Document:

Exhibit 10.1

 

ARENA
PHARMACEUTICALS, INC.

2006 LONG-TERM INCENTIVE PLAN, AS AMENDED

Arena Pharmaceuticals, Inc. (the “Company”), a
Delaware corporation, hereby establishes and adopts the following 2006
Long-Term Incentive Plan (the “Plan”).

1.                                      PURPOSE
OF THE PLAN

The purpose of the Plan is to assist the Company and its Subsidiaries
in attracting and retaining selected individuals to serve as directors,
employees, consultants and/or advisors of the Company and its Subsidiaries who
are expected to contribute to the Company’s success and to achieve long-term
objectives which will inure to the benefit of all stockholders of the Company
through the additional incentives inherent in the Awards hereunder.

2.                                      DEFINITIONS

2.1.                            “Award” shall mean any Option, Stock Appreciation
Right, Restricted Stock Award, Restricted Stock Unit Award, Performance Award
or any other right, interest or option relating to Shares or other property
(including cash) granted pursuant to the provisions of the Plan.

2.2.                            “Award Agreement” shall mean any written agreement, contract
or other instrument or document evidencing any Award granted hereunder,
including through an electronic medium.

2.3.                            “Board” shall mean the board of directors of the Company.

2.4.                            “Code” shall mean the Internal Revenue Code of 1986, as
amended from time to time.

2.5.                            “Committee” shall mean the Compensation Committee of the
Board or a subcommittee thereof formed by the Compensation Committee to act as
the Committee hereunder.  The Committee
shall consist of no fewer than two Directors, each of whom is (i) a “Non-Employee
Director” within the meaning of Rule 16b-3 of the Exchange Act, (ii) an “outside
director” within the meaning of Section 162(m) of the Code, and (iii) an “independent
director” for purpose of the rules and regulations of the NASDAQ Stock Market
(or such other principal securities market on which the Shares are traded).

2.6.                            “Covered Employee” shall mean a “covered employee” within the
meaning of Section 162(m) of the Code.

2.7.                            “Director” shall mean a non-employee member of the Board.

2.8.                            “Dividend Equivalents” shall have the meaning set forth in
Section 12.5.

2.9.                            “Employee” shall mean any employee of the Company or any
Subsidiary and any prospective employee conditioned upon, and effective not
earlier than, such person becoming an 

employee of the Company or any Subsidiary.  Solely for purposes of the Plan, an Employee
shall also mean any consultant or advisor who is a natural person and who
provides services to the Company or any Subsidiary, so long as such person
(i) renders bona fide services that are not in connection with the offer
and sale of the Company’s securities in a capital-raising transaction and
(ii) does not directly or indirectly promote or maintain a market for the
Company’s securities.

2.10.                     “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.

2.11.                     “Fair
Market Value” shall mean, with respect to any property other than
Shares, the market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee.  The Fair Market Value of Shares as of any
date shall be the per Share closing price of the Shares as reported on the
NASDAQ Stock Market on that date (or if there was no reported closing price  on such date, on the last preceding date
on which the closing price was reported) or, if the Company is not then listed
on the NASDAQ Stock Market, on such other principal securities exchange on
which the Shares are traded, and if the Company is not listed on the NASDAQ Stock
Market or any other securities exchange, the Fair Market Value of Shares shall
be determined by the Committee in its sole discretion using appropriate
criteria.

2.12.                     “Limitations”
shall have the meaning set forth in Section 10.5.

2.13.                     “Option”
shall mean any right granted to a Participant under the Plan allowing such
Participant to purchase Shares at such price or prices and during such period
or periods as the Committee shall determine.

2.14.                     “Participant”
shall mean an Employee or Director who is selected by the Committee to receive
an Award under the Plan.

2.15.                     “Payee” shall have the meaning set forth in
Section 13.1.

2.16.                     “Performance
Award” shall mean any Award of Performance Shares or Performance
Units granted pursuant to Article 9.

2.17.                     “Performance
Period” shall mean that period established by the Committee at the
time any Performance Award is granted or at any time thereafter during which
any performance goals specified by the Committee with respect to such Award are
to be measured.

2.18.                     “Performance
Share” shall mean any grant pursuant to Article 9 of a unit
valued by reference to a designated number of Shares, which value may be paid
to the Participant by delivery of such property as the Committee shall
determine, including cash, Shares, other property, or any combination thereof,
upon achievement of such performance goals during the Performance Period as the
Committee shall establish.

2.19.                     “Performance
Unit” shall mean any grant pursuant to Section 9 of a unit
valued by reference to a designated amount of property other than Shares (or
cash), which value may be paid to the Participant by delivery of such property
as the Committee shall determine, including cash, Shares, other property, or
any combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish.

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2.20.                     “Permitted
Assignee” shall have the meaning set forth in Section 12.3.

2.21.                     “Prior
Plans” shall mean, collectively, the Company’s Amended and Restated
1998 Equity Compensation Plan, Amended and Restated 2000 Equity Compensation
Plan and the 2002 Equity Compensation Plan.

2.22.                     “Restricted
Stock” shall mean any Share issued with the restriction that the
holder may not sell, transfer, pledge or assign such Share and with such other
restrictions as the Committee, in its sole discretion, may impose (including
any restriction on the right to vote such Share and the right to receive any
dividends), which restrictions may lapse separately or in combination at such
time or times, in installments or otherwise, as the Committee may deem
appropriate.

2.23.                     “Restricted
Stock Award” shall have the meaning set forth in Section 7.1.

2.24.                     “Restricted
Stock Unit Award” shall have the meaning set forth in
Section 8.1.

2.25.                     “Shares”
shall mean the shares of common stock, $0.0001 par value, of the Company.

2.26.                     “Stock
Appreciation Right” shall mean the right granted to a Participant
pursuant to Section 6.

2.27.                     “Subsidiary”
shall mean any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if, at the relevant time, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.

2.28.                     “Substitute
Awards” shall mean Awards granted or Shares issued by the Company in
assumption of, or in substitution or exchange for, awards previously granted,
or the right or obligation to make future awards, in each case by a company
acquired by the Company or any Subsidiary or with which the Company or any
Subsidiary combines.

2.29.                     “Vesting
Period” shall have the meaning set forth in Section 7.1.

3.                                      SHARES
SUBJECT TO THE PLAN

3.1                               Number of Shares.

(a)                                  Subject to adjustment
as provided in Section 12.2, a total of 6,000,000 Shares shall be
authorized for issuance under the Plan, as increased if applicable under this
Section.

(b)                                 If any Shares subject
to an Award or to an award under the Prior Plans are forfeited, expire or
otherwise terminate without issuance of such Shares, or any Award or award
under the Prior Plans is settled for cash or otherwise does not result in the
issuance of all or a portion of the Shares subject to such Award or award under
the Prior Plans (including on

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payment in Shares on the exercise of a Stock Appreciation Right), such
Shares shall, to the extent of such forfeiture, expiration, termination, cash
settlement or non-issuance, be available for issuance under the Plan.

(c)                                  In the event that (i)
any Award granted hereunder is exercised through the tendering of Shares
(either actually or by attestation) or by the withholding of Shares by the
Company, or (ii) withholding tax liabilities arising from any Award are
satisfied by the tendering of Shares (either actually or by attestation) or by
the withholding of Shares by the Company, then the Shares so tendered or
withheld shall be available for issuance under the Plan.  In the event that (i) any award granted under
the Prior Plans is exercised through the tendering of Shares (either actually
or by attestation) or by the withholding of Shares by the Company, or (ii)
withholding tax liabilities arising from such award are satisfied by the
tendering of Shares (either actually or by attestation) or by the withholding
of Shares by the Company, then the Shares so tendered or withheld shall be
available for issuance under the Plan.

(d)                                 Shares issued under
Substitute Awards shall not reduce the Shares authorized for issuance under the
Plan or authorized for grant to a Participant under Section 10.5.

3.2.                            Character
of Shares.  Any Shares issued
hereunder may consist, in whole or in part, of authorized and unissued shares,
treasury shares or shares purchased in the open market or otherwise.

4.                                      ELIGIBILITY
AND ADMINISTRATION

4.1.                            Eligibility.  Any Employee or Director shall be eligible to
be selected as a Participant.

4.2.                            Administration.  (a) 
The Plan shall be administered by the Committee.  The Committee shall have full power and
authority, subject to the provisions of the Plan and subject to such orders or
resolutions not inconsistent with the provisions of the Plan as may from time
to time be adopted by the Board, to: (i) select the Employees and
Directors to whom Awards may from time to time be granted hereunder;
(ii) determine the type or types of Awards, not inconsistent with the
provisions of the Plan, to be granted to each Participant hereunder;
(iii) determine the number of Shares to be covered by each Award granted
hereunder; (iv) determine the terms and conditions, not inconsistent with
the provisions of the Plan, of any Award granted hereunder (including the power
to amend outstanding Awards); (v) determine whether, to what extent and
under what circumstances Awards may be settled in cash, Shares or other
property; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other property and other amounts payable with
respect to an Award made under the Plan shall be deferred either automatically
or at the election of the Participant; (vii) determine whether, to what extent
and under what circumstances any Award shall be canceled or suspended;
(viii) interpret and administer the Plan and any instrument or agreement
entered into under or in connection with the Plan, including any Award
Agreement; (ix) correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent that the
Committee shall deem desirable to carry it into effect; (x) establish such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; (xi) determine whether any Award, other
than an Option or Stock 

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Appreciation Right, will have Dividend Equivalents; and (xii) make
any other determination and take any other action that the Committee deems
necessary or desirable for administration of the Plan.

(b)                                 Decisions of the
Committee shall be final, conclusive and binding on all persons or entities,
including the Company, any Participant, and any Subsidiary.  A majority of the members of the Committee
may determine its actions, including fixing the time and place of its meetings.

(c)                                  To the extent not
inconsistent with applicable law, including Section 162(m) of the Code, or the
rules and regulations of the NASDAQ Stock Market (or such other principal
securities market on which the Shares are traded), the Committee may delegate
to: (i) a committee of one or more members of the Board the authority to take
action on behalf of the Committee under the Plan including the right to grant,
cancel, suspend or amend Awards and (ii) one or more “executive officers”
within the meaning of Rule 16a-1(f) of the Exchange Act or a committee of
executive officers the right to grant Awards to Employees who are not Directors
or executive officers of the Company, to the extent permitted by law.

(d)                                 The Board in its
discretion may ratify and approve actions taken by the Committee.  In addition, to the extent not inconsistent
with applicable law or the rules and regulations of the NASDAQ Stock Market or
such other principal securities market on which the Shares are traded, the
Board may take any action under the Plan that the Committee is authorized to
take.  In the event the Board takes such
action references to the Committee hereunder shall be understood to refer to
the Board.

5.                                    OPTIONS

5.1.                            Grant
of Options.  Options may be granted
hereunder to Participants either alone or in addition to other Awards granted
under the Plan.  Any Option shall be
subject to the terms and conditions of this Article and to such additional
terms and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall deem desirable.

5.2.                            Award
Agreements.  All Options granted
pursuant to this Article shall be evidenced by a written Award Agreement in
such form and containing such terms and conditions as the Committee shall
determine which are not inconsistent with the provisions of the Plan.  The terms of Options need not be the same
with respect to each Participant. 
Granting an Option pursuant to the Plan shall impose no obligation on
the recipient to exercise such Option. 
Any individual who is granted an Option pursuant to this Article may
hold more than one Option granted pursuant to the Plan at the same time.

5.3.                            Option
Price.  Other than in connection with
Substitute Awards, the option price per each Share purchasable under any Option
granted pursuant to this Article shall not be less than 100% of the Fair Market
Value of one Share on the date of grant of such Option.  Other than pursuant to Section 12.2, the
Committee shall not without the approval of the Company’s stockholders (a)
lower the option price per Share of an Option after it is granted, (b) cancel
an Option when the option price per Share exceeds the Fair Market Value of the
underlying Shares in exchange for cash or another Award (other than in
connection with  Substitute Awards), and 

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(c) take any other action with respect to an Option that may be treated
as a repricing under the rules and regulations of the NASDAQ Stock Market (or
such other principal securities market on which the Shares are traded).

5.4.                            Option Term.  The term of each Option shall be fixed by the
Committee in its sole discretion; provided that no Option shall be exercisable
after the expiration of ten (10) years from the date the Option is granted,
except in the event of death or disability.

5.5.                            Exercise of Options.  (a) 
Vested Options granted under the Plan may be exercised by the
Participant or by a Permitted Assignee thereof (or by the Participant’s
executors, administrators, guardian or legal representative, as may be provided
in an Award Agreement) as to all or part of the Shares covered thereby, by the
giving of notice of exercise to the Company or its designated agent, specifying
the number of Shares to be purchased. 
The notice of exercise shall be in such form, made in such manner, and
shall comply with such other requirements consistent with the provisions of the
Plan as the Committee may from time to time prescribe.

(b)                                 Unless otherwise
provided in an Award Agreement, full payment of such purchase price shall be
made at the time of exercise and shall be made (i) in cash or cash equivalents
(including certified check or bank check or wire transfer of immediately
available funds), (ii) by tendering previously acquired Shares (either actually
or by attestation, valued at their then Fair Market Value), (iii) with the
consent of the Committee, by delivery of other consideration (including, where
permitted by law and the Committee, other Awards) having a Fair Market Value on
the exercise date equal to the total purchase price, (iv) with the consent of
the Committee, by withholding Shares otherwise issuable in connection with the
exercise of the Option, (v) through any other method specified in an Award
Agreement, or (vi) any combination of any of the foregoing.  In no event may any Option granted hereunder
be exercised for a fraction of a Share. 
No adjustment shall be made for cash dividends or other rights for which
the record date is prior to the date of such issuance.  Except under circumstances contemplated by
Article 11 or as may be set forth in an Award Agreement with respect to (x)
retirement, death or disability of a Participant, or (y) special circumstances
determined by the Committee (such as the achievement of performance
objectives), Options granted to employees of the Company or any Subsidiary will
not be exercisable before the expiration of one year from the date the Option
is granted (but may become exercisable pro rata over such time).

5.6.                            Incentive
Stock Options.  The Committee may
grant Options intended to qualify as “incentive stock options” as defined in
Section 422 of the Code, to any employee of the Company or any Subsidiary,
subject to the requirements of Section 422 of the Code.  Notwithstanding anything in Section 3.1 to
the contrary and solely for the purposes of determining whether Shares are
available for the grant of “incentive stock options” under the Plan, the
maximum aggregate number of Shares that may be issued pursuant to “incentive
stock options” granted under the Plan shall be 6,000,000 Shares.

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6.                                      STOCK APPRECIATION RIGHTS

6.1.                            Grant
and Exercise.  The Committee may
provide Stock Appreciation Rights (a) in conjunction with all or part of any
Option granted under the Plan or at any subsequent time during the term of such
Option, (b) in conjunction with all or part of any Award (other than an Option)
granted under the Plan or at any subsequent time during the term of such Award,
or (c) without regard to any Option or other Award, in each case upon such
terms and conditions as the Committee may establish in its sole discretion.

6.2.                            Terms
and Conditions.  Stock Appreciation
Rights shall be subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Committee, including the following:

(a)                                  Upon the exercise of
a Stock Appreciation Right, the holder shall have the right to receive the
excess of (i) the Fair Market Value of one Share on the date of exercise
over (ii) the grant price of the right on the date of grant.

(b)                                 Upon the exercise of a
Stock Appreciation Right, the Committee shall determine in its sole discretion
whether payment shall be made in cash, in whole Shares or other property, or any
combination thereof.

(c)                                  The provisions of
Stock Appreciation Rights need not be the same with respect to each recipient.

(d)                                 The Committee may
impose such other conditions or restrictions on the terms of exercise and the
grant price of any Stock Appreciation Right, as it shall deem appropriate.  A Stock Appreciation Right shall have (i) a
grant price per Share of not less than Fair Market Value of one Share on the
date of grant (subject to the requirements of Section 409A of the Code with
respect to a Stock Appreciation Right granted in conjunction with, but
subsequent to, an Option), and (ii) a term not greater than ten (10)
years.  In addition to the foregoing, but
subject to Section 12.2, the Committee shall not without the approval of the
Company’s stockholders (x) lower the grant price per Share of any Stock
Appreciation Right after it is granted, (y) cancel any Stock Appreciation Right
when the grant price per Share exceeds the Fair Market Value of the underlying
Shares in exchange for cash or another Award (other than in connection
with  Substitute Awards), and (z) take
any other action with respect to any Stock Appreciation Right that may be
treated as a repricing under the rules and regulations of the NASDAQ Stock
Market (or such other principal securities market on which the Shares are
traded).

(e)                                  In no event may any
Stock Appreciation Right granted hereunder be exercised for a fraction of a
Share.  No adjustment shall be made for
cash dividends or other rights for which the record date is prior to the date
of such issuance.  Except under
circumstances contemplated by Article 11 or as may be set forth in an Award
Agreement with respect to (x) retirement, death or disability of a Participant,
or (y) special circumstances determined by the Committee (such as the
achievement of performance objectives), Stock Appreciation Rights granted to
employees of the Company or any Subsidiary will not be exercisable before the 

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expiration of one year from the date the Stock Appreciation Right is
granted (but may become exercisable pro rata over such time).

(f)                                    The Committee may
impose such other terms and conditions on Stock Appreciation Rights, not
inconsistent with the Plan, as the Committee shall determine in its sole
discretion.

7.                                      RESTRICTED
STOCK AWARDS

7.1.                            Grants. 
Awards of Restricted Stock may be issued hereunder to Participants
either alone or in addition to other Awards granted under the Plan (a “Restricted
Stock Award”), and such Restricted Stock Awards may also be available as a form
of payment of Performance Awards and other earned cash-based incentive
compensation.  A Restricted Stock Award
shall be subject to vesting restrictions imposed by the Committee covering a
period of time specified by the Committee (the “Vesting Period”) consistent
with the provisions herein.   The
Committee has absolute discretion to determine whether any consideration (other
than services) is to be received by the Company or any Subsidiary as a
condition precedent to the issuance of Restricted Stock.

7.2.                            Award
Agreements.  The terms of any
Restricted Stock Award granted under the Plan shall be set forth in a written
Award Agreement which shall contain provisions determined by the Committee and
not inconsistent with the Plan.  The
terms of Restricted Stock Awards need not be the same with respect to each
Participant.

7.3.                            Rights
of Holders of Restricted Stock.  Beginning
on the date of grant of the Restricted Stock Award and subject to execution of
the Award Agreement, the Participant shall become a stockholder of the Company
with respect to all Shares subject to the Award Agreement and shall have all of
the rights of a stockholder, including the right to vote such Shares and the
right to receive distributions made with respect to such Shares; provided,
however, that except as otherwise
provided in an Award Agreement any Shares or any other property (other than
cash) distributed as a dividend or otherwise with respect to any Restricted
Stock as to which the restrictions have not yet lapsed shall be subject to the
same restrictions as such Restricted Stock.

7.4.                            Minimum Vesting Period.  Except
in the case of a Participant’s death, disability or retirement, or a Change in
Control (as defined in Article 11), Restricted Stock Awards subject solely to
the continued employment of employees of the Company or a Subsidiary shall have
a Vesting Period of not less than three (3) years from date of grant (but
permitting pro rata vesting over such time); provided that such minimum Vesting
Period shall not be applicable to (i) grants of Substitute Awards to new hires
to replace forfeited awards from a prior employer, or (ii) grants of Restricted
Stock in payment of Performance Awards and other earned cash-based incentive
compensation. 
The Committee may, in its sole discretion and subject to the
limitations imposed under Section 162(m) of the Code and the regulations
thereunder in the case of a Restricted Stock Award intended to comply with the
performance-based exception under Code Section 162(m), grant Awards that do not
comply with the minimum vesting periods of this Section 7.4 or Sections 8.3 or 9.3,
or waive the forfeiture period and any other conditions set forth in any Award
Agreement subject to such terms and conditions as the Committee shall deem
appropriate; provided that, except in the case of a Participant’s death,
disability or retirement, or a Change in Control, such Awards and waivers shall
be limited to less than 10% of the Shares 

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authorized for issuance under the Plan. 
The minimum Vesting Period requirements of this Section shall not apply
to Restricted Stock Awards granted to Directors or to any consultants or
advisors who provide services to the Company or any Subsidiary.

8.                                      RESTRICTED
STOCK UNIT AWARDS

8.1.                            Grants. 
Other Awards of units having a value equal to an identical number of
Shares (“Restricted Stock Unit Awards”) may be granted hereunder to
Participants either alone or in addition to other Awards granted under the
Plan.  Restricted Stock Unit Awards shall
also be available as a form of payment of other Awards granted under the Plan
and other earned cash-based incentive compensation.

8.2.                            Award
Agreements.  The terms of Restricted
Stock Unit Award granted under the Plan shall be set forth in a written Award
Agreement which shall contain provisions determined by the Committee and not
inconsistent with the Plan.  The terms of
such Awards need not be the same with respect to each Participant.

8.3.                            Vesting.  Except in the case of a Participant’s death,
disability or retirement, or a Change in Control (as defined in Article 11),
Restricted Stock Unit Awards subject solely to the continued employment of
employees of the Company or any Subsidiary shall be subject to a vesting period
determined by the Committee of not less than three (3) years from date of grant
(but permitting pro rata vesting over such time); provided, that such minimum
vesting period shall not be applicable to (i) grants of Substitute Awards to
new hires to replace forfeited awards from a prior employer, or (ii) grants of
Restricted Stock Unit Awards in payment of Performance Awards and other earned
cash-based incentive compensation.  The
Committee may, in its sole discretion and subject to the limitations imposed
under Section 162(m) of the Code and the regulations thereunder in the case of
a Restricted Stock Unit Award intended to comply with the performance-based
exception under Code Section 162(m), grant Awards that do not comply with the
minimum vesting periods of this Section 8.3 or Sections 7.4 or 9.3, or waive
the forfeiture period and any other conditions set forth in any Award Agreement
subject to such terms and conditions as the Committee shall deem appropriate;
provided that, except in the case of a Participant’s death, disability or
retirement, or a Change in Control, such Awards or waivers shall be limited to
less than 10% of the Shares authorized for issuance under the Plan.  The minimum vesting period requirements of
this Section shall not apply to Restricted Stock Unit Awards granted to
Directors or to any consultants or advisors who provide services to the Company
or any Subsidiary.

8.4.                            Payment.  Except as provided in Article 10 or as
may be provided in an Award Agreement, Restricted Stock Unit Awards may be paid
in cash, Shares, other property, or any combination thereof, in the sole
discretion of the Committee.  Restricted
Stock Unit Awards may be paid in a lump sum or in installments or, in
accordance with procedures established by the Committee, on a deferred basis
subject to the requirements of Section 409A of the Code.

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9.                                      PERFORMANCE
AWARDS

9.1.                            Grants.  Performance Awards in the form of Performance
Shares or Performance Units, as determined by the Committee in its sole
discretion, may be granted hereunder to Participants, for no consideration or
for such minimum consideration as may be required by applicable law, either
alone or in addition to other Awards granted under the Plan. The performance goals to be achieved for
each Performance Period shall be conclusively determined by the Committee and
may be based upon the criteria set forth in Section 10.2.

9.2.                            Award Agreements.  The terms of any Performance Award granted under the Plan shall be set
forth in a written Award Agreement which shall contain provisions determined by
the Committee and not inconsistent with the Plan, including whether such Awards
shall have Dividend Equivalents. The terms of Performance Awards need not be
the same with respect to each Participant.

9.3.                            Terms and Conditions.  The
performance criteria to be achieved during any Performance Period and the
length of the Performance Period shall be determined by the Committee upon the
grant of each Performance Award; provided, however, that a Performance Period
shall not be less than 12 months.  The
amount of the Award to be distributed shall be conclusively determined by the
Committee.

9.4.                            Payment.  Except as provided in Article 11 or as may be provided in an Award
Agreement, Performance Awards will be distributed only after the end of the
relevant Performance Period.  Performance
Awards may be paid in cash, Shares, other property, or any combination thereof,
in the sole discretion of the Committee. 
Performance Awards may be paid in a lump sum or in installments
following the close of the Performance Period or, in accordance with procedures
established by the Committee, on a deferred basis subject to the requirements
of Section 409A of the Code.

10.                               CODE
SECTION 162(m) PROVISIONS

10.1.                     Covered Employees.  Notwithstanding any other provision of the
Plan, if the Committee determines at the time a Restricted Stock Award, a Performance
Award or an Restricted Stock Unit Award is granted to a Participant who is, or
is likely to be, as of the end of the tax year in which the Company would claim
a tax deduction in connection with such Award, a Covered Employee, then the
Committee may provide that this Article 10 is applicable to such Award.

10.2.                     Performance Criteria.   If the Committee determines that a Restricted
Stock Award, a Performance Award or an Restricted Stock Unit Award is intended
to be subject to this Article 10, the lapsing of restrictions thereon and the
distribution of cash, Shares or other property pursuant thereto, as applicable,
shall be subject to the achievement of one or more objective performance goals
established by the Committee, which shall be based on the attainment of
specified levels of one or any combination of the following: net sales;
revenue; revenue or product revenue growth; operating income or loss (before or
after taxes); pre- or after-tax income or loss (before or after allocation of
corporate overhead and bonus); net earnings or loss; earnings or loss per
share; net income or loss (before or after taxes); return on 

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equity; total stockholder return; return on assets or net assets;
attainment of strategic and operational initiatives; appreciation in and/or
maintenance of the price of the Shares or any other publicly-traded securities
of the Company; market share; gross profits; earnings or losses (including
earnings or losses before taxes, earnings or losses before interest and taxes,
earnings or losses before interest, taxes and depreciation or earnings or
losses before interest, taxes, depreciation and amortization); economic
value-added models (or equivalent metrics); comparisons with various stock
market indices; reductions in costs; cash flow or cash flow per share (before
or after dividends); return on capital (including return on total capital or
return on invested capital); cash flow return on investment; improvement in or
attainment of expense levels or working capital levels; operating margin; gross
margin; year-end cash; cash margin; debt reduction; stockholder’s equity;
market share; achievement of drug development milestones; regulatory
achievements including approval of a compound; progress of internal research or
clinical programs; progress of partnered programs; implementation or completion
of projects and processes; partner satisfaction; budget management; clinical
progress including timely completion of clinical trials; submission of INDs and
NDAs and other regulatory achievements; partner or collaborator achievements;
internal controls, including those related to the Sarbanes-Oxley Act of 2002;
research progress, including the development of programs; financing; investor
relation, analysts and communication; inlicensing;  and recruiting and maintaining
personnel.  Such performance goals also
may be based solely by reference to the Company’s performance or the
performance of a Subsidiary, division, business segment or business unit of the
Company, or based upon the relative performance of other companies or upon
comparisons of any of the indicators of performance relative to other
companies.  The Committee may also
exclude charges related to an event or occurrence which the Committee
determines should appropriately be excluded, including (a) restructurings,
discontinued operations, extraordinary items, and other unusual or
non-recurring charges, (b) an event either not directly related to the
operations of the Company or not within the reasonable control of the Company’s
management, or (c) the cumulative effects of tax or accounting changes in
accordance with U.S. generally accepted accounting principles.  Such performance goals shall be set by the
Committee within the time period prescribed by, and shall otherwise comply with
the requirements of, Section 162(m) of the Code, and the regulations
thereunder.

10.3.                     Adjustments.  Notwithstanding any provision of the Plan
(other than Article 11), with respect to any Restricted Stock, Performance
Award or Restricted Stock Unit Award that is subject to this Section 10,
the Committee may adjust downwards, but not upwards, the amount payable
pursuant to such Award, and the Committee may not waive the achievement of the
applicable performance goals, except in the case of the death or disability of
the Participant or as otherwise determined by the Committee in special
circumstances.

10.4.                     Restrictions.  The Committee shall have the power to impose
such other restrictions on Awards subject to this Article as it may deem
necessary or appropriate to ensure that such Awards satisfy all requirements
for “performance-based compensation” within the meaning of Section 162(m)
of the Code.

10.5.                     Limitations on Grants to Individual Participants.  Subject to adjustment as provided in Section
12.2, no Participant may be granted (i) Options or Stock Appreciation Rights
during any 36-month period with respect to more than 1,000,000 Shares or (ii)
Restricted Stock, Performance Awards and/or Restricted Stock Unit Awards that
are denominated in Shares in any 36-month period with respect to more than
500,000 Shares (the “Limitations”).  In
addition to 

 11
 

the foregoing, the maximum dollar value that may be granted by any
Participant in any 12-month period with respect to Performance Awards is
$5,000,000.  If an Award is cancelled,
the cancelled Award shall continue to be counted toward the applicable
Limitations.

11.                               CHANGE
IN CONTROL PROVISIONS

11.1.                     Impact on
Certain Awards.  The Committee, in
its discretion, may determine that in the event of a Change in Control of the
Company (as defined in Section 11.3) Options and Stock Appreciation Rights
outstanding as of the date of the Change in Control shall be cancelled and
terminated without payment therefore if the Fair Market Value of one Share as
of the date of the Change in Control is less than the Option per Share option
price or Stock Appreciation Right per Share grant price.

11.2.                     Assumption or
Substitution of Certain Awards. 
(a)  To the extent provided in an
Award Agreement, in the event of a Change in Control of the Company  in which the successor company assumes or
substitutes for an Option, Stock Appreciation Right, Restricted Stock Award or
Restricted Stock Unit Award, if a Participant’s employment with such successor
company (or a subsidiary thereof) terminates within the time period following
such Change in Control set forth in the Award Agreement (or prior thereto if
applicable) and under the circumstances specified in the Award Agreement:
(i) Options and Stock Appreciation Rights outstanding as of the date of
such termination of employment will immediately vest, become fully exercisable,
and may thereafter be exercised for the period of time set forth in the Award
Agreement, (ii) restrictions and deferral limitations on Restricted Stock shall
lapse and the Restricted Stock shall become free of all restrictions and
limitations and become fully vested, and (iii) the restrictions and deferral
limitations and other conditions applicable to any Restricted Stock Unit Awards
or any other Awards shall lapse, and such Restricted Stock Unit Awards or such
other Awards shall become free of all restrictions, limitations or conditions
and become fully vested and transferable to the full extent of the original
grant.  For the purposes of this Section,
an Option, Stock Appreciation Right, Restricted Stock Award or Restricted Stock
Unit Award shall be considered assumed or substituted for if following the
Change in Control the Award confers the right to purchase or receive, for each
Share subject to the Option, Stock Appreciation Right, Restricted Stock Award
or Restricted Stock Unit Award immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) received in
the transaction constituting a Change in Control by holders of Shares for each
Share held on the effective date of such transaction (and if holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares); provided, however, that if
such consideration received in the transaction constituting a Change in Control
is not solely common stock of the successor company, the Committee may, with
the consent of the successor company, provide that the consideration to be
received upon the exercise or vesting of an Option, Stock Appreciation Right,
Restricted Stock Award or Restricted Stock Unit Award, for each Share subject
thereto, will be solely common stock of the successor company substantially
equal in fair market value to the per share consideration received by holders
of Shares in the transaction constituting a Change in Control.  The determination of such substantial
equality of value of consideration shall be made by the Committee in its sole
discretion and its determination shall be conclusive and binding.

 12
 

(b)                                 In the event of a
Change in Control of the Company, to the extent that the successor company does
not assume or substitute for an Option, Stock Appreciation Right, Restricted
Stock Award, Restricted Stock Unit Award or Performance Award (unless otherwise
provided in an Award Agreement), then immediately prior to the Change in
Control: (i) those outstanding Options and Stock Appreciation Rights that are
not assumed or substituted for shall immediately vest and become fully
exercisable, (ii) restrictions and deferral limitations on Restricted Stock not
assumed or substituted for shall lapse and the Restricted Stock shall become
free of all restrictions and limitations and become fully vested, (iii) the
restrictions and deferral limitations and other conditions applicable to any
Restricted Stock Unit Awards or any other Awards not assumed or substituted for
shall lapse, and such Restricted Stock Unit Awards or such other Awards shall
become free of all restrictions, limitations or conditions and become fully
vested and transferable to the full extent of the original grant, (iv) all
Performance Awards assumed or substituted for shall be considered to be earned
and payable in full, and any deferral or other restriction shall lapse and such
Performance Awards shall be immediately settled or distributed, and (v) all
Awards not assumed or substituted for shall terminate immediately after the
Change in Control.

(c)                                  The Committee, in its
discretion, may determine that, upon the occurrence of a Change in Control of
the Company, each Option and Stock Appreciation Right outstanding shall
terminate within a specified number of days after notice to the Participant,
and/or that each Participant shall receive, with respect to each Share subject
to such Option or Stock Appreciation Right, an amount equal to the excess (if
any) of the Fair Market Value of such Share immediately prior to the occurrence
of such Change in Control over the exercise price per share of such Option
and/or Stock Appreciation Right; such amount to be payable in cash, in one or
more kinds of stock or property (including the stock or property, if any,
payable in the transaction) or in a combination thereof, as the Committee, in
its discretion, shall determine.

11.3.                     Change in
Control.  For purposes of the Plan, unless
otherwise provided in an Award Agreement, Change in Control means the
occurrence of any one of the following events:

(i)                                     During
any twenty-four (24) month period, individuals who, as of the beginning of such
period, constitute the Board (the “Incumbent
Directors”) cease for any reason to constitute at least a majority of
the Board, provided that any person becoming a director subsequent to the
beginning of such period whose election or nomination for election was approved
by a vote of at least a majority of the Incumbent Directors then on the Board
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without written
objection to such nomination) shall be an Incumbent Director; provided, however,
that no individual initially elected or nominated as a director of the Company
as a result of an actual or threatened election contest with respect to
directors or as a result of any other actual or threatened solicitation of proxies
by or on behalf of any person other than the Board shall be deemed to be an
Incumbent Director;

(ii)                                  Any
“person” (as such term is defined in the Exchange Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company’s 

 13
 

then
outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided,
however, that the event described in this paragraph (ii) shall not
be deemed to be a Change in Control by virtue of any of the following
acquisitions:  (A) by the Company or any subsidiary, (B) by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any subsidiary, (C) by any underwriter temporarily holding securities
pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction, as defined in paragraph (iii), or (E) by any person
of Voting Securities from the Company, if a majority of the Incumbent Board
approves in advance the acquisition of beneficial ownership of 50% or more of
Company Voting Securities by such person;

(iii)                               The
consummation of a merger, consolidation, statutory share exchange or similar
form of corporate transaction involving the Company or any of its subsidiaries
that requires the approval of the Company’s stockholders, whether for such
transaction or the issuance of securities in the transaction (a “Business  Combination”),
unless immediately following such Business Combination:  (A) more than 60% of the total voting
power of (x) the corporation resulting from such Business Combination (the
“Surviving  Corporation”),
or (y) if applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of 100% of the voting securities eligible
to elect directors of the Surviving Corporation (the “Parent  Corporation”), is
represented by Company Voting Securities that were outstanding immediately
prior to such Business Combination (or, if applicable, is represented by shares
into which such Company Voting Securities were converted pursuant to such
Business Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of such Company Voting
Securities among the holders thereof immediately prior to the Business
Combination, (B) no person (other than any employee benefit plan (or
related trust) sponsored or maintained by the Surviving Corporation or the
Parent Corporation), is or becomes the beneficial owner, directly or
indirectly, of 50% or more of the total voting power of the outstanding voting
securities eligible to elect directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation) and (C) at least a
majority of the members of the board of directors of the Parent Corporation
(or, if there is no Parent Corporation, the Surviving Corporation) following
the consummation of the Business Combination were Incumbent Directors at the
time of the Board’s approval of the execution of the initial agreement
providing for such Business Combination (any Business Combination which
satisfies all of the criteria specified in (A), (B) and (C) above shall be
deemed to be a “Non-Qualifying  Transaction”);

(iv)                              The
stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or the consummation of a sale of all or
substantially all of the Company’s assets; or

(v)                                 The
occurrence of any other event that the Board determines by a duly approved
resolution constitutes a Change in Control.

Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 50% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the 

 14
 

number of Company Voting Securities outstanding; provided,
that if after such acquisition by the Company such person becomes the
beneficial owner of additional Company Voting Securities that increases the
percentage of outstanding Company Voting Securities beneficially owned by such
person, a Change in Control of the Company shall then occur.

12.                               GENERALLY
APPLICABLE PROVISIONS

12.1.                     Amendment and
Termination of the Plan.  The Board
may, from time to time, alter, amend, suspend or terminate the Plan as it shall
deem advisable, subject to any requirement for stockholder approval imposed by
applicable law, including the rules and regulations of the NASDAQ Stock Market
(or such other principal securities market on which the Shares are traded);
provided that the Board may not amend the Plan in any manner that would result
in noncompliance with Rule 16b-3 of the Exchange Act; and further provided that
the Board may not, without the approval of the Company’s stockholders to the
extent required by such applicable law, amend the Plan to (a) increase the
number of Shares that may be the subject of Awards under the Plan (except for
adjustments pursuant to Section 12.2), (b) expand the types of awards available
under the Plan, (c) materially expand the class of persons eligible to
participate in the Plan, (d) amend any provision of Section 5.3, or (e)
increase the maximum permissible term of any Option specified by Section 5.4 or
the maximum permissible term of a Stock Appreciation Right.  The Board may not without the approval of the
Company’s stockholders take any action with respect to an Option or Stock
Appreciation Right that may be treated as a repricing under the rules and
regulations of the NASDAQ Stock Market (or such other principal securities
market on which the Shares are traded), including a reduction of the exercise
price of an Option or Stock Appreciation Right or the exchange of an Option or
Stock Appreciation Right for cash or another Award.  In addition, no amendments to, or termination
of, the Plan shall in any way impair the rights of a Participant under any Award
previously granted without such Participant’s consent.

12.2.                     Adjustments.  In the
event of any merger, reorganization, consolidation, recapitalization, dividend
or distribution (whether in cash, shares or other property, other than a
regular cash dividend), stock split, reverse stock split, spin-off or similar
transaction or other change in corporate structure affecting the Shares or the
value thereof, such adjustments and other substitutions shall be made to the
Plan and to Awards as the Committee, in its sole discretion, deems equitable or
appropriate taking into consideration the accounting and tax consequences,
including such adjustments in the aggregate number, class and kind of
securities that may be delivered under the Plan and, in the aggregate or to any
one Participant, in the number, class, kind and option or exercise price of
securities subject to outstanding Awards granted under the Plan (including, if
the Committee deems appropriate, the substitution of similar options to
purchase the shares of, or other awards denominated in the shares of, another
company) as the Committee may determine to be appropriate in its sole
discretion; provided, however, that the number of Shares subject to any Award
shall always be a whole number.

12.3.                     Transferability of Awards. 
Except as provided below, and except as otherwise authorized by the
Committee in an Award Agreement, no Award and no Shares subject to Awards
described in Article 8 that have not been issued or as to which any applicable
restriction, performance or deferral period has not lapsed, may be sold,
assigned, transferred, pledged or otherwise encumbered, other than by will or
the laws of descent and distribution, and such 

 15
 

Award may be exercised
during the life of the Participant only by the Participant or the Participant’s
guardian or legal representative. 
Notwithstanding the foregoing, to the extent and under such terms and
conditions as determined by the Committee, a Participant may assign or transfer
an Award (each transferee thereof, a “Permitted Assignee”) to a “family member”
as such term is defined in the General Instructions to Form S-8 (whether by
gift or a domestic relations order); 
provided that such Permitted Assignee shall be bound by and subject to
all of the terms and conditions of the Plan and the Award Agreement relating to
the transferred Award and shall execute an agreement satisfactory to the
Company evidencing such obligations; and provided further that such Participant
shall remain bound by the terms and conditions of the Plan.  The Company shall cooperate with any
Permitted Assignee and the Company’s transfer agent in effectuating any
transfer permitted under this Section.

12.4.                     Termination of Employment. 
The Committee shall determine and set forth in each Award Agreement
whether any Awards granted in such Award Agreement will continue to be
exercisable, and the terms of such exercise, on and after the date that a
Participant ceases to be employed by or to provide services to the Company or
any Subsidiary (including as a Director), whether by reason of death, disability,
voluntary or involuntary termination of employment or services, or
otherwise.  The date of termination of a
Participant’s employment or services will be determined by the Committee, which
determination will be final.

12.5.                     Deferral;
Dividend Equivalents.  The Committee shall be authorized to
establish procedures pursuant to which the payment of any Award may be
deferred.  Subject to the provisions of
the Plan and any Award Agreement, the recipient of an Award (including any
deferred Award) other than an Option or Stock Appreciation Right may, if so
determined by the Committee, be entitled to receive, currently or on a deferred
basis, cash, stock or other property dividends, or cash payments in amounts
equivalent to cash, stock or other property dividends on Shares (“Dividend
Equivalents”) with respect to the number of Shares covered by the Award, as
determined by the Committee, in its sole discretion.  The Committee may provide that such amounts
and Dividend Equivalents (if any) shall be deemed to have been reinvested in
additional Shares or otherwise reinvested and may provide that such amounts and
Dividend Equivalents are subject to the same vesting or performance conditions
as the underlying Award.

13.                               MISCELLANEOUS

13.1.                     Tax
Withholding.  The Company shall have
the right to make all payments or distributions pursuant to the Plan to a
Participant (or a Permitted Assignee thereof) (any such person, a “Payee”) net
of any applicable federal, state and local taxes required to be paid or
withheld as a result of (a) the grant of any Award, (b) the exercise of an
Option or Stock Appreciation Right, (c) the delivery of Shares or cash, (d) the
lapse of any restrictions in connection with any Award or (e) any other event
occurring pursuant to the Plan.  The Company
or any Subsidiary shall have the right to withhold from wages or other amounts
otherwise payable to such Payee such withholding taxes as may be required by
law, or to otherwise require the Payee to pay such withholding taxes.  If the Payee shall fail to make such tax
payments as are required, the Company or its Subsidiaries shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to such Payee or to take such other action as may be necessary
to satisfy such withholding obligations. 
The Committee shall be authorized to establish procedures for election
by Participants to satisfy such obligation for 

 16
 

the payment of such taxes
by tendering previously acquired Shares (either actually or by attestation,
valued at their then Fair Market Value), or by directing the Company to retain
Shares (up to the Participant’s minimum required tax withholding rate or such
other rate that will not trigger a negative accounting impact) otherwise
deliverable in connection with the Award.

13.2.                     Right of
Discharge Reserved; Claims to Awards. 
Nothing in the Plan nor the grant of an Award hereunder shall confer
upon any Employee or Director the right to continue in the employment or
service of the Company or any Subsidiary or affect any right that the Company
or any Subsidiary may have to terminate the employment or service of (or to
demote or to exclude from future Awards under the Plan) any such Employee or
Director at any time for any reason. 
Except as specifically provided by the Committee, the Company shall not
be liable for the loss of existing or potential profit from an Award granted in
the event of termination of an employment or other relationship.  No Employee or Participant shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Employees or Participants under the Plan.

13.3.                     Prospective
Recipient.  The prospective recipient
of any Award under the Plan shall not, with respect to such Award, be deemed to
have become a Participant, or to have any rights with respect to such Award,
until and unless such recipient shall have executed an agreement or other
instrument evidencing the Award and delivered a copy thereof to the Company,
and otherwise complied with the then applicable terms and conditions.

13.4.                     Substitute Awards.  Notwithstanding any other provision of the
Plan, the terms of Substitute Awards may vary from the terms set forth in the
Plan to the extent the Committee deems appropriate to conform, in whole or in
part, to the provisions of the awards in substitution for which they are
granted.

13.5.                     Cancellation
of Award.  (a)  Notwithstanding anything to the contrary
contained herein, an Award Agreement may provide that the Award shall be canceled
if the Participant, without the consent of the Company, while employed by, or
providing services to, the Company or any Subsidiary or after termination of
such employment or services, establishes a relationship with a competitor of
the Company or any Subsidiary or engages in activity that is in conflict with
or adverse to the interest of the Company or any Subsidiary, as determined by
the Committee in its sole discretion. 
The Committee may provide in an Award Agreement that if within the time
period specified in the Agreement the Participant establishes a relationship
with a competitor or engages in an activity referred to in the preceding
sentence, the Participant will forfeit any gain realized on the vesting or
exercise of the Award and must repay such gain to the Company.

(b)                                 In the event the
Participant ceases to be employed by, or provide services to, the Company on
account of a termination for “cause” (as defined below) by the Company, any
Award held by the Participant shall terminate as of the date the Participant
ceases to be employed by, or provide services to, the Company.  In addition, notwithstanding any other
provisions of this Section, if the Committee determines that the Participant
has engaged in conduct that constitutes cause at any time while the Participant
is employed by, or providing services to, the Company or after the Participant’s
termination of employment or services, any Awards held by the Participant shall
immediately terminate.  In the event a
Participant’s employment or services is terminated for cause, in addition to
the immediate termination of all Awards, the Participant shall automatically
forfeit all shares underlying any exercised portion of 

 17
 

an Option for which the Company has not yet delivered the share
certificates, upon refund by the Company of the option price paid by the
Participant for such shares.

(c) 
For purposes of this Section, “cause” shall mean, unless otherwise
provided in an Award Agreement or another agreement between the Participant
and  the Company or a Subsidiary or a
plan maintained by the Company or a Subsidiary in which the Participant
participates, a determination by the Committee that the Participant has
breached his or her employment or service contract with the Company, or has
been engaged in disloyalty to the Company, including, without limitation,
fraud, embezzlement, theft, commission of a felony or proven dishonesty in the
course of his or her employment or service, or has disclosed trade secrets or
confidential information of the Company to persons not entitled to receive such
information, or has breached any written noncompetition or nonsolicitation
agreement between the Participant and the Company or has engaged in such other
behavior detrimental to the interests of the Company as the Committee
determines

13.6.                     Stop Transfer
Orders.  All certificates for Shares
delivered under the Plan pursuant to any Award shall be subject to such
stop-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Shares are then listed,
and any applicable federal or state securities law, and the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

13.7.                     Nature of
Payments.  All Awards made pursuant
to the Plan are in consideration of services performed or to be performed for
the Company or any Subsidiary, division or business unit of the Company.  Any income or gain realized pursuant to
Awards under the Plan and any Stock Appreciation Rights constitute a special
incentive payment to the Participant and shall not be taken into account, to
the extent permissible under applicable law, as compensation for purposes of
any of the employee benefit plans of the Company or any Subsidiary except as
may be determined by the Committee or by the Board or board of directors of the
applicable Subsidiary.

13.8.                     Other Plans.  Nothing contained in the Plan shall prevent
the Board from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases.

13.9.                     Severability.  If any provision of the Plan shall be held
unlawful or otherwise invalid or unenforceable in whole or in part by a court
of competent jurisdiction, such provision shall (a) be deemed limited to the
extent that such court of competent jurisdiction deems it lawful, valid and/or
enforceable and as so limited shall remain in full force and effect, and (b)
not affect any other provision of the Plan or part thereof, each of which shall
remain in full force and effect.  If the
making of any payment or the provision of any other benefit required under the
Plan shall be held unlawful or otherwise invalid or unenforceable by a court of
competent jurisdiction, such unlawfulness, invalidity or unenforceability shall
not prevent any other payment or benefit from being made or provided under the
Plan, and if the making of any payment in full or the provision of any other
benefit required under the Plan in full would be unlawful or otherwise invalid
or unenforceable, then such unlawfulness, invalidity or unenforceability shall
not prevent such payment or benefit from being made or provided in part, 

 18
 

to the extent that it would not be unlawful, invalid or unenforceable,
and the maximum payment or benefit that would not be unlawful, invalid or
unenforceable shall be made or provided under the Plan.

13.10.              Construction.  As used in the Plan, the words “include” and “including,” and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words “without
limitation.”

13.11.              Unfunded Status of
the Plan.  The Plan is intended to
constitute an “unfunded” plan for incentive and deferred compensation.  With respect to any payments not yet made to
a Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company.  In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver the Shares or payments in
lieu of or with respect to Awards hereunder; provided, however, that the
existence of such trusts or other arrangements is consistent with the unfunded
status of the Plan.

13.12.              Governing Law.  The Plan and all determinations made and
actions taken thereunder, to the extent not otherwise governed by the Code or
the laws of the United States, shall be governed by the laws of the State of
Delaware, without reference to principles of conflict of laws, and construed
accordingly.

13.13.              Effective Date of
Plan; Termination of Plan.  The Plan
shall be effective on the date of the approval of the Plan by the holders of
the shares entitled to vote at a duly constituted meeting of the stockholders
of the Company.  The Plan shall be null
and void and of no effect if the foregoing condition is not fulfilled and in
such event each Award shall, notwithstanding any of the preceding provisions of
the Plan, be null and void and of no effect. 
Awards may be granted under the Plan at any time and from time to time
on or prior to the tenth anniversary of the effective date of the Plan, on
which date the Plan will expire except as to Awards then outstanding under the
Plan.  Such outstanding Awards shall
remain in effect until they have been exercised or terminated, or have expired.

13.14.              Foreign Employees.  Awards may be granted to Participants who are
foreign nationals or employed outside the United States, or both, on such terms
and conditions different from those applicable to Awards to Employees employed
in the United States as may, in the judgment of the Committee, be necessary or
desirable in order to recognize differences in local law or tax policy.  The Committee also may impose conditions on
the exercise or vesting of Awards in order to minimize the Company’s obligation
with respect to tax equalization for Employees on assignments outside their
home country.

13.15.              Compliance with
Section 409A of the Code.  This Plan
is intended to comply and shall be administered in a manner that is intended to
comply with Section 409A of the Code and shall be construed and interpreted in
accordance with such intent.  To the
extent that an Award or the payment, settlement or deferral thereof is subject
to Section 409A of the Code, the Award shall be granted, paid, settled or
deferred in a manner that will comply with Section 409A of the Code, including
regulations or other guidance issued with respect thereto, except as otherwise
determined by the Committee.  Any
provision of this Plan that would cause the grant of an Award or the payment,
settlement or deferral thereof to fail to satisfy Section 409A of the Code 

 19
 

shall be amended to comply with Section 409A of the Code on a timely
basis, which may be made on a retroactive basis, in accordance with regulations
and other guidance issued under Section 409A of the Code.

13.16.              Captions.  The captions in the Plan are for convenience
of reference only, and are not intended to narrow, limit or affect the
substance or interpretation of the provisions contained herein.

 20Exhibit 10.17

DATED   20 DECEMBER 2006

BLYTH
HOMESCENTS INTERNATIONAL UK LIMITED (1)

- and -

COBCO
813 LIMITED (2)

 

SHARE
PURCHASE AGREEMENT

Cobbetts LLP

Ship Canal House

King Street

Manchester

M2 4WB

DX: 14374 Manchester 1

Tel: 0845 404 2404

Fax: 0845 404 2414

SPM/IZR

Contents

	
  Clause

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  INTERPRETATION

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  SALE AND PURCHASE OF SALE SHARES

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  PURCHASE PRICE AND NET CASH PAYMENT

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  COMPLETION

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5

  	
   

  	
  WARRANTIES

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  LIMITATIONS ON CLAIMS

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7

  	
   

  	
  TAX COVENANT

  	
   

  	
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  8

  	
   

  	
  INDEMNITIES

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9

  	
   

  	
  RESTRICTIONS ON SELLER

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10

  	
   

  	
  CONFIDENTIALITY AND ANNOUNCEMENTS

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11

  	
   

  	
  FURTHER ASSURANCE

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12

  	
   

  	
  ASSIGNMENT

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13

  	
   

  	
  WHOLE AGREEMENT

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14

  	
   

  	
  VARIATION AND WAIVER

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15

  	
   

  	
  COSTS

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  NOTICE

  	
   

  	
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  INTEREST ON LATE PAYMENT

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18

  	
   

  	
  SEVERANCE

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19

  	
   

  	
  AGREEMENT SURVIVES
  COMPLETION

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  20

  	
   

  	
  THIRD PARTY RIGHTS

  	
   

  	
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  21

  	
   

  	
  SUCCESSORS

  	
   

  	
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  22

  	
   

  	
  COUNTERPARTS

  	
   

  	
  23

  

 

 

	
  23

  	
   

  	
  LANGUAGE

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  24

  	
   

  	
  GOVERNING LAW AND
  JURISDICTION

  	
   

  	
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  STATUTORY ACCOUNTS AND TAX
  COMPLIANCE FEES

  	
   

  	
  24

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 1

  	
   

  	
  25

  
	
   

  	
   

  	
   

  
	
  PART 1 PARTICULARS OF THE
  COMPANY

  	
   

  	
  25

  
	
   

  	
   

  	
   

  
	
  PART 2 THE COLONY
  SUBSIDIARIES

  	
   

  	
  26

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 2 COMPLETION

  	
   

  	
  27

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 3 WARRANTIES

  	
   

  	
  30

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 4 TAX COVENANT

  	
   

  	
  32

  

 

THIS AGREEMENT
is dated the 20th day of December 2006

BETWEEN:

(1)           BLYTH HOMESCENTS INTERNATIONAL UK LIMITED (registered
in England and Wales under Company Number 3646506) the registered office of
which is at 100 New Bridge Street, London EC4V 6JA (the “Seller”).

(2)           COBCO 813 LIMITED incorporated and
registered in England and Wales with company number 06006752 whose registered
office is c/o PKF, Sovereign House, Queen Street, Manchester M2 5HR (the “Buyer”).

BACKGROUND

(1)           The Seller is the legal and beneficial owner of, or is otherwise able to
procure the transfer of, the legal and beneficial title to the number of Sale
Shares comprising in aggregate the whole of the issued share capital of the
Company.

(2)           The Seller has agreed to sell and the Buyer has agreed to buy the Sale
Shares subject to the terms and conditions of this Agreement.

(3)           The Company is the owner of the issued share capital of various companies,
short particulars of which are set out in Part 2 of Schedule 1 (“the Colony Subsidiaries”).

IT IS AGREED THAT

1              INTERPRETATION

1.1           The definitions and
rules of interpretation in this clause apply in this Agreement.

1.1.1                “Accounts” means the audited abbreviated
financial statements of the Company as at and to the Accounts Date, comprising
the abbreviated balance sheet of the Company together with the notes thereon,
and Directors’ reports (a copy of which is attached to the Disclosure Letter.

1.1.2                “Accounts Date” means 31 December 2005.

 1
 

1.1.3                “Business” means the business of the Company, namely the
manufacture, marketing and sale of candles and candle related accessories to
retailers and wholesalers in Europe;

1.1.4                “Business Day” means a day (other than a Saturday, Sunday
or public holiday) when banks in the City of London are open for business.

1.1.5                “Buyer ́s Solicitors” means Cobbetts LLP (ref: SDF) of Ship
Canal House, King Street, Manchester, M2 4WB.

1.1.6                “CAA 2001” means the Capital Allowances Act 2001.

1.1.7                “Claim and Substantiated
Claim” have the meanings set out respectively in
Clause 6.

1.1.8                “Company” means Colony Gift Corporation Limited
further details of which are set out in
Part 1 of Schedule 1.

1.1.9                “Companies Acts” means the Companies Act 1985 and the
Companies Act 1989.

1.1.10              “Completion” means completion of the sale and purchase of
the Sale Shares in accordance with this Agreement.

1.1.11              “Completion Date” means the date of this Agreement.

1.1.12              “Connected” in relation to a person, has the meaning
contained in section 839 of the ICTA 1988.

1.1.13              “Control” means in relation to a body corporate, the
power of a person to secure that the affairs of the body corporate are
conducted in accordance with the wishes of that person:

(a)           by means of the holding
of shares, or the possession of voting power, in or in relation to that or any other
body corporate; or

(b)           by virtue of any powers
conferred by the constitutional or corporate documents, or any other document,
regulating that or any other body corporate,

 2
 

and a “Change of Control”
occurs if a person who controls any body corporate ceases to do so or if
another person acquires control of it.

1.1.14              “Director” means each person who is a director or
shadow director of the Company, the names of whom are set out in Schedule 1
Part 1.

1.1.15              “Disclosed” means fairly disclosed (with sufficient
details to enable the Buyer to identify the nature and scope of the matter
disclosed) in or under the Disclosure Letter.

1.1.16              “Disclosure Letter” means the letter from the Seller to the
Buyer  with the same date as this
Agreement and described as the disclosure letter, including the bundle of
documents attached to it (“Disclosure Bundle”).

1.1.17              “Encumbrance” means any interest or equity of any person
(including any right to acquire, option or right of pre-emption) or any
mortgage, charge, pledge, lien, assignment, hypothecation, security, interest,
title, retention or any other security agreement or arrangement.

1.1.18              “Event” has the meaning given in Part 1 of Schedule
4.

1.1.19              “FSMA” means the Financial Services and Markets Act
2000.

1.1.20              “Group” means in relation to a company (wherever
incorporated) that company, any company of which it is a Subsidiary (its
holding company) and any other Subsidiaries of any such holding company; and
each company in a group is a member of the group. Unless the context otherwise
requires, the application of the definition of Group to any company at any time
will apply to the company as it is at that time.

1.1.21              “ICTA 1988” means the Income and Corporation Taxes Act
1988.

1.1.22              “IHTA 1984” means the Inheritance Tax Act 1984.

1.1.23              “ITEPA” means the Income Tax (Earnings and
Pensions) Act 2003.

 3
 

1.1.24              “Patent Licence” means a licence of various
intellectual property rights including registered patent rights in the agreed
form to be entered into on Completion between the Seller (1) and the Company
(2).

1.1.25              “Payables” means all trade and other debts,
accrued charges and all other amounts owing by the Company as at Completion.

1.1.26              “Purchase Price” means the purchase price for the Sale Shares
to be paid or satisfied in accordance with Clause 3.

1.1.27              “Purchase Price” means the purchase price for the Sale Shares to be
paid in accordance with clause 3.

1.1.28              “Receivables” means all trade and other debts and amounts
(including prepayments) owing to the Company in respect of services supplied by
the Company in the normal or usual course of carrying on its business as at
Completion.

1.1.29              “Sale Shares” means the 14,520,070 Ordinary Shares of £1 each in the Company, all of which have been
issued and are fully paid.

1.1.30               “Seller’s Solicitors” means Cobbetts LLP (ref: SPM/IZR) of
Ship Canal House, King Street, Manchester M2 4WB.

1.1.31              “Subsidiary” means in relation to a company wherever
incorporated (a holding company) means a “subsidiary” as defined in section 736
of the Companies Act 1985 and any other company which is a subsidiary (as so
defined) of a company which is itself a subsidiary of such holding company.
Unless the context otherwise requires, the application of the definition of
Subsidiary to any company at any time will apply to the company as it is at
that time.

1.1.32              “Supply Agreement” means a supply agreement in the agreed form to be
entered into on Completion between the Company (1) and Partylite Trading SA,
being a subsidiary of the Seller (2).

1.1.33              “Tax or Taxation” has the meaning given in Part 1 of Schedule
4.

1.1.34              “Tax Covenant” means the tax covenant as set out in Part 3
of Schedule 4.

 4
 

1.1.35              “Tax Claim” has the meaning given in Part 1 of Schedule
4.

1.1.36              “Tax Warranties” means the Warranties in Part 2 of Schedule
3.

1.1.37              “Taxation Authority” has the meaning given in Part 1 of Schedule
4.

1.1.38              “Taxation Statute” has the meaning given in Schedule 3 Part 1
to be entered into on Completion between the Seller (1) and the Company (2).

1.1.39              “TCGA 1992” means the Taxation of Chargeable Gains Act
1992.

1.1.40              “TMA 1970” means the Taxes Management Act 1970.

1.1.41              “Trademark Licences” means two licences of various intellectual property
rights in the agreed form to be
entered into on Completion between Blyth Inc. (1) and the Company (2).

1.1.42              “Trademark Assignment” means an assignment of trademark registrations
between Carolina Designs Limited (1) and Candle Corporation of America (2).

1.1.43              “Transaction” means the transaction contemplated by this
Agreement or any part of that transaction.

1.1.44              “VATA 1994” means the Value Added Tax Act 1994.

1.1.45              “Warranties” means the warranties in Clause 5 and
Schedule 2 and the Tax Warranties.

1.2           Clause and schedule
headings do not affect the interpretation of this Agreement.

1.3           A person
includes a corporate or unincorporated body.

1.4           Words in the singular
include the plural and in the plural include the singular.

1.5           A reference to one
gender includes a reference to the other gender.

1.6           A reference to a
particular law is a reference to it as it is in force for the time being taking
account of any amendment, extension, or re-enactment and includes any
subordinate legislation for the time being in force made under it

 5
 

provided that any such amendment, extension or
re-enactment does not increase the liability of the Seller under this
Agreement.

1.7           Writing
or written includes faxes but not e-mail.

1.8           Documents in agreed form are documents in the form agreed by the parties
or on their behalf and initialled by them or on their behalf for
identification.

1.9           References to clauses
and schedules are to the clauses and schedules of this Agreement; references to
paragraphs are to paragraphs of the relevant schedule.

1.10         Reference to this
Agreement include this Agreement as amended or varied in accordance with its
terms.

2              SALE AND PURCHASE OF SALE SHARES

2.1           On the terms of this
Agreement, the Seller shall sell and the Buyer shall buy, with effect from
Completion, the Sale Shares with full title guarantee, free from all
Encumbrances and together with all rights that attach (or may in the future
attach) to them including, in particular, the right to receive all dividends
and distributions declared, made or paid on or after the date of this
Agreement.

2.2           The Buyer is not
obliged to complete the purchase of any of the Sale Shares unless the purchase
of all the Sale Shares is completed simultaneously.

3              PURCHASE PRICE AND NET CASH PAYMENT

3.1           The Purchase Price is
£600,000 to be satisfied as follows:

3.1.1                As to £500,000 by
the payment in cash of such sum on Completion by the Buyer (“Cash Consideration”) to the Seller’s
Solicitors on behalf of the Seller; and

3.1.2                As to £100,000 by
the payment in cash of such sum on 2 January 2008 by the Buyer to the Seller’s
Solicitors on behalf of the Seller (“the
Deferred Consideration”).

 6
 

3.2           The Purchase Price
shall be deemed to be reduced by the amount of any payment made to the Buyer:

3.2.1                for a breach of any Warranty; or

3.2.2                under Clause 8; or

3.2.3                under the Tax Covenant.

3.3           During the period
following Completion up to and including 31 December 2006 the Buyer shall:

3.3.1                procure that the
business of the Company is carried on in the ordinary and usual course as
carried on prior to the date of this Agreement (save that the parties hereby
acknowledge that the business will be closed from 22 December 2006 to 2 January
2007);

3.3.2                not levy any
charge (by way of management charges or otherwise) on the Company;

3.3.3                use all reasonable
endeavours as soon as possible after Completion to procure collection of the
Receivables; and

3.3.4                as soon as
possible after Completion use all reasonable endeavours to procure the payment
of the Payables in accordance with the usual practice of the Company as carried
on prior to the date of this Agreement.

3.4           As soon as reasonably
practicable after 31 December 2006 and in any event on or before 13 January
2007, the Buyer shall deliver to the 
Seller a statement (“the Certificate”)
signed by a director of the Buyer certifying the amount equal to:

3.4.1                the level of the
Company’s and the Colony Subsidiaries’ cash book balances as at 31 December
2006; less

3.4.2                the level of the
Company’s and the Colony Subsidiaries’ cash book balances as at the date of
Completion

such amount (if any) being “the Cash Level Difference”

 7
 

3.5           The Buyer shall afford
the Seller reasonable access to its books and records and those of the Company
relating to the period up to and including 31 December 2006 in relation to the
collection of the Receivables and discharge of the Payables.

3.6           Unless within 14
Business Days of receipt by the Seller of the Certificate, the Seller notifies
the Buyer in writing, giving reasonable particulars and reasons, of any respect
in which they are not satisfied that the details of the Certificate, then it
shall be final and binding as between the Buyer and the Seller.

3.7           If the Seller does so
notify the Buyer that it is not so satisfied, the parties shall endeavour
within the period expiring 5 days after receipt of the Seller’s written notice
by the Buyer (excluding the day of receipt) to resolve the matter and if the
matter is not so resolved it shall be resolved by an independent accountant in
accordance with the provisions of clauses 3.8 to 3.11

3.8           The Independent
Accountant shall be a firm of chartered accountants agreed on by the Seller and
the Buyer or, if they cannot agree on such appointment within 7 days of either
party giving notice in writing to the other that it desires an Independent
Accountant to be appointed, such firm of chartered accountants as may be
nominated on the application of either one of them by the President or other
senior officer for the time being of the Institute of Chartered Accountants in
England and Wales.

3.9           If any disagreement or
dispute under this agreement is referred to the Independent Accountant:

3.9.1                the parties will
each use all reasonable endeavours to co-operate with the Independent
Accountant in resolving such disagreement or dispute, and for that purpose will
provide to him all such information and documentation as he may reasonably
require;

3.9.2                the Independent
Accountant shall have the right to seek such professional assistance and advice
as he may required;

3.9.3                the fees of the
Independent Accountant and other professional fees incurred by him shall be
paid in such proportions and by such of the parties as may be directed by him;

 8
 

3.9.4                the Independent
Accountant will be requested by both parties to make a decision within 30 days
of the referral.

3.10         The Independent
Accountant shall act as expert and not as arbitrator and his decision shall be
final and binding on the parties.

3.11         The draft Certificate
shall be determined as final and binding either pursuant to clause 3.6 above or
as a result of agreement between the Buyer and the Seller or as a result of the
decision of the Independent Accountant pursuant to clause 3.9 above.

3.12         If the Cash Level
Difference:

3.12.1              is a positive amount
the Buyer shall, within 5 Business Days of the agreement or determination of
the Certificate, pay such amount to the Seller.

3.12.2              is a negative
amount, the Seller shall, within 5 Business Days of the agreement or
determination of the Certificate, pay such amount to the Buyer.

4              COMPLETION

4.1           Completion shall take
place on the Completion Date:

4.1.1                at the offices of the Seller’s
Solicitors; or

4.1.2                at any other place as agreed in writing by
the Seller and the Buyer.

4.2           At Completion the
Seller shall:

4.2.1                deliver or cause to be delivered the
documents and evidence set out in Part 1 of Schedule 2;

4.2.2                procure that a board meeting of the Company
is held at which the matters identified in Part 2 of Schedule 2 are carried
out; and

4.2.3                deliver any other documents referred to in
this Agreement as being required to be delivered by them; and

4.2.4                pay to the Buyer on behalf of the Company in
respect of the fees payable by the Buyer to Messrs Deloittes (in relation to
the work

 9
 

undertaken by them in
respect of the financial assistance exercise carried out on behalf of the
Company) a sum equal to the amount by which the aggregate fees payable by the
Company to Messrs Deloittes in respect of both their work carried out for the
purposes of the financial assistance exercise and the work carried out for the
purposes of preparation of the 2006 Accounts as referred to in Clause 25.1
below exceed £10,000 (exclusive of VAT and any disbursements).

4.3           At Completion the Buyer
shall:

4.3.1                pay the Cash Consideration by telegraphic
transfer to the Seller’s Solicitors
(who are irrevocably authorised to receive the same) and otherwise in
accordance with Clause 3.1. Payment made in accordance with this clause shall
constitute a valid discharge of the Buyer’s obligations under Clause 3.1; and

4.3.2                deliver a certified copy of the resolution
adopted by the board of directors of the Buyer authorising the Transaction and
the execution and delivery by the officers specified in the resolution of this
Agreement, and any other documents referred to in this Agreement as being
required to be delivered by it.

4.4           As soon as possible
after Completion the Seller shall send to the Buyer (at the Buyer ́s registered
office for the time being) all records, correspondence, documents, files,
memoranda and other papers relating to the Company not required to be delivered
at Completion and which are not kept at any of the Properties.

4.5           During the period
following Completion up to the date upon which the Buyer pays the Deferred
Consideration to the Seller in full, the Buyer shall not and shall procure that
each member of the Buyer’s Group shall:

4.5.1                not knowingly
undertake any act or omission which is deliberately calculated to materially
and adversely affect the ability of the Buyer to pay the Deferred Consideration
to the Seller on the date upon which it is due;

4.5.2                not declare, make
or pay any dividend or distribution (whether of capital or of profits);

 10
 

4.5.3                carry on its
business on the ordinary course.

5              WARRANTIES

5.1           The Buyer is entering
into this Agreement on the basis of, and in reliance on, the Warranties.

5.2           The Seller warrants to
the Buyer that each Warranty is true, accurate and not misleading on the date
of this Agreement except as Disclosed.

5.3           Warranties qualified by
the expression so far as the Seller is aware or
any similar expression are deemed to be given to the best of the knowledge, information
and belief of the Seller after it has made all reasonable and careful
enquiries.

5.4           Each of the Warranties
is separate and, unless otherwise specifically provided, is not limited by
reference to any other Warranty or any other provision in this Agreement.

5.5           The Warranties are
given subject to all information of the Buyer has knowledge and the knowledge
of the Buyer shall for these purposes be deemed to be the knowledge of Simon
Martin where, for the purpose of this clause 5.5 knowledge shall mean the actual knowledge of Simon Martin.

6              LIMITATIONS ON CLAIMS

6.1           The definitions and
rules of interpretation in this clause apply in this Agreement.

6.1.1                “Claim” means a claim for breach of any of the
Warranties.

6.1.2                “Substantiated Claim” means a Claim in respect of which liability
is admitted by the party against whom such Claim is brought, or which has been
adjudicated on by a Court of competent jurisdiction and no right of appeal lies
in respect of such adjudication, or the parties are debarred by passage of time
or otherwise from making an appeal.

 11
 

A
Claim is connected with another Claim or Substantiated Claim if
they all arise out of the occurrence of the same event or relate to the same
subject matter.

6.2           This clause limits the
liability of the Seller in relation to any Claim and where specified any claim
under the Tax Covenant.

6.3           The liability of the
Seller for all Substantiated Claims when taken together shall not exceed an
amount equal to the Purchase Price.

6.4           The Seller shall not be
liable for a Claim unless:

6.4.1                the amount of a Substantiated Claim, or of a
series of connected Substantiated Claims of which that Substantiated Claim is
one, exceeds £2,000;

6.4.2                the amount of all Substantiated Claims that
are not excluded under Clause 6.4.1 when taken together, exceeds £15,000, in which case the whole amount (and not
just the amount by which the limit in this Clause 6.4.2 is exceeded) is
recoverable by the Buyer.

6.5           The Seller are not
liable for a Claim to the extent that:

6.5.1                the Claim relates to matters Disclosed;

6.5.2                the Claim relates to any matter specifically
and fully provided for in the Accounts;

6.5.3                the Claim is based upon a liability which is
contingent only unless and until such contingent liability becomes an actual
liability and is due and payable, provided that this clause 6.5.3 shall not
operate to avoid a Claim made in reasonable particularity in respect of a
contingent liability within the applicable time limit specified in clause 6.6
below;

6.5.4                the Claim would not have occurred but for:

6.5.4.1                 any voluntary act, omission or transaction of
the Buyer, or its directors, employees or agents, or the Company its directors,
employees or agents or successors in title, after Completion done or omitted

 12
 

otherwise than in the
ordinary course of the business of the relevant company and in the knowledge
that such act, omission or transaction might give rise to a Claim;

6.5.4.2                 the passing of, or any change in, after the
Completion Date, any law, rule or regulation of any government, governmental
department, agency or regulatory body;

6.5.4.3                 any change in the accounting reference date
of the Company or any change in accounting policy or practice of the Buyer or
the Company;

6.5.5                that the matter giving rise to the Claim is
covered by a policy of insurance of the Company in force on the Completion Date
and payment is made to the Company under such policy by the insurer in respect
of such matter.

6.6           The Seller are not
liable for a Claim or a claim under the Tax Covenant unless the Buyer has given
the Seller notice in writing of the Claim or the claim under the Tax Covenant,
summarising the nature of the Claim or claim under the Tax Covenant as far as
is known to the Buyer and the amount claimed:

6.6.1                in the case of a claim made under the Tax
Warranties or the Tax Covenant, within the period of seven years beginning with
the Completion Date; and

6.6.2                in any other case, within the period of 12
months beginning with the Completion
Date.

6.7           If the Buyer becomes aware of a matter that may give rise to a Claim
against the Seller, notice of that fact shall be given as soon as reasonably
practicable to the Seller and if the Claim in question is a result of or in
connection with a claim by or liability to a third party the Claim shall not be
compromised or settled without the consent of the Seller (such consent not to
be unreasonably withheld or delayed) and the Buyer (if requested promptly in
writing by the Seller and indemnified to its reasonable satisfaction by the
Seller against all costs, charges, liabilities and expenses which may as a
result be incurred by the Buyer or the Company) shall take and shall procure
the Company takes all such action as the Seller may reasonably request to
avoid, dispute, resist,

 13
 

appeal, compromise or contest
such claim or liability and shall make available and procure that the Company
shall make available to the Seller all such information and reasonable
assistance as may be requested by the Seller and as is available to it or them
being information relevant for the purpose of avoiding, disputing, resisting,
appealing, compromising or contesting any such claim or liability and the
Seller shall keep all such information confidential.

6.8           Where the Buyer or the Company has or may have a claim against a third
party in relation to any matter which may give rise to a Claim, the Buyer shall
procure that all reasonably endeavours are used by it and the Company to
recover any amounts due from any such third party and shall, as soon as
reasonably practicable after such recovery, reimburse the Seller the amount so
recovered (net of costs of recovery) up to the amount paid by the Seller in
respect of such Claim.

6.9           In relation to any Claim or alleged Claim and without prejudice to the
validity of the Claim or alleged Claim in question, the Buyer shall allow, and
shall procure that the Company allows, the Seller and their accountants and
professional advisers to investigate the matter or circumstance alleged to give
rise to such Claim and whether and to what extent any amount is payable in
respect of such Claim pursuant to the terms of this Agreement and for such
purpose the Buyer shall give and shall procure that the Company gives, subject
to their being paid all reasonably out-of-pocket expenses, all such assistance
as the Seller or their accountants or professional advisers may reasonably
request including access to and copies of any relevant documents or other
relevant information in the possession of the Buyer or the Company.

6.10         Nothing in this Agreement shall give the Buyer any right to rescind or
terminate this Agreement and the Buyer’s sole remedy against the Seller shall
be in damages and shall be subject to the other provisions of this Clause 6.

6.11         Nothing in this Agreement shall in any way relieve the Buyer of its
duty to mitigate its loss.

6.12         Nothing in this Clause 6
applies to a Claim or a claim under the Tax Covenant that arises or is delayed
as a result of dishonesty, fraud, wilful misconduct or wilful concealment by
the Seller, its agents or advisers.

 14
 

6.13         The Seller shall not
plead the Limitation Act 1980 in respect of any claims made under the Tax
Warranties or Tax Covenant up to seven years after the Completion Date.

7              TAX COVENANT

The provisions of Schedule 4 apply in this Agreement.

8              INDEMNITIES

The Seller undertakes to indemnify, and to keep indemnified, the Buyer,
the Company against all (or, in the case of the Italian JV Claim (as defined
below) 95% of all) losses or liabilities (including, without limitation any
direct or indirect consequential losses or loss of profit and loss of
reputation, damages, claims, demands, proceedings, costs, expenses, penalties,
legal and other professional fees and costs) which may be suffered or incurred
by any of them and which arise directly or indirectly in connection with:-

8.1           a claim being made
against the Company (1) by Barry Stamper and Rochelle Stamper (a partnership
t/a Barry Stamper Agencies) (2) pursuant to the Commercial Agents’ (Council
Directive) Regulations 1993 and for breach of contract following the
termination by the Company of an agency agreement, such claim having been
issued at the High Courts of Justice, Queens Bench Division, Manchester
District Registry Mercantile Court under Claim Number 5MA70447 (“the Stamper Claim”) and

8.2           a claim being made by
Andrew Carton, sales director of Colony Sarl, being one of the Colony
Subsidiaries, against Colony Sarl following his ceasing to be an employee which
took place in July 2006 (“the Andrew Carton
Claim”)

8.3           the dispute between the
Company (1) and the Company’s JV partners in Italy, Massimo Esposito and Simona
Guerini (2) (“the Italian JV Claim”)

PROVIDED THAT in relation to the Stamper Claim, the
Andrew Carton Claim and the Italian JV Claim the provisions of Clauses 8.3 and
8.4 shall apply.

8.4           Subject to the Buyer
and the Company being indemnified and secured to its reasonable satisfaction by
the Seller against all liabilities, costs, expenses, damages and losses
suffered or incurred in connection with the Stamper

 15
 

Claim or the Andrew Carton Claim or the Italian JV
Claim (as the case may be) the Buyer shall, and shall procure that the Company
and any other relevant member of the Buyer’s Group will:

8.4.1                take such action as the Seller may reasonably
request to avoid, dispute, resist or compromise the Stamper Claim or the Andrew
Carton Claim or the Italian JV Claim(as the case may be);

8.4.2                not accept or pay or compromise the Stamper
Claim or the Andrew Carton Claim or the Italian JV Claim (as the case may be)
without the prior written consent of the Seller (not to be unreasonably
withheld or delayed);

8.4.3                keep the Seller promptly and adequately
informed as to the progress of the Stamper Claim, the Andrew Carton Claim and
the Italian JV Claim;

8.4.4                allow the Seller or its accountants or other
professional advisers reasonable access to relevant documents or other
information in the possession or under the control of the Buyer or the Company
or any other member of the Buyer’s Group (as the case may be);

PROVIDED THAT the Buyer shall not be required
to undertake any act or omission which in its reasonable opinion materially
affects or prejudices its goodwill.

8.5           Where the Buyer, the Company or any other member of the Buyer’s Group
(as the case may be) recovers any amounts in respect of the Stamper Claim or
the Andrew Carton Claim or the Italian JV Claim the Buyer shall, and shall
procure that the Company or any other member of the Buyer’s Group will,
forthwith upon such recovery reimburse the Seller.

9              RESTRICTIONS ON SELLER

9.1           The Seller covenants with the Buyer that it shall not and will procure
that any member of the Seller’s Group from time to time will not either on its
or their own account:

9.1.1                at any time during the period of 2 years beginning with the Completion Date, in
the European Union carry on or be
employed,

 16
 

engaged or interested in any
business which would be in competition with any part of the Business as the
Business was carried on at the Completion Date; or

9.1.2                at any time during the period of 2 years beginning with the Completion Date:

9.1.2.1                 offer employment
to, enter into a contract for the services of, or attempt to entice away from
the Company, any individual who is at the time of the offer or attempt, and was
at the Completion Date, employed or directly or indirectly engaged in an
executive or managerial position with the Company; or

9.1.2.2                 procure or
facilitate the making of any such offer or attempt by any other person; or

9.1.3                at any time after Completion, use in the
course of any business the words “Colony” and “Wax Lyrical”

9.1.4                at any time during a period of 2 years beginning with the Completion Date,
solicit or entice away from the Company any supplier to the Company who had
supplied goods and/or services to the Company at any time during the 12 months immediately preceding the Completion
Date, if that solicitation or enticement causes or would cause such supplier to
cease supplying, or materially reduce its supply of, those goods and/or
services to the Company.

9.2           The covenants in Clause
9 are intended for the benefit of the Buyer and the Company and apply to
actions carried out by the Seller in any capacity and whether directly or
indirectly, on the Seller ́s own behalf, on behalf of any other person or
jointly with any other person.

9.3           Nothing in Clause 9
prevents the Seller from holding for investment purposes only:

9.3.1                any units of any authorised unit trust; or

 17
 

9.3.2                not more than 5% of any class of shares or securities of any company traded on a
recognised stock exchange.

9.4           Each of the covenants
in Clause 9 is a separate undertaking by the Seller in and shall be enforceable
by the Buyer separately and independently of its right to enforce any one or
more of the other covenants contained in Clause 9. Each of the covenants in
Clause 9 is considered fair and reasonable by the parties, but if any
restriction is found to be unenforceable, but would be valid if any part of it
were deleted or the period or area of application reduced, the restriction
shall apply with such modifications as may be necessary to make it valid and
enforceable.

9.5           The consideration for
the undertakings contained in Clause 9 is included in the Purchase Price.

10            CONFIDENTIALITY AND ANNOUNCEMENTS

10.1         Except so far as may be
required by law, and in such circumstances only after prior consultation with
the Buyer, the Seller shall not at any time disclose to any person or use to
the detriment of the Company this Agreement or any trade secret or other
confidential information which they hold in relation to the Company and its
affairs PROVIDED THAT the Buyer shall be permitted to disclose to its
employees, suppliers, customers and stakeholders the fact that it has acquired
the entire issued share capital of the Company but the Buyer shall not be
permitted to disclose the terms of the acquisition including (without
limitation) the amount of the Purchase Price.

10.2         No party shall make any
announcement relating to this Agreement or its subject matter without the prior
written approval of the other party except as required by law or by any legal
or regulatory authority (in which case the parties shall co-operate, in good
faith, in order to agree the content of any such announcement so far as
practicable prior to it being made).

10.3         This Clause 10 shall not
be applicable to information required to be disclosed by the Seller under
regulations of the US Securities and Exchange Commission.

 18

11            FURTHER ASSURANCE

The Seller shall promptly execute and deliver all such documents, and
do all such things, as the Buyer may from time to time reasonably require for
the purpose of giving full effect to the provisions of this Agreement.

12            ASSIGNMENT

12.1         Except as provided
otherwise in this Agreement, no party may assign, or grant any Encumbrance or
security interest over, any of its rights under this Agreement or any document
referred to in it.

12.2         Each party that has
rights under this Agreement is acting on its own behalf.

12.3         The Buyer may assign its
rights under this Agreement (or any document referred to in this Agreement) but
not its obligations to a member of its Group provided that, if such assignee is
to cease to be a member of its Group the Buyer will procure that all the
benefits in relation to this Agreement (or any document referred to in this
Agreement) that have been assigned to such member or its Group are re-assigned
to the Buyer (or another member of its Group) immediately before such cessation.

12.4         If there is an
assignment:

12.4.1              the Seller may discharge their obligations
under this Agreement to the assignor until they receive notice of the
assignment; and

12.4.2              the assignee may enforce this Agreement as if
it were a party to it, but the Buyer shall remain liable for any obligations
under this Agreement.

13            WHOLE AGREEMENT

13.1         This Agreement, and any
documents referred to in it, constitute the whole agreement between the parties
and supersede any arrangements, understanding or previous agreement between
them relating to the subject matter they cover.

13.2         Nothing in Clause 13
operates to limit or exclude any liability for fraud.

 19
 

14            VARIATION AND WAIVER

14.1         Any variation of this
Agreement shall be in writing and signed by or on behalf of the parties.

14.2         Any waiver of any right
under this Agreement is only effective if it is in writing and it applies only
to the party to whom the waiver is addressed and to the circumstances for which
it is given and shall not prevent the party who has given the waiver from
subsequently relying on the provision it has waived.

14.3         A party that waives a
right in relation to one party, or takes or fails to take any action against
that party, does not affect its rights in relation to any other party.

14.4         No failure to exercise or
delay in exercising any right or remedy provided under this Agreement or by law
constitutes a waiver of such right or remedy or shall prevent any future
exercise in whole or in part thereof.

14.5         No single or partial
exercise of any right or remedy under this Agreement shall preclude or restrict
the further exercise of any such right or remedy.

14.6         Unless specifically
provided otherwise, rights arising under this Agreement are cumulative and do
not exclude rights provided by law.

15            COSTS

Unless otherwise provided, all costs in connection with the
negotiation, preparation, execution and performance of this Agreement, and any
documents referred to in it, shall be borne by the party that incurred the
costs.

16            NOTICE

16.1         A notice given under this
Agreement:

16.1.1              shall be in writing in the English language;

16.1.2              shall be sent for the attention of the
person, and to the address, specified in Clause 16 (or such other address or
person as each party may notify to the others in accordance with the provisions
of Clause 16); and

 20
 

16.1.3              shall be:

16.1.3.1               delivered
personally; or

16.1.3.2               sent by pre-paid
first-class post or recorded delivery; or

16.1.3.3               (if the notice is
to be served by post outside the country from which it is sent) sent by
airmail.

16.2         Any notice to be given to
or by all of the Seller under this Agreement is deemed to have been properly
given if it is given to or by the Seller ́ representative named in Clause 16.3.

16.3         The addresses for service
of notice are:

16.3.1              Seller

16.3.1.1               name: Michael
Novins, Vice President and General Counsel

Blyth Inc.

16.3.1.2               address: One Weaver
Street, Greenwich, CT 06831, USA

16.3.2              Buyer

16.3.2.1               address: c/o PKF,
Sovereign House, Queen Street, Manchester M2 5HR

16.3.2.2               for the attention
of: Simon Martin

16.4         A notice is deemed to
have been received:

16.4.1              if delivered personally, at the time of
delivery; or

16.4.2              in the case of pre-paid first class post or
recorded delivery two Business
Days from the date of posting; or

16.4.3              in the case of airmail, five Business Days from the date of posting; or

 21
 

16.4.4              if deemed receipt under the previous
paragraphs of Clause 16.4 is not within business hours (meaning 9.00 am to 5.30
pm Monday to Friday on a day that is not a public holiday in the place of
receipt), when business next starts in the place of receipt.

17            INTEREST ON LATE PAYMENT

17.1         Where a sum is required
to be paid under this Agreement (other than under the Tax Covenant) but is not
paid before or on the date the parties agreed, the party due to pay the sum
shall also pay an amount equal to interest on that sum for the period beginning
with that date and ending with the date the sum is paid (and the period shall
continue after as well as before judgment).

17.2         The rate of interest
shall be 2% per annum above the base lending rate for the time being of The
Royal Bank of Scotland Plc.  Interest
shall accrue on a daily basis and be compounded quarterly.

17.3          Clause 17 is without
prejudice to any claim for interest under the law.

18            SEVERANCE

18.1         If any provision of this
Agreement (or part of a provision) is found by any court or administrative body
of competent jurisdiction to be invalid, unenforceable or illegal, the other
provisions shall remain in force.

18.2         If any invalid, unenforceable
or illegal provision would be valid, enforceable or legal if some part of it
were deleted, the provision shall apply with whatever modification is necessary
to give effect to the commercial intention of the parties.

19            AGREEMENT SURVIVES COMPLETION

This Agreement (other than obligations that have already been fully
performed) remains in full force after Completion.

 22
 

20            THIRD PARTY RIGHTS

20.1         Subject to Clause 20.2,
this Agreement and the documents referred to in it are made for the benefit of
the parties and their successors and permitted assigns and are not intended to
benefit, or be enforceable by, anyone else.

20.2         Each of the parties
represents to the others that their respective rights to terminate, rescind or
agree any amendment, variation, waiver or settlement under this Agreement are
not subject to the consent of any person that is not a party to this Agreement.

21            SUCCESSORS

The rights and obligations of the Seller and the Buyer under this
Agreement shall continue for the benefit of, and shall be binding on, their
respective successors and assigns.

22            COUNTERPARTS

This Agreement may be executed in any number of counterparts, each of
which is an original and which together have the same effect as if each party
had signed the same document.

23            LANGUAGE

If this Agreement is translated into any language other than English,
the English language text shall prevail.

24            GOVERNING LAW AND JURISDICTION

24.1         This Agreement and any
disputes or claims arising out of or in connection with its subject matter are
governed by and construed in accordance with the law of England.

24.2         The parties irrevocably
agree that the courts of England have exclusive jurisdiction to settle any
dispute or claim that arises out of or in connection with this Agreement.

 23
 

25            STATUTORY ACCOUNTS AND TAX COMPLIANCE FEES

25.1         The Buyer shall, and
shall procure that the Company shall, co-operate (at the Seller’s expense) in
the preparation of the statutory accounts of the Company for year ended 31
December 2006 (“the 2006 Accounts”) and shall provide to the Seller by no later
than 15 February 2007 such information as the Seller and/or the auditors of the
Company (being Messrs Deloittes) may reasonably request in relation to the
preparation of the 2006 Accounts PROVIDED THAT the Seller shall be responsible
for (and shall pay) the professional fees of Messrs Deloittes in relation to
their work undertaken for the purposes of the audit of the 2006 Accounts to the
extent that the aggregate amount of Deloittes’ fees in respect of both their
work carried out for the purposes of the audit of the 2006 Accounts and the
work carried out for the financial assistance exercise (as referred to in
clause 4.2.4 above) exceeds £10,000.

25.2         The Seller hereby
acknowledges and agrees that it shall be responsible for (and shall pay) those
third party professional fees incurred by the Buyer and/or the Company in
relation to any tax compliance matters which relate to the financial years
ended 31 December 2005 and 31 December 2006.

This agreement has been
entered into as a deed on the date stated at the beginning of it.

 24
 

SCHEDULE
1

PART
1

PARTICULARS OF THE COMPANY

	
  Name:

  	
   

  	
  Colony Gift Corporation Limited

  
	
   

  	
   

  	
   

  
	
  Registration
  number:

  	
   

  	
  01499611

  
	
   

  	
   

  	
   

  
	
  Registered
  office:

  	
   

  	
  100 New Bridge Street, London EC4V 6JA

  
	
   

  	
   

  	
   

  
	
  Authorised share
  capital

  	
   

  	
  Amount: £15,000,000

  Divided into: 15,000,000 Ordinary Shares of £1 each

  
	
   

  	
   

  	
   

  
	
  Issued share
  capital

  	
   

  	
  Amount: £14,520,070

  Divided into: 14,520,070 Ordinary Shares of £1 each

  
	
   

  	
   

  	
   

  
	
  Directors and
  shadow directors:

  	
   

  	
  Stephen Robert Evans

  Louise McMahon

  Simon Martin

  
	
   

  	
   

  	
   

  
	
  Secretary:

  	
   

  	
  Simon Martin

  
	
   

  	
   

  	
   

  
	
  Auditor

  	
   

  	
  Deloitte & Touche LLP

  
	
   

  	
   

  	
   

  
	
  Registered
  Charges

  	
   

  	
  Legal Charge dated 21
  July 1998 in favour of Barclays Bank Plc 

  Mortgage dated 10 October 1997 in favour of Barclays
  Mercantile Business Finance Limited

  

 

 25
 

SCHEDULE
1

PART
2

THE COLONY SUBSIDIARIES

	
  Name of
  Subsidiary

  	
   

  	
  Place of Incorporation

  	
   

  	
  No of Shares held/

  Percentage holding

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fragrant
  Memories Limited

  	
   

  	
  England

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nature’s Scents
  Limited

  	
   

  	
  England

  	
   

  	
  100% (held by
  Fragrant Memories Limited)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Colony Private
  Label Limited

  	
   

  	
  England

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Colony Italy

  	
   

  	
  Italy

  	
   

  	
  75%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Colony
  Deutschland GmbH

  	
   

  	
  Germany

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Colony Iberia SA

  	
   

  	
  Spain

  	
   

  	
  75%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Colony Sarl

  	
   

  	
  France

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Carolina Designs
  Limited

  	
   

  	
  England

  	
   

  	
  100%

  

 

 26
 

SCHEDULE
2

COMPLETION

Part 1 - What the Seller shall deliver to the
Buyer at Completion

1              At Completion, the
Seller shall deliver or cause to be delivered to the Buyer the following
documents and evidence:

1.1           transfers of the Sale
Shares executed by the registered holders in favour of the Buyer;

1.2           the share certificates
for the Sale Shares in the names of the registered holders or an indemnity in
the agreed form for any lost certificates;

1.3           the waivers, consents
and other documents required to enable the Buyer to be registered as the holder
of the Sale Shares;

1.4           an irrevocable power of
attorney in agreed form given by the Seller in favour of the Buyer to enable
the beneficiary (or its proxies) to exercise all voting and other rights
attaching to the Sale Shares before the transfer of the Sale Shares is
registered in the register of members;

1.5           in relation to the
Company, the statutory registers and minute books (written up to the time of
Completion), the common seal, certificate of incorporation and any certificates
of incorporation on change of name;

1.6           the written
resignation, executed as a deed and in the agreed form, of the directors and
secretary of the Company from their offices and employment with the Company, except
for Stephen Evans, Simon Martin and Louise McMahon who are not resigning

1.7           a certified copy of the
minutes of the board meeting held pursuant to Part 2 of Schedule 2;

1.8           in relation to the
Company:

1.8.1                statements from
each bank at which the Company has an account, giving the balance of each
account at the close of business on the last Business Day before Completion;

 27
 

1.8.2                all cheque books
in current use and written confirmation that no cheques have been written since
those statements were prepared;

1.8.3                details of their
cash book balances; and

1.8.4                reconciliation
statements reconciling the cash book balances and the cheque books with the
bank statements delivered;

1.9           evidence, in agreed
form, that any indebtedness (other than indebtedness incurred in the ordinary
course of trading) owing to the Seller or any member of the Seller’s Group) has
been discharged or waived;

1.10         evidence, in agreed form,
that the Company has been discharged from any responsibility for the
indebtedness, or for the default in the performance of any obligation, of the
Seller or any member of the Seller’s Group; and

1.11         all charges, mortgages,
debentures and guarantees to which the Company is a party and, in relation to
each such instrument and any covenants connected with it:

1.11.1              a sealed discharge
or release in the agreed form; and

1.11.2              if applicable, a
sworn and completed Form 403a (declaration that part of the property or
undertaking charged has been released from the charge).

Part 2 - Matters for the board meeting at
Completion

1              The Seller shall
cause a board meeting of the Company to be held at Completion at which the
matters set out in Part 2 of Schedule 2 shall take place.

2              A resolution to
register the transfer of the Sale Shares shall be passed at such board meeting
of the Company, subject to the transfers being stamped at the cost of the
Buyer.

3              All directors and
the secretary of the Company shall resign from their offices and employment
with the Company with effect from the end of the relevant board meeting, except
for Stephen Evans, Simon Martin and Louise McMahon.

 28
 

4              The persons the
Buyer nominates shall be appointed as directors and secretary of the Company
(but not exceeding any maximum number of directors contained in the relevant
company’s articles of association). The appointments shall take effect at the
end of the board meeting.

5              All the existing
instructions and authorities to bankers shall be revoked and replaced with new
instructions and authorities to those banks in the form the Buyer requires.

6              The address of the
registered office of the Company shall be changed to the address required by
the Buyer.

7              The accounting
reference date of the Company shall be changed to the date required by the
Buyer.

 29
 

SCHEDULE
3

WARRANTIES

1              POWER TO SELL THE COMPANY

1.1           The Seller has all
requisite power and authority to enter into and perform this Agreement in
accordance with its terms and the other documents referred to in it.

1.2           This Agreement and the
other documents referred to in it constitute (or shall constitute when
executed) valid, legal and binding obligations on the Seller in the terms of
the agreement and such other documents.

1.3           Compliance with the
terms of this Agreement and the documents referred to in it shall not breach or
constitute a default under any of the following:

1.3.1                any agreement or instrument to which the
Seller is a party or by which any of them is bound; or

1.3.2                any order, judgment, decree or other
restriction applicable to the Seller.

2              SHARES IN THE COMPANY AND SUBSIDIARIES

2.1           The Sale Shares
constitute the whole of the allotted and issued share capital of the Company
and are fully paid.

2.2           The Seller is the legal
and beneficial owners of the Sale Shares.

2.3           The Company has no
subsidiaries other than the Colony Subsidiaries.

2.4           The Sale Shares are
free from all Encumbrances.

2.5           No right has been
granted to any person to require the Company to issue any share capital and no
Encumbrance has been created in favour of any person affecting any unissued
shares or debentures or other unissued securities of the Company.

2.6           No commitment has been
given to create an Encumbrance affecting the Sale Shares (or any unissued
shares or debentures or other unissued securities of the Company) or for any of
them to issue any share capital and no person has claimed any rights in
connection with any of those things.

 30
 

2.7           Other than in relation
to the Colony Subsidiaries the Company:

2.7.1                does not hold or
beneficially own and has not agreed to acquire, any securities of any
corporation;

2.7.2                is not and has
agreed to become a member of any partnership or other unincorporated
association, joint venture or consortium (other than recognised trade
associations);

2.7.3                does not have,
outside its country of incorporation, any branch or permanent establishment;
and

2.7.4                has not allotted
or issued any securities that are convertible into shares.

2.8           The Company has not at
any time:

2.8.1                 purchased,
redeemed or repaid any of its own share capital; or

2.8.2                given any
financial assistance in connection with any acquisition of its share capital or
the share capital of its holding company (as that expression is defined in
section 736 of the Companies Acts) as it would fall within sections 151 to 158
(inclusive) of the Companies Acts.

2.9           All dividends or
distributions declared, made or paid by the Company have been declared, made or
paid in accordance with its memorandum, articles of association, the applicable
provisions of the Companies Acts and any agreements or arrangements made with
any third party regulating the payment of dividends and distributions.

3              CONSTITUTIONAL AND CORPORATE DOCUMENTS

The copies of the
memorandum and articles of association or other constitutional and corporate
documents of the Company contained in the Disclosure Bundle are true, accurate
and complete in all material respects and copies of all the resolutions and
agreements required to be annexed to or incorporated in those documents by the
law applicable are annexed or incorporated.

 31
 

SCHEDULE
4

TAX
COVENANT

PART
1

Definitions and interpretation

DEFINITIONS AND INTERPRETATION

1              In this schedule, unless the context
otherwise requires, the following words and expressions shall have the
following meanings:

1.1            “Buyer’s Group” means the Buyer and any
company within the same group or association of companies as the Buyer for any
Tax purpose;

1.2           “Event” means any act, omission, event or
transaction;

1.3           “Group Relief” means:

1.3.1                 relief
surrendered or claimed pursuant to Chapter IV Part X ICTA 1988; and

1.3.2                 a Tax relating to
an accounting period as defined in section 102(3) of the Finance Act 1989
(surrender of company Tax refund etc within group) in respect of which a notice
has been given pursuant to section 102(2) of that statute.

1.4           “Liability
for Taxation” means:

1.4.1                any liability of
the Company to make a payment of or increased payment of Tax whether or not the
same is primarily payable by the Company and whether or not the Company has or
may have any right of reimbursement against any other person or persons;

1.4.2                the set-off of any
Post Completion Relief against income, profits or gains earned, accrued or
received on or before Completion in circumstances where, but for such set-off,
the Company would have had a liability to make a payment of or increased
payment of Tax in respect of which the Seller would have been liable under part
3 of this schedule  in which case
the amount of the Liability for Taxation shall be the amount of Tax saved by
the Company as a result of such set-off; and

 32
 

1.4.3                any liability of
the Company to make a payment pursuant to an indemnity, guarantee or covenant
entered into before Completion under which the Company has agreed to meet or
pay a sum equivalent to or by reference to another person’s Tax liability, in
which case the Liability for Taxation shall be equal to the amount of the
liability;

1.5           “Post Completion Relief” means:

1.5.1        any Relief of the Buyer
and/or any member of the Buyer’s Group (other than the Company); and

1.5.2        a Relief of the Company to
the extent that it arises by reference to an Event occuring after Completion;

1.6           “Relevant
Person” means the Seller and any person (other than the Company)
which is or has been connected with the Seller;

1.7           “Relief”
means any loss, relief, allowance, credit, exemption or set-off available in
relation to Tax or to the computation of income, profits or gains for the
purposes of Tax or any right to repayment of Tax;

1.8           “Tax”
or “Taxation” means any tax, duty, impost,
levy or tariff in each case in respect of tax but excluding the uniform
business rate, council tax, water rates and other local authority rates or
charges and (unless due to the default or delay of the Buyer) any penalty, fine
or interest payable in connection with any such tax, duty, impost, levy or
tariff;

1.9           “Taxation
Authority” means means any statutory or governmental authority or
body of any jurisdiction involved in the collection or administration of Tax;

1.10         “Tax Claim”
means any notice, demand, assessment, letter or other document issued, or
action taken, by or on behalf of any Taxation Authority and the submission of
any Tax form, return or computation from which, in either case, it appears to
the Buyer that the Company is or may be subject to a Liability for Taxation or
other liability in respect of which the Seller is or may be liable under this
schedule;

1.11         “Taxation
Statute” means any statute, statutory instrument, regulation or
legislative provision wheresoever enacted, issued or adopted providing for,

 33
 

imposing or
relating to Taxation and shall include any statute, enactment, law, statutory
instrument, order, regulation or provision which amends extends consolidates or
replaces the same or which has been amended extended consolidated or replaced
by the same;

2              In this schedule “Company” shall in
addition to the Company include every subsidiary of the Company to the intent
and effect that the provisions of this schedule shall apply and be given in
respect of each subsidiary as well as the Company.

3              Any reference to a Liability for Taxation
in respect of income, profits or gains earned, accrued or received shall
include a Liability for Taxation in respect of income, profits or gains deemed
to have been or treated or regarded as earned, accrued or received for any Tax
purpose and any reference to Liability for Taxation on the happening of any
Event shall include a Liability for Taxation where such Event (for the purposes
of the Taxation Statute in question) is deemed to have occurred or is treated
or regarded as having occurred.

4              Reference to an Event occurring on or
before Completion shall be deemed to include:

4.1           any combination of two or more Events all of
which shall have occurred (or be deemed for the purposes of Tax to have
occurred) on or before Completion; and

4.2           any combination of two or more Events at
least one of which shall have taken place or be deemed for the purposes of any
Tax to have occurred on or before Completion 
provided that any Event or Events which take place (or are deemed to
take place) after Completion shall only be taken into account if they are:

4.2.1.       the completion of the disposal of any asset
which was contracted to be sold by the Company on or before Completion or the
performance of any other act by virtue of a legally binding obligation entered
into by the Company on or before Completion;

4.2.2.       the satisfaction of a condition to which the
disposal of any asset pursuant to a contract entered into by the Company on or
before Completion is subject provided that such disposal shall only be treated
as occurring on or before Completion to the extent that it gives rise to a
liability to Taxation in respect of deemed (as opposed to actual) income,
profits or gains and only Taxation arising in respect of the

 34
 

amount by which the deemed income, profits or gains of  the Company exceeds the actual income, profits
and gains shall be treated as arising in consequence of an Event occurring on
or before Completion;

4.2.3.       the failure of any person (other than any member
of the Buyer’s Group) who was at any time prior to Completion a member of  the same group of companies as the Company
for the purposes of the Taxation in question or was associated with the Company
for the purposes of the Taxation in question to discharge a liability for Tax
within a specified period or the expiry of such a period which failure gives
rise to a liability of the Company pursuant to section 767A or 767AA ICTA 1988
or any of sections 189, 190 or 191 TCGA 1992;

4.2.4.       the making of any chargeable payment (as defined
in section 214 ICTA 1988).

5              For the purposes of this Schedule 4,
where any document in the possession or under the control of the Company or to
the production of which the Company is entitled and on which the Company needs
to rely is not (or is not properly) stamped, the stamp duty (together with any
accrued interest and/or penalties in respect of such stamp duty) required to be
paid in order that such document be fully and properly stamped shall,
notwithstanding that the Company may be under no legal obligation to stamp the
document be treated as a liability of the Company arising on the date when the
document was executed and “Liability for Taxation” shall be construed
accordingly

 35

PART 2

TAXATION WARRANTIES

1              GENERAL

1.1           Notices and returns

1.1.1                All notices,
returns, computations and any other necessary information submitted by the
Company to any Taxation Authority for the purposes of Taxation were accurate
and complete when submitted and remain accurate and complete in all material
respects.

1.1.2                The Company is not
and, in the period of six years ended on the Accounts Date, has not been in
dispute with or subject to enquiry or investigation by any Taxation Authority
(other than routine enquiries concerning the corporation tax computations of
the Company, all of which have been resolved) and so far as the Seller is aware
there are no facts or circumstances likely to give rise to or be the subject of
any such dispute, enquiry or investigation.

1.2           Payment of Taxation due

All Taxation for
which the Company is or has been liable to account for has been duly and
punctually paid (insofar as such Taxation ought to have been paid) and the
Company is under no liability (and has not within the three years prior to the
date of this agreement been liable) to pay any penalty, fine, surcharge or
interest in connection with any Taxation.

1.3           Deductions and
withholdings

The Company has
duly and properly made all deductions and withholdings in respect of, or on
account of, any Tax (including amounts required to be deducted under the PAYE
and National Insurance systems) from any payments made by it which it is
obliged or entitled to make and (to the extent required to do so) has accounted
in full to the relevant Taxation Authority for all amounts so deducted or
withheld.

 36
 

1.4           Concessions and
arrangements

The amount of
Taxation chargeable on the Company during any accounting period ending on or
within the six years before the Accounts Date has not depended on any
concessions, agreements or other formal or informal arrangements with any
Taxation Authority.

1.5           Calculation of Taxation
liability

The Company has
(to the extent required by law) preserved and retained in its possession
complete and accurate records relating to its Tax affairs (including PAYE and
National Insurance records and VAT records) and the Company has sufficient
records relating to past events to calculate the profit, gain, loss, balancing
charge or balancing allowance (all for Tax purposes) which would arise on any
disposal or on the realisation of any assets owned at the Accounts Date or
acquired since that date but before Completion.

1.6           Secondary liabilities

So far as the
Seller is aware the Company is not, nor will it become, liable to make a
payment to any person (including any Taxation Authority) in respect of any
liability to Taxation of any other person where that other person fails to
discharge a liability to Taxation to which it is or may be primarily liable.

2              CHARGEABLE GAINS

2.1           Acquisition costs

The sum which
would be allowed as a deduction from the consideration under section 38 TCGA
1992 (acquisition and disposal costs etc) received for each asset of the
Company (other than trading stock) if disposed of on the date of this agreement
would not be less than (in the case of an asset held on Accounts Date) the book
value of that asset shown or included in the Accounts or (in the case of an
asset acquired since the Accounts Date) an amount equal to the consideration
given for its acquisition.

2.2           Transactions not at
arms length

The Company has
not disposed of or acquired any asset in circumstances falling within section
17 or 18 TCGA 1992.

 37
 

3              CAPITAL ALLOWANCES

3.1           Tax written down value

Save to the extent
reflected in the deferred tax provision in the Accounts, no balancing charge in
respect of any capital allowances claimed or given would arise if any asset of
the Company (or, where computations are made for capital allowances purposes
for pools of assets, all the assets in that pool) were to be realised for a
consideration equal to the amount of the book value thereof as shown or
included in the Accounts.

4              DISTRIBUTIONS

4.1           The Company has not
made any repayment of share capital or issued any share capital as paid up
otherwise than by the receipt of new consideration.

4.2           The Company has not
made (nor is it deemed to have made) any distribution within the meaning of
ICTA 1988 except dividends properly authorised and disclosed in its audited
accounts.

5              LOAN RELATIONSHIPS

5.1           All interests,
discounts and premiums payable by the Company in respect of its loan
relationships (within the meaning of section 81, Finance Act 1996) are eligible
to be brought into account by the Company as a debit for the purposes of
Chapter II of Part IV, Finance Act 1996 at the time and to the extent that such
debits are recognised in the statutory accounts of the Company.

5.2           The Company has never
been a party to a loan relationship that had an unallowable purpose (within the
meaning of paragraph 13, Schedule 9, FA 1996).

6              CLOSE COMPANIES

6.1           Close
investment-holding company status

The Company is
not, and has never been, a close investment-holding company as defined in
section 13A, ICTA 1988.

6.2           Distributions

The Company has
never made a distribution within section 418 ICTA 1988.

 38
 

6.3           Loans to participators

Any loans or
advances made or agreed to be made by the Company within sections 419 and 420
or section 422 ICTA 1988 have been disclosed in the Disclosure Letter and the
Company has not released or written off or agreed to release or write off the
whole or any part of any such loans or advances.

7              GROUPS OF COMPANIES

7.1           The Company has not
entered into, or agreed to enter into, an election pursuant to section 171A of
TCGA 1992 or paragraph 66 of Schedule 29 to the Finance Act 2002.

7.2           Neither the execution
nor completion of this agreement, nor any other event since the Accounts Date,
will result in any chargeable asset being deemed to have been disposed of and
re-acquired by the Company for Taxation purposes under section 179 of TCGA
1992, paragraphs 58 or 60 of Schedule 29 to the Finance Act 2002, paragraph 12A
of Schedule 9 to the Finance Act 1996, paragraph 30A of Schedule 29 to the
Finance Act 2002, or as a result of any other Event since the Accounts Date.

8              COMPANY RESIDENCE

8.1           The Company has always
been resident in the United Kingdom for corporation tax purposes and has never
at any time been treated for the purposes of any double taxation arrangements
or for any other tax purpose as resident in any other jurisdiction and the
Company does not hold shares in a company which is not resident in the United
Kingdom and which would be a close company if it were resident in the United
Kingdom in circumstances such that a chargeable gain accruing to the company
not resident in the United Kingdom could be apportioned to the Company pursuant
to section 13 of TCGA 1992.

9              ANTI-AVOIDANCE

9.1           Anti-avoidance

The Company has
not been a party to, nor has been otherwise involved in, any transaction,
scheme or arrangement the main purpose of which, or one of the main purposes of
which was the avoidance or deferral of a liability to Tax.

 39
 

9.2           Transactions between
associated persons

All transactions
or arrangements made by the Company have been made on fully arm’s length terms
and there are no circumstances in which 770A of or schedule 28AA to ICTA 1988
could apply causing any Taxation Authority to make an adjustment to the terms
on which such transaction or arrangement is treated as being made for taxation
purposes.

10            INHERITANCE TAX

10.1         No transfers of value and
associated operations

The Company has
not made any transfer of value within sections 94 and 202, IHTA 1984, nor has
it received any value such that liability might arise under section 199, IHTA
1984 , nor has it been a party to associated operations in relation to a
transfer of value as defined by section 268, IHTA 1984.

10.2         HM Revenue & Customs
charge

There is no
unsatisfied liability to inheritance tax attached to or attributable to the
Sale Shares or any asset of the Company and none of them are subject to any
charge as mentioned in section 237 and 238, IHTA 1984.

10.3         Power of sale, mortgage
or charge

No asset owned by
the Company, nor the Sale Shares are liable to be subject to any sale, mortgage
or charge by virtue of section 212 (1), IHTA 1984.

11            VAT

11.1         Returns and payments

11.1.1              The Company is
registered as a taxable person for the purposes of VAT in the United Kingdom
under schedule 1 VATA 1994 and has never been treated as (nor applied to be) a
member of a group of companies for VAT purposes.

11.1.2              The Company has
complied in all material respects with all statutory provisions, rules,
regulations, orders and directions in respect of VAT, promptly submitted
accurate returns and, maintained full and accurate VAT records and the Company
has not been subject to any interest, forfeiture, surcharge or penalty,

 40
 

nor been given any
notice under sections 59, 59A or 64, VATA 1994, nor been given a warning within
section 76(2), VATA 1994, nor been required to give security under paragraph 4,
Schedule 11, VATA 1994.

11.2         Taxable supplies and
input tax credit

All supplies made
by the Company are taxable supplies and the Company has not been or will be
denied full credit for all input tax.

11.3         VAT and Properties

The Company has
not made and is not otherwise bound by any election to waive exemption from VAT
(pursuant to paragraph 2, Schedule 10, VATA 1994).

11.4         Capital goods scheme

No asset of the
Company is a capital item, the input tax on which could be subject to
adjustment in accordance with the provisions of Part XV, VAT Regulations 1995.

11.5         Transfer of Going Concern

The Company has
not been party to a transaction to which Article 5 of the Value Added Tax
(Special Provisions) Order 1995 (transfer of business as a going concern) has
(or has purported to have been) applied.

11.6         Bad debt relief

11.6.1              The Company has not
made any claim for bad debt relief under section 36, VATA 1994 and there are no
existing circumstances by virtue of which any refund of tax obtained or claimed
may be required to be repaid.

11.6.2              There are no
circumstances by virtue of which there could be a claw-back of input tax from
the Company under section 36(4), VATA 1994.

 41
 

12            STAMP DUTY AND SDLT

12.1         Stamp duty

Any document that
may be necessary in proving the title to any asset that is owned by the Company
at Completion or any document that the Company may wish to enforce or produce
in evidence is duly stamped.

12.2         Withdrawal of Relief

Neither entering
into this agreement nor Completion will result in the withdrawal of a stamp
duty or stamp duty land tax relief granted on or before Completion which will
affect the Company.

12.3         SDLT

The Disclosure
Letter sets out full and accurate details of any chargeable interest (as
defined under section 48 of the Finance Act 2003) acquired or held by the
Company before completion in respect of which the Seller are aware or ought
reasonably to be aware that an additional land transaction return will be
required to be filed with a Taxation Authority and/or a payment of stamp duty
land tax made on or after Completion.

 42
 

PART 3

Tax Covenant

1              COVENANT

Subject as hereinafter
provided the Seller hereby covenants to pay to the Buyer an amount equal to:

1.1           any Liability for
Taxation which arises as a result of an Event occurring on or before Completion
or in respect of income, profits or gains earned, accrued or received on or
before Completion;

1.2           any Liability for
Taxation arising or assessed as a consequence of the failure of a Relevant
Person at any time to pay Tax;

1.3           any Liability for
Taxation falling within paragraph 1.4.4 of part 1 of this schedule;

1.4           all reasonable costs
and expenses incurred by the Company or the Buyer in connection with a
successful claim under this schedule; and

1.5           any Liability for
Taxation arising directly as a result of the waiver/capitalisation of any inter
company indebtedness on or before Completion.

 43
 

PART 4

Limitations and procedure

1              LIMITATION
OF SELLER’S LIABILITY

1.1           The provisions of
clauses 6.3 (maximum) shall not apply but clauses 6.4 (disregard and de
minimis) and 6.6 (time limits) of this Agreement shall apply to this schedule
as if the same were set out herein in full and the liability of the Seller
under this schedule shall be limited or excluded accordingly.

1.2           The Seller shall not be
liable under any Taxation Waranty or any claim under Part 3 (Tax Covenant) in
respect of any Liability for Taxation to the extent that:

1.2.1                a provision or
reserve in respect thereof was made in the Accounts and has been paid or discharged
on or before Completion or to the extent that the payment or discharge  of such liability has been taken into account
in the Accounts and has been paid or discharged on or before Completion;

1.2.2                such Liability for
Taxation arises from any act or transaction of the Company in the ordinary
course of business since the Accounts Date;

1.2.3                such Liability for
Taxation arises or is increased as a result only of any change in Taxation
Statute or any increase in rates of Tax (in each case) announced and coming
into force after Completion which has retrospective effect;

1.2.4                such Liability for
Taxation arises or is increased as a result of any change in the accounting
policies or practices of the Company after Completion save where such change is
made in order to comply with generally accepted accounting principles in the
United Kingdom;

1.2.5                such Liability for
Taxation would not have arisen or would have been reduced or eliminated but for
a failure or omission on the part of the Buyer after Completion to make any
claim, election, surrender or disclaimer or to give any notice or consent (“Relevant

 44
 

Claim”) after
Completion the making, giving or doing of which was taken into account in
computing the provision for Tax in the Accounts provided that written details
of such Relevant Claim were given to the Buyer in sufficient time to enable it
or the Company to make the Relevant Claim;

1.2.6                such Liability for
Taxation would not have arisen but for the voluntary amendment or withdrawal
(in whole or in part) after Completion of any claim election or surrender
properly made before Completion or the making of any disclaimer after
Completion;

1.2.7                such Liability for
Taxation would not have arisen but for a voluntary act or transaction carried
out by the Buyer or the Company after Completion otherwise than:

1.2.7.1             in the ordinary
course of business of the Company; or

1.2.7.2             pursuant to a legally
binding obligation in existence at Completion or any act required by law; or

1.2.8        any Relief other than a
Post Completion Relief is available to the Company to relieve or mitigate that
liability;

1.2.9        the liability has been
made good or satisfied (otherwise than by the Buyer);

1.2.10      the liability arises or is
increased as a result of the failure by the Company after Completion to submit
any returns, notices, computations or other information required to be made by
it or not submitting such returns, notices, computations or other information
within the appropriate time limits or otherwise than on a proper basis;

1.2.11      the liability arises or is
increased as a result of the Company or Buyer failing to act in accordance with
any of the provisions of this agreement;

1.2.12      the rate or average rate of
any Taxation for any period which is applicable to the Company increasing as a
result of the sale and

 45
 

purchase of the
Company under the Agreement, including the Company ceasing to be subject to
corporation tax at the small companies’ rate (or qualifying for relief under
section 13(2) of the ICTA 1988) and becoming subject to corporation tax at the
rate applicable to companies generally; or

1.2.13      such Liability for Taxation
is a liability to interest on instalment payments paid on or before Completion
under paragraph 7 of the Corporation Tax (Instalment Payments) Regulations 1998
which interest is only payable by reason of any instalment payments made before
Completion proving to be insufficient as a result of profits earned by the
Company after Completion proving to be greater than was reasonably estimated by
the Company at the time such instalment was made;

1.2.14      such Liability for Taxation
would not have arisen but for a change in the accounting reference date of any
person made on or after Completion

1.2.15      such Liability for Taxation
is in respect of stamp duty or stamp duty reserve tax payable on the transfer
or agreement to transfer the Sale Shares pursuant to this agreement.

1.2.16      the Buyer has recovered
damages or any other amount under this Agreement (whether for breach of
Warranty, or otherwise) in respect of the same loss, liability, damage or Event
or the Buyer or the Company have otherwise obtained reimbursement or
restitution from the Seller.

2              DISPUTES AND
CONDUCT OF TAX CLAIMS

2.1           If the Buyer or the
Company shall become aware of a Tax Claim the Buyer shall, or shall procure
that the Company shall, as soon as reasonably practicable (and in any event, in
the case of the receipt of a Tax Claim consisting of any assessment or demand
for Tax or for which the time for response or appeal is limited, not less than
15 clear days prior to the day on which the time for response or appeal
expires) give written notice thereof to the Seller but so that the giving of
such notice shall not be a condition precedent to the Seller’s liability under
this schedule.

 46
 

2.2           Subject to the Seller
indemnifying the Company and the Buyer to the reasonable satisfaction of the
Buyer against all reasonable costs and expenses (including any additional Tax)
which may be incurred thereby, the Buyer shall (and shall procure that the
Company shall) take such action as the Seller may reasonably request in writing
to the Buyer (including delegating the conduct of the action to the Seller)
provided always that:

2.2.1                the Company shall
not be obliged to appeal against any assessment for Tax if, having given the
Seller notice of the receipt of that assessment, the Buyer has not within 10
Business Days thereafter received instructions from the Seller, in accordance
with the provisions of this paragraph 2.2 to make that appeal;

2.2.2                the Buyer and the
Company shall not be obliged to comply with any instruction of the Seller which
involves contesting any assessment for Tax before any court or other appellate
body (excluding the General and Special
Commissioners of HM Revenue & Customs and the VAT and Duties Tribunal)
unless the Seller provides the Buyer with the written opinion of Tax Counsel
(after disclosure of all relevant information and having regard to all the
relevant circumstances) of at least 10 years’ call that an appeal against the
assessment will on the balance of probabilities be successful;

2.2.3                the Buyer and the
Company shall not be obliged to comply with any instruction of the Seller to
make a settlement or compromise of a Tax Claim which is the subject of a
dispute or agree any matter in the conduct of such dispute which in the
reasonable opinion of the Buyer could materially adversely affect the future
Tax position of the Company or any member of the Buyer’s Group.

2.3           The Seller shall have
the right to have any action mentioned in paragraph 2.2 conducted by their
nominated professional advisers provided that the appointment of such
professional advisers shall be subject to the approval of the Buyer (such
approval not to be unreasonably withheld or delayed).

2.4           If the Seller does not
request the Buyer or the Company to take any action under paragraph 2.2 or
fails to indemnify the Buyer and the Company to the Buyer’s reasonable
satisfaction within a period of time (commencing with the

 47
 

date of the notice given
to the Seller) that is reasonable having regard to the nature of the Tax Claim
and the existence of any time limit in relation to avoiding, disputing,
defending, resisting, appealing or compromising such Tax Claim and which period
shall not in any event exceed a period of 45 days the Buyer or the Company
shall be free to pay or settle the Tax Claim on such terms as it may in its
reasonable discretion think fit.

2.5           The Buyer shall keep
the Seller fully informed of the progress in settling the relevant Tax Claim
and shall, as soon as reasonably practicable forward, or procure to be
forwarded, to the Seller copies of all material correspondence pertaining to
it.

2.6           If it is alleged by any
Taxation Authority in writing that the Seller (at any time) or the Company
(prior to Completion) has committed any act or omission constituting fraudulent
conduct relating to Tax then the provisions of paragraph 2.2 shall not apply
and the Seller shall cease to have any right thereunder.

3              PAYMENT DATE
AND INTEREST

3.1           Where the Seller is
liable to make any payment under this schedule, the due date for the making of
that payment (the “Due Date”) shall be the later of the date falling five
Business Days after the Buyer has served a written notice on the Seller
demanding that payment and:

3.1.1                in any case that
involves an actual payment of Tax (including any payment pursuant to paragraph
1.4 of part 3 of this schedule), the date falling two Business Days before the
last date on which the Tax in question must be paid to the relevant Taxation
Authority or person entitled to the payment (after taking into account any
postponement of the due date for payment which is obtained) in order to avoid
incurring a liability to interest or a charge fine or penalty; or

3.1.2                in any case that
involves a Liability for Taxation falling within paragraph 1.4.2 of part 1 of
this schedule the last date upon which the Taxation is or would have been
required to be paid to the relevant Taxation Authority in respect of the period
in which the Loss of the Relief occurs or, if the Relief that is lost is a
right to

 48
 

repayment of Tax, the
date upon which the repayment of Tax would have actually been received; or

3.1.3                in any case that
involves a Liability for Taxation falling within paragraph 1.4.3 of part 1 of
this schedule the date upon which the Taxation saved by the Company is or would
have been required to be paid to the relevant Taxation Authority; or

3.1.4                in any case that
involves a Liability for Taxation falling within paragraph 1.4.4 of part 1 of
this schedule not later than the fifth day before the day on which the Company
is due to make the payment or repayment.

3.2           If any sums required to
be paid by the Seller under this schedule are not paid on the Due Date, then,
except to the extent that the Seller’s liability under part 2 of this schedule
compensates the Buyer for the late payment by virtue of it extending to
interest and penalties, such sums shall bear interest (which shall accrue from
day to day after as well as before any judgment for the same) at the rate of 2
per cent per annum over the base rate from time to time of Barclays Bank Plc or
(in the absence thereof) at such similar rate as the Buyer shall select from
the day following the Due Date up to and including the day of actual payment of
such sums such interest to be compounded quarterly.

4              TAXATION OF
PAYMENTS

4.1           Any sum payable by the
Seller to the Buyer under this agreement shall be paid free and clear of any
deduction or withholding whatsoever, save only as may be required by law.

4.2           If any deduction or
withholding is required by law to be made from any payment by the Seller under
this agreement or if the Buyer is subject to Taxation in respect of such
payment the Seller shall increase the amount of the payment by such additional
amount as is necessary to ensure that the net amount received and retained by
the Buyer (after taking account of all deductions or withholdings or Taxation)
is equal to the amount which it would have received and retained had the
payment in question not been subject to any deductions or withholdings or
Taxation provided that this paragraph shall

 49
 

not apply to any interest
payable under paragraph 3.2 of this part of this schedule.

4.3           If, at any time after
any increased payment is made by the Seller as a consequence of the application
of this paragraph, the Buyer receives or is granted a credit against or
remission from any Tax payable by it which it would not otherwise have received
or been granted but for such increased payment, the Buyer shall, to the extent
that it can do so without prejudicing the retention of the amount of such
credit or remission, reimburse the Seller with the amount of such credit or
remission.

5              RECOVERY
FROM OTHER PERSONS

5.1           If the Company, the
Buyer or any member of the Buyer’s Group is or becomes entitled to recover from
any other person (including a Taxation Authority) any amount which is referable
to a Liability for Taxation in respect of which the Seller has made a payment
under this schedule, the Buyer shall or shall procure that the Company shall:

5.1.1                notify the Seller
of its entitlement; and

5.1.2                if required by the
Seller and, subject to the Buyer, or as appropriate the Company, being
indemnified by the Seller against the reasonable costs of the Buyer or, as
appropriate, the Company in connection with taking the following action, the
Buyer shall, or shall procure that the Company shall, take such action as is
reasonably requested by the Seller to enforce recovery against that person or
Taxation Authority

5.2           In the event that the
Company, the Buyer or any member of the Buyer’s Group recover any sum referred
to in paragraph 5.1 (whether after taking any action at the request of the
Seller under that paragraph or otherwise), the Buyer shall, as soon as
reasonably practicable, account to the Seller for the lesser of:

5.2.1                the sum recovered
(including any related interest or related repayment supplement) less any Tax
on that amount and any reasonable costs incurred in recovering the same (save
to the extent that that amount has already been made good by the Seller under
paragraph 5.1.2); and

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5.2.2                any amount paid by
the Seller under this schedule in respect of the Liability for Taxation giving
rise to the relevant Tax Claim plus costs for which the Seller has indemnified
and paid to the Buyer and/or the Company under this paragraph.

6              CORRESPONDING RELIEFS

6.1           If:

6.1.1                a payment by the
Seller in respect of any Liability for Taxation under a Tax Claim or the matter
giving rise to the Liability for Taxatiion in question results in the Company,
the Buyer or any member of the Buyer’s Group receiving or becoming entitled to
any Relief which they utilise (including by way of repayment of Tax) (“Corresponding
Relief”)

then an amount equal to
the Tax saved by the Corresponding Relief at the date such Corresponding Relief
is utilised (“Relevant Amount”), shall be dealt with in accordance with
paragraph 6.2.

6.2           The Relevant Amount
shall:

6.2.1                first be set off
against any payment then due from the Seller under this schedule;

6.2.2                secondly, to the
extent that there is an excess (within 7 days after receipt by the Buyer of a
written demand by the Seller) there shall be refunded to the Seller any
previous payment or payments made by the Seller under this schedule up to the
amount of the excess; and

6.2.3                thirdly, to the
extent that the excess referred to in paragraph 6.2.2 has not been exhausted
under that paragraph, the remainder of such excess shall be carried forward and
be set against any further such payment or payments in chronological order
until exhausted.

6.3           If the Company or the
Buyer become aware of any circumstances which shall or may give rise to the
application of this paragraph 6, the Buyer shall, or shall

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procure that the Company
shall, as soon as reasonably practicable give written notice of the same to the
Seller.

6.4           The Seller may require
the auditors of the Company for the time being (at the Seller’s cost and
expense) to certify the existence and quantum of any Relevant Amount and the
date on which the Corresponding Relief is utilised and, in the absence of
manifest error, their decision shall be final and binding.

7              TAX RETURNS

7.1           The Seller or the
Seller’s duly appointed agents shall, subject to the provisions of clause 25.2
of this Agreement, at the reasonable cost of the Company be entitled to
prepare, submit and agree the corporation tax returns and computations of the
Company (“Returns”) for all accounting periods ended on or prior to 31 December
2006.

7.2           The Seller shall
deliver to the Buyer for comments any Returns, documents or correspondence and
details of any information or proposal (“Relevant Information”) which it
intends to submit to HM Revenue & Customs before submission to the HM
Revenue & Customs and shall take account of the reasonable comments of the
Buyer and make such amendments to the Relevant Information as the Buyer may
reasonably require in writing within 30 days of the date of delivery of the
Relevant Information prior to its submission to HM Revenue & Customs.

7.3           The Seller shall
deliver to the Buyer copies of any correspondence sent to, or received from, HM
Revenue & Customs in relation to the Returns and shall keep the Buyer fully
informed of its action under this paragraph.

7.4           Subject to paragraphs
7.2 and 7.3 above, the Buyer shall procure that:

7.4.1                the Company causes
the Returns to be properly authorised and signed andmake all such claims,
surrenders, disclaimers, notices or elections in relation to all accounting
periods ended on or prior to Completion as the Seller shall reasonably require;

7.4.2                the Company
provides to the Seller such information and assistance, including such access
to its books and records, which may reasonably be required to prepare, submit,
negotiate and agree the Returns; and

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7.4.3                any correspondence
which relates to the Returns shall, if received by the Buyer or the Company or
its agents or advisers, be properly copied to the Seller.

7.5           In respect of any
matter which gives rise or may give rise to a Tax Claim, the provisions of
paragraph 2 of this part 4 of this schedule with respect to conduct of tax
claims shall apply instead of the provisions of this paragraph 7.

7.6           The Seller shall use
all reasonable endeavours to agree the Returns as soon as reasonably
practicable and shall deal with all matters promptly and diligently and within
applicable time limits.

8              BUYER’S COVENANT

8.1           The Buyer covenants
with the Seller to pay to the Seller an amount equal to any of the following:

8.1.1                any liability or
increased liability to Tax of the Seller or any person connected with the
Seller arising by virtue of the non-payment of Tax by the Company, the Buyer or
any member of the Buyer’s Group save that this paragraph 8.1.1 shall not apply
in respect of any Tax for which the Seller are liable to make (but have not yet
made) payment to the Buyer under part 3 of this schedule.

8.1.2                the reasonable
costs and expenses of the Seller in connection with any liability referred to
or in taking any action under this paragraph.

Paragraphs 2 (conduct of
tax claims), 3 (payment date and interest) and 4 (taxation of payments) of this
part 4 of this schedule shall apply mutatis mutandis to the covenant in favour
of and payments to the Seller under this paragraph as they apply to payments to
the Buyer under part 3 of this schedule.

9              GROUP RELIEF

The Buyer shall procure that the Company, to the
extent permissible and to the extent a Liability for Taxation is not thereby
created, enters into and signs all returns, claims, consents, surrenders,
elections and notifications to effect the surrender to the Seller’s Group by
the Company (at no cost to the Seller’s Group) of all Group Relief available.

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  EXECUTED and DELIVERED as
  a DEED by BLYTH 

  	
   

  	
   

  
	
  HOMESCENTS
  INTERNATIONAL UK LIMITED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Acting by its
  duly authorised attorney

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXECUTED
  and  DELIVERED  as a  DEED  by  COBCO 813

  	
   

  	
   

  
	
  LIMITED acting by a director and a director/secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DIRECTOR

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECRETARY/DIRECTOR

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name

  	
   

  	
   

  	
   

  	
   

  
						

 

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