8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 28, 2010

VAXGEN, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	0-26483	94-3236309
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

379 Oyster Point Boulevard, Suite 10, South San Francisco, California	94080
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (650) 624-1000

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

þ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

Agreement and Plan of Merger

On May 28, 2010, VaxGen, Inc. (“VaxGen”) entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Violet Acquisition Corporation, a wholly owned subsidiary of VaxGen (“Merger Sub I”), Violet Acquisition LLC, a wholly owned subsidiary of VaxGen (“Merger Sub II”), diaDexus, Inc. (“diaDexus”) and John E. Hamer, as representative of diaDexus’ stockholders. Upon the terms and subject to the conditions set forth in the Merger Agreement, diaDexus will become a wholly owned subsidiary of VaxGen through a merger of Merger Sub I with and into diaDexus with diaDexus as the surviving company (“Merger I”) and immediately following the effectiveness of Merger I, a merger of diaDexus with and into Merger Sub II (“Merger II” and together with Merger I, the “Merger”).

Upon the terms and subject to the conditions set forth in the Merger Agreement, by virtue of the Merger, each outstanding share of Series F Preferred Stock of diaDexus (“Series F Preferred”) will be converted into the right to receive common stock of VaxGen. Based upon the shares of diaDexus Series F Preferred and VaxGen common stock outstanding as of the date of the Merger Agreement, the holders of Series F Preferred would receive approximately 1.7583 shares of common stock of VaxGen for each share of Series F Preferred, which is equal to 19,059,153 shares of VaxGen common stock, assuming VaxGen advances to diaDexus pursuant to the Loan Agreement (described below) do not exceed $4 million. The actual exchange ratio will be determined immediately prior to the effective time of the Merger (the “Effective Time”).

Consistent with the requirements of diaDexus’s certificate of incorporation, each share of diaDexus Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common Stock and all options and warrants to purchase diaDexus capital stock will be canceled immediately prior to the Effective Time without any payment of consideration.

Eight percent of the shares of VaxGen common stock issued as Merger consideration will be allocated to diaDexus employees pursuant to the diaDexus Bonus Retention Plan, dated May 1, 2008, as amended (the “Bonus Retention Plan”). The number of shares issued to the Bonus Retention Plan participants will be reduced in order to account for any diaDexus tax withholding obligations under the plan. Immediately after the Merger, the holders of VaxGen common stock prior to the Merger will own approximately 61.51% of the common stock of VaxGen, and the holders of diaDexus Series F Preferred and the Bonus Retention Plan participants will, in the aggregate, own approximately 38.49% of the common stock of VaxGen (the “diaDexus Ownership Percentage”), assuming (i) no shares issued to the Bonus Retention Plan participants are withheld to satisfy withholding obligations and (ii) VaxGen advances to diaDexus pursuant to the Loan Agreement do not exceed $4 million. For each dollar that the VaxGen advances to diaDexus pursuant to the Loan Agreement exceeds $4 million, the diaDexus Ownership Percentage will be reduced by 0.000001915.

The Board of Directors of the combined company will consist of five members and will include Lori Rafield and James Panek as the VaxGen designees.

Consummation of the Merger (the “Closing”) is subject to Closing conditions, including among other things, (i) the California Commissioner of Corporations having issued a permit under Section 25121 of the California Corporations Code (following a fairness hearing) for the issuance of the VaxGen common stock to be issued in the Merger or a registration statement on Form S-4 having been declared effective by the Securities and Exchange Commission (the “SEC”), (ii) adoption and approval of the Merger Agreement by the requisite vote of the diaDexus stockholders, (iii) the absence of a material adverse event with respect to VaxGen or diaDexus between the execution of the Merger Agreement and Closing, and (iv) diaDexus having aggregate current liabilities, excluding the current portion of any long-term debt and the principal amount of the VaxGen bridge financing (including any interest thereon), of no more than $3.5 million and VaxGen having aggregate current liabilities, including indebtedness, but excluding obligations and deferred rent under VaxGen’s real property leases, of no more than $400,000.

Each of VaxGen and diaDexus have made customary representations, warranties and covenants in the Merger Agreement, including among others, covenants that (i) each party will conduct its business in the ordinary course of business consistent with past practice during the interim period between the execution of the Merger Agreement and the Closing; (ii) each party will not engage in certain kinds of transactions or take certain actions during such period; (iii) diaDexus will use its commercially reasonable efforts to solicit and obtain the required diaDexus stockholder vote by written consent with respect to the adoption of the Merger Agreement and the approval of the Merger, and (vi) the board of directors of diaDexus will recommend that its stockholders adopt the Merger Agreement, subject to certain exceptions.

Prior to the Closing, neither diaDexus nor VaxGen is permitted to solicit, initiate, knowingly encourage or facilitate, participate in any discussions or negotiations or entertain any proposals to be acquired other than pursuant to the Merger Agreement, subject to certain exceptions, including for diaDexus a “fiduciary out” for a superior competing proposal.

The Merger Agreement contains certain termination rights for both VaxGen and diaDexus, and further provides that, upon termination of the Merger Agreement under specified circumstances, including a decision by VaxGen or diaDexus to pursue a superior transaction, as defined in the Merger Agreement, either party may, subject to certain adjustments, be required to pay the other party a termination fee of $850,000 (provided, that, VaxGen shall be entitled to a credit of up to $200,000, corresponding to payments made to reimburse diaDexus for transaction expenses). In addition, in the event that the Merger Agreement is terminated by either diaDexus or VaxGen because of a failure to obtain the requisite approval of diaDexus stockholders and the board of directors of diaDexus determines to effect another acquisition transaction within twelve months following the date the Merger Agreement is terminated, then diaDexus shall pay VaxGen a termination fee of $850,000.

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference. In particular, the Merger Agreement and related description are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to VaxGen or diaDexus.

Voting Agreements

On May 28, 2010, in connection with the Merger Agreement, VaxGen entered into Voting Agreements with certain officers, directors and stockholders of diaDexus (“diaDexus Voting Agreements”) pursuant to which these parties agreed to vote (i) in favor of the adoption of the Merger Agreement and approval of the Merger and (ii) against approval of any proposal in opposition to or in competition with the consummation of the Merger.

Approximately 42% percent of the outstanding shares of diaDexus capital stock are subject to the Voting Agreements. The form of the Voting Agreements is filed as Exhibit 99.1 to this report and is incorporated by reference herein. The description of the Voting Agreements and VaxGen Voting Agreements set forth above does not purport to be complete and is qualified in its entirety by reference to such agreements.

Lock-Up Agreements

On May 28, 2010, in connection with the Merger Agreement, VaxGen entered into Lock-Up Agreements with certain officers, directors and stockholders of diaDexus (“diaDexus Lock-Up Agreements”) pursuant to which these parties agreed to not effect any sale, transfer or other disposition of any VaxGen common stock received in the Merger unless such sale, transfer or other disposition is made in compliance with the resale provisions set forth in paragraph (d) of Rule 145 of the Securities Act of 1933, as amended (the “Securities Act”), as if such stockholder were deemed an “affiliate” of diaDexus, as such term is defined for purposes of paragraphs (c) and (d) of Rule 145 under the Securities Act. Approximately 60% percent of the outstanding shares of diaDexus capital stock are subject to the Lock-Up Agreements.

The form of the Lock-Up Agreements is filed as Exhibit 99.2 to this report and is incorporated by reference herein. The description of the Lock-Up Agreements set forth above does not purport to be complete and is qualified in its entirety by reference to such agreements.

Loan Agreement

On May 28, 2010, in connection with the Merger Agreement, VaxGen entered into a Loan Agreement (the “Loan Agreement”) with diaDexus. Pursuant to the Loan Agreement, VaxGen has agreed to make loans to diaDexus in the principal amount of up to $6 million. The initial advance of $3,000,000 under the Loan Agreement was made on May 28, 2010. The second advance of $1,000,000 will be made, upon request of diaDexus, at any time after June 28, 2010 and the third and fourth advances of $1,000,000 may be made at VaxGen’s sole and absolute discretion. The loans made pursuant to the Loan Agreement will bear interest at 10% payable at maturity, and will be secured by all of diaDexus’ assets on a pari-passu basis with certain secured promissory notes issued on May 28, 2010 by diaDexus, evidencing loans by certain of its stockholders in the aggregate principal amount of $1.5 million. The security interests will be granted pursuant to a Security and Collateral Agency Agreement entered into on

May 28, 2010, by and among diaDexus, VaxGen and the purchasers of the secured promissory notes (the “Collateral Agreement”), pursuant to which VaxGen will serve as collateral agent for itself and the purchasers of the secured promissory notes. The security interests will be first priority security interests, subject to pre-existing liens and certain permitted liens.

The loans pursuant to the Loan Agreement will mature on the earliest of: (a) the earlier of (i) the last day of the twelfth full calendar month following the date of termination of the Merger Agreement and (ii) the consummation of a Company Acquisition Transaction (as defined in the Merger Agreement), (b) the stated maturity date of the $1.5 million of diaDexus’s secured promissory notes, (c) immediately upon certain bankruptcy events of default, and (d) immediately upon notice of acceleration given by VaxGen following any other events of default. Upon the Closing, the loans made by VaxGen to diaDexus will be forgiven.

The foregoing description of the Loan Agreement and the Collateral Agreement does not purport to be complete and is qualified in its entirety by reference to a full text of the Loan Agreement, which is attached as Exhibit 10.1 to this Current Report on Form 8-K, and is incorporated herein by reference, and a full text of the Collateral Agreement, which is attached as Exhibit 10.2 to this Current Report on Form 8-K, and is incorporated herein by reference.

Amended and Restated Employment Agreement

On May 27, 2010, VaxGen approved an amendment (the “Amendment”) to the Amended and Restated Employment Agreement, dated April 20, 2010, by and between VaxGen and James Panek (the “Original Agreement”). Pursuant to the Original Agreement, Mr. Panek was entitled to be paid a one-time cash bonus equal to a maximum of 20% of his annual base salary (the “Panek Bonus”) upon a Change of Control (as defined in the Original Agreement) which definition did not cover the Merger. Pursuant to the Amendment, Mr. Panek will also be paid the Panek Bonus upon the consummation of the Merger.

The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to a full text of the Amendment, which is attached as Exhibit 10.3 to this Current Report on Form 8-K, and is incorporated herein by reference.

Item 8.01. Other Events.

On May 28, 2010, VaxGen issued a press release announcing the execution of the Merger Agreement, a copy of which is filed as Exhibit 99.3 to this Current Report on Form 8-K, and is incorporated herein by reference.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about diaDexus and VaxGen. Such statements include, but are not limited to, statements about the proposed transaction and its potential benefits to the diaDexus and VaxGen stockholders, the expected timing of the completion of the transaction, the

combined company’s plans, objectives, expectations and intentions with respect to future operations and products and other statements that are not historical in nature, particularly those that utilize terminology such as “will,” “potential,” “could,” “can,” “believe,” “intends,” “continue,” “plans,” “expects,” “estimates” or comparable terminology. Forward-looking statements are based on current expectations and assumptions, and entail various known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Important factors known to diaDexus and VaxGen that could cause actual results to differ materially from those expressed in such forward-looking statements include the risk of general business and economic conditions; the failure of the diaDexus stockholders to approve the transaction; the failure of either party to meet any of the other conditions to the closing of the transaction; the failure to realize the anticipated benefits from the transaction or delay in realization thereof; diaDexus’ need for and ability to obtain additional financing; the sufficiency of available capital to allow diaDexus to grow revenue or achieve profitability; the risk that diaDexus is unable to obtain required regulatory approvals and to commercially reintroduce its PLAC TIA test in a timely manner, or at all, or that diaDexus revenues are materially adversely affected by the issuance of a “do not use” letter to diaDexus customers with respect to the PLAC TIA test, the technical and commercial merits and potential of diaDexus’ diagnostic products; and the difficulty of developing pharmaceutical and diagnostic products, obtaining regulatory and other approvals and achieving market acceptance. Additional factors that could cause VaxGen’s results to differ materially from those described in the forward-looking statements can be found in VaxGen’s most recent annual reports on Form 10-K and subsequent quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission, which are filed with the SEC and available at the SEC’s web site at www.sec.gov and which discussions also are incorporated herein by reference. The information set forth herein speaks only as of the date hereof, and diaDexus and VaxGen disclaim any intention and do not assume any obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise.

Additional Information

In connection with the proposed merger, VaxGen may file with the SEC a registration statement on Form S-4, which will include a prospectus of VaxGen and other relevant materials in connection with the proposed transactions, and may file with the SEC other documents regarding the proposed transaction. The final prospectus would be mailed to the stockholders of diaDexus. Investors and security holders of diaDexus are urged to read the prospectus (including any amendments or supplements thereto) and the other relevant material carefully in their entirety IF AND when they become available because they will contain important information about diaDexus, VaxGen and the proposed transaction.

This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended or an exemption therefrom.

Upon filing, any prospectus and other relevant materials (when and if they become available), and any and all documents filed with the SEC, may be obtained free of charge at the SEC’s web site at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by VaxGen by directing a written request VaxGen, Inc., 379 Oyster Point Boulevard, Suite 10, South San Francisco, CA 94080, Attention: Investor Relations.

Item 9.01. Financial Statements and Exhibits.

Exhibit
Number	Description
2.1	Agreement and Plan of Merger and Reorganization, dated May 28, 2010, by and among VaxGen, Inc., Violet Acquisition Corporation, Violet Acquisition LLC and diaDexus, Inc.*
10.1	Loan Agreement, dated as of May 28, 2010, entered into by and between diaDexus, Inc. and VaxGen, Inc.
10.2	Security and Collateral Agency Agreement dated as of May 28, 2010, by and among diaDexus, Inc., the secured parties listed on the signature pages thereto and VaxGen, Inc., in its capacity as Collateral Agent.
10.3	Amended and Restated Executive Employment Agreement between James P. Panek and VaxGen, Inc., dated May 27, 2010.
99.1	Form of Voting Agreement, dated May 28, 2010, by and among certain directors, officers and stockholders of diaDexus, Inc. and VaxGen, Inc.
99.2	Form of Lock-Up Agreement, dated May 28, 2010, by and among certain directors, officers and stockholders of diaDexus, Inc. and VaxGen, Inc.
99.3	Press release dated May 28, 2010 entitled, “VaxGen to acquire diaDexus in a stock-for-stock merger under revised terms.”

* Certain schedules referenced in the Agreement and Plan of Merger and Reorganization have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	VaxGen, Inc. (Registrant)
Dated: May 28, 2010	By:	/s/ James P. Panek
		Name:	James P. Panek
		Title:	President

EXHIBIT INDEX

Item 9.01. Financial Statements and Exhibits.

Exhibit
Number	Description
2.1	Agreement and Plan of Merger and Reorganization, dated May 28, 2010, by and among VaxGen, Inc., Violet Acquisition Corporation, Violet Acquisition LLC and diaDexus, Inc.*
10.1	Loan Agreement, dated as of May 28, 2010, entered into by and between diaDexus, Inc. and VaxGen, Inc.
10.2	Security and Collateral Agency Agreement dated as of May 28, 2010, by and among diaDexus, Inc., the secured parties listed on the signature pages thereto and VaxGen, Inc., in its capacity as Collateral Agent.
10.3	Amended and Restated Executive Employment Agreement between James P. Panek and VaxGen, Inc., dated May 27, 2010.
99.1	Form of Voting Agreement, dated May 28, 2010, by and among certain directors, officers and stockholders of diaDexus, Inc. and VaxGen, Inc.
99.2	Form of Lock-Up Agreement, dated May 28, 2010, by and among certain directors, officers and stockholders of diaDexus, Inc. and VaxGen, Inc.
99.3	Press release dated May 28, 2010 entitled, “VaxGen to acquire diaDexus in a stock-for-stock merger under revised terms.”

* Certain schedules referenced in the Agreement and Plan of Merger and Reorganization have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.

EX-2.1

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

BY AND AMONG

VAXGEN, INC.,

VIOLET ACQUISITION CORPORATION,

VIOLET ACQUISITION LLC,

DIADEXUS, INC., AND

JOHN E. HAMER, as Company Stockholders’ Agent

Dated as of May 28, 2010

TABLE OF CONTENTS

	Page
Article 1 THE TRANSACTION		2
1.1 The Transaction		2
1.2 Effective Time		2
1.3 Effect of the Transaction		3
1.4 Certificate of Incorporation; Bylaws; Certificate of Formation; Operating Agreement		3
1.5 Directors, Managers and Officers of the Surviving Corporation and Surviving Entity; Name of Parent		3
1.6 Effect on Capital Stock		4
1.7 Dissenting Shares		7
1.8 Exchange of Certificates		7
1.9 Stock Transfer Books		8
1.10 No Further Ownership Rights in Company Stock		9
1.11 Tax Consequences		9
1.12 Taking of Necessary Action; Further Action		9
Article 2 REPRESENTATIONS AND WARRANTIES OF COMPANY		9
2.1 Organization of Company		9
2.2 Capital Structure		10
2.3 Obligations with Respect to Capital Stock		11
2.4 Authority		11
2.5 Section 203 of Delaware Law not Applicable		12
2.6 Company Financial Statements; No Undisclosed Liabilities		13
2.7 Absence of Certain Changes or Events		13
2.8 Taxes		13
2.9 Intellectual Property		15
2.10 Compliance; Permits; Restrictions		17
2.11 Litigation		19
2.12 Brokers’ and Finders’ Fees		19
2.13 Employee Benefit Plans		19
2.14 Absence of Liens and Encumbrances; Condition of Equipment		23
2.15 Environmental Matters		23
2.16 Labor Matters		24
2.17 Agreements, Contracts and Commitments		24
2.18 Permit Application; Information Statement		26
2.19 Corporate Approval		26
2.20 Books and Records		26
2.21 Restrictions on Business Activities		27
2.22 Real Property Leases		27
2.23 Insurance		27
2.24 Certain Business Practices		28
2.25 Suppliers		28
2.26 Government Contracts		28
2.27 Interested Party Transactions		29
2.28 Disclosure		29
2.29 Product Liability; Product Warranties		29
2.30 Reorganization Matters		29

i

	Page
Article 3 REPRESENTATIONS AND WARRANTIES OF PARENT		30
3.1 Organization of Parent		30
3.2 Capital Structure		31
3.3 Obligations with Respect to Capital Stock		31
3.4 Authority		32
3.5 Section 203 of Delaware Law not Applicable		32
3.6 SEC Filings; Parent Financial Statements; No Undisclosed Liabilities		33
3.7 Absence of Certain Changes or Events		33
3.8 Taxes		34
3.9 Intellectual Property		35
3.10 Compliance; Permits; Restrictions		36
3.11 Litigation		36
3.12 Brokers’ and Finders’ Fees		36
3.13 Employee Benefit Plans		37
3.14 Absence of Liens and Encumbrances; Condition of Equipment		40
3.15 Environmental Matters		40
3.16 Labor Matters		41
3.17 Agreements, Contracts and Commitments		41
3.18 Permit Application; Registration Statement; Information Statement		43
3.19 Corporate Approval		43
3.20 Books and Records		43
3.21 Restrictions on Business Activities		43
3.22 Real Property Leases		43
3.23 Insurance		44
3.24 Certain Business Practices		44
3.25 Government Contracts		44
3.26 Interested Party Transactions		45
3.27 Fairness Opinion		45
3.28 Reorganization Matters		45
Article 4 CONDUCT OF BUSINESS PENDING THE		47
4.1 Conduct of Company Business		47
4.2 Conduct of Parent Business		49

ii

	Page
Article 5 ADDITIONAL AGREEMENTS		51
5.1 Fairness Hearing and Permit Application; Registration Statement		51
5.2 Consent of Company Stockholders		53
5.3 Access to Information; Confidentiality		55
5.4 Consents; Approvals		55
5.5 Director Indemnification and Insurance		56
5.6 Notification of Certain Matters		56
5.7 Financial Statements		57
5.8 Public Announcements		57
5.9 Tax Free Reorganization		58
5.10 Board of Directors and Officers of Parent		58
5.11 Non-Solicitation by Company		58
5.12 Non-Solicitation by Parent		60
5.13 Company Stockholders’ Agent		61
5.14 Section 16 Matters		62
5.15 280G		63
5.16 Updated Merger Consideration Spreadsheet		63
5.17 Tax Matters		63
Article 6 CONDITIONS TO THE TRANSACTION		63
6.1 Conditions to Obligation of Each Party to Effect the Transaction		63
6.2 Additional Conditions to Obligations of Parent		64
6.3 Additional Conditions to Obligations of Company		66
Article 7 TERMINATION		67
7.1 Termination		67
7.2 Notice of Termination; Effect of Termination		68
7.3 Expenses; Termination Fees		69
Article 8 INDEMNIFICATION		70
8.1 Survival of Representations and Warranties		70
8.2 Indemnification and Escrow Fund		70
8.3 Limitations on Indemnification		71
8.4 Procedure for Recovery from Escrow Fund		72
8.5 Defense of Third Party Claims		72
8.6 Indemnification Claims		73

iii

	Page
Article 9 GENERAL PROVISIONS		74
9.1 Notices		74
9.2 Amendment		76
9.3 Headings		76
9.4 Severability		76
9.5 Entire Agreement		76
9.6 Assignment		76
9.7 Parties In Interest		77
9.8 Waiver		77
9.9 Remedies Cumulative		77
9.10 Governing Law; Jurisdiction; Specific Performance		77
9.11 Counterparts		77
9.12 Attorney Fees		78
9.13 Cooperation		78
9.14 Construction		78

Exhibits
Exhibit A	Certain Definitions
Exhibit B	Form of Company Voting Agreement
Exhibit C	Form of Lock-Up Agreement
Exhibit D	Form of Certificate of Merger I
Exhibit E	Form of Certificate of Merger II
Exhibit F	Form of Escrow Agreement
Exhibit G	Merger Consideration Spreadsheet

iv

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, is made and entered into as of May 28, 2010 (the “Agreement”), by and among VaxGen, Inc. a Delaware corporation (“Parent”), Violet Acquisition Corporation, a Delaware corporation (“Merger Sub I”), Violet Acquisition LLC, a Delaware limited liability company (“Merger Sub II” and together with Merger Sub I, the “Merger Subs”), diaDexus, Inc., a Delaware corporation (“Company”), and John E. Hamer, as the “Company Stockholders’ Agent”. Certain capitalized terms used in this Agreement are defined in Exhibit A.

RECITALS:

WHEREAS, the boards of directors of Parent and Company have each determined that it is advisable and in the best interests of their respective stockholders for Parent to enter into a business combination with Company upon the terms and subject to the conditions set forth herein.

WHEREAS, upon the terms and subject to the conditions set forth herein, Parent, Merger Subs and Company intend to effect (i) a merger of Merger Sub I with and into Company with Company as the surviving corporation (the “Merger I”) in accordance with the applicable provisions of the Delaware General Corporation Law (“Delaware Law”) and (ii) immediately following the effectiveness of Merger I, a merger of Company with and into Merger Sub II in accordance with applicable provisions of Delaware Law and the Delaware Limited Liability Company Act (“DLLCA”) (“Merger II” and together with Merger I, the “Transaction”). Upon consummation of the Transaction, Company will cease to exist and Merger Sub II will succeed to all of Company’s business, assets and liabilities.

WHEREAS, Parent, Merger Subs and Company intend that Merger I and Merger II shall be treated as an integrated transaction and that the Transaction shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder;

WHEREAS, as a condition to the willingness of, and an inducement to Parent to enter into this Agreement, contemporaneously with the execution and delivery of this Agreement, each of the Company Voting Agreement Signatories is entering into a voting agreement, in favor of Parent, in substantially the form of Exhibit B attached hereto (the “Company Voting Agreements”), under which the Company Voting Agreement Signatories will agree to vote as stockholders in favor of the Transaction and against any competing proposal pursuant to the terms and conditions of the Company Voting Agreements, and each of the Company Lock-Up Agreement Signatories is entering into a lock-up agreement, in substantially the form of Exhibit C attached hereto (the “Lock-Up Agreements”); and

WHEREAS, on or prior to the date hereof, Company shall have consummated the Company Bridge Financing.

1

AGREEMENT:

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

ARTICLE 1

THE TRANSACTION

1.1 The Transaction.

(a) Merger of Merger Sub I into Company. Subject to and upon the terms and conditions of this Agreement and Delaware Law, Merger Sub I shall be merged with and into Company, the separate corporate existence of Merger Sub I shall cease, and Company shall continue as the surviving corporation. Company as the surviving corporation after Merger I is hereinafter sometimes referred to as the “Surviving Corporation.”

(b) Merger of Surviving Corporation into Merger Sub II. Subject to and upon the terms and conditions of this Agreement and applicable provisions of Delaware Law and the DLLCA, Surviving Corporation shall be merged with and into Merger Sub II, the separate corporate existence of Surviving Corporation shall cease, and Merger Sub II shall continue as the surviving entity. Merger Sub II as the surviving entity after Merger II is hereinafter sometimes referred to as the “Surviving Entity.”

(c) Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 7.1, and subject to the satisfaction or waiver of the conditions set forth in Article 6 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), the consummation of the Transaction will take place as promptly as practicable (and in any event within two (2) business days) after satisfaction or waiver of the conditions set forth in Article 6 (the “Closing”), at the offices of Cooley LLP, 3175 Hanover Street, Palo Alto, CA 94304-1130, unless another date, time or place is agreed to in writing by the parties hereto (the “Closing Date”).

1.2 Effective Time. On the Closing Date, Parent, Merger Sub I and Company shall cause Merger I to be consummated by filing a Certificate of Merger for Merger I in accordance with the relevant provisions of Delaware Law (the “Certificate of Merger I”), in substantially the form of Exhibit D attached hereto, together with any required related certificates, with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, Delaware Law (the time of such filing being the “Effective Time of Merger I”). Immediately following the Effective Time of Merger I, Parent, Merger Sub II and the Surviving Corporation shall cause Merger II to be consummated by filing a Certificate of Merger for Merger II in accordance with the relevant provisions of Delaware Law and the DLLCA (the “Certificate of Merger II”), in substantially the form of Exhibit E attached hereto, together with any required certificates, with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, Delaware Law and the DLLCA (the time of such filing being the “Effective Time of Merger II”).

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1.3 Effect of the Transaction. The effect of the Transaction shall be as provided in this Agreement, the Certificate of Merger I, the Certificate of Merger II, and the applicable provisions of Delaware Law and the DLLCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time of Merger II all the property, rights, privileges, powers and franchises of Company shall vest in the Surviving Entity, and all debts, liabilities, obligations and duties of Company shall become the debts, liabilities, obligations and duties of the Surviving Entity.

1.4 Certificate of Incorporation; Bylaws; Certificate of Formation; Operating Agreement. Unless otherwise determined by Parent and Company:

(a) Certificate of Incorporation. The certificate of incorporation of Merger Sub I, as in effect immediately prior to the Effective Time of Merger I, shall be the certificate of incorporation of the Surviving Corporation until thereafter amended as provided by Delaware Law and such certificate of incorporation.

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

(c) Certificate of Formation. The Certificate of Formation of the Surviving Entity immediately after the Effective Time of Merger II shall be in a form approved by Parent.

(d) Operating Agreement. The Operating Agreement of the Surviving Entity immediately after the Effective Time of Merger II shall be in a form approved by Parent and in compliance with Section 5.5(a).

1.5 Directors, Managers and Officers of the Surviving Corporation and Surviving Entity; Name of Parent. Unless otherwise determined by Parent and Company:

(a) the board of directors of the Surviving Corporation immediately after the Effective Time of Merger I shall be the board of directors of Merger Sub I;

(b) the officers of Company immediately prior to the Effective Time of Merger I shall be the officers of the Surviving Corporation immediately following the Effective Time of Merger I until such time as their respective successors are duly elected or appointed;

(c) the board of managers of the Surviving Entity immediately after the Effective Time of Merger II shall be as set forth on Schedule 1.5 attached hereto;

(d) the officers of the Surviving Corporation immediately prior to the Effective Time of Merger II shall be the officers of the Surviving Entity immediately following the Effective Time of Merger II until such time as their respective successors are duly elected or appointed; and

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(e) promptly following the Effective Time of Merger II, the name of Parent shall be changed to diaDexus, Inc. and Patrick Plewman shall be appointed President and Chief Executive Officer of Parent.

1.6 Effect on Capital Stock.

(a) Conversion of Company Capital Stock and Merger Sub I Common Stock. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time of Merger I, by virtue of Merger I and without any action on the part of Parent, Merger Sub I, Company, any stockholder of Company or any other Person:

(i) Company Series F Preferred Stock. Every share of Company Series F Preferred Stock issued and outstanding immediately prior to the Effective Time of Merger I (excluding any shares to be canceled pursuant to Section 1.6(b)) shall, by virtue of Merger I, be converted, subject to Sections 1.6(e), 1.6(f) and 1.7, into (A) the right to receive the number of shares of validly issued, fully paid and nonassessable shares of common stock of Parent, $.01 par value per share (“Parent Common Stock”) equal to the Series F Exchange Ratio (less any such shares placed in the Escrow Fund, pursuant to the Merger Consideration Spreadsheet), subject to adjustment as set forth in this Agreement, and cash in lieu of any fractional shares of Parent Common Stock to be issued or paid in consideration therefor, and (B) the right to receive a pro rata share of any release of shares of Parent Common Stock held in the Escrow Fund to the Indemnifying Persons in accordance with Section 8.2 and the Escrow Agreement (the “Series F Merger Consideration”).

(ii) Other Series of Company Preferred Stock and Company Common Stock. Each share of Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock, Company Series D Preferred Stock, Company Series E Preferred Stock and Company Common Stock issued and outstanding immediately prior to the Effective Time of Merger I shall, by virtue of the Merger I, be canceled and extinguished without any conversion thereof and without payment of any consideration therefor and cease to exist. Notwithstanding the foregoing, if the Charter Value of Parent Common Stock is greater than or equal to $1.31, the parties hereto shall agree to amend this Agreement, if necessary, to amend the Series F Exchange Ratio and provide for the payment of consideration pursuant to Merger I to such other holders of Company securities as necessary to be consistent with the liquidation provisions of Company’s certificate of incorporation (it being understood that in no event shall this provision require the amendment of the Closing Company Parent Share Number).

(iii) Merger Sub I Common Stock. Each share of Merger Sub I Common Stock then outstanding shall be converted into one share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub I evidencing ownership of any such shares shall, as of the Effective Time of Merger I, evidence ownership of such shares of common stock of the Surviving Corporation.

(b) Cancellation of Company Capital Stock. Each Share held in the treasury of Company and each Share owned by Parent or by any direct or indirect wholly owned Subsidiary of Company or Parent immediately prior to the Effective Time of Merger I shall, by virtue of Merger I and without any action on the part of the holder thereof, cease to be outstanding, be canceled and extinguished without any conversion thereof and without payment of any consideration therefor and cease to exist.

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(c) Company Options. Each Company Option that is outstanding and unexercised as of immediately prior to the Effective Time of Merger I shall be terminated and cancelled at the Effective Time of Merger I and the holders of any unexercised Company Options shall not be entitled to receive any portion of the merger consideration or any other rights pursuant to this Agreement or as a stockholder of Company. Prior to the Closing Date, and subject to the review and approval of Parent, Company shall take all actions necessary to effect the transactions contemplated by this Section 1.6(c) under applicable Legal Requirements, the Company Option Plans and all Company Option agreements and any other plan or arrangement of Company (whether written or oral, formal or informal), including delivering all notices required thereby.

(d) Warrants. Prior to the Effective Time of Merger I, Company shall cause each unexercised warrant to purchase Company Common Stock or Company Preferred Stock to terminate and be cancelled. Prior to the Closing Date, and subject to the review and approval of Parent, Company shall take all actions necessary to effect the transactions contemplated by this Section 1.6(d) under applicable Legal Requirements and all warrant agreements to purchase Company Capital Stock, including delivering all notices required thereby.

(e) Adjustments to Exchange Ratio. The Series F Exchange Ratio shall be appropriately adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Capital Stock), reorganization, recapitalization or other like change with respect to Parent Common Stock or Company Capital Stock occurring after the date hereof and prior to the Effective Time of Merger I.

(f) Retention Bonus Plan. Pursuant to the diaDexus Retention Bonus Plan, as amended and restated May 27, 2010 (the “Retention Bonus Plan”), Parent shall pay (or shall cause the Surviving Corporation or Surviving Entity to pay) to each Person named in Schedule 1.6(f) (collectively, the “Retention Bonus Plan Participants”) such Retention Bonus Plan Participant’s Retention Bonus (within the meaning of the Retention Bonus Plan) pursuant to the terms and conditions of the Retention Bonus Plan and at the times specified in the Retention Bonus Plan, subject to deduction and withholding by Parent (or any Subsidiary of Parent, as applicable) of all applicable state, Federal and local income, employment and excise tax withholding required by applicable law in respect of such Retention Bonus and the escrow provisions described herein. To the extent permitted by the Retention Bonus Plan, such payment shall be in the form of Retention Bonus Shares. If any Retention Bonus Participant fails to meet the criteria set forth in the Retention Bonus Plan to earn the Retention Bonus allocated to such Retention Bonus Participant, then such Retention Bonus Participant will forfeit the Retention Bonus Participant’s Retention Bonus, and the administrator of the Retention Bonus Plan shall not reallocate such Retention Bonus to any other Retention Bonus Participant. Schedule 1.6(f) sets forth the name and the “Percentage Interest” of each Retention Bonus Plan Participant as contemplated by the Retention Bonus Plan, along with the current tax withholding rates for such Retention Bonus Plan Participant with respect to supplementary wages; provided, that, Company may amend Schedule 1.6(f) at any time prior to the tenth business day prior to the Closing in compliance with the terms and conditions of the Retention Bonus Plan and this Agreement. To the extent any cash is paid to a Retention Bonus Plan Participant to satisfy such Retention Bonus Plan Participant’s tax withholding obligations, the number of Retention Bonus Shares issued to such participant shall be reduced by the number of Retention Bonus Shares calculated by multiplying the aggregate tax withholding rate used to calculate the Retention Bonus Plan Participant’s tax withholding obligation times the aggregate number of Retention Bonus Shares that otherwise would have been issuable to such Retention Bonus Plan Participant at the time such tax withholding obligation arose.

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(g) Fractional Shares of Parent Common Stock. No fraction of a share of Parent Common Stock will be issued in connection with the Merger and no certificates or scrip for any such fractional shares shall be issued. Any Exchange Stockholder (after aggregating all fractional shares of Parent Common Stock issuable to such Exchange Stockholder) shall, in lieu of such fraction of a share, and upon surrender of such holders’ Certificate(s), be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the closing price of a share of Parent Common Stock on the Over the Counter Bulletin Board on the last available date prior to the Closing Date.

(h) Restrictions. If any shares of Company Capital Stock outstanding immediately prior to the Effective Time of Merger I are unvested or are subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other agreement with Company or under which Company has any rights, then the shares of Parent Common Stock issued in exchange for such shares of Company Capital Stock will also be unvested and subject to the same repurchase option, risk of forfeiture or other condition, and the certificates representing such shares of Parent Common Stock may accordingly be marked with appropriate legends. Company shall take all action that may be necessary to ensure that, from and after the Effective Time of Merger I, Parent is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement.

(i) Conversion of Surviving Corporation Common Stock. By virtue of Merger II and without any further action on the part of Parent, Merger Sub II or Surviving Corporation, (i) each membership interest of Merger Sub II then outstanding shall remain outstanding and each certificate therefor shall continue to evidence one membership interest of the Surviving Entity and (ii) each share of common stock of Surviving Corporation then outstanding shall be converted into one membership interest of the Surviving Entity.

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1.7 Dissenting Shares. Notwithstanding anything to the contrary contained herein, any shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time of Merger I and held by a person who has not voted in favor of Merger I or consented thereto in writing and who has properly demanded appraisal for such shares in accordance with Delaware Law (the “Dissenting Shares”) shall not be entitled to receive any portion of the Series F Merger Consideration, unless such holder fails to perfect, effectively withdraws or otherwise loses its rights to appraisal or it is determined that such holder does not have appraisal rights in accordance with Delaware Law. If after the Effective Time of Merger I, such holder fails to perfect, effectively withdraws or otherwise loses its right to appraisal, or if it is determined that such holder does not have appraisal rights, such shares shall be treated as if they had been converted as of the Effective Time of Merger I into the right to receive the merger consideration set forth in Section 1.6(a) hereof (if any) without interest thereon. Company shall give Parent and Merger Sub I prompt notice of any demands received by Company for appraisal of shares, and Parent and Merger Sub I shall have the right to participate in all negotiations and proceedings with respect to such demands except as required by applicable Legal Requirements. Prior to the Effective Time of Merger I, Company shall not, except with prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.

1.8 Exchange of Certificates.

(a) Exchange Agent. On or prior to the Closing Date, Parent shall select a reputable bank or trust company to act as exchange agent in connection with the Transaction (the “Exchange Agent”). As soon as practicable after the Effective Time of Merger I, Parent shall deposit with the Exchange Agent (i) certificates representing the shares of Parent Common Stock issuable pursuant to Section 1.6(a) and (ii) cash sufficient to make payments in lieu of fractional shares in accordance with Section 1.6(f). The shares of Parent Common Stock and cash amounts so deposited with the Exchange Agent are referred to collectively as the “Exchange Fund.”

(b) Exchange Procedures. As soon as reasonably practicable after the Effective Time of Merger I, Parent will instruct the Exchange Agent to mail to the record holders of applicable Company Stock Certificates (i) a letter of transmittal in customary form and containing such provisions as Parent may reasonably specify (including a provision confirming that delivery of Company Stock Certificates shall be effected, and risk of loss and title to Company Stock Certificates shall pass, only upon delivery of such Company Stock Certificates to the Exchange Agent), and (ii) instructions for use in effecting the surrender of Company Stock Certificates in exchange for certificates representing Parent Common Stock and, in lieu of any fractional share thereof, cash, if any. Upon surrender of a Company Stock Certificate to the Exchange Agent for exchange, together with a duly executed letter of transmittal and such other documents as may be reasonably required by the Exchange Agent or Parent, (A) if an Exchange Stockholder, the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole shares of Parent Common Stock that such holder has the right to receive pursuant to the provisions of Section 1.6(a) (and cash in lieu of any fractional share of Parent Common Stock pursuant to Section 1.6(f)), and (B) the Company Stock Certificate so surrendered shall be canceled. Until surrendered as contemplated by this Section 1.8(b), each Company Stock Certificate held by an Exchange Stockholder shall be deemed, from and after the Effective Time of Merger I, to represent only the right to receive Series F Merger Consideration, as applicable, (and cash in lieu of any fractional share of Parent Common Stock). If any Company Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a condition to the issuance of any certificate representing Parent Common Stock, require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an appropriate affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity against any claim that may be made against the Exchange Agent, Parent, the Surviving Corporation, or the Surviving Entity with respect to such Company Stock Certificate.

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(c) Transfers of Ownership. If any certificate for shares of Parent Common Stock is to be issued in a name other than that in which the Company Stock Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Company Stock Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the Person requesting such exchange will have paid to Parent or any Person designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the Company Stock Certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable.

(d) Unclaimed Portion of the Exchange Fund.

(i) Any portion of the Exchange Fund that remains undistributed to holders of Company Stock Certificates as of the date one hundred eighty (180) days after the date on which Merger I becomes effective shall be delivered to Parent upon demand, and any holders of Company Stock Certificates who have not theretofore surrendered their Company Stock Certificates in accordance with this Section 1.8 shall thereafter look only to Parent for satisfaction of their claims for Parent Common Stock and any cash in lieu of fractional shares of Parent Common Stock; provided, however that any shares of Parent Common Stock held in the Escrow Fund shall be held and distributed pursuant only to the terms of the Escrow Agreement.

(ii) Neither Parent nor the Surviving Corporation or Surviving Entity shall be liable to any holder or former holder of Exchanged Stock or to any other Person with respect to any shares of Parent Common Stock (or dividends or distributions with respect thereto), or for any cash amounts, delivered to any public official pursuant to any applicable abandoned property law, escheat law or similar Legal Requirement.

(e) Withholding Rights. Each of the Exchange Agent, Parent, the Surviving Corporation, and the Surviving Entity shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of Company Capital Stock such amounts as may be required to be deducted or withheld therefrom under the Internal Revenue Code of 1986, as amended (the “Code”) or any provision of state, local or foreign tax law or under any other applicable Legal Requirement. To the extent such amounts are so deducted or withheld and remitted to the appropriate Governmental Body, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

1.9 Stock Transfer Books. At the Effective Time of Merger I: (a) all shares of Company Capital Stock outstanding immediately prior to the Effective Time of Merger I shall automatically be canceled and retired and shall cease to exist, and all holders of certificates representing shares of Company Capital Stock that were outstanding immediately prior to the Effective Time of Merger I shall cease to have any rights as stockholders of Company; and (b) the stock transfer books of Company shall be closed with respect to all shares of Company Capital Stock outstanding immediately prior to the Effective Time of Merger I. No further transfer of any such shares of Company Capital Stock shall be made on such stock transfer books after the Effective Time of Merger I. If, after the Effective Time of Merger I, a valid certificate previously representing any shares of Company Capital Stock (a “Company Stock Certificate”) is presented to the Exchange Agent or to the Surviving Corporation, the Surviving Entity or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.8.

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1.10 No Further Ownership Rights in Company Stock. The Series F Merger Consideration delivered upon the surrender for exchange of Company Series F Preferred Stock, as applicable, in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares.

1.11 Tax Consequences. For federal income tax purposes, Merger I and Merger II shall be treated as a single integrated transaction and shall constitute a reorganization within the meaning of Section 368 of the Code. The parties to this Agreement hereby adopt this Agreement as a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.

1.12 Taking of Necessary Action; Further Action. Each of Parent and Company in good faith will take all such commercially reasonable and lawful action as may be necessary or appropriate in order to effectuate the Transaction in accordance with this Agreement as promptly as possible. If, at any time after the Effective Time of Merger II, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Entity with full right, title and possession to all assets, property, rights, privileges, powers and franchises of Company, the officers and managers of the Surviving Entity are fully authorized in the name of the company or otherwise to take, and will take, all such lawful and necessary action.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF COMPANY

Company hereby represents and warrants to Parent and Merger Subs that, except as set forth in the Company Disclosure Schedule:

2.1 Organization of Company.

(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has all requisite corporate power and authority to own, lease and operate its property and to carry on its business as now being conducted and as proposed to be conducted, and is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Company Material Adverse Effect. Company has made available a true and correct copy of the certificate of incorporation and bylaws of Company, each as amended to date, to counsel for Parent.

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(b) The Company has no Subsidiaries. Company does not own any controlling interest in any Entity and, except for the equity interests identified in Section 2.1(b) of the Company Disclosure Schedule, Company has never owned, beneficially or otherwise, any shares or other securities of, or any direct or indirect equity interest in, any Entity. Company has not agreed and is not obligated to make any future investment in or capital contribution to any Entity. Company has not guaranteed and is not responsible or liable for any obligation of any of the Entities in which it owns or has owned any equity interest.

(c) Except as set forth in Section 2.1(c) of the Company Disclosure Schedule, Company has not conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name, other than the name “diaDexus, Inc.”

2.2 Capital Structure. The authorized capital stock of Company consists of 170,000,000 shares of Common Stock, par value $0.01 per share, of which 1,814,494 shares are issued and outstanding as of the date of this Agreement and 82,326,283 shares of Preferred Stock, par value $0.01 per share, of which (a) 4,400,000 shares are designated as Series A Preferred Stock, of which 4,400,000 shares are issued and outstanding as of the date of this Agreement, (b) 4,400,000 shares are designated as Series B Preferred Stock, of which 4,400,000 shares are issued and outstanding as of the date of this Agreement, (c) 13,225,807 shares are designated as Series C Preferred Stock, of which 13,225,807 shares are issued and outstanding as of the date of this Agreement, (d) 20,833 shares are designated as Series D Preferred Stock, of which 20,833 shares are issued and outstanding as of the date of this Agreement, (e) 48,135,340 shares are designated as Series E Preferred Stock, of which 47,391,275 shares are issued and outstanding as of the date of this Agreement, and (f) 12,144,303 shares are designated as Series F Preferred Stock, of which 10,839,694 shares are issued and outstanding as of the date of this Agreement. No shares of capital stock are held in Company’s treasury. All outstanding shares of Company Capital Stock are duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive rights created by statute, the certificate of incorporation or bylaws of Company or any agreement or document to which Company is a party or by which it is bound, and were issued in compliance with all applicable federal and state securities Legal Requirements. As of the date hereof, Company has reserved an aggregate of 23,163,326 shares of Company Common Stock, net of exercises, for issuance to employees, consultants and non-employee directors pursuant to the Company Option Plans, under which options are outstanding for an aggregate of 17,869,023 shares of Company Common Stock; 58,529,838 shares of Company Common Stock are reserved for issuance to holders of warrants to purchase Company Common Stock upon their exercise and 744,066 shares of Company Series E Preferred Stock are reserved for issuance to holders of warrants to purchase Company Series E Preferred Stock upon their exercise. All shares of Company Capital Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, are duly authorized, validly issued, fully paid and non-assessable. Section 2.2 of the Company Disclosure Schedule lists, as of the date of this Agreement, each holder of Company Capital Stock and the number of shares of

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Company Capital Stock held by such holder, each outstanding Company Option and warrant to acquire shares of Company Capital Stock, the name of the holder of such Company Option or warrant, the number of shares subject to such Company Option or warrant, the exercise price of such Company Option or warrant, the vesting schedule and termination date of such Company Option or warrant. Section 2.2 of the Company Disclosure Schedule also lists, for each holder of Company Capital Stock, Company Option or warrant to acquire shares of Company Capital Stock, as such information exists on the books and records of Company, the state or other jurisdiction in which such holder currently resides, or, if such holder is an Entity, the state where such holder’s principal office is located. Except as set forth on Section 2.2 of the Company Disclosure Schedule, there are no outstanding equity securities of any kind of Company and there are no other securities exchangeable or convertible into or exercisable for such equity securities, authorized, issued, reserved for issuance or outstanding. Attached hereto as Exhibit G, is a spreadsheet prepared by Company, identifying each holder of Company securities and each Retention Bonus Plan Participant entitled to receive consideration pursuant to Article I of this Agreement, the aggregate amount of Parent Common Stock issuable and cash (if any) payable to each such Person in connection with the consummation of the Transaction, such Person’s last known addresses, the number and kind of shares of Company securities held by such applicable holder eligible for exchange for merger consideration (including respective certificate numbers), and the number of shares of each such Person’s Parent Common Stock which shall be deposited in the Escrow Fund, including such Person’s pro rata percentage of the Escrow Fund (the “Merger Consideration Spreadsheet”). As of the date that is third business day prior to the Closing, the Merger Consideration Spreadsheet, as updated pursuant to Section 5.16 hereof, shall be true and correct and consistent with Company’s certificate of incorporation, applicable law and any other oral or written obligation to which Company is subject.

2.3 Obligations with Respect to Capital Stock. Except as set forth in Section 2.3 of the Company Disclosure Schedule, there are no calls, rights (including preemptive rights), commitments or agreements of any character to which Company is a party or by which it is bound obligating Company to issue, deliver or sell, or cause to be issued, delivered or sold, or to repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any shares of capital stock of Company or obligating Company to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement. There are no registration rights and, to the knowledge of Company, there are no voting trusts, proxies or other agreements or understandings with respect to any equity security of any class of Company. There is no stockholder rights plan that will be applicable or triggered by the entry into this Agreement or the consummation of the Transaction or the other transactions contemplated hereunder.

2.4 Authority.

(a) Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Company, subject only to the approval of this Agreement by the Required Company Stockholder Vote as contemplated by Section 5.2(a) and the filing and

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recordation of the Certificate of Merger I and Certificate of Merger II pursuant to Delaware Law and the DLLCA. This Agreement has been duly executed and delivered by Company and, assuming the due authorization, execution and delivery by Parent, Merger Subs and the Company Stockholders’ Agent, constitutes the valid and binding obligation of Company, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity. The execution and delivery of this Agreement does not, and the performance of this Agreement will not, (i) conflict with or violate the certificate of incorporation or bylaws of Company, (ii) subject to obtaining the approval of Company’s stockholders of the Transaction as contemplated in Section 5.2(a) and compliance with the requirements set forth in Section 2.4(b) below, conflict with or violate any Legal Requirement applicable to Company or by which its properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Company’s rights or alter the rights of obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of Company pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Company is a party or by which Company or its properties are bound or affected except, with respect to clauses (ii) and (iii), for any non-material conflicts, violations, defaults or other occurrences. Section 2.4 of the Company Disclosure Schedule lists all material consents, waivers and approvals under any Company Contract required to be obtained in connection with the consummation of the transactions contemplated hereby.

(b) No consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Body is required by or with respect to Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing by Parent (x) with the California Commissioner of Corporations (the “California Commissioner”) of a permit application under Section 25121 of the California Corporations Code, and a related information statement or other disclosure document (the “Permit Application”), and the issuance by the California Commissioner of a permit under Section 25121 of the California Corporations Code (following a hearing upon the fairness of the terms and conditions of the Transaction, conducted pursuant to Section 25142 of the California Corporations Code) for the issuance of the Parent Common Stock to be issued in Merger I or (y) if applicable, of a Form S-4 Registration Statement (the “Registration Statement”) with the SEC in accordance with the Securities Act, (ii) the filing of the Certificate of Merger I and Certificate of Merger II with the Secretary of State of the State of Delaware, (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable U.S. federal and state securities laws and similar laws of any foreign country and (iv) such other non-material consents, authorizations, filings, approvals and registrations.

2.5 Section 203 of Delaware Law not Applicable. The board of directors of Company has taken all actions so that the restrictions contained in Section 203 of Delaware Law applicable to a “business combination” will not apply to the execution, delivery or performance of this Agreement or to the consummation of the Transaction or the other transactions contemplated by this Agreement.

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2.6 Company Financial Statements; No Undisclosed Liabilities.

(a) The audited consolidated financial statements (including any related notes thereto) representing the financial results and condition of Company for the years ended December 31, 2007 and 2008 and the unaudited financial statements (including the notes thereto) representing the financial results and condition of Company for the year ended December 31, 2009 and as of the quarter ended March 31, 2010 (collectively, the “Company Financials”) (including any related notes thereto) (a) were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and (b) fairly present in all material respects the consolidated financial position of Company as of the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements are subject to normal and recurring year-end adjustments which were not, or will not be, material in amount. The balance sheet of Company as of March 31, 2010 is hereinafter referred to as the “Company Balance Sheet.”

(b) Except as disclosed in the Company Financials, the Company does not have any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be disclosed on a balance sheet or in the related notes to the consolidated financial statements prepared in accordance with GAAP which are, individually or in the aggregate, material to the business, results of operations or financial condition of Company, except liabilities (i) provided for in the Company Balance Sheet, (ii) described in Section 2.6 of the Company Disclosure Schedule, or (iii) incurred since the date of the Company Balance Sheet in the ordinary course of business consistent with past practices in both type and amount.

2.7 Absence of Certain Changes or Events. Since December 31, 2009 through the date of this Agreement, Company has conducted its business only in the ordinary course of business consistent with past practice, and there has not been: (a) any event that has had a Company Material Adverse Effect, (b) any material change by Company in its accounting methods, principles or practices, except as required by concurrent changes in GAAP, (c) any revaluation by Company of any of its assets or writing off of notes or accounts receivable other than in the ordinary course of business, or (d) any other action, event or occurrence that would have required the consent of Parent pursuant to Section 4.1 of this Agreement had such action, event or occurrence taken place after the execution and delivery of this Agreement.

2.8 Taxes.

(a) Each of the material returns, declarations, estimates, information statements or reports required to be filed with a Governmental Body with respect to Taxes (“Tax Returns”) by or with respect to Company: (i) has been timely filed on or before the applicable due date (including any extensions of such due date) and (ii) is true and complete in all material respects. All material Taxes due and payable by Company (whether or not shown to be due on filed Tax Returns) have been timely paid, except to the extent such amounts are being contested in good faith by Company or are properly reserved for in the Company Financials.

(b) All material Taxes that Company has been required to collect or withhold have been duly collected or withheld and, to the extent required by applicable Legal Requirements when due, have been duly and timely paid to the proper Governmental Body.

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(c) There has not been any audit, examination or other administrative or court proceeding for or relating to any liability in respect of Taxes by any Governmental Body in respect of which Company has received a written notice, and Company has not been notified in writing by any Governmental Body that any such audit, examination or other administrative or court proceeding involving Taxes is contemplated or pending. No extension of time with respect to any date on which a Tax Return was required to be filed by Company is in force (except where such Tax Return was filed), and no waiver or agreement by or with respect to Company is in force for the extension of time for the payment, collection or assessment of any Taxes, and no request has been made by Company in writing for any such extension or waiver (except, in each case, in connection with any request for extension of time for filing Tax Returns). No claim has been made in writing to Company by any Governmental Body in a jurisdiction where Company does not file Tax Returns that Company is subject to taxation by that jurisdiction and, to Company’s knowledge, there are no facts or basis upon which any such claim could reasonably be made. Each deficiency issued to Company as a result of any completed audit or examination relating to Taxes by any Governmental Body has been timely paid or is being contested in good faith and has been adequately reserved for on the books of Company. No issues relating to any material amount of Taxes were raised by the relevant Governmental Body in any completed audit or examination that would reasonably be expected to recur in a later taxable period.

(d) Company has not agreed, or will not be required, to make any adjustment for any period after the date of this Agreement pursuant to Section 481(a) of the Code by reason of any change in any accounting method made prior to the date hereof. There is no application pending with any Governmental Body requesting permission for any such change in any accounting method of Company, and the Internal Revenue Service has not issued in writing any pending proposal regarding any such adjustment or change in accounting method.

(e) No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into by Company with any taxing authority or issued by any taxing authority to Company. There are no outstanding rulings of, or request for rulings with, any Governmental Body addressed to Company that are, or if issued would be, binding on Company.

(f) Company is not a party to any agreement with any third party relating to allocating or sharing the payment of, or liability for, Taxes or Tax benefits. Company has no liability for the Taxes of any third party under Treasury Regulation §1.1502-6 (or any similar provision of state, local or foreign Legal Requirement) as a transferee or successor, by contract or otherwise.

(g) Company is not a member of an affiliated group of corporations within the meaning of Section 1504 of the Code or of any group that has filed a combined, consolidated or unitary Tax return under state, local or foreign Tax Legal Requirement.

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(h) Company does not (i) own a single member limited liability company which is treated as a disregarded entity, and (ii) is not a stockholder of a “controlled foreign corporation” as defined in Section 957 of the Code.

(i) Company has not participated in a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b). Company believes it has substantial authority for or has disclosed on its respective United States federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of United States federal income Tax within the meaning of Section 6662 of the Code.

(j) Company is not (and has not been for the five-year period ending at Closing) a “United States real property holding corporation” as defined in Section 897(c)(2) of the Code and the applicable Treasury Regulations.

(k) Company does not have a permanent establishment in any country other than the United States, as defined in any applicable Tax treaty between the United States and such other country.

(l) Company has not distributed to its stockholders or security holders stock or securities of a controlled corporation, nor has stock or securities of Company been distributed in a transaction to which Section 355 of the Code applies (i) in the two (2) years prior to the date of this Agreement or (ii) in a distribution that could otherwise constitute part of a “plan” or “series of transactions” (within the meaning of Section 355(e) of the Code) that includes the Transaction.

2.9 Intellectual Property.

(a) Part 1 of Section 2.9(a) of the Company Disclosure Schedule lists, as of the date of this Agreement, all of the Patent Rights and all registered Trademark Rights (or Trademark Rights for which applications for registration have been filed) owned solely by Company as of the date hereof, setting forth in each case the jurisdictions in which patents have been issued, patent applications have been filed, trademarks have been registered and trademark applications have been filed, along with the respective application, registration or filing number and prosecution status or subsequent registration activity thereof. Part 2 of Section 2.9(a) of the Company Disclosure Schedule lists, as of the date of this Agreement, all of the Patent Rights and all registered Trademark Rights (or Trademark Rights for which applications for registration have been filed) in which Company has any co-ownership interest, other than those owned solely by Company, setting forth in each case the jurisdictions in which patents have been issued, patent applications have been filed, trademarks have been registered and trademark applications have been filed, along with the respective application, registration or filing number and prosecution status or subsequent registration activity thereof. Part 3 of Section 2.9(a) of the Company Disclosure Schedule lists, to the knowledge of Company as of the date of this Agreement, all of the material Patent Rights and all registered Trademark Rights (or Trademark Rights for which applications for registration have been filed) in which Company has any right, title or interest (indicating where that right, title or interest is exclusive to Company), other than those owned solely or co-owned by Company.

(b) Section 2.9(b) of the Company Disclosure Schedule lists, as of the date of this Agreement, all oral and written contracts, agreements, licenses and other arrangements in effect as of the date of this Agreement under which any third party has licensed, granted or conveyed to Company any right, title or interest in or to any Material Company IP Rights other than non-exclusive licenses to commercially available computer software that has not been modified or customized for Company.

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(c) Section 2.9(c) of the Company Disclosure Schedule lists, as of the date of this Agreement, all oral and written contracts, agreements, licenses or other arrangements in effect as of the date of this Agreement under which Company has licensed, granted or conveyed to any third party any right, title or interest in or to any Material Company IP Rights.

(d) Company owns, co-owns or otherwise possesses a license to all Material Company IP Rights, free and clear of all liens, pledges, charges, leases, mortgages and other encumbrances, and for Material Company IP Rights owned or co-owned by Company, also free and clear of exclusive licenses and non-exclusive licenses not granted in the ordinary course of business. Company owns, co-owns or has a license to all IP Rights necessary for the operation of the business as currently conducted. No third party is overtly challenging in writing the right, title or interest of Company in, to or under the Material Company IP Rights, or the validity, enforceability or claim construction of any Patent Rights owned or co-owned by Company, and there is no opposition, cancellation, proceeding, objection or claim pending with regard to any Material Company IP Rights owned by Company and the Material Company IP Rights owned by Company are not subject to any outstanding order, judgment, decree or agreement adversely affecting Company’s use thereof or its rights thereto. To the knowledge of Company, no valid basis exists for any of the foregoing challenges or claims.

(e) Company’s current policies and procedures to protect and maintain the confidentiality of the proprietary know-how and trade secrets included in the Company IP Rights are listed on Section 2.9(e) of the Company Disclosure Schedule. Company has taken all reasonable measures to protect and maintain the Company IP Rights customary for similarly situated companies to take. All current and former officers and employees of, and consultants and independent contractors to, Company who have contributed to the creation or development of any Material Company IP Rights have assigned all such rights to Company, and have executed and delivered to Company an agreement (containing no exceptions or exclusions from the scope of its coverage) regarding the protection of proprietary information and the assignment to Company, of any IP Rights arising from services performed for Company by such persons, the forms of which agreements and any individual material variations thereof have been made available in a data room for review by Parent or its advisors. To the knowledge of Company, no current or former officers and employees of, or consultants or independent contractors to, Company have breached any material term of any such agreements.

(f) The conduct of Company’s business as currently being conducted and, to the knowledge of Company, as proposed to be conducted does not infringe, constitute contributory infringement, inducement to infringe, misappropriation or unlawful use of any valid and enforceable IP Rights of any other Person and Company has received no written notice alleging such infringement, misappropriation or unlawful use.

(g) To the knowledge of Company, as of the date of this Agreement, no Material Company IP Rights are being infringed or misappropriated by any third party.

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(h) Neither the execution, delivery or performance of this Agreement by Company nor the consummation by Company of the transactions contemplated by this Agreement will contravene, conflict with or result in any limitation on Company’s right, title or interest in or to any Company IP Rights in any material respect.

(i) No funding, facilities, or personnel of any Governmental Body or any public or private university, college, or other educational or research institution were used, directly or indirectly, to develop or create, in whole or in part, any Company IP Rights.

(j) Section 2.9(j) of the Company Disclosure Schedule contains each Company Privacy Policy and identifies, with respect to each Company Privacy Policy, (i) the period of time during which such Company Privacy Policy was or has been in effect, (ii) whether the terms of a later Company Privacy Policy apply to the data or information collected under such Company Privacy Policy, and (iii) if applicable, the mechanism (such as opt-in, opt-out, or notice only) used to apply a later Company Privacy Policy to data or information previously collected under such privacy policy.

(k) Part 2.9(k) of the Company Disclosure Schedule identifies and describes each distinct electronic or other database containing (in whole or in part) Personal Data maintained by or for Company at any time (the “Company Databases”), the types of Personal Data in each such database, the means by which the Personal Data was collected, and the security policies that have been adopted and maintained with respect to each such database. No material breach or violation of any such security policy has occurred or, to the knowledge of Company, is threatened, and, to the knowledge of Company, there has been no unauthorized or illegal use of or access to any of the data or information in any of the Company Databases.

(l) Company has complied in all material respects at all times with all of the Company Privacy Policies and with all applicable Legal Requirements pertaining to privacy, User Data, or Personal Data.

(m) Neither the execution, delivery, or performance of this Agreement, nor the consummation of any of the transactions contemplated by this Agreement, nor Parent’s possession or use of the User Data or any data or information in the Company Databases, will result in any violation of any Company Privacy Policy or any Legal Requirement pertaining to privacy, User Data, or Personal Data.

2.10 Compliance; Permits; Restrictions.

(a) Company is currently not, and has not been during the past three (3) years, in conflict with or in default or violation of (i) any Legal Requirement, order, judgment or decree applicable to Company or by which Company or its properties is bound or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Company is a party or by which Company or its properties is bound or affected, except in each case for any immaterial conflicts, defaults or violations. No investigation or review by any Governmental Body against Company has occurred during the past three (3) years, nor has Company received written notice that any such investigation or review is pending or, to the knowledge of Company, threatened against Company.

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(b) Except for matters addressed in Section 2.10(d), (i) Company holds all permits, licenses, variances, exemptions, orders, clearances and approvals from governmental authorities which are material to and necessary for the operation of the business of Company taken as a whole (collectively, the “Company Permits”); (ii) Company is in material compliance with the terms of the Company Permits; and (iii) no action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the knowledge of Company, threatened, which seeks to revoke or materially impair the rights of the holder of any Company Permit. A true, complete and correct list of the Company Permits, as of the date of this Agreement, is set forth in Section 2.10(b) of the Company Disclosure Schedule.

(c) Except as set forth in Section 2.10(c) of the Company Disclosure Schedule, during the past three (3) years, Company has not received (i) any warning letters, untitled letters, notice of adverse findings or similar correspondence or (ii) any inspection reports and lists of observations provided to Company, including Establishment Inspection Reports (“EIRs”) and 483s, relating to inspections for compliance with the Federal Food, Drug, and Cosmetic Act 21 U.S.C. 301 et seq. (“FFDCA”).

(d) Section 2.10(d) of the Company Disclosure Schedule sets forth a list, as of the date of this Agreement, of all recalls, field notifications, field corrections, market withdrawals or replacements, warnings, safety alerts, medical device reports, or other notice of action relating to an alleged lack of safety, efficacy, or regulatory compliance of the Company Products (“Safety Notices”) during the past three (3) years.

(e) Company has been in compliance in all material respects with all applicable provisions of the FFDCA, the Public Health Service Act and all applicable implementing FDA rules and regulations, and all other foreign, state, provincial and local laws, rules and regulations relative to the conduct and operation of Company’s business, the products manufactured or sold by Company (including the good manufacturing practice requirements under the Quality System Regulation, 21 C.F.R. 820, the medical device reporting requirements under 21 C.F.R. 803 and the electronic records and electronic signatures regulation at 21 C.F.R. Part 11) except for such instances of noncompliance as would not have a Company Material Adverse Effect. A true, complete and correct list of the Company Products, as of the date of this Agreement, is set forth in Section 2.10(e) of the Company Disclosure Schedule.

(f) None of the employees of Company and, to the knowledge of Company, none of the agents or independent contractors of Company has been disbarred under 21 U.S.C. 335a, or otherwise disqualified or suspended from performing services by the FDA or any other Governmental Body or professional body.

(g) To the knowledge of Company, the tests and preclinical and clinical studies conducted by and on behalf of Company were and, if still pending, are being, conducted in all material respects in accordance with applicable FDA laws and regulations, including Good Laboratory Practices and Good Clinical Practices. To the knowledge of Company, the descriptions provided to the FDA of the tests and preclinical and clinical studies conducted by or on behalf of Company are accurate in all material respects and true, correct and complete copies thereof have been furnished or made available by Company to Parent. To the knowledge of Company, Company has not received any written notice or correspondence from the FDA or any foreign, state or local governmental body exercising comparable authority or any Institutional Review Board or comparable authority requiring the termination, suspension or clinical hold of any material tests or preclinical or clinical studies conducted by or on behalf of Company.

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(h) All applications, approvals, reports and other submissions to any applicable Governmental Authority related to Company Products, when submitted to the Governmental Authority were true, complete and correct in all material respects as of the date of submission (or as subsequently amended) and any necessary or required updates, changes, corrections or modifications to such applications, approvals, reports and other submissions have been submitted to the Governmental Authority.

(i) Company has not received any adverse event report pertaining to the products of Company that has resulted or is likely, either individually or in the aggregate, to result in a material claim, demand, complaint or proceeding.

2.11 Litigation. Except as set forth in Section 2.11 of the Company Disclosure Schedule there is no action, suit, proceeding, claim, arbitration or investigation pending, or as to which Company has received any notice of assertion, nor, to the knowledge of Company, is there any threatened action, suit, proceeding, claim for arbitration or investigation against Company.

2.12 Brokers’ and Finders’ Fees. Except as set forth in Section 2.12 of the Company Disclosure Schedule, Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.

2.13 Employee Benefit Plans.

(a) Section 2.13(a) of the Company Disclosure Schedule sets forth, as of the date of this Agreement, a complete and accurate list of each plan, program, policy, practice, contract, agreement or other arrangement providing for employment, compensation, retirement, pension, deferred compensation, loans, severance, separation, relocation, repatriation, expatriation, visas, work permits, termination pay, performance awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom stock, stock appreciation right, supplemental retirement, profit sharing, fringe benefits, cafeteria benefits, medical benefits, life insurance, disability benefits, accident benefits, salary continuation, accrued leave, vacation, sabbatical, sick pay, sick leave, unemployment benefits or other benefits, whether written or unwritten, including each “voluntary employees’ beneficiary association” under Section 501(c)(9) of the Code and each “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), in each case, for active, retired or former employees, directors or consultants, which is currently sponsored, maintained, contributed to, or required to be contributed to or with respect to which any potential liability is borne by Company or any trade or business (whether or not incorporated) that is or at any relevant time was treated as a single employer with Company within the meaning of Section 414 of the Code (an “ERISA Affiliate”), (collectively, the “Company Employee Plans”). Neither Company nor, to the knowledge of Company, any other person or entity, has made any commitment to modify, change or terminate any Company Employee Plan, other than with respect to a modification, change or termination required by Legal Requirements. There are no loans by Company to any of its officers, employees, contractors or directors outstanding on the date hereof, except pursuant to loans under any Company Employee Plan intended to qualify under Section 401(k) of the Code, and there have never been any loans by Company subject to Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

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(b) Company has made available to Parent true and complete copies of each of Company Employee Plans and related plan documents, including trust documents, group annuity contracts, plan amendments, insurance policies or contracts, participant agreements, employee booklets, administrative service agreements, summary plan descriptions, compliance and nondiscrimination tests (including 401(k) and 401(m) tests) for the last three (3) plan years, standard Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) forms and related notices, registration statements and prospectuses and, to the extent still in its possession, any material employee communications relating thereto. With respect to each Company Employee Plan that is subject to ERISA reporting requirements, Company has made available in a data room for review by Parent copies of the Form 5500 reports filed for the last three (3) plan years. Company has made available in a data room for review by Parent the most recent Internal Revenue Service determination or opinion letter issued with respect to each such Company Employee Plan, if any, and to Company’s knowledge, nothing has occurred since the issuance of each such letter that would reasonably be expected to cause the loss of the tax-qualified status of any Company Employee Plan subject to Code Section 401(a). Company has made available in a data room for review by Parent all filings made by Company or any ERISA Affiliate of Company with any Governmental Body with respect to any Company Employee Plan to the extent relevant to any ongoing obligation or liability of Company, including any filings under the IRS’ Employee Plans Compliance Resolution System Program or any of its predecessors or the Department of Labor Delinquent Filer Program.

(c) Each Company Employee Plan is being, and has been, administered materially in accordance with its terms and in material compliance with the requirements prescribed by any and all Legal Requirements (including ERISA and the Code). Company and each ERISA Affiliate are not in material default under or material violation of, and have no knowledge of any material default or material violation by any other party to, any of Company Employee Plans. Any Company Employee Plan intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Code, including all currently effective amendments to the Code, and the corresponding related exemption of its trust from U.S. federal income taxation under Section 501(a) of the Code, if applicable, or has applied to the Internal Revenue Service for such favorable determination letter within the remedial amendment period under

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Section 401(b) of the Code. None of Company Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person. Company has not engaged in, or participated in, any transaction which would be considered a non-exempt “prohibited transaction,” as such term is defined in Section 406 of ERISA or Section 4975 of the Code, and to Company’s knowledge, no other third-party fiduciary and/or party-in-interest has engaged in any such “prohibited transaction” with respect to any Company Employee Plan. Neither Company nor any ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any Company Employee Plan. All contributions required to be made by Company or any ERISA Affiliate to any Company Employee Plan have been timely paid or accrued on Company Balance Sheet, if required under GAAP. With respect to each Company Employee Plan, no “reportable event” within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) has occurred, nor has any event described in Section 4062, 4063 or 4041 of ERISA occurred. Each Company Employee Plan subject to ERISA has prepared in good faith and timely filed all requisite governmental reports, which were true and correct in all material respects as of the date filed, and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Company Employee Plan. No suit, administrative proceeding or action has been brought, or to the knowledge of Company is overtly threatened in communication with Company, against or with respect to any such Company Employee Plan, including any audit or inquiry by the Internal Revenue Service or the United States Department of Labor (other than routine claims for benefits arising under such plans). There has been no amendment to, or written interpretation or announcement by Company or any ERISA Affiliate regarding any Company Employee Plan that would materially increase the expense of maintaining such Company Employee Plan above the level of expense incurred with respect to that plan for the fiscal year ended December 31, 2009. None of the assets of Company or any ERISA Affiliate is, or may reasonably be expected to become, the subject of any lien arising under Section 302 of ERISA or Section 412(n) of the Code. To the knowledge of Company, all contributions and payments to Company Employee Plans are deductible under Section 162 or 404 of the Code. No assets of any Company Employee Plan are subject to a material amount of Tax as unrelated business taxable income under Section 511 of the Code, and no excise Tax could be imposed upon Company under Chapter 43 of the Code. With respect to Company Employee Plans, no event has occurred and, to the knowledge of Company, there exists no condition or set of circumstances in connection with which Company would reasonably expect to be subject to any material liability (other than for liabilities with respect to routine benefit claims) under the terms of, or with respect to, such Company Employee Plans, ERISA, the Code or any other applicable Legal Requirement.

(d) Neither Company nor any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to, or is obligated to contribute to, or otherwise incurred any obligation or liability (including any contingent liability) under, any “multiemployer plan” (as defined in Section 3(37) of ERISA) or any “pension plan” (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA or Section 412 of the Code. Neither Company nor any ERISA Affiliate has, as of the date of this Agreement, any actual or potential withdrawal liability (including any contingent liability) for any complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any multiemployer plan.

(e) Neither Company nor any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to any self-insured plan that is governed by ERISA and that provides benefits to employees (including any such plan pursuant to which a stop-loss policy or contract applies).

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(f) With respect to each Company Employee Plan, Company is in material compliance with (i) the applicable health care continuation and notice provisions of COBRA and the regulations promulgated thereunder or any state Legal Requirement governing health care coverage extension or continuation; and (ii) the applicable requirements of the Family and Medical Leave Act of 1993 and the regulations promulgated thereunder; (iii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). Company has no material unsatisfied obligations to any employees, former employees or qualified beneficiaries pursuant to COBRA, HIPAA or any state Legal Requirement governing health care coverage extension or continuation.

(g) Each Company Employee Plan which is a nonqualified deferred compensation plan within the meaning of Section 409A of the Code has been operated and maintained in a good faith effort to comply in all material respects according to the applicable requirement of Section 409A of the Code.

(h) The consummation of the Transaction will not (i) entitle any current or former employee or other service provider of Company or any ERISA Affiliate to severance benefits or any other payment (including unemployment compensation, golden parachute, bonus or benefits under any Company Employee Plan), except as expressly provided in Section 2.13(h) of the Company Disclosure Schedule; (ii) accelerate the time of payment or vesting of any such benefits or increase the amount of compensation due any such employee or service provider; (iii) result in the forgiveness of any indebtedness; (iv) result in any obligation to fund future benefits under any Company Employee Plan; or (v) result in the imposition of any restrictions with respect to the amendment or termination of any of Company Employee Plans. No benefit payable or that may become payable by Company pursuant to any Company Employee Plan in connection with the transactions contemplated by this Agreement or as a result of or arising under this Agreement shall constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code) subject to the imposition of an excise Tax under Section 4999 of the Code or the deduction for which would be disallowed by reason of Section 280G of the Code. Each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time of Merger I in accordance with its terms, without material liability to Parent, Surviving Corporation or the Surviving Entity other than ordinary administration expenses typically incurred in a termination event.

(i) Company is not a party to any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of Company that, individually or in the aggregate, would reasonably be expected to give rise to the payment of any material amount that would be subject to the deductibility limits of Section 404 of the Code.

(j) Company does not sponsor, contribute to or have any liability with respect to any employee benefit plan, program or arrangement that provides benefits to non-resident aliens with no United States source income outside of the United States.

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(k) With respect to each Company Employee Plan that is an “employee welfare benefit plan” within the meaning of Section 3(2) of ERISA, other than any health care reimbursement plan under Section 125 of the Code, all claims incurred (including claims incurred but not reported) by employees, former employees and their dependents thereunder for which Company is, or will become, liable are (i) insured pursuant to a contract of insurance whereby the insurance company bears any risk of loss with respect to such claims, (ii) covered under a contract with a health maintenance organization (an “HMO”) pursuant to which the HMO bears the liability for such claims, or (iii) reflected as a liability or accrued for on Company Financials for the fiscal year ended December 31, 2009.

2.14 Absence of Liens and Encumbrances; Condition of Equipment. Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all material tangible properties and assets, real, personal and mixed, necessary for use in its business, free and clear of any liens or encumbrances except as reflected in the Company Financials and except for liens for taxes not yet due and payable. Each such tangible asset is in a good state of maintenance and repair, free from material defects and in good operating condition (subject to normal wear and tear) and is suitable for the purposes for which it presently is used.

2.15 Environmental Matters.

(a) No underground storage tanks and no amount of any substance that has been designated by any Governmental Body or by applicable federal, state or local Legal Requirement, to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the United States Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws, (a “Hazardous Material”), but excluding office and janitorial supplies, are present, as a result of Company, or, to Company’s knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that Company has at any time owned, operated, occupied or leased.

(b) Company has not transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any Legal Requirement in effect on or before the date hereof, nor has Company disposed of, transported, sold, or manufactured any product containing a Hazardous Material (collectively, “Hazardous Material Activities”) in violation of any Legal Requirement promulgated by any Governmental Body in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity.

(c) Company currently hold all environmental approvals, permits, licenses, clearances and consents (the “Company Environmental Permits”) necessary for the conduct of Company’s Hazardous Material Activities and other businesses of Company as such activities and businesses are currently being conducted.

(d) No material action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to Company’s knowledge, threatened concerning any Company Environmental Permit, Hazardous Material or any Hazardous Material Activity of Company. Company is not aware of any fact or circumstance which could involve Company in any environmental litigation or impose upon Company any material environmental liability.

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2.16 Labor Matters.

(a) Section 2.16(a) of the Company Disclosure Schedule sets forth, as of the date of this Agreement, a true, complete and correct list of all employees of Company along with their position, hire date, 2009 annual compensation and current annual rate of compensation (including any bonuses to which such employee may be eligible). All employees have entered into nondisclosure and assignment of inventions agreements with Company, true, complete and correct copies of which have previously been made available to Parent. To the knowledge of Company, no employee of Company is in violation of any term of any patent disclosure agreement, non-competition agreement, or any restrictive covenant (i) to Company, or (ii) to a former employer relating to the right of any such employee to be employed because of the nature of the business conducted by Company or to the use of trade secrets or proprietary information of others. No key employee or group of employees has threatened in writing to terminate employment with Company.

(b) Company is not a party to or bound by any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes.

(c) Except as disclosed in Section 2.16(c) of the Company Disclosure Schedule, Company is not a party to any written or oral: (i) agreement with any current or former employee the benefits of which are contingent upon, or the terms of which will be materially altered by, the consummation of the Transaction or other transactions contemplated by this Agreement; (ii) agreement with any current or former employee of Company providing any term of employment or compensation guarantee extending for a period longer than one year from the date hereof or for the payment of compensation in excess of $50,000 per annum (other than compensation pursuant to at-will employment agreements); or (iii) agreement or plan the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, upon the consummation of the Transaction.

2.17 Agreements, Contracts and Commitments. Except as set forth in Section 2.17 of the Company Disclosure Schedule, Company is not a party to or bound by:

(a) any bonus, deferred compensation, severance, incentive compensation, pension, profit-sharing or retirement plans, or any other employee benefit plans or arrangements;

(b) any employment or consulting agreement, contract or commitment with any officer or director level employee, not terminable by Company on thirty (30) days notice without liability, except to the extent general principles of wrongful termination may limit Company’s ability to terminate employees at will;

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(c) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement;

(d) any agreement of indemnification or guaranty not entered into in the ordinary course of business, including any indemnification agreements between Company and any of its officers or directors;

(e) any agreement, contract or commitment containing any covenant limiting the freedom of Company to engage in any line of business or compete with any person;

(f) any license, agreement, contract or commitment relating to any Material Company IP Right;

(g) any agreement, contract or commitment relating to capital expenditures and involving future obligations in excess of $50,000 and not cancelable without penalty;

(h) any agreement, contract or commitment currently in force relating to the disposition or acquisition of assets not in the ordinary course of business or any ownership interest in any corporation, partnership, joint venture or other business enterprise;

(i) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit;

(j) any joint marketing or development agreement;

(k) any distribution agreement (identifying any that contain exclusivity provisions); or

(l) any other agreement, contract or commitment (excluding real and personal property leases) which involve an annual payment by Company under any such agreement, contract or commitment of $50,000 or more in the aggregate and is not cancelable without penalty within thirty (30) days.

Section 2.17 of the Company Disclosure Schedule identifies and provides, as of the date of this Agreement, a brief description of each proposed agreement, contract or commitment that is currently being negotiated by Company. Neither Company nor to Company’s knowledge any other party to a Company Contract, has breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any of the agreements, contracts or commitments to which Company is a party or by which it is bound of the type described in clauses (a) through (k) above (any such agreement, contract or commitment and each other agreement identified in Section 2.17 of the Company Disclosure Schedule a “Company Contract”) (including in connection with any Company Product recall) in such manner as would permit any other party to cancel or terminate any such Company Contract, or would permit any other party to seek damages. Company has made available to Parent an accurate and complete copy of each Company Contract. Each Company Contract is a valid, binding and enforceable obligation of Company and is in full force and effect, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.

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2.18 Permit Application; Information Statement. The information supplied by Company for inclusion in the Permit Application shall not at the time the Permit Application is filed with the California Commissioner and at the time the Fairness Hearing is held or for inclusion in the Registration Statement shall not at the time the Registration Statement is filed with the SEC and at the time it becomes effective, as applicable, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading. The information supplied by Company for inclusion in the Information Statement to be sent to the stockholders of Company in connection with the solicitation of approval of this Agreement, the Transaction and the transactions contemplated hereunder shall not, on the date the Information Statement is first mailed to Company’s stockholders contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of consents which has become false or misleading. If at any time prior to the Effective Time of Merger I, any event relating to Company or any of its Affiliates, officers or directors should be discovered by Company which should be set forth in an amendment to the Permit Application or Registration Statement, as applicable, or a supplement to the Information Statement, Company shall promptly inform Parent. Notwithstanding the foregoing, Company makes no representation or warranty with respect to any information supplied by Parent which is contained in or omitted from any of the foregoing documents.

2.19 Corporate Approval.

(a) The board of directors of Company has unanimously, as of the date of this Agreement, (i) approved this Agreement, the Transaction and the transactions contemplated hereunder, (ii) determined that the Transaction is fair to, and in the best interests of Company and its stockholders, and (iii) recommended that the stockholders of Company approve this Agreement and the transactions contemplated hereunder.

(b) The affirmative vote of (i) the holders of a majority of the outstanding shares of Series F Preferred Stock and (ii) the holders of a majority of the outstanding shares of Company Capital Stock (voting together as a single class on an as-converted to Company Common Stock basis), are the only votes of the holders of any class or series of Company’s Capital Stock necessary to adopt this Agreement and approve the Transaction and the other transactions contemplated by this Agreement (the “Required Company Stockholder Vote”).

2.20 Books and Records. The minute books of Company made available to Parent are the only minute books of Company and contain accurate summaries, in all material respects, of all meetings of directors (or committees thereof) and stockholders or actions by written consent since the time of incorporation of Company, as the case may be. The books and records of Company accurately reflect in all material respects the assets, liabilities, business, financial condition and results of operations of Company and have been maintained in accordance with good business and bookkeeping practices.

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2.21 Restrictions on Business Activities. Other than as contemplated by this Agreement, there is no agreement, judgment, injunction, order or decree binding upon or otherwise applicable to Company which has, or would reasonably be expected to have, the effect of prohibiting or materially impairing (a) any current business practice of Company; or (b) any acquisition of any Person or property by Company.

2.22 Real Property Leases. Company has never owned any real property. Section 2.22 of the Company Disclosure Schedule sets forth, as of the date of this Agreement, all real property leases or subleases to or by Company, including the term of such lease, any extension and expansion options and the rent payable under it. Company has made available to Parent true, complete and correct copies of the leases and subleases (as amended to date) listed in Section 2.22 of the Company Disclosure Schedule. With respect to each lease and sublease listed in Section 2.22 of the Company Disclosure Schedule,

(a) the lease or sublease is legal, valid, binding, enforceable and in full force and effect and will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Effective Time of Merger II in accordance with the terms thereof as in effect immediately prior to the Effective Time of Merger I;

(b) Company is not in breach or violation of, or default under, any such lease or sublease, and no event has occurred, is pending or, to the knowledge of Company, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by Company or, to the knowledge of Company, any other party under such lease or sublease;

(c) Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in any lease or sublease; and

(d) there are no liens, easements, covenants or other restrictions applicable to the real property subject to such lease, except for recorded easements, covenants and other restrictions which do not materially impair the intended use or the occupancy by Company of the property subject thereto.

2.23 Insurance.

(a) Section 2.23(a) of the Company Disclosure Schedule sets forth each insurance policy (including fire, theft, casualty, general liability, workers compensation, business interruption, environmental, product liability and automobile insurance policies and bond and surety arrangements) (the “Insurance Policies”) to which Company is a party. Such Insurance Policies are in full force and effect, maintained with reputable companies against loss relating to the business, operations and properties and such other risks as companies engaged in similar business as Company would, in accordance with good business practice, customarily insure. All premiums due and payable under such Insurance Policies have been paid on a timely basis and Company is in compliance in all material respects with all other terms thereof. True, complete and correct copies of the Insurance Policies have been made available to Parent.

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(b) There are no material claims pending as to which coverage has been questioned, denied or disputed. All material claims thereunder have been filed in a due and timely fashion and Company has not been refused insurance for which it has applied or had any policy of insurance terminated (other than at its request), nor has Company received notice from any insurance carrier that: (i) such insurance will be canceled or that coverage thereunder will be reduced or eliminated; or (ii) premium costs with respect to such insurance will be increased, other than premium increases in the ordinary course of business applicable on their terms to all holders of similar policies.

2.24 Certain Business Practices.

(a) Neither Company nor, to the knowledge of Company, any director, officer, employee or agent of Company has: (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful payments relating to political activity; (ii) made any unlawful payment to any foreign or domestic government official or employee or to any foreign or domestic political party or campaign or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iii) made any other unlawful payment.

(b) Since January 1, 2010, Company has not participated in activities of the type commercially referred to as “trade loading” or “channel stuffing” or any other activity that reasonably could be expected to result in an increase, temporary or otherwise, in the demand for the Company Products prior to the Closing, including sales of such products (i) with payment terms longer than terms customarily offered for such products, (ii) at a greater discount from listed prices than customarily offered for such products, (iii) with shipment terms more favorable than shipment terms customarily offered for such products, (iv) in a quantity greater than the reasonable resale requirement of any particular distributor, or (v) in conjunction with other material benefits to a distributor not previously offered in the ordinary course of business to such distributor.

2.25 Suppliers. Section 2.25(a) of the Company Disclosure Schedule sets forth a true, complete and correct list, as of the date of this Agreement, of each supplier that is the sole supplier of any significant product or service to Company. Since the Company Balance Sheet Date, there has not been: (i) any materially adverse change in the business relationship of Company with any supplier named in the Company Disclosure Schedule; or (ii) any change in any material term (including credit terms) of the sales agreements or related agreements with any supplier named in the Company Disclosure Schedule.

2.26 Government Contracts. Company has not been suspended or debarred from bidding on contracts with any Governmental Body, and no such suspension or debarment has been initiated or threatened. The consummation of the Transaction and other transactions contemplated by this Agreement will not result in any such suspension or debarment of Company or Parent (assuming that no such suspension or debarment will result (a) solely from the identity of Parent or (b) from any contract, right, ruling, decree or obligation of or made with respect to Parent, and not of or with respect to Company).

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2.27 Interested Party Transactions. No event has occurred during the past three (3) years that would be required to be reported by Company as a Certain Relationship or Related Transaction pursuant to Item 404 of Regulation S-K, if Company were required to report such information in periodic reports pursuant to the Exchange Act.

2.28 Disclosure. To the knowledge of Company, (i) none of the representations or warranties of Company contained herein, (ii) none of the information contained in the Company Disclosure Schedule and (iii) none of the other information or documents furnished or to be furnished to Parent by Company or pursuant to the terms of this Agreement is false or misleading in any material respect or omits to state a fact herein or therein necessary to make the statements herein or therein, in light of the circumstance in which they were made, not misleading in any material respect.

2.29 Product Liability; Product Warranties.

(a) No Product Liability Claims have been asserted or, to the knowledge of the Company, threatened against Company or in respect of any product tested, researched, developed, manufactured, marketed, distributed, handled, stored, or sold by, on behalf of Company.

(b) Each Company Product has been in conformity in all material respects with all applicable product specifications, contractual commitments, express and implied warranties and Legal Requirements, and Company has no material liability (and, to the knowledge of the Company, there is no reasonable basis for any present or future Legal Proceeding or demand against Company giving rise to any material liability) for violations thereof or other damages in connection therewith, including any obligation to recall, replace or repair any such products, subject only to the reserve set forth in the Company Balance Sheet. No Company Product is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale in any material respect. Company has made available to Parent copies of the standard terms and conditions of sale for each Company Product (containing applicable guaranty, warranty, and indemnity provisions).

2.30 Reorganization Matters.

(a) Company currently conducts a “historic business” within the meaning of Treasury Regulations Section 1.368-1(d), and no assets of Company have been sold, transferred, or otherwise disposed of that would prevent Parent from continuing the “historic business” of Company or from using a “significant portion” of Company’s “historic business assets” in a business following the Transaction, as such terms are used in Treasury Regulations Section 1.368-1(d).

(b) Other than any amounts paid by Company in respect of Dissenting Shares, neither Company nor any Person related to Company within the meaning of Treasury Regulations Section 1.368-1(e)(3), (e)(4) and (e)(5) has redeemed, purchased or otherwise acquired, or made any distributions with respect to, any of Company’s capital stock prior to and in contemplation of the Transaction, or otherwise as part of a plan of which the Transaction is a part.

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(c) The fair market value of the assets of Company exceeds the sum of (i) the amount of the liabilities of Company immediately prior to the Transaction and the liabilities, if any, to which the transferred assets of Company are subject, and (ii) the amount of any money and the fair market value of any other property (other than Parent Common Stock) received by Company stockholders in connection with the Transaction. The liabilities of Company and the liabilities, if any, to which the transferred assets of Company are subject, were incurred by Company in the ordinary course of its business.

(d) Company is not an investment company within the meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code.

(e) Company is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.

(f) Except as specifically set forth in the Agreement, Company will pay its respective expenses, if any, incurred in connection with the Transaction, and Company has not agreed to assume, and will not directly or indirectly assume, any expense or liability, whether fixed or contingent, of any Company stockholder.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF PARENT

Parent hereby represents and warrants to Company that except as set forth in the Parent Disclosure Schedule:

3.1 Organization of Parent. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has all requisite corporate power and authority to own, lease and operate its property and to carry on its business as now being conducted and as proposed to be conducted, and is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Parent Material Adverse Effect. Parent has made available a true and correct copy of the certificate of incorporation and bylaws of Parent, each as amended to date, to Company. Parent owns 100% of the issued and outstanding shares of capital stock or interests, as applicable, of the Merger Subs. Neither Merger Sub has ever conducted any business activities or operations and neither Merger Sub has ever owned any property or become party to or bound by any contract or agreement other than this Agreement. Merger Sub I is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and Merger Sub II is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Section 3.1 of the Parent Disclosure Schedule sets forth a complete and correct list, as of the date of this Agreement, of each Subsidiary of Parent.

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3.2 Capital Structure. The authorized capital stock of Parent as of the date of this Agreement consists of 65,000,000 shares of Common Stock, par value $0.01 per share, of which 33,106,523 shares are issued and outstanding as of the close of business on the day prior to the date hereof and 20,000,000 shares of Preferred Stock, par value $0.01 per share, of which no shares are issued and outstanding as of the close of business on the day prior to the date hereof. No shares of capital stock are held in Parent’s treasury. All outstanding shares of Parent Common Stock are duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive rights created by statute, the certificate of incorporation or bylaws of Parent or any agreement or document to which Parent is a party or by which it is bound, and were issued in compliance with all applicable federal and state securities Legal Requirements. As of the date hereof, Parent had reserved an aggregate of 8,973,970 shares of Parent Common Stock, net of exercises, for issuance to employees, consultants and non-employee directors pursuant to the Parent Option Plans, under which options were outstanding for an aggregate of 1,177,286 shares, and 2,073,063 shares of Parent Common Stock, net of exercises, were reserved for issuance to holders of warrants to purchase Parent Common Stock upon their exercise. All shares of Parent Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and non-assessable. The shares of Parent Common Stock issuable as Series F Merger Consideration, upon issuance on the terms and conditions contemplated in this Agreement, would be duly authorized, validly issued, fully paid and non-assessable. Except as set forth herein and in Section 3.2 of the Parent Disclosure Schedule, there are no options, warrants, equity securities, calls, rights (including preemptive rights), commitments or agreements of any character to which Parent or any of its Subsidiaries is a party or by which it is bound obligating Parent or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, or to repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any shares of capital stock of Parent or any of its Subsidiaries or obligating Parent or any of its Subsidiaries to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement.

3.3 Obligations with Respect to Capital Stock. Except as set forth in the Parent SEC Documents, there are no registration rights and, to the knowledge of Parent, there are no voting trusts, proxies or other agreements or understandings with respect to any equity security of any class of Parent or with respect to any equity security of any class of any of its Subsidiaries. There is no stockholder rights plan that will be applicable or triggered by the entry into this Agreement or the consummation of the Transaction or the other transactions contemplated hereunder.

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3.4 Authority.

(a) Parent has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate and limited liability company action, as applicable, on the part of Parent and Merger Subs, subject only to the filing and recordation of the Certificate of Merger I and Certificate of Merger II pursuant to Delaware Law and the DLLCA. This Agreement has been duly executed and delivered by Parent and the Merger Subs and, assuming the due authorization, execution and delivery of this Agreement by Company and the Company Stockholders’ Agent, this Agreement constitutes the valid and binding obligation of Parent and the Merger Subs, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity. The execution and delivery of this Agreement by Parent and the Merger Subs does not, and the performance of this Agreement by Parent or the Merger Subs will not, (i) conflict with or violate the certificate of incorporation, certificate of formation, bylaws or operating agreement of Parent or the Merger Subs, as applicable, (ii) subject to compliance with the requirements set forth in Section 3.4(b) below, conflict with or violate any Legal Requirement applicable to Parent or the Merger Subs or by which their respective properties are bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Parent’s rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of Parent or the Merger Subs pursuant to, any Parent Contract, except, with respect to clauses (ii) and (iii), for any non-material conflicts, violations, defaults or other occurrences. Section 3.4 of the Parent Disclosure Schedule lists all material consents, waivers and approvals under any Parent Contract required to be obtained in connection with the consummation of the transactions contemplated hereby.

(b) No consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Body is required by or with respect to Parent in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing with the SEC of any outstanding periodic reports due under the Exchange Act, (ii) the filing by Parent with the California Commissioner of a Permit Application, and the issuance by the California Commissioner of a permit under Section 25121 of the California Corporations Code (following a hearing upon the fairness of the terms and conditions of the Transaction, conducted pursuant to Section 25142 of the California Corporations Code) for the issuance of the Parent Common Stock to be issued in Merger I, (iii) the filing of the Certificate of Merger I and Certificate of Merger II with the Secretary of State of the State of Delaware, (iv) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable U.S. federal and state securities laws and similar laws of any foreign country and (v) such other non-material consents, authorizations, filings, approvals and registrations.

3.5 Section 203 of Delaware Law not Applicable. The board of directors of Parent has taken all actions so that the restrictions contained in Section 203 of Delaware Law applicable to a “business combination” will not apply to the execution, delivery or performance of this Agreement or to the consummation of the Transaction or the other transactions contemplated by this Agreement.

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3.6 SEC Filings; Parent Financial Statements; No Undisclosed Liabilities.

(a) Parent has made available to Company accurate and complete copies of the Parent SEC Documents, other than such documents that can be obtained on the SEC’s website at www.sec.gov. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i) each of the Parent SEC Documents complied in all material respects with the applicable requirements of the Securities Act or Exchange Act, as applicable, and (ii) none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The certifications and statements required by (A) Rule 13a-14 under the Exchange Act and (B) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating to the Parent SEC Documents (collectively, the “Certifications”) are accurate and complete and comply as to form and content with all applicable Legal Requirements. As used in this Section 3.6, the term “file” and variations thereof shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.

(b) Parent maintains disclosure controls and procedures that satisfy the requirements of Rule 13a-15 under the Exchange Act. Such disclosure controls and procedures are designed to ensure that all material information concerning Parent is made known on a timely basis to the individuals responsible for the preparation of Parent’s filings with the SEC and other public disclosure documents.

(c) The financial statements (including any related notes) contained or incorporated by reference in the Parent SEC Documents (the “Parent Financials”): (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with GAAP (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted by the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated; and (iii) fairly present in all material respects the consolidated financial position of Parent as of the respective dates thereof and the consolidated results of operations and cash flows of Parent for the periods covered thereby.

(d) Except as disclosed in the Parent Financials, neither Parent nor any of its Subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be disclosed on a balance sheet or in the related notes to the consolidated financial statements prepared in accordance with GAAP which are, individually or in the aggregate, material to the business, results of operations or financial condition of Parent and its Subsidiaries taken as a whole, except liabilities (i) provided for in the Parent Financials, (ii) described in Section 3.6 of the Parent Disclosure Statement, or (iii) incurred since December 31, 2009 in the ordinary course of business consistent with past practices in both type and amount.

3.7 Absence of Certain Changes or Events. Since December 31, 2009 through the date of this Agreement, there has not been: (a) any event that has had a Parent Material Adverse Effect, (b) any material change by Parent in its accounting methods, principles or practices, except as required by concurrent changes in GAAP, (c) any revaluation by Parent of any of its assets or writing off of notes or accounts receivable, or (d) any other action, event or occurrence that would have required the consent of Company pursuant to Section 4.2 of this Agreement had such action, event or occurrence taken place after the execution and delivery of this Agreement.

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3.8 Taxes.

(a) Each of the Tax Returns by or with respect to Parent: (i) has been timely filed on or before the applicable due date (including any extensions of such due date) and (ii) is true and complete in all material respects. All material Taxes due and payable by Parent (whether or not shown to be due on filed Tax Returns) have been timely paid, except to the extent such amounts are being contested in good faith by Parent or are properly reserved for in the Parent Financials.

(b) All material Taxes that Parent has been required to collect or withhold have been duly collected or withheld and, to the extent required by applicable Legal Requirements when due, have been duly and timely paid to the proper Governmental Body.

(c) There has not been any audit, examination or other administrative or court proceeding for or relating to any liability in respect of Taxes by any Governmental Body in respect of which Parent has received a written notice, and Parent has not been notified in writing by any Governmental Body that any such audit, examination or other administrative or court proceeding involving Taxes is contemplated or pending. No extension of time with respect to any date on which a Tax Return was required to be filed by Parent is in force (except where such Tax Return was filed), and no waiver or agreement by or with respect to Parent is in force for the extension of time for the payment, collection or assessment of any Taxes, and no request has been made by Parent in writing for any such extension or waiver (except, in each case, in connection with any request for extension of time for filing Tax Returns). No claim has been made in writing to Parent by any Governmental Body in a jurisdiction where Parent does not file Tax Returns that Parent is subject to taxation by that jurisdiction and, to Parent’s knowledge, there are no facts or basis upon which any such claim could reasonably be made. Each deficiency issued to Parent as a result of any completed audit or examination relating to Taxes by any Governmental Body has been timely paid or is being contested in good faith and has been adequately reserved for on the books of Parent. No issues relating to any material amount of Taxes were raised by the relevant Governmental Body in any completed audit or examination that would reasonably be expected to recur in a later taxable period.

(d) Parent has not agreed, or will not be required, to make any adjustment for any period after the date of this Agreement pursuant to Section 481(a) of the Code by reason of any change in any accounting method made prior to the date hereof. There is no application pending with any Governmental Body requesting permission for any such change in any accounting method of Parent, and the Internal Revenue Service has not issued in writing any pending proposal regarding any such adjustment or change in accounting method.

(e) No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into by Parent with any taxing authority or issued by any taxing authority to Parent. There are no outstanding rulings of, or request for rulings with, any Governmental Body addressed to Parent that are, or if issued would be, binding on Parent.

(f) Parent is not a party to any agreement with any third party relating to allocating or sharing the payment of, or liability for, Taxes or Tax benefits. Parent has no liability for the Taxes of any third party under Treasury Regulation §1.1502-6 (or any similar provision of state, local or foreign Legal Requirement) as a transferee or successor, by contract or otherwise.

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(g) Parent does not (i) own a single member limited liability company which is treated as a disregarded entity other than Merger Sub II, and (ii) is not a stockholder of a “controlled foreign corporation” as defined in Section 957 of the Code.

(h) Parent has not participated in a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b). Parent believes it has substantial authority for or has disclosed on its respective United States federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of United States federal income Tax within the meaning of Section 6662 of the Code.

(i) Parent is not (and has not been for the five-year period ending at Closing) a “United States real property holding corporation” as defined in Section 897(c)(2) of the Code and the applicable Treasury Regulations.

(j) Parent does not have a permanent establishment in any country other than the United States, as defined in any applicable Tax treaty between the United States and such other country.

3.9 Intellectual Property.

(a) Section 3.9(a) of the Parent Disclosure Schedule lists, as of the date of this Agreement, all oral and written contracts, agreements, licenses and other arrangements in effect as of the date of this Agreement under which any third party has licensed, granted or conveyed to Parent any right, title or interest in or to any Material Parent IP Rights other than non-exclusive licenses to commercially available computer software that has not been modified or customized for Parent.

(b) Section 3.9(b) of the Parent Disclosure Schedule lists, as of the date of this Agreement, all oral and written contracts, agreements, licenses or other arrangements in effect as of the date of this Agreement under which Parent has licensed, granted or conveyed to any third party any right, title or interest in or to any Material Parent IP Rights other than non-exclusive licenses to commercially available computer software that has not been modified or customized for Parent.

(c) The conduct of Parent’s business as currently being conducted does not infringe, constitute contributory infringement, inducement to infringe, misappropriation or unlawful use of any valid and enforceable IP Rights of any other Person and Parent has received no written notice alleging such infringement, misappropriation or unlawful use.

(d) To the knowledge of Parent, as of the date of this Agreement, no Material Parent IP Rights are being infringed or misappropriated by any third party.

(e) Neither the execution, delivery or performance of this Agreement by Parent nor the consummation by Parent of the transactions contemplated by this Agreement will contravene, conflict with or result in any limitation on Parent’s right, title or interest in or to any Parent IP Rights in any material respect.

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3.10 Compliance; Permits; Restrictions.

(a) Parent is currently not, and has not been during the past three (3) years, in conflict with, or in default or violation of (i) any Legal Requirement, order, judgment or decree applicable to Parent or any of its Subsidiaries or by which its or any of their respective properties is bound or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries or its or any of their respective properties is bound or affected, except in each case for any immaterial conflicts, defaults or violations. No investigation or review by any Governmental Body against Parent has occurred during the past three (3) years, nor has Parent received any written notice that any such investigation or review is pending or, to the knowledge of Parent, threatened against Parent or its Subsidiaries.

(b) Parent holds all permits, licenses, variances, exemptions, orders, clearances and approvals from governmental authorities which are material to and necessary for the operation of the business of Parent and its Subsidiaries taken as a whole (collectively, the “Parent Permits”). Parent and its Subsidiaries are in material compliance with the terms of the Parent Permits. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the knowledge of Parent, threatened, which seeks to revoke or materially impair the rights of the holder of any Parent Permit. A true, complete and correct list of the Parent Permits, as of the date of this Agreement, is set forth in Section 3.10(b) of the Parent Disclosure Schedule.

3.11 Litigation. Except as set forth in Section 3.11 of the Parent Disclosure Schedule or disclosed in the Parent SEC Documents, there is no action, suit, proceeding, claim, arbitration or investigation pending, or as to which Parent has received any notice of assertion, nor, to the knowledge of Parent, is there any threatened action, suit, proceeding, claim for arbitration or investigation against Parent.

3.12 Brokers’ and Finders’ Fees. Except as set forth in Section 3.12 of the Parent Disclosure Schedule, Parent has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.

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3.13 Employee Benefit Plans.

(a) Section 3.13(a) of the Parent Disclosure Schedule sets forth, as of the date of this Agreement, a complete and accurate list of each plan, program, policy, practice, contract, agreement or other arrangement providing for employment, compensation, retirement, pension, deferred compensation, loans, severance, separation, relocation, repatriation, expatriation, visas, work permits, termination pay, performance awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom stock, stock appreciation right, supplemental retirement, profit sharing, fringe benefits, cafeteria benefits, medical benefits, life insurance, disability benefits, accident benefits, salary continuation, accrued leave, vacation, sabbatical, sick pay, sick leave, unemployment benefits or other benefits, whether written or unwritten, including each “voluntary employees’ beneficiary association” under Section 501(c)(9) of the Code and each “employee benefit plan” within the meaning of Section 3(3) of ERISA, in each case, for active, retired or former employees, directors or consultants, which is currently sponsored, maintained, contributed to, or required to be contributed to or with respect to which any potential liability is borne by Parent or any ERISA Affiliate (collectively, the “Parent Employee Plans”). Neither Parent nor, to the knowledge of Parent, any other person or entity, has made any commitment to modify, change or terminate any Parent Employee Plan, other than with respect to a modification, change or termination required by Legal Requirements. There are no loans by Parent to any of its officers, employees, contractors or directors outstanding on the date hereof, except pursuant to loans under any Parent Employee Plan intended to qualify under Section 401(k) of the Code, and there have never been any loans by Parent subject to Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

(b) Parent has made available to Company true and complete copies of each of Parent Employee Plans and related plan documents, including trust documents, group annuity contracts, plan amendments, insurance policies or contracts, participant agreements, employee booklets, administrative service agreements, summary plan descriptions, compliance and nondiscrimination tests (including 401(k) and 401(m) tests) for the last three (3) plan years, standard COBRA forms and related notices, registration statements and prospectuses and, to the extent still in its possession, any material employee communications relating thereto. With respect to each Parent Employee Plan that is subject to ERISA reporting requirements, Parent has made available in a data room for review by Company copies of the Form 5500 reports filed for the last three (3) plan years. Parent has made available in a data room for review by Company the most recent Internal Revenue Service determination or opinion letter issued with respect to each such Parent Employee Plan, if any, and to Parent’s knowledge, nothing has occurred since the issuance of each such letter that would reasonably be expected to cause the loss of the tax-qualified status of any Parent Employee Plan subject to Code Section 401(a). Parent has made available in a data room for review by Company all filings made by Parent or any ERISA Affiliate of Parent with any Governmental Body with respect to any Parent Employee Plan to the extent relevant to any ongoing obligation or liability of Parent, including any filings under the IRS’ Employee Plans Compliance Resolution System Program or any of its predecessors or the Department of Labor Delinquent Filer Program.

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(c) Each Parent Employee Plan is being, and has been, administered materially in accordance with its terms and in material compliance with the requirements prescribed by any and all Legal Requirements (including ERISA and the Code). Parent and each ERISA Affiliate are not in material default under or material violation of, and have no knowledge of any material default or material violation by any other party to, any of Parent Employee Plans. Any Parent Employee Plan intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Code, including all currently effective amendments to the Code, and the corresponding related exemption of its trust from U.S. federal income taxation under Section 501(a) of the Code, if applicable, or has applied to the Internal Revenue Service for such favorable determination letter within the remedial amendment period under Section 401(b) of the Code. None of Parent Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person. Parent has not engaged in, or participated in, any transaction which would be considered a non-exempt “prohibited transaction,” as such term is defined in Section 406 of ERISA or Section 4975 of the Code, and to Parent’s knowledge, no other third-party fiduciary and/or party-in-interest has engaged in any such “prohibited transaction” with respect to any Parent Employee Plan. Neither Parent nor any ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any Parent Employee Plan. All contributions required to be made by Parent or any ERISA Affiliate to any Parent Employee Plan have been timely paid or accrued on Parent Balance Sheet, if required under GAAP. With respect to each Parent Employee Plan, no “reportable event” within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) has occurred, nor has any event described in Section 4062, 4063 or 4041 for ERISA occurred. Each Parent Employee Plan subject to ERISA has prepared in good faith and timely filed all requisite governmental reports, which were true and correct in all material respects as of the date filed, and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Parent Employee Plan. No suit, administrative proceeding or action has been brought, or to the knowledge of Parent is overtly threatened in communication with Parent, against or with respect to any such Parent Employee Plan, including any audit or inquiry by the Internal Revenue Service or the United States Department of Labor (other than routine claims for benefits arising under such plans). There has been no amendment to, or written interpretation or announcement by Parent or any ERISA Affiliate regarding any Parent Employee Plan that would materially increase the expense of maintaining such Parent Employee Plan above the level of expense incurred with respect to that plan for the fiscal year ended December 31, 2009. None of the assets of Parent or any ERISA Affiliate is, or may reasonably be expected to become, the subject of any lien arising under Section 302 of ERISA or Section 412(n) of the Code. To the knowledge of Parent, all contributions and payments to Parent Employee Plans are deductible under Section 162 or 404 of the Code. No assets of any Parent Employee Plan are subject to a material amount of Tax as unrelated business taxable income under Section 511 of the Code, and no excise Tax could be imposed upon Parent under Chapter 43 of the Code. With respect to Parent Employee Plans, no event has occurred and, to the knowledge of Parent, there exists no condition or set of circumstances in connection with which Parent would reasonably expect to be subject to any material liability (other than for liabilities with respect to routine benefit claims) under the terms of, or with respect to, such Parent Employee Plans, ERISA, the Code or any other applicable Legal Requirement.

(d) Neither Parent nor any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to, or is obligated to contribute to, or otherwise incurred any obligation or liability (including any contingent liability) under, any “multiemployer plan” (as defined in Section 3(37) of ERISA) or any “pension plan” (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA or Section 412 of the Code. Neither Parent nor any ERISA Affiliate has, as of the date of this Agreement, any actual or potential withdrawal liability (including any contingent liability) for any complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any multiemployer plan.

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(e) Neither Parent nor any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to any self-insured plan that is governed by ERISA and that provides benefits to employees (including any such plan pursuant to which a stop-loss policy or contract applies).

(f) With respect to each Parent Employee Plan, Parent is in material compliance with (i) the applicable health care continuation and notice provisions of COBRA and the regulations promulgated thereunder or any state Legal Requirement governing health care coverage extension or continuation; and (ii) the applicable requirements of the Family and Medical Leave Act of 1993 and the regulations promulgated thereunder; (iii) the applicable requirements of HIPAA. Parent has no material unsatisfied obligations to any employees, former employees or qualified beneficiaries pursuant to COBRA, HIPAA or any state Legal Requirement governing health care coverage extension or continuation.

(g) Each Parent Employee Plan which is a nonqualified deferred compensation plan within the meaning of Section 409A of the Code has been operated and maintained in a good faith effort to comply in all material respects according to the applicable requirement of Section 409A of the Code.

(h) The consummation of the Transaction will not (i) entitle any current or former employee or other service provider of Parent or any ERISA Affiliate to severance benefits or any other payment (including unemployment compensation, golden parachute, bonus or benefits under any Parent Employee Plan), except as expressly provided in Section 3.13(h) of the Parent Disclosure Schedule; (ii) accelerate the time of payment or vesting of any such benefits or increase the amount of compensation due any such employee or service provider; (iii) result in the forgiveness of any indebtedness; (iv) result in any obligation to fund future benefits under any Parent Employee Plan; or (v) result in the imposition of any restrictions with respect to the amendment or termination of any of Parent Employee Plans. No benefit payable or that may become payable by Parent pursuant to any Parent Employee Plan in connection with the transactions contemplated by this Agreement or as a result of or arising under this Agreement shall constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code) subject to the imposition of an excise Tax under Section 4999 of the Code or the deduction for which would be disallowed by reason of Section 280G of the Code. Each Parent Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time of Merger I in accordance with its terms, without material liability to Company, the Surviving Corporation or the Surviving Entity other than ordinary administration expenses typically incurred in a termination event.

(i) Parent is not a party to any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of Parent that, individually or in the aggregate, would reasonably be expected to give rise to the payment of any material amount that would be subject to the deductibility limits of Section 404 of the Code.

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(j) Parent does not sponsor, contribute to or have any liability with respect to any employee benefit plan, program or arrangement that provides benefits to non-resident aliens with no United States source income outside of the United States.

(k) With respect to each Parent Employee Plan that is an “employee welfare benefit plan” within the meaning of Section 3(2) of ERISA, other than any health care reimbursement plan under Section 125 of the Code, all claims incurred (including claims incurred but not reported) by employees, former employees and their dependents thereunder for which Parent is, or will become, liable are (i) insured pursuant to a contract of insurance whereby the insurance Parent bears any risk of loss with respect to such claims, (ii) covered under a contract with an HMO pursuant to which the HMO bears the liability for such claims, or (iii) reflected as a liability or accrued for on Parent Financials for the fiscal year ended December 31, 2009.

3.14 Absence of Liens and Encumbrances; Condition of Equipment. Parent and each of its Subsidiaries has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all material tangible properties and assets, real, personal and mixed, necessary for use in its business, free and clear of any liens or encumbrances except as reflected in the Parent Financials and except for liens for taxes not yet due and payable. Each such tangible asset is in a good state of maintenance and repair, free from material defects and in good operating condition (subject to normal wear and tear) and is suitable for the purposes for which it presently is used.

3.15 Environmental Matters.

(a) No Hazardous Materials are present, as a result of Parent or any of its Subsidiaries, or, to Parent’s knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that Parent or any of its Subsidiaries has at any time owned, operated, occupied or leased.

(b) Neither Parent nor any of its Subsidiaries has conducted Hazardous Material Activities in violation of any Legal Requirement promulgated by any Governmental Body in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity.

(c) Parent and its Subsidiaries currently hold all environmental approvals, permits, licenses, clearances and consents (the “Parent Environmental Permits”) necessary for the conduct of Parent’s and its Subsidiaries’ Hazardous Material Activities and other businesses of Parent and its Subsidiaries as such activities and businesses are currently being conducted.

(d) No material action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to Parent’s knowledge, threatened concerning any Parent Environmental Permits, Hazardous Material or any Hazardous Material Activity of Parent or any of its Subsidiaries. Parent is not aware of any fact or circumstance which could involve Parent or any of its Subsidiaries in any environmental litigation or impose upon Parent or any of its Subsidiaries any material environmental liability.

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3.16 Labor Matters.

(a) Section 3.16(a) of the Parent Disclosure Schedule sets forth a true, complete and correct list, as of the date of this Agreement, of all employees of Parent and its Subsidiaries along with their position, hire date, 2009 annual compensation and current annual rate of compensation (including any bonuses to which such employee may be eligible). All employees have entered into nondisclosure and assignment of inventions agreements with Parent, true, complete and correct copies of which have previously been made available to Company. To the knowledge of Parent, no employee of Parent is in violation of any term of any patent disclosure agreement, non-competition agreement, or any restrictive covenant (i) to Parent, or (ii) to a former employer relating to the right of any such employee to be employed because of the nature of the business conducted by Parent or to the use of trade secrets or proprietary information of others. No key employee or group of employees has threatened in writing to terminate employment with Parent.

(b) Parent is not a party to or bound by any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes.

(c) Except as disclosed in Section 3.16(c) of the Parent Disclosure Schedule, Parent is not a party to any written or oral: (i) agreement with any current or former employee the benefits of which are contingent upon, or the terms of which will be materially altered by, the consummation of the Transaction or other transactions contemplated by this Agreement; (ii) agreement with any current or former employee of Parent providing any term of employment or compensation guarantee extending for a period longer than one year from the date hereof or for the payment of compensation in excess of $50,000 per annum (other than compensation pursuant to at-will employment agreements); or (iii) agreement or plan the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, upon the consummation of the Transaction.

3.17 Agreements, Contracts and Commitments. Except as set forth in the most recent exhibit list on Parent’s Form 10-K for the year ended December 31, 2009 or Section 3.17 of the Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a party to or is bound by:

(a) any bonus, deferred compensation, severance, incentive compensation, pension, profit-sharing or retirement plans, or any other employee benefit plans or arrangements;

(b) any employment or consulting agreement, contract or commitment with any officer or director level employee, not terminable by Parent or any of its Subsidiaries on thirty (30) days notice without liability, except to the extent general principles of wrongful termination may limit Parent’s or any of its Subsidiaries’ ability to terminate employees at will;

(c) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement;

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(d) any agreement of indemnification or guaranty not entered into in the ordinary course of business, including any indemnification agreements between Parent or any of its Subsidiaries and any of its officers or directors;

(e) any agreement, contract or commitment containing any covenant limiting the freedom of Parent or any of its Subsidiaries to engage in any line of business or compete with any person;

(f) any license, agreement, contract or commitment relating to any Material Parent IP Right;

(g) any agreement, contract or commitment relating to capital expenditures and involving future obligations in excess of $50,000 and not cancelable without penalty;

(h) any agreement, contract or commitment currently in force relating to the disposition or acquisition of assets not in the ordinary course of business or any ownership interest in any corporation, partnership, joint venture or other business enterprise;

(i) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit;

(j) any joint marketing or development agreement;

(k) any distribution agreement (identifying any that contain exclusivity provisions); or

(l) any other agreement, contract or commitment (excluding real and personal property leases) which involve an annual payment by Parent or any of its Subsidiaries under any such agreement, contract or commitment of $50,000 or more in the aggregate and is not cancelable without penalty within thirty (30) days.

Neither Parent nor any of its Subsidiaries, nor to Parent’s knowledge any other party to a Parent Contract, has breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any of the agreements, contracts or commitments to which Parent is a party or by which it is bound of the type described in clauses (a) through (k) above (any such agreement, contract or commitment, a “Parent Contract”) in such manner as would permit any other party to cancel or terminate any such Parent Contract, or would permit any other party to seek damages. Parent has made available to Company an accurate and complete copy of each Parent Contract (other than such agreements that can be obtained on the SEC’s website at www.sec.gov). Each Parent Contract is a valid, binding and enforceable obligation of Parent or its Subsidiary and is in full force and effect, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.

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3.18 Permit Application; Registration Statement; Information Statement. The information supplied by Parent for inclusion in the Permit Application shall not at the time the Permit Application is filed with the California Commissioner and at the time the Fairness Hearing is held or for inclusion in the Registration Statement shall not at the time the Registration Statement is filed with the SEC and at the time it becomes effective, as applicable, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading. The information supplied by Parent for inclusion in the Information Statement to be sent to the stockholders of Company in connection with the solicitation of approval of this Agreement, the Transaction and the transactions contemplated hereunder shall not, on the date the Information Statement is first mailed to Company’s stockholders contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of consents which has become false or misleading. Notwithstanding the foregoing, Parent makes no representation or warranty with respect to any information supplied by Company which is contained in or omitted from any of the foregoing documents.

3.19 Corporate Approval. The board of directors of Parent has unanimously, as of the date of this Agreement, approved this Agreement, the Transaction and the transactions contemplated hereunder and the issuance of Parent Common Stock in connection with Merger I.

3.20 Books and Records. The minute books of Parent and its Subsidiaries made available to Company or counsel for Company are the only minute books of Parent and contain accurate summaries, in all material respects, of all meetings of directors (or committees thereof) and stockholders or actions by written consent since the time of incorporation of Parent or such Subsidiaries, as the case may be. The books and records of Parent accurately reflect in all material respects the assets, liabilities, business, financial condition and results of operations of Parent and have been maintained in accordance with good business and bookkeeping practices.

3.21 Restrictions on Business Activities. Other than as contemplated by this Agreement, there is no agreement, judgment, injunction, order or decree binding upon or otherwise applicable to Parent which has, or would reasonably be expected to have, the effect of prohibiting or materially impairing (a) any current business practice of Parent; or (b) any acquisition of any Person or property by Parent.

3.22 Real Property Leases. Parent has never owned any real property. Section 3.22 of the Parent Disclosure Schedule sets forth, as of the date of this Agreement, all real property leases or subleases to or by Parent, including the term of such lease, any extension and expansion options and the rent payable under it. Parent has made available to Company true, complete and correct copies of the leases and subleases (as amended to date) listed in Section 3.22 of the Parent Disclosure Schedule. With respect to each lease and sublease listed in Section 3.22 of the Parent Disclosure Schedule,

(a) the lease or sublease is legal, valid, binding, enforceable and in full force and effect and will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Effective Time of Merger II in accordance with the terms thereof as in effect immediately prior to the Effective Time of Merger I;

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(b) Parent is not in breach or violation of, or default under, any such lease or sublease, and no event has occurred, is pending or, to the knowledge of Parent, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by Parent or, to the knowledge of Parent, any other party under such lease or sublease;

(c) Parent has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in any lease or sublease; and

(d) there are no liens, easements, covenants or other restrictions applicable to the real property subject to such lease, except for recorded easements, covenants and other restrictions which do not materially impair the intended use or the occupancy by Parent of the property subject thereto.

3.23 Insurance.

(a) Section 3.23(a) of the Parent Disclosure Schedule sets forth each Insurance Policy to which Parent is a party. Such Insurance Policies are in full force and effect, maintained with reputable companies against loss relating to the business, operations and properties and such other risks as companies engaged in similar business as Parent would, in accordance with good business practice, customarily insure. All premiums due and payable under such Insurance Policies have been paid on a timely basis and Parent is in compliance in all material respects with all other terms thereof. True, complete and correct copies of the Insurance Policies have been made available to Company.

(b) There are no material claims pending as to which coverage has been questioned, denied or disputed. All material claims thereunder have been filed in a due and timely fashion and Parent has not been refused insurance for which it has applied or had any policy of insurance terminated (other than at its request), nor has Parent received notice from any insurance carrier that: (i) such insurance will be canceled or that coverage thereunder will be reduced or eliminated; or (ii) premium costs with respect to such insurance will be increased, other than premium increases in the ordinary course of business applicable on their terms to all holders of similar policies.

3.24 Certain Business Practices. Neither Parent nor, to the knowledge of Parent, any director, officer, employee or agent of Parent or its Subsidiaries has: (a) used any funds for unlawful contributions, gifts, entertainment or other unlawful payments relating to political activity; (b) made any unlawful payment to any foreign or domestic government official or employee or to any foreign or domestic political party or campaign or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (c) made any other unlawful payment.

3.25 Government Contracts. Parent has not been suspended or debarred from bidding on contracts with any Governmental Body, and no such suspension or debarment has been initiated or threatened. The consummation of the Transaction and other transactions contemplated by this Agreement will not result in any such suspension or debarment of Parent.

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3.26 Interested Party Transactions. Except as set forth in the Parent SEC Documents, no event has occurred during the past three (3) years that would be required to be reported by Parent as a Certain Relationship or Related Transaction pursuant to Item 404 of Regulation S-K.

3.27 Fairness Opinion. The board of directors of Parent has, as of the date of this Agreement, received a fairness opinion from Aquilo Partners, L.P., financial advisor to Parent, dated the date of this Agreement, to the effect that the Series F Exchange Ratio is fair to the stockholders of the Parent from a financial point of view. Parent has furnished an accurate and complete copy of said written opinion to Company.

3.28 Reorganization Matters.

(a) Merger Subs are entities newly formed for the purpose of participating in the Transaction, and at no time prior to the Effective Time of Merger I and the Effective Time of Merger II have had assets (other than nominal assets contributed upon the formation of Merger Subs, which assets will be held by Merger Sub II following the Transaction) or business operations. At all times since its formation, Merger Sub II has been disregarded as separate from Parent for federal income Tax purposes. No IRS Form 8832 has ever been filed with respect to Merger Sub II to treat Merger Sub II as other than a disregarded entity.

(b) Except with respect to (i) open-market purchases of Parent’s stock pursuant to a general stock repurchase program of Parent that has not been created or modified in connection with the Transaction, (ii) repurchases in the ordinary course of business of unvested shares, if any, acquired from terminated employees and (iii) payments of cash in lieu of the issuance of fractional shares, neither Parent nor any Person related to Parent within the meaning of Treasury Regulations Sections 1.368-1(e)(3), (e)(4) and (e)(5) has any plan or intention to repurchase, redeem or otherwise acquire any Parent Common Stock issued to the Company Stockholders pursuant to this Agreement following the Transaction. Other than pursuant to this Agreement, neither Parent nor any Person related to Parent within the meaning of Treasury Regulations Sections 1.368-1(e)(3), (e)(4) and (e)(5) has acquired any Company Common Stock or Company Preferred Stock in contemplation of the Transaction, or otherwise as part of a plan of which the Transaction is a part.

(c) Following the Transaction, Parent, or a member of its qualified group of corporations (as defined by Treasury Regulations Section 1.368-1(d)(4)(ii)), will cause Merger Sub II (the Surviving Entity) to continue the historic business of Company (or, alternatively, if Company has more than one line of business, will cause Merger Sub II (the Surviving Entity) to continue at least one significant line of Company’s historic business) or use a significant portion of Company’s historic business assets in a business, in a manner consistent with Treasury Regulations Section 1.368-1(d). For purposes of this representation, Parent will be deemed to satisfy the foregoing representation if (a) the members of Parent’s qualified group (as defined in Treasury Regulations Section 1.368-1(d)(4)(ii)), in the aggregate, continue the historic business of Company or use a significant portion of Company’s historic business assets in a business or (b) the foregoing activities are undertaken by a partnership as contemplated by Treasury Regulations Section 1.368-1(d)(4).

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(d) Neither Parent nor any of its Subsidiaries has any plan or intention to sell or otherwise dispose of the assets of the Company except for dispositions made in the ordinary course of business or transfers and successive transfers permitted under Treasury Regulation Section 1.368-2(k)(1).

(e) Neither Parent nor either of the Merger Subs is an “investment company” within the meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code.

(f) Except as specifically set forth in the Agreement, Parent and the Merger Subs will pay their respective expenses, if any, incurred in connection with the Transaction. In the Transaction, no liabilities of the Company stockholders will be assumed by Parent or the Merger Subs, and neither Parent nor either of the Merger Subs will assume any liens, encumbrances or any similar liabilities relating to any Company capital stock acquired by Parent in the Transaction.

(g) Prior to the Transaction, Parent will be in control of Merger Sub I within the meaning of Section 368(c) of the Code and will own 100% of the membership interests of Merger Sub II, and following the Transaction, Parent will own 100% of the membership interests of the Surviving Entity. Parent has no plan or intention to cause the Surviving Entity, after the Effective Time of Merger II, to issue additional membership interests or to dispose of the membership interests of the Surviving Entity.

(h) The payment of cash in lieu of fractional shares of Parent Common Stock is solely for the purpose of avoiding the expense and inconvenience to Parent of issuing fractional shares of Parent Common Stock.

(i) None of the compensation received (or to be received) by any Company stockholder will be separate consideration for, or allocable to, any of its shares of Company stock; none of the shares of Parent Common Stock received by any Company stockholder pursuant to Merger I will be separate consideration for, or allocable to, any employment agreement or service arrangement; and the compensation paid to any Company stockholder who also provides services to Company will be for services actually rendered (or to be rendered) and will be commensurate with amounts paid to third parties bargaining at arm’s-length for similar services.

(j) The fair market value of the assets of Parent exceeds the amount of the liabilities of Parent immediately following the Transaction.

(k) Following the Transaction, Parent intends to comply, and cause the Surviving Entity to comply, with the record-keeping and information filing requirements of Treasury Regulation Section 1.368-3.

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ARTICLE 4

CONDUCT OF BUSINESS PENDING THE
CONSUMMATION OF THE TRANSACTION

4.1 Conduct of Company Business. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time of Merger I, Company agrees, except to the extent that Parent consents in writing (which consent shall not be unreasonably withheld, conditioned or delayed), to carry on its business diligently and in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, in substantially the same manner as heretofore conducted, to pay its debts and taxes when due subject to good faith disputes over such debts or taxes, to pay or perform other material obligations when due, and use its commercially reasonable efforts consistent with past practices and policies to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others with which it has business dealings. In addition, without limiting the foregoing, other than as expressly contemplated by this Agreement, without obtaining the written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed), Company shall not do any of the following:

(a) amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise;

(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest) (except for the issuance of shares of common stock upon exercise of Company Options under the Company Option Plans or pursuant to currently outstanding warrants, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date hereof);

(c) redeem, repurchase or otherwise acquire, directly or indirectly, any shares of capital stock of such party;

(d) sell, pledge, dispose of or encumber any assets (except for (i) sales of assets in the ordinary course of business and in a manner consistent with past practice and (ii) dispositions of obsolete or worthless assets);

(e) fail to make any expenditures that are necessary and sufficient to maintain or, to the extent budgeted or consistent with the past practice, improve the conditions of its properties, facilities and equipment, including, without limitation, budgeted expenditures relating to maintenance, repair and replacement;

(f) accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any options except as may be required with respect to Company Options under the Company Options Plans;

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(g) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire any of its securities, or propose to do any of the foregoing;

(h) sell, transfer, license, sublicense or otherwise dispose of any material IP Rights, or amend or modify any existing agreements with respect to any material IP Rights;

(i) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof; (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee (other than guarantees of bank debt entered into in the ordinary course of business) or endorse or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances, except in the ordinary course of business consistent with past practice; (iii) enter into or materially amend any Company Contract; (iv) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $50,000, taken as a whole; or (v) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 4.1(i);

(j) increase the compensation payable or to become payable to its directors, officers or employees, except for increases in salary or wages of employees who are not officers in accordance with past practices, or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee, or establish, adopt, enter into or amend any employee benefit plan;

(k) take any action, other than as required by GAAP, to change accounting policies or procedures;

(l) make any material tax election inconsistent with past practices or settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations for any assessment of any tax;

(m) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in the financial statements of Company, or incurred in the ordinary course of business and consistent with past practice or as otherwise contemplated by this Agreement;

(n) enter into any partnership arrangements, joint development agreements or strategic alliances;

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(o) initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration;

(p) terminate, amend or otherwise change the Retention Bonus Plan (other than as permitted by Section 1.6(f));

(q) form or acquire any Subsidiaries; or

(r) take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(a) through (q) above.

If Company wishes to obtain the consent of Parent to take actions for which prior consent is required pursuant to this Section 4.1, Company shall request such consent in writing by telecopy to the attention of the President of Parent. A consent signed by the President of Parent shall be deemed sufficient for purposes hereof.

4.2 Conduct of Parent Business. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time of Merger I, Parent agrees, except to the extent that Company consents in writing (which consent shall not be unreasonably withheld, conditioned or delayed), to carry on its business diligently and in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, in substantially the same manner as conducted in the last twelve (12) months, to pay its debts and taxes when due subject to good faith disputes over such debts or taxes, and to pay or perform other material obligations when due. In addition, without limiting the foregoing, other than as expressly contemplated by this Agreement, without obtaining the written consent of Company (which consent shall not be unreasonably withheld, conditioned or delayed), Parent shall not, and shall not permit its Subsidiaries to, do any of the following:

(a) amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise;

(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest) (except for the issuance of shares of common stock upon exercise of Parent Options under the Parent Option Plans or pursuant to currently outstanding warrants, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date hereof);

(c) redeem, repurchase or otherwise acquire, directly or indirectly, any shares of capital stock of such party;

(d) sell, pledge, dispose of or encumber any assets (except for (i) sales of assets in the ordinary course of business and in a manner consistent with past practice and (ii) dispositions of obsolete or worthless assets);

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(e) fail to make any expenditures that are necessary and sufficient to maintain the conditions of its properties, facilities and equipment, including, without limitation, budgeted expenditures relating to maintenance, repair and replacement;

(f) accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any options except as may be required with respect to Parent Options under the Parent Option Plans;

(g) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except that a wholly owned Subsidiary may declare and pay a dividend to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries, or propose to do any of the foregoing;

(h) sell, transfer, license, sublicense or otherwise dispose of any material IP Rights, or amend or modify any existing agreements with respect to any material IP Rights;

(i) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof; (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee (other than guarantees of bank debt of its Subsidiaries entered into in the ordinary course of business) or endorse or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances, except in the ordinary course of business consistent with past practice; (iii) enter into or amend any Parent Contract; (iv) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $50,000, taken as a whole; (v) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 4.2(i); or (vi) engage in any new business;

(j) increase the compensation payable or to become payable to its directors, officers or employees, except for increases in salary or wages of employees who are not officers in accordance with past practices, or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee, or establish, adopt, enter into or amend any employee benefit plan;

(k) take any action, other than as required by GAAP, to change accounting policies or procedures;

(l) make any material tax election inconsistent with past practices or settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations for any assessment of any tax;

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(m) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the financial statements of Company, or incurred in the ordinary course of business and consistent with past practice or as otherwise contemplated by this Agreement;

(n) enter into any partnership arrangements, joint development agreements or strategic alliances;

(o) initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration;

(p) take, or agree in writing or otherwise to take, any of the actions described in Sections 4.2(a) through (o) above.

If Parent wishes to obtain the consent of Company to take actions for which prior consent is required pursuant to this Section 4.2, Parent shall request such consent in writing by telecopy to the attention of the Chief Executive Officer and the Chief Financial Officer of Company. A consent signed by either such officers shall be deemed sufficient for purposes hereof.

ARTICLE 5

ADDITIONAL AGREEMENTS

5.1 Fairness Hearing and Permit Application; Registration Statement.

(a) As promptly as practicable after the date of this Agreement, Company shall prepare, with the cooperation of Parent, an information statement for the holders of Company Capital Stock to approve this Agreement and the transactions contemplated hereby (the “Information Statement”). The Information Statement shall constitute a disclosure document for the offer and issuance of the shares of Parent Common Stock pursuant to this Agreement. Company and Parent shall each use commercially reasonable efforts to cause the Information Statement to comply with applicable federal and state securities laws requirements. Each of Parent and Company agree to provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Information Statement, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the other’s counsel and auditors in the preparation of the Information Statement. Company will promptly advise Parent, and Parent will promptly advise Company, in writing if at any time prior to the Effective Time of Merger I either shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Information Statement in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law. Subject to Section 5.2(a)(ii): (A) the Information Statement shall include a statement to the effect that the board of directors of Company unanimously recommends that Company’s stockholders vote to adopt this Agreement (the unanimous recommendation of Company’s board of directors that Company’s stockholders vote to adopt this Agreement being referred to as the “Company Board Recommendation”); and (B) the Company Board Recommendation shall not be withdrawn or modified in a manner adverse to Parent, and no resolution by the board of directors of Company or any committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to Parent shall be adopted or proposed. Company shall not include in the Information Statement any information with respect to Parent or its affiliates, the form and content of which information shall not have been approved by Parent prior to such inclusion.

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(b) As promptly as practicable after the date of this Agreement, Parent shall prepare, with the cooperation of Company, and cause to be filed with the California Commissioner the Permit Application, and shall request a hearing (the “Fairness Hearing”) on the fairness of the terms and conditions of the Transaction pursuant to Section 25142 of the California Corporations Code. Company and Parent shall use commercially reasonable efforts to cause the California Commissioner to approve the fairness of the terms and conditions of the Transaction at such a Fairness Hearing (the “Fairness Approval”); provided, however, that Parent shall not be required to modify its certificate of incorporation or any of the economic terms of the Transaction in order to cause the California Commissioner to approve the fairness of such terms and conditions. Company shall promptly furnish Parent all information concerning Company and stockholders of Company that may be required or reasonably requested in connection with any action contemplated by this Section 5.1(b). If either Parent or Company becomes aware of any information that should be disclosed in an amendment or supplement to the Permit Application, then such party: (i) shall promptly inform the other party thereof; (ii) shall provide the other party (and its counsel) with a reasonable opportunity to review and comment on any amendment or supplement to the Permit Application prior to it being filed with the California Commissioner; and (iii) shall provide the other party with a copy of such amendment or supplement promptly after it is filed with the California Commissioner.

(c) If for any reason whatsoever the California Commissioner makes a final determination not to render a Fairness Approval of the terms and conditions of the Transaction and the issuance of the Parent Common Stock as contemplated by this Agreement, Parent and Company shall prepare and cause to be filed with the SEC the Registration Statement. Each of Parent and Company shall use commercially reasonable efforts: (i) to cause the Registration Statement to comply with the applicable rules and regulations promulgated by the SEC; (ii) to promptly notify the other of, cooperate with each other with respect to and respond promptly to any comments of the SEC or its staff; (iii) to have the Registration Statement declared effective under the Securities Act as promptly as practicable after it is filed with the SEC; and (iv) to keep the Registration Statement effective through the Closing in order to permit the consummation of the Transaction. Each of Parent and Company shall promptly furnish the other party all information concerning such parties, its Subsidiaries and stockholders that may be required or reasonably requested in connection with any action contemplated by this Section 5.1(c). If either Parent or Company becomes aware of any information that should be disclosed in an amendment or supplement to the Registration Statement, then such party: (i) shall promptly inform the other party thereof; (ii) shall provide the other party (and its counsel) with a reasonable opportunity to review and comment on any amendment or supplement to the Registration Statement prior to it being filed with the SEC; (iii) shall provide the other party with a copy of such amendment or supplement promptly after it is filed with the SEC; and (iv) shall cooperate, if appropriate, in mailing such amendment or supplement to the stockholders of Company.

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(d) Prior to the Effective Time of Merger I, Parent shall use commercially reasonable efforts to obtain all regulatory approvals needed to ensure that the Parent Common Stock to be issued in Merger I will (to the extent required) be registered or qualified or exempt from registration or qualification under the securities law of every state of the United States in which any registered holder of Company Series F Preferred Stock has an address of record on the record date for determining the stockholders entitled to notice of and to vote on the adoption of this Agreement and the transactions contemplated hereunder; provided, however, that Parent shall not be required: (i) to qualify to do business as a foreign corporation in any jurisdiction in which it is not now qualified; or (ii) to file a general consent to service of process in any jurisdiction.

5.2 Consent of Company Stockholders.

(a) Company Stockholder Consent.

(i) As promptly as practicable after the California Commissioner shall have issued a permit under Section 25121 of the California Corporations Code for the issuance of the Parent Common Stock to be issued in Merger I or the Registration Statement is declared effective under the Securities Act, as applicable, Company will use its commercially reasonable efforts to solicit and obtain the Required Company Stockholder Vote by written consent with respect to the adoption of this Agreement and the approval of the Transaction and the transactions contemplated hereby, each in accordance with applicable Legal Requirements and its certificate of incorporation and bylaws (but in no event any later than ten business days following the receipt of the permit or the effective date of the Registration Statement, as applicable).

(ii) Notwithstanding anything to the contrary contained in Section 5.1(a) or 5.2(a)(i), at any time prior to the adoption of this Agreement by the Required Company Stockholder Vote, the Company Board Recommendation may be withdrawn or modified in a manner adverse to Parent if:

(A) (1) neither Company nor any of its Representatives shall have breached or taken any action inconsistent with any of the provisions set forth in Section 5.12 with respect to the foregoing; (2) an unsolicited, bona fide Company Acquisition Proposal is made to Company and is not withdrawn; (3) Company provides Parent with at least three business days prior notice of any meeting of Company’s board of directors at which such board of directors will consider and determine whether such offer is a Company Superior Offer; (4) Company’s board of directors determines in good faith, after consulting with its independent reputable financial advisor and outside legal counsel, that such offer constitutes a Company Superior Offer; (5) Company’s board of directors determines in good faith, after having taken into account the advice of Company’s outside legal counsel, that, in light of such Company Superior Offer, the failure to withdraw or modify the Company Board Recommendation would be inconsistent with the Company board of directors’ fiduciary obligations to Company’s stockholders under applicable Legal Requirements; (6) the Company Board Recommendation is not withdrawn or modified in a manner adverse to Parent at any time within three business days after Parent receives written notice from Company confirming that Company’s board of directors has determined that such offer is a Company Superior Offer; and (7) during such three business day period, if requested by Parent, Company engages in good faith negotiations with Parent to amend this Agreement in such a manner that the Company Acquisition Proposal that was determined to constitute a Company Superior Offer no longer constitutes a Company Superior Offer; or

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(B) other than the development or circumstances contemplated by clause “(A)” of this Section 5.2(a)(ii), a material development or change in circumstances occurs or arises after the date of this Agreement that was neither known to Company or any Representative of Company nor reasonably foreseeable to Company as of the date of this Agreement (such material development or change in circumstances being referred to as a “Company Intervening Event”); provided, however, that (1) in no event shall the receipt, existence of or terms of a Company Acquisition Proposal or a Company Superior Offer or any inquiry relating thereto or the consequences thereof constitute a Company Intervening Event; (2) in no event shall any event, occurrence, fact, condition, effect, change or development that has an adverse effect on the business, financial condition or results of operations of Parent, constitute a Company Intervening Event, unless such event, occurrence, fact, condition, effect, change or development has had or would reasonably be expected to have a Parent Material Adverse Effect; (3) at least three business days prior to any meeting of the Company board of directors at which the Company board of directors will consider whether such Company Intervening Event requires the Company board of directors to effect, or cause Company to effect, a Company Change in Recommendation, the Company provides Parent with a written notice specifying the date and time of such meeting and the reasons for holding such meeting; (4) during such three business day period, if requested by Parent, Company engages in good faith negotiations with Parent to amend this Agreement in such a manner that obviates the need for the Company board of directors to effect, or cause the Company to effect, a Company Change in Recommendation as a result of such Company Intervening Event; and (4) the Company board of directors determines in good faith, after having consulted with its outside legal counsel, that, in light of such Company Intervening Event, a failure to make a Company Change in Recommendation would be inconsistent with the Company board of directors’ fiduciary obligations to Company’s stockholders under applicable Legal Requirements.

(iii) The Company’s obligation to solicit the consent of its stockholders in accordance with Section 5.2(a)(i) shall not be limited or otherwise affected by the commencement, disclosure, announcement or submission of any Company Superior Offer or other Company Acquisition Proposal, or by any withdrawal or modification of the Company Board Recommendation.

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(b) Parachute Payments. If applicable, Company shall promptly submit for approval by the stockholders of Company by the requisite vote (and in a manner satisfactory to Parent) any payments or benefits that the Company reasonably determines (through an analysis that is reasonably satisfactory to Parent) may constitute a “parachute payment” pursuant to Section 280G of the Code and which have been waived pursuant to a 280G Waiver, such that all such payments and benefits shall not be deemed to be “parachute payments” pursuant to Section 280G of the Code or shall be exempt from such treatment under such Section 280G, and deliver to Parent evidence reasonably satisfactory to Parent that a vote of stockholders of Company was received in conformance with Section 280G and the regulations thereunder, or that such requisite stockholder approval has not been obtained with respect to any payment or benefit that may be deemed to constitute a “parachute payment” within the meaning of Section 280G of the Code that is subject to a 280G Waiver and as a consequence, that, pursuant to the 280G Waiver, such “parachute payment” shall not be made or provided.

5.3 Access to Information; Confidentiality. Upon reasonable notice and subject to restrictions contained in confidentiality agreements and applicable Legal Requirements to which such party is subject, Company and Parent shall each afford to the officers, employees, accountants, counsel and other Representatives of the other party, reasonable access, during the period prior to the Effective Time of Merger I (the “Pre-Closing Period”), to all its properties, books, contracts, commitments and records (including, without limitation, Tax records) and, during such period, Company and Parent each shall furnish promptly to the other all information concerning its business, properties and personnel as such other party may reasonably request, and each shall make available to the other the appropriate individuals (including attorneys, accountants and other professionals) for discussion of the other’s business, properties and personnel as either party may reasonably request; provided, that each of Company and Parent reserves the right to withhold any information if access to such information could adversely affect the attorney-client privilege between it and its counsel. Without limiting the generality of the foregoing, during the Pre-Closing Period, the Company and Parent shall promptly provide the other party with copies of: (a) any changes to financial forecasts prepared by Company or Parent (or their respective Representatives), as applicable; (b) any written materials or communications sent by or on behalf of such party to its stockholders; (c) any material notice, document or other communication sent by or on behalf of any of such party to any third party to any Company Contract or Parent Contract, as applicable, or sent to Company or Parent by any third party to any Company Contract or Parent Contract, as applicable, (other than any communication that relates solely to routine commercial transactions and that is of the type sent in the ordinary course of business and consistent with past practices); (d) any notice, report or other document filed with or sent to any Governmental Body in connection with the Transaction or any of the other transactions contemplated by this Agreement; and (e) any material notice, report or other document received from any Governmental Body. Each party shall keep such information confidential in accordance with the terms of the currently effective confidentiality agreement (the “Confidentiality Agreement”) between Parent and Company.

5.4 Consents; Approvals. Company and Parent shall each use commercially reasonable efforts to (a) obtain all Consents (including, without limitation, all United States’ and foreign governmental and regulatory rulings and approvals) and (b) make all filings (including, without limitation, all filings with United States and foreign governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by Company and Parent and the consummation by them of the transactions contemplated hereby. Within ten business days following the date hereof: (i) Company shall deliver all notices and other information required by any Company Contract in connection with the Transaction (except for notices and information required under the Company’s lease, dated as of November 23, 1999, with Trammell Crow Northern California Development, Inc., as amended, which shall be delivered by the Company within five business days following the date hereof) and (ii) Parent shall deliver all notices and other information required by any Parent Contract in connection with the Transaction.

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5.5 Director Indemnification and Insurance.

(a) From and after the Effective Time of Merger I, Parent will fulfill and honor in all respects the obligations of Company and Parent which exist prior to the date hereof to indemnify Company’s and Parent’s present and former directors and officers and their heirs, executors and assigns; provided, however, that Company directors and officers which become directors and officers of Parent shall enter into Parent’s standard form of indemnification agreement. The operating agreement of the Surviving Entity will contain provisions at least as favorable as the provisions relating to the indemnification and elimination of liability for monetary damages set forth in the certificate of incorporation and bylaws of Company, and the provisions relating to the indemnification and elimination of liability for monetary damages set forth in the certificate of incorporation, bylaws and operating agreement of the Surviving Entity and Parent will not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time of Merger I in any manner that would adversely affect the rights thereunder of individuals who, at the Effective Time of Merger I, were directors, officers, employees or agents of Company or Parent, unless such modification is required by Legal Requirements.

(b) Effective as of the Effective Time of Merger II, (i) Parent shall use commercially reasonable efforts to secure a “tail” policy on Parent’s existing directors and officers liability insurance policy for a period of six (6) years, at a total cost not to exceed the amount set forth on Schedule 5.5(b)(i) and (ii) the Surviving Entity shall use commercially reasonable efforts to secure a “tail” policy on Company’s existing directors and officers liability insurance policy for a period of six (6) years, at a total cost not to exceed the amount set forth on Schedule 5.5(b)(ii).

(c) This Section 5.5 will survive the consummation of the Transaction at the Effective Time of Merger II, is intended to benefit Company, the Surviving Corporation, the Surviving Entity, Parent and the parties indemnified hereby, and will be binding on all successors and assigns of the Surviving Entity.

5.6 Notification of Certain Matters.

(a) Company shall give prompt notice to Parent, and Parent shall give prompt notice to Company, of (i) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate, and (ii) any failure of Company or Parent, as the case may be, materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.6 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice; and provided, further, that failure to give such notice shall not be treated as a breach of covenant for the purposes of Sections 6.2(b) and 6.3(b) unless the failure to give such notice results in material prejudice to the other party.

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(b) Each of Company and Parent shall give prompt notice to the other of: (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the Transaction or other transactions contemplated by this Agreement; (ii) any notice or other communication from any Governmental Body in connection with the Transaction or other transactions contemplated by this Agreement; (iii) any litigation relating to or involving or otherwise affecting Company or Parent that relates to the Transaction or other transactions contemplated by this Agreement; (iv) the occurrence of a default or event that, with notice or lapse of time or both, will become a material default under a Company Contract; and (v) any change that would be considered reasonably likely to result in a Parent Material Adverse Effect or Company Material Adverse Effect, or is likely to impair in any material respect the ability of either Company or Parent to consummate the transactions contemplated by this Agreement.

5.7 Financial Statements. Within ten business days following the date hereof, Company shall deliver copies of its audited consolidated financial statements (including any related notes thereto) representing the financial results and condition of Company for the year ended December 31, 2009. As promptly as possible following the last day of each fiscal month end after the date hereof until the Effective Time of Merger I, and in any event within twenty (20) days after the end of each such fiscal month end, Company shall deliver to Parent the consolidated balance sheet of Company and the related consolidated statements of income, changes in stockholders’ equity and cash flows of Company for the one-month period then ended and for the period then ended since the date of the Company Balance Sheet (collectively, the “Interim Financial Statements”). The Interim Financial Statements shall be prepared so as to present fairly, in all material respects, the consolidated financial condition, retained earnings, assets and liabilities of Company as of the date thereof, subject to normal year-end adjustments which are not expected to be material in amount. Company shall use its commercially reasonable efforts to assist Parent in the preparation and filing, on the earliest practicable date or dates after the date hereof, of Current Reports on Form 8-K for Parent containing the information required therein, including the audited and unaudited financial statements of Parent required by Rule 3-05 of Regulation S-X of the SEC, and the pro forma financial information with respect to the transactions contemplated by this Agreement to the extent required by Article 11 of Regulation S-X of the SEC. Such financial statements shall present fairly in all material respects the consolidated financial position of Company as of the respective dates thereof and the consolidated results of operations and consolidated cash flows of Company for the periods covered thereby, as applicable.

5.8 Public Announcements. Parent and Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the Transaction or this Agreement and shall not issue any such press release or make any such public statement without the prior consent of the other party, which shall not be unreasonably withheld, conditioned or delayed; provided, however, that, on the advice of legal counsel, either party may comply with Legal Requirements, in which case commercially reasonable efforts to consult with the other party will be made prior to such release or public statement. Notwithstanding the foregoing, Parent may comply with any SEC requirements under the Securities Act or Exchange Act which requires any public disclosure, without the consent or review of Company.

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5.9 Tax Free Reorganization.

(a) Parent and Company shall cooperate in the preparation, execution and filing of all returns, questionnaires, applications or other documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes which become payable in connection with the transactions contemplated hereby that are required or permitted to be filed on or before the Effective Time of Merger I.

(b) Parent and Company will each use its commercially reasonable efforts to cause the Transaction to be treated as a reorganization within the meaning of Section 368 of the Code, and Parent and Company shall each use its commercially reasonable efforts not to, and shall use its commercially reasonable efforts not to permit any of its respective subsidiaries to, take any action that would prevent or impede the Transaction from qualifying within the meaning of Section 368 of the Code.

5.10 Board of Directors and Officers of Parent. Parent shall take all actions necessary to cause the board of directors of Parent, immediately after the Effective Time of Merger II, to consist of the persons listed as directors on Schedule 5.10(a) hereto; provided, however, the parties acknowledge that so long as Parent remains a public reporting company, the nominations by Company and Parent hereunder shall allow Parent to comply with such applicable Legal Requirements. The executive officers of Parent immediately after the Effective Time of Merger II shall be the persons listed on Schedule 5.10(b) hereto.

5.11 Non-Solicitation by Company.

(a) Company shall not and shall not authorize or permit any Representative of Company, directly or indirectly, to, (i) solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any Company Acquisition Proposal or take any action that could reasonably be expected to lead to any Company Acquisition Proposal, (ii) furnish any information regarding Company to any Person in connection with or in response to any Company Acquisition Proposal or an inquiry or indication of interest that could lead to a Company Acquisition Proposal, (iii) engage in discussions or negotiations with any Person with respect to any Company Acquisition Proposal, (iv) approve, endorse or recommend any Company Acquisition Proposal or (v) enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to any Company Acquisition Transaction; provided, however, that prior to the adoption of this Agreement by the Required Company Stockholder Vote, this Section 5.11(a) shall not prohibit Company from furnishing nonpublic information regarding Company to, or entering into discussions with, any Person in response to a Company Acquisition Proposal that, after consultation with an independent reputable financial advisor and outside legal counsel, Company’s board of directors determines in good faith is, or would reasonably be expected to result in, a Company Superior Offer that is submitted to Company by such Person (and not withdrawn) if (1) neither Company nor any Representative of Company shall have breached or taken any action inconsistent with any of the provisions set forth in this Section 5.11(a) with respect to the foregoing, (2) the board of directors of Company concludes in good faith, after having taken into account the advice of its outside legal counsel,

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that the failure to take such action would be inconsistent with the Company board of directors’ fiduciary obligations to Company’s stockholders under applicable Legal Requirements, (3) at least two (2) business days prior to furnishing any such information to, or entering into discussions with, such Person, Company gives Parent written notice of the identity of such Person and of Company’s intention to furnish information to, or enter into discussions with, such Person, and Company receives from such Person an executed confidentiality agreement containing customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such Person by or on behalf of Company and (4) at least two (2) business days prior to furnishing any such information to such Person, Company furnishes such nonpublic information to Parent (to the extent such nonpublic information has not been previously furnished by Company to Parent). Without limiting the generality of the foregoing, Company acknowledges and agrees that any action inconsistent with of any of the provisions set forth in the preceding sentence by any Representative of Company, whether or not such Representative is purporting to act on behalf of Company, shall be deemed to constitute a breach of this Section 5.11(a) by Company.

(b) Company shall promptly (and in no event later than one (1) business day after receipt of any Company Acquisition Proposal, any inquiry or indication of interest that could lead to any Company Acquisition Proposal or any request for nonpublic information) (i) advise Parent orally and in writing of any Company Acquisition Proposal, any inquiry or indication of interest that could lead to any Company Acquisition Proposal or any request for nonpublic information relating to Company (including the identity of the Person making or submitting such Company Acquisition Proposal, inquiry, indication of interest or request, and the material financial terms thereof) that is made or submitted by any Person during the Pre-Closing Period and (ii) provide Parent a copy of any written Company Acquisition Proposal and a copy of all written materials (including copies of any written materials received via e-mail or other electronic medium) received by Company in connection with such Company Acquisition Proposal. Company shall keep Parent reasonably informed with respect to the status of any such Company Acquisition Proposal, inquiry, indication of interest or request and any modification or proposed modification thereto.

(c) Company shall immediately cease and cause to be terminated any existing discussions with any Person that relate to any Company Acquisition Proposal.

(d) Company agrees not to release or permit the release of any Person from, or to waive or permit the waiver of any provision of, any confidentiality, “standstill” or similar agreement to which Company is a party or under which Company has any rights, and will use its best efforts to enforce or cause to be enforced each such agreement at the request of Parent. Company also will promptly request each Person that has executed, within twelve (12) months prior to the date of this Agreement, a confidentiality agreement in connection with its consideration of a possible Company Acquisition Transaction to return all confidential information heretofore furnished to such Person by or on behalf of Company.

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5.12 Non-Solicitation by Parent.

(a) Parent shall not and shall not authorize or permit any of its Subsidiaries or any Representative of Parent or its Subsidiaries, directly or indirectly, to, (i) solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any Parent Acquisition Proposal or take any action that could reasonably be expected to lead to any Parent Acquisition Proposal, (ii) furnish any information regarding Parent or its Subsidiaries to any Person in connection with or in response to any Parent Acquisition Proposal or an inquiry or indication of interest that could lead to any Parent Acquisition Proposal, (iii) engage in discussions or negotiations with any Person with respect to any Parent Acquisition Proposal, (iv) approve, endorse or recommend any Parent Acquisition Proposal or (v) enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to any Parent Acquisition Transaction; provided, however, that, this Section 5.12(a) shall not prohibit Parent from furnishing nonpublic information regarding Parent and its Subsidiaries to, or entering into discussions with, any Person in response to any Parent Acquisition Proposal that, after consultation with an independent reputable financial advisor outside legal counsel, Parent’s board of directors determines in good faith is, or would reasonably be expected to result in, a Parent Superior Offer that is submitted to Parent by such Person (and not withdrawn) if (1) neither the Parent nor any Representative of Parent (or its Subsidiaries) shall have breached or taken any action inconsistent with any of the provisions set forth in this Section 5.12(a) with respect to the foregoing, (2) the board of directors of Parent concludes in good faith, after having taken into account the advice of its outside legal counsel, that failure to take such action would be inconsistent with the Parent board of directors’ fiduciary obligations to the Parent’s stockholders under applicable Legal Requirements, (3) at least two (2) business days prior to furnishing any such information to, or entering into discussions with, such Person, Parent gives Company written notice of the identity of such Person and of Parent’s intention to furnish information to, or enter into discussions with, such Person, and Parent receives from such Person an executed confidentiality agreement containing customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such Person by or on behalf of Parent and containing customary “standstill” provisions, and (4) at least two (2) business days prior to furnishing any such information to such Person, Parent furnishes such nonpublic information to Company (to the extent such nonpublic information has not been previously furnished by Parent to Company). Without limiting the generality of the foregoing, Parent acknowledges and agrees that any action inconsistent with of any of the provisions set forth in the preceding sentence by any Representative of Parent (or its Subsidiaries), whether or not such Representative is purporting to act on behalf of Parent (or its Subsidiaries), shall be deemed to constitute a breach of this Section 5.12(a) by Parent.

(b) Parent shall promptly (and in no event later than one (1) business day after receipt of any Parent Acquisition Proposal, any inquiry or indication of interest that could lead to any Parent Acquisition Proposal or any request for nonpublic information) (i) advise Company orally and in writing of any Parent Acquisition Proposal, any inquiry or indication of interest that could lead to any Parent Acquisition Proposal or any request for nonpublic information relating to Parent or its Subsidiaries (including the identity of the Person making or submitting such Parent Acquisition Proposal, inquiry, indication of interest or request, and the material financial terms thereof) that is made or submitted by any Person during the Pre-Closing Period and (ii) provide Company a copy of any written Parent Acquisition Proposal and a copy of all written materials (including copies of any written materials received via e-mail or other electronic medium) received by Parent in connection with such Parent Acquisition Proposal. Parent shall keep Company reasonably informed with respect to the status of any such Parent Acquisition Proposal, inquiry, indication of interest or request and any modification or proposed modification thereto.

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(c) Parent shall immediately cease and cause to be terminated any existing discussions with any Person that relate to any Parent Acquisition Proposal.

(d) Parent agrees not to release or permit the release of any Person from, or to waive or permit the waiver of any provision of, any confidentiality, “standstill” or similar agreement to which Parent (or its Subsidiaries) is a party or under which Parent (or its Subsidiaries) has any rights, and will use its best efforts to enforce or cause to be enforced each such agreement at the request of Company. Parent also will promptly request each Person that has executed, within twelve (12) months prior to the date of this Agreement, a confidentiality agreement in connection with its consideration of a possible Parent Acquisition Transaction to return all confidential information heretofore furnished to such Person by or on behalf of Parent (or its Subsidiaries).

5.13 Company Stockholders’ Agent.

(a) Appointment of Company Stockholders’ Agent. The Company Stockholders’ Agent is hereby appointed, authorized and empowered to be the exclusive proxy, representative, agent and attorney-in-fact of Company stockholders, with full power of substitution, to make all decisions and determinations and to act and execute, deliver and receive all documents, instruments and consents on behalf of and as agent for such stockholder at any time in connection with, and that may be necessary or appropriate to accomplish the intent and implement the provisions of this Agreement, including, without limitation, Article 8 of this Agreement and the Escrow Agreement, and to facilitate the consummation of the transactions contemplated hereby and thereby. By executing this Agreement, the Company Stockholders’ Agent accepts such appointment, authority and power. Without limiting the generality of the foregoing, the Company Stockholders’ Agent shall have the power to take any of the following actions on behalf of Company stockholders: to execute, deliver and perform the Escrow Agreement; to give and receive notices, communications and consents hereunder and under the Escrow Agreement; to negotiate, enter into settlements and compromises of, resolve and comply with orders of courts and awards of arbitrators or other third-party intermediaries with respect to any disputes arising under this Agreement or the Escrow Agreement; and to make, execute, acknowledge and deliver all such other agreements, guarantees, orders, receipts, endorsements, notices, requests, instructions, certificates, stock powers, letters and other writings, and, in general, to do any and all things and to take any and all action that the Company Stockholders’ Agent, in its sole and absolute discretion, may consider necessary or proper or convenient in connection with or to carry out the activities described in this Section 5.13 and the transactions contemplated hereby or by the Escrow Agreement. Notwithstanding the foregoing or anything herein to the contrary, the Company Stockholders’ Agent shall not have the authority to take any action that would (i) have a disproportionate adverse effect on a particular Company stockholder’s interests or (ii) expand the liability of any Company stockholder.

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(b) Authority. The appointment of the Company Stockholders’ Agent by each stockholder is coupled with an interest and may not be revoked in whole or in part (including, without limitation, upon the death or incapacity of any stockholder). Such appointment shall be binding upon the heirs, executors, administrators, estates, personal Representatives, officers, directors, security holders, successors and assigns of each Company stockholder. All decisions of the Company Stockholders’ Agent shall be final and binding on all of Company stockholders, and no stockholder shall have the right to object, dissent, protest or otherwise contest the same. Parent shall be entitled to rely upon, without independent investigation, any act, notice, instruction or communication from the Company Stockholders’ Agent and any document executed by the Company Stockholders’ Agent on behalf of any stockholder and shall be fully protected in connection with any action or inaction taken or omitted to be taken in reliance thereon absent willful misconduct. The Company Stockholders’ Agent shall not be responsible for any loss suffered by, or liability of any kind to, the stockholders arising out of any act done or omitted by the Company Stockholders’ Agent in connection with the acceptance or administration of the Company Stockholders’ Agent’s duties hereunder, unless such act or omission involves gross negligence or willful misconduct.

(c) Resignation, Death or Incapacity of Company Stockholders’ Agent. The Company Stockholders’ Agent may resign by providing thirty (30) days prior written notice to Parent. Upon the resignation of the Company Stockholders’ Agent, the Company Stockholders’ Agent shall appoint a replacement Company Stockholders’ Agent (who shall be reasonably acceptable to Parent) to serve in accordance with the terms of this Agreement; provided, however, that such appointment shall be subject to such newly-appointed Company Stockholders’ Agent’s notifying Parent in writing of its appointment and appropriate contact information for purposes of this Agreement and the Escrow Agreement, and Parent shall be entitled to rely upon, without independent investigation, the identity of such newly-appointed Company Stockholders’ Agent as set forth in such written notice. Upon the death or incapacity of the Company Stockholders’ Agent, Company stockholders holding at least 50% of the Parent Common Stock payable as consideration to Exchange Stockholders shall elect a replacement Company Stockholders’ Agent (who shall be reasonably acceptable to Parent).

5.14 Section 16 Matters. Subject to the following sentence, prior to the Effective Time of Merger I, Parent and Company shall take all such steps as may be required (to the extent permitted under applicable Legal Requirements and no-action letters issued by the SEC) to cause any acquisition of Parent Common Stock (including derivative securities with respect to Parent Common Stock) by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent, to be exempt under Rule 16b-3 under the Exchange Act. At least thirty (30) days prior to the Closing Date, Company shall furnish the following information to Parent for each individual who, immediately after the Effective Time of Merger I, will become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent: (a) the number of shares of Company Capital Stock held by such individual and expected to be exchanged for shares of Parent Common Stock pursuant to Merger I; and (b) the number of other derivative securities (if any) with respect to Company Capital Stock held by such individual and expected to be converted into shares of Parent Common Stock or derivative securities with respect to Parent Common Stock in connection with Merger I.

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5.15 280G. Company shall use commercially reasonable efforts to obtain and deliver to Parent a waiver agreement in a form reasonably acceptable to Parent (a “280G Waiver”), from each Person who is, with respect to the Company, a “disqualified individual” (within the meaning of Section 280G of the Code and the regulations promulgated thereunder) who might otherwise receive or have the right or entitlement to receive a “parachute payment” within the meaning of Section 280G of the Code, unless the requisite Company stockholder approval of those payments and/or benefits is obtained pursuant to Section 280G of the Code.

5.16 Updated Merger Consideration Spreadsheet. At least three business days prior to the Closing, Company shall deliver to Parent a final Merger Consideration Spreadsheet.

5.17 Tax Matters. If applicable, prior to the effectiveness of the Registration Statement: (a) Company shall execute and deliver to Cooley LLP and Latham & Watkins LLP a tax representation letter in a customary form for transactions such as the Transaction in which shares of capital stock are registered on Form S-4 as may be reasonably requested by Cooley LLP or Latham & Watkins LLP; and (b) Parent and the Merger Subs shall execute and deliver to Cooley LLP and Latham & Watkins LLP a tax representation letter in a customary form for transactions such as the Transaction in which shares of capital stock are registered on Form S-4 as may be reasonably requested by Cooley LLP or Latham & Watkins LLP.

ARTICLE 6

CONDITIONS TO THE TRANSACTION

6.1 Conditions to Obligation of Each Party to Effect the Transaction. The respective obligations of each party to effect the Transaction shall be subject to the satisfaction at or prior to the Effective Time of Merger I the following conditions:

(a) Permit; Compliance With §3(a)(10) of the Securities Act; Effectiveness of the Registration Statement. Either

(i) The California Commissioner shall have issued a permit under Section 25121 of the California Corporations Code (following a Fairness Hearing) for the issuance of the Parent Common Stock to be issued in Merger I, and all applicable requirements of Section 3(a)(10) of the Securities Act shall have been satisfied; or

(ii) The Registration Statement shall have been declared effective by the SEC under the Securities Act. No stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC, and no proceedings for that purpose shall have been initiated or, to the knowledge of Parent or Company, threatened by the SEC.

(b) No Restraints. No temporary restraining order, preliminary or permanent injunction or other Order preventing the consummation of the Transaction shall have been issued by any court of competent jurisdiction or other Governmental Body and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Transaction that makes consummation of the Transaction illegal.

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(c) No Governmental Litigation. There shall not be pending or overtly threatened any Legal Proceeding in which a Governmental Body is or is threatened to become a party: (i) challenging or seeking to restrain, prohibit, rescind or unwind the consummation of the Transaction or any of the other transactions contemplated hereunder; (ii) seeking to prohibit or limit in any material respect Parent’s ability to vote, transfer, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of the Surviving Corporation or the Surviving Entity; (iii) that would reasonably be expected to materially and adversely affect the right or ability of Parent or Company to own any of the material assets or materially limit the operation of the business of Company; (iv) seeking to compel Company, Parent or any Subsidiary of Parent to dispose of or hold separate any material assets or material business as a result of the Transaction or any of the other transactions contemplated hereunder; or (v) relating to the Transaction or the other transactions contemplated hereunder and seeking to impose (or that would reasonably be expected to result in the imposition of) any criminal sanctions or criminal liability on Parent or Company.

(d) Governmental Authorizations. Any Governmental Authorization required to be obtained with respect to the Transaction under any applicable Legal Requirements shall have been obtained and shall remain in full force and effect (other than any such Governmental Authorization under other Legal Requirements, for which the failure to obtain would not result in a Parent Material Adverse Effect or Company Material Adverse Effect).

(e) Blue Sky Laws. The actions set forth on Schedule 6.1(e) (relating to the state securities laws that must be complied with in connection with the Transaction) shall have been complied with and any Consent issued by any Governmental Body related thereto shall be in full force and effect.

(f) Stockholder Approval. Company shall have obtained the Required Company Stockholder Vote.

6.2 Additional Conditions to Obligations of Parent. The obligations of Parent to effect the Transaction are also subject to the following conditions:

(a) Representations and Warranties. The representations and warranties of Company contained in this Agreement (together with the Company Disclosure Schedule) shall be true and correct in all respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date); provided, however, that: (i) for purposes of determining the accuracy of such representations and warranties as of the foregoing dates all materiality and Company Material Adverse Effect qualifications limiting the scope of such representations and warranties shall be disregarded; and (ii) any inaccuracies in such representations and warranties will be disregarded if the circumstances giving rise to all such inaccuracies (considered collectively) do not constitute a Company Material Adverse Effect.

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(b) Agreements and Covenants. Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time of Merger I.

(c) Material Adverse Change. Since the date of this Agreement, there shall have been no Company Material Adverse Effect.

(d) Current Liabilities. Company shall have aggregate Current Liabilities, excluding the current portion of any long-term debt and the principal amount of the Parent Bridge Financing (including any interest thereon), of no more than $3,500,000.

(e) Litigation. There shall not be pending or overtly threatened any Legal Proceeding relating to the Transaction or the other transactions contemplated hereunder and seeking material damages that would reasonably be expected to require Company or Parent (following the consummation of the Transaction) to incur material defense costs or result in a material judgment against Company or payment by Company of a material settlement amount, taking into account the availability of insurance to cover costs of defense and any claims.

(f) Employment Agreement. The amended and restated employment agreement between Patrick Plewman and Company (the “Plewman Agreement”) shall continue to be in full force and effect and Patrick Plewman shall continue to be employed by Company pursuant to the terms thereof.

(g) Closing Deliverables. Parent shall have received the following agreements and documents, each of which shall be in full force and effect:

(i) a certificate executed by the Chief Executive Officer and Chief Financial Officer of Company confirming that the conditions set forth in Sections 6.1(f), 6.2(a) and 6.2(b) have been duly satisfied;

(ii) a certificate executed by the secretary of Company attaching and certifying Company’s current certificate of incorporation, bylaws and certificates of good standing of Company in its jurisdiction of organization and the various foreign jurisdictions in which it is qualified, the incumbency of Company officers and the resolutions of Company’s board of directors and stockholders approving and adopting this Agreement, the Transaction and the other transactions contemplated by this Agreement;

(iii) a statement pursuant to Treasury Regulations Sections 1.1445-2(c)(3) and 1.897-2(h) certifying that interests in the Company are not “United States real property interests”;

(iv) the Escrow Agreement executed by each of the Escrow Agent and the Company Stockholders’ Agent; and

(v) an amendment to the Supply Agreement with BioCheck, Inc., dated April 16, 2003, amended August 23, 2005 and December 1, 2007, executed by Company and BioCheck, Inc. which extends the term of the agreement until April 16, 2013 or a new agreement between Company and BioCheck, Inc. in a form reasonably acceptable to Parent.

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6.3 Additional Conditions to Obligations of Company. The obligation of Company to effect the Transaction is also subject to the following conditions:

(a) Representations and Warranties. The representations and warranties of Parent contained in this Agreement (together with the Parent Disclosure Schedule) shall be true and correct in all respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date); provided, however, that: (i) for purposes of determining the accuracy of such representations and warranties as of the foregoing dates all materiality and Parent Material Adverse Effect qualifications limiting the scope of such representations and warranties shall be disregarded; and (ii) any inaccuracies in such representations and warranties will be disregarded if the circumstances giving rise to all such inaccuracies (considered collectively) do not constitute a Parent Material Adverse Effect.

(b) Agreements and Covenants. Parent shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time of Merger I.

(c) Material Adverse Change. Since the date of this Agreement, there shall have been no Parent Material Adverse Effect.

(d) Current Liabilities. Parent shall have aggregate Current Liabilities, including indebtedness, but excluding obligations and deferred rent under Parent’s real property leases, of no more than $400,000.

(e) Litigation. There shall not be pending or overtly threatened any Legal Proceeding relating to the Transaction or the other transactions contemplated hereunder and seeking material damages that would reasonably be expected to require Parent (following the consummation of the Transaction) to incur material defense costs or result in a material judgment against Parent or payment by Parent of a material settlement amount, taking into account the availability of insurance to cover costs of defense and any claims.

(f) Closing Deliverables. Company shall have received the following agreements and documents, each of which shall be in full force and effect:

(i) a certificate executed by the President of Parent confirming that the conditions set forth in Sections 6.3(a) and 6.3(b) have been duly satisfied;

(ii) a certificate executed by the secretary of Parent attaching and certifying Parent’s current certificate of incorporation, bylaws and certificates of good standing of Parent in its jurisdiction of organization and the various foreign jurisdictions in which it is qualified, the incumbency of Parent officers and the resolutions of Parent’s board of directors approving and adopting this Agreement, the Transaction and the other transactions contemplated by this Agreement;

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(iii) the Escrow Agreement executed by Parent; and

(iv) a guaranty in a form reasonably acceptable to Parent and Company executed by Parent in favor of Patrick Plewman pursuant to which Parent agrees to guaranty the payment of the monetary compensation payable to Mr. Plewman under the Plewman Agreement (it being understood that Parent shall not otherwise guaranty any other obligations or liabilities of Company to Mr. Plewman).

(g) 280G Stockholder Approval.

(i) Company shall have used commercially reasonable efforts to obtain from each Person who is, with respect to Company, a “disqualified individual” (within the meaning of Section 280G of the Code and the regulations promulgated thereunder), and any such 280G Waiver shall be in full force and effect immediately prior to the solicitation of requisite Company.

(ii) With respect to any payments and/or benefits that Company reasonably determines (through an analysis that is reasonably satisfactory to Parent) may constitute “parachute payments” under Section 280G of the Code with respect to any employees who have executed a 280G Waiver, the stockholders of Company shall have (i) approved, pursuant to the method provided for in the regulations promulgated under Section 280G of the Code, any such “parachute payments” or (ii) shall have voted upon and disapproved such parachute payments, and, as a consequence, such parachute payments shall not be paid or provided for in any manner, and Parent and the Merger Subs shall not have any liabilities with respect to such parachute payments.

ARTICLE 7

TERMINATION

7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time of Merger I, notwithstanding approval thereof by the stockholders of Company and Parent:

(a) by mutual written consent duly authorized by the boards of directors of Parent and Company;

(b) by either Parent or Company if the Transaction shall not have been consummated by the End Date (provided that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Transaction to occur on or before such date);

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(c) by either Parent or Company if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission shall have issued a non-appealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Transaction;

(d) by either Parent or Company, if the required approval of the stockholders of Company contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the requisite vote upon a vote taken at a meeting of stockholders convened therefor or at any adjournment thereof (provided that the right to terminate this Agreement under this Section 7.1(d) shall not be available to any party where the failure to obtain stockholder approval of such party shall have been caused by the action or failure to act of such party in breach of this Agreement);

(e) by Parent or Company, upon a breach of any covenant or agreement on the part of Company or Parent, respectively, set forth in this Agreement, in either case, such that the conditions set forth in Section 6.2(b), or Section 6.3(b), would not be satisfied (a “Terminating Breach”), provided that, if such Terminating Breach is curable prior to the expiration of thirty (30) days from its occurrence (but in no event later than the End Date) by Parent or Company, as the case may be, through the exercise of its commercially reasonable efforts and for so long as Parent or Company, as the case may be, continues to exercise such commercially reasonable efforts, neither Company nor Parent, respectively, may terminate this Agreement under this Section 7.1(e) unless such thirty (30) day period expires without such Terminating Breach having been cured;

(f) by Company, if there shall have occurred any Parent Material Adverse Effect since the date of this Agreement;

(g) by Parent, if there shall have occurred any Company Material Adverse Effect since the date of this Agreement;

(h) by Parent (at any time prior to the adoption of this Agreement by the Required Company Stockholder Vote) if a Company Triggering Event shall have occurred; or

(i) by Company if a Parent Triggering Event shall have occurred.

7.2 Notice of Termination; Effect of Termination. Any termination of this Agreement under Section 7.1 above will be effective immediately upon the delivery of written notice of the terminating party to the other parties hereto. In the event of the termination of this Agreement pursuant to Section 7.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto or any of its Affiliates, directors, officers or stockholders except (i) as set forth in Sections 7.2, 7.3 and Articles 8 and 9 hereof, and (ii) nothing herein shall relieve any party from liability for any willful breach hereof. No termination of this Agreement shall affect the obligations of the parties contained in the Confidentiality Agreement, all of which obligations shall survive termination of this Agreement in accordance with its terms.

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7.3 Expenses; Termination Fees.

(a) Except as set forth in this Section 7.3, all fees and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such expenses, whether or not the Transaction is consummated; provided, however, that:

(i) Pursuant to the provisions of that certain Summary of Terms dated April 12, 2010 by and between Company and Parent (the “Term Sheet”), Parent shall reimburse Company for reasonable out-of-pocket transaction expenses actually incurred by Company prior to the date of this Agreement in connection with the negotiation of this Agreement (the “Reimbursed Expenses”).

(ii) Parent and Company shall share equally all fees and expenses, other than attorneys’ fees, incurred in connection with (A) the filing, printing and mailing of the Information Statement or Registration Statement and any amendments or supplements thereto and (B) the filing of the Permit Application.

(b) If this Agreement is terminated by Parent pursuant to Section 7.1(h), then Company shall pay to Parent, in cash, a nonrefundable fee in the amount of $850,000 (the “Company Break-Up Fee”), with such payment to be made no later than the earlier of: (i) the last day of the 12th full calendar month following the date of such termination or (ii) the consummation of a Company Acquisition Transaction.

(c) If this Agreement is terminated by Company pursuant to Section 7.1(i), then Parent shall pay to Company, in cash, within two (2) business days after the termination of this Agreement, a nonrefundable fee in the amount of $850,000 less the aggregate amount of Reimbursed Expenses (the “Parent Break-Up Fee”).

(d) If this Agreement is terminated by Parent or Company pursuant to Section 7.1(d) and the board of directors of Company determined to effect a Company Acquisition Transaction,, within twelve (12) months following the date this Agreement is terminated, then, Company shall pay Parent the Company Break-Up Fee, within two (2) business days after the consummation of such transaction.

(e) If Company fails to pay when due any amount payable by Company under this Section 7.3, then (i) Company shall reimburse Parent for all costs and expenses (including fees and disbursements of counsel) incurred in connection with the collection of such overdue amount and the enforcement by Parent of its rights under this Section 7.3, and (ii) Company shall pay to Parent interest on such overdue amount (for the period commencing as of the date such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid to Parent in full) at a rate per annum equal to the “prime rate” (as announced by Bank of America or any successor thereto) in effect on the date such overdue amount was originally required to be paid. If Parent fails to pay when due any amount payable by Parent under this Section 7.3, then (i) Parent shall reimburse Company for all costs and expenses (including fees and disbursements of counsel) incurred in connection with the collection of such overdue amount and the enforcement by Company of its rights under this Section 7.3, and (ii) Parent shall pay to Company interest on such overdue amount (for the period commencing as of the date such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid to Company in full) at a rate per annum equal to the “prime rate” (as announced by Bank of America or any successor thereto) in effect on the date such overdue amount was originally required to be paid.

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ARTICLE 8

INDEMNIFICATION

8.1 Survival of Representations and Warranties. The representations and warranties of Company and Parent set forth in this Agreement and in any certificate, exhibit or schedule hereto shall survive the Closing and expire on the 12 month anniversary of the Closing Date (the “Expiration Date”); provided, however, if Parent delivers to the Company Stockholders’ Agent, before expiration of a representation or warranty, a claim notice pursuant to Section 8.4 based upon a breach of or inaccuracy in such representation or warranty, then the applicable representation or warranty shall survive until the resolution of any claims arising from or related to the matter covered by such notice. Subject to the disclosures contained in the Company Disclosure Schedule, the representations and warranties made by Company, and the covenants and obligations of Company, and the rights and remedies that may be exercised by the Parent Indemnified Persons, shall not be limited or otherwise affected by or as a result of any information furnished to, or any investigation made by or knowledge of, any of the Parent Indemnified Persons’ officers, directors, stockholders, employees, agents or Affiliates. The agreements, covenants and other obligations of Company and Parent set forth in this Agreement and in any certificate, exhibit or schedule hereto shall survive the Closing and the Effective Time of Merger II in accordance with their respective terms.

8.2 Indemnification and Escrow Fund. At the Closing, Parent shall, on behalf of the Indemnifying Persons, transfer to Deutsche Bank (“Escrow Agent”) the number of shares of Parent Common Stock equal to ten percent (10%) (rounded down to the nearest whole share) of the Closing Company Parent Share Number (the “Escrow Fund”), which shares shall be held the Escrow Agent under the terms set forth in an Escrow Agreement (substantially in the form of Exhibit F hereto) among the Parent, the Company Stockholders’ Agent and the Escrow Agent (“Escrow Agreement”) and shall be available to indemnify the Parent Indemnified Persons pursuant to the indemnification provisions set forth in this Article 8. Subject to Section 8.3, the Indemnifying Persons shall indemnify the Parent Indemnified Persons from and against any and all Losses paid, incurred, sustained or accrued by Parent, the Surviving Corporation, the Surviving Entity, or any other Parent Indemnified Person arising from or in connection with any of the matters set forth in clauses (a) through (d) below, and, subject to Section 8.1 and 8.3, the Indemnifying Persons shall indemnify Parent, the Surviving Corporation, the Surviving Entity and the other Parent Indemnified Persons for and in respect of, and hold each of them harmless from and against, any and all such Losses:

(a) any breach of or inaccuracy in any representation or warranty of Company contained (i) in this Agreement, either when made as of the date of this Agreement or immediately prior to the Effective Time of Merger I as though made immediately prior to the Effective Time of Merger I (except for such representations that speak only as of a particular time, which need only be accurate as of such time) or (ii) in any certificate delivered by Company to Parent pursuant to this Agreement;

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(b) any breach or nonperformance by Company of or noncompliance by Company with any covenant, agreement or other obligation of Company set forth in or arising under this Agreement;

(c) any payment to a stockholder or former stockholder of Company in settlement or satisfaction of a claim or threatened claim under the appraisal rights provisions of the Delaware General Corporation Law exceeding the amount that such holder is entitled to receive pursuant to Section 1.6(a) of this Agreement (including the costs of defense of any such claim); and

(d) any legal proceeding relating to clauses (a) through (c) above.

8.3 Limitations on Indemnification. Notwithstanding the foregoing, the right to indemnification under this Article 8 shall be subject to the following terms:

(a) Except in the case of actual fraud involving a knowing and intentional misrepresentation of a fact material to the transactions contemplated by this Agreement made with the intent of inducing any other party hereto to enter into this Agreement and upon which such other party has relied (as opposed to any fraud claim based on constructive knowledge, negligent misrepresentation or a similar theory) under applicable tort laws, (i) no indemnification arising from Section 8.2(a) shall be payable unless and until the amount of all claims for indemnification arising from Section 8.2(a) exceed $250,000 (the “General Deductible”) in the aggregate, whereupon indemnification arising from Section 8.2(a) shall be payable for all amounts in excess of the General Deductible and (ii) no indemnification arising from Section 8.2(c) shall be payable unless and until the amount of all claims for indemnification arising from Section 8.2(c) exceed $250,000 (the “Appraisal Deductible”) in the aggregate, whereupon indemnification arising from Section 8.2(c) shall be payable for all amounts in excess of the Appraisal Deductible.

(b) No indemnification shall be payable pursuant to Section 8.2 for claims asserted other than as set forth in Section 8.4.

(c) Except in the case of actual fraud involving a knowing and intentional misrepresentation of a fact material to the transactions contemplated by this Agreement made with the intent of inducing any other party hereto to enter into this Agreement and upon which such other party has relied (as opposed to any fraud claim based on constructive knowledge, negligent misrepresentation or a similar theory) under applicable tort laws, the Escrow Fund shall be the exclusive means for Parent Indemnitees to collect any Losses under this Agreement.

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(d) In the case of actual fraud involving a knowing and intentional misrepresentation of a fact material to the transactions contemplated by this Agreement made with the intent of inducing any other party hereto to enter into this Agreement and upon which such other party has relied (as opposed to any fraud claim based on constructive knowledge, negligent misrepresentation or a similar theory) under applicable tort laws, the following provisions shall apply:

(i) the Parent Indemnified Persons shall have recourse to the Escrow Fund with respect to any Losses which arise from or as a result of, or are connected with, such actual fraud (irrespective of the Person who actually participated in or had knowledge of such fraudulent or intentional misrepresentation); and

(ii) in addition to the rights and remedies referred to in clause “(i)” of this sentence, with respect to any Exchange Stockholder who knowingly participated in or had actual knowledge of such actual fraud, there shall be no limit on such Exchange Stockholder’s liability for such actual fraud.

8.4 Procedure for Recovery from Escrow Fund. The Parent Indemnified Persons and the Company Stockholders’ Agent, on behalf of the Indemnifying Persons, shall follow the procedures set forth in the Escrow Agreement in order to recover Losses from the Escrow Fund.

8.5 Defense of Third Party Claims.

(a) In the event of the assertion or commencement by any Person of any claim or Legal Proceeding (whether against the Merger Subs or Company, against Parent or against any other Person) with respect to which any Indemnifying Person may become obligated to indemnify any Parent Indemnified Person pursuant to Section 8, Parent shall have the right, at its election, to proceed with the defense of such claim or Legal Proceeding on its own with counsel reasonably satisfactory to the Company Stockholders’ Agent. If Parent so proceeds with the defense of any such claim or Legal Proceeding:

(i) subject to the other provisions of Section 8, all reasonable expenses relating to the defense of such claim or Legal Proceeding shall be borne and paid exclusively by the Escrow Fund; and

(ii) Parent shall have the right to settle, adjust or compromise such claim or Legal Proceeding.

(b) Parent shall give the Company Stockholders’ Agent prompt notice of the commencement of any such Legal Proceeding against Parent, the Merger Subs or Company; provided, however, that any failure on the part of Parent to so notify the Company Stockholders’ Agent shall not limit any of the obligations of the Indemnifying Persons under Section 8 (except to the extent such failure materially prejudices the defense of such Legal Proceeding). If Parent does not elect to proceed with the defense of any such claim or Legal Proceeding, the Company Stockholders’ Agent may proceed with the defense of such claim or Legal Proceeding with counsel reasonably satisfactory to Parent; provided, however, that the Company Stockholders’ Agent may not settle, adjust or compromise any such claim or Legal Proceeding without the prior written consent of Parent (which consent may not be unreasonably withheld, conditioned or delayed).

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8.6 Indemnification Claims.

(a) In order to seek indemnification under this Section 8, a Parent Indemnified Person shall deliver, in good faith, a written demand (an “Indemnification Demand”) to the Company Stockholders’ Agent which contains (i) a description and the amount (the “Asserted Damages Amount”) of any Losses incurred or reasonably expected to be incurred by the Parent Indemnified Person, (ii) a statement that the Parent Indemnified Person is entitled to indemnification under this Section 8 for such Losses and a reasonable explanation of the basis therefor, and (iii) a demand for payment in the amount of such Losses. Parent shall also deliver a copy of the Indemnification Demand to the Escrow Agent contemporaneously with its delivery to the Company Stockholders’ Agent. For all purposes of this Section 8.6(a), the Company Stockholders’ Agent shall be entitled to deliver Indemnification Demands to Parent on behalf of the Indemnifying Persons.

(b) Within twenty (20) days after delivery of an Indemnification Demand to the Company Stockholders’ Agent, the Company Stockholders’ Agent shall deliver to the Parent Indemnified Person a written response (the “Response”) in which the party providing the Response shall: (i) agree that the Parent Indemnified Person is entitled to receive all of the Asserted Damages Amount (in which case, the Company Stockholders’ Agent and Parent shall deliver to the Escrow Agent, within three (3) days following the delivery of the Response, a written notice executed by both such parties instructing the Escrow Agent to distribute to Parent such number of shares of Parent Common Stock held in the Escrow Fund as have an aggregate Charter Value equal to the Asserted Damages Amount); (ii) agree that the Parent Indemnified Person is entitled to receive part, but not all, of the Asserted Damages Amount (such portion, the “Agreed Portion”) (in which case, the Company Stockholders’ Agent and Parent shall deliver to the Escrow Agent, within three (3) days following the delivery of the Response, a written notice executed by both such parties instructing the Escrow Agent to distribute to Parent such number of shares of Parent Common Stock held in the Escrow Fund as have an aggregate Charter Value equal to the Amount of the Agreed Portion); or (iii) dispute that the Parent Indemnified Person is entitled to receive any of the Asserted Damages Amount.

(c) In the event that the Company Stockholders’ Agent shall (i) dispute that the Parent Indemnified Person is entitled to receive any of the Asserted Damages Amount, or (ii) agree that the Parent Indemnified Person is entitled to only the Agreed Portion of the Asserted Damages Amount, the Company Stockholders’ Agent and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of the indemnification claims that comprise the Asserted Damages Amount (or the portion of the Asserted Damages Amount not comprising the Agreed Portion). If the Company Stockholders’ Agent and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by both such parties and, in the case of a demand for recovery from the Escrow Fund, shall be furnished to the Escrow Agent. If no such agreement can be reached after good faith negotiation within sixty (60) days after delivery of a Response, either Parent or the Company Stockholders’ Agent may demand arbitration of any matter set forth in the applicable Indemnification Demand. The matter shall be settled by arbitration conducted by one arbitrator mutually agreeable to Parent and the Company Stockholders’ Agent. In the event that, within thirty (30) days after submission of any dispute to arbitration, Parent and the Company Stockholders’ Agent cannot mutually agree on one arbitrator, then the parties shall arrange for the American Arbitration Association to designate a single arbitrator in accordance with the rules of the American Arbitration Association.

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(d) Any such arbitration shall be held in San Francisco, California, under the rules and procedures then in effect of the American Arbitration Association. The arbitrator shall determine how all expenses relating to the arbitration shall be paid, including the respective expenses of each party, the fees of the arbitrator and the administrative fee of the American Arbitration Association. The arbitrator shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing Parent and the Company Stockholders’ Agent an opportunity, adequate in the sole judgment of the arbitrator to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrator shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys’ fees and costs, to the same extent as a competent court of law or equity, should the arbitrator determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of the arbitrator as to the validity and amount of any indemnification claim in such Indemnification Demand shall be subject to the limitations set forth in this Agreement and final, binding and conclusive upon the parties. Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrator. All payments required by the arbitrator shall be made within thirty (30) days after the decision of the arbitrator is rendered. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction. The reasonable fees, expenses and costs of Parent associated with the arbitration process shall be considered “Losses” for purposes of this Agreement (subject to the exceptions and the proviso in the definition thereof).

ARTICLE 9

GENERAL PROVISIONS

9.1 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered if delivered personally, three (3) days after being sent by registered or certified mail (postage prepaid, return receipt requested), one day after dispatch by recognized overnight courier (provided delivery is confirmed by the carrier) and upon transmission by facsimile or electronic (i.e., PDF) transmission, confirmed received, to the parties at the following addresses (or at such other address for a party as shall be specified by like changes of address):

(a) If to Parent:

VaxGen, Inc.
379 Oyster Point Boulevard, Suite 10
South San Francisco, CA 94080
Attn: James Panek
E-Mail: jpanek@vaxgen.com
Facsimile: (650) 624-4785

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With a copy to:

Cooley LLP
3175 Hanover Street
Palo Alto, CA 94304
Attn.: Laura Berezin
E-Mail: lberezin@cooley.com
Facsimile: (650) 849-7400

and

Cooley LLP
4401 Eastgate Mall
San Diego, CA 92121
Attn.: Barbara L. Borden
Facsimile: (858) 550-6420

(b) If to Company:

diaDexus, Inc.
343 Oyster Point Boulevard
South San Francisco, CA 94080
Attn: President and Chief Executive Officer
E-Mail: PPlewman@diadexus.com
Facsimile: (650) 246-6499

With a copy to:

Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
Attn: Robert Koenig
E-Mail: robert.koenig@lw.com
Facsimile: (650) 463-2600

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(c) If to Company Stockholders’ Agent:

John E. Hamer
c/o Burrill & Company
One Embarcadero center, Suite 2700
San Francisco CA 94111-3776
E-Mail: jhamer@b-c.com
Facsimile: (415)591-5401

With a copy to:

Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
Attn: Robert Koenig
E-Mail: robert.koenig@lw.com
Facsimile: (650) 463-2600

9.2 Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective boards of directors or managers, as applicable, at any time prior to the Effective Time of Merger I; provided, however, that, after approval of the Transaction by the stockholders of Company, no amendment may be made which by Legal Requirements requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.

9.3 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

9.4 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

9.5 Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and undertakings (other than the Confidentiality Agreement), both written and oral, among the parties, or any of them, with respect to the subject matter hereof and, except as otherwise expressly provided herein, are not intended to confer upon any other person any rights or remedies hereunder.

9.6 Assignment. No party may assign this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other parties hereto.

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9.7 Parties In Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, expressed or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, other than Section 5.5 (which is intended to be for the benefit of the parties indemnified thereby and may be enforced by such parties).

9.8 Waiver. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. At any time prior to the Effective Time of Merger I, any party hereto may, with respect to any other party hereto, (a) extend the time for the performance of any of the obligations or other acts, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound.

9.9 Remedies Cumulative. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

9.10 Governing Law; Jurisdiction; Specific Performance. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. In any action between any of the parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state and federal courts located in the Northern District of California; (b) if any such action is commenced in a state court, then, subject to applicable law, no party shall object to the removal of such action to any federal court located in the Northern District of California; (c) each of the parties irrevocably waives the right to trial by jury; and (d) each of the parties irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address at which such party is to receive notice in accordance with Section 9.1. The parties agree that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity.

9.11 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts and by facsimile or electronic (i.e, PDF) transmission, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

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9.12 Attorney Fees. In any action at law or suit in equity to enforce this Agreement or the rights of any of the parties hereunder, the prevailing party in such action or suit shall be entitled to receive a reasonable sum for its attorneys’ fees and all other reasonable costs and expenses incurred in such action or suit.

9.13 Cooperation. Each party hereto agrees to cooperate fully with the other parties hereto and to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by the other parties hereto to evidence or reflect the transactions contemplated by this Agreement and to carry out the intent and purposes of this Agreement.

9.14 Construction.

(a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.

(b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

(c) As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”

(d) Except as otherwise indicated, all references in this Agreement to “Sections,” “Exhibits” and “Schedules” are intended to refer to Sections of this Agreement and Exhibits or Schedules to this Agreement.

(e) The term “knowledge of Company”, and all variations thereof, shall mean the actual knowledge of the persons set forth on Schedule 9.14(e)(i) after reasonable inquiry; provided however, that with respect to matters in Section 2.9 (other than with respect to Section 2.9(e)), “knowledge of Company” means the actual knowledge of the person set forth on Schedule 9.14(e)(ii) for each such section without the further qualification, obligation or inquiry or imputation of knowledge. The term “knowledge of the Parent”, and all variations thereof, shall mean the actual knowledge of the persons set forth on Schedule 9.14(e)(iii) after reasonable inquiry; provided however, that with respect to matters in Section 3.9, “knowledge of Parent” means the actual knowledge of such persons for each such section without the further qualification, obligation or inquiry or imputation of knowledge. For purposes of this Section 9.14(e), “reasonable inquiry” by any individual shall be deemed to mean obtaining actual knowledge of the following: (i) each fact, circumstance, event or other matter that is reflected in one or more documents (whether written or electronic, including electronic mails sent to or by such individual) in, or that have been in, the possession of such individual, (ii) each fact, circumstance, event or other matter that is reflected in one or more documents (whether written or electronic) contained in books and records of such person that would reasonably be expected to be reviewed by an individual who has the duties and responsibilities of such individual in the customary performance of such duties and responsibilities, and (iii) knowledge that could be obtained from reasonable inquiry of an individual’s direct reports.

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[Signature Page Follows]

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IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be executed as of the date first written above.

VAXGEN, INC.
By:	/s/ James P. Panek
	Name:	James P. Panek
	Title:	President
VIOLET ACQUISITION CORPORATION
By:	/s/ James P. Panek
	Name:	James P. Panek
	Title:	President
VIOLET ACQUISITION LLC
By:	VaxGen, Inc.
Its: Sole Member
By:	/s/ James P. Panek
	Name:	James P. Panek
	Title:	President

[Signature Page to Agreement and Plan of Merger and Reorganization]

DIADEXUS, INC.
By:	/s/ Patrick Plewman
	Patrick Plewman
	President & Chief Executive Officer

[Signature Page to Agreement and Plan of Merger and Reorganization]

John E. Hamer, P.h.D.,
as Company Stockholders’ Agent
 

/s/ John E. Hamer  

[Signature Page to Agreement and Plan of Merger and Reorganization]

EXHIBIT A

CERTAIN DEFINITIONS

For purposes of this Agreement (including this Exhibit A):

“Affiliates” shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person.

“Charter Value” shall mean an amount equal to the average closing bid or sale price of the Parent Common Stock over the 30 day period ending 3 business days prior to the Closing.

“Closing Company Exchanged Stock Share Number” shall mean the Closing Company Parent Share Number minus the Retention Bonus Shares.

“Closing Company Parent Share Number” shall mean the product of (1) the Company Ownership Percentage divided by the Parent Ownership Percentage, multiplied by (b) the Closing Parent Share Number (rounded down to the nearest whole share).

“Closing Company Share Number” shall mean the sum of the number of shares of Exchanged Stock outstanding immediately prior to the Effective Time of Merger I.

“Closing Parent Share Number” shall mean the sum of the number of shares of Parent Common Stock outstanding immediately prior to the Effective Time of Merger I.

“Company Acquisition Proposal” shall mean any offer, proposal, inquiry or indication of interest contemplating or otherwise relating to any Company Acquisition Transaction.

“Company Acquisition Transaction” shall mean any transaction or series of transactions involving:

(a) any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction (i) in which Company is a constituent corporation, (ii) in which a Person directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of Company, or (iii) in which Company issues securities representing more than 20% of the outstanding securities of any class of voting securities of Company (other than as contemplated under this Agreement);

(b) any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 20% or more of the consolidated net revenues, net income or assets of Company; or

(c) any liquidation or dissolution of Company.

A-1

“Company Bridge Financing” shall mean the loan of $1,500,000 to the Company by certain of the Company’s existing stockholders pursuant to the terms and conditions of that certain Note Purchase Agreement.

“Company Capital Stock” shall mean the Company Common Stock and the Company Preferred Stock.

“Company Common Stock” shall mean the Common Stock, $0.01 par value per share, of Company.

“Company Disclosure Schedule” shall mean the written disclosure schedule delivered by Company to Parent, which shall be arranged in sections corresponding to the representations and warranties set forth in Article 2; provided, however, the information and disclosures contained in one section of the Company Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in each of the other sections of the Company Disclosure Schedule as though fully set forth in such other section of the Company Disclosure Schedule (whether or not specific cross-references are made) where it is reasonably apparent on the face of such disclosure that such disclosure is relevant to another representation and warranty.

“Company IP Rights” means all IP Rights owned solely or co-owned by Company or in which Company has any right, title or interest.

“Company Lock-Up Agreement Signatories” shall mean: (a) each officer and director of Company; and (b) each stockholder of Company holding at least 10% of the outstanding shares of Company Capital Stock.

“Company Material Adverse Effect” shall mean any Effect that, considered together with all other Effects, is or would reasonably be expected to be or result in a material adverse effect on: (a) the business, financial condition or results of operations of Company taken as a whole; provided, however, that, in no event shall any Effects resulting from any of the following, alone or in combination, be deemed to constitute, or be taken into account in determining whether there has occurred, a Company Material Adverse Effect: (i) conditions generally affecting the industries in which Company participates or the U.S. or global economy as a whole, to the extent that such conditions do not have a disproportionate impact on Company, taken as a whole; (ii) general conditions in the financial markets, and any changes therein (including any changes arising out of acts of terrorism, war, weather conditions or other force majeure events), to the extent that such conditions do not have a disproportionate impact on Company, taken as a whole; (iii) changes in GAAP (or any interpretations of GAAP) applicable to Company; or (iv) loss of employees, suppliers or customers (including customer orders or contracts) resulting directly from the announcement or pendency of this Agreement or the transactions contemplated hereunder; or (b) the ability of Company to consummate the Transaction or any of the other transactions contemplated hereunder or to perform any of its covenants or obligations under this Agreement; or (c) Parent’s ability to vote, transfer, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of the Surviving Corporation or the Surviving Entity or to exercise its rights under this Agreement.

A-2

“Company Option” shall mean an option to purchase shares of Company Common Stock.

“Company Option Plans” shall mean the Company 2000 Equity Incentive Plan the Company 2010 Equity Incentive Plan, in each case, as amended through the date of this Agreement.

“Company Ownership Percentage” shall mean 38.49 if the Parent Bridge Financing is equal to $4,000,000 or less. If the Parent Bridge Financing exceeds $4,000,000 then the Company Ownership Percentage shall be reduced by an amount equal to 0.000001915 for every dollar the Parent Bridge Financing exceeds $4,000,000.

“Company Preferred Stock” shall mean the Preferred Stock, $0.01 par value per share, of Company.

“Company Privacy Policy” shall mean each external or internal, past or present privacy policy of Company, including any policy relating to (a) the privacy of users of the Company Products or of any Company Website, (b) the collection, storage, disclosure, and transfer of any User Data or Personal Data, and (c) any employee information.

“Company Product” shall mean any product or service designed, developed, manufactured, marketed, distributed, licensed, or sold at any time by Company.

“Company Series A Preferred Stock” shall mean the Series A Preferred Stock, $0.01 par value per share, of Company.

“Company Series B Preferred Stock” shall mean the Series B Preferred Stock, $0.01 par value per share, of Company.

“Company Series C Preferred Stock” shall mean the Series C Preferred Stock, $0.01 par value per share, of Company.

“Company Series D Preferred Stock” shall mean the Series D Preferred Stock, $0.01 par value per share, of Company.

“Company Series E Preferred Stock” shall mean the Series E Preferred Stock, $0.01 par value per share, of Company.

“Company Series F Preferred Stock” shall mean the Series F Preferred Stock, $0.01 par value per share, of Company.

“Company Superior Offer” shall mean a bona fide written Company Acquisition Proposal made by a third party for Company, that is determined by the board of directors of Company, in its good faith judgment, after consulting with an independent reputable financial advisor and outside legal counsel, and after taking into account all legal, regulatory, financial and other aspects of the proposal, including the likelihood and anticipated timing of consummation, to be more favorable from a financial point of view to Company’s stockholders than the Transaction and is reasonably capable of being completed; provided, however, that for purposes of this definition of “Company Superior Offer,” the defined term “Company Acquisition Proposal” shall have the meaning assigned to such term herein, except that all references to “20%” contained in the definition of “Company Acquisition Transaction” when it is used in the definition of Company Acquisition Proposal shall be deemed to be a reference to “50%.”

A-3

A “Company Triggering Event” shall be deemed to have occurred if: (a) the board of directors of Company shall have failed to recommend that Company’s stockholders vote to adopt this Agreement, or shall have withdrawn or shall have modified in a manner adverse to Parent the Company Board Recommendation; (b) Company shall have failed to include in the Information Statement the Company Board Recommendation; (c) the board of directors of Company shall have approved, endorsed or recommended any Company Acquisition Proposal, including, without limitation, a Company Superior Offer; (d) Company shall have entered into any letter of intent or similar document or any other agreement relating to any Company Acquisition Proposal; (e) a tender or exchange offer relating to securities of Company shall have been commenced and Company shall not have sent to its securityholders, within ten (10) business days after the commencement of such tender or exchange offer, a statement disclosing that Company recommends rejection of such tender or exchange offer; (f) a Company Acquisition Proposal shall have been publicly announced, and Company shall have failed to issue a press release announcing its opposition to such Company Acquisition Proposal within ten (10) business days after such Company Acquisition Proposal is announced; (g) the board of directors of Company shall have approved a plan of liquidation, bankruptcy or other dissolution; (h) Company shall have materially breached its obligations under Section 5.11; or (i) Company shall have breached its obligations under Section 5.2(a).

“Company Voting Agreement Signatories” shall mean: (a) Scale Venture Partners and its Affiliates; (b) Baker Brothers and its Affiliates; and (c) each of the directors and officers of Company, each to the extent the same holds Company Capital Stock as of the date of this Agreement.

“Company Website” shall mean any public or private website owned, maintained, or operated at any time by or on behalf of Company.

“Consent” shall mean any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization).

“Copyrights” shall mean all copyrightable works and copyrighted works, registered or unregistered, published or unpublished, including without limitation databases and other compilations of information, and all categories of works eligible for protection under U.S. and international copyright law, including rights of authorship, exclusive ownership, of attribution and integrity, and include exclusive rights to use, copy, publish, reproduce, distribute, perform, display, sell, assign, adapt, create derivative works, import, export, and transmit, as well as exclusive rights to register, seek registration and obtain renewals and extensions of registrations, together with all other rights and interests under U.S. and international copyright law.

A-4

“Current Liabilities” shall mean liabilities of Company or Parent, as applicable, that are to be settled in cash within a twelve month period; provided, however, “Current Liabilities” shall not include any fees or expenses related to events that relate to or result from the pendency or consummation of the transactions contemplated hereunder, including, without limitation, fees, expenses and other charges of any legal counsel, financial advisors, accountants and other third party professionals, or any financial printers, incurred by Parent or Company, as applicable, (or for which such Person is otherwise responsible) in connection with this Agreement, the Transaction and/or the transactions contemplated hereunder.

“Customer Offerings” shall mean (a) the products that Company (i) currently develops, manufactures, markets, distributes, makes available, sells or licenses commercially to third parties, or (ii) has developed, manufactured, marketed, distributed, made available, sold or licensed to third parties within the previous four (4) years and (b) the services that Company (i) currently provides or makes available to third parties, or (ii) has provided or made available to third parties within the previous four (4) years.

“Effect” shall mean any effect, change, event or circumstance.

“End Date” shall mean the date that is six (6) months after the date of this Agreement.

“Entity” shall mean any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or entity.

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

“Exchange Stockholders” shall mean the holders of Company Series F Preferred Stock issued and outstanding immediately prior to the Effective Time of Merger I.

“Exchanged Stock” shall mean the Company Series F Preferred Stock.

“FDA” shall mean the U.S. Food and Drug Administration.

“Governmental Authorization” shall mean any: (a) permit, license, certificate, franchise, permission, variance, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (b) right under any agreement, arrangement, understanding or contract with any Governmental Body.

“Governmental Body” shall mean any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, regulatory agency, department, agency, commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity and any court or other tribunal).

A-5

“Indemnifying Persons” shall mean the holders of Series F Preferred Stock and certain of the Retention Bonus Plan Participants, as identified in the Merger Consideration Spreadsheet, that are entitled to Parent Common Stock pursuant to Section 1.6 of this Agreement, to the extent the same constitutes the Escrow Fund, and, to the extent applicable, their respective successors, assigns, heirs and legal representatives and estate.

“IP Rights” shall mean any and all of the following in any country or region: (a) Copyrights, Patent Rights, Trademark Rights, moral rights, trade secrets, technology licenses, know-how, and other intellectual property rights; and (b) the right (whether at law, in equity, by contract or otherwise) to enjoy or otherwise exploit any of the foregoing, including the right to sue for and seek remedies against past, present and future infringements of any or all of the foregoing, and rights of priority and protection of interests therein under the Legal Requirements of any jurisdiction worldwide.

“Legal Proceeding” shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.

“Legal Requirements” shall mean any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body.

“Losses” shall mean any and all losses, claims, shortages, damages, liabilities, expenses (including reasonable attorney and accountant fees), assessments, Taxes (including interest or penalties thereon) sustained, suffered or incurred by any Parent Indemnified Person; provided, however, that any adverse effect on the price of Parent Common Stock shall not be used as a measurement of the amount of any Losses.

“Material Company IP Rights” shall mean all Company IP Rights other than those which, individually or in the aggregate, are immaterial to the conduct of the current Company business; provided, however, that all Company IP Rights that relate directly to the Company Products shall constitute Material Company IP Rights.

“Material Parent IP Rights” shall mean all Parent IP Rights other than those which, individually or in the aggregate, are immaterial to the conduct of the current Parent business.

“Merger Sub I Common Stock” shall mean the Common Stock, $0.001 par value per share, of the Merger Sub I.

“Not Substantially Equivalent Letter” shall mean a letter from the FDA stating that a device is not substantially equivalent to a predicate and may not be legally marketed in the United States.

“Order” shall mean any order, writ, injunction, judgment or decree.

A-6

“Parent Acquisition Proposal” shall mean any offer, proposal, inquiry or indication of interest contemplating or otherwise relating to any Parent Acquisition Transaction.

“Parent Acquisition Transaction” shall mean any transaction or series of transactions involving:

(d) any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction (i) in which Parent (or its Subsidiaries) is a constituent corporation, (ii) in which a Person directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of Parent (or its Subsidiaries), or (iii) in which Parent (or its Subsidiaries) issues securities representing more than 20% of the outstanding securities of any class of voting securities of Parent (other than as contemplated under this Agreement);

(e) any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 20% or more of the consolidated net revenues, net income or assets of Parent (or its Subsidiaries); or

(f) any liquidation or dissolution of any of Parent (or its Subsidiaries).

“Parent Disclosure Schedule” shall mean the written disclosure schedule delivered by Parent to Company, which shall be arranged in sections corresponding to the representations and warranties set forth in Article 3; provided, however, the information and disclosures contained in one section of the Parent Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in each of the other sections of the Parent Disclosure Schedule as though fully set forth in such other section of the Parent Disclosure Schedule (whether or not specific cross-references are made) where it is reasonably apparent on the face of such disclosure that such disclosure is relevant to another representation and warranty.

“Parent Bridge Financing” shall mean the loan of up to $6,000,000 to the Company by Parent pursuant to the terms and conditions of that certain Loan Agreement by and between Company and Parent dated as of May 28, 2010.

“Parent Indemnified Person” shall mean and include, Parent, Parent’s Affiliates and Subsidiaries (including, without limitation, after the Effective Time of Merger I, the Surviving Corporation, and, after the Effective Time of Merger II, the Surviving Entity) and each of their respective successors and assigns, and the respective officers and directors of each of the foregoing Persons.

“Parent IP Rights” means all IP Rights owned solely or co-owned by Parent or in which Parent has any right, title or interest.

A-7

“Parent Material Adverse Effect” shall mean any Effect that, considered together with all other Effects, is or would reasonably be expected to be or result in a material adverse effect on: (a) the business, financial condition or results of operations of Parent and its Subsidiaries, taken as a whole; provided, however, that, in no event shall any Effects resulting from any of the following, alone or in combination, be deemed to constitute, or be taken into account in determining whether there has occurred, a Parent Material Adverse Effect: (i) conditions generally affecting the industries in which Parent participates or the U.S. or global economy as a whole, to the extent that such conditions do not have a disproportionate impact on Parent and its Subsidiaries, taken as a whole; (ii) general conditions in the financial markets, and any changes therein (including any changes arising out of acts of terrorism, war, weather conditions or other force majeure events), to the extent that such conditions do not have a disproportionate impact on Parent and its Subsidiaries, taken as a whole; (iii) changes in the trading price or trading volume of Parent Common Stock (it being understood, however, that, except as otherwise provided in clauses “(i),” “(ii),” “(iv),” “(v)” or “(vi)” of this sentence, any Effect giving rise to or contributing to such changes in the trading price or trading volume of Parent Common Stock may give rise to a Parent Material Adverse Effect and may be taken into account in determining whether a Parent Material Adverse Effect has occurred); (iv) changes in GAAP (or any interpretations of GAAP) applicable to Parent or any of its Subsidiaries; or (v) loss of employees, suppliers or customers (including customer orders or contracts) resulting directly from the announcement or pendency of this Agreement or the transactions contemplated hereunder; or (b) the ability of Parent or the Merger Subs to consummate the Transaction or any of the other transactions contemplated hereunder or to perform any of its covenants or obligations under this Agreement.

“Parent Option Plans” shall mean (a) Parent’s 1996 Stock Option Plan, as amended and (b) Parent’s 1998 Director Stock Option Plan, as amended.

“Parent Ownership Percentage” shall be equal to one hundred minus the Company Ownership Percentage.

“Parent SEC Documents” shall mean each report, registration statement and definitive proxy statement filed by Parent with the SEC since January 1, 2008.

“Parent Superior Offer” shall mean a bona fide written Parent Acquisition Proposal made by a third party for Parent, that is determined by the board of directors of Parent, in its good faith judgment, after consulting with an independent reputable financial advisor and outside legal counsel, and after taking into account all legal, regulatory, financial and other aspects of the proposal, including the likelihood and anticipated timing of consummation, to be more favorable from a financial point of view to Parent’s stockholders than the Transaction and is reasonably capable of being completed; provided, however, that for purposes of this definition of “Parent Superior Offer,” the defined term “Parent Acquisition Proposal” shall have the meaning assigned to such term herein, except that all references to “20%” contained in the definition of “Parent Acquisition Transaction” when it is used in the definition of Parent Acquisition Proposal shall be deemed to be a reference to “50%.”

A-8

A “Parent Triggering Event” shall be deemed to have occurred if: (a) the board of directors of Parent shall have approved, endorsed or recommended any Parent Acquisition Proposal, including, without limitation, a Parent Superior Offer; (b) Parent shall have entered into any letter of intent or similar document or any other agreement relating to any Parent Acquisition Proposal; (c) a tender or exchange offer relating to securities of Parent shall have been commenced and Parent shall not have sent to its securityholders, within ten (10) business days after the commencement of such tender or exchange offer, a statement disclosing that Parent recommends rejection of such tender or exchange offer; (d) a Parent Acquisition Proposal shall have been publicly announced, and Parent shall have failed to issue a press release announcing its opposition to such Parent Acquisition Proposal within ten (10) business days after such Parent Acquisition Proposal is announced; (e) the board of directors of Parent shall have approved a plan of liquidation, bankruptcy or other dissolution; or (f) Parent shall have materially breached its obligations under Section 5.12.

“Patent Rights” shall mean all issued patents, pending patent applications and abandoned patents and patent applications provided that they can be revived (which for purposes of this Agreement shall include utility models, design patents, industrial designs, certificates of invention and applications for certificates of invention and priority rights) in any country or region, including all provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals, reissues, re-examinations and extensions thereof.

“Person” shall mean any person, Entity, Governmental Body, or group (as defined in Section 13(d)(3) of the Exchange Act).

“Personal Data” shall mean a natural person’s name, street address, telephone number, e-mail address, photograph, social security number, driver’s license number, passport number, or customer or account number, or any other piece of information that allows the identification of a natural person.

“Product Liability Claims” shall mean any actual or alleged liability for death or injury to person or property as a result of any actual or alleged defect in any product, any actual or alleged warranty, recall or similar liability for any product, or any statutory liability or any liability assessed with respect to any failure to warn arising out of and product.

“Product Registration” shall mean permission from FDA or an analogous governmental authority allowing a medical device to be lawfully distributed for clinical studies or for commercial use in a country, including establishment registration and device listing with FDA, investigational device exemptions, premarket notification clearances and premarket approvals in the United States, and those submissions, reports, registrations, listings, markings and other filings with any governmental entities analogous to FDA that are necessary to allow a medical device to be lawfully distributed for clinical studies or commercial use in a country.

A party’s “Representatives” shall include each Person that is or becomes (a) a Subsidiary or other Affiliate of such party or (b) an officer, director, employee, partner, attorney, advisor, accountant, agent or representative of such party or of any such party’s Subsidiaries or other Affiliates.

“Retention Bonus Shares” shall mean 8% of the Closing Company Parent Share Number (rounded down to the nearest whole share).

A-9

An entity shall be deemed to be a “Subsidiary” of another Person if such Person directly or indirectly owns, beneficially or of record, (a) an amount of voting securities of or other interests in such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entity’s board of directors or other governing body, or (b) at least 50% of the outstanding equity or financial interests of such Entity.

“SEC” shall mean the United States Securities Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Series F Exchange Ratio” shall mean (a) the Closing Company Exchanged Stock Share Number, divided by (b) the Closing Company Share Number.

“Substantially Equivalent Letter” shall mean a letter from the FDA stating that a device is substantially equivalent to a predicate and may be legally marketed in the United States.

“Tax” and “Taxes” shall mean all income, profits, gross receipts, environmental, customs duty, capital stock, sales, use, occupancy, value added, ad valorem, stamp, franchise, withholding, payroll, employment, unemployment, disability, excise, property, production and other taxes, duties or assessments of any nature imposed by any Governmental Body (whether national, local, municipal or otherwise) or political subdivision thereof, together with all interest, penalties and additions imposed with respect to such Taxes and any interest in respect of such penalties or additions.

“Trademark Rights” shall mean all trademarks, registered trademarks, applications for registration of trademarks, trade dress, logos, service marks, registered service marks, applications for registration of service marks, trade names, registered trade names and applications for registration of trade names, corporate names, business identifiers, registered or unregistered, domain names, website addresses, and intranet sites together with all translations, transliterations, adaptions, derivations, and combinations thereof; and including goodwill associated therewith and all intent to use any of the foregoing if not registered or subject to a pending application.

“User Data” shall mean any Personal Data or other data or information collected by or on behalf of Company from users of the Company Products or of any Company Website.

Additionally, the following terms have the meanings assigned to such terms in the Sections of this Agreement set forth below opposite such term:

Defined Word	Section of Agreement
“280G Waiver”	Section 5.15
“Agreed Portion”	Section 8.6(b)
“Agreement”	Preamble
“Appraisal Deductible”	Section 8.3(a)
“Asserted Damages Amount”	Section 8.6(a)
“California Commissioner”	Section 2.4(b)
“Certificate of Merger I”	Section 1.2
“Certificate of Merger II”	Section 1.2

A-10

“Certifications”	Section 3.6(a)
“Closing”	Section 1.1(c)
“Closing Date”	Section 1.1(c)
“COBRA”	Section 2.13(b)
“Code”	Section 1.8(e)
“Company”	Preamble
“Company Balance Sheet”	Section 2.6(a)
“Company Board Recommendation”	Section 5.1(a)
“Company Break-Up Fee”	Section 7.3(b)
“Company Contract”	Section 2.17
“Company Databases”	Section 2.9(k)
“Company Employee Plans”	Section 2.13(a)
“Company Environmental Permits”	Section 2.15(c)
“Company Financials”	Section 2.6(a)
“Company Intervening Event”	Section 5.2(a)(ii)(B)
“Company Permits”	Section 2.10(b)
“Company Stock Certificate”	Section 1.9
“Company Stockholders’ Agent”	Preamble
“Company Voting Agreements”	Recitals
“Confidentiality Agreement”	Section 5.3
“Delaware Law”	Recitals
“Dissenting Shares”	Section 1.7
“DLLCA”	Recitals
“Effective Time of Merger I”	Section 1.2
“Effective Time of Merger II”	Section 1.2
“EIRs”	Section 2.10(c)
“ERISA”	Section 2.13(a)
“ERISA Affiliate”	Section 2.13(a)
“Escrow Agent”	Section 8.2
“Escrow Agreement”	Section 8.2
“Escrow Fund”	Section 8.2
“Exchange Agent”	Section 1.8(a)
“Exchange Fund”	Section 1.8(a)
“Expiration Date”	Section 8.1
“Fairness Approval”	Section 5.1(b)
“Fairness Hearing”	Section 5.1(b)
“FFDCA”	Section 2.10(c)
“GAAP”	Section 2.6(a)
“General Deductible”	Section 8.3(a)
“Hazardous Material”	Section 2.15(a)
“Hazardous Material Activities”	Section 2.15(b)
“HIPAA”	Section 2.13(f)
“HMO”	Section 2.13(k)
“Indemnification Demand”	Section 8.6(a)
“Information Statement”	Section 5.1(a)
“Insurance Policies”	Section 2.23(a)
“Interim Financial Statements”	Section 5.7
“knowledge of Company”	Section 9.14(e)
“knowledge of Parent”	Section 9.14(e)

A-11

“Lock-Up Agreements”	Recitals
“Merger I”	Recitals
“Merger II”	Recitals
“Merger Consideration Spreadsheet”	Section 2.2
“Merger Sub I”	Preamble
“Merger Sub II”	Preamble
“Merger Subs”	Preamble
“Parent”	Preamble
“Parent Break-Up Fee”	Section 7.3(c)
“Parent Common Stock”	Section 1.6(a)(i)
“Parent Contract”	Section 3.17
“Parent Employee Plans”	Section 3.13(a)
“Parent Environmental Permits”	Section 3.15(c)
“Parent Financials”	Section 3.6(c)
“Parent Permits”	Section 3.10(b)
“Permit Application”	Section 2.4(b)
“Plewman Agreement”	Section 6.2(f)
“Pre-Closing Period”	Section 5.3
“reasonable inquiry”	Section 9.14(e)
“Registration Statement”	Section 2.4(b)
“Reimbursed Expenses”	Section 7.3(a)(i)
“Required Company Stockholder Vote”	Section 2.19(b)
“Response”	Section 8.6(b)
“Retention Bonus Plan”	Section 1.6(f)
“Retention Bonus Plan Participants”	Section 1.6(f)
“Safety Notices”	Section 2.10(d)
“Series F Merger Consideration”	Section 1.6(a)(i)
“Surviving Corporation”	Section 1.1(a)
“Surviving Entity”	Section 1.1(b)
“Tax Returns”	Section 2.8(a)
“Term Sheet”	Section 7.3(a)(i)
“Terminating Breach”	Section 7.1(e)
“Transaction”	Recitals

A-12

EX-10.1

Exhibit 10.1

Execution Draft

LOAN AGREEMENT

This Loan Agreement, dated as of May 28, 2010 (this “Agreement”), is entered into by and between diaDexus, Inc., a Delaware corporation (the “Company”), and VaxGen, Inc., a Delaware corporation (the “Lender”).

RECITALS

A. The Company and Lender have entered into an Agreement and Plan of Merger dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), pursuant to which a wholly-owned subsidiary of Lender would merge into and with the Company and the Company would become a wholly-owned subsidiary of Lender (the “Merger”).

B. On the terms and subject to the conditions set forth herein, Lender is willing to purchase from the Company, and the Company is willing to sell to Lender the promissory note described below.

D. Capitalized terms not otherwise defined herein shall have the meaning set forth in the form of Note (as defined below) attached hereto as Exhibit A.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing, and the representations, warranties, and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows:

1. The Loan.

(a) Issuance of Note. The Lender has agreed to lend to the Company up to Six Million Dollars ($6,000,000.00) in principal (the “Total Loan Amount”) in return for a secured promissory note in the form of Exhibit A hereto (the “Note”) and the grant of a security interest in certain assets of the Company pursuant to that certain Security and Collateral Agency Agreement, dated as of the date hereof (the “Security Agreement”), between Lender, in its capacity as a lender hereunder and as collateral agent, the Company and the other lenders party thereto.

(b) Advances. Subject to and upon the terms and conditions set forth below, the Company may request advances of funds under the Note (each, an “Advance”) in accordance with Schedule 1 attached hereto (the “Schedule of Advances”) in an aggregate outstanding

amount not to exceed the Total Loan Amount, commencing on the date hereof. Each Advance to the Company under the Note shall be subject to the satisfaction of the following conditions precedent (unless waived in writing by the Lender): (i) each of the representations and warranties contained in this Agreement and the Security Agreement must be true and accurate in all material respects as of the date of such Advance, and (ii) the Company must have performed all of its obligations to be performed as of the date of the requested Advance under this Agreement, the Merger Agreement, the Note and the Security Agreement. The Lender’s obligation to make any Advances shall terminate upon the earliest of: (1) consummation of the Merger, (2) the End Date (as defined in the Merger Agreement), provided that, if Lender reasonably determines in good faith that the Merger Agreement will not be consummated on or before the End Date, then the Lender’s obligation to make further Advances shall terminate on October 28, 2010, and (3) termination of the Merger Agreement for any reason.

(c) Use of Proceeds. The proceeds of the initial Advance shall be used to repay in full all outstanding indebtedness and other obligations under that certain Loan and Security Agreement, dated as of July 13, 2007 (the “Senior Loan Agreement”), by and among the Company, Silicon Valley Bank, as agent, and the lenders party thereto, with any remaining amounts, and the proceeds of any subsequent Advances, to be used for operating expenses of the Company.

(d) Payments of Advances. The Lender will make all Advances to the Company in immediately available funds to an account for the benefit of the Company as specified by the Company in writing prior to the date of such Advance. Advances, other than the initial Advance and the second Advance, shall be at the discretion of Lender.

2. Representations and Warranties of the Company. Except as set forth on Schedule 2 hereto, the Company represents and warrants to the Lender that:

(a) Due Incorporation, Qualification, etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as presently conducted and as currently proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties.

(b) Subsidiaries. The Company does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, limited liability company, association, or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement. Since its inception, the Company has not consolidated or merged with, acquired all or substantially all of the assets of, or acquired the stock of or any interest in any corporation, partnership, limited liability company or other business entity.

(c) Authority. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of the Transaction Documents, and the performance of all obligations of the Company hereunder and

thereunder, has been taken, and the Transaction Documents, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors’ rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

(d)  Approvals and Filings. Except for applicable federal and state securities filings, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority or other person or entity (including, without limitation, the shareholders of any person or entity) is required in connection with the execution and delivery of the Transaction Documents executed by the Company and the performance and consummation of the transactions contemplated thereby.

(e) Valid Issuance. The Note, when issued, sold and delivered in compliance with the provisions of this Agreement, will be duly and validly issued; provided, however, that the Note may be subject to restrictions on transfer under state and/or federal securities laws and under the Transaction Documents.

(f) No Violation or Default; Non-Contravention. The Company is not in violation or default of (i) any provisions of its certificate of incorporation or bylaws or (ii) any instrument, judgment, order, writ, decree, lease, agreement, note, indenture, mortgage or contract to which it is a party or by which it is bound or, to the best of its knowledge, any provision of federal or state statute, rule or regulation applicable to the Company which violation or default would materially adversely affect the Company’s business, operations, properties, assets or financial condition, taken as a whole. The execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree, lease, agreement, note, indenture, mortgage or contract or an event which results in any such material violation or in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties that would have a material adverse effect on the Company.

(g) Litigation. There is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, currently threatened (i) against the Company or any of its subsidiaries that questions the validity of the Transaction Documents or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or (ii) against the Company or, to the Company’s knowledge, any officer, director or employee of the Company that might result, either individually or in the aggregate, in any material adverse change in the assets, condition, prospects or affairs of the Company, financially or otherwise.

(h) Title to Property and Assets. The Company has good and marketable title to all of its properties, intangible and tangible assets that it owns free and clear of all mortgages, liens, loans, claims and encumbrances, except liens for current taxes and assessments not yet due and minor liens and encumbrances which arise in the ordinary course of business and which do not, in any case, in the aggregate, materially detract from the value or use of the property subject thereto or materially impair the operations of the Company. With respect to the property and assets it leases, the Company is in material compliance with such leases and holds a valid leasehold interest free of all liens, claims or encumbrances.

3. Representations and Warranties of the Lender. The Lender hereby represents and warrants to the Company as follows:

(a) Binding Obligation. The Lender has full legal capacity, power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement is a valid and binding obligation of the Lender, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors’ rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

(b) Securities Law Compliance. The Lender has been advised that the Note has not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or any state securities laws and, therefore, cannot be resold unless it is registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available. The Lender is an “accredited investor” as such term is defined in Rule 501 of Regulation D under the Securities Act.

4. Covenants of the Company.

(a) No New Indebtedness. Prior to the earliest of: (i) the Maturity Date (as set forth in the Note) or (ii) the payment in full of all obligations pursuant to the Note, the Company shall not without the consent of the Lender create, incur, assume or suffer to exist new Indebtedness which is senior or equal in priority of payment to the Note except for the Secured Promissory Notes. For purposes of hereof, “Indebtedness” means (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit (but excluding accounts payable in the ordinary course of business), (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, (d) any guarantees of, or other direct or indirect liability for the obligations of another person, and (e) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect against fluctuation in interest rates, currency exchange rates or commodity prices.

(b) Monthly and Quarterly Financials. The Company shall forward, or cause to be forwarded to the Lender by electronic mail, followed promptly by a version in

writing, (a) the Company’s monthly financial statements prepared in accordance with GAAP (subject to normal quarterly and year-end adjustments) as soon as available, and in any event within twenty (20) days after the end of each month; and (b) the Company’s quarterly consolidated and consolidating financial statements prepared in accordance with GAAP (including a quarterly balance sheet, profit and loss statement and cash flow statement for such quarter) as soon as available, and in any event within forty-five (45) days from the end of each quarter.

(c) Payments and Obligations to the Lender. The Company shall make all payments of principal, interest and other charges as and when due under the Note, shall perform or comply with, as the case may be, all of the other obligations under the Note and the Security Agreement, and shall perform and comply in all respects with all applicable terms, conditions and covenants of this Agreement, the Note and the Security Agreement.

(d) Other Debts; Taxes. The Company shall promptly make all payments of principal and interest as and when due under any other Indebtedness of the Company and shall make payment of all other payment obligations of the Company in excess of $10,000 individually within fifteen (15) days of such payment obligations coming due and shall make payment of all other payment obligations of the Company within thirty (30) days of such payments coming due; provided, however, that this covenant shall not be construed as permitting any other Indebtedness of the Company or as permitting the making of any payments on account of any other Indebtedness of the Company that are not otherwise permitted by the terms and conditions of this Agreement. The Company will pay and discharge all material taxes, assessments and governmental charges or levies imposed upon them or upon their income or profits, or upon any properties belonging to them, prior to the date on which material penalties attach thereto, and all lawful claims which, if unpaid, might reasonably be expected to become a lien or charge upon any properties of the Company or cause a failure or forfeiture of title thereto; provided, however, that the Company shall not be required to pay any such tax, assessment, charge, levy or claim that is being contested in good faith and by proper proceedings timely instituted and diligently conducted if they have maintained adequate reserves with respect thereto in accordance with GAAP.

(e) No Distributions. Unless otherwise agreed in writing by Lender in advance or in connection with severance or retention payments in connection with the Merger, the Company shall not make any distributions of cash, securities or other property of the Company to any of its equityholders, whether such distribution would be characterized as a dividend or otherwise.

(f) No Encumbrances. The Company shall not permit to exist against any of the Collateral or any of its other material assets (if any) any lien, mortgage, pledge, security interest, title retention device, or other encumbrance (collectively, “Liens”), except for those (i) Liens arising pursuant to this Agreement, the Note, the Secured Promissory Notes and the Security Agreement; (ii) Liens for taxes and assessments not delinquent or actively being contested in good faith by the Company and for which the Company has adequate reserves; (iii) deposits or pledges for goods or services made in the ordinary course of the Company’s

business; (iv) mechanics liens; (v) liens that are junior in right of payment and collection and expressly subordinated to the Liens arising pursuant to this Agreement and the Security Agreement; (vi) Liens in existence as of the date hereof under the Senior Loan Agreement, which Liens will be released following the Company’s repayment in full of all outstanding indebtedness and other obligations thereunder, which shall occur no later than the date of the first Advance hereunder; (vii) non-exclusive licenses of Intellectual Property entered into in the ordinary course of business, and (viii) statutory liens affecting real property of landlords of the Company (collectively such Liens permitted by clauses (i) through (viii) hereof, “Permitted Liens”).

(g) No Payments of Other Debt. The Company shall not make any prepayments with respect to any other Indebtedness except for outstanding indebtedness and other obligations under the Senior Loan Agreement, and shall not make any payments in respect of the Secured Promissory Notes, unless in either case all obligations then owing to the Lender under this Agreement, the Note and the Security Agreement shall have been first paid and discharged and the Note shall have been terminated and discharged in full; provided, however, that the Secured Promissory Notes may be repaid prior thereto so long as (i) the Company Break-Up Fee shall have been paid in full (to the extent any such fee is payable under the Merger Agreement) and (ii) such repayment of the Secured Promissory Notes is made ratably among the Lender and each holder of the Secured Promissory Notes in accordance with the percentage equivalent at such time of the aggregate unpaid principal amount of the Note and each such holder’s Secured Promissory Note, divided by the combined aggregate unpaid principal amount of the Note and all of the Secured Promissory Notes.

(h) No Sale, License or Other Disposal of Assets. The Company shall not in any manner sell, convey, lease, license, transfer or dispose of any equitable, beneficial or legal interest in any of the Collateral or any of the Company’s other material assets (if any), except for equipment disposed of in the ordinary course of business for at least the estimated fair market value of such equipment as determined in good faith by the Company’s board of directors and except for Permitted Liens.

(i) No Transactions Outside the Ordinary Course. Unless otherwise consented to in writing by the Lender, which consent shall not be unreasonably withheld, the Company shall not enter into any agreements, obligations or commitments of any type, except (i) in the ordinary course of business consistent with past practice or (ii) agreements, contracts or commitments which involve payments by the Company which individually do not exceed $25,000, and which collectively do not exceed $100,000.

(j) Compensation Matters. Unless otherwise consented to in writing by the Lender, which consent shall not be unreasonably withheld, the Company shall not increase the compensation payable or to become payable to its directors, officers or employees, except for increases in salary or wages of employees who are not officers in accordance with past practices, or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee, or establish, adopt, enter into or amend any employee benefit plan.

5. [Reserved.]

6. Miscellaneous.

(a) Waivers and Amendments. Any provision of this Agreement may be amended, waived or modified only upon the written consent of the Company and the Lender.

(b) Governing Law. This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions of the State of California or of any other state.

(c) Survival. The representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement.

(d) Successors and Assigns. Subject to the restrictions on transfer described in Sections 6(e) and 6(f) below, the rights and obligations of the Company and the Lender shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

(e) Assignment by the Company. The rights, interests or obligations hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the Lender.

(f) Entire Agreement. This Agreement together with Note, the Security Agreement, and each instrument or other agreement executed and delivered in connection therewith (collectively, “Transaction Documents”) constitute and contain the entire agreement among the Company and the Lender with regard to the subject matter hereof, and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the parties, whether written or oral, respecting the subject matter hereof.

(g) Notices. All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party as follows: (i) if to the Lender, at 379 Oyster Point Blvd., South San Francisco, CA 94080, or at such other address as the Lender shall have furnished the Company in writing, or (ii) if to the Company, at 343 Oyster Point Blvd., South San Francisco, CA 94080, or at such other address or facsimile number as the Company shall have furnished to the Lender in writing. All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after being delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited with an overnight courier service of recognized standing or (v) four days after being deposited in the U.S. mail, first class with postage prepaid.

(h) Severability of this Agreement. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

(i) Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. Facsimile copies of signed signature pages will be deemed binding originals.

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The parties have caused this Loan Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.

COMPANY: diaDexus, Inc.
By:	/s/ David Foster
	Name:	David Foster
	Title:	EVP, CFO

LENDER: VaxGen, Inc.
By:	/s/ James P. Panek
	Name:	James P. Panek
	Title:	EVP, CFO

SCHEDULE 1

SCHEDULE OF ADVANCES UNDER THE NOTE

Advance	Advance Date	Advance Amount
Initial Advance	May 28, 2010	$	3,000,000
Second Advance	June 28, 2010	$	1,000,000
Third Advance	July 28, 2010	$	1,000,000
Fourth Advance	August 27, 2010	$	1,000,000

• The Second Advance will be provided, upon the request of the Company, at any time after the Advance Date set forth above for such Advance.

• The Third and Fourth Advances will be provided, at Lender’s sole and absolute discretion, upon the request of the Company at any time after the Advance Date set forth above for such Advance.

EXHIBIT A
SECURED PROMISSORY NOTE

$6,000,000 May 28, 2010

For value received diaDexus, Inc., a Delaware corporation (the “Company”), promises to pay to VaxGen, Inc., a Delaware corporation (together with its successors and assigns, “Lender”), the principal sum of up to SIX MILLION DOLLARS ($6,000,000.00), or such lesser amount as may be advanced hereunder (the “Commitment Amount”), together with simple interest on the outstanding principal amount from time to time outstanding hereunder at the rate of 10% per annum. Interest shall commence with the date hereof and shall continue on the outstanding principal until paid in full. Interest shall be paid on the Maturity Date (as defined below). Interest shall be computed on the basis of a year of 365 days for the actual number of days elapsed.

1. Loan Agreement. This note (the “Note”) is issued to Lender pursuant to the terms of that certain Loan Agreement dated as of May 28, 2010 (the “Loan Agreement”) by and between the Company and Lender. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement.

2. Currency. All payments of interest and principal shall be in lawful money of the United States of America. All payments shall be applied first to accrued interest, and thereafter to principal.

3. Secured Note. The obligations under this Note shall be secured by the Collateral (as defined in the Security Agreement).

4. Payment on Maturity Date. The entire outstanding principal balance and all unpaid accrued interest shall become fully due and payable on the Maturity Date. As used herein, “Maturity Date” means the earliest of: (a) the earlier of (i) the last day of the twelfth full calendar month following the date of termination of the Merger Agreement and (ii) the consummation of a Company Acquisition Transaction (as defined in the Merger Agreement), (b) the stated maturity of the Secured Promissory Notes as amended from time to time, (c) immediately upon an Event of Default under Section 7(f) or (g) as set forth below, and (d) immediately upon notice of acceleration given by the Lender following an Event of Default under Section 7(a) through (e) below. Upon consummation of the Merger in accordance with the terms of the Merger Agreement, all obligations under the Note shall be forgiven without further action on the part of the Company or Lender.

5. Fees. In the event of any default hereunder, Company shall pay all reasonable attorneys’ fees and court costs incurred by Lender in enforcing and collecting this Note.

6. Prepayment. The Company may prepay this Note at any time.

7. Event of Default. The occurrence of any one or more of the following shall constitute an “Event of Default”:

(a) Company fails to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note on the date the same becomes due and payable;

(b) Company shall materially default in its performance of any covenant under Section 4 of the Agreement;

(c) Company shall materially default in its performance of any other covenant under the Agreement, or under this Note or the Security Agreement, in each case which breach is not cured within 15 days after receipt of notice of such breach from Lender;

(d) An “Event of Default” shall have occurred under, and as defined in, any of those certain Secured Promissory Notes issued pursuant to that certain Note Purchase Agreement, dated as of the date hereof, among the Company and the investors party thereto (the “Secured Promissory Notes”);

(e) Company shall commit a breach of the Merger Agreement which would permit the termination of the Merger Agreement by Lender pursuant to Section 7.1(e) of the Merger Agreement, whether or not the Merger Agreement is in fact so terminated;

(f) Company files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing; or

(g) An involuntary petition is filed against Company (unless such petition is dismissed or discharged within sixty (60) days under any bankruptcy statute now or hereafter in effect) or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of Company.

8. Waivers. Company hereby waives demand, notice, presentment, protest and notice of dishonor.

9. Governing Law. This Note shall be governed by and construed under the laws of the State of California, as applied to agreements among California residents, made and to be performed entirely within the State of California, without giving effect to conflicts of laws principles.

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The Company has caused this Note to be executed and delivered as of the date first set forth above.

diaDexus, Inc.
By:	/s/ David Foster
	Name:	David Foster
	Title:	EVP, CFO

EX-10.2

Exhibit 10.2

Execution Copy

SECURITY AND COLLATERAL AGENCY AGREEMENT

This Security Agreement dated as of May 28, 2010 (“Security Agreement”), is made by and among diaDexus, Inc., a Delaware corporation (“Grantor”), the secured parties listed on the signature pages hereto (each, a “Secured Party” and, collectively, the “Secured Parties”) and VaxGen, Inc., a Delaware corporation, in its capacity as Collateral Agent (as defined below) on behalf of the Secured Parties.

Recitals

A. Pursuant to that certain Loan Agreement of even date herewith (as amended, supplemented or otherwise modified from time to time, the “Loan Agreement”), VaxGen, Inc. agreed to make advances to Grantor as evidenced by that certain Secured Promissory Note dated May 28, 2010 executed by Grantor in favor of VaxGen, Inc. (the “Violet Note”), and the other Secured Parties have purchased secured promissory notes (each, a “Secured Promissory Note”) from Grantor pursuant to that certain Note Purchase Agreement, dated as of May 28, 2010 (as amended, supplemented or otherwise modified from time to time, the “Note Purchase Agreement”). The Violet Note and the Secured Promissory Notes are referred to collectively herein as the “Notes.” Such advances under the Loan Agreement and the Violet Note, and the loans evidenced by the Secured Promissory Notes, collectively, are referred to herein as the “Loans.”

B. The Secured Parties are willing to make the Loans to Grantor evidenced by the Notes, but only upon the condition, among others, that Grantor shall have executed and delivered to the Secured Parties this Security Agreement.

Agreement

Now, Therefore, in order to induce the Secured Parties to make the Loans and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, Grantor hereby represents, warrants, covenants and agrees as follows:

1. Defined Terms. When used in this Security Agreement the following terms shall have the following meanings (such meanings being equally applicable to both the singular and plural forms of the terms defined):

“Bankruptcy Code” means Title XI of the United States Code.

“Collateral” shall have the meaning assigned to such term in Section 2 of this Security Agreement.

“Contracts” means all contracts (including any customer, vendor, supplier, service or maintenance contract), leases, licenses, undertakings, purchase orders, permits, franchise

agreements or other agreements (other than any right evidenced by Chattel Paper, Documents or Instruments), whether in written or electronic form, in or under which Grantor now holds or hereafter acquires any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof.

“Copyright License” means any agreement, whether in written or electronic form, in which Grantor now holds or hereafter acquires any interest, granting any right in or to any Copyright or Copyright registration (whether Grantor is the licensee or the licensor thereunder) including, without limitation, licenses pursuant to which Grantor has obtained the exclusive right to use a copyright owned by a third party.

“Copyrights” means all of the following now owned or hereafter acquired or created (as a work for hire for the benefit of Grantor) by Grantor or in which Grantor now holds or hereafter acquires or receives any right or interest, in whole or in part: (a) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or any other country; (b) registrations, applications, recordings and proceedings in the United States Copyright Office or in any similar office or agency of the United States, any State thereof or any other country; (c) any continuations, renewals or extensions thereof; (d) any registrations to be issued in any pending applications, and shall include any right or interest in and to work protectable by any of the foregoing which are presently or in the future owned, created or authorized (as a work for hire for the benefit of Grantor) or acquired by Grantor, in whole or in part; (e) prior versions of works covered by copyright and all works based upon, derived from or incorporating such works; (f) income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to copyrights, including, without limitation, damages, claims and recoveries for past, present or future infringement; (g) rights to sue for past, present and future infringements of any copyright; and (h) any other rights corresponding to any of the foregoing rights throughout the world.

“Event of Default” means (i) any failure by Grantor forthwith to pay or perform any of the Secured Obligations when due, (ii) any report, information or notice made to, obtained or received by Secured Party at any time after the date hereof shall indicate that Secured Party’s security interest in the Collateral is not prior to all other security interests or other interests in the Collateral reflected in such report, information or notice, (iii) any breach by Grantor of any warranty, representation, or covenant set forth herein or any other Loan Document, and (iv) any “Event of Default” as defined in the Note Purchase Agreement, the Loan Agreement or the Notes.

“Intellectual Property” means any intellectual property, in any medium, of any kind or nature whatsoever, now or hereafter owned or acquired or received by Grantor or in which Grantor now holds or hereafter acquires or receives any right or interest, and shall include, in any event, any Copyright, Trademark, Patent, License, trade secret, customer list, marketing plan, internet domain name (including any right related to the registration thereof), proprietary or confidential information, mask work, source, object or other programming code, invention (whether or not patented or patentable), technical information, procedure, design, knowledge, know-how, software, data base, data, skill, expertise, recipe, experience, process, model, drawing, material or record.

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“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests, whether in-bound or out-bound, whether in written or electronic form, now or hereafter owned or acquired or received by Grantor or in which Grantor now holds or hereafter acquires or receives any right or interest, and shall include any renewals or extensions of any of the foregoing thereof.

“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

“Loan Documents” means the Loan Agreement, the Note Purchase Agreement, the Notes, this Security Agreement and any control agreement, Intellectual Property security agreements or other documents executed by Grantor in connection herewith.

“Majority Lenders” means any Secured Party or group of Secured Parties holding greater than fifty percent (50%) of the outstanding and unpaid principal under all Loans of all Secured Parties.

“Patent License” means any agreement, whether in written or electronic form, in which Grantor now holds or hereafter acquires any interest, granting any right with respect to any invention on which a Patent is in existence (whether Grantor is the licensee or the licensor thereunder).

“Patents” means all of the following in which Grantor now holds or hereafter acquires any interest: (a) all letters patent of the United States or any other country, all registrations and recordings thereof and all applications for letters patent of the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, divisions, continuations, renewals, continuations-in-part or extensions thereof; (c) all petty patents, divisionals and patents of addition; (d) all patents to issue in any such applications; (e) income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to patents, including, without limitation, damages, claims and recoveries for past, present or future infringement; and (f) rights to sue for past, present and future infringements of any patent.

“Permitted Lien” has the meaning assigned to such term in Section 4(g) of the Loan Agreement.

“Pro Rata” means, as to any Secured Party at any time, the percentage equivalent at such time of such Secured Party’s aggregate unpaid principal amount of Loans, divided by the combined aggregate unpaid principal amount of all Loans of all Secured Parties.

“Secured Obligations” means (a) the obligation of Grantor to repay each Secured Party all of the unpaid principal amount of, and accrued interest on (including any interest that accrues after the commencement of bankruptcy), such Secured Party’s Loans, (b) the obligation of Grantor to pay any fees, costs or expenses of the Secured Parties or the Collateral Agent under the Loan Documents, and (c) all other indebtedness, liabilities and obligations of Grantor under

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the Loan Documents to each Secured Party, whether now existing or hereafter incurred, and whether created under, arising out of or in connection with any written agreement or otherwise.

“Security Agreement” means this Security Agreement and all Schedules hereto, as the same may from time to time be amended, modified, supplemented or restated.

“Trademark License” means any agreement, whether in written or electronic form, in which Grantor now holds or hereafter acquires any interest, granting any right in and to any Trademark or Trademark registration (whether Grantor is the licensee or the licensor thereunder).

“Trademarks” means any of the following in which Grantor now holds or hereafter acquires any interest: (a) any trademarks, tradenames, corporate names, company names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country (collectively, the “Marks”); (b) any reissues, extensions or renewals thereof; (c) the goodwill of the business symbolized by or associated with the Marks; (d) income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to the Marks, including, without limitation, damages, claims and recoveries for past, present or future infringement; and (e) rights to sue for past, present and future infringements of the Marks.

“UCC” means the Uniform Commercial Code as the same may from time to time be in effect in the State of California (and each reference in this Security Agreement to an Article thereof (denoted as a Division of the UCC as adopted and in effect in the State of California) shall refer to that Article (or Division, as applicable) as from time to time in effect; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Secured Parties’ security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of California, the term “UCC” shall mean the Uniform Commercial Code (including the Articles thereof) as in effect at such time in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions.

In addition, the following terms shall be defined terms having the meaning set forth for such terms in the UCC: “Account”, “Account Debtor”, “Chattel Paper”, “Commercial Tort Claims”, “Commodity Account”, “Deposit Account”, “Documents”, “Equipment”, “Fixtures”, “General Intangible”, “Goods”, “Instrument”, “Inventory”, “Investment Property”, “Letter-of-Credit Right”, “Money”, “Payment Intangibles”, “Proceeds”, “Promissory Notes”, “Securities Account”, and “Supporting Obligations”. Each of the foregoing defined terms shall include all of such items now owned, or hereafter acquired, by Grantor.

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2. Grant of Security Interest. As collateral security for the full, prompt, complete and final payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all the Secured Obligations and in order to induce the Secured Parties to cause the Loans to be made, Grantor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to the Collateral Agent, on behalf of the Secured Parties, and hereby grants to the Secured Parties, a security interest in all of Grantor’s right, title and interest in, to and under the following, whether now owned or hereafter acquired, (all of which being collectively referred to herein as the “Collateral”):

(a) All Accounts of Grantor;

(b) All Chattel Paper of Grantor;

(c) The Commercial Tort Claims of Grantor more particularly described on Schedule E attached hereo;

(d) All Commodity Accounts of Grantor;

(e) All Contracts of Grantor;

(f) All Deposit Accounts of Grantor;

(g) All Documents of Grantor;

(h) All General Intangibles of Grantor, including, without limitation, Intellectual Property;

(i) All Goods of Grantor, including, without limitation, Equipment, Inventory and Fixtures;

(j) All Instruments of Grantor, including, without limitation, Promissory Notes;

(k) All Investment Property of Grantor;

(l) All Letter-of Credit Rights of Grantor;

(m) All Money of Grantor;

(n) All Securities Accounts of Grantor;

(o) All Supporting Obligations of Grantor;

(p) All property of Grantor held by any Secured Party, or any other party for whom any Secured Party is acting as agent, including, without limitation, all property of every-description now or hereafter in the possession or custody of or in transit to any Secured Party or

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such other party for any purpose, including, without limitation, safekeeping, collection or pledge, for the account of Grantor, or as to which Grantor may have any right or power;

(q) All other goods and personal property of Grantor, wherever located, whether tangible or intangible, and whether now owned or hereafter acquired, existing, leased or consigned by or to Grantor; and

(r) To the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for and rents, profits and products of each of the foregoing.

Notwithstanding the foregoing provisions of this Section 2, the grant, assignment and transfer of a security interest as provided herein shall not extend to, and the term “Collateral” shall not include: (a) “intent-to-use” trademarks at all times prior to the first use thereof, whether by the actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise or (b) any Account, Chattel Paper, General Intangible or Promissory Note in which Grantor has any right, title or interest if and to the extent such Account, Chattel Paper, General Intangible or Promissory Note includes a provision containing a restriction on assignment such that the creation of a security interest in the right, title or interest of Grantor therein would be prohibited and would, in and of itself, cause or result in a default thereunder enabling another person party to such Account, Chattel Paper, General Intangible or Promissory Note to enforce any remedy with respect thereto; provided that the foregoing exclusion shall not apply if (i) such prohibition has been waived or such other person has otherwise consented to the creation hereunder of a security interest in such Account, Chattel Paper, General Intangible or Promissory Note or (ii) such prohibition would be rendered ineffective pursuant to Sections 9-406(d), 9-407(a) or 9-408(a) of the UCC, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the Bankruptcy Code) or principles of equity); provided further that immediately upon the ineffectiveness, lapse or termination of any such provision, the Collateral shall include, and Grantor shall be deemed to have granted on the date hereof a security interest in, all its rights, title and interests in and to such Account, Chattel Paper, General Intangible or Promissory Note as if such provision had never been in effect; and provided further that the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect Secured Party’s unconditional continuing security interest in and to all rights, title and interests of Grantor in or to any payment obligations or other rights to receive monies due or to become due under any such Account, Chattel Paper, General Intangible or Promissory Note and in any such monies and other proceeds of such Account, Chattel Paper, General Intangible or Promissory Note.

If Grantor shall at any time acquire a Commercial Tort Claim, Grantor shall immediately notify Secured Party in a writing signed by Grantor of the brief details thereof and grant to Secured Party in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Security Agreement, with such writing to be in form and substance satisfactory to Secured Party.

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3. Rights Of Secured Party; Collection Of Accounts.

(a) Notwithstanding anything contained in this Security Agreement to the contrary, Grantor expressly agrees that it shall remain liable under each of its Contracts, Chattel Paper, Documents, Instruments and Licenses to observe and perform all the conditions and obligations to be observed and performed by it thereunder and that it shall perform all of its duties and obligations thereunder, all in accordance with and pursuant to the terms and provisions of each such Contract, Chattel Paper, Document, Instrument or License. The Secured Parties and the Collateral Agent shall not have any obligation or liability under any such Contract, Chattel Paper, Document, Instrument or License by reason of or arising out of this Security Agreement or the granting to the Secured Parties or the Collateral Agent of a lien therein or the receipt by any Secured Party of any payment relating to any such Contract, Chattel Paper, Document, Instrument or License pursuant hereto, nor shall any Secured Party or the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of Grantor under or pursuant to any such Contract, Chattel Paper, Document, Instrument or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract, Chattel Paper, Document, Instrument or License, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

(b) The Secured Parties authorize Grantor to collect its Accounts, provided that such collection is performed in a prudent and businesslike manner, and the Collateral Agent may, upon the occurrence and during the continuation of any Event of Default and without notice, limit or terminate said authority at any time. At the request of the Collateral Agent, Grantor shall deliver all original and other documents evidencing and relating to the performance of labor or service which created such Accounts, including, without limitation, all original orders, invoices and shipping receipts.

(c) The Collateral Agent may at any time, upon the occurrence and during the continuance of any Event of Default, without notifying Grantor of its intention to do so, notify Account Debtors of Grantor, parties to the Contracts of Grantor, and obligors in respect of Instruments of Grantor and obligors in respect of Chattel Paper of Grantor that the Accounts and the right, title and interest of Grantor in and under such Contracts, Instruments and Chattel Paper have been assigned to the Secured Parties and that payments shall be made directly to the Collateral Agent for distribution to the Secured Parties. Upon the occurrence and during the continuance of any Event of Default, upon the request of the Collateral Agent, Grantor shall so notify such Account Debtors, parties to such Contracts, obligors in respect of such Instruments and obligors in respect of such Chattel Paper. The Collateral Agent may, in its name or in the name of others, communicate with such Account Debtors, parties to such Contracts, obligors in respect of such Instruments and obligors in respect of such Chattel Paper to verify with such parties, to the Collateral Agent’s satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper.

4. Representations And Warranties. Grantor hereby represents and warrants to the Secured Parties that:

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(a) Except for the security interest granted to the Secured Parties and the Collateral Agent under this Security Agreement and Permitted Liens, Grantor is the sole legal and equitable owner of each item of the Collateral in which it purports to grant a security interest hereunder, having good and marketable title thereto, free and clear of any and all Liens.

(b) No effective security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral exists, except such as may have been filed by Grantor in favor of the Secured Parties and the Collateral Agent pursuant to this Security Agreement and except for Permitted Liens.

(c) This Security Agreement creates a legal and valid security interest on and in all of the Collateral in which Grantor now has rights and will create a legal and valid security interest in the Collateral in which Grantor later acquires rights.

(d) Grantor’s taxpayer identification number is set forth in the signature page hereof. If Grantor is a corporation, limited liability company, limited partnership, corporate trust or other registered organization, the State (or if not a state, the other jurisdiction) under whose law such registered organization was organized is set forth on the signature page hereof. Grantor’s chief executive office, principal place of business, and the place where Grantor maintains its records concerning the Collateral are presently located at the address set forth on the signature page hereof. The Collateral consisting of Goods, other than motor vehicles and other mobile goods, is presently located at such address and at such additional addresses set forth on Schedule A attached hereto.

(e) All Collateral of Grantor existing as of the date hereof consisting of Chattel Paper, Instruments or Investment Property comprising certificated securities is set forth on Schedule B attached hereto. All action necessary or desirable to protect and perfect such security interest in each item set forth on Schedule B, including the delivery of all originals thereof, duly endorsed to the Collateral Agent or the Secured Parties, has been duly taken. The security interest of the Collateral Agent and the Secured Parties in the Collateral listed on Schedule B is prior in right and interest to all other Liens (other than Permitted Liens) and is enforceable as such against creditors of and purchasers from Grantor.

(f) The name and address of each depository institution at which Grantor maintains any Deposit Account and the account number and account name of each such Deposit Account is listed on Schedule C attached hereto. The name and address of each securities intermediary or commodity intermediary at which Grantor maintains any Securities Account or Commodity Account and the account number and account name is listed on Schedule C attached hereto. Grantor agrees to amend Schedule C from time to time within five (5) business days after opening any additional Deposit Account, Securities Account or Commodity Account, or closing or changing the account name or number on any existing Deposit Account, Securities Account, or Commodity Account.

(g) None of the Investment Property of Grantor has been transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such transfer may be subject.

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(h) All Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses now owned, held or in which Grantor otherwise has any interest are listed on Schedule D attached hereto. Grantor shall amend Schedule D from time to time in accordance with Section 5.9 below to reflect any additions to or deletions from this list. Except as set forth on Schedule D, none of the Patents, Trademarks or Copyrights has been licensed to any third party.

5. Covenants. Grantor covenants and agrees with the Secured Parties that from and after the date of this Security Agreement and until the Secured Obligations have been performed and paid in full and any commitment of Secured Party to make Loans to Grantor has expired or terminated:

5.1 Disposition of Collateral. Except for Permitted Liens, Grantor shall not in any manner sell, convey, lease, license, transfer or dispose of any equitable, beneficial or legal interest in any of the Collateral except for equipment disposed of in the ordinary course of business for at least the estimated fair market value of such equipment as determined in good faith by the Company’s board of directors.

5.2 Change of Jurisdiction of Organization, Relocation of Business or Collateral. Grantor shall not change its jurisdiction of organization, relocate its chief executive office, principal place of business or its records, or allow the relocation of any Collateral (except as allowed pursuant to Section 5.1 immediately above) from such address(es) provided to the Secured Parties pursuant to Section 4(d) above.

5.3 Limitation on Liens on Collateral. Grantor shall not permit to exist against any of the Collateral any Lien, except for Permitted Liens.

5.4 Limitations on Modifications of Accounts, Etc. Upon the occurrence and during the continuance of any Event of Default, Grantor shall not, without the Collateral Agent’s prior written consent, grant any extension of the time of payment of any of the Accounts, Chattel Paper, Instruments or amounts due under any Contract or Document, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than trade discounts and rebates granted in the ordinary course of Grantor’s business.

5.5 Insurance. Grantor shall maintain insurance policies insuring the Collateral against loss or damage from such risks and in such amounts and forms and with such companies as are customarily maintained by businesses similar to Grantor.

5.6 Taxes, Assessments, Etc. Grantor shall pay promptly when due all property and other taxes, assessments and government charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Goods, except to the extent the validity thereof is being contested in good faith and adequate reserves are being maintained in connection therewith.

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5.7 Maintenance of Records. Grantor shall keep and maintain at its own cost and expense satisfactory and complete records of the Collateral. Grantor shall not create any Chattel Paper without placing a legend on the Chattel Paper acceptable to the Collateral Agent indicating that the Secured Parties has a security interest in the Chattel Paper.

5.8 Registration of Intellectual Property Rights. Grantor shall promptly register or cause to be registered (to the extent not already registered) the most recent version of any Copyright, Copyright License, Patent, Patent License, Trademark or Trademark License, which, individually or in the aggregate, is material to the conduct of Grantor’s business, with the United States Copyright Office or Patent and Trademark Office, as applicable, including, without limitation, in all such cases the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings. Grantor shall register or cause to be registered with the United States Copyright Office or Patent and Trademark Office, as applicable, those additional rights and interests developed or acquired by Grantor after the date of this Security Agreement, including, without limitation, any additions to the rights and interests of Grantor listed on Schedule D hereto, which individually or in the aggregate, are material to the conduct of Grantor’s business.

5.9 Notification Regarding Changes in Intellectual Property.

(a) Grantor shall:

(i) promptly advise the Collateral Agent of any subsequent ownership right or interest of the Grantor in or to any Copyright, Patent, Trademark or License not specified on Schedule D hereto and shall amend or permit the Collateral Agent to amend such Schedule, as necessary, to reflect any addition or deletion to such ownership rights;

(ii) promptly give Collateral written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any; and

(iii) (i) give Collateral Agent not less than 30 days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed, and (ii) prior to the filing of any such applications or registrations, shall execute such documents as Collateral Agent may reasonably request for Collateral Agent to maintain its perfection and priority in such intellectual property rights to be registered by Grantor, and upon the request of Collateral Agent, shall file such documents simultaneously with the filing of any such applications or registrations. Upon filing any such applications or registrations with the United States Copyright Office, Grantor shall promptly provide Collateral Agent with (x) a copy of such applications or registrations, without the exhibits, if any, thereto, (y) evidence of the filing of any documents requested by Collateral Agent to be filed for Collateral Agent to maintain the perfection and priority of its security interest in such intellectual property rights, and (z) the date of such filing.

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(b) Collateral Agent may audit Grantor’s Intellectual Property to confirm compliance with Section 5.8 and this Section 5.9, provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Collateral Agent shall have the right, but not the obligation, to take, at Grantor’s sole expense, any actions that Grantor is required under this Section 5.9 to take but which Grantor fails to take, after [five (5)] days’ notice to Grantor (provided that no such notice shall be required if an Event of Default has occurred and is continuing). Grantor shall reimburse and indemnify Collateral Agent for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under Section 5.8 or this Section 5.9.

5.10 Defense of Intellectual Property. Grantor shall (i) protect, defend and maintain the validity and enforceability of its Copyrights, Patents and Trademarks, (ii) use its commercially reasonable efforts to detect infringements of its Copyrights, Patents and Trademarks and promptly advise the Collateral Agent in writing of material infringements detected and (iii) not allow any of its Copyrights, Patents or Trademarks to be abandoned, forfeited or dedicated to the public without the prior written consent of the Collateral Agent.

5.11 Further Assurances; Pledge of Instruments. At any time and from time to time, upon the written request of the Collateral Agent, and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Collateral Agent may reasonably deem necessary or desirable to obtain the full benefits of this Security Agreement, including, without limitation, (a) using its commercially reasonable efforts to secure all consents and approvals necessary or appropriate for the grant of a security interest to the Secured Parties or the Collateral Agent in any item of Collateral held by Grantor or in which Grantor has any right or interest, (b) executing, delivering and causing to be filed any financing or continuation statements (including “in lieu” continuation statements) under the UCC with respect to the security interests granted hereby, (c) executing and delivering to Grantor an Intellectual Property security agreement for filing or recording with the United States Patent and Trademark Office or the United States Copyright Office and filing or cooperating with the Collateral Agent in filing any forms or other documents (including any such Intellectual Property security agreement) required to be recorded with the United States Patent and Trademark Office, United States Copyright Office, or any actions, filings, recordings or registrations in any foreign jurisdiction or under any international treaty, required to secure or protect the Secured Parties’ and the Collateral Agent’s interest in the Collateral, (d) transferring the Collateral to the Collateral Agent’s possession (if a security interest in such Collateral can be perfected only by possession), (e) executing and delivering and causing the applicable depository institution, securities intermediary, commodity intermediary or issuer or nominated party under a letter of credit to execute and deliver a collateral control agreement with respect to each Deposit Account, Securities Account or Commodity Account or Letter-of-Credit Right in or to which Grantor now or hereafter has any right or interest in order to perfect the security interest created hereunder in favor of the Secured Parties and the Collateral Agent (including giving the Collateral Agent or the Secured Parties “control” over such Collateral within the meaning of the applicable provisions of Article 8 and Article 9 of the UCC), (f) at the Collateral Agent’s reasonable request, executing and delivering or causing to be delivered written notice to insurers of the Secured Parties’ and the Collateral

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Agent’s security interest in, or claim in or under, any policy of insurance (including unearned premiums) and (g) at the Collateral Agent’s reasonable request, using its commercially reasonable efforts to obtain acknowledgments from bailees having possession of any Collateral and waivers of liens from landlords and mortgagees of any location where any of the Collateral may from time to time be stored or located. The Collateral Agent may at any time and from time to time file financing statements, continuation statements and amendments thereto that describe the Collateral as all assets of Grantor or words of similar effect. Any such financing statements, continuation statements or amendments may be signed by the Collateral Agent on behalf of Grantor and may be filed at any time in any jurisdiction. Grantor also hereby authorizes the Collateral Agent to file any such financing or continuation statement without the signature of Grantor. If any amount payable under or in connection with any of the Collateral is or shall become evidenced by any Instrument, such Instrument, other than checks and notes received in the ordinary course of business and any Instrument in the outstanding or stated amount of less than $10,000, shall be duly endorsed in a manner reasonably satisfactory to the Collateral Agent and delivered to the Collateral Agent promptly and in any event within five (5) business days of Grantor’s receipt thereof.

6. Collateral Agent’s Appointment as Attorney-in-Fact; Performance by Collateral Agent.

(a) Subject to Section 6(b) below, Grantor hereby irrevocably constitutes and appoints Collateral Agent, and any officer or agent of Collateral Agent, with full power of substitution, as its true and lawful attorney-in-fact with full, irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time at Collateral Agent’s discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement and, without limiting the generality of the foregoing, hereby gives Collateral Agent the power and right, on behalf of Grantor, without notice to or assent by Grantor to do the following:

(i) to ask, demand, collect, receive and give acquittances and receipts for any and all monies due or to become due under any Collateral and, in the name of Grantor, in its own name or otherwise to take possession of, endorse and collect any checks, drafts, notes, acceptances or other Instruments for the payment of monies due under any Collateral and to file any claim or take or commence any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Collateral Agent for the purpose of collecting any and all such monies due under any Collateral whenever payable;

(ii) to pay or discharge any Liens, including, without limitation, any tax lien, levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Security Agreement and to pay all or any part of the premiums therefor and the costs thereof, which actions shall be for the benefit of Secured Parties and not Grantor;

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(iii) to (1) direct any person liable for any payment under or in respect of any of the Collateral to make payment of any and all monies due or to become due thereunder directly to Collateral Agent or as Collateral Agent shall direct, (2) receive payment of any and all monies, claims and other amounts due or to become due at any time arising out of or in respect of any Collateral, (3) sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts and other Instruments and Documents constituting or relating to the Collateral, (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral, (5) defend any suit, action or proceeding brought against Grantor with respect to any Collateral, (6) settle, compromise or adjust any suit, action or proceeding described above, and in connection therewith, give such discharges or releases as Collateral Agent may deem appropriate, (7) license, or, to the extent permitted by an applicable License, sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Copyright, Patent or Trademark throughout the world for such term or terms, on such conditions and in such manner as Collateral Agent shall in its discretion determine and (8) sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Collateral Agent were the absolute owner thereof for all purposes; and

(iv) to do, at Collateral Agent’s option and Grantor’s expense, at any time, or from time to time, all acts and things which Collateral Agent may reasonably deem necessary to protect, preserve or realize upon the Collateral and Collateral Agent’s security interest therein in order to effect the intent of this Security Agreement, all as fully and effectively as Grantor might do.

(b) Collateral Agent agrees that, except upon the occurrence and during the continuation of an Event of Default, it shall not exercise the power of attorney or any rights granted to Collateral Agent pursuant to this Section 6. Grantor hereby ratifies, to the extent permitted by law, all that said attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted pursuant to this Section 6 is a power coupled with an interest and shall be irrevocable until the Secured Obligations are completely and indefeasibly paid and performed in full and no Secured Party has any commitment to make any Loans to Grantor.

(c) If Grantor fails to perform or comply with any of its agreements contained herein and Collateral Agent, as provided for by the terms of this Security Agreement, shall perform or comply, or otherwise cause performance or compliance, with such agreement, the reasonable expenses, including reasonable attorneys’ fees and costs, of Collateral Agent incurred in connection with such performance or compliance, together with interest thereon at a rate of interest equal to the highest per annum rate of interest charged on the Loans, shall be payable by Grantor to Collateral Agent within five (5) business days of demand and shall constitute Secured Obligations secured hereby.

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7. Rights And Remedies Upon Default. After any Event of Default shall have occurred and while such Event of Default is continuing:

(a) The Collateral Agent, on behalf of the Secured Parties, may exercise in addition to all other rights and remedies granted to it under this Security Agreement or the Other Loan Documents and under any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, Grantor expressly agrees that in any such event the Collateral Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Grantor or any other person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the UCC and other applicable law), may (i) reclaim, take possession, recover, store, maintain, finish, repair, prepare for sale or lease, shop, advertise for sale or lease and sell or lease (in the manner provided herein) the Collateral, and in connection with the liquidation of the Collateral and collection of the accounts receivable pledged as Collateral, use any Trademark, Copyright, or process used or owned by Grantor and (ii) forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker’s board or at any Secured Party’s offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. To the extent Grantor has the right to do so, Grantor authorizes the Collateral Agent, on the terms set forth in this Section 7 to enter the premises where the Collateral is located, to take possession of the Collateral, or any part of it, and to pay, purchase, contact, or compromise any encumbrance, charge, or lien which, in the opinion of the Collateral Agent, appears to be prior or superior to its security interest. The Collateral Agent shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Grantor hereby releases. Grantor further agrees, at the Collateral Agent’s request, to assemble the Collateral and make it available to the Collateral Agent at places which the Collateral Agent shall reasonably select, whether at Grantor’s premises or elsewhere. The Collateral Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale as provided in Section 7(f), below and only after so paying over such net proceeds and after the payment by the Collateral Agent of any other amount required by any provision of law, need the Collateral Agent or any Secured Party account for the surplus, if any, to Grantor. To the maximum extent permitted by applicable law, Grantor waives all claims, damages, and demands against the Collateral Agent and the Secured Parties arising out of the repossession, retention or sale of the Collateral. Grantor agrees that the Collateral Agent need not give more than ten (10) days’ notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Grantor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which the Collateral Agent and the Secured Parties are entitled from Grantor, Grantor also being liable for the attorney costs of any attorneys employed by the Collateral Agent or the Secured Parties to collect such deficiency.

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(b) As to any Collateral constituting certificated securities or uncertificated securities, if, at any time when the Collateral Agent shall determine to exercise its right to sell the whole or any part of such Collateral hereunder, such Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under Securities Act of 1933, as amended (as so amended the “Act”), the Collateral Agent may, in its discretion (subject only to applicable requirements of law), sell such Collateral or part thereof by private sale in such manner and under such circumstances as the Collateral Agent may deem necessary or advisable, but subject to the other requirements of this Section 7(b), and shall not be required to effect such registration or cause the same to be effected. Without limiting the generality of the foregoing, in any such event the Collateral Agent may, in its discretion, (i) in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Collateral or part thereof could be or shall have been filed under the Act; (ii) approach and negotiate with a single possible purchaser to effect such sale; and (iii) restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Collateral or part thereof. In addition to a private sale as provided above in this Section 7(b), if any of such Collateral shall not be freely distributable to the public without registration under the Act at the time of any proposed sale hereunder, then the Collateral Agent shall not be required to effect such registration or cause the same to be effected but may, in its discretion (subject only to applicable requirements of law), require that any sale hereunder (including a sale at auction) be conducted subject to such restrictions as the Collateral Agent may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors’ rights and the Act and all applicable state securities laws.

(c) Grantor agrees that in any sale of any of such Collateral, whether at a foreclosure sale or otherwise, the Collateral Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental authority, and Grantor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Collateral Agent or the Secured Parties be liable nor accountable to Grantor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction.

(d) Grantor also agrees to pay all fees, costs and expenses of the Collateral Agent and the Secured Parties, including, without limitation, attorneys’ fees, incurred in connection with the enforcement of any of its rights and remedies hereunder.

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(e) Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral.

(f) The Proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by the Collateral Agent in the following order of priorities:

First, to the Collateral Agent in an amount sufficient to pay in full the costs of the Collateral Agent in connection with such sale, disposition or other realization, including all fees, costs, expenses, liabilities and advances incurred or made by the Collateral Agent in connection therewith, including, without limitation, attorneys’ fees;

Second, to the Secured Parties Pro Rata in an amount sufficient to pay in full the costs of the Secured Parties in connection with such sale, disposition or other realization, including all fees, costs, expenses, liabilities and advances incurred or made by the Secured Parties in connection therewith, including, without limitation, attorneys’ fees;

Third, to the Secured Parties in amounts proportional to the Pro Rata share of the then unpaid Secured Obligations of each Secured Party; and

Finally, upon payment in full of the Secured Obligations, to Grantor or its representatives, in accordance with the UCC or as a court of competent jurisdiction may direct.

8. Collateral Agent.

8.1 Appointment. The Secured Parties hereby appoint VaxGen, Inc., as the “Collateral Agent” for the Secured Parties under this Security Agreement to serve from the date hereof until the termination of this Security Agreement. Notwithstanding anything to the contrary in this Security Agreement, the Collateral Agent may be removed or replaced with the written consent of the Majority Lenders.

8.2 Powers and Duties of Collateral Agent, Indemnity by Secured Parties.

(a) Each Secured Party hereby irrevocably authorizes the Collateral Agent to take all actions, to make all decisions and to exercise all powers and remedies on its behalf under the provisions of this Security Agreement, including without limitation all such actions, decisions and powers as are reasonably incidental thereto. The Collateral Agent may execute any of its duties hereunder by or through agents, designees or employees.

(b) Neither the Collateral Agent nor any of its partners, directors, members, officers, agents, designees or employees (collectively, “Indemnified Persons”) shall be liable or responsible to any Secured Party for any action taken or omitted to be taken by Collateral Agent or any other such Indemnified Persons hereunder or under any related agreement, instrument or document, nor shall any Indemnified Person be liable or responsible to the Secured Parties for (i) the validity, effectiveness, sufficiency, enforceability or enforcement of the Notes, this Security Agreement or any instrument or document delivered hereunder or relating hereto or

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thereto; (ii) the title of Grantor to any of the Collateral or the freedom of any of the Collateral from any prior or other liens or security interests; (iii) the determination, verification or enforcement of Grantor’s compliance with any of the terms and conditions of this Security Agreement; (iv) the failure by Grantor to deliver any instrument, agreement, financing statement or other document required to be delivered pursuant to the terms hereof; or (v) the receipt, disbursement, waiver, extension or other handling of payments or proceeds made or received with respect to the Collateral, the servicing of the Collateral or the enforcement or the collection of any amounts owing with respect to the Collateral.

(c) Each of the Secured Parties agrees to pay to the Collateral Agent, promptly on demand, its Pro Rata share of all fees, taxes and expenses incurred in connection with the operation and enforcement of this Security Agreement, the Notes or any related agreement or document. Each of the Secured Parties hereby agrees to hold the Collateral Agent harmless, and to indemnify the Indemnified Persons from and against any and all loss, damage, taxes, expense or liability which may be incurred by such Indemnified Persons under this Security Agreement and the transactions contemplated hereby and any related agreement or other instrument or document, as the case may be, unless such liability shall be caused by the willful misconduct or gross negligence of such Indemnified Persons.

8.3 No Reliance. Each Secured Party represents to the Collateral Agent that it has made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and credit worthiness of the Grantor, and made its own decision to enter into this Security Agreement and to extend credit to the Grantor independently based on such documents and information as it has deemed appropriate and without reliance upon the Collateral Agent or any of its partners, directors, members, officers, agents, designees or employees. Each Secured Party agrees that the Collateral Agent shall not have any duty or responsibility to provide any Secured Party with any credit or other information concerning the business, prospects, operations, property, financial and other condition or credit worthiness of the Grantor.

9. Indemnity. Grantor agrees to defend, indemnify and hold harmless the Collateral Agent and the Secured Parties and their officers, employees, and agents against (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Security Agreement and (b) all losses or expenses in any way suffered, incurred, or paid by any Secured Party as a result of or in any way arising out of, following or consequential to transactions between or among the Collateral Agent, any Secured Party and Grantor, whether under this Security Agreement or otherwise (including without limitation, reasonable attorneys fees and expenses), except for losses arising from or out of the gross negligence or willful misconduct of the Collateral Agent or such Secured Party, as applicable.

10. Reinstatement. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or reorganization, should Grantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Grantor’s property and assets, and shall continue to be effective or be reinstated, as the case may be, if at

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any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

11. Miscellaneous.

11.1 Waivers; Amendments. Any amendment of this Security Agreement shall require the written consent of the Grantor, the Collateral Agent and the Majority Lenders. Each Secured Party acknowledges that because this Security Agreement may be amended with the consent of the Majority Lenders, each Secured Party’s rights hereunder may be amended or waived without such Secured Party’s consent.

11.2 Termination of this Security Agreement; Release of Collateral. Subject to Section 10 hereof, this Security Agreement shall terminate upon the payment and performance in full of the Secured Obligations. Upon the termination of this Security Agreement, upon the request and at the sole cost and expense of the Grantor, the Collateral Agent shall execute and deliver UCC financing statement amendments or releases as necessary to evidence such release and shall take such other action as the Grantor may request to cause to be released and reconveyed to the Grantor such Collateral or any part thereof to be released and to evidence or confirm that such Collateral or any part thereof to be released has been released from the Liens of this Security Agreement or any other Loan Document.

11.3 Successor and Assigns. This Security Agreement and all obligations of Grantor hereunder shall be binding upon the successors and assigns of Grantor, and shall, together with the rights and remedies of the Secured Parties hereunder, inure to the benefit of the Secured Parties, any future holder of any of the Secured Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner affect the lien granted to the Secured Parties hereunder.

11.4 Governing Law. In all respects, including all matters of construction, validity and performance, this Security Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, except to the extent that the UCC provides for the application of the law of a different jurisdiction.

[Signature pages follow.]

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In Witness Whereof, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer on the date first set forth above.

diaDexus, Inc., a Delaware corporation, as Grantor
By:	/s/ David Foster
	Printed Name:	DAVID FOSTER
Address: 343 Oyster Point Blvd., South San Francisco, CA 94080 VaxGen, Inc., a Delaware corporation, as Collateral Agent and Secured Party
By:	/s/ James P. Panek
	Printed Name:	JAMES PANEK
	Title:	PRESIDENT

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In Witness Whereof, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer on the date first set forth above.

Baker Brothers, as Secured Party
By:
	Printed Name:
	Title:

FBB Associates	667, L.P.
By: Felix Baker, Ph.D, General Partner	By: Baker Biotech Capital, L.P., (general partner)
	By: Baker Biotech Capital (GP), LLC, (general partner)
/s/ Felix Baker	By: Felix Baker, Ph.D, Managing Member
	/s/ Felix Baker
Baker Bros. Investments, L.P.	Baker Brothers Life Sciences, L.P.
By: Baker Bros. Capital, L.P., (general partner)	By: Baker Brothers Life Sciences Capital, L.P., (general partner)
By: Baker Bros. Capital (GP), LLC, (general partner)	By: Baker Brothers Life Sciences Capital (GP), LLC, (general partner)
By: Felix Baker, Ph.D, Managing Member	By: Felix Baker, Ph.D, Managing Member
/s/ Felix Baker	/s/ Felix Baker
Baker Bros. Investments II, L.P.	14159, L.P.
By: Baker Bros. Capital, L.P., (general partner)	By: 14159 Capital, L.P., (general partner)
By: Baker Bros. Capital (GP), LLC, (general partner)	By: 14159 Capital (GP), LLC, (general partner)
By: Felix Baker, Ph.D, Managing Member	By: Felix Baker, Ph.D, Managing Member
/s/ Felix Baker	/s/ Felix Baker

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In Witness Whereof, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer on the date first set forth above.

Burrill Life Sciences Capital Fund, LP, as Secured Party
By: Burrill & Company (Life Sciences GP), LLC
Its: General Manager
By:	/s/ G. Steven Burrill Printed Name: G. Steven Burrill
	Title: Managing Member

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In Witness Whereof, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer on the date first set forth above.

Burrill Indiana Life Sciences Capital Fund, LP, as Secured Party
By: Burrill & Company (Indiana GP), LLC
Its: General Manager
By:	/s/ G. Steven Burrill Printed Name: G. Steven Burrill
	Title: Managing Member

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In Witness Whereof, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer on the date first set forth above.

BAVP, LP, as Secured Party
By: Scale Venture Management I, LLC
Its: General Partner
By:	/s/ Louis Bock Printed Name: Louis Bock
	Title: Managing Director

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EX-10.3

Exhibit 10.3

AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
FOR JAMES P. PANEK

This Amended and Restated Executive Employment Agreement (the “Agreement”) is entered into by and between James P. Panek (hereinafter “Executive”) and VaxGen, Inc. (hereinafter “VaxGen” or the “Company”), effective as of May 27, 2010 (the “Effective Date”). This Agreement supersedes in its entirety all prior employment agreements between Executive and VaxGen, whether signed or unsigned, including the Amended And Restated Executive Employment Agreement Dated April 20, 2010 (the “Prior Agreement”). In consideration of the mutual promises made herein, VaxGen and Executive agree as follows:

1. Employment By The Company; Board Position. VaxGen hereby agrees to continue to employ Executive in the position of President, and Executive hereby accepts continued employment with VaxGen in the position of President, upon the terms and conditions set forth in this Agreement. This Agreement will not effect Executive’s position as a Director on the Company’s Board of Directors (the “Board”).

2. Work Responsibilities and Work Schedule.

(a) Title and Responsibilities. Executive shall continue to perform the functions and responsibilities of President and Principle Financial Officer as may be provided for that position in the Company’s by-laws and articles of incorporation, customarily associated with that position, and as may be assigned from time to time by the Board. Executive will continue to report to the Board. Executive’s primary office location will be the Company’s corporate headquarters.

(b) Work Schedule. As of the Effective Date, Executive’s new work schedule shall be 80% of full-time (a regular work schedule of at least 32 hours a week). The parties anticipate that Executive will be able to perform the duties of President within the above specified time commitments. However, Executive understands that because his position is classified as exempt, on occasion he may be required to work additional hours as required by his job duties and Executive will not be eligible for additional compensation or overtime.

(c) Discretion to Modify. Executive’s position, title, job description, reporting relationship, office location, work schedule, duties and responsibilities may be modified from time to time in the sole discretion of VaxGen.

3. Compensation And Benefits.

(a) Base Salary. Effective as of the Effective Date, VaxGen will pay Executive a base salary at the annualized rate of two hundred and sixty thousand dollars ($260,000), retroactive to February 1, 2010, less standard payroll deductions and withholdings and payable in accordance with the Company’s regular payroll schedule. Such compensation is subject to review and potential change annually in the Board’s discretion.

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(b) Bonus Eligibility. The Company will pay Executive a one-time cash bonus equal to a maximum of 20% of Executive’s base salary ($52,000), less standard payroll deductions and withholdings, on the earlier of the diaDexus Merger (as defined below) or a Change of Control (as defined below).

(i) “diaDexus Merger” means pursuant to the Agreement and Plan of Merger and Reorganization among the Company, Violet Acquisition Corporation, a Delaware corporation, Violet Acquisition LLC, a Delaware limited liability company), diaDexus, Inc., a Delaware corporation, and a named representative of diaDexus as the diaDexus Stockholders’ Agent dated May [28], 2010 (the “diaDexus Merger Agreement”) the Closing (as defined in the diaDexus Merger Agreement”) of the Transaction (as defined in the diaDexus Merger Agreement) on the terms described in the diaDexus Merger Agreement. If the diaDexus Merger Agreement is amended prior to the Closing, this Section 3(b)(i) shall be deemed to include any such amended agreement.

(ii) “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(1) Any natural person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (“Exchange Act Person”) becomes the owner, directly or indirectly, of securities of the Company representing more than forty percent (40%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (i) on account of the acquisition of securities of the Company by any institutional investor, any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transaction or series of related transactions that are primarily a private financing transaction for the Company or (ii) solely because the level of ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;

(2) There is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company if, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not own, directly or indirectly, either (i) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (ii) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction;

2.

(3) The stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur; or

(4) There is consummated a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries.

The term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

(c) Stock Option Grant. This Agreement does not alter or affect any stock option grants provided to Executive by the Company as of the Effective Date, except as specifically provided in Section 10(b)(iii) hereof. Executive acknowledges that there are no commitments on behalf of the Company to grant to Executive any additional stock options. The Board will consider, on an annual basis and at the Board’s sole discretion, whether to grant additional stock options to Executive.

(d) Benefits. Executive shall be entitled to participate in the Company’s employee benefit plans which may be in effect from time to time and provided by the Company to its senior officers generally, including paid holidays, leaves of absence, health insurance, dental insurance, life insurance, and other benefits, if any, in accordance with and subject to the eligibility requirements of such employee benefit plans and other applicable policies and procedures. Executive’s rights under such employee benefit plans, or the rights of Executive’s dependents, shall be governed solely by the terms of such plans and any applicable policies and procedures. As of the Effective Date, Executive shall accrue Paid Time Off (“PTO”) at a rate equal to 80% of the full-time rate that otherwise would apply if he was working a full-time schedule. The dollar value of the accrued PTO will be based on Executive’s previous full time annual base salary of $390,000.00 (or $187.50 per hour); for example, if Executive has 50 hours of accrued and unused PTO remaining upon termination of his employment, Executive will receive a payment of $9,375.00 (subject to payroll deductions and withholdings) for his accrued and unused PTO. The Company’s employee benefit plans, and policies and procedures related thereto, are subject to termination, modification or limitation at any time at the Company’s sole discretion.

(e) Business Expenses. VaxGen shall reimburse Executive for all reasonable business expenses, including expenses incurred for travel on VaxGen business, in accordance with the policies and procedures of VaxGen, as may be adopted or amended from time to time at VaxGen’s sole discretion. To be eligible for reimbursement, Executive must submit business expense reimbursement requests to VaxGen on a monthly basis, which includes supporting documentation (including receipts) reasonably satisfactory to VaxGen.

(f) Total Compensation. Executive agrees that the compensation stated above constitutes the full and exclusive monetary consideration and compensation for all services provided by Executive to the Company, and for all promises and obligations under this Agreement.

3.

4. VaxGen Employment Policies. Executive’s employment relationship will be governed by the general employment policies and practices of the Company, and Executive agrees to abide by all such written policies, practices and procedures, as they may from time to time be adopted or modified by VaxGen at its sole discretion. Executive also agrees to review and abide by the policies in VaxGen’s Employee Handbook (as they may be modified by the Company from time to time) and to acknowledge in writing that Executive has read and will abide by the Employee Handbook.

5. Protection of Company Information. As a condition of his continued employment, Executive agrees to sign, contemporaneously with this Agreement, and to abide by the Employee’s Proprietary Information and Inventions Agreement (the “Proprietary Information Agreement”), a copy of which is attached hereto as Exhibit A. The Proprietary Information Agreement shall be deemed effective as of the commencement of Executive’s employment with the Company.

6. Indemnity Agreement. This Agreement does not alter or affect the Indemnity Agreement previously entered into between Executive and the Company, a copy of which is attached hereto as Exhibit B.

7. Outside Activities.

(a) Non-Company Activities. Except for any outside activities consented to in writing by the Board, which consent will not be unreasonably withheld, Executive will not during the term of this Agreement undertake or engage in any other employment, occupation or business enterprise, other than ones in which Executive is a passive investor. Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of Executive’s duties hereunder.

(b) No Adverse Interests. During Executive’s employment, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by Executive to be adverse or antagonistic to the Company’s interests, business or prospects, financial or otherwise, except as permitted by Section 7(c).

(c) Noncompetition. During the term of Executive’s employment by the Company, except on behalf of the Company, Executive will not directly or indirectly, whether as an officer, director, stockholder, partner, proprietor, associate, representative, consultant, employee, or in any capacity whatsoever, engage in, become financially interested in, be employed by or have any business connection with any person, corporation, firm, partnership or other entity whatsoever which competes directly with the Company, anywhere throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that Executive may own, as a passive investor, securities of any competing public corporation, so long as Executive’s direct holdings in any one such corporation shall not in the aggregate constitute more than one percent (1%) of the voting stock of such corporation and any ownership interest in a competitor is disclosed in writing to the Board.

4.

8. Former Employment and Third Party Agreements. Executive represents and warrants that Executive’s past and continued employment by the Company has not conflicted and will not conflict with and will not be constrained by any prior employment or consulting agreement, noncompetition agreement, proprietary information agreement or other relationship with any third party. Executive further represents and warrants that Executive does not possess or control confidential information arising out of prior employment, consulting, or other third party relationships, which Executive will utilize in connection with Executive’s employment by the Company, except as expressly authorized by that third party. Executive further warrants that by entering into this Agreement with VaxGen, Executive is not violating any of the terms, agreements or covenants of any agreement with any third party, including but not limited to any previous employer, and that Executive is not under any contractual obligation that would restrict Executive’s activities on behalf of the Company.

9. Noninterference.

While employed by the Company and for a period of one (1) year immediately following the termination of Executive’s employment, Executive agrees that Executive will not, without the express consent of the Board, or in the course and scope of performing Executive’s duties for the Company, interfere with the business of the Company by, either directly or indirectly:

(a) soliciting, recruiting, inducing, encouraging, or otherwise causing any employee of VaxGen to terminate his or her employment in order to become an employee, consultant or independent contractor to or for any other person or entity, or attempting to do so;

(b) disclosing to any person or entity the names or addresses of, or any information pertaining to, any current or former employees of VaxGen, to the extent such names, addresses or other information are confidential or private; or

(c) using Proprietary Information (as defined in the Proprietary Information Agreement) to call on, solicit or take away any clients or customers of VaxGen or any other persons, entities, or corporations with which VaxGen has had or contemplated any business transaction or relationship during Executive’s employment with VaxGen (such Proprietary Information to include, but not be limited to, investments, licenses, joint ventures, and agreements for development), or attempting to do so.

10. Termination Of Employment.

(a) At-Will Employment Relationship. Executive’s employment relationship is at-will. This means that Executive’s employment and/or this Agreement may be terminated with or without Cause (as defined in Section 10(d)(ii)), and with or without advance notice, at any time by either Executive or by VaxGen. Nothing in this document shall limit the right to terminate employment at will or to terminate this Agreement at any time. This at-will employment relationship can only be changed in a written agreement approved by the Board and signed by Executive and the Chairman of the Board.

5.

(b) Severance Benefits Eligibility. In the event that Executive’s employment is terminated without Cause by the Company, or if Executive resigns for Good Reason pursuant to Section 10(c) hereof and such termination or resignation, as the case may be, is not due either to Executive’s death or disability and further constitutes a “separation from service” under Treasury Regulations Section 1.409A-1(h), Executive shall be eligible to receive the following as Executive’s sole severance benefits (collectively, the “Severance Benefits”): (i) a lump sum payment of $193,050, less standard withholdings and deductions, and payable, subject to the provisions of this Section 10, within ten (10) business days after the later of (x) the effective date of such separation from service, or (y) the date on which the Separation Date Release (as defined below) becomes effective (the “Severance Payment”) (such later date, the “Payment Date”); (ii) health insurance continuation coverage (pursuant to the federal COBRA law or applicable state law (collectively, “COBRA”)) at the Company’s expense (including the cost of coverage for Executive’s covered dependents, if any) for the shortest of (A) 12 months (the “Twelve-Month Period”), (B) until Executive is eligible for coverage under another employer’s health insurance plan, or (C) until Executive is no longer eligible for coverage under COBRA, provided that, if within the Twelve-Month Period Executive is no longer eligible for coverage under COBRA, and also is not eligible for coverage under another employer’s plan, the Company will reimburse Executive’s monthly premiums for individual health insurance coverage (including the cost of coverage for his dependents previously covered under COBRA, if any), up to a maximum reimbursement amount of $6,000 per month and subject to Executive timely submission of documentation of his monthly premium amounts, through the earlier of the end of the Twelve-Month Period or until Executive is eligible for coverage under another employer’s health insurance plan; (iii) all stock option grants or other equity awards then held by Executive shall be subject to accelerated vesting such that all unvested shares will become fully vested and exercisable effective as of the date of the separation from service (the “Accelerated Vesting”); and (iv) payment of all accrued salary and all accrued and unused vacation, as well as accrued benefits under any written ERISA-qualified benefit plan (e.g., 401(k) plan), or written insurance policy, to which Executive has a vested right as of the termination date. As a condition of and prior to the receipt of all or any of the Severance Payment or Accelerated Vesting, Executive shall provide the Company with an effective general release of all known and unknown claims in the form attached hereto as Exhibit C (the “Separation Date Release”) not later than 60 days after the termination date.

(c) Good Reason Resignation. Executive may resign for Good Reason due to the occurrence of any of the following without Executive’s consent: (i) material breach by the Company of any of the terms and provisions of this Agreement resulting in material harm to Executive; (ii) a material reduction of Executive’s authority, duties or responsibilities; (iii) relocation of Executive’s place of work that would increase Executive’s one-way commuting distance by more than fifty (50) miles over Executive’s commute immediately prior thereto; or (iv) a material reduction by VaxGen of Executive’s then-current base salary (except where such reduction is imposed uniformly on other senior executives of the Company). Notwithstanding the foregoing, a resignation of employment by Executive shall not constitute a resignation for Good Reason based on the conduct described above unless (A) within thirty (30) days following the occurrence of such conduct, Executive provides VaxGen’s Chief Executive Officer (or the Board in the case Executive is then serving as the Chief Executive Officer or there is no one serving as the Chief Executive Officer) with written notice specifying (x) the particulars of such conduct and (y) that Executive deems such conduct to be described in (i), (ii), (iii) or (iv) of this Section 10(c), (B) such conduct has not been cured within thirty (30) days following receipt by VaxGen’s Chief Executive Officer (or the Board in the case of Executive is

6.

then serving as the Chief Executive Officer or there is no one serving as the Chief Executive Officer) of such notice and (C) the resignation occurs within one hundred and twenty (120) days of the occurrence of such conduct. Executive’s resignation shall be effective on the date specified in the notice given hereunder, which date shall not be earlier than the earliest date permitted by the preceding sentence, nor later than the latest date permitted by the preceding sentence (unless such earlier or later resignation date is permitted by the Company).

(d) Termination for Cause.

(i) No Severance. In the event Executive’s employment is terminated at any time for Cause, Executive will be entitled to payment of all accrued salary and accrued and unused vacation, but Executive will not be entitled to the Severance Benefits, pay in lieu of notice, or any other such compensation unless required by law.

(ii) Cause Definition. For the purposes of this Agreement, “Cause” for termination shall mean any of the following: (A) fraud or conviction (including a no contest or guilty plea) of illegal criminal acts committed by Executive; (B) Executive’s material breach of any material provision of any written agreement with the Company, including but not limited to this Agreement or the Proprietary Information Agreement; (C) Executive’s material failure to perform Executive’s job duties as determined by the Board in its reasonable judgment, and after notice of such failure has been given to Executive by the Board and Executive has had a fifteen (15) business-day period within which to cure such failure; or (D) a material violation of any material VaxGen employment policy, including but not limited to the policies set forth in VaxGen’s Employee Handbook.

(e) Voluntary or Mutual Termination. In the event Executive terminates Executive’s employment other than for Good Reason, or in the event that Executive’s employment terminates at the parties’ mutual agreement, Executive will be entitled to payment of all accrued salary and accrued and unused vacation, but Executive will not be entitled to Severance Benefits, pay in lieu of notice, or any other such compensation unless required by law.

(f) Termination Due to Death or Disability. In the event of Executive’s death, Executive’s employment will terminate on the date thereof, and Executive and Executive’s heirs or estate will be entitled to payment of all accrued salary and accrued and unused vacation, but Executive will not be entitled to Severance Benefits, pay in lieu of notice or any other such compensation unless required by law. In addition, if Executive’s employment terminates due to his disability, Executive will be entitled to payment of all accrued salary and accrued and unused vacation, but Executive will not be entitled to Severance Benefits, pay in lieu of notice or any other such compensation unless required by law.

(g) Excise Tax.

(i) Anything in this Agreement to the contrary notwithstanding, if any payment or benefit that Executive would receive pursuant to this Agreement or otherwise from the Company (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise

7.

Tax”), then such Payment shall be equal to the Reduced Amount (defined below). The “Reduced Amount” shall be either (i) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax, or (ii) the full Payment, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax, results in Executive’s receipt, on an after-tax basis, of the greatest amount of the Payment to Executive. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of option grants; cancellation of accelerated vesting of other equity awards; and reduction of employee benefits. In the event that acceleration of vesting of equity awards is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant.

(ii) The accounting firm engaged by the Company for general audit purposes as of the day prior to the date on which the event that triggers the Payment occurs (the “Payment Event”) shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Payment Event, the Board shall have the discretion to appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.

(iii) The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Payment is triggered (if requested at that time by the Company or Executive) or such other time as reasonably requested by the Company or Executive. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. The Company shall be entitled to rely upon the accounting firm’s determinations, which shall be final and binding.

(h) Deferred Compensation. It is intended that all of the payments and benefits provided under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under of Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and that this Agreement will be construed to the greatest extent possible as consistent with those provisions. If the Company (or, if applicable, the successor entity thereto) determines that any of the severance payments or benefits provided to Executive under this Agreement or otherwise (the “Severance Payments”) constitute “deferred compensation” under Code Section 409A and Executive is a “specified employee” (as such term is defined in Section 409A(a)(2)(B)(i)) of the Company or any successor entity thereto upon his separation from service, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A as a result of the payment of compensation upon his “separation from service”, the timing of the Severance Payments shall be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after the date of the separation from service or (ii) the date of Executive’s death (such earlier date, the “Delayed Initial Payment Date”), the Company (or the successor entity

8.

thereto, as applicable) shall (A) pay to Executive a lump sum amount equal to the sum of the Severance Payments that Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the Severance Payments had not been delayed pursuant to this paragraph and (B) commence paying the balance of the Severance Payments in accordance with the applicable payment schedules set forth above. All payments hereunder are intended to constitute separate payments for purposes of Treasury Regulations Section 1.409A-2(b)(2).

(i) Board Membership. In the event Executive’s employment with VaxGen is terminated for any reason, whether at the Company’s or Executive’s request, and Executive then is a member of the Board, Executive agrees, unless otherwise requested by the Board, to resign Executive’s membership on the Board effective as of the date of the termination of Executive’s employment.

11. General Provisions.

(a) Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of California without regard to conflict of laws principles that would otherwise apply the law of another jurisdiction. Any ambiguity in this Agreement shall not be construed against either party as the drafter.

(b) Complete Agreement. This Agreement, including its exhibits, constitutes the complete, final and exclusive embodiment of the entire agreement and understanding of the parties with regard to the subject matter hereof. It is entered into without reliance on any promise, warranty or representation other than those expressly contained herein, and it supersedes and replaces any and all prior or contemporaneous agreements, promises or representations between VaxGen and Executive, whether oral, written or implied, including but not limited to all previous employment agreements between the parties, whether signed or unsigned, and any amendments thereof. The terms of this Agreement and any changes in Executive’s employment terms (other than those employment terms expressly reserved to the Company’s or Board’s discretion in this Agreement), require a written amendment to the Agreement which is approved by the Board and signed by Executive and a duly authorized officer of the Company pursuant to authority expressly granted by the Board.

(c) Waiver. Any waiver of a breach of this Agreement shall be in writing and shall not be deemed to be a waiver of any successive breach.

(d) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, illegal or unenforceable provision will be reformed, construed and enforced in such jurisdiction so as to render it valid, legal, and enforceable consistent with the general intent of the parties insofar as possible.

9.

(e) Voluntary Agreement. Executive and VaxGen represent and warrant that each has reviewed all aspects of this Agreement, has carefully read and fully understands all provisions of this Agreement, and is voluntarily entering into this Agreement. Each party represents and agrees that such party has had the opportunity to review any and all aspects of this Agreement with the legal and tax advisors of such party’s choice before executing this Agreement, and each party has had a full opportunity to negotiate the terms of this Agreement prior to signing this Agreement.

(f) Headings. The headings and captions of the various paragraphs of this Agreement are placed herein for the convenience of the parties and the reader, do not constitute a substantive term or terms of this Agreement, and shall not be considered in the interpretation or application of this Agreement.

(g) Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. Signatures transmitted via facsimile or PDF shall be deemed the equivalent of originals.

(h) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and shall be enforceable by and against Executive and the Company, and their respective successors, assigns, heirs, executors and administrators; except that it is agreed that Executive may not assign any of Executive’s duties hereunder; and Executive may not assign any of Executive’s rights hereunder without the written consent of the Company, which shall not be unreasonably withheld.

(i) Notices. Any notices provided hereunder must be in writing and shall be deemed effective upon, as applicable, the date of personal delivery (including personal delivery by facsimile transmission), the date of delivery by express delivery service (e.g. Federal Express), or the third day after mailing by certified or registered mail, return receipt requested, to the attention of the Chairman of the Board sent to the Company’s corporate headquarters, and to Executive at Executive’s address as listed on the Company’s payroll, or as otherwise provided in writing by Executive to the Board.

(j) Alternative Dispute Resolution. To ensure rapid and economical resolution of any disputes which may arise concerning the relationship between Executive and the Company, the parties hereby agree that any and all claims, disputes or controversies of any nature whatsoever arising out of, or relating to, this Agreement and its enforcement, application, interpretation, performance, or execution, Executive’s employment with the Company, or the termination of such employment, shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Francisco, California conducted before a single arbitrator by JAMS, Inc. (“JAMS”) or its successor, under the then applicable JAMS arbitration rules. The parties each acknowledge that by agreeing to this arbitration procedure, they waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding. Executive will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (i) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (ii) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which

10.

the award is based. The Company shall bear all JAMS’ arbitration fees and administrative costs. Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any arbitration.

(k) Right To Work. As required by law, this Agreement is subject to satisfactory proof of Executive’s right to work in the United States.

11.

In Witness Whereof, the parties have executed this Agreement on the dates specified below.

VaxGen, Inc.
By:	/s/ Lori Rafield
	Printed Name	Lori Rafield
	Title:	Member of the Board of Directors
	Date:	May 27, 2010

Accepted and agreed:
 

/s/ James P. Panek  

James P. Panek 

May 27, 2010

Date 

Exhibit A — Employee’s Proprietary Information and Inventions Agreement

Exhibit B — Indemnity Agreement

Exhibit C — Form of Separation Date Release

12.

Exhibit A

EMPLOYEE’S PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

EMPLOYEE’S PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT

I acknowledge that during the past period of my employment with VaxGen, Inc., a Delaware corporation, together with its subsidiaries, affiliates, successors or assigns (hereinafter collectively called the “Company”), and during my current and future employment with the Company, I had, and will continue to have, access to and obtained, and will continue to obtain and develop, proprietary information and trade secrets of the Company. In consideration of my past, current and future employment with the Company and the compensation I have received, and will receive, in connection therewith, and as previously agreed by me, I hereby enter into this Employee’s Proprietary Information and Inventions Agreement (“Agreement”), which I agree is effective retroactive to my first day of employment with the Company. I hereby agree that this Agreement applies during my entire period of employment with the Company, and as set forth below:

1. Proprietary Information. The Company possesses and will continue to possess confidential and proprietary information (“Proprietary Information”) that has been created, discovered, developed, or otherwise become known to the Company (including, without limitation, information created, discovered, developed, or made known by me during the period of or arising out of my employment by the Company) and/or in which property rights have been assigned or otherwise conveyed to the Company, which information has commercial value in the business in which the Company is engaged. By way of illustration, but not limitation, such Proprietary Information includes (i) trade secrets, processes, formulas, data, know-how, inventions, improvements, discoveries, developments and designs, pre-clinical and clinical data, results, reports, experiments, assays and related media and components, formulations and procedures for producing assays and related components, and all derivatives and improvements of the foregoing (collectively, “Inventions”); (ii) biological products and biological material and information, both tangible and intangible, including, but not limited to, vaccines, antibodies, proteins, tissue samples, cell lines, nucleic acids; (iii) marketing plans, research plans, strategies, forecasts, financial data, budgets, licenses, computer databases, standard operating procedures, personnel information, and (iv) other confidential information, proprietary data or material applicable to the business of the Company or its suppliers, customers (including customer lists), affiliates or collaborators (including but not limited to Celltrion, Inc., a Korean company, and that certain joint venture established among Company, Celltrion, Inc., and others).

2. Genentech’s Proprietary Information. By virtue of a License Agreement between the Company and Genentech, Inc. (“Genentech”), a Services Agreement between the Company and Genentech, and other agreement(s) that may be entered into between the Company and Genentech (collectively, the “Genentech Agreements”), the Company and its employees have been and will continue to be afforded substantial access to proprietary technology and information of Genentech (collectively, “Genentech Proprietary Information”). By way of illustration, but not limitation, Genentech Proprietary Information includes (i) trade secrets, processes, formulas, data, ideas, know-how, inventions, improvements, discoveries, developments and designs, pre-clinical and clinical data, results, reports, experiments, assays and related media and components,

	formulations and procedures for producing assays and related components, and all derivatives of the foregoing; (ii) biological products and biological material and information, both tangible and intangible, including, but not limited to, vaccines, antibodies, proteins, tissue samples, cell lines, nucleic acids; (iii) marketing plans, research plans, strategies, forecasts, financial data, budgets, licenses, computer databases, standard operating procedures, and (iv) other business or proprietary information or material applicable to the business of Genentech or its affiliates, suppliers, customers (including customer lists), or collaborators.
	I acknowledge and agree that at all times during my employment with the Company and thereafter, as between me and Genentech: (i) all Genentech Proprietary Information shall be the sole property of Genentech and its assigns, and Genentech and its assigns shall be the sole owner of all patents and other rights in connection therewith; (ii) I do not have and shall not acquire any rights in any Genentech Proprietary Information; and (iii) I shall hold in strictest confidence and will not disclose or use Genentech Proprietary Information unless authorized to do so by an officer of the Company in writing. I understand and acknowledge that Genentech is affording the Company and its employees substantial access to Genentech Proprietary Information in connection with the Genentech Agreements in reliance on the provisions set forth herein, and that breach of such provisions could result in immediate material, irreparable harm to Genentech. As such, I acknowledge and agree that Genentech is a third party beneficiary of this Agreement with the right to directly enforce its rights hereunder, including without limitation, the rights granted to Company under Paragraph 6.
3.	Obligations to Prior Employers or Other Parties. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment for the Company and I have not entered into, nor will I enter into, any agreement (written or oral) in conflict herewith. I will not bring with me to the Company or use in the performance of my responsibilities to the Company materials, information or documents of any third party (including but not limited to former employers) unless I have obtained written authorization from such party for their possession and use and have provided Company with written copies of such authorizations concurrent to entering into this Agreement.
4.	No Unauthorized Use or Disclosure. I agree and acknowledge that at all times during my employment with the Company, and thereafter: (i) all Proprietary Information shall be the sole property of the Company and its assigns, and the Company and its assigns shall be the sole owner of all patents and other rights in connection therewith, subject to the terms of the Genentech Agreements; (ii) I do not have and shall not acquire any rights in any Proprietary Information; and (ii) I shall hold in strictest confidence and will not disclose or use any Proprietary Information unless and solely to the extent authorized to do so in writing by an officer of the Company. I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with Company’s agreement with such third party.

5.	Works for Hire. Original works of authorship made by me (alone or with others) within the scope of my employment and which are protected by copyright are “works made for hire,” pursuant to United States Copyright Act Section 101. I acknowledge and agree that this Paragraph applies only to works made within the scope of my employment with the Company, not to works made within the scope of any independent contractor relationship with the Company.
6.	Assignment. Subject to Paragraph 7 below, I agree that, as between me and the Company, all Inventions and all trade secrets, patent, copyright and intellectual property rights worldwide (“Proprietary Rights”) shall be the sole property of the Company and its assigns, and the Company and its assigns shall be the sole owner of all patents and other rights in connection herewith. I hereby assign to the Company all right, title, and interest I may have or acquire in and to all Inventions and Proprietary Rights which are made or conceived or reduced to practice by me (either alone or with others) during my employment with the Company. I further agree as to all Inventions and Proprietary Rights that I will assist the Company and Genentech in every proper way (but at the Company’s expense) to obtain and from time to time enforce Proprietary Rights with respect to said Inventions in any and all countries. To that end I will execute all necessary documents (including assignment of such Proprietary Rights to the Company) and perform such acts as the Company or Genentech may desire in association with such Proprietary Rights. My obligations to assist the Company and Genentech with respect to such Proprietary Rights shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate after such termination for time actually spent by me at the Company’s or Genentech’s request on such assistance. I also agree to assign to the United States government all my right, title, and interest in and to any and all Inventions whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies.
	If the Company, for any reason, is unable to secure my signature on any document needed in connection with the preceding paragraph, I hereby irrevocably designate and appoint the Company and its officers as my agent and attorney in fact to act on my behalf to execute such documents and to take all other lawfully permitted acts to accomplish the purposes of the preceding paragraph.
7.	Labor Code Section 2870. I understand that the Company’s right with regard to certain things invented or co-invented by me are subject to Sections 2870 of the California Labor Code, under which I have no obligation to assign rights in an invention for which no equipment, supplies, facilities or trade secret information of the Company was used and which was developed entirely on my own time, and (a) which does not relate (1) to the business of the Company or (2) to the Company’s actual or demonstrably anticipated research of development, or (b) which does not result from any work performed by me for the Company.
8.	Keeping Company Informed. While I am employed by the Company, and for a period of six months after the termination of my employment with the Company, I will promptly disclose to the Company, or any persons designated by it, all Inventions made or conceived or reduced to practice or learned by me, either alone or jointly with others. In connection with such disclosures, I will advise the Company in writing of any Inventions that I believe are governed by Section 2870 of the California Labor Code, and will provide all evidence necessary to support this belief. Furthermore, I will promptly disclose to the Company all patent applications filed by me or on my behalf for the twelve-month period following the termination of my employment with the Company.

9.	Record Keeping. During the term of my employment with Company I will maintain and provide to the Company adequate and current original written records of all Inventions and original works of authorship developed or made by me (solely or jointly with others) during the term of this Agreement, which such records will be and remain the sole property of Company and its assigns, and will be in the form of notes, sketches, drawings and other formats that may be specified by Company. Such record keeping will be complete, current, accurate, organized and legible, and will be performed in a manner acceptable for the collection of data for submission to, or review by, the FDA.
10.	Prior Inventions. As a matter of record I attach hereto as Exhibit A a complete list of all inventions or improvements relevant to the subject matter of my employment by the Company which have been made, conceived or reduced to practice by me alone or jointly with others prior to my employment by the Company which I desire to remove from the operation of this Agreement; and I covenant that such list is complete. If no such list is attached to this Agreement, I represent that I have no such inventions or improvements at the time of signing this Agreement. Company will not, by virtue of such listing, obtain any right, title or interest to the inventions listed on Exhibit A. In the event that I incorporate any such inventions into any work developed by or on behalf of Company, Company is hereby granted a nonexclusive, royalty-free, irrevocable, perpetual, worldwide, transferable and sublicensable license to make, have made, modify, use and sell such inventions as part of or in connection with such work. Nothing in Paragraph will limit Company’s right to develop information, inventions and products within the areas and type of such inventions listed on Exhibit A.
11.	No Conflicting Obligations; No Solicitation. I agree that during the period of my employment by the Company, I will not, without the Company’s express written consent, engage in any employment or activity other than for the Company in any business in which the Company is now or may hereafter become engaged. I agree that, during the period of my employment and for a period of one year following termination of my employment with Company for any reason, I will not directly or indirectly (a) solicit or in any manner encourage employees or consultants of Company to end their relationships with Company; or (b) other than on behalf of Company, solicit the business of any customer, business affiliate or collaborator of Company with whom I became acquainted during the course of my employment.
12.	Return of Company Property. Upon demand by the Company or in any event upon any termination of my employment by me or by the Company, I will deliver to the Company all documents and data of any nature (and all copies thereof) pertaining to my work with the Company, including without limitation Proprietary Information, Genentech Proprietary Information, and Inventions, and I will not take with me any such materials. In addition, I agree that all Company physical property, including but not limited to, computers, disks or other storage media, desks, work areas, and filing cabinets is and will remain the property of the Company and is subject to inspection by the Company, with or without notice, at any time.

13.	Successors and Assigns. This Agreement shall be binding upon my heirs, executors, assigns, administrators and me and shall inure to the benefit of the Company, its successors and assigns.
14.	Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any other successor or assignee.
15.	Employment. I acknowledge that nothing in this Agreement confers any employment right that alters my status as an “at-will” employee and that I, or the Company, may terminate my employment at any time, for any reason, with or without cause and with or without notice. In the event that I leave the employment of Company, I agree that Company may contact my new employer to notify it of my obligations under this Agreement.
16.	Entire Agreement; No Waiver. This Agreement, together with my employment agreement with the Company, contains the final and exclusive agreement between Company and me with respect to the subject matter contained herein and supersedes all prior and contemporaneous discussions or agreements (whether oral, written, or in any other format). This Agreement may not be modified except in a writing signed by both parties. The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver of a breach of any provision of this Agreement shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party to be charged.
17.	Remedies. Any breach of Employee’s confidentiality obligations to Company, or any unauthorized use or disclosure by a party of the other party’s proprietary information or inventions (and, in the case of Company, any proprietary information or inventions of its affiliates, customers, or collaborators) outside the scope of this Agreement will result in immediate and irreparable harm to the other party, for which there will be no adequate remedy at law, and therefore in such event, the other party will be entitled to injunctive relief and specific performance in addition to all other legal relief available to it. In the event of a dispute or claim in connection with this Agreement, the prevailing party will be entitled to its reasonable attorneys fees and costs.
18.	Severability. If, for any reason, a court of competent jurisdiction finds any provision of this Agreement invalid or unenforceable, then that provision will be enforced to the maximum extent permissible and the other provisions of this Agreement will remain in full force and effect.
19.	Governing Law. This Agreement will be governed and interpreted under the laws of the state of California, without regard to its conflict of law rules or principles.

BY:	/s/ James P. Panek
	James P. Panek

DATED: 28 January 2009

Exhibit A

Prior Inventions

The following is a complete list of all inventions or improvements relevant to my employment with VaxGen, Inc. (the “Company”) that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:

None.

I understand that by leaving this Exhibit blank or not filling it out that I am attesting that there are no such prior inventions.

Exhibit B

INDEMNITY AGREEMENT

This Indemnity Agreement (this “Agreement”) dated as of January 31, 2007, is made by and between VaxGen, Inc., a Delaware corporation (the “Company”), and James P. Panek(“Indemnitee”).

Recitals

A. The Company desires to attract and retain the services of highly qualified individuals as directors, officers, employees and agents.

B. The Company’s bylaws (the “Bylaws”) require that the Company indemnify its directors, and empowers the Company to indemnify its officers, employees and agents, as authorized by the Delaware General Corporation Law, as amended (the “Code”), under which the Company is organized and such Bylaws expressly provide that the indemnification provided therein is not exclusive and contemplates that the Company may enter into separate agreements with its directors, officers and other persons to set forth specific indemnification provisions.

C. Indemnitee does not regard the protection currently provided by applicable law, the Company’s governing documents and available insurance as adequate under the present circumstances, and the Company has determined that Indemnitee and other directors, officers, employees and agents of the Company may not be willing to serve or continue to serve in such capacities without additional protection.

D. The Company desires and has requested Indemnitee to serve or continue to serve as a director, officer, employee or agent of the Company, as the case may be, and has proferred this Agreement to Indemnitee as an additional inducement to serve in such capacity.

E. Indemnitee is willing to serve, or to continue to serve, as a director, officer, employee or agent of the Company, as the case may be, if Indemnitee is furnished the indemnity provided for herein by the Company.

Agreement

Now Therefore, in consideration of the mutual covenants and agreements set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Definitions.

(a) Agent. For purposes of this Agreement, the term “agent” of the Company means any person who: (i) is or was a director, officer, employee or other fiduciary of the Company or a subsidiary of the Company; or (ii) is or was serving at the request or for the convenience of, or representing the interests of, the Company or a subsidiary of the Company, as a director, officer, employee or other fiduciary of a foreign or domestic corporation, partnership, joint venture, trust or other enterprise.

(b) Expenses. For purposes of this Agreement, the term “expenses” shall be broadly construed and shall include, without limitation, all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’, witness, or other professional fees and related disbursements, and other out-of-pocket costs of whatever nature), actually and reasonably incurred by Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement, the Code or otherwise, and amounts paid in settlement by or on behalf of Indemnitee, but shall not include any judgments, fines or penalties actually levied against Indemnitee for such individual’s violations of law. The term “expenses” shall also include reasonable compensation for time spent by Indemnitee for which he is not compensated by the Company or any subsidiary or third party (i) for any period during which Indemnitee is not an agent, in the employment of, or providing services for compensation to, the Company or any subsidiary; and (ii) if the rate of compensation and estimated time involved is approved by the directors of the Company who are not parties to any action with respect to which expenses are incurred, for Indemnitee while an agent of, employed by, or providing services for compensation to, the Company or any subsidiary.

(c) Proceedings. For purposes of this Agreement, the term “proceeding” shall be broadly construed and shall include, without limitation, any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, and whether formal or informal in any case, in which Indemnitee was, is or will be involved as a party or otherwise by reason of: (i) the fact that Indemnitee is or was a director or officer of the Company; (ii) the fact that any action taken by Indemnitee or of any action on Indemnitee’s part while acting as director, officer, employee or agent of the Company; or (iii) the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and in any such case described above, whether or not serving in any such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses may be provided under this Agreement.

(d) Subsidiary. For purposes of this Agreement, the term “subsidiary” means any corporation or limited liability company of which more than 50% of the outstanding voting securities or equity interests are owned, directly or indirectly, by the Company and one or more of its subsidiaries, and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.

(e) Independent Counsel. For purposes of this Agreement, the term “independent counsel” means a law firm, or a partner (or, if applicable, member) of such a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “independent counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

2. Agreement to Serve. Indemnitee will serve, or continue to serve, as a director, officer, employee or agent of the Company or any subsidiary, as the case may be, faithfully and to the best of his or her ability, at the will of such corporation (or under separate agreement, if such agreement exists), in the capacity Indemnitee currently serves as an agent of such corporation, so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the bylaws or other applicable charter documents of such corporation, or until such time as Indemnitee tenders his or her resignation in writing; provided, however, that nothing contained in this Agreement is intended as an employment agreement between Indemnitee and the Company or any of its subsidiaries or to create any right to continued employment of Indemnitee with the Company or any of its subsidiaries in any capacity.

The Company acknowledges that it has entered into this Agreement and assumes the obligations imposed on it hereby, in addition to and separate from its obligations to Indemnitee under the Bylaws, to induce Indemnitee to serve, or continue to serve, as a director, officer, employee or agent of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer, employee or agent of the Company.

3. Indemnification.

(a) Indemnification in Third Party Proceedings. Subject to Section 10 below, the Company shall indemnify Indemnitee to the fullest extent permitted by the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits Indemnitee to broader indemnification rights than the Code permitted prior to adoption of such amendment), if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding, for any and all expenses, actually and reasonably incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of such proceeding.

(b) Indemnification in Derivative Actions and Direct Actions by the Company. Subject to Section 10 below, the Company shall indemnify Indemnitee to the fullest extent permitted by the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits Indemnitee to broader indemnification rights than the Code permitted prior to adoption of such amendment), if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding by or in the right of the Company to procure a judgment in its favor, against any and all expenses actually and reasonably incurred by Indemnitee in connection with the investigation, defense, settlement, or appeal of such proceedings.

4. Indemnification of Expenses of Successful Party. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any proceeding or in defense of any claim, issue or matter therein, including the dismissal of any action without prejudice, the Company shall indemnify Indemnitee against all expenses actually and reasonably incurred in connection with the investigation, defense or appeal of such proceeding.

5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses actually and reasonably incurred by Indemnitee in the investigation, defense, settlement or appeal of a proceeding, but is precluded by applicable law or the specific terms of this Agreement to indemnification for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

6. Advancement of Expenses. To the extent not prohibited by law, the Company shall advance the expenses incurred by Indemnitee in connection with any proceeding, and such advancement shall be made within twenty (20) days after the receipt by the Company of a statement or statements requesting such advances (which shall include invoices received by Indemnitee in connection with such expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice) and upon request of the Company, an undertaking to repay the advancement of expenses if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. Advances shall be unsecured, interest free and without regard to Indemnitee’s ability to repay the expenses. Advances shall include any and all expenses actually and reasonably incurred by Indemnitee pursuing an action to enforce Indemnitee’s right to indemnification under this Agreement, or otherwise and this right of advancement, including expenses incurred preparing and forwarding statements to the Company to support the advances claimed. Indemnitee acknowledges that the execution and delivery of this Agreement shall constitute an undertaking providing that Indemnitee shall, to the fullest extent required by law, repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this Section shall continue until final disposition of any proceeding, including any appeal therein. This Section 6 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 10(b).

7. Notice and Other Indemnification Procedures.

(a) Notification of Proceeding. Indemnitee will notify the Company in writing promptly upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any proceeding or matter which may be subject to indemnification or advancement of expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

(b) Request for Indemnification and Indemnification Payments. Indemnitee shall notify the Company promptly in writing upon receiving notice of nay demand, judgment or other requirement for payment that Indemnitee reasonably believes to the subject to indemnification under the terms of this Agreement, and shall request payment thereof by the Company. Indemnification payments requested by Indemnitee under Section 3 hereof shall be made by the Company no later than sixty (60) days after receipt of the written request of Indemnitee. Claims for advancement of expenses shall be made under the provisions of Section 6 herein.

(c) Application for Enforcement. In the event the Company fails to make timely payments as set forth in Sections 6 or 7(b) above, Indemnitee shall have the right to apply to any court of competent jurisdiction for the purpose of enforcing Indemnitee’s right to indemnification or advancement of expenses pursuant to this Agreement. In such an enforcement hearing or proceeding, the burden of proof shall be on the Company to prove by that indemnification or advancement of expenses to Indemnitee is not required under this Agreement or permitted by applicable law. Any determination by the Company (including its Board of Directors, stockholders or independent counsel) that Indemnitee is not entitled to indemnification hereunder, shall not be a defense by the Company to the action nor create any presumption that Indemnitee is not entitled to indemnification or advancement of expenses hereunder.

(d) Indemnification of Certain Expenses. The Company shall indemnify Indemnitee against all expenses incurred in connection with any hearing or proceeding under this Section 7 unless the Company prevails in such hearing or proceeding on the merits in all material respects.

8. Assumption of Defense. In the event the Company shall be requested by Indemnitee to pay the expenses of any proceeding, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, or to participate to the extent permissible in such proceeding, with counsel reasonably acceptable to Indemnitee. Upon assumption of the defense by the Company and the retention of such counsel by the Company, the Company shall not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that Indemnitee shall have the right to employ separate counsel in such proceeding at Indemnitee’s sole cost and expense. Notwithstanding the foregoing, if Indemnitee’s counsel delivers a written notice to the Company stating that such counsel has reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or the Company shall not, in fact, have employed counsel or otherwise actively pursued the defense of such proceeding within a reasonable time, then in any such event the fees and expenses of Indemnitee’s counsel to defend such proceeding shall be subject to the indemnification and advancement of expenses provisions of this Agreement.

9. Insurance. To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any subsidiary (“D&O Insurance”), Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

10. Exceptions.

(a) Certain Matters. Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of any proceeding with respect to (i) remuneration paid to Indemnitee if it is determined by final judgment or other final adjudication that such remuneration was in violation of law (and, in this respect, both the Company and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication, as indicated in Section 10(d) below); (ii) a final judgment rendered against Indemnitee for an accounting, disgorgement or repayment of profits made from the purchase or sale by Indemnitee of securities of the Company against Indemnitee pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or other provisions of any federal, state or local statute or rules and regulations thereunder; (iii) a final judgment or other final adjudication that Indemnitee’s conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct (but only to the extent of such specific determination); or (iv) on account of conduct that is established by a final judgment as constituting a breach of Indemnitee’s duty of loyalty to the Company or resulting in any personal profit or advantage to which Indemnitee is not legally entitled. For purposes of the foregoing sentence, a final judgment or other adjudication may be reached in either the underlying proceeding or action in connection with which indemnification is sought or a separate proceeding or action to establish rights and liabilities under this Agreement.

(b) Claims Initiated by Indemnitee. Any provision herein to the contrary notwithstanding, the Company shall not be obligated to indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought by Indemnitee against the Company or its directors, officers, employees or other agents and not by way of defense, except (i) with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or under any other agreement, provision in the Bylaws or Certificate of Incorporation or applicable law, or (ii) with respect to any other proceeding initiated by Indemnitee that is either approved by the Board of Directors or Indemnitee’s participation is required by applicable law. However, indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors determines it to be appropriate.

(c) Unauthorized Settlements. Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee under this Agreement for any amounts paid in settlement of a proceeding effected without the Company’s written consent. Neither the Company nor Indemnitee shall unreasonably withhold consent to any proposed settlement; provided, however, that the Company may in any event decline to consent to (or to otherwise admit or agree to any liability for indemnification hereunder in respect of) any proposed settlement if the Company is also a party in such proceeding and determines in good faith that such settlement is not in the best interests of the Company and its stockholders.

(d) Securities Act Liabilities. Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee or otherwise act in violation of any undertaking appearing in and required by the rules and regulations promulgated under the Securities Act of 1933, as amended (the “Act”), or in any registration statement filed with the SEC under the Act. Indemnitee acknowledges that paragraph (h) of Item 512 of Regulation S-K currently generally requires the Company to undertake in connection with any registration statement filed under the Act to submit the issue of the enforceability of Indemnitee’s rights under this Agreement in connection with any liability under the Act on public policy grounds to a court of appropriate jurisdiction and to be governed by any final adjudication of such issue. Indemnitee specifically agrees that any such undertaking shall supersede the provisions of this Agreement and to be bound by any such undertaking.

11. Nonexclusivity and Survival of Rights. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may at any time be entitled under any provision of applicable law, the Company’s Certificate of Incorporation, Bylaws or other agreements, both as to action in Indemnitee’s official capacity and Indemnitee’s action as an agent of the Company, in any court in which a proceeding is brought, and Indemnitee’s rights hereunder shall continue after Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors, administrators and assigns of Indemnitee. The obligations and duties of the Company to Indemnitee under this Agreement shall be binding on the Company and its successors and assigns until terminated in accordance with its terms. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her corporate status prior to such amendment, alteration or repeal. To the extent that a change in the Code, whether by statute or judicial decision, permits greater indemnification or advancement of expenses than would be afforded currently under the Company’s Certificate of Incorporation, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, by Indemnitee shall not prevent the concurrent assertion or employment of any other right or remedy by Indemnitee.

12. Term. This Agreement shall continue until and terminate upon the later of: (a) five (5) years after the date that Indemnitee shall have ceased to serve as a director or and/or officer, employee or agent of the Company; or (b) one (1) year after the final termination of any proceeding, including any appeal then pending, in respect to which Indemnitee was granted rights of indemnification or advancement of expenses hereunder.

No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against an Indemnitee or an Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five-year period; provided, however, that if any shorter period of limitations is otherwise applicable to such cause of action, such shorter period shall govern.

13. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who, at the request and expense of the Company, shall execute all papers required and shall do everything that may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

14. Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to Indemnitee to the fullest extent now or hereafter permitted by law.

15. Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of the Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 14 hereof.

16. Amendment and Waiver. No supplement, modification, amendment, or cancellation of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

17. Notice. Except as otherwise provided herein, any notice or demand which, by the provisions hereof, is required or which may be given to or served upon the parties hereto shall be in writing and, if by telegram, telecopy or telex, shall be deemed to have been validly served, given or delivered when sent, if by overnight delivery, courier or personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed, shall be deemed to have been validly served, given or delivered three (3) business days after deposit in the United States mail, as registered or certified mail, with proper postage prepaid and addressed to the party or parties to be notified at the addresses set forth on the signature page of this Agreement (or such other address(es) as a party may designate for itself by like notice). If to the Company, notices and demands shall be delivered to the attention of the Secretary of the Company.

18. Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of California, as applied to contracts between California residents entered into and to be performed entirely within California.

19. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement.

20. Headings. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.

21. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and negotiations, written and oral, between the parties with respect to the subject matter of this Agreement; provided, however, that this Agreement is a supplement to and in furtherance of the Company’s Certificate of Incorporation, Bylaws, the Code and any other applicable law, and shall not be deemed a substitute therefor, and does not diminish or abrogate any rights of Indemnitee thereunder.

In Witness Whereof, the parties hereto have entered into this Agreement effective as of the date first above written.

VaxGen, Inc.
By:	/s/ Matthew J. Pfeffer
	Name:	Matthew J. Pfeffer
	Title:	SVP, CFO & Secretary
INDEMNITEE
/s/ James P. Panek
Signature of Indemnitee
James P. Panek
Print or Type Name of Indemnitee

Exhibit C

FORM OF SEPARATION DATE RELEASE

In consideration for the Severance Benefits and other consideration provided to me by VaxGen, Inc. (the “Company”), and as required by the Amended and Restated Executive Employment Agreement between the Company and me effective as of February 1, 2009 (the “Agreement”), I hereby give the following Separation Date Release (the “Separation Date Release”).

I hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to or contemporaneous with my signing of this Separation Date Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership or equity interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing, including, but not limited to, claims based on or arising from the Agreement; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal Family and Medical Leave Act (“FMLA”), the California Family Rights Act (“CFRA”), and the California Fair Employment and Housing Act (as amended).

Notwithstanding the foregoing, I am not releasing the Company from the following (the “Excluded Claims”): (1) any obligation it may otherwise have to indemnify me for my acts within the course and scope of my employment with the Company, pursuant to the articles and bylaws of the Company, the Indemnity Agreement, or applicable law; or (2) any rights which are not waivable as a matter of law. In addition, nothing in this Separation Date Release prevents me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or another government agency, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in this Separation Date Release.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which I am already entitled. I further acknowledge that I have been advised by this writing that: (1) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Separation Date Release; (2) I should consult with an attorney prior to signing this Separation Date Release (although I may choose voluntarily not to do so); (3) I have twenty-one (21) days to consider this Separation Date Release (although I may choose voluntarily to sign it earlier); (4) I have seven (7) days following the date I sign this Separation Date Release to revoke it by providing written notice of revocation to the Chairman of the Company’s Board of Directors; and (5) this Separation Date Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date I sign it (the “Effective Date”).

I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to my release of claims herein, including but not limited to the release of unknown and unsuspected claims.

I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible, pursuant to FMLA, CFRA, or otherwise, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.

By:
	James P. Panek
Date:

EX-99.1

Exhibit 99.1

VOTING AGREEMENT

This Voting Agreement (this “Agreement”) is entered into as of May 28, 2010, by and between VaxGen, Inc., a Delaware corporation (“Parent”), and                      (“Stockholder”).

Recitals

A. Stockholder is a holder of record and the “beneficial owner” (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of certain shares of common stock of diaDexus, Inc., a Delaware corporation (the “Company”).

B. Parent, Violet Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub I”), Violet Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of Parent (“Merger Sub II”), and the Company are entering into an Agreement and Plan of Merger and Reorganization of even date herewith (the “Merger Agreement”) which provides (subject to the conditions set forth therein) for (i) the merger of Merger Sub I with and into the Company (“Merger I”), with the Company surviving Merger I and becoming a wholly-owned subsidiary of Parent and (ii) immediately following the effectiveness of Merger I, a merger of the Company with and into Merger Sub II in accordance with the applicable provisions of Delaware Law and the Delaware Limited Liability Company Act, with Merger Sub II surviving the merger (together with Merger I, the “Merger”). Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings given to them in the Merger Agreement.

C. In the Merger, the outstanding shares of Series F Preferred Stock of the Company are to be converted into the right to receive shares of common stock of Parent, and, subject to the terms of the Merger Agreement, the outstanding shares of all other series of Preferred Stock of the Company and the outstanding shares of common stock of the Company are to be cancelled and extinguished, without any conversion thereof and without payment therefor.

D. In order to induce Parent to enter into the Merger Agreement, Stockholder is entering into this Agreement.

Agreement

The parties to this Agreement, intending to be legally bound, agree as follows:

Section 1. Certain Definitions

For purposes of this Agreement:

(a) “Company Capital Stock” shall mean the Company Common Stock and the Company Preferred Stock.

(b) “Company Common Stock” shall mean the common stock of the Company, par value $0.01 per share.

(c) “Company Preferred Stock” shall mean the Series A Preferred Stock of the Company, par value $0.01, the Series B Preferred Stock of the Company, par value $0.01 per share, the Series C Preferred Stock of the Company, par value $0.01 per share, the Series D Preferred Stock of the Company, par value $0.01 per share, the Series E Preferred Stock of the Company, par value $0.01 per share, and the Series F Preferred Stock of the Company, par value $0.01 per share.

(d) Stockholder shall be deemed to “Own” or to have acquired “Ownership” of a security if Stockholder: (i) is the record owner of such security; or (ii) is the “beneficial owner” (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of such security, regardless of whether Stockholder Owns such security on the date hereof or has acquired Ownership of such security at any time after the date hereof and regardless of the manner in which Stockholder has acquired Ownership of such security including, without limitation, as a result of exercise of stock options, conversion of convertible securities, exchange of any securities or otherwise.

(e) “Subject Securities” shall mean: (i) all securities of the Company (including all shares of Company Capital Stock and all options, warrants and other rights to acquire shares of Company Capital Stock) Owned by Stockholder as of the date of this Agreement; and (ii) all additional securities of the Company (including all additional shares of Company Capital Stock and all additional options, warrants and other rights to acquire shares of Company Capital Stock) of which Stockholder acquires Ownership during the period from the date of this Agreement through the Voting Covenant Expiration Date.

(f) A Person shall be deemed to have a effected a “Transfer” of a security if such Person directly or indirectly: (i) sells, pledges, encumbers, grants an option with respect to, transfers or disposes of such security or any interest in such security to any Person other than Parent; (ii) enters into an agreement or commitment contemplating the possible sale of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of such security or any interest therein to any Person other than Parent; or (iii) reduces such Person’s beneficial ownership of, interest in or risk relating to such security.

(g) “Voting Covenant Expiration Date” shall mean the earlier of the date upon which the Merger Agreement is validly terminated, or the date upon which the Merger is consummated.

Section 2. Transfer of Subject Securities and Voting Rights

2.1 Restriction on Transfer of Subject Securities. Subject to Section 2.3, during the period from the date of this Agreement through the Voting Covenant Expiration Date, Stockholder shall not, directly or indirectly, cause or permit any Transfer of any of the Subject Securities to be effected.

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2.2 Restriction on Transfer of Voting Rights. During the period from the date of this Agreement through the Voting Covenant Expiration Date, Stockholder shall ensure that: (a) none of the Subject Securities is deposited into a voting trust; and (b) no proxy is granted, and no voting agreement or similar agreement is entered into, with respect to any of the Subject Securities (other than in connection with Stockholder’s compliance with Section 3.1 or 3.2 of this Agreement). During the period from the date of this Agreement through the Voting Covenant Expiration Date, Stockholder shall not enter into any agreement or understanding with any Person that is inconsistent with, violates, contravenes, or results in a violation, breach or contravention of, any of the provisions of this Agreement.

2.3 Permitted Transfers. Section 2.1 shall not prohibit a transfer of any Subject Securities by Stockholder (a) to Parent or any wholly-owned subsidiary of Parent, (b) to any member of Stockholder’s immediate family, or to a trust for the benefit of Stockholder or any member of Stockholder’s immediate family, (c) upon the death of Stockholder, or (d) if Stockholder is a partnership or limited liability company, to one or more partners or members of Stockholder or to an affiliated corporation under common control with Stockholder; provided, however, that a transfer referred to in clause (b), (c) or (d) of this sentence shall be permitted only if, as a precondition to such transfer, the transferee agrees in a writing, satisfactory in form and substance to Parent, to be bound by the terms of this Agreement and delivers a duly Executed proxy in the form attached hereto as Exhibit A with respect to such transferred Subject Securities.

Section 3. Voting of Shares

3.1 Voting Covenant. Stockholder hereby agrees that, prior to the Voting Covenant Expiration Date, at any meeting of the stockholders of the Company, however called, and in any written action by consent of stockholders of the Company, unless otherwise directed in writing by Parent, Stockholder shall cause the Subject Securities to be voted:

(a) in favor of the Merger, the execution, delivery and performance by the Company of the Merger Agreement and the adoption and approval of the Merger Agreement and the terms thereof, in favor of each of the other actions contemplated by the Merger Agreement and in favor of any action in furtherance of any of the foregoing; and

(b) against approval of any proposal made in opposition to, or in competition with, the Merger Agreement or the consummation of the Merger, including any Company Acquisition Proposal or Company Acquisition Transaction.

Prior to the Voting Covenant Expiration Date, Stockholder shall not enter into any agreement or understanding with any Person to vote or give instructions in any manner inconsistent with clause “(a)” or “(b)” of the preceding sentence. Except as set forth in Section 3.1, Stockholder shall not be restricted from voting in favor of, against or abstaining with respect to any matter presented to the Company stockholders.

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3.2 Proxy; Further Assurances.

(a) Contemporaneously with the execution of this Agreement: (i) Stockholder shall deliver to Parent an irrevocable proxy in the form attached to this Agreement as Exhibit A, which shall be irrevocable to the fullest extent permitted by law (at all times prior to the Voting Covenant Expiration Date) with respect to the shares referred to therein (the “Proxy”); and (ii) Stockholder shall cause to be delivered to Parent an additional proxy (in the form attached hereto as Exhibit A) executed on behalf of the record owner of any outstanding shares of Company Capital Stock that are owned beneficially (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934), but not of record, by Stockholder.

(b) Stockholder shall, at Stockholder’s own expense, perform such further acts and execute such further proxies and other documents and instruments as may reasonably be required to vest in Parent the power to carry out and give effect to the provisions of this Agreement.

Section 4. Waiver of Appraisal Rights

Stockholder hereby irrevocably and unconditionally waives, and agrees to cause to be waived and to prevent the exercise of, any rights of appraisal, any dissenters’ rights and any similar rights relating to the Merger or any related transaction that Stockholder or any other Person may have by virtue of any outstanding shares of Company Capital Stock Owned by Stockholder (“Appraisal Rights”).

Section 5. No Solicitation

Stockholder agrees that, during the period from the date of this Agreement through the Voting Covenant Expiration Date, Stockholder shall not, directly or indirectly, and Stockholder shall take reasonable precautions to ensure that Stockholder’s Representatives do not, directly or indirectly: (a) solicit, initiate, encourage, induce or facilitate the making, submission or announcement of any Company Acquisition Proposal or take any action that could reasonably be expected to lead to a Company Acquisition Proposal; (b) furnish any information regarding the Company or any subsidiary of the Company to any Person in connection with or in response to a Company Acquisition Proposal or an inquiry or indication of interest that could lead to a Company Acquisition Proposal; (c) engage in discussions or negotiations with any Person with respect to any Company Acquisition Proposal; (d) approve, endorse or recommend any Company Acquisition Proposal; or (e) enter into any letter of intent or similar document or any agreement or understanding contemplating or otherwise relating to any Company Acquisition Transaction; provided, however, that the restrictions contained in this Section 5 shall not apply to a Company Acquisition Proposal or Company Acquisition Transaction between Company and Parent. Stockholder shall immediately cease and discontinue, and Stockholder shall ensure that Stockholder’s Representatives immediately cease and discontinue, any existing discussions with any Person (other than Parent) that relate to any Company Acquisition Proposal.

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Section 6. Representations and Warranties of Stockholder

Stockholder hereby represents and warrants to Parent as follows:

6.1 Authorization, etc. Stockholder has the absolute and unrestricted right, power, authority and capacity to execute and deliver this Agreement and the Proxy and to perform Stockholder’s obligations hereunder and thereunder. Stockholder has the sole power of disposition, sole power of conversion, sole power to demand and waive Appraisal Rights, and sole power to vote or otherwise agree to all of the matters set forth in this Agreement, in each case with respect to all Subject Securities owned by Stockholder on the date hereof. This Agreement and the Proxy have been duly executed and delivered by Stockholder and constitute legal, valid and binding obligations of Stockholder, enforceable against Stockholder in accordance with their terms, subject to (a) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies. If Stockholder is a general or limited partnership, then Stockholder is a partnership duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was organized. If Stockholder is a limited liability company, then Stockholder is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was organized.

6.2 No Conflicts or Consents.

(a) The execution and delivery of this Agreement and the Proxy by Stockholder do not, and the performance of this Agreement and the Proxy by Stockholder will not: (i) conflict with or violate any law, rule, regulation, order, decree or judgment applicable to Stockholder or by which Stockholder or any of Stockholder’s properties is or may be bound or affected; or (ii) result in or constitute (with or without notice or lapse of time) any breach of or default under, or give to any other Person (with or without notice or lapse of time) any right of termination, amendment, acceleration or cancellation of, or result (with or without notice or lapse of time) in the creation of any encumbrance or restriction on any of the Subject Securities pursuant to, any contract to which Stockholder is a party or by which Stockholder’s properties is or may be bound or affected.

(b) The execution and delivery of this Agreement and the Proxy by Stockholder do not, and the performance of this Agreement and the Proxy by Stockholder will not, require any consent or approval of any Person.

6.3 Title to Securities. As of the date of this Agreement: (a) Stockholder holds of record (free and clear of any encumbrances or restrictions) the number of outstanding shares of Company Capital Stock set forth under the heading “Shares Held of Record” on the signature page hereof; (b) Stockholder holds (free and clear of any encumbrances or restrictions) the options, warrants and other rights to acquire shares of Company Capital Stock set forth under the heading “Options and Other Rights” on the signature page hereof; (c) Stockholder Owns the additional securities of the Company set forth under the heading “Additional Securities Beneficially Owned” on the signature page hereof; (d) Stockholder does not directly or indirectly Own any shares of capital stock or other securities of the Company, or any option, warrant or other right to acquire (by purchase, conversion or otherwise) any shares of capital stock or other securities of the Company, other than the shares and options, warrants and other rights set forth on the signature page hereof; and (e) Stockholder has not entered into any voting agreement or given any person any proxy with respect to the Subject Securities other than as set forth in this Agreement.

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6.4 Accuracy of Representations. The representations and warranties contained in this Agreement are accurate in all respects as of the date of this Agreement, will be accurate in all respects at all times through and including the Voting Covenant Expiration Date and will be accurate in all respects as of the date of the consummation of the Merger as if made on that date.

Section 7. Additional Covenants of Stockholder

7.1 Further Assurances. From time to time and without additional consideration, Stockholder shall (at Stockholder’s sole expense) execute and deliver, or cause to be executed and delivered, such additional transfers, assignments, endorsements, proxies, consents and other instruments, and shall take such further actions, each as Parent may reasonably request for the purpose of carrying out and furthering the intent of this Agreement.

7.2 Legends. If requested by Parent, immediately after the execution of this Agreement (and from time to time upon the acquisition by Stockholder of Ownership of any shares of Company Common Stock prior to the Voting Covenant Expiration Date), Stockholder shall cause each certificate evidencing any outstanding shares of Company Common Stock or other securities of the Company Owned by Stockholder to be surrendered so that the transfer agent for such securities may affix thereto a legend in the following form:

THE SECURITY OR SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND VOTING AND OTHER RESTRICTIONS PURSUANT TO THE TERMS AND PROVISIONS OF A VOTING AGREEMENT DATED AS OF MAY 28, 2010, BY AND BETWEEN VAXGEN, INC. AND THE STOCKHOLDER (AND THE IRREVOCABLE PROXY EXECUTED IN CONNECTION THEREWITH), AS MAY BE AMENDED FROM TIME TO TIME. COPIES OF SUCH VOTING AGREEMENT AND IRREVOCABLE PROXY ARE ON DEPOSIT WITH THE COMPANY AND THE COMPANY WILL FURNISH SUCH COPIES TO THE HOLDER OF THIS CERTIFICATE, WITHOUT CHARGE, UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.

Section 8. Miscellaneous

8.1 Survival of Representations, Warranties and Agreements. All representations, warranties, covenants and agreements made by Stockholder in this Agreement shall survive (a) the consummation of the Merger, (b) any termination of the Merger Agreement, and (c) the Voting Covenant Expiration Date.

8.2 Fiduciary Duties. In the event that Stockholder, or an employee or representative of Stockholder or its Affiliates, is a director on the Board of Directors of the Company (such person, the “Director”), Parent acknowledges such status, and as such, the Director remains, solely in such capacity, free to act in accordance with such Director’s fiduciary duties owed to the Company or its stockholders under applicable Legal Requirements and nothing herein shall be deemed to restrict or limit any act taken or omitted from being taken as a director on the Board of Directors of the Company as is reasonably necessary to comply with such fiduciary duties.

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8.3 Expenses. All costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such costs and expenses.

8.4 Notices. Any notice or other communication required or permitted to be delivered to either party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile telephone number set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other party):

if to Stockholder:

at the address set forth on the signature page hereof; and

with a required copy (which shall not constitute notice) to:

Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
Attn.: Robert Koenig
E-Mail: robert.koenig@lw.com
Facsimile: (650) 463-2600

if to Parent:

VaxGen, Inc.
379 Oyster Point Boulevard, Suite 10
South San Francisco, CA 94080
Attn: James Panek
E-Mail: jpanek@vaxgen.com
Facsimile: (650) 624-4785

with a required copy (which shall not constitute notice) to:

Cooley LLP
3175 Hanover Street
Palo Alto, CA 94304
Attn.: Laura Berezin
E-Mail: lberezin@cooley.com
Facsimile: (650) 849-7400

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8.5 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.

8.6 Entire Agreement. This Agreement, the Proxy and any other documents delivered by the parties in connection herewith or in connection with the Merger Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings between the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon either party unless made in writing and signed by both parties.

8.7 Assignment; Binding Effect. Except as provided herein, neither this Agreement nor any of the interests or obligations hereunder may be assigned or delegated by Stockholder, and any attempted or purported assignment or delegation of any of such interests or obligations shall be void. Subject to the preceding sentence, this Agreement shall be binding upon Stockholder and Stockholder’s heirs, estate, executors and personal representatives and Stockholder’s successors and assigns, and shall inure to the benefit of Parent and its successors and assigns. Without limiting any of the restrictions set forth in Section 2 or elsewhere in this Agreement, this Agreement shall be binding upon any Person to whom any Subject Securities are transferred. Nothing in this Agreement is intended to confer on any Person (other than Parent and its successors and assigns) any rights or remedies of any nature.

8.8 Indemnification. Stockholder shall hold harmless and indemnify Parent and Parent’s affiliates from and against, and shall compensate and reimburse Parent and Parent’s affiliates for, any loss, damage, claim, liability, fee (including attorneys’ fees), demand, cost or expense (regardless of whether or not such loss, damage, claim, liability, fee, demand, cost or expense relates to a third-party claim) that is directly or indirectly suffered or incurred by Parent or any of Parent’s affiliates, or to which Parent or any of Parent’s affiliates otherwise becomes subject, and that arises directly or indirectly from, or relates directly or indirectly to, (a) any inaccuracy in or breach of any representation or warranty contained in this Agreement, or (b) any failure on the part of Stockholder to observe, perform or abide by, or any other breach of, any restriction, covenant, obligation or other provision contained in this Agreement or in the Proxy.

8.9 Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement or the Proxy were not performed in accordance with its specific terms or were otherwise breached. Stockholder agrees that, in the event of any breach or threatened breach by Stockholder of any covenant or obligation contained in this Agreement or in the Proxy, Parent shall be entitled (in addition to any other remedy that may be available to it, including monetary damages) to seek and obtain (a) a decree or order of specific performance to enforce the observance and performance of such covenant or obligation, and (b) an injunction restraining such breach or threatened breach. Stockholder further agrees that neither Parent nor any other Person shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 8.9, and Stockholder irrevocably waives any right he or it may have to require the obtaining, furnishing or posting of any such bond or similar instrument.

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8.10 Non-Exclusivity. The rights and remedies of Parent under this Agreement are not exclusive of or limited by any other rights or remedies which it may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of Parent under this Agreement, and the obligations and liabilities of Stockholder under this Agreement, are in addition to their respective rights, remedies, obligations and liabilities under common law requirements and under all applicable statutes, rules and regulations. Nothing in this Agreement shall limit any of Stockholder’s obligations, or the rights or remedies of Parent, under any other agreement between Parent and Stockholder; and nothing in any such other agreement shall limit any of Stockholder’s obligations, or any of the rights or remedies of Parent, under this Agreement.

8.11 Governing Law; Venue.

(a) This Agreement and the Proxy shall be construed in accordance with, and governed in all respects by, the laws of the State of Delaware (without giving effect to principles of conflicts of laws).

(b) Any legal action or other legal proceeding relating to this Agreement or the Proxy or the enforcement of any provision of this Agreement or the Proxy may be brought or otherwise commenced in any state or federal court located in the in the County of San Francisco, State of California. Stockholder:

(i) expressly and irrevocably consents and submits to the jurisdiction of each state and federal court located in the in the County of San Francisco, State of California in connection with any such legal proceeding;

(ii) agrees that service of any process, summons, notice or document by U.S. mail addressed to Stockholder at the address set forth on the signature page hereof shall constitute effective service of such process, summons, notice or document for purposes of any such legal proceeding;

(iii) agrees that each state and federal court located in the in the County of San Francisco, State of California shall be deemed to be a convenient forum; and

(iv) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any state or federal court located in the County of San Francisco, State of California, any claim that Stockholder is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, that the venue of such proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court.

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Nothing contained in this Section 8.11 shall be deemed to limit or otherwise affect the right of Parent to commence any legal proceeding or otherwise proceed against Stockholder in any other forum or jurisdiction.

(c) STOCKHOLDER IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE PROXY OR THE ENFORCEMENT OF ANY PROVISION OF THIS AGREEMENT OR THE PROXY.

8.12 Counterparts. This Agreement may be executed in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument.

8.13 Captions. The captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.

8.14 Attorneys’ Fees. If any legal action or other legal proceeding relating to this Agreement or the enforcement of any provision of this Agreement is brought against Stockholder, the prevailing party shall be entitled to recover reasonable attorneys’ fees, costs and disbursements (in addition to any other relief to which the prevailing party may be entitled).

8.15 Amendment; Waiver. This Agreement may not be amended, changed, supplemented or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the parties hereto. No failure on the part of Parent to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of Parent in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Parent shall not be deemed to have waived any claim available to Parent arising out of this Agreement, or any power, right, privilege or remedy of Parent under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of Parent; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

8.16 Construction.

(a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.

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(b) The parties agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

(c) As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”

(d) Except as otherwise indicated, all references in this Agreement to “Sections” and “Exhibits” are intended to refer to Sections of this Agreement and Exhibits to this Agreement.

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In Witness Whereof, Parent and Stockholder have caused this Agreement to be executed as of the date first written above.

VaxGen, Inc.
By:
	Name:	James P. Panek
	Title:	President

[Signature Page to Voting Agreement]

Stockholder

Name:

Address:

Facsimile:

Shares Held of Record:
Common Stock:

Preferred Stock:

Series A

Series B

Series C

Series D

Series E

Series F

Options and Other Rights:

Additional Securities

Beneficially Owned:

[Signature Page to Voting Agreement]

Exhibit A
Form Of Irrevocable Proxy

The undersigned stockholder (the “Stockholder”) of diaDexus Inc., a Delaware corporation (the “Company”), hereby irrevocably (to the fullest extent permitted by law) appoints and constitutes                      ,                       and VaxGen, Inc., a Delaware corporation (“Parent”), and each of them, the attorneys-in-fact and proxies of the Stockholder with full power of substitution and resubstitution, to the full extent of the Stockholder’s rights with respect to (a) the outstanding shares of capital stock of the Company owned of record or beneficially by the Stockholder as of the date of this proxy, which shares are specified on the final page of this proxy, and (b) any and all other shares of capital stock of the Company which the Stockholder may acquire on or after the date hereof. (The shares of the capital stock of the Company referred to in clauses “(a)” and “(b)” of the immediately preceding sentence are collectively referred to as the “Shares.”) Upon the execution hereof, all prior proxies given by the Stockholder with respect to any of the Shares are hereby revoked, and the Stockholder agrees that no subsequent proxies will be given with respect to any of the Shares.

This proxy is irrevocable, is coupled with an interest and is granted in connection with the Voting Agreement, dated as of the date hereof, between Parent and the Stockholder (the “Voting Agreement”), and is granted in consideration of Parent entering into the Agreement and Plan of Merger and Reorganization, dated as of the date hereof, among Parent, Violet Acquisition Corporation, Violet Acquisition LLC, the Company and John E. Hamer, as the Company Stockholder’s Agent (the “Merger Agreement”). This proxy will terminate on the Voting Covenant Expiration Date (as defined in the Voting Agreement).

The attorneys-in-fact and proxies named above will be empowered, and may exercise this proxy, to vote the Shares at any time until the earlier to occur of the valid termination of the Merger Agreement or the effective time of the merger contemplated thereby (the “Merger”) at any meeting of the stockholders of the Company, however called, and in connection with any written action by consent of stockholders of the Company:

(a) in favor of the Merger, the execution, delivery and performance by the Company of the Merger Agreement and the adoption and approval of the Merger Agreement and the terms thereof, in favor of each of the other actions contemplated by the Merger Agreement and in favor of any action in furtherance of any of the foregoing; and

(b) against approval of any proposal made in opposition to, or in competition with, the Merger Agreement or the consummation of the Merger, including any Company Acquisition Proposal or Company Acquisition Transaction.

The Stockholder may vote the Shares on all other matters not referred to in this proxy, and the attorneys and proxies named above may not exercise this proxy with respect to such other matters.

This proxy shall be binding upon the heirs, estate, executors, personal representatives, successors and assigns of the Stockholder (including any transferee of any of the Shares).

A-1

Any term or provision of this proxy that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Stockholder agrees that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this proxy shall be enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the Stockholder agrees to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.

Dated: ____________, 2010

Name:

Shares Held of Record:
Common Stock:

Preferred Stock:

Series A

Series B

Series C

Series D

Series E

Series F

Options and Other Rights:

Additional Securities
Beneficially Owned:

A-2

EX-99.2

Exhibit 99.2

LOCK-UP AGREEMENT

This Lock-Up Agreement is being executed and delivered as of May 28, 2010 by(“Stockholder”) in favor of and for the benefit of VaxGen, Inc., a Delaware corporation (“Parent”).

Recitals

A. Stockholder is a [stockholder of, and is an officer and/or director of], diaDexus, Inc., a Delaware corporation (the “Company”).

B. Parent, Violet Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub I”), Violet Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of Parent (“Merger Sub II”), and the Company are entering into an Agreement and Plan of Merger and Reorganization of even date herewith (the “Merger Agreement”) which provides (subject to the conditions set forth therein) for (i) the merger of Merger Sub I with and into the Company (“Merger I”), with the Company surviving Merger I and becoming a wholly-owned subsidiary of Parent and (ii) immediately following the effectiveness of Merger I, a merger of the Company with and into Merger Sub II in accordance with the applicable provisions of Delaware Law and the Delaware Limited Liability Company Act, with Merger Sub II surviving the merger (together with Merger I, the “Merger”). Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings given to them in the Merger Agreement.

C. In the Merger, the outstanding shares of Series F Preferred Stock of the Company are to be converted into the right to receive shares of common stock of Parent, and, subject to the terms of the Merger Agreement, the outstanding shares of all other series of Preferred Stock of the Company and the outstanding shares of common stock of the Company are to be cancelled and extinguished, without any conversion thereof and without payment therefor. It is accordingly contemplated that Stockholder will receive shares of Parent Common Stock in the Merger.

D. Stockholder understands that the Parent Common Stock being issued in the Merger will be issued (i) pursuant to an exemption from registration under federal securities laws provided by section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”) or (ii) pursuant to a registration statement on Form S-4, and that Stockholder may be deemed an “affiliate” of the Company as such term is defined for purposes of paragraphs (c) and (d) of Rule 145 under the Securities Act (a “Company Affiliate”).

E. In order to induce Parent to enter into the Merger Agreement, even if Stockholder is not deemed a Company Affiliate, Stockholder agrees to be subject to the resale provisions set forth in paragraph (d) of Rule 145 of the Securities Act as if such Stockholder were a Company Affiliate.

Agreement

Stockholder, intending to be legally bound, agrees as follows:

1. Representations and Warranties of Stockholder. Stockholder represents and warrants to Parent as follows:

(a) Stockholder is the holder and “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of the number of outstanding shares of capital stock of the Company set forth beneath Stockholder’s signature on the signature page hereof (the “Company Shares”), and Stockholder has good and valid title to the Company Shares, free and clear of any liens, pledges, security interests, adverse claims, equities, options, proxies, charges, encumbrances or restrictions of any nature. Stockholder has the sole right to vote and to dispose of the Company Shares.

(b) Stockholder is the holder of options, warrants and other securities exercisable for or convertible into the number of shares of capital stock of the Company set forth beneath Stockholder’s signature on the signature page hereof (the “Company Options”), and Stockholder has good and valid title to the Company Options, free and clear of any liens, pledges, security interests, adverse claims, equities, options, proxies, charges, encumbrances or restrictions of any nature.

(c) Stockholder does not own, of record or beneficially, directly or indirectly, any securities of the Company other than the Company Shares and the Company Options.

(d) Stockholder has carefully read this Lock-Up Agreement and, to the extent Stockholder felt it necessary, has discussed with counsel the limitations imposed on Stockholder’s ability to sell, transfer or otherwise dispose of the shares of Parent Common Stock that Stockholder is to receive in the Merger (the “Parent Shares”). Stockholder fully understands the limitations this Lock-Up Agreement places upon Stockholder’s ability to sell, transfer or otherwise dispose of securities of Parent.

2. Prohibitions Against Transfer. Stockholder agrees that Stockholder shall not effect any sale, transfer or other disposition of any Parent Shares unless such sale, transfer or other disposition is made in compliance with the resale provisions set forth in paragraph (d) of Rule 145 of the Securities Act as if such stockholder were deemed a Company Affiliate (regardless of any determination of such status).

3. Stop Transfer Instructions; Legend.

Stockholder acknowledges and agrees that (a) stop transfer instructions will be given to Parent’s transfer agent with respect to the Parent Shares, and (b) each certificate representing any of such shares shall bear a legend identical or similar in effect to the following legend (together with any other legend or legends required by applicable state securities laws or otherwise):

“THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145(d) OF THE SECURITIES ACT OF 1933 APPLIES AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH RULE AND IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED AS OF MAY 28, 2010, BETWEEN THE REGISTERED HOLDER HEREOF AND THE ISSUER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE ISSUER.”

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4. Independence of Obligations. The covenants and obligations of Stockholder set forth in this Lock-Up Agreement shall be construed as independent of any other agreement or arrangement between Stockholder, on the one hand, and the Company or Parent, on the other. The existence of any claim or cause of action by Stockholder against the Company or Parent shall not constitute a defense to the enforcement of any of such covenants or obligations against Stockholder.

5. Specific Performance. Stockholder agrees that in the event of any breach or threatened breach by Stockholder of any covenant, obligation or other provision contained in this Lock-Up Agreement, Parent shall be entitled (in addition to any other remedy that may be available to Parent) to: (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision; and (b) an injunction restraining such breach or threatened breach. Stockholder further agrees that neither Parent nor any other person or entity shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 5, and Stockholder irrevocably waives any right he may have to require the obtaining, furnishing or posting of any such bond or similar instrument.

6. Other Agreements. Nothing in this Lock-Up Agreement shall limit any of the rights or remedies of Parent under the Merger Agreement, or any of the rights or remedies of Parent or any of the obligations of Stockholder under any agreement between Stockholder and Parent or any certificate or instrument executed by Stockholder in favor of Parent; and nothing in the Merger Agreement or in any other agreement, certificate or instrument shall limit any of the rights or remedies of Parent or any of the obligations of Stockholder under this Lock-Up Agreement.

7. Notices. Any notice or other communication required or permitted to be delivered to Stockholder or Parent under this Lock-Up Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered to the address or facsimile telephone number set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other party):

if to Parent:

VaxGen, Inc.
379 Oyster Point Boulevard, Suite 10
South San Francisco, CA 94080
Attn: James Panek
E-Mail: jpanek@vaxgen.com
Facsimile: (650) 624-4785

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with a required copy (which shall not constitute notice) to:

Cooley LLP
3175 Hanover Street
Palo Alto, CA 94304
Attn.: Laura Berezin
E-Mail: lberezin@cooley.com
Facsimile: (650) 849-7400

if to Stockholder:

[Name]
[Address]
Attn:
E-Mail:
Facsimile:

8. Severability. Any term or provision of this Lock-Up Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Lock-Up Agreement shall be enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.

9. Applicable Law; Jurisdiction. This Lock-Up Agreement is made under, and shall be construed and enforced in accordance with, the laws of the State of Delaware applicable to agreements made and to be performed solely therein, without giving effect to principles of conflicts of law. In any action between or among any of the parties, whether arising out of this Lock-Up Agreement or otherwise, (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state and federal courts located in the County of San Francisco, State of California; (b) if any such action is commended in a state court, then, subject to applicable law, no party shall object to the removal of such action to any federal court located in the Northern District of California; (c) each of the parties irrevocably waives the right to trial by jury; and (d) each of the parties irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepared, to the address at which such party is to receive notice in accordance with Section 7.

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10. Waiver; Termination. No failure on the part of Parent to exercise any power, right, privilege or remedy under this Lock-Up Agreement, and no delay on the part of Parent in exercising any power, right, privilege or remedy under this Lock-Up Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Parent shall not be deemed to have waived any claim arising out of this Lock-Up Agreement, or any power, right, privilege or remedy under this Lock-Up Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of Parent; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given. If the Merger Agreement is terminated, this Lock-Up Agreement shall thereupon terminate.

11. Captions. The captions contained in this Lock-Up Agreement are for convenience of reference only, shall not be deemed to be a part of this Lock-Up Agreement and shall not be referred to in connection with the construction or interpretation of this Lock-Up Agreement.

12. Further Assurances. Stockholder shall execute and/or cause to be delivered to Parent such instruments and other documents and shall take such other actions as Parent may reasonably request to effectuate the intent and purposes of this Lock-Up Agreement.

13. Entire Agreement. This Lock-Up Agreement, the Merger Agreement and any other documents delivered by the parties hereto in connection with the Merger collectively set forth the entire understanding of Parent and Stockholder relating to the subject matter hereof and thereof and supersede all other prior agreements and understandings between Parent and Stockholder relating to the subject matter hereof and thereof.

14. Non-Exclusivity. The rights and remedies of Parent hereunder are not exclusive of or limited by any other rights or remedies which Parent may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative).

15. Amendments. This Lock-Up Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of Parent and Stockholder.

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16. Assignment. This Lock-Up Agreement and all obligations of Stockholder hereunder are personal to Stockholder and may not be transferred or delegated by Stockholder at any time. Parent may freely assign any or all of its rights under this Lock-Up Agreement, in whole or in part, to any other person or entity without obtaining the consent or approval of Stockholder.

17. Binding Nature. Subject to Section 16, this Lock-Up Agreement will inure to the benefit of Parent and its successors and assigns and will be binding upon Stockholder and Stockholder’s representatives, executors, administrators, estate, heirs, successors and assigns.

18. Survival. Each of the representations, warranties, covenants and obligations contained in this Lock-Up Agreement shall survive the consummation of the Merger.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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In Witness Whereof, Stockholder has executed this Lock-Up Agreement on ______ __, 2010.

(Signature)

(Print Name)

Number of Outstanding shares of
Capital Stock of the Company
Held by Stockholder:

Common Stock:

Preferred Stock:

Series A

Series B

Series C

Series D

Series E

Series F

Number of shares Subject to Options,
Warrants and Other Rights to
Acquire Capital Stock of the Company

Common Stock:

Preferred Stock:

Series A

Series B

Series C

Series D

Series E

Series F

[Signature Page to Lock-Up Agreement]

EX-99.3

Exhibit 99.3

VAXGEN TO ACQUIRE DIADEXUS IN A
STOCK-FOR-STOCK MERGER UNDER REVISED TERMS

May 28, 2010, South San Francisco –VaxGen, Inc. (OTC Bulletin Board: VXGN), a biopharmaceutical company, and diaDexus, Inc., a privately held diagnostics company focused on the development and commercialization of patent-protected in vitro diagnostic products addressing unmet needs in cardiovascular disease, announced today that they had entered into a definitive agreement under which VaxGen will acquire diaDexus in a stock-for-stock merger.

In connection with the transaction, VaxGen will issue, as merger consideration, common stock equal to approximately 38% of the outstanding shares of the combined company immediately following the merger and VaxGen stockholders will continue to own approximately 62% of the combined company immediately following the merger. As previously announced earlier in May, diaDexus voluntarily suspended the commercialization of its automated PLAC^® TIA product. Due to the impact of this suspension, the parties renegotiated the relative ownership of the combined company, as well as certain other terms, from those set forth in the summary of terms announced in April 2010.

If the merger is consummated, upon the closing of the transaction, diaDexus will become a wholly-owned subsidiary of VaxGen, and diaDexus stockholders receiving merger consideration will become stockholders of VaxGen. The officers of the combined company will be the current officers of diaDexus, and the combined company will be renamed diaDexus.

“The VaxGen board of directors and I are very pleased to announce the execution of this merger agreement,” said James P. Panek, VaxGen President. “We believe that this transaction provides VaxGen stockholders a significant ownership position in a revenue generating company which we believe has the potential for significant revenue growth in 2011.”

“We believe the merger provides the opportunity to further increase the awareness and clinical adoption of the PLAC Test,” said Patrick Plewman, President and Chief Executive Officer of diaDexus. “The PLAC ELISA Test for Lp-PLA₂ is the only blood test cleared by the FDA to assess risk for coronary heart disease and ischemic stroke, the #1 and #3 cause of death, respectively, in the U.S.”

VaxGen has also agreed to provide a loan to diaDexus in an amount not to exceed $6 million. If the amount of the loan advanced exceeds $4 million, the ownership percentage of diaDexus will be reduced. Certain significant stockholders of diaDexus have also agreed to provide a loan to diaDexus in the amount of $1.5 million. Both loans are secured by the assets of diaDexus, including intellectual property.

The merger is subject to customary closing conditions, including approval of the merger by diaDexus’ stockholders. The merger does not require approval of VaxGen stockholders. The companies anticipate that the merger will close in the 3^rd quarter of 2010. Upon the closing of the merger, the board of directors of the combined company would consist of five members, with two members being nominated by VaxGen and three members being nominated by diaDexus.

As of March 31, 2010, VaxGen’s reviewed cash, cash equivalents and marketable securities balance was approximately $31.3 million, and its liabilities and contractual obligations consisted primarily of costs and expenses of its outstanding leases related to its former biopharmaceutical manufacturing operations located in South San Francisco, California.

VaxGen’s South San Francisco facility lease expires in December 2016 and diaDexus’ South San Francisco facility lease expires in June 2011. The combined company will make a decision as to which facility best suits its needs.

The combined company will retain ownership of the milestone and royalty rights associated with VaxGen’s rPA Anthrax vaccine candidate asset sale agreement with Emergent BioSolutions, Inc. Under that agreement, VaxGen is eligible to receive potential milestone payments, as well as royalties from sales of rPA for a period of 12.5 years from first commercial sale. The combined company will also retain certain commercialization rights associated with VaxGen’s HIV/AIDS vaccine candidates licensed to Global Solutions for Infectious Disease, should those candidates ultimately prove to be commercially viable.

In connection with the definitive agreement, VaxGen has entered into voting agreements with certain executive officers, directors and stockholders of diaDexus pursuant to which these parties will agree to vote in favor of the adoption of the merger agreement and against approval of any proposal opposing or in competition with the consummation of the merger.

About VaxGen

VaxGen is a biopharmaceutical company based in South San Francisco, California. The company owns a state-of-the-art biopharmaceutical manufacturing facility with a 1,000-liter bioreactor that can be used to make cell culture or microbial biologic products. The facility is contained within leased premises. For more information, please visit the company’s web site at http://www.vaxgen.com.

About diaDexus

diaDexus is a privately held diagnostics company based in South San Francisco, California. The company is focused on the development and commercialization of patent-protected in vitro diagnostic products addressing unmet needs in cardiovascular disease. For more information, please visit the company’s web site at http://www.diadexus.com.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about diaDexus and VaxGen. Such statements include, but are not limited to, statements about the proposed transaction and its potential benefits to the diaDexus and VaxGen stockholders, the expected timing of the completion of the transaction, the combined company’s plans, objectives, expectations and intentions with respect to future operations and products and other statements that are not historical in nature, particularly those that utilize terminology such as “will,” “potential”, “could,” “can,” “believe,” “intends,” “continue,” “plans,” “expects,” “estimates” or comparable terminology. Forward-looking statements are based on current expectations and assumptions, and entail various known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Important factors known to diaDexus and VaxGen that could cause actual results to differ materially from those expressed in such forward-looking statements include the risk of general business and economic conditions; the failure of the diaDexus stockholders to approve the transaction; the failure of either party to meet any of the other conditions to the closing of the transaction; the failure to realize the anticipated benefits from the transaction or delay in realization thereof; diaDexus’ need for and ability to obtain additional financing; the sufficiency of available capital to allow diaDexus to grow revenue or achieve profitability; the risk that diaDexus is unable to obtain required regulatory approvals and to commercially reintroduce its PLAC TIA test in a timely manner, or at all, or that diaDexus revenues are materially adversely affected by the issuance of a “do not use” letter to diaDexus customers with respect to the PLAC TIA test, the technical and commercial merits and potential of diaDexus’ diagnostic products; and the difficulty of developing pharmaceutical and diagnostic products, obtaining regulatory and other approvals and achieving market acceptance. Additional factors that could cause VaxGen’s results to differ materially from those described in the forward-looking statements can be found in VaxGen’s most recent annual reports on Form 10-K and subsequent quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission, which are filed with the SEC and available at the SEC’s web site at www.sec.gov and which discussions also are incorporated herein by reference. The information set forth herein speaks only as of the date hereof, and diaDexus and VaxGen disclaim any intention and do not assume any obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise.

Additional Information

In connection with the proposed merger, VaxGen may file with the SEC a registration statement on Form S-4, which will include a prospectus of VaxGen and other relevant materials in connection with the proposed transactions, and may file with the SEC other documents regarding the proposed transaction. The final prospectus would be mailed to the stockholders of diaDexus. Investors and security holders of diaDexus are urged to read the prospectus (including any amendments or supplements thereto) and the other relevant material carefully in their entirety IF AND when they become available because they will contain important information about diaDexus, VaxGen and the proposed transaction.

This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended or an exemption therefrom.

Upon filing, any prospectus and other relevant materials (when and if they become available), and any and all documents filed with the SEC, may be obtained free of charge at the SEC’s web site at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by VaxGen by directing a written request VaxGen, Inc., 379 Oyster Point Boulevard, Suite 10, South San Francisco, CA 94080, Attention: Investor Relations.