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TABLE OF CONTENTS

					Page
ARTICLE I			THE OFFER AND THE MERGER		2
SECTION 1.1			The Offer		2
SECTION 1.2			Company Actions		4
SECTION 1.3			Treatment of Options; MJ Warrant		5
SECTION 1.4			The Merger		5
SECTION 1.5			Closing; Effective Time		6
SECTION 1.6			Effects of the Merger		6
SECTION 1.7			Articles of Incorporation; Bylaws		6
SECTION 1.8			Directors and Officers		6
ARTICLE II			EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS		7
SECTION 2.1			Conversion of Securities		7
SECTION 2.2			Treatment of ESPP, Warrants, etc		7
SECTION 2.3			Surrender of Shares		8
SECTION 2.4			Withholding Taxes		10
ARTICLE III			REPRESENTATIONS AND WARRANTIES OF THE COMPANY		10
SECTION 3.1			Organization and Qualification; Subsidiaries; Joint Ventures		10
SECTION 3.2			Articles of Incorporation and Bylaws		11
SECTION 3.3			Capitalization		12
SECTION 3.4			Authority		13
SECTION 3.5			No Conflict; Required Filings and Consents		14
SECTION 3.6			Compliance		15
SECTION 3.7			SEC Filings; Financial Statements		16
SECTION 3.8			Absence of Certain Changes or Events		18
SECTION 3.9			Absence of Litigation		18
SECTION 3.10			Employee Benefit Plans		19
SECTION 3.11			Labor and Employment Matters		21
SECTION 3.12			Insurance		21
SECTION 3.13			Properties		21
SECTION 3.14			Tax Matters		22
SECTION 3.15			Information Supplied		23
SECTION 3.16			Opinion of Financial Advisors		23
SECTION 3.17			Brokers		24
SECTION 3.18			Takeover Statutes		24
SECTION 3.19			Intellectual Property		24
SECTION 3.20			Environmental Matters		25
SECTION 3.21			Contracts		26
SECTION 3.22			Affiliate Transactions		27

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ARTICLE IV		REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB		27
SECTION 4.1		Organization		27
SECTION 4.2		Authority		27
SECTION 4.3		No Conflict; Required Filings and Consents		28
SECTION 4.4		Information Supplied		29
SECTION 4.5		Brokers		29
SECTION 4.6		Operations of Merger Sub		29
SECTION 4.7		Ownership of Shares		29
SECTION 4.8		Absence of Litigation		29
SECTION 4.9		Available Funds		29
ARTICLE V		CONDUCT OF BUSINESS PENDING THE MERGER		30
SECTION 5.1		Conduct of Business of the Company Pending the Merger		30
ARTICLE VI		ADDITIONAL AGREEMENTS		33
SECTION 6.1		Shareholders Meeting		33
SECTION 6.2		Proxy Statement		33
SECTION 6.3		Access to Information; Confidentiality		34
SECTION 6.4		Acquisition Proposals		34
SECTION 6.5		Employment and Employee Benefits Matters		36
SECTION 6.6		Directors’ and Officers’ Indemnification and Insurance		37
SECTION 6.7		Further Action; Efforts		39
SECTION 6.8		Public Announcements		40
SECTION 6.9		Notification		41
SECTION 6.10		Directors		41
SECTION 6.11		Transfer Taxes		42
SECTION 6.12		Anti-Takeover Statute		42
SECTION 6.13		Rule 14d-10(c) Matters		42
SECTION 6.14		NDA No. 20-381		42
ARTICLE VII		CONDITIONS OF MERGER		42
SECTION 7.1		Conditions to Obligation of Each Party to Effect the Merger		42
SECTION 7.2		Conditions to Obligations of Parent and Merger Sub		43
ARTICLE VIII		TERMINATION, AMENDMENT AND WAIVER		43
SECTION 8.1		Termination		43
SECTION 8.2		Effect of Termination		44
SECTION 8.3		Fees and Expenses		44
SECTION 8.4.		Amendment		46
SECTION 8.5		Waiver		46

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ARTICLE IX		GENERAL PROVISIONS		47
SECTION 9.1		Non-Survival of Representations, Warranties, Covenants and Agreements		47
SECTION 9.2		Notices		47
SECTION 9.3		Certain Definitions		48
SECTION 9.4		Severability		50
SECTION 9.5		Entire Agreement; Assignment		50
SECTION 9.6		Parties in Interest		50
SECTION 9.7		Governing Law		50
SECTION 9.8		Headings		50
SECTION 9.9		Counterparts		51
SECTION 9.10		Specific Performance; Jurisdiction		51
SECTION 9.11		Parent Guarantee		51
SECTION 9.12		Interpretation		52
SECTION 9.13		Waiver of Jury Trial		52

 

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INDEX OF DEFINED TERMS

Acquisition Agreement		36
Acquisition Proposal		34
Adverse Recommendation Change		35
Affiliate		47
Agreement		1
Anti-Takeover Statutes		24
Antitrust Law		39
Articles of Incorporation		11
Articles of Merger		6
Authorizations		15
beneficial owner		47
beneficially owned		48
Business Day		48
Bylaws		11
Certificate		7
Closing		5
Closing Date		6
Company		1
Company Common Stock		1
Company Disclosure Schedule		10
Company Employees		19
Company Intellectual Property Rights		24
Company Joint Venture		11
Company Plans		18
Company Requisite Vote		13
Company Securities		12
Company Stock Plans		12
Confidentiality Agreement		34
Contract		14
control		48
controlled		48
controlled by		48
Controlled Group Liability		48
Costs		37
DOJ		39
Drug Law		15
Effective Time		6
employee benefit plan		18
Environmental Laws		25
Environmental Permits		25
ERISA		18
ERISA Affiliate		48
ESPP		7
ESPP Termination Date		7
Exchange Act		14
Exchange Fund		8
Expiration Date		2
FBCA		1
FDA		15
FDA Act		14
Financial Advisor		23
Foreign Antitrust and Investment Laws		14
FTC		39
GAAP		48
Governmental Entity		14
HSR Act		14
Indemnified Parties		37
Independent Directors		40
Information Statement		14
Intellectual Property		24
Investments Stock Purchase		2
IRS		19
Jaharis Family		1
Knowledge		48
Law		14
Liens		11
Material Adverse Effect		10
Material Contract		26
Materials of Environmental Concern		26
Merger		1
Merger Consideration		7
Merger Recommendation		13
Merger Sub		1
MJ Warrant		19
Multiemployer Plan		18
Nasdaq		14
NLRB		20
Offer		1
Offer Documents		3
Offer Price		1
Offer Recommendation		13
Option		5
Option Consideration		5
owns beneficially		48
Parent		1
Parent Material Adverse Effect		27
Parent Plan		36
Parent Proceedings		29
Paying Agent		8
PBGC		19

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Person		49
Pharmabio Warrant		8
Preferred Stock		11
Proceedings		18
Proxy Statement		14
Publication Date		2
Restricted Company Common Stock		7
Schedule 14D 9		4
SEC		2
SEC Reports		16
Securities Act		14
Share		1
Shareholders Agreement		1
Shareholders Meeting		32
Stock Purchase Agreement		1
Submission		42
Subsidiary		49
Superior Proposal		35
Surviving Corporation		5
Tax Return		23
Taxes		22
Termination Date		43
Termination Expenses		45
Termination Fee		44
Top-Up Option		3
Top-Up Shares		3
Transfer Taxes		41
under common control with		48
Withdrawal Liability		19

 

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AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of November 5, 2006 (this “ Agreement ”) among ABBOTT LABORATORIES, an Illinois corporation (“ Parent ”), S&G Nutritionals, Inc., a Delaware corporation and a direct wholly-owned Subsidiary of Parent (“ Merger Sub ”), and KOS PHARMACEUTICALS, INC., a Florida corporation (the “ Company ”).

WHEREAS the respective Boards of Directors of Parent, Merger Sub and the Company have approved the acquisition of the Company by Parent on the terms and subject to the conditions set forth in this Agreement;

WHEREAS, in furtherance of the acquisition of the Company by Parent on the terms and subject to the conditions set forth in this Agreement, Parent proposes to cause Merger Sub to make a tender offer (as it may be amended from time to time as permitted under this Agreement, the “ Offer ”) to purchase all the outstanding shares of common stock, par value $0.01 per share (a “ Share ”), of the Company (the “ Company Common Stock ”), at a price per Share of Company Common Stock of $78.00 (such amount, or any other amount per Share paid pursuant to the Offer and this Agreement, the “ Offer Price ”), net to the seller in cash, on the terms and subject to the conditions set forth in this Agreement;

WHEREAS, the Board of Directors of the Company has (i) determined that this Agreement and the transactions contemplated hereby, including the Offer and the merger (the “ Merger ”) of Merger Sub with and into the Company in accordance with the Business Corporation Act of the State of Florida (the “ FBCA ”), are advisable, fair to and in the best interests of the Company and its Shareholders, (ii) adopted and approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger, in accordance with the FBCA, upon the terms and subject to the conditions set forth herein, and (iii) resolved to recommend the Offer and the approval of this Agreement and the other transactions contemplated hereby (including the Merger) by the shareholders of the Company;

WHEREAS, the Boards of Directors of Parent and Merger Sub have each adopted and approved, and Parent, as the sole shareholder of Merger Sub has approved this Agreement and declared it advisable, fair to and in the best interests of Parent and Merger Sub, respectively to enter into this Agreement providing for the Offer and Merger in accordance with the FBCA, upon the terms and subject to the conditions set forth herein;

WHEREAS, as an inducement to and condition of Parent’s willingness to enter into this Agreement, certain shareholders (collectively, the “ Jaharis Family ”) will enter into a shareholders agreement dated as of the date hereof (the “ Shareholders Agreement ”), the form of which is attached as Annex 1, and the Board of Directors of the Company has approved the entry by the Jaharis Family into the Shareholders Agreement.  The Shareholders Agreement will be entered into concurrently with the execution and delivery of this Agreement; and

WHEREAS, as an inducement to and condition of the Jaharis Family entering into the Shareholders Agreement, Parent and certain persons have entered into a stock purchase agreement dated as of the date hereof (the “ Stock Purchase Agreement ”), the form of which is

 

attached as Annex 2, providing for the purchase by Parent of all outstanding shares of Kos Investments, Inc. (the “ Investments Stock Purchase ”).

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

ARTICLE I

THE OFFER AND THE MERGER

SECTION 1.1         The Offer .  (a)  Subject to the conditions of this Agreement, as promptly as practicable but in no event later than the later of (x) six Business Days after the date of this Agreement and (y) the first Business Day following publication in the Federal Register of SEC Release Number 34-54684 relating to the amendments to Rule 14d-10 promulgated under the Exchange Act (the date of such publications referred to as the “ Publication Date ”), Merger Sub shall, and Parent shall cause Merger Sub to, commence the Offer within the meaning of the applicable rules and regulations of the Securities and Exchange Commission (the “ SEC ”).  The obligations of Merger Sub to, and of Parent to cause Merger Sub to, commence the Offer and accept for payment, and pay for, any Shares tendered pursuant to the Offer are subject to the conditions set forth in Exhibit A.  The initial expiration date of the Offer shall be midnight New York City time on the later of (x) the 30th day (or if such day is not a Business Day, the first Business Day thereafter) following the Publication Date and (y) the 20th Business Day following the commencement of the Offer (determined using Exchange Act Rule 14d-1(g)(3) of the SEC) (the initial “ Expiration Date ” and any expiration time and date established pursuant to an extension of the Offer as so extended, also an “ Expiration Date ”).  Merger Sub expressly reserves the right (x) if the Minimum Tender Condition has not been satisfied or if an Adverse Recommendation Change has been made, to increase the Offer Price and (y) to waive any condition to the Offer or modify the terms of the Offer, except that, without the consent of the Company, Merger Sub shall not (i) reduce the number of Shares subject to the Offer, (ii) reduce the Offer Price, (iii) waive the Minimum Tender Condition (as defined in Exhibit A), (iv) add to the conditions set forth in Exhibit A or modify any condition set forth in Exhibit A in any manner adverse to the holders of Company Common Stock, (v) except as otherwise provided in this Section 1.1(a), extend the Offer, (vi) change the form of consideration payable in the Offer or (vii) otherwise amend the Offer in any manner adverse to the holders of Company Common Stock.  Notwithstanding the foregoing, Merger Sub may, in its discretion, without the consent of the Company, (i) extend the Offer for one or more consecutive increments of not more than five Business Days each, if at any otherwise scheduled Expiration Date of the Offer any of the conditions to Merger Sub’s obligation to purchase Shares are not satisfied or waived, until such time as such conditions are satisfied or waived, (ii) extend the Offer for the minimum period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer or (iii) make available a “subsequent offering period” in accordance with Exchange Act Rule 14d-11.  In addition, if at any otherwise scheduled Expiration Date of the Offer any condition to the Offer is not satisfied or waived, Merger Sub shall, and Parent shall cause Merger Sub to, extend the Offer at the request of the Company for one or more consecutive increments of not more than five Business Days each.  In addition, Merger Sub shall, if requested by the Company, make available a subsequent offering period in accordance with

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Exchange Act Rule 14d-11 of not less than ten Business Days; provided that Merger Sub shall not be required to make available such a subsequent offering period in the event that, prior to the commencement of such subsequent offering period, Parent and Merger Sub, directly or indirectly own more than 80% of the Fully Diluted Shares.  On the terms and subject to the conditions of the Offer and this Agreement, Merger Sub shall, and Parent shall cause Merger Sub to, accept and pay for all Shares validly tendered and not withdrawn pursuant to the Offer that Merger Sub becomes obligated to purchase pursuant to the Offer as soon as practicable after the expiration of the Offer.  For the avoidance of doubt, the parties hereto agree that shares of Restricted Company Common Stock may be tendered in the Offer and be acquired by Parent or Merger Sub pursuant to the Offer.

(b)           On the date of commencement of the Offer, Parent and Merger Sub shall file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer, which shall contain an offer to purchase and a related letter of transmittal and summary advertisement (such Schedule TO and the documents included therein pursuant to which the Offer will be made, together with any supplements or amendments thereto, the “ Offer Documents ”).  Each of Parent, Merger Sub and the Company shall promptly correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and each of Parent and Merger Sub shall take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and the Offer Documents as so amended or supplemented to be disseminated to the Company’s shareholders, in each case as and to the extent required by applicable federal securities laws.  Parent, Merger Sub and the Company will cooperate and consult with each other and their respective counsel in the preparation of the Offer Documents.  Without limiting the generality of the foregoing, the Company will furnish to Parent the information relating to it required by the Exchange Act and the rules and regulations promulgated thereunder to be set forth in the Offer Documents.  Parent and Merger Sub shall (i) provide the Company and its counsel in writing with any comments Parent, Merger Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments, (ii) consult with the Company and its counsel prior to responding to any such comments, and (iii) provide the Company and its counsel in writing with any comments or responses thereto of Parent, Merger Sub or their counsel.  Parent and Merger Sub shall give the Company a reasonable opportunity to review and comment on the Offer Documents and any amendments thereto.

(c)           Parent shall provide or cause to be provided to Merger Sub on a timely basis the funds necessary to purchase any Shares that Merger Sub becomes obligated to purchase pursuant to the Offer.

(d)           The Company hereby grants to Parent and Merger Sub an irrevocable option (the “ Top-Up Option ”) to purchase at a price per share equal to the Offer Price up to that number of newly issued shares of the Company Common Stock (the “ Top-Up Shares ”) equal to the lowest number of shares of Company Common Stock that, when added to the number of shares of Company Common Stock, directly or indirectly, owned by Parent and Merger Sub at the time of exercise of the Top-Up Option shall constitute one share more than eighty percent (80%) of the Fully Diluted Shares immediately after the issuance of the Top-Up Share.  The Top-Up Option shall be exercisable only once, at such time as Parent and Merger Sub, directly or

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indirectly, own at least 70% of the Fully Diluted Shares and prior to the fifth Business Day after the Expiration Date or the expiration date of any subsequent offering period.  Such Top-Up Option shall not be exercisable to the extent the number of shares of Company Common Stock subject thereto (taken together with the number of Fully Diluted Shares outstanding at such time) exceeds the number of authorized shares of Company Common Stock available for issuances.  The obligation of the Company to deliver the Top-Up Shares upon the exercise of the Top-Up Option is subject to the condition that no provision of any applicable Law and no Judgment, injunction, order or decree shall prohibit the exercise of the Top-Up Option or the delivery of the Top-Up Shares in respect of such exercise.  The parties shall cooperate to ensure that the issuance of the Top-Up Shares is accomplished consistent with all applicable legal requirements of all Governmental Entities, including compliance with an applicable exemption from registration of the Top-Up Shares under the Securities Act.  In the event Parent and Merger Sub wish to exercise the Top-Up Option, Merger Sub shall give the Company one (1) Business Day prior written notice specifying the number of shares of the Company Common Stock that are or will be, directly or indirectly, owned by Parent and Merger Sub immediately preceding the purchase of the Top-Up Shares and specifying a place and a time for the closing of such purchase.  The Company shall, as soon as practicable following receipt of such notice, deliver written notice to Merger Sub specifying the number of Top-Up Shares.  At the closing of the purchase of Top-Up Shares, the portion of the purchase price owed by Parent or Merger Sub upon exercise of such Top-Up Option shall be paid to the Company (i) in cash by wire transfer or cashier’s check or (ii) by issuance by Merger Sub to the Company of a promissory note on terms reasonably satisfactory to the Company.

SECTION 1.2         Company Actions .  (a)  The Company hereby approves of and consents to the Offer, the Merger and the other transactions contemplated by this Agreement.

(b)           On the date the Offer Documents are filed with the SEC or as soon as practicable thereafter, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to time, the “ Schedule 14D-9 ”) containing the recommendations referred to in Section 3.4(b) and shall mail the Schedule 14D-9 to the holders of Company Common Stock.  Each of the Company, Parent and Merger Sub shall promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company shall take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Company’s shareholders, in each case as and to the extent required by applicable federal securities laws.  Parent, Merger Sub and the Company will cooperate and consult with each other and their respective counsel in the preparation of the Schedule 14D-9.  Without limiting the generality of the foregoing, Parent will furnish to the Company the information relating to it required by the Exchange Act and the rules and regulations promulgated thereunder to be set forth in the Schedule 14D-9.  The Company shall (i) provide Parent and its counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments, (ii) consult with Parent and Merger Sub and their counsel prior to responding to any such comments, and (iii) provide Parent and Merger Sub and their counsel in writing with any comments or responses thereto of the Company or its counsel.  The Company

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shall give Parent and Merger Sub a reasonable opportunity to review and comment on the Schedule 14D-9 and any amendments thereto.

(c)           In connection with the Offer, the Company shall cause its transfer agent to furnish Merger Sub promptly with mailing labels containing the names and addresses of the record holders of Company Common Stock as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of shareholders, security position listings and computer files and all other information in the Company’s possession or control regarding the beneficial owners of Company Common Stock, and shall furnish to Merger Sub such information and assistance (including updated lists of shareholders, security position listings and computer files) as Parent may reasonably request in communicating the Offer to the Company’s shareholders.  Subject to the requirements of applicable Law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the transactions contemplated by this Agreement, Parent and Merger Sub shall hold in confidence the information contained in any such labels, listings and files, shall use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, shall, upon request, deliver to the Company all copies of such information then in their possession.

SECTION 1.3         Treatment of Options; MJ Warrant .  (a) Promptly after consummation of the Offer, by virtue of the consummation of the Offer and without any action on the part of any holder, each option to purchase Shares (an “ Option ”) granted under any Company Plan that is outstanding and unexercised (whether or not then exercisable) immediately prior to the consummation of the Offer shall vest in full and be canceled immediately prior to such time and shall be converted into the right to receive, promptly thereafter, an amount in cash (less any applicable withholding taxes and without interest) equal to the product of (i) the number of Shares subject to such Option and (ii) the excess, if any, of (A) the highest price per Share paid pursuant to the Offer over (B) the per share exercise price in effect for such Option (the “ Option Consideration ”).

(b)           Promptly after consummation of the Offer, by virtue of consummation of the Offer and without any action on the part of the holder of each Non-Detachable Common Stock Purchase Warrant dated as of December 19, 2002 by and between Mary Jaharis and the Company (the “ MJ Warrant ”), the holder of the MJ Warrant shall be entitled to receive an amount in cash equal to the amount of cash that the holder of the Company Common Stock deliverable upon exercise of the MJ Warrant would have been entitled to receive in the Offer if the MJ Warrant had been exercised immediately before the Offer.

SECTION 1.4         The Merger .  Upon the terms and subject to the conditions of this Agreement and in accordance with the FBCA, at the Effective Time, Merger Sub shall be merged with and into the Company.  As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation of the Merger (the “ Surviving Corporation ”).

SECTION 1.5         Closing; Effective Time .  Subject to the provisions of Article VII, the closing of the Merger (the “ Closing ”) shall take place at the offices of Cravath, Swaine & Moore LLP, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, as soon as

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practicable, but in no event later than the second Business Day, after the satisfaction or waiver (to the extent permitted by Law) of the conditions set forth in Article VII (excluding conditions that, by their terms, cannot be satisfied until the Closing, but subject to the satisfaction or waiver (to the extent permitted by Law) of such conditions at the Closing), or at such other place or on such other date as Parent and the Company may mutually agree; provided , however , that if all the conditions set forth in Article VII shall not have been satisfied or waived (to the extent permitted by Law) on such second Business Day, then the Closing shall take place on the first Business Day on which all such conditions shall have been satisfied or waived (to the extent permitted by Law).  The date on which the Closing actually occurs is hereinafter referred to as the “ Closing Date ”.  At the Closing, the parties hereto shall cause the Merger to be consummated by filing articles of merger (the “ Articles of Merger ”) with the Florida Department of State, Division of Corporations and the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with, the relevant provisions of the FBCA (the date and time of the acceptance of the filing of the Articles of Merger by the Florida Department of State, Division of Corporations, or such later time as is specified in the Articles of Merger and as is agreed to by the parties hereto, being hereinafter referred to as the “ Effective Time ”) and shall make all other filings or recordings required under the FBCA in connection with the Merger.

SECTION 1.6         Effects of the Merger .  The Merger shall have the effects set forth herein and in the applicable provisions of the FBCA.  Without limiting the generality of the foregoing and subject thereto, at the Effective Time, all the property, rights, privileges, immunities, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

SECTION 1.7         Articles of Incorporation; Bylaws .  (a)  Pursuant to the Merger, the articles of incorporation of the Company shall be amended and restated to be in the form of the articles of incorporation of Merger Sub in effect immediately prior to the Effective Time and, as so amended, such articles of incorporation shall be the articles of incorporation of the Surviving Corporation until thereafter amended in accordance with its terms and as provided by law, except that the name of the Surviving Corporation shall be changed to a name to be specified by Parent.

(b)           Pursuant to the Merger, the bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation until thereafter amended in accordance with their terms and the articles of incorporation of the Surviving Corporation and as provided by Law.

SECTION 1.8         Directors and Officers .  The directors of Merger Sub immediately prior to the Effective Time and the officers of the Company immediately prior to the Effective Time shall be the directors and officers, respectively, of the Surviving Corporation, in each case until the earlier of his or her resignation or removal or until his or her successors are duly elected and qualified.

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ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS

SECTION 2.1         Conversion of Securities .  At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities, the following shall occur:

(a)           subject to Section 2.3, each Share issued and outstanding immediately prior to the Effective Time (other than any Shares to be canceled pursuant to Section 2.1(b) or to be converted pursuant to Section 2.1(c), but including Shares subject to vesting or other restrictions (the “ Restricted Company Common Stock ”)) shall be converted into the right to receive the highest price per Share paid pursuant to the Offer in cash without interest (the “ Merger Consideration ”);

(b)           each Share held in the treasury of the Company and each Share owned by Parent or Merger Sub immediately prior to the Effective Time shall be canceled and retired without any conversion thereof, and no payment or distribution shall be made with respect thereto;

(c)           all of the Shares owned by Kos Investments, Inc. or Kos Holdings, Inc. immediately prior to the Effective Time shall be converted, in the aggregate, into a number of shares equal to the same percentage of the fully-diluted outstanding stock of the Surviving Corporation as such shares currently represent of the Fully Diluted Shares; and

(d)           each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation.

Except as set forth in Sections 2.1(b) and (c), (i) at the Effective Time, all Shares of Company Common Stock shall cease to be outstanding, shall automatically be cancelled and shall cease to exist and (ii) each holder of a certificate that immediately prior to the Effective Time represented any such Shares of Company Common Stock (a “ Certificate ”) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration.

SECTION 2.2         Treatment of ESPP, Warrants, etc.   (a)  The Company shall take any and all actions with respect to the Company’s Employee Stock Purchase Plan (the “ ESPP ”) as are necessary to provide that, subject to consummation of the Merger, the ESPP shall terminate, effective on the date immediately prior to the Closing Date (the “ ESPP Termination Date ”).  On the ESPP Termination Date, each purchase right under the ESPP as of the ESPP Termination Date shall be automatically exercised by applying the payroll deductions of each participant in the ESPP for the applicable Offering Period (as defined in the ESPP) to the purchase of a number of whole Shares (subject to the provisions of the ESPP regarding the number of shares purchasable) at the exercise price per Share specified in the ESPP, which number of shares will then be canceled and converted into the right to receive the Merger Consideration in accordance with Section 2.1(a) hereof.  Any excess payroll deductions not used

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as a result of ESPP share limitations shall be distributed to each participant without interest. If a fractional number of Shares results, then such number shall be rounded down to the next whole number, and the excess payroll deductions shall be distributed to the applicable participant without interest.

(b)           Immediately after the consummation of the Offer, each outstanding award of Restricted Company Common Stock granted under the Company’s 1996 Stock Option Plan or the Kos Incentive Plan, or otherwise, not acquired by Parent or Merger Sub pursuant to the Offer shall vest in full and cease to be subject to restrictions and the holders of such awards of Restricted Company Common Stock outstanding immediately prior to the Effective Time shall be entitled to receive the Merger Consideration pursuant to Section 2.1(a).

(c)           At the Effective Time, the holder of the Warrant Agreement dated as of January 1, 2002, by and between the Company and PharmaBio Development Inc. (the “ PharmaBio Warrant ”) shall be entitled to receive upon exercise of the PharmaBio Warrant, if not already exercised prior to the Effective Time, during the period specified therein the amount in cash, without interest, equal to (i) the amount of cash that a holder of the Company Common Stock deliverable upon exercise of the PharmaBio Warrant would have been entitled to receive in the Merger if the PharmaBio Warrant had been exercised immediately before the Merger minus (ii) the exercise price of the PharmaBio Warrant, in accordance with the terms and conditions of the PharmaBio Warrant.

SECTION 2.3         Surrender of Shares .  (a)  Prior to the Effective Time, Merger Sub shall enter into an agreement with a paying agent reasonably acceptable to the Company to act as its paying agent (the “ Paying Agent ”) for the payment of the Merger Consideration to which the shareholders of the Company shall become entitled pursuant to this Article II.  At or prior to the Effective Time, Parent shall, or shall cause the Surviving Corporation to, deposit with the Paying Agent to be held in trust for the benefit of holders of Certificates all the cash necessary to pay for the Shares converted into the right to receive the Merger Consideration pursuant to Section 2.1(a) (such cash being hereinafter referred to as the “ Exchange Fund ”).

(b)           Promptly after the Effective Time, Parent shall cause to be mailed to each record holder, as of the Effective Time, of a Certificate which immediately prior to the Effective Time represented Shares, a form of letter of transmittal (which shall be in customary form and shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates for payment of the Merger Consideration.  Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive upon such surrender of such Certificate the Merger Consideration pursuant to Section 2.1(a) and such Certificate shall then be canceled.  If payment of the Merger Consideration is to be made to a Person other than the Person in whose name the Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the Person requesting such payment shall have paid any transfer and other Taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of the Certificate surrendered

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or shall have established to the satisfaction of the Surviving Corporation that such Tax either has been paid or is not applicable.  Until surrendered as contemplated by this Section 2.3(b), each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender of such Certificate the Merger Consideration pursuant to Section 2.1(a).  No interest shall be paid or accrue on the cash payable upon surrender of any Certificate.

(c)           At any time following the date that is twelve months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any portion of the Exchange Fund which have been made available to the Paying Agent and which have not been disbursed to holders of Certificates and thereafter such holders shall be entitled to look to Parent and the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates.  The Surviving Corporation shall pay all charges and expenses, including those of the Paying Agent, incurred by it in connection with the exchange of Shares for the Merger Consideration and other amounts contemplated by this Article II.  None of Parent, Merger Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.  The Merger Consideration paid in accordance with the terms of this Article II in respect of Certificates that have been surrendered in accordance with the terms of this Agreement shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares of Company Common Stock represented thereby.

(d)           After the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of Shares that were outstanding prior to the Effective Time.  After the Effective Time, Certificates presented to the Surviving Corporation for transfer shall be canceled and exchanged for the consideration provided for, and in accordance with the procedures set forth in, this Article II.

(e)           In the event that any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed, and, if reasonably requested, the posting by the holder of a bond in customary amount as indemnity against any claim that may be made against it with respect to the Certificate, the Paying Agent will deliver in exchange for the lost, stolen or destroyed Certificate the Merger Consideration payable in respect of the Shares represented by such Certificate pursuant to this Article II.

(f)            The Paying Agent shall invest the cash included in the Exchange Fund, as directed by Parent, on a daily basis in (i) obligations of or guaranteed by the United States of America or any agency or instrumentality thereof, (ii) money market accounts, certificates of deposit, bank repurchase agreement or banker’s acceptances of, or demand deposits with, commercial banks having a combined capital and surplus of at least $5,000,000,000, or (iii) commercial paper obligations rated P-1 or A-1 or better by Standard &Poor’s Corporation or Moody’s Investor Services, Inc.  Any profit or loss resulting from, or interest and other income produced by, such investments shall be for the account of Parent.  If for any reason (including losses) the cash in the Exchange Fund shall be insufficient to fully satisfy all of the payment obligations to be made in cash by the Exchange Agent hereunder (but subject to Section 2.4),

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Parent shall promptly deposit cash into the Exchange Fund in an amount which is equal to the deficiency in the amount of cash required to fully satisfy such cash payment obligations.

SECTION 2.4         Withholding Taxes .  Notwithstanding anything in this Agreement to the contrary, Parent, the Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable to any former holder of Shares pursuant to this Agreement any amount as may be required to be deducted and withheld with respect to the making of such payment under applicable tax Laws.  To the extent that amounts are so properly withheld by the Paying Agent, the Surviving Corporation or Parent, as the case may be, and are paid over to the appropriate Governmental Entity in accordance with applicable Law, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which such deduction and withholding was made by the Paying Agent, the Surviving Corporation or Parent, as the case may be.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to Parent and Merger Sub that, except as identified in the SEC Reports or as set forth on the Company Disclosure Schedule delivered by the Company to the Parent and Merger Sub prior to the execution of this Agreement (the “ Company Disclosure Schedule ”), it being understood and agreed that (i) each item in a particular section of the Company Disclosure Schedule applies only to such section and to any other section to which its relevance is readily apparent and (ii) each item in the SEC Reports applies only to such section of this Agreement to which its relevance is readily apparent:

SECTION 3.1         Organization and Qualification; Subsidiaries; Joint Ventures .  (a)  Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing or active status under the laws of the jurisdiction in which it is incorporated (in the case of good standing, to the extent the concept is recognized by such jurisdiction) and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted, except where any failure to be so organized, existing or in good standing or active status or to have such power or authority would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.  Each of the Company and its Subsidiaries is duly qualified or licensed 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 activities makes such qualification or licensing necessary, except for any failure to be so qualified or licensed or in good standing which would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.  “ Material Adverse Effect ” means any change, effect, event or occurrence that (A) has a material adverse effect on the assets, business, financial condition or results of operations of the Company and its Subsidiaries taken as a whole or (B) prevents, or materially delays the Company from performing its obligations under this Agreement in any material respect or materially delays consummating the transactions contemplated hereby or would reasonably be expected to have such effect; provided , however , that no change, effect, event or occurrence to the extent arising or resulting from any of the following, either alone or in combination, shall constitute or be taken into account in determining whether there has been or will be, a Material

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Adverse Effect: (i) general economic or market conditions or general changes or developments in the pharmaceutical industry or affecting participants in the pharmaceutical industry, (ii) acts of war or terrorism or natural disasters, (iii) the announcement or performance of this Agreement and the transactions contemplated hereby, including compliance with the covenants set forth herein and the identity of Parent as the acquiror of the Company, or any action taken or omitted to be taken by the Company at the written request or with the prior written consent of Parent or Merger Sub, (iv) changes in GAAP, (v) changes in the price or trading volume of the Company’s stock (provided that any change, effect, event or occurrence that may have caused or contributed to such change in market price or trading volume shall not be excluded), (vi) any failure by the Company to meet revenue or earnings projections, in and of itself (provided that any change, effect, event or occurrence that may have caused or contributed to such failure to meet published revenue or earnings projections shall not be excluded) or (vii) the Submission, unless, in the case of clause (i) or (ii), such change, effect, event or occurrence has a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, compared with other companies operating in the pharmaceutical industry.

(b)           Section 3.1(b) of the Company Disclosure Schedule sets forth, for each Company Joint Venture, the interest held by the Company and the jurisdiction in which such Company Joint Venture is organized.  The term “ Company Joint Venture ” means any corporation or other entity (including partnership, limited liability company and other business association) that is not a Subsidiary of the Company and in which the Company or one or more of the Company’s Subsidiaries owns an equity interest (other than equity interests held for passive investment purposes which are less than 10% of any class of the outstanding voting securities or other equity of any such entity and equity interests in which the invested capital associated with the Company’s or its Subsidiaries’ interest is less than $1,000,000, as reasonably determined by the Company).  Interests in the Company Joint Ventures held by the Company are held directly by the Company or one of its Subsidiaries, free and clear of all security interests, liens, claims, pledges, agreements, limitations in voting or transfer rights, charges or other encumbrances of any nature whatsoever (“ Liens ”), except any such Liens that would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.  Neither the Company nor any Subsidiary thereof has any obligation or commitment to make any capital contribution to any Company Joint Venture.

SECTION 3.2         Articles of Incorporation and Bylaws .  The Company has heretofore furnished to Parent a complete and correct copy of the amended and restated articles of incorporation dated as of May 2, 2005 (the “ Articles of Incorporation ”) and the amended and restated bylaws dated as of October 16, 2003 (the “ Bylaws ”) of the Company as in effect on the date hereof and all minutes of the Board of Directors of the Company since January 1, 2005 other than those with respect to consideration and approval of the Offer and the Merger and related transactions.  The Articles of Incorporation of the Company and the Bylaws are in full force and effect and no other organizational documents are applicable to or binding upon the Company.  The Company is not in violation of any provisions of its Articles of Incorporation or Bylaws in any material respect.

SECTION 3.3         Capitalization .  (a)  The authorized capital stock of the Company consists of (i) 100,000,000 Shares, and (ii) 10,000,000 shares of preferred stock, par value $0.01 per share (the “ Preferred Stock ”).

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(b)           As of November 2, 2006:  (i) 47,630,852 Shares were issued and outstanding, all of which were validly issued, fully paid and nonassessable and were issued free of preemptive rights; (ii) an aggregate of 10,001,300 Shares was reserved for issuance upon or otherwise deliverable in connection with the grant of equity-based awards or the exercise of outstanding Options issued pursuant to the Company’s 1996 Stock Option Plan, the Kos Incentive Plan, the Kos 401K Plan  (together with the ESPP, the “ Company Stock Plans ”); (iii) no shares of Preferred Stock were outstanding and (iv) an aggregate of 782,111 Shares was reserved for issuance or delivery upon the exercise of the non-detachable warrants granted in connection with the Revolving Credit and Loan Agreement by and between the Company and Mary Jaharis, dated as of December 19, 2002 and the warrants granted in connection with the PharmaBio Warrant.  Since the close of business on November 2, 2006, until the date hereof, no options to purchase shares of Company Common Stock (including any phantom stock rights, stock appreciation rights or similar rights), Restricted Company Common Stock or Preferred Stock have been granted and no shares of Company Common Stock or Preferred Stock have been issued, except for Shares issued pursuant to the exercise of Options, the Kos Incentive Plan, the Kos 401K Plan and the ESPP, in each case in accordance with their terms.  Section 3.3(b) of the Company Disclosure Schedule sets forth, as of the date specified thereon, each equity-based award (including Restricted Company Common Stock) and Option outstanding whether or not under the Company Stock Plans (specifying whether under the Company Stock Plans or outside of the Company Stock Plans), the number of Shares issuable thereunder and the expiration date and exercise or conversion price relating thereto.

(c)           As of the date of this Agreement, except as set forth in clauses (a) and (b) of this Section 3.3:  (i) there are not outstanding or authorized any (A) shares of capital stock or other voting securities of the Company, (B) securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company or (C) options (including any phantom stock rights, stock appreciation rights or similar rights)  or other rights to acquire from the Company, or any obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company (collectively, “ Company Securities ”); (ii) there are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any Company Securities; and (iii) there are no statutory or contractual preemptive rights, other options, calls, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock or other voting securities of the Company to which the Company is a party.  No Subsidiary of the Company owns any Shares.

(d)           Each of the outstanding shares of capital stock and voting securities of the Company’s Subsidiaries is duly authorized, validly issued, fully paid and nonassessable and all such shares are owned by the Company, free and clear of all Liens, except any such Liens that would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.  There are no (i) outstanding options or other rights of any kind which obligate the Company or its Subsidiaries to issue or deliver any shares of capital stock, voting securities or other equity interests of the Subsidiaries of the Company or any securities or obligations convertible into or exchangeable into or exercisable for any shares of capital stock, voting securities or other equity interests of such Subsidiaries, (ii) outstanding obligations of the Company or its Subsidiaries to repurchase, redeem or otherwise acquire any securities or obligations convertible into or exchangeable into or exercisable for any shares of capital stock,

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voting securities or other equity interests of such Subsidiaries; or (iii) other options, calls, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock or other equity interests or voting securities of the Subsidiaries of the Company to which the Company or its Subsidiaries is a party.

SECTION 3.4         Authority .  (a)  The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby.  The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company, subject, in the case of the Merger, to the approval of this Agreement by the holders of at least a majority in combined voting power of the outstanding Shares if required by applicable Law (the “ Company Requisite Vote ”), and the filing with the Florida Department of State, Division of Corporations and the Secretary of State of the State of Delaware of the Articles of Merger as required by the FBCA and the Delaware General Corporation Law.  The affirmative vote of a majority of the outstanding Company Common Stock is the only vote required of the Company’s capital stock necessary in connection with the approval and consummation of the Merger.  No other vote of the Company’s shareholders is necessary in connection with this Agreement, the Shareholders Agreement, or the consummation of any of the transactions contemplated hereby.  This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Parent and Merger Sub, constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and any implied covenant of good faith and fair dealing.

(b)           The Board of Directors of the Company has, by resolutions duly adopted, at a meeting duly called and held (i) authorized the execution, delivery and performance of this Agreement and all of the transactions contemplated hereby, (ii) approved, adopted and declared advisable, this Agreement and the transactions contemplated hereby, including the Offer and the Merger, in accordance with the FBCA, (iii) determined that the terms of this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to and in the best interests of the Company and the shareholders of the Company, (iv) recommended that the holders of Company Common Stock accept the Offer and tender their Shares pursuant to the Offer (the “ Offer Recommendation ”) and that the holders of Company Common Stock approve this Agreement and the transactions contemplated hereby, including the Merger (the “ Merger Recommendation ”).

(c)           The Board of Directors of the Company has, by resolutions duly adopted at a meeting duly called and held, approved and declared advisable, the Shareholders Agreement and the Stock Purchase Agreement and, prior to the execution of the Shareholders Agreement and this Agreement, has taken all necessary actions to exempt the Investments Stock Purchase, the Shareholders Agreement and this Agreement and the transactions contemplated hereby and thereby from any and all applicable antitakeover statutes including FBCA § 607.0901 (“affiliated transactions” statute) and FBCA § 607.0902 (“control-share acquisitions” statute).

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SECTION 3.5         No Conflict; Required Filings and Consents .  (a)  The execution, delivery and performance of this Agreement by the Company do not and will not (i) conflict with or violate the Articles of Incorporation or Bylaws of the Company or its Subsidiaries, (ii) assuming that all consents, approvals and authorizations contemplated by clauses (i) through (vii) of subsection (b) below have been obtained, and all filings described in such clauses have been made, conflict with or violate any federal, state, local or foreign statute, law, ordinance, rule, regulation, order, judgment, decree or legal requirement (“ Law ”) applicable to the Company or its Subsidiaries or by which any of their respective properties are bound or (iii) (A) require notice to any third party, result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both would become a default), or (B) result in the loss of a benefit under, or give rise to any right of termination, cancellation, amendment or acceleration of, or (C) result in the creation of any Lien on any of the properties or assets of the Company or its Subsidiaries under, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit or other instrument or obligation (each, a “ Contract ”) to which the Company or its Subsidiaries is a party or by which the Company or its Subsidiaries or any of their respective properties are bound, except, in the case of clauses (ii) and (iii), for any such notice, conflict, violation, breach, default, loss, right or other occurrence which would not, or would not reasonably be expected to, (A) materially delay consummating the transactions contemplated hereby on a timely basis or (B) individually or in the aggregate, have a Material Adverse Effect.

(b)           The execution, delivery and performance of this Agreement by the Company and the consummation of the Offer, the Merger or the Investments Stock Purchase do not and will not require any notice, consent, approval, authorization or permit of, action by, filing with or notification to, any federal, state, local or foreign governmental or regulatory (including stock exchange) authority, agency, court, commission, or other governmental body (each, a “ Governmental Entity ”) to be obtained or made by the Company, except for (i) applicable requirements of the Securities Act of 1933, as amended (the “ Securities Act ”) and the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) and the rules and regulations promulgated thereunder (including the filing of the Schedule 14D-9, the proxy statement to be sent to shareholders of the Company in connection with the Shareholders Meeting (the “ Proxy Statement ”) and any information statement (the “ Information Statement ”) required under Rule 14f-1 in connection with the Offer), and state securities, takeover and “blue sky” laws, (ii) the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), (iii) the applicable requirements of antitrust or other competition laws of jurisdictions other than the United States or investment laws relating to foreign ownership (“ Foreign Antitrust and Investment Laws ”), (iv) the applicable requirements of the NASDAQ Stock Market LLC (“ Nasdaq ”), (v) the filing with the Florida Department of State, Division of Corporations and the Secretary of State of the State of Delaware of the Articles of Merger as required by the FBCA and the Delaware General Corporation Law, (vi) any notices required under the U.S. Federal Food, Drug, and Cosmetic Act, as amended (the “ FDA Act ”) or similar laws of jurisdictions other than the United States, and (vii) any such consent, approval, authorization, permit, action, filing or notification the failure of which to make or obtain would not (A) prevent or materially delay the Company from performing its obligations under this Agreement in any material respect, (B) materially delay consummating the transactions contemplated hereby on a timely basis, or (C) individually or in the aggregate, have or reasonably be expected to have, a Material Adverse Effect.

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SECTION 3.6         Compliance .  (a)  Neither the Company nor its Subsidiaries is in violation of any Law applicable to the Company or its Subsidiaries or by which any of their respective properties are bound or any regulation issued under any of the foregoing or has been notified in writing by any Governmental Entity of any violation, or any investigation with respect to any such Law, including Laws enforced by the United States Food and Drug Administration (“ FDA ”) and comparable foreign Governmental Entities (collectively, “ Drug Law ”), except for any such violation which would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.

(b)           The Company and its Subsidiaries have all registrations, applications, licenses, requests for approvals, exemptions, permits and other regulatory authorizations (“ Authorizations ”) from Governmental Entities required to conduct their respective businesses as now being conducted, except for any such Authorizations the absence of which would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.  Except for any failures to be in compliance that would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect, the Company and its Subsidiaries are in compliance with all such Authorizations.  The Company has made available to Parent all material Authorizations from the FDA.

(c)           None of the Company, any of its Subsidiaries or any officers, employees or agents of the Company or any of its Subsidiaries is currently, or has been, excluded, debarred or otherwise made ineligible to participate in federal health care programs.  The Company has no Knowledge of any facts concerning the Company, any of its Subsidiaries or any officers, employees or agents of the Company or any of its Subsidiaries that are reasonably likely to form the basis for an exclusion or debarment of any such entities.

(d)           The Company and its Subsidiaries have not been notified in writing of any material failure (or any material investigation with respect thereto) by them or any licensor, licensee, partner or distributor to comply with, or maintain systems and programs to ensure compliance with any Drug Law pertaining to programs or systems regarding product quality, notification of facilities and products, corporate integrity, pharmacovigilance and conflict of interest including Current Good Manufacturing Practice Requirements, Good Laboratory Practice Requirements, Good Clinical Practice Requirements, Establishment Registration and Product Listing requirements, requirements applicable to the debarment of individuals, requirements applicable to the conflict of interest of clinical investigators and Adverse Drug Reaction Reporting requirements, in each case with respect to any products of the Company or its Subsidiaries.

(e)           The Company and its Subsidiaries have not been notified in writing of any material failure (or any material investigation with respect thereto) by them or any licensor, licensee, partner or distributor to have at all times complied with their obligations to report accurate pricing information for the Company’s or its Subsidiaries’ products to a Governmental Entity and to pricing services relied upon by a Governmental Entity or other payors for such products, including their obligations to report accurate Best Prices and Average Manufacturers’ Prices under the Medicaid Rebate Statute and accurate Average Sales Prices under the Medicare Modernization Act of 2003 and their obligations to charge accurate Federal Ceiling Prices to purchasers entitled to those prices.

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(f)            No product or product candidate manufactured, tested, distributed, held and/or marketed by the Company or any of its Subsidiaries has been recalled, withdrawn, suspended or discontinued (whether voluntarily or otherwise) since January 1, 2005.  No proceedings (whether completed or pending) seeking the recall, withdrawal, suspension or seizure of any such product or product candidate or pre-market approvals or marketing authorizations are pending, or to the Knowledge of the Company, threatened, against the Company or any of its Affiliates, nor have any such proceedings been pending at any time since January 1, 2005.  The Company has, prior to the execution of this Agreement, provided or made available to Parent all current U.S. annual periodic reports and all information about adverse drug experiences, in each case since January 1, 2005 obtained or otherwise received by the Company from any source, in the United States or outside the United States, including information derived from clinical investigations prior to any market authorization approvals, commercial marketing experience, postmarketing clinical investigations, postmarketing epidemiological/surveillance studies, reports in the scientific literature, and unpublished scientific papers relating to any product or product candidate manufactured, tested, distributed, held and/or marketed by the Company, any of its Subsidiaries or any of their licensors or licensees in the possession of the Company or any of its Subsidiaries (or to which any of them has access), except for any adverse drug experiences or reports which would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.

(g)           None of the Company, any of its Subsidiaries or any officers, employees or agents of the Company or any of its Subsidiaries has with respect to any product that is manufactured, tested, distributed, held and/or marketed by the Company or any of its Subsidiaries made an untrue statement of a material fact or fraudulent statement to the FDA or other Governmental Entity, failed to disclose a material fact required to be disclosed to the FDA or any other Governmental Entity, or committed an act, made a statement, or failed to make a statement that, at the time such disclosure was made, could reasonably be expected to provide a basis for the FDA or any other Governmental Entity to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any similar policy.

SECTION 3.7         SEC Filings; Financial Statements .  (a)  The Company has filed or otherwise transmitted all forms, reports, statements, certifications and other documents (including all exhibits, amendments and supplements thereto) required to be filed or otherwise transmitted by it with the SEC) since January 1, 2005 and prior to the date hereof (such documents filed since January 1, 2005 and prior to the date hereof, the “ SEC Reports ”).  As of their respective dates, each of the SEC Reports complied as to form in all material respects with the applicable requirements of the Securities Act and the rules and regulations promulgated thereunder and the Exchange Act and the rules and regulations promulgated thereunder, each as in effect on the date so filed.  Except to the extent amended or superseded by a subsequent filing with the SEC made prior to the date hereof, as of their respective dates (and if so amended or superseded, then on the date of such subsequent filing), none of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

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(b)           The audited consolidated financial statements of the Company (including any related notes thereto) included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2005 filed with the SEC have been prepared in accordance with GAAP in all material respects applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries at the respective dates thereof and the consolidated statements of operations, cash flows and changes in shareholders’ equity for the periods indicated therein.  The unaudited consolidated financial statements of the Company (including any related notes thereto) for all interim periods included in the Company’s quarterly reports on Form 10-Q or Form 10-Q/A filed with the SEC since January 1, 2006 have been prepared in accordance with GAAP in all material respects applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or may be permitted by the SEC under the Exchange Act) and fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated statements of operations and cash flows for the periods indicated therein (subject to normal period-end adjustments).

(c)           The Company’s disclosure controls and procedures are reasonably designed to ensure that material information relating to the Company, including its Subsidiaries, is made known to the chief executive officer and the chief financial officer of the Company by others within those entities.

(d)           Since December 31, 2005, the Company has not disclosed to the Company’s independent registered accounting firm and the audit committee of the Company’s Board of Directors and to Parent (i) any significant deficiencies and material weaknesses in the design or operation of its internal control over financial reporting or (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

(e)           Since December 31, 2005, the Company has not identified any material weaknesses in the design or operation of its internal control over financial reporting.  To the Knowledge of the Company, there is no reason to believe that its auditors and its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 when next due.  The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iii) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(f)            Neither the Company nor its Subsidiaries has any liabilities of any nature, except liabilities that (i) are accrued or reserved against in the most recent financial statements included in the SEC Reports filed prior to the date hereof or are reflected in the notes thereto, (ii) were incurred in the ordinary course of business since the date of such financial statements, (iii) are incurred in connection with the transactions contemplated by this Agreement, (iv) have been discharged or paid in full prior to the date of this Agreement in the ordinary course of business,

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or (v) would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.  Section 3.7(f) of the Company Disclosure Schedule sets forth a list of all outstanding debt for money borrowed, the applicable lender, interest rate and the applicable payment dates.

SECTION 3.8         Absence of Certain Changes or Events .  Since January 1, 2006, until the date of this Agreement, (i) except as contemplated by this Agreement, the Company and its Subsidiaries have conducted their business in the ordinary course consistent with past practice, and (ii) there has not been (a) any change, event or occurrence which has had or would reasonably be expected to have a Material Adverse Effect or (b) (A) any declaration, setting aside or payment of any dividend or other distribution in cash, stock, property or otherwise in respect of the Company’s or its Subsidiaries’ capital stock; (B) any redemption, repurchase or other acquisition of any shares of capital stock of the Company or its Subsidiaries (other than in connection with the forfeiture or exercise of equity based awards, Options and Restricted Company Common Stock in accordance with existing agreements or terms); (C) except as contemplated by this Agreement (1) any granting by the Company or its Subsidiaries to any of their directors, officers or employees of any material increase in compensation or benefits, except for increases in the ordinary course of business consistent with past practice or that are required under any Company Plan; (2) any granting to any director, officer or employee of the right to receive any severance or termination pay, except as provided for under any plan or agreement in effect prior to January 1, 2006 or (3) any entry by the Company or its Subsidiaries into any employment, consulting, indemnification, termination, change of control or severance agreement or arrangement with any present or former director, officer or employee of the Company or its Subsidiaries, or any amendment to or adoption of any Company Plan or collective bargaining agreement; (D) any material change by the Company in its accounting principles, except as may be required to conform to changes in statutory or regulatory accounting rules or GAAP or regulatory requirements with respect thereto; (E) any material Tax election made by the Company or its Subsidiaries or any settlement or compromise of any material Tax liability by the Company or its Subsidiaries; or (F) any material change in Tax accounting principles by the Company or its Subsidiaries, except insofar as may have been required by applicable Law.

SECTION 3.9         Absence of Litigation .  There are no suits, claims, actions, proceedings, arbitrations, mediations or, to the Company’s Knowledge, governmental investigations (“ Proceedings ”) pending or, to the Company’s Knowledge, threatened against the Company or its Subsidiaries, other than any Proceeding that would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.  Neither the Company nor its Subsidiaries nor any of their respective properties is or are subject to any order, writ, judgment, injunction, decree or award except for those that would not, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.

SECTION 3.10       Employee Benefit Plans .  (a)  Section 3.10(a) of the Company Disclosure Schedule contains a true and complete list of each material Company Plan.  “ Company Plans ” means each “ employee benefit plan ” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), but excluding any plan that is a “multiemployer plan,” as defined in Section 3(37) of ERISA (“ Multiemployer Plan ”)), and each other cash-based or equity-based plan, program, agreement or arrangement,

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vacation or sick pay policy, fringe benefit plan, and compensation, severance or employment agreement contributed to, sponsored or maintained by the Company or its Subsidiaries or with respect to which the Company or any of its Subsidiaries has any liabilities or obligations as of the date hereof for the benefit of any current, former or retired employee, officer, consultant, independent contractor or director of the Company or its Subsidiaries (collectively, the “ Company Employees ”).

(b)           With respect to each Company Plan, the Company has made available to the Parent a current, accurate and complete copy thereof (or, if a plan is not written, a written description thereof), including all amendments and, to the extent applicable, (i) any related trust agreement or similar agreement, insurance policy or other funding instrument, (ii) the most recent determination or prototype opinion letter, and any pending request for such a determination, from the Internal Revenue Service (the “ IRS ”) relating to a Company Plan, (iii) any summary plan description and (iv) for the most recent year that a filing has been made (A) the Form 5500 and attached schedules, (B) audited financial statements and (C) actuarial valuation reports, if any.  Except as specifically provided in the foregoing documents, there are no material amendments to any Company Plans that have been adopted or approved, nor has the Company or any of its Subsidiaries undertaken to make any such amendments or to adopt or approve any new Company Plan.

(c)           Each Company Plan, including any associated trust or fund, has been established and administered in accordance with its terms and in material compliance with the applicable provisions of ERISA, the Code, and all other applicable laws, rules and regulations, all required contributions and premium payments with respect thereto have been timely made, and all contributions and premium payments with respect thereto not yet due have been properly accrued in accordance with GAAP.

(d)           None of the Company and its Subsidiaries nor any of their respective ERISA Affiliates has, at any time during the last six years, sponsored, contributed to or been obligated to contribute to any Title IV Plan, any Multiemployer Plan or a plan that has two or more contributing sponsors at least two of whom are not under common control (within the meaning of Section 4063 of ERISA); and none of the Company and its Subsidiaries nor any of their respective ERISA Affiliates has incurred any Withdrawal Liability that has not been satisfied in full.  “ Withdrawal Liability ” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as those terms are defined in Part I of Subtitle E of Title IV of ERISA.  There is not now, and to the Knowledge of the Company there are no existing circumstances that would reasonably be expected to give rise to, any requirement for the posting of security with respect to a Company Plan or the imposition of any pledge, lien, security interest or encumbrance on assets of the Company or any of its Subsidiaries or any of their respective ERISA Affiliates under ERISA or the Code, or similar Laws of foreign jurisdictions.  The Company has not incurred any liability under Title IV of ERISA that has not been satisfied in full, and, to the Knowledge of the Company, no condition exists that presents a risk to the Company of incurring any such liability other than liability for premiums due the Pension Benefit Guaranty Corporation (the “ PBGC ”).

(e)           No Proceedings relating to any Company Plan (other than routine claims for benefits in the ordinary course) are pending or, to the Company’s Knowledge, threatened.

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(f)            Each Company Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and has received a favorable determination letter to that effect from the IRS and, to the Knowledge of the Company, no circumstances exist which would materially and adversely affect such qualification or exemption.

(g)           The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon occurrence of any additional or subsequent events) (i) constitute an event under any Company Plan or any trust or loan related to any of those plans or agreements that will or may result in any payment, acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Company Employee, or (ii) result in the triggering or imposition of any restrictions or limitations on the right of the Company or its Subsidiaries to amend or terminate any Company Plan.

(h)           Except as required under Code Section 4980B and Section 601 et seq . of ERISA, or similar provisions of applicable state Law, no Company Plan that is a welfare plan within the meaning of Section 3(1) of ERISA provides benefits or coverage following retirement or other termination of employment.  There has been no communication to employees of the Company or any of its Subsidiaries that promises or guarantees such employees retiree health or life insurance benefits or other retiree death benefits on a permanent or extended basis.

(i)            Each Company Plan that is a nonqualified deferred compensation plan subject to Code Section 409A has been operated and administered in good faith compliance with such Section 409A from the period beginning January 1, 2005 through the date hereof.

(j)            Except as would not, individually or in the aggregate, be expected to result in any material liability to the Company or any of its Subsidiaries taken as a whole, no disallowance of a deduction under Section 162(m) of the Code for employee reimbursement or compens