Document:

exv10w1

 

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

Dated as of June 17, 2007

between

Lexicon Pharmaceuticals, Inc.

and

Invus, L.P.

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	ARTICLE I
	 	 	 	 
	 
	 	 	 	 
	DEFINITIONS
	 	 	 	 
	 
	 	 	 	 
	SECTION 1.01. Definitions
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II
	 	 	 	 
	 
	 	 	 	 
	PURCHASE AND SALE OF THE INITIAL SHARES
	 	 	 	 
	 
	 	 	 	 
	SECTION 2.01. Initial Investment
	 	 	9	 
	SECTION 2.02. Initial Closing
	 	 	10	 
	SECTION 2.03. Closing Deliveries by the Company
	 	 	10	 
	SECTION 2.04. Closing Deliveries by the Investor
	 	 	10	 
	 
	 	 	 	 
	ARTICLE III
	 	 	 	 
	 
	 	 	 	 
	RIGHTS OFFERINGS
	 	 	 	 
	 
	 	 	 	 
	SECTION 3.01. First Rights Offering
	 	 	11	 
	SECTION 3.02. Second Rights Offering
	 	 	13	 
	SECTION 3.03. Additional Terms Applicable to the Rights and Rights Shares
	 	 	16	 
	 
	 	 	 	 
	ARTICLE IV
	 	 	 	 
	 
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	 	 
	 
	 	 	 	 
	SECTION 4.01. Organization and Qualification; Subsidiaries
	 	 	17	 
	SECTION 4.02. Certificate of Incorporation and By-laws
	 	 	17	 
	SECTION 4.03. Capitalization
	 	 	18	 
	SECTION 4.04. Authority
	 	 	19	 
	SECTION 4.05. No Conflict; Required Filings and Consents
	 	 	19	 
	SECTION 4.06. Permits; Compliance
	 	 	20	 
	SECTION 4.07. SEC Filings; Financial Statements
	 	 	21	 
	SECTION 4.08. Absence of Certain Changes or Events
	 	 	23	 
	SECTION 4.09. Absence of Litigation
	 	 	23	 
	SECTION 4.10. Employee Benefit Plans
	 	 	24	 
	SECTION 4.11. Labor Matters
	 	 	25	 
	SECTION 4.12. Property and Leases
	 	 	25	 
	SECTION 4.13. Intellectual Property
	 	 	26	 
	SECTION 4.14. Taxes
	 	 	27	 
	SECTION 4.15. Environmental Matters
	 	 	28	 
	SECTION 4.16. Contracts; Debt Instruments
	 	 	29	 
	SECTION 4.17. Related Party Transactions
	 	 	30	 

 

	 	 	 	 	 
	 	 	Page	 
	SECTION 4.18. Insurance
	 	 	30	 
	SECTION 4.19. Controls
	 	 	31	 
	SECTION 4.20. Private Offering
	 	 	31	 
	SECTION 4.21. Vote Required
	 	 	31	 
	SECTION 4.22. Section 203 of the DGCL; Takeover Statute
	 	 	31	 
	SECTION 4.23. Fairness Opinion
	 	 	32	 
	SECTION 4.24. Brokers
	 	 	32	 
	SECTION 4.25. Proxy Statement
	 	 	32	 
	SECTION 4.26. Independent Directors
	 	 	32	 
	 
	 	 	 	 
	ARTICLE V
	 	 	 	 
	 
	 	 	 	 
	REPRESENTATIONS AND WARRANTIES OF INVESTOR
	 	 	 	 
	 
	 	 	 	 
	SECTION 5.01. Organization
	 	 	33	 
	SECTION 5.02. Authority
	 	 	33	 
	SECTION 5.03. No Conflict; Required Filings and Consents
	 	 	33	 
	SECTION 5.04. Investment Purpose
	 	 	34	 
	SECTION 5.05. Sophistication and Financial Condition of the Investor
	 	 	34	 
	SECTION 5.06. Available Funds
	 	 	34	 
	SECTION 5.07. Proxy Statement
	 	 	34	 
	SECTION 5.08. Ownership of Company Capital Stock
	 	 	34	 
	SECTION 5.09. Brokers
	 	 	34	 
	 
	 	 	 	 
	ARTICLE VI
	 	 	 	 
	 
	 	 	 	 
	CONDUCT OF BUSINESS PENDING THE CLOSING
	 	 	 	 
	 
	 	 	 	 
	SECTION 6.01. Conduct of Business by the Company Pending the Closing
	 	 	34	 
	SECTION 6.02. Further Issuances of Company Common Stock; Alternative Transactions
	 	 	36	 
	SECTION 6.03. No Contrary Agreements or Actions
	 	 	38	 
	 
	 	 	 	 
	ARTICLE VII
	 	 	 	 
	 
	 	 	 	 
	ADDITIONAL AGREEMENTS
	 	 	 	 
	 
	 	 	 	 
	SECTION 7.01. Stockholders’ Meeting
	 	 	38	 
	SECTION 7.02. Proxy Statement; Other SEC Filings
	 	 	39	 
	SECTION 7.03. Access to Information; Confidentiality
	 	 	40	 
	SECTION 7.04. Amendment to Certificate of Incorporation
	 	 	40	 
	SECTION 7.05. Additional Listing Application
	 	 	41	 
	SECTION 7.06. Further Action; Reasonable Best Efforts; Consents; Filings
	 	 	41	 
	SECTION 7.07. Public Announcements
	 	 	42	 
	SECTION 7.08. Certain Notices
	 	 	42	 

 

	 	 	 	 	 
	 	 	Page	 
	ARTICLE VIII
	 	 	 	 
	 
	 	 	 	 
	CONDITIONS
	 	 	 	 
	 
	 	 	 	 
	SECTION 8.01. Conditions to the Obligations of Each Party
	 	 	42	 
	SECTION 8.02. Conditions to the Obligations of the Investor
	 	 	43	 
	SECTION 8.03. Conditions to the Obligations of the Company
	 	 	44	 
	 
	 	 	 	 
	ARTICLE IX
	 	 	 	 
	 
	 	 	 	 
	TERMINATION, AMENDMENT AND WAIVER
	 	 	 	 
	 
	 	 	 	 
	SECTION 9.01. Termination
	 	 	45	 
	SECTION 9.02. Effect of Termination
	 	 	46	 
	SECTION 9.03. Amendment
	 	 	46	 
	SECTION 9.04. Waiver
	 	 	46	 
	 
	 	 	 	 
	ARTICLE X
	 	 	 	 
	 
	 	 	 	 
	GENERAL PROVISIONS
	 	 	 	 
	 
	 	 	 	 
	SECTION 10.01. Survival of Representations and Warranties; Indemnification
	 	 	46	 
	SECTION 10.02. Notices
	 	 	49	 
	SECTION 10.03. Severability
	 	 	50	 
	SECTION 10.04. Entire Agreement; Assignment
	 	 	50	 
	SECTION 10.05. Parties in Interest
	 	 	50	 
	SECTION 10.06. Specific Performance
	 	 	51	 
	SECTION 10.07. Governing Law
	 	 	51	 
	SECTION 10.08. Waiver of Jury Trial
	 	 	51	 
	SECTION 10.09. Delays or Omissions
	 	 	51	 
	SECTION 10.10. Interpretation
	 	 	51	 
	SECTION 10.11. Counterparts
	 	 	52	 
	 
	 	 	 	 
	EXHIBITS
	 	 	 	 
	 
	 	 	 	 
	Exhibit A      Form of Warrant Agreement
	Exhibit B       Form of Registration Rights Agreement
	Exhibit C       Form of Stockholders Agreement
	Exhibit D       Form of Certificate of Amendment to the Certificate of Incorporation
	Exhibit E       Form of Opinion of Counsel to Company
	 
	 	 	 	 
	SCHEDULES
	 
	 	 	 	 
	Company Disclosure Schedule

 

SECURITIES PURCHASE AGREEMENT

     This SECURITIES PURCHASE AGREEMENT, dated as of June 17, 2007 (this “Agreement”),
among Invus, L.P., a Bermuda limited partnership (the “Investor”) and Lexicon
Pharmaceuticals, Inc., a Delaware corporation (the “Company”).

     WHEREAS, the Company desires to sell to the Investor, and the Investor desires to purchase
from the Company, in the Initial Investment (as defined herein) pursuant to the terms and
conditions set forth in this Agreement, the Initial Shares (as defined herein);

     WHEREAS, the Company desires to grant to the Investor the opportunity, pursuant to the terms
and conditions set forth in this Agreement, to make further investments in the Company through
participation in the Rights Offerings (as defined herein) and the Investor has committed to
purchase any shares of Company Common Stock offered in the Rights Offerings that are not subscribed
for and purchased by other stockholders; and

     WHEREAS, concurrently with execution and delivery of this Agreement the Company will enter
into a warrant agreement with the Investor in the form attached as Exhibit A (the “Warrant
Agreement”), which will govern the terms of warrants to purchase an aggregate of 16,498,353
shares of Company Common Stock (the “Warrants”) to be issued by the Company to the
Investor;

     WHEREAS, concurrently with the execution and delivery of this Agreement, the Company will
enter into a registration rights agreement, in the form attached as Exhibit B, with the Investor
with respect to the shares of Company Common Stock held from time to time by the Investor,
including the Warrant Shares, the Initial Shares and the shares of Company Common Stock the
Investor may acquire in connection with the Rights Offerings, and a stockholders’ agreement with
the Investor, in the form attached as Exhibit C (the “Stockholders’ Agreement”).

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the Investor and the Company hereby
agree as follows:

ARTICLE I

DEFINITIONS

     SECTION 1.01. Definitions. (a) For purposes of this Agreement:

     “affiliate” of a specified person means a person who, directly or indirectly through
one or more intermediaries, controls, is controlled by, or is under common control with, such
specified person.

     “Ancillary Agreements” means the Warrant Agreement, the Registration Rights Agreement
and the Stockholders’ Agreement.

     “beneficial owner” (and related terms such as “beneficially owned” or
“beneficial ownership”) has the meaning ascribed to such term under Rule 13d-3 of the
Exchange Act.

 

 

 2

     “By-Laws” means the Restated By-Laws of the Company, effective as of February 3, 2000,
as amended from time to time.

     “business day” means any day that is not a Saturday or a Sunday and on which the
principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day that is not a Saturday or a Sunday and on which
banks are not authorized to close in New York City.

     “Board” means the Board of Directors of the Company.

     “Certificate of Amendment” means a Certificate of Amendment to the Certificate of
Incorporation increasing the total number of shares the Company has authority to issue attached as
Exhibit D.

     “Certificate of Incorporation” means the Restated Certificate of Incorporation of the
Company, dated as of April 5, 2000, as amended from time to time.

     “Charter Amendment” means the amendment to the Certificate of Incorporation to be
effected by the filing of the Certificate of Amendment.

     “Closing” means any of the Initial Closing, the First Rights Offering Closing and the
Second Rights Offering Closing.

     “Closing Date” means any of the Initial Closing Date, the First Rights Offering
Closing Date and the Second Rights Offering Closing Date.

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

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

     “contracts” means any agreement, contract, lease, power of attorney, note, loan,
evidence of indebtedness, purchase order, letter of credit, settlement agreement, franchise
agreement, undertaking, covenant not to compete, employment agreement, license agreement,
instrument, obligation, commitment, understanding, policy which constitutes an executory
obligation, purchase and sales order, quotation which constitutes an executory commitment, and
other executory commitments to which a person is a party or to which any of the assets of such
person are subject, whether oral or written, express or implied, and pursuant to which such person
is legally bound.

     “control” (including the terms “controlled by” and “under common control
with”) means the possession, directly or indirectly, or as trustee or executor, of the power to
direct or cause the direction of the management and policies of a person, whether through the
ownership of voting securities, as trustee or executor, by contract, credit arrangement or
otherwise, including the ownership, directly or indirectly, of securities having the power to elect
a majority
of the board of directors or similar body governing the affairs of such person.

     “DGCL” means the General Corporation Law of the State of Delaware, as in effect from
time to time.

 

3

     “Environmental Laws” means any United States federal, state, local or foreign Laws
relating to pollution or the protection, investigation or restoration of the environment or natural
resources or relating to the protection of human health as relating to exposure to Hazardous
Substances.

     “Equity Interest” means any share, capital stock, partnership, member or similar
interest in any person, and any option, warrant, right or security (including debt securities)
convertible, exchangeable or exercisable therefor.

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

     “First Rights Offering Amount” means an aggregate amount to be designated by the
Investor in connection with the First Rights Offering, not to exceed an amount equal to (a) the
quotient of (i) $550,000,000, minus the Share Purchase Price, minus the aggregate amount paid by
the Investor upon the exercise of any Warrants, divided by (ii) two, minus (b) the aggregate net
proceeds received in all Qualified Offerings, if any, completed prior to the First Rights Offering
Trigger Date.

     “First Rights Offering Oversubscription Shares” shall mean the total number of First
Rights Shares less the total number of shares of Company Common Stock subject to validly exercised
First Rights and issuable pursuant to the First Rights Primary Subscription.

     “First Rights Offering Trigger Date” means the date which is twenty-seven (27) months
following the Initial Investment Closing Date; provided, that the Investor and the Company (with
the approval of the Unaffiliated Board) shall have the right to change such date to any mutually
agreed upon date within the period starting on the second anniversary of the Initial Closing and
ending on the date which is 27 months following the Initial Investment Closing Date.

     “Hazardous Substances” means (i) those substances defined in or regulated under the
following federal statutes and their state counterparts, as each may be amended from time to time,
and all regulations thereunder: the Hazardous Materials Transportation Act, the Solid Waste
Disposal Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy
Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the
Occupational Health and Safety Act, and the Clean Air Act; (ii) petroleum and petroleum products,
including crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures
thereof; (iv) polychlorinated biphenyls, asbestos and radon and other radioactive materials; (v)
medical or biological waste; and (vi) any substance, material, or waste defined as toxic or
hazardous or as a pollutant or contaminant, or regulated by any Governmental Authority pursuant to
any Environmental Law or that could reasonably be expected to result in liability under any
Environmental Law.

     “Independent Directors” means directors who comply with the standard of independence
necessary for a director to qualify as an “Independent Director” as such term (or

 

4

any replacement
term) is used under the rules and listing standards of the Nasdaq Stock Market or any other
securities exchange on which the Company Common Stock is then listed as such rules and listing
standards may be amended from time to time.

     “Initial Shares” means the shares of Company Common Stock to be issued and sold by the
Company and purchased by the Investor pursuant to Section 2.01.

     “Intellectual Property” means United States and non-United States (i) inventions and
discoveries (whether or not patentable and whether or not reduced to practice), improvements
thereto, and patents, patent applications, invention disclosures, and other rights of invention,
worldwide, including any reissues, divisions, continuations and continuations-in-part,
provisionals, reexamined patents or other applications or patents claiming the benefit of the
filing date of any such application or patent, (ii) trademarks, service marks, trade names, trade
dress, logos, Internet domain names, product names and slogans, including any common law rights,
registrations, and applications for registration for any of the foregoing, and the goodwill
associated with all of the foregoing, worldwide, (iii) copyrightable works, all rights in
copyrights, including moral rights, copyrights, website content, packaging design and art work, and
other rights of authorship and exploitation, and any applications, registrations and renewals in
connection therewith, worldwide, (iv) confidential and proprietary information, including customer
and supplier lists and related information, pricing and cost information, business and marketing
plans, research and development, advertising statistics, any other financial, marketing and
business data, technical data, databases, specifications, designs, drawings, methods, schematics
and know-how (collectively, “Trade Secrets”), (v) to the extent not covered by subsections (i)
through (iv), above, software and website content, (vi) all claims, causes of action and rights to
sue for past, present and future infringement, misappropriation or unconsented use of any of the
Intellectual Property, the right to file applications and obtain registrations, and all products,
proceeds and revenues arising from or relating to any and all of the foregoing, throughout the
world, and (vii) the rights to use the names and likenesses of natural persons and any other
proprietary, intellectual property and other rights relating to any or all of the foregoing
anywhere in the world.

     “IRS” means the United States Internal Revenue Service.

     “knowledge of the Company” means the actual knowledge of the executive officers of the
Company and those individuals identified on Section 1.01(a) of the Disclosure Schedule.

     “Liens” means any charge, mortgage, pledge, deed of trust, hypothecation, right of
others, claim, security interest, encumbrance, burden, title defect, title retention agreement,
lease, sublease, license, occupancy agreement, easement, covenant, condition, encroachment, voting
trust agreement, interest, option, right of first offer, negotiation or refusal, proxy, lien or
other similar restrictions or limitations.

     “Material Adverse Effect” means any event, circumstance, change or effect that, either
individually or combined with all other events, circumstances, changes or effects, (i) has a

 

5

material adverse effect on the business, operations, assets, liabilities (including contingent
liabilities), condition (financial or otherwise) or results of operations of the Company and the
Subsidiaries, taken as a whole, or (ii) materially impairs the ability of the Company to consummate
the Transactions and perform its other obligations under this Agreement; provided, however, that
“Material Adverse Effect” shall not include any event, circumstance, change or effect to the extent
arising out of (A) any events, circumstances, changes or effects occurring after the date hereof
that affect the biopharmaceutical industry generally to the extent not disproportionately impacting
the Company and its Subsidiaries and (B) any changes in general economic, legal, regulatory or
political conditions occurring after the date hereof to the extent not disproportionately impacting
the Company and its Subsidiaries.

     “Other Filings” means all filings made by, or required to be made by, the Company with
the SEC other than the Proxy Statement.

     “Oversubscription Pro Rata Number” shall mean, for each holder of a Right exercising
Rights Offering Oversubscription rights, a fraction the numerator of which is the total number of
shares of Company Common Stock owned by such holder and the denominator of which is the total
number of outstanding shares of Company Common Stock held by all holders of Rights who have validly
exercised Rights Offering Oversubscription rights in the relevant Rights Offering (it being
understood that no shares shall be deemed owned by more than one holder for purposes hereof).

     “Permitted Liens” means (i) liens for current Taxes not yet due and payable and Liens
for Taxes being contested in good faith through proper proceedings (for which contested Taxes
adequate reserves have been made in accordance with GAAP), (ii) inchoate mechanics’ and
materialmen’s liens for construction in progress, and, (iii) such (A) inchoate workmen’s,
repairmen’s, warehousemen’s and carriers’ liens arising in the ordinary course of business of the
Company or any Subsidiary consistent with past practice, and (B) zoning restrictions, survey
exceptions, utility easements, rights of way and similar Liens that are typical for the applicable
property type and locality (excluding, in each case, any mortgages or other Liens securing borrowed
money) which do not materially interfere with the current use of such Owned Real Property or Leased
Real Property.

     “person” includes an individual, corporation, partnership, limited partnership,
limited liability company, syndicate, person (including a “person” or “group” each within the
meaning of Section 13(d)(3) of the Exchange Act), trust, association or entity or government,
political subdivision, agency or instrumentality of a government.

     “Plans” means any (i) employee benefit plans (as defined in Section 3(3) of ERISA) and
all bonus, incentive, stock option, stock purchase, restricted stock, phantom stock, or other
stock-based compensation, deferred compensation, retiree medical or life insurance, supplemental
executive retirement, severance or other benefit plans, programs, trusts or arrangements, and all
employment, consulting, termination, severance, retention, change in control, transaction bonus,
compensation or other contracts or agreements, to which the Company or any of its affiliates is a
party, or which are sponsored by the Company or any of its
affiliates for the benefit of any current or former employee, officer or director of the
Company or any Subsidiary, and (ii) any material contracts, arrangements, agreements, policies,
practices or

 

6

understandings between the Company or any of its affiliates and any current or former
employee of the Company or of any Subsidiary, including any contracts, arrangements or
understandings or change in control arrangements relating to a sale of the Company.

     “Pro Rata Number” means, for each holder of a Right, a fraction the numerator of which
is the total number of shares of Company Common Stock owned by such holder and the denominator of
which is the total number of outstanding shares of Company Common Stock on the record date for the
distribution of the applicable Rights (it being understood that no shares shall be deemed owned by
more than one holder for purposes hereof).

     “Qualified Offering” means a bona fide financing transaction by the Company comprised
of an issuance of Company Common Stock by the Company (excluding any shares issued pursuant to
stock options or other stock-based awards issued to employees, consultants, officers or directors
of the Company or any Subsidiary, warrants outstanding as of the date hereof, the issuance of the
Initial Shares, the issuance of any Warrant Shares and the Rights Offerings) at a price greater
than $4.50 per share (appropriately adjusted for any stock splits, reverse splits, stock dividends,
combinations or similar transactions occurring after the date hereof and prior to any such
Qualified Offering) and which transaction is not entered into in connection with the entry by the
Company into any other transaction (including, a collaboration or license for the discovery,
development or commercialization of pharmaceutical products) involving the purchaser of such
Company Common Stock.

     “Release” has the meaning given to such term in the United States Comprehensive
Environmental Response, Compensation and Liability Act, 42 USC Section 9601(22), but without giving
effect to 42 USC 9601 Subsections (22)(A), (B), (C) and (D).

     “Rights Offering Trigger Date” means any of the First Rights Offering Trigger Date or
the Second Rights Offering Trigger Date.

     “Second Rights Offering Amount” means an aggregate amount to be designated by the
Investor in connection with the Second Rights Offering, not to exceed an amount equal to
$550,000,000, minus the Share Purchase Price, minus the aggregate amount paid by the Investor upon
the exercise of any Warrants, minus the First Rights Offering Amount, minus the aggregate net
proceeds received in all Qualified Offerings, if any, completed prior to the Second Rights Offering
Trigger Date.

     “Second Rights Offering Oversubscription Shares” means the total number of Second
Rights Shares less the total number of shares of Company Common Stock subject to validly exercised
Second Rights and issuable pursuant to the Second Rights Primary Subscription.

     “Second Rights Offering Trigger Date” means the date which is twelve (12) months
following (i) the delivery of a First Rights Offering Notice or (ii) if such notice is not
delivered, the First Rights Offering Trigger Date.

     “subsidiary” or “subsidiaries” of any person means any corporation,
partnership,
limited liability company, joint venture, association or other legal entity of which such
person (either alone or together with any other subsidiary) owns, directly or indirectly, more than
50%

 

7

of the stock or other equity interests, the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such corporation or other legal
entity.

     “Tax Returns” means any return, declaration, report or other form or statement
(including any attached schedules) filed with or submitted to, or required to be filed with or
submitted to, any Governmental Authority in respect of Taxes, including any information return,
claim for refund, amended return or declaration of estimated Tax.

     “Taxes” means any and all taxes, fees, levies, duties, tariffs, imposts and other
similar charges of any kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any Governmental Authority or taxing
authority, including taxes or other charges on or with respect to income, franchise, windfall or
other profits, gross receipts, property (real or personal), sales, use, capital stock, payroll,
employment, occupation, severance, disability, premium, environmental (including taxes under Code
Section 59A), social security, workers’ compensation, estimated, unemployment compensation or net
worth; alternative or add-on minimum; taxes or other charges in the nature of excise, withholding,
ad valorem, stamp, transfer, value-added or gains taxes; license, registration and documentation
fees; and customers’ duties, tariffs and similar charges.

     “Transactions” means the transactions contemplated by this Agreement and the Ancillary
Agreements, including the purchase and sale of the Initial Shares as contemplated by this Agreement
and the issuance of the Initial Shares by the Company, the distribution of the Rights in the Rights
Offerings and the issuance of the Rights Shares, and the performance by the parties of their
respective obligations under this Agreement and the Ancillary Agreements.

     “Unaffiliated Board” means a majority of (a) the members of the Board not designated
by the Investor pursuant to the Stockholders’ Agreement and present at any validly convened meeting
at which an action by such members is to be taken or (b) all of the members of the Board not
designated by the Investor pursuant to the Stockholders’ Agreement, if action is taken by written
consent as permitted under the By-Laws.

     “Warrant Shares” means any shares of Company Common Stock issued upon the exercise of
the Warrants.

     (b) The following terms have the meaning set forth in the Sections set forth below:

	 	 	 
	 	 	Location of
	Defined Term	 	Definition
	Action

	 	§ 4.09
	Agreement

	 	Preamble
	Alternative Transaction

	 	§ 6.02(b)
	Board Recommendation

	 	§ 7.01
	Blue Sky Laws

	 	§ 4.05(b)
	Investor Director Designees

	 	§ 8.02(f)

 

8

	 	 	 
	 	 	Location of
	Defined Term	 	Definition
	Claim Notice

	 	§ 10.01(d)
	Company

	 	Preamble
	Company Material Contract

	 	§ 4.16(b)
	Company Options

	 	§ 4.03(a)
	Company Preferred Stock

	 	§ 4.03(a)
	Company Stock Option Plans

	 	§ 4.03(a)
	Confidentiality Agreement

	 	§ 7.03(b)
	Disclosure Schedule

	 	Article IV
	Exchange Act

	 	§ 4.05(b)
	FDA

	 	§ 4.06(a)
	First Rights

	 	§ 3.01(a)
	First Rights Offering

	 	§ 3.01(a)
	First Rights Offering Amount

	 	§ 3.01(a)
	First Rights Offering Backstop Shares

	 	§ 3.01(b)
	First Rights Offering Closing

	 	§ 3.01(e)
	First Rights Offering Closing Date

	 	§ 3.01(e)
	First Rights Offering Expiration Date

	 	§ 3.01(d)
	First Rights Offering Market Price

	 	§ 3.01(a)
	First Rights Offering Notice

	 	§ 3.01(a)
	First Rights Offering Oversubscription

	 	§ 3.01(a)
	First Rights Offering Price

	 	§ 3.01(a)
	First Rights Primary Subscription

	 	§ 3.01(a)
	First Rights Offering Registration Statement

	 	§ 3.01(c)
	First Rights Shares

	 	§ 3.01(a)
	GAAP

	 	§ 4.07(b)
	Governmental Authority

	 	§ 4.05(b)
	HSR Act

	 	§ 4.05(b)
	Indemnified Party

	 	§ 10.01(d)
	Indemnifying Party

	 	§ 10.01(d)
	Infringe

	 	§ 4.13(c)
	Intervening Event

	 	§ 7.01(b)
	Initial Investment

	 	§ 2.01
	Initial Closing

	 	§ 2.02
	Initial Investment Closing Date

	 	§ 2.02
	Investor

	 	Preamble
	Investor Director Designees

	 	§ 8.02(f)
	Law

	 	§ 4.05(a)
	Leased Real Property

	 	§ 4.12(a)
	Licenses

	 	§ 4.13(b)
	Morgan Stanley

	 	§ 4.23
	Owned Real Property

	 	§ 4.12(a)
	Permits

	 	§ 4.06(a)
	PBGC

	 	§ 4.10(d)
	Proxy Statement

	 	§ 4.05(b)

 

9

	 	 	 
	 	 	Location of
	Defined Term	 	Definition
	Recommendation Change

	 	§ 7.01(b)
	Registered IP

	 	§ 4.13(a)
	Representatives

	 	§ 6.02(b)
	Rights

	 	§ 3.02(a)
	Rights Offerings

	 	§ 3.02(a)
	Rights Offering Notices

	 	§ 1.01(a)3.02(a)
	Rights Offering Oversubscription

	 	§ 3.02(a)
	Rights Offering Registration Statements

	 	§ 3.02(c)
	Rights Shares

	 	§ 3.02(a)
	SEC

	 	§ 4.05(b)
	SEC Reports

	 	§ 4.07(a)
	Second Rights

	 	§ 3.02(a)
	Second Rights Offering

	 	§ 3.02(a)
	Second Rights Offering Backstop Shares

	 	§ 3.02(b)
	Second Rights Offering Closing

	 	§ 3.02(e)
	Second Rights Offering Closing Date

	 	§ 3.02(e)
	Second Rights Offering Expiration Date

	 	§ 3.02(d)
	Second Rights Offering

	 	§ 3.02(a)
	Second Rights Offering Market Price

	 	§ 3.02(a)
	Second Rights Offering Notice

	 	§ 3.02(a)
	Second Rights Offering Oversubscription

	 	§ 3.02(a)
	Second Rights Offering Price

	 	§ 3.02(a)
	Second Rights Primary Subscription

	 	§ 3.02(a)
	Second Rights Offering Registration Statement

	 	§ 3.02(c)
	Second Rights Shares

	 	§ 3.02(a)
	Securities Act

	 	§ 4.07(a)
	Share Purchase Price

	 	§ 2.04(a)
	SOX

	 	§ 4.19
	Stockholders’ Agreement

	 	Recitals
	Stockholder Approval

	 	§ 7.01(a)
	Stockholders’ Meeting

	 	§ 7.01(a)
	Subsidiary

	 	§ 4.01(a)
	Termination Date

	 	§ 9.01
	Title IV Plan

	 	§ 4.10(d)
	Third Party Claim

	 	§ 10.01(d)
	Warrant Agreement

	 	Recitals
	Warrants

	 	Recitals

 

10

ARTICLE II

PURCHASE AND SALE OF THE INITIAL SHARES

     SECTION 2.01. Initial Investment. Upon the terms and subject to the conditions of
this Agreement, at the Initial Closing, the Company shall issue and sell to the Investor, and the
Investor shall purchase, accept and acquire from the Company (the “Initial Investment”):

     (a) a number of shares of Company Common Stock that, when added to the shares of Company
Common Stock already owned by the Investor and its affiliates (including any Warrant Shares issued
prior to the Initial Closing but excluding, for the avoidance of doubt, the shares of Company
Common Stock to be issued pursuant to Section 2.01(b)), equal 19.9% of the aggregate number of
shares of Company Common Stock outstanding as of the Initial Investment Closing Date (which, based
on the information contained in Section 4.03 hereof, is expected to be approximately 16,500,000
shares) for a per share purchase price equal to $3.0915 (appropriately adjusted for any stock
splits, reverse splits, stock dividends, combinations or similar transactions occurring after the
date hereof and prior to the Initial Closing); and

     (b) a number of shares of Company Common Stock that, when added to the number of shares of
Company Common Stock already owned by the Investor and its affiliates and the number of shares
subject to clause (a) above, equal 40% of the aggregate number of shares of Company Common Stock
outstanding as of the Initial Investment Closing Date (which, based on the information contained in
Section 4.03 hereof, is expected to be approximately 34,325,000 shares) for a per share purchase
price equal to $4.50 (appropriately adjusted for any stock splits, reverse splits, stock dividends,
combinations or similar transactions occurring after the date hereof and prior to the Initial
Closing).

     SECTION 2.02. Initial Closing. Unless this Agreement shall have been terminated in
accordance with Section 9.01, and subject to the satisfaction or waiver of the conditions set forth
in Article VIII, the closing of the issuance, purchase and sale of the Initial Shares contemplated
by this Article II (the “Initial Closing”) will take place at 11:00 a.m., New York time, on
the third business day after the satisfaction or waiver of the conditions set forth in Article VIII
(other than those that by their terms are to be satisfied at the Initial Closing) (such date, the
“Initial Investment Closing Date”), at the offices of Simpson Thacher & Bartlett LLP, 425
Lexington Avenue, New York, New York 10017, unless another time, date or place is agreed to in
writing by the Investor and the Company.

     SECTION 2.03. Closing Deliveries by the Company. At the Initial Closing, the Company
shall deliver or cause to be delivered to the Investor:

     (a) duly executed certificates evidencing the Initial Shares, registered in the name of the
Investor;

     (b) executed counterparts of the Stockholder Agreement;

     (c) a receipt for the Share Purchase Price; and

     (d) the documents, instruments, writings and payments contemplated or required to be delivered
by the Company at the Initial Closing pursuant to Section 8.02.

     SECTION 2.04. Closing Deliveries by the Investor. At the Initial Closing, the
Investor shall deliver to the Company:

 

11

     (a) the aggregate purchase price payable for the Initial Shares (the “Share Purchase
Price”) by wire transfer in immediately available funds to an account specified by the Company
in writing no less than three business days prior to the Initial Closing;

     (b) executed counterparts of the Stockholders’ Agreement;

     (c) a receipt for the Initial Shares; and

     (d) the documents, instruments and writings contemplated or required to be delivered by the
Investor at the Initial Closing pursuant to Section 8.03.

ARTICLE III

RIGHTS OFFERINGS

     SECTION 3.01. First Rights Offering.

     (a) For a period of 90 days following the First Rights Offering Trigger Date, the Investor
shall have the right, but not the obligation, exercisable by a written notice (the “First
Rights Offering Notice”) to the Company in accordance with Section 10.02, to require the
Company to make a pro rata offering (the “First Rights Offering”) to all holders of Company
Common Stock (including the Investor and its affiliates) of non-transferable subscription rights
(the “First Rights”) entitling the holders thereof to purchase shares of Company Common
Stock, on the terms set forth herein, (i) in an aggregate amount equal to the First Rights Offering
Amount, and (ii) at a price per share (the “First Rights Offering Price”) to be designated
by the Investor; provided, that the First Rights Offering Price shall be any price (A) at or above
the lower of $4.50 (as adjusted for any stock splits, reverse splits, stock dividends, combinations
or similar transactions occurring after the date hereof and prior to the First Rights Offering) and
the average of the volume weighted average trading prices of the Company Common Stock on the Nasdaq
Stock Market for the ten (10) full trading days immediately prior to the date of the delivery of
the First Rights Offering Notice (the “First Rights Offering Market Price”) and (B) at or
below the higher of $4.50 (as adjusted for any stock splits, reverse splits, stock dividends,
combinations or similar transactions occurring after the date hereof and prior to the First Rights
Offering) and the First Rights Offering Market Price. The number of shares of Common Stock to be
offered in the First Rights Offering (the “First Rights Shares”) shall be equal to the
quotient of the First Rights Offering Amount divided by the First Rights Offering Price, rounded up
to the nearest 100 shares. Each First Right shall entitle the holder thereof (including the
Investor and its
affiliates) to purchase, at the election of such holder, (x) all or any lesser amount of such
holder’s Pro Rata Number of the First Rights Shares (the “First Rights Primary
Subscription”) and (y) so long as such holder has subscribed for all of its First Rights
Primary Subscription, but subject to Section 3.03(b), an amount of First Rights Offering
Oversubscription Shares to be specified by such holder, up to but not exceeding such holder’s
Oversubscription Pro Rata Number of First Rights Offering Oversubscription Shares (the “First
Rights Offering Oversubscription”), in each case, at the First Rights Offering Price.

 

12

     (b) In connection with the First Rights Offering, upon the terms and subject to the conditions
of this Agreement, the Investor shall be required to purchase that number of First Rights Shares
(the “First Rights Offering Backstop Shares”) that remain unsubscribed for at the First
Rights Offering Expiration Date at the First Rights Offering Price. As soon as reasonably
practicable following the First Rights Offering Expiration Date, the Company and the subscription
agent for the First Rights Offering shall determine the number of First Rights Offering Backstop
Shares and shall provide written notice thereof to the Investor, in accordance with Section 10.02.

     (c) As soon as reasonably practicable after receiving the First Rights Offering Notice, the
Company shall prepare and file with the SEC a registration statement (such registration statement,
including each amendment and supplement thereto, the “First Rights Offering Registration
Statement”) on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of
registration statement as is then available to effect a registration of securities), in form and
substance reasonably satisfactory to the Investor, covering the issuance of the First Rights and
the First Rights Shares. The Company will not permit any securities other than the First Rights and
the First Rights Shares to be included in the First Rights Offering Registration Statement. The
First Rights Offering Registration Statement (and each amendment or supplement thereto, and each
request for acceleration of effectiveness thereof) will be provided to the Investor prior to its
filing with or other submission to the SEC. The First Rights Offering Registration Statement will
comply in all material respects with the requirements of the Securities Act and the rules and
regulations thereunder and other applicable Laws. The Company promptly will correct any information
included in the First Rights Offering Registration Statement if, and to the extent that, such
information becomes false or misleading in any material respect, and the Company will take all
steps necessary to cause the First Rights Offering Registration Statement, as so corrected, to be
filed with the SEC and, upon its effectiveness, to be disseminated to the distributees of the First
Rights, in each case as and to the extent required by applicable federal securities laws. The
Investor will be given a reasonable opportunity to review and comment upon the First Rights
Offering Registration Statement in each instance before it is filed with the SEC. In addition, the
Company will provide the Investor with any written comments or other written communications that
the Company receives from time to time from the SEC or its staff with respect to the First Rights
Offering Registration Statement promptly after the receipt of such comments or other
communications. The Company will use its reasonable best efforts to cause the First Rights Offering
Registration Statement to be filed pursuant to this Section 3.01 and to be declared effective by
the SEC as soon as possible after the First Rights Offering Registration Statement is filed with
the SEC.

     (d) As soon as reasonably practicable following the effective date of the First Rights
Offering Registration Statement, the Company will commence the First Rights Offering.
The First Rights will expire at 5:00 p.m. New York City time 30 days after the commencement of
the First Rights Offering or on such other date as the Investor and the Company may reasonably
agree (the “First Rights Offering Expiration Date”). All other terms and conditions of the
First Rights shall be reasonably satisfactory to both the Company and the Investor.

     (e) Unless this Agreement shall have been terminated in accordance with Section 9.01, and
subject to the satisfaction or waiver of the conditions set forth in Article VIII, the closing of
the issuance, purchase and sale of the First Rights Shares contemplated by this

 

13

Section 3.01 (the
“First Rights Offering Closing”) will take place at 11:00 a.m., New York time, on the third
business day after the satisfaction or waiver of the conditions set forth in Article VIII (other
than those that by their terms are to be satisfied at the First Rights Offering Closing) (such
date, the “First Rights Offering Closing Date”), at the offices of Simpson, Thacher &
Bartlett LLP, 425 Lexington Avenue, New York, New York 10017, unless another time, date or place is
agreed to in writing by the Investor and the Company; provided, that the Investor shall not be
obligated to purchase the First Rights Offering Backstop Shares earlier than ten (10) business days
following the receipt by the Investor of the notice required by Section 3.01(b) specifying the
number of First Rights Offering Backstop Shares to be acquired by the Investor.

          (f) At the First Rights Offering Closing, the Company shall deliver or cause to be delivered
to the Investor:

          (i) duly executed certificates evidencing all of the First Rights Shares purchased by
the Investor, registered in the name of the Investor;

          (ii) a receipt for the portion of the aggregate First Rights Offering Price payable by
the Investor; and

          (iii) the documents, instruments, writings and payments contemplated or required to be
delivered by the Company at the First Rights Offering Closing pursuant to Section 8.02.

          (g) At the First Rights Offering Closing, the Investor shall deliver to the Company:

          (i) the portion of the aggregate First Rights Offering Price payable by the Investor by
wire transfer in immediately available funds, to an account specified by the Company in
writing no less than three business days prior to the First Rights Offering Closing;

          (ii) a receipt for the First Rights Shares purchased by the Investor; and

          (iii) the documents, instruments, writings and payments contemplated or required to be
delivered by the Investor at the First Rights Offering Closing pursuant to Section 8.03.

          SECTION 3.02. Second Rights Offering.

          (a) For a period of 90 days following the Second Rights Offering Trigger Date, the Investor
shall have the right, but not the obligation, exercisable by written notice (the “Second Rights
Offering Notice” and, together with the First Rights Offering notice, the “Rights Offering
Notices”) to the Company in accordance with Section 10.02, to require the Company to make a pro
rata offering (the “Second Rights Offering” and, together with the First Rights Offering,
the “Rights Offerings”) to all holders of Company Common Stock (including the Investor and
its affiliates) of non-transferable subscription rights (the “Second Rights” and, together
with the First Rights, the “Rights”) entitling the holders thereof to purchase shares of
Company Common Stock, on the terms set forth herein, (i) in an aggregate amount equal to the

 

14

Second
Rights Offering Amount, and (ii) at a price per share (the “Second Rights Offering Price”)
to be designated by the Investor; provided, that the Second Rights Offering Price shall be any
price (A) at or above the lower of $4.50 (as adjusted for any stock splits, reverse splits, stock
dividends, combinations or similar transactions occurring after the date hereof and prior to the
Second Rights Offering) and the average of the volume weighted average trading prices of the
Company Common Stock on the Nasdaq Stock Market for the ten (10) full trading days immediately
prior to the date of delivery of the Second Rights Offering Notice (the “Second Rights Offering
Market Price”) and (B) at or below the higher of $4.50 (as adjusted for any stock splits,
reverse splits, stock dividends, combinations or similar transactions occurring after the date
hereof and prior to the Second Rights Offering) and the Second Rights Offering Market Price. The
number of shares of Common Stock to be offered in the Second Rights Offering (the “Second
Rights Shares” and, together with the First Rights Shares, the “Rights Shares”) shall
be equal to the quotient of the Second Rights Offering Amount divided by the Second Rights Offering
Price, rounded up to the nearest 100 shares. Each Second Right shall entitle the holder thereof
(including the Investor and its affiliates) to purchase, at the election of such holder, (x) all or
any lesser amount of such holder’s Pro Rata Number of the Second Rights Shares (the “Second
Rights Primary Subscription”) and (y) so long as such holder has subscribed for all of its
Second Rights Primary Subscription, but subject to Section 3.03(b), an amount of Second Rights
Offering Oversubscription Shares to be specified by such holder, up to but not exceeding such
holder’s Oversubscription Pro Rata Number of Second Rights Offering Oversubscription Shares (the
“Second Rights Offering Oversubscription” and, together with the First Rights Offering
Oversubscription, the “Rights Offering Oversubscription”), in each case, at the Second
Rights Offering Price.

     (b) In connection with the Second Rights Offering, upon the terms and subject to the
conditions of this Agreement, the Investor shall be required to purchase that number of Second
Rights Shares (the “Second Rights Offering Backstop Shares”) that remain unsubscribed for
at Second Rights Offering Expiration Date at the Second Rights Offering Price. As soon as
reasonably practicable following the Second Rights Offering Expiration Date, the Company and the
subscription agent for the Second Rights Offering shall determine the number of Second Rights
Offering Backstop Shares and shall provide written notice thereof to the Investor, in accordance
with Section 10.02.

     (c) As soon as reasonably practicable after receiving the Second Rights Offering Notice, the
Company shall prepare and file with the SEC a registration statement (such registration statement,
including each amendment and supplement thereto, the “Second Rights Offering Registration
Statement” and, together with the First Rights Offering Registration Statement, the “Rights
Offering Registration Statements”)) on Form S-3 (or, if Form S-3 is not
then available to the Company, on such form of registration statement as is then available to
effect a registration of securities), in form and substance reasonably satisfactory to the
Investor, covering the issuance of the Second Rights and the Second Rights Shares. The Company will
not permit any securities other than the Second Rights and the Second Rights Shares to be included
in the Second Rights Offering Registration Statement. The Second Rights Offering Registration
Statement (and each amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) will be provided to the Investor prior to its filing with or other
submission to the SEC. The Second Rights Offering Registration Statement will comply in all
material respects with the requirements of the Securities Act and the rules and regulations
thereunder and

 

15

other applicable Laws. The Company promptly will correct any information included in
the Second Rights Offering Registration Statement if, and to the extent that, such information
becomes false or misleading in any material respect, and the Company will take all steps necessary
to cause the Second Rights Offering Registration Statement, as so corrected, to be filed with the
SEC and, upon its effectiveness, to be disseminated to the distributees of the Second Rights, in
each case as and to the extent required by applicable federal securities laws. The Investor will be
given a reasonable opportunity to review and comment upon the Second Rights Offering Registration
Statement in each instance before it is filed with the SEC. In addition, the Company will provide
the Investor with any written comments or other written communications that the Company receives
from time to time from the SEC or its staff with respect to the Second Rights Offering Registration
Statement promptly after the receipt of such comments or other communications. The Company will use
its reasonable best efforts to cause the Second Rights Offering Registration Statement to be filed
pursuant to this Section 3.01 and to be declared effective by the SEC as soon as possible after the
Second Rights Offering Registration Statement is filed with the SEC.

          (d) As soon as reasonably practicable following the effective date of the Second Rights
Offering Registration Statement, the Company will commence the Second Rights Offering. The Second
Rights will expire at 5:00 p.m. New York City time 30 days after the commencement of the Second
Rights Offering or on such other date as the Investor and the Company may reasonably agree (the
“Second Rights Offering Expiration Date”). All other terms and conditions of the Second
Rights shall be reasonably satisfactory to both the Company and the Investor.

          (e) Unless this Agreement shall have been terminated in accordance with Section 9.01, and
subject to the satisfaction or waiver of the conditions set forth in Article VIII, the closing of
the issuance, purchase and sale of the Second Rights Shares contemplated by this Section 3.02 (the
“Second Rights Offering Closing”) will take place at 11:00 a.m., New York time, on the
third business day after the satisfaction or waiver of the conditions set forth in Article VIII
(other than those that by their terms are to be satisfied at the Second Rights Closing) (such date,
the “Second Rights Offering Closing Date”), at the offices of Simpson, Thacher & Bartlett
LLP, 425 Lexington Avenue, New York, New York 10017, unless another time, date or place is agreed
to in writing by the Investor and the Company; provided, that the Investor shall not be obligated
to purchase the Second Rights Offering Backstop Shares earlier than ten (10) business days
following the receipt by the Investor of the notice required by Section 3.01(b) specifying the
number of Second Rights Offering Backstop Shares to be acquired by the Investor.

          (f) At the Second Rights Offering Closing, the Company shall deliver or cause to be delivered
to the Investor:

          (i) duly executed certificates evidencing all of the Second Rights Shares purchased by
the Investor, registered in the name of the Investor;

          (ii) a receipt for the portion of the aggregate Second Rights Offering Price payable by
the Investor;

 

16

          (iii) the documents, instruments, writings and payments contemplated or required to be
delivered by the Company at the Second Rights Offering Closing pursuant to Section 8.02

          (g) At the Second Rights Offering Closing, the Investor shall deliver to the Company:

          (i) the portion of the Second Rights Offering Price payable by the Investor by wire
transfer in immediately available funds, to an account specified by the Company in writing
no less than three business days prior to the Second Rights Offering Closing;

          (ii) a receipt for the Second Rights Shares purchased by the Investor; and

          (iii) the documents, instruments, writings and payments contemplated or required to be
delivered by the Investor at the Second Rights Offering Closing pursuant to Section 8.03.

          SECTION 3.03. Additional Terms Applicable to the Rights and Rights Shares. (a) The
Rights will be issued only to, and exercisable only by, each person who is a holder of record of
Company Common Stock on the record date for the distribution of the rights, which shall be the date
the Investor delivers the applicable Rights Offering Notice. Beneficial owners of shares of Company
Common Stock held in the name of any depository or nominee as of the record date shall be entitled
to exercise Rights through their respective depository or nominee. Rights may not be sold, pledged,
hypothecated or otherwise transferred, directly or indirectly, and any attempt to do so will cause
such Rights to be forfeited and the rights to subscribe for shares of Company Common Stock
thereunder irrevocably waived.

          (b) Notwithstanding anything to the contrary herein, if the Investor elects to exercise less
than all its Rights, (i) it shall be entitled to designate whether the shares with respect to which
the Rights are exercised shall be Unrestricted Shares (as defined in the Stockholders’ Agreement)
or Restricted Shares (as defined in the Stockholders’ Agreement), in each case up to the number of
Unrestricted Shares or Restricted Shares in respect of which the Investor holds Rights, (ii) the
shares of Company Common Stock received upon exercise of the Rights shall accordingly be
Unrestricted Shares or Restricted Shares, and (iii) the Investor shall not be required to exercise
Rights with respect to any Restricted Shares to be entitled to exercise its Rights Offering
Oversubscription rights with respect to its Unrestricted Shares.

          (c) In connection with each Rights Offering, the Company shall, at its expense, engage a
financial advisor reasonably acceptable to the Investor to provide financial advisory services as
may customarily be required in connection with such offering. Following the commencement of any
Rights Offering, the Company shall furnish or make available to the Investor, promptly after such
information becomes available to the Company, all information and progress reports regarding the
Rights Offering as shall be received by the Company, including any reports received by the Company
from any transfer agents, underwriters, advisors or other third parties retained by the Company in
connection with such Rights Offering, and all such

 

17

other information regarding the Rights Offering
as the Investor shall from time to time reasonably request.

     (d) No later than five business days prior to the applicable Rights Offering Trigger Date, the
Company shall provide to the Investor an amended Disclosure Schedule, which shall set forth in
reasonable detail (comparable to the Disclosure Schedule delivered as of the date hereof) all
applicable disclosures required for the representations and warranties contained in Article IV to
be true and correct as of such Rights Offering Trigger Date and shall be reasonably acceptable to
the Investor. If, after receiving such amended Disclosure Schedule, the Investor delivers a Rights
Offering Notice, it shall be deemed to have accepted such amended Disclosure Schedule and such
amended Disclosure Schedule shall be applicable for all purposes under this Agreement; provided,
that the Disclosure Schedule shall not be deemed amended or supplemented hereunder for any Closing
occurring prior to such Rights Offering Trigger Date.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     As an inducement to the Investor to enter into this Agreement, except as set forth in the
disclosure schedule, dated as of the date hereof and delivered by the Company to the Investor (as
such disclosure schedule may be amended in accordance with Section 3.03(d), the “Disclosure
Schedule”), the Company hereby represents and warrants to the Investor as of the date hereof
and as of the Initial Closing Date and, with respect to the representations and warranties
contained in Sections 4.01 through 4.19, as of each Rights Offering Trigger Date and as of each
Rights Offering Closing Date that:

     SECTION 4.01. Organization and Qualification; Subsidiaries. (a) Each of the Company
and each material subsidiary of the Company (each, a “Subsidiary”) is an entity duly
organized, validly existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization and has the requisite corporate or other power and authority to own,
lease and operate its properties and to carry on its business as it is now being conducted. The
Company and each Subsidiary is duly qualified or licensed as a foreign corporation or other entity
to do business, and is in good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such qualification, licensing
or good standing necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

     (b) A true and complete list of each Subsidiary, together with the jurisdiction of
incorporation of each Subsidiary and the percentage of the outstanding capital stock or other
Equity Interest of each Subsidiary owned by the Company and each other Subsidiary, is set forth in
Section 4.01(b) of the Disclosure Schedule. The Company does not directly or indirectly own any
Equity Interest, or any interest convertible into or exchangeable or exercisable for any Equity
Interest in, any person except for the Subsidiaries.

 

18

     SECTION 4.02. Certificate of Incorporation and By-laws. The Company has heretofore
made available to the Investor a complete and correct copy of the Certificate of Incorporation and
the By-laws of the Company and of the certificates of incorporation and by-laws or equivalent
organizational documents, of each Subsidiary, in each case, as amended to date. As of the date
hereof, such certificates of incorporation, by-law or equivalent organizational documents of each
Subsidiary are in full force and effect. The Certificate of Incorporation and By-laws of the
Company are in full force and effect and, as of each Closing, the Certificate of Incorporation and
the By-laws shall be in full force and effect. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its Certificate of Incorporation, By-laws or equivalent
organizational documents, as applicable. True and complete copies of all minute books of the
Company and each Subsidiary containing minutes for the period from January 1, 2005 until the date
of this Agreement have been made available by the Company to the Investor.

     SECTION 4.03. Capitalization. (a) The authorized capital stock of the Company
consists of 120,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, par
value $0.01 per share (the “Company Preferred Stock”). As of June 17, 2007, (i) 85,961,249
shares of Company Common Stock (other than treasury shares) were issued and outstanding, all of
which were validly issued, fully paid, nonassessable and free of preemptive rights, (ii) no shares
of Company Common Stock were held in the treasury of the Company, and (iii) no shares of Company
Common Stock were held by the Subsidiaries. As of June 17, 2007, 16,657,756 shares of Company
Common Stock were issuable (and such number was reserved for issuance) upon exercise of outstanding
employee stock options or stock incentive rights granted pursuant to the 2000 Equity Incentive
Plan, the 2000 Non-Employee Directors’ Stock Option Plan and the Coelacanth Corporation 1999 Stock
Option Plans, in each case as amended through the date of this Agreement (collectively, the
“Company Stock Option Plans”), 807,380 additional shares of Company Common Stock were
reserved for issuance under the Company Stock Option Plans and 16,483 shares of Company Common
Stock were issuable upon exercise of warrants outstanding as of the date hereof. No shares of
Company Preferred Stock are issued and outstanding. Except as set forth in this Section 4.03 and as
set forth in Section 4.03(a) of the Disclosure Schedule, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound relating to the issued or
unissued capital stock or other Equity Interests of the Company or any Subsidiary, or securities
convertible into or exchangeable for such capital stock or other Equity Interests, or obligating
the Company or any Subsidiary to issue or sell any shares of its capital stock or other Equity
Interests, or securities convertible into or exchangeable for such capital stock of, or other
Equity Interests in, the Company or any
Subsidiary. Since June 17, 2007, the Company has not issued any shares of its capital stock,
or securities convertible into or exchangeable for such capital stock or other Equity Interests,
other than those shares of capital stock reserved for issuance as set forth in this Section 4.03 or
as set forth in Section 4.03(a) of the Disclosure Schedule. Set forth in Section 4.03(a) of the
Disclosure Schedule is a true and complete list, as of June 17, 2007, of the prices at which
outstanding options issued under the Company Stock Option Plans (the “Company Options”) may
be exercised under the applicable Company Stock Option Plan, the number of Company Options
outstanding at each such price and the vesting schedule of the Company Options for each “executive
officer” of the Company (within the meaning of such term under Section 16 of the Exchange Act). All
shares of Company Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. Except as set forth in Section 4.03(a) of
the Disclosure Schedule, there are no outstanding contractual obligations of

 

19

the Company or any
Subsidiary (A) restricting the transfer of, (B) affecting the voting rights of, (C) requiring the
repurchase, redemption or disposition of, or containing any right of first refusal with respect to,
(D) requiring the registration for sale of, or (E) granting any preemptive or antidilutive right
with respect to, any shares of Company Common Stock or any capital stock of, or other Equity
Interests in, the Company or any Subsidiary. Except as set forth in Section 4.03(a) of the
Disclosure Schedule, there are no outstanding contractual obligations of the Company or any
Subsidiary to provide funds to, or make any investment (in the form of a loan, capital contribution
or otherwise) in, any Subsidiary or any other person, other than guarantees by the Company of any
indebtedness or other obligations of any wholly-owned Subsidiary. Each outstanding share of capital
stock of, or other Equity Interest in, each Subsidiary is duly authorized, validly issued, and, if
applicable, fully paid and, in the case of corporations, nonassessable and free of preemptive
rights, and is owned, beneficially and of record, by the Company or another Subsidiary free and
clear of all security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the Company’s or such other Subsidiary’s voting rights, charges and
other encumbrances of any nature whatsoever.

     (b) The Initial Shares and the Rights Shares, when issued, paid for and delivered in
accordance with the terms of this Agreement, and the Warrant Shares, when issued, paid for and
delivered in accordance with the terms of the Warrant Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.

     SECTION 4.04. Authority. The Company has all necessary power and authority to
execute and deliver this Agreement and the Ancillary Agreements, to perform its obligations
hereunder and thereunder and to consummate the Transactions. The Company’s execution and delivery
of this Agreement and the Ancillary Agreements and the consummation by the Company of the
Transactions have been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this Agreement or the
Ancillary Agreements to which the Company is a party, to consummate the Transactions (other than
with respect to the issuance of the Initial Shares and the Rights Offerings, the approval of a
majority of the votes cast at the Stockholders’ Meeting). The Board has approved this Agreement,
each Ancillary Agreement and the Transactions and has directed that the Transactions be submitted
to the Company’s stockholders for approval at a meeting of such
stockholders. This Agreement and the Warrant Agreement have been, and at each Closing each of
the other Ancillary Agreements will be, duly authorized and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery thereof by the Investor, each
of this Agreement and the Warrant Agreement constitute, and at each Closing each of the other
Ancillary Agreements to which the Company is a party will constitute, a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with its terms.

     SECTION 4.05. No Conflict; Required Filings and Consents. (a) The execution and
delivery by the Company of this Agreement and the Ancillary Agreements do not, and the performance
of its obligations hereunder and thereunder will not, (i) conflict with or violate the Certificate
of Incorporation or By-laws or equivalent organizational documents of the Company or any
Subsidiary, (ii) assuming that all consents, approvals, authorizations and other actions described
in subsection (b) have been obtained and all filings and obligations described in subsection (b)
have been made, conflict with or violate any foreign or domestic statute, law

 

20

(including common
law), ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other
order (“Law”) applicable to the Company or any Subsidiary or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) require any consent or approval
under, result in any breach of or constitute a default (or an event which, with notice or lapse of
time or both, would become a default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or give to others a right to require any payment to be made under,
or result in the creation of a lien or other encumbrance on any property or asset of the Company or
any Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with respect to clauses (ii)
and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would
not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

     (b) The execution and delivery by the Company of this Agreement and the Ancillary Agreements
do not, and the performance of its obligations hereunder and thereunder will not, require any
consent, approval, authorization or permit of, or filing with or notification to, any United States
federal, state, county or local or any foreign government, governmental, Tax, regulatory or
administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial
or arbitral body (a “Governmental Authority”), except (i) for (A) applicable requirements,
if any, of the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the “Exchange Act”), state securities or “blue sky” laws (“Blue
Sky Laws”), (B) the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the “HSR Act”), (C) the filing with the Securities
and Exchange Commission (the “SEC”) of a proxy statement relating to the issuance of the
Initial Shares and the Rights Offerings to be sent to the Company’s stockholders (as amended or
supplemented from time to time, the “Proxy Statement”), and (D) any filings required under
the rules and regulations of the Nasdaq Stock Market, and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or notifications, would
not, individually or in the aggregate, reasonably be expected to (A) prevent or materially delay
consummation of the Transactions, (B) otherwise prevent or materially delay performance by the
Company of any of its material obligations under this Agreement or any
Ancillary Agreement, or (C) have a Material Adverse Effect.

     SECTION 4.06. Permits; Compliance.

     (a) Each of the Company and the Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders (including licenses, accreditation and other similar documentation or
approvals of any local health departments) of any Governmental Authority (including the United
States Food and Drug Administration (“FDA”)), necessary for each of the Company or the
Subsidiaries to own, lease and operate its properties or to carry on its business as it is now
being conducted and substantially as described in the Company’s SEC Reports filed prior to the date
hereof (the “Permits”), and all such Permits are valid, and in full force and effect,
except where the failure to have, or the suspension or cancellation of, or failure to be valid or
in full force and effect of, any of the Permits would not, individually or in the aggregate,
reasonably be expected to (A) prevent or materially delay consummation of the Transactions, (B)
otherwise prevent or materially delay performance by the Company of any of its material

 

21

obligations
under this Agreement or any Ancillary Agreement or (C) have a Material Adverse Effect. No
suspension or cancellation of any of the Permits is pending or, to the knowledge of the Company,
threatened, except where the failure to have, or the suspension or cancellation of, any of the
Permits would not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Neither the Company nor any Subsidiary is in conflict with, or in default, breach
or violation of, (i) any Law applicable to the Company or any Subsidiary (including all applicable
FDA rules and regulations, guidelines and policies) or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (ii) any Permits, except, in each case, for any
such conflicts, defaults or violations that would not, individually or in the aggregate, reasonably
be expected to (A) prevent or materially delay consummation of the Transactions, (B) otherwise
prevent or materially delay performance by the Company of any of its material obligations under
this Agreement or any Ancillary Agreement or (C) have a Material Adverse Effect. Since the
enactment of SOX, the Company and each of its officers and directors have been and are in
compliance in all material respects with (A) the applicable provisions of SOX and the related rules
and regulations promulgated thereunder and under the Exchange Act and (B) the applicable listing
and corporate governance rules and regulations of the Nasdaq Stock Market.

     (b) All clinical trials conducted by the Company or any of its Subsidiaries or in which the
Company or any of its Subsidiaries has participated that are described in the SEC Reports, or the
results of which are referred to in the SEC Reports, if any, are the only clinical trials currently
being conducted by or on behalf of the Company and its Subsidiaries. All pre-clinical studies and
clinical trials conducted, supervised or monitored by the Company or any of its Subsidiaries have
been conducted in compliance in all material respects with all applicable federal, state, local and
foreign laws, and the regulations and requirements of any applicable governmental entity,
including, but not limited to, FDA good clinical practice and good laboratory practice
requirements, as and to the extent applicable. Neither the Company nor any of its Subsidiaries has
received any notices or correspondence from the FDA or any other Governmental Authority requiring
the termination, suspension or modification of any clinical
trials conducted by, or on behalf of, the Company or any of its Subsidiaries or in which the
Company or any of its Subsidiaries has participated that are described in the SEC Reports, if any,
or the results of which are referred to in the SEC Reports.

     SECTION 4.07. SEC Filings; Financial Statements. (a) The Company has timely filed
all forms, reports and documents (including all exhibits) required to be filed by it with the SEC
since January 1, 2005 (the “SEC Reports”). The SEC Reports (i) were prepared in accordance
with the requirements of the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the “Securities Act”) or the Exchange Act, as the case may be, and
(ii) did not, at the time they were filed, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not misleading. No
Subsidiary is required to file any form, report or other document with the SEC. The Company is
eligible to register securities on Form S-3 under the Securities Act.

     (b) Each of the consolidated financial statements (including, in each case, any notes thereto)
contained in the SEC Reports was prepared in accordance with United States generally accepted
accounting principles (“GAAP”) applied on a consistent basis throughout the

 

22

periods
indicated (except as may be indicated in the notes thereto), and each fairly presented the
consolidated financial position, results of operations and cash flows of the Company and its
consolidated Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of unaudited statements,
to normal year-end adjustments which individually or in the aggregate did not have, and would not
reasonably be expected to have, a Material Adverse Effect). The books and records of the Company
and each Subsidiary have been, and are being, maintained in accordance with applicable legal and
accounting requirements in all material respects.

     (c) Except as and to the extent set forth on the most recent consolidated balance sheet of the
Company and the consolidated Subsidiaries included in the SEC Reports filed and publicly available
before the date hereof or the applicable Rights Offering Trigger Date, including the notes thereto,
none of the Company or any consolidated Subsidiary has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise), except for liabilities or obligations
incurred since the most recently completed fiscal year end, that would not, individually or in the
aggregate, reasonably be expected to (A) prevent or materially delay consummation of the
Transactions, (B) otherwise prevent or materially delay performance by the Company of any of its
material obligations under this Agreement or any Ancillary Agreement or (C) have a Material Adverse
Effect.

     (d) The Company has previously made available to the Investor a complete and correct copy of
any amendment or modification which has not yet been filed with the SEC to any agreement, document
or other instrument which previously had been filed by the Company with the SEC pursuant to the
Securities Act or the Exchange Act.

     (e) Neither the Company nor, to the knowledge of the Company, any of the Company’s or any
Subsidiary’s employees, is the subject of any formal or informal investigation
by the SEC, and, to the knowledge of the Company, no such investigation has been threatened or
fact exists which would reasonably be expected to result in the institution of any such
investigation. Written correspondence (other than any transmittal letter or other correspondence
that does not address substantively any comments or questions from, or ongoing discussions with,
the SEC), with the SEC since January 1, 2005, or the Rights Offering Trigger Date, as applicable,
has been made available to the Investor. To the knowledge of the Company, no complaints seeking
relief under Section 806 of SOX have been filed with the United States Secretary of Labor and no
employee has threatened to file any such complaint.

     (f) The Company has made available to the Investor true and complete copies of (i) any written
communications or presentations, however transmitted, delivered to the Board or the Audit Committee
of the Board or the Company’s external auditor that discusses any potential material weakness or
potential significant deficiency in the Company’s or any Subsidiary’s disclosure controls and
procedures or internal control over financial reporting or the Company’s compliance, or ability to
timely comply, with Section 404 of SOX, (ii) formal documentation of its internal controls over
financial reporting, in each case as in effect as of January 1, 2005, (iii) all notices received
from its external auditor prior to the date hereof of any significant deficiencies or material
weaknesses in the Company’s internal control over financial reporting since January 1, 2005, and
any other management letter or similar correspondence from any independent auditor of the Company
or any of its Subsidiaries received since January 1, 2005, and prior to the date hereof.

 

23

     SECTION 4.08. Absence of Certain Changes or Events. (a) Since the date of the most
recent audited financial statements included in the SEC Reports filed and publicly available prior
to the date hereof or the applicable Rights Offering Trigger Date, through each applicable Closing
Date, there has not occurred any Material Adverse Effect or an event or development that would
reasonably be expected to have a Material Adverse Effect or any event or development that would
reasonably be expected to prevent or materially delay the performance of this Agreements or any
Ancillary Agreement.

     (b) Since March 31, 2007, through the date of this Agreement, each of the Company and the
Subsidiaries has conducted its business in the ordinary course consistent with past practice and
the Company and the Subsidiaries have not (A) sold, pledged, disposed, transferred, leased,
licensed, guaranteed or encumbered any material property or assets of the Company or any
Subsidiary, except in the ordinary course of business consistent with past practice, (B) acquired
(including by merger, consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or any division thereof, (C)
incurred any indebtedness for borrowed money which, individually or together with all such other
indebtedness, exceeds $2,000,000, (D) granted any security interest in any of their material assets
except for such security interests as would constitute a Permitted Lien, (E) made or authorized any
capital expenditure or purchase of fixed assets in excess of $250,000, other than in the ordinary
course of business, (F) increased the compensation or benefits payable to or to become payable to
any of its current or former directors or officers of the Company or any Subsidiary or granted any
rights to severance or termination pay to, or entered into any employment or severance agreement
with, any current or former director or officer of the Company or any Subsidiary, or taken any
action to amend or waive any
performance or vesting criteria or accelerate vesting, exercisability or funding under any
Plan, or (G) pre-paid any long-term debt or paid, discharged or satisfied any claims, liabilities
or obligations (absolute, accrued, contingent or otherwise), in each case exceeding $250,000,
except for such payments, discharges or satisfaction of claims as were in the ordinary course of
business consistent with past practice.

     SECTION 4.09. Absence of Litigation. There is no litigation, suit, claim, action,
formal complaint, prosecution, indictment, formal investigation, arbitration or proceeding (whether
civil, criminal or administrative, an “Action”) pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary, or any property or asset of the Company
or any Subsidiary, or for which the Company or any Subsidiary is obligated to indemnify a third
party, before any Governmental Authority that (i) has had or would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect or (ii) challenges the validity
or propriety or seeks to materially delay or prevent the consummation of the Transactions and which
is reasonably expected to be adversely determined against the Company. Neither the Company nor any
Subsidiary nor any property or asset of the Company or any Subsidiary is subject to any order of,
consent decree, settlement agreement or similar written agreement with, any Governmental Authority,
or any order, writ, judgment, injunction, decree, ruling, determination or award of any
Governmental Authority that would, individually or in the aggregate, reasonably be expected to (A)
prevent or materially delay consummation of the Transactions, (B) otherwise prevent or materially
delay performance by the Company of any of

 

24

its material obligations under this Agreement or any
Ancillary Agreement or (C) result in a Material Adverse Effect.

     SECTION 4.10. Employee Benefit Plans. (a) Section 4.10(a) of the Disclosure Schedule
lists all bonus, incentive, stock-based compensation, deferred compensation, supplemental executive
retirement, severance, employment, retention, change in control, compensation or other contracts,
agreements, arrangements, plans, practices, understandings or policies to which the Company or any
of its affiliates are a party or which are sponsored by the Company or any of its affiliates for
the benefit of any current or former director or officer of the Company or any Subsidiary.

     (b) Each Plan has been operated and administered in all material respects in accordance with
its terms and the requirements of all applicable Laws, including ERISA and the Code. No action,
claim or proceeding is pending or, to the knowledge of the Company, threatened with respect to any
Plan (other than claims for benefits in the ordinary course) that would result in any material
liability to the Company and, to the knowledge of the Company, no fact or event exists that would
give rise to any such action, claim or proceeding.

     (c) Each Plan that is intended to be qualified under Section 401(a) of the Code has timely
received a favorable determination letter from the IRS and each trust established in connection
with any Plan that is intended to be exempt from federal income taxation under Section 501(a) of
the Code has received a determination letter from the IRS that it is so exempt, and, to the
knowledge of the Company, no fact or event has occurred since the date of such determination letter
or letters from the IRS that would reasonably be expected to adversely affect
the qualified status of any such Plan or the exempt status of any such trust.

     (d) With respect to any Plan which is an “employee pension benefit plan” as defined in Section
3(2) of ERISA and which is subject to Part 3 of Title I or to Title IV of ERISA (a “Title IV
Plan”), (i) there is no lien under Section 412(n) of the Code by reason of an accumulated
funding deficiency, whether or not waived, under Section 412 of the Code, (ii) no liability (other
than liability for premiums) to the Pension Benefit Guaranty Corporation (“PBGC”) has been
incurred and all premiums required to be paid to the PBGC have been paid by or on behalf of such
Title IV Plan, (iii) the assets of each Title IV Plan equal or exceed the benefit liabilities of
such Title IV Plan determined on a termination basis, and (iv) the Company has received no actual
notice from the PBGC that an event or condition exists which (A) would constitute grounds for
termination of such Title IV Plan by the PBGC or (B) has caused a partial termination of such Title
IV Plan.

     (e) None of the Plans provides medical, health or life insurance or any other welfare-type
benefits for current or future retired or terminated employees of the Company or its Subsidiaries
or their spouses of dependents (other than in accordance with Part 6 of Title I of ERISA or Code
Section 4980B).

     (f) Except as set forth in Section 4.10(f) of the Disclosure Schedule, the Transactions
contemplated hereby (either directly or upon the occurrence of some other or subsequent event) will
not entitle any current or former employee, officer or director of the Company and its Subsidiaries
to any amount (whether in cash or property) that would be

 

25

received under any Plan, or increase the
amount of or accelerate the time of payment of vesting thereof or of any other benefit, right or
entitlement.

     (g) No amount or acceleration referred to in subsection (f) above (whether or not disclosed on
Section 4.10(f) of the Disclosure Schedule) would (i) be characterized as an “excess parachute
payment” (as defined in Section 280G(b)(1) of the Code) or (ii) not be deductible under Section
162(a)(1), 162(m) or 404 of the Code.

     (h) (i) all of the options issued under the Company Stock Option Plans are either (A) unvested
or (B) were issued at no less than fair market value on the date of grant, and (ii) no shares of
restricted Common Stock issued by the Company provide for a deferral opportunity beyond vesting.

     SECTION 4.11. Labor Matters. (i) Neither the Company nor any Subsidiary is a party
to any collective bargaining agreement or other labor union contract applicable to persons employed
by the Company or any Subsidiary, nor, to the knowledge of the Company, are there any activities or
proceedings of any labor union to organize any such employees, and (ii) neither the Company nor any
Subsidiary has materially breached or otherwise failed to comply with any material provision of any
such agreement or contract, and there are no material grievances outstanding against the Company or
any Subsidiary under such agreement or contract. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, (A) there are no controversies
pending or, to the knowledge of the Company, threatened between the
Company or any Subsidiary and any of their respective employees, and (B) there is no organized
strike, slowdown, work stoppage or lockout by or with respect to any employees of the Company or
any Subsidiary.

     SECTION 4.12. Property and Leases. (a) Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, (i) each of the Company and
its Subsidiaries is the record owner of, and has good and marketable fee title to all real property
owned by the Company or any Subsidiary (“Owned Real Property”) (including all improvements
located thereon), and valid and enforceable leasehold interests in all real property that any of
the Company or its Subsidiaries leases or subleases, or otherwise has any right, title or interest
in or to (“Leased Real Property”), and (ii) none of the Owned Real Property or Leased Real
Property is subject to any Liens (other than Permitted Liens) or any other easements, rights of
way, licenses, grants, building or use restrictions, exceptions, reservations, limitations or other
impediments. No person other than the Company or a Subsidiary leases, has a tenancy or otherwise
occupies, or has the right to occupy or use, the Owned Real Property and Leased Real Property.

     (b) With respect to each Leased Real Property, except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, (i) each lease or sublease
under which the Company or any Subsidiary holds a leasehold interest in or to such Leased Real
Property is legal, valid, binding, enforceable and in full force and effect, (ii) there exists no
default under any such lease or sublease by the Company or any Subsidiary which has not been cured,
and there has not occurred any event that (with the lapse of time or the giving of notice or both)
would constitute, and no party to any such lease has given the Company or any Subsidiary written
notice of or made a claim with respect to, a default on the part of the

 

26

Company or any of its
Subsidiaries under any such lease or sublease, (iii) to the knowledge of the Company, no party
(other than the Company or any Subsidiary) is in default, and there has not occurred any event that
(with the lapse of time or giving of notice or both) would constitute a default by any such party
under any such lease or sublease, and (iv) a true, correct and complete copy of each such lease and
sublease (including any renewal notices delivered thereunder) and any guaranty given with respect
thereto has been furnished or made available to the Investor.

     (c) Except in each case as would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect, all Owned Real Property and Leased Real Property is in good and
usable condition, subject to normal wear and tear and normal industry practice with respect to
maintenance, and has such rights of egress and ingress, and such easements, rights of way and
grants, as are necessary to allow such real property to be operated, and the business of the
Company and each of its Subsidiaries conducted with respect thereto to be conducted, as now
operated and conducted.

     SECTION 4.13. Intellectual Property. (a) Section 4.13(a) of the Disclosure Schedule
lists all material (i) registered trademarks and service marks and applications therefor, (ii)
registered copyrights and applications therefor, (iii) issued patents and patent applications, and
(iv) domain names, in each case, that are owned by the Company or any Subsidiary (collectively, the
“Registered IP”). To
the knowledge of the Company, each registered trademark, service mark, registered copyright
and issued patent within the Registered IP is valid, enforceable and duly maintained. Neither the
Company nor any Subsidiary has received written notice of any challenge to the validity or
enforceability of the Registered IP or of any default with respect to the maintenance thereof.

     (b) Section 4.13(b) of the Disclosure Schedule lists all material licenses to Intellectual
Property (other than licenses for “off-the-shelf” software that are generally commercially
available) to which the Company or any Subsidiary is a party, pursuant to which (i) the Company or
such Subsidiary permits any person to have access to or use any of the Intellectual Property owned,
compiled or developed by the Company or such Subsidiary, independently or in collaboration with any
person, or (ii) any person permits the Company or such Subsidiary to have access to or use any
Intellectual Property not owned, compiled or developed by the Company or such Subsidiary,
independently or in collaboration with any person (collectively, the “Licenses”). The
Company has made available to the Investor copies of all Licenses. Neither the Company nor any
Subsidiary, nor, to the knowledge of the Company, any other party thereto, is in default under any
License in any material respect, and each License is in full force and effect.

     (c) To the knowledge of the Company, the conduct of the Company and the Subsidiaries as
currently conducted does not infringe, misappropriate or violate (“Infringe”) the Intellectual
Property rights of any person in any material respect. Neither the Company nor any Subsidiary has
received any written notice from any person alleging an Infringement of the Intellectual Property
rights of such person, or asserting that the Company or any Subsidiary requires a license to use
Intellectual Property owned or exclusively licensed by such person.

     (d) The Company or the Subsidiaries own all right, title and interest in and to the Registered
IP, free and clear of all Liens (other than Permitted Liens and encumbrances

 

27

arising pursuant to
Licenses). The Company or the Subsidiaries own all right, title and interest in and to, or have the
valid right to use, free and clear of all Liens (other than Permitted Liens and encumbrances
arising pursuant to Licenses), all material Intellectual Property necessary for or used in the
conduct of their business.

          (e) Except as would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect:

          (i) The Company and the Subsidiaries have used reasonable measures to protect the
proprietary nature of the Intellectual Property that they own, develop or use, including
through the execution of appropriate ownership, invention assignment and confidentiality
agreements with employees, contractors and persons involved in the creation, compilation,
development or use of Intellectual Property by or on behalf of the Company and any
Subsidiary, and the execution of appropriate agreements respecting confidentiality with all
persons to whom any confidential Intellectual Property owned, compiled, developed or used by
the Company or any Subsidiary is or may be disclosed.

          (ii) To the knowledge of the Company, no person is Infringing upon any Intellectual
Property owned or exclusively licensed by the Company or any Subsidiary.

          (f) The execution and delivery by the Company of this Agreement and the Ancillary Agreements
do not, and the performance of its obligations hereunder and thereunder will not, adversely affect
the ownership of (i) any Intellectual Property currently owned or used by the Company or any
Subsidiary or (ii) the Company’s or the Subsidiaries’ rights to use, pursuant to any License, any
Intellectual Property owned by any person.

          SECTION 4.14. Taxes(a) . (a) All material Tax Returns required to be filed by,
or on behalf of, the Company or any of its Subsidiaries have been timely filed, or will be timely
filed, in accordance with all applicable laws, and all such Tax Returns are, or shall be at the
time of filing, complete and correct in all material respects. The Company and each of its
Subsidiaries has timely paid (or has had paid on its behalf) in full all material Taxes due and
payable (whether or not shown on such Tax Returns), or, where payment is not yet due, has made
adequate provision for all material Taxes in the Financial Statements of the Company in accordance
with GAAP. There are no material Liens with respect to Taxes upon any of the assets or properties
of either the Company or its Subsidiaries, other than with respect to Taxes not yet due and
payable.

          (b) No deficiencies for any material Taxes have been proposed or assessed in writing against
or with respect to any Taxes due by or Tax Returns of the Company or any of its Subsidiaries, and
there is no outstanding audit, assessment, dispute or claim concerning any material Tax liability
of the Company or any of its Subsidiaries either within the Company’s knowledge or claimed, pending
or raised by an authority in writing. No written claim has ever been made by any Governmental
Authority in a jurisdiction where neither the Company nor any of its Subsidiaries files Tax Returns
that it is or may be subject to taxation by that jurisdiction.

 

28

     (c) Neither the Company nor any of its Subsidiaries (A) is or has ever been a member of an
affiliated group (other than a group the common parent of which is the Company) filing a
consolidated federal income Tax Return or (B) has any liability for Taxes of any person arising
from the application of Treasury Regulation Section 1.1502-6 or any analogous provision of state,
local or foreign law, or as a transferee or successor, by contract, or otherwise.

     (d) None of the Company or any of its Subsidiaries is a party to, is bound by or has any
obligation under any Tax sharing or Tax indemnity agreement or similar contract or arrangement.

     (e) None of the Company or any of its Subsidiaries has been either a “distributing
corporation” or a “controlled corporation” in a distribution occurring during the last five years
in which the parties to such distribution treated the distribution as one to which Section 355 of
the Code is applicable.

     (f) All material Taxes required to be withheld, collected or deposited by or with respect to
the Company and each of its Subsidiaries have been timely withheld, collected or deposited as the
case may be, and to the extent required, have been paid to the relevant taxing authority.

     (g) No closing agreement pursuant to Section 7121 of the Code (or any similar provision of
state, local or foreign law) has been entered into by or with respect to the Company or any of its
Subsidiaries.

     (h) Neither the Company nor any of its Subsidiaries has granted any waiver of any federal,
state, local or foreign statute of limitations with respect to, or any extension of a period for
the assessment of, any Tax.

     (i) The Company will not be required to include amounts in income, or exclude items of
deduction, in a taxable period beginning after the applicable Closing Date as a result of (i) a
change in method of accounting occurring prior to the applicable Closing Date, (ii) an installment
sale or open transaction arising in a taxable period (or portion thereof) ending on or before the
applicable Closing Date, (iii) a prepaid amount received, or paid, prior to the applicable Closing
Date or (iv) deferred gains arising prior to the applicable Closing Date.

     (j) Neither the Company nor any Subsidiary has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(l)(A)(ii) of the Code.

     (k) Neither the Company nor any of its Subsidiaries has engaged in any transaction that could
give rise to (i) a list maintenance obligation with respect to any Person under Section 6112 of the
Code or the regulations thereunder, or (ii) a disclosure obligation as a “reportable transaction”
under Section 6011 of the Code and the regulations thereunder.

     SECTION 4.15. Environmental Matters. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect: (i) neither the Company nor
any Subsidiary has violated or is subject to any liability with respect to, any Environmental Law;
(ii) there has not been a Release or threatened Release of any Hazardous

 

29

Substances at any
properties or facilities currently or formerly owned or operated by the Company or any Subsidiary;
(iii) neither the Company nor any Subsidiary is liable for any off-site Releases of Hazardous
Substances; (iv) the Company and its Subsidiaries have all permits, licenses and other
authorizations required for their current operations under any Environmental Law and are in
compliance with all such permits, licenses and authorizations; (v) none of the Company or any
Subsidiary is subject to any Action under any Environmental Law or has received any written notice,
demand, letter, claim or request for information alleging that the Company, any Subsidiary, any
property or facility currently or formerly owned or operated by the Company or any Subsidiary, or
any of their current or former operations is or was in violation of, or subject to liability under,
any Environmental Law and to the knowledge of the Company, no such Action, notice, demand, letter,
claim or request is threatened; (vi) none of the Company or any Subsidiary (A) has entered into or
agreed to any consent decree or order or is subject to any judgment, decree or order relating to
compliance with Environmental Laws, any permits, licenses or authorizations under Environmental
Laws, or the investigation, remediation or removal of Hazardous Substances or (B) has assumed or
provided indemnity against any liability under any Environmental Law or relating to any Hazardous
Substances; and (vii) the execution and delivery of this Agreement and the Ancillary Agreements and
the consummation of the Transactions do not require any action pursuant to any so called
property transfer law, including the New Jersey Industrial Site Recovery Act.

          SECTION 4.16. Contracts; Debt Instruments. (a) Except as filed as exhibits to the
SEC Reports prior to the date of this Agreement or as set forth in Section 4.16 of the Disclosure
Schedule, as of the date of the Disclosure Schedule or applicable amendment to the Disclosure
Schedule provided in accordance with Section 3.03(d), none of the Company or any Subsidiary are a
party to or bound by any contract:

          (i) which contains any non-compete provisions with respect to any line of business or
any or geographic area with respect to the Company, any Subsidiary or any of the Company’s
affiliates, or restricts the conduct of any line of business by the Company, any Subsidiary
or any of the Company’s affiliates or any geographic area in which the Company, any
Subsidiary or any of the Company’s affiliates may conduct business, or contains any grant of
exclusive rights to a third party, in each case in any material respect;

          (ii) which would prohibit or materially delay the consummation of the Transactions;

          (iii) which is a “material contract” (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC); or

          (iv) which

          (A) involves aggregate annual expenditures or other payments in excess of
$1,000,000, except (1) those contracts cancelable (without material penalty, cost or
other liability) within ninety (90) days and (2) purchase orders for inventory
entered into in the ordinary course of business consistent with past practice,

 

30

          (B) contain minimum purchase conditions or requirements in excess of $1,000,000
or other terms that restrict or limit the purchasing relationships of the Company or
any Subsidiary, except (1) those contracts cancelable (without material penalty,
cost or other liability) within ninety (90) days and (2) purchase orders for
inventory entered into in the ordinary course of business consistent with past
practice, or

          (C) is a License; and

          (v) which provides for collaboration, alliance, licensing, marketing, distribution,
manufacturing, joint development or similar arrangements with other pharmaceutical or
biotechnology companies, research institutes, academic institutions or a Governmental
Authority relating to pharmaceutical products (including any drug or drug candidate or
biotherapeutic product or biotherapeutic product candidate) or involves payments or receipts
reasonably expected to exceed $1,000,000.

          (b) Each contract of the type described above in this Section 4.16, whether or not filed as an
exhibit to any SEC Report or otherwise set forth in Section 4.16 of the Disclosure Schedule, is
referred to herein as a “Company Material Contract.” Each Company Material Contract is
valid and binding on the Company and each Subsidiary party thereto and, to the Company’s knowledge,
each other party thereto, and is in full force and effect, and the Company and each Subsidiary has
in all material respects performed all obligations required to be performed by it under each
Company Material Contract and, to the Company’s knowledge, each other party to each Company
Material Contract has in all material respects performed all obligations required to be performed
by it under such Company Material Contract, except as would not, individually or in the aggregate,
reasonably be expected to (1) prevent or materially delay consummation of the Transactions, (2)
otherwise prevent or materially delay performance by the Company of any of its material obligations
under this Agreement or any Ancillary Agreement or (3) result in a Material Adverse Effect. None of
the Company or any Subsidiary knows of, or has received notice of, any violation or default under
(or any condition which with the passage of time or the giving of notice or both would cause such a
violation of or default under) any Company Material Contract or any other contract or by which it
or any of its properties or assets is bound, except for violations or defaults that would not,
individually or in the aggregate, reasonably be expected to (1) prevent or materially delay
consummation of the Transactions, (2) otherwise prevent or materially delay performance by the
Company of any of its material obligations under this Agreement or any Ancillary Agreement or (3)
result in a Material Adverse Effect.

          SECTION 4.17. Related Party Transactions. Except as filed as exhibits to the SEC
Reports, neither the Company nor any Subsidiary is a party to any agreement or arrangement with or
for the benefit of any person who, to the Company’s knowledge, based on a review of Schedule 13Ds
and Schedule 13Gs filed under the Exchange Act, is a holder of 5% or more of the outstanding equity
securities of the Company or any officer, director, partner or affiliate of any such person (other
than employee compensation and benefits arrangement in the ordinary course of business and
disclosed to the Investor).

 

31

     SECTION 4.18. Insurance. The Company and the Subsidiaries maintain, with reputable
insurers or through self-insurance, insurance in such amounts, including deductible arrangements,
and of such a character as is customary for companies engaged in the same or similar business. All
policies of title, fire, liability, casualty, business interruption, workers’ compensation and
other forms of insurance including, but not limited to, directors and officers insurance, held by
the Company and its Subsidiaries, are in full force and effect in accordance with their terms.
Neither the Company nor any of its Subsidiaries is in default under any provisions of any such
policy of insurance and neither the Company nor any of its Subsidiaries has received notice of
cancellation of any such insurance.

     SECTION 4.19. Controls. The Company’s disclosure controls and procedures (as defined
in rules 13a-
15(e) and 15d-15(e) under the Exchange Act) are sufficiently effective to ensure that the
information required to be disclosed by the Company in the reports it files under the Exchange Act
is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness. The
Company has disclosed, based on its most recent evaluation, to the Company’s external auditors, the
Audit Committee of the Board and to the Investor (i) any potential significant deficiencies and
potential material weaknesses in the design or operation of its or its Subsidiaries’ systems of
internal control over financial reporting which are reasonably expected to adversely affect in any
material respect the Company’s or any of its Subsidiaries’ ability to record, process, summarize
and report financial information, and (ii) any fraud or allegation of fraud, whether or not
material, that involves management or other employees who have a significant role in the Company’s
or any Subsidiary’s internal controls over financial reporting. Except as disclosed in the
Company’s SEC Reports filed on or prior to the date hereof, there have been no material changes in
the Company’s disclosure controls and procedures or internal control over financial reporting. The
Company is in compliance in all material respects with all applicable provisions of Section 404 of
the Sarbanes-Oxley Act of 2002 (“SOX”). To the knowledge of the Company, there is no reason
to believe that the Company’s external auditors and its chief executive officer and chief financial
officer will not be able to give, without qualification, the certifications and attestations
required pursuant to the rules and regulations adopted pursuant to Section 404 of SOX, in any
subsequent applicable filing under the Exchange Act.

     SECTION 4.20. Private Offering. None of the Company, any of the Subsidiaries, nor
anyone acting on their behalf, has offered or sold or will offer or sell any securities, or has
taken or will take any other action, which would reasonably be expected to subject the offer,
issuance or sale of the Initial Shares, as contemplated hereby, to the registration provisions of
the Securities Act.

     SECTION 4.21. Vote Required. No vote or approval of the holders of any class or
series of capital stock or other Equity Interests of the Company is required with respect to the
approval of the Charter Amendment, the issuance of the Initial Shares, the Rights Offerings and any
other matters relating to the Transactions, which require the approval of the stockholders of the
Company, except for (i) approval of the Charter Amendment by the affirmative vote of a majority of
the outstanding shares of Company Common Stock entitled to vote thereon, and (ii) approval of the
issuance of the Initial Shares and the Rights Offerings by the affirmative vote of a majority of
the votes cast at the Stockholders’ Meeting at which a quorum is present.

 

32

     SECTION 4.22. Section 203 of the DGCL; Takeover Statute. The Board of Directors has
taken all actions necessary or advisable to ensure that the restrictions of Section 203 of the
Delaware General Corporation Law do not apply to any of the Transactions contemplated by this
Agreement or the Ancillary Agreements (including, but not limited to, the purchase of the Initial
Shares, the distribution of the Rights in the Rights Offerings, and the issuance of the Rights
Shares upon the exercise of the Rights). The execution, delivery and performance of this Agreement
and the Ancillary Agreements will not cause to be
applicable to the Company any “fair price,” “moratorium,” “control share acquisition” or other
similar antitakeover statute or regulation enacted under state or federal laws.

     SECTION 4.23. Fairness Opinion. The Board of Directors has received the opinion of
Morgan Stanley & Co. Incorporated (“Morgan Stanley”), financial advisor to the Board of
Directors, to the effect that, as of the date of such opinion, the aggregate Share Purchase Price
to be received by the Company in exchange for the issuance and sale of the Initial Shares and the
Warrant Shares is fair, from a financial point of view, to the Company.

     SECTION 4.24. Brokers. No broker, finder or investment banker (other than Morgan
Stanley) is entitled to any brokerage, finder’s or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of the Company. The Company has
heretofore made available to the Investor a true and complete copy of all agreements between the
Company and Morgan Stanley pursuant to which such firm would be entitled to any payment relating to
the Transactions or any other transaction contemplated by this Agreement or any Ancillary
Agreement.

     SECTION 4.25. Proxy Statement. The Proxy Statement shall not, at the date the Proxy
Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Company
and at the time of the Stockholders’ Meeting, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were made, not
misleading except that no representation or warranty is made by the Company with respect to any
information regarding the Investor that is supplied by the Investor in writing specifically for
inclusion in the Proxy Statement. The Proxy Statement, and any amendments or supplements thereto,
when filed by the Company with the SEC, or when distributed or otherwise disseminated to the
Company’s stockholders, as applicable, shall comply as to form in all material respects with the
requirements of the Exchange Act, the rules and regulations thereunder and other applicable Laws.

     SECTION 4.26. Independent Directors. The Board has determined that the persons
tentatively identified by the Investor to be its Investor Director Designees to the Board under the
Stockholders’ Agreement qualify as Independent Directors in accordance with the Stockholders’
Agreement and has not changed such determination regarding such persons , absent the Board’s
discovery of materially different facts regarding such persons.

 

33

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF INVESTOR

          As an inducement to the Company to enter into this Agreement, the Investor hereby represents
and warrants to the Company that:

          SECTION 5.01. Organization. The Investor is a limited partnership duly organized,
validly existing and in good standing under the Laws of Bermuda.

          SECTION 5.02. Authority. The Investor has all necessary power and authority to
execute and deliver this Agreement and the Ancillary Agreements, to perform its obligations
hereunder and thereunder and to consummate the Transactions. The Investor’s execution and delivery
of this Agreement and the Ancillary Agreements and the consummation by it of the Transactions have
been duly and validly authorized by all necessary limited partnership action, and no other limited
partnership proceedings on the part of the Investor are necessary to authorize this Agreement or
the Ancillary Agreements or to consummate the Transactions. This Agreement has been, and at each
Closing each of the Ancillary Agreements will be, duly and validly executed and delivered by it
and, assuming due authorization, execution and delivery by the Company, this Agreement constitutes,
and at each Closing each of the Ancillary Agreements will constitute, a legal, valid and binding
obligation of the Investor enforceable against it in accordance with its terms.

          SECTION 5.03. No Conflict; Required Filings and Consents. (a) The execution and
delivery by the Investor of this Agreement and the Ancillary Agreements do not, and the performance
of its obligations hereunder and thereunder will not, (i) conflict with or violate its
organizational documents, (ii) assuming that all consents, approvals, authorizations and other
actions described in subsection (b) have been obtained and all filings and obligations described in
subsection (b) have been made, conflict with or violate any Law applicable to it or by which any of
its properties or assets is bound or affected, or (iii) result in any breach of, or constitute a
default (or an event which, with notice or lapse of time or both, would become a default) under, or
give to others any rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or other encumbrance on any of its properties or assets pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation or by which it or any of its properties or assets is bound or affected,
except, with respect to clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the aggregate, reasonably be
expected to (1) prevent or materially delay consummation of the Transactions, (2) otherwise prevent
or materially delay its performance of any of its material obligations under this Agreement or any
Ancillary Agreement, or (3) have a material adverse effect on the Investor.

          (b) The execution and delivery by the Investor of this Agreement and the Ancillary Agreements
do not, and the performance of its obligations hereunder and thereunder will not, require any
consent, approval, authorization or permit of, or filing with, or notification to, any Governmental
Authority, except (i) for (A) applicable requirements, if any, of the Exchange Act and the Blue Sky
Laws, (B) the pre-merger notification requirements, if any, of the HSR Act, (C) the filing with the SEC of the Proxy Statement, and (D) any filings required
under the rules and regulations of the Nasdaq Stock Market, and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, reasonably be expected to (1) prevent or materially
delay consummation of the Transactions, (2) otherwise prevent or materially delay its performance
of any of its material obligations under this Agreement or any Ancillary Agreement, or (3) have a
material adverse effect on the Investor.

 

34

          SECTION 5.04. Investment Purpose. The Investor is acquiring the Initial Shares for
its own account solely for the purpose of investment and not with a view to, or for resale in
connection with, any distribution of the Shares, the Rights Shares or any interest therein.

          SECTION 5.05. Sophistication and Financial Condition of the Investor. The Investor
is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities
Act, a sophisticated investor and, by virtue of its business or financial experience, is capable of
evaluating the merits and risks of the investment in the Initial Shares. The Investor has been
provided an opportunity to ask questions of and receive answers from representatives of the Company
concerning the terms and conditions of this Agreement and the purchase of the Initial Shares and
Rights Shares contemplated hereby.

          SECTION 5.06. Available Funds. The Investor has, or will have on or prior to each
Closing, sufficient funds in its possession to permit it to acquire and pay for the Initial Shares,
the First Rights Shares or the Second Rights Shares, as applicable, to be purchased by it and to
perform its obligations under this Agreement, except for any obligations that, pursuant to the
provisions of this Agreement are to be performed at a later date.

          SECTION 5.07. Proxy Statement. None of the information supplied by the Investor in
writing specifically for inclusion in the Proxy Statement shall, at the date the Proxy Statement
(or any amendment or supplement thereto) is first mailed to stockholders of the Company and at the
time of the Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.

          SECTION 5.08. Ownership of Company Capital Stock. As of the date of this Agreement,
the Investor and its affiliates, taken together, are the beneficial owners of 3,891,108 shares of
Company Common Stock.

          SECTION 5.09. Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the Transactions based upon arrangements made by or
on behalf of the Investor.

ARTICLE VI

CONDUCT OF BUSINESS PENDING THE CLOSING

          SECTION 6.01. Conduct of Business by the Company Pending the Closing. The Company
agrees that, between the date of this Agreement and the Initial Closing, except as set forth in
Section 6.01 of the Disclosure Schedule or as contemplated by any other provision of this
Agreement, and except as provided below, the businesses of the Company and the Subsidiaries shall
be conducted in, and the Company and the Subsidiaries shall not take any action except in, the
ordinary course of business consistent with past practice; and the Company shall use its reasonable
efforts to preserve substantially intact the business organization of the

 

35

Company and the Subsidiaries, to keep available the services of the current officers, employees and consultants of
the Company and the Subsidiaries and to preserve the current relationships of the Company and the
Subsidiaries with customers, suppliers and other persons with which the Company or any Subsidiary
has significant business relations. Except as contemplated by this Agreement and Section 6.01 of
the Disclosure Schedule, neither the Company nor any Subsidiary shall, between the date of this
Agreement and the Initial Closing, directly or indirectly, do, or propose to do, any of the
following without the prior written consent of the Investor:

          (a) amend or otherwise change its Certificate of Incorporation or By-laws or equivalent
organizational documents;

          (b) (i) issue, sell, pledge, dispose of, grant, encumber, or authorize the issuance, sale,
pledge, disposition, grant or encumbrance of, any shares of any class of capital stock or other
Equity Interests in or of the Company or any Subsidiary, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital stock or other Equity
Interests, or any other ownership interest (including any phantom interest or other interest
represented by contract), of the Company or any Subsidiary (except for the issuance of options to
newly-hired employees in the ordinary course of business, the issuance of shares of Company Common
Stock issuable pursuant to the Company Stock Option Plans, warrants outstanding on the date hereof
and the Warrants), or (ii) sell, pledge, dispose of, transfer, lease, license, guarantee or
encumber, or authorize the sale, pledge, disposition, transfer, lease, license, guarantee or
encumbrance of, any material property or assets of the Company or any Subsidiary, except (A)
pursuant to existing contracts or commitments or the sale or purchase of goods in the ordinary
course of business, (B) for sales, transfers, leases, licenses, mortgages, pledges, dispositions or
encumbrances in the ordinary course of business that, in the case of the Owned Real Property and
Leased Real Property, are in an amount not to exceed $3,000,000 in the aggregate and (C)(1) the
payment of any dividend or the making of any other distributions by any Subsidiary to the Company
or another Subsidiary, (2) the payment by any Subsidiary of any indebtedness owed to the Company,
(3) the making of any loans by, or advances from, any Subsidiary to the Company, or (4) the
transfer by any Subsidiary of any of its property or assets to the Company;

          (c) declare, set aside, make or pay any dividend or other distribution (except by a
wholly-owned Subsidiary to the Company or to another wholly-owned Subsidiary of the Company),
payable in cash, stock, property or otherwise, with respect to any of its capital stock or enter
into any agreement with respect to the voting of its capital stock;

          (d) reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire,
directly or indirectly, any of its capital stock or other Equity Interests;

          (e) (i) acquire (including by merger, consolidation, or acquisition of stock or assets or any
other business combination) any corporation, partnership, other business organization or any
division thereof, (ii) incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the
obligations of any person, or make any loans or advances, or grant any security interest in any of
its assets except in the ordinary course of business, (iii) (A) terminate,

 

36

cancel or request or agree to any material change in any Company Material Contract other than in the ordinary course of
business, or (B) enter into any material contract or agreement other than in the ordinary course of
business except, in each case, for any contract that is terminable without penalty upon not more
than 90 days notice, (iv) make or authorize any capital expenditure or purchases of fixed assets in
excess of $500,000 in the aggregate other than as set forth on the capital expenditure plan
attached in Section 6.01(e)(4) of the Disclosure Schedule, or (v) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter set forth in this Section 6.01(e);

          (f) except as may be required by contractual commitments or corporate policies with respect to
severance or termination pay in existence on the date of this Agreement as disclosed in Section
4.10 of the Disclosure Schedule, (i) increase the compensation payable to or to become payable to
any of its current or former directors or officers of the Company or any Subsidiary, (ii) grant any
rights to severance or termination pay to, or enter into any employment or severance agreement
with, any current or former director or officer of the Company or any Subsidiary, or establish,
adopt, enter into or amend any Plan, except to the extent required by applicable Law or the terms
of a collective bargaining agreement in existence on the date of this Agreement, or (iii) take any
affirmative action to amend or waive any performance or vesting criteria or accelerate vesting,
exercisability or funding under any Plan;

          (g) pre-pay any long-term debt, except in the ordinary course of business in an amount not to
exceed $2,000,000 in the aggregate for the Company and the Subsidiaries taken as a whole, or pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), except in the ordinary course of business;

          (h) adopt, or propose to adopt, or maintain any shareholders’ rights plan, “poison pill” or
other similar plan or agreement, unless the Investor is exempted from the provisions of such
shareholders’ rights plan, “poison pill,” or other similar plan or agreement

          (i) modify, amend, terminate, or release or assign any material rights or claims with respect
to any confidentiality or standstill agreement;

          (j) to the extent required or applicable, take any action to exempt or make not
subject to (i) the restrictions of Section 203 of the DGCL or (ii) any other state takeover
law or state law that purports to limit or restrict business combinations or the ability to acquire
or vote shares, any person (other than the Investor or any of its affiliates) or any action taken
thereby, which person or action would have otherwise been subject to the restrictive provisions
thereof and not exempt therefrom; or

          (k) announce an intention, enter into any agreement or otherwise make a commitment, to do any
of the foregoing.

          SECTION 6.02. Further Issuances of Company Common Stock; Alternative Transactions.
(a) Until the later of the completion of the Second Rights Offering as contemplated by Section
3.02, or the expiration of the 90-day period following the Second Rights Offering Trigger Date,
during which the Investor may exercise its right to require the Company to conduct such offering,
the prior written consent of the Investor shall be required for the issuance by the

 

37

Company of any shares of Company Common Stock for a per share price of less than $4.50 (as adjusted for any stock
splits, reverse splits, stock dividends, combinations or similar transactions occurring after the
date hereof and prior to the Second Rights Offering); provided, that the provisions of this Section
6.02 shall not apply to the issuance of Company Common Stock (i) pursuant to employee or director
stock option, incentive compensation or similar plans approved by the Board or a duly authorized
committee thereof or such committee or (ii) to persons involved in the pharmaceutical industry in
connection with simultaneous strategic transactions involving such persons in the ordinary course.

          (b) The Company agrees that, until the earlier of the Initial Closing or the termination of
this Agreement, neither it nor any Subsidiary nor any of their respective directors, officers,
employees, agents or representatives, including any financial advisor, attorney or other advisor
(“Representatives”) shall, directly or indirectly, (i) solicit, initiate or knowingly
encourage or take any other action designed to result in or facilitate any significant investment
in the Company by another person, any significant acquisition of shares of Company Common Stock or
any merger, reorganization, liquidation or other transaction that would be inconsistent with the
Transactions (an “Alternative Transaction”), (ii) enter into, continue or otherwise
participate in any discussions or negotiations regarding, or furnish to any person any information
in connection with, or otherwise cooperate in any way with, any Alternative Transaction, (iii)
approve, recommend or endorse, or enter into any agreement relating to, any Alternative Transaction
or (iv) waive, terminate, modify or fail to enforce any provision of any “standstill” or similar
obligation of any person other than the Investor.

     The Company and its Subsidiaries and their respective Representatives shall immediately cease
any discussions or negotiations with any person regarding any Alternative Transaction.
Notwithstanding anything to the contrary in this Section 6.02(b), at any time prior to obtaining
the Stockholder Approval, the Company may, in response to an unsolicited bona fide written
Alternative Transaction received after the date hereof, which did not arise in connection with a
breach of this Section 6.02(b) and which the Board determines in good faith, after consultation
with its outside counsel and financial advisors and after taking into account any amendment to this
Agreement or any other transaction proposed by the Investor, failure to take such action
would result in a breach of the Board’s fiduciary duties under applicable Law, furnish
non-public information with respect to the Company and its Subsidiaries to the person making such
Alternative Transaction pursuant to a customary confidentiality agreement in compliance with this
Section 6.02(b) and participate in discussions or negotiations with such person and its
Representatives regarding such Alternative Transaction; provided, however, that the Company shall
simultaneously provide to the Investor any non-public information that is provided to the person
making such Alternative Transaction or its Representatives which was not previously provided to the
Investor. The Company shall promptly (and in any event within 24 hours) advise the Investor orally
and in writing of (i) any inquiries, proposals or offers relating to, or that would reasonably be
expected to lead to, any Alternative Transaction, (ii) any request for information relating to the
Company or its Subsidiaries relating to any possible Alternative Transaction, including in each
case the identity of the person making any such Alternative Transaction or indication or inquiry or offer or request and the material terms and conditions of any such Alternative Transaction or
indication or inquiry or offer. The Company shall keep the Investor informed on a current basis of
the status (including any material changes to the terms thereof) of any such discussions or
negotiations regarding any such Alternative Transaction or

 

38

indication or inquiry or offer or any
material developments relating thereto (the Company agreeing that it shall not, and shall cause its
Subsidiaries not to, enter into any confidentiality agreement with any person which prohibits the
Company from providing such information to the Investor).

          SECTION 6.03. No Contrary Agreements or Actions. The Company shall not, and shall
cause its Subsidiaries not to, enter into any letter of intent, agreement in principle, acquisition
agreement, contract or other similar agreement concerning any transaction that is materially
inconsistent with, or would limit, prohibit or materially delay, the Transactions.

ARTICLE VII

ADDITIONAL AGREEMENTS

          SECTION 7.01. Stockholders’ Meeting. (a) The Company, acting through the Board,
shall, in accordance with applicable Law and the Company’s Certificate of Incorporation and
By-laws, (i) duly call, give notice of, convene and hold a special meeting of its stockholders as
promptly as practicable after the date of this Agreement for the purpose of considering, taking
action on, and voting on the approval of the Charter Amendment, the issuance of the Initial Shares,
the Rights Offerings and any other matters relating to the Transactions, which require the approval
of the stockholders of the Company (such meeting, including any adjournment or postponement
thereof, the “Stockholders’ Meeting”), (ii) submit the Charter Amendment, the issuance of
the Initial Shares, the Rights Offerings and any other matters relating to the Transactions, which
require the approval of the stockholders of the Company, to a vote of the Company’s stockholders,
and (iii) subject to Section 7.01(b), (A) include in the Proxy Statement the recommendation of the
Board (the “Board Recommendation”) that the stockholders of the Company approve the Charter
Amendment, the issuance of the Initial Shares, the Rights Offerings and any other matters
relating to the Transactions, which require the approval of the stockholders of the Company
(such approval by the Company’s stockholders, the “Stockholder Approval”) and (B) use all
reasonable efforts to obtain the Stockholder Approval, including postponing or adjourning the
Stockholders’ Meeting to obtain a quorum or to solicit additional proxies or calling, giving notice
of, convening and holding additional Stockholders’ Meetings. At the Stockholders’ Meeting, no
matters shall be noticed or submitted to the stockholders other than the Charter Amendment, the
issuance of the Initial Shares, the Rights Offerings and any other matters relating to the
Transactions, which require the approval of the stockholders of the Company or a proposal to
adjourn or postpone the meeting, for purposes of soliciting additional proxies in favor of the
approval of the Charter Amendment, the issuance of the Initial Shares, the Rights Offerings and any
other matters relating to the Transactions, which require the approval of the stockholders of the
Company. The Company shall call, give notice of, convene and hold the Stockholders’ Meeting and
submit the Charter Amendment, the issuance of the Initial Shares, the Rights Offerings and any
other matters relating to the Transactions, which require the approval of the stockholders of the
Company.

          (b) Notwithstanding anything to the contrary contained in this Agreement, at any time prior to
obtaining the Stockholder Approval, the Board may, in response to a material development or change
in circumstances occurring or arising after the date hereof that was neither known to the Board nor
reasonably foreseeable as of or prior to the date hereof (such

 

39

material development or change in circumstances, an “Intervening Event”), withdraw or modify the Board Recommendation in a
manner adverse to the Investor (a “Recommendation Change”), if the Board has concluded in
good faith, after consultation with its outside legal advisors, that, in light of such Intervening
Event, the failure of the Board to effect such a Recommendation Change would result in a breach of
the Board’s fiduciary duties under applicable Law; provided, that the Company shall not be entitled
to exercise its right to make a Recommendation Change pursuant to this sentence unless the Company
has (a) provided to the Investor at least three business days’ prior written notice advising the
Investor that the Board intends to take such action and specifying the reasons therefor in
reasonable detail and (b) during such three business day period, if requested by the Investor,
engaged in good faith negotiations with the Investor to amend this Agreement in a manner, or enter
into any other transaction with the Investor, that obviates the need for a Recommendation Change as
a result of the Intervening Event.

          (c) Any Recommendation Change shall not change the approval of this Agreement or the Ancillary
Agreements or any other approval of the Board, including in any respect that would have the effect
of causing any state (including Delaware) corporate takeover statute or other similar statute to be
applicable to the Transactions. Unless this agreement is terminated pursuant to, an in accordance
with Section 9.01(d), (i) the obligation of the Company to call, give notice of, convene and hold
the Stockholders’ Meeting shall not be limited or otherwise affected by a Recommendation Change,
and (ii) in any case in which the Board makes a Recommendation Change pursuant to this Section
7.01, the Company shall nevertheless submit the Charter Amendment, the issuance of the Initial
Shares and the Rights Offerings to a vote of its stockholders at the Stockholders’ Meeting.

          SECTION 7.02. Proxy Statement; Other SEC Filings. As promptly as practicable after
the date of this Agreement, the Company shall file (after receiving the Investor’s consent thereto, not to be unreasonably withheld or
delayed) a preliminary Proxy Statement with the SEC under the Exchange Act, and shall use its
reasonable best efforts to have the Proxy Statement cleared by the SEC. In addition, the Company
shall prepare and file with the SEC any Other Filings as and when required or requested by the SEC.
The Investor and the Company shall cooperate with each other in the preparation of the Proxy
Statement and any Other Filings, and the Company shall promptly notify the Investor of the receipt
of any comments of the SEC with respect to the Proxy Statement or any Other Filings and of any
requests by the SEC for any amendment or supplement thereto or for additional information and shall
provide to the Investor copies of all correspondence between the Company or any representative of
the Company and the SEC. The Company shall give the Investor and its counsel the opportunity to
review the Proxy Statement and any Other Filings for a reasonable time prior to their being filed
with the SEC and shall give the Investor and its counsel the opportunity to review all amendments
and supplements to the Proxy Statement and all responses to requests for additional information and
replies to comments for a reasonable time prior to their being filed with, or sent to, the SEC. The
Company shall in good faith consider the Investor’s comments on any such documents. Each of the
Company and the Investor agrees to use its reasonable best efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of and requests by the SEC and the
Company agrees to use its reasonable best efforts to cause the Proxy Statement and all required
amendments and supplements thereto to be mailed to the holders of shares of Company Common Stock
entitled to vote at the Stockholders’ Meeting at the earliest practicable time. All documents that
the Company is responsible for filing in connection with the transactions contemplated herein will
comply as to form and substance in all material respects with the applicable requirements of the
Exchange Act, the rules and regulations thereunder and other applicable Laws.

 

40

     Without limiting the generality of the foregoing, each of the Company and the Investor will
furnish to the other party such other information relating to it and its affiliates and the
transactions contemplated hereby and such further and supplemental information as may be reasonably
requested by the other party and shall promptly notify the other party of any change in such
information. The Company, as to itself and its Subsidiaries, and the Investor, as to itself and
each of its subsidiaries, agrees that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in the Proxy Statement or any amendment or supplement
thereto will, at the date of mailing to stockholders and at the time of the Stockholders’ Meeting,
contain (i) any untrue statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or (ii) any statement
which, at the time and in the light of the circumstances under which such statement is made, will
be false or misleading with respect to any material fact, or which will omit to state any material
fact necessary in order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier statement in the Proxy Statement or any amendment or
supplement thereto. If at any time prior to the Stockholders’ Meeting there shall occur any event
that should be set forth in an amendment or supplement to the Proxy Statement, the Company shall
promptly prepare and, to the extent required by law, rule or regulation, the Company shall mail to
its stockholders such an amendment or supplement; provided, that no such amendment or supplement to
the Proxy Statement will be made by the Company without the Investor’s prior consent, not to be
unreasonably withheld or delayed.

          SECTION 7.03. Access to Information; Confidentiality. (a) From the date hereof to the Initial Closing and in compliance with applicable Laws, the
Company shall, and shall cause the Subsidiaries and the officers, directors, employees, auditors
and agents of the Company and the Subsidiaries to, afford the officers, employees, accountants,
counsel, investment bankers and other agents of the Investor reasonable access at all reasonable
times to the officers, employees, agents, properties, offices and other facilities, books and
records of the Company and each Subsidiary, and shall furnish the Investor with such financial,
operating and other data and information as the Investor, through its officers, employees or
agents, may reasonably request.

          (b) All information obtained by the Investor pursuant to this Section 7.03 shall be kept
confidential in accordance with the confidentiality agreement, dated as of March 6, 2007 (the
“Confidentiality Agreement”), between The Invus Group, L.L.C. and the Company.

          (c) No investigation pursuant to this Section 7.03 shall affect any representation or warranty
in this Agreement of any party hereto or any condition to the obligations of the parties hereto.

          SECTION 7.04. Amendment to Certificate of Incorporation. After obtaining the
Stockholder Approval, the Company shall file the Certificate of Amendment with the Secretary of
State of the State of Delaware and shall take all such further action as is necessary to cause the
Certificate of Amendment to become effective in accordance with the DGCL.

 

41

          SECTION 7.05. Additional Listing Application. Prior to the Initial Closing, the
Company shall file a notification form for the listing of additional shares in connection with the
Transactions and shall take such further action as is necessary to cause the shares of Company
Common Stock issuable pursuant to this Agreement and upon the exercise of the Rights and Warrants
to be listed on the Nasdaq Stock Market.

          SECTION 7.06. Further Action; Reasonable Best Efforts; Consents; Filings. (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall use
its reasonable best efforts to (i) take, or cause to be taken, all appropriate action, and to do,
or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate
and make effective the Transactions, (ii) obtain from any Governmental Authorities any consents,
licenses, permits, waivers, approvals, authorizations or orders required to be obtained or made by
the Investor or the Company or any of their respective Subsidiaries, or to avoid any action or
proceeding by any Governmental Authority (including those in connection with the HSR Act), in
connection with the authorization, execution and delivery of this Agreement and each Ancillary
Agreement and the consummation of the Transactions contemplated herein and therein, including the
Transactions, and (iii) make promptly its respective filings, and thereafter make any other
submissions, required under (x) the Exchange Act, and any other applicable federal or state
securities Laws, and (y) the HSR Act (in respect of which the parties will file a Notification and
Report Form as soon as practicable but in no event later than ten (10) days after the date of
this Agreement) and (z) any other applicable Law; provided, however, that the Investor and the
Company shall cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the non-filing party and its advisors prior to
filing and, if requested, to accept all reasonable additions, deletions or changes suggested in
connection therewith.

          (b) The parties hereto shall cooperate and assist one another in connection with all actions
to be taken pursuant to Section 7.06(a), including the preparation and making of the filings
referred to therein and, if requested, amending or furnishing additional information thereunder,
including, subject to applicable Law, providing copies of all related documents to the non-filing
party and their advisors prior to filing, and to the extent practicable none of the parties will
file any such document or have any communication with any Governmental Authority without prior
consultation with the other parties. Each party shall keep the others apprised of the content and
status of any communications with, and communications from, any Governmental Authority with respect
to the Transactions. To the extent practicable and permitted by a Governmental Authority, each
party hereto shall permit representatives of the other party to participate in meetings (whether by
telephone or in person) with such Governmental Authority.

          (c) The Company, the Subsidiaries and the Investor shall give any notices to third parties,
and use all reasonable efforts to obtain any third party consents, (i) necessary, proper or
advisable to consummate the Transactions contemplated in this Agreement and each Ancillary
Agreement or (ii) required to be disclosed in the Disclosure Schedule. In the event that either
party shall fail to obtain any third party consent described in the first sentence of this Section
7.06(c), such party shall use all reasonable efforts, and shall take any such actions reasonably
requested by the other party hereto, to minimize any adverse effect upon the Company, the
Subsidiaries and the Investor, and their respective businesses resulting, or which would reasonably
be expected to result after the Initial Closing, from the failure to obtain such consent.

 

42

          (d) From the date of this Agreement until the Initial Closing, the Company shall promptly
notify the Investor in writing of any pending or, to the knowledge of the Company, threatened
Action by any Governmental Authority or any other person (i) challenging or seeking material
damages in connection with the Transactions or (ii) seeking to restrain or prohibit the
consummation of the Transactions, which in either case would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect prior to or after the Initial Closing.

          SECTION 7.07. Public Announcements. The parties shall mutually agree on the form of
press release to be issued in connection with the execution of this Agreement. The Investor and the
Company agree that no public release or announcement concerning the Transactions shall be issued by
either party without the prior consent of the other party, except as such release or announcement
may be required by Law or the rules or regulations of the Nasdaq Stock Market, in which case the
party required to make the release or announcement shall use its reasonable best efforts to allow
the other party reasonable time to comment on and approve such release or announcement in advance
of such issuance.

          SECTION 7.08. Certain Notices. From and after the date of this Agreement until the
Initial Closing, each party shall promptly notify the other party of (i) the occurrence of any
material adverse effect with respect to it, (ii) the occurrence, or non-occurrence, of any event or
any breach or misrepresentation that would reasonably be expected to cause any condition to the
obligations of such party to effect the Transactions not to be satisfied or (iii) the failure of
such party to comply with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it pursuant to this Agreement or any Ancillary Agreement that would reasonably be
expected to result in any condition to the obligations of such party to effect the Transactions not
to be satisfied; provided, however, that the delivery of any notice pursuant to this Section 7.8
shall not cure any breach of any representation or warranty requiring disclosure of such matter
prior to the date of this Agreement or otherwise limit or affect the remedies available hereunder
to the party receiving such notice.

ARTICLE VIII

CONDITIONS

          SECTION 8.01. Conditions to the Obligations of Each Party. Except as specifically
provided in this Section 8.01, the obligations of each party to effect the transactions
contemplated to occur at each Closing shall be subject to the satisfaction or waiver, at or prior
to each Closing, of the following conditions:

          (a) Stockholder Approval. Solely in connection with the Initial Closing, the Charter
Amendment, the issuance of the Initial Shares, the Rights Offerings and any other matters relating
to the Transactions, which require the approval of the stockholders of the Company, shall have been
approved and adopted by the requisite affirmative vote of the stockholders of the Company in
accordance with the DGCL, the Certificate of Incorporation of the Company and Rule 4350(i)(D) of
the Nasdaq Stock Market;

 

43

          (b) No Order. No Governmental Authority in the United States shall have enacted,
issued, promulgated, enforced or entered any Law (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the Transactions illegal or otherwise
restricting, preventing or prohibiting consummation of the Transactions;

          (c) HSR Act. Any waiting period (and any extension thereof) under the HSR Act
applicable to the consummation of the Transactions subject to each Closing shall have expired or
been terminated; and

          (d) Court Proceedings. No Action shall be pending or threatened before any
Governmental Authority wherein an unfavorable injunction, judgment, order, decree, ruling or charge
would reasonably be expected to (i) prevent consummation of any of the Transactions contemplated by
this Agreement or any Ancillary Agreement, (ii) cause any of the Transactions contemplated by this
Agreement or any Ancillary Agreement to be rescinded following consummation thereof, or (iii)
materially adversely affect the rights and powers of the Investor and its affiliates to own the
Initial Shares, the Rights or the Rights Shares, and exercise all of its
rights as a stockholder of the Company and as a party to the Ancillary Agreements (provided,
that this clause (iii) may be waived by the Investor in its sole discretion), and in each case, no
such injunction, judgment, order, decree, ruling or charge shall be in effect; provided, however,
that, in each case, any such threatened Action would reasonably be expected to be adversely
determined against the Company, the Investor or their respective affiliates.

          SECTION 8.02. Conditions to the Obligations of the Investor. The obligations of the
Investor to consummate the transactions contemplated to occur at each Closing are subject to the
satisfaction or waiver of the following additional conditions:

          (a) Representations and Warranties. Each of the representations and warranties of the
Company contained in this Agreement and each Ancillary Agreement that are qualified by materiality
or Material Adverse Effect shall be true and correct as of the date hereof (in the case of the
Initial Investment) and as of the applicable Rights Offering Trigger Date (in the case of each
Rights Offering) and as of each Closing as though made on and as of such Closing (except that those
representations and warranties which address matters only as of a particular date need only be true
and correct as of such date), and all representations and warranties which are not so qualified
shall be true and correct in all material respects (except that those representations and
warranties which address matters only as of a particular date need only remain true and correct in
all material respects as of such date);

          (b) Agreements and Covenants. Each of the Company and each Subsidiary shall have
performed in all material respects all obligations, and complied in all material respects with its
agreements and covenants to be performed or complied with by it under this Agreement and the
Ancillary Agreements on or prior to each Closing;

          (c) Officer Certificate. The Company shall have delivered to the Investor a
certificate, dated as of the applicable Closing Date, signed by the President of the Company,
certifying as to the satisfaction of the conditions specified in Sections 8.02(a), (b) and (f);

          (d) Ancillary Agreements. Solely in connection with the Initial Closing, each of the
Ancillary Agreements shall have been duly executed and delivered by the Company;

 

44

          (e) Board of Directors. Solely in connection with the Initial Closing, the Board shall
have duly adopted resolutions increasing the number of board members comprising the entire Board to
11 and shall have taken such action as is necessary to cause three persons designated by the
Investor for election or appointment to the Board (the “Investor Director Designees”) to be
so elected or appointed in accordance with the Stockholders’ Agreement.

          (f) Certificate of Amendment. Solely in connection with the Initial Closing, the
Certificate of Amendment shall have been duly filed with the Secretary of State of the State of
Delaware and shall have become effective.

          (g) Opinion of Counsel. A favorable opinion of counsel to the Company reasonably
satisfactory to the Investor, dated as of the applicable Closing Date and covering the matters
attached hereto as Exhibit E, shall have been delivered to the Investor.

          (h) Certified Resolutions. Solely in connection with the Initial Closing, certified
copies of resolutions duly adopted by the Board and stockholders of the Company authorizing the
execution, delivery and performance of this Agreement, the Ancillary Agreements and the
Transactions shall have been delivered to the Investor;

          (i) Incumbency Certificate. Solely in connection with the Initial Closing, a
certificate of the Secretary of the Company, as to the incumbency of the officer(s) (who shall not
be such Secretary) executing this Agreement, the Ancillary Agreements and the other instruments,
documents, certificates and agreements contemplated hereby or thereby shall have been delivered to
the Investor;

          (j) Good Standing. A certificate of good standing of the Company and each Subsidiary,
certified by the Secretary of State or Clerk of the State Corporation Commission of each state or
commonwealth in which the Company or each Subsidiary, as applicable, is incorporated or organized
or qualified to do business, in each case as of a date not more than two business days prior to the
applicable Closing Date; and

          (k) Consents and Approvals. Solely in connection with the Initial Closing, all
consents, approvals and authorizations of any person with respect to the Transactions set forth on
Section 8.02(k) of the Disclosure Schedule shall have been obtained and a copy thereof shall have
been delivered to the Investor.

          SECTION 8.03. Conditions to the Obligations of the Company. The obligations of the
Company to consummate the transactions contemplated to occur at each Closing are subject to the
satisfaction or waiver of the following additional conditions:

          (a) Representations and Warranties. Each of the representations and warranties of the
Investor contained in this Agreement and each Ancillary Agreement that are qualified by materiality
or material adverse effect shall be true and correct as of the date hereof (in the case of the
Initial Investment) and as of the applicable Rights Offering Trigger Date (in the case of each
Rights Offering) and as of each Closing as though made on and as of such Closing (except that those
representations and warranties which address matters only as of a

 

45

particular date need only be true
and correct as of such date), and all representations and warranties which are not so qualified
shall be true and correct in all material respects (except that those representations and
warranties which address matters only as of a particular date need only remain true and correct in
all material respects as of such date);

          (b) Agreements and Covenants. The Investor shall have performed, in all material
respects, all obligations or complied with, in all material respects, all agreements and covenants
to be performed or complied with by it under this Agreement on or prior to each Closing;

          (c) Officer Certificate. The Investor shall have delivered to the Company a
certificate, dated as of the applicable Closing Date, signed by the President or any Vice President
of the Investor, certifying as to the satisfaction of the conditions specified in Sections 8.03(a)
and 8.03(b); and

          (d) Ancillary Agreements. Solely in connection with the Initial Closing, each of the
Ancillary Agreements shall have been duly executed and delivered by the Investor.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

          SECTION 9.01. Termination. This Agreement may be terminated any time prior to the
Initial Closing, whether or not the Stockholder Approval has been obtained (the date of any such
termination, the “Termination Date”):

          (a) By mutual written consent of the Investor and the Company; or

          (b) By either the Investor or the Company if (i) the Initial Closing shall not have occurred
on or before November 15, 2007; provided, however, that the right to terminate this Agreement under
this Section 9.01(b) shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the Initial Closing to
occur on or before such date or (ii) any Governmental Authority in the United States shall have
enacted, issued, promulgated, enforced or entered any order, decree, judgment, injunction or ruling
which is then in effect and is final and nonappealable and has the effect of making consummation of
the Transactions illegal or otherwise preventing or prohibiting consummation of the Transactions;
or

          (c) By the Investor or the Company, if the Stockholder Approval is not obtained upon a vote
taken thereon at the Stockholders’ Meeting duly convened therefor;

          (d) By the Investor, if prior to obtaining the Stockholder Approval, a Recommendation Change
shall have occurred;

          (e) By the Investor, if since the date of this Agreement, there shall have been any event,
development or change of circumstance that constitutes, has had or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect and such Material Adverse Effect
is not cured within 20 days after the Company receives written notice thereof from the Investor;

 

46

          (f) By the Investor, if (i) the Company shall have breached any representation, covenant or
agreement set forth in this Agreement, (ii) such breach is not cured within 20 days after the
Company receives written notice thereof from the Investor, and (iii) such breach or
misrepresentation would cause the conditions set forth in Section 8.02(a) or Section 8.02(b) not to
be satisfied; or

          (g) By the Company, if (i) the Investor shall have breached any representation, covenant or
agreement set forth in this Agreement, (ii) such breach is not cured within 20 days after the
Investor receives written notice thereof from the Company, and (iii) such breach or
misrepresentation would cause the conditions set forth in Section 8.03(a) or Section
8.03(b) not to be satisfied.

          SECTION 9.02. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.01, this Agreement shall forthwith become void, and there shall be
no liability or obligation on the part of any party hereto, except (i) with respect to Article IX
and Article X, which shall survive any such termination and remain in full force and effect, and
(ii) with respect to any liabilities or damages incurred or suffered by a party as a result of the
material breach by the other party of any of its representations, warranties, covenants or other
agreements set forth in this Agreement or any Ancillary Agreement.

          SECTION 9.03. Amendment. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors, or equivalent governing body,
at any time prior to the Initial Closing; provided, however, that, after the Stockholder Approval
is obtained, no amendment may become effective that would by Law require approval of the
stockholders of the Company, without approval of such stockholders. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.

          SECTION 9.04. Waiver. At any time prior to each Closing, any party hereto may (i)
extend the time for the performance of any obligation or other act of the other party hereto
applicable to such Closing, (ii) waive any inaccuracy in the representations and warranties of the
other party contained herein or in any document delivered by the other party pursuant to this
Agreement, and (iii) waive compliance with any agreement of the other party or condition to such
party’s obligations contained herein applicable to such closing. Any such extension or waiver shall
be valid if set forth in an instrument in writing signed by the party or parties to be bound
thereby.

ARTICLE X

GENERAL PROVISIONS

          SECTION 10.01. Survival of Representations and Warranties; Indemnification. (a) All
representations and warranties contained in this Agreement shall be deemed made at each Closing as
if made at such time and shall survive each Closing for 12 months, except that (i) with

 

47

respect to claims notified to the Company before the expiration of the applicable representation or warranty,
such claims shall survive until the date they are finally liquidated or otherwise resolved, (ii)
Sections 4.10 and 4.14 shall survive until 30 days after the expiration of the applicable statute
of limitations, and (iii) Sections 4.01, 4.02, 4.03, 4.04 and 4.21 shall survive indefinitely. A
claim shall be made or commenced hereunder by the Indemnified Party delivering to the Company a
written notice specifying in reasonable detail the nature of the claim, the amount claimed (if
known or reasonably estimable), and the factual basis for the claim. The indemnity contained in
Section 10.01(b) shall not be construed to limit or restrict the right of the Investor to seek
damages or any other remedy available at law or equity for any breach by the Company of any of its representations, warranties, covenants or
agreements under this Agreement.

          (b) The Company agrees to indemnify and hold harmless the Investor, its partners, affiliates,
officers, directors, employees and duly authorized agents and its affiliates and each other person
controlling the Investor or any of its affiliates within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and any partner of the Investor from and against
all losses, claims, damages, costs, expenses (including reasonable counsel fees and disbursements)
or liabilities, which are related to or arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Proxy Statement or any Rights Offering Registration
Statement (including any prospectus related thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the statements therein
not misleading, except to the extent such Losses are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating to the Investor
that is supplied by the Investor in writing specifically for inclusion in such Proxy Statement or
Rights Offering Registration Statement (including any prospectus related thereto).

          (c) The Investor agrees to indemnify and hold harmless the Company, its Subsidiaries and each
of their respective officers, directors, employees, duly authorized agents and affiliates from and
against all losses, claims, damages, costs, expenses (including reasonable counsel fees and
disbursements) or liabilities, which are related to or arise out of any untrue statement or alleged
untrue statement of a material fact contained in the Proxy Statement or any Rights Offering
Registration Statement (including any prospectus related thereto) or any omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that such Losses are
caused by any such untrue statement or omission, or alleged untrue statement or omission, based
upon information relating to the Investor that is supplied by the Investor in writing specifically
for inclusion in such Proxy Statement or Rights Offering Registration Statement (including any
prospectus related thereto).

          (d) A party claiming indemnification under this Agreement (an “Indemnified Party”)
with respect to any claims asserted against the Indemnified Party by a third party (“Third
Party Claim”) that would give rise to a right of indemnification under this Agreement shall
promptly (i) notify the party required to indemnify the Indemnified Party (the “Indemnifying
Party”) of the Third Party Claim, and (ii) transmit to the Indemnifying Party a written notice
(“Claim Notice”) describing in reasonable detail the nature of the Third Party Claim, a
copy of all papers served with respect to such claim (if any), and the basis of the Indemnified
Party’s

 

48

request for indemnification under this Agreement. Failure to provide such Claim Notice
shall not affect the right of the Indemnified Party’s indemnification hereunder, except to the
extent the Indemnifying Party demonstrates actual and material prejudice as a result of such
failure. The Indemnifying Party shall have the right to defend the Indemnified Party against such
Third Party Claim provided that the Indemnifying Party has acknowledged in writing its obligation
to fully indemnify the Indemnified Party with respect to such Third Party Claim pursuant to this
Section 10.01.

          (e) If the Indemnifying Party notifies the Indemnified Party that the
Indemnifying Party elects to assume the defense of the Third Party Claim, then the
Indemnifying Party shall have the right to defend such Third Party Claim with counsel selected by
the Indemnifying Party, who is reasonably acceptable to the Indemnified Party, by all appropriate
proceedings, which proceedings shall be prosecuted reasonably diligently by the Indemnifying Party
to a final conclusion or settled at the discretion of the Indemnifying Party in accordance with
this Section 10.01(e), provided, however, that the Indemnifying Party shall not consent to the
entry of a judgment or enter into any settlement with respect to the matter (i) (A) which does not
contain a complete release of all Indemnified Parties, (B) contains a finding of responsibility or
liability on the part of any Indemnified Party or the violation of any applicable legal
requirement, (C) provides any material sanction or material restriction upon the conduct of any
business by any Indemnified Party, or (D) provides for any relief other than monetary damages which
are paid in full by the Indemnifying Party , or (ii) without the prior written consent of the
Indemnified Party. If requested by the Indemnifying Party, the Indemnified Party agrees, at the
sole cost and expense of the Indemnifying Party, to reasonably cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim which the Indemnifying Party elects to
contest, including the making of any related counterclaim against the Person asserting the Third
Party Claim or any cross complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying
Party pursuant to this Section 10.01, and the Indemnified Party shall bear its own costs and
expenses with respect to such participation; provided, however, that if in the opinion of counsel
of the Indemnified Party there is a reasonable likelihood of a conflict of interest between the
Indemnifying Party and the Indemnified Party, the Indemnifying Party shall bear the reasonable
costs and expenses of one counsel to the Indemnified Party in connection with such defense.
Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense
of any Third Party Claim if the Third Party Claim seeks an order, injunction or other equitable
relief or relief for other than money damages against the Indemnified Party that the Indemnified
Party reasonably determines, after conferring with its outside counsel, cannot be separated from
any related claim for money damages.

          (f) If the Indemnifying Party fails to notify the Indemnified Party within the thirty (30)
days after receipt of any Claim Notice that the Indemnifying Party elects to defend the Indemnified
Party pursuant to Section 10.01(e), or if the Indemnifying Party elects to defend the Indemnified
Party pursuant to Section 10.01(e) but fails to reasonably diligently defend or settle the Third
Party Claim, then the Indemnified Party shall have the right to defend the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously defended by the
Indemnified Party to a final conclusion or settled (with the reasonable costs and expenses of such
defense borne by the Indemnifying Party). The Indemnified Party shall have full control of such
defense and proceedings; provided, however, that the Indemnified Party may

 

49

not enter into any
compromise or settlement of such Third Party Claim if indemnification is to be sought hereunder,
without the Indemnifying Party’s consent, which shall not be unreasonably withheld or delayed. The
Indemnifying Party may participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 10.01(f), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.

          (g) The parties agree to treat all indemnification payments made under this Section 10.01 or
otherwise under this Agreement as an adjustment to the Share Purchase Price or as capital
contributions for Tax purposes.

          SECTION 10.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be deemed to have been
duly given upon receipt) by delivery in person, by fax, by a recognized overnight courier service
or by registered or certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 10.02):

if to the Investor:

Invus, L.P.

c/o The Invus Group, L.L.C.

750 Lexington Avenue (30th Floor)

New York, New York 10022

Attention: Mr. Ray Debbane

                 Mr. Christopher Sobecki

with a copy to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Fax: (212) 455-2502

Attention: Mr. Robert Spatt

                 Mr. Peter Malloy

if to the Company:

Lexicon Pharmaceuticals, Inc.

8800 Technology Forest Place

The Woodlands, Texas 77381

Attn: Executive Vice President and Chief Executive Officer

Fax: (281) 863-8095

with copies to each of:

Lexicon Pharmaceuticals, Inc.

8800 Technology Forest Place

The Woodlands, Texas 77381

 

50

Attn: Executive Vice President and General Counsel

Fax: (281) 863-8010

and

Lexicon Pharmaceuticals, Inc.

8800 Technology Forest Place

The Woodlands, Texas 77381

Attn: President and Chief Financial Officer

Fax: (281) 863-8095

and

Vinson & Elkins L.L.P.

First City Tower

1001 Fannin Street, Suite 2500

Houston, TX 77002-6760

Attn: Mr. David Palmer Oelman

Fax: (713) 615-5861

          SECTION 10.03. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the Transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the parties as closely
as possible in a mutually acceptable manner in order that the Transactions contemplated hereby be
consummated as originally contemplated to the fullest extent possible.

          SECTION 10.04. Entire Agreement; Assignment. This Agreement, the Confidentiality
Agreement and the Ancillary Agreements constitute the entire agreement between the parties with
respect to the subject matter hereof and thereof and supersede, except as set forth in Section
7.03(b), all prior agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof and thereof. This Agreement shall not be assigned
by operation of Law or otherwise without the express written consent of the parties hereto (which
consent may be granted to withheld in the sole discretion of any party) and any such assignment or
attempted assignment without such consent shall be void; provided, however, that the Investor may
assign its right, title and interest under this Agreement to one or more subsidiaries, or to any
corporation, partnership or limited liability company that is an affiliate of the Investor;
provided, further, that no such assignment shall relieve the Investor of any of its obligations
hereunder.

          SECTION 10.05. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.

 

51

          SECTION 10.06. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of
this Agreement were not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other remedy at law or
equity.

          SECTION 10.07. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the Laws of the State of New York. All actions and proceedings arising out of or
relating to this Agreement shall be heard and determined exclusively in any New York state or
federal court, in each case sitting in the Borough of Manhattan. The parties hereto hereby (a)
submit to the exclusive jurisdiction of any New York state or federal court, in each case sitting
in the Borough of Manhattan, for the purpose of any Action arising out of or relating to this
Agreement brought by any party hereto, and (b) irrevocably waive, and agree not to assert by way of
motion, defense, or otherwise, in any such Action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or immune from attachment
or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is
improper, or that this Agreement or the Transactions contemplated hereby may not be enforced in or
by any of the above-named courts.

          SECTION 10.08. Waiver of Jury Trial. Each of the parties hereto hereby waives to the
fullest extent permitted by applicable Law any right it may have to a trial by jury with respect to
any litigation directly or indirectly arising out of, under or in connection with this Agreement or
the Transactions contemplated hereby. Each of the parties hereto (a) certifies that no
representative, agent or attorney of any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to enforce that foregoing waiver and
(b) acknowledges that it and the other parties hereto have been induced to enter into this
Agreement and the Transactions contemplated hereby, as applicable, by, among other things, the
mutual waivers and certifications in this Section 10.08.

          SECTION 10.09. Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement, shall impair any such right, power or remedy,
nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of any kind or
character on the Investor’s part of any breach, default or noncompliance under this Agreement or
any waiver on such party’s part of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be
cumulative and not alternative.

          SECTION 10.10. Interpretation. The words “hereof”, “herein” and “hereunder” and words of like import used in this
Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement. When reference is made in this Agreement to an Article or a Section, such reference
shall be to an Article or Section of this Agreement, unless otherwise indicated. The table of
contents, table of defined terms and headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of this Agreement.
The language used in this Agreement shall be deemed to be the

 

52

language chosen by the parties hereto
to express their mutual intent, and no rule of strict construction shall be applied against any
party. Whenever the context may require, any pronouns used in this Agreement shall include the
corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns
shall include the plural, and vice versa. Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. Whenever the words “include,” “includes” or “including” are
used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

          SECTION 10.11. Counterparts. This Agreement may be executed and delivered (including
by facsimile transmission) in one or more counterparts, and by the parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

[signature page follows]

 

 

          IN WITNESS WHEREOF, the Investor and the Company have caused this Agreement to be executed as
of the date first written above by their respective officers thereunto duly authorized.

	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	LEXICON PHARMACEUTICALS, INC.,

a Delaware limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Arthur T. Sands	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Arthur T. Sands, M.D., Ph.D.	 	 
	 

	 	Title:
	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	INVESTOR:	 	 
	 
	 	 	 	 	 	 
	 	 	INVUS, L.P.,

a Bermuda limited partnership	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Raymond Debbane	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Raymond Debbane	 	 
	 

	 	Title:
	 	President of Invus Advisors, LLC,

its General Partner	 	 

[Signature Page to Stock Purchase Agreement]

 

 

EXHIBIT D

SECOND CERTIFICATE OF AMENDMENT

TO

RESTATED CERTIFICATE OF INCORPORATION

OF

LEXICON PHARMACEUTICALS, INC.

     LEXICON PHARMACEUTICALS, INC. (the “Corporation”), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of Delaware
(“DGCL”), hereby certifies as follows pursuant to Section 242 of the DGCL:

			
	     FIRST:	 	That at a meeting of the Board of Directors of the Corporation, resolutions were
duly adopted setting forth a proposed amendment of the Corporation’s Restated
Certificate of Incorporation, as amended, declaring such amendment to be advisable
and calling a meeting of the Corporation’s stockholders for consideration thereof.
The resolution setting forth the proposed amendment is as follows:

RESOLVED that, subject to the approval of the stockholders of the
Corporation, the Corporation’s restated certificate of
incorporation, as amended, be further amended by changing Section
4.01(a) of Article IV thereof so that, as amended, such Section
shall be and read as follows:

“(a) The total number of shares of stock that the
Corporation shall have the authority to issue is
255,000,000 shares of capital stock, consisting of
(i) 5,000,000 shares of preferred stock, par value
$0.01 per share (the “Preferred Stock”), and
(ii) 250,000,000 shares of common stock, par value
$0.001 per share (the “Common Stock”).”

			
	     SECOND:	 	That thereafter, pursuant to a resolution of its Board of Directors, a special
meeting of the Corporation’s stockholders was duly called and held upon notice in
accordance with the provisions of Section 222 of the DGCL, at which meeting the
necessary number of shares as required by applicable law were voted in favor of
such amendment.

			
	     THIRD:	 	That such amendment was duly adopted in accordance with the provisions of Section
242 of the DGCL.

 

 

     IN WITNESS WHEREOF, the Corporation has caused this Second Certificate of Amendment to be
signed by Jeffrey L. Wade, its Executive Vice President and General Counsel, this ___ day of
                    , 2007.

	 	 	 	 	 	 	 
	 	 	LEXICON PHARMACEUTICALS, INC.	 	  
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Jeffrey L. Wade

Executive Vice President and General Counsel	 	 

 

 

EXHIBIT E

MATTERS TO BE COVERED IN OPINION OF

COUNSEL TO THE COMPANY

TO BE DELIVERED TO INVESTORS

          1. The Company has been duly incorporated and is validly existing and in good standing under
the laws of the State of Delaware. The Company has the requisite corporate power and authority to
enter into the Securities Purchase Agreement and the Ancillary Agreements and to perform its
obligations thereunder.

          2. The execution, delivery and performance of the Securities Purchase Agreement and each
Ancillary Agreement have been duly authorized by all necessary corporate action of the Company,
each such agreement has been duly executed and delivered by the Company.

          3. The [Initial Shares and the Warrant Shares][Rights and the Rights Shares] have been duly
authorized by all necessary corporate action of the Company and the [Initial Shares and the Warrant
Shares][Rights and the Rights Shares] have been, or upon issuance, delivery and payment therefor in
accordance with the provisions of the Securities Purchase Agreement will be, validly issued, fully
paid and non-assessable and not subject to preemptive rights arising under the Certificate of
Incorporation, the By-Laws or the DGCL.

          4. Assuming the truthfulness of the representations of the Investor and the Company set forth
in the Securities Purchase Agreement, the Warrant Shares and the Initial Shares, upon issuance,
delivery and payment therefor in accordance with the provisions of the Securities Purchase
Agreement, will be issued in a transaction exempt from the registration requirements of the
Securities Act.

          5. The execution and delivery of the Securities Purchase Agreement and each of the Ancillary
Agreements do not, and the performance by the Company of its obligations thereunder, including the
issuance of the Warrant Shares, the Initial Shares and the Rights Shares, will not:

               (i) conflict with or violate the Certificate of Incorporation or By-laws of the
Company [or any statute, rule or regulation that is specifically applicable to the
Company solely by virtue of the nature of its business, and/or its specific assets
or property]2 or any order, writ, judgment or decree known to us to which
the Company is subject; or

               (ii) require any consent or approval under, result in any breach of or
constitute a default (or an event which, with notice or lapse of time or both, would
become a default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or give to others a right to require any payment to
be made under, or result in the creation of a lien or other encumbrance on any
property or asset of the Company or any Subsidiary pursuant to, any note, bond,

 

			
	2	 	Bracketed opinion language to be given by internal
counsel

 

 

			
	 	 	mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation filed as an exhibit to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2006.

          6. No vote or approval of the holders of any class or series of capital stock or other Equity
Interests of the Company is required under the DGCL or the rules of Nasdaq with respect to the
approval of the Charter Amendment, the issuance of the Warrant Shares, the Initial Shares, the
Rights and Rights Shares and any other matters relating to the Transactions, except for (i)
approval of the Charter Amendment by the affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote thereon and (ii) approval of the
issuance of the Initial Shares and the Rights Shares by the affirmative vote of the holders of a
majority of the votes cast at the Stockholders’ Meeting at which a quorum is present.

          7. The Charter Amendment has become effective in accordance with the provisions of the DGCL.

          8. Each of the [First][Second] Rights Offering Registration Statement, as of the date it first
became effective under the Securities Act, and the prospectus related thereto as of                      ___,
200_, in each case other than financial statements and other financial data and schedules which are
or should be contained therein, as to which we express no opinion, appeared on its face, to comply
as to form, in all material respects, to the requirements of the Securities Act.

          [Opinion to include other opinions in connection with the First Rights Offering Closing or the
Second Rights Offering Closing covering matters customary for registered offerings of securities,
in form and substance reasonably satisfactory to the Investor.]exv10w2

 

Exhibit 10.2

WARRANT AGREEMENT

Dated as of June 17, 2007

among

Lexicon Pharmaceuticals, Inc.

and

Invus, L.P.

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	SECTION 1. Definitions
	 	 	1	 
	SECTION 2. Issuance of Warrants
	 	 	4	 
	SECTION 3. Registration
	 	 	4	 
	SECTION 4. Registration of Transfers and Exchanges
	 	 	5	 
	SECTION 5. Warrants; Exercise of Warrants
	 	 	6	 
	SECTION 6. Payment of Taxes
	 	 	7	 
	SECTION 7. Mutilated or Missing Warrant Certificates
	 	 	7	 
	SECTION 8. Reservation of Warrant Shares
	 	 	7	 
	SECTION 9. Adjustment of Exercise Price and Number of Warrant Shares Issuable
	 	 	8	 
	SECTION 10. Standstill
	 	 	14	 
	SECTION 11. Furnishing of Information
	 	 	15	 
	SECTION 12. Fractional Interests
	 	 	15	 
	SECTION 13. Notices to Warrant Holders
	 	 	16	 
	SECTION 14. Notices to the Company and Warrant Holders
	 	 	17	 
	SECTION 15. Supplements and Amendments
	 	 	18	 
	SECTION 16. Assignment
	 	 	18	 
	SECTION 17. Successors and Assigns
	 	 	19	 
	SECTION 18. Termination
	 	 	19	 
	SECTION 19. Governing Law
	 	 	19	 
	SECTION 20. Benefits of This Agreement
	 	 	19	 
	SECTION 21. Interpretation
	 	 	19	 
	SECTION 22. Counterparts
	 	 	20	 

 

 

WARRANT AGREEMENT

     WARRANT AGREEMENT (the “Agreement”) dated as of June 17, 2007 among Lexicon
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Invus, L.P., a Bermuda
limited partnership or its permitted assigns (the “Investor”).

     WHEREAS, the Company proposes to issue to the Investor warrants (the “Warrants”) to
purchase 16,498,353 shares (the “Warrant Shares”) of common stock, par value $0.001 of the
Company (the “Company Common Stock”), at a per share purchase price equal to $3.0915,
subject to adjustment as provided herein (the “Exercise Price”);

          WHEREAS, concurrently with the execution and delivery of this Agreement, the Company and the
Investor will enter into (a) a securities purchase agreement, dated as of the date hereof (the
“Securities Purchase Agreement”), upon the terms and subject to the conditions of which,
(i) the Company will issue and sell to the Investor, and the Investor will purchase, a number of
shares of Company Common Stock, together with any shares already owned by the Investor and its
affiliates (including those issued upon exercise of any Warrants), equal to 40% of the outstanding
shares of Company Common Stock and (ii) the Investor will have the right to cause the Company to
conduct up to two offering of rights to acquire Company Common Stock, (b) a registration rights
agreement (the “Registration Rights Agreement) providing for certain registration rights
with respect to the Company Common Stock issuable pursuant to the Purchase Agreement and upon the
exercise of the Warrants, and (c) a stockholders agreement;

          NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the Investor and the Company hereby
agree as follows:

     SECTION 1. Definitions.

          (a) For purposes of this Agreement:

          “Acquisition Proposal” means any inquiry, proposal or offer from any person relating
to (i) any direct or indirect acquisition or purchase, in one transaction or a series of related
transactions, of assets (including equity securities of any subsidiary of the Company) or
businesses that constitute 20% or more of the revenues, net income or assets of the Company and its
subsidiaries, taken as a whole, or 20% or more of any class of equity securities of the Company,
(ii) any tender offer or exchange offer that if consummated would result in any person beneficially
owning 20% or more of any class of equity securities of the Company, or (iii) any merger,
consolidation, business combination, recapitalization, liquidation, dissolution, joint venture,
share exchange or similar transaction involving the Company or any of its subsidiaries pursuant to
which any person or the stockholders of any person would beneficially own 20% or more of any class
of equity securities of the Company or of any resulting parent company of the Company, in each case
other than the Transactions (as such term is defined in the Securities Purchase Agreement).

          “Action” means any litigation, suit, claim, action, formal complaint, prosecution,
indictment, formal investigation, arbitration or proceeding, whether civil, criminal or
administrative.

 

2

          “affiliate” shall mean, with respect to any person, a person who, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is under common
control with, such specified person.

          “business day” means any day that is not a Saturday or a Sunday and on which the
principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day that is not a Saturday or a Sunday and on which
banks are not authorized to close in New York City.

          “Certificate of Incorporation” means the Restated Certificate of Incorporation of the
Company, dated as of April 5, 2000, as amended from time to time.

          “Commission” means the Securities and Exchange Commission.

          “control,” when used with respect to any person, means the possession, directly or
indirectly, or as trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting securities, as trustee
or executor, by contract, credit arrangement or otherwise; including the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of directors or similar
body governing the affairs of such person.

          “Current Market Value” per share of Company Common Stock or of any other security at
any date shall be (i) if the Security is registered under the Exchange Act, the average of the
daily Market Prices for each business day during the period commencing 15 business days before such
date and ending on the date one day prior to such date or, if the Security has been registered
under the Exchange Act for less than 15 consecutive business days before such date, then the
average of the daily Market Prices for all of the business days before such date for which daily
Market Prices are available. If the Market Price is not determinable for at least 10 business days
in such period, the Current Market Value of the Security shall be determined as if the Security was
not registered under the Exchange Act, or (ii) if the Security is not registered under the Exchange
Act, (i) the value of the Security determined in good faith by the Board of Directors of the
Company and certified in a board resolution, based on the most recently completed arm’s length
transaction between the Company and a person other than an affiliate of the Company in which such
determination is necessary and the closing of which occurs on such date or shall have occurred
within the six months preceding such date, (ii) if no such transaction shall have occurred on such
date or within such six-month period, the value of the Security most recently determined as of a
date within the six months preceding such date by an Independent Financial Expert or (iii) if
neither clause (i) nor (ii) is applicable, the value of the Security determined as of such date by
an Independent Financial Expert.

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.

          “Independent Financial Expert” shall mean a nationally recognized investment banking
firm designated by the Company and reasonably acceptable to the Holders of a majority
of the Warrants (a) that does not (and whose directors, officers, employees and affiliates do
not) have a direct or indirect material financial interest in the Company, (b) that has not been,
and, at

 

3

the time it is called upon to serve as an Independent Financial Expert under this Agreement
is not (and none of whose directors, officers, employees or affiliates is) a promoter, director or
officer of the Company, (c) that has not been retained by the Company or any Holder or affiliate of
a Holder for any purpose, other than to perform an equity valuation, within the preceding twelve
months, and (d) that, in the reasonable judgment of the Board of Directors of the Company, is
otherwise qualified to serve as an independent financial advisor. Any such person may receive
customary compensation and indemnification by the Company for opinions or services it provides as
an Independent Financial Expert.

          “Initial Closing” means the closing of the issuance, purchase and sale of the Initial
Shares (as such term is defined in the Securities Purchase Agreement) as contemplated by the
Securities Purchase Agreement.

          “Law” means any statute, law (including common law), ordinance, regulation, rule,
code, executive order, injunction, judgment, decree or other order issued or promulgated by any
national, supranational, state, federal, provincial, local or municipal government or any
administrative or regulatory body with authority therefrom with jurisdiction over the Company or
the Investor, as the case may be (including any requirements under the the General Corporation Law
of the State of Delaware, as in effect from time to time, and the Exchange Act).

          “Market Price” for any Security on each business day means (a) if such Security is
listed or admitted to trading on any securities exchange, the closing price, regular way, on such
day on the principal exchange on which such Security is traded, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day, (b) if such Security is not then
listed or admitted to trading on any securities exchange, the last reported sale price on such day,
or if there is no such last reported sale price on such day, the average of the closing bid and the
asked prices on such day, as reported by a reputable quotation source designated by the Company, or
(c) if neither clause (a) nor (a) is applicable, the average of the reported high bid and low asked
prices on such day, as reported by a reputable quotation service, or a newspaper of general
circulation in the Borough of Manhattan, City of New York, customarily published on each business
day, designated by the Company. If there are no such prices on a business day, then the Market
Price shall not be determinable for such business day.

          “Nasdaq Regulation” means the rules and regulations of the Nasdaq Stock Market or any
other applicable securities exchange on which the Company Common Stock is then listed.

          “Representative” means, as to any person, such person’s affiliates and its and their
directors, officers, employees, agents, advisors (including financial advisors, counsel and
accountants) and such person’s financing sources.

          “Security” means shares of Company Common Stock or of any other security.

          “subsidiary” or “subsidiaries” of any person means any corporation,
partnership, limited liability company, joint venture, association or other legal entity of which
such person (either alone or together with any other subsidiary) owns, directly or indirectly, more
than 50%
of the stock or other equity interests, the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such corporation or other
legal entity.

 

4

          (b) The following terms have the meaning set forth in the Sections set forth below:

	 	 	 
	 	 	Location of
	Defined Term	 	Definition
	Agreement

	 	Preamble
	Company Common Stock

	 	Recitals
	Company

	 	Preamble
	Consideration

	 	§ 9(c)
	Exercise Payment

	 	§ 5(d)
	Exercise Period

	 	§ 5(c)
	Exercise Price

	 	Recitals
	Holders

	 	§ 2
	Investor

	 	Preamble
	Offer

	 	§ 9(k)
	Offer Period

	 	§ 9(k)
	Permitted Transferees

	 	§ 4(a)
	Per Share Consideration

	 	§ 9(k)
	Purchase Date

	 	§ 9(k)
	Registration Rights Agreement

	 	Recitals
	Reorganizations

	 	§ 9(h)
	Securities Purchase Agreement

	 	Recitals
	Transfer Agent

	 	§ 8(b)
	Warrant Certificates

	 	§ 2
	Warrant Number

	 	§ 9
	Warrant Register

	 	§ 2
	Warrants

	 	Recitals
	Warrant Shares

	 	Recitals

     SECTION 2. Issuance of Warrants. Immediately upon execution and delivery hereof, the
Company shall issue and deliver to the Investor certificates evidencing the Warrants (the
“Warrant Certificates”). The Warrant Certificates (a) shall be in registered form,
numbered sequentially, and shall be substantially in the form set forth as Appendix A and (b) shall
be dated the date of issuance by the Company. The Warrant Certificates shall be signed on behalf of
the Company by its Chairman of the Board of Directors of the Company or its Chief Executive
Officer, President or a Vice President and by the Secretary or an Assistant Secretary of the
Company under the Company’s corporate seal. The seal of the Company may be in the form of a
facsimile thereof and may be impressed,
affixed, imprinted or otherwise reproduced on the Warrant Certificates.

     SECTION 3. Registration. Upon issuance of the Warrant Certificates, the Company shall
number and register the Warrant Certificates in a register (the “Warrant Register”), which

 

5

shall be kept at the Company’s principal office and shall record the registered holder(s) of the
Warrant Certificates (the “Holders”). The Warrants shall be registered initially in such
name or names as the Investor shall designate.

     SECTION 4. Registration of Transfers and Exchanges. 

          (a) Without the prior approval of the Unaffiliated Board (as such term is defined in the
Securities Purchase Agreement), the Warrants may not be transferred by the Investor to any person,
except to one or more of the Investor’s subsidiaries, or to any corporation, partnership or limited
liability company that is an affiliate of the Investor (such persons, collectively, the
“Permitted Transferees”), and any transfer or attempted transfer without such consent shall
be void. Notwithstanding the foregoing, this Agreement shall not restrict the transfer of any
Warrant Shares.

          (b) Prior to any proposed transfer of the Warrants as permitted by this Section 4, the
transferring Holder will deliver to the Company a Certificate of Transfer in the form attached to
the Warrant Certificate and, if so requested by the Company, such other information relating to the
proposed transfer and the identity of the proposed transferee as the Company may reasonably request
in order to confirm that the Warrants may be sold or otherwise transferred in the manner proposed.
Upon original issuance thereof, and until such time as the same shall have been registered under
the Securities Act or sold pursuant to Rule 144 promulgated thereunder (or any similar rule or
regulation) each Warrant Certificate shall bear a legend in substantially the following form:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES GENERALLY MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

          (c) The Company shall from time to time promptly register the transfer of any outstanding
Warrant Certificates in the Warrant Register upon surrender thereof accompanied by a written
instrument or instruments of transfer, duly executed by the registered Holder or Holders thereof or
by the duly appointed legal representative thereof or by a duly authorized attorney. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the transferee(s) and the
surrendered Warrant Certificate shall be canceled and disposed of by the Company.

          (d) Warrant Certificates may be exchanged at the option of the Holder(s) thereof, when
surrendered to the Company at its office for another Warrant Certificate or other Warrant
Certificates of like series and tenor and representing in the aggregate a like number of
Warrants. The Warrant Certificates surrendered for exchange shall be canceled and disposed of by
the Company.

          (e) The Holders of the Warrants are entitled to certain registration rights with

 

6

respect to
the Company Common Stock issuable upon the exercise thereof, which are set forth in the
Registration Rights Agreement. By accepting a Warrant Certificate issued pursuant to this
Agreement, the Holder agrees that upon exercise of some or all of the Warrants evidenced by such
Warrant Certificate, such Holder will be bound by the Registration Rights Agreement as a holder of
Registrable Securities thereunder. A copy of the Registration Rights Agreement may be obtained upon
written request to the Company.

     SECTION 5. Warrants; Exercise of Warrants.

          (a) Subject to the terms of this Agreement, each Holder shall have the right, which may be
exercised at any time or from time to time during the applicable Exercise Period to receive from
the Company the number of fully paid and nonassessable Warrant Shares (and such other
consideration) which the Holder may at the time be entitled to receive upon the exercise of such
Warrants and payment of the Exercise Price.

          (b) Each Warrant may be exercised in full or from time to time in part and, in the event
that a Warrant is exercised in respect of fewer than all of the Warrant Shares issuable on such
exercise at any time prior to the expiration of the Exercise Period, a new certificate evidencing
the remaining Warrant or Warrants shall be issued and delivered pursuant to the provisions of this
Section 5 and Section 2 hereof. The Warrants shall become void and all rights and obligations
thereunder and all rights in respect thereof under this Agreement shall cease (i) to the extent the
Warrants are not exercised during the Exercise Period or (ii) upon the occurrence of the Initial
Closing under the Securities Purchase Agreement.

          (c) The period during which the Warrants shall be exercisable (the “Exercise
Period”) shall commence on the date hereof and expire at 5:00 p.m. N.Y. time, on the date of
the earliest to occur of:

     (i) the Initial Closing;

     (ii) the date that is thirty (30) business days following the Stockholders’
Meeting (as defined in the Securities Purchase Agreement) at which a vote on the
transactions contemplated by the Securities Purchase Agreement is taken, so long as
the Company has not materially breached its representations, warranties or covenants
under the Securities Purchase Agreement, the Board of Directors of the Company has
not made a Recommendation Change (as defined in the Securities Purchase Agreement),
no Person has consummated, announced or made public any Acquisition Proposal and the
Board of Directors of the Company has not approved or recommended, or proposed to
approve or recommend, any Acquisition Proposal;

     (iii) the date that is three (3) years following the termination of the
Securities Purchase Agreement other than due to a material breach thereof by the
Investor;

     (iv) the date that is nine (9) months following the Stockholders Meeting if,
prior thereto, the Board of Directors of the Company has made a Recommendation
Change or any Person has consummated, announced or made

 

7

public any Acquisition
Proposal, so long as the Company has not materially breached its representations,
warranties or covenants under the Securities Purchase Agreement; or

     (v) the termination of the Securities Purchase Agreement due to a material
breach thereof by the Investor.

          (d) The Warrants may be exercised upon surrender to the Company (at its office address set
forth in Section 14 hereof) of the Warrant Certificates with the form of election to purchase
attached thereto duly filled in and signed, and upon payment to the Company of an amount (the
“Exercise Payment”) equal to the Exercise Price multiplied by the number of Warrant Shares
being purchased pursuant to such exercise, payable in cash, by wire transfer, of the Exercise
Payment to an account designated by the Company.

          (e) Subject to the provisions of Section 6 hereof, upon such surrender of the Warrant
Certificates and payment of the Exercise Price, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Holders and in such name or names
as such Holders may designate a certificate or certificates for the number of full Warrant Shares
issuable upon the exercise of the Warrants (and such other consideration as may be deliverable upon
exercise of the Warrants) together with cash for fractional Warrant Shares as provided in Section
12. Such certificate or certificates shall be deemed to have been issued and the person so named
therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of
the surrender of the Warrant Certificates and payment of the Exercise Payment, irrespective of the
date of delivery of such certificate or certificates for Warrant Shares.

          (f) Upon exercise of the Warrants, the Warrant Certificates shall be surrendered and shall
be cancelled and disposed of by the Company. The Company shall keep copies of this Agreement and
any notices given or received hereunder available for inspection by the Holders during normal
business hours at its office.

     SECTION 6. Payment of Taxes. The Company will pay all documentary stamp taxes and other
governmental charges (excluding all foreign, federal or state income, franchise, property, estate,
inheritance, gift or similar taxes) in connection with the issuance or delivery of the Warrant
Certificates hereunder, as well as all such taxes attributable to the initial issuance or delivery
of Warrant Shares upon the exercise of the Warrants and payment of the Exercise Price.

     SECTION 7. Mutilated or Missing Warrant Certificates. If any Warrant Certificate or
certificate evidencing Warrant Shares shall be mutilated, lost,
stolen or destroyed, the Company shall issue, in exchange and substitution therefor and upon
cancellation of the mutilated Warrant Certificate or other certificate, or in lieu of and
substitution for the Warrant Certificate or other certificate lost, stolen or destroyed, a new
Warrant Certificate or other certificate of like tenor and representing an equivalent number of
Warrants or Warrant Shares.

     SECTION 8. Reservation of Warrant Shares.

          (a) The Company shall at all times reserve and keep available, free from preemptive rights,
out of the aggregate of its authorized but unissued Company Common Stock or its authorized and
issued Company Common Stock held in its treasury, for the purpose of

 

8

enabling it to satisfy any
obligation to issue the Warrant Shares upon exercise of the Warrants, the maximum number of shares
of Company Common Stock which may then be deliverable upon the exercise of all outstanding
Warrants.

          (b) The Company or, if appointed, the transfer agent for the Company Common Stock and each
transfer agent for any shares of the Company’s capital stock issuable upon the exercise of any of
the Warrants (collectively, the “Transfer Agent”) will be irrevocably authorized and
directed at all times to reserve such number of authorized shares as shall be required for such
purpose. The Company shall keep a copy of this Agreement on file with the Transfer Agent. The
Company will supply the Transfer Agent with duly executed certificates for such purposes and will
provide or otherwise make available all other consideration that may be deliverable upon exercise
of the Warrants. The Company will furnish such Transfer Agent a copy of all notices of adjustments
and certificates related thereto, transmitted to each Holder pursuant to Section 13 hereof.

          (c) Before taking any action which would cause an adjustment pursuant to Section 9 hereof to
reduce the Exercise Price below the then par value of the Warrant Shares, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.

          (d) The Company covenants that all the Warrant Shares and other capital stock issued upon
exercise of the Warrants will, upon payment of the Exercise Price therefor and issue, be validly
authorized and issued, fully paid, nonassessable, free of preemptive rights and free from all
taxes, liens, charges and security interests with respect to the issue thereof.

          (e) The Company shall from time to time take all action which may be necessary or
appropriate so that the Company Common Stock issuable upon conversion of the Warrant Shares
following an exercise of the Warrants, will be listed on the Nasdaq Stock market and any other
securities exchanges and markets, if any, on which other shares of the same class of Company Common
Stock of the Company are then listed or admitted for quotation.

          (f) The Company shall not by any action including, without limitation, amending its
Certificate of Incorporation, any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Warrant, but shall at all times in good
faith assist in the carrying out of all such terms and in the taking of all such action, as may be
necessary or appropriate to protect the rights of the Holder against impairment. Without limiting
the generality of the foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Company may validly issue fully paid and nonassessable shares of
Company Common Stock upon the exercise of this Warrant at the then Exercise Price therefor.

     SECTION 9. Adjustment of Exercise Price and Number of Warrant Shares Issuable. The
Exercise Price and the number of shares of Company Common Stock issuable upon the exercise of each
Warrant (the “Warrant Number”) are subject to adjustment from time to time upon the
occurrence of the events enumerated in, or as otherwise provided in, this Section 9. The Warrant
Number is initially one.

 

9

          (a) Adjustment for Change in Capital Stock. If the Company:

	 	(i)	 	pays a dividend or makes a distribution on its
Company Common Stock in shares of its Company Common Stock;
	 
	 	(ii)	 	subdivides or reclassifies its outstanding shares of Company Common Stock into a greater number of shares;
	 
	 	(iii)	 	combines or reclassifies its outstanding shares of Company Common Stock into a smaller number of shares;
	 
	 	(iv)	 	makes a distribution on its Company Common
Stock in shares of its capital stock other than Company Common Stock;
or
	 
	 	(v)	 	issues by reclassification of its Company
Common Stock any shares of its capital stock;

then the Exercise Price in effect immediately prior to such action shall be proportionately
adjusted so that the holder of any Warrant thereafter exercised may receive the aggregate number
and kind of shares of capital stock of the Company which he or it would have owned immediately
following such action if such Warrant had been exercised immediately prior to such action.

     The adjustment shall become effective immediately after the record date in the case of a
dividend or distribution and immediately after the effective date in the case of a subdivision,
combination or reclassification.

     If after an adjustment, a holder of a Warrant upon exercise of it would receive shares of two
or more classes of capital stock of the Company, the Company shall determine the allocation of the
adjusted Exercise Price between the classes of capital stock. After such allocation, the exercise
privilege and the Exercise Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Company Common Stock in this Section 9.

     Such adjustment shall be made successively whenever any event listed above shall occur. If
the occurrence of any event listed above results in an adjustment under subsections (b) or (c)
below, no further adjustment shall be made under this subsection (a).

          (b) Adjustment for Rights Issue. If the Company distributes any rights, options or
warrants (whether or not immediately exercisable) to all holders of its Company Common Stock
entitling them to purchase shares of Company Common Stock at a price per share less than the
Current Market Value per share within 60 days after the record date relating to such distribution,
the Exercise Price shall be adjusted in accordance with the formula:

 

10

where:

	 	 	 
	E’ =

	 	the adjusted Exercise Price.
	 
	 	 
	E =

	 	the then current Exercise Price.
	 
	 	 
	O =

	 	the number of shares of Company Common Stock outstanding on the
record date for any such distribution.
	 
	 	 
	N =

	 	the number of additional shares of Company Common Stock issuable
upon exercise of such rights, options or warrants.
	 
	 	 
	P =

	 	the exercise price per share of such rights, options or warrants.
	 
	 	 
	M =

	 	the Current Market Value per share of Company Common Stock on the
record date for any such distribution.

     The adjustment shall be made successively whenever any such rights, options or warrants are
issued and shall become effective immediately after the record date for the determination of
stockholders entitled to receive the rights, options or warrants. If at the end of the period
during which such rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the Exercise Price shall be immediately readjusted to what it would have
been if “N” in the above formula had been the number of shares actually issued. No adjustment
shall be required under this subsection (b) if at the time of such distribution the Company makes
the same distribution to Holders of Warrants as it makes to holders of shares of Company Common
Stock pro rata based on the number of shares of Company Common Stock for which such Warrants are
exercisable (whether or not currently exercisable). No adjustment shall be made pursuant to this
subsection (b) which shall be have the effect of decreasing the number of Warrant Shares
purchasable upon exercise of each Warrant.

          (c) Adjustment for Other Distributions. If the Company distributes to all holders of
its Company Common Stock (i) any evidences of indebtedness of the Company or any of its
subsidiaries, (ii) any cash or other assets of the Company or any of its subsidiaries, (iii) shares
of its capital stock or any other properties or securities or (iv) any rights, options or warrants
to acquire any of the foregoing or to acquire any other securities of the Company (the items
described in the foregoing clauses (i)-(iv) being collectively referred to as the
“Consideration”), the Exercise Price shall be adjusted in accordance with the formula:

where:

	 	 	 
	E’ =

	 	the adjusted Exercise Price.
	 
	 	 
	E =

	 	the then current Exercise Price.
	 
	 	 
	M =

	 	the Current Market Value per share of Company Common Stock on the
record date mentioned below.
	 
	 	 
	F =

	 	the fair market value on the record date mentioned below of the
Consideration distributable to the holder of one share of Company
Common Stock.

     The adjustment shall be made successively whenever any such distribution is made and shall
become effective immediately after the record date for the determination of stockholders

 

11

entitled to receive the distribution. If an adjustment is made pursuant to this subsection (c) as a result
of the issuance of rights, options or warrants and at the end of the period during which any such
rights, options or warrants are exercisable, not all such rights, options or warrants shall have
been exercised, the Exercise Price shall be immediately readjusted as if “F” in the above formula
was the fair market value on the record date of the indebtedness or assets actually distributed
upon exercise of such rights, options or warrants divided by the number of shares of Company Common
Stock outstanding on the record date. No adjustment shall be required under this subsection (c) if
at the time of such distribution the Company makes the same distribution to Holders of Warrants as
it makes to holders of shares of Company Common Stock pro rata based on the number of shares of
Company Common Stock for which such Warrants are exercisable (weather or not currently
exercisable). No adjustment shall be made pursuant to this subsection (c) which shall be have the
effect of decreasing the number of Warrant Shares purchasable upon exercise of each Warrant.

     This subsection does not apply to any distribution referred to in subsection (a) of this
Section 9 or to rights, options or warrants referred to in subsection (b) of this Section 9.

          (d) When De Minimis Adjustment May Be Deferred. No adjustment in the Exercise Price
need be made unless the adjustment would require an increase or decrease of at least 1% in the
Exercise Price. No adjustment in the Warrant Number need be made unless the adjustment would
require an increase or decrease of at least 0.5% in the Warrant Number. Any adjustments that are
not made shall be carried forward and taken into account in any subsequent adjustment, provided
that no such adjustment shall be deferred beyond the date on which a Warrant is exercised.

          All calculations under this Section 9 shall be made to the nearest 1/1000th of a share.

          (e) When No Adjustment Required. If an adjustment is made upon the establishment of
a record date or issuance date for a distribution or issuance subject to subsections (a), (b) or
(c) hereof and such distribution or issuance is subsequently cancelled, the Warrant Number then in
effect shall be readjusted, effective as of the date when the Board of Directors of the Company
determines to cancel such distribution, to that which would have been
in effect if such record date had not been fixed.

          To the extent the Warrants become convertible into cash, no adjustment need be made thereafter
as to the amount of cash into which such Warrants are exercisable. Interest will not accrue on the
cash.

          (f) Notice of Adjustment. Whenever the Exercise Price or the Warrant Number is
adjusted, the Company shall provide the notices required by Section 13 hereof.

          (g) When Issuance or Payment May Be Deferred. In any case in which this Section 9
shall require that an adjustment in the Exercise Price and Warrant Number be made effective as of a
record date for a specified event, the Company may elect to defer until the occurrence of such
event (i) issuing to the Holder of any Warrant exercised after such record date the Warrant Shares
and other capital stock of the Company, if any, issuable upon such exercise

 

12

over and above the
Warrant Shares and other capital stock of the Company, if any, issuable upon such exercise on the
basis of the Warrant Number prior to such adjustment, and (ii) paying to such Holder any amount in
cash in lieu of a fractional share pursuant to Section 12; provided, however, that the Company
shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder’s
right to receive such additional Warrant Shares, other capital stock and cash upon the occurrence
of the event requiring such adjustment.

          (h) Reorganizations. In case of any capital reorganization, other than in the cases
referred to in Sections 9(a), (b) or (c) hereof, or the consolidation or merger of the Company with
or into another corporation (other than a merger or consolidation which does not result in any
reclassification of the outstanding shares of Company Common Stock into shares of other stock or
other securities or property) (collectively such actions being hereinafter referred to as
“Reorganizations”), there shall thereafter be deliverable upon exercise of any Warrant (in
lieu of the number of shares of Company Common Stock theretofore deliverable) the number of shares
of stock or other securities or property to which a holder of the number of shares of Company
Common Stock that would otherwise have been deliverable upon the exercise of such Warrant would
have been entitled upon such Reorganization if such Warrant had been exercised in full immediately
prior to such Reorganization. In case of any Reorganization, appropriate adjustment, as determined
in good faith by the Board of Directors of the Company, whose determination shall be described in a
duly adopted resolution certified by the Company’s Secretary or Assistant Secretary, shall be made
in the application of the provisions herein set forth with respect to the rights and interests of
Holders so that the provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable upon exercise of
Warrants.

     The Company shall not effect any such Reorganization unless prior to or simultaneously with
the consummation thereof the successor corporation (if other than the Company) resulting from such
Reorganization or other appropriate corporation or entity shall expressly assume, by a supplemental
Warrant Agreement or other acknowledgement executed and delivered to the Holder(s), the obligation
to deliver to each such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase, and all other obligations and
liabilities under this Agreement.

          (i) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price
pursuant to this Section 9, each Warrant outstanding prior to the making of the adjustment in the
Exercise Price shall thereafter evidence the right to receive upon payment of the adjusted Exercise
Price that number of shares of Company Common Stock (calculated to the nearest thousandth) obtained
from the following formula:

where:

	 	 	 
	N’ =

	 	the adjustment number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Exercise Price.
	 
	 	 
	N =

	 	the number of Warrant Shares previously issuable upon exercise of a
Warrant by payment of the Exercise Price prior to adjustment.

 

13

	 	 	 
	E’ =

	 	the adjusted Exercise Price.
	 
	 	 
	E =

	 	the Exercise Price prior to adjustment.

          (j) Adjustments in Other Securities. If as a result of any event or for any other
reason, any adjustment is made which increases the number of shares of Company Common Stock
issuable upon conversion, exercise or exchange of, or in the conversion or exercise price or
exchange ratio applicable to, any outstanding securities of the Company that are convertible into,
or exercisable or exchangeable for, Company Common Stock of the Company, then a corresponding
adjustment shall be made hereunder to increase the number of shares of Company Common Stock
issuable upon exercise of the Warrants, but only to the extent that no such adjustment has been
made pursuant to Sections 9(a), (b) or (c) hereof with respect to such event or for such other
reason.

          (k) Tender Offers; Exchange Offers. In the event that the Company or any subsidiary
of the Company shall purchase shares of Company Common Stock pursuant to a tender offer or an
exchange offer for a price per share of Company Common Stock that is greater than the then Current
Market Value per share of shares of Company Common Stock in effect at the end of the trading day
immediately following the day on which such tender offer or exchange offer expires, then the
Company, or such subsidiary of the Company, shall, within (10) business days of the expiry of such
tender offer or exchange offer, offer to purchase the Warrants for comparable consideration per
share of Company Common Stock based on the number of shares of Company Common Stock which the
Holders of such Warrants would receive upon exercise of such Warrants (the “Offer”) (such
amount less the Exercise Price in respect of such share, the “Per Share Consideration”);
provided, however, if a tender offer is made for only a portion of the outstanding shares of
Company Common Stock, then such offer shall be made for such shares of Company Common Stock
issuable upon exercise of the Warrants in the same pro rata proportion; provided, further, that the
Company shall not be required to make such an Offer if the Per Share Consideration is an amount
less than the then-existing Exercise Price per share.

     The Offer shall remain open for a period of twenty (20) business days following its
commencement and no longer, except to the extent that a longer period is required by applicable law
(the “Offer Period”). No later than five (5) business days after the termination of the
Offer Period (the “Purchase Date”), the Company shall purchase such Warrants for the
applicable Per Share Consideration.

          (l) Other Events. If any event shall occur as to which the other provisions of this
Section 9 are not strictly applicable but the failure to make any adjustment would have the effect
of depriving holders of the benefit of all or a portion of the exercise rights in respect of any
Warrant in accordance with the essential intent and principles of this Section 9, then, in each
such case, the Company shall appoint an Independent Financial Expert, which shall give its opinion
upon the adjustment, if any, on a basis consistent with the essential intent and principles
established in this Section 9 necessary to preserve, without dilution, such exercise rights. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to the Holders and shall
make the adjustments described therein.

          (m) Miscellaneous. For purpose of this Section 9 the term “shares of Company

 

14

Common Stock” shall mean (i) shares of any class of stock designated as Company Common Stock of the
Company at the date of this Agreement, and (ii) shares of any other class of stock resulting from
successive changes or reclassification of such shares consisting solely of changes in par value, or
from par value to no par value, or from no par value to par value. In the event that at any time,
as a result of an adjustment made pursuant to this Section 9, the holders of Warrants shall become
entitled to purchase any securities of the Company other than, or in addition to, shares of Company
Common Stock, thereafter the number or amount of such other securities so purchasable upon exercise
of each Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares contained in
subsections (a) through (l) of this Section 9, inclusive, and the provisions of Sections 5, 6 and 8
with respect to the Warrant Shares or the Company Common Stock shall apply on like terms to any
such other securities.

     SECTION 10. Standstill.

          (a) The Investor agrees that, from and after the date of this Agreement, it will not,
without the prior approval of the Unaffiliated Board (as such term is defined in the Securities
Purchase Agreement), directly or indirectly:

(i) acquire, directly or indirectly, beneficial ownership of any shares of
Company Common Stock, other than upon the exercise of the Warrants.

(ii) make or participate, directly or indirectly, in any “solicitation” of
“proxies” (as such terms are used in the rules of the Commission) to vote
any voting securities of the Company or any subsidiary thereof; provided,
however, that the prohibition in this Section 10 shall not apply to
solicitations exempted from the proxy solicitation rules by Rule 14a-2 under
the Exchange Act or any successor provision;

(iii) submit to the Board of Directors of the Company a written proposal
(with or without conditions) for, any merger, recapitalization,
reorganization, business combination or other extraordinary transaction, in
each case involving an acquisition of the Company or any subsidiary thereof
or any of their securities or assets by the Investor or its affiliates, or
make any public announcement with respect to such a proposal or offer if it
would reasonably be expected that the Company would conclude that it would
have to make a public announcement of such proposal;

(iv) enter into any discussions, negotiations, arrangements or
understandings with any third party (other than any person that would be a
Permitted Transferee) with respect to any of the foregoing, or otherwise
form, join or in any way engage in discussions relating to the formation of,
or participation in, a group with any third party (other than any person
that would be a Permitted Transferee), in connection with any of the
foregoing; or

(v) request the Company or any of its Representatives, directly or

 

15

indirectly, to amend or waive any provision of this paragraph (including
this sentence);

provided, however, that none of the foregoing shall (A) prevent the Investor from transferring any
Warrants, Warrant Shares or other shares of Company Common Stock held by it or voting its shares of
Company Common Stock; (B) apply to or restrict any discussions or other communications between or
among directors, members, officers, employees or agents of any member of the Investor or any
affiliate thereof; (C) prohibit the Investor from soliciting, offering, seeking to effect or
negotiating with any person with respect to transfers Warrants, Warrant Shares or other shares of
Company Common Stock or (D) restrict any disclosure or statements required to be made by any Holder
under applicable Law or Nasdaq Regulation.

          (b) Termination of Standstill. The provisions of Section 10 shall automatically
terminate on the earliest to occur of:

(i) the one-year anniversary of the first date on which any Warrants shall
have been exercised;

(ii) the date on which the shares of Company Common Stock beneficially owned
by the Investor and its affiliates represent less than 10% of the aggregate
number of shares of Company Common Stock then outstanding;

(iii) the date on which any person consummates, announces or makes public
any Acquisition Proposal or the Board of Directors of the Company approves
or recommends, or proposes to approve or recommend, any Acquisition
Proposal; or

(iv) the Initial Closing.

     SECTION 11. Furnishing of Information.

          (a) The Company shall furnish or make available to the Investor and its Representatives,
promptly after such information becomes available to the Company, such financial, management and
operations plans, reports and information as exist and as are requested by the Investor (including
audited annual and unaudited quarterly financial statements in the event the Company is no longer
obligated to provide such information in filings with the Commission). The Company shall, and shall
cause its subsidiaries and the officers, directors, employees, auditors and agents of the Company
and its subsidiaries to, afford the Investor and its Representatives reasonable access at all
reasonable times to the officers, employees, agents, properties, offices and other facilities,
books and records of the Company and each subsidiary as the Investor shall reasonably request.

          (b) The provisions of this Section 11 shall automatically terminate on the termination of
the restrictions under Section 10(a) hereof pursuant to Section 10(b) hereof.

     SECTION 12. Fractional Interests. The Company shall not be required to issue
fractional Warrant Shares on the exercise of the Warrants. If more than one warrant shall be

 

16

presented for exercise in full at the same time by the same holder, the number of full Warrant
Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the
aggregate number of Warrant Shares issuable upon the exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 12, be issuable on the
exercise of the Warrants, the Company shall pay an amount in cash equal to the fair value of the
Warrant Share so issuable (as determined in good faith by the Board of Directors of the Company),
multiplied by such fraction.

     SECTION 13. Notices to Warrant Holders.

          (a) Upon any adjustment pursuant to Section 9 hereof, the Company shall promptly thereafter
(i) cause to be filed with the Company a certificate of an officer of the Company setting forth the
Warrant Number and Exercise Price after such adjustment and setting forth in reasonable detail the
method of calculation and the facts upon which such calculations are based, and (ii) cause to be
given to each of the registered Holders of the Warrant Certificates at his or its address appearing
on the Warrant register written notice of such adjustments by first class mail, postage prepaid.
Where appropriate, such notice may be given in advance and included as a part of the notice
required to be mailed under the other provisions of this Section 11.

          (b) In case:

	 	(i)	 	the Company shall authorize the issuance to all
holders of shares of Company Common Stock of rights, options or
warrants to subscribe for or purchase shares of Company Common Stock or
of any other subscription rights or warrants; or
	 
	 	(ii)	 	the Company shall authorize the distribution to
all holders of shares of Company Common Stock of assets, including cash, evidences
of its indebtedness, or other securities; or
	 
	 	(iii)	 	of any consolidation or merger to which the
Company is a party and for which approval of any shareholders of the
Company is required, or of the conveyance or transfer of substantially
all of the properties and assets of the Company, or of any
reclassification or change of Company Common Stock issuable upon
exercise of the Warrants (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or a tender offer or exchange
offer for shares of Company Common Stock; or
	 
	 	(iv)	 	of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
	 
	 	(v)	 	the Company proposes to take any action that
would require an adjustment to the Warrant Number or the Exercise Price
pursuant to Section 9 hereof;

 

17

then the Company shall cause to be given to each of the registered Holders of the Warrant
Certificates at his or its address appearing on the Warrant register, at least 20 days prior to the
applicable record date hereinafter specified, or 20 days prior to the date of the event in the case
of events for which there is no record date, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Company Common Stock to be
entitled to receive any such rights, options, warrants or distribution are to be determined, or
(ii) the initial expiration date set forth in any tender offer or exchange offer for shares of
Company Common Stock, or (iii) the date on which any such consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up is expected to become effective or consummated,
and the date as of which it is expected that holders of record of shares of Company Common Stock
shall be entitled to exchange such shares for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up. The failure to give the notice required by this Section 13 or any defect therein
shall not affect the legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote
upon any action.

          (c) Nothing contained in this Agreement or in any Warrant Certificate shall be construed as
conferring upon the Holders of Warrants (prior to the exercise of such Warrants) the right to vote
or to consent or to receive notice as shareholders in respect of the meetings of shareholders or
the election of Directors of the Company or any other matter, or any rights whatsoever as
shareholders of the Company.

     SECTION 14. Notices to the Company and Warrant Holders.

          (a) All notices and other communications provided for or permitted hereunder shall be made
by hand delivery, first-class mail, telex, telecopier, or overnight air courier
guaranteeing next day delivery:

	 	(i)	 	if to the Investor:
	 
	 	 	 	Invus, L.P.

c/o The Invus Group, L.L.C.

750 Lexington Avenue (30th Floor)

New York, New York 10022

Attention: Mr. Ray Debbane

                 Mr. Christopher Sobecki
	 
	 	 	 	with a copy to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Fax: (212) 455-2502

Attention: Mr. Robert Spatt

                 Mr. Peter Malloy
	 
	 	(ii)	 	if to Holders other than the Investor, at the
addresses reflected in the books and records of the Company from time
to time; and

 

18

	 	(iii)	 	if to the Company:
	 
	 	 	 	Lexicon Pharmaceuticals, Inc.

8800 Technology Forest Place

The Woodlands, Texas 77381

Attn: President and Chief Executive Officer

Fax: (281) 863-8095
	 
	 	 	 	with copies to each of:
	 
	 	 	 	Lexicon Pharmaceuticals, Inc.

8800 Technology Forest Place

The Woodlands, Texas 77381

Attn: Executive Vice President and General Counsel

Fax: (281) 863-8010
	 
	 	 	 	and
	 
	 	 	 	Lexicon Pharmaceuticals, Inc.

8800 Technology Forest Place

The Woodlands, Texas 77381

Attn: Executive Vice President and Chief Financial Officer

Fax: (281) 863-8095
	 
	 	 	 	and
	 
	 	 	 	Vinson & Elkins L.L.P.

First City Tower

1001 Fannin Street, Suite 2500

Houston, TX 77002-6760

Attn: Mr. David Palmer Oelman

Fax: (713) 615-5861

          (b) All such notices and communications shall be deemed to have been duly given: at the
time delivered by hand, if personally delivered; five (5) business days after being deposited in
the mail, postage prepaid, if mailed; when answered back if telexed; when receipt acknowledged, if
telecopied; and the next business day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery. The parties may change the addresses to which notices
are to be given by giving five days’ prior notice of such change in accordance herewith.

     SECTION 15. Supplements and Amendments. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, the Company and the Investor.

     SECTION 16. Assignment. This Agreement shall not be assigned by operation of Law or
otherwise without the express written consent of the parties hereto (which consent may be

 

19

granted or withheld in the sole discretion of any party) and any such assignment or attempted assignment
without such consent shall be void; provided, that the Investor may assign its rights and
obligations under this Agreement and the Warrants to a Permitted Transferee.

     SECTION 17. Successors and Assigns. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Investor and the registered Holders of the Warrant
Certificates shall be binding upon and inure solely to the benefit of Company, the Investor and the
registered Holders of the Warrant Certificates, as applicable, and their respective successors and
permitted assigns hereunder, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.

     SECTION 18. Termination. Except as otherwise specifically provided herein,
this Agreement shall terminate on the earliest to occur of (a) the date on which all Warrants have
expired without any of them having been exercised or (b) the occurrence of the Initial Closing.

     SECTION 19. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the Laws of the State
of New York. All actions and proceedings arising out of or relating to this Agreement shall be
heard and determined exclusively in any New York state or federal court, in each case sitting in
the Borough of Manhattan. The parties hereto hereby (a) submit to the exclusive jurisdiction of any
New York state or federal court, in each case sitting in the Borough of Manhattan, for the purpose
of any Action arising out of or relating to this Agreement brought by any party hereto, and (b)
irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such
Action, any claim that it is not subject personally to the jurisdiction of the above-named courts,
that its property is exempt or immune from attachment or execution, that the Action is brought in
an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the
Transactions contemplated hereby may not be enforced in or by any of the above-named courts.

     SECTION 20. Benefits of This Agreement. Nothing in this Agreement shall be construed to
give to any person or corporation other than the Company, the Investor and the registered Holders
of the Warrant Certificates any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the Company, the Investor and the
registered Holders of the Warrant Certificates.

     SECTION 21. Interpretation. The words “hereof”, “herein” and “hereunder” and words
of like import used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. When reference is made in this Agreement to an Article or
a Section, such reference shall be to an Article or Section of this Agreement, unless otherwise
indicated. The table of contents, table of defined terms and headings contained in this Agreement
are for convenience of reference only and shall not affect in any way the meaning or interpretation
of this Agreement. The language used in this Agreement shall be deemed to be the language chosen
by the parties hereto to express their mutual intent, and no rule of strict construction shall be
applied against any party. Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural, and vice versa. Any reference to any federal, state, local
or foreign statute or law shall be deemed also to refer to all

 

20

rules and regulations promulgated
thereunder, unless the context requires otherwise. Whenever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by the words “without
limitation.”

     SECTION 22. Counterparts. This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

[signature page follows]

 

 

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

	 	 	 	 	 
	 	COMPANY:

LEXICON PHARMACEUTICALS, INC.,

a Delaware corporation

 	 
	 	By:  	/s/ Arthur T. Sands
 	 
	 	 	Name:  	Arthur T. Sands, M.D., Ph.D. 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 
	 	INVESTOR:

INVUS, L.P.,

a Bermuda limited partnership

 	 
	 	By:  	/s/ Raymond Debbane
 	 
	 	 	Name:  	Raymond Debbane 	 
	 	 	Title:  	President of Invus Advisors, LLC,

its General Partner 	 
	 

[Signature Page to Warrant Agreement]

 

APPENDIX A

[Form of Warrant Certificate]

     THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. SUCH SECURITIES GENERALLY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT.

			
	 	 	 
	No.
	 	Warrants

Warrant Certificate

LEXICON PHARMACEUTICALS, INC.

     This Warrant Certificate certifies that Invus, L.P., or registered assigns, is the registered
holder of the number of Warrants (the “Warrants”) set forth above to purchase Company
Common Stock, $.001 par value (the “Company Common Stock”), of Lexicon Pharmaceuticals,
Inc., a Delaware corporation (the “Company”). Each Warrant entitles the holder upon
exercise to receive from the Company one fully paid and nonassessable share of Company Common Stock
(a “Warrant Share”) at the initial exercise price (the “Exercise Price”) of $3.0915
payable upon surrender of this Warrant Certificate and payment of the Exercise Price at the office
of the Company designated for such purpose, but only subject to the conditions set forth herein and
in the Warrant Agreement referred to hereinafter. The Warrants may be exercised only during the
Exercise Period (as defined in the Warrant Agreement). The Exercise Price and number of Warrant
Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, as set forth in the Warrant Agreement.

     The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of
Warrants, and are issued or to be issued pursuant to a Warrant Agreement dated as of June 17, 2007
(the “Warrant Agreement”), duly executed and delivered by the Company, which Warrant
Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words “holders” or “holder” meaning the
registered holders or registered holder) of the Warrants. All capitalized terms used but not
defined herein shall have the respective meanings assigned to them in the Warrant Agreement. A copy
of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company.

     The holder of Warrants evidenced by this Warrant Certificate may exercise such Warrants during
the Exercise Period under and pursuant to the terms and conditions of the Warrant Agreement by
surrendering this Warrant Certificate, with the form of election to purchase set forth hereon (and
by this reference made a part hereof) properly completed and executed, together with payment to the
Company in cash, by wire transfer, of the Exercise Payment to an account designated by the Company.

     The Warrant Agreement provides that upon the occurrence of certain events the number of
Warrants and the Exercise Price set forth on the face hereof may, subject to certain conditions, be
adjusted. No fractions of a share of Company Common Stock will be issued upon the exercise of any
Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant
Agreement.

     The holders of the Warrants are entitled to certain registration rights with respect to the
Company

A-1 

 

 

Common Stock issuable upon the exercise thereof. Said registration rights are set forth in a
Registration Rights Agreement dated as of June 17, 2007 (the “Registration Rights
Agreement”), between the Company and the Investor. By acceptance of this Warrant Certificate,
the holder hereof agrees that upon exercise of some or all of the Warrants evidenced hereby, he or
it will be bound by the Registration Rights Agreement as a holder of Registrable Securities
thereunder. A copy of the Registration Rights Agreement may be obtained by the holder hereof upon
written request to the Company.

     Warrant Certificates, when surrendered at the office of the Company by the registered holder
thereof in person or by legal representative or attorney duly authorized in writing, may be
exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but
without payment of any service charge, for another Warrant Certificate or Warrant Certificates of
like tenor evidencing in the aggregate a like number of Warrants.

     Subject to the terms and conditions of the Warrant Agreement, upon due presentation for
registration of transfer of this Warrant Certificate at the office of the Company a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to
the limitations provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.

     The Company may deem and treat the registered holder(s) thereof as the absolute owner(s) of
this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and
for all other purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a
stockholder of the Company.

     IN WITNESS WHEREOF, Lexicon Pharmaceuticals, Inc. has caused this Warrant Certificate to be
signed by its Chairman of the Board of Directors of the Company, Chief Executive Officer, President
or Vice President and by its Secretary or Assistant Secretary and has caused its corporate seal to
be affixed hereunto or imprinted hereon.

	 	 	 	 	 
	Dated: June [___], 2007 	LEXICON PHARMACEUTICALS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

A-2 

 

 

FORM OF ELECTION TO PURCHASE

(To Be Executed Upon Exercise Of Warrant)

     The undersigned holder hereby represents that he or it is the registered holder of this
Warrant Certificate, and hereby irrevocably elects to exercise the right, represented by this
Warrant Certificate, to receive           shares of Company Common Stock, $.001 par
value, of Lexicon Pharmaceuticals, Inc. and herewith tenders payment for such shares to the order
of Lexicon Pharmaceuticals, Inc. the amount of $          in accordance with the terms hereof.
The undersigned requests that a certificate for such shares be registered in the name of the
undersigned or nominee hereinafter set forth, and further that such certificate be delivered to the
undersigned at the address hereinafter set forth or to such other person or entity as is
hereinafter set forth. If said number of shares is less than all of the shares of Company Common
Stock purchasable hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of such shares be registered in the name of the undersigned or nominee
hereinafter set forth, and further that such certificate be delivered to the undersigned at the
address hereinafter set forth or to such other person or entity as is hereinafter set forth.

Certificate to be registered as follows:

Name:

Address:

Social Security or

Taxpayer Identification No.:

Certificate to be delivered as follows:

Name:

Address:

					
	 	 	 	 	 
	Date:
	 	Signature:
	 	 

 

 

FORM OF CERTIFICATE OF TRANSFER

Lexicon Pharmaceuticals, Inc.

8800 Technology Forest Place

The Woodlands, TX 77381

Attention: Executive Vice President and Chief Financial Officer

                 Executive Vice President and General Counsel

Re: Warrants (the “Warrants”)

(CUSIP      )

     Reference is hereby made to the Warrant Agreement, dated as of June [___], 2007 (the
“Warrant Agreement”), relating to Warrants of Lexicon Pharmaceuticals, Inc. (the
“Company”). Capitalized terms used but not defined herein shall have the meanings given to
them in the Warrant Agreement.

                         , (the “Transferor”) owns and proposes to transfer the Warrant[s] or interest in such
Warrant[s] specified in Annex A hereto (the “Transfer”), to
(the “Transferee”), as further specified in Annex A hereto. In connection with
the Transfer, the Transferor hereby certifies that:

[CHECK ALL THAT APPLY]

	1.	 	     CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A WARRANT PURSUANT TO RULE 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, the
Transferor hereby further certifies that the Warrant is being transferred to a person that the
Transferor reasonably believed and believes is purchasing the Warrant for its own account, or
for one or more accounts with respect to which such person exercises sole investment
discretion, and such person and each such account is a “qualified institutional buyer” within
the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such
Transfer is in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the terms of the
Warrant Agreement, the transferred Warrant will be subject to the restrictions on transfer
enumerated in the private placement legend printed on the Warrant as contemplated by the
Warrant Agreement.

	2.	 	     CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A WARRANT PURSUANT TO REGULATION S. The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the
Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being made to a person inside the United States and (x) at the time the buy order was
originated, the Transferee was outside the United States or such Transferor and any person
acting on its behalf reasonably believed and believes that the Transferee was outside the
United States or (y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any person acting on its
behalf knows that the transaction was prearranged with a buyer

 

 

	 	 	inside the United States, (ii) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii)
the transaction is not part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the
Restricted Period, the transfer is not being made to a person inside the United States or for
the account or benefit of a person inside the United States. Upon consummation of the proposed
transfer in accordance with the terms of the Warrant Agreement, the transferred Warrant will be
subject to the restrictions on Transfer enumerated in the private placement legend printed on
the Warrant as contemplated by the Warrant Agreement.

	3	 	   CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A WARRANT PURSUANT TO ANY PROVISION
OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in
compliance with the transfer restrictions applicable to beneficial interests in restricted
Warrants and pursuant to and in accordance with the Securities Act and any applicable blue sky
securities laws of any state of the United States, and accordingly the Transferor hereby
further certifies that (check one):

	 	(a)	 	     such Transfer is being effected pursuant to and in accordance with Rule 144 under
the Securities Act;

or

	 	(b)	 	     such Transfer is being effected to the Company or a subsidiary thereof;

or

	 	(c)	 	     such Transfer is being effected pursuant to an effective registration statement
under the Securities Act and in compliance with the prospectus delivery requirements of the
Securities Act;

or

	 	(d)	 	     such Transfer is being effected to an “accredited investor” (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act, who is not also a “qualified
institutional buyer”) and pursuant to an exemption from the registration requirements of
the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby
further certifies that it has not engaged in any general solicitation within the meaning of
Regulation D under the Securities Act and the Transfer complies with the transfer
restrictions applicable to restricted Warrants and the requirements of the exemption
claimed, which certification is supported by, if the Company so requests, an opinion of
counsel provided by the Transferor or the Transferee (a copy of which the Transferor has
attached to this certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with the terms of
the Warrant Agreement, the transferred Warrant will be subject to the restrictions on
transfer enumerated in the private placement legend printed on the Warrants as contemplated
by the Warrant Agreement.

2 

 

	4	 	CHECK IF TRANSFEREE WILL TAKE DELIVERY OF AN UNRESTRICTED WARRANT.

	 	(a)	 	     CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected
pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with
the transfer restrictions contained in the Warrant Agreement and any applicable blue sky
securities laws of any state of the United States and (ii) the restrictions on transfer
contained in the Warrant Agreement and the private placement legend are not required in
order to maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Warrant Agreement, the transferred Warrant
will no longer be subject to the restrictions on transfer enumerated in the private
placement legend printed on the restricted Warrants as contemplated by the Warrant
Agreement.
	 
	 	(b)	 	     CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in
compliance with the transfer restrictions contained in the Warrant Agreement and any
applicable blue sky securities laws of any state of the United States and (ii) the
restrictions on transfer contained in the Warrant Agreement and the private placement
legend are not required in order to maintain compliance with the Securities Act. Upon
consummation of the proposed Transfer in accordance with the terms of the Warrant
Agreement, the transferred Warrant will no longer be subject to the restrictions on
transfer enumerated in the private placement legend printed on the restricted Warrants as
contemplated by the Warrant Agreement.
	 
	 	(c)	 	     CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected
pursuant to and in compliance with an exemption from the registration requirements of the
Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the
transfer restrictions contained in the Warrant Agreement and any applicable blue sky
securities laws of any State of the United States and (ii) the restrictions on transfer
contained in the Warrant Agreement and the private placement legend are not required in
order to maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Warrant Agreement, the transferred Warrant
will not be subject to the restrictions on transfer enumerated in the private placement
legend printed on the restricted Warrants as contemplated by the Warrant Agreement.

     This certificate and the statements contained herein are made for your benefit and the benefit
of the Company.

	 	 	 	 	 
	 	[Insert Name of Transferor]

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Dated:

3

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