AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

among

CYTYC CORPORATION,

ADMIRAL ACQUISITION CORP.,

ADIANA, INC.

and

THE MEMBERS OF THE STOCKHOLDER REPRESENTATIVE COMMITTEE

Dated as of February 26, 2007

TABLE OF CONTENTS

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A GREEMENT AND P LAN OF M ERGER AND R EORGANIZATION

This Agreement and Plan of Merger and Reorganization (this "Agreement" ) is made and entered into as of February 26, 2007 (the "Agreement Date" ), by and among (i)  Cytyc Corporation , a Delaware corporation (the "Parent" ), (ii)  Admiral Acquisition Corp. , a Delaware corporation and a wholly owned Subsidiary of Parent ( "Merger Sub" ), (iii)  Adiana, Inc. , a Delaware corporation (the "Company" ), and (iv)  Douglas Kelly, David Douglass and Joan Neuscheler , acting in each case in his or her capacity as a member of the Stockholder Representative Committee referred to herein. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in Section 10.2 hereof.

W HEREAS , upon the terms and subject to the conditions set forth in this Agreement and in accordance with the provisions of the Delaware General Corporation Law (" Delaware Law "), Merger Sub shall merge with and into the Company (the " Merger "), following which the Company shall continue as the surviving corporation;

W HEREAS , the board of directors of the Company (the "Company Board" ) has approved and adopted the form of this Agreement and the consummation of the transactions contemplated hereby, and has determined to submit the execution and delivery of this Agreement and the performance of the transactions contemplated hereby to the holders (the "Company Stockholders" ) of the shares of the Company’s Common Stock, $0.001 par value per share (the "Company Common Stock" ), and Preferred Stock, $0.001 par value per share (the "Company Preferred Stock" ), for their approval in accordance with Delaware Law and the terms of the Company’s Amended and Restated Certificate of Incorporation; and

W HEREAS , the Company Board has carefully considered the terms of this Agreement and has determined that the terms and conditions of the transactions contemplated hereby, including the Merger, are fair and in the best interests of, and are advisable to, the Company and the Company Stockholders, and the Company Board recommends that the Company Stockholders vote for the approval and adoption of this Agreement and the transactions contemplated hereby.

N OW , T HEREFORE , in consideration of the foregoing and the mutual covenants and agreements herein contained and intending to be legally bound hereby, Parent, Merger Sub, the Company and the members of the Stockholder Representative Committee hereby agree as follows:

ARTICLE 1

THE MERGER

Section 1.1 The Merger . Subject to the other terms and conditions of this Agreement, including those set forth in Article 7 hereof, the Merger shall be consummated under the following circumstances:

(a) Merger Certificate . No later than five (5) business days after the Agreement Date, the Company shall deliver to Parent a certificate of merger, substantially in the

form attached hereto as Exhibit A (the "Merger Certificate" ), executed by appropriate officers of the Company. The Merger Certificate shall be retained by Parent and filed upon the Closing .

(b) The Merger . After execution and delivery of the Merger Certificate, upon the terms hereof and subject to the conditions set forth herein, and in accordance with Delaware Law, at the Effective Time, Merger Sub shall be merged with and into the Company and, 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 is referred to herein as the "Surviving Corporation" ).

(c) Consummation of the Merger; Effective Time . Subject to the fulfillment or waiver of all of the conditions contained in Article 7 , as soon as is reasonably practicable following the satisfaction or waiver of all of the conditions contained in Article 7 , other than those conditions which by their terms are to be satisfied at Closing, a closing (the "Closing" ) will be held at the offices of Bingham McCutchen LLP in Boston, Massachusetts (or such other place as the parties may agree). The date on which the Closing is actually held is referred to herein as the "Closing Date" . On the Closing Date, Parent, Merger Sub and the Company shall cause the Merger to be consummated by filing the Merger Certificate with the Delaware Secretary of State. The term "Effective Time" means the date and time of the filing of the Merger Certificate with the Delaware Secretary of State (or such later time as may be agreed by each of the parties hereto and specified in the Merger Certificate in accordance with Delaware Law).

Section 1.2 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in the Merger Certificate and as provided by the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, upon the consummation of the Merger, all the property (including, but not limited to, Intellectual Property and licenses to Intellectual Property), rights, privileges, powers and franchises of the Company and the Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of those corporations shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation.

Section 1.3 Charter; Bylaws .

(a) At the Effective Time, the Certificate of Incorporation of the Surviving Corporation (the "Surviving Corporation Charter" ), shall be the Certificate of Incorporation of the Company, as amended by the Merger Certificate.

(b) At the Effective Time, the bylaws of the Surviving Corporation shall be the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended as provided by Delaware Law, the Surviving Corporation Charter and such bylaws.

Section 1.4 Directors and Officers . The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Surviving Corporation Charter and the bylaws of the Surviving Corporation, and until their respective successors are duly elected and

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qualified or until their earlier death, disability, resignation or removal. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified or until their earlier death, disability, resignation or removal.

Section 1.5 Capitalization and Closing Payment Amount Certificate; Net Cash Payment; Closing Date Consideration; Committee Reimbursement Amount; Initial Escrow Amount .

(a) Capitalization and Closing Payment Amount Certificate . No later than two (2) business days prior to the Closing, the Company shall prepare and deliver to the Parent a certificate (the "Capitalization and Closing Payment Amount Certificate" ) that discloses (i) the information required to be set forth on Section 3.3 of the Company Disclosure Schedule, as of the Effective Time, (ii) the respective amounts of all unpaid third party fees, costs or expenses incurred or expected to be incurred by the Company or the Participating Rights Holders in connection with the preparation, negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (including any fees and expenses of legal counsel, financial advisors and consultants), whether or not invoiced or billed prior to the Effective Time (collectively, the " Transaction Costs "), (iii) the amount (the " Indebtedness Amount ") of any outstanding Indebtedness of the Company expected to be outstanding at the Effective Time and any payment obligations of the Company or any of its Subsidiaries to any of their respective Stockholders (other than the Company) expected to be outstanding immediately prior to the Effective Time (excluding the issuance of the Merger Consideration hereunder, including payment obligations in respect of Company Options, but including, without limitation, any bonus payment obligations outstanding at the Effective Time), (iv) the aggregate amount of cash or cash equivalents expected to be held by the Company immediately prior to the Effective Time after giving effect to any exercises of options, warrants or other exercisable rights for cash, taking effect as of the time immediately prior to the Effective Time (the " Cash On-Hand Amount "), (v) the aggregate amount (the "Company Payables Amount" ) of all accounts payable and similar payment obligations or accrued liabilities of the Company (excluding any amounts included in the Transaction Costs or the Indebtedness Amount) that are expected to be outstanding at the Effective Time ( "Company Payables" ), (vi) the aggregate amount of the Company’s liability for accrued and unpaid vacation as of the Effective Time (the " Accrued Vacation Amount "), and (vii) the Net Cash Amount (as calculated pursuant to Section 1.5(b) below), which disclosures shall be deemed to be representations and warranties of the Company hereunder made as of the Effective Time. During the period following delivery of the Capitalization and Closing Payment Amount Certificate and prior to the Closing, the Company shall provide Parent with reasonable access to the Company’s books of account and records used to prepare the Capitalization and Closing Payment Amount Certificate, and the management of the Company, for the purpose of verifying the amounts set forth therein.

(b) Net Cash Payment . At the Closing and deemed to be effective as of the time immediately prior to the Effective Time (after giving effect to all (i) exercises of Company Options, (ii) exercises of warrants to purchase Company Common Stock and Company Preferred Stock and (iii) conversions of Company Preferred Stock into Company Common Stock, that are elected by the holders thereof to be made prior to the Effective Time), the Company shall make a payment (the "Net Cash Payment" ) allocated among the Company Stockholders in accordance

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with the terms of the Company’s Certificate of Incorporation as in effect as of the earlier of the time of such Net Cash Payment or the time immediately prior to the Effective Time , and among the holders of outstanding unexercised Company Options (assuming the exercise of all of such Company Options for cash immediately prior to such Net Cash Payment, whether or not such exercise is actually elected by the holder thereof prior to the Effective Time), an amount in cash (the " Net Cash Amount "), if any, equal to the amount, if any, by which (i) the Cash On-Hand Amount set forth in the Capitalization and Closing Payment Amount Certificate, exceeds (ii) the sum of the Indebtedness Amount, the Transaction Costs, the Company Payables Amount and the Accrued Vacation Amount, each as set forth in the Capitalization and Closing Payment Amount Certificate. The Net Cash Payment to the Company Stockholders shall be characterized as a dividend, and the Net Cash Payment in respect of outstanding unexercised Company Options shall be characterized as a one-time bonus and, to the extent held by employees of the Company, shall be made through the Company’s payroll system, subject to all applicable Tax withholding obligations of the Company. The Net Cash Payment shall be paid as promptly as practicable following the Effective Time.

(c) Closing Date Consideration . The consideration to be paid by Parent to the Participating Rights Holders at the Closing in connection with the Merger shall be the amount of the Closing Payment Amount allocated to each of such Participating Rights Holders pursuant to Section 2.1 .

(d) Committee Reimbursement Amount . At the Closing, a portion of the Closing Payment Amount in cash otherwise payable to the Participating Rights Holders with respect to their shares of Company Common Stock or Company Preferred Stock, equal to $250,000 (together with any additional amounts deposited with the Stockholder Representative Committee pursuant to Section 2.5(e) , the " Committee Reimbursement Amount "), shall not be paid at the Closing to the Participating Rights Holders with respect to such shares of Company Common Stock or Company Preferred Stock, but shall instead be deposited with the Stockholder Representative Committee, to be held by the Stockholder Representative Committee for the payment of expenses incurred by the Stockholder Representative Committee in performing its duties pursuant to this Agreement, and distributed in accordance with Section 2.1 hereof. The portion of the Closing Payment to be contributed hereunder on behalf of each Participating Rights Holder described above to the Committee Reimbursement Amount shall be proportionate to that portion of the Closing Payment that such Participating Rights Holder would otherwise be entitled to receive hereunder. The Committee Reimbursement Amount shall be subject to increase from time to time as provided in Section 2.5 .

(e) Initial Escrow Amount . At the Closing, the Parent shall deposit $3,000,000 in cash (the " Initial Escrow Amount ") with The Bank of New York or such other escrow agent as shall be mutually agreed-upon by Parent and the Company prior to the Closing (the "Escrow Agent" ), to be held by the Escrow Agent pursuant to an Escrow Agreement, substantially in the form of the attached Exhibit B (the "Escrow Agreement" ), and distributed in accordance therewith. At the Closing, Parent, Merger Sub, the Company, the Stockholder Representative Committee and the Escrow Agent will execute and deliver the Escrow Agreement.

Section 1.6 Additional Payments .

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(a) Certain Definitions . For purposes of this Agreement, the following definitions shall apply:

(i) "Bundled Product" means a Contingent Payment Product and one or more other products (which other products are not Contingent Payment Products and have value that is independent from, or incremental to, the Contingent Payment Product (i.e., the Bundled Product incorporating such other product has a higher value or utility than the applicable Contingent Payment Product without such other product)) that are either (a) packaged together for sale or shipment as a single unit, or (b) sold together in a kit.

(ii) "Company Incremental Amount" means, with respect to any Contingent Payment Year, the amount equal to the Worldwide Net Sales for such Contingent Payment Year, minus the amount of Worldwide Net Sales for the immediately completed previous Contingent Payment Year; provided , that in the event that the final Contingent Payment Year is a period of less than twelve months, the Company Incremental Amount for such final Contingent Payment Year shall be an amount equal to the Worldwide Net Sales for such final Contingent Payment Year minus the aggregate Worldwide Net Sales for the same calendar months during the immediately prior Contingent Payment Year as are included in the final Contingent Payment Year; and provided, further, that if the amount otherwise determined in accordance with this definition for any Contingent Payment Year is not greater than zero, then the Company Incremental Amount for such Contingent Payment Year shall be deemed to be zero.

(iii) "Company Product" means the Company’s Complete TransCervical Sterilization System for use in permanent female sterilization as it has been developed by Company prior to the Closing, and as it may be improved or modified by the Parent or the other members of the Buyer Group after the Closing for use in permanent female sterilization.

(iv) "Contingent Payment Commencement Date" means, with respect to the Contingent Payment Product, the first day of the calendar month following the month in which the FDA Milestone is achieved.

(v) "Contingent Payment Product" means any Company Product to the extent that the manufacture, marketing, sale, offer for sale or importation of such device would infringe (absent applicable appropriate licenses or other rights), in such jurisdiction of manufacture, sale, offer for sale or importation a valid and enforceable claim of any patent included in the Company Owned Intellectual Property or Company Licensed Intellectual Property issued at or prior to the Effective Time or of any patent issued after the Effective Time pursuant to a patent application included in the Company Owned Intellectual Property that has been filed prior to the Effective Time. For purposes of this definition, "valid and enforceable claim" means a claim of an issued and unexpired patent that has not been held revoked, unenforceable or invalid by a court or administrative or other government agency of competent jurisdiction and that has not been admitted to be invalid or unenforceable through reissue, reexamination, disclaimer or otherwise.

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(vi) "Contingent Payment Termination Date" means the earlier of the fourth anniversary of the Contingent Payment Commencement Date or December 31, 2012, provided , that if the FDA Milestone Payment Amount upon which the FDA Milestone Payment is actually calculated equals $25,000,000, then the Contingent Payment Termination Date shall be the earlier of (x) such fourth anniversary of the Contingent Payment Commencement Date or if earlier, December 31, 2012, or (y) the date on which Parent has made (or been deemed to have made pursuant to Section 1.7 ) Sales Contingent Payments based on Sales Contingent Payment Amounts equal to the Maximum Sales Contingent Amount.

(vii) "Contingent Payment Year" means each of the four successive twelve consecutive calendar month periods beginning with the twelve calendar month period commencing on the Contingent Payment Commencement Date and ending with the third twelve calendar month period following the initial twelve consecutive calendar month period including the Contingent Payment Commencement Date (the " First Contingent Payment Year ", " Second Contingent Payment Year ", " Third Contingent Payment Year ", and " Fourth Contingent Payment Year , respectively), provided , that in the event that the Contingent Payment Commencement Date occurs after January 1, 2009, then the final Contingent Payment Year shall be the Contingent Payment Year that includes December 31, 2012, and such Contingent Payment Year shall be deemed to end on such date, regardless of whether or not such Contingent Payment Year includes twelve calendar months. Notwithstanding anything to the contrary in this Agreement, in no event shall any Contingent Payment Year commence after December 31, 2012, and the Contingent Payment Year ending December 31, 2012 in accordance with the preceding sentence shall be deemed to be the final Contingent Payment Year for all purposes of this Agreement.

(viii) "FDA Milestone" shall be deemed to be achieved upon receipt by any member of the Buyer Group of a written approval letter from the FDA, or a successor entity, allowing for the initiation of the marketing or sales of any Company Product in the United States for use in permanent female sterilization without any conditions or limitations to such approval other than any conditions or limitations which would not, individually or in the aggregate, materially adversely affect the marketability or commercial viability of such Company Product; provided , however , that the FDA Milestone shall be deemed to be achieved in any event upon the first commercial sale after the Effective Time by a member of the Buyer Group, or its sublicensee or authorized or licensed distributor, of a Company Product in the United States of America outside of a clinical trial.

(ix) "FDA Milestone Payment Amount" means the amount of $25,000,000; provided , that if the FDA Milestone is not achieved by November 1, 2007, then the FDA Milestone Payment Amount shall be equal to $25,000,000 minus (x) with respect to the first three full calendar months including November 2007, the product of $1,000,000 multiplied by the number of full calendar months included in the period beginning with the month of November 2007 and ending with the full calendar month immediately prior to the month in which the FDA Milestone is achieved or, if earlier, the month of January 2008, minus (y) with respect to the period following January 31, 2008, the product of $2,000,000 multiplied by the number of full calendar months included in the period beginning with the month of February 2008 and ending with the full calendar month immediately prior to the month in which the FDA Milestone is achieved, and minus (z) the product of $1,000,000 (if the FDA Milestone is

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achieved on or prior to January 31, 2008) or $2,000,000 (if the FDA Milestone is achieved after January 31, 2008) multiplied by a fraction, the numerator of which is the day of the month on which the FDA Milestone is achieved, and the denominator of which is the total number of days in such month. Notwithstanding anything to the contrary in this Agreement, in the event that there has been a Pregnancies Event prior to the achievement of the FDA Milestone, the FDA Milestone Payment Amount shall be equal to zero.

(x) "First Recovery Contingent Payment Amount " means the amount, if any, by which $25,000,000 exceeds the amount of the FDA Milestone Payment Amount actually calculated in accordance with the definition thereof.

(xi) "Maximum Sales Contingent Amount" means the amount of $130,000,000, provided , that in the event that the FDA Milestone Payment Amount for purposes of the FDA Milestone Payment is actually calculated to be zero as a result of the occurrence of a Pregnancies Event, then the Maximum Sales Consideration Contingent Amount shall be increased above $130,000,000 by an amount equal to the amount that the FDA Milestone Payment Amount would have been calculated to be in accordance with the definition thereof, had the Pregnancies Event not occurred.

(xii) "Per Unit Average Selling Price" means, with respect to a Contingent Payment Product, the amount equal to (x) the total amount of annual Worldwide Net Sales of such Contingent Payment Product, not including any such Contingent Payment Products that are sold as a Bundled Product, divided by (y) the total number of units of such Contingent Payment Products sold during such year, not including any such Contingent Payment Products that are sold as a Bundled Product. "Per Unit Average Selling Price" means, with respect to a product other than a Contingent Payment Product, the amount equal to (x) the total amount of annual worldwide revenue recognized by the Buyer Group for the sale of such other product, not including any such products that are sold as a Bundled Product, divided by (y) the total number of units of such products sold during such year, not including any such products that are sold as a Bundled Product.

(xiii) "Sales Contingent Payment Amount" means (a) with respect to the First Contingent Payment Year, an amount equal to 300% of the total Worldwide Net Sales of Contingent Payment Products recorded for the First Contingent Payment Year, (b) with respect to the Second Contingent Payment Year, an amount equal to 200% of the Company Incremental Amount for the Second Contingent Payment Year, (c) with respect to the Third Contingent Payment Year, an amount equal to 150% of the Company Incremental Amount for the Third Contingent Payment Year, and (d) with respect to the Fourth Contingent Payment Year, an amount equal to 150% of the Company Incremental Amount for the Fourth Contingent Payment Year. The Sales Contingent Payment Amount for the final Contingent Payment Year shall be subject to increase under certain circumstances in accordance with Section 6.11 .

(xiv) " Second Recovery Contingent Payment Amount " means an amount equal to the difference of (x) $155,000,000, minus (y) the Maximum Sales Contingent Amount actually calculated in accordance with the definition thereof.

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(xv) "Worldwide Net Sales" means revenue recorded by Parent (or any other applicable member of the Buyer Group if any sales contemplated hereby are recorded by such member of the Buyer Group but not by Parent) from the sales or license of Contingent Payment Products by a member of the Buyer Group or its sublicensee or authorized or licensed distributor after the Effective Time to unaffiliated third parties, in accordance with GAAP, consistently applied by Parent (or such other member of the Buyer Group) across all similar product lines, in connection with the preparation of the financial statements of such person, as publicly reported (if applicable). For purposes of clarification, when measuring the Worldwide Net Sales recorded in respect of sales of Contingent Payment Products by any person other than a member of the Buyer Group, only the revenue recorded by Parent or another member of the Buyer Group shall be included (for e.g., the transfer price or other amount received by Parent or such other member of the Buyer Group, in the event of any sales by an authorized or licensed distributor of the Contingent Payment Product manufactured by Parent, or the royalty or other license payment amounts received by Parent or another member of the Buyer Group in the case of any sales by another party which has been licensed to manufacture, market or sell Contingent Payment Products by Parent), and the amount of revenue that may be recorded or achieved by such other person who is not a member of the Buyer Group shall be disregarded. Notwithstanding anything to the contrary in this Agreement, any license payments or royalties payable in respect of the license or sublicense of Company Owned Intellectual Property or Company Licensed Intellectual Property after the Effective Time by any party that does not manufacture, market or sell Contingent Payment Products shall not be deemed to be "Worldwide Net Sales" for purposes of this Agreement.

(1) Notwithstanding anything to the contrary in this Agreement or in any financial statements prepared by Parent with respect to any Contingent Payment Year or portion thereof, or to the extent it may otherwise be required pursuant to GAAP, the term "Worldwide Net Sales" shall not include revenue recorded by Parent or any member of the Buyer Group from transactions with another member of the Buyer Group unless such other member of the Buyer Group is an end user of the Contingent Payment Product or no further resale by such member of the Buyer Group is contemplated; provided , however , that "Worldwide Net Sales" shall in such event include the revenue, if any, recorded upon the further resale of such Contingent Payment Product by such other member of the Buyer Group.

(2) Notwithstanding anything to the contrary in this Agreement or in any financial statements prepared by Parent with respect to any Contingent Payment Year or portion thereof, or to the extent it may otherwise be required pursuant to GAAP, whenever any Contingent Payment Product is sold as part of a Bundled Product and all products (including the applicable Contingent Payment Product) in such Bundled Product are sold on a "stand-alone" basis within the particular sales region of such sale, the "Worldwide Net Sales" for such Contingent Payment Product resulting from such sale of such Bundled Product shall be the product of (i) the revenue otherwise recorded by the applicable member of the Buyer Group for such Bundled Product multiplied by (ii) a fraction, the numerator of which is the Per Unit Average Selling Price of such Contingent Payment Product sold within such sales region and the denominator of which is the sum of (x) such numerator and (y) the aggregate Per Unit Average Selling Prices within such sales region of all other products included in such Bundled Product.

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(b) Contingent Payments . In the event that the Merger is consummated, as additional consideration for the Merger, and subject to the set-off rights of Parent and the Surviving Corporation pursuant to Section 1.8(j) and Article 9 hereof, after the Effective Time, Parent shall make certain contingent payments (collectively, the "Contingent Payments" ) to the Participating Rights Holders in accordance with the provisions of this Section 1.6 and Sections 1.8 and 2.1 hereof, and subject to the limitation on such contingent payments set forth in this Section 1.6 and Section 1.7 hereof and the provisions of Section 2.5 . The Contingent Payments shall include the FDA Milestone Payment, the Sales Contingent Payments and the First Recovery Contingent Payment and Second Recovery Contingent Payment, as applicable.

(c) FDA Milestone Payment . Subject only to the set-off rights of Parent and the Surviving Corporation pursuant to Section 1.8(j) and Article 9 hereof, and other rights of reduction specifically contemplated hereby, Parent and the Surviving Corporation shall, jointly and severally, make a Contingent Payment (the " FDA Milestone Payment ") equal to the FDA Milestone Payment Amount following achievement of the FDA Milestone. Notwithstanding the foregoing, the consideration to be paid by Parent to the Participating Rights Holders at the time specified in Section 1.8 in connection with the FDA Milestone Payment shall be limited to that portion of the FDA Milestone Payment Amount allocated to such Participating Rights Holders pursuant to Section 2.1 .

(d) Sales Contingent Payments . Subject only to the set-off rights of Parent and the Surviving Corporation pursuant to Section 1.8(j) and Article 9 hereof, and other rights of reduction specifically contemplated hereby, Parent and the Surviving Corporation shall, jointly and severally, make a Contingent Payment with respect to the sale of Contingent Payment Products recorded for each Contingent Payment Year (each, a "Sales Contingent Payment" and collectively, the "Sales Contingent Payments" ), in accordance with Section 1.8 . Notwithstanding the foregoing, the consideration to be paid by Parent to the Participating Rights Holders at the time specified in Section 1.8 in connection with each such Sales Contingent Payment shall be limited to that portion of the Sales Contingent Payment Amount for such Contingent Payment Year allocated to such Participating Rights Holders pursuant to Section 2.1 .

(e) First Recovery Contingent Payment . In the event that (x) the FDA Milestone Payment Amount actually calculated in accordance with the definition thereof in connection with the making of the FDA Milestone Payment is less than $25,000,000 solely as a result of the FDA Milestone not being achieved before November 1, 2007, and (y) the Buyer Group reports aggregate Worldwide Net Sales equal to or greater than $110,000,000 during any Contingent Payment Year ( provided , however , that if the final Contingent Payment Year contains fewer than twelve (12) months then, for the purposes of determining whether or not the Buyer Group reports aggregate Worldwide Net Sales equal to or greater than $110,000,000 during such final Contingent Payment Year for purposes of this paragraph (e) and the following paragraph (f) only, the final Contingent Payment Year shall be deemed to include that number of immediately preceding months in the preceding Contingent Payment Year that may be required so that the final Contingent Payment Year would consist of twelve (12) months), then, subject only to the set-off rights of Parent and the Surviving Corporation pursuant to Section 1.8(j) and Article 9 hereof, and other rights of reduction specifically contemplated hereby, Parent and the Surviving Corporation shall, jointly and severally, make a Contingent Payment (the "First Recovery Contingent Payment" ) equal to the First Recovery Contingent Payment Amount.

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Notwithstanding the foregoing, the consideration to be paid by the Parent and the Surviving Corporation to the Participating Rights Holders at the time specified in Section 1.8 in connection with the First Recovery Contingent Payment shall be limited to the portion of the First Recovery Contingent Payment Amount allocated to such Participating Rights Holders pursuant to Section 2.1 .

(f) Second Recovery Contingent Payment . In the event that (x) the Pregnancies Event occurs, (y) the Buyer Group has reported aggregate Worldwide Net Sales equal to or greater than $110,000,000 in any Contingent Payment Year ( provided , however , that if the final Contingent Payment Year contains fewer than twelve (12) months then, for the purposes of determining whether or not the Buyer Group reports aggregate Worldwide Net Sales equal to or greater than $110,000,000 during such final Contingent Payment Year for purposes of this paragraph (f) and the preceding paragraph (e) only, the final Contingent Payment Year shall be deemed to include that number of immediately preceding months in the preceding Contingent Payment Year that may be required so that the final Contingent Payment Year would consist of twelve (12) months), and (z) Parent has not paid Sales Contingent Payments based on Sales Contingent Payment Amounts equal in the aggregate to $155,000,000 then subject to the set-off rights of Parent and the Surviving Corporation pursuant to Section 1.8(j) and Article 9 hereof, and other rights of reduction specifically contemplated hereby, Parent and the Surviving Corporation shall, jointly and severally, make a one-time Contingent Payment (the " Second Recovery Contingent Payment ") equal to the Second Recovery Contingent Payment Amount. Notwithstanding the foregoing, the consideration to be paid by the Parent and the Surviving Corporation to the Participating Rights Holders at the time specified in Section 1.8 in connection with the Second Recovery Contingent Payment shall be limited to the portion of the Second Recovery Contingent Payment Amount allocated to each of such Participating Rights Holders pursuant to Section 2.1.

(g) Contingent Payments Not Certain . Each of Parent, the Company and the Stockholder Representative Committee hereby acknowledge that the achievement of the FDA Milestone is uncertain and that Parent and its Affiliates may not achieve the FDA Milestone, and it is therefore not assured that Parent will be required to pay the FDA Milestone Payment at all. Each of Parent, the Company and the Stockholder Representative Committee hereby further acknowledge that the amount of Worldwide Net Sales, if any, that Parent and its Affiliates may generate during any Contingent Payment Year is uncertain and that (i) Parent and its Affiliates may not generate any Worldwide Net Sales in any Contingent Payment Year, and (ii) it is therefore not assured that Parent will be required to make any Sales Contingent Payments for any particular Contingent Payment Year, or at all, or that either the First Recovery Contingent Payment or the Second Recovery Contingent Payment shall be payable.

(h) Parent Discretion . Without limiting the specific obligations of Parent in Sections 6.10 and 6.11 , Parent shall have sole discretion over all matters relating to the Contingent Payment Products after the Effective Time, including, but not limited to, any development, testing, manufacturing, marketing and sales decisions relating to any Contingent Payment Product.

Section 1.7 Maximum Aggregate Sales Contingent Payments . Subject to the further rights of Parent and the Surviving Corporation to reduce the Contingent Payments

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pursuant to Section 1.8 and Article 9 hereof, Parent shall not be required to make any Sales Contingent Payments once Parent has made Sales Contingent Payments equal to the Maximum Sales Contingent Amount. Upon distributing Sales Contingent Payments equal to the Maximum Sales Contingent Amount, Parent’s obligation to make any additional or future Sales Contingent Payments pursuant to Section 1.6 shall cease, and the rights of the Participating Rights Holders to receive any further Sales Contingent Payments shall terminate. To the extent that any provision of Section 1.6 would otherwise require Parent to make a Sales Contingent Payment resulting in Parent paying Sales Contingent Payments based on Sales Contingent Payment Amounts that, in the aggregate, exceed the Maximum Sales Contingent Amount, Parent shall be entitled to reduce such Sales Contingent Payment such that the Maximum Sales Contingent Amount is not exceeded, and no further Sales Contingent Payment shall be due or payable thereafter. For purposes of this Section 1.7 , any amounts offset by Parent against any Sales Contingent Payments made pursuant to Section 1.8(j) , Sections 2.1(a)-2.1(c) , Section 2.5(e) , Section 9.4 or otherwise, shall be deemed to have been paid by Parent pursuant to this Section 1.7 . For clarity, amounts offset by Parent pursuant to Section 1.8(j) , Sections 2.1(a)-(c) , Section 2.5(e) , Section 9.4 or otherwise shall be included for purposes of determining under this Section 1.7 whether Parent has paid the Maximum Sales and Licensing Consideration Contingent Amount. Notwithstanding anything herein to the contrary, Parent shall not be required to make, and the Participating Rights Holders shall not be entitled to receive, any further Sales Contingent Payments after the Sales Contingent Payments are made in connection with the Contingent Payment Termination Date in accordance with the provisions of Section 1.8 .

Section 1.8 Payment of Contingent Payments .

(a) FDA Milestone Payment . On or prior to the thirtieth (30 ^th ) day following the achievement of the FDA Milestone, Parent shall deliver to each of the Participating Rights Holders that portion of the FDA Milestone Payment Amount allocated to such Participating Rights Holder pursuant to Section 2.1 .

(b) Sales Contingent Payment Amount Certificates . On or prior to the ninetieth (90 ^th ) day following the last day of each Contingent Payment Year, Parent shall deliver to the Stockholder Representative Committee a certificate (each, a "Contingent Payment Certificate" ), setting forth (a) the amount of Worldwide Net Sales for such Contingent Payment Year and (b) Parent’s determination of the Sales Contingent Payment Amount, if any, for such Contingent Payment Year.

(c) Stockholder Representative Committee Audit Rights . Parent hereby grants, and shall cause the other members of the Buyer Group to grant, the Stockholder Representative Committee and their representatives and advisers, at the Stockholder Representative Committee’s sole expense, the right, exercisable no more than once during each sixty (60) day period following the receipt by the Stockholder Representative Committee of a Contingent Payment Certificate, subject to the execution of, and compliance with, a customary confidentiality agreement in form and substance reasonably satisfactory to Parent, to examine and have full access to the Buyer Group’s books of account and records of Worldwide Net Sales for the applicable Contingent Payment Year with respect to which the most recent Contingent Payment Certificate has been delivered, as well as the immediately prior Contingent Payment Year, at the location of such records on prior written notice of at least fifteen (15) days, for the

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purpose of verifying the amount of Worldwide Net Sales for such Contingent Payment Years (each such review shall be referred to herein as a "Contingent Payment Audit" ). Notwithstanding the foregoing, absent fraud, intentional misconduct, or the discovery (following the completion of any Contingent Payment Audit) of a material fact in existence at the time of such Contingent Payment Audit and not made available by Parent to the Stockholder Representative Committee or its representatives in the course of conducting such Contingent Payment Audit, which material fact, if taken into account in the calculation of the applicable Sales Contingent Payment Amount, would have resulted in an increase in such Sales Contingent Payment Amount, the Stockholder Representative Committee or its representatives shall not be permitted to review any records of Worldwide Net Sales for any Contingent Payment Year for which a Contingent Payment Audit has previously been performed. For the purpose of conducting a Contingent Payment Audit, the Stockholder Representative Committee may hire, at its expense, one or more auditors or attorneys of the Stockholder Representative Committee’s choosing to assist in such examination, provided , that such auditors or attorneys have entered into customary confidentiality agreements with Parent in form and substance reasonably acceptable to Parent. The Stockholder Representative Committee and such representatives shall have access to all of the books and records required to perform any Contingent Payment Audit for a thirty (30) day period, beginning on the date on which access to substantially all of such books and records is first given to the Stockholder Representative Committee. Nothing in this Section 1.8(c) shall be deemed to require any member of the Buyer Group to keep any books of account or records other than those which they maintain in the ordinary course of business in its usual and customary practice, to retain any such books of account or records for any period in excess of the period for which they retain such records in the ordinary course of business in their usual and customary practice, or to provide access to any books and records other than that specified above, and no presumption shall be made against any member of the Buyer Group as a result of the absence of any such books and records as a result of the disposition of any such books and records in the ordinary course of business; provided , however , that in no case shall any member of the Buyer Group dispose of such books of account or records with respect to a Contingent Payment Year earlier than the date one hundred and eighty (180) days following the last day of the subsequent Contingent Payment Year or, if such Contingent Payment Year is the last Contingent Payment Year, the last day of such Contingent Payment Year; and, provided further , that once the Stockholder Representative Committee gives notice of its intention to commence a Contingent Payment Audit with respect to a Contingent Payment Year or Contingent Payment Years, the Buyer Group shall use commercially reasonable efforts to keep and retain all books of account relating to Worldwide Net Sales for the Contingent Payment Year or Contingent Payment Years for which such Contingent Payment Audit is being conducted that are identified in a request or requests from the Stockholder Representative Committee with respect to the Sales Contingent Payment Amount for such Contingent Payment Year or Contingent Payments Years.

(d) Dispute Notice . In the event that the Stockholder Representative Committee does not agree with the Sales Contingent Payment Amount set forth on any Contingent Payment Certificate, the Stockholder Representative Committee shall be entitled, during the period following delivery of such Contingent Payment Certificate and ending on the later of (i) ninety (90) days of delivery of such Contingent Payment Certificate or (ii) thirty (30) days following the completion of a Contingent Payment Audit commenced in connection with the delivery of such Contingent Payment Certificate (the "Dispute Period" ), to give Parent

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written notice (a "Dispute Notice" ), of such disagreement. In the event that the Stockholder Representative Committee does not deliver a Dispute Notice during the Dispute Period, the Sales Contingent Payment Amount set forth on such Contingent Payment Certificate shall irrevocably be deemed to be the final Sales Contingent Payment Amount for such Contingent Payment Year and all purposes of this Agreement, absent fraud or intentional misconduct.

(e) Agreed Contingent Payment . In the event that the Stockholder Representative Committee delivers a Dispute Notice within the Dispute Period, the Stockholder Representative Committee and Parent shall for a period of not less than thirty (30) days after delivery of the Dispute Notice attempt in good faith to resolve the Sales Contingent Payment Amount that is in dispute (the "Disputed Contingent Payment Amount" ), and mutually determine any adjustments to such Sales Contingent Payment Amount (the "Agreed Contingent Payment Amount" ). Parent and the Stockholder Representative Committee shall, subject to the execution of a confidentiality agreement in form and substance reasonably satisfactory to the delivering party, provide each other with such information, records and material kept in the ordinary course of business in such party’s possession and which such party may disclose without violating confidentiality obligations to third parties, as is reasonably necessary and appropriate in attempting to resolve such Disputed Contingent Payment Amount, including the delivery of a copy to the Stockholder Representative Committee of any such information, records and material, to the extent then available, that was used to calculate the amount of Worldwide Net Sales and the Sales Contingent Payment Amount set forth on each relevant Contingent Payment Certificate. If the final Agreed Contingent Payment Amount determined pursuant to this Section 1.8(e ) is greater than the Sales Contingent Payment Amount set forth on the relevant Contingent Payment Certificate by an amount equal to more than the greater of (i) $1,000,000 or (ii) ten percent (10%) of the Sales Contingent Payment Amount set forth in the relevant Contingent Payment Certificate, Parent shall pay all of the reasonable out-of-pocket costs and expenses actually incurred by the Stockholder Representative Committee in connection with such Contingent Payment Audit.

(f) Arbitration of Disputes . In the event that no agreement can be reached by the Stockholder Representative Committee and Parent as to the calculation of the Disputed Contingent Payment Amount within ninety (90) days after delivery of a Dispute Notice and such disagreement relates only to the amount of Worldwide Net Sales of any Contingent Payment Product, then, pursuant to this Section 1.8(f) , either party shall have the right to submit the Disputed Contingent Payment Amount to arbitration by the Boston, Massachusetts office of one (1) of the following entities or their respective successors, or such other accountants as the Company and Parent may mutually agree, so long as such entity or its successors is not the principal regularly-engaged outside accountant to Parent or the Company or any auditor that may have assisted the Stockholder Representative Committee in any Contingent Payment Audit: Deloitte & Touche LLP, KPMG, Ernst & Young LLP, PricewaterhouseCoopers, BDO Seidman, LLP, Grant Thornton LLP, or any successor entity to the foregoing (collectively, the "Accountants" ); provided , however , that the engagement and charge of the Accountants shall be limited to determining the Worldwide Net Sales of any identified product or products for the applicable Contingent Payment Year used to calculate the Disputed Contingent Payment Amount, and the Appraiser shall not be entitled to determine whether any products sold by Parent or its Affiliates are Contingent Payment Products for purposes of this Agreement or any other matter. The Stockholder Representative Committee and Parent shall jointly select which of

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the Accountants will perform the calculation within thirty (30) days after the Stockholder Representative Committee and Parent determine that they are unable to settle the amount independently; provided , that in the event that the Stockholder Representative Committee and Parent are unable to agree upon the Accountants to perform such calculation within such thirty (30) day period, then each of the Stockholder Representative Committee and Parent shall select one of the Accountants and such Accountants shall jointly select a third Accountant to perform such calculation. The Accountants selected in accordance with the foregoing sentence shall be responsible for the determination of the Disputed Contingent Payment Amount (the "Appraiser" ) . The Appraiser shall determine the Disputed Contingent Payment Amount within the limitations set forth above within ninety (90) days after the date of such Appraiser’s engagement and the Appraiser shall be provided with such information and records, which may include on-site access, relating to such dispute as it may reasonably request. Any Disputed Contingent Payment Amount determined by an Appraiser in accordance with this paragraph (f) shall be deemed to be the final Sales Contingent Payment Amount for the applicable Contingent Payment Year for all purposes of this Agreement. The fees and expenses of the Appraiser shall be paid by the Stockholder Representative Committee, provided , that if the final Sales Contingent Payment Amount determined by the Appraiser in any examination conducted pursuant to this Section 1.8(f) is greater than the Sales Contingent Payment Amount set forth on the relevant Contingent Payment Certificate by an amount equal to more than the greater of (i) $500,000 or (ii) five percent (5%) of the Sales Contingent Payment Amount set forth in the relevant Contingent Payment Certificate, then Parent shall pay all of the fees and expenses of the Appraiser. If the final Sales Contingent Payment Amount determined by the Appraiser in any examination conducted pursuant to this Section 1.8(f) is greater than the Sales Contingent Payment Amount set forth on the relevant Contingent Payment Certificate by an amount equal to more than the greater of (i) $1,000,000 or (ii) ten percent (10%) of the Sales Contingent Payment Amount set forth in the relevant Contingent Payment Certificate, then Parent shall also pay all reasonable out-of-pocket costs and expenses actually incurred by the Stockholder Representative Committee in connection with any Contingent Payment Audit. Parent shall not have any right of offset with respect to any payments made pursuant to this Section 1.8(f) .

(g) Final Calculation and Payment of Sales Contingent Payment . With respect to any Sales Contingent Payment Amount for any Contingent Payment Year:

(i) In the event the Stockholder Representative Committee does not deliver a Dispute Notice with respect to the Sales Contingent Payment Amount set forth on the Contingent Payment Certificate delivered for such Contingent Payment Year within the Dispute Period, or the Stockholder Representative Committee delivers to Parent a written notice (an "Agreement Notice" ) informing Parent of its agreement with the Sales Contingent Payment Amount set forth on such Contingent Payment Certificate, the Sales Contingent Payment Amount set forth in the relevant Contingent Payment Certificate shall be deemed to be the final such Sales Contingent Payment Amount for such Contingent Payment Year for all purposes of this Agreement, and the Parent shall, within fifteen (15) days after such determination, pay the amounts required to be paid based on such Sales Contingent Payment Amount to the Participating Rights Holders, subject to paragraph (j) below.

(ii) In the event that the Stockholder Representative Committee delivers a Dispute Notice pursuant to Section 1.8(d) with respect to a Sales Contingent Payment

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Amount, and Parent and the Stockholder Representative Committee shall mutually determine the Agreed Contingent Payment Amount, then the Agreed Contingent Payment Amount shall be deemed to be the final such Sales Contingent Payment Amount for such Contingent Payment Year for all purposes of this Agreement, absent fraud or intentional misconduct, and Parent shall, within fifteen (15) days after such Agreed Contingent Payment Amount is determined, pay the amounts required to be paid based on such Sales Contingent Payment Amount to the Participating Rights Holders, subject to paragraph (j) below.

(iii) In the event that the final Sales Contingent Payment Amount for such Contingent Payment Year is determined by an Appraiser pursuant to paragraph (f) above, then the Parent shall, within fifteen (15) calendar days after such determination, pay the amounts required to be paid based on such Sales Contingent Payment Amount to the Participating Rights Holders, subject to paragraph (j) below.

(iv) The determination of any Sales Contingent Payment Amount pursuant to Sections 1.8(g)(i) , 1.8(g)(ii) or 1.8(g)(iii) shall, in the absence of fraud or intentional misconduct, be conclusive, and Parent, Stockholder Representative Committee and Appraiser shall each be free from any and all liability resultant from such determination.

(h) First Recovery Contingent Payment . Within thirty (30) days after delivery of the Contingent Payment Certificate for the first Contingent Payment Year, if any, in which the Parent reports aggregate Worldwide Net Sales equal to or greater than $110,000,000, to the extent that a First Recovery Contingent Payment becomes payable in accordance with Section 1.6(e), the Parent shall deliver to each of the Participating Rights Holders that portion of the First Recovery Contingent Payment Amount allocated to such Participating Rights Holder pursuant to Section 2.1 , provided , that to the extent that the Sales Contingent Payment Amount set forth on such Contingent Payment Certificate is greater than zero, Parent shall be entitled to delay payment of the amounts due to the Participating Rights Holders in respect of the First Recovery Contingent Payment until payment of the Sales Contingent Payment for such Contingent Payment Year.

(i) Second Recovery Contingent Payment . Within thirty (30) days after delivery of the Contingent Payment Certificate for the Fourth Contingent Payment Year, to the extent that (x) such Contingent Payment Certificate or the Contingent Payment Certificate delivered for any previous Contingent Payment Year reports aggregate Worldwide Net Sales equal to or greater than $110,000,000, and (y) a Second Recovery Contingent Payment becomes payable in accordance with Section 1.6(f) , the Parent shall deliver to each of the Participating Rights Holders that portion of the Second Recovery Contingent Payment Amount allocated to such Participating Rights Holder pursuant to Section 2.1 , provided , that to the extent that the Sales Contingent Payment Amount set forth on the Contingent Payment Certificate for the Fourth Contingent Payment Year is greater than zero, Parent shall be entitled to delay payment of the amounts due to the Participating Rights Holders in respect of the First Recovery Contingent Payment until payment of the Sales Contingent Payment for such Contingent Payment Year.

(j) Unilateral Right of Set-Off . Subject to the express limitations set forth in Article 9 hereof, the obligation of Parent and the Surviving Corporation to make any Contingent

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Payment shall be qualified by the right of Parent and the Surviving Corporation to reduce the amount of any Contingent Payment by the amount of any Damages actually incurred or suffered, or reasonably likely to be incurred or suffered, by Parent or the Surviving Corporation; provided that with respect to Damages reasonably likely to be incurred or suffered with respect to any Third-Party Claim (as defined in Section 9.3(a)), such amount shall not exceed the stated amount of such claim. In the event that Parent sets off the amount of any Contingent Payment by the amount of any Damages that have not been, at the time such Contingent Payment is made, incurred by Parent, and it is later finally determined that the full amount of such Damages will not be incurred by Parent, then, following such determination, Parent shall either, in its discretion, (i) increase the next Contingent Payment to be made by Parent by the amount of such prior reduction attributable to such Damages that will not be incurred by Parent plus interest on such amount at the "Prime Rate" as announced from time to time by Bank of America, N.A., in Charlotte, North Carolina, or its successor, from the date of such determination until the date on which such next Contingent Payment is actually paid, or (ii) pay to the Participating Rights Holders, promptly after such determination and without interest, the amount of the prior reduction attributable to such Damages that will not be incurred by Parent in the form of an additional Contingent Payment that is otherwise paid in accordance with the terms of this Agreement (but shall not be included in any calculation of the Maximum Sales Contingent Amount).

(k) Dissenting Shares . The provisions of this Section 1.8 shall also apply to Dissenting Shares that lose their status as such, except that the obligations of Parent under this Section 1.8 shall commence on the date of loss of such status and the holder of such shares shall be entitled to receive in exchange for such shares the payments to which such holder would otherwise have been entitled pursuant to Section 2.1 hereof had such shares of Company capital stock not been Dissenting Shares at the Effective Time.

(l) Assignability . The right of each Participating Rights Holder to receive Merger Consideration pursuant to this Article 1 may be assigned (i) to such Participating Rights Holder’s spouse, domestic partner, parents or parents-in-law, siblings or sibling’s in-law, or such Participating Rights Holder’s or such Participating Rights Holder’s spouse or domestic partner’s ancestors, lineal descendants or descendants by virtue of adoption, (ii) to a trust for the benefit of the Participating Rights Holder or any person named in the preceding clause (i), (iii) to another person if all or substantially all of the beneficial ownership of such person as of the date of assignment are beneficially owned by the Participating Rights Holder or any person named in the preceding clause (i), (iv) to another person, if, on the Closing Date, such other person was the beneficial owner of the shares of Company Common Stock, Company Preferred Stock, or Company Options held of record by the Participating Rights Holder, (v) to a parent, subsidiary or other affiliate of any Participating Rights Holder that is an entity or any such Participating Rights Holder’s partners, members or other equity owners, or retired partners, retired members or other equity owners, or to the estate of any of its partners, members or other equity owners or retired partners, retired members or other equity owners, or (vi) by operation of law or by will, provided, however, that the right of each Participating Rights Holder to receive Merger Consideration pursuant to this Article 1 may be assigned to no more than three (3) persons, and in no event shall Parent be required to recognize any such assignment for any purpose hereunder until the Parent has been duly notified of such assignment in a certificate to such effect executed by the members of the Stockholder Representative Committee, and receive such other

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certifications and other information as the Parent may reasonably request of the assigning Participating Rights Holder and any assignees.

(m) Contingent Payments Not Royalties . The Contingent Payments provided for pursuant to this Article 1 are provided as a result of bona fide difficulties in determining the present value of the Company. The Contingent Payments represent (and shall be reported by Parent as) additional consideration for the Company Common Stock and Company Preferred Stock and are not intended to be royalty payments.

ARTICLE 2

CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES; PAYMENTS

Section 2.1 Conversion of Securities .

(a) Common Stock . Each share of the Company Common Stock issued and outstanding immediately prior to the Effective Time and held by Participating Rights Holders will be converted at the Effective Time into the right to receive from Parent, (i) an amount equal to the Per Share Closing Payment, (ii) a portion of the funds deposited in escrow pursuant to Section 1.5(e) hereof, when such funds, if any, are released from escrow pursuant to the terms of the Escrow Agreement, (iii) the Per Share FDA Milestone Payment, when and if such FDA Milestone Payment is made pursuant to Section 1.6 , (iv) an amount equal to the Per Share Contingent Payment associated with each Sales Contingent Payment when such payments, if any, are made pursuant to Sections 1.6 and 1.8 hereof and (v) an amount per share equal to the Per Share Recovery Payment Amount, when and if either the First Recovery Contingent Payment or the Second Recovery Contingent Payment is made in accordance with Sections 1.6 and 1.8 hereof. All such shares of Company Common Stock, when so converted, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the amounts specified in this paragraph (a) at the times specified therefor, associated with each Sales Contingent Payment, if any, upon the surrender of such certificate in accordance with Section 2.2 and this Section 2.1 . Notwithstanding the foregoing, a portion of any Contingent Payment otherwise attributable to the Company Common Stock may be deducted from such Contingent Payment and paid to the Stockholder Representative Committee as additional Committee Reimbursement Amount in accordance with Section 2.5 or made subject to the rights of Parent and the Surviving Corporation under Section 1.8(h) .

(b) Preferred Stock . Each share of each series, if any, of Company Preferred Stock issued and outstanding immediately prior to the Effective Time and held by Participating Rights Holders will be converted at the Effective Time into the right to receive (i) an amount equal to the Per Share Closing Payment that would otherwise be payable with respect to the number of shares of Company Common Stock into which such share of Company Preferred Stock is convertible immediately prior to the Effective Time, (ii) the right to receive a portion of the funds deposited in escrow pursuant to Section 1.5(e) hereof, when such funds, if any, are released from escrow pursuant to the terms of the Escrow Agreement, (iii) the Per Share FDA Milestone Payment that would otherwise be payable with respect to the number of shares of

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Company Common Stock into which such share of Company Preferred Stock is convertible immediately prior to the Effective Time associated with the FDA Milestone Payment, when and if such FDA Milestone Payment is made pursuant to Section 1.6 , (iv) an amount equal to the Per Share Contingent Payment that would otherwise be payable with respect to the number of shares of Company Common Stock into which such share of Company Preferred Stock is convertible immediately prior to the Effective Time associated with each Sales Contingent Payment, when such payments, if any, are made pursuant to Sections 1.6 and 1.8 hereof and (v) an amount per share equal to the Per Share Recovery Payment Amount, that would otherwise be payable with respect to the number of shares of Company Common Stock into which such share of Company Preferred Stock is convertible immediately prior to the Effective Time, when and if either the First Recovery Contingent Payment or the Second Recovery Contingent Payment is made in accordance with Sections 1.6 and 1.8 hereof. All shares of Company Preferred Stock, when so converted, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Preferred Stock shall cease to have any rights with respect thereto, except the right to receive the amounts described in this paragraph (b) at the times specified therefor, upon the surrender of such certificate in accordance with Section 2.2 and this Section 2.1 . Notwithstanding the foregoing, a portion of any Contingent Payment otherwise attributable to the Company Preferred Stock may be deducted from such Contingent Payment and paid to the Stockholder Representative Committee as additional Committee Reimbursement Amount in accordance with Section 2.5 or made subject to the rights of Parent and the Surviving Corporation under Section 1.8(h) .

(c) Disposition of Options .

(i) Option Notice . Parent shall not assume any Company Options issued under the Company’s 1997 Stock Plan (the "Company Option Plan" ), or any other options, warrants or other rights to acquire Company Common Stock or Company Preferred Stock. No later than eighteen (18) days prior to the Closing Date, the Company shall send a notice (the "Option Notice" ) to all holders of Company Options, pursuant to Section 12(c) of the Company Option Plan, which notice shall notify such holders that (A) Parent and the Surviving Corporation shall not be assuming or substituting for any Company Options following the Effective Time, (B) all unvested Company Options shall become vested and immediately exercisable, (C) all unexercised Company Options shall terminate on the fifteenth (15 ^th ) day following the date of such Option Notice, with such fifteen day period being referred to herein as the "Option Termination Period" , and (D) that any holder of Company Options that are not exercised prior to the end of the Option Termination Period and are terminated in accordance with the terms of the Option Notice shall be entitled to payment as provided in clause (ii) below. It is agreed and understood that for all purposes of this Agreement the parties will not treat as exercised (and will instead treat as outstanding unexercised Company Options) any Company Option that the holder has purported to exercise unless prior to the Effective Time (x) the holder of the Company Option has fully complied with the conditions to such exercise and the holder’s obligations with respect to such exercise as set out in the Company Option Plan, if applicable, and the applicable Company Option documentation (including without limitation by paying in full the applicable purchase price for the shares subject to that Company Option and any applicable amounts required to be paid in respect of withholding obligations under the Company Option Plan and applicable law), (y) the Company has issued a valid certificate for the shares of

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Company Common Stock purchased upon exercise of that Company Option, as determined by Parent in its reasonable discretion, and (z) such shares are reflected as being outstanding on the Capitalization and Closing Payment Certificate. The Option Notice shall include specific procedures, mutually acceptable to Parent and the Company, to facilitate the exercise of Company Options as of the Effective Time.

(ii) Each holder of a Company Option that is terminated pursuant to the terms of the Option Notice shall be entitled to receive from the Surviving Corporation, and the Company agrees to issue, subject to Section 1.5 and , subject to applicable tax withholding, (A) payment as of the Effective Time of an amount equal to the excess, if any, of the aggregate Per Share Closing Payment that would be payable with respect to all shares of Company Common Stock that would be issuable upon exercise of such Company Option (the "Option Shares" ) over the aggregate exercise price otherwise payable by the holder to acquire such Option Shares, (B) the right to receive a portion of the funds deposited in escrow pursuant to Section 1.5(e) hereof, when such funds, if any, are released from escrow pursuant to the terms of the Escrow Agreement over any exercise price otherwise payable by the holder to acquire such Option Shares, to the extent such exercise price has not previously been deducted from the Per Share Closing Payment, (C) payment out of the FDA Milestone Payment equal to the excess of the aggregate Per Share FDA Milestone Payment that would be payable with respect to such Option Shares in connection with the FDA Milestone Payment over any exercise price otherwise payable by the holder to acquire such Option Shares, to the extent such exercise price has not previously been deducted from the Per Share Closing Payment or the escrow pursuant to Section 1.5(e) (D) payment out of each Sales Contingent Payment of an amount equal to the excess of the aggregate Per Share Contingent Payment that would be payable with respect to such Option Shares in connection with each Sales Contingent Payment over any exercise price otherwise payable by the holder to acquire such Option Shares, in each case to the extent such exercise price has not previously been deducted from any Per Share Closing Payment, the escrow pursuant to Section 1.5(e), Per Share FDA Milestone Payment or Per Share Contingent Payment, when such Contingent Payments, if any, are made pursuant to Sections 1.6 and 1.8 hereof, and (E) an amount per share equal to the Per Share Recovery Payment Amount that would otherwise be payable with respect to such Option Shares in connection with the First Recovery Contingent Payment and the Second Recovery Contingent Payment, as applicable, over any exercise price otherwise payable by the holder to acquire such Option Shares, in each case to the extent such exercise price has not previously been deducted from any Per Share Closing Payment, the escrow pursuant to Section 1.5(e), Per Share FDA Milestone Payment or Per Share Contingent Payment, when and if either the First Recovery Contingent Payment or the Second Recovery Contingent Payment is made in accordance with Sections 1.6 and 1.8 hereof. Notwithstanding the foregoing, a portion of any Contingent Payment otherwise attributable to the Company Options may be deducted from such Contingent Payment and paid to the Stockholder Representative Committee as additional Committee Reimbursement Amount in accordance with Section 2.5 .

(d) Treasury Stock . Each share of Company Common Stock or Company Preferred Stock held in the treasury of the Company or held by any Subsidiary of the Company immediately prior to the Effective Time shall be cancelled and extinguished at the Effective Time without any conversion thereof and no payment shall be made with respect thereto.

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(e) Stock of Merger Sub . Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one (1) validly issued fully paid and nonassessable share of common stock of the Surviving Corporation.

Section 2.2 Exchange of Certificates and Instruments for Closing Payment Amount .

(a) Exchange Procedures .

(i) Within a reasonable period of time prior to the Closing, Parent will deliver to the Company forms of the transmittal materials which Parent or its transfer or paying agent will reasonably require from those Participating Rights Holders entitled to receive at the Closing a portion of the Closing Payment Amount in respect of their shares of Company Common Stock or Company Preferred Stock, or in respect of their Company Options, which materials may include any certifications Parent may reasonably request with respect to compliance with any withholding obligations of Parent or the Surviving Corporation under the Code. The Company will distribute such materials to eligible Participating Rights Holders. As promptly as practicable, and using commercially reasonable best efforts, immediately following the Effective Time, Parent will deliver to each Participating Rights Holder who has completed such transmittal materials and returned them to Parent at or prior to the Closing, together with the certificate or certificates representing outstanding shares of Company Common Stock or Company Preferred Stock (the "Certificates" ) or certificates or instruments representing outstanding Company Options ( "Derivative Instruments" ), a check (or, at the Participating Rights Holder’s election, a wire transfer to the extent that the aggregate amount owed to any such holder at the Closing is in excess of $1,000,000) representing that portion of the Closing Payment Amount to which such Participating Rights Holder is entitled; provided , that such payment made by Parent by check may be made by delivering such checks on the Closing Date to the Stockholder Representative Committee, which, in turn, shall distribute such checks to the appropriate Participating Rights Holders. The delivery of such checks (or wire transfers, as applicable) by Parent to the Stockholder Representative Committee or the Participating Rights Holder, as applicable, shall be deemed, for all purposes, to have satisfied in full Parent’s obligation to make payment of the Closing Payment Amount to such Participating Rights Holders and Parent shall have no further obligation for such payments. Parent shall not be required to pay any amount of the Closing Payment Amount or any Contingent Payment to any Participating Rights Holder until receipt from such Participating Rights Holder of properly completed and executed transmittal materials in the form prepared by Parent. Parent shall be entitled to rely entirely on the information contained in the Capitalization and Closing Payment Amount Certificate and any transmittal materials delivered hereunder for purposes of satisfying Parent’s obligation to deliver the Closing Payment Amount and any Contingent Payment hereunder. Without limiting any of the obligations of Parent hereunder with respect to such payments, Parent shall be entitled to engage a transfer or paying agent to make payment of the respective payments required to be made by Parent or the Surviving Corporation to the Participating Rights Holders hereunder on Parent’s behalf.

(ii) As promptly as practicable after the Effective Time, but not later than ten (10) days after the Effective Time, Parent or a transfer or exchange agent engaged by Parent will send to each Participating Rights Holder who does not submit completed transmittal

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materials to Parent at or before the Closing, as permitted by Section 2.2(a)(i) above, transmittal materials for use in exchanging his, her or its Certificates or Derivative Instruments for the applicable portion of the Closing Payment Amount (and any Contingent Payments) into which such shares of Company Common Stock or Company Preferred Stock (other than any Dissenting Shares) or Company Options, have been converted. Until surrendered as contemplated by this Section 2.2 , each Certificate or Derivative Instrument shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the applicable amounts of Merger Consideration payable pursuant to Section 2.1 . Upon receipt of the completed transmittal materials and the applicable Certificates and Derivative Instruments, Parent will deliver to the Participating Rights Holder a check (or, at the Participating Rights Holder’s election, a wire transfer, to the extent that the aggregate amount owed to such Participating Rights Holder as of the Closing is in excess of $1,000,000) representing that portion of the Closing Payment Amount to which such Participating Rights Holder is entitled.

(iii) Lost Certificates and Derivative Instruments . The transmittal materials referenced above shall provide that, in the event that any Certificates or Derivative Instruments have been lost, stolen or destroyed, the Participating Rights Holder thereof may deliver a customary form of lost certificate affidavit of that fact by the holder thereof together with an agreement to indemnify and hold harmless the Parent for any losses in connection therewith, and the posting of a bond in customary amount if required by any paying agent engaged by Parent, and upon such delivery the Parent shall issue in exchange for such lost, stolen or destroyed Certificates the Merger Consideration payable with respect thereto pursuant to Section 2.1 .

(b) No Further Rights in Certificates or Derivative Instruments . From and after the Effective Time, holders of Company Common Stock, Company Preferred Stock or Company Options outstanding immediately prior to the Effective Time will cease to be, and will have no rights as, stockholders or rightholders of the Company or the Surviving Corporation, other than (i) in the case of Company Common Stock and Company Preferred Stock (other than Dissenting Shares), and Company Options, the rights to receive the applicable portions of the Merger Consideration to be issued at Closing, of the funds deposited in escrow and of the Contingent Payments; (ii) in the case of Dissenting Shares, the rights afforded to the holders thereof under Section 262 of Delaware Law or Sections 1300-1312 of California Law, as applicable, and (iii) rights under this Agreement and the Escrow Agreement.

(c) No Liability . Neither Parent, the Surviving Corporation nor the Company shall be liable to any holder of Company Common Stock, Company Preferred Stock or Company Options for any portion of the Merger Consideration or the funds deposited in escrow delivered to an appropriate public official pursuant to the requirements of any abandoned property, escheat or similar law.

(d) Withholding Rights . Each of the Surviving Corporation, Parent and Escrow Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement or the Escrow Agreement to any holder of Company Common Stock, Company Preferred Stock or Company Options such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax law. To the extent that amounts are so withheld by the Surviving

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Corporation, Parent or Escrow Agent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to such holder in respect of which such deduction and withholding was made by the Surviving Corporation, Parent or Escrow Agent, as the case may be.

Section 2.3 Stock Transfer Books . At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of Company Common Stock or Company Preferred Stock thereafter on the records of the Company.

Section 2.4 Dissenting Shares .

(a) Notwithstanding any provision of this Agreement to the contrary, shares of Company Common Stock or Company Preferred Stock that are outstanding immediately prior to the Effective Time and which are held by stockholders who shall have not voted in favor of the Merger or consented thereto in writing and who shall have exercised dissenters’ rights or rights of appraisal for such shares of Company Common Stock or Company Preferred Stock in accordance with Delaware Law or California Law, if any, and who, as of the Effective Time, have not effectively withdrawn or lost such dissenters’ rights (collectively, the "Dissenting Shares" ), shall not be converted into or represent the right to receive any portion of the amounts to be paid pursuant to Section 2.1 or under the Escrow Agreement, but the holders thereof shall only be entitled to such rights as are granted by Delaware Law or California Law, if any. All Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their dissenters’ rights shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the later of the Effective Time or the occurrence of such event, the right to receive an appropriate portion of the amounts to be paid pursuant to Section 2.1 or under the Escrow Agreement, without any interest thereon, upon surrender, in the manner provided in Section 2.2 , of the Certificates that formerly evidenced such shares.

(b) The Company shall give Parent (i) prompt notice of any demands for fair value of shares of Company Common Stock or Company Preferred Stock received by the Company, withdrawals of such demands, and any other instruments served pursuant to Delaware Law or California Law, if any, and received by the Company, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for fair value under Delaware Law or California Law, if any. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for the fair value of shares of Company Common Stock or Company Preferred Stock or settle or offer to settle any such demands other than by operation of law or pursuant to a final order of a court of competent jurisdiction.

Section 2.5 Stockholder Representative Committee .

(a) Appointment of Stockholder Representative Committee . Upon approval of the Merger by the Company Stockholders, each of the Participating Rights Holders shall be deemed to have constituted and appointed, effective from and after the date of such approval of the Merger, each of Douglas Kelly, David Douglass and Joan Neuscheler or their successors or replacements, as determined by the Company prior to the Effective Time, or a majority-in-interest of the Participating Rights Holders following the Effective Time, as the agents and

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attorneys-in-fact (the "Stockholder Representative Committee" ) of such Participating Rights Holders to act as the Stockholder Representative Committee under this Agreement in accordance with the terms of this Section 2.5 and the Escrow Agreement. In the event of the resignation, removal, death or incapacity of a member of the Stockholder Representative Committee, a successor member shall thereafter be appointed by an instrument in writing signed by such successor member and by the remaining members of the Stockholder Representative Committee, and such appointment shall become effective as to any such successor member when a copy of such instrument shall have been delivered to Parent. Any member of the Stockholder Representative Committee may be removed by action of those Participating Rights Holders who immediately prior to the Effective Time of the Merger held a majority of the outstanding shares of Company Common Stock and Company Preferred Stock held by all Participating Rights Holders, on an as-if fully-converted basis (other than Dissenting Shares). So long as there are more than two members of the Stockholder Representative Committee, the Stockholder Representative Committee shall act by majority vote in accordance with such procedures as it may adopt (otherwise, a unanimous vote shall be required). Notwithstanding the foregoing, unless Parent and the Surviving Corporation shall have actual knowledge that Douglas Kelly has not obtained the authority of the Stockholder Representative Committee with respect to any action or inaction, Parent and the Surviving Corporation shall be entitled to rely, without any investigation or inquiry, upon all action or inaction by Douglas Kelly as having been taken or not taken upon the authority of the Stockholder Representative Committee; provided , that a majority of the members of the Stockholder Representative Committee shall be entitled at any time to designate another member of the Stockholder Representative Committee as the designated representative for the Stockholder Representative Committee for this purpose.

(b) Authority After the Effective Time . From and after the Effective Time, the Stockholder Representative Committee shall be authorized to:

(i) take all actions required by, and exercise all rights granted to, the Stockholder Representative Committee in this Agreement or the Escrow Agreement;

(ii) receive all notices or other documents given or to be given to the Stockholder Representative Committee by Parent pursuant to this Agreement or the Escrow Agreement;

(iii) receive and accept service of legal process in connection with any claim or other proceeding against the Participating Rights Holders or the Company arising under this Agreement or the Escrow Agreement;

(iv) negotiate, undertake, compromise, defend, resolve and settle any suit, proceeding or dispute under this Agreement or the Escrow Agreement;

(v) analyze, conduct examinations, deliver Dispute Notices, agree upon an Appraiser, and negotiate or settle any disputes or claims relating to the calculation of any Contingent Payments hereunder;

(vi) participate in and manage the defense of any Third-Party Claims, consult with Parent as to the defense of any Parent-Handled Claims, approve or withhold

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approval of proposed settlements of any Third-Party Claims, and take such other actions on behalf of the Participating Rights Holders as may be necessary or appropriate under Article IX of this Agreement;

(vii) execute and deliver all agreements, certificates and documents required or deemed appropriate by the Stockholder Representative Committee in connection with any of the transactions contemplated by this Agreement (including executing and delivering the Escrow Agreement);

(viii) engage special counsel, accountants and other advisors and incur such other expenses in connection with any of the transactions contemplated by this Agreement or the Escrow Agreement;

(ix) apply the Committee Reimbursement Amount to the payment of (or reimbursement of the Stockholder Representative Committee for) expenses and liabilities which the Stockholder Representative Committee may incur pursuant to this Section 2.5 ;

(x) cause additional amounts to be withheld from Contingent Payments to the extent the Stockholder Representative Committee deems it necessary to maintain an adequate amount of funds in the Committee Reimbursement Amount to cover expenses of the Stockholder Representative Committee and, under the circumstances described in Sections 1.8(f) and 6.9(e)(vi) , the Parent, up to a maximum of $250,000 at any given time; and

(xi) take such other action as the Stockholder Representative Committee may deem appropriate, including:

(A) agreeing to any modification or amendment of this Agreement or the Escrow Agreement in accordance with the terms hereof and thereof and executing and delivering an agreement of such modification or amendment;

(B) taking any actions required or permitted under the Escrow Agreement to protect or enforce the Participating Rights Holders’ rights thereunder; and

(C) all such other matters as the Stockholder Representative Committee may deem necessary or appropriate to carry out the intents and purposes of this Agreement and the Escrow Agreement.

(c) Reimbursement of Expenses . The members of the Stockholder Representative Committee shall be entitled to receive reimbursement from any Committee Reimbursement Amount retained on behalf of the Stockholder Representative Committee and then, immediately prior to its distribution to the Participating Rights Holders, against the consideration held pursuant to the Escrow Agreement, for any and all expenses, charges and liabilities, including reasonable attorneys’ fees, incurred by the Stockholder Representative Committee in the performance or discharge of its rights and obligations under this Agreement (the "SRC Expenses" ). In the event that the obligations of the Stockholder Representative Committee require that the members of the Stockholder Representative Committee consistently spend significant business time over the course of several months in connection with indemnification claims made pursuant to Article 9 hereof, the Stockholder Representative

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Committee shall be entitled to a one-time payment out of the Committee Reimbursement Amount in the aggregate amount of $50,000, which amount will be considered an SRC Expense for purposes hereof. The Committee Reimbursement Amount shall only be used for the payment of the SRC Expenses or as otherwise required by this Agreement. The Parent and its Affiliates shall have no obligations whatsoever with respect to any SRC Expenses.

(d) Release from Liability; Indemnification; Authority of Stockholder Representative Committee . Each Participating Rights Holder hereby releases the Stockholder Representative Committee, and each of its members, from, and each Participating Rights Holder agrees to indemnify the Stockholder Representative Committee, and each of its members, against, liability for any action taken or not taken by him, her or it in his, her or its capacity as such agent, except for the liability of the Stockholder Representative Committee, or any member thereof, to a Participating Rights Holder for loss which such holder may suffer from the willful misconduct or gross negligence of the Stockholder Representative Committee or such member in carrying out his, her or its duties hereunder. By virtue of the adoption of this Agreement and the approval of the Merger by the stockholders of the Company, each Participating Rights Holder (regardless of whether or not such Participating Rights Holder votes in favor of the adoption of the Agreement and the approval of the Merger, whether at a meeting or by written consent in lieu thereof) appoints, as of the date of this Agreement, the Stockholder Representative Committee as his, her or its true and lawful agent and attorney-in-fact to enter into any agreement in connection with the transactions contemplated by this Agreement, to exercise all or any of the powers, authority and discretion conferred on him under any such agreement, to give and receive notices on their behalf and to be his, her or its exclusive representative with respect to any matter, suit, claim, action or proceeding arising with respect to any transaction contemplated by any such agreement, including, without limitation, the defense, settlement or compromise of any claim, action or proceeding for which Parent or the Surviving Corporation may be entitled to indemnification and, by virtue of its approval of the Agreement, the Stockholder Representative Committee agrees to act as, and to undertake the duties and responsibilities of, such agent and attorney-in-fact. All actions, decisions and instructions of the Stockholder Representative Committee shall be conclusive and binding upon all of the Participating Rights Holders.

(e) Reduction of Contingent Payments to Replenish Committee Reimbursement Amount . The Stockholder Representative Committee, upon written notice delivered to Parent no less than twenty (20) business days prior to the making of any Contingent Payment, including the FDA Milestone Payment, shall be entitled to cause Parent to deduct amounts from that portion of such Contingent Payment that is not subject to reduction in accordance with Sections 1.8(j) , 2.1(a) , 2.1(b) , 2.1(c) and 9.4 for purposes of replenishing the Committee Reimbursement Amount hereunder (which Committee Reimbursement Amount may be increased from time to time in the discretion of the Stockholder Representative Committee, but not above $250,000 at any one time). Any reduction from the consideration held pursuant to the Escrow Agreement or any offset against any Contingent Payment shall be made against the amounts to be distributed to the Participating Rights Holders pro rata based on the aggregate amounts of such escrowed consideration or Contingent Payment otherwise to be received by such Participating Rights Holders. In connection with any such offsets by Parent pursuant to this Section 2.5(e) , the Stockholder Representative Committee hereby releases Parent from, and agrees to indemnify Parent against, liability for any action taken by Parent at the direction of the Stockholder Representative Committee in accordance with this Section 2.5(e) . Any of the

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Committee Reimbursement Amount originally deposited with the Stockholder Representative Committee pursuant to this Section 2.5(e) that has not been consumed by the Stockholder Representative Committee pursuant to the terms of this Agreement on or prior to the end of the period in which Parent, the Surviving Corporation and their Affiliates may make claims for indemnification pursuant to Section 9.2 or, if later, the date on which all indemnification claims of Parent, the Surviving Corporation or any of their Affiliates outstanding at the end of such period have been discharged in full, shall be distributed by the Stockholder Representative Committee to the Participating Rights Holders pro rata based on their respective rights to participate in the first Contingent Payment, if any, from which any such amounts were originally deducted.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to Parent as follows as of each of (a) the date hereof, and (b) the Closing Date, except as specifically contemplated by this Agreement; provided , that such representations and warranties shall be deemed to be qualified for purposes of this Agreement by the attached Disclosure Schedule of the Company (the "Company Disclosure Schedule" ). Notwithstanding any other provision of this Agreement or such Company Disclosure Schedule, each exception set forth in the Company Disclosure Schedule will be deemed to qualify only each representation and warranty set forth in this Agreement (i) that is specifically identified (by cross-reference or otherwise) in the Company Disclosure Schedule as being qualified by such exception, or (ii) with respect to which the relevance of such exception is readily apparent on the face of the disclosure of such exception set forth in the Company Disclosure Schedule. In addition, for purposes of determining the accuracy, as of the Closing Date, of the representations and warranties of the Company under Section 3.3 below only, the Company Disclosure Schedule shall be deemed to have been updated by the information set forth in the Capitalization and Closing Payment Amount Certificate. For purposes of this Agreement, "Knowledge of the Company" shall mean the actual knowledge of any of the directors and officers of the Company in their capacities as directors and officers of the Company or otherwise, after reasonable inquiry.

Section 3.1 Organization, Good Standing and Qualification . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, to perform its obligations under, and carry out the provisions of this Agreement and to carry on its business as presently conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which failure to so qualify constitutes a Material Adverse Effect.

Section 3.2 Subsidiaries . The Company has no subsidiaries and owns no equity securities or other ownership interest of any other corporation, partnership or other entity. The Company is not a participant in any joint venture or similar arrangement.

Section 3.3 Capitalization and Voting Rights .

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(a) The authorized capital stock of the Company consists of:

(i) Common Stock . 100,000,000 shares of Company Common Stock, 8,134,996 of which are issued and outstanding; and

(ii) Preferred Stock . 76,862,280 shares of Company Preferred Stock, of which 7,500,000 shares have been designated Series A Preferred Stock, 7,500,000 of which are issued and outstanding, 15,538,464 shares have been designated Series B Preferred Stock, 15,538,464 of which are issued and outstanding, 16,823,816 shares have been designated Series C Preferred Stock, 16,152,174 of which are issued and outstanding, and 37,000,000 shares have been designated Series D Preferred Stock, 34,328,356 of which are issued and outstanding. The respective rights, restrictions, privileges and preferences of the Company Preferred Stock are as stated in the Company’s Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on August 23, 2005.

(b) There are not outstanding any options, warrants, instruments, rights (including conversion or preemptive rights and rights of first refusal), proxy or stockholder agreements, or other agreements or instruments of any kind, including convertible debt instruments, for the purchase or acquisition from the Company of any of its Securities. The Company is not a party or subject to any agreement or understanding and, to the Knowledge of the Company, there is no agreement or understanding between any other persons, that affects or relates to the voting or giving of written consents with respect to any Security or by a director of the Company other than as contemplated by this Agreement. The Company Stockholders collectively currently own, of record, and, to the Knowledge of the Company, beneficially, a sufficient number of shares of each class of the Securities outstanding on the date hereof required to approve the transactions contemplated by this Agreement, including the Merger.

(c) All of the issued and outstanding shares of the Company Common Stock and Company Preferred Stock (i) have been duly authorized and validly issued and are fully paid and nonassessable, and (ii) were issued in compliance with all applicable state and federal laws concerning the issuance of securities.

(d) Except as set forth in Section 3.3(d) of the Company Disclosure Schedule, each series of Company Preferred Stock is presently convertible into Company Common Stock on a one-for-one basis and the consummation of the transactions contemplated hereunder will not result in any anti-dilution adjustment or other similar adjustment to the outstanding shares of Company Preferred Stock.

(e) Section 3.3(e) of the Company Disclosure Schedule sets forth the name and address of record of each Securityholder and the Securities beneficially owned by each Securityholder, and, in the case of options, warrants, instruments and other rights to acquire capital stock of the Company, (i) the per-share exercise price payable therefor, (ii) the number of shares of the Company’s capital stock each option, warrant, instrument or other right are vested with respect to or exercisable for as of the Agreement Date, (iii) whether the holder of such option, warrant, instrument or other right is an employee of the Company, (iv) whether the vesting of such option, warrant, instrument or other right shall be accelerated by a change of control of the Company, including as a result of the Merger, and (v) whether or not any such

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options, warrants, instruments or other rights are intended to be "incentive stock options" as such term is defined in the Code. To the Knowledge of the Company, each Securityholder of record owns all beneficial interest in such Securities.

Section 3.4 Authorization; Binding Obligations; Governmental Consents .

(a) All corporate actions on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder, other than sending notices to stockholders of the Company pertaining to the exercise of dissenters’ rights under Delaware Law and California Law, have been taken prior to the Agreement Date, subject only to the adoption and approval of this Agreement and the Merger by the Company’s stockholders under the provisions of Delaware Law, California Law and the Company’s Certificate of Incorporation and bylaws. This Agreement is the valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as may be limited by (i) the effect of bankruptcy, insolvency, reorganization, receivership, conservatorship, arrangement, moratorium or other laws affecting or relating to the rights of creditors generally, or (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether considered in a proceeding in law or equity.

(b) No consent, approval, permit, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, except (i) the filing of Merger Certificate with the Delaware Secretary of State; (ii) such consents, approvals, orders authorizations, registrations declarations and filings as may be required under applicable state and federal securities laws and the securities laws of any foreign country; (iii) such filings as may be required under the HSR Act or any applicable state anti-takeover and similar laws; and (iv) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not constitute a Material Adverse Effect and would not prevent, or materially alter or delay any of the transactions contemplated by this Agreement.

Section 3.5 Financial Statements .

(a) The Company has made available to the Parent, and included in the Company Disclosure Schedule are, the Financial Statements. The Financial Statements are complete and correct in all material respects as of their respective dates and fairly and accurately present the financial condition of the Company as of such dates and during the periods indicated therein, and have been prepared in accordance with GAAP, except that the unaudited financial statements do not contain footnotes, subject, in the case of the unaudited financial statements, to normal year-end audit adjustments which are neither individually nor in the aggregate material. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.

(b) Except for Indebtedness reflected in the Financial Statements, the Company has no Indebtedness outstanding at the date hereof, and except as set forth in the Capitalization and Closing Payment Amount Certificate, the Company shall have no

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Indebtedness outstanding at the Effective Time. The Company is not in default with respect to any outstanding Indebtedness or any instrument relating thereto, nor is there any event which, with the passage of time or giving of notice, or both, would result in a default, and no such Indebtedness or any instrument or agreement relating thereto purports to limit the issuance of any Securities by the Company or the operation of the business of the Company. Complete and correct copies of all instruments (including all amendments, supplements, waivers and consents) relating to any Indebtedness of the Company have been furnished to the Parent or its counsel.

Section 3.6 Liabilities . The Company and its Subsidiaries have no material liabilities and the Company knows of no material contingent liabilities not disclosed in the Financial Statements, except (a) current liabilities incurred in the ordinary course of business consistent with past practice subsequent to the Financial Statements which do not constitute a Material Adverse Effect, and (b) the obligation to pay fees and expenses of the Company’s attorneys, accountants and any other advisors relating to the transactions contemplated by this Agreement.

Section 3.7 Agreements; Actions .

(a) Except as set forth in Section 3.7(a) of the Company Disclosure Schedule, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, Affiliates, or any Affiliate thereof, or between any Subsidiary of the Company and any of its officers, directors or Affiliates.

(b) Except as set forth in Section 3.7(b) of the Company Disclosure Schedule, there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any of its Subsidiaries is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company or any of its Subsidiaries in excess of $50,000 that may not be extinguished on thirty (30) days’ notice or less, (ii) the license, assignment or transfer of any patent, copyright, trade secret or other proprietary right to or from the Company or any of its Subsidiaries (other than (A) licenses to the Company arising from the purchase of "off the shelf" or other standard products or equipment; (B) transfer of trade secret and proprietary information pursuant to non-disclosure agreements entered into in the ordinary course of business; (C) licenses granted in connection with the transfer of Products for their intended use (but do not grant rights to manufacture, sell or distribute such Products using such Intellectual Property to such persons) or (D) agreements relating to proprietary information and inventions executed by employees and consultants of the Company and its Subsidiaries that contain obligations running in favor of the Company or its Subsidiary, as applicable, only), (iii) the manufacture, marketing, sale or distribution of any products of the Company or any of its Subsidiaries in any jurisdiction, or any restrictions on the Company’s or any of its Subsidiaries’ exclusive rights to develop, manufacture, assemble, distribute, market and sell its products (other than non-disclosure agreements entered into in the ordinary course of business), (iv) indemnification by the Company or any of its Subsidiaries with respect to infringements of proprietary rights (other than indemnification obligations arising from purchase, sale, license or non-disclosure agreements entered into in the ordinary course of business), (v) the employment of any individual for a fixed period of time or with a fixed severance arrangement, or (vi) other agreements that are otherwise material to the Principal Business of the Company.

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(c) The Company has delivered or has caused to be delivered to Parent or its counsel correct and complete copies of each contract, agreement or other arrangement listed in Section 3.7 of the Company Disclosure Schedule, as such contracts, agreements and arrangements are amended to date. Each such contract, agreement or other arrangement is a valid, binding and enforceable obligation of the Company or any of its Subsidiaries, as applicable, and to the Knowledge of the Company, of the other party or parties thereto, and is in full force and effect. Except as set forth in Section 3.7(c) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries nor, to the Knowledge of the Company, the other party or parties thereto, is in material breach or non-compliance, or, to the Knowledge of the Company, is considered to be in material breach or non-compliance by the other party thereto, of any term of any such contract, agreement or other arrangement. Except as set forth in Section 3.7(c) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has received notice of any default or threat thereof with respect to any such contract, agreement or other arrangement and neither the Company nor any of its Subsidiaries has a reasonable basis for suspecting that any such default exists or will be forthcoming. Subject to obtaining any necessary consents by the other party or parties to any such contract, agreement or other arrangement (as further set forth in Section 3.7(c) of the Company Disclosure Schedule), the transactions contemplated by this Agreement will not cause an increase or acceleration of any obligations of the Company or any of its Subsidiaries pursuant to any contract, agreement or other arrangement listed in Section 3.7 of the Company Disclosure Schedule or give additional rights to any other party thereto nor will any such contract, agreement or other arrangement in any other way be adversely affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement.

(d) Neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any Indebtedness for money borrowed or any other liabilities individually in excess of $50,000 or, in the case of Indebtedness or liabilities individually less than $50,000, in excess of $250,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for payroll or travel expenses or otherwise in the ordinary course of business, or (iv) sold, exchanged or otherwise disposed of any of its material assets or rights, other than the sale of its inventory in the ordinary course of business.

(e) For the purposes of paragraph (b) of this Section 3.7 , all liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person (including persons the Company or any of its Subsidiaries has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such paragraph.

Section 3.8 Related-Party Transactions . No employee, officer, or director of or consultant to the Company or any of its Subsidiaries, as the case may be, or member of his or her immediate family is indebted to the Company or any of its Subsidiaries, nor is the Company or any of its Subsidiaries indebted (or committed to make loans or extend or guarantee credit) to any of them other than (a) for payment of salary or fees (in the case of consultants) for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company or any of its Subsidiaries, and (c) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan

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approved by the Company Board or the board of directors of any of the Company’s Subsidiaries, as the case may be). To the Knowledge of the Company, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company or any of its Subsidiaries is affiliated or with which the Company or any of its Subsidiaries has a business relationship, or any firm or corporation that competes with the Company or any of its Subsidiaries, except that employees, officers or directors of the Company or any of its Subsidiaries and members of their immediate families may own stock in publicly-traded companies that may compete with the Company or any of its Subsidiaries that do not represent more than 2% of the outstanding equity thereof. No member of the immediate family of any officer or director of the Company is directly or indirectly interested in any material contract with the Company. No member of the immediate family of any officer or director of any Subsidiary of the Company is directly or indirectly interested in any material contract with such Subsidiary. Except as may be disclosed in the Financial Statements, neither the Company nor any of its Subsidiaries is a guarantor or indemnitor of any Indebtedness of any other person.

Section 3.9 Changes . Except as reflected in the Financial Statements or as set forth on Section 3.9 of the Company Disclosure Schedule, since January 31, 2007, there has not been:

(a) Any change in the assets, liabilities, financial condition or operations of the Company or any of its Subsidiaries from that reflected in the Financial Statements, other than changes in the ordinary course of business consistent with past practice, none of which individually or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect on the Company;

(b) Any resignation or termination of any key officers or key employees of the Company or any of its Subsidiaries; and to the Knowledge of the Company, there is no impending resignation or termination of employment of any such key officer or key employee;

(c) Any material change, except in the ordinary course of business consistent with past practice, in the contingent obligations of the Company or any of its Subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise;

(d) Any damage, destruction or loss, whether or not covered by insurance, which has had or could reasonably be expected to have a Material Adverse Effect on the Company;

(e) Any waiver by the Company or any of its Subsidiaries of a right or of a debt owed to it in excess of $10,000;

(f) Any loans made by the Company to any stockholder, employee, officer or director of the Company, or a Subsidiary of the Company to any stockholder, employee, officer or director of such Subsidiary, other than advances made in the ordinary course of business consistent with past practice;

(g) Any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder of the Company or any of its Subsidiaries other than in the ordinary course of business consistent with past practice;

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(h) Any declaration or payment of any dividend or other distribution of the assets of the Company or any of its Subsidiaries;

(i) Any labor organization activity at the Company;

(j) Any Indebtedness, obligation or liability incurred, assumed or guaranteed by the Company or any of its Subsidiaries, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business consistent with past practice;

(k) Any sale, assignment, transfer or license of any patents, trademarks, copyrights, trade secrets or other intangible assets of the Company or any of its Subsidiaries other than (A) pursuant to non-disclosure agreements entered into in the ordinary course of business and (B) licenses to use such Intellectual Property granted in connection with the transfer of Products for their intended use (but do not grant rights to manufacture, sell or distribute such Products using such Intellectual Property to such persons);

(l) Any change in any material agreement to which the Company or any of its Subsidiaries is a party or by which it is bound which has had or could reasonably be expected to have a Material Adverse Effect on the Company; or

(m) Any other event or condition of any character that, either individually or cumulatively, has had or could reasonably be expected to have a Material Adverse Effect on the Company.

Section 3.10 Title to Properties and Assets; Liens, Etc . The Company has good and valid title to all of its tangible properties and assets, including the properties and assets reflected in the most recent balance sheet included in the Financial Statements, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from Taxes which have not yet become delinquent, (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company, and (c) those that have otherwise arisen in the ordinary course of business. All facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used. The Company is in compliance with all material terms of each lease to which it is a party or is otherwise bound.

Section 3.11 Intellectual Property .

(a) Except for Intellectual Property relating to commercial off-the-shelf computer software, nondisclosure agreements entered into in the ordinary course of business, and agreements relating to proprietary information and inventions executed by employees and consultants of the Company and its Subsidiaries that contain obligations running in favor of the Company or its Subsidiaries, as applicable, only, Section 3.11(a) of the Company Disclosure Schedule sets forth a complete and accurate list of (i) all registered Intellectual Property owned or licensed, or used by the Company or any of its Subsidiaries, all applications therefor, and all written licenses assignments (excluding assignment of patent applications by inventors to the Company) and other agreements relating thereto to which the Company is a party, and (ii) all

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written agreements relating to technology, know-how and processes which the Company or any of its Subsidiaries has licensed or authorized for use by others.

(b) The operation of the business of the Company and its Subsidiaries as currently conducted or as currently contemplated by the Company and its Subsidiaries to be conducted does not interfere with, conflict with, infringe upon, misappropriate or otherwise violate the Intellectual Property rights of any third party, and no action or claim is pending or, to the Knowledge of the Company, threatened alleging that the operation of such business interferes with, conflicts with, infringes upon, misappropriates or otherwise violates the Intellectual Property rights of any third party and, to the Knowledge of the Company, there is no basis therefor.

(c) The Company is the sole owner of the entire right, title and interest in and to, or has a valid license or other legal right under, Company Owned Intellectual Property and the Company Licensed Intellectual Property used in or necessary to the operation of its business as presently conducted or as currently contemplated by the Company to be conducted, subject to the terms of the license agreements governing the Company Licensed Intellectual Property.

(d) Except for Intellectual Property relating to commercial off-the-shelf computer software and other standard products or equipment, nondisclosure agreements entered into in the ordinary course of business, and agreements relating to proprietary information and inventions executed by employees and consultants of the Company and its Subsidiaries that contain obligations running in favor of the Company or its Subsidiaries, as applicable, only or otherwise as set forth in Section 3.11(d) of the Company Disclosure Schedule, the Company is not a party to any outstanding options, licenses, or agreements of any kind relating to the Company Owned Intellectual Property, nor is the Company or its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, lic