention of any Candidate Intellectual Property which is Owned Property (as
employees of the Company or any Subsidiary, as consultants, as employees of
consultants or otherwise) and, to the knowledge of the Company, any other Owned
Property, assignments of any and all rights of such individuals with respect
thereto. No officer or, to the knowledge of the Company, employee of the Company
or any Subsidiary, is subject to any agreement with any other Person or
Governmental Entity which requires such officer or employee to assign any
interest in inventions or other Intellectual Property or to keep confidential
any Trade Secrets, proprietary data, customer lists or other business
information, or which restricts such officer or employee from engaging in
competitive activities or solicitation of customers.

         (j)  (i) the Company or a Subsidiary is the sole and exclusive owner of
all Subject Trade Secrets; (ii) neither the Company nor any Subsidiary has any
knowledge of any facts or claims which cause or would cause any Subject Trade
Secret to be unenforceable, nor has the Company or any Subsidiary received any
written notice that any Person or Governmental Entity may bring a claim which
would cause any Subject Trade Secret to be unenforceable; and (iii) to the
Company's knowledge, neither the Company nor any Subsidiary has, prior to the
date hereof, divulged, furnished to or made accessible to any Person or
Governmental Entity, any material Trade Secrets without prior thereto having
obtained an enforceable agreement of confidentiality from such Person or
Governmental Entity.

         (k)  The Company and each Subsidiary has taken and will take all
actions which are necessary or reasonable in order to protect the Company
Property in a manner consistent with prudent commercial practice in the
biopharmaceuticals industry.

          (l)  To the Company's knowledge, the [**} on [**] are the [**] of;
(i) the [**] (as defined in the Development, License and Commercialization
Agreement) [**] thereof, to a [**] in [**] of such [**], (ii) a [**] from (i),
and (iii) [**] to (i) that is [**] based on [**].

          (m)  No [**] (as defined in the [**], which term is defined in [**])
or [**] (as defined in the [**] in the [**] of the [**] or any [**] as [**] or
as [**] with [**] to [**] ([**] of the foregoing [**] terms as [**] in the
Development, License and Commercialization Agreement) of the [**].

         4.12 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor any
Subsidiary has taken any action that conflicts with, constitutes a default
under, or results in a violation of, any provision of the Current Certificate,
the By-laws (or, with respect to foreign Subsidiaries, other similar
organizational or operational documents of such foreign Subsidiary) or a
Judgment applicable to the Company or any Subsidiary.

         4.13 RELATED PARTY AGREEMENTS; OTHER ACTION

         (a) There are no agreements, understandings, transactions or proposed
transactions between the Company or any of its Subsidiaries and, directly or
indirectly, any of their respective officers, directors, stockholders, or any
Affiliate thereof, other than this Agreement, the Ancillary Agreements and the
Second Amended and Restated Stockholders' Agreement.

         (b) Neither the Company nor any Subsidiary has admitted in writing its
inability to pay its debts generally as they become due, filed or consented to
the filing against it of a petition in bankruptcy or a petition to take
advantage of any insolvency act, made an assignment for the benefit of
creditors, consented to the appointment of a receiver for itself or for the
whole or any substantial part of its property, or had a petition in bankruptcy
filed against it, been adjudicated 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.

         4.14 MATERIAL CONTRACTS AND OBLIGATIONS.

         (a) As of the date hereof, Section 4.14(a) of the Company Disclosure
Schedule sets forth a true, complete and accurate list (or summaries as to oral
contracts) of all of the following Contracts to which the Company or any
Subsidiary is a party or by which any of their assets is bound, all:

         (i) Contracts for the purchase or sale of services, materials, products
     or supplies which involve aggregate payments by the Company or any
     Subsidiary of more than one hundred thousand dollars ($100,000) for each
     such Contract or involve aggregate payments to the Company or any
     Subsidiary of more than one hundred thousand dollars ($100,000) for each
     such Contract;

         (ii) Contracts or arrangements providing for stock options or stock
     purchases, bonuses, pensions, deferred or incentive compensation,
     retirement or severance payments, profit-sharing, insurance or other
     benefit plans or programs for any founder, officer, consultant, director or
     employee of the Company or any of the Subsidiaries other than pursuant to
     the Plan;

         (iii) Contracts for construction or for the purchase of real estate,
     improvements, fixtures, equipment, machinery and other items which under

                                       25
<PAGE>
     GAAP constitute capital expenditures and involve aggregate payments by
     the Company or any Subsidiary in excess of seventy-five thousand
     dollars ($75,000);

         (iv) Contracts relating to the rental or use of equipment, vehicles,
     other personal property or fixtures, except for Contracts individually
     involving payment of annual rentals or sums less than fifty thousand
     dollars ($50,000) and in the aggregate for the Company or any of the
     Subsidiaries less than one hundred thousand dollars ($100,000);

         (v) Contracts relating in any way to Indebtedness, except in each case
     for Contracts individually involving less than seventy-five thousand
     dollars ($75,000);

         (vi) Contracts substantially restricting the Company or any
     Subsidiaries from engaging in any line of business or competing with any
     Person or in any geographical area, or from using or disclosing any
     information in its possession other than customary confidentiality and
     non-disclosure agreements entered into in the ordinary course of business;

         (vii) material license and sublicense agreements with respect to
     Intellectual Property, either as licensor, licensee, sublicensor or
     sublicensee, other than licenses for "off-the-shelf" software used for
     information management and general office tasks;

         (viii) material joint venture or collaboration Contracts and other
     Contracts involving a sharing of profits, revenue or cash flow;

         (ix) Contracts not made in the ordinary course of its business;

         (x) written Contracts for services with any officer, consultant,
     director or employee and any such oral Contracts which are not terminable
     at will by the Company or any Subsidiaries, other than consulting
     agreements involving the annual payment of less than twenty thousand
     dollars ($20,000);

         (xi) Contracts pursuant to which the Company or any Subsidiary is
     subject to material indemnification obligations; and

         (xii) other material Contracts.

         (b) As of the date hereof, the Company is not engaged in any
negotiations with respect to material Contracts that the Company reasonably
expects will lead to execution of any such Contract. All Contracts required to
be disclosed to Buyer pursuant to this Section 4.14 are valid, binding and in
full force and effect as to the Company or a Subsidiary, and neither the Company
nor, to the Company's knowledge, any other party thereto, is in material breach
or violation of, or material default under, nor, to the knowledge of the
Company, is there any reasonable basis for a claim of such breach or violation
by the Company or such default by the Company or Subsidiaries under, the terms
of any such Contract, and no event has occurred which constitutes or,

                                       26

<PAGE>
with the lapse of time or the giving of notice or both, would constitute, such a
material breach, violation or default by the Company or Subsidiaries thereunder.
To the knowledge of the Company, all other parties to such Contracts are in
material compliance with the terms and obligations of such Contracts. The
Company has furnished or made available to Buyer a true, complete and correct
copy of all written Contracts, including all amendments thereto, listed in
Section 4.14(a) of the Company Disclosure Schedule.

         4.15 OWNED REAL PROPERTY. Neither the Company nor any Subsidiary owns,
nor has ever owned, any real property.

         4.16 TITLE TO PROPERTY AND ASSETS. The Company and each Subsidiary has
good and valid title to all of its assets, free and clear of all Encumbrances,
except as would not reasonably be expected to result in a Company Material
Adverse Effect. Each lease of real or personal property to which the Company or
any Subsidiary is a party is in full force and effect, affords the Company and
such Subsidiary, as the case may be, peaceful and undisturbed possession of the
subject matter of the lease, and is free of any material Encumbrances. Each such
lease constitutes a valid and binding obligation of and, to the Company's
knowledge, is enforceable in accordance with its terms against, the respective
parties thereto. With respect to the leased property and assets that are
material to the Company and each Subsidiary, the Company and such Subsidiary is
in compliance in all material respects with such leases, has not received notice
of any allegations that they are in and, to the Company's knowledge no event has
occurred which, with the giving of notice or the lapse of time, or both, would
be, in default thereunder in any material respect and hold a valid leasehold
interest free of any Encumbrances. The Company has furnished or made available
to Buyer a true, complete and correct copy of all leases, including, all
amendments thereto, listed in Section 4.16 of the Company Disclosure Schedule.
This Section 4.16 shall not be deemed to be a representation and warranty with
respect to the subject matter of Section 4.11 (Intellectual Property).

         4.17 SUFFICIENCY OF PROPERTY AND ASSETS. The real and personal property
and assets owned, leased by or licensed to the Company and each Subsidiary and
used in the operation or conduct of business of the Company or such
Subsidiaries, constitute all of the material real and personal properties and
assets, tangible and intangible (other than with respect to such property which
is the subject matter of Section 4.11 (Intellectual Property)), which are
necessary in the current operation or conduct of their business and such
property or assets are in good condition and repair, except as would not
reasonably be expected to result in a Company Material Adverse Effect.

         4.18 FINANCIAL STATEMENTS. Set forth in Section 4.18(a) of the Company
Disclosure Schedule are the Company's audited Consolidated Statements of
Operations, Consolidated Statements of Shareholders' Deficit and Comprehensive
Loss and Consolidated Statements of Cash Flow, in each case for the years ended
December 31, 2000, 2001 and 2002 and its audited Consolidated Balance Sheets as
of December 31, 2001 and 2002 (the "Financial Statements"). The Company has
delivered to Buyer its unaudited Consolidated Balance Sheets, Consolidated
Statements of Operations, Consolidated Statements of Shareholders' Deficit and
Comprehensive Loss and

                                       27

<PAGE>
Consolidated Statements of Cash Flow as of and for all quarterly periods in 2001
and 2002. Set forth in Section 4.18(b) of the Company Disclosure Schedule are
true, correct and complete copies of the Company's fiscal year 2003 annual
budget (the "2003 Annual Budget"). The Financial Statements have been prepared
in accordance with United States generally accepted accounting principles and
practices as in effect from time to time and applied on a consistent basis
throughout the periods indicated ("GAAP") and fairly present, in all material
respects, the financial condition operating results of the Company as of the
dates, and for the periods, indicated therein. Except as set forth in the
Financial Statements, the Company has no material liabilities (matured or
unmatured, contingent or otherwise), other than (i) liabilities incurred in the
ordinary course of business subsequent to December 31, 2002, (ii) obligations
and liabilities of the type not required under GAAP to be reflected in the
Financial Statements and (iii) liabilities, individually or in the aggregate,
which are not material to the financial condition or operating results of the
Company. The Company maintains and consistently applies a standard system of
accounting established and administered in accordance with GAAP.

         4.19 EMPLOYEE BENEFIT PLANS

         (a) Section 4.19(a) of the Company Disclosure Schedule contains a list
and brief description of all "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (sometimes referred to herein as "Pension Plans"), "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA and sometimes referred to
herein as "Welfare Plans") and each other "Benefit Plan" (defined herein as any
Pension Plan, Welfare Plan and any other plan, fund, program, arrangement or
agreement (including any employment or consulting agreement) to provide
employees, directors, independent contractors, consultants, officers or agents
with medical, health, life, bonus, stock or stock-based right (option, ownership
or purchase), retirement, deferred compensation, severance, salary continuation,
vacation, sick leave, fringe, incentive insurance or other benefits) maintained,
or contributed to, or required to be contributed to, by the Company or any
Subsidiary for the benefit of any current or former independent contractors,
consultants, agents, employees, officers or directors of the Company or any
Subsidiary. The Company has no present commitments to pay any employees,
directors, independent contractors, consultants, officers or agents of the
Company or any Subsidiary any bonus for the current fiscal year whether upon the
achievement of any performance target or otherwise. Section 4.19(a) of the
Company Disclosure Schedule contains a brief description of (i) the Company's
historical bonus plan or arrangements (whether written or oral) pursuant to
which any employees, directors, independent contractors, consultants, officers
or agents of the Company or any Subsidiary received a bonus payment of any kind
for services rendered during the fiscal years ended December 31, 2001 and
December 31, 2002 and the amounts actually received by such employees,
directors, independent contractors, consultants, officers or agents for such
periods and (ii) the amount of cash payments that will or could become payable
and the individuals who will or might receive such payments upon the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements. The Company has delivered or made available to Buyer true,
complete and correct copies of (i) each Benefit Plan (or, in the case of any
unwritten Benefit Plans, descriptions thereof), (ii) the most recent annual

                                       28

<PAGE>
report on Form 5500 filed with the Internal Revenue Service with respect to each
Benefit Plan (if any such report was required), (iii) the most recent summary
plan description for each Benefit Plan for which such summary plan description
is required, (iv) each trust agreement and group annuity contract relating to
any Benefit Plan; (v) a list of all assets and liabilities of, allocated to or
accounted for separately with respect to every Benefit Plan (including insurance
contracts associated with every Benefit Plan regardless of whether any current
cash value exists); and (vi) the most recent determination letter from the
Internal Revenue Service, if any.

         (b) Each Benefit Plan has been established, funded, maintained and
administered in all material respects in accordance with its terms and is in
material compliance with the applicable provisions of ERISA, the Code (as
defined in Section 12.15(a)), all other Applicable Law applicable to the Company
or any Company Benefit Plan.

         (c) All Pension Plans have been the subject of favorable and up-to-date
(through any applicable remedial amendment period) determination letters from
the Internal Revenue Service, or a timely application therefor has been filed or
will be filed, to the effect that such Pension Plans are qualified and exempt
from federal income taxes under Section 401(a) and 501(a), respectively, of the
Code, and no such determination letter has been revoked nor has any such Pension
Plan been amended since the date of its most recent determination letter or
application therefor in any respect that would adversely affect its
qualification.

         (d) None of the Company, nor any Subsidiary, nor any other Person that,
together with the Company, is or was treated as a single employer under Section
414(b), (c), (m) or (o) of the Code has (i) maintained, sponsored or been
required to contribute to a plan subject to Title IV or Section 302 of ERISA or
Section 412 or 4971 of the Code or (ii) been required at any time or is required
currently to contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).

         (e) Neither the Company nor any Subsidiary has any liability for life,
health, medical or other welfare benefits for former employees or beneficiaries
or dependents thereof with coverage or benefits under Benefit Plans other than
Pension Plans, other than as required by Section 4980B of the Code or Part 6 of
Title I of ERISA.

         (f) All contributions or premiums owed by the Company or any Subsidiary
with respect to Benefit Plans under law, Contract or otherwise have been made in
full and on a timely basis.

         (g) To the Company's knowledge, no Pension Plan or Welfare Plan or any
"fiduciary" or "party-in-interest" (as such terms are respectively defined by
Sections 3(21) and 3(14) of ERISA) thereto has engaged in a transaction
prohibited by Section 406 of ERISA or 4975 of the Code for which a valid
exception is not available and which resulted in the imposition of a material
tax.

                                       29

<PAGE>
         (h) There are no pending or, to the Company's knowledge, threatened,
claims, lawsuits, arbitrations or audits asserted or instituted against any
Benefit Plan, any fiduciary (as defined by Section 3(21) of ERISA) thereto, the
Company, any Subsidiary or any employee or administrator thereof in connection
with the existence, operation or administration of a Benefit Plan, other than
routine claims for benefits.

         (i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or in combination with
the occurrence of any additional or subsequent events) constitute an event under
any Benefit Plan or other agreement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
Indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any current or former employee, director or consultant
of the Company or any Subsidiary. No payments or benefits under any Benefit Plan
or other agreement would result in an "excess parachute payment" under Section
280G of the Code. No employment agreement or other agreement between the Company
and an employee or officer of the Company provides for an additional payment to
the employee or officer as reimbursement for the excise tax imposed by Section
4999 of the Code.

         4.20 TAXES. The Company and each Subsidiary has filed in a timely
manner all federal, state, local and foreign income (and similar) Tax Returns
(as defined in Section 12.15(a)) and all other material Tax Returns required to
be filed by it. Such Tax Returns are true, correct and complete in all material
respects. The Company and each of its Subsidiaries has timely paid all Taxes
required to be paid by it. The accrued but unpaid Taxes of the Company and each
of its Subsidiaries as of the date of the Financial Statements (including any
such Taxes that are not yet due and payable) did not materially exceed the
reserve for Taxes (excluding reserves for deferred Taxes established to reflect
timing differences between book and Tax income) set forth in the Financial
Statements. The Tax Returns of the Company and each Subsidiary have never been
audited by the Internal Revenue Service or other taxing authority, and neither
the Company nor any Subsidiary has agreed to an extension of the statute of
limitations with respect to any tax year. Neither the Internal Revenue Service
nor any other taxing authority is now asserting, nor has threatened in writing
to assert, against the Company or any Subsidiary any deficiency or claim for
additional Taxes. All Taxes that the Company or any Subsidiary is or was
required by law to have withheld or collected have been duly withheld or
collected and, to the extent required, have been paid to the proper taxing
authority, and the Company has complied with all other material Applicable Laws
related to withholding Taxes. No claim has ever been made in writing by any
taxing authority with respect to the Company or any Subsidiary in a jurisdiction
where the Company or such Subsidiary does not file Tax Returns that the Company
or such Subsidiary is or may be subject to taxation by that jurisdiction.
Neither the Company nor any Subsidiary has been a member of an affiliated group
filing consolidated, combined or unitary Tax Returns other than a group for
which the Company is the common parent. Neither the Company nor any Subsidiary
is a party to any Contract relating to indemnification for, or allocating or
sharing the payment of, or liability for, Taxes, and neither the Company nor any
Subsidiary has any liability for Taxes of any other Person, as a transferee or
successor, by Contract or otherwise, except liability for Taxes of the Company
and each

                                       30

<PAGE>
Subsidiary under Treasury Regulation Section 1.1502-6 (and similar provisions of
state, local or foreign law) for a consolidated, combined or unitary group of
which the Company is the common parent. The Company has not distributed the
stock of any corporation in a transaction satisfying the requirements of Section
355 of the Code since April 16, 1997, and the stock of the Company has not been
distributed in such a transaction.

         4.21 INSURANCE. Copies of, all policies of title, liability, fire,
worker's compensation and other forms of insurance (including bonds) insuring
the Company's and each Subsidiary's properties, assets and operations have been
provided or made available to Buyer. The Company and each Subsidiary has in full
force and effect fire, casualty and liability insurance policies (including
product liability), with coverage, in the case of property insurance, sufficient
in amount (subject to reasonable deductibles) to allow it to replace any
properties of a type covered by such policies that might be damaged or
destroyed, and in the case of casualty and liability insurance (including
product liability), in amounts customary and adequate for businesses similar to
the business of the Company.

         4.22 LABOR AGREEMENTS AND ACTIONS

         (a) Neither the Company nor any Subsidiary is a party to or bound by
any collective bargaining or similar agreement with any labor organization, or
work rules or practices agreed to with any labor organization or employee
association applicable to employees of the Company or any Subsidiary. None of
the employees of the Company or any Subsidiary are represented by any labor
organization and the Company does not have any knowledge of any current union
organizing activities among the employees of the Company or any Subsidiary.
There is no labor strike, dispute, slowdown, work stoppage or lockout pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary and during the past three years, there has not been any such action.
There is no unfair labor practice or labor arbitration proceeding pending or, to
the knowledge of the Company, threatened against the Company or any Subsidiary
relating to their business.

         (b) The Company and each Subsidiary is in compliance with all material
Applicable Laws applicable thereto respecting employment, employment practices,
terms and conditions of employment, employee classification and wages and hours,
in each case, with respect to current and former employees of the Company and
any Subsidiary.

         4.23 GOVERNMENTAL REGULATIONS. Neither the Company nor any Subsidiary
is an "investment company" as such term is defined in the Investment Company Act
of 1940, as amended. Neither the Company nor any Subsidiary is now, nor has it
been within the past five years, a "United States real property holding
corporation" as defined in Section 897 of the Code.

         4.24 OFFERING; SECURITIES LAWS. Neither the Company nor any Subsidiary
or any authorized agent acting on its behalf has (i) offered securities of the
Company or the Parent for sale to any Person, or solicited any offers to buy
securities of

                                       31

<PAGE>
the Company or the Parent from, or sold securities of the Company or Parent to
any Person, in any case so as to subject the Company, its promoters, directors
or officers or Buyer or Parent to any liability under the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), any state
securities or Blue Sky law (collectively, the "Securities Laws"), or any other
Applicable Laws or (ii) taken any action, or permitted any action to be taken on
its behalf, that violates or conflicts with applicable Securities Laws or would
cause the loss of any applicable exemption or would require Buyer's purchase of
the Purchased Shares or the issuance of Parent ADSs to be registered pursuant to
Applicable Law.

         4.25 ENVIRONMENTAL MATTERS.

         (a) Neither the Company nor any Subsidiary is in material violation of
any Environmental Law (as defined below) 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
federal, state and local law, ordinance, rule or regulation of any nation or
government whether federal, state, municipal, local, provincial, regional or
other political subdivision thereof that regulates, fixes liability for, or
otherwise relates to, the environment or workplace health and safety, including,
without limitation, the handling, use (including use in industrial processes, in
construction, as building materials, or otherwise), treatment, storage presence,
actual Release (as defined below) or threatened Release (whether by disposal, a
discharge into any water source or system or into the air, or otherwise) of any
Hazardous Materials (as defined below). The term "Release" shall mean any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, migrating, dumping or disposing into the environment.

         (b) Neither the Company nor any Subsidiary has used, generated,
manufactured, refined, treated, transported, stored, handled, transferred,
produced, processed or Released any Hazardous Materials on, from or affecting
any Property (as defined below) in any manner or by any means in material
violation of any Environmental Laws and, to the Company's knowledge, there is no
threat of such use, generation, manufacture, refining, treatment,
transportation, storage, handling, transfer, production, processing or Release.
As used herein, the term "Property" shall include, without limitation, land,
buildings and laboratory facilities owned or leased or otherwise used by the
Company or any Subsidiary or as to which the Company or such Subsidiary 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 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 mean
any flammable explosives, petroleum products, petroleum by-products, radioactive
materials, hazardous wastes, hazardous substances, toxic substances, pollutants,
contaminants, or other materials regulated or defined as such by Environmental
Laws.

                                       32

<PAGE>

         (c) The Company has not received written notice that it or any
Subsidiary is a party potentially responsible for environmental cleanup costs
incurred at a site or for corrective action under any Environmental Laws. The
Company has not received any written requests for information in connection with
any inquiry by any Governmental Entity concerning disposal sites or other
environmental matters.

         (d) The stockholders of the Company have had no control over, or
authority with respect to, and have not exercised control over the waste
disposal operations of the Company or any Subsidiary. The Company has not
exercised control over the waste disposal operations of any Subsidiary.

         (e) This Section 4.25 shall not be deemed to be a representation and
warranty with respect to the subject matter of Section 4.28 (Regulatory Agency
Matters), and in no event shall this Section 4.25 be deemed to constitute a
representation and warranty relating to the administration of any Regulated
Product (as defined in Section 12.15(a)).

         4.26 COMMERCIAL RELATIONSHIPS. No material supplier, distributor,
collaborator, licensor or licensee has canceled or otherwise terminated its
relationship with the Company or any Subsidiary or has, since the Balance Sheet
Date, materially adversely altered its relationship with the Company or any
Subsidiary. The Company does not know of any plan or intention of any such
entity, and has not received any written threat or notice from any such entity,
to terminate, cancel or otherwise materially and adversely modify its
relationship with the Company or any Subsidiary.

         4.27 LICENSES AND OTHER RIGHTS; COMPLIANCE WITH LAWS.

         (a) The Company and each Subsidiary has all licenses, permits,
franchises, Consents, concessions, registrations or similar rights and other
authorizations of Governmental Entities (collectively, "Permits"), required to
own and lease its properties and assets and to conduct its business as now
conducted, except for such Permits the failure of which to obtain would not
reasonably be expected to result in a Company Material Adverse Effect. Section
4.27 of the Company Disclosure Schedule sets forth a list of each material
Permit so required or used by the Company or any Subsidiaries in the operation
or conduct of its business. No registrations, filings, applications, notices,
transfers, Consents, audits, qualifications or other action of any kind is
required by virtue of the execution and delivery of this Agreement or the
Ancillary Agreements by the Company and the Sellers or of the consummation by
the Company and the Sellers of the transactions contemplated hereby or thereby
(i) to avoid the loss of any such Permit or any material asset, property or
right pursuant to the terms thereof or (ii) to enable the Company or any
Subsidiary to hold and enjoy such Permit after the Closing Date in the operation
or conduct of its business as conducted prior to the Closing Date. To the
Company's knowledge, no event has occurred which (i) is reasonably likely to
result in the finding that the Company or any of the Subsidiaries is unqualified
to hold any material Permit, (ii) permits, or after notice or lapse of time or
both would permit, the revocation or termination of any of the material Permits
or the denial of an application for

                                       33

<PAGE>

the renewal thereof or (iii) would result in any impairment of the rights of the
Company or any Subsidiary as holder of any such material Permit.

         (b) The Company and each Subsidiary has been and is in compliance with
all material Applicable Laws including, without limitation, all such rules, laws
and regulations relating to fair employment practices. Since January 1, 2000,
neither the Company nor any Subsidiary has entered into or been subject to any
material Judgment or Consent with respect to any aspect of the business,
affairs, properties or assets of the Company or such Subsidiary or received any
request for information, notice, demand letter, administrative inquiry or formal
or informal complaint or claim from any Governmental Entity with respect to any
material aspect of the business, affairs, properties or assets of the Company or
such Subsidiary.

         (c) Neither the Company nor any Subsidiary: (i) has made any
contributions, payments or gifts of its property to or for the private use of
any official, employee or agent of any Governmental Entity or educational
institution where either the payment or the purpose of such contribution,
payment or gift is illegal under any Applicable Law, (ii) has established or
maintained any unrecorded fund or asset for any purpose other than promotional
funds, or intentionally made any false or artificial entries on its books or
records for any reason, (iii) has made any payments to any Person or
Governmental Entity where the Company or such Subsidiary intended or understood
that any part of such payment was to be used for any other purpose other than
that described in the documents supporting the payment or (iv) has made any
contribution, or reimbursed any political gift or contribution made by any other
Person, to candidates for public office, whether federal, state or local, where
such contribution would be in violation of Applicable Law.

         (d) Sections 4.27(a) and 4.27(b) do not relate to Regulatory Agency (as
defined in Section 12.15(a)) or Regulatory Law (as defined in Section 12.15(a))
matters, which are the subject of Section 4.28 (Regulatory Agency Matters).

         4.28 REGULATORY AGENCY MATTERS.

         (a) The Company and each Subsidiary possess the Regulatory Agency
approvals and applications (as defined in Section 12.15(a)) required as of the
date hereof based on the current development and marketing status of the
Candidates under applicable Regulatory Laws to conduct its current businesses,
to manufacture Regulated Products and to use and occupy the property used in the
operation and conduct of the Company's or such Subsidiary's business. All such
Regulatory Agency approvals and applications are in full force and effect.

         (b) There are no facts or circumstances known to the Company that would
reasonably be expected to lead to any Regulatory Agency approvals and
applications possessed by and material to the Company or any Subsidiary being
revoked, suspended, canceled or not renewed. The Company and each Subsidiary
have submitted all necessary reports and filings to all Regulatory Agencies.

                                       34

<PAGE>

         (c) The execution and delivery of this Agreement and the Ancillary
Agreements, and the consummation of the transactions contemplated hereby or
thereby, will not adversely affect the validity or require the transfer of any
Regulatory Agency approvals and applications held by the Company or any
Subsidiary.

         (d) The Company and each Subsidiary are in material compliance with,
and have materially complied with, all applicable Regulatory Laws and have not
received any notice citing action or inaction by the Company or any Subsidiary
that would constitute any material non-compliance with any Regulatory Laws
within the past three (3) years.

         (e) There is no civil, criminal or administrative action, suit, demand,
claim, complaint, hearing, notice of violation, investigation, notice, demand
letter, proceeding or request for information pending or any liability (whether
actual or contingent), in each case, for failure to comply with any Regulatory
Laws that requires any material change in any manufacturing procedures by the
Company or any Subsidiary or any material repair, reinstatement or clean-up of
any property, assets or equipment used in the operation and conduct of the
Company's or any Subsidiary's business. There is no act, omission, event or
circumstance of which the Company has knowledge that would reasonably be
expected to give rise to any such action, suit, demand, claim, complaint,
hearing, notice of violation, investigation, notice, demand letter, proceeding
or request for information or any such liability:

         (i) against, involving or of the Company or any Subsidiary; or

         (ii) against, involving or of any other Person or Governmental Entity
     (including, without limitation, any Company Contractor (as defined in
     Section 12.15(a))) which would reasonably be expected to result in a
     material liability to the Company.

         (f) There has not been any material violation of any Regulatory Laws by
the Company or any Subsidiary in their prior product developmental efforts,
clinical studies, submissions or reports to the Regulatory Agencies (or any
failure to make any such submission or report) that could reasonably be expected
to require investigation, corrective action or enforcement action.

         (g) The Company, its Subsidiaries and their respective agents (in their
capacities as such agents) have registered with the Regulatory Agencies all
facilities required to be registered and have listed all Regulated Products
required to be listed with the Regulatory Agencies, in each case, based on the
current development status of the Candidates.

         4.29 OPINION OF FINANCIAL ADVISOR. The Company has received the opinion
of Banc of America Securities LLC ("Banc of America"), the Company's financial
advisor, to the effect that, as of the date hereof, the consideration to be
received by each Seller, other than the Major Stockholders (as defined in such
opinion), in the

                                       35

<PAGE>
transaction contemplated by this Agreement, is fair from a financial point of
view to such stockholders, and has provided Buyer with a copy of such opinion.

         4.30 BROKER OR FINDERS. Except for the fees and expenses of Banc of
America, which are payable by the Company, neither the Company nor any
Subsidiary has incurred, or will incur, directly or indirectly, as a result of
any action taken by the Company or any Subsidiary, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement, any of the Ancillary Agreements or any transaction
contemplated hereby or thereby.

         4.31 CORPORATE RECORDS. The Company has made available to Buyer the
minute books of the Company and each Subsidiary and such minute books contain
summaries, complete in all material respects, of all meetings and consents in
lieu of meetings of the Board (as defined in Section 12.15(a)) and the board of
directors or any other similar governing body of such Subsidiaries, committees
thereof and stockholders since the time of incorporation and accurately reflect
all material transactions of the Company and each Subsidiary in all material
respects.

         4.32 QUALIFIED PRIVATE OFFERING. The transaction contemplated by this
Agreement shall constitute a Qualified Private Offering in accordance with the
terms of the Current Certificate and the Second Amended and Restated
Stockholders' Agreement.

         4.33 TAKEOVER STATUTES . As of the date hereof, no "fair price,"
"moratorium," "control share acquisition" or other form of anti-takeover statute
or regulation applies to any of the transactions contemplated by this Agreement,
other than with respect to any of the foregoing that may apply by virtue of the
jurisdiction of organization of Buyer or Parent.

         4.34 STOCKHOLDER APPROVAL. The Company has received the Stockholder
Consent executed by certain Sellers and other stockholders that are signatories
thereto to duly authorize and approve the matters, actions and transactions
contemplated therein.

         4.35 RESTATED CERTIFICATES AND AMENDED AND RESTATED BY-LAWS. The Board
has duly and validly resolved to adopt the Restated Certificates and the Amended
and Restated By-laws.

         4.36 RELIANCE. The Company understands that the foregoing
representations and warranties shall be deemed material and to have been relied
upon by Buyer.

     5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants, as of the date hereof and as of the Closing Date, and in the case of
Section 5.2(b) and Section 5.2(c) (but only to the extent such representations
and warranties relate to Parent ADSs), Section 5.3 (SEC Reports), Section 5.4
(Issuance of Shares) and Section 5.9 (Offer and Sale of Parent ADSs), as of each
Contingent Payment Date to the extent a Contingent Payment made on such date
consists in whole or in part of Parent ADSs, to the Company and each Seller as
follows:

                                       36

<PAGE>
         5.1 ORGANIZATION, COMPLIANCE AND QUALIFICATION. Each of Parent and
Buyer is an aktiengesellschaft duly organized, validly existing and in
compliance with the laws of Switzerland. Each of Parent and Buyer has all
requisite corporate power and corporate authority to operate (only as to Buyer)
and own its properties and assets, to carry on its business as now conducted, to
enter into this Agreement and the Ancillary Agreements (only as to Buyer) and to
carry out its obligations hereunder and thereunder. Each of Buyer and Parent is
duly qualified to transact business and is in good standing in each jurisdiction
in which the nature of its business or property makes such qualification
necessary, except where the failure of either of Buyer or Parent to be so
qualified or be in good standing would not reasonably be expected to materially
adversely effect the ability of Buyer or Parent to consummate the transactions
contemplated hereby or thereby.

         5.2 AUTHORIZATION, CONSENTS AND COMPLIANCE WITH OTHER INSTRUMENTS.

         (a) All corporate action on the part of Buyer and Parent, their
respective officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Ancillary Agreements and the
performance of the obligations of Parent (only as to this Agreement) and Buyer
contemplated hereby and thereby have been taken, or will be taken prior to
Closing or, with respect to the issuance and delivery of Parent ADSs, the
applicable Contingent Payment Date. This Agreement and the Credit Agreement have
been, and the other Ancillary Agreements will be prior to Closing, validly
executed and delivered by Parent (only as to this Agreement) and Buyer and,
assuming this Agreement and each Ancillary Agreement constitute valid and
legally binding obligations of the Company, constitute or will constitute valid
and legally binding obligations of Parent (only as to this Agreement) and Buyer,
enforceable against Parent (only as to this Agreement) and Buyer in accordance
with their terms, except (i) as the enforcement hereof or thereof may be limited
by (A) applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally or (B) equitable principles, including those limiting the
availability of specific performance, injunctive relief and other equitable
remedies and those providing for equitable defenses, or (ii) to the extent the
indemnification provisions contained in the Stockholders' Agreement or this
Agreement may be limited by applicable Securities Law.

         (b) No Consent of, (i) or registration, qualification, designation,
declaration, notification or filing with, any Governmental Entity or (ii) any
party to any Contract to which Parent or Buyer is a party or by which it is
bound, is required in connection with the valid execution, delivery and
performance of this Agreement or the Ancillary Agreements by Parent (only as to
this Agreement) and Buyer or the consummation by Parent and Buyer of the
transactions contemplated hereby or thereby (only as to Buyer), except (A) as
may be required pursuant to Securities Laws, which registrations,
qualifications, designations, declarations, notifications or filings, if
required, shall be accomplished by Buyer or Parent, as applicable, prior to
Closing, (B) as may be required pursuant to the HSR Act or the EC Regulation or
any other similar foreign antitrust or trade regulation laws to the extent
applicable to Buyer or Parent or (C) such Consents of (x) or registrations,
qualifications, designations, declarations,

                                       37

<PAGE>
notifications or filings with, any Governmental Entity or (y) any parties to any
Contract to which Buyer is a party or by which Buyer is bound, in the case of
this clause (C), the failure of which Consents to obtain, or registrations,
qualifications, designations, declarations, notifications or filings to make,
would not be reasonably likely to materially and adversely affect the ability of
the Parties to perform their obligations or to consummate the transactions
contemplated thereby (only as to Buyer) or hereby.

         (c) Subject to compliance with the applicable requirements of the HSR
Act, EC Regulation and any other similar foreign antitrust or trade regulation
laws applicable to Buyer or Parent, neither the execution, delivery and
performance by Buyer or Parent of this Agreement and the Ancillary Agreements
(only as to Buyer), nor the consummation by Buyer or Parent of the transactions
contemplated hereby or thereby (only as to Buyer), nor the compliance by Buyer
or Parent with any of the provisions thereof (only as to Buyer) or hereof, will:

         (i) violate or conflict with any Applicable Law applicable to Buyer or
     Parent or Judgment applicable to Buyer or Parent;

         (ii) conflict with or violate any provision of the Articles of
     Incorporation or by-laws of Buyer or Parent; or

         (iii) conflict with or violate any provision of the Deposit Agreement
     (as defined in Section 5.4(c)) or any other agreement to which Parent is a
     party relating to the Parent ADSs.

         5.3 SEC REPORTS. The Company has had access, via the Securities and
Exchange Commission's (the "SEC") website, to Parent's Annual Report on Form
20-F for the year ended December 31, 2002 and all other documents filed by
Parent with the SEC under the Exchange Act since January 1, 2002 (the "Parent
SEC Reports"). As of their respective dates, each of the Parent SEC Reports
complied in all material respects with applicable SEC requirements and did not
contain any untrue statements of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

         5.4 ISSUANCE OF SHARES.

         (a) Each Parent ADS is listed on the New York Stock Exchange and, as of
the date hereof, represents one registered ordinary share of Parent, nominal
value CHF 0.50 per share (a "Registered Share"). Parent ADSs and the Registered
Shares underlying Parent ADSs, when issued in accordance with the provisions of
this Agreement, will be duly authorized, validly issued, fully paid,
nonassessable and free from any Encumbrance.

         (b) The offer, issuance, sale and delivery of Parent ADSs and the
Registered Shares underlying such Parent ADSs pursuant to the terms of this
Agreement is in full compliance with all Applicable Laws, is exempt from the
registration

                                       38

<PAGE>
requirements of the Securities Laws and will be issued in compliance with such
Securities Laws.

         (c) Upon the due issuance by JPMorgan Chase Bank, as depositary, of the
Parent ADSs and any American Depositary Receipts evidencing such Parent ADSs in
accordance with this Agreement and the provisions of the Amended and Restated
Deposit Agreement, dated as of May 11, 2000, as amended as of September 29, 2000
and May 7, 2001, and supplemented by the Restricted Issuance Agreement as of
January 11, 2002, among Parent, JPMorgan Chase Bank, as depositary, all holders
from time to time of Parent ADSs (the "Deposit Agreement"), such Parent ADSs
will be duly and validly issued, and the persons in whose name such Parent ADSs
are registered will be entitled to the rights of registered holders of Parent
ADSs specified in the Deposit Agreement. Assuming that the Depositary Agreement
constitutes a valid and legally binding obligation of JPMorgan Chase Bank, the
Depositary Agreement constitutes a valid and legally binding obligation of
Parent, enforceable against Parent in accordance with its terms, except (i) as
the enforcement thereof may be limited by (i) applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws relating
to or affecting the rights of creditors generally or (ii) equitable principles,
including those limiting the availability of specific performance, injunctive
relief and other equitable remedies and those providing for equitable defenses.

         (d) Parent's registration statement on Form F-6, as amended, on which
Parent ADSs are registered has been declared effective under the Securities Act
and no stop order suspending the effectiveness of such registration statement or
any part thereof has been issued and no proceedings for that purpose have been
instituted or are pending or, to Parent's knowledge, contemplated under the
Securities Act, and such registration statement, and each amendment thereof, as
of the effective date of such amendment, complied as to form in all material
respects with the requirements of the Securities Act and the rules and
regulations thereunder.

         5.5 BUYER MATTERS.

         (a) Buyer is an indirect wholly owned subsidiary of Parent. Novartis
BioVentures Ltd. is an Affiliate of Buyer. The shares of capital stock of the
Company held by Novartis BioVentures Ltd. are beneficially owned (as defined in
Rule 13(d) of the Exchange Act) by Parent. Except for the shares of capital
stock held by Novartis BioVentures Ltd. and, other than as contemplated in this
Agreement and the Ancillary Agreements, neither Parent nor Buyer beneficially
owns, directly or indirectly, any capital stock of the Company or is a party to
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any capital stock of the Company.

         (b) Buyer has, and at the [**], if such date occurs, will have,
sufficient resources in order to consummate the transactions contemplated by
this Agreement and the Ancillary Agreements and to fulfill its obligations
hereunder and thereunder, including without limitation, payment to the Sellers
of the [**] and the payments contemplated by Sections 1.2(b) and/or 1.2(c).

         (c) Buyer acknowledges that the Purchased Shares have not been
registered under the Securities Laws or the laws of any other jurisdiction and
cannot be resold without registration under such laws or an exemption therefrom.

                                       39

<PAGE>

         5.6 PURCHASE ENTIRELY FOR OWN ACCOUNT. Buyer (i) hereby confirms that
the Purchased Shares will be acquired for investment for Buyer's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and Buyer has no present intention of selling, granting any
participation, or otherwise distributing the Purchased Shares and (ii) further
represents that Buyer does not have any Contract or undertaking with any Person
to sell, transfer or grant participation to such Person or to any third person,
with respect to any of the Purchased Shares.

         5.7 BROKER OR FINDERS. Buyer has not incurred, nor will incur, directly
or indirectly, as a result of any action taken by Buyer, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement, any of the Ancillary Agreements or any
transaction contemplated hereby or thereby.

         5.8 DISCLOSURE STATEMENT. None of the information to be supplied by
Buyer expressly for inclusion or incorporation by reference in the Disclosure
Statement will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The representations and warranties contained in this Section 5.8
will not apply to any other information included in the Disclosure Statement (or
other information omitted to be included in the Disclosure Statement).

         5.9 OFFER AND SALE OF PARENT ADSS. The offer and sale of the Parent
ADSs pursuant to the terms of this Agreement constitute transactions that are
(i) in full compliance with all Applicable Laws and (ii) exempt from the
registration requirements of the Securities Act and exempt from all applicable
state registration or qualification requirements. Neither Buyer nor any of its
Affiliates nor any authorized agent acting on their behalf will take any action
hereafter that would cause the loss of any such exemptions.

         5.10 LITIGATION. There are no Proceedings pending or, to Buyer's
knowledge, threatened against Buyer or Parent that would materially and
adversely affect Buyer's or Parent's ability to consummate the transaction
contemplated herein or perform their obligations under this Agreement or the
Ancillary Agreements.

         5.11 NOVARTIS BIOVENTURES LTD. Novartis BioVentures Ltd. has duly and
validly executed the Stockholder Consent.

         5.12 INITIAL SELLERS DISCLOSURE STATEMENT. None of the information
included in the disclosure statement provided to the Initial Sellers prior to
the date hereof contains any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that no representation or warranty is
made herein by Buyer with respect to the descriptions of the transactions
contemplated by this Agreement and the Ancillary Agreements included therein.

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<PAGE>

         5.13 RELIANCE. Buyer understands that the foregoing representations and
warranties shall be deemed material and to have been relied upon by the Company
and each Seller.

     6. CONDITIONS TO CLOSING OF BUYER. Buyer's obligation to purchase the
Purchased Shares at the Closing pursuant to Section 1.1 of this Agreement is
subject to the satisfaction (or wavier by Buyer) of the following conditions on
or prior to the Closing Date:

         6.1 SELLER'S REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Sellers in Section 3 of this Agreement shall be true and
correct as of the date of this Agreement, and shall be true and correct as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on the Closing Date, in each case except to the
extent such representations and warranties relate to an earlier date (in which
case such representations and warranties shall be true and correct as of such
earlier date).

         6.2 THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by the Company in Section 4 of this Agreement shall be true
and correct as of the date of this Agreement, and shall be true and correct as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date (without regard
to materiality or Company Material Adverse Effect qualifiers contained therein),
except to the extent such representations and warranties relate to an earlier
date (in which case such representations and warranties shall be true and
correct as of such earlier date), in each case except where the failure of the
representations and warranties to be true and correct would not be reasonably
likely to result, individually or in the aggregate, in a Company Material
Adverse Effect.

         6.3 COVENANTS. All covenants and agreements contained in this Agreement
to be performed by the Company or Sellers on or prior to the Closing Date, as
the case may be, shall have been performed or complied with in all material
respects on or prior to the Closing Date.

         6.4 COMPLIANCE CERTIFICATES. The Company shall have delivered to Buyer
a certificate of the Company in form and substance reasonably satisfactory to
Buyer, executed by the President and Chief Executive Officer of the Company,
certifying to the fulfillment of the conditions specified in Sections 6.2 and
6.3 (with respect to the Company) of this Agreement.

         6.5 CERTIFICATION OF RESOLUTIONS AND OFFICERS. The Company shall have
delivered to Buyer a certificate or certificates, dated the date of the Closing,
of the Secretary or other authorized Person of the Company certifying as to (i)
the resolutions of the Board or similar governing body (and the vote or written
consent of the stockholders or equity holders, if necessary) in form and
substance reasonably satisfactory to Buyer, authorizing the execution and
delivery of this Agreement, the Ancillary Agreements as to which such Party is a
party and the execution and delivery of such other documents and

                                       41

<PAGE>
instruments as may be required by this Agreement or the Ancillary Agreements,
and the consummation of the transactions contemplated hereby and thereby, and
certifying that such resolutions or written consents were duly adopted and have
not been rescinded or amended as of said date, and (ii) the name and the
signature of the officers of the Company authorized to sign, as appropriate,
this Agreement and the Ancillary Agreements as to which such Party is a party
and the other documents and certificates to be delivered pursuant to this
Agreement or the Ancillary Agreements by either the Company or any of their
officers.

         6.6 ORGANIZATIONAL DOCUMENTS. The Company shall have delivered to Buyer
(i) a copy of the Current Certificate and the certificates of incorporation or
similar organizational documents of each Subsidiary, certified by the secretary
of state, or equivalent Governmental Entity, of the jurisdiction in which each
such entity is incorporated or organized, as of a date reasonably prior to the
Closing Date and accompanied by a certificate of the Secretary or Assistant
Secretary, or equivalent officer, of each such entity, dated as of the Closing
Date, stating that no amendments have been made to such certificate of
incorporation (or similar organizational documents) since such date (other than
as contemplated by this Agreement), and (ii) a copy of the By-laws (or similar
organizational documents) of the Company and each Subsidiary, certified by the
Secretary or Assistant Secretary, or equivalent officer, of each such entity.

         6.7 RESTATED CERTIFICATES. The Board and the requisite holders of
Company Stock shall have approved the Restated Certificates and, if the Restated
Certificate of Incorporation (Alternative 1) shall have received the unanimous
approval of the holders of Company Stock, such Restated Certificate shall have
been filed on the Closing Date with the Secretary of State of the State of
Delaware to be effective as of the Closing or, if the required stockholder
approval for the Restated Certificate of Incorporation (Alternative 1) shall not
have been obtained, the Restated Certificate of Incorporation (Alternative 2)
shall have been filed on the Closing Date with the Secretary of State of the
State of Delaware to be effective as of the Closing.

         6.8 AMENDED AND RESTATED BY-LAWS. The Board and the requisite holders
of Company Stock shall have approved the Amended and Restated By-laws, with such
By-laws to be effective as of the Closing.

         6.9 QUALIFIED PRIVATE OFFERING. The transaction contemplated by this
Agreement constitutes a Qualified Private Offering in accordance with the terms
of the Current Certificate and the Second Amended and Restated Stockholders'
Agreement and the QPO Determination (as defined in Section 12.15(a)) shall be in
full force and effect.

         6.10 CONVERSION OF PREFERRED STOCK. Not later than upon the
consummation of the transactions contemplated hereby, all issued and outstanding
shares of Preferred Stock shall be converted into shares of Common Stock in
accordance with the terms of the Current Certificate.

         6.11 NO MATERIAL ADVERSE EFFECT. There shall not have occurred a
Company Material Adverse Effect.

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<PAGE>

         6.12 GOOD STANDING CERTIFICATES. At the Closing, the Company shall have
delivered to Buyer (i) good standing certificates issued with respect to the
Company and each Subsidiary issued by the Secretary of State (or other
applicable Governmental Entity) of the relevant entity's state of incorporation
or organization and (ii) good standing certificates issued with respect to the
Company issued by the Secretary of State (or, if "good standing" is not
applicable in the jurisdiction in which such Subsidiary is organized, an
equivalent status, if any) in the states where the Company is qualified as a
foreign corporation.

         6.13 OTHER AGREEMENTS AND DOCUMENTS. At the Closing, (i) the Company
shall have delivered to Buyer each of the Development, License and
Commercialization Agreement and the Supply Agreement executed in counterpart by
the Company (or its applicable Subsidiary in the case of the Supply Agreement),
(ii) the Company and each Seller shall have delivered to Buyer the Stockholders'
Agreement executed in counterpart by the Company and the Sellers, and such
agreements shall be in full force and effect and (iii) each Additional Seller
shall have executed and delivered to Buyer a Joinder Agreement and shall have
provided a copy of such Additional Seller's Custody Agreement to Buyer.

         6.14 EMPLOYMENT AGREEMENTS. At the Closing, the individuals listed on
Annex B shall have entered into employment agreements with the Company in form
and substance reasonably satisfactory to Buyer, which agreements shall be in
full force and effect and valid and enforceable in accordance with their terms.

         6.15 UAB LICENSE AGREEMENT. The License Agreement between UAB Research
Foundation and Novirio Pharmaceuticals, Ltd., predecessor in interest to the
Company, dated June 20, 1998 (the "UAB License"), [**].

         6.16 PURCHASED SHARES. Each Initial Seller shall have delivered to
Buyer, and the Custodian shall have delivered to Buyer on behalf of each
Additional Seller, a certificate or certificates representing that number of
Seller's Shares being purchased by Buyer pursuant to Section 1.1 of this
Agreement set forth opposite the name of such Seller on Adjusted Annex A
attached hereto and the Purchased Shares shall constitute fifty-one percent
(51%) of the Fully-Diluted Common Stock Deemed Outstanding.

         6.17 CERTAIN AGREEMENTS.

         (a) Buyer and the Company (or its applicable Affiliate) shall have
entered into agreements, which shall be in full force and effective as of the
Closing Date, in form and substance reasonably satisfactory to Buyer, with (i)
The Dipartimento di Biologie Sperimentale "Bernardo Loddo" dell'Universita di
Cagliari with respect to the Cagliari Co-Operative Agreement (as defined in
Section 12.15(a)) and the Cagliari License Agreement (as defined in Section
12.15(a)), (ii) Le Centre National de la Recherche Scientifique and L'Universite
Montpellier II with respect to the Montpellier Cooperative Agreement (as defined
in Section 12.15(a)), (iii) [**], and (iv) [**], in each case (w) acknowledging
that the Company is not in default of such agreement(s), (x) amending such
agreement(s) to provide that Buyer shall have the right to cure, on behalf of
the Company (or its applicable Affiliate), any breach or default under such
agreement(s), and that the other party(ies) to such agreement(s) shall provide
Buyer with a copy of any notice of breach or default that is delivered to the
Company, and any related correspondence, at substantially the same time that any
such notice or correspondence is delivered to the Company, (y) amending such
agreement(s) to provide that in the event such agreement(s) is terminated, Buyer
shall have the right to assume the rights and obligations of the Company (or its
applicable Affiliate) thereunder, and (z) amending such agreement(s) to effect
the understanding with respect to each such agreement as set forth in Exhibit I
attached hereto.

         (b) The Company shall have entered into an agreement in form and
substance reasonably satisfactory to Buyer, which shall be in full force and
effect as of the Closing, with Sumitomo (as defined in Section 12.15(a)) which
sets forth Sumitomo's confirmation and acknowledgement that the Sumitomo
Amendment (as defined in Section 12.15(a)) shall be effective upon the
effectiveness of the Development, License and Commercialization Agreement, and
such effectiveness (and continued effectiveness) of the Sumitomo Amendment shall
not be conditioned upon the occurrence of any event or the taking of action by
any Person including, without limitation, (i) any obligation of Buyer or its
Affiliates to conduct, or to continue to conduct, any Global Trial for LdT Drug
Product in Northeast Asia (as such terms "Global Trial," "LdT Drug Product" and
"Northeast Asia" are defined in the Sumitomo Amendment or the Development
Agreement to which it relates) or (ii) any obligation of Buyer or its Affiliates
to conduct clinical or non-clinical trials in Northeast Asia in accordance with
the terms of the Global Trial as set forth in Exhibit A to the Sumitomo
Amendment.

         6.18 CONSENTS; STOCKHOLDER APPROVAL. The Company shall have received
valid and binding Consents from holders of Company Stock as may be required to
effect the transactions contemplated by this Agreement and the Ancillary
Agreements, including, without limitation, the Stockholder Consent and other
consents from holders of Company Stock listed in Section 4.7 of the Company
Disclosure Schedule, and such Consents shall be in full force and effect and
each Person giving such Consent shall not have amended, revoked, rescinded,
terminated or canceled such Consent or taken any action that would result in the
occurrence of any of the foregoing or rendered such Consent null and void.

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<PAGE>

         6.19 COMPULSORY TRANSFER. The Certificate Amendment (as defined in
Section 12.15(a)) and the Compulsory Transfer Determination (as defined in
Section 12.15(a)) each shall be in full force and effect.

         6.20 SERIES C PURCHASE AGREEMENT. The Series C Purchase Agreement
Amendment (as defined in Section 12.15(a)) shall be in full force and effect.

         6.21 RIGHTS OF FIRST REFUSAL/CO-SALE. The Second Amended and Restated
Stockholders' Agreement Amendment (as defined in Section 12.15(a)) shall be in
full force and effect.

         6.22 SERIES C DIVIDEND. Upon consummation of the transactions
contemplated by this Agreement and in accordance with the terms of the Current
Certificate, the Company shall have paid the Series C Cumulative Annual Dividend
Amount (as defined in the Current Certificate) in shares of Common Stock and
satisfied its obligations relating thereto.

         6.23 FIRPTA CERTIFICATE. At the Closing, the Company shall have
delivered to Buyer a certification that stock in the Company is not a U.S. real
property interest because the Company is not, and has not been, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code. Such certification shall be in accordance with Treasury Regulation
Section 1.1445-2(c)(3)(i). The Company shall timely deliver to the Internal
Revenue Service the notification required under Treasury Regulation Section
1.897-(2)(h)(2).

         6.24 SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT TERMINATION.
The Second Amended and Restated Stockholders' Agreement Termination (as defined
in Section 12.15(a)) shall be in full force and effect.

         6.25 WARRANT AMENDMENT. The Series C Warrant Amendment (as defined in
Section 12.15(a)) shall be in full force and effect.

         6.26 RESIGNATIONS OF DIRECTORS. Each member of the Board whose
resignation shall be required by Buyer (as indicated to the Company in writing
at least five business days prior to Closing) shall have resigned as a director
of the Company effective as of the Closing Date.

         6.27 2004 BUDGET. The Company shall have delivered to Buyer a true,
correct and complete copy of the Company's fiscal year 2004 annual budget, which
budget demonstrates the Company's ability to operate during the fiscal year 2004
in the ordinary course without obtaining additional financing from third parties
(including Buyer or any Affiliates of the Company), other than pursuant to, and
in accordance with, the Development, License and Commercialization Agreement.

         6.28 TAKEOVER STATUTES. No "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation shall apply to
any of the

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<PAGE>
transactions contemplated by this Agreement, other than with respect to any of
the foregoing that may apply by virtue of the jurisdiction of organization of
Buyer or Parent.

     7. CONDITIONS TO CLOSING OF THE COMPANY. The Company's obligation to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction (or waiver by the Company and the Consenting Sellers) on or prior
to the Closing Date of the following conditions:

         7.1 BUYER'S REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Buyer in Section 5 of this Agreement shall be true and
correct as of the date of this Agreement, and shall be true and correct as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on the Closing Date, except to the extent such
representations and warranties relate to an earlier date (in which case such
representations and warranties shall be true and correct as of such earlier
date).

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

         7.3 COMPLIANCE CERTIFICATES. Buyer shall have delivered to the Company
a certificate of Buyer in form and substance reasonably satisfactory to the
Company, executed by an officer of Buyer, certifying to the fulfillment of the
conditions specified in Sections 7.1 and 7.2 of this Agreement.

         7.4 OTHER AGREEMENTS AND DOCUMENTS. At the Closing (i) Buyer shall have
delivered to the Company each of the Development, License and Commercialization
Agreement and Supply Agreement executed in counterpart by Buyer and (ii) Buyer,
each Seller and Novartis BioVentures Ltd. shall have delivered to the Company
the Stockholders' Agreement executed in counterpart by Buyer, each Seller and
Novartis BioVentures Ltd. and such agreements shall be in full force and effect.

         7.5 CONVERSION OF PREFERRED STOCK. Not later than upon the consummation
of the transactions contemplated hereby, all issued and outstanding shares of
Preferred Stock shall be converted into shares of Common Stock in accordance
with the terms of the Current Certificate.

         7.6 COMPANY STOCKHOLDER APPROVAL. The Company shall have received valid
and binding Consents from holders of Company Stock as may be required to effect
the transactions contemplated by this Agreement and the Ancillary Agreements,
including, without limitation, those consents of holders of Company Stock listed
in Section 4.4 of the Company Disclosure Schedule.

     8. CONDITIONS TO CLOSING OF SELLERS. Each Seller's obligation to sell
such Seller's Shares at the Closing pursuant to Section 1.1 of this Agreement is
subject to the satisfaction or waiver (in each case asserted by the Consenting
Sellers) on or prior to the Closing Date of the following conditions:

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<PAGE>

         8.1 PAYMENT OF INDIVIDUAL CLOSING CONSIDERATION. Buyer shall have
delivered to (i) each Initial Seller the Individual Closing Consideration
payable to such Initial Seller pursuant to Section 2.2(a) and (ii) the
Custodian, on behalf of the Additional Sellers, the Individual Closing
Consideration payable to all Additional Sellers pursuant to Section 2.2(b).

         8.2 BUYER'S REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by Buyer in Section 5 of this Agreement shall be true and
correct as of the date of this Agreement, and shall be true and correct as of
the Closing Date with the same force and effect as though such representations
and warranties had been made on the Closing Date, except to the extent such
representations and warranties relate to an earlier date (in which case such
representations and warranties shall be true and correct as of such earlier
date).

         8.3 COVENANTS. All covenants and agreements contained in this Agreement
to be performed by Buyer and the Company on or prior to the Closing Date, as the
case may be, shall have been performed or complied with in all material respects
on or prior to the Closing Date.

         8.4 OTHER AGREEMENTS AND DOCUMENTS. At the Closing, (i) each of Buyer,
Novartis BioVentures Ltd. and the Company shall have delivered to the Sellers
the Stockholders' Agreement executed in counterpart by Buyer, Novartis
BioVentures Ltd. and the Company, respectively, (ii) each of the Company and
Buyer shall have delivered to the other each of the Development, License and
Commercialization Agreement and the Supply Agreement executed in counterpart by
the other (or the applicable Subsidiary of the Company in the case of the Supply
Agreement) and (iii) the Company shall have delivered to TVM, MPM and CSFB (each
of the foregoing terms, as defined in Section 12.15(a)) a management rights
letter executed by the Company in the form of Exhibit J attached hereto, and
such agreements shall be in full force and effect.

         8.5 CONVERSION OF PREFERRED STOCK. Not later than upon the consummation
of the transactions contemplated hereby, all issued and outstanding shares of
Preferred Stock shall be converted into shares of Common Stock in accordance
with the terms of the Current Certificate.

         8.6 SERIES C DIVIDEND. Upon consummation of the transactions
contemplated by this Agreement and in accordance with the terms of the Current
Certificate, the Company shall have paid the Series C Cumulative Annual Dividend
Amount in shares of Common Stock and satisfied its obligations relating thereto.

         8.7 JOINDER AGREEMENTS. The Company shall have delivered to each Seller
copies of all executed Joinder Agreements.

     9. MUTUAL CONDITIONS OF CLOSING. Each of the Parties' obligations
hereunder are subject to the satisfaction (or waiver by each of Buyer, the
Company and the Consenting Sellers) on or prior to the Closing Date of the
following conditions:

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<PAGE>

         9.1 QUALIFICATIONS. All Consents or Permits of any Governmental Entity,
including, without limitation, pursuant to the requirements of the HSR Act, EC
Regulation or any other similar foreign antitrust or trade regulation laws,
including the necessary Blue Sky laws, permits and qualifications required by
any state for the offer and sale to Buyer of the Purchased Shares, that are
required to be made or obtained by the Company, Sellers or Buyer in connection
with the execution and delivery of this Agreement and the Ancillary Agreements
and the performance by such party of the transactions contemplated hereby and
thereby, as applicable, shall be duly obtained and be effective as of the
Closing.

         9.2 ABSENCE OF LITIGATION. There shall be no order, decree, ruling or
Proceeding pending or in effect which limits, restrains, enjoins, or otherwise
prohibits, or seeks to limit, restrain, enjoin or otherwise prohibit, Buyer, the
Company or Sellers from entering into this Agreement or the Ancillary Agreements
or consummating the transactions contemplated hereby or thereby.

         9.3 JOINDER PERIOD EXPIRATION. The Joinder Period shall have expired.

     10. COVENANTS

         10.1 REGULATORY FILINGS.

         (a) Subject to the terms hereof, including Section 10.1(b), each of the
Parties and Parent shall use reasonable efforts to take all actions and to do
all things reasonably necessary to consummate the transactions contemplated by
this Agreement, including using reasonable efforts to (i) obtain all waivers,
Permits, Consents, approvals or other authorizations from Governmental Entities
and other third parties, (ii) effect all registrations, filings and notices with
or to Governmental Entities and (iii) otherwise comply in all material respects
with all Applicable Laws and regulations in connection with the consummation of
the transactions contemplated by this Agreement. Each of the Parties and Parent
shall promptly notify each of the other Parties and Parent of any fact,
condition or event known to it that would reasonably be expected to prohibit,
make unlawful or delay the consummation of the transactions contemplated by this
Agreement.

         (b) Without limiting the generality of the foregoing, each of the
Parties and Parent shall (or shall cause the appropriate Affiliate thereof to)
(i) promptly file any Notification and Report Forms and related material that it
may be required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the HSR Act, (ii) use
reasonable efforts to obtain an early termination of the applicable waiting
period under the HSR Act, (iii) make any further filings or information
submissions pursuant thereto that may be reasonably necessary or advisable and
(iv) promptly make any filings or submissions required under the EC Regulation
or any other applicable foreign antitrust or trade regulation law. Each of the
Parties and Parent shall use reasonable efforts to resolve any objections that
may be asserted by any Governmental Entity with respect to the transactions
contemplated hereby, and shall cooperate with each other to contest any
challenges to the transactions contemplated

                                       47

<PAGE>
hereby by any Governmental Entity; provided, however, that in no event shall
Buyer, Parent or any Affiliate thereof be required to offer or agree to sell,
license or otherwise dispose of, or hold separate or otherwise divest, any
assets in order to resolve any such objections. Each of the Parties and Parent
shall promptly inform each other of any material communication received by such
party from the Federal Trade Commission, the Antitrust Division of the
Department of Justice or any other Governmental Entity regarding any of the
transactions contemplated hereby (unless the provision of such information would
(i) violate the provisions of any Applicable Law (including without limitation
those relating to security clearance or export controls) or any confidentiality
agreement or (ii) cause the loss of the attorney-client privilege with respect
thereto).

         10.2 NO SOLICITATION.

         (a) From and after the date of this Agreement until the earlier of the
Closing or the termination of this Agreement in accordance with its terms,
neither the Company nor any Seller shall, nor shall the Company or any Seller
permit any of its respective Affiliates to, nor shall the Company or any Seller
authorize or permit any of its respective officers, directors or employees to,
and shall use all reasonable efforts to cause any investment banker, financial
advisor, attorney, accountant, or other representatives of theirs retained by
them or any of their respective Affiliates not to: (i) solicit, initiate,
encourage (including by way of furnishing information), knowingly facilitate or
induce (directly or indirectly) any inquiry with respect to, or the making,
submission or announcement of, any proposal that constitutes, or could
reasonably be expected to result in, a proposal or offer for an Acquisition
Proposal (as defined in Section 12.15(a)), (ii) participate in any discussions
or negotiations regarding, or furnish to any Person any nonpublic information
with respect to, or take any other action to knowingly facilitate any inquiries
or the making of any proposal that constitutes or may reasonably be expected to
lead to, an Acquisition Proposal, (iii) approve, endorse or recommend any
Acquisition Proposal or recommend against the transactions contemplated in this
Agreement or (iv) enter into any letter of intent or similar document or any
Contract contemplating or otherwise relating to any Acquisition Proposal or
transaction contemplated thereby.

         (b) From and after the date of this Agreement until the earlier of the
Closing or the termination of this Agreement in accordance with its terms,
within two business days after receipt of an Acquisition Proposal or any request
for nonpublic information or inquiry that the Company or any Seller reasonably
believes could lead to an Acquisition Proposal, the Company or such Seller, as
the case may be, shall provide Buyer with oral and written notice of the
material terms and conditions of such Acquisition Proposal, request or inquiry,
and the identity of the Person making any such Acquisition Proposal, request or
inquiry and a copy of all written materials provided in connection with such
Acquisition Proposal, request or inquiry. Upon receipt of the Acquisition
Proposal, request or inquiry, the Company or such Seller, as the case may be,
shall provide Buyer, as promptly as practicable, with oral and written notice
setting forth all such information as is reasonably necessary to keep Buyer
informed in all material respects of the status and details (including material
amendments or proposed material amendments) of any such Acquisition Proposal,
request or inquiry, and shall promptly

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<PAGE>

provide to Buyer a copy of all written materials subsequently provided in
connection with such Acquisition Proposal, request or inquiry.

         (c) The Company and each Seller shall, and shall cause their respective
Affiliates and their respective officers, directors, employees, investment
bankers, consultants, attorneys, accountants, agents and other representatives
to, immediately cease and cause to be terminated, all discussions and
negotiations, if any, that have taken place prior to the date hereof with any
Persons with respect to any Acquisition Proposal and, upon request by Buyer,
shall request the return or destruction of all confidential information provided
to any such Person.

         10.3 NOTICE OF BREACHES; UPDATES.

         (a) Between the date hereof and the Closing Date, the Company and each
Seller shall deliver to Buyer written notice of any event or development,
promptly upon receiving knowledge thereof, that would (i) render any statement,
representation or warranty of the Company or any Seller, as the case may be, in
this Agreement (including the Company Disclosure Schedule) inaccurate or
incomplete in any material respect or (ii) constitute or result in a breach by
the Company or any Seller, as the case may be, of, or a failure by the Company
or any Seller, as the case may be, to comply with, any agreement or covenant in
this Agreement. No such disclosure shall be deemed to avoid or cure any such
misrepresentation or breach.

         (b) Between the date hereof and the Closing Date, Buyer shall, promptly
upon receiving knowledge thereof, deliver to the Company and each Seller written
notice of any event or development that would (i) render any statement,
representation or warranty of Buyer in this Agreement inaccurate or incomplete
in any material respect or (ii) constitute or result in a breach by Buyer or
Parent of, or a failure by Buyer or Parent to comply with, any agreement or
covenant in this Agreement. No such disclosure shall be deemed to avoid or cure
any such misrepresentation or breach.

         10.4 EXCLUSIVITY OF PURCHASED SHARES. Except as otherwise provided in
this Agreement, from and after the date of this Agreement until the earlier of
the Closing or the termination of this Agreement, (i) the Sellers shall not
offer to sell, sell or agree to sell the Purchased Shares to any Person other
than to Buyer as contemplated in this Agreement and Sellers shall not offer to
sell, sell or otherwise agree to sell any other shares of capital stock of the
Company owned by such Seller to any Person and (ii) neither the Company nor the
Initial Sellers shall solicit, initiate, discuss, encourage (including by way of
furnishing information), knowingly facilitate or induce (directly or indirectly)
any holder of Company Stock with respect to the sale of such holder's Company
Stock in such a manner that may result in a violation of Applicable Law,
including, without limitation, the Securities Laws.

         10.5 CONDUCT OF BUSINESS. Except (i) as set forth in Section 10.5 of
the Company Disclosure Schedule, (ii) as may be otherwise contemplated by this
Agreement or the Ancillary Agreements or (iii) as Buyer may otherwise consent to
in writing (such consent not to be unreasonably withheld), between the date
hereof and the Closing Date:

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<PAGE>

         (a) the Company will and will cause each Subsidiary to:

         (i) operate their businesses only in the ordinary course of business;

         (ii) use their reasonable efforts to preserve the business organization
     of the Company and each Subsidiary as a whole intact;

         (iii) maintain their properties and assets in sufficient operating
     condition (reasonable wear and tear excepted) to enable the Company and
     each Subsidiary to operate their business in the manner in which they were
     operated immediately prior to the date hereof, except for maintenance
     required by reason of fire, flood or other acts of God (except that any
     insurance proceeds paid by reason of any such casualty after the date
     hereof shall be applied towards such maintenance);

         (iv) use their reasonable efforts to keep available until the Closing
     Date the services of their present officers and key employees;

         (v) pay their accounts payable and all other obligations in the
     ordinary course of business (subject to the Company's right to dispute in
     good faith any such payable or other obligation);

         (vi) use their reasonable efforts to preserve intact their current
     business organization and business relationships with their material
     lenders, suppliers, customers, licensors and licensees and others having
     material business dealings with them such that the business will not be
     impaired; and

         (vii) perform all of its material obligations under all material
     Contracts relating to or affecting its business, assets, property,
     equipment and rights (subject to the Company's right to dispute in good
     faith its performance under any such Contract); and

         (b) the Company will not and will cause each Subsidiary not to:

         (i) make any change in their respective certificate of incorporation,
     by-laws or similar organizational documents;

         (ii) make any change in their issued or outstanding capital stock, or
     issue any warrant, option or other right to purchase shares of their
     capital stock or any security convertible into or exchangeable for shares
     of their capital stock, or redeem, purchase or otherwise acquire any shares
     of their capital stock, or declare any dividends or make any other
     distribution in respect of their capital stock or issue any shares of their
     capital stock (except (a) for shares of Common Stock issued upon exercise
     of currently outstanding options granted pursuant to the Plan, (b) shares
     of Common Stock issued upon conversion of shares of issued and outstanding
     Preferred Stock, (c) for the payment of the Series C Cumulative Annual
     Dividend in accordance with the terms of the Current Certificate or (d) for
     the acquisition of shares of Common Stock (x) from holders of outstanding

                                       50

<PAGE>

     options in full or partial payment of the exercise price payable by such
     holder upon exercise of such option to the extent provided under the terms
     of such option as in effect on the date hereof, or (y) from former
     employees, directors and consultants in accordance with agreements
     providing for the repurchase of shares at their original issuance price in
     connection with any termination of services to the Company or any of its
     Subsidiaries);

         (iii) voluntarily incur or assume, whether directly or by way of
     guarantee or otherwise, any obligation or liability, except obligations and
     liabilities incurred in the ordinary course of business;

         (iv) create an Encumbrance on any material part of their properties or
     assets, tangible or intangible;

         (v) sell or transfer any material part of their assets, property or
     rights;

         (vi) cancel, pay or discharge any Indebtedness or liability, except in
     accordance with the payment terms of such Indebtedness or liability (other
     than any optional prepayment thereunder);

         (vii) amend or terminate any material Contract or Permit to which they
     are parties;

         (viii) make any change in any Benefit Plans, except as required by law
     and except for changes made in the ordinary course of business in
     accordance with their customary practices (including increases in
     compensation and benefits after normal periodic performance reviews), adopt
     any new benefit plan, policy or arrangement, or increase the number of
     shares of Common Stock authorized under the Plan, as amended;

         (ix) make any changes in the accounting methods, principles or
     practices employed by them, except as required by Applicable Law or
     generally accepted accounting principles;

         (x) make capital expenditures or enter into commitments therefor;
     provided, however, that the Company and its Subsidiaries may make capital
     expenditures or enter into commitments therefor not to exceed two hundred
     and fifty thousand dollars ($250,000) in the aggregate if such expenditures
     and commitments are reflected in the 2003 Annual Budget and made in
     accordance therewith;

         (xi) incur, create, assume or guarantee any Indebtedness, or enter into
     any commitment therefor;

         (xii) enter into any other agreement, course of action or transaction
     material to the Company or any Subsidiary, other than in the ordinary
     course of business;

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<PAGE>

         (xiii) make, change or revoke any material Tax election, change any
     material method of accounting with respect to Taxes, or settle or
     compromise any matter with respect to Taxes;

         (xiv) commence or settle any Proceeding, other than with respect to the
     prosecution of patent applications in the ordinary course of business
     consistent with past practice;

         (xv) form a Subsidiary or acquire any equity interest or other interest
     in any other entity;

         (xvi) enter into any Contracts or licenses of the type contemplated in
     Section 4.14(a)(i) through 4.14(a)(xii); or

         (xvii) agree to do any of the foregoing.

         10.6 DELIVERY OF COMMON STOCK CERTIFICATES. The Company shall issue and
deliver to (i) Buyer and each Seller on the Closing Date and (ii) all other
holders of Preferred Stock as promptly as practicable after the Closing Date, a
certificate or certificates for the number of whole shares of Common Stock to
which Buyer or such holder is entitled as a result of the conversion of such
shares of Preferred Stock in to shares of Common Stock pursuant to the terms of
the Current Certificate and this Agreement; provided, however, that each holder
of such Preferred Stock has previously delivered to the Company one or more
certificates representing the number of shares of such Preferred Stock so
converted. To the extent shares of Company Stock owned by an Additional Seller
and sold to Buyer pursuant to the terms of this Agreement constitute less than
all of the Company Stock owned by such Additional Seller and subject to the
Custody Agreement, one or more certificates representing the excess shares of
Company Stock shall be delivered by the Custodian to such Seller pursuant to the
terms of the Custody Agreement.

         10.7 STOCKHOLDER APPROVAL. From the date hereof until the Closing Date,
the Company shall use its reasonable efforts to obtain and deliver to Buyer
valid and binding Consents from holders of Company Stock as may be required to
effect the transactions contemplated by this Agreement and the Ancillary
Agreements, including, without limitation, the consents listed in Section 4.4 of
the Company Disclosure Schedule, and each Seller giving such Consent shall not
amend, revoke, rescind, terminate or cancel such Consent or take any action that
would result in the occurrence of any of the foregoing or render such Consent
null and void.

         10.8 TAKEOVER STATUTES. If any "fair price," "moratorium," "control
share acquisition" or other form of anti-takeover statute or regulation shall
become applicable to any of the transactions contemplated by this Agreement or
the Ancillary Agreements, other than with respect to any of the foregoing that
may apply by virtue of the jurisdiction of organization of Buyer or Parent, the
Board shall, from the date hereof until the Closing Date, grant such approvals
to take such actions as are necessary so that the transactions contemplated by
this Agreement, the Ancillary Agreements and the

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<PAGE>
transactions contemplated hereby and thereby may be consummated as promptly as
practicable on the terms contemplated herein or therein and otherwise act to
eliminate or minimize the effects of such statute or regulation on this
Agreement, the Ancillary Agreements or the transactions contemplated hereby or
thereby.

         10.9 CONFIDENTIALITY AGREEMENTS. The Confidentiality Agreements (as
defined in Section 12.15(a)) shall continue in full force and effect in
accordance with their respective terms, except as expressly modified by this
Agreement, including by the final sentence of Section 12.14, which shall be
deemed to amend each of the Confidentiality Agreements.

         10.10 PREPARATION OF DISCLOSURE STATEMENT. The Company, Buyer, Parent
and the Initial Sellers shall cooperate with one another in connection with the
preparation and dissemination of the Disclosure Statement, including giving one
another, together with their respective counsel, a reasonable opportunity to
review and comment upon the Disclosure Statement prior to its dissemination to
holders of Company Stock. Each of the Company, Buyer, Parent and each Initial
Seller agree promptly to correct any information provided by it for use in the
Disclosure Statement if and to the extent that such information shall have
become false or misleading in any material respect, and each of Buyer, Parent,
the Company and each Initial Seller further agrees to take all steps necessary
to cause the Disclosure Statement, as so corrected, to be disseminated to
holders of Company Stock, as and to the extent required by Applicable Law.
Whenever any event occurs that is required to be set forth in an amendment or
supplement to the Disclosure Statement, each of Buyer, Parent, the Company and
each Initial Seller will promptly inform the other of such occurrence and
cooperate in disseminating such amendment or supplement to the holders of
Company Stock. The Disclosure Statement will include the recommendation of the
Board to holders of Company Stock recommending the transactions contemplated by
this Agreement and the Ancillary Agreements.

         10.11 INSPECTION OF PROPERTIES. The Company shall permit Buyer from
time to time until the Closing, at Buyer's expense, to visit and inspect the
Company's or any Subsidiary's properties and to discuss the Company's or any
Subsidiary's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by Buyer on reasonable prior written notice
and in a manner so as not to interfere with the normal business operations of
the Company; provided, however, that the Company shall not be obligated pursuant
to this Section 10.11 to: (a) provide access to any information to any Person
unless Buyer is responsible, pursuant to the Confidentiality Agreements, for the
use and disclosure of any information obtained by such Person from the Company
or a Subsidiary or (b) provide access to any information that would cause the
loss of the attorney-client privilege with respect thereto.

         10.12 QUALIFIED PRIVATE OFFERING. No Seller shall take any action
necessary or required to render or cause the transactions contemplated in this
Agreement to fail to constitute a Qualified Private Offering in accordance with
the terms of the Current Certificate and the Second Amended and Restated
Stockholders' Agreement.

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         10.13 RESTATED CERTIFICATES AND AMENDED AND RESTATED BY-LAWS. Prior to
the Closing Date, the Company shall solicit the requisite holders of Common
Stock required to approve the Restated Certificates and the Amended and Restated
By-laws, and the Board shall recommend such approval.

         10.14 SERIES C WARRANTS. Each Seller agrees that, on or prior to the
Closing, it shall deliver to the Company for cancellation the Series C Warrants
(as defined in the Second Amended and Restated Stockholders' Agreement) held by
such Seller. Buyer covenants and agrees that Novartis BioVentures Ltd. will, on
or prior to the Closing, deliver to the Company for cancellation the Series C
Warrants held by it.

         10.15 DISCLOSURE STATEMENT. The Company covenants and agrees that none
of the information included in the Disclosure Statement (including, without
limitation, the descriptions of the transactions contemplated by this Agreement
and the Ancillary Agreements) will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading; provided, however, that no
representation or warranty is made herein by the Company with respect to any
information supplied by any Seller or Buyer for inclusion in the Disclosure
Statement.

         11. TERMINATION.

         (a) Notwithstanding anything to the contrary contained herein, this
Agreement and the transactions contemplated hereby may be terminated by the
Parties as follows:

         (i) upon mutual written agreement of Buyer, the Company and the
     Consenting Sellers;

         (ii) at the option of Buyer by giving written notice to the other
     Parties in the event there has been breach or failure to perform any
     representation, warranty, covenant or agreement on the part of the Company
     or any Seller, which breach or failure to perform (i) would cause the
     conditions set forth in Sections 6.1, 6.2 or 6.3 not to be satisfied and
     (ii) has not been cured by the Company or any Seller within thirty (30)
     days of its receipt of notice from Buyer of such breach or failure to
     perform;

         (iii) at the option of the Company or the Consenting Sellers, by giving
     written notice to the other Parties in the event there has been a breach or
     failure to perform any Buyer representation, warranty, covenant or
     agreement on the part of Buyer, which breach or failure to perform (i)
     would cause the conditions set forth in Sections 7.1 and 7.2, in the case
     of the Company, or Sections 8.2 and 8.3 in the case of the Sellers, not to
     be satisfied and (ii) has not been cured by Buyer within thirty (30) days
     of its receipt of notice from the Company or a Seller of such breach or
     failure to perform; or

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<PAGE>

         (iv) at the option of the Company, Buyer or the Consenting Sellers by
     giving written notice to the other Parties in the event the Closing has not
     occurred on or prior to September 30, 2003.

         (b) Notwithstanding the provisions of Section 11(a) above, a Party
shall not be permitted to terminate this Agreement pursuant to this Section 11
if such Party is in breach or default of any of the terms of this Agreement or
is the principal cause of another Party's breach or default of this Agreement
which gives rise to such Party's termination right.

         (c) In the event of termination of this Agreement as provided in this
Section 11, this Agreement shall immediately become void and there shall be no
liability or obligation on the part of Buyer, the Company or the Sellers or
their respective officers, directors, stockholders, general partners, limited
partners, retired partners, managers, retired managers, members, retired members
or other beneficial owners of such Seller or Affiliates; provided, however, that
(i) any such termination shall not relieve any Party from liability for any
willful breach of this Agreement and (ii) the provisions of the Confidentiality
Agreements shall remain in full force and effect and survive any termination of
this Agreement.

         (d) In the event that, at Closing, any Initial Seller fails to deliver
one or more stock certificates representing the number of Seller's Shares set
forth opposite such Initial Seller's name in Adjusted Annex A in accordance with
Section 2.2, any other Initial Seller or Initial Sellers, acting alone or
together, may sell to Buyer and, if offered, Buyer shall purchase from such
other Initial Seller or Initial Sellers, at the Closing that additional number
of shares of Company Stock held by such other Initial Seller or Initial Sellers
equal to the number of Seller's Shares not delivered in accordance with Section
2.2 (the "Replacement Shares") on the same terms and conditions as set forth in
Section 1.1; provided, however, that Adjusted Annex A shall be adjusted to
include the Replacement Shares set forth opposite the name or names of such
Initial Seller or Initial Sellers to which the Replacement Shares correspond and
as so adjusted shall be the "Adjusted Annex A."

     12. MISCELLANEOUS.

         12.1 INDEMNIFICATION.

         (a) Subject to the terms and conditions of this Section 12.1, after the
Closing, each Seller shall severally, and not jointly, indemnify, defend and
hold harmless Buyer and its Affiliates (other than the Company or any of its
Subsidiaries or Novartis BioVentures Ltd.) and each of their respective
officers, directors and employees (the "Buyer Indemnitees") from and against any
and all losses (including, without limitation, a diminution of the value of the
Purchased Shares)), liabilities, obligations, monetary damages, fines, fees,
penalties, costs and expenses (including, but not limited to, reasonable
attorneys' fees and expenses) (collectively, "Damages"), to the extent arising
or resulting from (i) any untruth, inaccuracy or breach of any representation or
warranty of (A) the Company contained in this Agreement or (B) such Seller
contained in this

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Agreement and (ii) any non-fulfillment or breach of any covenant or agreement of
such Seller contained in this Agreement.

         (b) Subject to the terms and conditions of this Section 12.1, after the
Closing, the Company shall indemnify, defend and hold harmless the Buyer
Indemnitees from and against any and all Damages, to the extent arising or
resulting from any non-fulfillment or breach of any covenant or agreement of the
Company contained in this Agreement.

         (c) Subject to the terms and conditions of this Section 12.1, after the
Closing, Buyer shall indemnify, defend and hold harmless each Seller and its
Affiliates (other than the Company or any of its Subsidiaries) and each of their
respective officers, directors, employees, stockholders, general partners,
limited partners, retired partners, managers, retired managers, members, retired
members or other beneficial owners of such Seller (the "Seller Indemnitees")
from and against any and all Damages, to the extent arising or resulting from
(i) any untruth, inaccuracy or breach of any representation or warranty of Buyer
contained in this Agreement and (ii) any non-fulfillment or breach of any
covenant or agreement of Buyer contained in this Agreement.

         (d) All claims for indemnification made under this Section 12.1
resulting from, related to or arising out of a third party claim against an
Indemnified Party (as defined below) shall be made in accordance with the
following procedures. A person entitled to indemnification under this Section
12.1 (an "Indemnified Party") shall give prompt written notification to (i) the
applicable Seller (in the case of an indemnification claim under Sections
12.1(a)(i)(B) or 12.1(a)(ii)) or Sellers (in the case of an indemnification
claim under Section 12.1(a)(i)(A)) from which indemnity may be due hereunder as
a result of such claim, (ii) the Company or (iii) Buyer, as the case may be,
hereunder (in each case, the "Indemnifying Parties") of the commencement of any
action, suit or proceeding relating to a third party claim for which
indemnification may be sought or, if earlier, upon the assertion of any such
claim by a third party. Such notification shall include a reasonable description
(to the extent known by the Indemnified Party) of the facts constituting the
basis for such third party claim and the amount of the Damages claimed (the
"Indemnification Claim"). Within 30 days after delivery of such notification,
the Indemnifying Parties may, upon written notice thereof to the Indemnified
Party, assume control of the defense of such action, suit, proceeding or claim
with counsel reasonably satisfactory to the Indemnified Party. The Indemnified
Party shall be entitled to participate in the defense of such Indemnification
Claim and to employ counsel of its choice for such purpose; provided, however,
that such employment shall be at the Indemnified Party's own expense unless (A)
the employment thereof has been specifically authorized by the Indemnifying
Parties in writing, (B) the Indemnifying Parties have failed to assume the
defense and employ counsel in accordance with this Section 12.1(d) in a timely
manner (in which case the Indemnified Party shall control the defense) or (C)
the Indemnified Party has reasonably concluded that there is an actual or
potential conflict of interest between the parties or there may be one or more
legal defenses that are different from or in addition to those available to the
Indemnifying Parties (in which case the Indemnifying Parties shall not have the
right to assume the defense of such action on behalf of the Indemnified Party
and the Indemnifying Parties

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<PAGE>
shall be liable for all fees and expenses of one legal counsel incurred by the
Indemnified Party in furtherance thereof). The Party controlling such defense
shall keep the other Party advised of the status of such action, suit,
proceeding or claim and the defense thereof and shall consider recommendations
made by the other Party with respect thereto. The Company agrees to use
reasonable efforts to cooperate with the Party controlling such defense to the
extent reasonably requested in connection with the defense of such claim. The
Indemnified Party shall not agree to any settlement of such action, suit,
proceeding or claim without the prior written consent of the Indemnifying
Parties, which consent shall not be unreasonably withheld. The Indemnifying
Parties shall not agree to any settlement of such action, suit, proceeding or
claim that does not include a complete release of the Indemnified Party from all
liability with respect thereto or that imposes any liability or obligation on
the Indemnified Party without the prior written consent of the Indemnified
Party.

         (e) Notwithstanding the foregoing provisions of this Section 12.1, (A)
no Seller shall be responsible pursuant to Section 12.1(a) for any Damages
suffered by any Buyer Indemnitee (x) unless a claim therefor is asserted in
writing (i) with respect to the representations and warranties contained in
Section 4.20 (Taxes) within thirty (30) days after the expiration of the
applicable statute of limitation, (ii) with respect to the representations and
warranties contained in Section 3.1 (Stock Ownership) or Section 4.25
(Environmental Matters) within three (3) years of the Closing Date, (iii) with
respect to the representations and warranties contained in Section 4.11
(Intellectual Property), to the extent such representations and warranties do
not relate to the HCV Drug Candidates (as defined in the Development, License
and Commercialization Agreement), within two years of the Closing Date, (iv)
with respect to the representations and warranties contained in Section 4.11
(Intellectual Property), to the extent such representations and warranties
relate to the HCV Drug Candidates, prior to the earliest to occur of (1) the
second anniversary of the first of the Contingent Payments, (2) Buyer failing to
exercise the Novartis HCV Option (as defined in the Development, License and
Commercialization Agreement) in accordance with Section 3.2(a) thereof,
provided, that the Company has provided the Commencement Notice (as defined in
the Development, License and Commercialization Agreement) in accordance with
Section 3.2(a) thereof, (3) Buyer giving notice of termination of the
Development, License and Commercialization Agreement in its entirety or with
respect to the HCV Product throughout the Territory (as defined in the
Development, License and Commercialization Agreement) pursuant to Section 12.3
or Section 12.4 thereof, (4) the termination of the Development, License and
Commercialization Agreement by the Company in its entirety or with respect to
the HCV Product throughout the Territory pursuant to Section 12.3 thereof; and
(5) the six year anniversary of the Closing Date, (v) with respect to the
representations and warranties contained in Section 3.2 (Authority; Execution
and Delivery) at any time from and after the Closing, and (vi) within eighteen
(18) months after the Closing Date with respect to all other representations and
warranties of the Company or such Seller, failing which such claim shall be
waived and extinguished; provided, however, that if notice with respect to an
indemnifiable claim is provided within the applicable time periods specified
above, the right to indemnity thereunder shall remain in full force and effect
until the final resolution thereof; or (y) which exceed (i) with respect to the
representations and warranties of such Seller contained in Section 3.1

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(Stock Ownership) and the covenants and agreements of such Seller contained in
this Agreement, an amount equal to such Seller's Individual Closing
Consideration (as to each Seller, the "Individual Title/Covenants Cap") or (ii)
with respect to the representations and warranties of the Company and all
representations and warranties of such Seller (other than those contained in
Section 3.1 (Stock Ownership)), an amount equal to the product of (1) such
Seller's Individual Closing Consideration and (2) 0.30 (such product, as to each
Seller, the "Individual Other Reps Cap" and, together with the Individual
Title/Covenants Cap, the "Individual Caps"); and (B) no Buyer Indemnitee shall
be entitled to indemnification pursuant to Section 12.1(a) for any Damages
suffered by any such Buyer Indemnitee unless the aggregate amount of all Damages
suffered by the Buyer Indemnitees exceed, on a cumulative basis, [**]; provided,
however, that in the event such Damages exceed [**], Buyer Indemnitees shall be
entitled to indemnification for the aggregate amount of all such Damages, on a
cumulative basis, from the first dollar thereof (the "Aggregate Basket");
provided further, that Buyer Indemnitees' right to seek indemnification from any
Seller hereunder for any Damages arising out of fraud on the part of such Seller
shall not be subject to, or limited by, the Aggregate Basket or the Individual
Caps with respect to such Seller. Notwithstanding anything herein to the
contrary but subject to the final proviso of the immediately preceding sentence,
in no event shall a Seller's liability hereunder exceed, in the aggregate, its
Individual Title/Covenants Cap. Any claims by any Buyer Indemnitees against the
Company for any Damages arising out of fraud on the part of the Company shall
not be subject to, or limited by, the Aggregate Basket or the Individual Caps.
Any claims by any Buyer Indemnitees against the Sellers for Damages arising out
of fraud of the Company shall be subject to the Individual Other Reps Cap
applicable to each Seller and the Aggregate Basket and must be asserted within
two (2) years of the Closing Date.

         (f) Notwithstanding the foregoing provisions of this Section 12.1, (A)
Buyer shall not be responsible pursuant to Section 12.1(c) for any Damages
suffered by any Seller Indemnitee unless a claim therefor is asserted in writing
(i) if and only to the extent Parent ADSs are issued in connection with a
Contingent Payment pursuant to Section 1.2, with respect to the representations
and warranties contained in Section 5.2(b) and Section 5.2(c) (but only to the
extent such representations and warranties relate to such Parent ADSs), Section
5.3 (SEC Reports), Section 5.4 (Issuance of Shares) and Section 5.9 (Offer and
Sale of Parent ADSs), within eighteen (18) months after a Contingent Payment
Date on which Parent ADSs are issued, (ii) with respect to the representations
and warranties contained in Section 5.2(a), at any time from and after the
Closing and (iii) within eighteen (18) months after the Closing Date with
respect to all other representations and warranties of Buyer, failing which such
claim shall be waived and extinguished; provided, however, that if notice with
respect to an indemnifiable claim is provided within the applicable time periods
specified above, the right to indemnity thereunder shall remain in full force
and effect until the final resolution thereof; (B) no Seller Indemnitee shall be
entitled to indemnification pursuant to Section 12.1(c)(i) with respect to the
representations and warranties referenced in the immediately preceding clauses
(A)(ii) and (A)(iii) above, for any Damages suffered by any such Seller
Indemnitee unless the aggregate amount of such Damages suffered by the Seller
Indemnitees exceed, on a cumulative basis, the Aggregate Basket; provided,
however, that in the event such Damages exceed the Aggregate Basket, Seller
Indemnitees shall be entitled to indemnification for the aggregate amount of all
such Damages, on a cumulative basis, from the first dollar thereof; and (C) the
aggregate liability of Buyer hereunder for Damages suffered by Seller
Indemnitees shall in no event exceed (i) (x) [**] plus, in each case, reasonable
attorneys' fees and expenses incurred by the Sellers in connection with the
assertion of a claim for indemnity hereunder, in each case, with respect to
claims brought pursuant to Section 12.1(c)(i) (but only to the extent Parent
ADSs are issued in connection with a Contingent Payment pursuant to Section 1.2
and only with respect to the representations and warranties referenced in the
immediately preceding clause (A)(i) above) and Section 12.1(c)(ii) (as
applicable, the "Buyer Shares/Covenants Cap"), or (ii) [**] with respect to
claims brought pursuant to Section 12.1(c)(i) with respect to the
representations and warranties referenced in clauses (A)(ii) and (A)(iii) above,
(the "Buyer Reps Cap"); provided, further, that the Seller Indemnitees' right to
seek indemnification hereunder for any Damages arising out of fraud shall not be
subject to, or limited by, the Aggregate Basket, the Buyer Shares/Covenants Cap
or the Buyer Reps Cap.

         (g) In no event shall any of the Indemnifying Parties be responsible or
liable for any Damages or other amounts under this Section 12.1 that are
consequential, in the nature of lost profits, special or punitive or otherwise
not actual damages, including, without limitation, consequential damages arising
from termination of the Development, License and Commercialization Agreement.
Each Party shall (and shall cause its Affiliates to) use commercially reasonable
efforts to pursue all legal rights and remedies available in order to minimize
the Damages for which indemnification is provided to it under this Section 12.1.

         (h) The amount of Damages recoverable by an Indemnified Party under
this Section 12.1 with respect to an indemnity claim shall be reduced by (i) the
amount of any payment received by such Indemnified Party, with respect to the
Damages to which such indemnity claim relates, from an insurance carrier or a
third party and (ii) the proportional amount attributable to such Indemnified
Party of any payment received by the Company, with respect to the Damages
suffered derivatively by such Indemnified Party to which such indemnity claim
relates, from an insurance carrier or a third party. An Indemnified Party, or
the Company, with respect to Damages suffered derivatively by an Indemnified
Party, shall use commercially reasonable efforts to pursue all insurance claims
and claims against third parties to which it may be entitled in connection with
any

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Damages it incurs, and the Parties shall cooperate with each other in pursuing
such claims with respect to any Damages or any indemnification obligations with
respect to Damages. If an Indemnified Party or the Company receives any
insurance or third party payment in connection with any claim for Damages for
which an Indemnified Party has already received an indemnification payment from
any of the Indemnifying Parties, such Indemnified Party shall pay to such
Indemnifying Parties, pro rata based on the amount paid by such Indemnifying
Parties, within 60 days of such Indemnified Party's or the Company's receipt of
such insurance or third party payment, an amount, not to exceed the amount
previously paid by the Indemnifying Parties under this Section 12.1, equal to
the excess of (A) the amount previously received by the Indemnified Party under
this Section 12.1 with respect to such claim plus the amount of the insurance or
third party payments received by the Indemnified Party or an appropriate amount
to reflect such payments received by the Company, as the case may be, over (B)
the amount of Damages with respect to such claim which the Indemnified Party has
become entitled to receive under this Section 12.1.

         (i) Notwithstanding anything herein to the contrary, the amount of
Damages recoverable by a Buyer Indemnitee pursuant to Section 12.1(a)(i)(A)
arising out of or resulting from any untruth, inaccuracy or breach of the
representations and warranties of the Company in Section 4.11(g)(i) shall be
reduced by the amount of reasonable payments made by the Company of royalties,
fees or other amounts pursuant to, and in accordance with, those obligations
provided in Section 8.7 of the Development, License and Commercialization
Agreement which are solely the responsibility of the Company in connection with
obtaining rights under any Blocking Third Party Intellectual Property Rights (as
defined in the Development, License and Commercialization Agreement) which are
the subject of such claim for Damages by a Buyer Indemnitee.

         (j) No Seller shall have any right of contribution against the Company
with respect to any breach by the Company of any of its representations,
warranties, covenants or agreements.

         (k) The rights of the Indemnified Parties under this Section 12.1 shall
be the sole and exclusive remedies of the Indemnified Parties and their
respective Affiliates with respect to claims relating to the transactions that
are the subject of this Agreement, except to the extent Damages were caused by
fraud; provided, however, that (i) the rights of the Buyer Indemnitees pursuant
to this Section 12.1 shall be the sole and exclusive remedies of the Buyer
Indemnitees and their respective Affiliates from any Seller with respect to
Damages arising out of fraud of the Company and (ii) no Seller shall have any
responsibility or liability for fraud of any other Seller.

         (l) Notwithstanding the foregoing, but subject to the Aggregate Basket
and the Individual Other Reps Cap, Buyer hereby agrees for itself and the other
Buyer Indemnitees that any claim asserted by any Buyer Indemnitee under Section
12.1(a)(i)(A) will be asserted (x) (to the extent recovery against a Primary
Seller (as defined in Section 12.15(a)) is available to the Buyer Indemnitees
pursuant to such Primary Seller's then remaining Individual Other Reps Cap)
against each of the Primary Sellers and (y) in a proportionate manner such that
the amount sought from each Primary

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Seller is equal to the product of (1) the aggregate Damages sought in connection
with such claim and (2) the quotient obtained by dividing (A) such Primary
Seller's Individual Closing Consideration by (B) the sum of the Individual
Closing Consideration received by all Primary Sellers (such product of (1) and
(2), the "Pro Rata Portion"); provided, however, that to the extent any Primary
Seller's Pro Rata Portion of any claim exceeds such Primary Seller's then
remaining Individual Other Reps Cap (i.e., such Seller's Individual Other Reps
Cap less the aggregate amounts actually paid by such Seller under this Section
12.1 to, or on behalf of, Buyer Indemnitees), Buyer may seek such excess amounts
from the other Primary Sellers on the same basis as set forth in this Section
12.1(l) or any other Seller (other than a Primary Seller); provided further,
however, that the aggregate amount of any and all Damages the Buyer Indemnitees
can recover from any Seller under Section 12.1(a)(i)(A) shall not exceed the
portion of such Seller's Individual Other Reps Cap remaining at such time (i.e.,
such Seller's Individual Other Reps Cap less the aggregate amounts actually paid
by such Seller under this Section 12.1 to, or on behalf of, Buyer Indemnitees).

         (m) Each member of the CSFB Group (as defined in Section 12.15(a))
hereby irrevocably appoints CSFB as its representative and attorney-in-fact to
receive and give on such member's behalf all notices, to make on such member's
behalf all elections and determinations and to take on such member's behalf all
other actions, in each case, as may be contemplated to be so received, given,
made or taken by any member of the CSFB Group by the provisions of Section 12.1.
Each notice given to CSFB under Section 12.1 by the Company or any Buyer
Indemnitee shall be deemed to have also been given to each member of the CSFB
Group. Each member of the MPM Group (as defined in Section 12.15(a)) hereby
irrevocably appoints MPM as its representative and attorney-in-fact to receive
and give on such member's behalf all notices, to make on such member's behalf
all elections and determinations and to take on such member's behalf all other
actions, in each case, as may be contemplated to be so received, given, made or
taken by any member of the MPM Group by the provisions of Section 12.1. Each
notice given to MPM under Section 12.1 by the Company or any Buyer Indemnitee
shall be deemed to have also been given to each other member of the MPM Group.
Each member of the TVM Group (as defined in Section 12.15(a)) hereby irrevocably
appoints TVM as its representative and attorney-in-fact to receive and give on
such member's behalf all notices, to make on such member's behalf all elections
and determinations and to take on such member's behalf all other actions, in
each case, as may be contemplated to be so received, given, made or taken by any
member of the TVM Group by the provisions of Section 12.1. Each notice given to
TVM under Section 12.1 by the Company or any Buyer Indemnitee shall be deemed to
have also been given to each other member of the TVM Group.

         (n) To the extent that any indemnification payment made pursuant to
Section 12.1(a)(i)(A) by any Seller with respect to a claim or claims arising
hereunder is in excess of an amount equal to such Seller's Percentage Ownership
of the total amount of such claim or claims (each such Seller an "Overpaying
Seller"), such Overpaying Seller shall have the right of contribution against
each other Seller that has not paid its Percentage Ownership of the total amount
of such claim (each such Seller, an "Underpaying Seller"). Each Underpaying
Seller hereby agrees to be responsible for

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<PAGE>
contribution, and to pay, each Overpaying Seller the amount equal to the product
of (x) the amount by which such Underpaying Seller's Percentage Ownership of
such claim or claims exceeds the amount paid by such Underpaying Seller with
respect to such claim or claims and (y) a fraction the numerator of which is the
amount by which the amount paid by such Overpaying Seller with respect to such
claim or claims exceeds such Overpaying Seller's Percentage Ownership of such
claim or claims and the denominator of which is the aggregate amount by which
the amount paid by all such Overpaying Sellers exceeds the aggregate amount of
all such Overpaying Sellers' Percentage Ownership of such claim or claims;
provided, however, that in no event shall any such Underpaying Seller be
obligated at any time to pay to the Overpaying Sellers with respect to any claim
more than the portion of such Underpaying Seller's Individual Other Reps Cap
remaining at such time (i.e., such Seller's Individual Other Reps Cap less the
aggregate amounts actually paid by such Seller under this Section 12.1 to, or on
behalf of, Buyer Indemnitees).

         (o) Notwithstanding anything herein to the contrary, in no event shall
(A) any Seller (or any Affiliate thereof) have any responsibility or liability
for any Damages to the extent arising or resulting from (i) any untruth,
inaccuracy or breach of any representation or warranty of another Seller (or any
Affiliate thereof) contained in this Agreement and (ii) any non-fulfillment or
breach of any covenant or agreement of another Seller (or any Affiliate thereof)
contained in this Agreement or (B) the Company have any responsibility or
liability for any Damages to the extent arising or resulting from (i) any
untruth, inaccuracy or breach of any representation or warranty of any Seller
(or any Affiliate thereof) contained in this Agreement or (ii) any
non-fulfillment or breach of any covenant or agreement of any Seller (or any
Affiliate thereof other than the Company) contained in this Agreement.

         (p) Notwithstanding anything to the contrary contained in this
Agreement, Buyer shall be entitled to offset the amount of any Damages for which
it is entitled to indemnification under this Section 12.1 against any amounts
payable by Buyer to a Seller pursuant to Section 1.2 to the extent such Damages
are not otherwise paid to Buyer Indemnitees; provided, however, that, with
respect to the amount of such Damages pursuant to Section 12.1(a)(i)(A) above,
such offset shall be limited to, in the case of each Seller, an amount equal to
the product of (i) the aggregate amount of such Damages and (ii) such Seller's
Percentage Ownership; provided, further, that, in no event shall any such offset
exceed such Seller's Individual Caps.

         12.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, neither this Agreement nor any of the rights, interest or obligations of
the Parties and Parent hereunder shall be assigned or otherwise transferred
(whether voluntarily, by operation or law or otherwise) by any Party or Parent
without the prior written consent of Buyer, the Company and Consenting Sellers.
Notwithstanding the foregoing, prior to the Closing Date, Buyer may assign its
rights, together with all of its obligations, under this Agreement to an
Affiliate of Buyer provided that, in such event, Buyer shall continue to remain
liable for all of its obligations under this Agreement. This Agreement will be
binding upon, inure to the benefit of and be enforceable by the Parties and
Parent and their respective permitted successors, assigns, heirs, executors and
administrators. This

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Agreement (including the documents and instruments referred to herein) is not
intended to confer upon any Person other than the Parties and Parent any rights
or remedies hereunder.

         12.3 ENTIRE AGREEMENT. This Agreement together with 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 supersede all prior and contemporaneous arrangements or understandings,
whether written or oral, with respect thereto; provided, however, that this
Agreement is not intended to supersede the Development, License and
Commercialization Agreement, Supply Agreement or Confidentiality Agreements, in
each case between the Company and Buyer.

         12.4 GOVERNING LAW AND CONSENT TO JURISDICTION. This Agreement shall be
governed by and construed under the laws of the State of New York (without
regard to the conflict of law principles thereof). Each of the Parties and
Parent irrevocably agrees that any legal action or proceeding with respect to
this Agreement or for recognition and enforcement of any judgment in respect
hereof shall be brought and determined in the United States District Court for
the Southern District of New York or if such legal action or proceeding may not
be brought in such court for jurisdictional purposes, in the Supreme Court of
New York. Each of the Parties and Parent hereby (x) irrevocably submits with
regard to any such action or proceeding to the exclusive personal jurisdiction
of the aforesaid courts in the event any dispute arises out of this Agreement or
any transaction contemplated hereby and waives the defense of sovereign
immunity, (y) agrees that it shall not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court or that
such action is brought in an inconvenient forum and (z) agrees that it shall not
bring any action relating to this Agreement or any transaction contemplated
hereby in any court other than any New York state or federal court sitting in
New York, New York.

         12.5 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument; provided, however, that
each executed Joinder Agreement signature page shall constitute a counterpart to
this Agreement, each of which shall be deemed an original, but all of which
together with the signature pages hereto shall constitute one and the same
instrument.

         12.6 TITLES AND SUBTITLES. The descriptive headings of sections and
paragraphs of this Agreement are used for convenience only and do not constitute
a part of, and are not to be considered in construing or interpreting, this
Agreement.

         12.7 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.

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<PAGE>

         12.8 NOTICES. All notices, requests, consents and other communications
hereunder to any Party shall be given in writing or upon receipt of a telecopy
(with confirmation of such telecopy being received) 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 and shall be deemed
effectively given upon personal delivery to the Party to be notified or five
days after being duly sent by first class registered or certified mail, postage
prepaid, or the following business day after being sent by overnight courier or
when receipt is mechanically acknowledged, if telecopied:

To Buyer:                       Novartis Pharma AG
                                Lichtstrasse 35
                                CH-4002 Basel
                                Switzerland
                                Attention: Chief Executive Officer
                                Telecopy: 41-61-324-6677

With a copy (which shall not    Novartis Pharma AG
constitute notice) to:          Lichtstrasse 35
                                CH-4002 Basel
                                Switzerland
                                Attention: General Counsel
                                Telecopy: 41-61-324-6859

With a copy (which shall not    Novartis Corporation
constitute notice) to:          608 Fifth Avenue
                                New York, New York 10020
                                Attention: General Counsel
                                Telecopy: (212) 830-2416

With a copy (which shall not    Dewey Ballantine LLP
constitute notice) to:          1301 Avenue of the Americas
                                New York, New York 10019
                                Attention: Morton A. Pierce, Esq.
                                Telecopy: (212) 259-6333

To the Company:                 Idenix Pharmaceuticals, Inc.
                                125 CambridgePark Drive
                                Cambridge, Massachusetts 02140
                                Attention: Chief Executive Officer
                                Telecopy: (617) 250-3101

                                       63

<PAGE>

With a copy (which shall not    Idenix Pharmaceuticals, Inc.
constitute notice) to:          125 CambridgePark Drive
                                Cambridge, Massachusetts  02140
                                Attention: General Counsel
                                Telecopy: (617) 250-3101

With a copy (which shall not    Hale and Dorr LLP
constitute notice) to:          60 State Street
                                Boston, Massachusetts  02109
                                Attention: Susan W. Murley, Esq.
                                Telecopy: (617) 526-5000

To Initial Sellers:             See Annex A attached hereto.

To Additional Sellers:          Idenix Pharmaceuticals, Inc.
                                125 CambridgePark Drive
                                Cambridge, Massachusetts 02140
                                Attention: General Counsel
                                Telecopy: (617) 250-3101

                                Provided, however, that upon the Company's
                                receipt of notice sent to the Company on behalf
                                of an Additional Seller, the Company covenants
                                and agrees to promptly forward such notice to
                                such Additional Seller.

         12.9 FINDER'S FEE. Buyer 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 Buyer or any of its officers,
partners, employees, or representatives is responsible. The Company agrees to
indemnify and hold harmless Buyer 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.

         12.10 EXPENSES AND FEES. Each Party shall pay its own costs, fees and
expenses incidental to the preparation of this Agreement and the consummation of
the transactions contemplated hereby.

         12.11 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with

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<PAGE>
the written consent of Buyer, the Company and the Consenting Sellers; provided,
however, that if any such waiver would adversely affect the rights of any Party
hereto disproportionately with respect to the rights of the other Parties
hereto, such Party's consent shall be required. Notwithstanding the foregoing,
this Agreement may not be amended or terminated and the observance of any term
hereunder may not be waived with respect to any Seller without the written
consent of such Seller unless such amendment, termination or waiver applies to
all Sellers in the same fashion. Any amendment or waiver effected in accordance
with this Section 12.11 shall be binding upon Buyer, the Company and each
Seller.

         12.12 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any Party, upon any breach,
default or noncompliance by another Party under this Agreement or the Ancillary
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver of any kind or
character on Buyer's part of any breach, default or noncompliance under this
Agreement or the Ancillary Agreements or any waiver on such party's part of any
provisions or conditions of the Agreement or the Ancillary Agreements must be in
writing and shall be effective only to the extent specifically set forth in such
writing.

         12.13 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; provided, however, that
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.

         12.14 CONFIDENTIALITY AND PUBLICITY. From and after the date hereof,
the provisions of the Confidentiality Agreements shall apply to any information
disclosed pursuant to or in connection with this Agreement. Notwithstanding the
foregoing, to the extent not otherwise disclosed publicly (other than as a
result of a violation of this Section 12.14), none of the Company, the Sellers,
Buyer or Parent will disclose to any Person (other than its Affiliates,
attorneys, accountants, employees, officers, directors, members, managers,
partners and other representatives and beneficial holders thereof) or
Governmental Entity the existence or terms of, or any information obtained in
connection with, this Agreement or any of the transactions contemplated hereby
without the prior written consent of Buyer and the Company, except (i) as may,
in the reasonable opinion of such Party's counsel, be required by Applicable Law
or (ii) as may be required by a Governmental Entity (in which events the
disclosing party will first consult with the other Parties (other than Sellers)
with respect to such disclosure to the extent permissible and practicable). If
Buyer, Parent or the Company is required to provide a copy of this Agreement or
any related document to any third party (other than their respective Affiliates,
attorneys, accountants, employees, officers, directors, members, retired
members, managers, retired managers, partners, retired partners and other
representatives

                                       65

<PAGE>
and beneficial holders thereof), the disclosing party shall ensure that such
document is redacted in consultation with the non-disclosing Parties (other than
Sellers), to the extent practicable and permitted by Applicable Law, to
eliminate all confidential information. The non-disclosing Parties (other than
Sellers) shall have the right to review and approve each such document prior to
its submission to any third party; provided, however, that such approval shall
not be unreasonably withheld or delayed. Unless not permitted by law, in which
case the maximum period allowable shall be provided, each Party shall use its
reasonable efforts to complete such review as soon as practicable; provided,
however, that such review shall be completed within ten (10) business days.
Notwithstanding anything in this Agreement to the contrary, not more than five
(5) days prior to the end of the Joinder Period, the Company, Buyer and any
Initial Seller desiring to issue a press release upon the consummation of, and
in connection with, the transactions contemplated by this Agreement, shall
notify the other Parties of such desire and the Parties shall use commercially
reasonable efforts to collaborate and agree upon the proper content of such a
press release; provided, however, that the issuance of such press release shall
require the written consent of the Company, Buyer and the Consenting Sellers
(which consent shall not be unreasonably withheld or delayed). The Company,
Parent, Buyer and such Initial Sellers may each issue a press release after the
Closing containing such agreed upon content. Notwithstanding the foregoing, the
Company or any Seller (and each employee, representative, or other agent
thereof) may disclose to any and all Persons, without limitation of any kind,
the tax treatment and tax structure of the transactions and all materials of any
kind (including opinions or other tax analyses) that are provided to any of them
relating to such tax treatment and tax structure.

         12.15 DEFINITIONS.

         (a) As used in this Agreement, the following terms shall have the
following meanings:

         "Accredited Seller" means any Seller under this Agreement who is listed
on Annex C attached hereto.

         "Accredited Seller Percentage" means, as to each Accredited Seller, the
quotient obtained by dividing (A) the number of Seller's Shares of such
Accredited Seller by (B) the sum of the number of Seller's Shares of all of the
Accredited Sellers.

         "Acquisition Proposal" means any (i) offer or proposal for, or any
indication of interest in, any (A) direct or indirect acquisition or purchase of
the Company or any Subsidiary that constitutes 10% or more of the net revenues,
net income or assets of the Company and such Subsidiaries, taken as a whole; (B)
direct or indirect acquisition or purchase of 10% or more of any class of equity
securities, or 10% of the voting power, of the Company or any Subsidiary whose
business constitutes 10% or more of the net revenues, net income or assets of
the Company and such Subsidiaries, taken as a whole; (C) tender offer or
exchange offer that, if consummated, would result in any Person beneficially
owning 10% or more of any class of equity securities, or 10% of the voting
power, of the Company or any Subsidiary whose business constitutes 10% or more
of the net revenues, net income or assets of the Company and such Subsidiaries,
taken as

                                       66

<PAGE>
a whole; or (D) merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
Subsidiary whose business constitutes 10% or more of the net revenue, net income
or assets of the Company and such Subsidiaries, taken as a whole, other than the
transactions contemplated by this Agreement; or (ii) offer or proposal to enter
into, or any indication of interest in entering into, a Contract relating to the
Development or Commercialization of any product to which Buyer has or will have
rights pursuant to the Development, License and Commercialization Agreement.

         "Affiliate" means, with respect to any specified Person, any other
Person that directly or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, such specified Person.

         "Aggregate Accredited Contingent Amount" means the product of (A) [**]
sum of the Percentage Ownership of all of the Accredited Sellers and (B) one
hundred seventy-eight million five hundred thousand dollars ($178,500,000).

         "Aggregate Accredited Contingent Cash Payment" means an amount [**] not
to exceed the [**], as determined by Buyer not later than [**] or the [**] as
the case may be; provided, however, that if [**] means the [**]

         "[**]" means the [**] obtained by [**] (i) the result obtained by [**]
(A) the [**] (B) the [**] by (ii) the [**];

         "[**]" means [**] obtained by [**] (i) the result obtained by [**] (A)
the [**] (B) the [**] by (ii) the [**],

         "[**]" means the average closing price of a
Parent ADS on the New York Stock Exchange, as reported in The Wall Street
Journal, Northeastern edition, for the thirty (30) consecutive trading days
ending on the trading day immediately preceding the [**].

         "[**]" means the average closing price of a
Parent ADS on the New York Stock Exchange, as reported in The Wall Street
Journal, Northeastern edition, for the thirty (30) consecutive trading days
ending on the trading day immediately preceding the [**].

         "Balance Sheet Date" means December 31, 2002.

         "Board" means the board of directors of the Company.

         "Cagliari Co-Operative Agreement" means the Co-operative Antiviral
Research Activity Agreement, dated as of January 4, 1999, by and among Idenix
SARL, as successor to Novirio SARL, on behalf of itself and the Company (as
successor to Novirio Pharmaceuticals Limited), and the Dipartimento di Biologia
Sperimentale "Bernardo Loddo" dell'Universita di Cagliari, as amended.

         "Cagliari License Agreement" means the License Agreement, dated as of
December 14, 2000, by and between the Company (as successor to Novirio
Pharmaceuticals Limited) and the Dipartimento di Biologia Sperimentale "Bernardo
Loddo" dell'Universita di Cagliari, as amended.

         "Certificate Amendment" means the amendment to the Current Certificate
included in the Stockholder Consent that provides, among other things, that the

                                       67

<PAGE>
provisions of Section B(4)(e) of Article FOURTH of the Current Certificate shall
not apply to any transaction unless the holders of the Requisite Percentage (as
defined in Section 12.15(a)) of the outstanding Preferred Stock determine that
such provision shall apply.

         "Code" means the U.S. Internal Revenue Code of 1986, as amended, and
the resolutions promulgated thereunder.

         "Common Stock" means common stock, par value $0.001 per share, of the
Company.

         "Company Material Adverse Effect" means any material adverse effect on
the condition (financial or otherwise), results of operations, assets,
liabilities or business of the Company and its Subsidiaries, taken as a whole,
other than changes, effects or circumstances (i) that are the result of factors
generally affecting the pharmaceutical industry or (ii) that are attributable to
the announcement or performance of this Agreement or the consummation of the
transactions contemplated by this Agreement.

         "Company Contractor" means any Person with which the Company or any of
its Subsidiaries formerly or presently had or has any agreement or arrangement
(whether oral or written) under which that Person has or had physical possession
of, or was or is obligated to develop, test, process, investigate, manufacture
or produce, any Regulated Product on behalf of the Company or any of its
Subsidiaries.

         "Company Stock" means Preferred Stock and Common Stock.

         "Compulsory Transfer Determination" means the determination included in
the Stockholder Consent by holders of the Requisite Percentage of the
outstanding Preferred Stock that the terms of Section B(4)(e) of Article FOURTH
of the Current Certificate shall not apply to the transactions contemplated by
this Agreement.

         "Confidentiality Agreements" mean the Confidentiality Agreements
between the Company and Buyer entered into as of February 1, 2002, September 6,
2002 and October 8, 2002.

         "Contingent Payment" means the consideration set forth in Sections
1.2(b) and/or 1.2(c), as applicable.

         "Consenting Sellers" means, prior to the Closing Date, the holders of
sixty-six and two-thirds percent (66-2/3)% of the shares of Company Stock held
by the Initial Sellers prior to the Closing, and, after the Closing Date, the
holders of a sixty-six and two-thirds percent (66-2/3)% of the shares of Common
Stock sold by the Sellers pursuant to this Agreement; provided, however, that,
after the Closing Date with respect to matters relating to Sections 12.2
(Successor and Assigns) and 12.14 (Confidentiality and Publicity) of this
Agreement, "Consenting Sellers" shall mean the Sellers representing sixty
percent (60.0)% of the Purchased Shares.

         "CSFB" means Credit Suisse First Boston Equity Partners, L.P.

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<PAGE>

         "CSFB Group" means CSFB, Credit Suisse First Boston Equity Partners
(Bermuda), L.P., Credit Suisse First Boston U.S. Executive Advisors, L.P., EMA
Private Equity Fund 2000, L.P. and EMA Partners Fund 2000, L.P.

         "EC Regulation" means Council Regulation (EEC) No. 4064/89 of December
21, 1989, on the control of concentrations between undertakings, as amended, of
the Council of the European Union or any other similar regulation of the
European Union and/or applicable in Europe.

         "FDA" means the United States Food and Drug Administration or its
successor and corresponding regulatory agencies in other counties and states of
the United States.

         "Fully-Diluted Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock (whether vested or unvested)
outstanding at such time (including any restricted stock), assuming conversion
of (i) all outstanding securities that are exercisable for, convertible into or
exchangeable for Common Stock (including any shares of Common Stock issuable in
satisfaction of a dividend payable thereon) and (ii) all outstanding options
(whether vested or unvested), warrants (other than the Series C Warrants) and
other rights to subscribe for or acquire (A) Common Stock or (B) other
securities that are convertible into or exchangeable for Common Stock, in each
case, whether at the time of issuance or upon passage of time or the occurrence
of some future event; provided, however, that the rights to subscribe for shares
of Common Stock or other securities contained in Section 4 of the Second Amended
and Restated Stockholders' Agreement shall not be included in such definition.

         "Indebtedness" means (i) all debt for borrowed money and similar
monetary obligations, whether direct or indirect; (ii) all liabilities secured
by any mortgage, pledge, security interest, lien, charge or other encumbrance
existing on property owned or acquired subject thereto, whether or not the
liability secured thereby shall have been assumed; (iii) all guaranties,
endorsements and other obligations whether direct or indirect in respect of
indebtedness or performance of others relating to payment obligations, including
any obligation to supply funds to or in any manner to invest in, directly or
indirectly, the debtor, to purchase indebtedness, or to assure the owner of
indebtedness against loss, through an agreement to purchase goods, supplies or
services for the purpose of enabling the debtor to make payment of the
indebtedness held by such owner or otherwise; or (iv) obligations to reimburse
issuers of any letters of credit.

         "Management Seller" means (i) the individuals listed on Annex B
attached hereto and (ii) any other individual who enters into an employment
agreement or consulting agreement with the Company between the date hereof and
the Closing Date.

         "Montpellier Cooperative Agreement" means the Cooperative Agreement,
dated as of January 4, 1999, by and among Idenix SARL, as successor to Novirio
SARL, acting on behalf of the Company (as successor to Novirio Pharmaceuticals
Limited), Le

                                       69

<PAGE>
Centre National de la Recherche Scientifique and L'Universite Montpellier II, as
amended.

         "MPM" means BB BioVentures L.P.

         "MPM Group" means MPM, MPM BioVentures Parallel Fund, L.P., MPM Asset
Management LLC and MPM Asset Management Investors 1998 LLC.

         "Non-Accredited Seller" means each Seller other than an Accredited
Seller.

         "Parent" means Novartis AG, a corporation organized under the laws of
Switzerland, with its principal place of business at Lichtstrasse 35, CH-4002,
Basel, Switzerland.

         "Parent ADSs" means the American Depositary Shares of Parent
representing the Registered Shares and evidenced by the American Depositary
Receipts. References in this Agreement to Parent ADSs include the American
Depositary Receipts evidencing the Parents ADSs.

         "Percentage Ownership" means, with respect to each Seller, the quotient
obtained by dividing (a) the number of Seller's Shares of such Seller as set
forth on Adjusted Annex A as of the Closing Date by (y) the number of Purchased
Shares.

         "Preferred Stock" means preferred stock par value $0.001 per share, of
the Company.

         "Primary Sellers" means the Initial Sellers plus the next six largest
Sellers of Purchased Shares (as set forth on Adjusted Annex A) hereunder who are
not Initial Sellers (who shall be indicated as such on Adjusted Annex A).

         "Purchased Shares" means the number of shares set forth on Adjusted
Annex A as of the Closing Date, which shares represent the sum of all Seller's
Shares as determined pursuant to Section 1.1(c) of this Agreement.

         "QPO Determination" means the determination included in the Stockholder
Consent by the holders of the Requisite Percentage of the outstanding Preferred
Stock that the transaction contemplated by this Agreement constitutes a
Qualified Private Offering in accordance with the terms of the Current
Certificate and the Second Amended and Restated Stockholders' Agreement.

         "Requisite Percentage" means eighty-five percent (85.0%).

         "Regulated Product" means any product which is subject to the
jurisdictions of a Regulatory Agency.

         "Regulatory Agency" means any Governmental Entity with authority over
the marketing, pricing and/or sale of a pharmaceutical product in a country,
including,

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<PAGE>
without limitation, the FDA (as defined in Section 12.15(a)) and the European
Medicines Evaluation Agency and foreign and international equivalents thereof
(or their successors).

         "Regulatory Agency approvals and applications" means any effective
investigational new drug application, an approved new drug application or its
equivalent approved by a Regulatory Agency, and any application that has been
filed with a Regulatory Agency pursuant to any Regulatory Law.

         "Regulatory Law" means any statute, regulation or judicial
interpretation relating to any Regulated Product, including, without limitation,
the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. sec. 301 et seq., as
amended, and equivalent statutes and regulations adopted by countries,
international bodies and other jurisdictions, in addition to the United States,
where the Company or any of its Subsidiaries has facilities, does business, or
directly or through others sells or offers for sale any Regulated Product.

         "Second Amended and Restated Stockholders' Agreement Amendment" means
the amendment to the Second Amended and Restated Stockholders' Agreement and
included in the Stockholder Consent that, among other things, rendered the
provisions of Section 5 thereof inapplicable to the transactions contemplated by
this Agreement.

         "Second Amended and Restated Stockholders' Agreement Termination" means
the agreement of certain Sellers and other signatories thereto to be effective
upon the Closing and included in the Stockholder Consent to terminate the Second
Amended and Restated Stockholders' Agreement upon the Closing at which time such
agreement shall be of no further force and effect.

         "Selling Percentage" means the result obtained by dividing (i) the
result obtained by subtracting (A) the number of Management Shares Sold from (B)
the result obtained by multiplying (1) 0.51 by (2) Fully Diluted Common Stock
Deemed Outstanding on the Closing Date by (ii) the total number of shares of
Vested Stock owned by the Sellers (other than the Management Sellers) as of the
Closing Date in the aggregate.

         "Series A Convertible Preferred Stock" means Series A Convertible
Preferred Stock, par value $0.001 per share, of the Company.

         "Series B Convertible Preferred Stock" means Series B Convertible
Preferred Stock, par value $0.001 per share, of the Company.

         "Series C Convertible Preferred Stock" means Series C Convertible
Preferred Stock, par value $0.001 per share, of the Company.

         "Series C Purchase Agreement Amendment" means the amendment to the
Securities Purchase Agreement among Novirio Pharmaceuticals Limited and the
several parties named therein, dated as of April 24, 2001, that, among other
things, terminates Articles VII and VIII thereof upon the Closing.

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<PAGE>

         "Series C Warrant Amendment" means the amendment of the Series C
Warrants included in the Stockholder Consent that amended Sections 5.3(b)(i),
5.4(a)(i) and 5.4(b) of the Series C Warrant, as more fully set forth in the
Stockholder Consent.

         "Stockholder Consent" means the Consent executed by Initial Sellers and
other stockholders of the Company that are signatories thereto delivered to the
Company on or prior to the date hereof and set forth in Section 4.7 of the
Company Disclosure Schedule, which Consent includes, among other things, (i) the
approval of this Agreement, the Ancillary Agreements, the Certificate Amendment,
the Series C Purchase Agreement Amendment, the Second Amended and Restated
Stockholders' Agreement Amendment and the Series C Warrant Amendment and the
consummation of the transactions contemplated hereby and thereby, (ii) the QPO
Determination and the Compulsory Transfer Determination and (iii) the Second
Amended and Restated Stockholders' Agreement Termination.

         "Subsidiaries" (or, individually, a "Subsidiary") means any and all
corporations, partnerships, joint ventures, associations and other entities
controlled by the Company directly or indirectly through one or more
intermediaries.

         "Sumitomo" means Sumitomo Pharmaceuticals Co. Ltd.

         "Sumitomo Amendment" means the consolidated First Amendment Agreement,
dated October 8, 2002, to both the Development Agreement, dated June 29, 2001,
by and between the Company and Sumitomo and the Commercialization Agreement,
dated as of September 7, 2001, by and between the Company and Sumitomo.

         "Taxes" means any and all federal, state, local, foreign or other
taxes, fees or assessments in the nature of taxes (together with any and all
interest, penalties and additions to tax) imposed by any taxing authority
including, without limitation, taxes or other charges on or with respect to
income, franchise, windfall or other profits, net or gross receipts, property,
sales, use, intangibles, capital stock, transfer, payroll, employment, social
security, workers' compensation, unemployment compensation, or net worth, and
taxes or other charges in the nature of excise, estimated, withholding, ad
valorem or value added taxes.

         "Tax Returns" means any and all returns, reports or similar statements
(including any related exhibits and schedules) required to be filed with respect
to any Tax, including any information return, claim for refund, amended return
or declaration of estimated tax.

         "TherapX License Agreement" means the License Agreement, dated as of
June 20, 1998, by and among the Company (as successor to Novirio Pharmaceuticals
Ltd.) TherapX Pharmaceuticals, L.L.C. and Dr. Raymond F. Schinazi.

         "TVM" means TVM V Life Science Ventures GmbH & Co. KG.

         "TVM Group" means TVM and TVM Medical Ventures GmbH & Co. KG.

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<PAGE>

         "Vested Stock" means outstanding shares of Company Stock assuming (i)
conversion of all outstanding shares of Preferred Stock after taking into
account payment of the dividend payable on the shares of Series C Convertible
Preferred Stock through the Closing Date in shares of Common Stock and (ii)
exercise of all vested and exercisable options outstanding as of the Closing
Date, excluding shares subject to a repurchase right by the Company (other than
those shares that would no longer be subject to a repurchase right upon the
consummation of the transaction contemplated in this Agreement).

         (b) Each of the following terms is defined in the Section set forth
opposite such term:

<TABLE>
<CAPTION>
Term                                                                    Section
----                                                                    -------
<S>                                                                     <C>
Additional Seller(s) ...............................................    1.1(b)
Additional Seller Documents.........................................    1.1(b)
Adjusted Annex A....................................................    1.1(c)
ADS Exchange........................................................    1.2(d)
Aggregate Basket....................................................    12.1(e)
Aggregate Purchase Price............................................    1.1(a)
Agreement...........................................................    Preamble
Amended and Restated By-laws........................................    4.4
Ancillary Agreements................................................    4.4
Applicable Law......................................................    3.3
Banc of America.....................................................    4.29
Benefit Plan........................................................    4.19(a)
Blocking Third Party Intellectual Property Rights...................    12.1(i)
Buyer...............................................................    Preamble
Buyer Reps Cap......................................................    12.1(f)
Buyer Shares/Covenants Cap..........................................    12.1(f)
Buyer Indemnitees...................................................    12.1(a)
By-laws.............................................................    4.1
Candidate Intellectual Property.....................................    4.11(a)
Candidates..........................................................    4.11(a)
Closing.............................................................    2.1
Closing Date........................................................    2.1
Commencement Notice.................................................    12.1(e)
Commercialization...................................................    4.11(m)
Company.............................................................    Preamble
Company Disclosure Schedule.........................................    4 Preamble
Company Patents.....................................................    4.11(a)
Company Property....................................................    4.11(a)
Computer Software...................................................    4.11(a)
Consents............................................................    3.5
[**] ...............................................................    [**]
Contract............................................................    3.3
Credit Agreement....................................................    4.4
Current Certificate.................................................    3.7
</TABLE>

                                       73

<PAGE>

<TABLE>
<CAPTION>
Term                                                                    Section
----                                                                    -------
<S>                                                                     <C>
Custodian...........................................................    1.1(b)
Custody Agreement...................................................    1.1(b)
Damages.............................................................    12.1(a)
Deposit Agreement...................................................    5.4(c)
Development.........................................................    4.11(m)
Development, License and Commercialization
    Agreement.......................................................    4.4
Disclosure Statement................................................    1.1(e)
Encumbrances........................................................    2.2(a)
Environmental Law...................................................    4.25(a)
ERISA...............................................................    4.19(a)
Exchange Act........................................................    4.24
Financial Statements................................................    4.18
[**]................................................................    [**]
[**]................................................................    [**]
[**]................................................................    [**]
[**]................................................................    [**]
[**]................................................................    [**]
GAAP................................................................    4.18
Global Trial........................................................    6.17(b)
Governmental Entity.................................................    3.5
Hazardous Materials.................................................    4.25(b)
HBV Drug Candidates.................................................    4.11(a)
HCV.................................................................    4.11(l)
HCV Drug Candidates.................................................    12.1(e)
[**]................................................................    [**]
Hepatitis B Drug Candidates.........................................    Recitals
Hepatitis C Drug Candidates.........................................    Recitals
HSR Act.............................................................    3.5
Indemnified Party...................................................    12.1(d)
Indemnifying Parties................................................    12.1(d)
Indemnification Claim...............................................    12.1(d)
Individual Caps.....................................................    12.1(e)
Individual Closing Consideration....................................    1.1(d)
Individual Other Reps Cap...........................................    12.1(e)
Individual Title/Covenants Cap......................................    12.1(e)
Initial HCV Drug Candidate..........................................    4.11(a)
Initial Seller(s) ..................................................    Preamble
Initial Shares......................................................    Recitals
Intellectual Property...............................................    4.11(a)
Intellectual Property Rights........................................    4.11(m)
IP Contracts........................................................    4.11(a)
Joinder Agreement...................................................    1.1(b)
Joinder Period......................................................    1.1(b)
</TABLE>

                                       74

<PAGE>

<TABLE>
<CAPTION>
Term                                                                    Section
----                                                                    -------
<S>                                                                     <C>
Judgment............................................................    3.3
LdT Drug Product....................................................    6.17(b)
Licensed Technology.................................................    4.11(m)
[**]................................................................    [**]
Major Stockholders..................................................    4.29
Management Shares Sold..............................................    1.1(c)
Manufacture.........................................................    4.11(m)
Material Owned Property.............................................    4.11(a)
Non-Material IP.....................................................    4.11(a)
Northeast Asia......................................................    6.17(b)
[**]................................................................    [**]
Novartis HCV Option.................................................    12.1(e)
Overpaying Seller...................................................    12.1(n)
Owned Property......................................................    4.11(a)
Parent SEC Reports..................................................    5.3
Participating Holder................................................    1.2(f)(i)
Parties.............................................................    Preamble
Patent Offices......................................................    4.11(e)
Patents.............................................................    4.11(a)
Pension Plans.......................................................    4.19(a)
Permits.............................................................    4.27(a)
Person..............................................................    3.4
Plan................................................................    4.2(b)
Pro Rata Portion....................................................    12.1(l)
Proceedings.........................................................    4.9
Property............................................................    4.25(b)
Qualified Private Offering..........................................    3.7
Registered Intellectual Property....................................    4.11(a)
Registered Share....................................................    5.4(a)
Registration Statement..............................................    1.2(f)
Release.............................................................    4.25(a)
Replacement Shares..................................................    11(d)
Restated Certificate of Incorporation (Alternative 1) ..............    4.4
Restated Certificate of Incorporation (Alternative 2) ..............    4.4
Restated Certificate(s).............................................    4.4
SEC.................................................................    5.3
Second Amended and Restated
      Stockholders' Agreement.......................................    3.7
Securities Act......................................................    1.2(d)
Securities Laws.....................................................    4.24
[**]................................................................    [**]
Seller Indemnitees..................................................    12.1(c)
[**]................................................................    [**]
Sellers.............................................................    Preamble
</TABLE>

                                       75

<PAGE>

<TABLE>
<CAPTION>
Term                                                                    Section
----                                                                    -------
<S>                                                                     <C>
Seller's Shares.....................................................    1.1(a)
Series C Cumulative Annual Dividend Amount..........................    6.22
Series C Warrants...................................................    10.14
Stockholders' Agreement.............................................    4.4
Subject Trade Secrets...............................................    4.11(h)
Supply Agreement....................................................    4.4
Territory...........................................................    12.1(e)
Trade Secrets.......................................................    4.11(a)
UAB License.........................................................    6.15
Underpaying Seller..................................................    12.1(n)
[**]................................................................    [**]
[**]................................................................    [**]
[**]................................................................    [**]
[**]................................................................    [**]
[**]................................................................    [**]
Welfare Plans.......................................................    4.19(a)
2003 Annual Budget..................................................    4.18
</TABLE>

                                       76

<PAGE>

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

                                               IDENIX PHARMACEUTICALS, INC.

                                               By:   /s/ Jean-Pierre Sommadossi
                                                     ---------------------------

                                               Name:  Jean-Pierre Sommadossi
                                                     ---------------------------

                                               Title: President
                                                     ---------------------------

                                               NOVARTIS PHARMA AG

                                               By:    Illegible
                                                     ---------------------------

                                               Name:  Illegible
                                                     ---------------------------

                                               Title: Illegible
                                                     ---------------------------

                                               By:    Illegible
                                                     ---------------------------

                                               Name:  Illegible
                                                     ---------------------------

                                               Title: Illegible
                                                     ---------------------------

                                       77

<PAGE>

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

                                               NOVARTIS AG
                                               (only with respect to Sections
                                               1.2(b)(i), 1.2(c)(i), 1.2(d),
                                               1.2(e), 1.2(f), 2.2(d), 2.3,
                                               10.1, 10.10, 12.2, 12.3, 12.4,
                                               12.8 and 12.14 hereof)

                                               By:    Illegible
                                                     ---------------------------

                                               Name:  Illegible
                                                     ---------------------------

                                               Title: Illegible
                                                     ---------------------------

                                               By:    Illegible
                                                     ---------------------------

                                               Name:  Illegible
                                                     ---------------------------

                                               Title: Illegible
                                                     ---------------------------

                                       78
<PAGE>

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

                                               CREDIT SUISSE FIRST BOSTON EQUITY
                                               PARTNERS, L.P.
                                               By:  Hemisphere Private Equity
                                                    Partners, Ltd.,
                                                    its General Partner

                                               By:    Illegible
                                                     ---------------------------

                                               Name:  Illegible
                                                     ---------------------------

                                               Title: Illegible
                                                     ---------------------------

                                               CREDIT SUISSE FIRST BOSTON EQUITY
                                               PARTNERS (BERMUDA), L.P.
                                               By: Hemisphere Private Equity
                                                   Partners, Ltd.,
                                                   its General Partner

                                               By:    Illegible
                                                     ---------------------------

                                               Name:  Illegible
                                                     ---------------------------

                                               Title: Illegible
                                                     ---------------------------

                                               CREDIT  SUISSE  FIRST BOSTON U.S.
                                               EXECUTIVE  ADVISORS, L.P.
                                               By: Hemisphere Private Equity
                                                   Partners, Ltd.,
                                                   its   General Partner

                                               By:    Illegible
                                                     ---------------------------

                                               Name:  Illegible
                                                     ---------------------------

                                               Title: Illegible
                                                     ---------------------------

                                               EMA PARTNERS FUND 2000,  L.P.
                                               By: Credit Suisse First Boston
                                                   (Bermuda) Limited,
                                                   its  General Partner

                                               By:    Illegible
                                                     ---------------------------

                                               Name:  Illegible
                                                     ---------------------------

                                               Title: Illegible
                                                     ---------------------------

                                       79

<PAGE>

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

                                               EMA  PRIVATE  EQUITY  FUND  2000,
                                               L.P.

                                               By:   Credit  Suisse  First
                                                     Boston  (Bermuda)  Limited,
                                                     its General Partner

                                               By:    Illegible
                                                     ---------------------------

                                               Name:  Illegible
                                                     ---------------------------

                                               Title: Illegible
                                                     ---------------------------

                                       80

<PAGE>

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

                                  BB BIOVENTURES L.P.
                                  By:    BAB BIOVENTURES L.P., its General
                                         Partner
                                  By:    BAB BIOVENTURES, N.V., its General
                                         Partner

                                  By:
                                     /s/ Ansbert K. Gadicke
                                     -------------------------
                                   Name: Ansbert K. Gadicke

                                   Title: Managing Director

                                  MPM ASSET MANAGEMENT INVESTORS 1998 LLC

                                  By:
                                     /s/ Ansbert K. Gadicke
                                     -------------------------
                                   Name: Ansbert K. Gadicke

                                  Title:   Manager

                                   MPM ASSET MANAGEMENT LLC

                                  By:
                                     /s/ Ansbert K. Gadicke
                                     -------------------------
                                   Name: Ansbert K. Gadicke

                                  Title:   Manager

                                   MPM BIOVENTURES PARALLEL
                                  FUND, L.P.
                                  By:   MPM BIOVENTURES I L.P., its General
                                        Partner
                                  By:   MPM BIOVENTURES I LLC, its General
                                        Partner

                                  By:
                                     /s/ Ansbert K. Gadicke
                                     -------------------------
                                   Name: Ansbert K. Gadicke

                                  Title:   Manager

                                       81

<PAGE>

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

                                                 TVM MEDICAL VENTURES GMBH
                                                 & CO. KG

                                                 By: Illegible
                                                    ----------------------------

                                                 Name: Illegible
                                                      --------------------------

                                                 Title: Illegible
                                                       -------------------------

                                                 TVM V LIFE SCIENCE VENTURES
                                                 GMBH & CO. KG

                                                 By: Illegible
                                                    ----------------------------

                                                 Name: Illegible
                                                      --------------------------

                                                 Title: Illegible
                                                       -------------------------

                                       82

<PAGE>

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

                                               KB LUX VENTURE CAPITAL FUND-
                                               BIOTECHNOLOGY

                                               By: Illegible
                                                  ------------------------------

                                               Name: Illegible
                                                    ----------------------------

                                               Title: Illegible
                                                     ---------------------------

                                       83

<PAGE>

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

                                               NOMURA INTERNATIONAL PLC

                                               By: Illegible
                                                  ------------------------------

                                               Name: Illegible
                                                    ----------------------------

                                               Title: Illegible
                                                     ---------------------------

                                       84

<PAGE>

               IN WITNESS WHEREOF, the Parties have executed and delivered this
Agreement as of the date first above written.
                                               /s/ Jean-Pierre Sommadossi
                                               ---------------------------
                                               JEAN-PIERRE SOMMADOSSI

                                       85<PAGE>

                                                                    EXHIBIT 10.1

                           COMMERCE ENERGY GROUP, INC.

                                       AND

                          COMPUTERSHARE TRUST COMPANY

                                 AS RIGHTS AGENT

                                RIGHTS AGREEMENT

                            DATED AS OF JULY 1, 2004
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                   Page
                                                                                                   ----
<S>                                                                                                <C>
SECTION 1.   CERTAIN DEFINITIONS.................................................................    1

SECTION 2.   APPOINTMENT OF RIGHTS AGENT.........................................................    5

SECTION 3.   ISSUE OF RIGHT CERTIFICATES.........................................................    5

SECTION 4.   FORM OF RIGHT CERTIFICATES..........................................................    7

SECTION 5.   COUNTERSIGNATURE AND REGISTRATION...................................................    8

SECTION 6.   TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES..................    8

SECTION 7.   EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.......................    9

SECTION 8.   CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES..................................   11

SECTION 9.   AVAILABILITY OF PREFERRED SHARES....................................................   12

SECTION 10.  PREFERRED SHARES RECORD DATE........................................................   13

SECTION 11.  ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF RIGHTS..................   13

SECTION 12.  CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES..........................   21

SECTION 13.  CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER................   21

SECTION 14.  FRACTIONAL RIGHTS AND FRACTIONAL SHARES.............................................   24

SECTION 15.  RIGHTS OF ACTION....................................................................   26

SECTION 16.  AGREEMENT OF RIGHT HOLDERS..........................................................   26

SECTION 17.  RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER...................................   27

SECTION 18.  CONCERNING THE RIGHTS AGENT.........................................................   27

SECTION 19.  MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT...........................   28

SECTION 20.  DUTIES OF RIGHTS AGENT..............................................................   29

SECTION 21.  CHANGE OF RIGHTS AGENT..............................................................   31

SECTION 22.  ISSUANCE OF NEW RIGHT CERTIFICATES..................................................   32

SECTION 23.  REDEMPTION..........................................................................   32

SECTION 24.  EXCHANGE............................................................................   34

SECTION 25.  NOTICE OF CERTAIN EVENTS............................................................   36
</TABLE>

                                       -i-

<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
                                                                                                   Page
                                                                                                   ----
<S>                                                                                                <C>
SECTION 26.  NOTICES.............................................................................   37

SECTION 27.  SUPPLEMENTS AND AMENDMENTS..........................................................   37

SECTION 28.  DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC............................   38

SECTION 29.  SUCCESSORS..........................................................................   38

SECTION 30.  BENEFITS OF THIS AGREEMENT..........................................................   39

SECTION 31.  SEVERABILITY........................................................................   39

SECTION 32.  GOVERNING LAW.......................................................................   39

SECTION 33.  COUNTERPARTS........................................................................   39

SECTION 34.  DESCRIPTIVE HEADINGS................................................................   39
</TABLE>

                                      -ii-

<PAGE>

                                RIGHTS AGREEMENT

      THIS RIGHTS AGREEMENT ("Rights Agreement"), dated as of July 1, 2004,
between COMMERCE ENERGY GROUP, INC., a Delaware corporation (the "Company"), and
COMPUTERSHARE TRUST COMPANY ("Rights Agent").

      WHEREAS, the Board of Directors of the Company (the "Board of Directors")
has authorized the issuance of one preferred share purchase right (a "Right")
for each share of Common Share (as such term is hereinafter defined) issued in
connection with the merger of CEC Acquisition Corp., a subsidiary of the
Company, with and into Commonwealth Energy Corporation pursuant to the terms of
that certain Agreement and Plan of Reorganization dated July 1, 2004 (the
"Effective Date"), each Right representing the right to purchase one
one-hundredth of a Preferred Share (as such term is hereinafter defined), upon
the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each Common
Share that shall become outstanding between the Effective Date and the earliest
to occur of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined); provided, however, that Rights may
be issued with respect to Common Shares that shall become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date in accordance with the provisions of Section 22 hereof; and

      WHEREAS, the Board of Directors has approved and authorized the
appointment of the Rights Agent, and the Rights Agent desires to accept such
appointment.

      NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:

SECTION 1. CERTAIN DEFINITIONS. For purposes of this Rights, the following
terms have the meanings indicated:

      (a)   "ACQUIRING PERSON" shall mean any Person (as such term is
hereinafter defined) other than an Excluded Person who or which, together with
all Affiliates and Associates (as such terms are hereinafter defined) of such
Person, shall be the Beneficial Owner (as such term is hereinafter defined) of
15% or more of the Common Shares then outstanding. Notwithstanding the
foregoing, (A) the term Acquiring Person shall not include (i) the Company, (ii)
any Subsidiary (as such term is hereinafter defined) of the Company, (iii) any
employee benefit or compensation plan of the Company or any Subsidiary of the
Company, or (iv) any entity holding Common Shares for or pursuant to the terms
of any such employee benefit or compensation plan of the Company or any
Subsidiary of the Company, and (B) no Person shall become an "Acquiring Person"
either (x) as the result of an acquisition of Common Shares by the Company
which, by reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 15% or more of the

                                        1
<PAGE>

Common Shares then outstanding; provided, however, that if a Person shall become
the Beneficial Owner of 15% or more of the Common Shares then outstanding by
reason of share purchases by the Company and shall, following written notice
from, or public disclosure by the Company of such share purchases by the
Company, become the Beneficial Owner of any additional Common Shares without the
prior consent of the Company and shall then Beneficially Own more than 15% of
the Common Shares then outstanding, then such Person shall be deemed to be an
"Acquiring Person," or (y) as the result of the acquisition of Common Shares
directly from the Company as long as, prior to any acquisition of Common Shares
directly from the Company, the Company has been apprised by any such Person of
the number of Common Shares beneficially owned by such Person immediately prior
to any such acquisition; provided, however, that if a Person shall become the
Beneficial Owner of 15% or more of the Common Shares then outstanding by reason
of share purchases directly from the Company and shall, after that date, become
the Beneficial Owner of any additional Common Shares without the prior written
consent of the Company and shall then Beneficially Own more than 15% of the
Common Shares then outstanding, then such Person shall be deemed to be an
"Acquiring Person" or (z) if the Board of Directors determines in good faith
that a Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this paragraph (a), has become such
inadvertently, and without any intention of changing or influencing control of
the Company, and such Person promptly enters into an irrevocable written
commitment in favor of the Company to divest, and thereafter divests (without
retaining any power, including voting with respect to such Common Shares), as
promptly as practicable (as determined in good faith by the Board of Directors),
following receipt of written notice from the Company of such event, of
Beneficial Ownership of a sufficient number of Common Shares so that such Person
would no longer be an Acquiring Person, as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Rights; provided, however, that if
such Person shall again become the Beneficial Owner of 15% or more of the Common
Shares then outstanding, such Person shall be deemed an "Acquiring Person,"
subject to the exceptions set forth in this Section 1(a).

      (b)   "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on the date of this Rights Agreement; provided, however, that the limited
partners of a limited partnership shall not be deemed to be Associates of such
limited partnership solely by virtue of their limited partnership interests.

      (c)   A Person shall be deemed the "BENEFICIAL OWNER" or to have
"BENEFICIAL OWNERSHIP" of and shall be deemed to "beneficially own" any
securities:

                                        2
<PAGE>

            (i)   which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, within the meaning of Rule 13d-3 of
the General Rules and Regulations under the Exchange Act as in effect on the
date of this Rights Agreement;

            (ii)  which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities and other than agreements between the Company and any
Person pursuant to which the right to purchase securities is conditioned upon
the achievement of milestones which have not yet been achieved) or upon the
exercise of conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any security if
the agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations promulgated under the Exchange Act and (2)
is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or

            (iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B) hereof) or disposing of any securities of the Company; provided,
however, an agreement, arrangement or understanding for purposes of this Section
1(c)(iii) shall not be deemed to include actions, including any agreement,
arrangement or understanding, or statements by (A) any member of the Board of
Directors, as comprised on the date of this Rights Agreement (the "Existing
Directors"), (B) any subsequent directors of the Company who have been nominated
by a majority of the Existing Directors (the "Successor Directors"), or (C) any
subsequent member of the Board of Directors who is elected by a majority of the
Existing Directors and/or Successor Directors, nominating as a group.

      Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase, "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the number of such

                                        3
<PAGE>

securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed the Beneficial Owner hereunder.

      (d)   "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in the State of California or the State
of New York are authorized or obligated by law or executive order to close.

      (e)   "CLOSE OF BUSINESS" on any given date shall mean 5:00 p.m., Pacific
Time, on such date; provided, however, that if such date is not a Business Day
it shall mean 5:00 p.m., Pacific Time, on the next succeeding Business Day.

      (f)   "COMMON SHARES" shall mean the shares of common stock, par value
$.001 per share, of the Company; provided, however, that, "Common Shares," when
used in this Rights Agreement in connection with a specific reference to any
Person other than the Company, shall mean the capital stock (or equity interest)
with the greatest voting power of such other Person or, if such other Person is
a Subsidiary of another Person, the Person or Persons which ultimately control
such first-mentioned Person.

      (g)   "DISTRIBUTION DATE" shall have the meaning set forth in Section 3
hereof.

      (h)   "EXCLUDED PERSON" shall mean Ian B. Carter (including his Affiliates
and Associates); provided however, that no Person shall be an Excluded Person if
such Person, either individually or collectively with such Person's Affiliates
and Associates, becomes the Beneficial Owner of more than 30% of the outstanding
Common Shares without the prior written approval of the Board of Directors.

      (i)   "FINAL EXPIRATION DATE" shall have the meaning set forth in Section
7(a) hereof.

      (j)   "INTERESTED STOCKHOLDER" shall mean any Acquiring Person or any
Affiliate or Associate of an Acquiring Person or any other Person in which any
such Acquiring Person, Affiliate or Associate has an interest, or any other
Person acting directly or indirectly on behalf of or in concert with any such
Acquiring Person, Affiliate or Associate.

      (k)   "PERSON" shall mean any individual, firm, corporation, partnership,
limited liability company, joint venture, trust, association, unincorporated
organization, group or other entity, and shall include any successor (by merger
or otherwise) of such entity.

      (l)   "PREFERRED SHARES" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.001 per share, of the Company having
the designations and the powers, preferences and rights, and the qualifications,
limitations

                                        4
<PAGE>

and restrictions set forth in the Certificate of Designation attached to this
Rights Agreement as Exhibit A.

      (m)   "PURCHASE PRICE" shall have the meaning set forth in Section 7(b)
hereof.

      (n)   "REDEMPTION DATE" shall have the meaning set forth in Section 7(a)
hereof.

      (o)   "SHARES ACQUISITION DATE" shall mean the first date of public
announcement by the Company that an Acquiring Person exists, or by an Acquiring
Person that such Person has become an Acquiring Person; provided, however that,
if such Person is determined not to have become an Acquiring Person pursuant to
clause (z) of Subsection 1(a)(B) hereof, then no Shares Acquisition Date shall
be deemed to have occurred.

      (p)   "SUBSIDIARY" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.

      (q)   "TRANSACTION" shall mean any merger, consolidation or sale of assets
described in Section 13(a) hereof or any acquisition of Common Shares which
would result in a Person becoming an Acquiring Person or a Principal Party (as
such term is hereinafter defined in Section 13(b) hereof).

      (r)   "TRANSACTION PERSON" with respect to a Transaction shall mean (i)
any Person who (x) is or will become an Acquiring Person or a Principal Party
(as such term is hereinafter defined) if the Transaction were to be consummated
and (y) directly or indirectly proposed or nominated a director of the Company
which director is in office at the time of consideration of the Transaction, or
(ii) an Affiliate or Associate of such a Person.

SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights
Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable. The Rights Agent shall have no duty to supervise, and in
no event shall be liable for, the acts or omissions of any such co-Rights Agent.

SECTION 3. ISSUE OF RIGHT CERTIFICATES.

      (a)   Until the earlier of the Close of Business on (i) the Shares
Acquisition Date or (ii) the tenth (10th) Business Day (or such later date as
may be determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of the commencement
(determined in accordance with Rule 14d-2

                                        5
<PAGE>

under the Exchange Act) by any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan or compensation plan of the Company or of
any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or of the first public announcement
of the intention of any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan or compensation plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) to commence, a tender or exchange offer (which
intention to commence remains in effect for five (5) Business Days after such
announcement), the consummation of which would result in any Person becoming an
Acquiring Person (including any such date which is after the date of this Rights
Agreement and prior to the issuance of the Rights, the earlier of such dates
being herein referred to as the "Distribution Date"), (x) the Rights will be
evidenced by the certificates for Common Shares registered in the names of the
holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the Rights (and
the right to receive Right Certificates therefor) will be transferable only in
connection with the transfer of Common Shares. As soon as practicable after the
Distribution Date, the Company shall promptly notify the Rights Agent of the
occurrence thereof and, if the Rights Agent is not then also the transfer agent
and registrar for the Common Stock, provide the Rights Agent with the names and
addresses of all record holders of Common Stock, and the Company will prepare
and execute, the Rights Agent will countersign, and the Company will send or
cause to be sent (and the Rights Agent will, if requested, and provided with all
necessary information, send) by first-class, insured, postage-prepaid mail, to
each record holder of Common Shares as of the Close of Business on the
Distribution Date, at the address of such holder shown on the records of the
Company, a Right Certificate, in substantially the form of Exhibit B hereto (a
"Right Certificate"), evidencing one Right for each Common Share so held,
subject to the adjustment provisions of Section 11 of this Rights Agreement. As
of the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.

      (b)   On the Effective Date, or as soon as practicable thereafter, the
Company will send (directly or through the Rights Agent or its transfer agent) a
copy of a Summary of Rights to Purchase Preferred Shares, in substantially the
form of Exhibit C hereto (the "Summary of Rights"), by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Effective Date, at the address of such holder shown on the
records of the Company. Until the Distribution Date (or, if earlier, the
Redemption Date or the Final Expiration Date), the Rights associated with the
Common Shares represented by such certificates shall be evidenced by such
certificates alone, and the surrender for transfer of any certificate for Common
Shares outstanding shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby (whether or not such certificates
have impressed on, printed, written on or otherwise affixed to them the legend
set forth in Section 3(c)).

                                        6
<PAGE>

      (c)   Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Effective Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them a legend in
substantially the following form:

            This certificate also evidences and entitles the holder hereof to
      certain rights as set forth in a Rights Agreement between Commerce Energy
      Group, Inc. (the "Company") and Computershare Trust Company, as Rights
      Agent (the "Rights Agent"), dated as of July 1, 2004, as amended from time
      to time (the "Rights Agreement"), the terms of which are hereby
      incorporated herein by reference and a copy of which is on file at the
      principal executive offices of the Company. Under certain circumstances,
      as set forth in the Rights Agreement, such Rights will be evidenced by
      separate certificates and will no longer be evidenced by this certificate.
      The Company will mail to the holder of this certificate a copy of the
      Rights Agreement without charge after receipt of a written request
      therefor. As described in the Rights Agreement, Rights issued to any
      Person who becomes an Acquiring Person or an Affiliate or Associate
      thereof (as defined in the Rights Agreement) and certain related persons,
      whether currently held by or on behalf of such Person or by any subsequent
      holder, shall become null and void.

      With respect to such certificates containing the foregoing legend, until
the Distribution Date (or, if earlier, the earlier of the Redemption Date or the
Final Expiration Date), the Rights associated with the Common Shares represented
by such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Effective Date but prior to the Distribution Date, any Rights associated with
such Common Shares shall be deemed canceled and retired so that the Company
shall not be entitled to exercise any Rights associated with the Common Shares
which are no longer outstanding. Notwithstanding this Section 3(c), the omission
of a legend shall not affect the enforceability of any part of this Rights
Agreement or the rights of any holder of the Rights.

SECTION 4. FORM OF RIGHT CERTIFICATES.

      (a)   The Right Certificates (and the form of election to purchase
Preferred Shares, the form of assignment and the form of certification to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate (provided that such marks, legends, summaries and endorsements do
not affect the rights, duties or responsibilities of the Rights Agent) and as
are not inconsistent with the provisions of this Rights Agreement,

                                        7
<PAGE>

or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or quotation system on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of Sections 7, 11 and
22 hereof, the Right Certificates shall entitle the holders thereof to purchase
such number of one one-hundredths of a Preferred Share as shall be set forth
therein at the Purchase Price, but the number of such one one-hundredths of a
Preferred Share and the Purchase Price shall be subject to adjustment as
provided herein.

      (b)   Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights which are null and void pursuant to Section
11(a)(ii) hereof and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent the Rights Agent has notice thereof and to the extent feasible) the
following legend:

            The Rights represented by this Right Certificate are or were
      beneficially owned by a Person who was or became an Acquiring Person or an
      Affiliate or Associate of an Acquiring Person (as such terms are defined
      in the Rights Agreement). Accordingly, this Right Certificate and the
      Rights represented hereby are null and void.

            The provisions of Section 11(a)(ii) hereof shall be operative
whether or not the foregoing legend is contained on any such Right Certificate.

SECTION 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates shall be
executed on behalf of the Company by its Chairman of the Board, its Chief
Executive Officer, its President, its Vice Chairman of the Board, its Chief
Financial Officer, or any of its Vice Presidents, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof if the Company has a seal, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.

                                        8
<PAGE>

      Following the Distribution Date, and receipt by the Rights Agent of
written notice to that effect and all other relevant information referred to in
Section 3(a), the Rights Agent will keep or cause to be kept, at its office
designated for such purpose, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights evidenced
on its face by each of the Right Certificates and the date of each of the Right
Certificates.

SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. Subject to the
provisions of Section 11(a)(ii), Section 14 and Section 24 hereof, at any time
after the Close of Business on the Distribution Date, and at or prior to the
Close of Business on the earlier of the Redemption Date or the Final Expiration
Date, any Right Certificate or Right Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any such
surrendered Right Certificate until the registered holder shall have properly
completed and signed the certificate contained in the form of assignment on the
reverse side of such Right Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company or the Rights Agent shall
request. Thereupon the Rights Agent shall, subject to Section 11(a)(ii), Section
14 and Section 24 hereof, countersign and deliver to the person entitled thereto
a Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates. The Rights Agent shall have
no duty or obligation under this Section 6 or any other similar provision of
this Rights Agreement unless and until it is reasonably satisfied that all such
taxes and/or governmental charges have been paid in full.

      Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will issue, execute and deliver
a new Right Certificate of like tenor to the Rights Agent for

                                        9
<PAGE>

countersignature and delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.

      Notwithstanding any other provisions hereof, the Company and the Rights
Agent may amend this Rights Agreement to provide for uncertificated Rights in
addition to or in place of Rights evidenced by Rights Certificates.

SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.

      (a)   The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the office of the Rights Agent designated
for such purpose, together with payment of the Purchase Price for each one
one-hundredth of a Preferred Share (or such other number of shares or other
securities) as to which the Rights are exercised, at or prior to the earliest of
(i) the Close of Business on July 1, 2014 (the "Final Expiration Date"), (ii)
the time at which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date"), or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.

      (b)   The purchase price for each one one-hundredth of a Preferred Share
pursuant to the exercise of a Right shall initially be $20.00 (the "Purchase
Price") and shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.

      (c)   Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the shares to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check, bank draft or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent for
the Preferred Shares certificates for the number of Preferred Shares to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company, in its sole discretion,
shall have elected to deposit the Preferred Shares issuable upon exercise of the
Rights hereunder into a depository, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) after receipt of such certificates
or depositary receipts, cause the

                                       10
<PAGE>

same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate. In the event that
the Company is obligated to issue securities of the Company other than Preferred
Shares (including Common Shares) of the Company pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities are available for distribution by the Rights Agent, if and when
appropriate.

      In addition, in the case of an exercise of the Rights by a holder pursuant
to Section 11(a)(ii) hereof, the Rights Agent shall return such Right
Certificate to the registered holder thereof after imprinting, stamping or
otherwise indicating thereon that the rights represented by such Right
Certificate no longer include the rights provided by Section 11(a)(ii) hereof,
and, if fewer than all the Rights represented by such Right Certificate were so
exercised, the Rights Agent shall indicate on the Right Certificate the number
of Rights represented thereby which continue to include the rights provided by
Section 11(a)(ii) hereof. Neither the Company nor the Rights Agent shall have
any liability to any holder of Rights Certificates or to any other Person as a
result of the Company's failure to make any determinations with respect to an
Acquiring Person or such Acquiring Person's Affiliates, Associates or
transferees hereunder.

      (d)   In case the registered holder of any Right Certificate shall
exercise fewer than all the Rights evidenced thereby (other than a partial
exercise of rights pursuant to Section 11(a)(ii) as described in Section 7(c)
hereof), a new Right Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent to the registered
holder of such Right Certificate or to his duly authorized assigns, subject to
the provisions of Section 14 hereof.

      (e)   The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued Preferred Shares or any
Preferred Shares held in its treasury, the number of Preferred Shares that will
be sufficient to permit the exercise in full of all outstanding Rights in
accordance with this Section 7.

      (f)   Notwithstanding anything in this Rights Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) properly completed and signed the certification following the form of
election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise, (ii) tendered the Purchase Price (and an amount
equal to any applicable transfer tax required to be paid by the holder of such
Right Certificate in accordance with Section 9) to the Company in the manner set
forth in Section 7(c), and (iii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company or the Rights Agent shall reasonably request.

                                       11
<PAGE>

SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if delivered or surrendered to the Rights Agent, shall be canceled by it,
and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The Company shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all canceled Right Certificates to the Company approximately
one and one-half years after the cancellation date, or shall, at the written
request of the Company, destroy such canceled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.

SECTION 9. AVAILABILITY OF PREFERRED SHARES. The Company covenants and agrees
that so long as the Preferred Shares (and, after the time a person becomes an
Acquiring Person, Common Shares or any other securities) issuable upon the
exercise of the Rights may be listed on any national securities exchange or
quotation system, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange or quotation system upon official notice
of issuance upon such exercise.

      The Company covenants and agrees that it will take all such action as may
be necessary to ensure that all Preferred Shares (or Common Shares and other
securities, as the case may be) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such Preferred Shares (subject to
payment of the Purchase Price), be duly and validly authorized and issued and
fully paid and nonassessable shares or other securities.

      The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.

      As soon as practicable after the Distribution Date, the Company shall use
its best efforts to:

                                       12
<PAGE>

            (i)   prepare and file a registration statement under the Securities
Act of 1933, as amended (the "Act"), with respect to the Rights and the
securities purchasable upon exercise of the Rights on an appropriate form, will
use its best efforts to cause such registration statement to become effective as
soon as practicable after such filing and will use its best efforts to cause
such registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Final Expiration Date; and

            (ii)  use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate.

SECTION 10. PREFERRED SHARES RECORD DATE. Each Person in whose name any
certificate for Preferred Shares or other securities is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Preferred Shares or other securities represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered with the forms of election and certification
duly executed and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Shares or other securities transfer
books of the Company are closed, such person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares or other securities
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate, as such, shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.

SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF RIGHTS.
The Purchase Price, the number of Preferred Shares covered by each Right and the
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.

      (a)

            (i)   In the event the Company shall at any time after the date of
this Rights Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the

                                       13
<PAGE>

effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were
open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of one Right.
If an event occurs which would require an adjustment under both Section 11(a)(i)
and Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to any adjustment
required pursuant to Section 11(a)(ii) hereof.

            (ii)  Subject to Section 24 hereof and the provisions of the next
paragraph of this Section 11(a)(ii), in the event any Person shall become an
Acquiring Person, each holder of a Right shall, for a period of 60 days after
the later of such time any Person becomes an Acquiring Person or the effective
date of an appropriate registration statement filed under the Act pursuant to
Section 9 hereof (provided, however that, if at any time prior to the expiration
or termination of the Rights there shall be a temporary restraining order, a
preliminary injunction, an injunction, or temporary suspension by the Board of
Directors, or similar obstacle to exercise of the Rights (the "Injunction")
which prevents exercise of the Rights, a new 60-day period shall commence on the
date the Injunction is removed), have a right to receive, upon exercise thereof
at a price equal to the then current Purchase Price multiplied by the number of
one one-hundredths of a Preferred Share for which a Right is then exercisable,
in accordance with the terms of this Rights Agreement and in lieu of Preferred
Shares, such number of Common Shares as shall equal the result obtained by (A)
multiplying the then current Purchase Price by the number of one one-hundredths
of a Preferred Share for which a Right is then exercisable and dividing that
product by (B) 50% of the then current per share market price of the Common
Shares (determined pursuant to Section 11(d) hereof) on the date such Person
became an Acquiring Person; provided, however, that if the transaction that
would otherwise give rise to the foregoing adjustment is also subject to the
provisions of Section 13 hereof, then only the provisions of Section 13 hereof
shall apply and no adjustment shall be made pursuant to this Section 11(a)(ii).
In the event that any Person shall become an Acquiring Person and the Rights
shall then be outstanding, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the Rights.

      Notwithstanding anything in this Rights Agreement to the contrary, from
and after the time any Person becomes an Acquiring Person, any Rights
beneficially owned by (i) such Acquiring Person or an Associate or Affiliate of
such Acquiring Person, (ii) a transferee of such Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee after the Acquiring Person
became such, or (iii) a transferee of such

                                       14
<PAGE>

Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person's becoming such
and receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom the Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors has determined is part of
a plan, arrangement or understanding which has as a primary purpose or effect
the avoidance of this Section 11(a)(ii), shall become null and void without any
further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Rights
Agreement or otherwise. The Company shall use all reasonable efforts to insure
that the provisions of this Section 11(a)(ii) and Section 4(b) hereof are
complied with, but neither the Company nor the Rights Agent shall have any
liability to any holder of Right Certificates or other Person as a result of the
Company's failure to make any determinations with respect to an Acquiring Person
or its Affiliates, Associates or transferees hereunder. No Right Certificate
shall be issued at any time upon the transfer of any Rights to an Acquiring
Person whose Rights would be null and void pursuant to the first sentence of
this paragraph or any Associate or Affiliate thereof or to any nominee of such
Acquiring Person, Associate or Affiliate; and any Right Certificate delivered to
the Rights Agent for transfer to an Acquiring Person whose Rights would be null
and void pursuant to the first sentence of this paragraph shall be canceled.

            (iii) In lieu of issuing Common Shares in accordance with Section
11(a)(ii) hereof, the Company may, if a majority of the Board of Directors then
in office determines that such action is necessary or appropriate and not
contrary to the interests of holders of Rights, elect to (and, in the event that
the Board of Directors has not exercised the exchange right contained in Section
24(c) hereof and there are not sufficient treasury shares and authorized but
unissued Common Shares to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Company shall) take all
such action as may be necessary to authorize, issue or pay, upon the exercise of
the Rights, cash (including by way of a reduction of the Purchase Price),
property, Common Shares, other securities or any combination thereof having an
aggregate value equal to the value of the Common Shares which otherwise would
have been issuable pursuant to Section 11(a)(ii) hereof, which aggregate value
shall be determined by a nationally recognized investment banking firm selected
by a majority of the Board of Directors then in office. For purposes of the
preceding sentence, the value of the Common Shares shall be determined pursuant
to Section 11(d) hereof. Any such election by the Board of Directors must be
made within 60 days following the date on which the event described in Section
11(a)(ii) hereof shall have occurred. Following the occurrence of the event
described in Section 11(a)(ii) hereof, a majority of the Board of Directors then
in office may suspend the exercisability of the Rights for a period of up to 60
days following the date on which the event described in Section 11(a)(ii) hereof
shall have occurred to the extent that such directors have not determined
whether to exercise their rights of election under this Section 11(a)(iii). In
the event of any such suspension, the Company shall

                                       15
<PAGE>

promptly notify the Rights Agent in writing of such suspension and shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended.

      (b)   In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same
designations and the powers, preferences and rights, and the qualifications,
limitations and restrictions as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as such term is hereinafter defined)
on such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or equivalent preferred shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors, whose determination shall be described in a reasonably detailed
statement filed with the Rights Agent. Preferred Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.

      (c)   In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall

                                       16
<PAGE>

be the then current per share market price of the Preferred Shares (as such term
is hereinafter defined) on such record date, less the fair market value (as
determined in good faith by the Board of Directors, whose determination shall be
described in a reasonably detailed statement filed with the Rights Agent) of the
portion of the assets or evidences of indebtedness so to be distributed or of
such subscription rights or warrants applicable to one Preferred Share and the
denominator of which shall be such current per share market price of the
Preferred Shares; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.

      (d)

            (i)   For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security or securities
convertible into such shares, or (C) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each such
case, the current per share market price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or as reported on the Nasdaq National Market or
Nasdaq Small Cap Market, or, if the Security is not listed or admitted to
trading on any national securities exchange or reported on the Nasdaq National
Market or Nasdaq Small Cap Market, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("Nasdaq") or such other system then in use, or, if on any
such date the Security is not quoted by any such organization,

                                       17
<PAGE>

the average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of Directors
or, if on any such date no professional market maker is making a market in the
Security, the price as determined in good faith by the Board of Directors. The
term "Trading Day" shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or admitted to trading
on any national securities exchange, a Business Day.

            (ii)  For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i) hereof. If the Preferred Shares
are not publicly traded, the "current per share market price" of the Preferred
Shares shall be conclusively deemed to be the current per share market price of
the Common Shares as determined pursuant to Section 11(d)(i) hereof
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof) multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors, whose determination
shall be described in a reasonably detailed statement filed with the Rights
Agent.

      (e)   No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-hundredth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.

      (f)   If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Sections 11(a) through 11(c) hereof, inclusive,
and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the
Preferred Shares shall apply on like terms to any such other shares.

      (g)   All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from

                                       18
<PAGE>

time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.

      (h)   Unless the Company shall have exercised its election as provided in
Section 11(i) hereof, upon each adjustment of the Purchase Price as a result of
the calculations made in Section 11(b) and Section 11(c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a Preferred Share covered by a Right immediately prior
to this adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.

      (i)   The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall promptly notify the Rights Agent in writing of such election and
shall make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.

                                       19
<PAGE>

      (j)   Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.

      (k)   Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.

      (l)   In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer (with prompt written notice
thereof to the Rights Agent) until the occurrence of such event the issuing to
the holder of any Right exercised after such record date of the Preferred Shares
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.

      (m)   The Company covenants and agrees that, after the Distribution Date,
it will not, except as permitted by Section 23 or Section 27 hereof, take (or
permit any Subsidiary to take) any action the purpose of which is to, or if at
the time such action is taken it is reasonably foreseeable that the effect of
such action is to, materially diminish or eliminate the benefits intended to be
afforded by the Rights. Any such action taken by the Company during any period
after any Person becomes an Acquiring Person but prior to the Distribution Date
shall be null and void unless such action could be taken under this Section
11(m) from and after the Distribution Date.

      (n)   Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.

      (o)   In the event that at any time after the date of this Rights
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the

                                       20
<PAGE>

Common Shares payable in Common Shares or (ii) effect a subdivision, combination
or consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case (A) the number of one one-hundredths of a
Preferred Share purchasable after such event upon proper exercise of each Right
shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a fraction,
the numerator of which is the number of Common Shares outstanding immediately
before such event and the denominator of which is the number of Common Shares
outstanding immediately after such event, and (B) each Common Share outstanding
immediately after such event shall have issued with respect to it that number of
Rights which each Common Share outstanding immediately prior to such event had
issued with respect to it. The adjustments provided for in this Section 11(o)
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.

      (p)   The exercise of Rights under Section 11(a)(ii) hereof shall only
result in the loss of rights under Section 11(a)(ii) hereof to the extent so
exercised and shall not otherwise affect the rights represented by the Rights
under this Rights Agreement, including the rights represented by Section 13
hereof.

SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES. Whenever
an adjustment is made as provided in Sections 11 and 13 hereof, the Company
shall promptly (a) prepare a certificate setting forth such adjustment, and a
brief, reasonably detailed statement of the facts, computations and methodology
accounting for such adjustment, (b) file with the Rights Agent and with each
transfer agent for the Common Shares or the Preferred Shares a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 25 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained, and shall have no duty or liability with respect to, and shall not be
deemed to have knowledge of any adjustment unless and until it shall have
received such certificate.

SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.

      (a)   In the event that, following the Shares Acquisition Date or, if a
Transaction is proposed, the Distribution Date, directly or indirectly (x) the
Company shall consolidate with, or merge with and into, any Interested
Stockholder, or if in such merger or consolidation all holders of Common Shares
are not treated alike, any other Person, (y) any Interested Stockholder, or if
in such merger or consolidation all holders of Common Shares are not treated
alike, any other Person shall, consolidate with the Company, or merge with and
into the Company, and the Company shall be the continuing or surviving
corporation of such merger (other than, in the case of either transaction
described in (x) or (y), a merger or consolidation which would result in all of
the voting

                                       21
<PAGE>

power represented by the securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into securities of the surviving entity) all of the voting power
represented by the securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation and the holders of
such securities not having changed as a result of such merger or consolidation),
or (z) the Company shall sell, mortgage or otherwise transfer (or one or more of
its Subsidiaries shall sell, mortgage or otherwise transfer), in one or more
transactions, assets or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
Interested Stockholder or Interested Stockholders, or if in such transaction all
holders of Common Shares are not treated alike, any other Person, (other than
the Company or any Subsidiary of the Company in one or more transactions each of
which individually and the aggregate does not violate Section 13(d) hereof)
then, and in each such case, proper provision shall be made so that (i) each
holder of a Right, subject to Section 11(a)(ii) hereof, shall have the right to
receive, upon the exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable in accordance with the terms of this Rights
Agreement and in lieu of Preferred Shares, such number of freely tradable Common
Shares of the Principal Party (as such term is hereinafter defined), free and
clear of liens, rights of call or first refusal, encumbrances or other adverse
claims, as shall be equal to the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable (without taking into account any
adjustment previously made pursuant to Section 11(a)(ii) hereof) and dividing
that product by (B) 50% of the then current per share market price of the Common
Shares of such Principal Party (determined pursuant to Section 11(d) hereof) on
the date of consummation of such consolidation, merger, sale or transfer; (ii)
such Principal Party shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, sale or transfer, all the obligations and duties
of the Company pursuant to this Rights Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply to such Principal
Party; and (iv) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of shares of its Common
Shares in accordance with Section 9 hereof) in connection with such consummation
as may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights.

      (b)   "Principal Party" shall mean:

            (i)   in the case of any transaction described in clause (x) or (y)
of the first sentence of Section 13(a) hereof, the Person that is the issuer of
any securities into which Common Shares are converted in such merger or
consolidation, and if no securities are so issued, the Person that is the other
party to the merger or consolidation (or, if applicable, the Company, if it is
the surviving corporation); and

                                       22
<PAGE>

            (ii)  in the case of any transaction described in clause (z) of
Section 13(a) hereof, the Person that is the party receiving the greatest
portion of the assets or earning power transferred pursuant to such transaction
or transactions;

provided, however, that in any case, (1) if the Common Shares of such Person are
not at such time and have not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, and such Person is a
direct or indirect Subsidiary or Affiliate of another Person the Common Shares
of which are and have been so registered, "Principal Party" shall refer to such
other Person; (2) if such Person is a Subsidiary, directly or indirectly, or
Affiliate of more than one Person, the Common Shares of two or more of which are
and have been so registered, "Principal Party" shall refer to whichever of such
Persons is the issuer of the Common Shares having the greatest aggregate market
value; and (3) if such Person is owned, directly or indirectly, by a joint
venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in (1) and (2) above shall
apply to each of the chains of ownership having an interest in such joint
venture as if such party were a "Subsidiary" of both or all of such joint
venturers and the Principal Parties in each such chain shall bear the
obligations set forth in this Section 13 in the same ratio as their direct or
indirect interests in such Person bear to the total of such interests.

      (c)   The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized Common Shares that have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this Section 13 and
unless prior thereto the Company and each Principal Party and each other Person
who may become a Principal Party as a result of such consolidation, merger, sale
or transfer shall have (i) executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a) and
(b) of this Section 13 and (ii) prepared, filed and had declared and remain
effective a registration statement under the Act on the appropriate form with
respect to the Rights and the securities exercisable upon exercise of the Rights
and further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer of assets mentioned in paragraph (a) of
this Section 13, the Principal Party at its own expense will:

            (i)   cause the registration statement under the Act with respect to
the Rights and the securities purchasable upon exercise of the Rights on an
appropriate form to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Final Expiration Date;

            (ii)  use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate;

            (iii) list the Rights and the securities purchasable upon exercise
of the Rights on each national securities exchange on which the Common Shares
were listed

                                       23
<PAGE>

prior to the consummation of such consolidation, merger, sale or transfer of
assets or on the Nasdaq National Market or Nasdaq Small Cap Market if the Common
Shares were listed on the Nasdaq National Market or Nasdaq Small Cap Market or,
if the Common Shares were not listed on a national securities exchange or the
Nasdaq National Market or Nasdaq Small Cap Market prior to the consummation of
such consolidation, merger, sale or transfer of assets, on a national securities
exchange or the Nasdaq National Market or Nasdaq Small Cap Market; and

            (iv)  deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which comply in
all material respects with the requirements for registration on Form 10 under
the Exchange Act.

      The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.

      (d)   After the Distribution Date, the Company covenants and agrees that
it shall not (i) consolidate with, (ii) merge with or into, or (iii) sell or
transfer to, in one or more transactions, assets or earning power aggregating
more than 50% of the assets or earning power of the Company and its subsidiaries
taken as a whole, any other Person (other than a Subsidiary of the Company in a
transaction which does not violate Section 11(m) hereof), if (x) at the time of
or after such consolidation, merger or sale there are any charter or bylaw
provisions or any rights, warrants or other instruments or securities
outstanding, agreements in effect or any other action taken which would diminish
or otherwise eliminate the benefits intended to be afforded by the Rights or (y)
prior to, simultaneously with or immediately after such consolidation, merger or
sale, the stockholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such other Person shall
have executed and delivered to the Rights Agent a supplemental agreement
evidencing compliance with this Section 13(d).

SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.

      (a)   The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to, but not including, the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or

                                       24
<PAGE>

admitted to trading on the New York Stock Exchange or, if the Rights are not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Rights are
listed or admitted to trading or as reported on the Nasdaq National Market or
Nasdaq SmallCap Market or, if the Rights are not listed or admitted to trading
on any national securities exchange or reported on the Nasdaq National Market or
Nasdaq SmallCap Market, the last quoted price or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter market, as reported
by Nasdaq or such other system then in use or, if on any such date the Rights
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Rights selected by the Board of Directors. If on any such date no such market
maker is making a market in the Rights, the fair value of the Rights on such
date as determined in good faith by the Board of Directors shall be used.

      (b)   The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts;
provided, however, that holders of such depositary receipts shall have all of
the designations and the powers, preferences and rights, and the qualifications,
limitations and restrictions to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one one-hundredth
of a Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one Preferred
Share. For the purposes of this Section 14(b), the current market value of a
Preferred Share shall be the current per share market price of the Preferred
Shares (as determined pursuant to the second sentence of Section 11(d)(i)
hereof) for the Trading Day immediately prior to, but not including, the date of
such exercise (or, if not publicly traded, in accordance with Section 11(d)(ii)
hereof).

      (c)   Following the occurrence of one of the transactions or events
specified in Section 11 hereof giving rise to the right to receive Common
Shares, capital stock equivalents (other than Preferred Shares) or other
securities upon the exercise of a Right, the Company shall not be required to
issue fractions of Common Shares or units of such Common Shares, capital stock
equivalents or other securities upon exercise of the Rights or to distribute
certificates which evidence fractional Common Shares, capital stock equivalents
or other securities. In lieu of fractional Common Shares, capital stock
equivalents or other securities, the Company shall pay to the registered holders
of Right Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market value of one
Common Share or unit of

                                       25
<PAGE>

such Common Shares, capital stock equivalents or other securities. For purposes
of this Section 14(c), the current market value shall be the current per share
market price (as determined pursuant to Section 11(d)(i) hereof) for the Trading
Day immediately prior to, but not including, the date of such exercise and, if
such capital stock equivalent is not traded, each such capital stock equivalent
shall have the value of one one-hundredth of a Preferred Share.

      (d)   The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above); and

      (e)   Whenever a payment for fractional Rights or fractional shares is to
be made by the Rights Agent, the Company shall (i) promptly prepare and deliver
to the Rights Agent a certificate setting forth in reasonable detail the facts
related to such payment and the prices and/or formulas utilized in calculating
such payments, and (ii) provide sufficient monies to the Rights Agent in the
form of fully collected funds to make such payments. The Rights Agent shall be
fully protected in relying upon such a certificate and shall have no duty with
respect to, and shall not be deemed to have knowledge of any payment for
fractional Rights or fractional shares under any Section of this Rights
Agreement relating to the payment of fractional Rights or fractional shares
unless and until the Rights Agent shall have received such a certificate and
sufficient monies.

SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this Rights
Agreement, excepting the rights of action given to the Rights Agent under
Sections 18 and 20 hereof, are vested in the respective registered holders of
the Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares) and any registered holder of any Right Certificate
(or, prior to the Distribution Date, of the Common Shares), without the consent
of the Rights Agent or of the holder of any other Right Certificate (or, prior
to the Distribution Date, of the Common Shares), may, in his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Rights Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Rights Agreement and will be entitled to
specific performance of the obligations under, and injunctive relief against
actual or threatened violations of the obligations of any Person subject to,
this Rights Agreement. Holders of Rights shall be entitled to recover the
reasonable costs and expenses, including attorneys fees, incurred by them in any
action to enforce the provisions of this Rights Agreement.

                                       26
<PAGE>

SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by accepting
the same, consents and agrees with the Company and the Rights Agent and with
every other holder of a Right that:

      (a)   prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of the Common Shares;

      (b)   after the Distribution Date, the Right Certificates are transferable
(subject to the provisions of this Rights Agreement) only on the registry books
of the Rights Agent if surrendered at the office of the Rights Agent designated
for such purpose, duly endorsed or accompanied by a proper instrument of
transfer; and

      (c)   the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and

      (d)   notwithstanding anything in this Rights Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Rights Agreement by reason of any preliminary or
permanent injunction or other order, decree, judgment or ruling (whether
interlocutory or final) issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any statute,
rule, regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such obligation;
provided, however, that the Company must use its reasonable best efforts to have
any such order, decree, judgment or ruling lifted or otherwise overturned as
soon as possible.

SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.

                                       27
<PAGE>

SECTION 18. CONCERNING THE RIGHTS AGENT. The Company agrees to pay to the Rights
Agent reasonable compensation for all services rendered by it hereunder and,
from time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other disbursements incurred in the preparation, delivery,
administration, execution and amendment of this Rights Agreement and the
exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or
expense, incurred without gross negligence, bad faith or willful misconduct
(each as finally determined by a court of competent jurisdiction) on the part of
the Rights Agent, for any action taken, suffered or omitted by the Rights Agent
in connection with the acceptance, administration and execution of this Rights
Agreement or the exercise and performance of its duties hereunder, including,
without limitation, the costs and expenses of defending against any claim of
liability in the premises. The provisions of this Section 18 and Section 20
below (including, but not limited to, the indemnity provided herein) shall
survive the exercise or expiration of the Rights, the termination of this Rights
Agreement and the resignation or removal of the Rights Agent. The costs and
expenses incurred in enforcing this right of indemnification shall be paid by
the Company.

      The Rights Agent shall be protected and shall incur no liability for, or
in respect of any action taken, suffered or omitted by it in connection with,
the acceptance and administration of this Rights Agreement in reliance upon any
Right Certificate or certificate for the Preferred Shares or Common Shares or
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof. The Rights Agent shall not be deemed to have any
duty or notice unless and until the Company has provided the Rights Agent with
actual written notice. Anything in this Rights Agreement to the contrary
notwithstanding, in no event shall the Rights Agent be liable for special,
punitive, indirect, incidental or consequential loss or damage of any kind
whatsoever (including, but not limited to, lost profits), even if the Rights
Agent has been advised of the possibility of such loss or damage. Any liability
of the Rights Agent under this Rights Agreement shall be limited to the amount
of fees paid by the Company to the Rights Agent.

SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. Any
Person into which the Rights Agent or any successor Rights Agent may be merged
or with which it may be consolidated, or any Person resulting from any merger or
consolidation to which the Rights Agent or any successor Rights Agent shall be a
party, or any Person succeeding to the shareholder services or corporate trust
business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Rights Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, provided that such Person would

                                       28
<PAGE>

be eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Rights Agreement any of the Right Certificates
shall have been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.

      In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Rights Agreement.

SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and
obligations expressly imposed by this Rights Agreement (and no implied duties or
obligations shall be read against the Rights Agent) upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:

      (a)   The Rights Agent may consult with legal counsel of its choice (who
may be legal counsel for the Company), and the advice or opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent and
the Rights Agent shall incur no liability for or in respect of any action taken
or omitted by it in accordance with such advice or opinion.

      (b)   Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering (or
omitting to take) any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer, any Vice President, the Treasurer or the Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full
and complete authorization and protection to the Rights Agent and the Rights
Agent shall incur no liability for or in respect of any action taken, suffered
omitted in good faith by it under the provisions of this Rights Agreement in
reliance upon such certificate.

                                       29
<PAGE>

      (c)   The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct
(each as finally determined by a final, non-appealable order, judgment, decree
or ruling of a court of competent jurisdiction).

      (d)   The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.

      (e)   The Rights Agent shall not have any liability nor be under any
responsibility in respect of the validity of this Rights Agreement or the
execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Rights
Agreement or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights becoming null
and void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of
the Rights (including the manner, method or amount thereof) provided for in
Sections 3, 11, 13, 23 or 24 hereof, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of Rights evidenced by Right Certificates after receipt of a
certificate pursuant to Section 12 hereof describing such change or adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares to be
issued pursuant to this Rights Agreement or any Right Certificate or as to
whether any Preferred Shares will, when issued, be validly authorized and
issued, fully paid and nonassessable.

      (f)   The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may be required by the
Rights Agent for the carrying out or performing by the Rights Agent of the
provisions of this Rights Agreement.

      (g)   The Rights Agent is hereby authorized and directed to accept advice
or instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
the Chief Financial Officer, any Vice President, the Secretary or the Treasurer
of the Company, and to apply to such officers for advice or instructions in
connection with its duties, and such advice or instructions shall be full
authorization and protection to the Rights Agent and the Rights Agent shall
incur no liability for or in respect of any action taken, suffered or omitted by
it in good faith in accordance with the advice or instructions of any such
officer or for any delay in acting while waiting for those instructions. Any
application by the Rights

                                       30
<PAGE>

Agent for written instructions from the Company may, at the option of the Rights
Agent, set forth in writing any action proposed to be taken or omitted by the
Rights Agent with respect to its duties or obligations under this Rights
Agreement and the date on and/or after which such action shall be taken or
omitted and the Rights Agent shall not be liable for any action taken, suffered
or omitted in accordance with a proposal included in any such application on or
after the date specified therein (which date shall not be less than three
Business Days after the date indicated in such application unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking, suffering or omitting any such action, the Rights Agent has received
written instructions in response to such application specifying the action to be
taken, suffered or omitted.

      (h)   The Rights Agent and any stockholder, affiliate, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Rights Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or for any other
Person.

      (i)   The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, absent gross negligence, willful misconduct or bad faith
(each as finally determined by a court of competent jurisdiction) in the
selection and continued employment thereof.

      (j)   No provision of this Rights Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its rights
if it believes that repayment of such funds or adequate indemnification against
such risk or liability is not assured to it.

      (k)   If, with respect to any Right Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
executed, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the Company.

SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Rights Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
for the Common Shares or Preferred Shares by registered or certified mail, and
to the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent for the

                                       31
<PAGE>

Common Shares or Preferred Shares by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be either (a) a Person organized and doing business under
the laws of the United States or of any State of the United States which is
authorized under such laws to conduct shareholder services business and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $10 million or (b) an Affiliate of such Person. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent for the Common Shares or
Preferred Shares, and mail a notice thereof in writing to the registered holders
of the Right Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.

SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the
provisions of this Rights Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Rights Agreement. In addition, in
connection with the issuance or sale of Common Shares following the Distribution
Date and prior to the earlier of the Redemption Date and the Final Expiration
Date, the Company (a) shall with respect to Common Shares so issued or sold
pursuant to the exercise of stock options or under any employee plan or
arrangement in existence prior to the Distribution Date, or upon the exercise,
conversion or exchange of securities, notes or debentures issued by the Company
and in existence prior to the Distribution Date, and (b) may, in any other case,
if deemed necessary or appropriate by the Board of Directors, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) the Company shall not be
obligated to issue any such Right Certificates

                                       32
<PAGE>

if, and to the extent that, the Company shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences to
the Company or the Person to whom such Right Certificate would be issued, and
(ii) no Right Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.

SECTION 23. REDEMPTION.

      (a)   The Rights may be redeemed by action of the Board of Directors
pursuant to Section 23(b) hereof and shall not be redeemed in any other manner.

      (b)

            (i)   The Board of Directors may, at its option, at any time prior
to the earlier of (A) such time as any Person becomes an Acquiring Person, or
(B) the Final Expiration Date, redeem all but not less than all of the then
outstanding Rights at a redemption price of $0.001 per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"), and the Company may, at its option, pay
the Redemption Price in Common Shares (based on the "current per-share market
price," as such term is defined in Section 11(d) hereof, of the Common Shares at
the time of redemption), cash, property, indebtedness or any other form of
consideration deemed appropriate by the Board of Directors. The redemption of
the Rights by the Board of Directors may be made effective at such time, on such
basis and subject to such conditions as the Board of Directors in its sole
discretion may establish. Notwithstanding anything contained in this Rights
Agreement to the contrary, the Rights shall not be exercisable pursuant to
Section 11(a)(ii) hereof prior to the expiration or termination of the Company's
right of redemption under this Section 23(b)(i).

            (ii)  In addition, the Board of Directors may, at its option, at any
time after the time a Person becomes an Acquiring Person and after the
expiration of any period during which the holder of Rights may exercise the
rights under Section 11(a)(ii) hereof but prior to any event described in clause
(x), (y) or (z) of the first sentence of Section 13 hereof, redeem all but not
less than all of the then outstanding Rights at the Redemption Price (x) in
connection with any merger, consolidation or sale or other transfer (in one
transaction or in a series of related transactions) of assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) in which all holders of Common Shares are
treated alike and not involving (other than as a holder of Common Shares being
treated like all other such holders) an Interested Stockholder or a Transaction
Person or (y)(A) if and for so long as the Acquiring Person is not thereafter
the Beneficial Owner of 15% or more of the then outstanding Common Shares, and
(B) at the time of redemption no other Persons are Acquiring Persons.

                                       33
<PAGE>

      (c)   Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to Section 23(b) hereof, and without any
further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price. The Company shall promptly notify the Rights Agent
in writing of such redemption and shall promptly give public notice of any such
redemption; provided, however, that the failure to give, or any defect in, any
such notice shall not affect the validity of such redemption. Within 10 days
after such action of the Board of Directors ordering the redemption of the
Rights pursuant to Section 23(b) hereof, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares, provided, however, that failure to give, or any defect in, any
such notice shall not affect the validity of such redemption. Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made. Neither the
Company nor any of its Affiliates or Associates may redeem, acquire or purchase
for value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares prior to the Distribution Date.

      (d)   The Company may, at its option, discharge all of its obligations
with respect to any redemption of the Rights by (i) issuing a press release
announcing the manner of redemption of the Rights and (ii) mailing payment of
the Redemption Price to the registered holders of the Rights at their last
addresses as they appear on the registry books of the Rights Agent or, prior to
the Distribution Date, on the registry books of the transfer agent for the
Common Shares, and upon such action, all outstanding Right Certificates shall be
null and void without any further action by the Company. In the event the
Company elects to discharge all of its obligations with respect to any
redemption of Rights by mailing payment of the Redemption Price to the
registered holders of the Rights as set forth in the preceding sentence, the
dollar amount sent to each such registered holder representing the full
Redemption Price to which such registered holder shall be entitled shall be
rounded up to the nearest whole cent.

SECTION 24. EXCHANGE.

      (a)   The Board of Directors may, at its option, at any time after any
Person becomes an Acquiring Person, exchange all or part of the then outstanding
and exercisable Rights (which shall not include Rights that have become null and
void pursuant to the provisions of Section 11(a)(ii) hereof) for Common Shares
at an exchange ratio of one Common Share per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall
not be empowered to effect such exchange at any time after

                                       34
<PAGE>

any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.

      (b)   Immediately upon the action of the Board of Directors ordering the
exchange of any Rights pursuant to Section 24(a) hereof and without any further
action and without any notice, the right to exercise such Rights shall terminate
and the only right thereafter of a holder of such Rights shall be to receive
that number of Common Shares equal to the number of such Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly give public
notice of any such exchange; provided, however, that the failure to give, or any
defect in, such notice shall not affect the validity of such exchange. The
Company promptly shall mail a notice of any such exchange to the Rights Agent
and to all of the holders of such Rights at their last addresses as they appear
upon the registry books of the Rights Agent; provided, however, that the failure
to give, or any defect in, such notice shall not affect the validity of such
exchange. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become void pursuant
to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.

      (c)   In lieu of issuing Common Shares in accordance with Section 24(a)
hereof, the Company may, if a majority of the Board of Directors then in office
determines that such action is necessary or appropriate and not contrary to the
interests of the holders of Rights, elect to (and, in the event that there are
not sufficient treasury shares and authorized but unissued Common Shares to
permit any exchange of the Rights in accordance with Section 24(a) hereof, the
Company shall) take all such action as may be necessary to authorize, issue or
pay, upon the exchange of the Rights, cash (including by way of a reduction of
the Purchase Price), property, Common Shares, other securities or any
combination thereof having an aggregate value equal to the value of the Common
Shares which otherwise would have been issuable pursuant to Section 24(a)
hereof, which aggregate value shall be determined by a nationally recognized
investment banking firm selected by a majority of the Board of Directors then in
office. For purposes of the preceding sentence, the value of the Common Shares
shall be determined pursuant to Section 11(d) hereof. Any election pursuant to
this Section 24(c) by the Board of Directors must be made by resolution within
60 days following the date on which the event described in Section 11(a)(ii)
hereof shall have occurred. Following the occurrence on the event described in
Section 11(a)(ii) hereof, a majority of the Board of Directors then in office
may suspend the exercisability of the Rights for a period of up to 60 days
following the date on which the event described in Section 11(a)(ii) hereof
shall

                                       35
<PAGE>

have occurred to the extent that such directors have not determined whether to
exercise their rights of exchange under this Section 24(c). In the event of any
such suspension, the Company shall promptly notify the Rights Agent in writing
of such suspension and shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.

      (d)   The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
Section 24(d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately after the date of
the first public announcement by the Company that an exchange is to be effected
pursuant to this Section 24.

      (e)   The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exchange of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts;
provided, however, that holders of such depositary receipts shall have all of
the designations and the powers, preferences and rights, and the qualifications,
limitations and restrictions to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one one-hundredth
of a Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one Preferred
Share. For the purposes of this Section 24(e), the current market value of a
Preferred Share shall be one hundred (100) times the closing price of a Common
Share (as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately after the date of the first public announcement
by the Company that an exchange is to be effected pursuant to this Section 24.

SECTION 25. NOTICE OF CERTAIN EVENTS.

      (a)   In case the Company shall propose (i) to pay any dividend payable in
stock of any class to the holders of its Preferred Shares or to make any other
distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other

                                       36
<PAGE>

securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole), to any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purpose of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or the Preferred Shares, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least 10 days prior to the record
date for determining holders of the Preferred Shares for purposes of such
action, and in the case of any such other action, at least 10 days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the Common Shares and/or the Preferred Shares, whichever shall
be the earlier.

      (b)   In case the event set forth in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall describe the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) hereof.

SECTION 26. NOTICES. Notices or demands authorized by this Rights Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by courier, via
a nationally recognized overnight delivery service or by U.S. mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:

                               Commerce Energy Group, Inc.
                               600 Anton Boulevard, Suite 2000
                               Costa Mesa, California  92626
                               Attention:  Chief Executive Officer

                               with a copy to:

                               Paul Hastings Janofsky & Walker LLP
                               Seventeenth Floor
                               695 Town Center Drive

                                       37
<PAGE>

                               Costa Mesa, California 92626-1924
                               Attention: John F. Della Grotta, Esq.

      Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Rights Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by courier, via a nationally recognized overnight delivery
service or by U.S. mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:

                               Computershare Trust Company
                               P.O. Box 1596
                               Denver, Colorado 80201
                               Attention: General Counsel

      Notices or demands authorized by this Rights Agreement to be given or made
by the Company or the Rights Agent to the holder of any Right Certificate shall
be sufficiently given or made if sent by courier, via a nationally recognized
overnight delivery service or by U.S. mail, postage prepaid, addressed to such
holder at the address of such holder as shown on the registry books of the
Company.

SECTION 27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date, the
Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Rights Agreement without the approval of any holders
of the Rights. From and after the Distribution Date, the Company and the Rights
Agent shall, if the Company so directs, from time to time supplement or amend
any provision of this Rights Agreement without the approval of any holders of
Right Certificates in order to (i) cure any ambiguity, (ii) correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or (iii) change any other provisions with
respect to the Rights which the Company may deem necessary or desirable;
provided, however, that no such supplement or amendment shall be made which
would adversely affect the interests of the holders of Rights (other than the
interests of an Acquiring Person or its Affiliates or Associates). Any
supplement or amendment adopted during any period after any Person has become an
Acquiring Person but prior to the Distribution Date shall become null and void
unless such supplement or amendment could have been adopted by the Company from
and after the Distribution Date. Any such supplement or amendment shall be
evidenced by a writing signed by the Company and the Rights Agent. Upon delivery
of a certificate from an appropriate officer of the Company which states that
the proposed supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment unless
the Rights Agent shall have determined that such supplement or amendment would
adversely change or increase its rights, duties, obligations or liabilities
under this Rights Agreement. Prior to the Distribution Date, the interests of
the holders of Rights shall be deemed coincident with the interests of the
holders of Common Shares.

                                       38
<PAGE>

SECTION 28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC. For all
purposes of this Rights Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares or any other
securities of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act as in effect on the date of this Rights
Agreement. The Board of Directors shall have the exclusive power and authority
to administer this Rights Agreement and to exercise all rights and powers
specifically granted to the Board of Directors, or the Company, or as may be
necessary or advisable in the administration of this Rights Agreement, including
without limitation, the right and power to (i) interpret the provisions of this
Rights Agreement, and (ii) make all determinations deemed necessary or advisable
for the administration of this Rights Agreement (including a determination to
redeem or not redeem the Rights or to amend the Rights Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board of Directors in good faith, shall (x) be final,
conclusive and binding on the Rights Agent and the holders of the Rights, and
(y) not subject the Board of Directors to any liability to the holders of the
Rights. The Rights Agent shall always be entitled to assume that the Company's
Board of Directors acted in good faith and shall be fully protected and incur no
liability in reliance thereon.

SECTION 29. SUCCESSORS. All the covenants and provisions of this Rights
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this Rights Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Rights Agreement; but this Rights Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).

SECTION 31. SEVERABILITY. If any term, provision, covenant or restriction of
this Rights Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Rights Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.

SECTION 32. GOVERNING LAW. This Rights Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such

                                       39
<PAGE>

State; provided, however, that all provisions regarding the rights, duties and
obligations of the Rights Agent shall be governed and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such State.

SECTION 33. COUNTERPARTS. This Rights Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.

SECTION 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections
of this Rights Agreement are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.

                                       40
<PAGE>

      IN WITNESS WHEREOF, parties whereto have caused this Rights Agreement to
be duly executed, all as of the day and year first above written.

COMMERCE ENERGY GROUP, INC.

By: /s/ Ian B. Carter
    --------------------------------------
Name: Ian B. Carter

Title: Chairman and Chief Executive Officer

COUNTERSIGNED:

COMPUTERSHARE TRUST COMPANY,
as Rights Agent

By: /s/ KELLIE GWINN
    --------------------------------------
Name: Kellie Gwinn
Title: Vice President

By: /s/ IAN YEWER
    --------------------------------------
Name: Ian Yewer
Title: President

<PAGE>

                         (EXHIBIT A TO RIGHTS AGREEMENT)

                           CERTIFICATE OF DESIGNATION

                                       OF

                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

                         (PURSUANT TO SECTION 151 OF THE

                        DELAWARE GENERAL CORPORATION LAW)

      COMMERCE ENERGY GROUP, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Company"), hereby certifies that the following resolution was adopted by the
Board of Directors of the Company as required by Section 151 of the General
Corporation Law at a meeting duly called and held on March 8, 2004:

            RESOLVED, that pursuant to the authority granted to and vested in
      the Board of Directors of the Company in accordance with the provisions of
      its Amended and Restated Certificate of Incorporation, the Board of
      Directors hereby creates a series of Preferred Stock, par value $.001 per
      share, of the Company and hereby states the designation and number of
      shares, and fixes the relative designations and the powers, preferences
      and rights, and the qualifications, limitations and restrictions thereof
      (in addition to the provisions set forth in the Certificate of
      Incorporation of the Company, which are applicable to the Preferred Stock
      of all classes and series), as follows:

Series A Junior Participating Preferred Stock:

SECTION 1. DESIGNATION AND AMOUNT. One Million Five Hundred Thousand (1,500,000)
shares of Preferred Stock, $.001 par value, are designated "Series A Junior
Participating Preferred Stock" with the designations and the powers, preferences
and rights, and the qualifications, limitations and restrictions specified
herein (the "Junior Preferred Stock"). Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Junior Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Junior Preferred Stock.

SECTION 2. DIVIDENDS AND DISTRIBUTIONS.

      (A)   Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Junior
Preferred Stock with respect to dividends, the holders of shares of Junior
Preferred Stock, in preference to the holders of Common Stock, par value $.001
per share (the "Common Stock"), of the

                                        1
<PAGE>

Company, and of any other junior stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of April, July,
October and January in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Junior Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $l.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Junior Preferred Stock. In the event the Company shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount to which holders of
shares of Junior Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

      (B)   The Company shall declare a dividend or distribution on the Junior
Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided, that in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Junior
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.

      (C)   Dividends shall begin to accrue and be cumulative on outstanding
shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Junior Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend

                                        2
<PAGE>

Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Junior Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.

SECTION 3. VOTING RIGHTS. The holders of shares of Junior Preferred Stock shall
have the following voting rights:

      (A)   Subject to the provision for adjustment hereinafter set forth, each
share of Junior Preferred Stock shall entitle the holder thereof to 100 votes on
all matters submitted to a vote of the stockholders of the Company. In the event
the Company shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Junior Preferred Stock
were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.

      (B)   Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Junior Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Company having general voting
rights shall vote together as one class on all matters submitted to a vote of
stockholders of the Company.

      (C)   Except as set forth herein, or as otherwise provided by law, holders
of Junior Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.

SECTION 4. CERTAIN RESTRICTIONS.

      (A)   Whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Junior Preferred Stock outstanding shall have been
paid in full, the Company shall not:

                                        3
<PAGE>

            (i)   declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock;

            (ii)  declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock, except
dividends paid ratably on the Junior Preferred Stock and all such parity stock
on which dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;

            (iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock, provided that the
Company may at any time redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of any stock of the Company ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to the
Junior Preferred Stock; or

            (iv)  redeem or purchase or otherwise acquire for consideration any
shares of Junior Preferred Stock, or any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Junior Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.

      (B)   The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

SECTION 5. REACQUIRED SHARES. Any shares of Junior Preferred Stock purchased or
otherwise acquired by the Company in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Amended and
Restated Certificate of Incorporation, or in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock or as
otherwise required by law.

SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Company, no distribution shall be made (1) to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation,

                                        4
<PAGE>

dissolution or winding up) to the Junior Preferred Stock unless, prior thereto,
the holders of shares of Junior Preferred Stock shall have received $20 per
share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, provided that the
holders of shares of Junior Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (2) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Junior Preferred Stock, except distributions made ratably
on the Junior Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Company shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Junior Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Company shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Junior Preferred
Stock shall at the same time be similarly exchanged or changed into an amount
per share, subject to the provision for adjustment hereinafter set forth, equal
to 100 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Company shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Junior
Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

SECTION 8. NO REDEMPTION. The shares of Junior Preferred Stock shall not be
redeemable.

                                        5
<PAGE>

SECTION 9. RANK. The Junior Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any
other class of the Company's Preferred Stock.

SECTION 10. AMENDMENT. The Amended and Restated Certificate of Incorporation of
the Company shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Junior Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Junior Preferred Stock, voting
together as a single class.

      IN WITNESS WHEREOF, the undersigned have executed this certificate as of
July 1, 2004.

                                            ------------------------------------
                                            Ian B. Carter
                                            Chairman and Chief Executive Officer

                                        6
<PAGE>

                         (EXHIBIT B TO RIGHTS AGREEMENT)

                            FORM OF RIGHT CERTIFICATE

CERTIFICATE NO. R- _______                                        _______ RIGHTS

            NOT EXERCISABLE AFTER [____________] OR EARLIER IF REDEMPTION OR
            EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.001 PER
            RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
            AGREEMENT.

                                RIGHT CERTIFICATE

                           COMMERCE ENERGY GROUP, INC.

      This certifies that ___________________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of July 1, 2004 (the "Rights Agreement"), between Commerce
Energy Group, Inc., a Delaware corporation (the "Company"), and Computershare
Trust Company (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 p.m., Pacific Time, on July 1, 2014 at the office of the
Rights Agent designated for such purpose, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series A
Junior Participating Preferred Stock, par value $0.001 per share (the "Preferred
Shares"), of the Company, at a purchase price of $20 per one one-hundredth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above, are the number and
Purchase Price as of _______, 20___, based on the Preferred Shares as
constituted at such date.

      From and after the time any Person becomes an Acquiring Person, (as such
terms are defined in the Rights Agreement), if the Rights evidenced by this
Right Certificate are beneficially owned by (i) an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement), (ii) a transferee of any such Acquiring Person,
Associate or Affiliate who becomes a transferee after the Acquiring Person
becomes such, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of any such Acquiring Person, Associate or Affiliate who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such, such Rights shall become null and void without any further action and no
holder hereof shall have any right with respect to such Rights from and after
the time any Person becomes an Acquiring Person.

                                        1
<PAGE>

      As provided in the Rights Agreement, the Purchase Price and the number of
one one-hundredths of a Preferred Share which may be purchased upon the exercise
of the Rights evidenced by this Right Certificate are subject to modification
and adjustment upon the happening of certain events.

      This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, as amended from time to time, which terms,
provisions and conditions are hereby incorporated herein by reference and made a
part hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the
Right Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned offices of the Rights
Agent.

      This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.

      Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.001 per Right or (ii) may be exchanged in whole or in part for shares of the
Company's Common Stock, par value $0.001 per share, or, upon circumstances set
forth in the Rights Agreement, cash, property or other securities of the
Company, including fractions of a share of Preferred Stock.

      No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts) but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.

      No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the

                                        2
<PAGE>

Right or Rights evidenced by this Right Certificate shall have been exercised as
provided in the Rights Agreement.

      This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.

      WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of __________.

COMMERCE ENERGY GROUP, INC.

By: _____________________________________

Name: ___________________________________

Title: __________________________________

COUNTERSIGNED:

COMPUTERSHARE

_________________________________________
as Rights Agent

By: _____________________________________

                                        3
<PAGE>

                               FORM OF ASSIGNMENT

         (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES
                       TO TRANSFER THE RIGHT CERTIFICATE.)

      FOR VALUE RECEIVED ______________________________________ hereby sells,
assigns and transfers unto (Please print name and address of transferee)
______________________________________________________ this Right Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ________________________ Attorney, to transfer the within
Right Certificate on the books of the within-named Company, with full power of
substitution.

Dated:  ____________________

                                            ____________________________________
                                            Signature

                                        1
<PAGE>

SIGNATURE GUARANTEED:

      Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended.

      The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf of
a Person who is or was an Acquiring Person, an Interested Stockholder or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement); and (2) after due inquiry and to the best of the knowledge of the
undersigned, the undersigned did not acquire the Rights evidenced by this Right
Certificate from any Person who is or was an Acquiring Person, an Interested
Stockholder, or an Affiliate or Associate thereof.

                                            ____________________________________
                                            Signature

                                        1
<PAGE>

                          FORM OF ELECTION TO PURCHASE

              (TO BE EXECUTED IF HOLDER DESIRES TO EXERCISE RIGHTS
                     REPRESENTED BY THE RIGHT CERTIFICATE.)

To COMPUTERSHARE TRUST COMPANY:

      The undersigned hereby irrevocably elects to exercise
___________________________ Rights represented by this Right Certificate to
purchase the Preferred Shares issuable upon the exercise of such Rights and
requests that certificates for such Preferred Shares be issued in the name of:
Please insert social security or other identifying number: __________________

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________

If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:

Please insert social security or other identifying number: __________________

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________

Dated: ________________

                                            ____________________________________
                                            Signature

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SIGNATURE GUARANTEED:

      Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934,
as amended.

      The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not beneficially owned by nor are they being exercised on
behalf of an Acquiring Person, an Interested Stockholder or an Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement); and (2)
after due inquiry and to the best of the knowledge of the undersigned, the
undersigned did not acquire the Rights evidenced by this Right Certificate from
any Person who is or was an Acquiring Person, an Interested Stockholder, or an
Affiliate or Associate thereof.

                                            ____________________________________
                                            Signature

                                     NOTICE

      The signature in the Form of Assignment or Form of Election to Purchase,
as the case may be, must conform to the name as written upon the face of this
Right Certificate in every particular, without alteration or enlargement or any
change whatsoever.

      In the event the certification set forth above in the Form of Assignment
or the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.

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                           (EXHIBIT C TO RIGHTS PLAN)

                           COMMERCE ENERGY GROUP, INC.

                          SUMMARY OF RIGHTS TO PURCHASE
                                PREFERRED SHARES

      On March 8, 2004, the Board of Directors of COMMERCE ENERGY GROUP, INC.
(the "Company") authorized the issuance of one preferred share purchase right (a
"Right") for each share of common stock, par value $0.001 per share (the "Common
Shares")of the Company issued on the effective date of the merger of CEC
Acquisition Corp., a subsidiary of the Company, with and into Commonwealth
Energy Corporation pursuant to the terms of that certain Agreement and Plan of
Reorganization dated July 1, 2004 (the "Effective Date"). The Rights will also
attach to new Common Shares issued after the Effective Date. Each Right entitles
the registered holder to purchase from the Company one one-hundredth of a share
of Series A Junior Participating Preferred Stock, par value $0.001 per share
(the "Preferred Shares"), of the Company at a price of $20 per one one-hundredth
of a Preferred Share (the "Purchase Price"), subject to adjustment. Each
Preferred Share is designed to be the economic equivalent of 100 Common Shares.
The description and terms of the Rights are set forth in a Rights Agreement
dated as of July 1, 2004 (the "Rights Agreement"), between the Company and
Computershare Trust Company (the "Rights Agent").

DETACHMENT AND TRANSFER OF RIGHTS

      Initially, the Rights will be evidenced by the stock certificates
representing Common Shares then outstanding, and no separate Right Certificates
will be distributed. Until the earlier to occur of (i) a public announcement
that a person or group of affiliated or associated persons, has become an
"Acquiring Person" (as such term is defined in the Rights Agreement) or (ii) 10
business days (or such later date as the Board may determine) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer which would result in the beneficial ownership by an Acquiring
Person of 15% or more of the outstanding Common Shares (the earlier of such
dates being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Effective
Date, by such Common Share certificate. In general, an "Acquiring Person" is a
person, the affiliates or associates of such person, or a group, which has
acquired beneficial ownership of 15% or more of the outstanding Common Shares.
Notwithstanding anything to the contrary, Ian B. Carter will not become an
Acquiring Person unless his beneficial ownership exceeds 30% of the outstanding
Common Shares.

      The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferable
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Effective Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or

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expiration of the Rights) the surrender or transfer of any certificates for
Common Shares issued on the Effective Date, even without such notation or a copy
of this Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.

EXERCISABILITY OF RIGHTS

      The Rights are not exercisable until the Distribution Date. The Rights
will expire on July 1, 2014 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below. Until a Right is
exercised, the holder thereof, as such, will have no rights as a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends.

      The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable or payable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution. The number of
outstanding Rights and the number of one one-hundredths of a Preferred Share
issuable upon exercise of each Right are also subject to adjustment in the event
of a stock split of the Common Shares or a stock dividend on the Common Shares
payable in Common Shares, or subdivisions, consolidations or combinations of the
Common Shares occurring, in any such case, prior to the Distribution Date. With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in such Purchase
Price. No fractional Preferred Shares will be issued (other than fractions which
are integral multiples of one one-hundredth of a Preferred Share, which may, at
the election of the Company, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.

TERMS OF PREFERRED SHARES

      Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $l.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per Common Share. In the
event of liquidation, the holders of the Preferred Shares will be entitled to a
minimum preferential liquidation payment of $20 per share but will be entitled
to an aggregate payment of 100 times the payment made per Common Share. Each
Preferred Share will have 100 votes, voting together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
100 times the amount received per Common Share. These rights are protected by

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customary anti-dilution provisions. Because of the nature of the Preferred
Shares' dividend, liquidation and voting rights, the value of the one
one-hundredth interest in a Preferred Share purchasable upon exercise of each
Right should approximate the value of one Common Share. The Preferred Shares
would rank junior to any other series of the Company's preferred stock.

TRIGGER OF FLIP-IN AND FLIP-OVER RIGHTS

      In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person or any
affiliate or associate thereof (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of Common Shares having a
market value of two times the exercise price of the Right. This right will
commence on the date of public announcement that a person has become an
Acquiring Person (or the effective date of a registration statement relating to
distribution of the rights, if later) and terminate 60 days later (subject to
adjustment in the event exercise of the rights is enjoined).

      In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold to an Acquiring Person, its affiliates or associates or certain
other persons in which such persons have an interest, proper provision will be
made so that each such holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right.

REDEMPTION AND EXCHANGE OF RIGHTS

      At any time prior to the earliest of (i) the close of business on the day
of the first public announcement that a person has become an Acquiring Person,
or (ii) the Final Expiration Date, the Board of Directors of the Company may
redeem the Rights in whole, but not in part, at a price of $0.001 per Right (the
"Redemption Price"). In general, the redemption of the Rights may be made
effective at such time on such basis with such conditions as the Board of
Directors in its sole discretion may establish Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.

At any time after any Person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding Common
Shares, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by such person or group which will have become void), in whole
or in part, at an exchange ratio of one Common Share, or, under circumstances
set forth in the Rights Agreement, cash, property or other securities of the
Company, including fractions of a Preferred Share (or of a share of a class or
series of the Company's preferred stock having equivalent

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designations and the powers, preferences and rights, and the qualifications,
limitations and restrictions), per Right (with value equal to such Common
Shares).

AMENDMENT OF RIGHTS

      The terms of the Rights generally may be amended by the Board of Directors
of the Company without the consent of the holders of the Rights, except that
from and after such time as the Rights are distributed no such amendment may
adversely affect the interests of the holders of the Rights (excluding the
interest of any Acquiring Person).

ADDITIONAL INFORMATION

      A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on 8-A dated July
6, 2004. A copy of the Rights Agreement is available from the Company by writing
to: Attn: Investor Relations, Commerce Energy Group, Inc., 600 Anton Boulevard,
Suite 2000, Costa Mesa, California 92626. This summary description of the Rights
is not intended to be complete and is qualified in its entirety by reference to
the Rights Agreement, which is hereby incorporated herein by reference.

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