Document:

Exhibit 10.1

 

SECOND AMENDMENT dated as of
February 27, 2009 (this “Amendment”), to the CREDIT AGREEMENT dated
as of August 15, 2008, as heretofore amended (as so amended, the “Credit
Agreement”), among CEPHALON, INC., a Delaware corporation, the LENDERS party
thereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent.

 

W I T N E S S
E T H:

 

WHEREAS, the Lenders have
agreed to extend credit to the Borrower under the Credit Agreement on the terms
and subject to the conditions set forth therein; and

 

WHEREAS, the Borrower has
requested that the Lenders amend certain provisions of the Credit Agreement,
and the Lenders whose signatures appear below, constituting at least the
Required Lenders, are willing to amend the Credit Agreement on the terms and
subject to the conditions set forth herein;

 

NOW, THEREFORE, in
consideration of the mutual agreements herein contained and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties hereto hereby agree as follows:

 

SECTION 1.  Defined Terms.  Capitalized terms used but not otherwise
defined herein (including in the recitals hereto) have the meanings assigned to
them in the Credit Agreement.

 

SECTION 2.  Amendments to the Credit
Agreement.  (a) Section 1.01
of the Credit Agreement is hereby amended to insert the following defined terms
in the appropriate alphabetical order:

 

“Arana” means Arana Therapeutics Limited, an Australian company limited by shares.

 

“Permitted Arana Acquisition” means
the purchase or other acquisition by the Borrower or any Subsidiary Loan Party
of Equity Interests in Arana if, at the time of and immediately after giving
effect to any such purchase or other acquisition, (a) no Default shall
have occurred and be continuing and (b) the Borrower shall be in
compliance with the covenants set forth in Sections 6.12, 6.13 and 6.14,
in each case determined on a pro  forma basis in a manner
consistent with Section 1.04(b) solely to give effect to the
incurrence of Indebtedness, if any, by the Borrower or any Subsidiary in
connection with such purchase or other acquisition.

 

“Permitted Arana Disposition” means
any sale, transfer or other disposition of the Equity Interests in Arana
acquired by the Borrower or any Subsidiary Loan Party in a Permitted Arana
Acquisition, provided that Arana is

 

 

not at the time thereof, and shall not have been at any time prior to
the time thereof, a Subsidiary.

 

(b)           Section 6.04 of the
Credit Agreement is hereby amended as follows:

 

(i)            clause
(n) thereof is amended to replace the reference to “$30,000,000” therein
with a reference to “$50,000,000”;

 

(ii)           the
word “and” immediately before clause (w) thereof is deleted;

 

(iii)          the
period at the end of clause (w) thereof is replaced with “; and”; and

 

(iv)          the
following new clause is inserted at the end thereof:

 

“(x)         any
Permitted Arana Acquisition.”

 

(c) 
Section 6.05 of the Credit Agreement is hereby amended to (i) delete
the word “and” immediately before clause (e) of such Section, (ii) replace
the period at the end of clause (e) of such Section with “; and” and (iii) insert
at the end of such Section the following new clause:

 

“(f)          any Permitted Arana Disposition.”

 

SECTION 3.  Representations and
Warranties.  The Borrower
hereby represents and warrants to the Administrative Agent and to each of the
Lenders, as of the Amendment Effective Date (as defined below), that:

 

(a) 
The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate or other
organizational and, if required, stockholder or other equityholder action.  This Amendment has been duly executed and
delivered by the Borrower and this Amendment and the Credit Agreement, as
amended by this Amendment, constitutes legal, valid and binding obligations of
the Borrower, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors’ rights generally and to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.

 

(b) 
The representations and warranties of the Borrower and the Subsidiary
Loan Parties set forth in the Credit Agreement and the other Loan Documents are
true and correct in all material respects on and as of the Amendment Effective
Date, except in the case of any such representation or warranty that expressly
relates to an earlier date, in which case such representation or warranty is
true and correct in all material respects on and as of such earlier date.

 

(c) 
On and as of the Amendment Effective Date, after giving effect to this
Amendment, no Default has occurred and is continuing.

 

2

 

SECTION 4.  Effectiveness.  This Amendment shall become effective, as of
the date first above written, on the date (the “Amendment Effective Date”)
on which the Administrative Agent shall have received duly executed
counterparts hereof that, when taken together, bear the authorized signatures
of the Borrower and Lenders constituting at least the Required Lenders, provided
that the Administrative Agent shall have received all fees and other amounts
due and payable to it or any of its Affiliates on or prior to the Amendment
Effective Date, including reimbursement of all reasonable and documented
out-of-pocket expenses (including fees, charges and disbursements of counsel)
required to be reimbursed by the Borrower under the Credit Agreement.

 

SECTION 5.  Effect of Amendment.  (a)  Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of or otherwise affect the rights and remedies of the
Lenders or the Administrative Agent under the Credit Agreement or any other
Loan Document, and shall not alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Credit Agreement or any other Loan Document, all of which are ratified and
affirmed in all respects and shall continue in full force and effect.  Nothing herein shall be deemed to entitle any
Loan Party to a consent to, or a waiver, amendment, modification or other
change of, any of the terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement or any other Loan Document in similar or
different circumstances.

 

(b)           On and after the Amendment
Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”,
“hereof”, “herein”, or words of like import, and each reference to the Credit
Agreement in any other Loan Document shall be deemed to be a reference to the
Credit Agreement as amended hereby.  This
Amendment shall constitute a “Loan Document” for all purposes of the Credit
Agreement and the other Loan Documents.

 

SECTION 6.  Applicable Law.  THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 7.  Counterparts.  This Amendment may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which, when taken together,
shall constitute a single contract. 
Delivery of an executed counterpart of a signature page of this
Amendment by facsimile or other electronic imaging shall be as effective as
delivery of a manually executed counterpart of this Amendment.

 

SECTION 8.  Severability.  Any provision of this Amendment held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.

 

3

 

SECTION 9.  Headings.  The Section headings used herein are for
convenience of reference only, are not part of this Amendment and shall not
affect the construction of, or be taken into consideration in interpreting,
this Amendment.

 

SECTION 10.  Fees and Expenses.  Without limiting the Borrower’s obligations
under Section 9.03 of the Credit Agreement, the Borrower agrees to
reimburse the Administrative Agent for its reasonable and documented
out-of-pocket expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath, Swaine & Moore
LLP, counsel for the Administrative Agent. 
The Borrower agrees to pay on the Amendment Effective Date to the
Administrative Agent, (a) for the account of each Lender that executes and
delivers a copy of this Amendment to the Administrative Agent (or its counsel)
on or prior to the time specified by the Administrative Agent, an amendment fee
in an amount equal to 0.10% of the aggregate principal amount of the
Commitments of such Lender outstanding on the Amendment Effective Date and (b) for
the account of each other Lender, an amendment fee in an amount equal to 0.05%
of the aggregate principal amount of the Commitments of such Lender outstanding
on the Amendment Effective Date.  All
fees shall be payable in immediately available funds and shall not be
refundable.

 

4

 

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

 

 

	
   

  	
  CEPHALON, INC.,

  
	
   

  
	
   

  	
      by

  
	
   

  	
   

  	
  /s/ Wilco Groenhuysen

  
	
   

  	
   

  	
  Name: Wilco Groenhuysen 

  
	
   

  	
   

  	
  Title: Sr. VP, Worldwide
  Finance

  
	
   

  	
   

  
	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A.,
  individually

  and as Administrative Agent,

  
	
   

  
	
   

  	
      by

  
	
   

  	
   

  	
  /s/ James A. Knight

  
	
   

  	
   

  	
  Name:  James A. Knight

  
	
   

  	
   

  	
  Title: Vice President

  

 

 

	
  BANK OF AMERICA, N.A.:

  
	
   

  	
   

  
	
   

  	
  by

  
	
   

  	
   

  	
  /s/ Kevin R. Wagley

  
	
   

  	
   

  	
  Name: Kevin R. Wagley 

  
	
   

  	
   

  	
  Title: Senior Vice
  President

  
	
   

  	
   

  
	
  DEUTSCHE BANK AG NEW YORK
  BRANCH:

  
	
   

  	
   

  
	
   

  	
  by

  
	
   

  	
   

  	
  /s/ Heidi Sandquist

  
	
   

  	
   

  	
  Name: Heidi Sandquist 

  
	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  
	
   

  	
   

  	
  /s/ Douglas J. Weir

  
	
   

  	
   

  	
  Name: Douglas J. Weir 

  
	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  	
   

  
	
  WACHOVIA BANK, NATIONAL
  ASSOCIATION:

  
	
   

  	
   

  
	
   

  	
  by

  
	
   

  	
   

  	
  /s/ Harry E. Ellis

  
	
   

  	
   

  	
  Name: Harry E. Ellis 

  
	
   

  	
   

  	
  Title: Senior Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BARCLAYS BANK PLC

  
	
   

  	
   

  
	
   

  	
  by

  
	
   

  	
   

  	
  /s/ Alicia Borys

  
	
   

  	
   

  	
  Name: Alicia Borys 

  
	
   

  	
   

  	
  Title: Assistant Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CITIZENS BANK OF
  PENNSYLVANIA

  
	
   

  	
   

  
	
   

  	
  by

  
	
   

  	
   

  	
  /s/ Jonathan H. Sprogell

  
	
   

  	
   

  	
  Name: Jonathan H. Sprogell
  

  
	
   

  	
   

  	
  Title: Senior Vice
  President

  

 

 

	
  U.S. BANK, NATIONAL
  ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  by

  
	
   

  	
   

  	
  /s/ Christopher T. Kordes

  
	
   

  	
   

  	
  Name: Christopher T.
  Kordes 

  
	
   

  	
   

  	
  Title: Senior Vice
  President

  

 

 

CEPHALON,
INC.

Effectiveness
Memorandum for the

Second
Amendment to the Credit Agreement

 

March 2,
2009

 

We refer you to the Second Amendment dated as of February 27, 2009
(the “Second Amendment”), to the Credit Agreement dated as of August 15,
2008, as heretofore amended (the “Credit Agreement”), among Cephalon, Inc.,
the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative
agent. The Second Amendment has received the consent of Lenders constituting at
least the Required Lenders under the Credit Agreement. The Amendment Effective
Date under the Second Amendment is March 2, 2009.Exhibit 10.3

 

 

OPTION
AGREEMENT

 

Dated as of January 13, 2009

 

between

 

CEPHALON, INC.

 

and

 

CEPTION THERAPEUTICS, INC.

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  
	
  ARTICLE I

  
	
  DEFINITIONS AND INTERPRETATIONS

  
	
   

  
	
  1.1.

  	
   

  	
  Definitions

  	
   

  	
  2

  
	
  1.2.

  	
   

  	
  Interpretation

  	
   

  	
  10

  
	
   

  
	
  ARTICLE
  II

  
	
  OPTION
  TO ACQUIRE THE COMPANY; DELIVERIES

  
	
   

  
	
  2.1.

  	
   

  	
  Option to Acquire the Company

  	
   

  	
  11

  
	
  2.2.

  	
   

  	
  Consideration for the Option and
  Purchase Option

  	
   

  	
  11

  
	
  2.3.

  	
   

  	
  Optionee’s Deliveries

  	
   

  	
  11

  
	
  2.4.

  	
   

  	
  The Company’s Deliveries

  	
   

  	
  12

  
	
  2.5.

  	
   

  	
  Withholding Rights

  	
   

  	
  13

  
	
  2.6.

  	
   

  	
  Actions Upon Exercise of the Option

  	
   

  	
  13

  
	
  2.7.

  	
   

  	
  Exercise of Option Pursuant to
  Purchase Options

  	
   

  	
  15

  
	
   

  
	
  ARTICLE
  III

  
	
  REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  
	
   

  
	
  3.1.

  	
   

  	
  Organization and Capitalization of
  the Company

  	
   

  	
  16

  
	
  3.2.

  	
   

  	
  Subsidiaries and Investments

  	
   

  	
  18

  
	
  3.3.

  	
   

  	
  Authority of the Company

  	
   

  	
  18

  
	
  3.4.

  	
   

  	
  Financial Statements

  	
   

  	
  19

  
	
  3.5.

  	
   

  	
  Operations Since Balance Sheet Date

  	
   

  	
  20

  
	
  3.6.

  	
   

  	
  No Undisclosed Liabilities

  	
   

  	
  22

  
	
  3.7.

  	
   

  	
  Taxes

  	
   

  	
  22

  
	
  3.8.

  	
   

  	
  Availability of Assets

  	
   

  	
  23

  
	
  3.9.

  	
   

  	
  Governmental Permits; Regulatory
  Matters

  	
   

  	
  24

  
	
  3.10.

  	
   

  	
  Real Property

  	
   

  	
  25

  
	
  3.11.

  	
   

  	
  Personal Property

  	
   

  	
  26

  
	
  3.12.

  	
   

  	
  Intellectual Property

  	
   

  	
  26

  
	
  3.13.

  	
   

  	
  Inventories

  	
   

  	
  31

  
	
  3.14.

  	
   

  	
  Title to Property

  	
   

  	
  32

  
	
  3.15.

  	
   

  	
  Employees and Related Agreements;
  ERISA

  	
   

  	
  32

  
	
  3.16.

  	
   

  	
  Employee Relations

  	
   

  	
  34

  
	
  3.17.

  	
   

  	
  Contracts

  	
   

  	
  34

  
	
  3.18.

  	
   

  	
  Status of Contracts

  	
   

  	
  36

  
	
  3.19.

  	
   

  	
  No Violation or Litigation

  	
   

  	
  36

  
	
  3.20.

  	
   

  	
  Environmental Matters

  	
   

  	
  37

  
	
  3.21.

  	
   

  	
  Insurance

  	
   

  	
  38

  
	
  3.22.

  	
   

  	
  Suppliers

  	
   

  	
  38

  
	
  3.23.

  	
   

  	
  Takeover
  Laws

  	
   

  	
  39

  
	
  3.24.

  	
   

  	
  Approval by Stockholders

  	
   

  	
  39

  
	
  3.25.

  	
   

  	
  Foreign Corrupt Practices Act; Etc.

  	
   

  	
  39

  
	
  3.26.

  	
   

  	
  No Finder

  	
   

  	
  40

  

 

i

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.27.

  	
   

  	
  Disclosure

  	
   

  	
  40

  
	
   

  
	
  ARTICLE
  IV

  
	
  REPRESENTATIONS
  AND WARRANTIES OF OPTIONEE

  
	
   

  
	
  4.1.

  	
   

  	
  Organization of Optionee

  	
   

  	
  40

  
	
  4.2.

  	
   

  	
  Authority of Optionee

  	
   

  	
  40

  
	
  4.3.

  	
   

  	
  No Finder

  	
   

  	
  41

  
	
  4.4.

  	
   

  	
  Financial Wherewithal

  	
   

  	
  41

  
	
   

  
	
  ARTICLE
  V

  
	
  ACTION
  PRIOR TO THE OPTION TERMINATION DATE

  
	
   

  
	
  5.1.

  	
   

  	
  Investigation by Optionee;
  Information Rights

  	
   

  	
  41

  
	
  5.2.

  	
   

  	
  Preserve Accuracy of
  Representations and Warranties; Notification of Certain Matters

  	
   

  	
  44

  
	
  5.3.

  	
   

  	
  Consents of Third Parties;
  Governmental Approvals

  	
   

  	
  45

  
	
  5.4.

  	
   

  	
  Conduct of Business by the Company
  and the Subsidiaries

  	
   

  	
  46

  
	
  5.5.

  	
   

  	
  Acquisition Proposals

  	
   

  	
  50

  
	
  5.6.

  	
   

  	
  Takeover Laws

  	
   

  	
  50

  
	
  5.7.

  	
   

  	
  Termination of Res 5-0002 EE Study

  	
   

  	
  51

  
	
  5.8.

  	
   

  	
  Charter Amendment; Stockholder
  Option Agreements

  	
   

  	
  51

  
	
   

  
	
  ARTICLE
  VI

  
	
  INDEMNIFICATION

  
	
   

  
	
  6.1.

  	
   

  	
  Indemnification by the Company

  	
   

  	
  51

  
	
  6.2.

  	
   

  	
  Indemnification by Optionee

  	
   

  	
  52

  
	
  6.3.

  	
   

  	
  Notice of Claims

  	
   

  	
  53

  
	
  6.4.

  	
   

  	
  Third Person Claims

  	
   

  	
  54

  
	
  6.5.

  	
   

  	
  Adjustment to Option Consideration

  	
   

  	
  55

  
	
  6.6.

  	
   

  	
  Set-off

  	
   

  	
  55

  
	
  6.7.

  	
   

  	
  No Punitive or Consequential
  Damages

  	
   

  	
  55

  
	
  6.8.

  	
   

  	
  Insurance Proceeds and Tax Benefits

  	
   

  	
  55

  
	
  6.9.

  	
   

  	
  Exclusive Remedy

  	
   

  	
  56

  
	
   

  
	
  ARTICLE
  VII

  
	
  TERMINATION

  
	
   

  
	
  7.1.

  	
   

  	
  Termination Rights

  	
   

  	
  56

  
	
  7.2.

  	
   

  	
  Effect of Termination

  	
   

  	
  56

  
	
   

  
	
  ARTICLE
  VIII

  
	
  GENERAL
  PROVISIONS

  
	
   

  
	
  8.1.

  	
   

  	
  Survival of Obligations

  	
   

  	
  56

  
	
  8.2.

  	
   

  	
  Confidential Nature of Information

  	
   

  	
  56

  

 

ii

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.3.

  	
   

  	
  No Public Announcement

  	
   

  	
  57

  
	
  8.4.

  	
   

  	
  Notices

  	
   

  	
  57

  
	
  8.5.

  	
   

  	
  Successors and Assigns

  	
   

  	
  58

  
	
  8.6.

  	
   

  	
  Entire Agreement; Amendments

  	
   

  	
  58

  
	
  8.7.

  	
   

  	
  Partial Invalidity

  	
   

  	
  58

  
	
  8.8.

  	
   

  	
  Waivers

  	
   

  	
  58

  
	
  8.9.

  	
   

  	
  Expenses

  	
   

  	
  59

  
	
  8.10.

  	
   

  	
  Execution in Counterparts

  	
   

  	
  59

  
	
  8.11.

  	
   

  	
  Governing Law

  	
   

  	
  59

  
	
  8.12.

  	
   

  	
  Submission to Jurisdiction

  	
   

  	
  59

  
	
  8.13.

  	
   

  	
  Waiver of Jury Trial

  	
   

  	
  59

  

 

iii

 

	
  EXHIBITS

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A

  	
   

  	
  Form of Stockholder Option Agreement

  	
   

  	
   

  
	
  B

  	
   

  	
  Form of Charter Amendment

  	
   

  	
   

  
	
  C

  	
   

  	
  Form of Credit Agreement

  	
   

  	
   

  
	
  D

  	
   

  	
  Form of Merger Agreement

  	
   

  	
   

  
	
  E

  	
   

  	
  Operating Plan

  	
   

  	
   

  
	
  F

  	
   

  	
  Stockholders’ Option Consideration Distribution
  Procedures

  	
   

  	
   

  
	
  G

  	
   

  	
  Form of Opinion of Sidley Austin LLP

  	
   

  	
   

  
	
  H

  	
   

  	
  Form of Opinion of Duane Morris LLP

  	
   

  	
   

  

 

iv

 

OPTION AGREEMENT

 

OPTION AGREEMENT (this “Agreement”), dated as of January 13, 2009,
between Cephalon, Inc., a Delaware corporation (“Optionee”), and
Ception Therapeutics, Inc., a Delaware corporation (the “Company”).

 

WHEREAS, upon the terms and subject to the conditions contained herein,
the Company has agreed to grant to Optionee during the period beginning on the
date hereof and ending on the Option Termination Date an exclusive option to
acquire the Company pursuant to a merger (the “Merger”) of Merger Sub
with and into the Company, with the Company continuing as the surviving
corporation, all pursuant to the terms and conditions of this Agreement, the
Merger Agreement and the General Corporation Law of the State of Delaware (the
“DGCL”);

 

WHEREAS, Optionee and certain holders of Outstanding Company Stock are
entering into Stockholder Option and Support Agreements in the form of Exhibit A
(the “Stockholder Option Agreements”), pursuant to
which such holders have or will have, among other things, (a) agreed to
vote in favor of the transactions contemplated by this Agreement and the Merger
Agreement and (b) granted to Optionee the right to purchase all of the
Outstanding Company Stock owned by such holders (the “Purchase Options”);

 

WHEREAS, the Stockholders who have entered into Stockholder Option
Agreements as of the date hereof together own, beneficially and of record, at
least (i) 68% of the outstanding shares of the Company’s Voting Common
Stock, par value $0.001 per share (the “Voting Common Stock”), (ii) 60%
of the outstanding shares of the Company’s Series A Preferred Stock, par
value $0.001 per share (the “Series A Preferred Stock”), (iii) 58%
of the outstanding shares of the Company’s Series B Junior Preferred
Stock, par value $0.001 per share (the “Series B Junior Preferred Stock”),
(iv) 84% of the outstanding shares of the Company’s Series C-1
Preferred Stock, par value $0.001 per share (the “Series C-1 Preferred
Stock”), (v) 76% of the outstanding shares of the Company’s Series C-2
Preferred Stock, par value $0.001 per share (the “Series C-2 Preferred
Stock”), (vi) the right to acquire, pursuant to the Series C-2
Preferred Stock Purchase Agreement, up to an additional 393,474 shares of Series C-2
Preferred Stock (such rights, the “F&F C-2 Share Rights”) and (vii) subject
to certain conditions, the right to acquire, pursuant to the Fulcrum Plan of
Merger Amendment, up to 9,620,000 shares of the Company’s Series C-3
Preferred Stock, par value $0.001 per share (the “Series C-3 Preferred
Stock”), or, if such conditions are not satisfied, up to an additional
9,620,000 shares of Voting Common Stock (such rights, the “Series C-3
Issuance Rights”) (the Series A Preferred Stock, Series B Junior
Preferred Stock, Series C-1 Preferred Stock, Series C-2 Preferred
Stock and Series C-3 Preferred Stock being referred to herein collectively
as the “Preferred Stock”), in each case determined on a fully-diluted
basis assuming the conversion of all outstanding shares of Preferred Stock and
the exercise of all options, warrants or other rights convertible into or
exercisable for shares of Common Stock or Preferred Stock; and

 

WHEREAS, (i) the Board of Directors of the Company has determined
that the Option and the Merger are each in the best interest of the Company and
its stockholders and has approved and declared advisable this Agreement, the
Merger Agreement (to the extent the Option is exercised on the terms hereof
(including the Merger Agreement in the form attached hereto)) and the
transactions contemplated hereby and thereby and (ii) the Board of
Directors of 

 

 

Optionee (or a duly authorized committee thereof) has
approved this Agreement and the transactions contemplated hereby.

 

NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter set forth, the parties to this Agreement
agree as follows:

 

ARTICLE I

DEFINITIONS AND INTERPRETATIONS

 

1.1.          Definitions.  In this Agreement, the following terms have
the meanings specified or referred to in this Section 1.1
and shall be equally applicable to both the singular and plural forms.

 

“Accrued Dividends” means the aggregate amount of accrued and
unpaid dividends on the shares of Preferred Stock in question.

 

“Acquisition Proposal” has the meaning specified in Section 5.5.

 

“Affiliate”
means, with respect to any Person, any other Person which, at the time of
determination, directly or indirectly through one or more intermediaries
Controls, is Controlled by or is under common Control with such Person.  “Control” means, as to any
Person, the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.  The terms
“Controlled by,” “under common Control with” and “Controlling” shall have
correlative meanings.

 

“Agreement” means this Option Agreement.

 

“Antitrust
Division” means the Antitrust Division of the United
States Department of Justice.

 

“Balance Sheet”
means the unaudited consolidated balance sheet of the Company and the
Subsidiaries as of November 30, 2008 included in Schedule
3.4.

 

“Balance Sheet
Date” means November 30, 2008.

 

“Bring-Down Certificate” has the meaning specified in Section 2.6(b)(i).

 

“CERCLA”
means the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. §§ 9601 et  seq.

 

“Certificate
of Incorporation” means the Restated Certificate of
Incorporation of the Company, as amended as of the date of this Agreement.

 

“Charter Amendment” means the amendment to the Certificate of
Incorporation to be filed with the Secretary of State of the State of Delaware
in the form attached as Exhibit B.

 

“Claim Notice”
has the meaning specified in Section 6.3(a).

 

“Closing Date” has the meaning specified in the Merger
Agreement.

 

2

 

“Closing Date Merger Consideration” has the meaning specified in
the Merger Agreement.

 

“Code”
means the Internal Revenue Code of 1986.

 

“Common Stock” means the Voting Common Stock and the Non-Voting
Common Stock.

 

“Company”
has the meaning specified in the first paragraph of this Agreement.

 

“Company
Agreements” has the meaning specified in Section 3.18.

 

“Company
Ancillary Agreements” means the Stockholder Option
Agreements, the Credit Agreement, the certificate being delivered pursuant to Section 2.4(c) and
the Bring-Down Certificate.

 

“Company
Group” means any “affiliated group” (as defined in Section 1504(a) of
the Code without regard to the limitations contained in Section 1504(b) of
the Code) that files or has filed a consolidated federal income Tax Return and
that, at any time on or before the date hereof, includes or has included the
Company or any predecessor of the Company, or any other group of corporations
which, at any time on or before the date hereof, files or has filed a Tax
Return on a combined, consolidated or unitary basis with the Company or any
predecessor of the Company (or another such predecessor).

 

“Company Group
Member” means (i) the Company and its Affiliates, (ii) the
directors, officers and employees of the Company and its Affiliates and (iii) the
respective successors and assigns of each of the foregoing.

 

“Company IP” has the meaning specified in Section 3.12(b).

 

“Company
Property” means any real or personal property, plant,
building, facility, structure, underground storage tank, equipment or unit, or
other asset owned, leased or operated by the Company or a Subsidiary.

 

“Confidentiality
Agreement” means the Confidentiality Agreement dated as
of October 8, 2008 between the Company and Optionee.

 

“Contaminant”
means any waste, pollutant, hazardous or toxic substance or waste, petroleum,
petroleum-based substance or waste, special waste, or any constituent of any
such substance or waste.

 

“Copyrights”
has the meaning specified in Section 3.12(a).

 

“Court Order”
means any judgment, order, award or decree of any United States federal, state
or local, or any supra-national or non-U.S., court or tribunal and any award in
any arbitration proceeding.

 

“Credit Agreement” means the Subordinated Credit Agreement
between the Company and Optionee in the form attached hereto as Exhibit C.

 

3

 

“DGCL” has the meaning specified in the recitals to this
Agreement.

 

“Encumbrance”
means any lien (statutory or other), claim, charge, security interest,
mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale or
other title retention agreement, preference, priority or other security
agreement or preferential arrangement of any kind, and any easement,
encroachment, covenant, restriction, right of way, defect in title or other
encumbrance of any kind.

 

“Environmental
Encumbrance” means an Encumbrance in favor of any
Governmental Body for (i) any liability under any Environmental Law or (ii) damages
arising from, or costs incurred by such Governmental Body in response to, a
Release or threatened Release of a Contaminant into the environment.

 

“Environmental
Law” means all Requirements of Laws relating to or
addressing the environment, health or safety, including CERCLA, OSHA and RCRA
and any state equivalent thereof.

 

“ERISA”
means the Employee Retirement Income Security Act of 1974.

 

“ERISA Affiliate” has the meaning specified in Section 3.15(g).

 

“ERISA Benefit Plans” has the meaning specified in Section 3.15(a).

 

“Exercise Withdrawal Notice” has the meaning specified in Section 2.6(c).

 

“Existing Royalties” has the meaning specified in Section 5.3(b).

 

“Expenses”
means any and all reasonable out-of-pocket expenses incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against pursuant to Article VI
(including court filing fees, court costs, arbitration fees or costs, witness
fees, and reasonable fees and disbursements of legal counsel, investigators,
expert witnesses, consultants, accountants and other professionals).

 

“Expiration Date” means February 20, 2009.

 

“F&F C-2 Share Rights” has the
meaning specified in the recitals to this Agreement.

 

“FDA” means the United States Food and
Drug Administration.

 

“FTC”
means the United States Federal Trade Commission.

 

“Fulcrum Plan of Merger Amendment” means the Amendment to
Agreement and Plan of Merger, dated as of January 19, 2007, by and among
the Company, Fulcrum Pharmaceuticals, Inc., CT Research, Inc. and each
of the Ception Holders and Ception Consultants (each as defined therein) party
thereto.

 

“Governmental
Body” means any United States federal, state or local, or
any supra-national or non-U.S., government, political subdivision,
governmental, regulatory or 

 

4

 

administrative authority, instrumentality, agency body
or commission, self-regulatory organization, court, tribunal or judicial or
arbitral body.

 

“Governmental
Permits” has the meaning specified in Section 3.9(a).

 

“HSR Act”
means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

 

“Identified IP” means the
Intellectual Property that has been identified by and disclosed to the parties’
external intellectual property counsel on or before the date of this Agreement.

 

“Indebtedness” of any Person
means (i) all indebtedness for borrowed money, (ii) all obligations
issued, undertaken or assumed as the deferred purchase price of property other
than trade accounts (including commissions payable to sales representatives)
arising in the ordinary course of business, (iii) all reimbursement
obligations with respect to surety bonds, letters of credit (to the extent not
collateralized with cash or cash equivalents), bankers’ acceptances and similar
instruments (in each case, whether or not matured), (iv) all obligations
evidenced by notes, including promissory notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person, (vi) all indebtedness referred to in clauses (i) through
(v) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Encumbrance upon
or in property (including accounts and contracts rights) owned by such Person,
even though such Person has not assumed or become liable for the payment of
such Indebtedness and (vii) all agreements, undertakings or arrangements
by which any Person guarantees, endorses or becomes or is contingently liable
for any of the foregoing of another Person, or guarantees the payment of
dividends or other distributions upon the equity securities or interest of any
other Person.

 

“Indemnified Party” has the meaning specified in Section 6.3(a).

 

“Indemnitor” has the meaning specified in Section 6.3(a).

 

“Intellectual
Property” has the meaning specified in Section 3.12(a).

 

“IRS” means the Internal Revenue Service.

 

“Knowledge of the Company” means the actual knowledge after
reasonable investigation of Stephen Tullman, Dr. Tim Henkel, Doug Gessl
and Kamil Ali-Jackson; provided, that, with respect to any representation or
warranty of the Company relating to an Oral Anti-TNF Product, no reasonable
investigation shall be required.  “Know”
and “Known” shall have correlative meanings.

 

“Leased Real
Property” has the meaning specified in Section 3.10(b).

 

“Letter of
Intent” means the letter agreement dated November 20,
2008 between the Company and Optionee.

 

5

 

“LOI Payment” means the $25,000,000 payment made by Optionee to
the Company on November 24, 2008 pursuant to the Letter of Intent.

 

“Losses”
means any and all losses, costs, obligations, liabilities, settlement payments,
awards, judgments, fines, penalties, Taxes, damages, deficiencies or other
charges.

 

“MAE Representations” means [**]

 

 “Marks” has the meaning
specified in Section 3.12(a).

 

“Material Adverse Effect” means any change or effect that is
materially adverse to the assets, liabilities (absolute or contingent),
business, condition (financial or otherwise), results of operations or
prospects of the Company and the Subsidiaries, taken as a whole; provided, however, that,
without limiting the generality of what shall not constitute a “Material
Adverse Effect,” to the extent any such change or effect results from changes
affecting the United States economy or financial or securities markets as a
whole or changes that are the result of factors generally affecting the
industry in which the Company and the Subsidiaries conduct their business, to
the extent such changes do not disproportionately impact the Company and its
Subsidiaries, taken as a whole, relative to other companies in the industry in
which the Company and its Subsidiaries conduct their business, it shall not be
taken into account in determining whether there has been a “Material Adverse
Effect.”

 

“Merger” has the meaning specified in the recitals to this
Agreement.

 

“Merger
Agreement” means the Agreement and Plan of Merger among
the Company, Optionee and Merger Sub in the form attached hereto as Exhibit D.

 

“Merger Agreement Execution Date” has the meaning specified in Section 2.6(c).

 

“Merger Sub” means a direct or indirect wholly owned subsidiary
of Optionee, whether existing as of the date hereof or hereafter formed.

 

“Net Reslizumab Sales” means [**]

 

“NOLs” means the regular Tax net operating loss carryovers and
carrybacks of the Company and each of the Subsidiaries (and, if applicable, the
alternative minimum tax net operating loss carryovers and carrybacks of the
Company and each of the Subsidiaries); provided, however, that
any carrybacks are limited to net operating losses that arise in periods ending
on or before the Closing Date.

 

“Non-Option Granting Stockholder” has the meaning specified in Section 2.7(a).

 

“Non-ERISA Commitments” has the meaning specified in Section 3.15(b).

 

“Non-Voting Common Stock” means the Non-Voting Common Stock of
the Company, par value $0.001 per share.

 

“Nondisclosure Agreements” has the meaning specified in Section 3.12(g)(iv).

 

**Portions of the Exhibit have been omitted and have been filed
separately pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.

 

6

 

“Operating Plan” means the business plan of the Company attached
hereto as Exhibit E, as the same may be amended from time to time
by mutual agreement of the Company and Optionee.

 

“Option” has the meaning specified in Section 2.1.

 

“Option Consideration” has the meaning specified in Section 2.2.

 

“Option Exercise Date” has the meaning specified in Section 2.1.

 

“Option Period” has the meaning specified in Section 2.1.

 

“Option Termination Date” means the earlier of (a) the date
that is 30 business days after the receipt by Optionee of the final study
report for the Res-5-0002 EE Study indicating that the co-primary endpoints
have not been achieved, (b) the date that is 15 business days after
receipt by Optionee of the final study report for the Res-5-0002 EE Study
indicating that the co-primary endpoints have been achieved or (c) such
earlier date on which Optionee terminates this Agreement pursuant to Section 7.1(b).

 

“Optionee”
has the meaning specified in the first paragraph of this Agreement.

 

“Optionee
Ancillary Agreements” means the Stockholder Option
Agreements, the Credit Agreement, the certificate being delivered pursuant to Section 2.3(c) and
the certificate to be delivered pursuant to Section 2.6(a).

 

“Optionee Group
Member” means (i) Optionee and its Affiliates, (ii) the
directors, officers and employees of each of Optionee and its Affiliates and (iii) the
respective successors and assigns of each of the foregoing.

 

“Optionee Updated Representations” means the representations and
warranties of Optionee set forth in (a) Section 4.3(b)(i)(D) (solely
with respect to Court Orders which come into effect after the date hereof) and (b) Section 4.3(b)(ii) (solely
with respect to changes in Requirements of Law occurring after the date
hereof).

 

“Oral Anti-TNF Product” means [**]

 

“OSHA”
means the Occupational Safety and Health Act, 29 U.S.C. §§ 651 et  seq.

 

“Outstanding Company Stock” means the Common Stock, Preferred
Stock and options, warrants and other rights convertible into or exercisable for
shares of Common Stock or Preferred Stock (including any Common Stock or
Preferred Stock or options, warrants or other rights convertible into or
exercisable for shares of Common Stock or Preferred Stock issued by the Company
after the date hereof).

 

“Patents” has the meaning specified in Section 3.12(a).

 

“Pending Indemnity Amount” has the meaning specified in Section 6.6.

 

**Portions of the Exhibit have been omitted and have been filed
separately pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.

 

7

 

“Pension Plans” has the meaning specified in Section 3.15(a).

 

“Permitted Encumbrances”
means (i) liens for Taxes and other governmental charges and assessments
which are not yet due and payable, (ii) liens of landlords and liens of
carriers, warehousemen, mechanics and materialmen and other similar liens
imposed by law arising in the ordinary course of business for sums not yet due
and payable and (iii) other liens or imperfections on property which do
not adversely affect title to, detract from the value of, or impair the
existing use of, the property affected by such lien or imperfection.

 

“Person”
means any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, unincorporated
organization or Governmental Body.

 

“Preferred Stock” has the meaning specified in the recitals to
this Agreement.

 

“Purchase Options” has the meaning specified in the recitals to
this Agreement.

 

“RCRA”
means the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et  seq.

 

“Release”
means any release, spill, emission, leaking, pumping, injection, deposit,
disposal, discharge, dispersal, leaching or migration of a Contaminant into the
indoor or outdoor environment or into or out of any Company Property, including
the movement of Contaminants through or in the air, soil, surface water, groundwater
or Company Property.

 

“Remedial
Action” means actions required to (i) clean up,
remove, treat or in any other way address Contaminants in the indoor or outdoor
environment, (ii) prevent the Release or threatened Release or minimize
the further Release of Contaminants or (iii) investigate and determine if
a remedial response is needed and to design such a response and post-remedial
investigation, monitoring, operation and maintenance and care.

 

“Requirements
of Laws” means any United States federal, state and
local, and any non-U.S., laws, statutes, regulations, rules, codes or
ordinances enacted, adopted, issued or promulgated by any Governmental Body
(including those pertaining to electrical, building, zoning, environmental and
occupational safety and health requirements) or common law.

 

“Res-5-0010 Asthma Study” means the Company’s ongoing clinical
trial for Reslizumab in patients with asthma.

 

“Res-5-0002 EE Study” means the Company’s ongoing Phase IIb/III
clinical trial for Reslizumab in patients with eosinophilic esophagitis.

 

“Res-5-0004 Open-Label EE Study” means the Company’s ongoing
open-label extension study for Reslizumab in patients with eosinophilic
esophagitis.

 

“Reslizumab” means [**]

 

 “Rights Proceeds” means
the proceeds received by the Company from the exercise of Stock Options,
Warrants and F&F C-2 Share Rights.

 

**Portions of the Exhibit have been omitted and have been filed
separately pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.

 

8

 

“Series A Preferred Stock” has the meaning specified in the
recitals to this Agreement.

 

“Series B Junior Preferred Stock” has the meaning specified
in the recitals to this Agreement.

 

“Series C-1 Preferred Stock” has the meaning specified in
the recitals to this Agreement.

 

“Series C-2 Preferred Stock” has the meaning specified in
the recitals to this Agreement.

 

“Series C-2 Preferred Stock Purchase Agreement” means the Series C-2
Preferred Stock Purchase Agreement, dated as of January 19, 2007, among
the Company and the purchasers party thereto, as amended by Amendment No. 1,
dated as of May 30, 2007.

 

“Series C-3 Issuance Rights” has the meaning specified in
the recitals to this Agreement.

 

“Series C-3 Preferred Stock” has the meaning specified in
the recitals to this Agreement.

 

“Specified Covenants” means the covenants and agreements of the
Company set forth in Sections 5.1, 5.2, 5.3(a), 5.3(b),
5.4(b)(ix), 5.4(b)(xi), 5.4(b)(xiii), 5.4(b)(xiv), 5.4(b)(xv),
5.4(b)(xvi), 5.4(b)(xvii), 5.4(b)(xviii), 5.4(b)(xix)
and 5.4(b)(xx).

 

“Squeeze Out Merger” has the meaning specified in Section 2.7(a).

 

“Squeeze Out Merger Agreement” has the meaning specified in Section 2.7(a).

 

“Stock Options” means the outstanding options granted under the
Stock Plan to acquire shares of Voting Common Stock, as more fully described in
Schedule 3.1(d).

 

“Stock Plan” means the Company’s Equity Incentive Plan, as
amended.

 

“Stockholder Option Agreements” has the meaning specified in the
recitals to this Agreement.

 

“Stockholders” means the holders of Outstanding Company Stock
who enter into the Stockholder Option Agreements.

 

“Stockholders’ Agreement” means the Amended and Restated
Stockholders’ Agreement, dated as of January 19, 2007, by and among the
Company and the stockholders of the Company party thereto.

 

“Stockholders’ Option Consideration” has the meaning specified
in Section 2.2.

 

“Subsidiary”
has the meaning specified in Section 3.2(a).

 

“Tax”
means: (i)  any United States federal, state or local, or non-U.S., net
income, gross income, gross receipts, windfall profit, severance, property,
production, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, value-added, transfer,
stamp, or environmental (including taxes under Code Section 59A) tax, or
any other tax, custom, duty, governmental fee or other like assessment or
charge of 

 

9

 

any kind whatsoever, together with any interest or
penalty, addition to tax or additional amount imposed by any Governmental Body;
and (ii) any liability for the payment of amounts with respect to payments
of a type described in clause (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group, or as a result of any
obligation under any Tax Sharing Arrangement or Tax indemnity agreement.

 

“Tax Return”
means any return, report or similar statement required to be filed with respect
to any Taxes (including any attached schedules), including any information
return, claim for refund, amended return or declaration of estimated Tax.

 

“Tax Sharing
Arrangement” means any agreement or arrangement for the
allocation or payment of Tax liabilities or payment for Tax benefits with
respect to a consolidated, combined or unitary Tax Return which Tax Return
includes or included the Company or any Subsidiary.

 

“Third Person
Claim” has the meaning specified in Section 6.3(a).

 

“Trade Secrets”
has the meaning specified in Section 3.12(a).

 

“Updated Representations” means the representations and
warranties of the Company contained in Article III that are
identified on Schedule 1 attached hereto.

 

“Updated Schedules” has the meaning specified in Section 2.6(b)(ii).

 

“Voting Common Stock” has the meaning specified in the recitals
to this Agreement.

 

“WARN” has the meaning specified in Section 3.15(c).

 

“Warrants” means the outstanding warrants to acquire shares of
Voting Common Stock, Series A Preferred Stock or Series C-2 Preferred
Stock, as the case may be, as more fully described in Schedule 3.1(d).

 

“Welfare Plans” has the meaning specified in Section 3.15(a).

 

1.2.          Interpretation.  For purposes of this Agreement, (i) the
words “include,” “includes” and “including” shall be deemed to be followed by
the words “without limitation,” (ii) the word “or” is not exclusive and (iii) the
words “herein”, “hereof”, “hereby”, “hereto” and “hereunder” refer to this
Agreement as a whole.  Unless the context
otherwise requires, references herein:  (i) to
Articles, Sections, Exhibits and Schedules mean the Articles and Sections of,
and the Exhibits and Schedules attached to, this Agreement; (ii) to an
agreement, instrument or other document means such agreement, instrument or
other document as amended, supplemented and modified from time to time to the
extent permitted by the provisions thereof and by this Agreement; and (iii) to
a statute means such statute as amended from time to time and includes any
regulations promulgated thereunder.  All
references herein to the Company or any Subsidiary shall include the
predecessors and successors of such Person. 
The Schedules and Exhibits referred to herein shall be construed with
and as an integral part of this Agreement to the same extent as if they were
set forth verbatim herein.  Titles to
Articles and headings of Sections are inserted for convenience of reference
only and shall not be deemed a part of or to affect the meaning or
interpretation of this Agreement.  This
Agreement, the Company Ancillary 

 

10

 

Agreements
and the Optionee Ancillary Agreements shall be construed without regard to any
presumption or rule requiring construction or interpretation against the
party drafting an instrument or causing any instrument to be drafted.

 

ARTICLE II

OPTION TO ACQUIRE THE COMPANY; DELIVERIES

 

2.1.                              Option to Acquire the Company. 
At any time after the date hereof and through and including the Option
Termination Date (the “Option Period”),
Optionee shall have an irrevocable option (the “Option”),
but not the obligation, to acquire the Company pursuant to the Merger, on the
terms and subject to the conditions set forth in the Merger Agreement.  Optionee shall exercise the Option, if at
all, by giving written notice to the Company and to the Stockholders’
Representative (as defined in the Merger Agreement, and at the address for the
Stockholders’ Representative set forth therein) of the exercise of the Option
on or prior to the Option Termination Date (the date such notice is delivered,
the “Option Exercise Date”).

 

2.2.                              Consideration for the Option and Purchase
Option.  Optionee shall pay the Company as
consideration for the Option an aggregate of $50,000,000 (fifty million
dollars), consisting of (a) the LOI Payment and (b) upon the
execution of this Agreement, the payment to the Company of $25,000,000
(twenty-five million dollars) in consideration of the Option by wire transfer
of immediately available funds to an account previously specified in writing by
the Company.  Pursuant to the Stockholder
Option Agreements, Optionee shall pay, upon the execution of this Agreement,
the Stockholders $50,000,000 (fifty million dollars) (the “Stockholders’
Option Consideration”)  in
consideration of the Purchase Options by wire transfer of immediately available
funds to an account maintained by Duane Morris LLP (for the benefit of the
Stockholders) previously specified in writing by the Company, which amount
shall be disbursed by Duane Morris LLP to the Stockholders in accordance with
the procedures set forth on Exhibit F attached hereto (such
payments to the Company and the Stockholders, collectively the “Option
Consideration”).  Except as set forth
in Article VI, the Option Consideration shall be non-refundable and
non-creditable.

 

2.3.                              Optionee’s
Deliveries.  Concurrently with the
execution and delivery of this Agreement, Optionee is delivering to the Company
all of the following:

 

(a)                                  a copy of Optionee’s Restated Certificate
of Incorporation certified as of a recent date by the Secretary of State of the
State of Delaware;

 

(b)                                 a certificate of good standing of
Optionee issued as of a recent date by the Secretary of State of the State of
Delaware;

 

(c)                                  a certificate of the secretary or an
assistant secretary of Optionee, dated the date hereof, as to:  (i) no amendments to the Restated
Certificate of Incorporation of Optionee since a specified date; (ii) the
by-laws of Optionee; (iii) the resolutions of the Board of Directors of
Optionee (or a duly authorized committee thereof) authorizing the execution,
delivery and performance of this Agreement and the Optionee Ancillary
Agreements and the transactions contemplated hereby and thereby; and (iv) the
incumbency and signatures of the officers of

 

11

 

Optionee executing
this Agreement and any Optionee Ancillary Agreement being executed and
delivered on the date hereof;

 

(d)                                 the Credit Agreement, duly executed by
Optionee;

 

(e)                                  the Stockholder Option Agreements
executed by Stockholders as of the date hereof, duly executed by Optionee; and

 

(f)                                    an opinion of Sidley Austin LLP addressed
to the Company in the form attached hereto as Exhibit G.

 

2.4.                              The
Company’s Deliveries.  Concurrently
with the execution and delivery of this Agreement, the Company is delivering to
Optionee all of the following:

 

(a)                                  a copy of the Certificate of
Incorporation certified as of a recent date by the Secretary of State of the
State of Delaware;

 

(b)                                 a certificate of good standing of the
Company issued as of a recent date by the Secretary of State of the State of
Delaware;

 

(c)                                  a certificate of the secretary or an
assistant secretary of the Company, dated the date hereof, as to:  (i) no amendments to the Certificate of
Incorporation since a specified date; (ii) the by-laws of the Company; (iii) the
resolutions of the Board of Directors and stockholders of the Company
authorizing the execution, delivery and performance of this Agreement and the
Company Ancillary Agreements and the transactions contemplated hereby and
thereby; and (iv) the incumbency and signatures of the officers of the
Company executing this Agreement and any Company Ancillary Agreement being
executed and delivered on the date hereof;

 

(d)                                 the Credit Agreement, duly executed by
the Company;

 

(e)                                  the Stockholder Option Agreements, duly
executed by the Stockholders as of the date hereof;

 

(f)                                    all consents, waivers or approvals
obtained by the Company with respect to the consummation of the transactions
contemplated by this Agreement, the Company Ancillary Agreements and the Merger
Agreement, other than under the HSR Act (a list of such consents, waivers and
approvals, as agreed to by the Company and Optionee, being set forth in Schedule
2.4(f));

 

(g)                                 a receipt executed by the Company
acknowledging receipt of the LOI Payment and $25,000,000 (twenty-five million
dollars);

 

(h)                                 a receipt executed by Duane Morris LLP
acknowledging receipt of the Stockholders’ Option Consideration; and

 

(i)                                     an opinion of Duane Morris LLP addressed
to Optionee and in the form attached hereto as Exhibit H.

 

12

 

2.5.                              Withholding
Rights.  Optionee shall be entitled to deduct and
withhold from the consideration, if any, otherwise payable pursuant to the
Stockholder Option Agreements (pursuant to the procedures in this Agreement or
otherwise) to any Stockholder, or to any designee of such Stockholder, such
amounts as are required to be deducted and withheld with respect to the making
of such payments under the Code, or any provision of state, local or foreign
Tax law.  Optionee shall deliver to Duane
Morris LLP, in its capacity under Section 2.2, information with
respect to any deduction or withholding to be made pursuant to this Section 2.5.

 

2.6.                              Actions Upon Exercise of the Option. 
In the event that Optionee exercises the Option:

 

(a)                                  Optionee shall, on the Option Exercise
Date, deliver to the Company a certificate, dated the date of its delivery and
duly executed by the Chief Executive Officer or any Vice President of Optionee,
certifying that:  (i) between the
date hereof and the Option Exercise Date, there has been no material breach by
Optionee in the performance of any of its covenants and agreements herein; (ii) as
of the Option Exercise Date, none of the representations and warranties of
Optionee contained herein that is qualified as to materiality is untrue or
incorrect in any respect except for such changes therein as are specifically
permitted by this Agreement; (iii) as of the Option Exercise Date none of
the representations and warranties of Optionee contained herein (other than the
Optionee Updated Representations) that is not qualified as to materiality is
untrue or incorrect in any material respect except for such changes therein as
are specifically permitted by this Agreement; and (iv) none of the
Optionee Updated Representations is untrue or incorrect in any material respect
after giving effect to any disclosures attached to such certificate, which
disclosures shall consist solely of information regarding circumstances, facts,
events or conditions that have arisen, occurred or come into existence after
the date hereof with respect to the Optionee Updated Representations (provided
that such disclosures shall not (A) correct, supplement or amend the
disclosures set forth in the Schedules delivered on the date hereof for purposes
of the representations and warranties made by the Company as of the date hereof
or (B) change the nature or scope of the applicable Optionee Updated
Representations by effectively amending or modifying the language contained in
such Optionee Updated Representations as opposed to merely listing exceptions
thereto);

 

(b)                                 the Company shall, not later than five (5) business
days after the Option Exercise Date, deliver to Optionee:

 

(i)                                     a certificate (the “Bring-Down
Certificate”), dated the date of its delivery and duly executed by the
Chief Executive Officer of the Company, certifying that:  (A) between the date hereof and the date
of the Bring-Down Certificate, there has been no material breach by the Company
in the performance of any of its covenants and agreements herein; (B) as
of the date of the Bring-Down Certificate, none of the representations and
warranties of the Company contained herein (other than the Updated
Representations and the MAE Representations) that is qualified as to
materiality is untrue or incorrect in any respect except for such changes
therein as are consistent in all material respects with the Operating Plan and
not specifically prohibited by Section 5.4; provided, that,
[**]; (C) as of the date of the Bring-Down Certificate, none of the
representations and warranties of the Company contained herein (other than the
Updated Representations and the MAE Representations) that is not qualified as
to materiality is untrue or incorrect

 

**Portions of the Exhibit have been omitted and have been filed
separately pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.

 

13

 

in any material respect except for such changes
therein as are consistent in all material respects with the Operating Plan and
not specifically prohibited by Section 5.4; [**] (D) as of the
date of the Bring-Down Certificate, (1) none of the Updated Representations
that is qualified as to materiality is untrue or incorrect in any respect after
giving effect to the Updated Schedules and (2) none of the Updated
Representations that is not qualified as to materiality is untrue or incorrect
in any material respect after giving effect to the Updated Schedules; and (E) as
of the date of the Bring-Down Certificate, none of the MAE Representations is
untrue or incorrect in any respect except for such breaches of the MAE
Representations which have not had, and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; and

 

(ii)                                  any necessary update to the Schedules
delivered by the Company to Optionee on the date hereof with respect to the
Updated Representations (“Updated Schedules”), which Updated Schedules
shall consist solely of information regarding circumstances, facts, events or
conditions that have arisen, occurred or come into existence after the date
hereof with respect to the Updated Representations (provided that such
Updated Schedules shall not (A) correct, supplement or amend the
disclosures set forth in the Schedules delivered on the date hereof for
purposes of the representations and warranties made by the Company as of the
date hereof or (B) change the nature or scope of the applicable Updated
Representations by effectively amending or modifying the language contained in
such Updated Representations as opposed to merely listing exceptions thereto);
and

 

(c)                                  if the Bring-Down Certificate is
accompanied by Updated Schedules, within five (5) business days following
Optionee’s receipt of such Bring-Down Certificate and Updated Schedules from
the Company, Optionee may at its option deliver a written notice (the “Exercise
Withdrawal Notice”) to the Company stating that Optionee desires to
withdraw its exercise of the Option.  If
Optionee delivers the Exercise Withdrawal Notice, the Option shall be deemed
not to have been exercised by Optionee and (i) with respect to the first
such Exercise Withdrawal Notice, the Option shall remain outstanding until the
Option Termination Date, and this Agreement shall remain in full force and
effect and (ii) with respect to the second such Exercise Withdrawal
Notice, the delivery of such Exercise Withdrawal Notice shall be deemed to be a
delivery of a notice of termination of this Agreement pursuant to Section 7.1(b).  If Optionee does not deliver an Exercise
Withdrawal Notice, the Company and Optionee shall, and Optionee shall cause
Merger Sub to, execute and deliver the Merger Agreement no later than three (3) business
days after the later of (A) the date of delivery of the Bring-Down
Certificate, (B) if the Bring-Down Certificate is not delivered pursuant
to Section 2.6(b), the date by which the Bring-Down Certificate was
to be delivered pursuant to Section 2.6(b) and (C) if the
Bring-Down Certificate is accompanied by Updated Schedules, the earlier of (x) the
date by which any Exercise Withdrawal Notice may be delivered by Optionee
pursuant to this Section 2.6(c) and (y) the date on which
Optionee delivers written notice to the Company that it will not deliver an
Early Withdrawal Notice (the date of such execution and delivery of the Merger
Agreement, the “Merger Agreement Execution Date”); provided that in the
case described in clause (B) above, Optionee may at its sole option elect
not to enter into the Merger Agreement upon the failure of the Company to
deliver the Bring-Down Certificate by delivery of written notice of such
determination at any time prior to the expiration of the three (3) business
day period during which the Merger Agreement is to be executed pursuant to this
sentence and upon delivery of

 

**Portions of the Exhibit have been omitted and have been filed
separately pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.

 

14

 

such notice the
Option shall remain outstanding and this Agreement shall remain in full force
and effect.  Contemporaneously with the
execution of the Merger Agreement, the Company and Optionee, as applicable,
shall, and Optionee shall cause Merger Sub to, execute and deliver such other
agreements, documents, instruments and certificates as are contemplated by the
Merger Agreement to be executed and delivered by such party concurrently
therewith, including schedules to the Merger Agreement responsive to the
representations and warranties of the Company made in Article V thereof,
which schedules shall be consistent in all respects with the Schedules
delivered by the Company in response to the representations and warranties of
the Company made by Article III hereof except (I) for such
changes therein as are consistent in all material respects with the Operating
Plan and not specifically prohibited by Section 5.4 or contained in
the Updated Schedules and (II) that, solely with respect to the specific
representations and warranties of the Company in the Merger Agreement that correspond
to the MAE Representations [**], the Company may provide updated information in
the corresponding schedules to the Merger Agreement so long as the events or
occurrences disclosed in such updated information have not had (nor would they
reasonably be expected to have), individually or in the aggregate, a Material
Adverse Effect.

 

2.7.                              Exercise of Option Pursuant to Purchase
Options.

 

(a)                                  Notwithstanding Section 2.6,
if Optionee exercises the Purchase Options and, pursuant to the Stockholder
Option Agreements, chooses to purchase shares of Outstanding Company Stock
directly from the Stockholders, Optionee shall use commercially reasonable
efforts to consummate, as soon as reasonably practicable following such
purchase, a merger (the “Squeeze Out Merger”) of a subsidiary of
Optionee with and into the Company pursuant to which holders of Outstanding
Company Stock who do not execute a Stockholder Option Agreement (each, a “Non-Option
Granting Stockholder”) receive consideration that is equal to the consideration
it would have received in the Merger pursuant to the Merger Agreement.  In connection with the Squeeze Out Merger,
the Company and Optionee shall take such actions as shall be reasonably
necessary to consummate the Squeeze Out Merger, including (a) entering
into a merger agreement relating to the Squeeze Out Merger (the “Squeeze Out
Merger Agreement”), (b) duly calling, giving notice of, convening and
holding a meeting of the Company’s stockholders (including Optionee) for the
purpose of approving the Squeeze Out Merger and the Squeeze Out Merger
Agreement, (c) in connection therewith, delivering such Disclosure
Materials (as defined in the Merger Agreement) as are required by applicable
Requirements of Law, (d) recommending to the stockholders adoption and
approval of the Squeeze Out Merger Agreement and the Squeeze Out Merger and (e) soliciting
the approval and adoption of the Squeeze Out Merger Agreement and the Squeeze
Out Merger by the requisite number of stockholders as required by the
Certificate of Incorporation (as then in effect), the DGCL and the
Stockholders’ Agreement (if applicable).

 

(b)                                 The Squeeze Out Merger Agreement shall
incorporate, mutatis mutandis, all of the
provisions of, and identified in, paragraph 2(b) of each Stockholder Option
Agreement, such that the Non-Option Granting Stockholders shall have the same
rights and receive the same consideration (taking into account the respective
holdings of each class or classes of Outstanding Company Stock held by each of
them) as the holders of Outstanding Company Stock who executed a Stockholder
Option Agreement and whose Outstanding Company Stock was purchased directly by
Optionee.

 

**Portions of the Exhibit have been omitted and have been filed
separately pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.

 

15

 

(c)                                  For the avoidance of doubt and without
limiting the scope of Optionee’s obligations under the Squeeze Out Merger
Agreement, Optionee shall give effect, and cause the Company to give effect, to
the provisions of Section 8.1 of the Merger Agreement.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

As an inducement to Optionee to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company represents and
warrants to Optionee and agrees as follows:

 

3.1.                              Organization
and Capitalization of the Company.

 

(a)                                  The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.  The Company is duly qualified
to transact business as a foreign corporation and is in good standing in each
of the jurisdictions listed in Schedule 3.1(a),
which jurisdictions are the only ones in which the ownership or leasing of the
Company’s assets or the conduct of the Company’s business requires such
qualification, except where the failure to be so qualified or in good standing
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.  No other
jurisdiction has made a written demand, request or has otherwise indicated in
writing that the Company is required so to qualify on account of the ownership
or leasing of its assets or the conduct of its business.  The Company has full corporate power and
authority to own or lease and to operate and use its assets and to carry on its
business as now conducted.

 

(b)                                 Except as set forth in Schedule 3.1(b),
true and complete copies of (i) the Certificate of Incorporation and all
amendments thereto, (ii) the Company’s by-laws, as amended to date, and (iii) the
minute books of the Company have been delivered or made available to
Optionee.  The Company is not in default
under, or in violation of, any provision of the Certificate of Incorporation or
its by-laws.  Such minute books contain
true and complete records of all meetings or other actions taken by the board
of directors and stockholders of the Company. 
The Charter Amendment has been duly adopted and approved by the
Company’s Board of Directors and by the stockholders of the Company holding
sufficient Outstanding Company Stock to approve the Charter Amendment in
accordance with the Certificate of Incorporation (as in effect immediately
prior to the effectiveness of the Charter Amendment), the Stockholders’
Agreement and any agreements governing outstanding Stock Options, Warrants or
other rights to acquire capital stock of the Company.

 

(c)                                  The authorized capital stock of Company
consists of (i) 600,000,000 shares of Voting Common Stock, of which
23,323,212 shares are issued and outstanding, (ii) 6,000,000 shares of
Non-Voting Common Stock, of which 4,889,464 shares are issued and outstanding,
and (iii) 164,145,000 shares of Preferred Stock, of which (A) 23,000,000
shares are designated Series A Preferred Stock, of which 20,871,664 shares
are issued and outstanding, (B) 3,500,000 shares are designated Series B
Junior Preferred Stock, of which 3,444,802 shares are issued and outstanding, (C) 13,250,000
shares are designated Series C-1 Preferred Stock, of which 13,146,503
shares are issued and outstanding, (D) 114,775,000 shares are designated Series C-2
Preferred Stock, of which 113,301,299 shares are issued and outstanding, and (E) 9,620,000

 

16

 

shares are
designated Series C-3 Preferred Stock, of which 0 shares are issued and
outstanding.  The Company does not hold
any treasury shares.  All of the issued
and outstanding shares of capital stock of the Company are duly authorized,
validly issued, fully paid and nonassessable and have been offered, issued,
sold and delivered by the Company in compliance with all applicable federal and
state securities laws.  None of the
issued and outstanding shares of Common Stock or Preferred Stock has been
issued in violation of, or is subject to, any preemptive rights, rights of
first offer, rights of first refusal or subscription rights, except as set
forth in Schedule 3.1(c).

 

(d)                                 All of the Common Stock, Preferred Stock,
Stock Options, Warrants, F&F C-2 Share Rights and Series C-3 Issuance
Rights are held of record by the holders and in the amounts identified in Schedule 3.1(d). 
Schedule 3.1(d) also
sets forth:  (i) the number of
shares of Common Stock into which each share of Preferred Stock is convertible;
(ii) the exercise price per share of each Stock Option and each Warrant; (iii) the
date of grant of each Stock Option and each Warrant and the expiration date
thereof; (iv) the number of shares of Common Stock or Preferred Stock
issuable upon the exercise of each Stock Option or Warrant; and (v) the
number of shares of Common Stock or Preferred Stock issuable as a result of
outstanding F&F C-2 Share Rights and Series C-3 Issuance Rights.  True and complete copies of the stock record
books, agreements evidencing Warrants, Stock Options, F&F C-2 Share Rights
and Series C-3 Issuance Rights have been delivered or made available to
Optionee.  Each Warrant and Stock Option
was duly issued and is valid and in full force and effect.

 

(e)                                  Schedule 3.1(e) sets forth (i) the unpaid
Accrued Dividends (whether or not declared) with respect to each holder of
shares of Preferred Stock and (ii) the per diem accrual rate of dividends
with respect to each share of Preferred Stock pursuant to the terms of the
Certificate of Incorporation.  There are
no declared and unpaid dividends or other distributions with respect to any
shares of Common Stock or Preferred Stock.

 

(f)                                    Except (i) for the Stock Options and
Warrants, (ii) for the issuance of shares of Series C-3 Preferred
Stock or Voting Common Stock pursuant to the Fulcrum Plan of Merger Amendment, (iii) the
F&F C-2 Share Rights, (iv) as set forth in the Certificate of
Incorporation and (v) as set forth in Schedule 3.1(f), there are no
agreements, arrangements, options, warrants, calls, rights or commitments of
any character relating to the issuance, sale, purchase or redemption of any
shares of capital stock or other equity interest of the Company, whether on
conversion of other securities or otherwise. 
Except for this Agreement and as set forth in Schedule
3.1(f), the Company is not a party to any, and to the Knowledge of
the Company there exists no, stockholder agreement, voting trust agreement or
any other similar contract, agreement, arrangement, commitment, plan or
understanding restricting or otherwise relating to the voting, dividend,
ownership or transfer rights of any shares of capital stock of the Company.  Except as set forth in Schedule 3.1(f),
the Company is not under any obligation to register under the Securities Act of
1933 any shares of its capital stock or any other securities of the Company,
whether currently outstanding or that may subsequently be issued.

 

(g)                                 There are no bonds, debentures, notes or
other instruments evidencing Indebtedness of the Company or any of the
Subsidiaries issued or outstanding (i) having the right to vote on any
matters on which stockholders may vote (or which is convertible into, or

 

17

 

exchangeable for,
securities having such right) or (ii) the value of which is in any way
based upon or derived from capital or voting stock of Company or any of the
Subsidiaries.

 

3.2.                              Subsidiaries
and Investments.

 

(a)                                  Schedule 3.2 sets forth a list of each corporation,
partnership, limited liability company, joint venture or other entity (i) in
which the Company, directly or indirectly, owns of record or beneficially 50%
or more of the outstanding voting securities or of which it is a general
partner (each such corporation, partnership, limited liability company, joint
venture or other entity being referred to herein as a “Subsidiary”),
(ii) in which the Company, directly or indirectly, owns of record or
beneficially any outstanding voting securities or other equity interests or (iii) which
is Controlled by the Company.

 

(b)                                 Schedule 3.2 sets forth the authorized capital stock
of each Subsidiary and indicates the number of issued and outstanding shares of
capital stock, the number of issued shares of capital stock held as treasury
shares and the number of shares of capital stock unissued and not reserved for
any purpose of each Subsidiary.  Except
as set forth in Schedule 3.2 and except for
this Agreement, there are no agreements, arrangements, options, warrants,
calls, rights or commitments of any character relating to the issuance, sale,
purchase or redemption of any shares of capital stock of any of the
Subsidiaries.  All of the outstanding
shares of capital stock of each of the Subsidiaries are validly issued, fully
paid and nonassessable.  All of the
outstanding shares of capital stock of each of the Subsidiaries are owned by
the Company of record and beneficially free from all Encumbrances, except as
set forth in Schedule 3.2.

 

(c)                                  Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of each jurisdiction
listed under its name in Schedule 3.2,
which jurisdictions are the only ones in which the ownership or leasing of such
Subsidiary’s assets or the conduct of such Subsidiary’s business requires such
qualification, except where the failure to be so qualified or in good standing
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.  No other
jurisdiction has made a written demand, request or has otherwise indicated in
writing that such Subsidiary is required so to qualify.  Each Subsidiary has full corporate power and
authority to own or lease and to operate and use its properties and assets and
to carry on its business as now conducted.

 

(d)                                 True and complete copies of (i) the
certificate of incorporation and all amendments thereto, (ii) the by-laws,
as amended to date, and (iii) the minute books of each Subsidiary have
been delivered or made available to Optionee. 
No Subsidiary is in default under, or in violation of, any provision of
its certificate of incorporation or by-laws. 
Such minute books contain true and complete records of all meetings or
other actions taken by the board of directors and stockholders of each
Subsidiary.

 

3.3.                              Authority
of the Company.

 

(a)                                  The Company has full corporate power and
authority to execute, deliver and perform this Agreement, all of the Company
Ancillary Agreements and the Merger Agreement.

 

18

 

The execution,
delivery and performance of this Agreement, the Company Ancillary Agreements
and, to the extent the Option is exercised on the terms hereof (including the
Merger Agreement in the form attached hereto) the Merger Agreement (together
with the other instruments, documents and agreements contemplated by or to be
executed in connection with the transactions contemplated by the Merger
Agreement) by the Company have been duly authorized and approved by the
Company’s board of directors and, other than with respect to the Merger
Agreement, to the extent required by the Certificate of Incorporation or any
agreement to which the Company is a party, by the requisite number of the
Company’s stockholders and do not require any further authorization or consent
of the Company or its stockholders.  This
Agreement has been duly authorized, executed and delivered by the Company and
is the legal, valid and binding obligation of the Company enforceable in
accordance with its terms, and each of the Company Ancillary Agreements has
been duly authorized by the Company and upon execution and delivery by the
Company will be a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, in each case except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors’ rights generally and by
the effect of general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).

 

(b)                                 Except as set forth in Schedule 3.3, neither the execution and delivery
of this Agreement, any of the Company Ancillary Agreements or the Merger
Agreement nor the consummation of any of the transactions contemplated hereby
or thereby, nor compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof, in each case by the Company, nor the exercise of
the Option, will:

 

(i)                                     conflict with, result in a breach of the
terms, conditions or provisions of, or constitute a default, an event of
default or an event creating rights of acceleration, termination or
cancellation or a loss of rights under, or result in the creation or imposition
of any Encumbrance upon any of the properties or assets of the Company or any
Subsidiary, under (A) the certificate of incorporation (including, with
respect to the Company, as amended by the Charter Amendment) or by-laws, or
similar organizational documents, of the Company or any Subsidiary, (B) any
Company Agreement, (C) any other material mortgage, franchise, permit or
other authorization, right, restriction or obligation to which the Company or
any Subsidiary is a party or any of the assets or properties of the Company or
any Subsidiary is subject or by which the Company or any Subsidiary is bound, (D) any
Court Order to which the Company or any Subsidiary is a party or any of the
properties or assets of the Company or any Subsidiary is subject or by which
the Company or any Subsidiary is bound, or (E) any material Requirements
of Laws affecting the Company, any Subsidiary or any of their respective
properties, assets or business; or

 

(ii)                                  require the approval, consent,
authorization or act of, or the making by the Company of any declaration,
filing or registration with, any Person, except, with respect to the
consummation of the Merger, as provided under the HSR Act.

 

3.4.                              Financial
Statements.  Schedule
3.4 contains (i) the audited consolidated balance sheets of the
Company and the Subsidiaries as of December 31, 2007 and 2006 and the
related statements of income and cash flows for each of the years then ended,
together with the

 

19

 

appropriate
notes to such financial statements, and (ii) the unaudited consolidated
balance sheet of the Company and the Subsidiaries as of November 30, 2008
and the related statements of income and cash flows for the 11 months then
ended.  Except as set forth therein or in
the notes thereto and subject, in the case of the financial statements referred
to in clause (ii) above, to normal year-end adjustments and the absence of
notes, such balance sheets and statements of income and cash flow have been
prepared in conformity with U.S. generally accepted accounting principles
consistently applied, and such balance sheets and related statements of income
and cash flows present fairly in all material respects the consolidated
financial position and results of operations and cash flows of the Company and
the Subsidiaries as of their respective dates and for the respective periods
covered thereby.  Except as set forth in Schedule
3.4, the financial statements referred to in clause (ii) above include
all adjustments, which consist only of normal accruals made in the ordinary
course of business, necessary for such fair presentation in all material
respects, other than normal year-end audit adjustments and footnotes.

 

3.5.                              Operations
Since Balance Sheet Date.

 

(a)                                  Except as set forth in Schedule 3.5(a), since the Balance Sheet Date,
there has been no Material Adverse Effect, and no fact or condition exists or,
to the Knowledge of the Company, is threatened which would reasonably be
expected to cause a Material Adverse Effect.

 

(b)                                 Except as set forth in Schedule 3.5(b), since the Balance Sheet Date,
the Company and the Subsidiaries have conducted their business only in the
ordinary course of business.  Without
limiting the generality of the foregoing, since the Balance Sheet Date, except
as set forth in Schedule 3.5(b), neither the Company nor any Subsidiary
has:

 

(i)                                     except as contemplated by this Agreement,
issued, delivered or agreed (conditionally or unconditionally) to issue or
deliver, or granted any option, warrant or other right to purchase, any of its
capital stock or other equity interest or any security convertible into its
capital stock or other equity interest;

 

(ii)                                  issued, delivered or agreed
(conditionally or unconditionally) to issue or deliver any of its bonds, notes
or other debt securities, or borrowed or agreed to borrow any funds;

 

(iii)                               paid any obligation or liability
(absolute or contingent) other than current liabilities reflected on the
Balance Sheet and current liabilities incurred since the Balance Sheet Date in
the ordinary course of business;

 

(iv)                              declared, set aside or made, or agreed to
declare, set aside or make, any payment of dividends or distributions to its
stockholders or purchased or redeemed, or agreed to purchase or redeem, any of
its capital stock or other equity interest, it being understood that pursuant
to the terms of the Certificate of Incorporation, dividends accrue whether or
not declared (but have not been paid) on the outstanding Series A
Preferred Stock, Series C-1 Preferred Stock, Series C-2 Preferred
Stock and Series C-3 Preferred Stock;

 

(v)                                 except in the ordinary course of
business, made any amendment or termination of any Company Agreement;

 

20

 

(vi)                              undertaken or committed to undertake
capital expenditures exceeding $200,000 or acquired any real property;

 

(vii)                           sold, leased (as lessor), transferred or
otherwise disposed of, or mortgaged or pledged, or imposed or suffered to be
imposed any Encumbrance (other than a Permitted Encumbrance) on, any of the
assets reflected on the Balance Sheet or any assets acquired by it after the
Balance Sheet Date, except for inventory and minor amounts of personal property
sold or otherwise disposed of for fair value in the ordinary course of
business;

 

(viii)                        canceled any debts owed to or claims held
by it (including the settlement of any claims or litigation) or waived any
other rights held by it other than in the ordinary course of business;

 

(ix)                                created, incurred or assumed, or agreed
to create, incur or assume, any Indebtedness or entered into, as lessee, any
capital lease (as defined in Statement of Financial Accounting Standards No. 13);

 

(x)                                   accelerated or delayed collection of
notes or accounts receivable in advance of or beyond their regular due dates or
the dates when the same would have been collected in the ordinary course of
business;

 

(xi)                                delayed or accelerated payment of any
account payable beyond or in advance of its due date or the date when such
account payable would have been paid in the ordinary course of business;

 

(xii)                             written off any notes or accounts
receivable or portions thereof as uncollectible except for write-offs in the
ordinary course of business or as required by U.S. generally accepted
accounting principles consistently applied;

 

(xiii)                          allowed the levels of raw materials,
supplies, work-in-process, finished goods, goods on consignment or other
materials included in its inventory to vary in any material respect from the
levels maintained in the ordinary course of business;

 

(xiv)                         instituted any increase in any
compensation payable to any director, officer, consultant or employee or in any
profit-sharing, bonus, incentive, deferred compensation, insurance, pension,
retirement, medical, hospital, disability, welfare or other benefits made
available to its directors, officers, consultants or employees, except (A) regularly
scheduled salary increases for employees, (B) year-end bonuses paid to
employees consistent with past compensation practices and (C) the adoption
of any ERISA Benefit Plans or Non-ERISA Commitments set forth in Schedules
3.15(a) and 3.15(b), respectively;

 

(xv)                            paid any amount or incurred any liability
to or in respect of, or sold any properties or assets to, or entered into any
transaction, agreement or arrangement with any corporation or business in which
any officer or director of the Company or any Subsidiary has any direct or
indirect ownership interest;

 

21

 

(xvi)                         entered into any collective bargaining
agreements or employment agreements;

 

(xvii)                      made any change in the accounting
principles and practices used by it from those applied in the preparation of
the Balance Sheet and the related statements of income and cash flow for the
period then ended; or

 

(xviii)                   prepared or filed any Tax Return inconsistent with
past practice or, on any such Tax Return, taken any position, made any
election, or adopted any method that is inconsistent with the positions taken,
elections made or methods used in preparing or filing similar Tax Returns in
prior periods, except where necessitated as a result of a change in
circumstances of the Company from a prior period.

 

3.6.                              No
Undisclosed Liabilities.  Except as set
forth in Schedule 3.6, neither the Company
nor any Subsidiary is subject to any material liability (including Known
unasserted claims), whether absolute, contingent, accrued or otherwise, which
is not shown or which is in excess of amounts shown or reserved for in the
Balance Sheet, other than liabilities of the same nature as those set forth in
the Balance Sheet and reasonably incurred in the ordinary course of business
after the Balance Sheet Date.

 

3.7.                              Taxes.

 

(a)                                  Except as set forth on Schedule 3.7(a):  (i) each of the Company, each Subsidiary
and each Company Group has filed all Tax Returns required to be filed; (ii) all
such Tax Returns are complete and accurate in all material respects and
disclose all Taxes required to be paid by the Company, each Subsidiary and each
Company Group for the periods covered thereby and all Taxes shown to be due on
such Tax Returns have been timely paid; (iii) none of the Company, any
Subsidiary or any Company Group is currently the beneficiary of any extension
of time within which to file any Tax Return; (iv) all Taxes (whether or
not shown on any Tax Return) owed by the Company, any Subsidiary or any Company
Group have been timely paid; (v) none of the Company, any Subsidiary or
any member of any Company Group has waived or been requested to waive any
statute of limitations in respect of Taxes; (vi) there is no action, suit,
investigation, audit, claim or assessment pending or proposed or threatened in
writing with respect to Taxes of the Company, any Subsidiary or any Company
Group and, to the Knowledge of the Company, no reasonable basis exists
therefor; (vii) all deficiencies asserted or assessments made as a result
of any examination of the Tax Returns referred to in clause (i) have been
paid in full; (viii) there are no Tax Sharing Arrangements (other than
those solely among the Company and the Subsidiaries); (ix) there are no
liens for Taxes upon the assets of the Company or any Subsidiary except liens
relating to current Taxes not yet due; (x) all Taxes which the Company,
any Subsidiary or any Company Group are required by law to withhold or to
collect for payment have been duly withheld and collected, and have been paid
or accrued, reserved against and entered on the books of the Company; (xi)
there are no Tax rulings, requests for rulings, or closing agreements relating
to the Company, any Subsidiary or any Company Group; (xii) no written claim has
ever been made by a Governmental Body in a jurisdiction where the Company or
any Subsidiary has never paid Taxes or filed Tax Returns asserting that the
Company or any Subsidiary is or may be subject to Taxes assessed by such
jurisdiction; (xiii) neither the Company nor any Subsidiary has been a member
of any Company Group other than each

 

22

 

Company Group of
which it is a member as of the date hereof and neither the Company nor any
Subsidiary has had any direct or indirect ownership in any corporation,
partnership, joint venture, or other entity other than the Subsidiaries; and
(xiv) neither the Company nor any Subsidiary has any liability for Taxes of any
Person (other than the Company or any Subsidiary) under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.

 

(b)                                 No transaction contemplated by this
Agreement or the Company Ancillary Agreements is subject to withholding under Section 1445
of the Code.

 

(c)                                  As a result of the transactions
contemplated by this Agreement and the Company Ancillary Agreements, none of
the Company, any Subsidiary or Optionee will be obligated to make a payment to
an individual that would be a “parachute payment” to a “disqualified
individual” as those terms are defined in Section 280G of the Code,
without regard to whether such payment is reasonable compensation for personal
services performed or to be performed in the future.

 

(d)                                 The aggregate
Taxes payable by the Company and each Subsidiary (including Taxes payable by
any Company Group) with respect to any taxable period will not exceed the
aggregate Taxes that would have been payable by them with respect to such
period had no Option Consideration been paid (for the avoidance of doubt, Tax
liability shall be determined after taking into account NOLs with respect to
taxable periods ending on or before the Closing Date being properly carried
forward or back); provided, however, that any such excess with
respect to a taxable period beginning after the date hereof shall not be taken
into account to the extent such excess would not have occurred but for the NOLs
carried over or back to such period being less than the NOLs that properly
could have been carried over or back to such taxable period had no Option
Consideration been paid; provided, further, that any such excess
shall be computed by assuming that the net operating losses with respect to
taxable periods ending on or before the Closing Date for which Optionee files
the Tax Returns of the Company are carried back to taxable periods ending on or
before the Closing Date to the extent they may properly be so carried back.

 

3.8.                              Availability
of Assets.

 

(a)                                  Except as set forth in Schedule 3.8 and except for the Identified
IP, the assets and properties owned, leased or licensed by the
Company and the Subsidiaries constitute all the assets and properties used in
or necessary for the operation of their business (including all books, records,
computers and computer programs and data processing systems) as presently
conducted in all material respects, are, in the case of tangible assets, in
good and serviceable condition (subject to normal wear and tear) and are
suitable for the uses for which intended.

 

(b)                                 Schedule 3.8 sets forth a description of all material
services provided to the Company or a Subsidiary by any stockholder
of the Company (or any Affiliate of a stockholder of the Company) utilizing
either (i) assets not owned by the Company or a Subsidiary or (ii) employees
not listed in Schedule 3.15(f), and the
manner in which the costs of providing such services have been charged to the
Company or such Subsidiary.

 

23

 

3.9.                              Governmental
Permits; Regulatory Matters.

 

(a)                                  The Company and the Subsidiaries own,
hold or possess all material licenses, franchises, permits, privileges,
immunities, approvals and other authorizations from Governmental Bodies which
are necessary to entitle them to own or lease, operate and use their assets and
to carry on and conduct their business substantially as currently conducted
(collectively, the “Governmental Permits”).  Schedule 3.9
sets forth a list and brief description of each Governmental Permit.  Complete and correct copies of all of the
Governmental Permits have heretofore been delivered or made available to
Optionee.

 

(b)                                 Except as set forth in Schedule 3.9:  (i) the Company and the Subsidiaries have
fulfilled and performed in all material respects their respective obligations
under each of the Governmental Permits, and no event has occurred or condition
or state of facts exists which constitutes or, after notice or lapse of time or
both, would constitute a breach or default under any such Governmental Permit
or which permits or, after notice or lapse of time or both, would permit
revocation or termination of any such Governmental Permit, or which might
adversely affect in any material respect the rights of the Company and the
Subsidiaries under any such Governmental Permit; (ii) no notice of
cancellation, of default or of any dispute concerning any Governmental Permit,
or of any event, condition or state of facts described in the preceding clause,
has been received by, or is Known to, the Company; and (iii) each of the
Governmental Permits is valid, subsisting and in full force and effect and,
except to the extent that any such Governmental Permit were to expire prior to
the exercise of the Option or the consummation of the Merger, will continue in
full force and effect after the date hereof and after the exercise of the
Option and the consummation of the Merger, in each case without (x) the occurrence
of any breach, default or forfeiture of rights thereunder or (y) the
consent, approval, or act of, or the making of any filing with, any
Governmental Body.

 

(c)                                  Complete and correct copies of each
submission of the Company or any of its Subsidiaries to the FDA or any
analogous foreign Governmental Body with respect to Reslizumab, and all
amendments and supplements thereto, including all related pre-clinical and
clinical data, have heretofore been delivered or made available to Optionee by
the Company.  Complete and correct copies
of all written correspondence (including minutes of meetings and telephone
calls) received by the Company or any of its Subsidiaries from the FDA or any
analogous foreign Governmental Body with respect to Reslizumab and the
responses thereto have heretofore been delivered or made available to Optionee
by the Company.  Complete and correct
copies of all clinical trial agreements and other clinical trial documentation
have been delivered or made available to Optionee by the Company.

 

(d)                                 To the extent applicable, the Company and
the Subsidiaries have been and are in substantial compliance with 21 U.S.C. Section 355,
42 U.S.C. Section 262 and applicable FDA implementing regulations,
including 21 C.F.R. Parts 312, 314, 600 and 601, and similar Requirements of
Laws and all terms and conditions of the applicable new drug application and
investigational new drug exemption submission under Section 505(i) of
the Federal Food, Drug, and Cosmetic Act. 
The Company and the Subsidiaries have been and are in substantial
compliance with the clinical trial reporting and disclosure requirements of 42
U.S.C. Section 282(j) or any similar Requirements of Law.  The Company, the Subsidiaries and their
respective officers, employees and agents have included in the applications for
Reslizumab, where required,

 

24

 

the certification
described in 21 U.S.C. Section 335a(k)(1) or any similar Requirements
of Law, and such certification and such list was in each case true and accurate
when made and remained true and accurate in all material respects
thereafter.  In addition, the Company and
the Subsidiaries are in compliance in all material respects with all applicable
registration and listing requirements set forth in 21 U.S.C. Section 360
and 21 C.F.R. Part 207 and all similar Requirements of Laws with respect
to Reslizumab.

 

(e)                                  Each article of Reslizumab manufactured
and/or distributed by the Company and the Subsidiaries is not adulterated
within the meaning of 21 U.S.C. Section 351 (or similar Requirement of
Law) or misbranded within the meaning of 21 U.S.C. Section 352 (or similar
Requirement of Law), and is not in violation of 21 U.S.C. Section 355 (or
similar Requirement of Law).

 

(f)                                    None of the Company, any Subsidiary or
any of their respective officers, employees or agents has made an untrue
statement of a material fact or fraudulent statement to the FDA or other
Governmental Body, failed to disclose a material fact required to be disclosed
to the FDA or any other Governmental Body, or committed an act, made a
statement, or failed to make a statement that, at the time such disclosure was
made, could reasonably be expected to provide a basis for the FDA or any other
Governmental Body to invoke its policy respecting “Fraud, Untrue Statements of
Material Facts, Bribery, and Illegal Gratuities” set forth in 56 Fed. Reg.
46191 (September 10, 1991) or any similar policy and, to the Knowledge of
the Company, none of the Company, any Subsidiary or any of their respective
officers, employees or agents is the subject, officially or otherwise, of any
pending or threatened investigation by any Governmental Body under such policy
or under the Federal Anti-Kickback Statute or the Civil False Claims Act or any
regulations promulgated thereunder.  None
of the Company, any Subsidiary or any of their respective officers, employees
or agents has been convicted of any crime or engaged in any conduct with
respect to Reslizumab for which debarment is mandated by 21 U.S.C. Section 335a(a) or
any similar Requirement of Law or authorized by 21 U.S.C. Section 335a(b) or
any similar Requirement of Law.

 

(g)                                 To the Knowledge of the Company, all
pre-clinical and clinical investigations conducted or sponsored by it with
respect to Reslizumab have been and are being conducted in compliance with 21
C.F.R. Parts 50, 54, 56, 58 and 312 and all other applicable Requirements of
Laws, including those with respect to good laboratory practices,
investigational new drug requirements, good clinical practice requirements
(including informed consent and institutional review boards designed to ensure
the protection of the rights and welfare of human subjects), and federal and
state laws restricting the use and disclosure of individually identifiable health
information.

 

3.10.                        Real
Property.

 

(a)                                  Neither the Company nor any Subsidiary (i) owns
or has ever owned any real property or (ii) holds any option to acquire
any real property.

 

(b)                                 Schedule 3.10 sets forth a list and brief description
of each lease or similar agreement (showing the parties thereto, annual rental,
expiration date, renewal and purchase options, if any, and the location of the
real property covered by such lease or other agreement)

 

25

 

under which the
Company or any Subsidiary is lessee of, or holds or operates, any real property
owned by any third Person (collectively, the “Leased
Real Property”).  Except as
set forth in Schedule 3.10, the Company or a Subsidiary has the right to
quiet enjoyment of all the Leased Real Property for the full term of the lease
or similar agreement (and any renewal option related thereto) relating thereto,
and the leasehold or other interest of the Company or a Subsidiary in the
Leased Real Property is not subject or subordinate to any Encumbrance except
for Permitted Encumbrances.  Except as
set forth in Schedule 3.10, and except for Permitted Encumbrances, there
are no agreements or other documents to which the Company or any Subsidiary is
a party governing or affecting the occupancy or tenancy of any of the Leased
Real Property by the Company and the Subsidiaries.

 

(c)                                  To the Knowledge of the Company, neither
the whole nor any part of the Leased Real Property is subject to any pending
suit for condemnation or other taking by any Governmental Body, and, to the
Knowledge of the Company, no such condemnation or other taking is threatened or
contemplated.

 

3.11.                        Personal
Property.

 

(a)                                  Schedule 3.11(a) contains a list of all machinery, equipment, vehicles,
furniture and other tangible personal property owned by the Company or a
Subsidiary having an original cost of $100,000 or more.

 

(b)                                 Schedule 3.11(b) contains a list and description of each lease or other
agreement or right, whether written or oral, under which the Company or a
Subsidiary is lessee of, or holds or operates, any machinery, equipment,
vehicle or other tangible personal property owned by a third Person, except for
any such lease, agreement or right that is terminable by the Company or such
Subsidiary without penalty or payment on notice of 60 days or less, or which
involves the payment by the Company or such Subsidiary of rentals of less than
$100,000 per year.

 

3.12.                        Intellectual
Property.

 

(a)                                  The term “Intellectual Property”
means and includes:  (i) inventions,
whether or not patentable, whether or not reduced to practice, and whether or
not yet made the subject of a pending patent application or applications;
United States and foreign patents, multinational statutory invention
registrations, patent registrations and patent applications (including all
divisions, continuations, continuations-in-part, substitutions, patents of
addition), reissues, reexaminations, extensions and all rights therein provided
by the United States, foreign countries and international treaties or
conventions; and all improvements to the inventions disclosed in each such
registration, patent or patent application; and assign patents (collectively, “Patents”);
(ii) trademarks, service marks, trade dress, logos, trade names and
corporate names, whether or not registered, including all common law rights,
and registrations and applications for registrations thereof, including without
limitation, all marks registered in the United States Patent and Trademark
Office, the trademark offices of the states and territories of the United
States, and the trademark offices of other nations throughout the world, and
all rights therein provided by the United States, foreign countries and
international treaties or conventions (collectively, “Marks”); (iii) copyrights
(registered or otherwise) in both published and non published works and
registrations and applications for registration thereof, works of authorship,
and all rights therein

 

26

 

provided by the
United States, foreign countries and international treatise or conventions
(collectively, “Copyrights”); (iv) computer software, including,
without limitation, software code (in any form including course code and
executable or object code), subroutines, databases (including biological
sequence databases), data collections, user interfaces, URLs, internet domain
names, web sites, operating systems and specifications, documentation and other
materials related thereto; (v) trade secrets and confidential, technical
and business information (including inventions whether patentable or
unpatentable and whether or not reduced to practice) (collectively, “Trade
Secrets”); (vi) whether or not confidential, technology (including
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial marketing and business data,
pricing and cost information; (vii) copies and tangible embodiments of all
the foregoing, in whatever form or medium; (viii) all rights to obtain and
rights to apply for patents, and to register trademarks and copyrights; and (ix) all
rights to defend and enforce any of the foregoing.

 

(b)                                 The term “Company IP” means all
Intellectual Property owned by or licensed by the Company and/or one or more of
the Subsidiaries (whether exclusively, non-exclusively, jointly with another
party or otherwise).

 

(c)                                  Schedule 3.12(c) accurately identifies each
proprietary product or service that has been developed by the Company or a
Subsidiary within the last 36 months and any product or service that is
currently under development by the Company or a Subsidiary or that is currently
manufactured and sold by the Company or a Subsidiary.  All products made, used or sold under the
Patents have been or will be, to the extent feasible, marked with the proper
patent notice.

 

(d)                                 Schedule 3.12(d) accurately identifies (i) all
Patents and Marks in which the Company or a Subsidiary has or purports to have
an ownership interest of any nature (whether exclusively, non-exclusively,
jointly with another Person, or otherwise), (ii) where applicable, the
jurisdiction in which such Patent or Mark has been registered or filed and the
applicable registration or serial number and (iii) to the Knowledge of the
Company, any other Person that has an ownership interest in such Patent or Mark
and the nature of such ownership interest.

 

(e)                                  Schedule 3.12(e) accurately identifies (i) all
Intellectual Property licensed to the Company or a Subsidiary, (ii) the
corresponding contract or contracts pursuant to which such Intellectual
Property is licensed to the Company or a Subsidiary, (iii) whether the
license or licenses granted to the Company and the Subsidiaries are exclusive
or non-exclusive and (iv) any royalties paid or received by the Company
and the Subsidiaries.  Schedule 3.12(e) accurately
identifies all research and development licenses and material transfer
agreements to which the Company or a Subsidiary is a party and that is
currently in effect or under which the Company, a Subsidiary or a third party
has continuing obligations.  Neither the
Company nor any Subsidiary is in breach of, or has not complied in all material
respects with the terms of, any license or other agreement relating to Company
IP.  Neither the Company nor any
Subsidiary has received any notice of any such breach or failure to
comply.  No Patents are sublicensed to
the Company or a Subsidiary by a third party. 
Neither the Company nor any Subsidiary has entered into any agreement or
understanding pursuant to which it is obligated to pay a royalty to a third
party other than as disclosed in Schedule 3.12(e).

 

27

 

(f)                                    (i)  Schedule 3.12(f)(i) accurately
identifies each contract pursuant to which any Person has been granted by the
Company or a Subsidiary any license under, or otherwise has received or
acquired any right (whether or not currently exercisable) or interest in, any
Company IP.

 

(ii)                                  Except as set forth in Schedule
3.12(f)(ii), except to the extent that the Company IP is subject to the
patent, technology and know-how rights, “field of use” and geographic
limitations contained in the Company Agreements, neither the Company nor any
Subsidiary is bound by, and no Company IP is subject to, any contract
containing any covenant or other provision that in any way limits or restricts
the ability of the Company or a Subsidiary to use, exploit, assert or enforce
any Company IP anywhere in the world.

 

(g)                                 The Company and the Subsidiaries
exclusively or non-exclusively, as the case may be, own all right, title and
interest to and under the Company IP (other than Intellectual Property licensed
to the Company or a Subsidiary, as identified in Schedule 3.12(e)), free
and clear of any Encumbrances.  Without
limiting the generality of the foregoing:

 

(i)                                     All documents and instruments necessary
to perfect the rights of the Company or a Subsidiary in the Company IP have
been validly executed, delivered and filed in a timely manner with the
appropriate Governmental Body.  The
Company, the Subsidiaries and their respective licensors, as appropriate, are
identified in the records of the U.S. Patent and Trademark Office and
corresponding foreign Governmental Bodies as the holders of record of patents
and patent applications within Company IP and no other Person has any right,
title or interest in such patents and patent applications except as identified
in Schedule 3.12(d).

 

(ii)                                  Each individual who is or was an employee
or contractor of the Company or a Subsidiary and who is or was involved in the
creation or development of any Company IP has signed a valid, enforceable
agreement containing an assignment of Intellectual Property to the Company or
such Subsidiary and confidentiality provisions protecting the Company IP.  Except as set forth in Schedule
3.12(g)(ii), no current or former stockholder, officer, director or
employee of the Company or a Subsidiary has any claim, right (whether or not
currently exercisable) or interest to or in any Company IP.  To the Knowledge of the Company, no employee
of the Company or a Subsidiary is (A) bound by or otherwise subject to any
contract restricting him or her from performing his or her duties for the
Company or such Subsidiary or (B) in breach of any contract with any
former employer or other Person concerning Intellectual Property or
confidentiality.

 

(iii)                               Except as set forth in Schedule
3.12(g)(iii), no funding, facilities or personnel of any Governmental Body
were used, directly or indirectly, to develop or create, in whole or in part,
any Company IP.

 

(iv)                              The Company and the Subsidiaries have
taken reasonable steps in accordance with normal industry practice to maintain
the confidentiality of and otherwise protect and enforce their rights in all
proprietary information that the Company and the Subsidiaries hold, or purport
to hold, as a Trade Secret.  Without
limiting the generality of the foregoing, the proprietary information of the
Company and the Subsidiaries is not

 

28

 

part of the public knowledge.  To the Knowledge of the Company, such
proprietary information has not been used or divulged for the benefit of any
Person other than the Company and the Subsidiaries.  Any receipt or use by, or disclosure to or
from, a third party has been pursuant to the terms of a binding written
confidentiality agreement between the Company or a subsidiary and such third
party (collectively, the “Nondisclosure Agreements”).  The Company and the Subsidiaries are in
compliance with the provisions of the Nondisclosure Agreements.  To the Knowledge of the Company, all other
parties to the Nondisclosure Agreements are in compliance with the provisions
thereof.

 

(v)                                 Except as set forth in Schedule
3.12(g)(v), to the Knowledge of the Company, the Company and the Subsidiaries
have good title to and an absolute right (but not necessarily exclusive) to use
the Trade Secrets.  To the Knowledge of
the Company, the Trade Secrets are not part of the public knowledge or
literature and, to the Knowledge of the Company, have not been used, divulged
or appropriated either for the benefit of any Person or to the detriment of the
Company and the Subsidiaries.  To the
Knowledge of the Company, no Trade Secret is subject to any adverse claim or
has been challenged or threatened in any way or infringes any intellectual
property right or any other Person.

 

(h)                                 To the Knowledge of the Company, the
Company IP is valid, subsisting and enforceable (in the case of patent
applications, would be enforceable if issued as patents).  Without limiting the generality of the
foregoing:

 

(i)                                     For each item of Company IP that is filed
by the Company and registered or issued under the authority of any Governmental
Body whose duty is to register or issue patents, trademarks, copyrights or
other forms of intellectual property protection, all applicable registration
fees, maintenance fees, renewal fees, annuity fees and taxes which are due in
connection with such Company IP have been paid and all other documents in
connection with such Company IP have been filed in the relevant patent,
trademark, copyright offices or other Governmental Body in the United States or
applicable foreign jurisdictions, as the case may be, for the purpose of
maintaining such Company IP.

 

(ii)                                  To the Knowledge of the Company, no
interference, opposition, reissue, reexamination or other proceeding or
challenge is pending or threatened in which the scope, validity, or
enforceability of any Company IP is being or has been contested or challenged
in any court of competent jurisdiction, the U.S. Patent and Trademark Office or any other Governmental Body.  To the
Knowledge of the Company, there is no reasonable basis for a claim that any
claim of an issued patent within Company IP is invalid or unenforceable, or a
claim of a pending patent application within Company IP would be invalid or
unenforceable as a patent claim.

 

(iii)                               The patent and patent applications within
Company IP disclose and claim patentable subject matter under the U.S. patent
laws encompassing the Company’s and the Subsidiaries’ existing products and
products under development.  The Company
and the Subsidiaries are (with respect to Company IP licensed by the Company or
a Subsidiary, to the extent the Company or a Subsidiary is obligated or has the
right to do so (and is exercising such prosecution rights) pursuant to any
agreement relating to

 

29

 

Company IP) diligently prosecuting claims in the
pending patent applications within Company IP claiming existing products and
products currently under development.  To
the Knowledge of the Company, each other party to any such agreement relating
to Company IP that is obligated to prosecute claims is diligently prosecuting
such claims.  To the Knowledge of the
Company, each of these pending patent applications was properly filed and is
being diligently prosecuted.  To the
Knowledge of the Company, and except for the Identified IP, there are no issued
patents or pending applications that could issue as patents that would dominate
or interfere with any pending application claiming any of the Company’s or the
Subsidiaries’ existing products.

 

(i)                                     To the Knowledge of the Company, no
Person has infringed, misappropriated or otherwise violated, and no Person is
currently infringing, misappropriating, or otherwise violating, any Company
IP.  Schedule 3.12(i) accurately
identifies each letter or other written, electronic or other communication or
correspondence that has been sent or otherwise delivered in the last 24 months
by or to the Company or a Subsidiary or any representative of the Company
regarding any actual, alleged, or suspected infringement or misappropriation of
any Company IP, and provides a brief description of the current status of the
matter referred to in such letter, communication, or correspondence.

 

(j)                                     To the Knowledge of the Company, neither
the Company nor any Subsidiary has infringed (whether direct, contributory or
induced), misappropriated or otherwise violated any Intellectual Property right
of any other Person.  Without limiting
the generality of the foregoing:

 

(i)                                     Except as set forth on Schedule
3.12(j)(i) and except with respect to the Identified IP, to the
Knowledge of the Company, no product or service that (A) has been, or is
being, developed, (B) is the subject of an investigational new drug or
human clinical trial or (C) is being currently, or is contemplated to be,
sold by the Company or a Subsidiary, infringes, misappropriates or otherwise
violates the Intellectual Property rights of any other Person and, to the
Knowledge of the Company, no process or know-how used or currently contemplated
to be used by the Company and the Subsidiaries infringes, misappropriates or
otherwise violates the Intellectual Property rights of any other Person.

 

(ii)                                  Except as set forth in Schedule
3.12(j)(ii): no infringement, misappropriation, or similar claim, suit,
action, proceeding or investigation is pending or, to the Knowledge of the
Company, threatened against the Company, a Subsidiary or against any other
Person who may be entitled to be indemnified, defended, held harmless or
reimbursed by the Company with respect to such claim, suit, action, proceeding
or investigation; and neither the Company nor any Subsidiary has received any
notice or other written or, to the Knowledge of the Company, oral communication
relating to any actual, alleged or suspected infringement, misappropriation or
violation of any Intellectual Property rights of another Person.

 

(iii)                               Except as described in Schedule
3.12(j)(iii), neither the Company nor any Subsidiary is bound by any
contract to indemnify, defend, hold harmless or reimburse any other Person with
respect to any intellectual property infringement, misappropriation, or similar
claim.  Neither the Company nor any
Subsidiary has assumed, or agreed to

 

30

 

discharge or otherwise take responsibility for, any
existing or potential liability of another Person for infringement,
misappropriation or violation of any Intellectual Property right.

 

(k)                                  To
the Knowledge of the Company, no claim, suit, action, proceeding or
investigation involving any Intellectual Property licensed to the Company is
pending or has been threatened.

 

(l)                                     Schedule
3.12(l) contains a complete and accurate list and summary description
of all Marks.

 

(i)                                     Except
as set forth in Schedule 3.12(l), all Marks have been registered with
the U.S. Patent and Trademark Office, are currently in compliance with all
formal legal requirements (including the timely post-registration filing of
affidavits of use and incontestability and renewal applications), are valid and
enforceable.

 

(ii)                                  No
Mark has been or is now involved in any opposition, invalidation or
cancellation claim, suit, action, proceeding or investigation and, to the
Knowledge of the Company, no such action is threatened with respect to any of
the Marks.

 

(iii)                               To
the Knowledge of the Company, there is no potentially interfering trademark or
trademark application of any other Person.

 

(iv)                              Except
as set forth in Schedule 3.12(l), no Mark is infringed or has been
challenged or threatened in any way and, to the Knowledge of the Company, none
of the Marks used by the Company or any Subsidiary infringes or is alleged to
infringe any trade name, trademark or service mark of any other Person.

 

(v)                                 All
products and materials containing a Mark bear the proper federal registration
notice where permitted by Requirements of Laws.

 

(m)                               The
Company and the Subsidiaries do not have an ownership interest in any
registered Copyrights.

 

(n)                                 Neither
the execution, delivery, or performance of this Agreement, the Company
Ancillary Agreements or the Merger Agreement nor the consummation of any of the
transactions contemplated by this Agreement, the Company Ancillary Agreements
or the Merger Agreement will, with or without notice or lapse of time, result
in, or give any other Person the right or option to cause or declare, (i) a
loss of, or encumbrance on, any Company IP, (ii) a breach by the Company
or a Subsidiary of any license agreement listed or required to be listed in Schedule
3.12(f), (iii) the release, disclosure or delivery of any Company IP
by or to any escrow agent or other Person or (iv) the grant, assignment,
or transfer to any other Person of any license or other right or interest
under, to, or in any of the Company IP.

 

(o)                                 [**]

 

3.13.                        Inventories.  The Company has no inventories (as that term
is used for purposes of U.S. generally accepted accounting principles).

 

**Portions of the Exhibit have been omitted and have been filed
separately pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.

 

31

 

3.14.                        Title to Property.  The Company or a Subsidiary has good and
marketable title to all of the assets reflected on the Balance Sheet as being
owned by the Company or a Subsidiary, free and clear of all Encumbrances,
except for Permitted Encumbrances and except as set forth in Schedule 3.14.

 

3.15.                        Employees and Related Agreements;
ERISA.  (a) 
Set forth in Schedule 3.15(a) is
a true and complete list of each “employee pension benefit plan” (as such term
is defined in Section 3(2) of ERISA) maintained by the Company, a
Subsidiary or an ERISA Affiliate (defined in paragraph (f) below), or with
respect to which the Company, a Subsidiary or an ERISA Affiliate is or will be
required to make any payment, or which provides or will provide benefits to
present or prior employees of the Company, a Subsidiary or an ERISA Affiliate
due to such employment (the “Pension Plans”).  Set forth in Schedule
3.15(a) is a true and complete list of each “employee
welfare benefit plan” (as such term is defined in Section 3(1) of
ERISA) maintained by the Company or a Subsidiary, or with respect to which the
Company or a Subsidiary is or will be required to make any payment, or which
provides or will provide benefits to present or prior employees of the Company
or a Subsidiary due to such employment (the “Welfare Plans”)
(the Pension Plans and Welfare Plans being the “ERISA Benefit
Plans”).  None
of the Company, any Subsidiary or any ERISA Affiliate has ever maintained,
contributed to or has any potential liability with respect to any “employee
pension benefit plan” (as such term is defined in Section 3(2) of
ERISA) that is or has ever been subject to Section 302 of ERISA (including
any defined benefit plan within the meaning of Section 3(35) of ERISA and
any multiemployer plan within the meaning of 3(37) of ERISA).

 

(b)                                 Other
than those listed in Schedule 3.15(a), set
forth in Schedule 3.15(b) is
a true and complete list of each of the following to which the Company or a
Subsidiary is a party or with respect to which it is or will be required to
make any payment (the “Non-ERISA Commitments”):

 

(i)                                     each
retirement, savings, profit sharing, deferred compensation, severance, stock
ownership, stock purchase, stock option, performance, bonus, incentive,
vacation or holiday pay, hospitalization or other medical, disability, life or
other insurance, or other welfare, benefit or fringe benefit plan, policy,
trust, understanding or arrangement of any kind, whether written or oral; and

 

(ii)                                  each
agreement, understanding or arrangement, whether written or oral, with or for
the benefit of any present or prior officer, director, employee agent or
consultant (including each employment, compensation, deferred compensation,
severance or consulting agreement or arrangement, confidentiality agreement,
covenant not to compete and any agreement or arrangement associated with a
change in ownership or control of the Company or a Subsidiary, but excluding
employment agreements terminable by the Company or such Subsidiary without
premium or penalty on notice of thirty (30) days or less under which the only
monetary obligation of the Company or such Subsidiary is to make current wage
or salary payments and provide current fringe benefits).

 

The
Company has delivered or made available to Optionee correct and complete copies
of (i) all written Non-ERISA Commitments and (ii) all insurance and
annuity policies and contracts and

 

32

 

other
documents relevant to any Non-ERISA Commitment. 
Schedule 3.15(b) contains
a complete and accurate description of all material oral Non-ERISA Commitments
as of the date of this Agreement.  Except
as disclosed in Schedule 3.15(a) or
Schedule 3.15(b), none of the ERISA Benefit
Plans or the Non-ERISA Commitments is subject to the law of any jurisdiction
outside of the United States.

 

(c)                                  The
Company has delivered or made available to Optionee with respect to each ERISA
Benefit Plan correct and complete copies, where applicable, of (i) all
plan documents and amendments thereto, trust agreements and amendments thereto
and insurance and annuity contracts and policies, (ii) the current summary
plan description, (iii) the Annual Reports (Form 5500 series) and
accompanying schedules, as filed, for all completed plan years for which such
reports have been filed, (iv) the financial statements for all completed
plan years for which such statements have been prepared, (v) the actuarial
reports for all completed plan years for which such reports exist, (vi) the
most recent determination letter issued by the IRS and (vii) all
correspondence with the IRS, Department of Labor and Pension Benefit Guaranty
Corporation concerning any controversy since the inception of the Company or
any Subsidiary.  Each report described in
clause (v) of the preceding sentence accurately describes the funded
status of the plan to which it relates, and subsequent to the date of such
report there has been no adverse change in the funding status or financial
condition of such plan.  Each ERISA
Benefit Plan listed in Schedule 3.15(a) which is intended to
qualify under Section 401(a) of the Code has received a favorable
determination letter from the IRS that such ERISA Benefit Plan is so qualified
under the Code, and no circumstance exists which might cause such ERISA Benefit
Plan to cease being so qualified.  There
is no pending or, to the Knowledge of the Company, threatened action, suit or
claim in respect of any of the ERISA Benefit Plans or the assets of such ERISA
Benefit Plans other than routine claims for benefits in the ordinary course of
business.  Except as set forth in Schedule 3.15(c), each of the ERISA Benefit Plans
(i) has been administered in accordance with its terms in all material
respects and (ii) complies in form, and has been administered in
accordance, in all material respects, with the requirements of ERISA and, where
applicable, the Code, and there has been no notice issued by any governmental
authority questioning or challenging such compliance.  Except as set forth in Schedule 3.15(c),
the Company, each Subsidiary and each ERISA Affiliate has complied, in all
material respects, with the health care continuation requirements of Part 6
of Title I of ERISA.  Except as set forth
in Schedule 3.15(c), neither the Company nor any Subsidiary has any
obligation under any ERISA Benefit Plans or otherwise to provide health or
other welfare benefits to any prior employees or any other Person, except as
required by Part 6 of Title I of ERISA. 
Except as disclosed in Schedule 3.15(c), (1) the
consummation of the transaction contemplated by this Agreement and the Merger
Agreement (either alone or in connection with another event) will not result in
an increase in the amount of compensation or benefits or accelerate the vesting
or timing of payment of any compensation or benefits payable to or in respect
of any participant, (2) no amounts will become payable for which Optionee
will bear any liability and (3) no payment will be required pursuant to
any ERISA Benefit Plan which is not deductible under Section 162(m) of
the Code.  The Company and the
Subsidiaries are in compliance with the requirements of the Workers Adjustment
and Retraining Notification Act (“WARN”)
and have no material liabilities pursuant to WARN, except for such failures to
comply that would not individually or in the aggregate have a Material Adverse
Effect.

 

33

 

(d)                                 The
Company and the Subsidiaries have no liability of any kind whatsoever, whether
direct, indirect, contingent or otherwise, (i) on account of any material
violation of the health care requirements of Part 6 of Title I of ERISA or
Section 4980B of the Code, (ii) under Section 502(i) or Section 502(l) of
ERISA or Section 4975 of the Code, (iii) under Section 302 of
ERISA or Section 412 of the Code or (iv) under Title IV of ERISA.

 

(e)                                  Except
as set forth in Schedule 3.15(e), all ERISA Benefit Plans and Non-ERISA
Commitments subject to Section 409A of the Code are in compliance with the
currently applicable requirements of Section 409A and the regulations,
rulings and notices thereunder.

 

(f)                                    Schedule 3.15(f) contains:  (i) a list of all employees or
commission salespersons of the Company and the Subsidiaries; (ii) the
current annual compensation of, and a description of the fringe benefits (other
than those generally available to employees of the Company and the
Subsidiaries) provided by the Company and the Subsidiaries to, any such
employees or commission salespersons; (iii) a list of all present or
former employees or commission salespersons of the Company and the Subsidiaries
paid in excess of $100,000 in calendar year 2008 who have terminated or given
notice of their intention to terminate their relationship with the Company and
the Subsidiaries; and (iv) a list of any increase, effective after December 31,
2008, in the rate of compensation of any employees or commission salespersons if
such increase exceeds 5% of the previous annual salary of such employee or
commission salesperson.

 

(g)                                 For
purposes of this Agreement, “ERISA Affiliate” means:  (i) any corporation which at any time on
or before the date hereof is or was a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Code) as
the Company; (ii) any partnership, trade or business (whether or not
incorporated) which at any time on or before the date hereof is or was under
common control (within meaning of Section 414(c) of the Code) with
the Company; and (iii) any entity which at any time on or before the date
hereof is or was a member of the same affiliated service group (within the
meaning  of Section 414(m) of
the Code) as either the Company, any corporation described in clause (i) of
this paragraph or any partnership, trade or business described in clause (ii) of
this paragraph.

 

3.16.                        Employee Relations.  Except as set forth in Schedule
3.16, the Company and the Subsidiaries have complied in all material
respects with all applicable Requirements of Laws relating to prices, wages,
hours, discrimination in employment and collective bargaining and to the
operation of their business and are not liable for any arrears of wages or any
Taxes or penalties for failure to comply with any of the foregoing.  The Company believes that its relations with
its employees are satisfactory.  Neither
the Company nor any Subsidiary is a party to, and is not, to the Knowledge of
the Company, threatened with, any dispute or controversy with a union or with
respect to unionization or collective bargaining involving its employees.  No union organizing or election activities
involving any employees of the Company and the Subsidiaries have occurred since
January 1, 2007 or, to the Knowledge of the Company, are threatened as of
the date hereof.

 

3.17.                        Contracts.  Except as set forth in Schedule
3.17 or any other Schedule hereto, neither the Company nor any
Subsidiary is a party to or bound by:

 

(i)                                     any
contract for the purchase or sale of real property;

 

34

 

(ii)                                  any
contract for the purchase of services, materials, supplies or equipment which
involved the payment of more than $150,000 in 2008, which the Company reasonably
anticipates will involve the payment of more than $150,000 in 2009 or which the
Company reasonably anticipates will involve the payment of more than $150,000
in any year after December 31, 2009;

 

(iii)                               any
contract for the sale of goods or services which involved the payment of more
than $150,000 in 2008, which the Company reasonably anticipates will involve
the payment of more than $150,000 in 2009 or which the Company reasonably
anticipates will involve the payment of more than $150,000 in any year after December 31,
2009;

 

(iv)                              any
contract for the purchase, licensing or development of software, other than “shrink
wrap” or “click wrap” software licenses obtained in the ordinary course of
business;

 

(v)                                 any
consignment, distributor, dealer, manufacturers representative, sales agency,
advertising representative or advertising or public relations contract which
involved the payment of more than $50,000 in 2008, which the Company reasonably
anticipates will involve the payment of more than $50,000 in 2009 or which the
Company reasonably anticipates will involve the payment of more than $50,000 in
any year after December 31, 2009;

 

(vi)                              any
agreement, instrument or note which provides for, or relates to, the incurrence
by the Company or a Subsidiary of Indebtedness (including any derivative
financial instrument, hedge or swap entered into for the purpose of managing
the interest rate and/or foreign exchange risk associated with its financing);

 

(vii)                           any
guarantee of the obligations of customers, suppliers, officers, directors,
employees, Affiliates or others;

 

(viii)                        any
contract which limits or restricts where the Company or a Subsidiary may
conduct their business or the type or line of business in which the Company or
any Subsidiary may engage;

 

(ix)                                any
contract under which the Company or a Subsidiary has advanced or loaned, or
agreed to advance or loan, any other Person amounts that in the aggregate
exceed $25,000, excluding advances to employees for reasonable travel and other
business expenses incurred in the ordinary course of business;

 

(x)                                   any
partnership, joint venture or other similar arrangement or agreement involving
a sharing of profits or losses;

 

(xi)                                any
contract not made in the ordinary course which involved the payment of more
than $150,000 in 2008, which the Company reasonably anticipates will involve
the payment of more than $150,000 in 2009 or which the Company reasonably
anticipates will involve the payment of more than $150,000 in any year after December 31,
2009; or

 

35

 

(xii)                             any
other contract, agreement, commitment, understanding or instrument which is
material to the Company and the Subsidiaries, taken as a whole.

 

3.18.                        Status of Contracts.  Except as set forth in Schedule
3.18 or in any other Schedule hereto, each of the leases, contracts
and other agreements listed in Schedules 3.10(b),
3.11(b), 3.12(e),
3.12(f), 3.12(j), 3.15(b) and
3.17 (collectively, the “Company Agreements”) constitutes a valid and
binding obligation of the Company or Subsidiary party thereto and, to the
Knowledge of the Company, each other party thereto, and is in full force and
effect and (except as set forth in Schedule 3.3
and except for those Company Agreements which by their terms will expire prior
to the Option Termination Date or are otherwise terminated prior to the Option
Termination Date in accordance with the provisions thereof) will continue in
full force and effect after the date hereof and after the exercise of the
Option and the consummation of the Merger, in each case without breaching the
terms thereof or resulting in the forfeiture or impairment of any rights
thereunder and without the consent, approval or act of, or the making of any
filing with, any other party.  The
Company or a Subsidiary has fulfilled and performed in all material respects
its obligations under each of the Company Agreements, and neither the Company
nor any Subsidiary is in, or, to the Knowledge of the Company, alleged to be
in, breach or default under, nor is there or, to the Knowledge of the Company,
is there alleged to be any basis for termination of, any of the Company
Agreements and, to the Knowledge of the Company, no other party to any of the
Company Agreements has breached or defaulted thereunder, and no event has
occurred and no condition or state of facts exists which, with the passage of
time or the giving of notice or both, would constitute such a default or breach
by the Company, any Subsidiary or, to the Knowledge of the Company, any such
other party.  Except as set forth in Schedule
3.18, neither the Company nor any Subsidiary is currently renegotiating any
of the Company Agreements or paying liquidated damages in lieu of performance
thereunder.  Complete and correct copies
of each of the Company Agreements, including all amendments, exhibits and
schedules thereto, have heretofore been delivered or made available to
Optionee.

 

3.19.                        No Violation or Litigation.  Except as set forth in Schedule
3.19:

 

(i)                                     the
assets and properties of the Company and the Subsidiaries and their uses comply
in all material respects with all applicable Requirements of Laws and Court
Orders (which Court Orders are listed in Schedule 3.19) to which the
Company or a Subsidiary is subject or a party;

 

(ii)                                  the
Company and the Subsidiaries have complied in all material respects with all
Requirements of Laws and Court Orders which are applicable to the assets,
properties and business of the Company and the Subsidiaries;

 

(iii)                               there
are no lawsuits, claims, suits, proceedings or investigations pending or, to
the Knowledge of the Company, threatened against the Company, a Subsidiary or
their assets, properties, business or employees (in their capacities as such)
nor, to the Knowledge of the Company, is there any basis for any of the same,
and there are no lawsuits, claims or proceedings pending in which the Company
or a Subsidiary is the plaintiff or claimant; and

 

36

 

(iv)                              there
is no action, suit or proceeding pending or, to the Knowledge of the Company,
threatened which questions the legality or propriety of the transactions
contemplated by this Agreement or the Merger Agreement.

 

3.20.                        Environmental Matters.    Except as set forth in Schedule 3.20:

 

(i)                                     the
past and present operations of the Company and the Subsidiaries have complied
and are in compliance in all material respects with all applicable
Environmental Laws;

 

(ii)                                  the
Company and the Subsidiaries have obtained all environmental, health and safety
Governmental Permits necessary for the operation of their business in all
material respects, and all such Governmental Permits are in good standing and
the Company and the Subsidiaries are in compliance in all material respects
with all terms and conditions of such Governmental Permits;

 

(iii)                               none
of the Company, any Subsidiary or any of the present Company Property or
operations, or the past Company Property or operations, is, to the Knowledge of
the Company, subject to any on-going investigation by, order from or agreement
with any Person (including any prior owner or operator of Company Property)
respecting (A) any Environmental Law, (B) any Remedial Action or (C) any
claim of Losses and Expenses arising from the Release or threatened Release of
a Contaminant into the environment;

 

(iv)                              neither
the Company nor any Subsidiary is subject to any judicial or administrative
proceeding, order, judgment, decree or settlement alleging or addressing a
violation of or liability by the Company or any Subsidiary under any
Environmental Law;

 

(v)                                 neither
the Company nor any Subsidiary has:

 

(A)                              reported
a Release of a hazardous substance pursuant to Section 103(a) of
CERCLA, or any state equivalent;

 

(B)                                filed
a notice pursuant to Section 103(c) of CERCLA;

 

(C)                                filed
notice pursuant to Section 3010 of RCRA indicating the generation of any
hazardous waste, as that term is defined under 40 C.F.R. Part 261 or any
state equivalent; or

 

(D)                               filed
any notice under any applicable Environmental Law reporting a substantial
violation of any applicable Environmental Law;

 

(vi)                              to
the Knowledge of the Company, there is not now, nor has there ever been, on or
in any Company Property:

 

(A)                              any
treatment, recycling, storage or disposal of any hazardous waste, as that term
is defined under 40 C.F.R. Part 261 or any state equivalent,

 

37

 

that requires or required a Governmental Permit
pursuant to Section 3005 of RCRA; or

 

(B)                                any
underground storage tank or surface impoundment or landfill or waste pile;

 

(vii)                           to the
Knowledge of the Company, there is not now on or in any Company Property any
polychlorinated biphenyls used in pigments, hydraulic oils, electrical
transformers or other equipment;

 

(viii)                        neither
the Company nor any Subsidiary has received any written notice or claim to the
effect that it is or may be liable to any Person as a result of the Release or
threatened Release of a Contaminant;

 

(ix)                                no
Company Property has been listed or, to the Knowledge of the Company, proposed
for listing on the National Priorities List pursuant to CERCLA, on the
Comprehensive Environmental Response, Compensation and Liability Information
System List or any state list of sites requiring Remedial Action;

 

(x)                                   the
Company has not sent or arranged for the transport of any Contaminant to any
site listed on the National Priorities List pursuant to CERCLA or that
otherwise could give rise to liability on the part of the Company for Remedial
Action, Losses or Expenses;

 

(xi)                                no
Environmental Encumbrance has attached to any Company Property; and

 

(xii)                             to
the Knowledge of the Company, any asbestos-containing material which is on or
part of any Company Property is in good repair according to the current
standards and practices governing such material, and, to the Knowledge of the
Company, its presence or condition does not violate any currently applicable
Environmental Law.

 

3.21.                        Insurance.  The Company and the Subsidiaries maintain,
own or hold valid policies of workers’ compensation and of insurance with
respect to their assets, properties and business of the kinds and in the
amounts not less than is customarily maintained by companies of a similar stage
of development engaged in the same or similar business and similarly situated,
including insurance against loss, damage, fire, theft and public liability.  Schedule 3.21
sets forth a list and brief description (including nature of coverage, limits,
deductibles, premiums and the loss experience for the most recent three years
with respect to each type of coverage) of all such policies of insurance
maintained, owned or held by the Company and the Subsidiaries.  The Company and the Subsidiaries have
complied with each of such insurance policies and have not failed to give any
notice of, or present any, material claim thereunder in a due and timely
manner.  The Company has delivered or
made available to Optionee correct and complete copies of the most recent
inspection reports, if any, received from insurance underwriters as to the
condition of the Company’s and the Subsidiaries’ assets.

 

3.22.                        Suppliers.  Schedule 3.22
sets forth a list of the top 15 suppliers of the Company and the
Subsidiaries.  Except as set forth in Schedule 3.22, there exists no actual or, to the

 

38

 

Knowledge
of the Company, threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship of the Company and the
Subsidiaries with any supplier or group of suppliers listed in Schedule 3.22, and, to the Knowledge of the
Company, there exists no condition or state of facts or circumstances involving
suppliers which the Company can now reasonably foresee would materially
adversely affect its business or prevent the conduct of its business after the
consummation of the transactions contemplated by this Agreement and the Merger
Agreement in essentially the same manner in which it has heretofore been
conducted or is proposed to be conducted pursuant to the Operating Plan.

 

3.23.                        Takeover Laws.  The
Company has taken all action required to be taken by it in order to exempt this
Agreement, the Merger Agreement and the Merger from, and this Agreement, the
Merger Agreement and the Merger are exempt from, the requirements of any “fair
price,” “moratorium,” “control share acquisition” statute or other similar anti-takeover
statute or regulation enacted under any Requirements of Laws, or any takeover
provision in the Certificate of Incorporation or the Company’s by-laws.

 

3.24.                        Approval by Stockholders.  On the basis
of the Certificate of Incorporation (including, in the case of clause (b) below,
as amended by the Charter Amendment), the DGCL and the Stockholders’ Agreement,
(a) the sole required approval of the stockholders of the Company of this
Agreement and the consummation of the transactions contemplated hereby is the
approval, by vote or written consent, of the holders of at least 77% of the
issued and outstanding shares of Series C-1 Preferred Stock and Series C-2
Preferred Stock, voting together as a single class on an as-if converted to
Common Stock basis, pursuant to Sections 3.2(b) and 3.2(r) of
the Stockholders’ Agreement and (b) the sole required approvals of the
stockholders of the Company of the Merger Agreement and the Merger are the
approval, by vote or written consent, of the holders of (i) at least 77%
of the issued and outstanding shares of Series C-1 Preferred Stock and Series C-2
Preferred Stock, voting together as a single class on an as-if converted to
Common Stock basis, pursuant to Sections 3.2(b) and 3.2(r) of
the Stockholders’ Agreement, (ii) if waiver of the 20 business day notice
set forth in ARTICLE FOURTH, (C), Section 4(n) of the Certificate of
Incorporation is required prior to effecting the Merger, at least 77% of the
issued and outstanding shares of Series C-2 Preferred Stock, voting as a
single class on an as-if converted to Common Stock basis, pursuant to such
section, and (iii) of a majority of the outstanding shares of the Company’s
capital stock, voting together as a single class on an as-if converted to
Common Stock basis.  The shares of
Outstanding Company Stock that are subject to the Stockholder Option Agreements
are, if voted in favor of the Merger, sufficient to authorize and approve the
Merger pursuant to the Certificate of Incorporation (including as amended by
the Charter Amendment), the DGCL and the Stockholders’ Agreement.

 

3.25.                        Foreign Corrupt Practices Act; Etc.  The Company, the Subsidiaries
and, to the Knowledge of the Company, its and the Subsidiaries’ officers,
directors, employees and agents are in compliance with and have not violated in
any material respect the Foreign Corrupt Practices Act of 1977 or any similar
Requirements of Laws of any foreign jurisdiction.  To the Knowledge of the Company, no
governmental or political official in any country is or has been employed by,
acted as a consultant to or held any beneficial ownership in the Company or any
Subsidiary.  The Company, the
Subsidiaries and, to the Knowledge of the Company, its and the Subsidiaries’
officers, directors, employees and agents are in compliance with and have not
violated any U.S. anti-money laundering Requirements of Laws, the U.S. Bank
Secrecy Act, the

 

39

 

USA PATRIOT Act or the anti-money laundering Requirements of Laws of any
foreign jurisdiction.

 

3.26.                        No Finder.  Except as set forth in Schedule 3.26,
neither the Company nor any Person acting on its behalf has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary
for or on account of the transactions contemplated by this Agreement and the
Merger Agreement.

 

3.27.                        Disclosure.  This Agreement and the Schedules hereto
(including the representations and warranties set forth herein and therein),
when viewed collectively, do not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
contained herein or therein not misleading in light of the circumstances in
which they were made.  To the Knowledge
of the Company, there is no fact which the Company has not disclosed to
Optionee or its intellectual property counsel, McCarter & English,
LLP, in writing that has had or would reasonably be expected to have a Material
Adverse Effect.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF OPTIONEE

 

As an inducement to the Company to enter into this Agreement and to
consummate the transactions contemplated hereby, Optionee hereby represents and
warrants to the Company and agrees as follows:

 

4.1.                              Organization of Optionee.  Optionee is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to own or lease and to operate and
use its properties and assets and to carry on its business as now conducted.

 

4.2.                              Authority of Optionee.

 

(a)                                  Optionee
has full corporate power and authority to execute, deliver and perform this
Agreement, all of the Optionee Ancillary Agreements and the Merger
Agreement.  The execution, delivery and
performance of this Agreement, the Optionee Ancillary Agreements and the Merger
Agreement (together with the other instruments, documents and agreements
contemplated by or to be executed in connection with the transactions
contemplated by the Merger Agreement) by Optionee have been duly authorized and
approved by Optionee’s board of directors and do not require any further
authorization or consent of Optionee or its stockholders.  This Agreement has been duly authorized,
executed and delivered by Optionee and is the legal, valid and binding
agreement of Optionee enforceable in accordance with its terms, and each of the
Optionee Ancillary Agreements has been duly authorized by Optionee and upon
execution and delivery by Optionee will be a legal, valid and binding
obligation of Optionee enforceable in accordance with its terms, in each case
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law).

 

(b)                                 Neither
the execution and delivery of this Agreement, any of the Optionee Ancillary
Agreements or the Merger Agreement, nor the consummation of any of the

 

40

 

transactions
contemplated hereby or thereby nor compliance with or fulfillment of the terms,
conditions and provisions hereof or thereof, nor the exercise of the Option, in
each case by Optionee, will:

 

(i)                                     conflict
with, result in a breach of the terms, conditions or provisions of, or
constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation or a loss of rights under (A) the
certificate of incorporation or by-laws of Optionee, (B) any material
note, instrument, agreement, mortgage, lease, license, franchise, permit or
other authorization, right, restriction or obligation to which Optionee is a
party or any of its properties or assets is subject or by which Optionee is
bound, (C) any Court Order to which Optionee is a party or any of Optionee’s
properties or assets is subject or by which it is bound or (D) any
material Requirements of Laws affecting Optionee, its assets or its business;
or

 

(ii)                                  require
the approval, consent, authorization or act of, or the making by Optionee of
any declaration, filing or registration with, any Person, except, with respect
to the consummation of the Merger, as provided under the HSR Act.

 

4.3.                              No Finder.  Neither Optionee nor any Person acting on its
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated by
this Agreement.

 

4.4.                              Financial
Wherewithal.  Optionee has the
financial wherewithal, in the form of cash on hand, to fund the Credit
Agreement and to pay the Closing Date Merger Consideration (as defined in the
Merger Agreement).

 

ARTICLE V

ACTION PRIOR TO THE OPTION TERMINATION DATE

 

The respective parties hereto covenant and agree to take the following
actions between the date hereof and the earlier of the Option Termination Date
or, if the Option is exercised prior to the Option Termination Date, the Merger
Agreement Execution Date:

 

5.1.                              Investigation by Optionee;
Information Rights.

 

(a)                                  The
Company shall afford the officers, employees and authorized representatives of
Optionee (including independent public accountants and attorneys) reasonable
access, upon three (3) business days’ notice and not more than three (3) times
per calendar quarter (provided, that with respect to Optionee’s and/or
Optionee’s auditors’ request for, and access to, financial records and
information that are required for Optionee to prepare its financial statements
or for Optionee’s auditors to review, audit or perform other procedures on
Optionee’s financial statements, Optionee and Optionees’ auditors shall only be
required to provide reasonable advance notice and shall not be limited in the
number of visits it may make), during normal business hours to the offices,
properties, employees and business and financial records (including computer
files, retrieval programs and similar documentation) of the Company and the
Subsidiaries to the extent Optionee shall deem necessary or desirable and shall
furnish to Optionee or its authorized representatives such additional
information concerning the assets, properties, operations and businesses of the
Company and the Subsidiaries as shall be reasonably

 

41

 

requested,
including all such information as shall be necessary to enable Optionee or its
representatives to verify the accuracy of the representations and warranties
contained in this Agreement and to verify that the covenants of the Company
contained in this Agreement are being and have been complied with.  Optionee agrees that such investigation shall
be conducted in such a manner as not to interfere unreasonably with the
operations of the Company and the Subsidiaries.

 

(b)                                 The
Company shall:

 

(i)                                     deliver
to Optionee as soon as practicable, but in any event within one-hundred fifteen
(115) days after the end of each fiscal year of the Company, a consolidated
income statement for such fiscal year, a consolidated balance sheet as of the
end of such year and a consolidated cash flow statement for such fiscal year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with U.S. generally accepted accounting principles consistently
applied, and audited and certified by independent public accountants of
nationally recognized standing selected by the Company, and additionally, the
Company shall deliver a draft of such year-end financial reports to Optionee as
soon as practicable, but in any event within one-hundred ten (110) days after
the end of each fiscal year of the Company;

 

(ii)                                  deliver
to Optionee as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited consolidated profit or loss statement for
such fiscal quarter, an unaudited consolidated balance sheet as of the end of
such fiscal quarter and an unaudited consolidated cash flow statement for such
fiscal quarter;

 

(iii)                               deliver
to Optionee within ten (10) business days of the end of each month, an
unaudited consolidated income statement for such month, an unaudited
consolidated balance sheet as of the end of such month and an unaudited
consolidated cash flow statement for such month, in reasonable detail;

 

(iv)                              deliver
to Optionee as soon as practicable, but in any event fifteen (15) days prior to
the end of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months and, within three (3) business
days after presentation to the Company’s Board of Directors, any other budgets
or revised budgets prepared by the Company (it being understood that such
delivery shall not in any manner amend or modify the Operating Plan);

 

(v)                                 deliver
to Optionee as soon as reasonably practicable, additional supporting financial
information as mutually agreed upon by Optionee and the Company;

 

(vi)                              deliver
to Optionee, with respect to the audited financial statements called for in
subsection (i) and the unaudited financial statements called for in
subsection (ii) of this Section 5.1(b), an instrument executed
by the chief financial officer or chief executive officer of the Company,
certifying that such financials were prepared in accordance with U.S. generally
accepted accounting principles consistently applied with

 

42

 

prior practice for earlier periods and fairly present,
in all material respects, the consolidated financial condition of the Company
and the Subsidiaries and its results of operation for the period specified,
subject to year-end audit adjustments and, in the case of the financial
statements called for in subsection (ii) of this Section 5.1(b),
footnotes;

 

(vii)                           deliver
to Optionee, with respect to the unaudited financial statements called for in
subsection (iii) of this Section 5.1(b), an instrument
executed by the chief financial officer or chief executive officer of the
Company, certifying that such financials were prepared in accordance with U.S.
generally accepted accounting principles consistently applied with prior
practice for earlier periods and fairly present, in all material respects, the
consolidated financial condition of the Company and the Subsidiaries and its
results of operation for the period specified, subject to year-end audit
adjustments, including non-cash option-related compensation expense and
obligations related to the F&F C-2 Share Rights and Series C-3
Issuance Rights;

 

(viii)                        deliver or
make available to Optionee a copy of each report, schedule and other document
filed, published, announced or received by the Company or any Subsidiary
pursuant to applicable Requirements of Laws, including all clinical trial data,
protocols and clinical trial agreements, and any correspondence with the FDA or
any analogous foreign Governmental Body, any taxing authority, the U.S. Patent
and Trademark Office or any analogous foreign Governmental Body; and

 

(ix)                                deliver
or make available to Optionee a copy of any presentation or report provided to
the Company’s Board of Directors relating to the development of Reslizumab.

 

(c)                                  Optionee
will hold any information obtained pursuant to this Section 5.1 in
confidence in accordance with, and will otherwise be subject to, the provisions
of the Confidentiality Agreement (it being understood that Optionee shall be
permitted to disclose such information to the extent required by applicable
Requirements of Law or the rules of any applicable securities
exchange).  No investigation made by
Optionee or its representatives hereunder shall affect the representations and
warranties of the Company hereunder or under the Merger Agreement.

 

(d)                                 Notwithstanding
any disclosure requirements of the Company set forth in this Article V,
the Company shall not be obligated to disclose to Optionee any proprietary
information to the extent such disclosure would, or would be reasonably
expected to, violate any contractual obligation of the Company or would cause
the Company or a Subsidiary to waive the attorney-client privilege; provided,
however, that the Company:  (i) shall
be entitled to withhold only such information that may not be provided without
causing such violation or waiver; (ii) shall provide to Optionee all
related information that may be provided without causing such violation or
waiver (including, to the extent permitted, redacted versions of any such
information); (iii) at the request of Optionee, shall cooperate with
Optionee and use its commercially reasonable efforts to obtain the consent or
waiver of any third party to the disclosure in full of all such information to
Optionee; and (iv) shall enter into such joint-defense agreements or other
protective arrangements as may be reasonably requested by Optionee in

 

43

 

order that all
such information may be provided to Optionee without causing such violation or
waiver.

 

5.2.                              Preserve Accuracy of
Representations and Warranties; Notification of Certain Matters.

 

(a)                                  The
Company shall:  (i) refrain from
taking any action which would render (A) any representation or warranty
made by it in Article III (other than any MAE Representations or
Updated Representations) inaccurate in any material respect as of the Option
Exercise Date, (B) any of the MAE Representations inaccurate in any
respect that would reasonably be expected to have a Material Adverse Effect or (C) any
Updated Representations inaccurate in any material respect after giving effect
to the Updated Schedules; and (ii) use commercially reasonable efforts to
cause (A) each of the representations and warranties made by it in Article III
(other than any MAE Representations or Updated Representations) to be true and
correct in all material respects as of the Option Exercise Date, (B) each
of the MAE Representations to be true and correct in all respects, except for
such breaches of such MAE Representations as would not reasonably be expected
to have Material Adverse Effect, and (C) each of the Updated
Representations to be true and correct in all material respects after giving effect
to the Updated Schedules.  Optionee shall
refrain from taking any action which would render any representation or
warranty made by it in Article IV inaccurate in any material
respect as of the Option Exercise Date and take any and all actions as are
necessary to cause each of the representations and warranties made by it in Article IV
to be true and correct in all material respects as of the Option Exercise
Date.  For purposes of this Section 5.2(a) only,
the phrase “commercially reasonable efforts” means the exercise of such efforts
and commitment of such resources by a company with substantially the same
resources (without regard to the portion of the Option Consideration received
by the Company or the Rights Proceeds, or any interest thereon) and expertise
as the Company, with due regard to the nature of efforts and cost required for
the undertaking at stake.

 

(b)                                 Each
party shall promptly notify the other of (i) any event or matter that
would reasonably be expected to cause any of its representations or warranties
to be untrue in any material respect on the Option Exercise Date and (ii) any
action, suit or proceeding that shall be instituted or threatened against such
party to restrain, prohibit or otherwise challenge the legality of any
transaction contemplated by this Agreement or the Merger Agreement.

 

(c)                                  The
Company shall promptly notify Optionee of (i) any change or event having,
or that would reasonably be expected to have, a Material Adverse Effect, (ii) any
lawsuit, claim, proceeding or investigation that is threatened in writing (or,
if not threatened in writing, is otherwise material to the Company and the
Subsidiaries), brought, asserted or commenced against the Company which would
have been listed in Schedule 3.19 if such
lawsuit, claim, proceeding or investigation had arisen prior to the date hereof
and (iii) any material default under any Company Agreement or event which,
with notice or lapse of time or both, would become such a default on or prior
to the Option Termination Date and of which the Company has Knowledge.

 

44

 

5.3.                              Consents of Third Parties;
Governmental Approvals.

 

(a)                                  If
(i) the Company becomes aware of any consent, approval or waiver from any
Person that is party to an agreement with the Company or a Subsidiary that is
required for the exercise of the Option or the consummation of the transactions
contemplated by the Merger Agreement which has not been obtained prior to the
date hereof, or (ii) the Company receives any notice or other
communication from any Person alleging that the consent of such Person is or
may be required in connection with the transactions contemplated by this
Agreement or the Merger Agreement, the Company shall immediately notify
Optionee in writing thereof and, at Optionee’s request, the Company will act
diligently and reasonably in attempting to obtain, before the Option
Termination Date, such consent, approval or waiver, in form and substance
reasonably satisfactory to Optionee; provided
that neither the Company nor Optionee shall have any obligation to offer or pay
any consideration in order to obtain any such consents or approvals; and provided, further,
that the Company shall not make any agreement or understanding adversely
affecting its assets or its business as a condition for obtaining any such
consents or waivers except with the prior written consent of Optionee.  During the period prior to the Option
Termination Date, Optionee shall act diligently and reasonably to cooperate
with the Company in attempting to obtain the consents, approvals and waivers
contemplated by this Section 5.3(a).

 

(b)                                 [**]

 

(c)                                  The
Company and Optionee shall act diligently and reasonably, and shall cooperate
with each other, in attempting to obtain any consents and approvals of any
Governmental Body required to be obtained by them in order to consummate the
transactions contemplated by the Merger Agreement, other than under the HSR
Act; provided, that if Optionee determines, in its sole discretion, to
make the filings required under the HSR Act, the parties shall comply with the
provisions of paragraph (d) below; provided
further that the Company shall not make any agreement or understanding
adversely affecting its assets or its business as a condition for obtaining any
consents or approvals described in this Section 5.3(c) except
with the prior written consent of Optionee.

 

(d)                                 If
Optionee determines, in its sole discretion, to file with the FTC and the
Antitrust Division the notifications and other information required to be filed
under the HSR Act with respect to the transactions contemplated by the Merger
Agreement prior to the exercise of the Option, then the Company and Optionee
shall cooperate in all respects with each other in connection with such
filings, and in connection therewith:

 

(i)                                     each
of the Company and Optionee agrees to make available to the other such
information as each of them may reasonably request relative to its business,
assets and property as may be required of each of them to file any additional
information requested by the FTC or the Antitrust Division under the HSR Act
with respect to the notifications filed by the Company and Optionee in
connection with the transactions contemplated by the Merger Agreement;

 

(ii)                                  each
of the Company and Optionee agrees to provide to the other copies of all
correspondence between it (or its advisors) and any such agency relating to
this Agreement or any of the matters described in this Section 5.3(d);

 

**Portions of the Exhibit have been omitted and have been filed
separately pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.

 

45

 

(iii)                               the
Company and Optionee agree that all telephonic calls and meetings with such
agencies regarding the transactions contemplated hereby or any of the matters
described in this Section 5.3(d) shall
include representatives of each of the Company and Optionee; and

 

(iv)                              the
filing fees under the HSR Act shall be borne by Optionee.

 

5.4.                              Conduct of Business by the Company
and the Subsidiaries.

 

(a)                                  The
Company shall, and shall cause each of the Subsidiaries to, operate and carry
on its business in the ordinary course and/or in a manner consistent with the
Operating Plan and, to the extent consistent therewith, keep and maintain its
assets and properties in good operating condition and use its commercially
reasonable efforts consistent with good business practice to preserve intact
its current business organization, keep available the services of its current
officers and employees and preserve its relationships with material customers,
suppliers, contractors, licensors, licensees and others having business
dealings with it (except, in each case, with the prior written approval of
Optionee).  For purposes of this Section 5.4(a) only,
the phrase “commercially reasonable efforts” means the exercise of such efforts
and commitment of such resources by a company with substantially the same
resources (without regard to the portion of the Option Consideration received
by the Company or the Rights Proceeds or any interest thereon) and expertise as
the Company, with due regard to the nature of efforts and cost required for the
undertaking at stake.

 

(b)                                 Without
limiting the generality of Section 5.4(a),
except as expressly contemplated by this Agreement, as set forth on Schedule
5.4 or with the express written approval of Optionee, the Company shall
not, and shall not permit any of the Subsidiaries to:

 

(i)                                     (A) declare,
set aside or pay any dividends on, or make any other actual, constructive or
deemed distributions in respect of, any of its capital stock, or otherwise make
any payments to any stockholder in its capacity as such, provided, that
the Company shall be entitled to distribute to its stockholders, in cash, an
aggregate amount equal to the portion of the Option Consideration that has been
paid to the Company and any Rights Proceeds (together with any interest that
has accrued on such Option Consideration or Rights Proceeds), (B) split,
combine or reclassify any of its capital stock or issue, sell or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock (other than any issuances of its securities (1) upon
exercise of outstanding Stock Options and Warrants, (2) pursuant to the
F&F C-2 Share Rights, (3) pursuant to the Fulcrum Plan of Merger
Amendment, (4) upon conversion of outstanding shares of Preferred Stock, (5) upon
issuance or exercise of Stock Options permitted to be issued pursuant to Section 5.4(b)(ii)(C) or
(6) upon issuance or conversion of shares of Series C-2 Preferred
Stock permitted to be issued pursuant to Section 5.4(b)(ii)(B)) or (C) purchase,
redeem or otherwise acquire any shares of its capital stock or other
securities, except where such purchase or redemption is financed solely with
the portion of the Option Consideration that has been paid to the Company and
any Rights Proceeds (together with any interest that has accrued on such Option
Consideration or Rights Proceeds) and provided that such purchase or redemption
does not result, directly or indirectly, in the shares of Outstanding Company
Stock that

 

46

 

are subject to the Stockholder Option Agreements being
insufficient to authorize and approve the Merger pursuant to the Certificate of
Incorporation (including as amended by the Charter Amendment), the DGCL and the
Stockholders’ Agreement;

 

(ii)                                  issue,
deliver, sell, pledge, dispose of or otherwise encumber any shares of its
capital stock or other securities (including any rights, warrants or options to
acquire any shares of its capital stock or other securities); provided
that:  (A) the Company shall be
entitled to issue shares of Common Stock or Preferred Stock (1) upon the
exercise of outstanding Stock Options and Warrants, (2) pursuant to the
F&F C-2 Share Rights, (3) pursuant to the Series C-3 Issuance
Rights or (4) or upon conversion of outstanding shares of Preferred Stock
in accordance with the terms thereof as in effect on the date hereof; (B) if
at any time (1) the Company requests a Loan (as defined in the Credit
Agreement), (2) the conditions set forth in Section 4.02 of the Credit
Agreement have not been satisfied and (3) Optionee (as Lender under the
Credit Agreement) does not make such Loan, the Company shall be entitled to
issue additional shares of Series C-2 Preferred Stock to existing
stockholders of the Company for aggregate proceeds which, when added to the
gross proceeds of all other issuances of Series C-2 Preferred Stock by the
Company pursuant to this clause (B), do not exceed $15,000,000 (fifteen million
dollars), provided that such issuances do not and will not result,
directly or indirectly, in the shares of Outstanding Company Stock that are
subject to the Stockholder Option Agreements being insufficient to authorize
and approve the Merger pursuant to the Certificate of Incorporation (including
as amended by the Charter Amendment), the DGCL and the Stockholders’ Agreement;
and (C) the Company shall be entitled to issue options to acquire up to an
aggregate of 1,500,000 shares of Voting Common Stock pursuant to the Stock
Plan, provided that such issuances do not and will not (assuming the
exercise of such options) result, directly or indirectly, in the shares of
Outstanding Company Stock that are subject to the Stockholder Option Agreements
being insufficient to authorize and approve the Merger pursuant to the Certificate
of Incorporation (including as amended by the Charter Amendment), the DGCL and
the Stockholders’ Agreement

 

(iii)                               amend
its certificate of incorporation, by-laws or similar organizational documents,
except for the Charter Amendment and as is required in connection with any
issuance of shares of Series C-2 Preferred Stock pursuant to clause (B) of
paragraph (ii) above;

 

(iv)                              acquire
or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of or equity in, or by any other manner, any
business or any corporation, partnership, limited liability company,
association or other business organization or division thereof;

 

(v)                                 alter
through merger, liquidation, reorganization, restructuring or in other fashion
its corporate structure;

 

(vi)                              voluntarily
dissolve or liquidate;

 

47

 

(vii)                           file a
voluntary petition in bankruptcy or commence a voluntary legal procedure for
reorganization, arrangement, adjustment, release or composition of Indebtedness
in bankruptcy or other similar Requirements of Law now or hereafter in effect,
consent to the entry of an order for relief in an involuntary case under any
such Requirements of Law or apply for or consent to the appointment of a
rescuer, liquidator, assignee, custodian or trustee (or similar office) of the
Company or any Subsidiary;

 

(viii)                        enter into
the active management of a business that is not primarily related to, or in
furtherance of, being a pharmaceutical company focused on the research,
development and commercialization of proprietary healthcare products;

 

(ix)                                except
as set forth in the Operating Plan, make or incur any new capital expenditures
in excess of $200,000 (individually or in the aggregate);

 

(x)                                   (A) modify
any of the agreements, understandings, obligations, commitments or other
obligations set forth in any of the Schedules to this Agreement, except for
such modifications that are consistent with the Operating Plan or do not modify
any such agreements or other obligations in any material respect (subject to
clause (2) below) or (B) create, incur or assume any Indebtedness (or
enter into any agreement, understanding, obligation or commitment to do so);
enter into, as lessee, any capital lease (as defined in Statement of Financial
Accounting Standards No. 13); guarantee any such Indebtedness or
obligation; issue or sell any debt securities, or guarantee any debt securities
of others; or make any loans, advances or capital contributions to, or
investments in, any other Person (other
than reasonable advances for work-related expenses to employees and consultants
in the ordinary course consistent with Company policies) or obligation,
in each case (1) of the type that would have been required to be listed in
Schedule 3.17 if in existence on the
date hereof (except as contemplated by the Operating Plan), provided
that if at any time (a) the Company requests a Loan (as defined in the
Credit Agreement), (b) the conditions set forth in Section 4.02
of the Credit Agreement have not been satisfied and (c) Optionee (as
Lender under the Credit Agreement) does not make such Loan, the Company shall,
if the requirements of clauses (2) and (3) below are met, be entitled
to incur unsecured indebtedness for borrowed money that, when taken together
with all other Indebtedness outstanding under this proviso, does not exceed
$10,000,000 in aggregate principal amount, (2) that would require the
approval or consent of any other Person to the transactions contemplated by
this Agreement and the Merger Agreement or would otherwise prohibit, interfere
with or delay the exercise of the Option by Optionee or the consummation of the
Merger or (3) that would not be permitted to be repaid pursuant to its
terms in connection with the consummation of the Merger without the payment of
any prepayment penalty or fee;

 

(xi)                                enter
into any contract for the purchase of real property or any option to extend a
lease listed in Schedule 3.10(b);

 

(xii)                             sell,
lease (as lessor), transfer or otherwise dispose of, or mortgage or pledge, or
impose or suffer to be imposed any Encumbrance on, any of its assets, other
than (A) inventory and minor amounts of personal property sold or
otherwise disposed of

 

48

 

for fair value in the ordinary course of business and
other than Permitted Encumbrances and (B) sales or other dispositions not
in the ordinary course of business so long as such sales or dispositions are
contemplated by the Operating Plan or do not exceed $100,000 (individually or
in the aggregate);

 

(xiii)                          cancel
any debts owed to or claims held by it (including the settlement of any claims
or litigation) other than in the ordinary course of business;

 

(xiv)                         pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction thereof in the ordinary course of business;

 

(xv)                            accelerate
or delay collection of any notes or accounts receivable in advance of or beyond
their regular due dates or the dates when the same would have been collected in
the ordinary course of business;

 

(xvi)                         delay or
accelerate payment of any account payable or other liability beyond or in
advance of its due date or the date when such liability would have been paid in
the ordinary course of business, except that the Company may pay off, at any
time, all outstanding Indebtedness under the Loan and Security Agreement, dated
as of August 30, 2007, among Silicon Valley Bank, Oxford Finance
Corporation, the other lenders party thereto, the Company, CT Research, Inc.
and Fulcrum Pharmaceuticals, Inc.;

 

(xvii)                      make any change in the
accounting policies applied in the preparation of the financial statements
contained in Schedule 3.4, except
as required by U.S. generally accepted accounting principles;

 

(xviii)                   enter into,
adopt or amend any bonus, incentive, deferred compensation, insurance, medical,
hospital, disability or severance plan, agreement or arrangement or enter into
or amend any employee benefit plan or employment, consulting or management
agreement, other than any such amendment to an employee benefit plan that is
made to maintain the qualified status of such plan or its continued compliance
with applicable law and other than in the ordinary course of business; provided
that no such plan, agreement or arrangement (or amendment thereto) shall
provide for severance or similar payments except to the extent such severance
or similar payments are consistent with pharmaceutical industry norms;

 

(xix)                           pay or
commit to pay any bonus to any officer or employee, or make any other change in
the compensation of its employees, other than payments, commitments or changes
made in accordance with the Company’s normal compensation practices;

 

(xx)                              prepare
or file any Tax Return inconsistent with past practice or, on any such Tax
Return, take any position, make any election, or adopt any method that is
inconsistent with positions taken, elections made or methods used in preparing
or filing similar Tax Returns in prior periods; or

 

(xxi)                           enter
into any other agreement or commitment to take any action prohibited by this Section 5.4.

 

49

 

(c)                                  The
Company shall, and shall cause the Subsidiaries to:  (i) conduct the Res-5-0002 EE Study in
compliance in all material respects with all applicable Requirements of Laws
and in accordance with the Operating Plan; (ii) use the proceeds of Loans
(as defined in the Credit Agreement) only for funding expenses identified in, or
which are otherwise consistent with, the Operating Plan; (iii) keep its
and their existing policies of insurance, or comparable insurance, in full
force and effect; (iv) to the extent the Company or a Subsidiary is
obligated or has the right to do so (and is exercising such prosecution rights)
pursuant to any agreement relating to Company IP, diligently prosecute, or
enforce its rights to cause another party to such agreement relating to Company
IP to diligently prosecute, claims in the pending patent applications within
Company IP claiming existing products and products currently under development;
and (v) keep in force all registered Marks by paying any maintenance fees
or taxes or responding to any actions. 
The Company shall deliver the final study report relating to the
Res-5-0002 EE Study within three (3) business days after such report
becomes final.

 

5.5.                              Acquisition
Proposals.  The Company shall not,
nor shall it authorize or cause any of its Affiliates or any officer, director,
employee, investment banker, attorney or other adviser or representative of the
Company or any of its Affiliates to, (i) solicit, initiate, or encourage
the submission of, any Acquisition Proposal (as hereinafter defined), (ii) enter
into any agreement with respect to, otherwise approve or recommend,  or consummate any Acquisition Proposal or (iii) except
to the extent required by law as advised by outside counsel to the Company
(which may be Duane Morris LLP) in writing (with a copy provided to Optionee),
participate in any discussions or negotiations regarding, or furnish to any
Person any information for the purpose of facilitating the making of, or take
any other action to facilitate any inquiries or the making of, any proposal
that constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal (it being understood that no such action permitted by this clause (iii) shall
relieve the Company of any of its obligations under this Agreement).  Without limiting the foregoing, it is
understood that any violation, of which the Company had Knowledge at the time
such violation occurred, of the restrictions set forth in the immediately
preceding sentence by any officer, director, employee, investment banker,
attorney, employee or other adviser or representative of the Company or any of
its Affiliates, whether or not such Person is purporting to act on behalf of
the Company or any of its Affiliates or otherwise, shall be deemed to be a
breach of this Section 5.5 by the Company.  The Company promptly shall advise Optionee of
any Acquisition Proposal and any inquiries with respect to any Acquisition
Proposal, including keeping Optionee promptly advised of the status and
material terms (including a copy of any written proposal) and the identity of
the Person making such inquiries or Acquisition Proposal.  For purposes of this Agreement, “Acquisition
Proposal” means any proposal for a merger or other business combination
involving the Company or any of its Affiliates or any proposal or offer to
acquire in any manner, directly or indirectly, an equity interest in the
Company or any of its Subsidiaries or a material portion of the assets of the
Company; provided, however, that the issuance by the Company of
its securities (a) upon exercise of outstanding Stock Options and Warrants,
(b) pursuant to the F&F C-2 Share Rights, (c) pursuant to the
Fulcrum Plan of Merger Amendment or (d) upon conversion of outstanding
shares of Preferred Stock shall not be considered an “Acquisition Proposal.”

 

5.6.                              Takeover
Laws.  If any “fair price,” “moratorium”
or “control share acquisition” statute or other similar anti-takeover statute
or regulation shall become applicable to the transactions contemplated by this
Agreement or the Merger Agreement, the Company and its

 

50

 

Board
of Directors shall use their best efforts to grant such approvals and take such
actions as are necessary so that the transactions contemplated by this
Agreement and the Merger Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and thereby and otherwise act to
minimize the effects of any such statute or regulation on the transactions
contemplated hereby and thereby.

 

5.7.                              Termination of Res 5-0002 EE Study. 
The Company may terminate the Res 5-0002 EE Study if the Company’s Board
of Directors reasonably determines in good faith, following good faith
consultation with Optionee as promptly as practicable considering relevant
circumstances, that continuation of the Res 5-0002 EE Study entails material
safety risks which could reasonably be expected to lead to the termination of
the Res 5-0002 EE Study by the FDA.

 

5.8.                              Charter Amendment; Stockholder Option
Agreements.  (a) The Company shall cause the Charter
Amendment to be filed with the Secretary of State of the State of Delaware, and
to be effective, no later than February 23, 2009.

 

(b)                                 The Company shall promptly deliver to
Optionee for countersignature any Stockholder Option Agreements executed by the
Stockholders after the date hereof.

 

ARTICLE VI

INDEMNIFICATION

 

6.1.                              Indemnification
by the Company.

 

(a)                                  The Company agrees to indemnify and hold
harmless each Optionee Group Member from and against any and all Losses and
Expenses incurred by such Optionee Group Member in connection with or arising
from:

 

(i)                                     any breach of any warranty or the
inaccuracy of any representation of the Company contained in this Agreement, in
any certificate delivered by or on behalf of the Company pursuant hereto or in
any Company Ancillary Agreement; and

 

(ii)                                  any breach by the Company of any of its
covenants or agreements, or any failure of the Company to perform any of its
obligations in any material respect, in this Agreement or any Company Ancillary
Agreement;

 

provided, however, that:

 

(A)                              the Company shall not be required to
indemnify and hold harmless under clause (i) of this Section 6.1(a) with
respect to Losses and Expenses incurred by Optionee Group Members unless the
aggregate amount of such Losses and Expenses exceeds $500,000, and once such
amount is exceeded, the Company shall indemnify the Optionee Group Members for
the entire amount of all Losses and Expenses without reduction;

 

(B)                                in no event shall the aggregate amount
required to be paid by the Company pursuant to clause (ii) of this Section 6.1(a) solely
with respect to a 

 

51

 

breach by the Company of the Specified Covenants and
clause (i) of this Section 6.1(a) exceed $50,000,000
(fifty million dollars);

 

(C)                                in no event shall the aggregate amount
required to be paid pursuant to clause (ii) of this Section 6.1(a) solely
with respect to a breach by the Company of Section 5.4(a) exceed
$75,000,000 (seventy-five million dollars);

 

(D)                               in no event shall the aggregate amount
required to be paid pursuant to paragraphs (B) and (C) above exceed
$75,000,000 (seventy-five million dollars); and

 

(E)                                 in no event shall the aggregate amount
required to be paid by the Company pursuant to this Section 6.1(a) exceed
the Option Consideration.

 

(b)                                 Notwithstanding anything to the contrary in
this Agreement, other than the representations and warranties contained in Section 3.7(d) and
the Losses and Expenses incurred by Optionee Group Members in connection with
or arising from any breach or inaccuracy of the representations and warranties
contained in Section 3.7(d), the Company makes no  representations or warranties, and shall have
no indemnification obligations under this Section 6.1, with respect
to the amount, availability or sufficiency of any net operating losses
(carryforward or otherwise), capital losses or credits of the Company for any
taxable periods ending on or before the Closing Date that may be available to
offset, reduce or eliminate income or Taxes of the Company or any Optionee
Group Member for taxable periods ending after the Closing Date.

 

(c)                                  The indemnification provided for in Section 6.1(a) shall
terminate on the earlier of the Merger Agreement Execution Date or the Option
Termination Date (and no claims shall be made by any Optionee Group Member
under Section 6.1(a) thereafter), except that the
indemnification by the Company shall continue as to:

 

(i)                                     the covenants of the Company set forth in
Sections 8.2, 8.3 and 8.9, as to all of which no time
limitation shall apply; and

 

(ii)                                  any Loss or Expense of which any Optionee
Group Member has notified the Company in accordance with the requirements of Section 6.3 on or prior to the date such
indemnification would otherwise terminate in accordance with this Section 6.1, as to which the obligation of
the Company shall continue until the liability of the Company shall have been
determined pursuant to Section 6.3(b) and the Company shall
have reimbursed all Optionee Group Members for the full amount of such Loss and
Expense in accordance with this Article VI.

 

6.2.                              Indemnification
by Optionee.

 

(a)                                  Optionee agrees to indemnify and hold
harmless each Company Group Member from and against any and all Losses and
Expenses incurred by such Company Group Member in connection with or arising
from:

 

52

 

(i)                                     any breach of any warranty or the
inaccuracy of any representation of Optionee contained in this Agreement, in
any certificate delivered by or on behalf of Optionee pursuant hereto or in any
Optionee Ancillary Agreement; and

 

(ii)                                  any breach by Optionee of any of its
covenants or agreements, or any failure by Optionee to perform any of its
obligations, in this Agreement or in any Optionee Ancillary Agreement;

 

provided, however, that:

 

(A)                              Optionee shall not be required to
indemnify and hold harmless under clause (i) of this Section 6.2(a) with
respect to Losses and Expenses incurred by Company Group Members unless the
aggregate amount of such Losses and Expenses exceeds $500,000, and once such
amount is exceeded, Optionee shall indemnify the Company Group Members for the
entire amount of all Losses and Expenses without reduction;

 

(B)                                in no event shall the aggregate amount
required to be paid by Optionee pursuant to clause (i) of this Section 6.2(a) and
clause (ii) of this Section 6.2(a) solely with respect to
a breach by Optionee of Section 5.2(a) exceed $50,000,000; and

 

(C)                                in no event shall the aggregate amount
required to be paid by Optionee pursuant to this Section 6.2(a) exceed
the Option Consideration.

 

(b)                                 The indemnification provided for in Section 6.2(a) shall
terminate on the earlier of the Merger Agreement Execution Date or the Option
Termination Date (and no claims shall be made by any Company Group Member under
Section 6.2(a) thereafter),
except that the indemnification by Optionee shall continue as to:

 

(i)                                     the covenants of Optionee set forth in Sections
8.2, 8.3 and 8.9, as to all of which no time limitation shall
apply; and

 

(ii)                                  any Loss or Expense of which any Company
Group Member has notified Optionee in accordance with the requirements of Section 6.3 on or prior to the date such
indemnification would otherwise terminate in accordance with this Section 6.2, as to which the obligation of
Optionee shall continue until the liability of Optionee shall have been
determined pursuant to Section 6.3(b), and Optionee shall have
reimbursed all Company Group Members for the full amount of such Loss and
Expense in accordance with this Article VI.

 

6.3.                              Notice
of Claims.

 

(a)                                  Any Optionee Group Member or Company
Group Member (the “Indemnified Party”)
seeking indemnification hereunder shall give to the party obligated to provide
indemnification to such Indemnified Party (the “Indemnitor”)
a notice (a “Claim Notice”) describing in
reasonable detail and in good faith the facts giving rise to any claim for
indemnification hereunder and shall include in such Claim Notice (if then
known) the amount or 

 

53

 

the method of
computation of the amount of such claim, and a reference to the provision of
this Agreement or any other agreement, document or instrument executed
hereunder or in connection herewith upon which such claim is based; provided, that a Claim Notice in respect of any
pending or threatened action at law or suit in equity by or against a third
Person as to which indemnification will be sought (each such action or suit
being a “Third Person Claim”) shall be given promptly after the action
or suit is commenced; provided  further that failure to give such notice shall
not relieve the Indemnitor of its obligations hereunder except to the extent it
shall have been prejudiced by such failure.

 

(b)                                 After the giving of any Claim Notice
pursuant hereto, the amount of indemnification to which an Indemnified Party
shall be entitled under this Article VI
shall be determined:  (i) by the
written agreement between the Indemnified Party and the Indemnitor; (ii) by
a final judgment or decree of any court of competent jurisdiction; or (iii) by
any other means to which the Indemnified Party and the Indemnitor shall
agree.  The judgment or decree of a court
shall be deemed final when the time for appeal, if any, shall have expired and
no appeal shall have been taken or when all appeals taken shall have been
finally determined.  The Indemnified
Party shall have the burden of proof in establishing the amount of Loss and
Expense suffered by it.

 

6.4.                              Third
Person Claims.  The Indemnified Party shall
have the right to conduct and control, through counsel of its choosing, the
defense, compromise or settlement of any Third Person Claim against such
Indemnified Party (which, for the avoidance of doubt, shall mean that the
Indemnified Party must be a party to such claim) as to which indemnification
will be sought by any Indemnified Party from any Indemnitor hereunder, and in any
such case the Indemnitor shall cooperate in connection therewith and shall
furnish such records, information and testimony and attend such conferences,
discovery proceedings, hearings, trials and appeals as may be reasonably
requested by the Indemnified Party in connection therewith; provided, that:

 

(a)                                  the Indemnitor may participate, through
counsel chosen by it and at its own expense, in the defense of any such Third
Person Claim as to which the Indemnified Party has so elected to conduct and
control the defense thereof, and in any such case the Indemnified Party shall (i) consult
with the Indemnitor, and furnish such records, information and testimony, as
may be reasonably requested by the Indemnitor in connection therewith, (ii) provide
the Indemnitor with a reasonable opportunity, subject to applicable filing
deadlines, to comment on any material filing relating to such Third Person
Claim prior to making such filing and (iii) permit the Indemnitor and its
counsel to attend such conferences, discovery proceedings, hearings, trials and
appeals as may be reasonably requested by the Indemnitor in connection
therewith (and shall provide reasonable advance notice of such matters to
Indemnitor so as to facilitate such right to attend);

 

(b)                                 the Indemnified Party shall not, without
the written consent of the Indemnitor (which written consent shall not be
unreasonably withheld), pay, compromise or settle any such Third Person Claim,
except that no such consent shall be required if, following a written request from
the Indemnified Party, the Indemnitor shall fail, within 14 days after the
making of such request, to acknowledge and agree in writing that, if such Third
Person Claim shall be adversely determined, such Indemnitor has an obligation
to provide indemnification under this Article VI to such
Indemnified Party; provided, that if the Indemnitor makes such
acknowledgment and 

 

54

 

agreement and is
participating in the defense of such Third Person Claim pursuant to paragraph (a) above,
the Indemnified Party shall not assert any material defense or otherwise take
any material legal position with respect to such Third Person Claim that the
Indemnitor, after good faith consultation with its counsel, reasonably believes
is reasonably likely to cause a material increase to the amount to be
indemnified by the Indemnitor with respect to such Third Person Claim pursuant
to this Agreement; provided  further, that in the exercise of its
rights pursuant to the preceding proviso, the Indemnitor shall not unreasonably
delay the resolution of such Third Person Claim.

 

Notwithstanding
the foregoing, the Indemnified Party shall have the right to pay, settle or
compromise any such Third Person Claim without such consent, provided, that in such
event the Indemnified Party shall waive any right to indemnity therefor
hereunder unless such consent is requested and is unreasonably withheld.

 

6.5.                              Adjustment
to Option Consideration.  Any payment
by Optionee or the Company under this Article VI
shall be treated by the parties as an adjustment to the Option Consideration,
unless otherwise required by applicable Tax Requirements of Laws.

 

6.6.                              Set-off.  Optionee
shall have the right, exercisable by delivery of written notice to the Company
delivered on or prior to the Closing Date, to set-off against the Closing Date
Merger Consideration an amount equal to (a) the aggregate amount of all
Losses and Expenses relating to claims for indemnification made by Optionee
Group Members pursuant to this Article VI which have been finally
determined to be owed to the Optionee Group Members pursuant to Section 6.3(b) but
which have not been paid by the Company as of the Closing Date plus (b) the
aggregate amount (the “Pending Indemnity Amount”) of all Losses and
Expenses relating to claims for indemnification made by Optionee Group Members
pursuant to Section 6.3(a) which have not been finally
determined to be owed to the Optionee Group Members as of the Closing Date,
subject in each case, for the avoidance of doubt, to all of the limitations on
indemnification set forth in this Article VI.  Optionee shall deposit the Pending Indemnity
Amount in the Escrow Fund (as defined in the Merger Agreement) to be held,
governed and released in accordance with the provisions of the Escrow Agreement
(as defined in the Merger Agreement).

 

6.7.                              No Punitive or Consequential Damages. 
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY HAVE ANY LIABILITY TO THE
OTHER PARTY OR ANY OF ITS AFFILIATES UNDER THIS AGREEMENT FOR, AND NEITHER PARTY
NOR ANY OF ITS AFFILIATES SHALL HAVE THE RIGHT TO CLAIM OR RECOVER FROM THE
OTHER PARTY, ANY PUNITIVE OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES OF ANY
KIND OR NATURE WHATSOEVER, WHETHER FORESEEABLE OR UNFORESEEABLE, HOWSOEVER
CAUSED OR ON ANY THEORY OF LIABILITY, EXCEPT, IN ALL SUCH CASES, THAT ANY
INDEMNIFIED PARTY MAY RECOVER SUCH DAMAGES, LOSSES OR EXPENSES THAT SUCH
INDEMNIFIED PARTY IS REQUIRED TO PAY TO ANY THIRD PERSON IN CONNECTION WITH A
THIRD PERSON CLAIM.

 

6.8.                              Insurance Proceeds and Tax Benefits. 
The amount of any Loss or Expense suffered by an Optionee Group Member
or Company Group Member, as the case may be, under this Agreement shall be
adjusted to reflect (a) any insurance proceeds actually received by the 

 

55

 

Optionee
Group Member or Company Group Member on account of such Loss or Expense, net of
any increases in premiums resulting therefrom and (b) any realizable Tax
benefits or savings resulting from the incurrence, accrual or payment of the
Loss or Expense or any realizable Tax detriment or cost resulting from the
incurrence, accrual or payment of the Loss or Expense.  The Optionee Group Member or Company Group
Member, as the case may be, shall promptly make a claim for any Loss or Expense
suffered by it under any applicable insurance policies.

 

6.9.                              Exclusive Remedy. 
Except with respect to remedies that cannot be waived as a matter of law
(including fraud) and injunctive and provisional relief (including specific
performance), each of the Company and Optionee agrees that, from and after the
date hereof, this Article VI shall be the exclusive remedy with
respect to any breaches of the representations, warranties, covenants and
agreements set forth in this Agreement

 

ARTICLE VII

TERMINATION

 

7.1.                              Termination Rights. 
Anything contained in this Agreement to the contrary notwithstanding,
this Agreement may be terminated at any time prior to the Option Termination
Date:

 

(a)                                  by the mutual written consent of the
Company and Optionee; or

 

(b)                                 by Optionee by delivery of written notice
to the Company.

 

7.2.                              Effect of Termination. 
In the event that this Agreement shall be terminated pursuant to this Article VII,
all further obligations of the parties under this Agreement (other than under Article VI
and Sections 8.2, 8.3, 8.9 and 8.12) shall be
terminated without further liability of either party to the other; provided,
however, that nothing herein shall relieve either party from liability
for its willful breach of this Agreement.

 

ARTICLE VIII

GENERAL PROVISIONS

 

8.1.                              Survival
of Obligations.  All representations,
warranties, covenants and obligations contained in this Agreement shall survive
the execution and delivery of this Agreement; provided,
however, that the representations and
warranties contained in Articles III and IV shall terminate on the earlier of the Merger
Agreement Execution Date or the Option Termination Date.  Except as otherwise provided herein, no claim
shall be made for the breach of any representation or warranty contained in Article III or IV
or under any certificate delivered with respect thereto under this Agreement
after the date on which such representations and warranties terminate as set
forth in this Section 8.1.

 

8.2.                              Confidential
Nature of Information.  Each party
hereto agrees that all documents, materials and other information which it
shall have obtained regarding the other party during the course of the
negotiations leading to the execution of this Agreement (whether obtained
before or after the date of this Agreement), the investigation provided for
herein and the preparation of this Agreement and other related documents shall
be held in confidence pursuant to the Confidentiality Agreement.

 

56

 

8.3.                              No
Public Announcement.  Neither the
Company nor Optionee shall, without the prior written approval of the other,
make any press release or other public announcement concerning the transactions
contemplated by this Agreement, except as and to the extent that either party
shall be so obligated by Requirements of Law or the rules of any stock
exchange, in which case the other party shall be advised and the parties shall
use their reasonable best efforts to cause a mutually agreeable release or
announcement to be issued; provided, that the foregoing shall not
preclude communications or disclosures necessary to implement the provisions of
this Agreement or to comply with accounting and Securities and Exchange
Commission disclosure obligations.

 

8.4.                              Notices. 
All notices, consents and other communications hereunder shall be in
writing and shall be deemed to have been duly given (a) when delivered by
hand or by Federal Express or a similarly reputable overnight courier, (b) upon
receipt, if sent by registered or certified mail, return receipt requested or (c) when
successfully transmitted by facsimile (with a confirming copy of such
communication to be sent as provided in clause (a) or (b) above), in
each case to the party for whom intended, at the address or facsimile number for
such party set forth below:

 

	
  If
  to Optionee, to:

  
	
   

  
	
  Cephalon, Inc.

  
	
  41
  Moores Road

  
	
  Frazer,
  PA 19355

  
	
  Attention:

  	
  General
  Counsel

  
	
  Facsimile:

  	
  (610)
  738-6258

  
	
   

  
	
  with
  a copy to:

  
	
   

  
	
  Sidley
  Austin LLP

  
	
  One
  South Dearborn Street

  
	
  Chicago,
  IL 60603

  
	
  Attention:

  	
  Pran
  Jha

  
	
  Facsimile:

  	
  (312)
  853-7036

  
	
   

  
	
  If
  to the Company, to:

  
	
   

  
	
  Ception
  Therapeutics, Inc.

  
	
  101
  Lindenwood Drive

  
	
  Suite 400

  
	
  Malvern,
  PA 19355

  
	
  Attention:

  	
  General
  Counsel

  
	
  Facsimile:

  	
  (610) 640-2945

  

 

57

 

	
  with
  a copy to:

  
	
   

  
	
  Duane
  Morris LLP

  
	
  30
  South 17th Street

  
	
  Philadelphia,
  PA 19103

  
	
  Attention:

  	
  Yves
  Quintin

  
	
  Facsimile:

  	
  (215)
  979-1020

  

 

or to
such other address as such party may indicate by a notice delivered to the
other party hereto in accordance with this Section 8.4.

 

8.5.                              Successors
and Assigns.

 

(a)                                  This Agreement may not be assigned by
either party without the prior written consent of the other party; provided,
however, that Optionee shall be entitled to assign this Agreement to any
Affiliate of Optionee without the consent of the Company, provided that
no such assignment shall relieve Optionee of its obligations hereunder.

 

(b)                                 This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and permitted
assigns.  The successors and permitted
assigns hereunder shall include, in the case of Optionee, any permitted
assignee as well as the successors in interest to such permitted assignee
(whether by merger, liquidation (including successive mergers or liquidations)
or otherwise).  Nothing in this
Agreement, expressed or implied, is intended or shall be construed to confer
upon any Person other than the parties and successors and assigns permitted by
this Section 8.5 any right, remedy or
claim under or by reason of this Agreement as a third party beneficiary or
otherwise.

 

8.6.                              Entire
Agreement; Amendments.  This
Agreement, the Exhibits and Schedules referred to herein and the documents
delivered pursuant hereto and the Confidentiality Agreement contain the entire
understanding of the parties hereto with regard to the subject matter contained
herein or therein, and supersede all prior agreements, understandings or
letters of intent between the parties hereto, including the Letter of Intent.  This Agreement shall not be amended, modified
or supplemented except by a written instrument signed by an authorized
representative of each of the parties hereto.

 

8.7.                              Partial
Invalidity.  Wherever possible, each
provision hereof shall be interpreted in such manner as to be effective and
valid under applicable law, but in case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such provision shall be ineffective to the
extent, but only to the extent, of such invalidity, illegality or
unenforceability without invalidating the remainder of such invalid, illegal or
unenforceable provision or provisions or any other provisions hereof, unless
such a construction would be unreasonable.

 

8.8.                              Waivers. 
Any term or provision of this Agreement may be waived, or the time for
its performance may be extended, by the party or parties entitled to the
benefit thereof.  Any such waiver shall
be validly and sufficiently authorized for the purposes of this Agreement if,
as to any party, it is authorized in writing by an authorized representative of
such party.  The failure 

 

58

 

of
any party hereto to enforce at any time any provision of this Agreement shall
not be construed to be a waiver of such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision.  No waiver of any breach of this Agreement
shall be held to constitute a waiver of any other or subsequent breach.

 

8.9.                              Expenses. 
Subject to Section 5.3(d)(iv), each party hereto will pay
all costs and expenses incident to its negotiation and preparation of this
Agreement and to its performance and compliance with all agreements and
conditions contained herein on its part to be performed or complied with,
including the fees, expenses and disbursements of its counsel and accountants.

 

8.10.                        Execution
in Counterparts.  This
Agreement may be executed in multiple counterparts, each of which shall be
considered an original instrument, but all of which shall be considered one and
the same agreement, and shall become binding when one or more counterparts have
been signed by each of the parties hereto and delivered to the other
party.  Delivery of an executed
counterpart of a signature page to this Agreement shall be as effective as
delivery of a manually executed counterpart of this Agreement.

 

8.11.                        Governing
Law.  This Agreement shall be governed by and
construed in accordance with the internal laws (excluding the conflicts of law
provisions) of the State of Delaware.

 

8.12.                        Submission
to Jurisdiction.  The Company
and Optionee hereby irrevocably submit in any suit, action or proceeding
arising out of or related to this Agreement or any of the transactions
contemplated hereby or thereby to the jurisdiction of the United States
District Court for the District of Delaware and the jurisdiction of any court
of the State of Delaware located in Wilmington, Delaware and waive any and all
objections to jurisdiction that they may have under the laws of the State of
Delaware or the United States.

 

8.13.                        Waiver of Jury Trial. 
EACH OF OPTIONEE AND THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF OPTIONEE OR THE COMPANY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

 

[Remainder of page intentionally left blank;
signature page follows.]

 

59

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.

 

	
   

  	
  CEPHALON, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Kevin Buchi

  
	
   

  	
  Name:

  	
  J. Kevin Buchi

  
	
   

  	
  Title:

  	
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  CEPTION THERAPEUTICS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen A. Tullman

  
	
   

  	
  Name:

  	
  Stephen A. Tullman

  
	
   

  	
  Title:

  	
  President and CEO

  

 

Option Agreement

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