<Page>
Exhibit 10.17
STOCK PURCHASE AGREEMENT
BY AND AMONG
DOV PHARMACEUTICAL, INC.
AND
THE INVESTORS NAMED HEREIN
Dated as of August 30, 2001
<Page>
INDEX
Page
----
SECTION 1. PURCHASE AND SALE OF THE SERIES D PREFERRED .................... 1
1.1 Description of Securities ...................................... 1
1.2 Charter ........................................................ 2
1.3 Sale and Purchase .............................................. 2
1.4 Use of Proceeds ................................................ 2
1.5 Closing ........................................................ 2
1.6 Subsequent Closings 2
1.7 Transfer Taxes ................................................. 2
1.8 Further Assurances ............................................. 3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .................. 3
2.1 Organization and Corporate Power ............................... 3
2.2 Authorization and Non-Contravention ............................ 3
2.3 Corporate Records .............................................. 4
2.4 Capitalization ................................................. 4
2.5 Subsidiaries; Investments ...................................... 6
2.6 Financial Statements ........................................... 6
2.7 Absence of Undisclosed Liabilities ............................. 6
2.8 Absence of Certain Developments ................................ 7
2.9 Accounts Receivable; Accounts Payable .......................... 9
2.10 Transactions with Affiliates ................................... 9
2.11 Properties ..................................................... 9
2.12 Tax Matters .................................................... 9
2.13 Certain Contracts and Arrangements ............................. 11
2.14 Patents, Copyrights, Trademarks and Trade Secrets .............. 12
2.15 Litigation ..................................................... 15
2.16 Labor Matters .................................................. 15
2.17 Permits; Compliance With Laws .................................. 15
2.18 Employee Benefit Programs ...................................... 16
2.19 Insurance Coverage ............................................. 17
2.20 Environmental Matters .......................................... 17
2.21 Partners ....................................................... 17
2.22 Suppliers ...................................................... 17
2.23 Warranty and Related Matters ................................... 17
2.24 Illegal Payments ............................................... 18
2.25 Disclosure ..................................................... 18
2.26 Investment Banking; Brokerage .................................. 18
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS ................ 18
3.1 Investment Status .............................................. 18
3.2 Authority and Non-Contravention ................................ 18
3.3 Investment Banking; Brokerage Fees ............................. 19
3.4 Other Representations and Stipulations ......................... 19
(i)
<Page>
SECTION 4. CLOSING CONDITIONS AND DELIVERIES .............................. 20
4.1 Transactions to Occur Prior to Closing ......................... 20
4.2 Authorization .................................................. 20
4.3 Approvals, Consents and Waivers ................................ 20
4.4 Deliveries by the Company to the Investors ..................... 21
4.5 Closing Deliveries by Investors to Company ..................... 22
4.6 All Proceedings Satisfactory ................................... 22
4.7 No Litigation .................................................. 22
4.8 Fees and Expenses .............................................. 22
4.9 No Violation or Injunction ..................................... 23
4.10 Representations and Warranties ................................. 23
4.11 No Change in Law ............................................... 23
SECTION 5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES ..................... 23
5.1 Survival of Representations, Warranties and Covenants .......... 23
SECTION 6. COVENANTS OF THE COMPANY TO THE INVESTORS ...................... 24
6.1 Financial Statements ........................................... 24
6.2 Observer Rights ................................................ 25
6.3 Budget and Operating Forecast; Inspection ...................... 26
6.4 Conduct of Business ............................................ 26
6.5 Payment of Taxes, Compliance with Laws, etc .................... 26
6.6 Insurance ...................................................... 27
6.7 Maintenance of Properties ...................................... 27
6.8 Material Adverse Changes ....................................... 27
6.9 Management Compensation; Non-Competition and Employee Agreements 27
6.10 Confidentiality and Related Agreements ......................... 27
6.11 Affiliate Transactions ......................................... 27
6.12 Enforcement of Rights .......................................... 28
6.13 Qualified Small Business Stock ................................. 28
6.14 Financings ..................................................... 28
6.15 Indemnification ................................................ 28
6.16 Limitations on Indemnification ................................. 29
6.17 Notice; Payment of Losses ...................................... 29
6.18 Lock-Up Agreements ............................................. 30
6.19 Compliance with Laws ........................................... 30
6.20 Press Releases; Public Announcements ........................... 30
SECTION 7. GENERAL ........................................................ 30
7.1 Waivers and Consents; Amendments ............................... 30
7.2 Legend on Securities ........................................... 30
7.3 Governing Law .................................................. 31
7.4 Section Headings and Gender; Construction ...................... 31
7.5 Counterparts ................................................... 31
7.6 Notices and Demands ............................................ 31
7.7 Dispute Resolution ............................................. 32
(ii)
<Page>
7.8 Consent to Jurisdiction ........................................ 33
7.9 Remedies; Severability ......................................... 33
7.10 Integration .................................................... 34
7.11 Assignability; Binding Agreement ............................... 34
7.12 Finder's Fees .................................................. 34
7.13 Certain Definitions ............................................ 34
EXHIBITS
Exhibit A - Schedule of Investors
Exhibit B - Amended and Restated Certificate of Incorporation
Exhibit C - Form of Stockholders Agreement
Exhibit D - Form of Liquidation Proceeds Agreement
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Opinion of Counsel
DISCLOSURE SCHEDULE
Schedule 2.2(d) - Authorization and Non-Contravention
Schedule 2.4(a) - Capitalization
Schedule 2.4(c) - Capitalization
Schedule 2.5 - Subsidiaries and Investments
Schedule 2.6 - Financial Statements; Projections
Schedule 2.7 - Undisclosed Liabilities
Schedule 2.8(b) - Certain Developments
Schedule 2.8(f) - Certain Developments
Schedule 2.8(g) - Certain Developments
Schedule 2.8(t) - Certain Developments
Schedule 2.9(b) - Accounts Payable
Schedule 2.10 - Transactions with Affiliates
Schedule 2.12 - Tax Matters
Schedule 2.13 - Material Contracts
Schedule 2.14(a) - Intellectual Property
Schedule 2.14(b) - Intellectual Property
Schedule 2.14(c) - Intellectual Property
Schedule 2.14(d) - Intellectual Property
Schedule 2.15 - Litigation
Schedule 2.16 - Labor Matters
Schedule 2.17 - Permits; Compliance with Laws
Schedule 2.18(a) - Employee Benefit Programs
Schedule 2.19 - Insurance Coverage
Schedule 2.21 - Customers; Distributors and Partners
Schedule 2.26 - Investment Banking; Brokerage
(iii)
<Page>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "AGREEMENT") is made and entered into
as of August 30, 2001, by and among DOV Pharmaceutical, Inc., a Delaware
corporation (the "COMPANY"), and the investors named in EXHIBIT A hereto (each,
an "INVESTOR," and collectively, the "INVESTORS").
WHEREAS, the Investors desire to purchase from the Company, and the
Company desires to issue and sell to the Investors in a private placement, the
number of shares of the Company's Series D Convertible Preferred Stock, par
value $1.00 per share (the "SERIES D PREFERRED"), set forth opposite the name of
such Investor listed on EXHIBIT A hereto, which shares are convertible into
shares of common stock of the Company, par value $.0001 per share ("COMMON
STOCK"), at an initial conversion rate of one-to-one, subject to certain
adjustments as set forth in the Certificate of Incorporation (as defined below),
for an aggregate purchase price and per share price (the "PER SHARE PURCHASE
PRICE") set forth in EXHIBIT A; and
WHEREAS, in connection with and as a condition precedent to the
consummation of the transactions contemplated hereby, among other things (i) the
Company has amended and restated its certificate of incorporation in the form
attached hereto as EXHIBIT B (the "CERTIFICATE OF INCORPORATION"), (ii) the
Company, the Investors, the holders of Series C Preferred (as defined below),
Arnold Lippa and Bernard Beer are entering into an amended and restated
stockholders agreement in substantially the form attached hereto as EXHIBIT C
(the "STOCKHOLDERS AGREEMENT"), (iii) the Company, the Investors and the holders
of Series C Preferred are entering into a liquidation proceeds agreement in
substantially the form attached as EXHIBIT D (the "LIQUIDATION PROCEEDS
AGREEMENT") and (iv) the Company, the Investors and the holders of Series C
Preferred are entering into a registration rights agreement in substantially the
form attached hereto as EXHIBIT E (the "REGISTRATION RIGHTS AGREEMENT," together
with this Agreement, the Certificate of Incorporation, the Stockholders
Agreement and the Liquidation Proceeds Agreement, the "TRANSACTION DOCUMENTS").
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF THE SERIES D PREFERRED
1.1 DESCRIPTION OF SECURITIES. The Company's authorized capital stock
consists of Common Stock, Series B Convertible Preferred Stock, par value $1.00
per share (the "SERIES B PREFERRED"), Series C Convertible Preferred Stock, par
value $1.00 per share (the "SERIES C PREFERRED") and Series D Preferred. The
Common Stock, Series B Preferred, Series C Preferred and Series D Preferred have
the rights, preferences and other terms set forth in EXHIBIT B hereto. The
shares of Series D Preferred to be acquired by the Investors from the Company
hereunder are sometimes referred to as the "SERIES D PREFERRED SHARES," the
shares of Common Stock issuable upon conversion of the Series D Preferred are
referred to as the "SERIES D CONVERSION SHARES," and the Series D Preferred and
the Series D Conversion Shares are sometimes referred to herein as the
"SECURITIES." The Company has authorized and reserved, and covenants to continue
to reserve, a sufficient number of shares of its Common Stock necessary to
satisfy the rights of conversion of the holders of Series D Preferred as set
forth in EXHIBIT B hereto.
1
<Page>
1.2 CHARTER. Prior to or contemporaneously with the Closing (as defined
below) the Company shall file with the Secretary of the State of Delaware the
Certificate of Incorporation, and the same shall have become effective in
accordance with Delaware law.
1.3 SALE AND PURCHASE. Upon the terms and subject to the conditions
herein, and in reliance on the representations and warranties set forth in
SECTION 2, each of the Investors hereby purchases from the Company, and the
Company hereby issues and sells to each of the Investors, the number of Series D
Preferred Shares set forth opposite the name of each such Investor in EXHIBIT A
hereto, free and clear of any and all liens, claims, charges or encumbrances
("ENCUMBRANCES") and with no restrictions on voting rights or the transfer
thereof (in each case other than pursuant to the Transaction Documents and
applicable law), for the total aggregate purchase price set forth in EXHIBIT A
(the "PURCHASE PRICE").
1.4 USE OF PROCEEDS. The Company shall apply the proceeds from the sale of
the Series D Preferred to the administration of clinical trials, research and
development, license and acquisition of pharmaceutical compounds, general and
administrative costs and working capital.
1.5 CLOSING. The closing of the purchase and sale of the Series D
Preferred (the "CLOSING"), subject to a maximum sale of 1,400,000 shares
thereof, shall take place at a mutually agreeable location on the date hereof
(the "CLOSING DATE"). At or as soon as practicable after the Closing, the
Company shall deliver or cause to be delivered to each of the Investors stock
certificates representing all the Series D Preferred issued hereunder, free and
clear of Encumbrances and with no restrictions on voting rights or the transfer
thereof (in each case other than pursuant to the Transaction Documents and
applicable law). All cash payments hereunder shall be made by wire transfer of
same day available funds or such other method acceptable to the Company.
1.6 SUBSEQUENT CLOSINGS. Any shares of Series D Preferred not sold at the
Closing may be sold at one or more subsequent closings (each a "SUBSEQUENT
CLOSING"), subject to a maximum sale of 1,400,000 shares of Series D Preferred
including such shares sold at the Closing, to occur within 45 days following the
Closing. Any such Subsequent Closing shall be held at a time and place mutually
agreed to by the Company and the subsequent Investors. The subsequent Investors
shall execute a counterpart signature page to this Agreement and all other
Transaction Documents, as applicable, in addition to completing and delivering
to the Company its standard form investor qualification questionnaire. Upon
consummation of each Subsequent Closing, if any, the subsequent Investors of
Series D Preferred shall be considered "Investors" within the meaning of this
Agreement and shall have all the rights and privileges of and be subject to and
bound by all the terms and conditions hereof as of the date of such Subsequent
Closing. The Company shall, following each Subsequent Closing, if any, amend
EXHIBIT A hereto to reflect such Subsequent Closing and shall deliver a copy
thereof to each Investor.
1.7 TRANSFER TAXES. All transfer taxes, fees and duties under applicable
law incurred in connection with the sale and transfer of the Series D Preferred
under this Agreement shall be borne
2
<Page>
by the Company and it shall promptly reimburse the Investors for any such tax,
fee or duty that any of them is required to pay.
1.8 FURTHER ASSURANCES. The Company and the Investors from time to time
after the Closing at the request of any other party hereto and without further
consideration shall execute and deliver further instruments of transfer and
assignment and take such other action as a party may reasonably require to more
effectively transfer and assign to, and vest in, the Investors, the Securities
and all rights thereto, and to fully implement the provisions of this Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Investors to enter into this Agreement and
consummate the transactions contemplated hereby, the Company hereby makes to the
Investors the representations and warranties contained in this SECTION 2. Such
representations and warranties are subject to the qualifications and exceptions
set forth in the disclosure schedule delivered to the Investors pursuant to this
Agreement (the "DISCLOSURE SCHEDULE"). References to the knowledge or awareness
of the Company are deemed to mean the actual knowledge, after reasonable
inquiry, of the officers and directors of the Company.
2.1 ORGANIZATION AND CORPORATE POWER. The Company and its Subsidiaries (as
defined below) are corporations or companies, as applicable, duly organized or
formed, validly existing and in good standing under the laws of their respective
jurisdictions of organization or formation, have all requisite power to own,
lease and operate their respective properties and assets and are duly qualified
or registered to do business as a foreign corporation or company, as applicable,
in each jurisdiction in which the failure to be so duly qualified or registered
has had, or would be reasonably likely to have, a material adverse effect on the
business or results of operations of the Company (a "MATERIAL ADVERSE EFFECT").
The Company and its Subsidiaries have all required corporate power and authority
to carry on their respective businesses as currently conducted, and the Company
has all required corporate power and authority to enter into and perform this
Agreement and the agreements contemplated hereby to which it is a party and to
carry out the transactions contemplated hereby and thereby, including the
issuance of the Securities. A copy of the Certificate of Incorporation as
amended, certified by the Secretary of State of Delaware and the bylaws
certified by the Secretary of the Company, have been furnished to the Investors
by the Company, are correct and complete as of the date hereof, and the Company
is not in violation of any term of its Certificate of Incorporation or bylaws.
2.2 AUTHORIZATION AND NON-CONTRAVENTION. This Agreement and all agreements
and instruments have been duly executed and delivered by the Company pursuant
hereto and, assuming they are the valid and binding obligations of the other
parties thereto, are valid and binding obligations of the Company, enforceable
in accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy, reorganization, insolvency or other laws and
regulations affecting creditors' rights generally or by general principles of
equity. The execution, delivery and performance of this Agreement and all
agreements and instruments executed and delivered by the Company pursuant
hereto, the issuance and delivery of the Series D Preferred Shares and, upon
conversion thereof, the issuance and delivery of the Series D Conversion Shares
have been
3
<Page>
duly authorized by all necessary corporate action. The execution and delivery of
this Agreement and all agreements and instruments executed and delivered by the
Company pursuant hereto, the issuance and delivery of the Series D Preferred
Shares and, upon conversion thereof, the issuance and delivery of the Series D
Conversion Shares and the performance of the transactions contemplated by this
Agreement and such other agreements and instruments do not and will not:
(a) violate, conflict with or result in a default (whether after the
giving of notice, lapse of time or both) of any provision of the
Certificate of Incorporation or bylaws;
(b) violate, conflict with or result in a default (whether after the
giving of notice, lapse of time or both) or loss of benefit under any
contract or obligation to which the Company is a party or by which its
assets are bound, or cause the creation of any Encumbrance upon any of the
assets of the Company that would reasonably be expected to have a Material
Adverse Effect;
(c) violate or result in a violation of, or constitute a default
(whether after the giving of notice, lapse of time or both) under, any
provision of any law, regulation or rule, or any order of, or any
restriction imposed by, any court or other governmental agency applicable
to the Company that would reasonably be expected to have a Material
Adverse Effect;
(d) require from the Company any notice to, declaration or filing
with, or consent or approval of any governmental authority or third party,
except for those consents set forth in SECTION 2.2(d) OF THE DISCLOSURE
SCHEDULE, which consents have been obtained;
(e) violate or result in a violation of, or constitute a default
(whether after the giving of notice, lapse of time or both) under,
accelerate any obligation under, or give rise to a right of termination
of, any agreement, permit, license or authorization to which the Company
is a party or by which the Company is bound that would reasonably be
expected to have a Material Adverse Effect; or
(f) result in the imposition of a lien upon any material assets of
the Company.
2.3 CORPORATE RECORDS. To its knowledge, the corporate record books of the
Company accurately reflect all material corporate actions taken by its
stockholders, board of directors and committees. The copies of the corporate
records of the Company, as made available to the Investors for review, are true
and complete copies of the originals of such documents.
2.4 CAPITALIZATION.
(a) Immediately prior to giving effect to the transactions
contemplated hereby, the authorized capital stock of the Company consisted
of (i) 30,000,000 shares of Common Stock, of which 3,021,137 shares were
issued and outstanding and (ii) 10,000,000 shares of preferred stock, par
value $1.00 per share, of which 354,643 shares of Series B Preferred and
1,750,000 shares of Series C Preferred were issued and outstanding. As of
the Closing and after giving
4
<Page>
effect to the transactions contemplated hereby, the authorized, issued and
outstanding capital stock of the Company shall consist of the
aforementioned, plus the aggregate number of shares of Series D Preferred
issued to the Investors as listed on EXHIBIT A attached hereto. The
relative rights, preferences and other provisions relating to the Series D
Preferred are as set forth in the Certificate of Incorporation, and such
rights and preferences are valid and enforceable in accordance with their
terms. SECTION 2.4(a) OF THE DISCLOSURE SCHEDULE sets forth the name of
each holder of options for Common Stock, together with the number of
shares for which such options are exercisable with respect to each holder,
the applicable vesting schedule, if any, and the applicable exercise
price. Except as disclosed in SCHEDULE 2.4(a) OF THE DISCLOSURE SCHEDULE,
none of the options or rights listed therein are subject to accelerated
vesting by reason of the transactions contemplated hereby or any
subsequent sale of the Company. Except as contemplated in the Transaction
Documents or as disclosed in SECTION 2.4(a) OF THE DISCLOSURE SCHEDULE (i)
there are no outstanding subscriptions, options, warrants, commitments,
preemptive rights, agreements, arrangements or commitments of any kind
relating to the issuance or sale of, or outstanding securities convertible
into or exercisable or exchangeable for, any shares of capital stock of
any class or other equity interests of the Company and (ii) the Company
has no obligation to purchase, redeem, or otherwise acquire any of its
capital stock or any interests therein, and has not redeemed any shares of
its capital stock in the past three years.
(b) All the outstanding shares of capital stock of the Company
including, immediately upon consummation of the Closing and, with respect
to subsequent Investors, if any, immediately upon consummation of such
Subsequent Closing, the Series D Preferred sold hereunder, have been duly
and validly authorized and issued and are fully paid and non-assessable,
and have been offered, issued, sold and delivered in compliance with
applicable federal and state securities laws without giving rise to
preemptive rights of any kind other than such rights duly waived. The
Company has duly and validly authorized and reserved (A) 4,438,266 shares
of Common Stock (subject to adjustment) for issuance upon conversion of
the Series B Preferred, the Series C Preferred, the exercise of warrants
(assuming a sale of 1,400,000 shares of Series D Preferred) and for
issuance in connection with the Company's stock option programs, (B)
1,400,000 shares of Common Stock (subject to adjustment) for issuance upon
conversion of the Series D Preferred and (C) 1,987,730 shares of Common
Stock issuable upon conversion of the convertible exchangeable promissory
note and the convertible promissory note inclusive of principal and
accrued but unpaid interest thereon as of June 30, 2001, each dated as of
January 21, 1999, and held by Elan International Services, Ltd., plus from
time-to-time such number of additional shares of Common Stock necessary
for conversion of additional accrued interest on such notes. The shares of
Common Stock so issued will, upon such grant, exercise or conversion, be
validly issued, fully paid and non-assessable.
(c) After giving effect to the transactions contemplated hereby,
other than rights set forth herein or in SECTION 2.4(c) OF THE DISCLOSURE
SCHEDULE or in the Transaction Documents, there are (1) no preemptive
rights, rights of first refusal, put or call rights or obligations or
anti-dilution rights with respect to the issuance, sale or redemption of
the Company's capital stock or any interests therein, (2) no rights to
have the Company's capital stock registered for sale to the public in
connection with the laws of any jurisdiction and (3)
5
<Page>
no documents, instruments or agreements relating to the voting of the
Company's voting securities or restrictions on the transfer of the
Company's capital stock.
2.5 SUBSIDIARIES; INVESTMENTS. Except as set forth in SECTION 2.5 OF THE
DISCLOSURE SCHEDULE, the Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association or other business entity, nor has the Company
made any investment, nor does it hold any interest in or have any outstanding
loan or advance to or from, any person, including, without limitation, any
officer, director or stockholder.
2.6 FINANCIAL STATEMENTS.
(a) The Company has previously furnished to the Investors and
attached hereto on SECTION 2.6 OF THE DISCLOSURE SCHEDULE copies of the
following financial statements: (i) DOV Pharmaceutical, Inc. and
Subsidiaries consolidated financial statements for the years ended
December 31, 2000, 1999 and 1998, with a report thereon by the independent
certified public accountants of the Company, and (ii) DOV Pharmaceutical,
Inc. and Subsidiaries consolidated unaudited balance sheet as of June 30,
2001 (the "BASE BALANCE SHEET"), and the related unaudited statements of
income, retained earnings and cash flows for the six-month period then
ended. Except for absence of footnotes in such unaudited financial
statements, such financial statements were prepared in conformity with
generally accepted accounting principles of the United States applied on a
consistent basis, are complete and correct in all material respects and
fairly present the financial condition and position of the Company and its
Subsidiaries as of the dates thereof and the results of operations and
cash flows of the Company and its Subsidiaries for the periods shown
therein.
(b) As of the date of the Base Balance Sheet, the Company had (A)
not less than $6,485,175 of working capital (defined as current assets
minus current liabilities as so classified on the Base Balance Sheet), (B)
not less than $8,726,619 in cash and cash equivalents and (C) a negative
net worth of $4,915,859 (defined as total assets minus total liabilities),
in each case determined in accordance with generally accepted accounting
principles of the United States applied on a consistent basis. As of
immediately prior to the Closing and, with respect to subsequent
Investors, if any, as of immediately prior to such Subsequent Closing, and
prior to giving effect to the transactions contemplated hereunder (other
than with respect to fees and expenses such as legal and accounting fees
incurred on behalf of the Company in connection with the transactions
contemplated hereby) there has been no change in the Company's working
capital, cash and net worth as represented in the Base Balance Sheet other
than such changes in the ordinary course of business that would not
reasonably be expected to have a Material Adverse Effect.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
material liabilities or obligations of any nature, whether accrued, absolute,
contingent, asserted, unasserted or otherwise, except liabilities or obligations
(i) stated or adequately reserved against in the Base Balance Sheet, (ii)
incurred as a result of or arising out of the transactions contemplated under
this Agreement or (iii) as set forth in SECTION 2.7 OF THE DISCLOSURE SCHEDULE.
6
<Page>
2.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in SECTIONS OF
THE DISCLOSURE SCHEDULE set forth below or in connection with or as a result of
the transactions contemplated in this Agreement or any of the other Transaction
Documents, since June 30, 2001, other than changes that have occurred in respect
of the Company conducting its business in the ordinary course or consistent with
past practice, there has not been:
(a) any change in the assets, liabilities, condition (financial or
other), properties, business, operations or prospects of the Company and
its Subsidiaries from that reflected in the Base Balance Sheet and the
related unaudited statements of income, retained earnings and cash flows
for the six-month period then ended, which change by itself or in
conjunction with all other such changes, whether or not arising in the
ordinary course of business, has had or would be reasonably likely to have
a Material Adverse Effect, nor, to the Company's knowledge, is any such
change threatened;
(b) except as set forth in SECTION 2.8(b) OF THE DISCLOSURE
SCHEDULE, any mortgage, encumbrance or lien placed on any of the
properties of the Company and its Subsidiaries other than statutory and
purchase money liens and liens for taxes not yet due and payable;
(c) any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of
properties or assets by the Company and its Subsidiaries involving the
payment or receipt of more than $100,000;
(d) any damage, destruction or loss, whether or not covered by
insurance, having a Material Adverse Effect;
(e) any declaration, setting aside or payment of any dividend by the
Company, or the making of any other distribution in respect of the capital
stock of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of its capital stock;
(f) any labor trouble or claim of unfair labor practices involving
the Company or except as set forth in SECTION 2.8(f) OF THE DISCLOSURE
SCHEDULE, any change in the compensation payable or to become payable by
the Company to any of its officers or employees other than normal merit
increases to employees in accordance with its usual practices, or any
bonus payment or arrangement made to or with any of such officers or
employees or any establishment or creation of any employment, deferred
compensation or severance arrangement or employee benefit plan with
respect to such persons or the amendment of any of the foregoing;
(g) any resignation, termination or removal of any officer of the
Company or material loss of personnel of the Company or except as set
forth in SECTION 2.8(g) OF THE DISCLOSURE SCHEDULE, material change in the
terms and conditions of the employment of the Company's officers or key
personnel;
(h) any payment or discharge of a material lien or liability of the
Company or its Subsidiaries that was not shown on the Base Balance Sheet;
7
<Page>
(i) any contingent liability incurred by the Company or its
Subsidiaries as guarantor or otherwise with respect to the obligations of
others or any cancellation of any material debt or claim owing to, or
waiver of any material right of, the Company or its Subsidiaries,
including any write-off or compromise of any accounts receivable other
than in the ordinary course of business consistent with past practice;
(j) any obligation or liability incurred by the Company to any of
its officers, directors, stockholders or employees, or any loans or
advances made by the Company to any of its officers, directors,
stockholders or employees, except normal compensation and expense
allowances payable to officers or employees;
(k) any change in accounting methods or practices, collection
policies, pricing policies or payment policies of the Company or its
Subsidiaries;
(l) any loss, or any known development that could reasonably be
expected to result in a loss, of any significant supplier, customer,
distributor or account of the Company;
(m) any amendment or termination of any material contract or
agreement to which the Company is a party or by which it is bound;
(n) any arrangements relating to any royalty or similar payment
based on the revenues, profits or sales volume of the Company;
(o) any transaction or agreement involving fixed price terms or
fixed volume arrangements;
(p) any other material transaction entered into by the Company or
its Subsidiaries;
(q) any amendment to the Certificate of Incorporation or the
Company's by-laws;
(r) (i) any abandonment, sale, transfer, assignment, conveyance or
grant of a security interest in any intellectual property of the Company,
(ii) any licenses of any intellectual property of the Company to or by the
Company and (iii) any disclosure of any confidential information or trade
secrets of the Company unless such disclosure was subject to a
confidentiality or non-disclosure covenant protecting against unauthorized
disclosure thereof;
(s) any waiver by the Company of a valuable right or of a material
debt owed to it;
(t) except as set forth in SECTION 2.8(t) OF THE DISCLOSURE
SCHEDULE, any other event or condition of any character that, either
individually or cumulatively, has had a Material Adverse Effect; and
(u) any agreement or understanding, in writing or oral or
established as a course of dealing, for the Company to take any of the
actions specified in paragraphs (a) through (t) above.
8
<Page>
2.9 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE.
(a) To the Company's knowledge, all the accounts receivable of the
Company and its Subsidiaries as set forth in the Base Balance Sheet are valid
and enforceable, are not subject to set-off or counterclaim and are fully
collectible in the normal course of business, after deducting the reserve for
doubtful accounts stated in the Base Balance Sheet, which reserve is in
accordance with generally accepted accounting principles of the United States.
Since June 30, 2001, the Company has collected its accounts receivable in the
ordinary course of its business and in a manner consistent with past practices
and has not accelerated any such collections. The Company does not have any
accounts receivable or loans receivable from any person affiliated with it or
any of its directors or officers or, to its knowledge, its employees or
stockholders.
(b) EXCEPT AS SET FORTH IN SECTION 2.9(b) OF THE DISCLOSURE
SCHEDULE, all accounts payable and notes payable of the Company and its
Subsidiaries arose in bona fide arm's length transactions in the ordinary course
of business and no such account payable or note payable is delinquent by more
than 60 days in its payment. Since June 30, 2001, the Company and its
Subsidiaries have paid their accounts payable in the ordinary course of business
and in a manner consistent with past practices. The Company has no account
payable to any person affiliated with it or any of its directors or officers or,
to its knowledge, its employees or stockholders.
2.10 TRANSACTIONS WITH AFFILIATES. Except as set forth in SECTION 2.10 OF
THE DISCLOSURE SCHEDULE, there are no loans, leases or other continuing
transactions between the Company and any present or former director or officer
or, to its knowledge, any employee or stockholder of the Company or, to its
knowledge, any member of such officer's, director's, employee's or stockholder's
immediate family, or any person controlled by such officer, director, employee
or stockholder or his or her immediate family. Except as set forth in SECTION
2.10 OF THE DISCLOSURE SCHEDULE, no director or officer or, to its knowledge,
any employee or stockholder of the Company or, to its knowledge, any of their
respective spouses or family members, owns directly or indirectly any interest
in, or serves as an officer or director or in another similar capacity of, any
competitor, customer or supplier of the Company, or any organization that has a
material contract or arrangement with the Company.
2.11 PROPERTIES. The Company has good and valid title to all assets
material to its business and to those assets reflected on the Base Balance Sheet
and acquired by it after the date thereof (except for properties disposed of
since that date in the ordinary course of business), free and clear of
Encumbrances, other than liens for Taxes (as hereinafter defined) not yet due
and payable and minor Encumbrances that do not materially detract from the value
of the property subject thereto or materially impair the operations of the
Company and Encumbrances that have arisen in the ordinary course of business.
All equipment included in such properties that is necessary to the business of
the Company is in good condition and repair (ordinary wear and tear excepted)
and all leases of real or personal property to which the Company is a party are
fully effective and afford the Company peaceful and undisturbed possession of
the premises covered thereby. The property and assets of the Company are
sufficient for the conduct of its business as presently conducted.
2.12 TAX MATTERS.
9
<Page>
(a) The Company and its Subsidiaries have timely and properly filed
all federal, state, local and foreign tax returns required to be filed by
them through the date hereof, and all such tax returns so filed are true,
correct and complete in all material respects. The Company and its
Subsidiaries have paid or caused to be paid all federal, state, local,
foreign and other taxes, including without limitation, income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
franchise taxes, employment and payroll related taxes, withholding taxes,
transfer taxes, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "TAXES"), so required to be
paid through the date hereof whether disputed or not, other than Taxes
being disputed by the Company on a good faith basis for which it has
established sufficient reserves on its books for payment thereof. The
provisions for Taxes in the Base Balance Sheet are sufficient as of its
date for the payment of any accrued and unpaid Taxes of any nature of the
Company. All Taxes and other assessments and levies that the Company and
it Subsidiaries were or are required to withhold or collect have been
withheld and collected and have been paid over to the proper governmental
authorities. The Company has delivered to the Investors correct and
complete copies of all annual tax returns, examination reports, and
statements of deficiencies filed by, assessed against, or agreed to by the
Company and it Subsidiaries since July 1, 1998. Neither the Company nor
any of its Subsidiaries has waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to any Tax
payment, assessment, deficiency or collection. Except as set forth in
SECTION 2.12 OF THE DISCLOSURE SCHEDULE (i) neither the Company nor any of
its Subsidiaries has never received written notice or, to the Company's
knowledge, oral notification of any audit or of any proposed deficiencies
from the Internal Revenue Service (the "IRS") or any other taxing
authority (other than routine audits undertaken in the ordinary course and
that have been resolved on or prior to the date hereof); (ii) there are in
effect no waivers of applicable statutes of limitations with respect to
any Taxes owed by the Company or its Subsidiaries for any year; (iii)
neither the IRS nor any other taxing authority is now asserting or, to the
knowledge of the Company, threatening to assert against the Company or its
Subsidiaries any deficiency or claim for additional Taxes or interest
thereon or penalties in connection therewith in respect of the income or
sales of the Company; (iv) neither the Company nor any of its Subsidiaries
has ever been a member of an affiliated group of corporations filing a
combined federal income tax return nor does the Company have any liability
for Taxes of any other Person under Treasury Regulationsss.1.1502-6 (or
any similar provision of foreign, state or local law) or otherwise; and
(v) neither the Company nor its Subsidiaries have filed a consent under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the
"CODE"), concerning collapsible corporations. Neither the Company nor any
of its Subsidiaries has ever been a United States real property holding
corporation within the meaning of Section 897(c)(1)(A)(ii) of the Code.
Neither the Company nor any of its Subsidiaries is a party to any Tax
allocation or sharing arrangement. Neither the Company nor any of its
Subsidiaries is a party to any contract, agreement, plan or arrangement
covering any employee or former employee thereof that, individually or
collectively, could give rise to the payment of any amount that would not
be deductible pursuant to Section 280G or Section 162 of the Code. Neither
the Company nor any of its Subsidiaries is a "foreign person" within the
meaning of Section 1445 of the Code and Treasury Regulations Section
1.1445-2.
10
<Page>
(b) The taxable year of the Company for federal and state income tax
purposes is the fiscal year ended December 31.
(c) Neither the Company nor any of its Subsidiaries has ever been
(i) a passive foreign investment company, (ii) a foreign personal holding
company, (iii) a foreign sales corporation, (iv) a foreign investment
company or (v) a person other than a United States person, each within the
meaning of the Code.
(d) During the one-year period preceding the Closing, the Company
has not made any purchases of its own stock.
(e) The Company's (and any predecessor's) aggregate gross assets, as
defined by Section 1202(d)(2) of the Code, at no time between the date of
incorporation of the Company and through the Closing have exceeded
$50,000,000, taking into account the assets of any corporations required
to be aggregated with the Company in accordance with Section 1202(d)(3) of
the Code; provided that the Company does not represent that it is a
"qualified small business" within the meaning of Section 1202(d)(1).
2.13 CERTAIN CONTRACTS AND ARRANGEMENTS. Except for the Transaction
Documents and except as set forth in SECTION 2.13 OF THE DISCLOSURE SCHEDULE,
the Company is not a party or subject to or bound by:
(a) any contract or agreement involving a potential commitment or
payment by the Company in excess of $100,000;
(b) any contract, lease or agreement that is not cancelable by the
Company without penalty on not less than 90 days notice;
(c) any contract containing covenants directly or explicitly
limiting in any material respect the freedom of the Company to compete in
any line of business or with any person or entity;
(d) any contract or agreement relating to the licensing,
distribution, development, purchase or sale of its pharmaceutical
compounds except in the ordinary course of business consistent with past
practices;
(e) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing or any pledge or
security arrangement;
(f) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Company, including any
agreement with any stockholder of the Company that includes anti-dilution
rights, registration rights, voting arrangements, operating covenants or
similar provisions;
(g) any pension, profit sharing, retirement or stock options plans;
11
<Page>
(h) any royalty, dividend or similar arrangement based on the
revenues or profits of the Company or any contract or agreement involving
fixed price or fixed volume arrangements;
(i) any joint venture, partnership, manufacturer, development or
supply agreement;
(j) any acquisition, merger or similar agreement;
(k) any contract with any governmental entity;
(l) any contract or agreement relating to the licensing, sale,
assignment, transfer, acquisition, disclosure or development of, or a
grant of a security interest in, the intellectual property of the Company,
or any settlement, consent, order, decree or judgment governing the
validity, enforceability, use or other restrictions on the Company
relating to its intellectual property; or
(m) any other material contract not executed in the ordinary course
of business.
All such agreements and instruments set forth in SECTION 2.13 OF THE
DISCLOSURE SCHEDULE, to the knowledge of the Company, are valid and binding
obligations of the other parties thereto, and assuming they are valid and
binding obligations of such other parties, are valid and are in full force and
effect and constitute legal, valid and binding obligations of the Company, and
are enforceable in accordance with their respective terms. The Company has no
knowledge of any notice or threat to terminate any such contracts, agreements or
instruments, which termination would reasonably be expected to have a Material
Adverse Effect. Neither the Company nor, to its knowledge, any other party is in
default in complying with any provisions of any such contract, agreement, lease
or instrument, and no condition or event or fact exists that, with notice, lapse
of time or both, would constitute a default thereunder on the part of the
Company, except for any such default, condition, event or fact that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
2.14 PATENTS, COPYRIGHTS, TRADEMARKS AND TRADE SECRETS.
(a) SECTION 2.14(a) OF THE DISCLOSURE SCHEDULE contains a true and
complete list and brief description of:
(i) all United States and non-U.S. patents and patent
applications, all United States, state and non-U.S.
trademarks, service marks, trade names and copyrights
for which registrations have been issued or applied for,
and all other United States, state and non-U.S.
trademarks, service marks, trade names and copyrights
owned by the Company or in which it holds any right,
license or interest, showing in each case the product,
device, process, service business or publication covered
thereby, the owner, the registration or application
date, together with the registration, serial or
application number, as applicable, and the expiration
date, if any;
12
<Page>
(ii) all agreements, contracts, licenses, commitments,
assignments, settlements, consents, orders, decrees and
judgments relating or pertaining to any asset, property
or right of the character described in the preceding
clause (i) to which the Company is a party or bound;
(iii) all licenses or agreements pertaining to mailing lists,
know-how, trade secrets, inventions, disclosures,
processes, methods, research and development information
or uses of ideas to which the Company is a party; and
(iv) all registered, assumed or fictitious names under which
the Company is conducting business or has within the
previous three years conducted business.
(b) To the Company's knowledge, except as set forth in SECTION
2.14(b) OF THE DISCLOSURE SCHEDULE, all patents owned, controlled or used
by the Company are valid and in force and have not been adjudged invalid
or unenforceable in whole or part, all patent applications owned or
controlled by the Company listed in SECTION 2.14(A) OF THE DISCLOSURE
SCHEDULE are in good standing, the Company possesses such rights to such
patents and patent applications as are set forth or referred to in SECTION
2.14(a) OF THE DISCLOSURE SCHEDULE and all such patents and patent
applications are free and clear of Encumbrances. All registrations for
trade names, trademarks, service marks and copyrights listed in SECTION
2.14(a) OF THE DISCLOSURE SCHEDULE, as being owned, controlled or used by
the Company are valid and in force and have not been adjudged invalid or
unenforceable in whole or part, and all applications for such
registrations are in good standing and except as set forth therein all
right, title and interest in and to each such trade name, trademark,
service mark and copyright so listed as well as the registration and
application for registration therefor is owned by the Company free and
clear of Encumbrances. Each listed trade name, service mark, copyright and
trademark in SECTION 2.14(a) OF THE DISCLOSURE SCHEDULE is currently in
use and has not been abandoned. Complete copies of the patents and patent
applications and trademark, trade name, service mark and copyright
registrations and applications or deposits therefor, and all the
agreements listed in SECTION 2.14(a) OF THE DISCLOSURE SCHEDULE, have been
delivered or offered to be made available to the Investors.
(c) Except as set forth in SECTION 2.14(c) OF THE DISCLOSURE
SCHEDULE, the Company owns or has the perpetual royalty-free right to use
all trademarks, service marks, copyrights, trade names, inventions,
improvements, processes, formulae, trade secrets, methods, research and
development information, mailing list, know-how and proprietary or
confidential information used by it in conducting activities related to
the Company's business. The operation of the business of the Company as
currently conducted or as contemplated to be conducted by the Company,
including services provided by, processes used by, or products
manufactured or sold by or on behalf of the Company, and the use of all
intellectual property in connection therewith, do not conflict with,
infringe, misappropriate or otherwise violate the rights of any third
party that would reasonably be expected to have a Material Adverse Effect.
Except as disclosed in SECTION 2.14(c) OF THE DISCLOSURE SCHEDULE, the
Company has not received written notice alleging any of the foregoing, and
no actions, litigation, suits or proceedings have been asserted, are
pending or, to the Company's knowledge, threatened
13
<Page>
against the Company or any licensee of the Company (i) alleging any of the
foregoing, (ii) based upon or challenging or seeking to deny or restrict
the validity or ownership of or use by the Company or any of its licensees
of any intellectual property or (iii) alleging that any of the agreements
listed in SECTION 2.14(a) OF THE DISCLOSURE SCHEDULE are in conflict with
the terms of any license or other agreement, and to the Company's
knowledge there exists no basis therefor.
(d) Except as set forth in SCHEDULE 2.12(d) OF THE DISCLOSURE
SCHEDULE, to the Company's knowledge (i) no third party has
misappropriated or is infringing or violating any intellectual property of
the Company; (ii) no employee of the Company is obligated under any
agreement or subject to any judgment or order of any court or
administrative agency that would interfere with the employee's duties to
the Company or that would conflict with the business of the Company; and
(iii) neither the execution nor delivery of this Agreement or agreements
executed and delivered by the Company pursuant hereto, nor the carrying on
of the Company's business by any of its employees or the conduct of the
Company's business as proposed conflict with or result in a breach of the
terms of, or constitute a default under, any agreement under which any
employee is now obligated. To the Company's knowledge, it is not necessary
to utilize any intellectual property rights of any of its employees made
prior to their employment by the Company, except for inventions, trade
secrets or proprietary information that have been assigned or licensed on
a perpetual royalty-free basis to the Company.
(e) With respect to each agreement or document listed on SECTION
2.14(a) OF THE DISCLOSURE SCHEDULE: (i) such agreement or document is
valid and binding and in full force and effect with respect to the Company
assuming, as the Company to its knowledge believes to be the case, that
each such agreement or document is valid and binding on the other party or
parties thereto; (ii) such agreement or document will not cease to be
valid and binding and in full force and effect on terms identical to those
currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the
transactions contemplated by this Agreement constitute a breach or default
under such agreement or document or otherwise give the other party to such
agreement or document a right to terminate, materially modify or
accelerate such agreement or document; (iii) the Company has not (A)
received any notice of termination or cancellation under such agreement or
document, (B) received any notice of breach or default under such
agreement or document, which breach has not been cured and (C) granted to
any other third party any rights under such agreement or document that
would constitute a breach of such agreement or document; and (iv) neither
the Company or, to the Company's knowledge, any other party to such
agreement or document, is in breach or default thereof in any material
respect, and no event has occurred that, with notice or lapse of time,
would constitute such a breach or default or permit termination,
modification or acceleration under such agreement or document.
(f) The Company has taken steps in accordance with normal industry
practice to maintain the confidentiality of its trade secrets and other
confidential intellectual property, including mailing lists, know-how,
inventions, invention disclosures, processes, formulae, methods, research
and development information or uses of ideas. To the Company's knowledge,
(i) there has been no misappropriation of any trade secrets or other
confidential
14
<Page>
intellectual property of the Company by any person, (ii) no employee,
independent contractor or agent of the Company has misappropriated any
trade secrets or other intellectual property of any other person in the
course of such performance as an employee, independent contractor or
agent, and (iii) no employee, independent contractor or agent of the
Company is in default or breach of any term of any employment agreement,
non-disclosure agreement, assignment of invention agreement or similar
agreement or contract with the Company relating in any way to the
protection, ownership, development, use or transfer of intellectual
property.
2.15 LITIGATION. Except as set forth in SECTION 2.15 OF THE DISCLOSURE
SCHEDULE, there is no litigation or governmental or administrative proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any of its Subsidiaries or affecting any of their properties or
assets or, as to matters related to the Company, against any officer, director,
stockholder or key employee of the Company in their respective capacities in
such positions nor, to the knowledge of the Company, has there occurred any
event nor does there exist any condition on the basis of which any such claim
may be asserted except in each case for litigation, proceedings, investigations
or claims that individually or in the aggregate could not reasonably be expected
to have a Material Adverse Effect or that do not call into question the validity
or hinder the enforceability of this Agreement or any other agreements or
transactions contemplated hereby.
2.16 LABOR MATTERS. The Company employs approximately 19 full-time
employees and one part-time employee and generally enjoys good employer-employee
relationships. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for the Company as of the date hereof or amounts required
to be reimbursed to such employees. The Company is and heretofore has been in
compliance with all applicable laws and regulations respecting labor,
employment, fair employment practices, terms and conditions of employment, and
wages and hours except where the failure to so comply would not be reasonably
expected to have a Material Adverse Effect. There are no charges of employment
discrimination or unfair labor practices or strikes, slowdowns, stoppages of
work or any other concerted interference with normal operations existing,
pending or, to the knowledge of the Company, threatened against or involving the
Company. The Company is, and at all times has been, in compliance in all
material respects with the requirements of the Immigration Reform Control Act of
1986. Except as set forth in SECTION 2.16 OF THE DISCLOSURE SCHEDULE, there are
no changes pending or, to the knowledge of the Company, threatened with respect
to the senior management or key supervisory personnel or independent contractors
of the Company, nor to the Company's knowledge is there any prospective change
with respect to such senior management or key supervisory personnel.
2.17 PERMITS; COMPLIANCE WITH LAWS. The Company and its Subsidiaries have
all franchises, authorizations, approvals, orders, consents, licenses,
certificates, permits, registrations, qualifications or other rights and
privileges (collectively "PERMITS") necessary to permit the ownership of their
respective properties and to conduct their respective businesses as presently
conducted or proposed to be conducted; all such Permits are valid and in full
force and effect, except where the failure to obtain such a Permit would not be
reasonably expected to have a Material Adverse Effect and, based upon a
reasonable due diligence search, no violations are or have been recorded in
respect of any Permit. No Permit is subject to termination as a result of the
execution of
15
<Page>
this Agreement or consummation of the transactions contemplated hereby. The
Company and its Subsidiaries are in compliance with all applicable statutes,
ordinances, orders, rules and regulations promulgated by any U.S. federal,
state, municipal, non-U.S. or other governmental authority that apply to the
conduct of their respective businesses, except where the failure to so comply
would not reasonably be expected to have a Material Adverse Effect. To the
Company's knowledge, no material expenditure is currently required by the
Company or its Subsidiaries to comply with any existing requirement of law
(other than medical and legal requirements in connection with on-going clinical
tests) or order of any governmental agency. Neither the Company nor its
Subsidiaries have ever entered into or been subject to any judgment, consent
decree, compliance order or administrative order with respect to any aspect of
their respective businesses, affairs, properties or assets or received any
demand letter or formal or informal complaint or claim or, except as set forth
in SECTION 2.17 OF THE DISCLOSURE SCHEDULE, any request for information or
administrative inquiry from any regulatory agency with respect to any aspect of
their respective businesses, affairs, properties or assets.
2.18 EMPLOYEE BENEFIT PROGRAMS.
(a) The Company does not maintain or contribute to and for the past
five years has not maintained or contributed to, any employee benefit,
fringe benefit, stock option, equity-based compensation, phantom stock,
bonus or incentive plan, severance pay policy or agreement, retirement,
pension, profit sharing or deferred compensation plan or agreement, or any
similar plan or agreement (an "EMPLOYEE BENEFIT PLAN") other than the
Employee Benefit Plans identified and described in SECTION 2.18(a) OF THE
DISCLOSURE SCHEDULE attached hereto. The terms and operation of each such
Employee Benefit Plan comply and have heretofore complied with all
applicable laws and regulations relating to each such Employee Benefit
Plan, except where the failure to so comply would not be reasonably
expected to have a Material Adverse Effect. There are no unfunded
obligations of the Company under any retirement, pension, profit-sharing,
deferred compensation plan or similar program. The Company is not required
to make any payments or contributions to any Employee Benefit Plan
pursuant to any collective bargaining agreement or, to the knowledge of
the Company, any applicable labor relations law, and all Employee Benefit
Plans are terminable at the discretion of the Company without liability to
the Company upon or following such termination. Except as described in
SECTION 2.18(a) OF THE DISCLOSURE SCHEDULE, the Company has never
maintained or contributed to any Employee Benefit Plan providing or
promising any health or other nonpension benefits to terminated employees
other than as required by part 6 of subtitle B of Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). With respect
to any Employee Benefit Plan, to the knowledge of the Company, there has
occurred no "prohibited transaction," as defined in Section 406 of ERISA
or Section 4975 of the Code, or breach of any duty under ERISA or other
applicable law that could result, directly or indirectly, in any Taxes,
penalties or other liability to the Company. No litigation, arbitration or
governmental administrative proceeding (or investigation) or other
proceeding (other than those relating to routine claims for benefits) is
pending or, to the knowledge of the Company, threatened with respect to
any such Employee Benefit Plan.
(b) The Company has never maintained any Employee Benefit Plan that
has been subject to Title IV of ERISA or Code Section 412, including any
"multiemployer plan" (as defined in Section 3(37) or Section 4001(a)(3) of
ERISA). Each reference to "Company" in
16
<Page>
this Section 2.18 also refers to any other entity that would have ever
been considered a single employer with the Company under ERISA Section
4001(b) or part of the same "controlled group" as the Company for purposes
of ERISA Section 302(d)(8)(C).
2.19 INSURANCE COVERAGE. The Company has in full force and effect general
commercial, general liability, product liability, professional liability,
specified director's and officer's liability, workers compensation and
employee's liability and fire and casualty insurance policies with coverages
customary for similarly situated companies in the same or similar industries and
as required by applicable law. SECTION 2.19 OF THE DISCLOSURE SCHEDULE contains
a list and summary coverage of the insurance policies currently maintained by
the Company. There are currently no claims pending against the Company under any
insurance policies currently in effect and covering the property, business or
employees of the Company, and all premiums due and payable with respect to the
policies maintained by the Company have been paid to date. To the Company's
knowledge, there is no threatened termination of any such policies or
arrangements.
2.20 ENVIRONMENTAL MATTERS. No hazardous waste substances or materials, or
oil or petroleum products have been generated, transported, used, disposed,
stored or treated by the Company and no hazardous waste substances or materials,
or oil or petroleum products have been released, discharged, disposed,
transported, placed or otherwise caused to enter the soil or water in, under or
upon any real property, owned, leased or operated by the Company or, to the
Company's knowledge, with respect to such property, no other Person (including
any previous owner, lessee or sublessee), or any property previously owned,
leased, subleased or used by the Company. The Company is in compliance in all
material respects with all applicable environmental, health and safety laws,
rules and regulations.
2.21 PARTNERS. SECTION 2.21 OF THE DISCLOSURE SCHEDULE sets forth the
names of any persons or entities with which the Company has a material strategic
partnership or similar relationship ("PARTNERS"). No Partner of the Company has
canceled or otherwise terminated its relationship with the Company or has
materially decreased its usage or purchase of the services or products of the
Company. No Partner has, to the knowledge of the Company, any plan or intention
to terminate, cancel or otherwise materially and adversely modify its
relationship with the Company.
2.22 SUPPLIERS. The Company's relationships with its major suppliers are
good commercial working relationships, and, within the last 12 months, no
supplier that the Company has paid or is under contract to pay $50,000 or more
has canceled, materially modified, or otherwise terminated its relationship with
the Company, or materially decreased its service, nor to the knowledge of the
Company, does any supplier have any plan or intention to do any of the foregoing
in a manner that would be reasonably likely to have a Material Adverse Effect.
2.23 WARRANTY AND RELATED MATTERS. There are no existing or, to the
knowledge of the Company, threatened claims against the Company relating to any
work performed by the Company, product liability, warranty or other similar
claims against the Company alleging that any Company product is defective or
harmful.
17
<Page>
2.24 ILLEGAL PAYMENTS. To the Company's knowledge, neither it nor any
Person (as defined below) affiliated with the Company has ever made on behalf of
the Company any illegal payment or contribution of any kind, directly or
indirectly, including, without limitation, payments, gifts or gratuities, to
United States or foreign national, state or local government officials,
employees or agents or candidates therefor.
2.25 DISCLOSURE. The representations and warranties made or contained in
this Agreement and the exhibits hereto, the Disclosure Schedule, the Company's
confidential private placement memorandum dated November 20, 2000, including
supplement no. 1 thereto dated May 10, 2001, as the same may be further
supplemented from time to time (the "MEMORANDUM") and the certificates and
statements executed or delivered pursuant to Section 4 below, when taken
together, to the Company's knowledge do not, and on the Closing Date will not,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make such
representations, warranties or other material not misleading in the light of the
circumstances in which they were made or delivered.
2.26 INVESTMENT BANKING; BROKERAGE. Except as provided in SECTION 2.26 OF
THE DISCLOSURE SCHEDULE, there are no claims for investment banking fees,
brokerage commissions, broker's or finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement payable by the Company or based
on any arrangement or agreement made by or on behalf of the Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
In order to induce the Company to enter into this Agreement, each Investor
represents and warrants to the Company the following:
3.1 INVESTMENT STATUS. Each Investor is purchasing the Series D Preferred
for its own account, for investment only and not with a view to, or any present
intention of, effecting a distribution of such securities or any part thereof
except pursuant to a registration or an available exemption under applicable
law. Each such Investor acknowledges that the Series D Preferred have not been
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
or the securities laws of any state or other jurisdiction and cannot be disposed
of unless they are subsequently registered under the Securities Act and any
applicable state laws or an exemption from such registration is available.
3.2 AUTHORITY AND NON-CONTRAVENTION. Each Investor has full right,
authority and power under its charter, by-laws, governing partnership agreement
or otherwise, as applicable, to enter into this Agreement and all agreements and
instruments executed by such Investor pursuant hereto and to carry out the
transactions contemplated hereby and thereby. This Agreement and all agreements
and instruments executed by each Investor pursuant hereto are valid and binding
obligations of each of the Investors enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, reorganization, insolvency or other laws and regulations affecting
18
<Page>
creditors' rights generally or by general principles of equity. The execution,
delivery and performance of this Agreement and all agreements and instruments
executed by each such Investor pursuant hereto have been duly authorized by all
necessary action under each such Investor's charter, by-laws or governing
partnership agreement, as applicable. The execution, delivery and performance by
each Investor of this Agreement and all agreements and instruments to be
executed and delivered by each such Investor pursuant hereto do not and will
not: (i) violate or result in a violation of, conflict with or constitute or
result in a default (whether after the giving of notice, lapse of time or both)
under, accelerate any obligation under, or give rise to a right of termination
of, any material contract, agreement, obligation, permit, license or
authorization to which each such Investor is a party or by which such Investor
or its assets is bound, or any provision of each such Investor's organizational
documents; (ii) violate or result in a violation of, or constitute a default
(whether after the giving of notice, lapse of time or both) under, any provision
of any law, regulation or rule, or any order of, or any restriction imposed by,
any court or governmental agency applicable to each such Investor; or (iii)
require from each such Investor any notice to, declaration or filing with, or
consent or approval of, any governmental authority or other third party (that
has not already been obtained).
3.3 INVESTMENT BANKING; BROKERAGE FEES. No Investor has incurred or become
liable for any investment banking fees, brokerage commissions, broker's or
finder's fees or similar compensation (exclusive of professional fees to lawyers
and accountants) in connection with the transactions contemplated by this
Agreement.
3.4 OTHER REPRESENTATIONS AND STIPULATIONS.
(a) Each Investor represents that (i) it is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act, (ii) it has previously invested in securities of companies
in the biotechnology sector and acknowledges that it is able to fend for
itself, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the
investment in the Securities; (iii) it has the ability to bear the
economic risks of its investment therein; (iv) it is able, without
materially impairing its financial condition, to hold the Securities for
an indefinite period of time and to suffer complete loss of its
investment; (v) it is to the extent applicable organized under the laws
and has a principal office in the state or states indicated for it on the
signature page hereto; (vi) it has fully considered the risks of this
investment and stipulates that (1) this investment is suitable only for an
investor who is able to bear the economic consequences of a total loss
thereof, (2) the Securities represent an extremely speculative investment
that involves a high degree of risk of loss and (3) there are substantial
restrictions on the transferability of, and there may be no public market
for, the Securities and that, accordingly, it may not be possible for
Investor to liquidate its investment; and (vii) there has been no
representation by the Company as to the possible future value of the
Securities or to anticipated liquidity events including merger or public
registration of the Securities.
(b) Each Investor acknowledges its understanding that no person
other than the Company, its officers and directors and its banker and
exclusive placement agent for the Series D Preferred Shares is authorized
to give any information regarding the Company. In making its investment in
the Securities, Investor has relied only on the information contained
19
<Page>
in the Memorandum, this Agreement and the exhibits hereto, the Disclosure
Schedule and its own due diligence.
(c) Each Investor represents that it has been advised that the books
and records of the Company are available to such Investor upon reasonable
notice, for inspection during reasonable business hours at its principal
place of business.
(d) Each Investor represents that it understands the tax
consequences of this investment and it has consulted its own legal,
accounting, tax, investment and other advisors with respect to the tax
treatment of the investment contained herein by such Investor.
(e) Each Investor stipulates that the Company is entering into this
Agreement in reliance upon the accuracy of the information supplied to the
Company by Investor in the Company's standard form investor qualification
questionnaire completed by Investor and delivered to the Company.
SECTION 4. CLOSING CONDITIONS AND DELIVERIES
The obligations of each Investor to purchase and pay for its pro rata
portion of the Series D Preferred shall be subject to the fulfillment by the
Company to such Investor's reasonable satisfaction or waiver on or before the
Closing Date and, with respect to subsequent Investors, if any, as of the date
of such Subsequent Closing, of the following conditions:
4.1 TRANSACTIONS TO OCCUR PRIOR TO CLOSING. Immediately prior to or
contemporaneously with the Closing, the Company shall have adopted the
Certificate of Incorporation and such Certificate shall have become effective
under the laws of the State of Delaware.
4.2 AUTHORIZATION. The board of directors and stockholders of the Company
shall have duly adopted resolutions in the form reasonably satisfactory to the
Investors and shall have taken all action necessary for the purpose of
authorizing the Company to consummate all the transactions contemplated hereby
(including the issuance of the Series D Preferred and, upon conversion thereof,
the Series D Conversion Shares).
4.3 APPROVALS, CONSENTS AND WAIVERS. The Company shall have made all
filings with and notifications of governmental authorities, regulatory agencies
and other entities required to be made by such parties in connection with the
execution and delivery of the Transaction Documents, as applicable, the
performance of the transactions contemplated thereby and the continued operation
of the business of the Company subsequent to the Closing (and, as applicable,
the Subsequent Closing) and the Investors shall have received copies of all
authorizations, waivers, consents and permits, in form and substance reasonably
satisfactory to the Investors, including any and all notices, consents and
waivers required from all third parties, including applicable governmental
authorities, regulatory agencies, lessors, lenders and contract parties,
required to permit the continuation of the business of the Company and the
consummation of the transactions contemplated by the Transaction Documents and
to avoid a breach, default, termination, acceleration or modification of any
indenture, loan or credit agreement or any other material agreement, contract,
instrument, mortgage, lien, lease, permit,
20
<Page>
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award as a result of, or in connection with, the execution and
performance of the Transaction Documents.
4.4 DELIVERIES BY THE COMPANY TO THE INVESTORS. At the Closing and, as
applicable, each Subsequent Closing, the Company shall have delivered or made
available to the Investors, all in form and substance satisfactory to the
Investors, the following:
(a) Stockholders Agreement executed by the Company and the
stockholders of the Company named therein;
(b) Liquidation Proceeds Agreement executed by the Company and the
stockholders of the Company named therein;
(c) Registration Rights Agreement executed by the Company and the
holders of registrable securities covered thereby;
(d) certificates issued by (i) the Delaware Secretary of State
certifying that the Company has legal existence and is in good standing; and
(ii) the Secretary of State (or similar authority) of each jurisdiction in which
the Company has qualified to do business as a foreign corporation (or is
required to be so qualified) as to such foreign qualification;
(e) certificate issued by the Secretary of State of the State of
Delaware certifying that the Certificate of Incorporation has been filed and or
filing receipt thereof from such authority;
(f) certificate executed by the Secretary of the Company certifying
(i) the names of the officers of the Company authorized to sign this Agreement
and the other agreements, documents and instruments executed by the Company
pursuant hereto; (ii) copies of consent or other actions taken by the board of
directors and stockholders of the Company authorizing the appropriate officers
of the Company to execute and deliver this Agreement and all agreements,
documents and instruments executed by the Company pursuant hereto, and to
consummate the transactions contemplated hereby and thereby, including: (A)
adoption of the Certificate of Incorporation; (B) issuance of the Series D
Preferred; (C) upon conversion of the Series D Preferred, the issuance of the
Series D Conversion Shares; (iii) the effectiveness, and setting forth a copy
of, the Certificate of Incorporation and (iv) that a copy of the Company's
by-laws, as in effect on the Closing Date and, as applicable, the date of such
Subsequent Closing, is attached to such certificate as an exhibit;
(g) an opinion of Goodwin Procter LLP, counsel for the Company,
dated as of the Closing Date and addressed to the Investors and, with respect to
subsequent Investors, if any, dated as of the date of such Subsequent Closing
and addressed to such subsequent Investors, substantially in the form attached
hereto as EXHIBIT F;
(h) stock certificates evidencing the Series D Preferred Shares
acquired from the Company hereunder; and
(i) such other supporting documents and certificates as the
Investors may reasonably request and as may be required or contemplated pursuant
to this Agreement.
21
<Page>
4.5 CLOSING DELIVERIES BY INVESTORS TO COMPANY. At the Closing and, as
applicable, each Subsequent Closing, the Investors and, as applicable, the
Subsequent Investors, shall deliver or shall have caused to be delivered to the
Company, the following:
(a) a wire transfer or release from escrow of immediately available
funds to the Company for the purchase price for the Series D Preferred to
be purchased aggregating in the case of the Closing at least $8,000,000;
(b) Stockholders Agreement executed by each of the Investors and
subsequent Investors, as applicable;
(c) Registration Rights Agreement executed by each of the Investors
and subsequent Investors, as applicable;
(d) Liquidation Proceeds Agreement executed by each of the Investors
and subsequent Investors, as applicable;
(e) If requested by the Company or counsel to the Investors named in
the Escrow Agreement, a counterpart of a duly executed notification from
such counsel to release escrow funds; and
(f) such other supporting documents and certificates, including the
Company's standard form investor qualification questionnaire, as the
Company may reasonably request and as may be required or contemplated by
this Agreement.
4.6 ALL PROCEEDINGS SATISFACTORY. All corporate and other proceedings of
the Company taken prior to or at the Closing (and, as applicable, the Subsequent
Closing) in connection with the transactions contemplated by this Agreement, and
all documents and evidences incident thereto, shall be reasonably satisfactory
in form and substance to the Investors.
4.7 NO LITIGATION. No action or proceeding by or before any court,
administrative body or governmental agency shall have been instituted or
threatened that seeks to enjoin, restrain or prohibit, or might result in
damages in respect of, this Agreement or consummation of the transactions
contemplated by this Agreement. No law or regulation shall be in effect and no
court order shall have been entered in any action or proceeding instituted by
any party that enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions contemplated in this Agreement.
4.8 FEES AND EXPENSES. The Company shall have reimbursed the Investors for
legal fees and expenses for single legal counsel incurred by them in connection
with the transactions contemplated by this Agreement, subject to a maximum
reimbursement of $50,000; provided that if there is no Closing such maximum
reimbursement shall be limited to $30,000.
22
<Page>
4.9 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
4.10 REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties of the Company set forth in
SECTION 2 hereof shall be correct in all material respects on and as of
the Closing Date and, with respect to subsequent Investors, if any, on and
as of the date of such Subsequent Closing (other than those that are
qualified by a reference to materiality, knowledge or otherwise, which
representations and warranties as so qualified shall be true and correct
in all respects).
(b) The representations and warranties of the Investors set forth in
SECTION 3 hereof shall be correct in all material respects on and as of
the Closing Date and, with respect to subsequent Investors, if any, on and
as of the date of such Subsequent Closing (other than those that are
qualified by a reference to materiality, knowledge or otherwise, which
representations and warranties as so qualified shall be true and correct
in all respects).
4.11 NO CHANGE IN LAW.
(a) As of the Closing Date and, with respect to subsequent
Investors, if any, as of the date of such Subsequent Closing, there shall
not have been any change in any law applicable to any Investor (or
subsequent Investor, as applicable), that would prevent the performance of
this Agreement or the consummation of any material aspect of the
transactions contemplated hereby by such Investor (or subsequent
Investor), in each such case to such extent that it would deprive such
Investor (or subsequent Investor) of the principal benefits of such
transactions.
(b) As of the Closing Date and, with respect to subsequent
Investors, if any, as of the date of such Subsequent Closing, there shall
not have been any change in any law applicable to the Company that would
prevent the performance of this Agreement or the consummation of any
material aspect of the transactions contemplated hereby by the Company, in
each such case to such extent that it would deprive the Company of the
principal benefits of such transactions.
SECTION 5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
5.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) All representations, warranties, covenants and agreements of the
Company and the Investors made in this Agreement and exhibits hereto, in
the Disclosure Schedule and in all other agreements and instruments
executed and delivered to the Investors in connection herewith (i) shall
be deemed to have been relied upon by the party or parties to whom they
are made, and shall survive the Closing and any Subsequent Closing, if
any, regardless of any investigation on the part of such party or its
representatives and (ii) shall bind the parties'
23
<Page>
successors and assigns (including any successor to the Company by way of
acquisition, merger or otherwise), whether so expressed or not, and all
such representations, warranties, covenants and agreements shall inure to
the benefit of the parties and (subject to SECTION 7.11 below) their
respective successors and assigns and to their transferees of Securities,
whether so expressed or not.
(b) The representations and warranties contained in SECTIONS 2 and 3
hereof shall expire and terminate and be of no further force and effect
after 90 days following the Investor's receipt of the Company's audited
financial statements as of and for the fiscal year ending December 31,
2001 (except that any written claim for breach thereof made prior to such
expiration date and delivered to the party against whom such
indemnification is sought shall survive thereafter and, as to any such
claim, such applicable expiration shall not affect the rights to
indemnification of the party making such claim); provided that any such
written claim by the Investors with respect to a breach of the
representations and warranties of the Company may (i) with respect to a
breach of the representations or warranties contained in SECTIONS 2.1 and
2.4, be given at any time prior to the date that is two years from the
Closing Date and (ii) with respect to a breach of the representations or
warranties contained in SECTION 2.12, be given at any time prior to the
expiration of the applicable statute of limitations (collectively, the
"REPRESENTATION AND WARRANTY SURVIVAL PERIOD").
SECTION 6. COVENANTS OF THE COMPANY TO THE INVESTORS
The Company (which term shall be deemed to include, for purposes of this
SECTION 6, any Subsidiary of the Company formed after the date of this
Agreement) shall comply with the following covenants from and after the Closing
Date, except as agreed pursuant to a written consent of the Investors holding
not less than a majority of the Series D Preferred or securities issued upon
conversion thereof (a "MAJORITY INTEREST"). The covenants set forth in this
SECTION 6, other than those set forth in SECTION 6.02 and 6.15 below, shall
terminate upon the closing of a Public Offering (as defined in the Certificate
of Incorporation) (the "COVENANT SURVIVAL PERIOD").
6.1 FINANCIAL STATEMENTS. The Company shall maintain a system of accounts
in accordance with generally accepted accounting principles of the United
States, keep full and complete financial records and shall, so long as there
remains issued and outstanding not less than 100,000 Series D Preferred Shares,
furnish to the Investors the following reports: (a) within 90 days after the end
of each fiscal year commencing with the year ending December 31, 2001, a copy of
the balance sheet of the Company as the end of such fiscal year, together with
statements of income, retained earnings and cash flows of the Company for such
fiscal year, audited and certified by independent public accountants prepared in
accordance with generally accepted accounting principles of the United States
consistently applied; (b) within 45 days after the end of each of the first
three fiscal quarters commencing with the fiscal quarter ending June 30, 2001, a
copy of the unaudited balance sheet of the Company as of the end of such fiscal
quarter and the unaudited statements of income, retained earnings and cash flows
for the Company for such fiscal quarter and for the fiscal year to date, each of
the foregoing balance sheets and statements provided under (a) and (b) to set
forth in comparative form the corresponding figures for the prior fiscal period
and to include a brief
24
<Page>
written discussion and analysis by management of the results shown therein;
provided that the Company may in good faith withhold such information from a
competitor of the Company, notwithstanding any assignment pursuant to SECTION
7.11, to the extent that Series D Preferred Shares have been assigned to such
competitor.
6.2 OBSERVER RIGHTS.
(a) Upon approval by the Company's board of directors (which
approval shall not be unreasonably withheld and the reasons for any
disapproval articulated in writing to Merlin (as defined below) or to the
other holder or holders of Series D Preferred, as applicable) of (i) the
person nominated by Merlin BioMed Private Equity Fund, L.P. ("Merlin") and
(ii) if so requested, the person nominated by any other holder of Series D
Preferred holding, together with their Affiliates, at least three percent
of issued and outstanding Series D Preferred Shares (provided that if more
than one person is so nominated by such other holders, then the nominee
shall be the person so elected by the holders of a majority of the
outstanding shares of Series D Preferred, from which vote Merlin shall
abstain), such nominee or nominees shall be appointed as observer or
observers, as the case may be, to the Company's board of directors, (each,
an "Observer," and collectively, the "Observers"). Each Observer shall be
entitled to notice of, to attend and to receive any documentation
distributed to the members of the Company's board of directors before,
during or after all meetings (including actions to be taken by written
consent) and all committees thereof; provided that the Company reserves
the right to withhold any information and to exclude either or both
Observers from all or a portion of a board of directors meeting if a
majority of the board of directors determines, on advice of counsel, that
a conflict of interest may exist with respect to such Observer and the
nature of such conflict is articulated in writing to the Observer or
Observers so excluded.
(b) The Observers shall not be permitted to vote at any Company
board meetings or be counted for purposes of determining whether there is
a sufficient quorum for the board to conduct its business. Each Observer
shall agree to hold in confidence and trust and shall execute the
Company's standard form nondisclosure and confidentiality agreement so
agreeing not disclose to third parties or use for purposes inimical to the
Company's best interests any information provided to or learned by it in
connection with the rights provided under this SECTION 6.2.
(c) The rights provided in this SECTION 6.2 are not assignable and
shall terminate and be of no further force and effect upon the earlier of
(i) the closing of a Public Offering or (ii) as to the Observer nominated
by Merlin, until such time as Merlin no longer holds at least 50% of the
Series D Preferred Shares purchased by it at the Closing and, as to the
Observer nominated by the other holder or holders of Series D Preferred
Shares, until such time as such Observer's nominator no longer holds at
least 50% of the Series D Preferred Shares purchased by it at the Closing
(in each of the aforementioned cases, as adjusted for stock dividends,
stock distributions, splits, combinations or recapitalizations as provided
in the Certificate of Incorporation).
(d) The Observer nominated by Merlin (who has been approved by the
Company's board of directors) shall be Dominique Semon.
25
<Page>
6.3 BUDGET AND OPERATING FORECAST; INSPECTION.
(a) The Company shall prepare and submit to its board of directors
an annual budget and plan for each fiscal year of the Company at least 30
days prior to the beginning of such fiscal year, together with
management's written discussion and analysis of such budget and plan. The
budget shall be accepted as the budget for such fiscal year when it has
been approved by the board of directors of the Company and, thereupon, a
copy of such budget as so approved promptly shall be sent to the
Investors. The Company shall review the budget periodically and shall
advise the Investors no less frequently than quarterly of all material
changes to deviations therefrom. The Company shall, upon reasonable prior
notice to the Company and if not less than 100,000 Series D Preferred
Shares remain outstanding, permit authorized representatives (including
accountants and legal counsel) of the Investors to visit and inspect any
of the properties of the Company, including its books of account (and to
make copies thereof and take extracts therefrom), and to discuss its
affairs, finances and accounts with key executives and independent
accountants, all at such reasonable times and as often as may be
reasonably requested by the Investors. The foregoing shall be in addition
to the Investors' rights under applicable law.
(b) ACCOUNTANT'S LETTERS. Promptly following receipt by the Company,
each audit response letter, accountant's management letter and other
written report submitted to the Company by its independent public
accountants in connection with an annual or interim audit of the books of
the Company or any of its subsidiaries shall be sent to the Investors.
(c) NOTICES. Promptly after the commencement thereof, notice shall
be sent to the Investors of all actions, suits, claims, proceedings,
investigations and inquiries that could materially and adversely affect
the Company or any of its Subsidiaries, if any.
(d) NO OBLIGATION TO PROVIDE INFORMATION TO COMPETITORS. The Company
may in good faith withhold any such information or refuse to grant such
inspection rights provided for under this SECTION 6.3 to a competitor of
the Company, notwithstanding any assignment pursuant to SECTION 7.11, to
the extent that Series D Preferred Shares have been assigned to such
competitor.
6.4 CONDUCT OF BUSINESS. The Company shall continue to engage principally
in the business now conducted by the Company or a business or businesses similar
thereto or reasonably compatible therewith.
6.5 PAYMENT OF TAXES, COMPLIANCE WITH LAWS, ETC. The Company shall pay and
discharge all lawful Taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies that, if
not paid when due, might become a lien or charge upon its property or any part
thereof; provided that the Company shall not be required to pay and discharge
any such Tax, assessment, charge, levy or claim so long as the validity thereof
is being contested by the Company in good faith by appropriate proceedings and
an adequate reserve therefor has been established on its books. The Company
shall comply with all applicable laws and regulations in the conduct of its
26
<Page>
business, including all applicable federal and state securities laws in
connection with the issuance of any shares of its capital stock.
6.6 INSURANCE. The Company shall keep its insurable properties insured,
upon reasonable business terms, by financially sound and reputable insurers
against liability, and the perils of casualty, fire and extended coverage in
amounts of coverage at least equal to those customarily maintained by companies
in the same or similar business as the Company. The Company shall also maintain
with such insurers insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies
engaged in the same or similar business.
6.7 MAINTENANCE OF PROPERTIES. The Company shall maintain all properties
used or useful in the conduct of its business in good repair, working order and
condition, ordinary wear and tear excepted.
6.8 MATERIAL ADVERSE CHANGES. The Company shall promptly advise the
Investors of any event that represents or is reasonably likely to result in a
material adverse change in the condition (financial or otherwise) or business of
the Company, and of each suit or proceeding commenced or, if known by the
Company, threatened against the Company that, if adversely determined, in the
reasonable judgment of the Company is reasonably likely to have a Material
Adverse Effect. The Company shall promptly advise the Investors of any other
adverse developments relating to the Company's products and services, and any
suit or proceeding commenced or, if known by the Company, threatened that is
related to the Company's products and services.
6.9 MANAGEMENT COMPENSATION; NON-COMPETITION AND EMPLOYEE AGREEMENTS. All
compensation decisions for key management of the Company (including stock
options and grants, employment agreements, bonuses and phantom stock awards)
shall be made by the compensation committee of the Company's board of directors.
All employment agreements providing for a term of employment shall be subject to
the prior review and approval of such committee.
6.10 CONFIDENTIALITY AND RELATED AGREEMENTS. At or as soon as practicable
after the Closing and in connection with the issuance of awards under the
Company's 2000 Stock Option and Grant Plan (the "STOCK OPTION PLAN"), or
pursuant to any other Company stock option program, the Company shall require
execution of stock option plan agreements approved by the compensation committee
and use its best efforts to obtain from all recipients of such awards its
standard Confidentiality and Assignment of Inventions Agreement.
6.11 AFFILIATE TRANSACTIONS. All transactions and agreements (including
without limitation any amendment of an existing agreement) by and between the
Company and any stockholder, officer, director or key employee of the Company or
any person controlling, controlled by, under common control with or otherwise
affiliated with, or a member of the family of, any such person, shall be
conducted on an arm's length basis, shall be on terms and conditions no less
favorable to the
27
<Page>
Company than could be obtained from unrelated persons and shall be approved in
advance in writing by the Company's board of directors, after full disclosure of
the terms thereof.
6.12 ENFORCEMENT OF RIGHTS. The Company shall diligently enforce all its
rights under each of, and will not amend any of, the agreements referred to in
SECTIONS 4.4(c), (d) and SECTION 6.10 hereof. The Company shall not effect any
transfer of any of the outstanding capital stock of the Company on the stock
record books of the Company unless such transfer is made in accordance with the
terms of this Agreement and the Stockholders Agreement. The Company shall
observe and perform all of the covenants set forth in the Certificate of
Incorporation.
6.13 QUALIFIED SMALL BUSINESS STOCK. The Company covenants that so long as
the Series D Preferred is held by the Investors or their permitted transferees
in whose hands the Series D Preferred is eligible to qualify as qualified small
business stock as defined in Section 1202(c) of the Code, it shall use its
reasonable efforts to cause the Series D Preferred to qualify as qualified small
business stock. The Company also shall use reasonable efforts to cooperate with
any request for information from any Investor regarding whether such Investor's
interest in the Company constitutes "qualified small business stock" as defined
in Section 1202(c) of the Code, and will assist such Investor with completing
any documents necessary for such determination. The Company's obligation to
furnish any requested information pursuant to this SECTION 6.13 shall continue
notwithstanding the fact that a class of the Company's stock may be traded on an
established securities market.
6.14 FINANCINGS. The Company shall promptly provide to the Investors the
terms of, and any investment memoranda prepared by the Company relating to, any
material equity financing by the Company; provided that such information may, in
the Company's discretion, be withheld until after a term sheet relating thereto
has been signed and provided further that the Company may in good faith withhold
such information from a competitor of the Company, notwithstanding any
assignment pursuant to SECTION 7.11, to the extent that Series D Preferred
Shares have been assigned to such competitor.
6.15 INDEMNIFICATION. Subject to SECTION 6.16, the Company shall defend,
indemnify and hold each Investor, their respective affiliates and direct and
indirect partners, members, stockholders, directors, officers, employees and
agents and each person who controls any of them within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act (collectively, the
"INVESTOR INDEMNIFIED PARTIES" and individually, an "INVESTOR INDEMNIFIED
PARTY") harmless from and against any and all damages, liabilities, losses,
claims, obligations, liens, assessments, judgments, Taxes, fines, penalties,
reasonable costs and expenses (including reasonable fees of a single counsel
representing the Investor Indemnified Parties), as the same are incurred, of any
kind or nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) ("LOSSES"), without regard to any investigation by or for any of the
Investor Indemnified Parties, as the same are incurred, based upon or arising
out of the following:
28
<Page>
(a) any breach of any representation or warranty made by the Company
in SECTION 2 of this Agreement (including in the Disclosure Schedule);
provided that the Company's obligation to provide indemnification under
this SECTION 6.15(a) shall expire in accordance with the Representation
and Warranty Survival Period;
(b) any breach of any covenant or agreement made by the Company in
this SECTION 6; provided that the Company's obligation to provide
indemnification under this SECTION 6.15(b) shall expire in accordance with
the Covenant Survival Period; or
(c) any breach of any other agreement executed in connection
herewith; provided that the Company's obligation to provide
indemnification under this SECTION 6.15(c) shall expire within 18 months
of the Closing Date (the "GENERAL SURVIVAL PERIOD," together with the
Representation and Warranty Survival Period and the Covenant Survival
period, the "INDEMNIFICATION SURVIVAL PERIOD").
6.16 LIMITATIONS ON INDEMNIFICATION. The Company shall not be obligated to
provide indemnification for Losses in respect of claims made pursuant to SECTION
6.15 above unless the total of all Losses in respect of claims made by the
Investor Indemnified Parties for indemnification shall exceed $100,000 in the
aggregate, whereupon the amount of such Losses in excess of $100,000 in the
aggregate shall be recoverable by the Investor Indemnified Parties in accordance
with the terms hereof and the maximum amount payable by the Company to each
Investor Indemnified Party for Losses in respect of claims for indemnification
under SECTION 6.15 shall not exceed the purchase price paid by such Investor
Indemnified Party, such purchase price to be calculated by multiplying the Per
Share Purchase Price by the number of shares of Series D Preferred purchased by
such Party.
6.17 NOTICE; PAYMENT OF LOSSES.
(a) Any claim for indemnification by an Investor Indemnified Party
under SECTION 6.15 shall be forever barred unless made by notifying the
Company before expiration of the respective Indemnification Survival
Period by providing written notice to the Company of such claim together
with any information with respect thereto as the Company may request. A
claim for indemnity for which notice was timely provided but determined
payable following the expiration of such period shall not be deemed barred
due to such expiration.
(b) Within 20 calendar days after receiving notice of a claim for
indemnification or reimbursement, the Company shall, by written notice to
the Investor Indemnified Party, either (i) concede or deny liability for
the claim in whole or in part, or (ii) in the case of a claim asserted by
a third party, advise that the matters set forth in the notice are, or
will be, subject to contest or legal proceedings not yet finally resolved.
If the Company concedes liability in whole or in part, it shall, within 15
business days of such concession, pay the amount of the claim to the
Investor Indemnified Party to the extent of the liability conceded. Any
such payment shall be made in immediately available funds equal to the
amount of such claim so payable. If the Company denies liability in whole
or in part or advises that the matters set forth in the notice are, or
will be, subject to contest or legal proceedings not yet finally resolved,
then the Company shall not be required to make any payment (except for the
29
<Page>
amount of any conceded liability payable as set forth above) until the
matter is resolved in accordance with this Agreement.
6.18 LOCK-UP AGREEMENTS. The Company shall obtain agreements in writing
from each current and future holder of stock or options of the Company, as a
condition to any issuance of stock or grant of options, not to sell publicly any
shares of stock without the consent of the Company's underwriters, within 180
days after any Public Offering of the Company's capital stock.
6.19 COMPLIANCE WITH LAWS. The Company shall, and shall cause its
Subsidiaries to, comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders of any governmental entity.
6.20 PRESS RELEASES; PUBLIC ANNOUNCEMENTS. No party to this Agreement
shall make or cause to be made any press release in respect of this Agreement or
the transactions contemplated hereby without the prior consent not unreasonably
withheld of both the Company and Merlin, and the parties shall cooperate as to
the timing and content of any such press release. All public statements and
communications with news media shall be consistent with such press releases.
SECTION 7. GENERAL
7.1 WAIVERS AND CONSENTS; AMENDMENTS.
(a) For the purposes of this Agreement and all agreements and
instruments executed pursuant hereto, no course of dealing between or
among any of the parties hereto and no delay on the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No covenant or provision hereof
may be waived except by a written instrument signed by the party or
parties so waiving such covenant or other provision.
(b) No amendment to this Agreement may be made without the written
consent of the Company and a Majority Interest of the Investors.
(c) Except as otherwise set forth in SECTION 6 hereof, any actions
required to be taken with respect to consents, approvals or waivers
required or contemplated to be given by the Investors hereunder shall
require a vote of Investors holding a Majority Interest, and any such
action by such Majority Interest shall bind all the Investors.
7.2 LEGEND ON SECURITIES. The following legend shall be typed on each
certificate evidencing any of the securities issued hereunder held at any time
by the Investors:
30
<Page>
THE SALES AND OTHER TRANSFERS OF THE SECURITIES REPRESENTED HEREBY
ARE SUBJECT TO THE PROVISIONS OF AN AGREEMENT, AS AMENDED FROM TIME TO
TIME, BY AND AMONG THE REGISTERED OWNER OF THIS CERTIFICATE, THE COMPANY
AND CERTAIN STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY, WITH RESPECT TO TRANSFERS OF SECURITIES,
AND NO TRANSFER HEREOF MAY BE MADE EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF SUCH AGREEMENT.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES OR BLUE SKY
LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO
SUCH SECURITIES THAT IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE
DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES AND BLUE SKY LAWS.
7.3 GOVERNING LAW. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of the State of New
York, without giving effect to conflict of laws principles thereof.
7.4 SECTION HEADINGS AND GENDER; CONSTRUCTION. The descriptive headings in
this Agreement have been inserted for convenience only and shall not be deemed
to limit or otherwise affect the construction of any provision thereof or
hereof. The use in this Agreement of the masculine pronoun in reference to a
party hereto shall be deemed to include the feminine or neuter, and vice versa,
as the context may require. The parties have participated jointly in the
negotiation and drafting of this Agreement and the other agreements, documents
and instruments executed and delivered in connection herewith with counsel
sophisticated in investment transactions. In the event an ambiguity or question
of intent or interpretation arises, this Agreement and the agreements and
instruments executed and delivered in connection herewith shall be construed as
if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement and the agreements and instruments executed and
delivered in connection herewith.
7.5 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute one and
the same document.
7.6 NOTICES AND DEMANDS. Any notice or demand that is required or provided
to be given under this Agreement shall be deemed to have been sufficiently given
and received for all purposes
31
<Page>
when delivered by hand or facsimile, or five days after being sent by certified
or registered mail, postage and charges prepaid, return receipt requested, or
two days after being sent by overnight delivery providing receipt of delivery,
to the following addresses:
If to the Company: DOV Pharmaceutical Inc.
433 Hackensack Avenue
Hackensack, New Jersey 07601
Facsimile: (201) 968-0986, or at any other
address designated by the Company
With a copy to: Goodwin Procter LLP
599 Lexington Avenue
New York, New York 10022
Attn: J. Robert Horton
Facsimile: (212) 355-3333
If to the Investors: To the address and facsimile number set forth
below each Investor's name on the signature pages
hereto, or at any other address designated by the
Investors to the Company in writing.
With a copy to: Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Richard Metsch
Facsimile: (212) 848-7179
7.7 DISPUTE RESOLUTION.
(a) All disputes, claims, or controversies arising out of or
relating to (i) this Agreement, the Stockholders Agreement, the
Registration Rights Agreement or any other agreement executed and
delivered pursuant to this Agreement or the negotiation, breach, validity
or performance hereof and thereof or the transactions contemplated hereby
and thereby, (ii) the rights of the Investors and their successors and the
obligations of the Company set forth in the Certificate of Incorporation
or (iii) the Investors' ongoing investment in the Company that are not
resolved by mutual agreement shall be resolved solely and exclusively by
binding arbitration to be conducted before J.A.M.S./Endispute, Inc. in New
York, New York before a single arbitrator (the "ARBITRATOR").
(b) The arbitration shall commence within 90 days of the date on
which a written demand for arbitration is filed by any party. The
Arbitrator shall have the power to order the production of documents by
each party and any third-party witnesses. In addition, each party may take
up to three depositions as of right, and the Arbitrator may in his or her
discretion allow additional depositions upon good cause shown by the
moving party. The Arbitrator shall not have the power to order the answers
to interrogatories or a response to a request for
32
<Page>
admissions. Each party shall provide to the others, no later than seven
business days before the date of the arbitration, the identity of all
persons that may testify at the arbitration and a copy of all documents
that may be introduced at the arbitration or considered or used by a
party's witness or expert. The Arbitrator's decision and award shall be
made and delivered within six months of the selection of the Arbitrator.
The Arbitrator's decision shall set forth a reasoned basis for any award
of damages, equitable damages or finding of liability. The Arbitrator
shall not have power to award damages in excess of actual compensatory
damages and shall not award special or punitive damages, and each party
hereby irrevocably waives any claim to such damages.
(c) The parties shall participate in the arbitration in good faith
and, except as provided below (i) bear their own attorneys' fees, costs
and expenses in connection with the arbitration, and (ii) share equally in
the fees and expenses charged by the Arbitrator. The Arbitrator may in his
or her discretion assess costs and expenses (including the reasonable
legal fees and expenses of the prevailing party) against any party to a
proceeding. Any party unsuccessfully refusing to comply with an order of
the Arbitrator shall be liable for costs and expenses, including
attorneys' fees, incurred by the other party in enforcing the award. This
SECTION 7.7 applies to requests for temporary, preliminary or permanent
injunctive relief, except that in the case of temporary or preliminary
injunctive relief any party may proceed in court without prior arbitration
for the limited purpose of avoiding immediate and irreparable harm. If the
moving party secures temporary or preliminary injunctive relief in a court
of competent jurisdiction the parties agree that they will take all
necessary steps to commence arbitration as expeditiously as possible
consistent with court instructions, if any. The provisions of this SECTION
7.7 shall be enforceable in any court of competent jurisdiction.
7.8 CONSENT TO JURISDICTION. Except as provided in SECTIONS 7.7(c) and
7.9, each of the parties hereto irrevocably and unconditionally consents to the
jurisdiction of J.A.M.S./Endispute, Inc. to resolve all disputes, claims or
controversies covered by SECTION 7.7. Each party further irrevocably waives any
objection to proceeding before the Arbitrator based upon lack of personal
jurisdiction or to the laying of venue and further irrevocably and
unconditionally waives and agrees not to make a claim in any court that
arbitration before the Arbitrator has been brought in an inconvenient forum.
Each of the parties hereto hereby consents to service of process by registered
mail at the address to which notices are to be given. Each of the parties hereto
agrees that its submission to jurisdiction and consent to service of process by
mail is made for the express benefit of the other parties hereto.
7.9 REMEDIES; SEVERABILITY. The parties stipulate that any breach of the
provisions of this Agreement, the Stockholders Agreement, the Registration
Rights Agreement, or any other agreement executed and delivered pursuant to this
Agreement, or of the provisions of the Certificate of Incorporation, by any
person subject hereto will result in irreparable injury to the other parties
hereto, that the remedy at law alone shall be an inadequate remedy for such
breach and that, in addition to any other remedies that they may have, such
other parties may enforce their respective rights by actions for specific
performance (to the extent permitted by law). Each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, and if any provision of this Agreement is ruled by the
Arbitrator or by a court to be prohibited or invalid under
33
<Page>
such applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of this Agreement.
7.10 INTEGRATION. This Agreement including the exhibits, documents and
instruments referred to herein or therein constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including any term
sheet agreed to by the parties, which shall be considered superseded by the
representations, warranties, covenants and agreements of the Company contained
herein.
7.11 ASSIGNABILITY; BINDING AGREEMENT. Each Investor may assign any or all
its rights hereunder to any transferee of its shares; provided that the Investor
shall give the Company at least 30 days' notice before transferring its Series D
Preferred to a competitor of the Company and shall in good faith take into
account objections if any to such transfer. This Agreement may not otherwise be
assigned by any party hereto without the prior written consent of each other
party hereto. This Agreement shall be binding upon and enforceable by, and shall
inure to the benefit of, the parties hereto and their respective successors,
heirs, executors, administrators and permitted assigns, and no others.
Notwithstanding the foregoing, nothing in this Agreement is intended to give any
Person not named herein the benefit of any legal or equitable right, remedy or
claim under this Agreement, except as expressly provided herein.
7.12 FINDER'S FEES. Both the Company and the Investors shall indemnify and
hold harmless the other and their respective affiliates, direct and indirect
partners, members, stockholders, directors, officers, employees and agents and
each person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
Losses incurred with respect to claims relating to investment banking, broker's
or finder's fees in connection with the transactions contemplated by this
Agreement, arising out of arrangements between the party other than the party
asserting such claims and the indemnifying party, except for payment of such
finder's fees as provided for in the Private Placement Agreement, dated as of
November 20, 2000, by and between the Company and Lazard Freres & Co. LLC, which
has been made available to the Investors.
7.13 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "AFFILIATE" of a person means (i) with respect to a person, any
member of such person's family (including any child, step-child, parent,
step-parent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law); (ii) with respect to an
entity, any officer, director, stockholder, partner or investor in such
entity or of or in any affiliate of such entity; and (iii) with respect to
a person or entity, any person or entity which directly or indirectly
controls, is controlled by, or is under common control with such person or
entity;
34
<Page>
(b) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly, or as trustee
or executor, of the power to direct or cause the direction of the
management policies of a Person, whether through the ownership of stock,
as trustee or executor, by contract or credit arrangement or otherwise;
(c) "PERSON" means an individual, corporation, partnership,
association, trust or any unincorporated organization; and
(d) "SUBSIDIARY" of a person means any corporation more than 50% of
whose outstanding voting securities, or any partnership, limited liability
company joint venture or other entity more than 50% of whose total equity
interest, is directly or indirectly owned by such person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
35
<Page>
IN WITNESS WHEREOF, the parties have executed this Agreement or have
caused this Agreement to be duly executed and delivered by their proper and duly
authorized representatives as of the day and year first written above.
COMPANY: DOV PHARMACEUTICAL, INC., a Delaware corporation
by: /s/ Arnold Lippa
-------------------------------
Name: Arnold Lippa
Title: CEO
[Signature Page to Stock Purchase Agreement]
<Page>
INVESTOR: MERLIN BIOMED PRIVATE EQUITY FUND, L.P.
by: Merlin BioMed Private Equity, LLC, its General
Partner
by: /s/ Stuart Weisbrod
--------------------------------
Name: Stuart T. Weisbrod
Title: its Managing Member
Address: c/o Merlin BioMed Group
230 Park Avenue
Suite 928
New York, New York 10169
Facsimile No. (646) 227-5201
Tax ID No. 13-4178600
[Signature Page for Stock Purchase Agreement]
<Page>
OPPENHEIMER DISCOVERY FUND
by: /s/ Jayne Stevlingson
--------------------------------
Name: Jayne Stevlingson
Title: Vice President
Address: Two World Trade Center
New York, New York 10048
Facsimile No. (212) 321-1159
Tax ID No. 22-2725700
With a Copy to:
OppenheimerFunds, Inc.
Attn: Banking Operations
6803 South Tucson Way
Englewood, Colorado 80112
[Signature Page for Stock Purchase Agreement]
<Page>
BIOTECHNOLOGY VALUE FUND, L.P., a Delaware limited
partnership
by: BVF Partners L.P., its General Partner
by: BVF Inc., its General Partner
by: /s/ Mark Lampert
--------------------------
Name: Mark Lampert
Title: President
Address: 1 Sansone Street
39th Floor
San Fransisco, California 94104
Tax ID No. 36-3924731
With a Copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, California 94105
Attn: Jonathan Joseph
Facsimile No. (415) 983-1200
[Signature Page for Stock Purchase Agreement]
<Page>
BIOTECHNOLOGY VALUE FUND II, L.P., a Delaware limited
partnership
by: BVF Partners L.P., its General Partner
by: BVF Inc., its General Partner
by: /s/ Mark Lampert
--------------------------
Name: Mark Lampert
Title: President
Address: 1 Sansone Street
39th Floor
San Fransisco, California 94104
Tax ID No. 94-3341571
With a Copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, California 94105
Attn: Jonathan Joseph
Facsimile No. (415) 983-1200
[Signature Page for Stock Purchase Agreement]
<Page>
INVESTMENT 10 LLC
by: BVF Partners L.P., its Investment Advisor
by: BVF Inc., its General Partner
by: /s/ Mark Lampert
--------------------------
Name: Mark Lampert
Title: President
Address: 1 Sansone Street
39th Floor
San Fransisco, California 94104
Tax ID No. 36-3974481
With a Copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, California 94105
Attn: Jonathan Joseph
Facsimile No. (415) 983-1200
[Signature Page for Stock Purchase Agreement]
<Page>
BVF INVESTMENTS LLC
By: BVF Partners L.P., its Investment Advisor
By: BVF Inc., its General Partner
By: /s/ Mark Lampert
--------------------------
Name: Mark Lampert
Title: President
Address: 1 Sansone Street
39th Floor
San Fransisco, California 94104
Tax ID No. 36-3974481
With a Copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, California 94105
Attn: Jonathan Joseph
Facsimile No. (415) 983-1200
[Signature Page for Stock Purchase Agreement]
<Page>
PERCEPTIVE LIFE SCIENCES MASTER FUND LTD.,
a Cayman Islands corporation
by: /s/ Andrew C. Sankin
--------------------------------------------------
Name: Andrew C. Sankin
Title: Director and Chief Operating Officer
Address: c/o Administrator
International Fund Administration Ltd.
48 Par La Ville Road
Suite 464
Hamilton HM11 Bermuda
Facsimile No. (441) 295-9637
Tax ID Number: 98-0338943
[Signature Page for Stock Purchase Agreement]
<Page>
INTEGRATED RISK FACILITIES HOLDINGS, INC.
by: /s/ Stuart Farber
--------------------------------------------------
Name: Stuart Farber
Title: President
Address: 40 Fulton Street
New York, New York 10038
Facsimile No. (212) 608-1165
Tax ID Number: 13-3812989
[Signature Page for Stock Purchase Agreement]
<Page>
/s/ Bruce Wainer
--------------------------------------------------
Bruce Wainer
Address: 6 Manor Lane
Westport, Connecticut 06881
Facsimile No. 203-222-8850
Social Security Number: ###-##-####
[Signature Page for Stock Purchase Agreement]
<Page>
/s/ Aaron Harrison
--------------------------------------------------
Aaron Harrison
Address: 4 Northwood Court
Dix Hills, New York 11746
Facsimile No. (516) 968-8289
Social Security Number: ###-##-####
[Signature Page for Stock Purchase Agreement]
<Page>
/s/ Roger Samet
------------------------------------------
Roger Samet
Address: 254 East 68th Street
New York, NY 10021
Facsimile No. (212) 472-2127
Social Security Number: ###-##-####
[Signature Page for Stock Purchase Agreement]
<Page>
/s/ Joseph Klein
---------------------------------------
Joseph Klein III
Address: 1724 Hillside Road
Stevenson, Maryland 21153
Facsimile No. 212-202-3621
Social Security Number: ###-##-####
[Signature Page for Stock Purchase Agreement]
<Page>
ARDARA US DIRECT INVESTMENT LTD.
By: Its Director
By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------------
Name:
Title:
Address: Vanterpool Plaza
Wickhams Cay, 1
Roadtown
Tortola
British Virgin Islands
With a Copy to:
Marie France Bastaroli
Lombard, Odier & Cie
11, rue de la Corraterir
1204 Geneva
Switzerland
Facsimile No. 011-41-22-709-3944
[Signature Page for Stock Purchase Agreement]
<Page>
DACHA CAPITAL
by: /s/ Jean Guy Lambert
--------------------------------------
Name: Jean Guy Lambert
Title: President
Address: 1801 Avenue McGill College
Bureau 1260
Montreal (Quebec) H3A2N4
Tax ID No. N/A
Facsimile No. 514-286-7811
[Signature Page for Stock Purchase Agreement]
<Page>
DOV PHARMACEUTICAL, INC.
DISCLOSURE SCHEDULE
Reference is made to the Stock Purchase Agreement (the "STOCK PURCHASE
AGREEMENT"), dated as of August 30, 2001, among DOV Pharmaceutical, Inc. (the
"COMPANY") and the persons identified on the signature pages thereto as the
"Investors." Capitalized terms used in this Disclosure Schedule but not defined
herein shall have the meanings ascribed in the Stock Purchase Agreement.
The Disclosure Schedules are qualified in their entirety by reference to
specific provisions of the Stock Purchase Agreement and are not intended to
constitute, and shall not be construed as constituting, representations or
warranties of the Company except to the extent provided in the Stock Purchase
Agreement. Furthermore, any disclosure made under any one section of this
Disclosure Schedule shall be deemed to be a disclosure made under any other
section of this Disclosure Schedule where such information would be applicable
to such section as required under the Stock Purchase Agreement.
<Page>
SCHEDULE 2.2(d) - AUTHORIZATION AND NON-CONTRAVENTION
1. Pursuant to the Amended and Restated Certificate of Incorporation filed
with the Delaware Secretary of State on November 20, 2000 ("PRE-CLOSING
CERTIFICATE"), the Company must obtain the affirmative vote (or consent)
of the holders of a majority of the outstanding shares of Series C
Convertible Preferred Stock to issue the Series D Preferred Shares.
2. Pursuant to Delaware General Corporation Law, the Company must obtain the
consent of a majority of the outstanding shares of common stock, and a
majority of the outstanding shares of Series C Preferred, to amend its
Pre-Closing Certificate.
3. Within fifteen days of the Closing, the Company intends to file notice of
the sale of securities with the United States Securities and Exchange
Commission ("SEC") pursuant to Regulation D, Section 4.
4. The Company will file an amendment to Form 99 with the New York State
Department of Law, originally filed in October 1998 and amended in March
2000 and November 2000.
<Page>
SCHEDULE 2.4(a) - CAPITALIZATION
DOV OPTION HOLDERS(1) AS OF AUGUST 10, 2001
<Table>
<Caption>
Date of
Grant/ Exercise
Name Options Authorization Price ($) Vested Unvested
- --------------------------------------------------------------------------------
Arnold Lippa 100,000 12/10/98 4.42 100,000 0
30,000 1/17/00 4.00 30,000 0
- --------------------------------------------------------------------------------
Bernie Beer 100,000 12/10/98 4.42 100,000 0
30,000 1/17/00 4.00 30,000 0
- --------------------------------------------------------------------------------
Stephen Petti 75,000 7/1/99 3.68 75,000 0
10,000 1/17/00 4.00 10,000 0
20,000 8/3/00 4.50 10,000 10,000
95,000 3/15/01 6.50 0 95,000
- --------------------------------------------------------------------------------
Paul Schiffrin 50,000 7/12/99 3.68 50,000 0
5,000 1/17/00 4.00 5,000 0
10,000 8/3/00 4.50 5,000 5,000
5,000 3/15/01 6.50 0 5,000
- --------------------------------------------------------------------------------
Jill Stark 10,000 2/3/00 4.00 10,000 0
10,000 8/3/00 4.50 10,000 0
5,000 3/15/01 6.50 0 5,000
- --------------------------------------------------------------------------------
Morgen Lippa 5,000 1/17/00 4.00 5,000 0
5,000 8/3/00 4.50 2,500 2,500
5,000 3/15/01 6.50 0 5,000
- --------------------------------------------------------------------------------
Gary Beer 5,000 1/17/00 4.00 5,000 0
5,000 8/3/00 4.50 2,500 2,500
5,000 3/15/01 6.50 0 5,000
- --------------------------------------------------------------------------------
AnnMarie Dodson 5,000 1/17/00 4.00 5,000 0
5,000 8/3/00 4.50 2,500 2,500
2,000 3/15/01 6.50 0 2,000
- --------------------------------------------------------------------------------
Brenda Blowe 1,000 8/3/00 4.50 500 500
1,000 3/15/01 6.50 0 1,000
- --------------------------------------------------------------------------------
Cyndi Elia 2,000 8/3/00 4.50 1,000 1,000
2,000 3/15/01 6.50 0 2,000
- --------------------------------------------------------------------------------
Zola Horovitz 50,000 12/10/98 4.42 50,000 0
25,000 1/17/00 4.00 25,000 0
20,000 8/3/00 4.50 10,000 10,000
- --------------------------------------------------------------------------------
Mark Lampert 10,000 8/3/00 4.50 5,000 5,000
- --------------------------------------------------------------------------------
Patrick Ashe 25,000 1/17/00 4.00 25,000 0
20,000 8/3/00 4.50 10,000 10,000
- --------------------------------------------------------------------------------
Marc Radin 5,000 1/17/00 4.00 5,000 0
- --------------------------------------------------------------------------------
Joe Siegelbaum 25,000 1/17/00 4.00 25,000 0
- --------------------------------------------------------------------------------
David Farb 10,000 12/10/98 4.42 10,000 0
- --------------------------------------------------------------------------------
</Table>
- ----------
(1) All options granted prior to November 21, 2000, have been granted under the
Company's 1998 Stock Option and Grant Plan (the "98 Plan") and, except for Phil
Skolnick's options (which were not issued under any Plan but were charged
against the original pool of Common Stock available for issuance as stock
options), all other options will be charged to the Company's 2000 Stock Option
and Grant Plan (the "2000 Plan"). Under the 98 Plan, 50% percent of each Stock
Option (as defined therein) shall vest six months from the date of its grant and
the remaining 50% shall vest 18 months from the date of the grant thereof. Under
the 2000 Plan, all Stock Options (as defined therein) granted are subject to the
term fixed by the committee of the Board of Directors of the Company, but no
Stock Option (as defined therein) shall be exercisable more than ten years after
the date the Stock Option (as defined therein) is granted. The form 2000 Stock
Option plan provides that 25% percent of each Stock Option (as defined therein)
shall vest one year from the date of its grant and the remaining 75% shall vest
on a monthly basis over 36 months. However, such vesting schedule under the 2000
Plan may be altered at the discretion of the committee of the Board of Directors
of the Company ("Board"). Pursuant to the Board meeting of July 9, 2001, the
Board approved an increase in the available options in the stock option plan
from 1,242,500 to 1,992,500.
<Page>
<Table>
- --------------------------------------------------------------------------------
Pal Czobor 30,000 11/21/00 6.50 0 30,000
2,000 3/15/01 6.50 0 2,000
- --------------------------------------------------------------------------------
Robert Horton 25,000 5/31/00 4.50 12,500 12,500
- --------------------------------------------------------------------------------
Arlene Dudley 1,000 3/15/01 6.50 0 1,000
- --------------------------------------------------------------------------------
Margarita Strand 1,000 3/15/01 6.50 0 1,000
- --------------------------------------------------------------------------------
David Levy 40,000 6/11/01 6.50 0 40,000
- --------------------------------------------------------------------------------
Richard Vogel 30,000 3/20/01 6.50 0 30,000
- --------------------------------------------------------------------------------
Phil Skolnick 250,000 7/10/00 4.50 0 250,000
============ ======================
Total 1,172,000 636,500 535,500
- --------------------------------------------------------------------------------
</Table>
Pursuant to the Employment Agreement, between Barbara Duncan and the Company
(the "DUNCAN AGREEMENT"), dated as of July 30, 2001, the Company will grant Ms.
Duncan 225,000 options upon the closing of this transaction and the commencement
of her employment prior to September 30, 2001.
ACCELERATED VESTING
The following option grants are subject to accelerated vesting upon sale of the
Company:
1. Pursuant to the Employment Agreement, dated as of July 1, 1999, between
Stephen J. Petti and the Company, should a termination of employment by
Mr. Petti or a change of control as defined therein occur, Mr. Petti shall
immediately have the right to exercise all stock options, including
unvested options.
2. Pursuant to the Employment Agreement, dated as of December 10, 1998,
between Arnold S. Lippa and the Company, should a termination of
employment by Dr. Lippa or a change of control as defined therein occur,
Dr. Lippa shall immediately have the right to exercise all stock options,
including unvested options.
3. Pursuant to the Employment Agreement, dated as of December 10, 1998,
between Bernard Beer and the Company, should a termination of employment
by Dr. Beer or a change of control as defined therein occur, Dr. Beer
shall immediately have the right to exercise all stock options, including
unvested options.
4. Pursuant to the Employment Agreement, dated as of July 10, 2000, between
Phil Skolnick and the Company, should a termination of employment by Dr.
Skolnick or a change of control as defined therein occur, Dr. Skolnick
shall immediately have the right to exercise all stock options, including
unvested options.
5. Pursuant to the Duncan Agreement, upon the Closing and the subsequent
grant of stock options discussed above, should a termination of employment
by Ms. Duncan or a change of control as defined therein occur, Ms. Duncan
shall have the right to exercise her stock options, in a manner defined
therein.
6. All stock option grants under the 98 Plan immediately vest and become
exercisable upon a change of control.
<Page>
WARRANTS
1. The Company issued warrants to purchase 75,000 shares of Common Stock to
EIS on January 21, 1999.
2. The Company issued warrants to purchase 67,873 shares of Common Stock to
Aurora Capital LLC ("Aurora") on January 21, 1999. Aurora subsequently
distributed the warrants to employees as compensation and to its members
as distributions.
3. The Company issued warrants to purchase 131,250 shares of Common Stock to
Aurora on June 20, 2000. Aurora subsequently distributed the warrants to
employees as compensation and to its members as distributions.
4. The Company issued warrants to purchase 25,000 shares of Common Stock to
Sandra Panem on January 17, 2000.
OUTSTANDING ARRANGEMENTS TO ISSUE EQUITY INTERESTS OF THE COMPANY
1. Pursuant to the Convertible Promissory Note, dated as of January 21, 1999,
made by the Company in favor of EIS, in a principal amount not to exceed
$7,008,750 (the "CONVERTIBLE NOTE"), until the Convertible Note is repaid
in full, the holder thereof has the right to convert the outstanding
principal amount and accrued and unpaid interest thereon into shares of
Common Stock at $6.44 per share.
2. Pursuant to the Convertible Exchangeable Promissory Note, dated as of
January 21, 1999, made by the Company in favor of EIS, in the principal
amount of $8,010,000 (the "CONVERTIBLE EXCHANGEABLE NOTE," together with
the Convertible Note are collectively referred to as, the "NOTES"), until
the Convertible Exchangeable Note is repaid in full, the holder thereof
has the right to convert the outstanding principal amount and accrued and
unpaid interest thereon into shares of Common Stock at $5.52 per share.
3. Pursuant to the Pre-Closing Certificate the holders of Series C Preferred
have a pre-emptive right to purchase Series D Preferred Shares and
warrants proposed to be issued in connection therewith.
4. Pursuant to the Securities Purchase Agreement, dated as of January 21,
1999, between EIS and the Company (the "EIS SECURITIES PURCHASE
AGREEMENT") EIS and/or its affiliates have a pre-emptive right to purchase
Series D Preferred Shares.
5. Pursuant to the Duncan Agreement, the Company will grant Ms. Duncan
225,000 options upon the closing of this transaction and the commencement
of her employment prior to September 30, 2001.
<Page>
6. The Company has an obligation to issue warrants to purchase 10,000 shares
of Common Stock to Scientia Communications, Inc. ("SCIENTIA") upon the
consummation of the Closing.
7. The Company is obligated to issue warrants to purchase that number of
shares of Common Stock equal to 3% of the aggregate number of Series D
Preferred Shares issued in connection with the transaction contemplated by
the Stock Purchase Agreement to Lazard Freres & Co. ("LAZARD") It is the
Company's understanding that Lazard will transfer certain of such warrants
to Aurora for its assistance in placement services.
8. Series B Preferred Shares are convertible into Common Stock upon the
affirmative vote of 75% of the holders thereof.
9. The Series C Preferred Shares are convertible into Common Stock at any
time.
CO-SALE RIGHTS
1. The Stockholders Agreement between the Company, the holders of Series C
Preferred and Drs. Lippa and Beer, dated as of June 20, 2000, provides the
holders of Series C Preferred a co-sale right upon a sale of Common Stock
by Drs. Lippa and Beer.
<Page>
SCHEDULE 2.4(c) - CAPITALIZATION
1. See Warrants, Outstanding Arrangements to Issue Equity Interests of the
Company and Co-Sale Rights on Schedule 2.4(a).
2. The Company has certain repurchase rights and there are certain
restrictions on the transfer of all stock options granted under the 1998
and 2000 Option Plans as well as those stock options granted to Dr.
Skolnick.
3. Pursuant to the Preferred Stock Purchase Agreement, dated as of June 30,
1998, between Neurocrine Biosciences, Inc. ("NEUROCRINE") and the Company,
Neurocrine has been granted certain registration rights.
4. Registration Rights Agreement, dated as of January 21, 1999, between the
Company and EIS.
5. Registration Rights Agreement, dated as of June 20, 2000, among the
Company and the holders of the Series C Preferred.
<Page>
SCHEDULE 2.5 - SUBSIDIARIES AND INVESTMENTS
1. On January 21, 1999, the Company and Elan International Services, Ltd.
("EIS"), a wholly-owned subsidiary of Elan Corporation, PLC ("ELAN"),
formed DOV Newco, Ltd., a Bermuda exempt limited company ("DOV NEWCO"),
which owns 100% of the issued and outstanding share capital of Nascime
Limited, an Irish private limited company ("NASCIME"). The Company owns
80.1%, while EIS owns the remaining 19.9%, of DOV Newco's capital stock.
The Company's present equity position is subject to EIS' right to exchange
the principal amount of the Convertible Exchangeable Note into the number
of shares of DOV Newco capital stock that would increase its equity
ownership therein to 50% from 19.9%.
2. The Convertible Exchangeable Note and the Convertible Note.
3. Summit Bank provides the Company with a line of credit, in the form of an
overdraft allowance of up to $25,000
4. The Company has a corporate account with American Express.
5. The Company maintains interest bearing bank accounts and invests in
short-term financial instruments in the ordinary course of business.
<Page>
SCHEDULE 2.6 - FINANCIAL STATEMENTS; PROJECTIONS
[Financial Statements]
<Page>
SCHEDULE 2.7 - UNDISCLOSED LIABILITIES
1. See Schedule 2.6.
2. On March 8, 2001, following a request for investigation by Andrx, DOV
received a letter from the Federal Trade Commission ("FTC") stating that
it was "conducting a nonpublic investigation to determine whether Biovail
Corporation or any other person is engaging in unfair methods of
competition" in violation of the Federal Trade Commission Act, and that
the "primary focus . . . is the legality of Biovail's recent [Orange Book]
listing [of the DOV diltiazem patent]." The stated purpose of the FTC
letter is to seek from DOV, on a voluntary, confidential basis, disclosure
to the FTC of certain requested information related to the patent.
Although the letter states that it should not be viewed as an accusation
of wrongdoing, there can be no reasonable assurance as to any course of
action the FTC may take with respect to DOV, Biovail, the Biovail License
Agreement or any other person. DOV has furnished the FTC, in a timely
fashion, all information so requested except, as permitted,
attorney-client privileged material so described. On July 24, 2001, the
FTC issued a formal subpoena to the Company regarding this matter but
indicated that the document production called for could be satisfied by
the Company's prior response to an informal FTC request for documents.
3. Under the Joint Development and Operating Agreement, dated as of January
21, 1999, among the Company, among Elan, EIS, DOV Newco and Nascime, (the
"JOINT VENTURE"), Elan is permitted to terminate the license if DOV enters
into a license agreement with a listed technological competitor--"Biovail"
is so listed--provided that such competitor is thereby "materially engaged
or involved with the business or development" of DOV. Other change of
control termination rights exist in the event a technological competitor
acquires at least 10% of the Company's voting stock or otherwise controls
or influences in any material respect the management or business of DOV.
Biovail neither holds nor has any options to acquire any voting shares of
DOV. The Company has a number of compounds and patents and retains
substantial control under the Biovail License Agreement to the one patent
covered thereby. The Company therefore does not believe that it cedes
material control or influence over its business to Biovail under such
Agreement. The Biovail License Agreement is structured in a manner similar
to that of a joint venture and gives both joint venture partners a veto
over major decisions. For these and other reasons, DOV does not believe
Elan's consent was required nor does it believe that Elan is entitled to
terminate its license as a result of the Company's conclusion of the
Biovail License Agreement without such consent. Nonetheless, a waiver from
Elan was sought but the parties were unable to reach terms for the grant
of such a waiver. Elan has not threatened to terminate the Joint Venture
license as a result. If Elan were entitled to and did terminate its Joint
Venture license by reason of the Biovail License Agreement, this could
lead to a termination of the Joint Venture's business and a termination of
the Company's license thereto as well, and each joint venture party would
thereupon succeed to its original grant of rights plus the joint venture
rights developed that relate predominately to its pre-license rights.
<Page>
4. Subsequent to the January 12, 2001, out-licensing of the diltiazem patent,
licensee Biovail listed that patent in the FDA's APPROVED DRUG PRODUCTS
WITH THERAPEUTIC EQUIVALENCE EVALUATIONS, commonly known as the "ORANGE
BOOK," and stated that the diltiazem patent covered Biovail's branded
Tiazac formulation. The effect of this filing was to temporarily prevent
Biovail's potential competitor, Andrx Pharmaceuticals, Inc. ("ANDRX"),
from obtaining FDA approval of its abbreviated new drug application for a
generic version of Tiazac and marketing that generic drug. As a result,
Andrx filed an action in the U.S. District Court for the Southern District
of Florida (the "FLORIDA LITIGATION") (and pending establishment of
jurisdiction, a parallel action in the U.S. District Court for the
District of Columbia) against Biovail Corporation International and
certain U.S. Government parties seeking, among other relief, the
de-listing of the diltiazem patent from the Orange Book.
Andrx's pleadings in the Florida Litigation included a motion for
preliminary injunction to require Biovail to de-list the diltiazem patent
from the Orange Book. Andrx's complaint also seeks to (i) invalidate the
Company/Biovail License Agreement as an unreasonable restraint of trade in
violation of the Sherman Antitrust Act and to enjoin Biovail from
fulfilling its obligations under or exercising its rights as a party to
that Agreement; (ii) declare that its generic Tiazac formulation does not
infringe the diltiazem patent; and (iii) declare the diltiazem patent
invalid.
In connection with Andrx's motion to de-list the diltiazem patent in the
Florida Litigation, the FDA initially filed papers arguing that its duty
in listing patents in the Orange Book was simply a ministerial one, and
that if there were a dispute between two private parties whether a patent
was properly listed in the Orange Book, it was up to those parties to
resolve the dispute. However, on February 28, 2001, after reviewing
Biovail's submissions, the FDA filed a Change of Position conveying its
view, based upon those submissions and the FDA's review of Biovail's own
NDA for Tiazac, that the diltiazem patent did not cover an approved
formulation of Tiazac and, therefore, was improperly listed in the Orange
Book. In its Change of Position, the FDA further stated that it would
refrain from taking any unilateral action with regard to de-listing the
diltiazem patent until the court ruled on Andrx's then-pending motion for
a preliminary injunction.
On March 6, 2001, the court in the Florida Litigation denied Andrx's
motion for a preliminary injunction to de-list the diltiazem patent. The
court held that Andrx had no private cause of action to enforce the
provisions of the Hatch-Waxman Act, and that only the federal government
had the right to enforce the provisions of the Food, Drug and Cosmetics
Act, of which the Hatch-Waxman Act is a part, or to restrain violations of
the Food, Drug and Cosmetics Act. According to the court in the Florida
Litigation, it is initially solely within the province of the FDA to
determine whether a patent should or should not be listed in the Orange
Book. Thus, the FDA is now free to exercise its jurisdiction over the
propriety of the Orange Book listing of the diltiazem patent and is
presumably considering what actions, if any, would be appropriate for it
to take in light of the court's March 6, 2001, ruling in the Florida
Litigation. The court also ruled that Andrx had presented no evidence in
its motion to support an injunction de-listing the
<Page>
patent based upon alleged violations of federal antitrust or Florida
unfair competition laws. That holding did not affect the validity of those
claims as alleged in the complaint, only that Andrx had presented no
evidence in its preliminary injunction motion to support an injunction
based upon those claims.
While the court stated that "it is the FDA's job to determine whether to
list or de-list a patent," it recognized that if the FDA is unwilling to
act on its own, the propriety of the listing can be litigated in
connection with a patent infringement suit filed under the Hatch-Waxman
procedures (discussed below), which allows the court hearing the patent
infringement suit to shorten the 30-month statutory stay. In its pleadings
filed in the Florida Litigation, Biovail requested that Andrx provide to
it samples of its generic Tiazac for testing in order to determine whether
Andrx's product infringes the diltiazem patent.
Under the Drug Price Competition and Patent Term Restoration Act of 1984,
commonly known as the Hatch-Waxman Act, an applicant for approval of a
generic drug must, if it wishes to have its generic application proceed in
the face of an Orange Book-listed patent claiming the pioneer drug,
certify that its generic drug either does not infringe the patent stated
to be applicable to the pioneer drug or that such patent is invalid. This
is commonly known as a Paragraph IV certification. The Paragraph IV
certification must be sent to the patent holder and the owner of the
pioneer drug to which the listed patent is applicable. Approval of the
generic drug is then held in abeyance for 45 days to give the patent
holder the opportunity to file an action for patent infringement. If a
patent infringement suit is filed within the 45-day period, approval for
the generic drug is held in abeyance for an additional 30 months or, if
earlier, until final resolution of the patent infringement suit.
Following Biovail's Orange Book listing that the diltiazem patent covers
Tiazac, and its initiation of the Florida Litigation, on February 19,
2001, Andrx filed, under protest, its Paragraph IV certification claiming
that its generic Tiazac did not infringe the diltiazem patent and, if the
diltiazem patent in fact covered Tiazac, the patent was invalid. Biovail,
as the Company's exclusive licensee, and under the Hatch-Waxman Act, had
45 days (until April 9, 2001) to initiate a patent infringement suit
against Andrx if it determined that Andrx's generic drug infringes the
diltiazem patent and wished to take advantage of the additional 30-month
stay on approval of Andrx's generic Tiazac. Biovail filed such an
infringement action against Andrx on April 5, 2001, citing the results of
its preliminary analysis of Andrx's product and Andrx's failure to dispute
that at least some of its product formulation is covered by the diltiazem
patent. The Company is not presently a party to any phase of the
Andrx-Biovail litigations.
The outcome of the pending litigations cannot be predicted with any
reasonable degree of assurance. If the diltiazem patent is not removed
from the Orange Book, among other steps Andrx could (i) pursue its claims
to have the Biovail license agreement invalidated or the diltiazem patent
declared invalid and (ii) in response to Biovail's infringement action,
claim that its generic drug does not infringe the diltiazem patent or,
alternatively, counterclaim that the diltiazem patent is invalid. If the
FDA determines to remove the diltiazem patent from the Orange Book, the
foregoing steps (i) and (ii) could still be
<Page>
taken. The fact that Biovail has filed a patent infringement suit would in
itself have no effect on the FDA's approval of Andrx's generic Tiazac, and
Andrx would be free to market its generic Tiazac unless Biovail were able
to obtain a preliminary injunction against such sales in its patent
infringement suit. This is not intended as a summary of all litigation
alternatives available to Andrx and Biovail.
Nor can the effect, if any, of the litigation on the Company be predicted
with any reasonable degree of assurance. It is possible that any one or
more of the following could occur: (i) the Biovail License Agreement, if
invalidated, would eliminate the Company's right to receive clinical
development, milestone, royalty payments and other benefits accruing to
the Company thereunder; (ii) Biovail having filed an infringement action
against Andrx, the Company may be responsible for certain of Biovail's
legal expenses, under the terms of the Biovail License Agreement, capped
at $1.5 million, with regard to litigating its claim that Andrx's Tiazac
generic infringes the diltiazem patent; (iii) if, as a result of a court
or other ruling, the diltiazem patent is declared invalid, the Company
would suffer the events noted in clause (i) as if the License Agreement
were invalidated as well as the loss of any other potential value that
could have been derived from the diltiazem patent; and (iv) the Company
may be a necessary party to any litigation regarding the enforcement or
validity of its diltiazem patent.
5. Pursuant to the Agreement, dated as of June 20, 2000, among the Company,
EIS and holders of the Series C Preferred, the Company is required to make
certain payments to the holders of the Series C Preferred in connection
with a liquidation or certain other events stated therein.
<Page>
SCHEDULE 2.7 - UNDISCLOSED LIABILITIES (REVISED)
1. See Schedule 2.6.
2. On March 8, 2001, following a request for investigation by Andrx, DOV
received a letter from the Federal Trade Commission ("FTC") stating that
it was "conducting a nonpublic investigation to determine whether Biovail
Corporation or any other person is engaging in unfair methods of
competition" in violation of the Federal Trade Commission Act, and that
the "primary focus . . . is the legality of Biovail's recent [Orange Book]
listing [of the DOV diltiazem patent]." The stated purpose of the FTC
letter is to seek from DOV, on a voluntary, confidential basis, disclosure
to the FTC of certain requested information related to the patent.
Although the letter states that it should not be viewed as an accusation
of wrongdoing, there can be no reasonable assurance as to any course of
action the FTC may take with respect to DOV, Biovail, the Biovail License
Agreement or any other person. DOV has furnished the FTC, in a timely
fashion, all information so requested except, as permitted,
attorney-client privileged material so described. On July 24, 2001, the
FTC issued a formal subpoena to the Company regarding this matter but
indicated that the document production called for could, if responsive, be
satisfied by the Company's reply to the earlier informal FTC request for
documents.
3. Under the Joint Development and Operating Agreement, dated as of January
21, 1999, among the Company, among Elan, EIS, DOV Newco and Nascime, (the
"JOINT VENTURE"), Elan is permitted to terminate the license if DOV enters
into a license agreement with a listed technological competitor--"Biovail"
is so listed--provided that such competitor is thereby "materially engaged
or involved with the business or development" of DOV. Other change of
control termination rights exist in the event a technological competitor
acquires at least 10% of the Company's voting stock or otherwise controls
or influences in any material respect the management or business of DOV.
Biovail neither holds nor has any options to acquire any voting shares of
DOV. The Company has a number of compounds and patents and retains
substantial control under the Biovail License Agreement to the one patent
covered thereby. The Company therefore does not believe that it cedes
material control or influence over its business to Biovail under such
Agreement. The Biovail License Agreement is structured in a manner similar
to that of a joint venture and gives both joint venture partners a veto
over major decisions. For these and other reasons, DOV does not believe
Elan's consent was required nor does it believe that Elan is entitled to
terminate its license as a result of the Company's conclusion of the
Biovail License Agreement without such consent. Nonetheless, a waiver from
Elan was sought but the parties were unable to reach terms for the grant
of such a waiver. Elan has not threatened to terminate the Joint Venture
license as a result. If Elan were entitled to and did terminate its Joint
Venture license by reason of the Biovail License Agreement, this could
lead to a termination of the Joint Venture's business and a termination of
the Company's license thereto as well, and each joint venture party would
thereupon succeed to its original grant of rights plus the joint venture
rights developed that relate predominately to its pre-license rights.
<Page>
4. Subsequent to the January 12, 2001, out-licensing of the diltiazem patent,
licensee Biovail listed that patent in the FDA's APPROVED DRUG PRODUCTS
WITH THERAPEUTIC EQUIVALENCE EVALUATIONS, commonly known as the "ORANGE
BOOK," and stated that the diltiazem patent covered Biovail's branded
Tiazac formulation. The effect of this filing was to temporarily prevent
Biovail's potential competitor, Andrx Pharmaceuticals, Inc. ("ANDRX"),
from obtaining FDA approval of its abbreviated new drug application for a
generic version of Tiazac and marketing that generic drug. As a result,
Andrx filed an action in the U.S. District Court for the Southern District
of Florida (the "FLORIDA LITIGATION") (and pending establishment of
jurisdiction, a parallel action in the U.S. District Court for the
District of Columbia) against Biovail Corporation International and
certain U.S. Government parties seeking, among other relief, the
de-listing of the diltiazem patent from the Orange Book.
Andrx's initial pleadings in the Florida Litigation included a motion for
preliminary injunction to require Biovail to de-list the diltiazem patent
from the Orange Book, which on March 6, 2001, was denied on the grounds
that Andrx had no private right of action to enforce the provisions of the
Drug Price Competition and patent Term Restoration Act of 1984, commonly
known as the Hatch-Waxman Act, and that only the federal government had
the right to enforce the provisions of the Food, Drug and Cosmetics Act,
of which the Hatch-Waxman Act is a part, or to restrain violations of the
Food, Drug and Cosmetics Act.
Under the Hatch-Waxman Act, an applicant for approval of a generic drug
must, if it wishes to have its generic application proceed in the face of
an Orange Book-listed patent claiming the pioneer drug, certify that its
generic drug either does not infringe the patent stated to be applicable
to the pioneer drug or that such patent is invalid. This is commonly known
as a Paragraph IV certification. The Paragraph IV certification must be
sent to the patent holder and the owner of the pioneer drug to which the
listed patent is applicable. Approval of the generic drug is then held in
abeyance for 45 days to give the patent holder the opportunity to file an
action for patent infringement. If a patent infringement suit is filed
within the 45-day period, approval for the generic drug is held in
abeyance for an additional 30 months or, if earlier, until final
resolution of the patent infringement suit.
Following Biovail's Orange Book listing that the diltiazem patent covers
Tiazac, and Andrx's initiation of the Florida Litigation, on February 19,
2001, Andrx also filed, under protest, a Paragraph IV certification under
the Hatch-Waxman Act claiming that its generic drug did not infringe the
diltiazem patent and, if the diltiazem patent in fact covered Tiazac, the
patent was invalid. As noted above, Biovail, as the Company's exclusive
licensee, had, under the Hatch-Waxman Act, 45 days (until April 9, 2001)
to initiate a patent infringement suit against Andrx if it determined that
Andrx's generic drug infringes the diltiazem patent and wished to avail
itself of the additional 30-month stay on approval of Andrx's generic
drug. Biovail filed such an infringement action against Andrx on April 5,
2001 (the "INFRINGEMENT LITIGATION").
<Page>
In both the Florida Litigation and the Infringement Litigation further
pleadings were filed, including motions by Andrx for partial summary
judgment that sought (i) de-listing of the diltiazem patent from the
Orange Book and (ii) reduction or elimination of the 30-month stay imposed
under the Hatch-Waxman Act. Andrx also filed an amended complaint in the
Florida Litigation, which sought, among other relief, (i) delisting of the
diltiazem patent from the Orange Book; (ii) invalidation the Biovail
License Agreement based upon the assertion that it constituted an
unreasonable restraint of trade or that such agreement constituted a
conspiracy or an attempt to monopolize the market for calcium channel
blockers, in each case in violation of the Sherman Antitrust Act, and to
enjoin Biovail from fulfilling its obligations under or exercising its
rights as a party to the such agreement; (iii) injunctive relief against
Biovail for alleged tortious interference with business relations, for
alleged conduct constituting negligence per se and for alleged acts stated
to be in violation of Florida statutory and common law for unfair and
deceptive trade practices; (iv) a declaration that its Andrx's generic
Tiazac formulation does not infringe the diltiazem patent; (v) a
declaration that the diltiazem patent is invalid; and (vi) a declaration
that the 30-month stay imposed under the Hatch-Waxman Act be reduced or
eliminated.
Following numerous other motions filed in the aforementioned actions,
including a motion to consolidate the Florida Litigation and the
Infringement Litigation, which was granted, the Florida Court, on
September 19, 2001, issued an opinion in the case that had the following
results: (i) Andrx's motion for partial summary judgment to delist the
diltiazem patent from the Orange Book was denied based upon the reasoning
employed in the Florida Litigation at the preliminary injunction stage,
namely, that there exists no private right of action outside of litigation
instituted under the Hatch-Waxman Act; (ii) Andrx's state law claims for
unfair and deceptive trade practices, tortious interference with business
relations and negligence per se, which, according to the court, all rely
on the existence of the patent listing requirements of the Hatch-Waxman
Act, were dismissed due to their being preempted by federal law; (iii)
Andrx's antitrust claims for conspiracy to restrain trade, conspiracy to
monopolize, attempted monopolization and monopolization under the Shearman
Antitrust Act, were held to survive Biovail's motions to dismiss on the
ground that at this stage of the litigation Andrx had stated a claim
sufficient to seek such requested relief; (iv) Andrx's claims for a
declaration of noninfringement of the diltiazem patent and a declaration
that the diltiazem patent is invalid were dismissed in the Florida
Litigation as being premature owing to the court's previous decision that
a private right of action does not exist outside of litigation instituted
under the Hatch-Waxman Act, but were allowed to proceed as counterclaims
in the Infringement Litigation; and (v) Andrx's motion for partial summary
judgment to shorten or eliminate the 30-month stay under the Hatch-Waxman
Act was granted, with the court ruling that the statutory stay should end
on September 27, 2001, and that the FDA should approve Andrx's generic,
based upon the court's finding that Biovail's actions in listing the
diltiazem patent in the Orange Book and reformulating Tiazac to fall under
the claims of the diltiazem patent ran afoul of its obligation to
reasonably cooperate in expediting the (infringement) action under the
Hatch-Waxman Act. Biovail has filed a notice of appeal from the court's
ruling to shorten the 30-month statutory stay.
<Page>
The ultimate outcome of the consolidated case cannot be predicted with any
reasonable degree of assurance. According to Andrx, the FDA has advised it
that certain dosages of its generic Tiazac are ready for FDA approval, but
that it requires additional information related to other strengths in
order to make its approval determinations. Biovail has disputed the
bioequivalence to Tiazac of the Andrx's generic. Nonetheless, it appears
that Andrx's generic Tiazac will eventually be approved by the FDA and
marketed for sale, thereby becoming a competitor in the market with
Biovail's Tiazac. It is unclear at this stage what legal action, if any,
Andrx will take. It is possible that Andrx could pursue any of or all the
claims that have survived this most recent decision. Andrx could pursue
its claims to have the Biovail license agreement invalidated based upon
its assertions of alleged violations under the Shearman Antitrust Act, or
Andrx could pursue its counterclaims that the DOV diltiazem patent is
invalid or that its generic drug does not infringe the DOV diltiazem
patent. The aforementioned options are not intended as a summary of all
litigation alternatives available to Andrx and Biovail. The Company is not
a party to any phase of the Andrx-Biovail litigation.
Likewise, the effect, if any, of the litigation on the Company cannot be
predicted with any reasonable degree of assurance. The September 19, 2001,
opinion, while dismissing some claims, advances certain other claims
against Biovail implicating the diltiazem patent and, arguably, could be
viewed as increasing the risk to the Company that any one or more of the
following could occur: (i) the Biovail License Agreement, if invalidated,
would eliminate the Company's right to receive clinical development,
milestone, royalty payments and other benefits accruing to the Company
thereunder; (ii) Biovail having filed an infringement action against
Andrx, the Company may be responsible for certain of Biovail's legal
expenses, under the terms of the Biovail License Agreement, capped at $1.5
million, with regard to litigating its claim that Andrx's Tiazac generic
infringes the diltiazem patent; (iii) if, as a result of a court or other
ruling, the diltiazem patent is declared invalid, the Company would suffer
the events noted in clause (i) as if the License Agreement were
invalidated as well as the loss of any other potential value that could
have been derived from the diltiazem patent; and (iv) the Company may be a
necessary party to any litigation regarding the enforcement or validity of
its diltiazem patent. Since, however, the Biovail License Agreement does
not cover Tiazac, any capture by Andrx or others of Biovail's Tiazac
market will not in itself have a direct impact on DOV's royalty or
milestone revenues expected thereunder unless the DOV diltiazem patent or
the Biovail License Agreement is invalidated by the court.
5. Pursuant to the Agreement, dated as of June 20, 2000, among the Company,
EIS and holders of the Series C Preferred, the Company is required to make
certain payments to the holders of the Series C Preferred in connection
with a liquidation or certain other events stated therein.
<Page>
SCHEDULE 2.8(b) - CERTAIN DEVELOPMENTS
None.
<Page>
SCHEDULE 2.8(f) - CERTAIN DEVELOPMENTS
Pursuant to the Duncan Agreement, Ms. Duncan shall become the Company's Chief
Financial Officer and Vice President/Finance. See SCHEDULE 2.4(a).
<Page>
SCHEDULE 2.8(g) - CERTAIN DEVELOPMENTS
Barbara Duncan has been hired as the Company's new Chief Financial Officer and
as such will replace Jeff Margolis, who is the acting Chief Financial Officer,
upon commencement of her employment. See SCHEDULE 2.4(a).
<Page>
SCHEDULE 2.8(t) - CERTAIN DEVELOPMENTS
The Company had been in the process of negotiating a re-organization of certain
terms of the Joint Venture. Such negotiations have been suspended.
<Page>
SCHEDULE 2.9(b) - ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE
1. The Company declines to represent that the Notes, whereby Elan funded
certain amounts to the Joint Venture and the Joint Venture paid $10
million to Elan as a license fee, arose in bona fide arms length
transactions in the ordinary course of business.
2. [See attached list of accounts payable aged 60 days].
<Page>
SCHEDULE 2.10 - TRANSACTIONS WITH AFFILIATES
1. Please refer to the Confidential Private Placement Memorandum, dated as of
November 20, 2000, as amended and supplemented to date, the relevant
portions of which are attached hereto.
2. Sandra Panem is an advisor to the Board, holds warrants to purchase 25,000
shares of Common Stock and also serves as a director of Synaptic
Pharmaceutical, Inc., a competitor of the Company.
3. Upon the consummation of this transaction, Scientia will be issued
warrants to purchase 10,000 shares of Common Stock. The Company and
Scientia have entered into a consulting agreement, dated as of June 20,
2001.
4. The Company has sublicensed, on an exclusive, worldwide basis to
Neurocrine, the sleep promoter compound (DOV 285,489) in an arrangement
under which Neurocrine purchased 440,000 shares of series A convertible
preferred stock of the Company. Such shares automatically converted into
Common Stock at $4.42 per share in connection with the investment by EIS.
In connection with the financing, Neurocrine issued to the Company 71,250
warrants to purchase Neurocrine common stock, of which (i) 14,250 warrants
became exercisable as of June 30, 1998 at an exercise price of $8.040625
per share of the common stock of Neurocrine; and (ii) 57,000 warrants
become exercisable on the start date of the first Pivotal Trial (as
defined in the Warrant Agreement, dated as of June 30, 1998, between
Neurocrine and the Company), exercisable at the Market Price (as defined
therein) of the common stock on such date.
<Page>
EXCERPTS FROM THE PRIVATE PLACEMENT MEMORANDUM
ZOLA HOROVITZ, PH.D. - Dr. Horovitz has served as a director of the
Company since January 1996. Dr. Horovitz currently serves as a director or on
the advisory boards of Diacrin, Inc., Biocryst, Inc., Shire Pharmaceutical
Group, Synaptic Pharmaceutical Company, Three Dimensional Pharmaceuticals Inc.,
Avigen, Inc. and Magainin Pharmaceutical, Inc. Before joining the Company, Dr.
Horovitz served 35 years in various managerial and research positions at
Bristol-Myers Squibb and its affiliates. At Bristol-Myers Squibb Dr. Horovitz
served as vice president, business development and planning from 1991-1994, vice
president, licensing in 1990, and vice president, research, planning and
scientific liaison from 1985-1989. Dr. Horovitz received a BS in Pharmacy from
the University of Pittsburgh in 1955 and his MS and Ph.D. in Pharmacology from
the same institute in 1958 and 1960.
PATRICK ASHE - Mr. Ashe has served as a director of the Company since
1999. He is currently vice president, commercial development at Elan
Pharmaceutical Technologies, the drug delivery division of Elan Corporation plc.
His responsibilities include the licensing of new technologies and products. He
joined Elan in 1986 and has since served in a variety of business development
and licensing capacities at Elan. He served as Elan's director, commercial
development for Europe and other international markets until 1994, at which
point he relocated to the U.S. to take up his current responsibilities for North
American business development and licensing. Mr. Ashe also serves as a director
of RTP Pharma Inc. Mr. Ashe was graduated from University College, Dublin with a
B. Sc. (Hon) in pharmacology in 1985 and completed his MBA at Dublin City
University's Business School in 1994. He is based at Elan's offices in King of
Prussia, PA.
MARK LAMPERT - Mr. Lampert has served as a director of the Company since
June 2000. He is the founder and general partner of the Biotechnology Value
Fund, L.P., a San Francisco-based, private investment partnership as well as
affiliated entities focused on the biotechnology industry. Prior to forming the
fund in 1993, Mr. Lampert was a vice president at the investment banking firm
Oppenheimer & Co., and worked for Cambridge NeuroScience and G.D. Searle & Co.
He is a co-founder of Biotechnology Royalty Corp. Mr. Lampert is a director of
Mendel Biotechnology and Athersys, Inc. He holds an A.B. in chemistry from
Harvard College (1982) and an MBA from Harvard Business School (1988).
JEFF ELIOT MARGOLIS - Mr. Margolis is the President of Aurora Capital LLC,
(and the sole shareholder of Aurora Capital Corp., its managing member). Mr.
Margolis founded Aurora in October 1994. Aurora Capital Corp. was registered
with the SEC and became a member of the NASD in May 1995. Aurora Capital LLC
succeeded to the business of Aurora Capital Corp. on September 16, 1998. From
August 1992 through September 1994, Mr. Margolis was at D. Blech & Company
Incorporated, an investment banking firm specializing in biotechnology
companies. From March 1991 through July 1992 and previously from July 1981
through March 1989, he served as chief financial officer (and prior to that,
controller) of the Fundamental Brokers group of companies, an international
affiliated group of fixed income securities brokers. Mr. Margolis received his
BA degree in political science (1977) and MBA in finance and accounting (1978)
from the University of Rochester.
CERTAIN TRANSACTIONS
STRUCTURE OF JOINT VENTURE WITH ELAN CORPORATION, PLC
On January 21, 1999, the Company, Elan and Elan International Services,
Ltd., closed the Joint Venture transaction providing for (a) the formation of
DOV Newco, Ltd., a Bermuda limited company (renamed DOV Bermuda, Ltd.), (b) the
formation of Nascime, Ltd. (an Irish private limited company) to which the
Company and Elan licensed certain technology and (c) equity and debt financing
by Elan International of the Company's required participation in the Joint
Venture.
FORMATION AND CAPITALIZATION OF JOINT VENTURE. The Company, Elan and Elan
International established the Joint Venture as the vehicle to develop, exploit
and commercialize two of the Company's compounds, DOV 220,075
<Page>
(the analgesic) and DOV 273,547 (the anxiolytic) using Elan's proprietary
controlled release formulations (the "Products"). The Joint Venture's initial
capitalization is $10 million, with the Company subscribing for 80.1% of the
Joint Venture's capital stock for $8.01 million and Elan International
subscribing for the remaining 19.9% for $1.99 million. The Company and Elan
International have preemptive rights to participate in any equity offering by
the Joint Venture in order to maintain their respective equity positions. The
Joint Venture shares are subject to certain transfer restrictions.
LICENSES TO JOINT VENTURE. Pursuant to the Joint Venture transaction, Elan
granted the Joint Venture a non-exclusive license for $10 million to use its
proprietary controlled release formulations in connection with the development
and commercialization of the Products. For its part, the Company has granted the
Joint Venture an exclusive sublicense to use DOV 220,075 (analgesic) and DOV
273,547 (anxiolytic). The Joint Venture will remit certain milestone payments to
the Company to enable it to meet its milestone obligations pursuant to its
license agreement with ACY, and the Joint Venture will pay both the Company and
Elan royalties on net sales relating to DOV 220,075 and DOV 273,547. The Company
(rather than the Joint Venture) is responsible for the payment of such royalties
and other obligations. The Company retains the right to intravenous
administration of the compounds, which is not included in the Joint Venture.
MEANS OF COMPANY FUNDING OF JOINT VENTURE. The Company has funded its
initial investment in the Joint Venture by issuing to Elan International the
Exchangeable Debt, a convertible and exchangeable debt instrument in the
principal amount of $8.01 million. The Exchangeable Debt has a term of six years
from the Joint Venture closing and bears interest at 7% per annum, compounded
semi-annually. The Exchangeable Debt is not prepayable without Elan
International's approval, and interest accrues thereon and is added to
principal. The Exchangeable Debt is senior to any other Company debt provided
that the Company may issue senior institutional debt up to $1 million and may
issue unlimited institutional debt on a PARI PASSU basis. In connection with the
subsequent Biotechnology Value Fund Series C Preferred financing (see below),
Elan International agreed that the Series C Preferred would be treated upon
liquidation on a PARI PASSU basis with the principal amount of the Exchangeable
Debt.
ELAN INTERNATIONAL'S RIGHT TO INCREASE OWNERSHIP OF JOINT VENTURE. Elan
International has the right to exchange the principal amount of the Exchangeable
Debt into the number of shares of the Joint Venture capital stock that would
increase its equity ownership in the Joint Venture to 50% from 19.9%. Upon
exercise of such exchange right the accrued interest would remain an obligation
of the Company, unless Elan International determines to exercise its conversion
right (as described below) with respect thereto. Following exercise of the
exchange right, Elan International would be required to reimburse the Company
for a portion of total development costs paid by the Company to the Joint
Venture so that the Company and Elan International funding from the Joint
Venture closing is equal.
COMPANY STOCK PURCHASE BY ELAN INTERNATIONAL. In connection with the Joint
Venture transaction, Elan International purchased $3 million of the Company's
Common Stock (324,090 shares) and Series B Preferred (354,643 shares,
convertible on a one-for-one basis into Common Stock; preferred neither as to
dividends nor upon liquidation) at $4.42 per share or an aggregate of 678,733
shares and the Company issued Elan International a six-year warrant to acquire
up to an additional 75,000 shares of Common Stock at an exercise price of $5.52.
Elan International has agreed that so long as the Exchangeable Debt and the Line
of Credit Debt remain outstanding Elan International will own less than 10% of
the Company's voting stock. While Elan International received anti-dilution
protection against securities offerings below $3.68 per share of Common Stock,
this protection expired in July 2000.
If, in addition to its original stock purchase, Elan International elects
to exercise (a) the conversion right with respect to the Exchangeable Debt at
the end of its term (January 2005), (b) the conversion right with respect to the
Line of Credit Debt at the end of its term (January 2005), assuming a maximum
principal amount of approximately $2.4 million, that is, no further draw-downs
through the six year term, and (c) its 75,000 warrants, it will have an equity
position of approximately 37% and 34.5% of the Company (assuming a closing on
the Minimum and Maximum Amounts, respectively, and no additional equity
financing during the six-year term).
ELAN INTERNATIONAL EXCHANGEABLE DEBT CONVERSION RIGHT. Beginning two years
after the Joint Venture closing, that is, in January 2001, Elan International
has the right to convert the Exchangeable Debt, together with
<Page>
accrued interest, into the number of shares of the Company's Common Stock or
Non-Voting Stock at a conversion rate of $6.44.
ONGOING JOINT VENTURE FUNDING. The Company and Elan International are
required to contribute all necessary capital to support the Joint Venture's
expenditures in accordance with their respective equity ownership of 80.1% and
19.9% in favor of the Company. Funding for the Company's capital contributions
will be made available not only through the Joint Venture financing but, if
necessary, through the $7 million Line of Credit Debt provided by Elan
International. The Line of Credit Debt will become due six years from the Joint
Venture closing and bear interest at 10% per annum, compounded semi-annually.
The Line of Credit Debt will not be prepayable without Elan International's
approval, and interest will accrue thereon and be added to principal. Elan
International has the right to convert the Line of Credit Debt, together with
accrued interest, into the number of shares of the Company's Common Stock or
Non-Voting Stock at a conversion rate of $5.52.
Application of funds from the Line of Credit Debt is restricted to the
Joint Venture research and development costs. If either the Company or Elan
International decides not to fund a Product that the Joint Venture has slated
for funding, the party contributing capital toward such funding has the right to
cause the Joint Venture to transfer such Product to it on standard and customary
market terms. If one party but not the other ceases making capital contributions
to the Joint Venture adequate to develop and commercialize the Products, the
contributing party will acquire additional equity in the Joint Venture at
reduced cost to compensate it for the additional capital contributed.
NO COMPETITION. With certain exceptions, the Company, Elan and Elan
International are restricted from competing with the Joint Venture by developing
or commercializing a product with the same active ingredient as a Product. In
addition, the parties are subject to certain change of control provisions. The
Company has retained the right to intravenous formulations.
JOINT VENTURE BOARD. The Joint Venture's board of directors has been
comprised initially of five members, a majority of whom were appointed by the
Company. However, Elan International's agreement will be required for all
material acquisitions and specified material decisions. The Joint Venture board
is required to appoint management as well as research and development
committees.
RESEARCH. The Company and Elan are required to undertake certain research
and development work relating to the Products for which the Joint Venture will
reimburse the Company and Elan for their actual costs incurred plus an
additional 40% of such costs. Subcontracted services will be reimbursed at cost.
It is estimated that the Joint Venture will require up to $10 million within the
first 30 months of the Joint Venture closing to commence development of the
Products.
ADDITIONAL ELAN INTERNATIONAL RIGHTS. Elan International has a preemptive
right associated with its Common Stock and Non-Voting Stock exercisable for four
years from the Joint Venture closing to participate in any equity financing by
the Company to enable Elan International to maintain its PRO RATA equity
interest in the Company attributable to such Stock. In addition, so long as Elan
International holds at least a 10% equity position in the Company, it will be
entitled to elect one member to the Company's board of directors.
REGISTRATION RIGHTS. The Company, with respect to the Joint Venture
capital stock, and Elan International, with respect to both Company and the
Joint Venture capital stock, have one demand and unlimited piggyback
registration rights. The demand registration right is not exercisable until six
months after an initial public offering.
OPERATIONS UNDER JOINT VENTURE
The board of directors of the Joint Venture is comprised of five members,
four appointed by the Company and one by Elan. Research is managed by a
committee on which the Company and Elan have equal representation. In April
1999, three months after the Joint Venture formation, the board of directors
approved a business plan presented by this committee. According to this business
plan, Elan would be responsible for development of the controlled release
formulation and the Company would be responsible for clinical development of the
two Joint Venture compounds.
<Page>
BIOTECHNOLOGY VALUE FUND AND RESERVOIR CAPITAL
In January 2000, the Company agreed to raise equity capital from
Biotechnology Value Fund, L.P. and affiliates. In May and June 2000, the Company
consummated this transaction and raised for general working capital purposes
$7.07 million from Biotechnology Value Fund, L.P. and Reservoir Capital
Partners, L.P. and their affiliates. Such investors acquired the Company's
Series C Preferred, convertible at $4.04 per share. In connection with this
financing, Mark Lampert, a principal of Biotechnology Value Fund, joined the
Company's board of directors. For certain terms of the Series C Preferred Stock,
see "Description of Securities."
LIPPA AND BEER PERFORMANCE COMPENSATION
Drs. Lippa and Beer, in accordance with their employment agreements, may receive
performance bonuses for arranging in-licensing and out-licensing of compounds
and achieving certain milestones relating to clinical development.
OTHER INSIDERS EMPLOYED BY THE COMPANY
Dr. Lippa's daughter, Morgen Lippa, and Dr. Beer's son, Gary Beer, have each
worked at the Company for approximately four years and today serve as
controller/project manager and director data management, respectively, at
salaries of $65,500.
OTHER SHAREHOLDERS
Aurora Capital has acted as financial advisor to the Company and its principal
Jeff Margolis is acting chief financial officer of the Company. Mr. Margolis
holds 33,630 shares of Common Stock and 73,071 warrants with exercise prices
ranging from $4.04 per share (41,873 shares) to $4.42 per share (31,198 shares).
Joseph Siegelbaum, Marc Friedman and Robert Horton, who are attorneys with
Goodwin, Procter & Hoar, the Company's counsel, have equity interests in the
Company. Messrs. Friedman and Siegelbaum are the general partners of Frisie
Associates, which owns 75,000 shares of Common Stock. Mr. Siegelbaum also holds
directly 25,000 options exercisable at $4.00 per share. Mr. Horton holds 25,000
options exercisable at $4.50 per share. All three received their equity
interests prior to joining the Company's current counsel.
<Page>
SCHEDULE 2.12 - TAX MATTERS
Pursuant to the Employment Agreements of Drs. Lippa and Beer, each are entitled,
in addition to basic compensation and bonuses, to certain incentive
compensation, including (i) $50,000 for each in-licensing or out-licensing of a
pharmaceutical compound developed by the Company; (ii) $10,000 for the
achievement of certain milestones (as set forth therein). Each of Drs. Lippa and
Beer holds stock options that if exercised could result in a taxable
compensation event for the Company at the exercise price. As such, the total
compensation for each of Drs. Lippa and Beer could, depending on the timing and
amount of the exercise, amount to an excess of the limit set forth in Section
280G and/or 162 of the Code.
<Page>
SCHEDULE 2.13 - MATERIAL CONTRACTS
1. License Agreement, dated as of May 22, 1998, between the Company and
American Cyanamid Company ("ACY").
2. The Company has an agreement with Summit Bank to provide a line of credit,
in the form of an overdraft allowance, up to $25,000.
3. Placement Agency Letter Agreement, dated as of January 15, 1999, as
supplemented by a letter Agreement dated March 21, 2000, between Aurora
and the Company.
4. Sublicense and Development Agreement, dated as of June 30, 1998, between
the Company and Neurocrine.
5. Warrant Agreement, dated as of June 30, 1998 between the Company and
Neurocrine.
6. Registration Rights Agreement, dated as of June 30, 1998, among Neurocrine
and certain of its security holders, including the Company.
7. Employment Agreement, dated as of December 10, 1998, between the Company
and Arnold Lippa.
8. Employment Agreement, dated as of December 10, 1998, between the Company
and Bernard Beer.
9. Employment Agreement, dated as of July 1, 1999, between the Company and
Stephen Petti.
10. Employment Agreement, dated as of July 12, 1999, between the Company and
Paul Schiffrin.
11. Employment Agreement, dated as of July 10, 2000, between the Company and
Phil Skolnick.
12. Warrant Agreement, dated as of January 21, 1999, between the Company and
EIS. Pursuant to which EIS has the right to purchase Common Stock.
13. Joint Development and Operating Agreement, dated as of January 21, 1999,
among the Company, EIS, Elan, DOV Newco and Nascime.
14. License Agreement, dated as of January 21, 1999, between Nascime and the
Company.
15. License Agreement, dated as of January 21, 1999, between Nascime and Elan.
16. The Convertible Exchangeable Note.
<Page>
17. The Convertible Note.
18. Registration Rights Agreement, dated as of January 21, 1999, between the
Company and EIS.
19. Registration Rights Agreement, dated as of January 21, 1999, among the
Company, DOV Newco and EIS.
20. Letter Agreement, dated as of January 21, 1999, among the Company, DOV
Newco, EIS, Elan and Nascime.
21. The Company has issued 1,172,000 options to purchase Common Stock.
22. The Company is party to various office equipment lease agreements.
23. The Company has issued securities to Neurocrine, EIS, and the holders of
Series C Preferred pursuant to, respectively, a Preferred Sock Purchase
Agreement, dated as of June 30, 1998, the EIS Purchase Agreement and the
Preferred Stock Purchase Agreement, dated as of June 20, 2000, and while
the issuance of securities pursuant to these agreements has closed,
certain representations and warranties surviving the closing may be
enforceable by respective purchasers thereto against the Company.
24. License, Research and Development Agreement (the "BIOVAIL LICENSE
AGREEMENT"), dated as of January 12, 2001, by the Company and Biovail
Laboratories Incorporated, a Barbados corporation ("BIOVAIL")(2).
25. Consultation Agreement, dated as of September 9, 1999, between the Company
and Analgesic Development Ltd.
26. Consultation Agreement, dated as of September 9, 1999, between the Company
and Dr. Eugene Laska.
27. Consultation Agreement, dated as of September 9, 1999, between the Company
and Dr. Mitchell Max.
28. Consultation Agreement, dated as of September 9, 1999, between the Company
and Dr. Marion Finkel.
29. Consultation Agreement, dated as of March 15, 1999, between the Company
and Dr. Charles Kumkumian.
30. The Company's 1998 and 2000 Plans.
- ----------
(2) Elan Consent Withheld to Biovail License Agreement, please refer to
SCHEDULE 2.7 for a description.
<Page>
31. Private Placement Agreement, dated as of November 20, 2000, between the
Company and Lazard.
32. EIS filed a UCC-1 financing statement with the New Jersey Secretary of
State on February 3, 1999, whereby EIS has a lien on 6,020 shares of DOV
Newco voting common stock, $1.00 par value, held by the Company in
connection with the Joint Venture, together with all certificates
representing any shares of capital stock issued in addition to, in
substitution or in exchange for, or on account of any such shares.
33. Stockholder Agreement, dated as of June 20, 2000, among the Company,
Arnold Lippa, Bernard Beer and the holders of Series C Preferred.
34. Registration Rights Agreement, dated as of June 20, 2000, among the
Company and the holders of Series C Preferred.
35. Employment Agreement, dated as of January 4, 1999, between the Company and
Gary Beer.
36. Employment Agreement, dated as of January 4, 1999, between the Company and
Morgen Lippa.
37. Employment Agreement, dated as of August 2, 1999, between the Company and
AnnMarie Dodson.
38. Employment Agreement, dated as of September 13, 1999, between the Company
and Brenda Blowe.
39. Employment Agreement, dated as of November 21, 1999, between the Company
and Margarita Strand.
40. Employment Agreement, dated as of February 3, 2000, between the Company
and Jill E. Stark.
41. Employment Agreement, dated as of June 1, 2000, between the Company and
Cynthia Gillman.
42. Employment Agreement, dated as of March 20, 2001, between the Company and
Richard Vogel.
43. Employment Agreement, dated as of May 21, 2001, between the Company and
Jenny Shun Lee Leung.
44. Employment Agreement, dated as of June 11, 2001, between the Company and
David Levy.
<Page>
45. Consultation Agreement, dated as of March 27, 2000, between the Company
and Katja Nonhoff.
46. Consultation Agreement, dated as of August 7, 2000, between the Company
and Thomas Henry.
47. Consultation Agreement, dated as of January 5, 2001, between the Company
and Michael Linden.
48. Consultation Agreement, dated as of April 9, 2001, between the Company and
Sheila Bess Beckett.
49. Consultation Agreement, dated as of April 20, 2001, between the Company
and William DeGroat.
50. Consultation Agreement, dated as of May 7, 2001, between the Company and
Assia Bromberg.
51. Consultation Agreement, dated as of May 23, 2001, between the Company and
Stephen Koppel.
52. Consultation Agreement, dated as of June 10, 2001, between the Company and
Piotr Popik.
53. Consultation Agreement, dated as of June 27, 2001, between the Company and
Ken Jady.
54. Consultation Agreement, dated as of July 24, 2001, between the Company and
Robert Fenichel.
55. Consultation Agreement, dated as of July 24, 2001, between the Company and
Milestone Biomedical Associates.
56. Employment Agreement, dated as of July 30, 2001, between the Company and
Barbara Duncan.
57. Employment Agreement, dated as of June 4, 2001, between the Company and
Sheila Bess-Beckett.
58. Employment Agreement, dated as of October 16, 2000, between the Company
and Eva Czoborne.
59. Employment Agreement, dated as of August 1, 2000, between the Company and
Arlene Dudley.
60. Employment Agreement, dated as of June 27, 2000, between the Company and
Pal Czobor.
<Page>
61. Consulting Agreement, dated as of June 20, 2001, between the Company and
Scientia.
62. As part of their Employment Agreements, or as separate agreements, each of
the persons listed on SCHEDULE 2.18(a) No. 11 have entered into an
assignment of inventions agreement with the Company.
<Page>
SCHEDULE 2.14(a) - INTELLECTUAL PROPERTY
<Table>
<Caption>
- --------------------------------------------------------------------------------
PATENT NUMBER/ NATURE/ EXPIRATION DATE/
PATENT APPLICATION DOV COMPOUND ISSUE DATE/ POTENTIAL EXPIRATION
NUMBER NUMBER FILING DATE DATE
- --------------------------------------------------------------------------------
4,521,422 273,547 6/4/1985 6/23/2003
285,489
*right to use
derives from ACY
License
- --------------------------------------------------------------------------------
4,900,836 273,547 2/13/1990 2/1/2007
285,489
*right to use
derives from ACY
License
- --------------------------------------------------------------------------------
6,162,463 72,132 12/19/2000 4/28/2018
*The Company
owns this patent
- --------------------------------------------------------------------------------
6,204,804 220,075 3/20/2001 3/31/2015
216,303
*right to use
derives from ACY
License
- --------------------------------------------------------------------------------
09/758,883 21,947 1/11/2001 1/11/2021
- --------------------------------------------------------------------------------
</Table>
LICENSE AGREEMENTS
1. License Agreement, dated as of May 22, 1998, between the Company and ACY.
2. Sublicense and Development Agreement, dated as of June 30, 1998, between
the Company and Neurocine.
3. Joint Development and Operating Agreement, dated as of January 21, 1999,
among EIS, Elan, DOV Newco, Nascime and the Company.
4. License Agreement, dated as of January 21, 1999, between Nascime and the
Company.
5. License Agreement, dated as of January 21, 1999 between Elan and Nascime.
6. License, Research and Development Agreement, dated as of January 12, 2001,
between the Company and Biovail.
The Company has not conducted a trademark or trade name search regarding, and
makes no representation or warranty with respect to, its corporate name DOV
Pharmaceutical, Inc. or any variation or derivative form thereof, other than its
right to use such name as a corporation in the State of Delaware.
<Page>
SCHEDULE 2.14(b) - INTELLECTUAL PROPERTY
Please refer to SCHEDULE 2.7 for a discussion of the Andrx/Biovail litigation
and the possible implications thereof upon the Company and the nonpublic
investigation conducted by the FTC.
<Page>
SCHEDULE 2.14(c) - INTELLECTUAL PROPERTY
1. Please refer to SCHEDULE 2.7 for a description of the Andrx/Biovail
litigation.
2. Please refer to SCHEDULE 2.14(a) for a listing of the License Agreements.
<Page>
SCHEDULE 2.14(d) - INTELLECTUAL PROPERTY
Please refer to SCHEDULE 2.7 for a description of the Andrx/Biovail litigation.
<Page>
SCHEDULE 2.15 - LITIGATION
Please refer to SCHEDULE 2.7 for a discussion of the Andrx/Biovail litigation
and the possible implications thereof upon the Company and the nonpublic
investigation conducted by the FTC.
<Page>
SCHEDULE 2.16 - LABOR MATTERS
Please refer to SCHEDULE 2.8(g).
<Page>
SCHEDULE 2.17 - PERMITS; COMPLIANCE WITH LAWS
Please refer to SCHEDULE 2.7 for a discussion of the nonpublic investigation
conducted by the FTC.
<Page>
SCHEDULE 2.18(a) - EMPLOYEE BENEFIT PROGRAMS
1. Group Medical Plan
2. Group Dental Plan
3. Group Life Insurance
4. Long-Term Disability Insurance
5. Worker's Compensation and Employer's Liability Insurance
6. Unemployment Insurance
7. 1998 Stock Option Plan
8. 2000 Stock Option and Grant Plan
9. Paid vacation, sick days, personal days and holidays
10. The following list of persons entered into employment agreements with the
Company:
Sheila Bess-Beckett
Bernard Beer
Gary Beer
Brenda Blowe
Eva Czoborne
Pal Czobor
AnnMarie Dodson
Arlene Dudley
Barbara Duncan
Cynthia Gillman
Zola Horovitz
Jenny Shun Lee
David Levy
Arnold Lippa
Morgen Lippa
Stephen Petti
Paul Schiffrin
Phil Skolnick
Jill Stark
Margarita Strand
Richard Vogel
<Page>
11. As part of their Employment Agreements, or as separate agreements, each of
the following persons have entered into an assignment of inventions agreement
with the Company:
Sheila Bess-Beckett
Bernard Beer
Gary Beer
Brenda Blowe
Pal Czobor
Eva Czoborne
William De Groat
AnnMarie Dodson
Arlene Dudley
Joe Epstein
David Farb
Cynthia Gillman
Stacey Gillman
Gerril Griffith
Tom Henry
Janet Jakubowitz
Julius Kahn
Zev Kahn
Stephen Koppel
Jenny Leung
David Levy
Michael Linden
Arnold Lippa
Morgen Lippa
Katja Nonhoff
Jeff Margolis
Stephen Petti
Loren Piccione
Piotr Popik
Mark Radin
Paul Schiffrin
Phil Skolnick
Jill Stark
Carol Stevenson
Margarita Strand
Richard Vogel
<Page>
SCHEDULE 2.19 - INSURANCE COVERAGE
1. Management Liability Insurance Policy issued by Carolina Casualty
Insurance Company, dated as of August 2001.
2. Commercial Umbrella Policy issued by Continental Casualty Company, dated
as of April 30, 2001, which includes general liability, employer's
liability and employee benefit liability coverage.
3. Products/Completed Liability Policy issued by Lexington Insurance Company,
dated as of June 6, 2001.
<Page>
SCHEDULE 2.21 - CUSTOMERS; DISTRIBUTORS AND PARTNERS
1. American Cyanamid Company
2. Neurocrine Biosciences, Inc.
3. Elan Corporation, Plc and Elan International Services, Ltd.
4. Biovail Laboratories Incorporated
<Page>
SCHEDULE 2.26 - INVESTMENT BANKING; BROKERAGE
1. In connection with the transactions contemplated by this Agreement, the
Company will owe certain fees to Lazard as more particularly set forth in
the Private Placement Agreement, dated as of November 20, 2000, between
the Company and Lazard. Under an arrangement between Aurora and Lazard,
Lazard will transfer certain of such fees to Aurora for its assistance in
placement services.
<Page>
EXHIBIT A
DOV PHARMACEUTICAL, INC.
SERIES D PREFERRED INVESTORS ($10 PER SHARE)
<Table>
<Caption>
- --------------------------------------------------------------------------------
SERIES D PREFERRED
INVESTORS SHARES AMOUNT ($)
- --------------------------------------------------------------------------------
Merlin BioMed Private Equity Fund, L.P. 500,000 5,000,000
- --------------------------------------------------------------------------------
Oppenheimer Discovery Fund 300,000 3,000,000
- --------------------------------------------------------------------------------
Biotechnology Value Fund, L.P. 10,000 100,000
- --------------------------------------------------------------------------------
Biotechnology Value Fund II, L.P. 4,000 40,000
- --------------------------------------------------------------------------------
Investment 10 LLC 2,000 20,000
- --------------------------------------------------------------------------------
BVF Investments LLC 9,000 90,000
- --------------------------------------------------------------------------------
Perceptive Life Sciences Master Fund Ltd. 50,000 500,000
- --------------------------------------------------------------------------------
Bruce Wainer 10,000 100,000
- --------------------------------------------------------------------------------
GA H & B MP PS F/B/O Aaron Harrison 10,000 100,000
- --------------------------------------------------------------------------------
Integrated Risk Facilities Holdings, Inc. 10,000 100,000
- --------------------------------------------------------------------------------
Skip Klein III 10,000 100,000
- --------------------------------------------------------------------------------
Roger Samet 5,000 50,000
- --------------------------------------------------------------------------------
Ardara US Direct Investment Ltd. 100,000 1,000,000
- --------------------------------------------------------------------------------
Dacha Capital, Inc. 20,000 200,000
--------- ----------
- --------------------------------------------------------------------------------
1,040,000 10,400,000
========= ==========
- --------------------------------------------------------------------------------
</Table>
<Page>
EXHIBIT B
[SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION]
<Page>
EXHIBIT C
[FORM OF AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT]
<Page>
EXHIBIT D
[FORM OF LIQUIDATION PROCEEDS AGREEMENT]
<Page>
EXHIBIT E
[FORM OF REGISTRATION RIGHTS AGREEMENT]
<Page>
EXHIBIT F
[FORM OF OPINION OF COUNSEL]