10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

x  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

o  TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-11303

SYNBIOTICS CORPORATION
(Exact name of registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization)	95-3737816 (I.R.S. Employer Identification No.)
11011 Via Frontera San Diego, California (Address of principal executive offices)	92127 (Zip Code)

Registrant’s telephone number, including area code:  (858) 451-3771

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

As of November 8, 2002, 17,953,514 shares of common stock were outstanding.

SYNBIOTICS CORPORATION

INDEX

			Page
Part I	Item 1.	Financial Statements:
		Condensed Consolidated Balance Sheet - September 30, 2002 and December 31, 2001	1
		Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income - Three and nine months ended September 30, 2002 and 2001	2
		Condensed Consolidated Statement of Cash Flows - Nine months ended September 30, 2002 and 2001	3
		Notes to Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
	Item 4.	Controls and Procedures	19
Part II	Item 1.	Legal Proceedings	20
	Item 2.	Changes in Securities and Use of Proceeds	20
	Item 3.	Defaults Upon Senior Securities	20
	Item 4.	Submission of Matters to a Vote of Security Holders	20
	Item 5.	Other Information	21
	Item 6.	Exhibits and Reports on Form 8-K	21

PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements

Synbiotics Corporation
Condensed Consolidated Balance Sheet

		September 30, 2002			December 31, 2001
		(unaudited)			(audited)
Assets
Current assets:
	Cash and equivalents	$	1,324,000		$	1,039,000
	Accounts receivable		2,342,000			2,983,000
	Inventories		5,981,000			5,059,000
	Other current assets		915,000			796,000
			10,562,000			9,877,000
Property and equipment, net			1,400,000			1,648,000
Goodwill			4,275,000			12,074,000
Intangibles, net			2,712,000			2,744,000
Deferred debt issuance costs						7,000
Other assets			530,000			152,000
		$	19,479,000		$	26,502,000
Liabilities and Shareholders Equity:
Current Liabilities:
	Accounts payable and accrued expenses	$	5,205,000		$	5,915,000
	Current portion of long-term debt		1,400,000			1,200,000
	Deferred revenue		75,000			300,000
			6,680,000			7,415,000
Long-term debt			4,922,000			6,032,000
Other liabilities			1,920,000			1,804,000
			6,842,000			7,836,000
Mandatorily redeemable stock			2,604,000			3,107,000
Non-mandatorily redeemable common stock and other shareholders’ equity:
	Common stock, no par value, 70,000,000 shares authorized, 17,954,000 and 8,990,000 shares issued and outstanding at September 30, 2002 and December 31, 2001		46,050,000			40,286,000
	Common stock warrants		1,035,000			1,035,000
	Accumulated other comprehensive loss		(1,200,000	)		(1,411,000	)
	Accumulated deficit		(42,532,000	)		(31,766,000	)
	Total non-mandatorily redeemable common stock and other shareholders’ equity		3,353,000			8,144,000
		$	19,479,000		$	26,502,000

See accompanying notes to condensed consolidated financial statements.

-1-

Item 1.  Financial Statements (continued)

Synbiotics Corporation
Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income (unaudited)

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2001			2002			2001
Revenues:
	Net sales	$	4,465,000		$	5,835,000		$	16,964,000		$	20,546,000
	License fees		75,000						225,000			969,000
	Royalties		1,000			1,000			6,000			5,000
			4,541,000			5,836,000			17,195,000			21,520,000
Operating expenses:
	Cost of sales		2,069,000			2,411,000			7,469,000			8,519,000
	Research and development		354,000			434,000			1,044,000			1,222,000
	Selling and marketing		1,141,000			1,531,000			3,951,000			4,555,000
	General and administrative		1,556,000			1,483,000			7,412,000			4,630,000
			5,120,000			5,859,000			19,876,000			18,926,000
(Loss) Income from operations			(579,000	)		(23,000	)		(2,681,000	)		2,594,000
Other income (expense):
	Interest, net		(165,000	)		(217,000	)		(522,000	)		(744,000	)
(Loss) income before income taxes			(744,000	)		(240,000	)		(3,203,000	)		1,850,000
(Benefit from) provision for income taxes			(111,000	)		(34,000	)		175,000			29,000
(Loss) income from continuing operations			(633,000	)		(206,000	)		(3,378,000	)		1,821,000
Discontinued operations, net of tax			340,000			(10,000	)		261,000			(97,000	)
(Loss) income before cumulative effect of a change in accounting principle			(293,000	)		(216,000	)		(3,117,000	)		1,724,000
Cumulative effect of a change in accounting principle, net of tax									(7,649,000	)
Net (loss) income			(293,000	)		(216,000	)		(10,766,000	)		1,724,000
Translation adjustment			(96,000	)		405,000			211,000			(166,000	)
Comprehensive income (loss)		$	(389,000	)	$	189,000		$	(10,555,000	)	$	1,558,000
Basic and diluted (loss) income per share:
	(Loss) income from continuing operations		(0.04	)		(0.02	)		(0.26	)		0.18
	Discontinued operations, net of tax		0.02						0.02			(0.01	)
	Cumulative effect of a change in accounting principle, net of tax								(0.56	)
	Net (loss) income	$	(0.02	)	$	(0.02	)	$	(0.80	)	$	0.17

See accompanying notes to condensed consolidated financial statements.

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Item 1.  Financial Statements (continued)

Synbiotics Corporation
Condensed Consolidated Statement of Cash Flows (unaudited)

				Nine Months Ended September 30,
				2002			2001
Cash flows from operating activities:
	Net (loss) income			$	(10,766,000	)	$	1,724,000
	Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities:
		Depreciation and amortization			770,000			1,716,000
		Retention bonus payable in common stock			2,641,000
		Legal settlement payable in common stock			15,000
		Note receivable for discontinued operations			(500,000	)
		Cumulative effect of a change in accounting principle			7,756,000
		Changes in assets and liabilities (net of acquisitions and dispositions):
			Accounts receivable		824,000			444,000
			Inventories		(765,000	)		(103,000	)
			Deferred taxes					(8,000	)
			Other assets		(221,000	)		(150,000	)
			Accounts payable and accrued expenses		(1,064,000	)		(753,000	)
			Deferred revenue		(225,000	)		(969,000	)
			Other liabilities		112,000			(597,000	)
Net cash (used for) provided by operating activities					(1,423,000	)		1,304,000
Cash flows from investing activities:
	Acquisition of property and equipment				(29,000	)		(219,000	)
	Proceeds from sale of investment in W3 held for sale							9,000
Net cash used for investing activities					(29,000	)		(210,000	)
Cash flows from financing activities:
	Payments of long-term debt				(910,000	)		(900,000	)
	Proceeds from issuance of mandatorily redeemable preferred stock, net				2,604,000
Net cash provided by (used for) financing activities					1,694,000			(900,000	)
Net increase in cash and equivalents					242,000			194,000
Effect of exchange rates on cash					43,000			(12,000	)
Cash and equivalents – beginning of period					1,039,000			951,000
Cash and equivalents – end of period				$	1,324,000		$	1,133,000

See accompanying notes to condensed consolidated financial statements.

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Item 1.    Financial Statements (continued)

SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 - Interim Financial Statements:

The accompanying condensed consolidated balance sheet as of September 30, 2002 and the condensed consolidated statements of operations and comprehensive (loss) income and of cash flows for the three and nine months ended September 30, 2002 and 2001 have been prepared by Synbiotics Corporation (the “Company”) and have not been audited.  The condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiary Synbiotics Europe SAS (“SBIO-E”).  All significant intercompany transactions and accounts have been eliminated in consolidation.  These financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial position, results of operations and cash flows for all periods presented.  The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2001.  Interim operating results are not necessarily indicative of operating results for the full year.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Note 2 - New Accounting Pronouncements

As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (“FAS 142”), “Goodwill and Other Intangible Assets”.  FAS 142 changed the accounting for goodwill from an amortization method to an impairment-only approach.  Under FAS 142, goodwill is tested annually and whenever events or circumstances occur indicating that goodwill might be impaired.  Upon adoption of FAS 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 ceased.  In connection with the adoption of FAS 142, the Company performed a transitional goodwill impairment assessment.  As a result of this impairment assessment, in the first quarter of 2002 the Company recorded an impairment of $7,649,000, net of income tax benefit of $106,000, which is classified as a cumulative effect of a change in accounting principle for the nine months ended September 30, 2002.  Subsequent impairment assessments will be performed, at a minimum, in the fourth quarter of each year; and subsequent impairments, if any, will be classified as an operating expense.  The Company’s measurement of fair value was based upon a “fairness opinion” prepared by an independent investment advisor in conjunction with the Redwood transaction (Note 3).

As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”).  FAS 144 supersedes FAS 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”.  FAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30 (“APB 30”), “Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business”.  FAS 144 develops one accounting model for long-lived assets that are to be disposed of by sale. FAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell.  Additionally, FAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction.  The adoption of FAS 144 did not have a material impact on the Company’s financial position or results of operations.

Note 3 – Issuance of Preferred Stock and Restructuring of Debt:

In January 2002, the Company designated and authorized 4,000 shares of Series B Preferred Stock (the “Series B Preferred”), and issued 2,800 shares of Series B Preferred to Redwood West Coast, LLC (“Redwood”) in exchange for $2,800,000 cash, less

-4-

Item 1.    Financial Statements (continued)

SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

$196,000 of issuance costs.  Each Series B Preferred share is entitled to cumulative dividends, payable in cash quarterly, in an annual amount of $75 per share.  The Series B Preferred is entitled to a liquidation preference of $1,000 per share, plus accumulated and unpaid dividends.  Each share of Series B Preferred has voting power equivalent to 7,785 shares of common stock.  Each share of Series B Preferred is convertible into 7,785 shares of common stock (subject to anti-dilution adjustments).  Redwood representatives now constitute 100% of the Company’s Board of Directors, and Redwood also controls approximately 54% of the Company’s voting stock on a fully diluted basis.  The Company agreed to pay an affiliate of Redwood a consulting fee of $15,000 per month beginning in February 2002.  In October 2002, the Company entered into a Stock Swap Agreement with Redwood (Note 11) whereby the Company issued 2,800 shares of Series C Preferred to Redwood in exchange for Redwood’s 2,800 shares of Series B Preferred.

In January 2002, in conjunction with the Redwood transaction, the Company amended cash retention bonus agreements with certain employees (the “Converted Retention Bonuses”) so that, instead of cash, the employees received, on May 15, 2002, an aggregate of 8,254,000 shares of the Company’s common stock under the 1995 Stock Option/Stock Issuance Plan.  The Company also agreed to pay the employees’ income tax withholding obligation related to the Converted Retention Bonuses in exchange for the cancellation of options outstanding for an aggregate of 880,000 shares of the Company’s common stock.  In January 2002, the Company recorded compensation expense, including the employees’ income tax withholding obligation, related to the Converted Retention Bonuses totalling $3,029,000.  In addition, the Company also amended its remaining employee cash retention bonus agreements (the “Cash Retention Bonuses”) so that the amounts that would have become payable upon the consummation of the Redwood transaction will instead be payable in January 2003.  The Company recorded compensation expense totalling $653,000 in January 2002 related to the Cash Retention Bonuses.  The Cash Retention Bonuses also modified options to purchase an aggregate of 72,000 shares of the Company’s common stock to provide for immediate vesting, upon consummation of the Redwood transaction, and to extend the expiration date to January 25, 2004.  No compensation expense was recorded related to these modifications as the exercise prices of all of the options involved was greater than the fair market value of the shares on the modification date.

The Company amended its credit agreement with Comerica Bank – California (“Comerica”) in conjunction with the Redwood transaction.  The $7,132,000 principal amount outstanding under the Company’s revolving line of credit and term note, each due in March 2002, was converted into a new $7,132,000 term note.  The new note bears interest at the rate of prime plus 2%, and is payable in monthly installments of $100,000 plus accrued interest through January 2003 and monthly installments of $125,000 plus accrued interest thereafter, with all remaining principal due January 25, 2004.  In addition, the Company must make a partial prepayment if its EBITDA (earnings before interest, taxes, depreciation and amortization) in 2002 exceeds $4,000,000.  As of December 31, 2001, the Company was not in compliance with certain of the original Comerica financial covenants. The amended credit agreement waives all prior instances of non-compliance with financial covenants, and now includes only a minimal financial covenant related to capital expenditures.

Note 4 – Discontinued Operations:

In August 2002, the Company sold its instrument manufacturing operations, located in Rome, New York, to Danam Acquisition Corp., located in Dallas, Texas, in exchange for a $500,000 note receivable.  The note is payable, beginning in September 2002, in 60 monthly principal payments of $8,000 plus interest at 5%, is secured by the assets of the disposed operations (all of which had been previously written off by the Company), and is guaranteed by Drew Scientific Group PLC (the parent of Danam Acquisition Corp.)

The Company has recorded the $500,000 gain in discontinued operations.  The Company has restated prior amounts related to the disposed operations.  Revenue related to the discontinued operations for the three and nine months ended September 30, 2002 was $82,000 and $397,000, respectively, and pre-tax loss related to the discontinued operations for the three and nine months ended September 30, 2002 was $121,000 and $212,000, respectively.  A reconciliation of the restated amounts for the three and nine months ended September 30, 2001 is as follows:

-5-

Item 1.    Financial Statements (continued)

SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

		Three Months Ended September 30, 2001			Nine Months Ended September 30, 2001
		(unaudited)			(unaudited)
Amounts previously reported in:
	Net sales	$	168,000		$	614,000
	Cost of sales		(93,000	)		(445,000	)
	Research and development		(50,000	)		(167,000	)
	Sales and marketing		(15,000	)		(47,000	)
	General and administrative		(21,000	)		(67,000	)
	Benefit from income taxes		1,000			15,000
Discontinued operations, net of tax		$	(10,000	)	$	(97,000	)

Note 5 - Inventories:

Inventories consist of the following:

		September 30, 2002		December 31, 2001
			(unaudited)		(audited)
Inventories:
	Raw materials	$	2,741,000	$	2,317,000
	Work in process		515,000		318,000
	Finished goods		2,725,000		2,424,000
		$	5,981,000	$	5,059,000

Note 6 – Goodwill and Other Intangible Assets:

On January 1, 2002, the Company adopted FAS 142 (Note 2).  As a result, the Company recorded an impairment loss and ceased to amortize goodwill.  The Company has allocated all of its goodwill to its only reporting unit, which is also its only reportable segment (Note 9).  Changes in the carrying amount of goodwill were as follows:

Balance at December 31, 2000	$	13,161,000
Additional purchase price for prior acquisitions		277,000
Amortization		(1,445,000	)
Effect of currency exchange rates		81,000
Balance at December 31, 2001		12,074,000
Impairment loss		(7,755,000	)
Effect of currency exchange rates		(44,000	)
Balance at September 30, 2002	$	4,275,000

-6-

Item 1.    Financial Statements (continued)

SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

The reconciliation of reported net (loss) income and net (loss) income per share for the three and nine months ended September 30, 2002 and 2001 was as follows:

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2001			2002			2001
Reported net (loss) income		$	(293,000	)	$	(216,000	)	$	(10,766,000	)	$	1,724,000
Add:  Goodwill amortization						351,000						1,044,000
Adjusted net (loss) income		$	(293,000	)	$	135,000		$	(10,766,000	)	$	2,768,000
Basic and diluted net (loss) income per share:
	Reported net (loss) income	$	(0.02	)	$	(0.02	)	$	(0.80	)	$	0.17
	Add:  Goodwill amortization					0.04						0.11
Adjusted basic and diluted net (loss) income		$	(0.02	)	$	0.02		$	(0.80	)	$	0.28

Other intangible assets were as follows:

	September 30, 2002				December 31, 2001
		Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Patents	$	4,203,000	$	1,729,000	$	3,863,000	$	1,313,000
Licenses		599,000		361,000		512,000		318,000
	$	4,802,000	$	2,090,000	$	4,375,000	$	1,631,000

The weighted-average amortization periods for patents and licenses are 9 years and 10 years, respectively, and the weighted-average amortization period for total intangible assets is 9 years.  Annual pretax amortization for other intangibles over the next five years is estimated to be as follows:

2003	$	475,000
2004		471,000
2005		438,000
2006		428,000
2007		321,000
	$	2,133,000

Note 7 – Mandatorily Redeemable Stock:

The Series B Preferred (Note 3) defines a merger and/or acquisition as a liquidating event; and as a result, the Series B Preferred is considered to be mandatorily redeemable and is classified outside of permanent shareholders’ equity on the balance sheet.  The Series C Preferred (Note 11) does not define a merger and/or acquisition as a liquidating event; and as a result, the carrying amount of the Series C Preferred will be classified as a part of permanent shareholders’ equity on the balance sheet.

The 621,000 shares of the Company’s common stock which were issued to Merial SAS (“Merial”) in conjunction with the 1997 acquisition of SBIO-E were subject to a put provision which gave Merial the right, beginning on July 9, 2001, to sell all or any

-7-

Item 1.    Financial Statements (continued)

SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

portion of its shares to the Company at a price of $5 per share, for a total of $3,107,000.  In June 2001, in conjunction with the assignment to Merial of the Company’s feline leukemia virus (“FeLV”) vaccine distribution rights, Merial waived its rights under the put provision.  However, if the Company failed to make certain royalty payments to Merial through April 2002, the rights under the put provision would have reverted to Merial.  The Company made the final scheduled payment in April 2002, and reclassified the carrying amount of the common stock from mandatorily redeemable stock to permanent shareholders’ equity as of March 31, 2002.

Note 8 – (Loss) Income per Share:

The following is a reconciliation of net (loss) income and share amounts used in the computations of (loss) income per share:

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2001			2002			2001
		(unaudited)			(unaudited)			(unaudited)			(unaudited)
Basic and diluted net (loss) income used:
	(Loss) income from continuing operations	$	(633,000	)	$	(206,000	)	$	(3,378,000	)	$	1,821,000
	Less cumulative preferred stock dividends		(53,000	)					(143,000	)
	Less accretion of mandatorily redeemable common stock											(79,000	)
	(Loss) income from continuing operations used in computing basic (loss) income from continuing operations per share		(686,000	)		(206,000	)		(3,521,000	)		1,742,000
	Discontinued operations, net of tax		340,000			(10,000	)		261,000			(97,000	)
	Cumulative effect of a change in accounting principle, net of tax								(7,649,000	)
	Net (loss) income used in computing basic and diluted net (loss) income per share	$	(346,000	)	$	(216,000	)	$	(10,909,000	)	$	1,645,000
Shares used:
	Weighted average common shares outstanding used in computing basic (loss) income per share		17,909,000			9,618,000			13,760,000			9,621,000
	Weighted average options and warrants to purchase common stock as determined by the treasury method											234,000
	Shares used in computing diluted (loss) income per share		17,909,000			9,618,000			13,760,000			9,855,000

Weighted average options and warrants to purchase common stock, as determined by the application of the treasury method, and shares issuable upon conversion of the Series B preferred stock, as determined by the if-converted method, totalling 22,136,000, 230,000, and 22,140,000 shares have been excluded from the shares used in computing diluted net (loss) income per share for the three months ended September 30, 2002 and 2001 and the nine months ended September 30, 2002, respectively, as their effect is anti-dilutive.  In addition, warrants to purchase 250,000 shares of common stock at $2.00 per share have been excluded from the shares used in computing diluted net (loss) income per share for the three and nine months ended September 30, 2002 and 2001, as their exercise price is higher than the weighted average market price for those periods.  In

-8-

Item 1.    Financial Statements (continued)

SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

addition the effect of the warrants to purchase 250,000 shares of common stock at $2.00 per share was anti-dilutive for the three months ended September 30, 2002 and 2001 and the nine months ended September 30, 2002.

In October 2002, the Company issued 2,800 shares of Series C Preferred to Redwood in exchange for Redwood’s 2,800 shares of Series B Preferred (Note 11).  The Series C allows for its cash dividends to be paid in shares of the Company’s common stock.

Note 9 - Segment Information and Significant Customers:

The Company has determined that it has only one reportable segment based on the fact that all of its net sales are from its animal health products.  Although the Company sells diagnostic and instrument products, and has sold vaccine products, it does not base its business decision making on a product category basis.

The following are revenues for the Company’s diagnostic, vaccine and instrument products:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2002		2001		2002		2001
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Diagnostics	$	4,209,000	$	5,570,000	$	16,268,000	$	19,652,000
Vaccines				28,000				304,000
Instruments		256,000		237,000		696,000		590,000
Other revenues		76,000		1,000		231,000		974,000
	$	4,541,000	$	5,836,000	$	17,195,000	$	21,520,000

Other revenues for the nine months ended September 30, 2001 consist primarily of deferred license fee revenues that were recognized in conjunction with the assignment of a distribution agreement.

The following are revenues and long-lived assets information by geographic area:

		Three Months Ended September 30,				Nine Months Ended September 30,
		2002		2001		2002		2001
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues:
	United States	$	2,879,000	$	4,121,000	$	11,781,000	$	15,354,000
	France		322,000		604,000		1,201,000		1,658,000
	Other foreign countries		1,340,000		1,111,000		4,213,000		4,508,000
		$	4,541,000	$	5,836,000	$	17,195,000	$	21,520,000
						September 30, 2002		December 31, 2001
						(unaudited)		(audited)
Long-lived assets:
	United States					$	6,352,000	$	11,929,000
	France						2,565,000		4,696,000
						$	8,917,000	$	16,625,000

-9-

Item 1.    Financial Statements (continued)

SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

There were no sales to any one customer that totalled 10% or more of total revenues for the three and nine months ended September 30, 2002 and 2001.

Note 10 – Derivative Instruments:

On April 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 133 (“FAS 133”), “Accounting for Derivative Instruments and Hedging Activities,” as amended by Statement of Financial Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.”  FAS 133, as amended, requires that all derivative instruments be recognized on the balance sheet at fair value.  In addition, the standard specifies criteria for designation and effectiveness of hedging relationships and establishes accounting rules for reporting changes in the fair value of a derivative depending on the designated type of hedge.  There was no cumulative effect on the Company’s consolidated financials statements of the adoption of FAS 133 as of April 1, 2002 as the Company had no derivative instruments at that time.

The Company is exposed to foreign currency exchange rate fluctuations in the normal course of its business.  In June 2002, as part of its risk management strategy, the Company entered into a put option to hedge the foreign currency exposure of its net investment in SBIO-E.  The Company’s objective is to offset losses resulting from a decrease in exchange rates below the floor contained in the put option with gains on the derivative instrument.  The Company does not enter into any trading or speculative positions with regard to derivative instruments.

If the derivative instrument is effective (i.e., the exchange rates fall below the floor contained in the put option), the change in the fair value of the derivative instrument is recorded in accumulated other comprehensive income (loss) on the balance sheet.  If the derivative instrument is ineffective, the change in the fair value of the derivative instrument is recorded in income (loss) from continuing operations on the statement of operations.  The Company determines the fair value of the derivative instrument based on quoted market prices, and records the derivative instrument on the balance sheet at fair value.  At September 30, 2002, the fair value of the derivative instrument was approximately zero.  Accordingly, the entire amount related to the derivative instrument, which was not material, was charged to continuing operations during the three months ended September 30, 2002.

Note 11 – Subsequent Event:

In October 2002, the Company designated and authorized 4,000 shares of Series C Preferred Stock (the “Series C Preferred”), and entered into a Stock Swap Agreement with Redwood whereby the Company issued 2,800 shares of Series C Preferred to Redwood in exchange for Redwood’s 2,800 shares of Series B Preferred.  Each Series C Preferred share is entitled to cumulative dividends, payable in cash quarterly (although an election can be made to receive the dividends in shares of the Company’s common stock in the event the dividends are not paid within 30 days), in an annual amount of $75 per share; each Series C Preferred share is also entitled to, in effect, the dividends which had accumulated on a corresponding Series B Preferred share before the time of the swap.  The Series C Preferred is entitled to a liquidation preference of $1,000 per share, plus accumulated and unpaid dividends.  Each share of Series C Preferred has voting power equivalent to 7,785 shares of common stock.  Each share of Series C Preferred is convertible into 7,785 shares of common stock (subject to anti-dilution adjustments).

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q contains both historical financial information and forward-looking statements.  Forward-looking statements are characterized by words such as “intend”, “plan”, “believe”, “will”, “would”, etc.  Historical financial information may not be indicative of future financial performance.  In fact, future financial performance may be materially different than the historical financial information presented herein.  Moreover, the forward-looking statements about future business or future results of operations are subject to significant uncertainties and risks, including those detailed under the caption “Certain Risk Factors”, which could cause actual future results to differ materially from what is suggested by the forward-looking statements.

Results of Operations

Our net sales for the third quarter 2002 decreased by $1,370,000 or 23% from the third quarter of 2001.  The decrease reflects a decrease in our diagnostic product sales of $1,361,000 primarily related to canine heartworm diagnostic products.  Sales of our diagnostic products decreased due to the loss of one of our larger distributors in January 2002 who accounted for $503,000 of our sales in the third quarter of 2001, and increased competition in the canine heartworm market.  The increased competition in the canine heartworm market is the result of IDEXX Laboratories’ new combination in-clinic diagnostic test, and the entrance of Abaxis, Inc. into the canine heartworm diagnostic market.  In March 2002, IDEXX Laboratories sued Abaxis, Inc. for patent infringement, and in September 2002 a United States district court entered a preliminary injunction against Abaxis, Inc. which prevents them from selling their canine heartworm diagnostic product pending trial.  In addition, our sales in France for the third quarter fell year-to-year by $282,000 or 47% due primarily to the French authorities decisions to no longer require cattle to be tested annually for tuberculosis.

Our net sales for the nine months ended September 30, 2002 decreased by $3,582,000 or 17% from the nine months ended September 30, 2001.  The decrease reflects a decrease in our diagnostic product sales of $3,384,000 primarily related to canine heartworm diagnostic products.  Sales of our diagnostic products decreased due to the loss of one of our larger distributors in January 2002 who accounted for $1,388,000 of our sales in the nine months ended September 30, 2001, an additional $599,000 related to the fourth quarter 2001 transfer of our Japanese diagnostic business to a third party as part of a license agreement, and increased competition in the canine heartworm market as noted above.  In addition, our sales in France for the nine months fell year-to-year by $457,000 or 28% due primarily to the French authorities decisions to no longer require cattle to be tested annually for tuberculosis.

We recognize revenue from product sales when title and risk of loss transfers to our customer, which is generally upon shipment. Amounts we charge to our customers for shipping and handling are included in our net sales.  We provide promotional discounts and rebates to certain of our distributors.  Based upon the structure of these rebate programs and our past history, we are able to accurately estimate the amount of rebates at the time of sale.  These rebates are recorded as a reduction of our net sales.  We recognize license fee revenue ratably over the license term when we have further performance obligations to our licensee.  In the event that we have no further performance obligations to our licensee, we recognize license fee revenue upon receipt.

Our cost of sales as a percentage of our net sales was 46% during the third quarter of 2002 compared to 41% during the third quarter of 2001, and was 44% during the nine months ended September 30, 2002 compared to 41% during the nine months ended September 30, 2001.  The lower gross margins are a direct result of the decrease in our sales during the three and nine months ended September 30, 2002, and the fact that a significant portion of our manufacturing costs are fixed.

If pricing on canine heartworm diagnostic products improves, our gross margins and revenues may benefit directly.  The removal of Abaxis’ product from the market improved our pricing.  If we prevail in our patent infringement lawsuit against Heska Corporation and remove their product from the market, we believe our pricing may improve further.  Elimination of competitors may also improve our market share.

Among our major products, our DiroCHEK^® canine heartworm diagnostic products are manufactured at our facilities, whereas our WITNESS^® canine heartworm and feline leukemia diagnostic products and the SCA 2000™ products are manufactured by third parties.  Our poultry diagnostic products were manufactured for us by a third party during 2001.  In addition to affecting our gross margins, outsourcing of manufacturing renders us relatively more dependent on the third-party manufacturers.

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We completed the transfer of the manufacturing of our poultry diagnostic products from our supplier to our manufacturing facilities in San Diego during the first quarter of 2002, although some of the lower-volume products are awaiting licensure by the USDA.  We believe that our gross margins on these products will improve as we will have more products to absorb our fixed manufacturing costs.

Our research and development expenses decreased by $80,000 or 18% during the third quarter of 2002 as compared to the third quarter of 2001, and decreased by $178,000 or 15% during the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001.  The decreases are due primarily to the decrease in research activities performed for us by third parties, and decreases in patent legal expense.  Our research and development expenses as a percentage of our net sales were 8% and 7% during the third quarter of 2002 and 2001, respectively, and were 6% during the nine months ended September 30, 2002 and 2001.

Our selling and marketing expenses decreased by $390,000 or 25% during the third quarter of 2002 as compared to the third quarter of 2001, and decreased by $604,000 or 13% during the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001.  The decreases are due to a concerted effort to reduce selling and marketing expenses.  Our selling and marketing expenses as a percentage of our net sales were 26% during the third quarter of 2002 and 2001, and were 23% and 22% during the nine months ended September 30, 2002 and 2001, respectively.

Our general and administrative expenses increased by $73,000 or 5% during the third quarter of 2002 as compared to the third quarter of 2001, due primarily to severance costs related to the July 2002 termination of the President of SBIO-E (our Vice President – Research and Development was promoted to fill this position) and the September 2002 resignations of our Chief Executive Officer and Chief Financial Officer, and offset by the fact that goodwill is no longer amortized.  Our general and administrative expenses increased by $2,782,000 or 60% during the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001. The increase is primarily due to $3,682,000 of retention bonuses that became payable upon the consummation of the January 2002 Redwood Series B preferred stock investment transaction, the severance costs related to the July 2002 termination of the President of SBIO-E and the September 2002 resignations of our Chief Executive Officer and Chief Financial Officer, and offset by the fact that goodwill is no longer amortized.  Our general and administrative expenses as a percentage of our net sales were 35% and 25% during the third quarter of 2002 and 2001, respectively, and were 44% and 23% during the nine months ended September 30, 2002 and 2001, respectively.  Excluding the first quarter 2002 bonus expense and the goodwill amortization during the three and nine months ended September 30, 2001, our general and administrative expenses would have been $1,556,000 and $1,132,000 during the third quarter of 2002 and 2001, respectively, and $3,730,000 and $3,586,000 during the nine months ended September 30, 2002 and 2001, respectively, or 35% and 19% of our net sales during the third quarter of 2002 and 2001, respectively, and 22% and 17% of our net sales during the nine months ended September 30, 2002 and 2001, respectively.

Our net interest expense decreased by $52,000 or 24% during the third quarter of 2002 as compared to the third quarter of 2001, and decreased by $222,000 or 30% during the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001.  The decreases are due to the decrease in the prime rate during 2001, and decreases in the outstanding principal balance of our bank loan.

We recognized a provision for income taxes of $175,000 during the nine months ended September 30, 2002 as compared to a provision for income taxes of $29,000 during the nine months ended September 30, 2001.  The change is primarily due to permanent differences between income for financial reporting purposes and tax reporting purposes in 2002 related to the retention bonus.  In addition, the change in our ownership resulting from the January 2002 Redwood transaction limits the utilization of both Federal and state net operating loss carryforwards to $59,000 per year.  As a result of this limitation, $15,999,000 of our Federal net operating loss carryforwards, and $1,266,000 of our state net operating loss carryforwards, may expire before they can be utilized.

Cash was extremely tight for us throughout 2001 and into the first quarter of 2002, and at times we were on credit hold with several of our key suppliers.  Our lack of liquidity may have had a detrimental impact on our business in 2001 and into the first nine months of 2002.  It is unclear whether any impact on our business would continue into the last quarter of 2002.  However, due to the decrease in our sales during the nine months ended September 30, 2002, cash is again tight for us.  As a result, at the end of the third quarter of 2002, we began implementing a cost reduction program, which included a reduction in our headcount.

In August 2002, we sold our instrument manufacturing operations, located in Rome, New York, to Danam Acquisition Corp., located in Dallas, Texas, in exchange for a $500,000 note receivable.  The note is payable, beginning in September 2002, in 60 monthly principal payments of $8,000 plus interest at 5%, is secured by the assets of the disposed operations (all of which had

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been previously written off by the Company), and is guaranteed by Drew Scientific Group PLC (the parent of Danam Acquisition Corp.)

We recorded the $500,000 sale price in, and we have restated prior amounts related to the disposed operations as, discontinued operations.  See Note 4 to our condensed consolidate financial statements in Item 1 for a reconciliation of the restated amounts for the three and nine months ended September 30, 2001.

As of January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142 (“FAS 142”), “Goodwill and Other Intangible Assets”.  FAS 142 changed the accounting for goodwill from an amortization method to an impairment-only approach.  Under FAS 142, goodwill is tested annually and whenever events or circumstances occur indicating that goodwill might be impaired.  Upon adoption of FAS 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 ceased.  In connection with the adoption of FAS 142, we performed a transitional goodwill impairment assessment.  As a result of this impairment assessment, we recorded an impairment of $7,649,000, net of income tax benefit of $106,000, which is classified as a cumulative effect of a change in accounting principle in the first quarter of 2002.  We will perform subsequent impairment assessments, at a minimum, in the fourth quarter of each year; and subsequent impairments, if any, will be classified as an operating expense.  Our measurement of fair value was based upon a “fairness opinion” prepared by an independent investment advisor in conjunction with the Redwood transaction.

As of January 1, 2002, we adopted Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”).  FAS 144 supersedes FAS 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”.  FAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30 (“APB 30”), “Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business”.  FAS 144 develops one accounting model for long-lived assets that are to be disposed of by sale. FAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell.  Additionally, FAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction.  The adoption of FAS 144 did not have a material impact on our financial position or results of operations.

Financial Condition and Liquidity

In January 2002, we issued 2,800 shares of Series B preferred stock to Redwood West Coast, LLC (“Redwood”), in exchange for $2,800,000 cash.  Without this investment, we would not have had the working capital necessary to continue our business.  The Series B preferred shares were convertible into an aggregate of 21,797,000 shares of our common stock, were entitled to quarterly cumulative dividends at a 7.5% annual rate and were entitled to an aggregate liquidation preference of $2,800,000 plus accumulated and unpaid dividends.  The Series B preferred stock defines a merger and/or acquisition as a liquidating event; and as a result, the Series B preferred stock is considered to be mandatorily redeemable and is classified outside of permanent shareholders’ equity on the balance sheet.  Redwood representatives now constitute 100% of our board of directors, and Redwood also controls approximately 54% of our voting stock on a fully diluted basis.

In October 2002, we designated and authorized 4,000 shares of Series C preferred stock, and entered into a stock swap agreement with Redwood whereby we issued 2,800 shares of Series C preferred stock to Redwood in exchange for Redwood’s 2,800 shares of Series B preferred stock.  The Series C preferred stock is entitled to quarterly cumulative cash dividends (although an election can be made to receive the dividends in shares of our common stock in the event the dividends are not paid within 30 days), at a 7.5% annual rate; the Series C preferred stock is additionally entitled to, in effect, the dividends which had accumulated on the Series B preferred stock before the exchange.  The Series C preferred stock is entitled to an aggregate liquidation preference of $2,800,000, plus accumulated and unpaid dividends.  Each share of Series C preferred stock is convertible into 7,785 shares of common stock (subject to anti-dilution adjustments). The Series C preferred stock does not define a merger and/or acquisition as a liquidating event; and as a result, the carrying amount of the Series C preferred stock will be classified as a part of permanent shareholders’ equity on the balance sheet.

In conjunction with the Redwood transaction, and pursuant to selectively amended retention bonus agreements, we issued, on May 15, 2002, an aggregate of 8,254,000 shares of our common stock to certain employees.  We also agreed to pay the employees’ income tax withholding obligation related to the stock retention bonuses in exchange for the cancellation of options outstanding for an

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aggregate of 880,000 shares of our common stock.  In addition, we also amended cash retention bonus agreements with certain of our employees so that $653,000 that would have become payable upon the consummation of the Redwood transaction will instead be payable in January 2003.  In addition, under the employees’ cash retention bonus agreements, options to purchase an aggregate of 72,000 shares of our common stock became immediately vested upon consummation of the Redwood transaction, and the expiration date of the 72,000 stock options was extended to January 25, 2004.  We recorded compensation expense in the first quarter of 2002 totalling $3,682,000 related to the retention bonuses.

We amended our credit agreement with Comerica Bank – California (“Comerica”) in conjunction with the Redwood transaction.  Without the amendment, we could not have repaid our indebtedness to Comerica when it came due.  The $7,132,000 principal amount outstanding under our revolving line of credit and term note, each due in March 2002, was converted into a new $7,132,000 term note.  The new note bears interest at the rate of prime plus 2%, and is payable in monthly installments of $100,000 plus accrued interest through January 2003 and monthly installments of $125,000 plus accrued interest thereafter, with all remaining principal due January 25, 2004.  In addition, we must make a partial prepayment if our EBITDA (earnings before interest, taxes, depreciation and amortization) in 2002 exceeds $4,000,000.  As of December 31, 2001, we were not in compliance with certain of the original Comerica financial covenants. The amended credit agreement waived all prior instances of non-compliance with financial covenants, and includes only minimal financial covenants for the future.  We believe we will be able to repay or refinance the amended Comerica note when it comes due in 2004.

The following table summarizes the future cash payments related to our contractual obligations as of September 30, 2002 (amounts are in thousands):

	Total		2002		2003		2004		2005		2006		Thereafter
Long-term debt	$	6,322	$	300	$	1,475	$	4,547
Operating leases		5,393		292		820		774	$	793	$	630	$	2,084
Other long-term obligations		2,500								1,000		1,500

We believe that our present capital resources, including our working capital of $3,882,000 at September 30, 2002, as well as our anticipated cash from operations (including the effects of our cost reduction program), are sufficient to meet our working capital needs and meet our contractual obligations for at least the next twelve months.

The 621,000 shares of our common stock which we issued to Merial in conjunction with the 1997 acquisition of Synbiotics Europe SAS (“SBIO-E”) were subject to a put provision which gave Merial the right, beginning on July 9, 2001, to sell all or any portion of its shares to us at a price of $5 per share, for a total of $3,107,000.  In June 2001, in conjunction with the assignment to Merial of our FeLV vaccine distribution rights, Merial waived its rights under the put provision.  However, if we failed to make certain royalty payments to Merial through April 2002, the rights under the put provision would have reverted to Merial.  We made the final scheduled payment in April 2002, and reclassified the carrying amount of the stock from mandatorily redeemable stock to permanent shareholders’ equity as of March 31, 2002.

Our operations are seasonal due to the sales of our canine heartworm diagnostic products.  Our sales and profits tend to be concentrated in the first half of the year, as our distributors prepare for the heartworm season by purchasing diagnostic products for resale to veterinarians.  The operations of SBIO-E have reduced our seasonality as sales of their large animal diagnostic products tend to occur evenly throughout the year.  In addition, sales of our SCA 2000 instruments and supplies and our poultry diagnostic products reduce our seasonality.

Certain Risk Factors

Our future operating results are subject to a number of factors, including:

We may need additional capital in the future

We currently anticipate that our existing cash balances and cash flow expected to be generated from future operations will be sufficient to meet our liquidity needs for at least the next twelve months.  However, we may need to raise additional funds if our estimates of revenues, working capital and/or capital expenditure requirements change or prove inaccurate or in order for us to respond to unforeseen technological or marketing hurdles or to take advantage of unanticipated opportunities.

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Further, our future capital requirements will depend on many factors beyond our control or ability to accurately estimate, including continued scientific progress in our product development programs, the cost of manufacturing scale-up, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, the cost involved in patent infringement litigation, competing technological and market developments, and the cost of establishing effective sales and marketing arrangements.  In addition, we expect to review potential acquisitions that would complement our existing product offerings or enhance our technical capabilities.  While we have no current agreements with respect to any such acquisition, any future transaction of this nature could require potentially significant amounts of capital.  Such funds may not be available at the time or times needed, or available on terms acceptable to us.  If adequate funds are not available, or are not available on acceptable terms, we may not be able to take advantage of market opportunities, to develop new products, or to otherwise respond to competitive pressures.  This inability could materially harm our business.

The market in which we operate is intensely competitive, even with regard to our key canine heartworm diagnostic products, and many of our competitors are larger and more established

The market for animal health care products is extremely competitive.  Companies in the animal health care market compete to develop new products, to market and manufacture products efficiently, to implement effective research strategies, and to obtain regulatory approval.  Our current competitors include IDEXX Laboratories, a significantly larger company, and Heska Corporation.  These companies have greater financial, manufacturing, marketing, and research resources than we do.  IDEXX Laboratories’ new combination in-clinic diagnostic test has gained some market share from our in-clinic canine heartworm diagnostic tests.  In addition, IDEXX Laboratories prohibits its distributors from selling competitors’ products, including ours.  Further, additional competition could come from new entrants to the animal health care market.  We cannot assure you that we will be able to compete successfully in the future or that competition will not harm our business.

Our canine heartworm diagnostic products constituted 39% of our sales for the nine months ended September 30, 2002.  In addition to our historic competition with IDEXX Laboratories, the sales leader in this product category, our sales were substantially affected in 1999 - 2002 by a new heartworm product from Heska.  We are suing Heska, claiming that its heartworm product infringes our patent, and the trial date has been set for April 2003.

We have a history of losses and an accumulated deficit

We did not achieve profitability for the years ended December 31, 2001 and 2000, and we have had a history of annual losses.  We have incurred a consolidated accumulated deficit of $42,532,000 at September 30, 2002.  We may not achieve annual profitability again and if we are profitable in the future there can be no assurance that profitability can be sustained.

We rely on third party distributors for a substantial portion of our sales

We have historically depended upon distributors for a large portion of our sales, and we may not have the ability to establish and maintain an adequate independent sales and marketing capability in any or all of our targeted markets.  Distributor agreements render our sales exposed to the efforts of third parties who are not employees of Synbiotics and over whom we have no control.  Their failure to generate significant sales of our products could materially harm our business.  Reduction by these distributors of the quantity of our products which they distribute would materially harm our business.  In addition, IDEXX Laboratories’ prohibition against its distributors carrying competitors’ products, including ours, has made, and could continue to make, some distributors unavailable to us.

The effects of our 2001 liquidity issue may linger

Cash was extremely tight for us throughout 2001 and into the first quarter of 2002, and at times we were on credit hold with several of our key suppliers.  Our lack of liquidity may have had a detrimental impact on our business in 2001 and into the first nine months of 2002.  Moreover, due to the decrease in our sales during the nine months ended September 30, 2002, our cash is again extremely tight for us.  As a result, at the end of the third quarter of 2002, we began implementing a cost reduction program, which included a substantial reduction in our headcount.

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There is no assurance that acquired businesses can be successfully combined

There can be no assurance that the anticipated benefits of the April 2000 acquisition of the poultry product line from Kirkegaard & Perry Laboratories, Inc. (“KPL”), or any other future acquisitions (collectively, the “Acquired Business”) will be realized.  Acquisitions of businesses involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the Acquired Business, introduction of different distribution channels, potentially dilutive issuances of equity and/or increases in leverage and risk resulting from issuances of debt securities, the need to establish internal operating functions which had been previously provided pre-acquisition by a corporate parent, accounting charges, operating companies in different geographic locations with different cultures, the potential loss of key employees of the Acquired Business, the diversion of management’s attention from other business concerns and the risks of entering markets in which we have no or limited direct prior experience.  In addition, there can be no assurance that the acquisitions will not have a material adverse effect upon our business, results of operations, financial condition or cash flows, particularly in the quarters immediately following the consummation of the acquisition, due to operational disruptions, unexpected expenses and accounting charges which may be associated with the integration of the Acquired Business and us, as well as operating and development expenses inherent in the Acquired Business itself as opposed to integration of the Acquired Business.  We did not achieve the hoped-for benefits from most of our past acquisitions, most notably W3COMMERCE (2000).

We depend on key executives and personnel

Our future success will depend, to a significant extent, on the ability of our management to operate effectively, both individually and as a group.  Competition for qualified personnel in the animal health care products industry is intense, and we may not be successful in attracting and retaining such personnel.  There are only a limited number of persons with the requisite skills to serve in those positions and it may become increasingly difficult to hire such persons.  The loss of the services of any of our key personnel or the inability to attract or retain qualified personnel could harm our business.  At the end of the third quarter of 2002, our chief executive officer and our chief financial officer both resigned.  We replaced our chief financial officer by promoting our corporate controller, and we are actively searching for a new chief executive officer.

We depend on third party manufacturers

We contract for the manufacture of some of our products, including our Witness^® canine heartworm and feline leukemia diagnostic products and our SCA 2000™ products.  We also expect that some of our anticipated new products will be manufactured by third parties.  In addition, some of the products manufactured for us by third parties, including Witness^® canine heartworm and feline leukemia diagnostic products, are licensed to us by their manufacturers.  There are a number of risks associated with our dependence on third-party manufacturers including:

• reduced control over delivery schedules;

• quality assurance;

• manufacturing yields and costs;

• the potential lack of adequate capacity during periods of excess demand;

• limited warranties on products supplied to us;

• increases in prices and the potential misappropriation of our intellectual property; and

• limited negotiating leverage in the event of disputes with the third-party manufacturers.

If our third party manufacturers fail to supply us with an adequate number of finished products, our business would be significantly harmed.  We have no long-term contracts or arrangements with any of our vendors that guarantee product availability, the continuation of particular payment terms or the extension of credit limits.

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If we encounter delays or difficulties in our relationships with our manufacturers, the resulting problems could have a material adverse effect on us.

In June 2001, KPL instituted a recall of substantially all of our poultry diagnostic products that were manufactured by KPL due to a defective conjugate contained in the products.  We replaced the affected products that were held by our customers.  The cost of this recall and the related replacement products was borne by KPL.  However, our sales of poultry diagnostic products since then have been materially adversely affected, and our future sales of these products could be materially adversely affected.  In the first quarter of 2002, KPL instituted another recall of certain of our poultry diagnostic products that were manufactured by KPL due to a contaminated positive control contained in the products.  These recalls may have done some damage to the product line’s reputation.  We believe that the transfer of the manufacturing of these products to our San Diego manufacturing facility, which was completed during the first quarter of 2002, will significantly reduce the likelihood of any future recalls.

We rely on new and recent products

We rely to a significant extent on new and recently developed products, and expect that we will need to continue to introduce new products to be successful in the future.  There can be no assurance that we will obtain and maintain market acceptance of our products. There can be no assurance that future products will meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable cost or be successfully commercialized.

There can be no assurance that new products can be manufactured at a cost or in quantities necessary to make them commercially viable.  If we are unable to produce internally, or to contract for, a sufficient supply of our new products on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers, the introduction of new products would be delayed, which could have a material adverse effect on our business.

Our canine heartworm business is seasonal

Our operations are seasonal due to the timing of sales of our canine heartworm diagnostic products.  Our sales and profits tend to be concentrated in the first half of the year as our distributors prepare for the heartworm season by purchasing diagnostic products for resale to veterinarians.  One effect of this is a need to devote large amounts of cash to building canine heartworm diagnostic products inventory in preparation for the canine heartworm selling season at a time when our working capital is relatively low.

Any failure to adequately establish or protect our proprietary rights may adversely affect us

We rely on a combination of patent, copyright, and trademark laws, trade secrets, and confidentiality and other contractual provisions to protect our proprietary rights.  These measures afford only limited protection.  We currently have 13 issued U.S. patents and one pending patent application.  Our means of protecting our proprietary rights in the U.S. or abroad may not be adequate and competitors may independently develop similar technologies.  Our future success will depend in part on our ability to protect our proprietary rights and the technologies used in our principal products.  Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use trade secrets or other information that we regard as proprietary.  In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States.  Issued patents may not preserve our proprietary position.  Even if they do, competitors or others may develop technologies similar to or superior to our own.  If we do not enforce and protect our intellectual property, our business will be harmed. From time to time, third parties, including our competitors, have asserted patent, copyright, and other intellectual property rights to technologies that are important to us.  We expect that we will increasingly be subject to infringement claims as the number of products and competitors in the animal health care market increases.

The results of any litigated matter are inherently uncertain.  In the event of an adverse result in any litigation with third parties that could arise in the future, we could be required to:

• pay substantial damages, including treble damages if we are held to have willfully infringed;

• cease the manufacture, use and sale of infringing products;

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• expend significant resources to develop non-infringing technology; or

• obtain licenses to the infringing technology.

Licenses may not be available from any third party that asserts intellectual property claims against us on commercially reasonable terms, or at all.

Also, litigation is costly regardless of its outcome and can require significant management attention.  For example, in 1997, Barnes-Jewish Hospital filed an action against us claiming that our canine heartworm diagnostic products infringe their patent.  We settled this lawsuit, but there can be no assurance that we would be able to resolve similar incidents in the future.  Our patent infringement litigation against Heska’s use of heartworm diagnostic technology is also expensive.

Also, because our patents and patent applications cover novel diagnostic approaches,:

• the patent coverage which we receive could be significantly narrower than the patent coverage we seek in our patent applications; and

• our patent positions involve complex legal and factual issues which can be hard for patent examiners or lawyers asserting patent coverage to successfully resolve.

Because of this, our patent position could be vulnerable and our business could be materially harmed.

The U.S. patent application system also exposes us to risks.  In the United States, the first party to make a discovery is granted the right to patent it and patent applications are generally maintained in secrecy for 18 months.  For these reasons, we can never know if we are the first to discover particular technologies.  Therefore, we can never be certain that our technologies will be patented and we could become involved in lengthy, expensive, and distracting disputes concerning whether we were the first to make the disputed discovery.  Any of these events would materially harm our business.

Our business is regulated by the United States and various foreign governments

Our business is subject to substantial regulation by the United States government, most notably the United States Department of Agriculture, and the French government.  In addition, our operations may be subject to future legislation and/or rules issued by domestic or foreign governmental agencies with regulatory authority relating to our business.  There can be no assurance that we will continue to be in compliance with any of these regulations.

For marketing outside the United States, we and our suppliers are subject to foreign regulatory requirements, which vary widely from country to country.  There can be no assurance that we and our suppliers will meet and sustain compliance with any such requirements.

We use hazardous materials

Our business requires that we store and use hazardous materials and chemicals.  Although we believe that our procedures for storing, handling, and disposing of these materials comply with the standards prescribed by local, state, and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. If any of these materials were mishandled, or if an accident with them occurred, the consequences could be extremely damaging and we could be held liable for them.  Our liability for such an event would materially harm our business and could exceed all of our available resources for satisfying it.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Our market risk consists primarily of the potential for changes in interest rates and foreign currency exchange rates.

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Interest Rate Risk

The fair value of our debt at September 30, 2002 was $6,322,000, which has a variable interest rate based on the prime rate.  We do not hedge our interest rate risk, nor do we hold any trading or speculative positions with regard to derivative instruments based on interest rates.

A change in interest rates of five percentage points would have a material impact on our financial condition, results of operations and cash flows as it relates to our variable rate debt.  In addition, if interest rates increased by five percentage points our ability to refinance our bank debt would be seriously compromised.

Foreign Currency Exchange Rate Risk

Our foreign currency exchange rate risk relates to the operations of SBIO-E as it transacts business in Euros, its local currency.  However, this risk is limited to our intercompany receivable from SBIO-E and the conversion of its financial statements into the U.S. dollar for consolidation.  There is no foreign currency exchange rate risk related to SBIO-E’s transactions outside of the European Union as those transactions are denominated in Euros.  Similarly, all of the foreign transactions of our U.S. operations are denominated in U.S. dollars.  We do not hedge our cash flows on intercompany transactions, nor do we hold any trading or speculative positions with regard to derivative instruments based on currency exchange rates.

In June 2002, as part of our risk management strategy, we entered into a put option to hedge the foreign currency exposure of our net investment in SBIO-E.  Our objective is to offset losses resulting from a decrease in exchange rates below the floor contained in the put option with gains on the derivative instrument.  If the derivative instrument is effective (i.e., the exchange rates fall below the floor contained in the put option), the change in the fair value of the derivative instrument is recorded in accumulated other comprehensive income (loss) on the balance sheet.  If the derivative instrument is ineffective, the change in the fair value of the derivative instrument is recorded in income (loss) from continuing operations on the statement of operations.  We determine the fair value of the derivative instrument based on quoted market prices, and record the derivative instrument on the balance sheet at fair value.  At September 30, 2002, the fair value of the derivative instrument was approximately zero.  Accordingly, the entire amount related to the derivative instrument, which was not material, was charged to continuing operations during the three months ended September 30, 2002.

As a result, the effects of a 5% change in exchange rates would have a material impact on our financial condition, results of operations and cash flows, but only to the extent that it relates to the conversion of SBIO-E’s financial statements, including its intercompany payable, into the U.S. dollar for consolidation.

Item 4.    Controls and Procedures

(a)           Evaluation of disclosure controls and procedures

Our principal executive officer and principal financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective.

(b)           Changes in internal controls

There were no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the Evaluation Date.

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PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

The trial date for our patent litigation against Heska Corporation has been set for April 1, 2003.

In September 2002, we settled the breach of contract litigation brought against us by The London Manhattan Company, Inc. by paying $15,000 in cash and  $15,000 in the form of 88,235 shares of our unregistered common stock.

Item 2.   Changes in Securities and Use of Proceeds

On September 16, 2002, we issued 88,235 shares of our common stock to The London Manhattan Company, Inc. in conjunction with the settlement of its breach of contract litigation against us.  This was a Section 4(2) private offering, involving no underwriters.

On October 31, 2002, we issued 2,800 shares of our Series C preferred stock to Redwood West Coast, LLC in exchange for the 2,800 shares of Series B preferred stock held by Redwood West Coast, LLC.  This was a Rule 506/Section 4(2) private offering, involving no underwriters.  See Note 11 of the Notes to Condensed Consolidated Financial Statements for information regarding the Series C preferred stock’s conversion rights, cumulative dividend rights, voting rights and liquidation preference.

Item 3.   Defaults Upon Senior Securities

On the date of filing this report, a cumulative dividend arrearage of $161,000 existed on our Series C preferred stock.

Item 4.   Submission of Matters to a Vote of Security Holders

The Annual Meeting of Shareholders was held on August 15, 2002, with an adjournment to August 26, 2002.  The following matters were submitted to a vote, with the results indicated below:

(a)          Election of directors:

Nominee	For	Withheld
Thomas A. Donelan	37,676,877	942,000
Christopher P. Hendy	37,676,826	942,051
Paul A. Rosinack	37,662,546	956,331

(b) Approval of the amendment of Article Fourth of the Restated Articles of Incorporation (increase in authorized number of shares of common stock):

For	Against	Abstain	Broker Non-Votes
9,406,642	2,445,792	239,195	4,730,580

(c)          Approval of the amendment of Article 1, Section 2 of the Bylaws (number of directors):

For	Against	Abstain	Broker Non-Votes
11,721,027	125,186	245,416	4,730,580

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Item 5.   Other Information

None.

Item 6.   Exhibits and Reports on Form 8-K

	(a)	Exhibits
		3.1.2	Certificate of Amendment of Articles of Incorporation, filed September 23, 2002.
		3.2	Bylaws, as amended.
		4.6	Certificate of Determination of Preferences of Series C Preferred Stock, filed October 31, 2002.
		10.1	Lease of Premises by Registrant located at 11011 Via Frontera, San Diego, California, dated as of June 27, 2002.
		10.7.2†	Employment Separation and General Release Agreement by and between Paul A. Rosinack and the Registrant, dated as of September 24, 2002.
		10.8.2†	Employment Separation and General Release Agreement by and between Michael K. Green and the Registrant, dated as of September 19, 2002.
		10.86	Asset Purchase Agreement by and between the Registrant and Danam Acquisition Corp., an Indirect Wholly Owned Subsidiary of Drew Scientific Group PLC, dated August 30, 2002.
		10.87	Secured Promissory Note from Danam Acquisition Corp. to the Registrant, dated August 31, 2002.
		10.87.1	Guaranty Agreement between Drew Scientific Group PLC and the Registrant, dated as of August 31, 2002.
		10.87.2	Assignment of Note and Guaranty by the Registrant to Comerica Bank – California, dated August 31, 2002.
		10.88	Stock Swap Agreement between the Registrant and Redwood West Coast, LLC, dated October 31, 2002.
		99.1	Certification Under Section 906 of the Sarbanes-Oxley Act of 2002.
† - Management contract or compensatory plan or arrangement.
	(b)	Reports on Form 8-K
		On October 2, 2002, we filed a Form 8-K announcing the resignation of Paul A. Rosinack as our President, Chief Executive Officer and member of our Board of Directors, and the resignation of Michael K. Green as our Senior Vice President and Chief Financial Officer.

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SIGNATURES

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 thereunto duly authorized.

SYNBIOTICS CORPORATION

Date:  November 8, 2002	/s/ KEITH A. BUTLER
	Keith A. Butler Vice President - Finance and Chief Financial Officer (signing both as a duly authorized officer and as principal financial officer)

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Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Christopher P. Hendy, the principal executive officer of Synbiotics Corporation, certify that:

1.               I have reviewed this quarterly report on Form 10-Q of Synbiotics Corporation;

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)          designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)          evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c)          presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)          all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b)          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  November 8, 2002

/s/ CHRISTOPHER P. HENDY

Christopher P. Hendy
Principal Executive Officer

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Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Keith A. Butler, the principal financial officer of Synbiotics Corporation, certify that:

1.               I have reviewed this quarterly report on Form 10-Q of Synbiotics Corporation;

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)          designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)          evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c)          presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)          all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b)          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  November 8, 2002

/s/ KEITH A. BUTLER

Keith A. Butler
Principal Financial Officer

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Exhibit Index

Exhibit No.	Exhibit
3.1.2	Certificate of Amendment of Articles of Incorporation, filed September 23, 2002.
3.2	Bylaws, as amended.
4.6	Certificate of Determination of Preferences of Series C Preferred Stock, filed October 31, 2002.
10.1	Lease of Premises by Registrant located at 11011 Via Frontera, San Diego, California, dated as of June 27, 2002.
10.7.2†	Employment Separation and General Release Agreement by and between Paul A. Rosinack and the Registrant, dated as of September 24, 2002.
10.8.2†	Employment Separation and General Release Agreement by and between Michael K. Green and the Registrant, dated as of September 19, 2002.
10.86	Asset Purchase Agreement by and between the Registrant and Danam Acquisition Corp., an Indirect Wholly Owned Subsidiary of Drew Scientific Group PLC, dated August 30, 2002.
10.87	Secured Promissory Note from Danam Acquisition Corp. to the Registrant, dated August 31, 2002.
10.87.1	Guaranty Agreement between Drew Scientific Group PLC and the Registrant, dated as of August 31, 2002.
10.87.2	Assignment of Note and Guaranty by the Registrant to Comerica Bank – California, dated August 31, 2002.
10.88	Stock Swap Agreement between the Registrant and Redwood West Coast, LLC, dated October 31, 2002.
99.1	Certification Under Section 906 of the Sarbanes-Oxley Act of 2002.
† - Management contract or compensatory plan or arrangement.

EX-3.1.2

Exhibit 3.1.2

CERTIFICATE OF AMENDMENT

of

ARTICLES OF INCORPORATION

of

SYNBIOTICS CORPORATION

Paul A. Rosinack and Michael K. Green certify that:

1.  They are the President and Secretary, respectively, of Synbiotics Corporation, a California corporation.

2.  The article FOURTH of the Articles of Incorporation of this corporation is amended in its entirety to read as follows:

“FOURTH:

The corporation is authorized to issue two classes of stock, to be designate, respectively, “Common Stock” and “Preferred Stock”. The total number of shares which the corporation is authorized to issue is 95,000,000 shares. 70,000,000 shares shall be Common Stock and 25,000,000 shall be Preferred Stock.

The Preferred Stock may be issued from time to time in one or more series. The Board o.f Directors is hereby authorized to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.”

3.  The foregoing amendment of the Articles of Incorporation as been duly approved by the Board of Directors.

4.  The foregoing amendment of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The current total number of outstanding shares of the corporation is 17,868,079, of which 17,865,279 shares are shares of Common Stock and 2,800 shares are shares of Series B Preferred Stock. No shares of Series A Junior Participating Preferred Stock are outstanding. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50 percent of all outstanding shares (i.e., more than 50 percent of all votes entitled to be cast), and more than 50 percent of all outstanding shares of Common Stock.

We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.

DATED: August 27, 2002

/s/    PAUL A. ROSINACK       

Paul A. Rosinack

President

/s/    MICHAEL K. GREEN         

Michael K. Green

Secretary

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EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BYLAWS

of

SYNBIOTICS CORPORATION

(a California corporation)

ARTICLE I

DIRECTORS; MANAGEMENT

SECTION 1.  Powers; Standard of Care

(a)  Subject to the provisions of the General Corporation Law of California, effective January 1, 1977 (to which the various Section numbers quoted herein relate) and subject to any limitation in the Articles of Incorporation and the Bylaws relating to action required to be approved by the Shareholders (Sec. 153) or by the outstanding shares (Sec. 152), the business and affairs of this corporation shall be managed by and all corporate powers shall be exercised by or under direction of the Board of Directors.

(b)  Each Director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances (Sec. 309).

SECTION 2.  Number of Directors

The authorized number of directors of the corporation shall be a minimum of three (3), and a maximum of five (5), until changed by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw adopted by the vote or written consent of shareholders of a majority of the outstanding shares entitled to vote. The number of directors within the minimum to maximum range may be designated by the Board of Directors by resolution from time to time.

SECTION 3.  Election and Tenure of Office

The directors shall be elected by ballot at the annual meeting of the Shareholders, to serve for one year or until their successors are elected and have qualified. Their term of office shall begin immediately after election.

SECTION 4.  Vacancies

Vacancies in the Board of Directors may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office until his successor is elected at an annual meeting of Shareholders or at a special meeting called for that purpose. The Shareholders may at any time elect a Director to fill any vacancy not filled by the Directors, and may elect the additional Directors at the meeting at which an amendment of the Bylaws is voted authorizing an increase in the number of Directors.

A vacancy or vacancies shall be deemed to exist in case of the death, resignation or removal of any Director, or if the Shareholders shall increase the authorized number of Directors but shall fail at the meeting at which such

1

increase is authorized, or at an adjournment thereof, to elect the additional Director so provided for, or in case the Shareholders fail at any time to elect the full number of authorized Directors.

If the Board of Directors accepts the resignation of a Director tendered to take effect at a future time, the Board, or the Shareholders, shall have power to elect a successor to take office when the resignation shall become effective.

No reduction of the number of Directors shall have the effect of removing any Director prior to the expiration of his term of office.

SECTION 5.  Removal of Directors

The entire Board of Directors or any individual Director may be removed from office as provided by Secs. 302, 303 and 304 of the Corporations Code of the State of California. In such case, the remaining Board members may elect a successor Director to fill such vacancy for the remaining unexpired term of the Director so removed.

SECTION 6.  Notice, Place and Manner of Meetings

Meetings of the Board of Directors may be called by the Chairman of the Board, or the President, or any Vice President, or the Secretary, or any two (2) Directors and shall be held at the principal executive office of the corporation in the State of California, unless some other place is designated in the notice of the meeting. No notice need be given of organization meetings or regular meetings held at the corporate offices at the time and date set forth herein. Notice shall be given of other meetings as herein provided. Members of the Board may participate in a meeting through use of a conference telephone or similar communications equipment so long as all members participating in such a meeting can hear one another. Accurate minutes of any meeting of the Board, or any committee thereof, shall be maintained as required by Sec. 1500 of the Code by the Secretary or other Officer designated for that purpose.

SECTION 7.  Organization Meetings—Regular Meetings

The organization meetings of the newly elected Board of Directors shall be held immediately following the adjournment of the annual meetings of the Shareholders.

Other Regular Meetings

Regular meetings of the Board of Directors shall be held at the corporate offices, or such other place as may be designated by the Board of Directors, as follows:

Time of Regular Meeting: 10:00 a.m.

Date of regular Meeting: First Thursday of April

If said day shall fall upon a holiday, such meetings shall be held on the next succeeding business day thereafter.

SECTION 8.  Special Meetings—Notices

Special meetings of the Board may be called at any time by the President or, if he is absent or unable or refuses to act, by any Vice President or the Secretary or by any two Directors, or by one Director if only one is provided.

At least forty-eight (48) hours notice of the time and place of special meetings shall be delivered personally to the Directors or personally communicated to them by a corporate Officer by telephone or telegraph. If the notice is sent to a Director by letter, it shall be addressed to him at his address as it is shown upon the records of the

2

corporation, (or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the Directors are regularly held). In case such notice is mailed, it shall be deposited in the United States mail, postage prepaid, in the place in which the principal executive office of the corporation is located at least four (4) days prior to the time of the holding of the meeting. Such mailing, telegraphing, telephoning or delivery as above provided shall be due, legal and personal notice to such Director.

SECTION 9.  Waivers

When (i) all of the Directors are present at any organizational, regular or special meeting, however called or noticed, and sign a written consent thereto on the records of such meeting, or, (ii) if a majority of the Directors are present and if those not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the corporate records or made a part of the minutes of the meeting or (iii) if a Director attends a meeting without notice but without protesting, prior thereto or at its commencement, the lack of notice to him, then the transactions thereof are as valid as if had at a meeting regularly called and noticed.

SECTION 10.  Sole Director Provided by Articles of Incorporation

In the event only one Director is required by the Bylaws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the Directors shall be deemed to refer to such notice, waiver, etc., by such sole Director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors.

SECTION 11.  Directors Acting by Unanimous Written Consent

Any action required or permitted to be taken by the Board of Directors may be taken without a meeting and with the same force and effect as if taken by a unanimous vote of Directors, if authorized by a writing signed individually or collectively by all members of the Board. Such consent shall be filed with the regular minutes of the Board.

SECTION 12.  Quorum

A majority of the number of Directors as fixed by the Articles of Incorporation or Bylaws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the Directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the Directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of Directors, if any action taken is approved by a majority of the required quorum for such meeting.

SECTION 13.  Notice of Adjournment

Notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place be fixed at the meeting adjourned and held within twenty-four (24) hours, but if adjourned more than twenty-four (24) hours, notice shall be given to all Directors not present at the time of the adjournment.

SECTION 14.  Compensation of Directors

Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board a fixed sum and expense of attendance, if any, may be allowed for attendance at each regular and special meeting of the Board; provided that nothing herein contained shall be construed to preclude any Director from serving the company in any other capacity and receiving compensation therefor.

3

SECTION 15.  Committees

Committees of the Board may be appointed by resolution passed by a majority of the whole Board. Committees shall be composed of two or more members of the Board, and shall have such powers of the Board as may be expressly delegated to it by resolution of the Board of Directors, except those powers expressly made non-delegable by Sec. 311.

SECTION 16.  Advisory Directors

The Board of Directors from time to time may elect one or more persons to be Advisory Directors who shall not by such appointment be members of the Board of Directors. Advisory Directors shall be available from time to time to perform special assignments specified by the President, to attend meetings of the Board of Directors upon invitation and to furnish consultation to the Board. The period during which the title shall be held may be prescribed by the Board of Directors. If no period is prescribed, the title shall be held at the pleasure of the Board.

SECTION 17.  Resignations

Any Director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.

ARTICLE II

OFFICERS

SECTION 1.  Officers

The Officers of the corporation shall be a Chairman of the Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other Officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices.

SECTION 2.  Election

The Officers of the corporation, except such Officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified.

SECTION 3.  Subordinate Officers, Etc.

The Board of Directors may appoint such other Officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board of Directors may from time to time determine.

SECTION 4.  Removal and Resignation

Any Officer may be removed, either with or without cause, by a majority of the Directors at the time in office, at any regular or special meeting of the Board, or, except in case of an Officer chosen by the Board of Directors, by any Officer upon whom such power of removal may be conferred by the Board of Directors.

4

Any Officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 5.  Vacancies

A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for regular appointments to such office.

SECTION 6.  Chairman of the Board

The Chairman of the Board, if there shall be such an Officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the Bylaws.

SECTION 7.  President

Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an Officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and Officers of the corporation. He shall preside at all meetings of the Shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws.

SECTION 8.  Vice President

In the absence or disability of the President, the Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the Bylaws.

SECTION 9.  Secretary

The secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors’ meetings, the number of shares present or represented at Shareholders’ meetings and the proceedings thereof.

The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation’s transfer agent, a share register, or duplicate share register, showing the names of the Shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all the meetings of the Shareholders and of the Board of Directors required by the Bylaws or by law to be given, and he shall keep the seal of the corporation in safe

5

custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the Bylaws.

SECTION 10.  Chief Financial Officer

This Officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any Director.

This Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all of his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws.

ARTICLE III

SHAREHOLDERS’ MEETINGS

SECTION 1.  Place of Meetings

Meetings of the Shareholders shall be held at the principal executive office of the corporation, in the State of California, unless some other appropriate and convenient location be designated for that purpose from time to time by the Board of Directors.

SECTION 2.  Annual Meetings

The annual meeting of the Shareholders of the corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such time and place as may be determined each year by the Board of Directors.

SECTION 3.  Special Meetings

Special meetings of the Shareholders may be called at any time by the Board of Directors, the Chairman of the Board, the President, a Vice President, the Secretary, or by one or more Shareholders holding not less than one-tenth (l/10) of the voting power of the corporation. Except as next provided, notice shall be given as for the annual meeting.

Upon receipt of a written request addressed to the Chairman, President, Vice President, or Secretary, mailed or delivered personally to such Officer by any person (other than the Board) entitled to call a special meeting of Shareholders, such Officer shall cause notice to be given, to the Shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, not less than twenty-five nor more than sixty days after the receipt of such request. If such notice is not given within twenty days after receipt of such request, the persons calling the meeting may give notice thereof in the manner provided by these Bylaws or apply to the Superior Court as provided in Sec. 305(c).

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SECTION 4.  Notice of Meetings—Reports

Notice of meetings, annual or special, shall be given in writing not less than ten nor more than sixty days before the date of the meeting, to Shareholders entitled to vote thereat by the Secretary or the Assistant Secretary, or if there be no such Officer, or in the case of his neglect or refusal, by any Director or Shareholder.

Such notices or any reports shall be given personally or by mail or other means or written communication as provided in Sec. 601 of the Code and shall be sent to the Shareholder’s address appearing on the books of the corporation, or supplied by him to the corporation for the purpose of notice, and in the absence thereof, as provided in Sec. 601 of the Code.

Notice of any meeting of Shareholders shall specify the place, the day and the hour of meeting, and (l) in case of a special meeting, the general nature of the business to be transacted and no other business may be transacted, or (2) in the case of an annual meeting, those matters which the Board at date of mailing, intends to present for action by the Shareholders. At any meetings where Directors are to be elected, notice shall include the names of the nominees, if any, intended at date of Notice to be presented by management for election.

If a Shareholder supplies no address, notice shall be deemed to have been given to him if mailed to the place where the principal executive office of the company, in California, is situated, or published at least once in some newspaper of general circulation in the County of said principal office.

Notice shall be deemed given at the time it is delivered personally or deposited in the mail or sent by other means of written communication. The Officer giving such notice or report shall prepare and file an affidavit or declaration thereof.

When a meeting is adjourned for forty-five days or more, notice of the adjourned meeting shall be given as in case of an original meeting. Save, as aforesaid, it shall not be necessary to give any notice of adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken.

SECTION 5.  Validation of Shareholders’ Meetings

The transactions of any meeting of Shareholders, however called and noticed, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the Shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice, or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance shall constitute a waiver of notice, unless objection shall be made as provided in Sec. 601(e).

SECTION 6.  Shareholders Acting Without A Meeting—Directors

Any action which may be taken at a meeting of the Shareholders may be taken without a meeting or notice of meeting if authorized by a writing signed by all of the Shareholders entitled to vote at a meeting for such purpose and filed with the Secretary of the corporation, provided further that while ordinarily Directors can only be elected by unanimous written consent under Sec. 603(d), as to vacancy created by death, resignation or other causes, if the Directors fail to fill a vacancy, then a Director to fill that vacancy may be elected by the written consent of persons holding a majority of shares entitled to vote for the election of Directors.

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SECTION 7.  Other Actions Without A Meeting

Unless otherwise provided in the GCL or the Articles, any action which may be taken at any annual or special meeting of Shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

Unless the consents of all Shareholders entitled to vote have been solicited in writing,

(1)  Notice of any Shareholder approval pursuant to Secs. 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by such approval, and

(2)  Prompt notice shall be given of the taking of any other corporate action approved by Shareholders without a meeting by less than unanimous written consent, to each of those Shareholders entitled to vote who have not consented in writing.

Any Shareholder giving a written consent, or the Shareholder’s proxyholders, or a transferee of the shares of a personal representative of the Shareholder or their respective proxyholders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary.

SECTION 8.  Quorum

The holders of a majority of the shares entitled to vote thereat, present in person, or represented by proxy, shall constitute a quorum at all meetings of the Shareholders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these Bylaws. If, however, such majority shall not be present or represented at any meeting of the Shareholders, the Shareholders entitled to vote thereat, present in person, or by proxy, shall have the power to adjourn the meeting from time to time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at a meeting as originally notified.

If a quorum be initially present, the Shareholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum, if any action taken is approved by a majority of the Shareholders required to initially constitute a quorum.

SECTION 9.  Voting Rights; Cumulative Voting

Only persons in whose names shares entitled to vote stand on the stock records of the corporation on the day of any meeting of Shareholders, unless some other day be fixed by the Board of Directors for the determination of Shareholders of record, and then on such other day, shall be entitled to vote at such meeting.

Provided the candidate’s name has been placed in nomination prior to the voting and one or more Shareholders has given notice at the meeting prior to the voting of the Shareholder’s intent to cumulate the Shareholder’s votes, every Shareholder entitled to vote at any election for Directors of any corporation for profit may cumulate his votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which his shares are entitled, or distribute his votes on the same principle among as many candidates as he thinks fit.

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The candidates receiving the highest number of votes up to the number of Directors to be elected are elected.

The Board of Directors may fix a time in the future not exceeding sixty days preceding the date of any meeting of Shareholders or the date fixed for the payment of any dividend or distribution, or for the allotment of rights, or when any change or conversion or exchange of shares shall go into effect, as a record date for the determination of the Shareholders entitled to notice of and to vote at any such meeting, or entitled to receive any such dividend or distribution, or any allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. In such case only Shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting, or to receive such dividends, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any share on the books of the company after any record date fixed as aforesaid. The Board of Directors may close the books of the company against transfers of shares during the whole or any part of such period.

SECTION 10.  Proxies

Every Shareholder entitled to vote, or to execute consents, may do so, either in person or by written proxy, executed in accordance with the provisions of Secs. 604 and 705 of the Code and filed with the Secretary of the corporation.

SECTION 11.  Organization

The President (or, should the President so elect in his discretion, the Chairman of the Board), or in the absence of the Chairman of the Board, the President, any Vice President, shall call the meeting of the Shareholders to order, and shall act as chairman of the meeting. In the absence of the President and all of the Vice Presidents, Shareholders shall appoint a chairman for such meeting. The Secretary of the company shall act as Secretary of all meetings of the Shareholders, but in the absence of the Secretary at any meeting of the Shareholders, the presiding Officer may appoint any person to act as Secretary of the meeting.

SECTION 12.  Inspectors of Election

In advance of any meeting of Shareholders the Board of Directors may, if they so elect, appoint inspectors of election to act at such meeting or any adjournments thereof. If inspectors of election be not so appointed, the chairman of any such meeting may, and on the request of any Shareholder or his proxy shall, make such appointment at the meeting in which case the number of inspectors shall be either one or three as determined by a majority of the Shareholders represented at the meeting.

ARTICLE IV

CERTIFICATES AND TRANSFER OF SHARES

SECTION 1.  Certificates for Shares

A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of these shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid. All certificates shall be signed in the name of the corporation by the chairman of the board or the president or vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to

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be that officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue.

SECTION 2.  Transfer on the Books

Upon surrender to the Secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

SECTION 3.  Lost or Destroyed Certificates

Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and shall if the Directors so require give the corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the stock represented by said certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to be lost or destroyed.

SECTION 4.  Transfer Agents and Registrars

The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, which shall be an incorporated bank or trust company, either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the Board of Directors may designate.

SECTION 5.  Closing Stock Transfer Books—Record Date

In order that the corporation may determine the Shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty nor less than ten days prior to the date of such meeting nor more than sixty days prior to any other action.

If no record date is fixed:

(1)  The record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

(2)  The record date for determining Shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given.

(3)  The record date for determining Shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later.

SECTION 6.  Legend Condition

In the event any shares of this corporation are issued pursuant to a permit or exemption therefrom requiring the imposition of a legend condition the person or persons issuing or transferring said shares shall make sure said

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legend appears on the certificate and on the stub relating thereto in the stock record book and shall not be required to transfer any shares free of such legend unless an amendment to such permit or a new permit be first issued so authorizing such a deletion.

ARTICLE V

CORPORATE RECORDS AND REPORTS; INSPECTION

SECTION 1.  Records

The corporation shall maintain, in accordance with generally accepted accounting principles, adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal executive office in the State of California, as fixed by the Board of Directors from time to time.

SECTION 2.  Inspection of Books and Records

All books and records provided for in Sec. 1500 shall be open to inspection of the Directors and Shareholders from time to time and in the manner provided in said Sec. 1600-1602.

SECTION 3.  Certification and Inspection of Bylaws

The original or a copy of these Bylaws, as amended or otherwise altered to date, certified by the Secretary, shall be kept at the corporation’s principal executive office and shall be open to inspection by the Shareholders of the company, at all reasonable times during office hours, as provided in Sec. 213 of the Corporations Code.

SECTION 4.  Checks, Drafts, Etc.

All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors.

SECTION 5.  Contracts, Etc.—How Executed

The Board of Directors, except as in the Bylaws otherwise provided, may authorize any Officer or Officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no Officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purpose or to any amount, except as provided in Sec. 313 of the Corporations Code.

ARTICLE VI

ANNUAL REPORTS

SECTION 1.  Due Date, Contents

The Board of Directors shall cause an annual report or statement to be sent to the Shareholders of this corporation not later than 120 days after the close of the fiscal or calendar year in accordance with the provisions of Secs. 1500-1501. Such report shall be sent to Shareholders at least fifteen days prior to the annual meeting

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of Shareholders. Such report shall contain a balance sheet as of the end of the fiscal year, an income statement and a statement of changes in financial position for such fiscal year, accompanied by any report thereon of an independent accountant, or if there is no such report, a certificate of the Chief Financial Officer or President that such statements were prepared without audit of the books and records of the corporation.

SECTION 2.  Waiver

The foregoing requirement of an annual report may be waived by the Board so long as this corporation shall have less than 100 Shareholders.

ARTICLE VII

AMENDMENTS TO BYLAWS

SECTION 1.  By Shareholders

New Bylaws may be adopted or these Bylaws may be repealed or amended at their annual meeting, or at any other meeting of the Shareholders called for that purpose, by a vote of Shareholders entitled to exercise a majority of the voting power of the corporation, or by written assent of such Shareholders.

SECTION 2.  Powers of Directors

Subject to the right of the Shareholders to adopt, amend or repeal Bylaws, as provided in Section 1 of this Article VII, and the limitations of Sec. 204(a)(5) and Sec. 212, the Board of Directors may adopt, amend or repeal any of these Bylaws.

SECTION 3.  Record of Amendments

Whenever an amendment or new Bylaw is adopted, it shall be copied in the book of Bylaws with the original Bylaws, in the appropriate place. If any Bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book.

ARTICLE VIII

MISCELLANEOUS

SECTION 1.  References to Code Sections

“Sec.” references herein refer to the equivalent Sections of the General Corporation Law effective January 1, 1977, as amended.

SECTION 2.  Representation of Shares in Other Corporations

Except as provided in Sec. 703, shares of other corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President and the Secretary or an Assistant Secretary.

SECTION 3.  Subsidiary Corporations

Shares of this corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined in Sec. 189 (a) and (b).

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SECTION 4.  Indemnification of Agents of the Corporation; Purchase of Liability Insurance

(a)  For the purposes of this Section 4, “agent” means any person who (i) is or was a director, officer, employee or other agent of the Corporation, (ii) is or was serving at the request of the Corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation; “proceeding” means any threatened, pending or completed action or proceeding, neither civil, criminal, administrative or investigative; and “expenses” included, without limitation, attorney’s fees and any expenses of establishing a right to indemnification under paragraph (d) or (e)(3) of this Section 4.

(b)  The Corporation shall have the power to indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of the Corporation to procure a judgment in its favor) by reason of the fact that such person is or was an agent of the Corporation against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the Corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the Corporation or that the person had reasonable cause to believe that the person’s conduct was unlawful.

(c)  The Corporation shall have the power to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was an agent of the Corporation against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action if such person acted in good faith, in a manner such person believed to be in the best interests of the Corporation and its shareholders. No indemnification shall be made under this paragraph (c):

(1)  in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation in the performance of such person’s duty to the Corporation and its shareholders, unless and only to the extent the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine; or

(2)  of amounts paid in settling or otherwise disposing of a pending action without court approval; or

(3)  of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval.

(d)  To the extent that an agent of the Corporation has been successful on the merits in defense of any proceeding referred to in paragraphs (b) or (c) above, or in defense of any claim, issue or matter therein, said agent shall be indemnified against expenses actually and reasonably incurred by said agent in connection therewith.

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(e)  Except as provided in paragraph (d) above, any indemnification under this section shall be made by the Corporation only if authorized in the specific case upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in paragraph (b) or (c) above, by:

(1)  a majority vote of a quorum consisting of directors who are not parties to such proceeding;

(2)  if such a quorum of directors is not obtainable, by independent legal counsel in a written opinion;

(3)  approval by the affirmative vote of a majority of the shares of this Corporation represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of holders of a majority of the outstanding shares which would be entitled to vote at such meeting. For such purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or

(4)  the court in which such proceeding is or was pending, upon application made by the Corporation, the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by said agent, attorney or other person is opposed by the Corporation.

(f)  Expenses incurred in defending any Proceeding may be advanced by the Corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent to repay such amount if it shall be determined ultimately that the agent is not entitled to be indemnified as authorized in this section.

(g)  The indemnification provided by this section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent such additional rights to indemnification are authorized in the Articles of Incorporation of the Corporation. The rights to indemnity hereunder shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of the person. Nothing contained in this section shall affect any right to indemnification to which persons other than such directors and officers may be entitled by contract or otherwise.

(h)  No indemnification or advance shall be made under this section, except as provided in paragraphs (d) or (e)(3) above, in any circumstance where it appears:

(1)  that it would be inconsistent with a provision of the Articles of Incorporation of the Corporation, Bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid which prohibits or otherwise limits indemnification; or

(2)  that it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

(i)  Upon and in the event of a determination by the Board of Directors of the Corporation to purchase such insurance, the Corporation shall purchase and maintain insurance on behalf of any agent of the Corporation against any liability asserted against or incurred by the agent in such capacity or arising

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out of the agent’s status as such whether or not the Corporation would have the power to indemnify the agent against such liability under the provisions of this section. The fact that the Corporation owns all or a portion of the shares of the company issuing a policy of insurance shall not render this subdivision inapplicable if either of the following conditions are satisfied:

(1)  if authorized in the Articles of Incorporation of the Corporation, any policy issued is limited to the extent provided by subdivision (d) of Section 204 of the California Corporations Code; or

(2)  (a)  the company issuing the insurance policy is organized, licensed and operated in a manner that complies with the insurance laws and regulations applicable to its jurisdiction of organization;

(b)  the company issuing the policy provides procedures for processing claims that do not permit that company to be subject to the direct control of the corporation that purchased that policy; and

(c)  the policy issued provides for some manner of risk sharing between the issuer and purchaser of the policy, on one hand, and some unaffiliated person or persons, on the other, such as by providing for more than one unaffiliated owner of the company issuing the policy or by providing that a portion of the coverage furnished will be obtained from some unaffiliated insurer or reinsurer.

(j)  If this section or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless have the power to indemnify each director, officer, employee or other agent against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this section that shall not have been invalidated or by any other applicable law.

(k)  Upon, and in the event of, a determination of the Board of Directors of the Corporation to do so, the Corporation is authorized to enter into indemnification agreements consistent with the provisions of this section with some or all of its directors, officers, employees and other agents.

(1)  The Corporation shall not retroactively repeal or amend this section or any provision hereof, or any other provision of these Bylaws relating to indemnification, in a way which adversely affects any right or protection under this section of an Indemnitee existing at the time of such repeal or amendment.

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CERTIFICATE OF ADOPTION OF

AMENDED AND RESTATED BYLAWS OF

SYNBIOTICS CORPORATION

I, the undersigned, do hereby certify:

1.  That I am the duly elected and acting Secretary of Synbiotics Corporation; and

2.  That the foregoing Amended and Restated Bylaws, comprising sixteen (16) pages including this page, constitutes the Bylaws of said corporation, and duly adopted and as amended from time to time by the Shareholders and the Board of Directors of said Corporation through August 26, 2002.

3.  That the Bylaws of said corporation have not been further amended or modified since August 26, 2002.

IN WITNESS WHEREOF, I have subscribed my name and affixed the seal of the corporation this 27th day of August, 2002.

/s/    MICHAEL K. GREEN

Michael K. Green

Secretary

EX-4.6

Exhibit 4.6

CERTIFICATE OF DETERMINATION
OF PREFERENCES OF
SERIES C PREFERRED STOCK
OF SYNBIOTICS CORPORATION
a California corporation

          Christopher P. Hendy and Keith A. Butler hereby certify that:

          A.          They are the Vice President and Secretary, respectively, of Synbiotics Corporation, a California corporation (the “Corporation”).

          B.          Pursuant to the authority given by the Corporation’s Articles of Incorporation, as amended to date, the Board of Directors of the Corporation has duly adopted the resolution attached as Exhibit “A,” incorporated by reference as if fully set forth herein.

          C.          The authorized number of shares of Preferred Stock of the Corporation is 25,000,000.  Of these, the authorized number of shares of Series A Junior Participating Preferred Stock is 200,000 and the authorized number of shares of Series B Preferred Stock is 4,000; and there are no other series of Preferred Stock (other than the Series C Preferred Stock, created hereby).  The authorized number of shares of such Series C Preferred Stock of the Corporation is 4,000, none of which has been issued.

          IN WITNESS WHEREOF, the undersigned certify under penalty of perjury that they have read the foregoing Certificate of Determination and know the contents thereof, and that the statements therein are true and correct of their own knowledge.

          Executed in San Diego, California on October 24, 2002.

/s/ CHRISTOPHER P. HENDY

Christopher P. Hendy
Vice President

/s/ KEITH A. BUTLER

Keith A. Butler
Secretary

Exhibit A

          NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issue of a series of Preferred Stock of the Corporation consisting of Four Thousand (4,000) shares designated as “Series C Preferred Stock,” and does hereby fix the rights, preferences, privileges, and restrictions and other matters relating to said Series C Preferred Stock as follows:

Series C Preferred Stock

Article 1
Number of Shares; Designation

          The series of Preferred Stock established hereby shall be designated the “Series C Preferred Stock” and the authorized number of shares of Series C Preferred Stock shall be 4,000.

Article 2
Dividends

          Section 2.1      The holders of the shares of the Series C Preferred Stock shall be entitled to receive, out of the assets of the Corporation legally available therefor and as and when declared by the Board of Directors, dividends at the rate of $75.00 per share per year (subject to appropriate adjustments in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares), payable quarterly on the last day of the months of January, April, July and October in each year (each a “Dividend Payment Date”).  Such dividends shall accrue and be cumulative (whether or not in any quarterly dividends period there shall be funds of the Corporation legally available for the payment of such dividends), from the date of the last quarterly dividend date to which dividends were declared and paid on the Series C Preferred Stock of the Corporation.  Each such dividend shall be paid to the holders of record of shares of Series C Preferred Stock as they appear on the stock register of the Corporation on the 15th day of the month next preceding the payment date thereof.  Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular Dividend Payment Date, to holders on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board of Directors.

          Section 2.2

                    (A)        All dividends payable pursuant to this Article 2 shall be paid in cash; provided, that if any dividends remain unpaid for thirty (30) days (the “Late Dividend Date”) past the applicable Dividend Payment Date (all such dividends are referred to as “Late Dividends”), the Majority Holders (as defined in Section 2.4) may elect, by delivering written notice of such election to the Corporation between the Late Dividend Date and the tenth day after the Late Dividend Date, to receive, in lieu of the Late Dividend, shares of Common Stock as set forth in subsection (B) below.  If no such written notice is delivered within such period, the Late Dividend shall be deferred until the next succeeding Late Dividend Date (whether or not dividends are paid with respect to the next succeeding Dividend Payment Date).

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                    (B)        If the Majority Holders timely make the written election described in subsection (A) above, all the holders of Series C Preferred Stock shall forthwith receive, in lieu of a Late Dividend, shares of Common Stock with a Fair Market Value (as defined in Section 2.4) equal to such accrued and unpaid dividends (a “Series C Common Stock Dividend”).  The Corporation may issue fractional shares of Common Stock as Series C Common Stock Dividends.  All shares of Common Stock issued pursuant to a Series C Common Stock Dividend will upon issue be duly authorized, validly issued, fully paid and nonassessable.

                    (C)        The Corporation shall not, in the event of a deferral (or successive deferral) of a Late Dividend pursuant to Section 2.2(A) or in the event of the payment of a Series C Common Stock Dividend pursuant to Section 2.2(B), for a period of ninety (90) days following the date of such deferral or the date of payment of any Series C Common Stock Dividend, as the case may be, pay any cash dividend on any share of stock of any class or series of stock other than Series C Preferred Stock.

                    (D)        The Majority Holders shall have the options set forth in Section 2.2(A) with respect to each Late Dividend on the Series C Preferred Stock.  With respect to accrued but unpaid dividends relating to Late Dividends deferred under Section 2.2(A), the Majority Holders, at the next succeeding Late Dividend Date, may (by again not delivering timely written notice of election to receive a Series C Common Stock Dividend) again defer receipt in the manner provided in Section 2.2(A) or the Majority Holders may so elect, with respect to any or all accrued but unpaid Late Dividends, that all holders of Series C Preferred Stock shall receive Series C Common Stock Dividends at the price determined in the manner set forth in Section 2.4(A).  The Majority Holders may elect (by again not delivering timely written notice of election to receive a Series C Common Stock Dividend) to defer any Late Dividends or may elect that all holders of Series C Preferred Stock shall receive Series C Common Stock Dividends with respect to each Late Dividend notwithstanding any election of or status regarding other unpaid Old Dividends (as defined in Section 2.2(E)) or Late Dividends, as the case may be.

                    (E)        The aggregate amount of $161,095.89 (the “Old Dividends”) as of the date of original issuance of the Series C Preferred Stock shall, for all purposes, be treated as Late Dividends on the Series C Preferred Stock.  In furtherance and not in limitation of the foregoing, with respect to Old Dividends, the Majority Holders shall be entitled to make the election provided in Section 2.2(A) on the first Late Dividend Date after the date of issuance of the Series C Preferred Stock, and at the next succeeding Late Dividend Date, may elect again (by again not delivering timely written notice of election to receive a Series C Common Stock Dividend) to defer receipt of the Old Dividends in the manner provided in Section 2.2(A) or may elect, with respect to any or all accrued but unpaid Old Dividends, that all holders of Series C Preferred Stock shall receive Series C Common Stock at the price determined in the manner set forth in Section 2.4(A).  On each Late Dividend Date, the Majority Holders may elect (by again not delivering timely written notice of election to receive a Series C Common Stock Dividend) to defer any unpaid Old Dividends or may elect that all holders of Series C Preferred Stock shall receive Series C Common Stock Dividends with respect to such Old Dividends notwithstanding any election of or status regarding other unpaid Old Dividends or Late Dividends, as the case may be.

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          Section 2.3      Dividends payable on the Series C Preferred Stock for each full quarterly dividends period shall be computed by dividing the annual rate by four.  Dividends payable on the Series C Preferred Stock for any period less than a full quarterly dividend period and for the initial dividend period, shall be computed on the basis of a 360-day year of four 90-day quarters and the actual number of days elapsed on the period for which payable, including the date of payment.

          Section 2.4      For purposes of this Article 2:

                    (A)        “Fair Market Value” means, through January 31, 2003, a price of $0.12846 per share of Common Stock and thereafter, the average closing price of the Common Stock for the twenty (20) trading days preceding a Dividend Payment Date.  The “Fair Market Value” determined for any period shall apply to any shares of Common Stock issued as Series C Common Stock Dividends prior to the next succeeding Dividend Payment Date.  Notwithstanding the foregoing, in no event shall Fair Market Value be deemed to be less than $0.12846.  Fair Market Value, and the numbers stated in this Section 2.4(A), shall be subject to appropriate adjustment upon any stock split or reverse stock split of Common Stock or any dividend of Common Stock upon Common Stock, in the same manner as contemplated by Sections 5.5 and 5.6.

                    (B)        “Majority Holders” means those holders owning shares of Series C Preferred Stock having a Liquidation Value (as defined in Article 3) in excess of fifty percent (50%) of all outstanding shares of Series C Preferred Stock as evidenced by a writing submitted to the Corporation signed by such Majority Holders.

Article 3
Liquidation, Dissolution or Winding Up

          In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series C Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class or series of stock of the Corporation ranking on liquidation prior and in preference to the Series C Preferred Stock, but before any payment shall be made to the holders of any other class or series of stock of the Corporation ranking junior on liquidation to the Series C Preferred Stock by reason of their ownership thereof, an amount equal to $1,000 per share (the “Liquidation Value”) of Series C Preferred Stock plus any accrued but unpaid dividends (whether or not declared), and no more.  If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets of the Corporation available for distribution to its shareholders shall be insufficient to pay the holders of shares of Series C Preferred Stock the full amount to which they shall be entitled, the holders of shares of Series C Preferred Stock and any class or series of stock ranking on liquidation on a parity with the Series C Preferred Stock shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.  The Series C Preferred Stock and the Series B Preferred Stock shall rank pari passu upon liquidation.

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Article 4
Voting

          Section 4.1        Each holder of outstanding shares of Series C Preferred Stock shall be entitled to the number of votes equal to the number of whole shares of Common Stock into which the shares of Series C Preferred Stock held by such holder are convertible (as adjusted from time to time pursuant to Article 5 below), at each meeting of shareholders of the Corporation (and written actions of shareholders in lieu of meetings) with respect to any and all matters presented to the shareholders of the Corporation for their action or consideration.  The voting rights granted in the immediately preceding sentence to the holders of Series C Preferred Stock shall apply even if, at the record date, meeting date and/or effective date of such action, the Corporation does not have sufficient authorized but unissued shares of Common Stock to permit the conversion in full, as of any such date, of the Series C Preferred Stock into Common Stock (as provided in Article 5 below).  Except as provided by law, with respect to votes to be taken exclusively by the holders of Series C Preferred Stock as provided herein, by the provisions of Section 4.1, Section 4.2 or Section 4.3 below, or by the provisions establishing any other series of Preferred Stock, holders of Series C Preferred Stock and of any other outstanding series of Preferred Stock shall vote together with the holders of Common Stock as a single class.

          Section 4.2        The Corporation shall not amend, alter or repeal preferences, rights, powers or other terms of the Series C Preferred Stock so as to affect adversely the Series C Preferred Stock, without the written consent or affirmative vote of the holders of at least sixty-six and two-thirds percent of the then outstanding shares of Series C Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class.  For this purpose, without limiting the generality of the foregoing, the authorization or issuance of any series of Preferred Stock which is on a parity with or has preference or priority over the Series C Preferred Stock as to the right to receive either dividends or amounts distributable upon liquidation, dissolution or winding up of the Corporation shall be deemed to affect adversely the Series C Preferred Stock.

          Section 4.3        Unless the consent of the holders of not less than sixty-six and two-thirds percent of the outstanding Series C Preferred Stock, voting separately as a single class, in person or by proxy, either in writing without a meeting or at a special or annual meeting of shareholders called for the purpose, is obtained:

                    (A)           the Corporation shall not sell all or substantially all of the Corporation’s assets or effect a merger or consolidation or any other transaction resulting in the acquisition of a majority of the then outstanding voting stock of the Corporation by another corporation or entity;

                    (B)           except as set forth in Article 6, neither the Corporation nor any of its subsidiaries or affiliates shall declare, agree to declare, pay or agree to pay dividends or make any other distribution on (other than 100% to the Corporation), or redeem, any shares of any class or series of its equity securities other than with respect to the Series C Preferred Stock, unless all dividends accrued on shares of the Series C Preferred Stock shall have been declared and paid;

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                    (C)             no amendment to the terms of the Series C Preferred Stock as set forth herein shall be effected; and

                    (D)            the Corporation shall not, by amendment of its Articles of Incorporation or Bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, take any action which adversely affects (directly or indirectly) the rights of the holders of the Series C Preferred Stock.

Article 5
Conversion

          The holders of the Series C Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

          Section 5.1        Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $1,000.00 by the Conversion Price (as defined below) in effect at the time of conversion.  The Conversion Price at which shares of Common Stock shall be deliverable upon conversion of Series C Preferred Stock without the payment of additional consideration by the holder thereof (the “Conversion Price”) shall initially be $0.12846.  Such initial Conversion Price, and the rate at which shares of Series C Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

          In the event of a liquidation of the Corporation, the Conversion Rights shall terminate at the close of business on the first full day preceding the date fixed for the payment of any amounts distributable on liquidation to the holders of Series C Preferred Stock.

          Section 5.2        No fractional shares of Common Stock shall be issued upon conversion of the Series C Preferred Stock.  In lieu of fractional shares, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price.

          Section 5.3        Mechanics of Conversion.

                    (A)           In order to convert shares of Series C Preferred Stock into shares of Common Stock after the Common Increase Date, the holder shall surrender the certificate or certificates for such shares of Series C Preferred Stock at the office of the transfer agent (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares represented by such certificate or certificates.  Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued.  If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing.  The date of receipt of such certificates and notice by the transfer agent or the Corporation shall be the conversion date (“Conversion Date”).  The Corporation shall, as soon as practicable after the Conversion Date, issue and deliver at such office to such holder, or to his

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nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share.

                    (B)          The Corporation shall at all times after the Common Increase Date during which the Series C Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series C Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series C Preferred Stock. 

                    (C)          Upon any such conversion, no adjustment to the Conversion Price shall be made for any accrued and unpaid dividends on the Series C Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.  All accrued but unpaid dividends through the Conversion Date will be paid by the Corporation to the holder at the same time that certificates representing the Common Stock are delivered upon conversion.

                    (D)          All shares of Series C Preferred Stock, which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive dividends (except for accrued but unpaid dividends through the Conversion Date), notices and to vote, shall immediately cease and terminate on the Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and accrued but unpaid dividends through the Conversion Date.  Any shares of Series C Preferred Stock so converted shall be retired and cancelled and shall not be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the number of shares of authorized Series C Preferred Stock accordingly.

                    (E)          If the conversion is in connection with an underwritten offer of securities registered pursuant to the Securities Act of 1933, the conversion may, at the option of any holder tendering Series C Preferred Stock for conversion, be conditioned upon the closing with the underwriter of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Series C Preferred Stock shall not be deemed to have converted such Series C Preferred Stock until immediately prior to the closing of the sale of securities.

          Section 5.4        Adjustments to Conversion Price.

                    (A)          Special Definitions.  For purposes of this Section 5.4, the following definitions shall apply:

                         (1)           “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities, excluding rights or options granted to employees, directors or consultants of the Corporation pursuant to an option plan adopted by the Board of Directors to acquire up to that number of shares of Common Stock as is equal to ten (10%) percent of the Common Stock outstanding (provided that, for purposes of this Section 5.4(A)(1), all shares of Common Stock issuable upon (1) exercise of options granted or available for grant under plans approved

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by the Board of Directors or (2) conversion of shares of Preferred Stock shall be deemed to be outstanding).

                         (2)           “Original Issue Date” shall mean the date on which the first share of Series C Preferred Stock is first issued.

                         (3)           “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock.

                         (4)           “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 5.4(C) below, deemed to be issued) by the Corporation after the Original Issue Date and other than shares of Common Stock issued or issuable:

                              (i)           as a dividend or distribution on Series C Preferred Stock;

                              (ii)          by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock, subject to Section 5.5 or Section 5.6 or excluded from the definition of Additional Shares of Common Stock by the foregoing clause (i);

                              (iii)         upon the exercise of options excluded from the definition of “Option” in Section 5.4(A)(1);

                              (iv)         upon exercise of Options which were outstanding on the Original Issue Date, the conversion of Convertible Securities which were outstanding on the Original Issue Date, or in lieu of cash stay bonuses which were granted before 2001;

                              (v)          in connection with equipment leases, loans, acquisitions of businesses, strategic alliances, or licenses or acquisitions of technology or marketing rights; or

                              (vi)         upon conversion of shares of Preferred Stock.

                          (5)           “Rights to Acquire Common Stock” (or “Rights”) shall mean all rights issued by the Corporation to acquire co mmon stock whatever by exercise of a warrant, option or similar call or conversion of any existing instruments, in either case for consideration fixed, in amount or by formula, as of the date of issuance.

                    (B)          No Adjustment of Conversion Price.  No adjustment in the number of shares of Common Stock into which the Series C Preferred Stock is convertible shall be made, by adjustment in the applicable Conversion Price thereof:  (a) unless the consideration per share (determined pursuant to Section 5.4(E)) below for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior to, the issue of such additional shares, or (b) if prior to such issuance, the Corporation receives written notice from the holders of at least sixty-six and two-

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thirds percent of the then outstanding shares of Series C Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance of Additional Shares of Common Stock.

                    (C)          Issue of Securities Deemed Issue of Additional Shares of Common Stock.  If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or other Rights to Acquire Common Stock, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options, Rights or, in the case of Convertible Securities, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 5.4(E) hereof) of such Additional Shares of Common Stock would be less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued:

                          (1)          No further adjustment in the Conversion Price shall be made upon the subsequent issue of shares of Common Stock upon the exercise of such Options or Rights or conversion or exchange of such Convertible Securities;

                          (2)          Upon the expiration or termination of any unexercised Option or Right, the Conversion Price shall be readjusted as if such Option or Right had never been issued; and

                          (3)          In the event of any change in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any Option, Right or Convertible Security, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Price then in effect shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment that was made upon the issuance of such Option, Right or Convertible Security not exercised or converted prior to such change been made upon the basis of such change, but no further adjustment shall be made for the actual issuance of Common Stock upon the exercise or conversion of any such Option, Right or Convertible Security.

                    (D)          Adjustment of Conversion Price upon Issuance of Additional Shares of Common Stock.  If the Corporation shall at any time after the Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 5.4(C), but excluding shares issued as a dividend or distribution as provided in Section 5.6 or upon a stock split or combination as provided in Section 5.5), without consideration or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, (a) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would

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purchase at such Conversion Price; and (b) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of such Additional Shares of Common Stock so issued.  Notwithstanding the foregoing, the applicable Conversion Price shall not be reduced if the amount of such reduction would be an amount less than $.005, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $.005 or more.  For purposes of this Section 5.4(D), all shares of Common Stock issuable upon conversion of Preferred Stock shall be deemed to be outstanding.

                    (E)          Determination of Consideration.  For purposes of this Section 5.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

                                             (1)          Cash and Property:  Such consideration shall:

                      (i)          insofar as it consists of cash, be computed at the aggregate of cash received by the Corporation, without reduction for amounts paid or payable for accrued interest or accrued dividends;

                      (ii)         insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

                      (iii)        in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors.

                              (2)           Options, Rights and Convertible Securities.  The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 5.4(C), relating to Options, Rights and Convertible Securities, shall be determined by dividing

                            (i)        the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options, Rights or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or Rights or the conversion or exchange of such Convertible Securities, by

                            (ii)       the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or Rights or the conversion or exchange of such Convertible Securities.

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          Section 5.5        Adjustment for Stock Splits and Combinations.  If the Corporation shall at any time or from time to time after the Original Issue Date effect a subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased.  If the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased.  Any adjustment under this paragraph shall become effective at the close of business on the record date for the subdivision or combination.

          Section 5.6        Adjustment for Certain Dividends and Distributions.  In the event the Corporation at any time, or from time to time after the Original Issue Date shall make or issue, a dividend or other distribution payable in Additional Shares of Common Stock, then and in each such event the Conversion Price shall be decreased as of the time of such issuance, by multiplying the Conversion Price by a fraction:

                    (A)          the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance, and

                    (B)          the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

          Section 5.7       Adjustments for Other Dividends and Distributions.  In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of shares of the Series C Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Series C Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period, under this paragraph with respect to the rights of the holders of the Series C Preferred Stock.

          Section 5.8       Adjustment for Reclassification, Exchange, or Substitution.  If the Common Stock issuable upon the conversion of the Series C Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provided for below), then and in each such event the holder of each share of Series C Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Series C Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein.

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          Section 5.9       Adjustment for Merger or Reorganization, etc.  In case of any consolidation or merger of the Corporation (except mergers not involving any change in or any issuance of securities of the Corporation) with or into another corporation or the sale of all or substantially all of the assets of the Corporation to another corporation (other than a consolidation, merger or sale which is treated as a liquidation pursuant to Article 3),

                    (A)         if the surviving entity shall consent in writing to the following provisions, then each share of Series C Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Series C Preferred Stock would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Article 5 set forth with respect to the rights and interest thereafter of the holders of the Series C Preferred Stock, to the end that the provisions set forth in this Article 5 (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series C Preferred Stock; or

                    (B)          if the surviving entity shall not so consent, then each holder of Series C Preferred Stock may, after receipt of notice specified in Section 5.12, elect to convert such Stock into Common Stock as provided in this Article 5 or to accept the distributions to which he would have been entitled under Article 3 if such consolidation, merger or sale had been treated as a liquidation pursuant to such Article 3.

          Section 5.10    No Impairment.  The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Article 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series C Preferred Stock against impairment.

          Section 5.11    Certificate as to Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Article 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder, if any, of Series C Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based and shall file a copy of such certificate with its corporate records.  The Corporation shall, upon the written request at any time of any holder of Series C Preferred Stock, furnish or cause to be furnished to such holder a similar certificate setting forth (1) such adjustments and readjustments, (2) the Conversion Price then in effect, and (3) the number of shares of Common Stock and the amount, if any, of other property which then would be received upon the conversion of Series C Preferred Stock. Despite such adjustment or readjustment, the form of each or all Series C Preferred Stock Certificates, if the same shall reflect the initial or any subsequent conversion price, need not be changed in order for the adjustments or readjustments to be valued in accordance with the provisions hereof, which shall control.

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          Section 5.12    Notice of Record Date.  In the event:

                    (A)         that the Corporation declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Corporation;

                    (B)         that the Corporation subdivides or combines its outstanding shares of Common Stock;

                    (C)         of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon), or of any consolidation or merger of the Corporation into or with another corporation (except mergers not involving any change in or any issuance of securities of the Corporation), or of the sale of all or substantially all of the assets of the Corporation; or

                    (D)         of the involuntary or voluntary dissolution, liquidation or winding up of the Corporation;

then the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Series C Preferred Stock, and shall cause to be mailed to the holders of the Series C Preferred Stock at their last addresses as shown on the records of the Corporation or such transfer agent, at least ten days prior to the record date specified in (1) below or twenty days before the date specified in (2) below, a notice stating:

                         (1)        the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or

                         (2)        the date on which such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up.

Article 6
Repurchase of Shares

          Each holder of any outstanding shares of Series C Preferred Stock shall be deemed to have consented, for purposes of Sections 502, and 503 of the California Corporations Code, to distributions made by the Corporation in connection with the repurchase of shares of Common Stock issued to or held by the employees, officers, directors, consultants or other persons performing services for the Corporation upon termination of their employment or services pursuant to agreements between the Corporation and such persons providing for the Corporation’s right of such repurchase.

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EX-10.1

Exhibit 10.1

LEASE AGREEMENT

BETWEEN

BERNARDO WINDELL, LLC

(“LANDLORD”)

AND

SYNBIOTICS CORPORATION

(“TENANT”)

LEASE AGREEMENT

TABLE OF CONTENTS

		Page
1.	TERMS AND DEFINITIONS	1
2.	PREMISES AND COMMON AREAS	3
3.	TERM	4
4.	POSSESSION	4
5.	MONTHLY BASIC RENT	4
6.	OPERATING EXPENSES	5
7.	SECURITY DEPOSIT	8
8.	USE	9
9.	NOTICES	10
10.	BROKERS	10
11.	HOLDING OVER	10
12.	TAXES ON TENANT'S PROPERTY	10
13.	CONDITION OF PREMISES	11
14.	ALTERATIONS	11
15.	REPAIRS	12
16.	LIENS	13
17.	ENTRY BY LANDLORD	14
18.	UTILITIES AND SERVICES	14
19.	BANKRUPTCY	15
20.	INDEMNIFICATION AND EXCULPATION OF LANDLORD	15
21.	DAMAGE TO TENANT’S PROPERTY	16
22.	TENANT’S INSURANCE	16
23.	DAMAGE OR DESTRUCTION	17
24.	EMINENT DOMAIN	19
25.	DEFAULTS AND REMEDIES	19
26.	ASSIGNMENT AND SUBLETTING	22
27.	SUBORDINATION	24
28.	ESTOPPEL CERTIFICATE	25
29.	HAZARDOUS MATERIALS	25
30.	RULES AND REGULATIONS	29

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31.	CONFLICT OF LAWS	29
32.	SUCCESSORS AND ASSIGNS	29
33.	SURRENDER OF PREMISES	30
34.	ATTORNEYS’ FEES	30
35.	PERFORMANCE BY TENANT	30
36.	MORTGAGEE PROTECTION	30
37.	DEFINITION OF LANDLORD	30
38.	WAIVER	30
39.	IDENTIFICATION OF TENANT	31
40.	PARKING	31
41.	FORCE MAJEURE	31
42.	TERMS, HEADINGS AND CONSTRUCTION	31
43.	TIME	31
44.	PRIOR AGREEMENT; AMENDMENTS	32
45.	SEVERABILITY	32
46.	RECORDING	32
47.	LIMITATION ON LIABILITY AND TIME	32
48.	TRAFFIC IMPACT	32
49.	INTENTIONALLY OMITTED	32
50.	MODIFICATION FOR LENDER OR GOVERNMENT	32
51.	FINANCIAL STATEMENTS	32
52.	QUIET ENJOYMENT	33
53.	TENANT’S SIGNS	33
54.	NO LIGHT, AIR OR VIEW EASEMENT	33
55.	TENANT AS CORPORATION, PARTNERSHIP, OR LIMITED LIABILITY COMPANY	33
56.	COUNTERPARTS	33
57.	JOINT AND SEVERAL LIABILITY	33
58.	NO OFFER	33
EXHIBITS:
A-1	Outline of Floor Plan of Premises
A-2	Site Plan
B	Premises Preparation Agreement
C	Intentionally Omitted
D	Standards for Utilities and Services
E	Sample Form of Tenant Estoppel Certificate
F	Rules and Regulations
G	Traffic and Parking Rules and Regulation

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LEASE AGREEMENT

THIS LEASE AGREEMENT (“Lease”) is made as of June 27, 2002, between BERNARDO WINDELL, LLC, a California limited liability company (“Landlord”), and SYNBIOTICS CORPORATION, a California corporation (“Tenant”), for the space outlined on attached Exhibit A (collectively, the “Premises”) and contained within Suite A on the first (1st) and second (2nd) floors of a building located at 11011 Via Frontera, San Diego, California (the “Building”). The Building is part of the Building site, which includes the parking areas and other improvements depicted on attached Exhibit A-2 (collectively, the “Project”).

1.  TERMS AND DEFINITIONS.    For the purposes of this Lease, the following terms shall have the following definitions:

(a)  Addresses:

Landlord’s Address: 3070 Bristol Street, Suite 615, Costa Mesa, California 92626, Attn: Michael S. Martin.

Tenant’s address: 11011 Via Frontera, Suite A, San Diego, California, Attn: Mr. Michael Green.

(b)  Approximate Rentable Square Feet:    The Premises contains 17,554 square feet (“Rentable Square Foot/Feet”) and the Project contains 75,316 square feet (“Project Rentable Square Feet”). The foregoing Rentable Square Feet for the Premises and Project Rentable Square Feet for the Project is based on Landlord’s and Tenant’s mutual best estimates and shall be conclusive for all purposes upon Landlord and Tenant, whether the actual square footage is greater or less than the Square Footage set forth herein.

(c)  Broker(s):    Coldwell Banker Commercial Mid City Properties (Tenant’s broker).

(d)  Commencement Date:    June 1, 2002, notwithstanding the fact that Landlord’s Work may not be Substantially Complete (as defined in the Premises Preparation Agreement attached hereto as Exhibit B).

(e)  Exhibits and Riders:    A through G, inclusive, all of which are attached to this Lease and are incorporated herein by this reference. Defined or initially capitalized terms in the attached documents have the same meaning as in this Lease unless otherwise expressly provided in those documents.

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(f)  Monthly Basic Rent:

Months	Rent Per Rentable Square Foot		Monthly Basic Rent
Months 1 through 12	$	1.05	$	18,431.70
Months 13 through 24	$	1.10	$	19,309.40
Months 25 through 36	$	1.15	$	20,187.10
Months 37 through 48	$	1.20	$	21,064.80
Months 49 through 60	$	1.25	$	21,942.50

$11,366.21 shall be payable concurrently with Tenant signing this Lease. Notwithstanding the foregoing, Tenant’s obligation to pay Monthly Basic Rent for months 1 through 6 of the Term shall be partially abated by an amount equal to Seven Thousand Sixty-five and 49/100 Dollars ($7,065.49) per month; provided, however, that if Tenant is in default beyond all applicable notice and cure periods under this Lease at any time during months 1 through 6 of the Term, Tenant’s right to the rent abatement described in this Subparagraph 1(f) shall automatically terminate as of the date of such default.

(g)  Parking:    3.3 vehicle parking spaces per one thousand Rentable Square Feet of the Premises (“Allocated Parking”). Other than spaces now or hereafter reserved by Landlord exclusively for use by other Tenant’s or for other uses (e.g., visitor parking or loading zones), Tenant may use any vehicle parking spaces in the Project up to its Allocated Parking number of parking spaces on an unreserved, unassigned, nonexclusive, “first-come, first served” basis. Landlord shall designate and mark seven (7) parking spaces for the exclusive use of Tenant in the location shown on Exhibit A-3 of this Lease. Tenant shall not pay an additional fee or charge for Tenant’s parking during the Term. Throughout the Term, Landlord agrees to maintain the ratio of at least 3 parking spaces per one thousand Rentable Square Feet of the Project.

(h)  Security Deposit:    $21,942.50, in accordance with Paragraph 7.

(i)  Intentionally Omitted.

(j)  Landlord’s Work:    As defined in Paragraph 1 of the Premises Preparation Agreement.

(k)  Tenant’s Percentage:    23.31%, based on the Rentable Square Feet contained in the Premises and the Project Rentable Square Feet set forth in Subparagraph 1(b), which Landlord and Tenant agree shall be conclusive for purposes of determining Tenant’s Percentage by dividing the number of Rentable Square Feet within the Premises by the Project Rentable Square Feet and multiplying by one hundred percent (100%)

(l)  Term:    Sixty (60) calendar months beginning on the Commencement Date and ending on May 31, 2007 (“Expiration Date”).

(m)  Use:    General office, light assembly, warehouse, research and development laboratories and any other use necessary and related to the foregoing uses but only to the extent that such related use is not

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inconsistent with the other uses in, and the character of the Project, and then only in compliance with all of the other provisions of this Lease.

2.  PREMISES AND COMMON AREAS.

(a)  Subject to all the provisions of this Lease, Landlord leases to Tenant and Tenant leases from Landlord the Premises, which Premises are improved or to be improved by Landlord with Landlord’s Work described in the Premises Preparation Agreement, those Premises being agreed to have the Approximate Rentable Square Feet designated in Subparagraph 1(b).

(b)  Tenant shall have the nonexclusive right to use, in common with other present and future tenants in the Building, the following areas (“Common Areas”) appurtenant to the Premises, subject to the Rules and Regulations referred to in Paragraph 30 and to other reasonable rules and regulations which Landlord may deem advisable for the Common Areas (including without limitation the hours during which they are open for use):

(i)  The Building’s common entrances, lobbies, rest rooms not within a suite, stairways and accessways, loading docks, ramps, drives and platforms and any passageways and serviceways thereto, and the common pipes, conduits, wires and appurtenant equipment serving the Premises;

(ii)  Loading and unloading areas, trash areas, parking areas, and similar areas and facilities appurtenant to the Building;

(iii)  The roadways, sidewalks, walkways, parkways, driveways and landscaped areas and similar areas and facilities within the Project which are made available for the use or benefit of all Project tenants and their invitees and other visitors; and

(iv) The parking areas, including driveways and alleys and other improvements, as depicted on attached Exhibit A-2.

(c)  Landlord reserves the right from time to time without unreasonable interference with Tenant’s use:

(i)  To install, use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the Building above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas, and to relocate any pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises which are located in the Premises or located elsewhere outside the Premises, and to expand the Building and the Project;

(ii)  To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways;

(iii)  To temporarily close or designate for other uses any of the Common Areas for purposes of improvement, maintenance or repair, so long as reasonable access to the Premises remains available;

(iv)  To designate other land outside the boundaries of the Building to be a part of the Common Areas;

(v)  To add additional buildings and improvements to the Common Areas or the Project;

(vi)  To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building or the Project, or any portion thereof; and

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(vii)   To do and perform such other acts and make such other changes in, to or with respect to the Common Areas as Landlord may deem to be appropriate.

The preceding reservation of rights to use the Common Areas shall not impose on Landlord any obligation to maintain or repair the Common Areas or any other portion of the Premises except as expressly set forth in this Lease.

(d)  Landlord and Tenant acknowledge that Tenant is currently occupying the Premises and certain additional space in the Building pursuant to that certain Lease, dated November 20, 1996, as amended (the “Existing Lease”), which Existing Lease expires on May 31, 2002 (“Existing Lease Expiration Date”). Tenant shall continue to have the right to use the warehouse area (the “Warehouse Space”) of Tenant’s existing premises under the Existing Lease (the “Existing Premises”) beyond the Existing Lease Expiration Date until the earlier of the following dates (the “Warehouse Occupancy Period”): (i) October 1, 2002 or (ii) five (5) days after Landlord notifies Tenant that Landlord has obtained the necessary permits to perform Landlord’s Work (defined in the Premises Preparation Agreement) or (iii) thirty (30) days before the target commencement date of a lease entered into for the Vacated Space (as defined in the Work Letter Agreement) between Landlord and a third party, provided that the dates set forth in clauses (ii) and (iii), above, shall in no event be earlier than August 23, 2002. Tenant’s use of the Warehouse Space during the Warehouse Occupancy Period shall be subject to all of the terms and conditions of this Lease (except that no additional Monthly Basic Rent shall be payable in connection with Tenant’s use of the Warehouse Space) and Tenant shall promptly surrender the Warehouse Space in accordance with the provisions of the Existing Lease, notwithstanding that the Existing Lease has terminated. If tenant fails to surrender the Warehouse Space on or before the end of the Warehouse Occupancy Period as required hereunder, then Tenant shall pay Landlord holdover rent for the Warehouse Space in the amount of One Thousand and 00/100 Dollars ($1,000) per day. Notwithstanding any other provision of this Lease, Tenant’s occupancy of the Warehouse Space after the end of the Warehouse Occupancy Period shall be a tenancy at sufferance and Tenant shall reimburse Landlord for and indemnify Landlord against all damages and liability which Landlord incurs from Tenant’s delay in vacating the Warehouse Space, including, without limitation, claims by and liability to any succeeding tenant founded on such delay and any attorneys’ fees and costs.

3.  TERM.    The Term shall be for the period designated in Subparagraph 1(l), beginning on the Commencement Date under Subparagraph 1(d) and ending on the Expiration Date under Subparagraph 1(l), unless the Lease shall be terminated sooner as hereinafter provided.

4.  POSSESSION.    Tenant agrees that it is in full possession of the Premises as of the Commencement Date.

5.  MONTHLY BASIC RENT.

(a)  Tenant agrees to pay Landlord as Monthly Basic Rent for the Premises the Monthly Basic Rent designated in Subparagraph 1(f) in advance on the first day of each calendar month during the Term. If the Term commences or ends on a day other than the first day of a calendar month, then the rent for such period shall be prorated in the proportion that the number of days this Lease is in effect during such period bears to thirty (30). In addition to the Monthly Basic Rent, Tenant agrees to pay as additional rental the amount of rental adjustments and other charges required by this Lease. In no event shall Monthly Basic Rent ever be less than the initial Monthly Basic Rent. All rental shall be paid to Landlord, without prior demand and without any deduction or offset, in lawful money of the United States of America, at the address of Landlord designated in Subparagraph 1(a) or to such other person or at such other place as Landlord may from time to time designate in writing.

(b)  Rent and all other payments required to be made by Tenant to Landlord under this Lease shall be deemed to be and treated as rent and payable and recoverable as “rent”, and Landlord shall have the same rights against Tenant for default in any such payment as in the case of nonpayment of Monthly Basic Rent.

(c)  If Tenant fails to pay any installment of rent within ten (10) days following the date due (which ten days is not intended to be a grace period) or if Tenant fails to make any other payment for which Tenant

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is obligated under this Lease when due, then Tenant shall pay to Landlord as additional rent a late charge equal to six percent (6%) of the amount due (“Late Charge”) to compensate Landlord for the extra costs incurred as a result of such late payment; provided, however, that with respect to Tenant’s first failure to timely pay an amount due under this Lease, the late charge will only be payable ten (10) days after written notice from Landlord that such amount is past due. The parties agree that the Late Charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any Late Charge shall not constitute a waiver of the Tenant’s default with respect to the overdue amount, or prevent Landlord from exercising any other rights and remedies available to Landlord.

(d)  If the amount of rent or any other payment due under this Lease now or in the future violates the terms of any governmental restrictions on such rent or payment, then the rent or payment due during the period of such restrictions shall be the maximum amount allowable under those restrictions. Upon termination of the restrictions, Landlord shall, to the extent it is legally permitted, recover from Tenant the difference between the amounts received during the period of the restrictions and the amounts Landlord would have received had there been no restrictions.

6.  OPERATING EXPENSES.

(a)  For purposes of this Lease, the following terms are defined as follows:

(i)  “Tenant’s Percentage” shall have the meaning set forth in Subparagraph 1(l).

(ii)  “HVAC Costs” means all costs incurred in the operation, repair and maintenance and replacement of the systems for heating, ventilating and air conditioning the buildings in the Project including, without limitation, supplies, materials, equipment, tools, and contracted services.

(iii)  “Taxes and Assessments” shall mean: (1) Real property taxes and fees and expenses incurred in contesting the amount or validity of any real property tax; (2) Any assessment, fee, tax, levy, charge, penalty or similar imposition imposed by any authority, improvement district or special assessment district upon or in respect of the Premises, Building, Project, or Common Areas, or any portion thereof, including any such charges imposed for the use or occupancy of the Building, Project, or Premises, or upon this transaction or any document to which Tenant is a party; (3) Any new or increased assessment, tax, fee, levy or charge in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included under Subparagraphs 6(a)(iii)(1) and (2), including, without limitation, increases due to tax rate increases or reassessment of the Premises, Building, Common Areas, or Project, or any portion thereof, for any reason (provided that Tenant shall not be responsible for any reassessment caused by any tenant improvements made in the Project, other than to Tenant’s Premises); (4) Any assessment Landlord must pay as owner of the Building, Project, or Common Areas pursuant to any present or future (to the extent reasonably approved by Tenant) covenants, conditions or restrictions, easement agreements, tenancy in common agreements or similar restrictions affecting the Building, Premises, Project, or Common Areas, or any portion thereof; (5) An equitable allocation, in Landlord’s reasonable discretion, of any tax or fee on personal property used in the maintenance, repair or operation of the Building, Project, or Common Areas; and (6) All payroll taxes on salaries of personnel to the extent used in the direct management, maintenance or operation of the Building, Project, or Common Areas.

(iv)  “Insurance Costs” means all costs of premiums for insurance that Landlord procures under this Lease or for or in connection with the Project, including, without limitation, any insurance which any beneficiary or mortgagee unrelated to Landlord with a lien affecting the Premises deems necessary or requires in connection with the ownership or operation of the Building, Common Areas, or Project.

(v)  “Capital Costs” means all costs incurred to make any capital improvements or repairs to the Building, Project, or Common Areas, or any portion thereof, including, without limitation, structural additions or repairs, which: (1) are now or may hereafter be required by any statute, ordinance or regulation of any governmental or enforcement agency; or (2) are needed to operate and maintain the Building, Project, or Common Areas, or any portion thereof, at the same quality levels as prior to the improvement or repair or to provide

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substantially the same level of services to tenants of the Project as are provided to tenants of comparable buildings. Capital Costs included in Operating Expenses shall be amortized on a straight-line basis, plus interest ten percent (10%) per annum, over the useful life of such capital items as reasonably determined by Landlord pursuant to generally accepted accounting and management principles, consistently applied

(b) “Operating Expenses” shall consist of all direct costs of ownership, operation, repair or maintenance (including necessary supplies, material, tools and equipment) of the Building, Project, or Common Areas, including any expansions of the Building, Project, or Common Areas by Landlord, or any portion thereof, and all indirect costs that are reasonably attributable to the operation, repair and maintenance of the Building, Project, and Common Areas, or any portion thereof, for any calendar year, including costs for the following by way of illustration, but not limitation:

HVAC Costs; Taxes and Assessments; Insurance Costs; Capital Costs; costs connected with providing electrical, telephone, cable and other electronic data transmission services (including, without limitation, any costs (whether or not Capital Costs) arising from the maintenance, repair and/or replacement of all or any component of electrical, plumbing, mechanical, lighting, HVAC or other building systems, and/or the maintenance, repair and/or replacement of lighting fixtures, light bulbs, air filtration or distribution devices (provided that Landlord shall have no obligation to provide any utilities), window panes, window coating and/or other energy-saving measures); janitorial service and window cleaning; waste disposal; parking facilities; Common Areas signage; landscaping and gardening; security; and accounting, legal, administrative and consulting fees.

Operating Expenses shall also include costs incurred in the management of the Building, Project, and Common Areas (including, without limitation, wages and salaries and related benefits for personnel to the extent used in the management, operation and maintenance of the Building, Project, or Common Areas, and Project management office rental and supplies) and a management fee (“Management Fee”) equal to the greater of (i) fifteen percent (15%) of the Operating Expenses incurred by Landlord (excluding such management fee) for the calendar year or (ii) five percent (5%) of all sources of Landlord’s gross revenue generated at the Project for the calendar year, including, without limitation, Monthly Basic Rent and Operating Expenses.

(c) This Lease is and shall be construed as a “triple net” lease arrangement, the Monthly Basic Rent shall be completely net to the Landlord, and Tenant shall be directly responsible for and pay Tenant’s Percentage of all Operating Expenses as set forth in clauses (i) through (iv), below:

(i)  Beginning with the Commencement Date and on or before the expiration of each one (1) year period thereafter (each, a “Lease Year”), Landlord shall deliver to Tenant a reasonable estimate of Tenant’s Percentage of annual Operating Expenses payable in twelve (12) equal monthly installments on the first day of every month as additional rent together with Tenant’s payment of Monthly Basic Rent. Landlord may from time to time during the Lease Year revise Landlord’s estimate of annual Operating Expenses and Tenant’s monthly estimated payments. If after the first Lease Year Landlord has not furnished Tenant with a written estimate for any Lease Year, Tenant shall continue to pay monthly installments of Tenant’s Percentage of Operating Expenses at the rate established for the immediately preceding Lease Year (if applicable), provided that, when a written estimate of Operating Expenses for the current Lease Year is delivered to Tenant, Tenant shall, on or before the next monthly payment date, pay all accrued and unpaid monthly estimates based on the new estimate.

(ii)  On or before May 1 of each Lease Year after the first Lease Year (or as soon thereafter as is practical) Landlord shall deliver to Tenant a statement (the “Statement”) setting out Tenant’s Percentage of actual Operating Expenses for the immediately preceding Lease Year. If Tenant’s Percentage of actual Operating Expenses for the previous Lease Year differs from the total estimated monthly payments of Tenant’s Percentage of Operating Expenses made by Tenant for such Lease Year, Tenant shall pay the amount of the deficiency within ten (10) days of receipt of the Statement or Landlord shall credit the difference, as the case may be; in the case of a credit due, Landlord shall credit against Tenant’s next ensuing installment(s) of Monthly Basic Rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the last day of the Term, Landlord shall credit against any payments due from Tenant under this Lease an amount equal to the

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credit or, if no payments are due, or may become due from Tenant, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Paragraph 6 shall survive the termination of this Lease.

(iii)  If any dispute arises as to the accuracy of Operating Expenses as set forth in the Statement, Tenant shall nevertheless make the payment in accordance with any notice given by Landlord, but Tenant shall have the right, after reasonable notice and at reasonable times, to inspect Landlord’s accounting records at Landlord’s accounting office and, if after such inspection, Tenant still disputes the amount of Operating Expenses owed, Landlord shall immediately refer the matter for prompt certification by Landlord’s certified public accountants, who shall be deemed to be acting as experts and not arbitrators, which certification shall be conclusive and binding on both parties. Any adjustment required to any previous payment made by Tenant or Landlord by reason of any such decision shall be made within ten (10) days of such certification. Tenant agrees to pay the cost of such certification unless it is determined that Landlord’s original Statement overstated Operating Expenses by more than five percent (5%), in which case Landlord shall pay the cost of such certification.

(iv)  Operating Expenses due from Tenant in any Lease Year which has less than 365 days because the Term expires on other than the last day of that Lease Year shall be prorated on a per-day basis.

(d)  Notwithstanding anything to the contrary contained immediately above, as to each specific category of expense which one or more tenants of the Project either pays directly to third parties or actually reimburses Landlord (for example, separately metered utilities, property taxes directly reimbursed to Landlord, etc.) then each such expense which is actually paid or reimbursed shall not be included in “Operating Expenses” for purposes of this Paragraph 6. Tenant’s Percentage for each such category of expense shall be adjusted by excluding from the denominator thereof the Rentable Square Feet of all such tenants paying such category of expense directly to third parties or actually reimbursing same directly to Landlord. Moreover, if Tenant directly pays a third party or actually reimburses Landlord for any such category of expense, each such category of expenses which is paid or actually reimbursed by Tenant shall be excluded from the determination of Operating Expenses for Tenant to the extent such expense (after deduction of that portion paid or directly reimbursed by Tenant) was incurred with respect to space in the Project actually leased to other tenants.

(e)  Notwithstanding the foregoing, Operating Expenses shall not include any of the following:

(i)  all interest, principal, loan fees, and other carrying costs related to any debts or mortgage or deed of trust encumbering the Project and all rental and other payable due under any ground or underlying lease, unless such costs are attributable to Tenant’s, its agents’ or employees’ activities in, on or about the Project, or as a result of a Tenant’s breach or default under this Lease

(ii)  legal fees, brokerage commissions, advertising costs or related expenses in connection with the leasing of the Project;

(iii)  costs incurred in connection with damage or repairs to the extent covered under any insurance policy carried by Landlord in connection with the Project;

(iv)  expenses for repair or replacement to the extent paid by condemnation awards;

(v)  costs associated with damage or repairs to the Project necessitated by the gross negligence or willful misconduct of Landlord or Landlord’s employees or agents;

(vi)  increases in insurance premiums over those in effect on the Commencement Date to the extent any other tenant or occupant use of their premises that differs materially from Tenant’s use of the Premises causes Landlord’s insurance premiums to increase or obligates Landlord to purchase additional insurance;

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(vii)  reserves for Landlord’s repair, replacement or improvement of the Project or any portion thereof;

(viii)  executive salaries or salaries of service personnel to the extent that such salaries are payable in connection with services other than in connection with the management, operation, repair or maintenance of the Project;

(ix)  the cost of offsite service personnel to the extent that such personnel are not engaged in the management, operation, repair or maintenance of the Project;

(x)  charitable or political contributions or fees paid to trade associates;

(xi)  Landlord’s general overhead expenses not related to the Project;

(xii)  legal fees, accountant fees and other expenses incurred in disputes with other tenants or occupants of the Project or associated with the enforcement of any other leases or defense of Landlord’s title to or interest in the Project or any part thereof;

(xiii)  costs (including permit, license and inspection fees) incurred in renovating or otherwise improving, decorating, painting, expanding or altering space for tenants or other occupants of vacant space in the Project;

(xiv)  any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, this Lease or any other lease in the Project, or due to Landlord’s gross negligence or willful misconduct;

(xv)  payments for rented equipment, the cost of which equipment would be a capital expenditure if such equipment were purchased by Landlord except to the extent such payments or costs would constitute a Capital Cost;

(xvi)  services or installations furnished to any tenant in the Project which are not available to Tenant or quantities of such services furnished to any tenant in the Project which are also furnished to Tenant, but are furnished to other tenants in an amount which is not available to Tenant;

(xvii)  the cost of any service provided to Tenant or other occupants of the Project for which Landlord is entitled to be reimbursed; and

(xviii)  any management or supervision fee other than the Management Fee.

7.  SECURITY DEPOSIT.    Landlord and Tenant confirm that Landlord currently holds a security deposit in the amount of Twenty-One Thousand Nine Hundred Thirty and 00/100 Dollars ($21,930.00) (“Existing Security Deposit”) in connection with the Existing Lease. Concurrently with Tenant signing this Lease, Tenant shall pay Landlord an additional Twelve and 50/100 Dollars ($12.50), which amount shall be added to the Existing Security Deposit and which combined amount (i.e., $21,942.50) shall constitute the Security Deposit under this Lease. The Security Deposit shall be held by Landlord as security for the faithful performance by Tenant of all of Tenant’s obligations under this Lease. If Tenant breaches any obligation under this Lease, including, without limitation, under provisions relating to the payment of rent, Landlord may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any rent or any other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant’s default or to help to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant’s default. If any portion of the Security Deposit is so used or applied, Tenant shall, upon demand, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount. Tenant’s failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep the Security Deposit separate from

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its general funds, and Tenant shall not be entitled to interest on the Security Deposit. To the extent that the Security Deposit has not been applied by Landlord as permitted hereunder, the Security Deposit or any balance thereof shall be returned to Tenant (or, at Landlord’s option, to the last permitted assignee of Tenant’s interests under this Lease) at the expiration of the Term, provided that Landlord may retain the Security Deposit until such time as any amount due from Tenant in accordance with Paragraph 6 has been determined and paid in full. If Landlord sells its interest in the Premises during the Term and if Landlord deposits with the purchaser of the Premises the then unappropriated portion of the Security Deposit and the purchaser acknowledges in writing its receipt of the Security Deposit, Landlord shall be discharged from any further liability with respect to the Security Deposit.

8.  USE.

(a)  Tenant shall use the Premises only for the use set forth in Subparagraph 1(n), and shall not use or permit the Premises to be used for any other purpose without Landlord’s prior written consent, which may be withheld in Landlord’s sole and absolute discretion. Nothing contained herein shall be deemed to give Tenant any exclusive right to such use in the Building or Project or shall be deemed to be a warranty by Landlord that the Premises are suitable for a particular use. Tenant shall not use or occupy the Premises in violation of any present or future applicable law, and shall, upon written notice from Landlord, discontinue any use of the Premises which is declared by any applicable governmental authority to be a violation of law. Tenant shall comply with any direction of any such governmental authority which shall, by reason of the nature of Tenant’s use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof. Notwithstanding any circumstantial factors judicially developed as a means of allocating the obligation to make alterations to the Premises in order to comply with present or future laws, it is the intention of the parties that such obligations with respect to the Premises are those of the Tenant and are accordingly reflected in rental payments and other consideration under this Lease. Tenant shall comply with all rules, orders, regulations and requirements of such generally recognized fire rating organization(s) as Landlord may specify from time to time. Tenant shall promptly, upon demand, reimburse Landlord for any additional insurance premium charged by reason of Tenant’s failure to comply with the provisions of this Paragraph 8. Tenant shall take all steps required to ensure that neither Tenant nor its contractors or invitees (i) violate any governmental regulations, ordinances, or laws applicable to the Premises, (ii) do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or Project, or injure or annoy them, (iii) use or allow the Premises to be used for any unlawful or objectionable purpose, or (iv) cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall comply with all present and future covenants, conditions, and restrictions or other restrictive covenants and obligations, whether or not of record, which affect the use and operation of the Premises, the Building, the Common Areas or the Project, or any portion thereof, provided that Landlord shall not adopt or agree to any restrictions that materially interfere with the operation of Tenant’s business in the Premises as permitted under this Lease or any rights of Tenant under this Lease. Tenant shall not commit or suffer to be committed any waste in or upon the Premises and shall keep the Premises in the condition required under Paragraph 15(a). Tenant shall not place a load upon the Premises exceeding the average pounds of live load per square foot of floor area specified for the Building by Landlord’s architect, with partitions to be considered a part of the live load. Landlord reserves the right to prescribe the weight and position of all files, safes and heavy equipment which Tenant desires to place in the Premises so as to properly distribute the weight thereof. Further, Tenant’s business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building structure or to any other space in the Building or Project shall be so installed, maintained and used by Tenant as to eliminate such vibration or noise. Tenant shall be responsible for all structural engineering required to determine structural load in the Premises.

(b)  Landlord and Tenant acknowledge that the Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.) and regulations and guidelines promulgated thereunder, as all of the same may be amended and supplemented from time to time (collectively, “ADA”) establish requirements for business operations, accessibility and barrier removal, and that such requirements may or may not apply to the Premises, the Building and the Project depending on, among other things: (1) whether Tenant’s business is deemed a “public accommodation” or “commercial facility”, (2) whether such requirements are “readily achievable”, and (3) whether a given alteration affects a “primary function area” or triggers “path of travel” requirements. The parties hereby agree that: (a) Landlord shall be responsible for ADA Title III compliance in (i) the Common Areas, except as provided

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below, and (ii) the Premises to the extent, but only to the extent, any alterations to the Premises are directly required by the City of San Diego in connection with Landlord’s Work, (b) except as provided in Clause (a)(ii), above, Tenant shall be responsible for ADA Title III compliance in the Premises, including any tenant improvements or other work to be performed in the Premises under or in connection with this Lease, (c) Landlord may perform or require that Tenant perform, and Tenant shall be responsible for the cost of, ADA Title III “path of travel” requirements triggered by Tenant Alterations in the Premises other than Landlord’s Work, and (d) Landlord may perform, or require Tenant to perform, and Tenant shall be responsible for the cost of, ADA Title III compliance in the Common Areas necessitated by the Building being deemed to be a “public accommodation” instead of “commercial facility” as a result of Tenant’s particular use of the Premises. Tenant shall be solely responsible for requirements under Title I of the ADA relating to Tenant’s employees.

9.  NOTICES.    Any notice, consent, or approval required or permitted to be given under this Lease must be in writing and may be given by personal delivery or by mail, and shall be deemed sufficiently given when actually received by the intended party, whether personally delivered or mailed by registered or certified mail, if to Tenant at the address designated in Subparagraph 1(a) until the commencement of the Term only, and thereafter at the Premises, and if to Landlord at the addresses designated in Subparagraph 1(a). Either party may specify a different address for notice purposes by written notice to the other, except that Landlord may in any event use the Premises as Tenant’s address for notice purposes.

10.  BROKERS.    Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except the Broker(s) (named in Subparagraph 1(c)), whose commission shall be paid by Tenant. Tenant agrees to indemnify and defend Landlord from any cost, expense or liability for any compensation, fee, commission or charge claimed by any other party claiming by, through or on behalf of Tenant with respect to this Lease.

11.  HOLDING OVER.    Tenant shall vacate the Premises upon the expiration or earlier termination of this Lease. Tenant shall reimburse Landlord for and indemnify Landlord against all damages and liability which Landlord incurs from Tenant’s delay in vacating the Premises, including, without limitation, claims by and liability to any succeeding tenant founded on such delay and any attorneys’ fees and costs. If Tenant does not vacate the Premises upon the expiration or earlier termination of the Lease and Landlord thereafter accepts rent from Tenant, Tenant’s occupancy of the Premises shall be a “month-to-month” tenancy, subject to all of the terms of this Lease applicable to a month-to-month tenancy, except that the Monthly Basic Rent then in effect shall be increased by one hundred percent (100%).

12.  TAXES ON TENANT’S PROPERTY.

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(a)  Tenant shall be liable for and shall pay, at least ten (10) days before delinquency, all taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall, upon demand, repay to Landlord the taxes so levied against Landlord, or the portion of such taxes resulting from such increase in the assessment.

(b)  If any tenant improvements in the Premises, whether installed by Landlord or Tenant, or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord’s standards for other space in the Building are assessed, then the real property taxes and assessments levied against the Building by reason of such higher assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Subparagraph 12(a). If the records of the County Assessor are not available or sufficiently detailed to serve as a basis for determining whether any tenant improvements are subject to a higher valuation than improvements conforming to Landlord’s Building standards, the actual cost of construction shall be used.

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(c)  Any assessment, tax, fee, levy or charge allocable to or measured by the area of the Premises or by any payments to be made by Tenant under this Lease, including, without limitation, any gross income tax or excise tax levied by any governmental agency or political subdivision thereof with respect to the receipt of rent or other payments under a lease, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof, shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Subparagraph 12(a).

13.  CONDITION OF PREMISES.    Except as expressly set forth in this Lease (including construction of Landlord’s Work in accordance with the terms and conditions of the Premises Preparation Agreement), Landlord’s lease of the Premises to Tenant shall be on an “AS IS” basis without representations or warranties express or implied, and Tenant’s taking of possession of the Premises shall conclusively establish that the Premises and the Building were in satisfactory condition at the time of that possession (excluding latent defects and those items normally associated with a “punch list”). Tenant accepts that from time to time there may be construction and improvement work by Landlord on other space in the Building and to the Common Areas and other portions of the Project, and that such work may cause intermittent noise, vibrations, or other temporary inconveniences; provided, however, Landlord will take steps reasonably necessary and feasible to minimize inconveniences to Tenant and Tenant’s employees and visitors.

14.  ALTERATIONS.

(a)  Tenant shall make no alterations, additions, repairs or improvements to the Premises (collectively, “Alteration(s)”) except as expressly permitted by this Article 14. Notwithstanding the foregoing, Landlord’s consent shall not be required for (but Tenant shall provide Landlord with at least ten (10) days prior written notice (which notice shall include a detailed description of the anticipated Alterations and all plans and specifications prepared for the Alterations) of any Alterations which cost less than Fifteen Thousand and 00/100 ($15,000) per Alteration, and an aggregate cost of Seventy-five Thousand and 00/100 Dollars ($75,000.00) during the Term and do not (i) affect the exterior of the Building or outside areas (or be visible from adjoining sites), or (ii) affect or penetrate any of the structural portions of the Building, including but not limited to the roof, or (iii) require any change to the basic floor plan of the Premises, any change to any structural or mechanical systems of the Building, or (iv) interfere in any manner with the proper functioning of or Landlord’s access to any mechanical, electrical, plumbing or HVAC systems, facilities or equipment located in or serving the Building, or (v) diminish the value of the Premises, or (vi) require any demolition of any portion of the Premises, or (vii) require any painting that will emit paint fumes into the ventilation system of the Building (“Notice-Only Alterations”). Tenant shall have no right to make any Alterations to, or which could, in Landlord’s sole and absolute discretion, adversely affect the structural portions of the Building, which shall include the foundation, floor/ceiling slabs, roof, curtain walls, exterior glass and mullions, columns, beams, shafts, stairs, stairwells, escalators, plazas, artwork, sculptures, washrooms, mechanical, electrical and telephone closets and all Common Areas and public areas and the mechanical, electrical, life safety, plumbing, sprinkler systems and HVAC systems (collectively, “Building Structure and Systems”) without Landlord’s prior written consent, which may be withheld in Landlord’s sole discretion. Landlord’s consent to any other Alteration shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the other provisions of this Article 14, Tenant may install normal office decorations (e.g., paintings) in the Premises without obtaining Landlord’s consent.

(b)  Landlord may condition its consent to any type of Alteration on such requirements as Landlord may deem necessary in its subjective, good faith discretion, including without limitation: (i) the manner in which the work is to be done, (ii) the right of approval over the entity which shall perform, or contract to perform, the work (which approval may be withheld if, among other things, that entity is not properly licensed under all applicable laws or if Landlord deems the insurance carried by that entity to be inadequate), (iii) the times during which the work is to be accomplished, (iv) the issuance at Tenant’s sole cost of a performance or labor and material payment bond ensuring lien-free completion of the proposed Alterations, (v) delivery to Landlord of preliminary and final sets of plans for the proposed Alterations, or (vi) modification of the proposed Alterations to conform to Landlord’s subjective opinion about the appearance of the proposed Alterations. Tenant shall give Landlord at least ten (10) business days prior written notice of the expected commencement date of any work related to the Premises.

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Tenant shall be responsible for obtaining all permits required by law for all work done by Tenant under this Lease and Tenant warrants that such work shall comply with all applicable governmental laws, codes, or ordinances, including, without limitation, the ADA).

(c)  Upon the expiration or earlier termination of this Lease, (i) all or any part of the Alterations to or in connection with the Premises shall, at the option of Landlord, either (a) become the property of Landlord and remain on and be surrendered with the Premises, or (b) be removed from the Premises and the Premises restored to their condition immediately before those Alterations were made, all by and at the expense of Tenant. At the time Tenant requests Landlord’s consent to, or notifies Landlord of an Alteration hereunder, Tenant may request Landlord to notify Tenant if Landlord will waive its right to require Tenant to remove the Alteration and restore the Premises at the end of the Term (“Removal Waiver Request”). Landlord’s failure to notify Tenant within ten (10) days after Landlord’s receipt of the Removal Waiver Request that Landlord has granted Tenant’s Removal Waiver Request shall be conclusively deemed to be Landlord’s denial of the Removal Waiver Request.

(d)  All articles of personal property and all business and trade fixtures, machinery and equipment, furniture and movable partitions owned by Tenant (“Tenant’s Effects”) shall be and remain the property of Tenant and may be removed by Tenant at any time during the Term when Tenant is not in default under this Lease. If Tenant fails to remove all of Tenant’s Effects from the Premises upon termination of this Lease, Landlord may, at its option, remove Tenant’s Effects and store Tenant’s Effects without liability to Tenant for loss of Tenant’s Effects. Tenant agrees to pay Landlord upon demand any and all expenses incurred by Landlord in removing Tenant’s Effects, including court costs, attorneys’ fees and storage charges on Tenant’s Effects, for any length of time that Tenant’s Effects shall be in Landlord’s possession. Landlord may, at its option, without notice, sell Tenant’s Effects, or any of the same, at a private sale and without legal process, for such price as Landlord may obtain, and apply the proceeds of such sale to any amounts due under this Lease from Tenant to Landlord and to the expenses incident to the removal and sale of Tenant’s Effects. Tenant waives the provisions of California Civil Code sections 1980-1991.

15.  REPAIRS.

(a)  Subject to Landlord’s repair obligations set forth in Paragraph 15(b), Tenant shall keep, maintain and preserve the Premises in first-class condition and repair, and shall, when and if needed, at Tenant’s sole cost and expense, make all repairs to the Premises and every part thereof, including, without limitation, the interior surfaces of the ceilings, walls and floors, all doors, all interior windows, all non-standard plumbing, pipes, electrical wiring, light fixtures and bulbs, switches, furnishings, signs and special items and equipment installed by or at the expense of Tenant. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the interior of the Premises or any part thereof. Tenant and Landlord affirm that Landlord has made no representations to Tenant respecting the condition of the Premises, the Building, the Common Areas, or the Project except as specifically set forth in this Lease.

(b)  Anything contained in Paragraph 15(a) to the contrary notwithstanding, Landlord shall repair and maintain in a first-class condition the structural portions of the Building and the Building roof, exterior windows, window seals, standard plumbing, heating, ventilating, air conditioning, electrical systems, landscaping, hardscaping, parking areas and exterior components of the Building, unless such maintenance and repairs are required in part or in whole by the act, neglect or omission of Tenant, its agents, servants, employees or invitees, in which case Tenant shall pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. Landlord shall not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in Paragraph 23, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of any repairs, alterations or improvements in or to any portion of the Building, the Premises, the Common Areas, or the Project or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord’s expense under any law, statute or ordinance now or hereafter in effect. No provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly provided under this Lease. If Landlord fails to perform any of its repair and maintenance obligations as required in this

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Lease, and such failure materially affects Tenant’s ability to use and occupy the Premises for the purposes permitted herein, Tenant shall have the right, but not the obligation, to perform such repairs or maintenance if such failure continues for more than fifteen (15) days after Landlord’s receipt of written notice from Tenant detailing the repairs or maintenance required; provided, however, that if the nature of the repairs or maintenance to be completed by Landlord is such that more than fifteen (15) days are required to complete such repairs or maintenance, Landlord shall have such additional time as is reasonably necessary to complete such repairs or maintenance so long as Landlord takes appropriate action to commence such repairs or maintenance within such fifteen (15) day period and thereafter diligently pursues such repairs or maintenance to completion. In such event, Landlord shall reimburse Tenant for the reasonable costs incurred by Tenant to complete such repairs or maintenance within thirty (30) days after receipt of Tenant’s written demand therefore, together with copies of the paid invoices evidencing the costs incurred by Tenant. Any repairs or maintenance permitted herein shall be performed in a good workmanlike manner by licensed contractors. If Landlord objects to the repairs or maintenance performed or the expenses incurred by Tenant in performing such work, Landlord shall deliver a written notice of Landlord’s objection to Tenant within thirty (30) days after Landlord’s receipt of Tenant’s invoice evidencing the expenses incurred by Tenant. Landlord’s notice shall set forth in reasonable detail Landlord’s reasons for its claim that such repairs or maintenance were not required or were not Landlord’s obligation under this Lease or the reasons for Landlord’s dispute of the expenses incurred by Tenant in performing such work. In no event shall Tenant’s rights hereunder be construct to give Tenant any right of offset or to deduct any amount paid by Tenant or payable to Tenant from any amount payable by Tenant under this Lease. In addition, notwithstanding the foregoing, neither Tenant, nor Tenant’s contractors shall perform any repairs or maintenance to, or that will affect the Building Structure and Systems.

(c)  As between Landlord and Tenant, Landlord is recognized as the owner of telephone, cable, and any fiber optic wiring serving the Premises (collectively, the “Building Cable”) whether installed as of or following the Commencement Date. Tenant shall be responsible for the maintenance of all Building Cable. Tenant’s access to the Common Areas for the purposes of installing and maintaining the Building Cable is conditioned upon Landlord’s approval of Tenant’s service contract and appropriate insurance policies being obtained by the entity installing the Building Cable. Landlord shall not be responsible and shall have no liability for interruption in or failures of telephone or electronic data transmission services except to the extent caused by the gross negligence or willful misconduct of Landlord. Tenant shall abide by all reasonable, written and nondiscriminatory rules and regulations hereafter promulgated by Landlord regarding access to the Building Cable. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, losses, liabilities, costs and expenses, including, without limitation, actual attorneys’ fees, incurred by Landlord and related to Tenant’s access to or work performed in connection with the Building Cable.

(d)  At Landlord’s election as part of Operating Expenses, Landlord may elect from time to time to procure and keep in effect, as part of Operating Expenses, the following maintenance and service contracts: (i) landscaping, (ii) heating, ventilation and air conditioning equipment, (iii) boiler, fired or unfired pressure vessels, (iv) fire sprinkler and/or standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection systems, (v) roof covering and drain maintenance, (vii) asphalt and parking lot maintenance, and (viii) janitorial.

16.  LIENS.    Tenant shall not permit any mechanics’, materialmens’ or other liens to be filed against any portion of the Building or the Project or against Tenant’s leasehold interest in the Premises. Landlord shall have the right at all reasonable times to post and keep posted on the Premises any notices which it deems necessary for protection from such liens. If any such liens are filed, Landlord may, without waiving its rights and remedies based on such breach of Tenant and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payments in satisfaction of the claim giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by Landlord, any sum paid by Landlord to remove such liens, together with interest on that sum at (a) the maximum rate permitted by then-existing usury law, if applicable, or (b) if the then-existing usury law is not applicable, one and one-half percent (1-1/2%) per month (“Lease Interest Rate”) from the date of Landlord’s payment. Landlord acknowledges Tenant’s right to finance and to secure under the Uniform Commercial Code, inventory, furnishings, furniture, equipment, machinery, leasehold improvements and other personal property located in or at the Premises that does not constitute a real property fixture, and Landlord agrees to

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execute commercially reasonable waiver forms (“Landlord Waiver”) as described below releasing liens in favor of any purchase money seller, lessor or lender who has financed or may finance in the future such items. Without limiting the effectiveness of the foregoing, provided that no default shall have occurred and be continuing, Landlord shall, upon the request of Tenant, and at the Tenant’s sole cost and expense, execute and deliver any instruments necessary or appropriate to confirm any such Landlord Waiver to any person or entity permitted under this paragraph provided that any such Landlord Waiver will require the purchase money seller, lessor or lender to (x) remove any such personal property within thirty (30) days after the end of the Lease term or earlier termination of this Lease, (x) to repair any damage done to the Premises, Building, or Project by the installation or removal of such personal property, and (y) to promptly execute any instrument reasonably requested by Landlord confirming that its lien rights relate only to personal property owned by Tenant and not to any interest in this Lease or to Landlord’s fee interest in the Project or any improvements or fixtures located within the Project.

17.  ENTRY BY LANDLORD.     Landlord reserves and shall at all times upon reasonable prior notice (except in the case of an emergency that threatens imminent risk to life or property, in which case no prior notice shall be necessary) have the right to enter the Premises to inspect the same, to supply after-hours janitor service and any other service to be provided by Landlord to Tenant under this Lease, to show the Premises to prospective purchasers at any time (subject to the other provisions of this paragraph) or prospective tenants during the last nine (9) months of the Term, to post notices of non-responsibility, to alter, improve or repair the Premises or any other portion of the Building, without any such act being deemed an eviction of Tenant and without abatement of rent, provided Landlord and its agents or employees comply with Tenant’s reasonable risk management policies (which may include having such person escorted at all times by an employee of Tenant). Landlord shall have the right, but not the obligation, to enter upon the Premises and into the Building for the purpose of performing any obligation on Tenant’s part to be performed following a Tenant default pursuant to Paragraph 25, below, and Tenant shall pay all costs incurred by Landlord at the Lease Interest Rate. Landlord may, in order to carry out all such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed. Tenant waives any claim for damages for any injury or inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss in, upon and about the Premises resulting from any entry permitted under this paragraph. Landlord shall at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant’s vaults and safes. Landlord shall have the right to use any and all means which Landlord may deem proper to open any door in an emergency in order to obtain entry to or within the Premises. Any entry to the Premises obtained by Landlord by any means shall not be deemed to be a forcible or unlawful entry into the Premises, or an eviction of Tenant from the Premises or any portion thereof, and any damages caused on account thereof shall be paid by Tenant if that entry was caused by the acts or omissions of Tenant, its agents or contractors.

18.  UTILITIES AND SERVICES.    Tenant represents that it is familiar with the standards for all utilities servicing the Premises, including, without limitation, the capacity of the feeders to the Building and the risers and wiring installations. Tenant shall contract directly with all utility companies and similar providers for utilities and services to the Premises and pay directly for all such services (which shall include, without limitation, all water, sewer, electrical, cable and other electronic data transmission services), and Landlord shall have no obligation to provide any such services. Notwithstanding the foregoing, any installation of utility lines, including, without limitation, Building Cable whether or not through any existing conduits or risers, and any trenching over the Premises to install wiring or cable, whether or not over existing utility easements, shall be considered an alteration to the Building Structure and Systems. Unless directly caused by the gross negligence or the intentional misconduct of Landlord, the interruption of any utilities or services to the Building shall not result in any liability of Landlord, Tenant shall not be entitled to any abatement or reduction of rent by reason of such failure (whether such failure affects HVAC services or otherwise), no eviction of Tenant shall result from such failure, and Tenant shall not be relieved from the performance of any covenant or agreement in this Lease because of such failure. Any such interruption shall include, without limitation, failure of services caused by (i) accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute of any character; (iii) governmental regulation, moratorium or other governmental action; (iv) inability despite the exercise of reasonable diligence to obtain electricity, water or fuel; or (v) any other cause beyond Landlord’s reasonable control.

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19.  BANKRUPTCY.    If Tenant shall file a petition in bankruptcy under any provision of the Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a bankrupt in involuntary bankruptcy proceedings and such adjudication shall not have been vacated within sixty (60) days from the date thereof, or if a receiver or trustee of Tenant’s property shall be appointed and the order appointing such receiver or trustee shall not be set aside or vacated within sixty (60) days after the entry thereof, or if Tenant shall assign Tenant’s estate or effects for the benefit of creditors (collectively, “Acts of Insolvency”), or if this Lease shall, by operation of law or otherwise, pass to any person or persons other than Tenant, then in any such event Landlord may terminate this Lease, if Landlord so elects, with or without notice of such election and with or without entry or action by Landlord. In such case, notwithstanding any other provisions of this Lease, Landlord, in addition to any and all rights and remedies allowed by law or equity, shall, upon such termination, be entitled to recover damages in the amount provided in Subparagraph 25(b), and neither Tenant nor any person claiming through or under Tenant or by virtue of any statute or order of any court shall be entitled to possession of the Premises but shall immediately surrender the Premises to Landlord. Nothing contained herein shall limit or prejudice the right of Landlord to recover, by reason of any such termination, damages equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such damages are greater, equal to or less than the amount of damages otherwise recoverable under the provisions of this Paragraph 19.

20.  INDEMNIFICATION AND EXCULPATION OF LANDLORD.

(a)  Tenant shall indemnify, defend and hold Landlord and its officers, directors, shareholders, agents, employees, and contractors (the “Landlord Parties” or, individually, a “Landlord Party”) harmless from all damages, costs and expenses (including attorneys’ fees), judgments, loss, damage, injury, liability, claims and losses (collectively, “Claims”) arising from Tenant’s use of the Premises or the conduct of its business or from any activity, work or thing done, permitted or suffered by Tenant in or about the Premises, the Building, the Common Areas, any portion thereof, or any other part of the Project. Tenant shall further indemnify, defend and hold the Landlord Parties harmless from all Claims arising from any breach or default in the performance of any obligation to be performed by Tenant under this Lease, or arising from any act, neglect, fault or omission of Tenant or of its agents, employees, or contractors, and from and against all Claims incurred in, or arising out of, such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against the Landlord Parties or any of them by reason of any such Claim, Tenant, upon notice from Landlord, shall defend the same at Tenant’s expense by counsel reasonably approved in writing by Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever except to the extent caused by the gross negligence or willful misconduct of Landlord or the Landlord Parties or any of them or Landlord’s breach of this Lease. Tenant hereby waives all its Claims in respect thereof against Landlord. Notwithstanding anything to the contrary set forth herein, Landlord shall, with counsel reasonably acceptable to Tenant, indemnify, defend and hold harmless Tenant as well as Tenant’s employees, agents and invitees (collectively, “Tenant Parties”) from and against all liability and claims (i) for damage to property outside the Premises to the extent that such liabilities and claims are covered by such insurance (or would have been covered had Landlord carried the insurance required under this Lease), even if resulting from the negligent acts, omissions or willful misconduct of Tenant Parties, (ii) to the extent resulting from the negligent acts, omissions or willful misconduct of Landlord or Landlord Parties in connection with Landlord Parties’ activities in, on or about the Project except to the extent that such liability or claim is for damage to Tenant’s personal property, fixtures or furniture in the Premises and is covered by insurance that Tenant is required to obtain under this Lease (or would have been covered had Tenant carried the insurance required under this Lease) and (iii) Landlord’s breach of this Lease.

(b)  Neither Landlord nor any Landlord Party shall be liable to Tenant or its partners, directors, officers, contractors, agents, employees, invitees, sublessees or licensees for any loss, injury or damage to Tenant or to any other person, or to its or their property, except to the extent such injury, damage or loss is caused by the gross active negligence or willful misconduct of Landlord or a Landlord Party in the operation or maintenance of the Premises or the Building. Further, neither Landlord nor any Landlord Party shall be liable (i) for any such damage caused by other tenants or persons in or about the Building; or (ii) for consequential or punitive

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damages arising out of any loss of the use of the Premises or any equipment or facilities therein by Tenant or any person claiming through or under Tenant.

21.  DAMAGE TO TENANT’S PROPERTY.    Subject to the provisions of Paragraph 20 and except to the extent cause by the gross negligence or willful misconduct of Landlord or the Landlord Parties, neither Landlord nor any Landlord Party shall be liable for (i) any damage to any property entrusted to employees of the Building, (ii) loss or damage to any property by theft or otherwise, or (iii) any injury or damage to persons or property resulting from fire, explosion, falling plaster or other improvements, steam, gas, electricity, water or rain which may leak from any part of the Building or from any latent defect in the Premises or in the Building or any portion thereof, including, without limitation, from the pipes, appliances or plumbing work in the Building or from the roof, street or subsurface or from any other place or resulting from dampness or any other cause whatsoever. Except as expressly provided otherwise in this Lease, neither Landlord nor any Landlord Party shall be liable for interference with light or other property rights. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the Building or of defects in the Premises or the Building or in any fixtures or equipment.

22.  TENANT’S INSURANCE.

(a)  Tenant shall, during the Term and any other period of occupancy, at its sole cost and expense, keep in full force the following insurance:

(i)  Standard form property insurance insuring against all-risk perils (“All-Risk”) and sprinkler leakage. This insurance policy shall be upon all property owned by Tenant, for which Tenant is legally liable or that was installed at Tenant’s expense, and which is located in the Building including, without limitation, furniture, fittings, installations, fixtures (other than tenant improvements installed by Landlord), and any other personal property, in an amount not less than the full replacement cost thereof. If there is a dispute as to the amount which comprises full replacement cost, the reasonable decision of Landlord or any mortgagees of Landlord shall be conclusive. This insurance policy shall also cover direct or indirect loss of Tenant’s earnings attributable to Tenant’s inability to use fully or obtain access to the Premises or Building in an amount which will properly reimburse Tenant. Such policy shall name Landlord and any mortgagees of Landlord (which mortgagee has been identified in writing to Tenant) as insured parties, as their respective interests may appear.

(ii)  Commercial General Liability Insurance insuring Tenant against any liability arising out of the lease, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in the amount of $5,000,000 Combined Single Limit for injury to, or death of one or more persons in an occurrence, and for damage to tangible property in an occurrence. The policy shall insure the hazards of the Premises and Tenant’s operations thereon, independent contractors, and contractual liability (covering the indemnity contained in Paragraph 20), and shall (1) name Landlord and Landlord’s lender(s) and mortgagee(s) as additional insureds, (2) contain a cross-liability provision, and (3) contain a provision that the insurance provided Landlord under this Subparagraph 22(a)(ii) shall be primary and non-contributing with any other insurance available to Landlord.

(iii)  Workers’ Compensation and Employer’s Liability insurance as required by state law.

(iv)  Business interruption insurance coverage for all Basic Monthly Rent and Operating Expenses for a period of at least twelve (12) months.

(v)  Any other commercially reasonable form or forms of insurance which Tenant, Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts, and for insurance risks against which a prudent tenant would protect itself.

(b)  All policies to be procured by Tenant shall be written in a form satisfactory to Landlord and shall be maintained with insurance companies holding a General Policyholders Rating of “A” and a Financial Rating of “X” or better, as set forth in the most current issue of Best’s Insurance Guide. Within ten (10) days after

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the execution of this Lease and before occupying the Premises, Tenant shall deliver to Landlord certificates evidencing the existence of the amounts and forms of coverage satisfactory to Landlord. No such policy shall be cancelable or reducible in coverage without at least thirty (30) days prior written notice to Landlord. Tenant shall, at least ten (10) days before the expiration of such policies, furnish Landlord with renewals or “binders” thereof, or Landlord may order such insurance and charge the cost thereof to Tenant as additional rent. If Landlord obtains any insurance that is the responsibility of Tenant under this Paragraph 22, Landlord shall deliver to Tenant a written statement setting forth the cost of any such insurance and showing in reasonable detail the manner in which it has been computed, and Tenant shall reimburse Landlord such amount at the Lease Interest Rate until paid.

(c)  During the Term, Landlord shall insure the Building (excluding any property which Tenant is obligated to insure under Subparagraphs 22(a)) against damage with All-Risk insurance and public liability insurance, all in such amounts and with such deductibles as Landlord reasonably considers appropriate. Landlord may, but shall not be obligated to, obtain and carry earthquake insurance, flood insurance, rental interruption insurance, or any other form or forms of insurance as Landlord’s mortgagees may determine advisable. Tenant acknowledges that Tenant’s insurance shall in any event provide primary coverage and that it has no right to receive any proceeds from any insurance policies carried by Landlord.

(d)  Tenant will not keep, use, sell or offer for sale in or upon the Premises any article which may be prohibited by any insurance policy periodically in force covering the Building. If Tenant’s use of the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance periodically carried by Landlord with respect to the Building, Tenant shall pay any such increase in premiums as additional rent within ten (10) days after being billed therefor by Landlord. In determining whether increased premiums are a result of Tenant’s use of the Premises, a schedule issued by the organization computing the insurance rate on the Building or any tenant improvements showing the various components of such rate shall be conclusive evidence of the several items and charges which make up such rate. Tenant shall promptly comply with all reasonable requirements of the insurance authority or any present or future insurer relating to the Premises.

(e)  If any of Landlord’s insurance policies shall be canceled or cancellation shall be threatened or the premium or coverage thereunder changed or threatened to be changed in any way because of the use of the Premises or any part thereof by Tenant or any assignee or subtenant of Tenant or by anyone Tenant permits on the Premises and, if Tenant fails to remedy the condition giving rise to such threatened or actual cancellation, or threatened or actual change in coverage or premiums, then, within forty-eight (48) hours after notice thereof, Landlord may, at its option, enter upon the Premises and attempt to remedy such condition, and Tenant shall promptly pay the cost thereof to Landlord as additional rent. Landlord shall not be liable for any damage or injury caused to any property of Tenant or of others located on the Premises resulting from such entry. If Landlord is unable or elects not to remedy such condition, then Landlord shall have all of the remedies for a Tenant default provided for in this Lease.

(f)  All policies of insurance required hereunder shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured before the occurrence of injury or loss. Landlord and Tenant waive any rights of recovery against the other for injury or loss due to hazards covered by policies of insurance containing such a waiver of subrogation clause or endorsement to the extent of the injury or loss covered thereby.

23.  DAMAGE OR DESTRUCTION.

(a)  If the Project, Building, or the Premises is damaged by fire or other perils, Landlord shall:

(i)  In the event of total destruction, at Landlord’s option, (x) as soon as reasonably possible after receipt of all insurance proceeds, approval by local authorities of any and all required final building plans and specifications and issuance of all required building permits and licenses, commence repair, reconstruction and restoration of the Project, Building, or the Premises and prosecute the same diligently to completion, in which event this Lease shall remain in full force, or (y) within the later of (a) the date of final insurance adjustment or (b) ninety (90) days after such damage, elect not to so repair, reconstruct or restore the Project, Building, or the

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Premises, in which latter event this Lease shall be deemed to have terminated as of the date of such total destruction. In either event, Landlord shall give Tenant written notice of its intention within ninety (90) days after the date of total destruction.

(ii)  In the event of a partial destruction of the Project or Building to an extent not exceeding twenty-five percent (25%) of the full insurable value of the Project or Building or the Premises, and if the damage thereto is such that the Project, Building, or the Premises may be repaired, reconstructed or restored within a period of ninety (90) days from the date of such casualty, and if Landlord has received insurance proceeds sufficient to cover the cost of such repairs, then Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration of the Building or Premises and this Lease shall continue in full force (it being understood and agreed that Landlord shall not be required to repair, reconstruct, or restore the other portions of the Project unless Tenant’s use of or access to the Premises will be materially affected by Landlord’s election to not repair, reconstruct or restore the damaged portion of the Project). If (i) such work of repair, reconstruction and restoration shall require a period longer than ninety (90) days after the date of the casualty or exceeds twenty-five percent (25%) of the full insurable value of the Building, (ii) such partial destruction is not insured, or (iii) insurance proceeds will not be sufficient to cover the entire cost of such repairs, then Landlord either may elect to so repair, reconstruct or restore and the Lease shall continue in full force or Landlord may elect not to repair, reconstruct or restore and the Lease shall be deemed to have terminated as of the date of such partial destruction. Under any of the conditions of this Subparagraph 23(a)(ii), Landlord shall give written notice to Tenant of its intention within the later of (a) the date of final insurance adjustment or (b) ninety (90) days after the date of partial destruction of the Project, Building, or Premises.

(b)  Except as provided otherwise in this Lease, upon any termination of this Lease under any of the provisions of this Paragraph 23, the parties shall be released without further obligation to the other from the date possession of the Premises is surrendered to Landlord except for items which have previously accrued and are then unpaid.

(c)  In the event of repair, reconstruction or restoration by Landlord as provided in this Paragraph 23, the rent payable under this Lease shall be abated proportionately to the degree to which Tenant’s use of the Premises is impaired during the period of such repair, reconstruction or restoration only to the extent Landlord receives proceeds from any rent abatement insurance that may be carried by Landlord or business interruption insurance carried by Tenant; provided that there shall be no abatement of rent if such damage is the result of the negligence or intentional wrongdoing of Tenant or its agents, employees, contractors or invitees. Tenant shall not be entitled to any compensation or damages for (i) loss in the use of the whole or any part of the Premises or (ii) any inconvenience or annoyance occasioned by such damage, repair, reconstruction or restoration.

(d)  Tenant shall not be released from any of its obligations under this Lease except to the extent and upon the conditions expressly stated in this Paragraph 23. Notwithstanding anything to the contrary contained in this Paragraph 23, if Landlord is delayed or prevented from repairing or restoring the damaged Premises more than one (1) year after the occurrence of such damage or destruction by reason of acts of God, war, governmental restrictions, inability to procure the necessary labor or materials, or other cause beyond the control of Landlord, Landlord, at its option, may terminate this Lease, whereupon Landlord shall be relieved of its obligation to make such repairs or restoration and Tenant shall be released from its obligations under this Lease as of the end of the one-year period.

(e)  If Landlord is obligated to or elects to repair or restore as herein provided, Landlord shall be obligated to make repair or restoration only of those portions of the Building or the Premises which were originally provided at Landlord’s expense, and the repair and restoration of items not provided at Landlord’s expense shall be the obligation of Tenant.

(f)  Notwithstanding anything to the contrary contained in this Paragraph 23, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises when the damage resulting from any casualty covered under this Paragraph 23 occurs during the last twelve (12) months of the Term. In the event Landlord elects not to repair any such damage or destruction occurring during the last twelve (12) months of the

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Term, then this Lease and the parties’ respective obligations hereunder (other than those that by their nature survive Lease termination) shall terminate.

(g)  The provisions of Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4, which permit termination of a lease upon destruction of the leased premises, are hereby waived by Tenant, and the provisions of this Lease shall govern in case of such destruction. Except as provided otherwise in this Lease, Tenant shall not be released from any of its obligations under this Lease, the rent and other expenses payable by Tenant under this Lease shall not abate, and Landlord shall have no liability to Tenant for any damage or destruction to the Premises or the Building or any inconvenience or injury to Tenant by reason of any maintenance, repairs, alterations, decoration, additions or improvements to the Premises, Building, or Project.

24.  EMINENT DOMAIN.

(a)  If all of the Project, Building, or Premises, or such part thereof as shall materially and adversely interfere with Tenant’s use and occupancy thereof, shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to such authority. In addition, if such part of the Project as shall, in Landlord’s sole discretion, materially affect the continuing viability of the Project as an industrial project shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, the Landlord shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to such authority. Tenant shall not assert any claim against Landlord or the taking authority for any compensation because of such taking, and Landlord shall be entitled to receive the entire amount of any award without deduction for any estate or interest of Tenant. If the amount of property or the type of estate taken does not substantially interfere with the conduct of Tenant’s business, Landlord shall be entitled to the entire amount of the award without deduction for any estate or interest of Tenant, Landlord shall restore the Premises to substantially their same condition before the partial taking to the extent Landlord receives condemnation proceeds (with any deficiency to be paid by Tenant as a condition to Landlord’s obligation to restore). Notwithstanding the foregoing, Tenant shall have the right to proceed against the condemning authority for any damages, including rent paid to Landlord, during the time Tenant is deprived of the use of the Premises on account of such taking and restoration, and nothing contained in this Paragraph shall be deemed to give Landlord any interest in any award made to Tenant for the taking of personal property and fixtures belonging to Tenant. Rent during any such taking and restoration shall abate only to the proportionate extent of Tenant’s inability to use the Premises and only to the extent Landlord receives proceeds from any rent abatement insurance that may be carried by Landlord or business interruption insurance carried by Tenant.

(b)  In the event of taking of the Premises or any part thereof for temporary use, (i) this Lease shall be and remain unaffected thereby and rent shall not abate except to the proportionate extent of Tenant’s inability to use the Premises and only to the extent Landlord receives proceeds from any rent abatement insurance that may be carried by Landlord or business interruption insurance carried by Tenant, and (ii) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the Term, provided that if such taking shall remain in force at the expiration or earlier termination of this Lease, Tenant shall then pay to Landlord a sum equal to the reasonable cost of performing Tenant’s obligations under Subparagraph 14(c) with respect to surrender of the Premises and upon such payment shall be excused from such obligations. For purpose of this Subparagraph 24(b), a temporary taking shall be defined as a taking for a period of 270 days or less.

25.  DEFAULTS AND REMEDIES.

(a)  The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant:

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(i)  Abandonment of the Premises by Tenant. Notwithstanding the provisions of Civil Code Section 1951.3, “Abandonment” means any absence by Tenant from the Premises for three (3) business days or longer while in default of any provision of this Lease beyond all applicable notice and cure periods.

(ii)  The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant under this Lease, as and when due, provided that Tenant may cure such default by making such payment to Landlord within three (3) days after written notice thereof from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 regarding unlawful detainer actions, provided that such notice meets all of the requirements of California Code of Civil Procedure Section 1161.

(iii)  The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in Subparagraphs 25(a)(i) or (ii), provided that Tenant may cure such default by curing such failure within twenty (20) days after written notice thereof from Landlord to Tenant. Any such notice shall be in lieu of, and not in addition to, any notice required under Code of Civil Procedure Section 1161 regarding unlawful detainer actions. If the nature of Tenant’s default is such that it is reasonably capable of being cured but more than twenty (20) days are required for its cure, then Tenant shall be deemed to have cured such default if Tenant shall commence such cure within the twenty (20) day period and thereafter diligently prosecutes such cure to completion, provided further that such completion shall occur not later than ninety (90) days from the date of such notice from Landlord.

(iv)  (1) Acts of Insolvency; or (2) the attachment, execution or other judicial seizure of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease, provided that such default shall be deemed to be cured where such seizure is discharged within sixty (60) days.

(v)  The discovery by Landlord that any financial statement given to Landlord by Tenant, or its successor in interest, or by any Transferee (defined below) or sublessee pursuant to a Transfer or sublease is materially false.

(b)  If any such default by Tenant occurs, in addition to any other remedies now or later available to Landlord at law or in equity, Landlord can terminate Tenant’s right to possession of the Premises and terminate this Lease and all rights of Tenant under this Lease. No act by Landlord other than giving notice thereof to Tenant shall terminate this Lease. Upon termination, Landlord may recover from Tenant:

(i)  the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus

(ii)  the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(iii)  the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus

(iv)  any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease or which in the ordinary course of things would be likely to result therefrom.

As used in Subparagraphs 25(b)(i) and (ii), the “worth at the time of award” is computed by allowing interest at the Lease Interest Rate. As used in Subparagraph 25(b)(iii), the “worth at the time of award” is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

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(c)  If any such default by Tenant occurs, Landlord may utilize the remedy described in California Civil Code Section 1951.4 (which says landlord may continue the lease in effect after a tenant’s breach and Abandonment and recover rent as it becomes due, if tenant has the right to sublet or assign subject to reasonable limitations).

(d)  If an Abandonment of the Premises by Tenant occurs or if Landlord elects to reenter as provided above or shall take possession of the Premises pursuant to legal proceeding or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease as provided above, Landlord may from time to time, without terminating this Lease, either recover all rent as it becomes due or relet the Premises or any part thereof for the Term on terms and conditions as Landlord in its sole discretion may deem advisable with the right to make alterations and repairs to the Premises.

If Landlord elects to so relet, then rentals received by Landlord from that reletting shall be applied: first, to the payment of any indebtedness other than rent due under this Lease from Tenant to Landlord; second, to the payment of any reasonable cost actually incurred in such reletting; third, to the payment of the cost of any alterations and necessary repairs to the Premises; fourth, to the payment of rent due and unpaid under this Lease; and the residue, if any, shall be held by Landlord and applied to payment of future rent as the same may become due and payable under this Lease. Should that portion of such rentals received from such reletting during any month, which is applied to the payment of rent under this Lease, be less than the rent payable during that month by Tenant under this Lease, then Tenant shall pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting.

(e)  All rights, options and remedies of Landlord contained in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Lease. Without limitation, Tenant acknowledges that Tenant’s failure to timely comply with the requirements of Paragraphs 27, 28, 50 and 51 may result in a lender refusing to loan Landlord funds or a buyer refusing to purchase the Building on favorable terms (or at all), causing Landlord substantial monetary damages. No waiver of any default of Tenant under this Lease shall be implied from any acceptance by Landlord of any rent or other payments due under this Lease (whether that acceptance occurs before or after (i) a default has occurred or (ii) a three-day or other notice of default has been given) or from any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in the waiver. The consent or approval of Landlord to or of any act by Tenant requiring Landlord’s consent or approval shall not be deemed to waive or render unnecessary Landlord’s consent or approval to or of any subsequent similar acts by Tenant.

(f)  Subject to Tenant’s rights set forth in Paragraph 15, Landlord shall be in default in the performance of any obligation required to be performed by Landlord under the Lease if Landlord has failed to perform such obligation within thirty (30) days after actual receipt of written notice from Tenant specifying in detail Landlord’s failure to perform; provided, however, that if the nature of Landlord’s obligation is such that more than thirty (30) days are required for Landlord’s performance, Landlord shall not be deemed in default if Landlord commences such performance within such thirty (30) day period and thereafter diligently pursues the same to completion. Upon any such default by Landlord, Tenant may exercise any of its rights provided at law for a default by a landlord under a commercial lease; provided, however, in no event shall Tenant have the right to terminate this Lease as a result of Landlord’s default, and Tenant’s remedies shall be limited to damages and/or injunctive relief.

(g)  If this Lease provides for postponement or suspension of monthly rental payments or for one or more periods of “free” rent or other rent concessions (collectively, “Abated Rent”), Tenant shall be credited with having paid all of the Abated Rent on the expiration of the Term only if Tenant has (i) occupied all or substantially all of the Premises for the entire Term, and (ii) fully, faithfully and punctually performed all of Tenant’s obligations, including without limitation the payment of all rent (other than the Abated Rent) and all other monetary obligations, and has surrendered the Premises in the condition required by this Lease. Upon the

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occurrence of a Tenant default (as set forth in this Paragraph 25), the Abated Rent shall immediately become due and payable in full, and the Lease shall be enforced as if there were no Abated Rent or other rent concession. In such case, Abated Rent shall be calculated based on the full initial rent payable under the Lease.

(h)  Landlord and Tenant waive all rights to a jury trial and agree that any action or proceeding arising out of this Lease shall be heard by a court sitting without a jury.

LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTIONS OF THE UNITED STATES AND THE STATE OF CALIFORNIA. EACH PARTY EXPRESSLY AND KNOWINGLY WAIVES AND RELEASES ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER ON ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, TENANT’S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM FOR INJURY OR DAMAGE.

26.  ASSIGNMENT AND SUBLETTING.

(a)  Tenant shall not assign, encumber, or otherwise transfer (collectively, “Transfer”) all or any part of its interest in this Lease or in the Premises or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without obtaining Landlord’s prior written consent as set forth below. Any Transfer or sublease without Landlord’s prior written consent shall be voidable at Landlord’s election and shall constitute a default.

(b)  If Tenant is a partnership or a limited liability company, a withdrawal or change, in one or more transactions, of partners or members owning in the aggregate a fifty percent (50%) or more interest in the profits of the partnership or limited liability company, or any transaction or event which results in a change in control of the partnership or limited liability company, or if Tenant is a corporation, any change or transfer in the aggregate of fifty percent (50%) or more of its voting stock or beneficial interest, whether in one or more transactions, shall constitute a Transfer and shall be subject to these provisions. If Tenant is a corporation, partnership, or limited liability company a sale, encumbrance or other transfer of fifty percent (50%) or more of its assets in the aggregate, in one or more transactions, shall also be a Transfer under this Lease and in addition shall be void as to Landlord without Landlord’s prior written consent. No consent to a Transfer or sublease shall constitute a future waiver of the provisions of this Paragraph 26. Notwithstanding the foregoing, Landlord’s consent shall not be required for any of the following transfers (each of which shall be a “Permitted Transfer”): (a) a public offering of the stock of Tenant or (b) the transfer of the stock of Tenant to any person(s) or entity who controls (defined below), is controlled by or is under common control with Tenant (each of the foregoing is hereinafter referred to as a “Tenant Affiliate”); provided that before such assignment shall be effective, (x) the Tenant Affiliate shall assume, in full, the obligations of Tenant under this Lease, (y) Landlord shall be given written notice of such assignment and assumption and (z) the use of the Premises by the Tenant Affiliate shall be as set forth in Paragraph 8 of this Lease. For purposes of this paragraph, the term “control” means ownership, directly or indirectly, of at least fifty percent (50%) of the voting securities of Tenant.

(c)  Tenant shall notify Landlord in writing of Tenant’s intent to Transfer or sublease all or part of this Lease or the Premises, the name of the proposed assignee or sublessee, information concerning the financial responsibility of the proposed assignee or sublessee and all the terms of the proposed Transfer or subletting; within fifteen (15) days after receipt of all such information and all additional information requested by Landlord concerning the proposed Transfer or sublease, Landlord shall elect by notice to Tenant (“Landlord’s Election”) to do one of the following: (a) consent to such proposed Transfer or sublease; (b) refuse such consent, which refusal shall be on reasonable grounds; or, (c) effective within sixty (60) days after the date Landlord gives its notice, terminate this Lease, or in the case of a partial sublease, terminate this Lease as to the portion of the Premises proposed to be sublet. However, if within thirty (30) days after Landlord gives Landlord’s Election of the alternative in clause “(C)” Landlord receives written notice from Tenant that Tenant has rescinded its proposed Transfer or sublease, this Lease shall continue in effect.

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As conditions to granting its consent to any Transfer or sublease, Landlord may require:

(i)  delivery to and approval by Landlord of a true copy of the fully executed instrument of Transfer or sublease, and the delivery to Landlord of an agreement executed by the transferee or sublessee in form and substance satisfactory to Landlord and expressly enforceable by Landlord, whereby the transferee or sublessee assumes and agrees to be bound by all of the terms and provisions of this Lease and to perform all of the obligations of Tenant under this Lease;

(ii)  that any sublease provide that it is subject and subordinate to this Lease and to all mortgages, that Landlord may enforce the provisions of the sublease, including collection of rent, and that in the event of termination of this Lease for any reason, including without limitation a voluntary surrender by Tenant, or in the event of any reentry or repossession of the Premises by Landlord, Landlord may, at its option, either (x) terminate the sublease or (y) take over all of the right, title and interest of Tenant, as sublessor, under such sublease, in which latter case such sublessee shall attorn to Landlord, but that nevertheless Landlord shall not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any defense or offset previously accrued in favor of the sublessee against Tenant, or (3) be bound by any previous modification of any sublease made without Landlord’s written consent, or by any previous prepayment by sublessee of any rent or other payments.

(d)  Landlord shall have the right to reasonably approve or disapprove any proposed assignee or subtenant. In exercising such right of approval or disapproval, Landlord shall be entitled to take into account any fact or factor which Landlord reasonably deems relevant to such decision, including but not necessarily limited to the following, all of which are agreed to be reasonable factors for Landlord’s consideration:

(i)  The financial strength of the proposed assignee or subtenant, including the adequacy of its working capital to pay all expenses anticipated in connection with any proposed remodeling of the Premises.

(ii)  The proposed use of the Premises by such proposed assignee or subtenant is permitted pursuant to Paragraph 8 and is compatible with the other tenant uses in the Project.

(iii)  Any violation which the proposed use by such proposed assignee or subtenant would cause of any other rights granted by Landlord to other tenants of the Project.

(iv)  Any adverse impact of the proposed use of the Premises by such proposed assignee or subtenant upon the parking or other services provided for Project tenants generally.

(v)  Whether there then exists any default by Tenant pursuant to this Lease or any non-payment or non-performance by Tenant under this Lease which, with the passage of time or the giving of notice, would constitute a default under this Lease.

(vi)  The business reputation, character, history and nature of the business of the proposed assignee or subtenant.

(vii)  Whether the proposed assignee or subtenant is a tenant or existing subtenant, or is an affiliate of or associated with any tenant or existing subtenant of the Project or is a person with whom Landlord has negotiated for space in the Project during the twelve (12) month period ending with the date Landlord receives notice of such proposed assignment or subletting.

(viii)  Whether the proposed assignee or subtenant is a governmental entity or agency.

Moreover, Landlord shall be entitled to be reasonably satisfied that each and every covenant, condition or obligation imposed upon Tenant by this Lease and each and every right, remedy or benefit afforded Landlord by this Lease is

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not impaired or diminished by such assignment or subletting. Landlord and Tenant acknowledge that the express standards and provisions set forth in this Lease dealing with assignment and subletting, including those set forth in this subparagraph (d) have been freely negotiated and are reasonable at the date hereof taking into account Tenant’s proposed use of the Premises and the nature and quality of the Building and Project. No withholding of consent by Landlord for any reason deemed sufficient by Landlord shall give rise to any claim by Tenant or any proposed assignee or subtenant or entitle Tenant to terminate this Lease, to recover contract damages or to any abatement of rent. In this connection, Tenant hereby expressly waives its rights under California Civil Code Section 1995.310.

(e)  Whether or not Landlord shall consent to a Transfer or sublease under the provisions of this Paragraph 26, (i) Tenant shall pay Landlord’s processing costs and attorneys’ fees incurred in determining whether or not to so consent, and (ii) Tenant shall not be relieved of any responsibility under this Lease without Landlord’s express written release, which Landlord may grant or withhold in its sole, subjective discretion. If Landlord shall consent to any Transfer, Tenant (after first deducting its brokers’ fees, attorneys’ fees, advertising costs and all other sums reasonably incurred and documented in obtaining such Transfer) shall pay to Landlord, as additional rent, fifty percent (50%) of all net sums or other consideration payable to and for the benefit of Tenant by the transferee on account of the Transfer, as and when such sums and other consideration are due and payable to or for the benefit of Tenant (or, if Landlord so requires, and without any release of Tenant’s liability for the same, Tenant shall instruct the transferee to pay such sums and other consideration directly to Landlord). If in connection with any proposed sublease Tenant receives net sums or other consideration, either initially or over the term of the sublease, in excess of the rent called for under this Lease or, in case of the sublease of a portion of the Premises, in excess of such rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for under this Lease are taken into account, Tenant shall pay to Landlord as additional rent fifty percent (50%) of the net sums or other consideration received by Tenant promptly after its receipt. As used in this paragraph, “net sums or other consideration” shall include without limitation the then fair value of any non-cash consideration and shall be calculated after first deducting reasonable costs incurred by Tenant in connection with the Transfer or sublease, including without limitation commissions payable to a broker not affiliated with Tenant, space modification costs in connection with the Transfer or sublease, reasonable legal costs, free rent concessions to the transferee or sublessee, and lease take-over costs. Landlord’s waiver of or consent to any Transfer or subletting shall not relieve Tenant or any transferee or sublessee from any obligation under this Lease whether or not accrued.

27.  SUBORDINATION.    Unless Landlord or any beneficiary or mortgagee with a lien on the Building or any ground lessor with respect to the Building elects otherwise as provided below in this Paragraph 27, this Lease shall be subject and subordinate at all times to the following without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination:

(a)  the lien and provisions of any mortgage, deed of trust, or declaration of covenants, conditions and restrictions which may now exist or hereafter be executed by which the Building, Project, any ground lease, or Landlord’s interest or estate in any of those items, is encumbered; and

(b)  all ground leases which may now exist or hereafter be executed affecting the Building.

Landlord, any such beneficiary or mortgagee, or any such ground lessor, shall at any time have the right to elect to subordinate or cause to be subordinated to this Lease any such liens and provisions or ground lease. Any election under this Paragraph 27 may be made by giving notice thereof to Tenant at least sixty (60) days before the election is to become effective. If any ground lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, at the election of any successor-in-interest to Landlord and regardless of any subordination, attorn to and become the Tenant of the successor-in-interest to Landlord. Tenant waives any right to declare this Lease terminated or otherwise ineffectual because of any such foreclosure, conveyance or ground lease termination. Tenant shall execute and deliver, upon demand by Landlord and in the form and content requested by Landlord, any additional documents evidencing the priority or subordination of this Lease and Tenant’s obligation to attorn to and become the Tenant of any successor-in-interest to Landlord as provided for under this Paragraph 27. Tenant’s failure to sign and return any such documents within ten (10) business days of request shall constitute a material default by Tenant under this Lease and Landlord may, at Landlord’s option, terminate the Lease provided written notice of such termination (which shall be in lieu of and not

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in addition to the notice and cure period otherwise provided for under Subparagraph 25(a)(iii)) is received by Tenant prior to Landlord’s receipt of such documents. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record any such document in the name and on behalf of Tenant.

(c)  With respect to any existing or future first ground leases, mortgages, deeds of trust, or other liens entered into by and between Landlord and any such mortgagee or a beneficiary of any deed of trust or other such lien granted by Landlord, Landlord shall use reasonable efforts (with no obligation to incur any costs or commence any type of legal proceeding) to deliver to Tenant notarized nondisturbance agreements (“Nondisturbance Agreements”) in writing from all current (and within thirty (30) days of Tenant’s request for all future) lessors under all ground leases or underlying leases, from all beneficiaries under all deeds of trust and all mortgagees under all mortgages affecting the Building, in commercially reasonable form and content stating that so long as Tenant is not in default under any of the terms, covenants, conditions, or agreements of this Lease, this Lease and all of the terms, provisions, and conditions of this Lease, shall remain in full force and effect, and neither this Lease, nor Tenant’s rights nor Tenant’s possession of the Premises will be disturbed during the Term of this Lease or any extension thereof. Provided the foregoing provisions are satisfied, Tenant agrees to execute within ten (10) business days after written request of Landlord, any commercially reasonable statements or instruments necessary to effectuate the provisions of this Section.

28.  ESTOPPEL CERTIFICATE.

(a)  Within ten (10) business days following any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord a “Tenant Estoppel Certificate”, in a form substantially similar to the form of attached Exhibit E or in another commercially reasonable form reasonably required by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph 28 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein.

(b)  Tenant’s failure to deliver such Tenant Estoppel Certificate within such time shall be conclusive upon Tenant (i) that this Lease is in full force, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord’s performance, and (iii) that not more than one (1) month’s rental has been paid in advance. Tenant’s failure to deliver the Tenant Estoppel Certificate to Landlord within ten (10) days of receipt shall constitute a material default under this Lease and Landlord may, at Landlord’s option, terminate the Lease, provided written notice of such termination (which shall be in lieu of and not in addition to the notice and cure period otherwise provided for under Subparagraph 25(a)(iii)) is received by Tenant prior to Landlord’s receipt of the Tenant Estoppel Certificate.

29.  HAZARDOUS MATERIALS.

(a)  As used in this Lease, the following words or phrases shall have the following meanings:

(i)  “Agents” means Tenant’s partners, officers, directors, shareholders, employees, agents, contractors and any other third parties entering upon the Project at the request or invitation of Tenant.

(ii)  “Claims” means claims, liabilities, losses, actions, environmental suits, causes of action, legal or administrative proceedings, damages, fines, penalties, loss of rents, liens, judgments, costs and expenses (including, without limitation, attorneys’ fees and costs of defense, and consultants’, engineers’ and other professionals’ fees and costs).

(iii)  “Hazardous” means:    (a) hazardous; (b) toxic; (c) reactive; (d) corrosive; (e) ignitable; (f) carcinogenic; (g) reproductive toxic; (h) any other attribute of a Substance now or in the future referred to in, or regulated by, any Hazardous Materials Laws; and (i) potentially injurious to health, safety or welfare, the environment, the Premises, the Building, the Project, or any portion thereof.

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(iv)  “Hazardous Materials” means any:    (a) Substance which is Hazardous, regardless of whether that Substance is Hazardous by itself or in combination with any other Substance; (b) Substance which is regulated by any Hazardous Material Laws; (c) asbestos and asbestos-containing materials; (d) urea formaldehyde; (e) radioactive substance; (f) flammable explosives; (g) petroleum, including crude oil or any fraction thereof; (h) polychlorinated biphenyls; and (i) ”hazardous substances,” “hazardous substances,” “hazardous materials” or “hazardous wastes” under any Hazardous Materials Laws.

(v)  “Hazardous Materials Laws” means:    (a) any existing or future federal, state or local law, ordinance, regulation or code which protects health, safety or welfare, or the environment; (b) any existing or future administrative or legal decision interpreting any such law, ordinance, regulation or code; and (c) any common law theory which may result in Claims against Landlord, the Premises or any portion thereof.

(vi)  “Permits” means any permit, authorization, license or approval required by any applicable governmental agency.

(vii)  “Premises” for purposes of this Paragraph 29 only, shall mean the Premises, the air about the Premises and the soil, surface water and ground water under the surface of the Premises.

(viii)  “Substance” means any substance, material, product, chemical, waste, contaminant or pollutant.

(ix)  “Use” means use, generate, manufacture, produce, store, release or discharge.

(b)  (i)  Without limiting the generality of Paragraph 8 of this Lease, and except as provided in Paragraphs 29(b)(ii) and 29(b)(iii), Tenant covenants and agrees that Tenant and its Agents shall not bring into, maintain upon, engage in any activity involving the Use of, or Use in or about the Project, or transport to or from the Project, any Hazardous Materials in violation of any Hazardous Materials Laws. Notwithstanding the provisions of Paragraphs 29(b)(ii) or 29(b)(iii), in no event shall Tenant or its Agents release or dispose of any Hazardous Materials in, on, under or about the Project in violation of any Hazardous Materials Laws.

(ii)  Notwithstanding the provisions of Paragraph 29(b)(i), if Tenant or its Agents proposes to Use any Hazardous Materials, or to install or operate any equipment which will or may Use Hazardous Materials (“Equipment”), then Tenant shall first obtain Landlord’s prior written consent, which consent shall not be unreasonably withheld with respect to any Hazardous Materials that are similar in nature to those Hazardous Materials that Tenant is currently using in the Premise but which may, with respect to any other Hazardous Materials, be given or withheld by Landlord in its subjective, good faith judgment. Landlord shall respond to any such request for consent within thirty (30) days of Landlord’s receipt of the last of the documents or information requested by Landlord as set forth in this Paragraph. Tenant’s failure to receive Landlord’s consent within such thirty (30) day period shall be conclusively deemed Landlord’s withholding of consent. Tenant’s request for Landlord’s consent shall include the following documents or information: (a) a Hazardous Materials list pursuant to Paragraph 29(c) regarding the Hazardous Materials Tenant proposes to Use or Equipment Tenant proposes to install and operate; (b) reasonably satisfactory evidence that Tenant has obtained all necessary Permits to Use those Hazardous Materials or to install and operate the proposed Equipment; (c) reasonably satisfactory evidence that Tenant’s Use of the Hazardous Materials or installation and operation of the Equipment shall comply with all applicable Hazardous Materials Laws, Tenant’s permitted use under this Lease and all restrictive covenants encumbering the Project; (d) reasonably satisfactory evidence of Tenant’s financial capability and responsibility for potential Claims associated with the Use of the Hazardous Materials or installation and operation of the Equipment; and (e) such other documents or information as Landlord may reasonably request. Landlord may, at its option, condition its consent upon any terms that Landlord, in its subjective, good faith judgment, deems necessary to protect itself, the public and the Project against potential problems, Claims arising out of Tenant’s Use of Hazardous Materials or installation and operation of Equipment including, without limitation, (i) changes in the insurance provisions of the Lease, (ii) installation of equipment, fixtures or personal property or alteration of the Premises or Project (all at Tenant’s sole cost) to minimize the likelihood of a violation of Hazardous Materials Laws as a result of Tenant’s Use of the Hazardous Materials or installation and operation of Equipment, or (iii) increasing the amount

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of the security deposit. Neither Landlord’s consent nor Tenant’s obtaining any Permits shall relieve Tenant of any of its obligations pursuant to this Paragraph 29. Landlord’s granting of consent to one request to Use Hazardous Materials or install and operate Equipment shall not be deemed Landlord’s consent to any other such request. If Landlord grants its consent to Tenant’s request, no subtenant, assignee or successor of Tenant shall have the right to Use those Hazardous Materials or install or operate that Equipment without again complying with the provisions of this Paragraph 29(b)(ii).

(iii)  Notwithstanding the provisions of Paragraphs 29(b)(i) and 29(b)(ii), Tenant may Use any Substance typically found or used in applications of the type permitted by this Lease so long as: (a) any such Substance is typically found only in such quantity as is reasonably necessary for Tenant’s permitted use under Paragraph 8 of this Lease; (b) any such Substance and all equipment necessary in connection with the Substance are Used strictly in accordance with the manufacturers’ instructions therefore; (c) no such Substance is released or disposed of in or about the Project; (d) any such Substance and all equipment necessary in connection with the Substance are removed from the Project and transported for Use or disposal by Tenant in compliance with any applicable Hazardous Materials Laws upon the expiration or earlier termination of this Lease; and (e) Tenant and its Agents comply with all applicable Hazardous Materials Laws. In addition, subject to all of the terms and conditions of this Paragraph 29, including, without limitation, Paragraph 29(g)(i), Tenant shall have the right to store one (1) standard sized liquid nitrogen tank (the “Liquid Nitrogen Tank”) within the Premises, provided Tenant (i) obtains all required Permits and approvals in connection with the storage of the Liquid Nitrogen Tank, (ii) complies with all applicable laws, including, without limitation, all Hazardous Materials Laws, and (iii) prior to the expiration of the Existing Lease and at Tenant’s sole cost and expense, Tenant removes all existing liquid nitrogen tanks and related improvements, including, without limitation, all hardware, plumbing and electrical equipment, concrete pads, fences and other improvements or equipment used in connection with such liquid nitrogen tanks, located (1) in Tenant’s Existing Premises under the Existing Lease and (2) outside of Tenant’s Existing Premises and which exclusively serve the Existing Premises. Tenant shall perform such removal in accordance with all applicable laws, including, without limitation, all applicable Hazardous Materials Laws and shall repair, at Tenant’s sole cost and expense and to Landlord’s satisfaction, all damage caused by the removal of such existing liquid nitrogen tanks as described in this Paragraph 29(b)(iii); provided, however, that Landlord shall be responsible, at Landlord’s sole cost and expense, for re-landscaping the area located outside the Premises from which Tenant removed its liquid nitrogen tanks as described above.

(iv) Tenant shall not use or install in or about the Premises or Project any asbestos or asbestos-containing materials.

(c) Tenant shall deliver to Landlord, within thirty (30) days after Tenant’s receipt of Landlord’s written request, a written list identifying any Hazardous Materials that Tenant or its Agents then Uses or has Used within the last twelve (12) month period in the Project. Each such list shall state: (i) the use or purpose of each such Hazardous Material; (ii) the approximate quantity of each such Hazardous Material Used by Tenant; (iii) such other information as Landlord may reasonably require; and (iv) Tenant’s written certification that neither Tenant nor its Agents have released, discharged or disposed of any Hazardous Materials in or about the Project, or transported any Hazardous Materials to or from the Project, in violation of any applicable Hazardous Materials Laws. Landlord shall not request Tenant to deliver a Hazardous Materials list more often than once during each twelve (12) month period, unless Landlord reasonably believes that Tenant or its Agents have violated the provisions of this Paragraph 29 (in which case (a) Landlord may request such lists as often as Landlord determines is necessary until such violation is cured, and (b) Tenant shall provide such lists within ten (10) days of each of Landlord’s requests, or if an emergency exists, such lists shall be immediately provided).

(d) Tenant shall furnish to Landlord copies of all notices, claims, reports, complaints, warnings, asserted violations, documents or other communications received or delivered by Tenant, as soon as possible and in any event within five (5) days of such receipt or delivery, with respect to any actual or alleged Use, disposal or transportation of Hazardous Materials in or about the Premises, the Building or the Project. Whether or not Tenant receives any such notice, claim, report, complaint, warning, asserted violation, document or communication, Tenant shall immediately notify Landlord, orally and in writing, if Tenant or any of its Agents knows or has reasonable cause to believe that any Hazardous Materials, or a condition involving or resulting from

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the same, is present, in Use, has been disposed of, or transported to or from the Premises, the Building or the Project other than as previously consented to by Landlord in strict accordance with Paragraph 29(b).

(e)  Tenant acknowledges that it, and not Landlord, is in possession and control of the Premises for purposes of all reporting requirements under any Hazardous Materials Laws. If Tenant or its Agents violate any provision of this Paragraph 29, then Tenant shall immediately notify Landlord in writing and shall be obligated, at Tenant’s sole cost, to abate, remediate, clean-up or remove from the Project, and dispose of, all in compliance with all applicable Hazardous Materials Laws, all Hazardous Materials Used by Tenant or its Agents. Such work shall include, but not be limited to, all testing and investigation required by Landlord, Landlord’s lender or ground lessor, if any, and any governmental authorities having jurisdiction, and preparation and implementation of any remedial action plan required by any governmental authorities having jurisdiction. All such work shall, in each instance, be conducted to the satisfaction of Landlord and all governmental authorities having jurisdiction. If at any time Landlord determines that Tenant is not complying with the provisions of this Paragraph 29(e), then Landlord may, without prejudicing, limiting, releasing or waiving Landlord’s rights under this Paragraph 29, separately undertake such work, and Tenant shall reimburse all costs incurred by Landlord upon demand.

(f)  Landlord’s right of entry pursuant to Paragraph 17 shall include the right to enter and inspect the Premises, and the right to inspect Tenant’s books and records (provided that Landlord shall keep confidential any information contained therein which is identified as such in writing at the time of Landlord’s review), to verify Tenant’s compliance with, or violations of, the provisions of this Paragraph 29. Furthermore, Landlord may (no more than twice per year) conduct such investigations and tests as Landlord or Landlord’s lender or ground lessor may require. If Landlord determines that Tenant has violated the provisions of this Paragraph 29, or if any applicable governmental agency requires any such inspection, investigation or testing, then Tenant, in addition to its other obligations set forth in this Paragraph 29, shall immediately reimburse Landlord for all costs reasonably incurred therewith.

(g)  (i)  Tenant shall indemnify, protect, defend (with legal counsel acceptable to Landlord in its subjective, good faith judgment) and hold harmless Landlord, its partners and its and their respective successors, assigns, partners, directors, officers, shareholders, employees, agents, lenders, ground lessors and attorneys, and the Project, from and against any and all Claims incurred by such indemnified persons, or any of them, in connection with, or as the result of: (a) the presence, Use or disposal of any Hazardous Materials into or about the Project (including the Liquid Nitrogen Tank), or the transportation of any Hazardous Materials to or from the Project, by Tenant or its Agents; (b) any injury to or death of persons or damage to or destruction of property resulting from the presence, Use or disposal of any Hazardous Materials into or about the Project, or the transportation of any Hazardous Materials to or from the Project, by Tenant or its Agents; (c) any violation of any Hazardous Materials Laws; and (d) any failure of Tenant or its Agents to observe the provisions of this Paragraph 29. Payment shall not be a condition precedent to enforcement of the foregoing indemnification provision. Tenant’s obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all actual costs of any required or necessary testing, investigation, studies, reports, repair, clean-up, detoxification or decontamination of the Project, and the preparation and implementation of any closure, removal, remedial action or other required plans in connection therewith, and shall survive the expiration or earlier termination of the term of this Lease. For purposes of these indemnity provisions, any acts or omissions of Tenant, its assignees, sublessees, Agents or others acting for or on behalf of Tenant (regardless of whether they are negligent, intentional, willful, or unlawful) shall be strictly attributable to Tenant.

(ii)  If at any time after the initiation of any suit, action, investigation or other proceeding which could create a right of indemnification under Paragraph 29(g)(i) Landlord determines that Tenant is not complying with the provisions of Paragraph 29(g)(i), then Landlord may, without prejudicing, limiting, releasing or waiving the right of indemnification provided herein, separately defend or retain separate counsel to represent and control the defense as to Landlord’s interest in such suit, action, investigation or other proceeding. Tenant shall pay all costs of Landlord’s separate defense or counsel upon demand.

(iii)  Tenant waives, releases and discharges Landlord, its partners and its and their respective officers, directors, shareholders, partners, employees, agents, representatives, attorneys, lenders, ground

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lessors, attorneys, successors and assigns from any and all Claims of whatever kind, known or unknown, including any action under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended (“CERCLA”) and the provisions of California Health & Safety Code Section 25100 et seq., as amended, which Tenant has or may have, based upon the Use, migration, disposal of or transportation to or from the Premises or the Project of any Hazardous Materials (unless caused by Landlord’s gross negligence or willful misconduct) or the environmental condition of the Premises or the Project (including without limitation all facilities, improvements, structures and equipment thereon and soil and groundwater thereunder). Tenant agrees, represents and warrants that the matters released herein are not limited to matters which are known, disclosed or foreseeable, and Tenant waives any and all rights and benefits which it now has, or may have, conferred upon Tenant by virtue of the provisions of Section 1542 of the California Civil Code, which provides:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

Tenant agrees, represents and warrants that it is familiar with, has read, understands, and has consulted legal counsel of its choosing with respect to California Civil Code Section 1542 and Tenant realizes and acknowledges that factual matters now unknown to it may have given, or may hereinafter give, rise to Claims which are presently unknown, unanticipated and unsuspected.

(h)  Upon any violation of the provisions of this Paragraph 29, Landlord shall be entitled to exercise any or all remedies available to a landlord against a defaulting tenant including, but not limited to, those set forth in Paragraph 25.

(i)  By its signature to this Lease, Tenant confirms that: (i) Landlord has not made any representation or warranty regarding the environmental condition of the Premises, the Building or the Project; and (ii) Tenant has conducted its own examination of the Premises, the Building and the Project with respect to Hazardous Materials and accepts the same “AS IS”.

(j)  No termination, cancellation or release agreement entered into by Landlord and Tenant shall release Tenant from its obligations under this Paragraph 29 unless specifically agreed to by Landlord in writing at the time of such agreement.

(k)  Tenant’s covenants and obligations under this Paragraph 29 shall also apply to any assignee or sublessee of Tenant, and to any such assignee’s or sublessee’s partners, officers, directors, shareholders, employees, agents, contractors and any other third parties entering upon the Project at the request or invitation of such assignee or sublessee.

30.  RULES AND REGULATIONS.    Tenant shall faithfully observe and comply with the “Rules and Regulations” attached hereto as Exhibit F, and all reasonable and nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord, provided that such modifications or additions do not materially increase Tenant’s duties or obligations under this Lease. Landlord shall not be responsible to Tenant for the violation or nonperformance by any other tenant or occupant of the Building or Project of any of the Rules and Regulations.

31.  CONFLICT OF LAWS.    This Lease shall be governed by and construed pursuant to the laws of the State of California.

32.  SUCCESSORS AND ASSIGNS.    Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties to this Lease and their respective heirs, personal representatives, successors and assigns.

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33.  SURRENDER OF PREMISES.    The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation of this Lease, shall not work a merger, and shall, at the option of Landlord, operate as an assignment to it of any or all subleases or subtenancies. Upon the expiration or termination of this Lease, Tenant shall peaceably surrender the Premises and all tenant improvements, alterations and additions to the Premises, broom clean the Premises, leave the Premises in good order, repair and condition (including the due completion by that expiration or termination of all repairs which Tenant is responsible for making under this Lease), reasonable wear and tear excepted, and comply with the provisions of Paragraph 14(c). The delivery of keys to any employee of Landlord or to Landlord’s agent or any employee thereof shall not be sufficient to constitute a termination of this Lease or a surrender of the Premises.

34.  ATTORNEYS’ FEES.    If any legal proceeding arises in connection with this Lease, in addition to any other remedy at law or in equity sought or obtained by the prevailing party, the losing party shall pay the reasonable legal and other fees and all costs of the prevailing party incurred in connection with those proceedings.

35.  PERFORMANCE BY TENANT.    All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any abatement of rent. If Tenant shall fail to pay any sum of money owed to any party other than Landlord, for which it is liable under this Lease, or if Tenant shall fail to perform any other act on its part to be performed under this Lease, Landlord may, without waiving or releasing Tenant from Tenant’s obligations, but shall not be obligated to, make any such payment or perform any such other act to be made or performed by Tenant. All sums so paid by Landlord and all necessary incidental costs incurred by Landlord together with interest thereon at the Lease Interest Rate, from the date of such payment by Landlord, shall be payable to Landlord on demand. Landlord shall have (in addition to any other right or remedy of Landlord) all rights and remedies in the event of the nonpayment thereof by Tenant as are set forth in Paragraph 25.

36.  MORTGAGEE PROTECTION.    In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Premises whose address shall have been furnished to Tenant, and shall offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure.

37.  DEFINITION OF LANDLORD.    The term “Landlord,” as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners, at the time in question, of the fee title of the Building or the lessees under any ground lease, if any. In the event of any transfer, assignment or other conveyance or transfers of any such title, Landlord (and in case of any subsequent transfers or conveyances, the then-grantor) shall be automatically freed and relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed. The transferee of such title shall be deemed to have assumed and agreed to observe and perform any and all obligations of Landlord under this Lease during its ownership of the Premises. Landlord may transfer its interest in the Premises without the consent of Tenant and such transfer or subsequent transfer shall not be deemed a violation on Landlord’s part of any of the terms and conditions of this Lease. With respect to any indemnity by Tenant of Landlord under this Lease, “Landlord” shall include, and the indemnity shall run to, Landlord and its respective partners, affiliates, shareholders, directors, officers, agents, lenders, employees, partners, successors and assigns.

38.  WAIVER.    The waiver by Landlord of any breach of any term, covenant or condition contained in this Lease shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained in this Lease, nor shall any custom or practice to which the parties may have adhered in the administration of the terms of this Lease be deemed a waiver of or in any way affect the right of Landlord to insist upon the performance by Tenant in strict accordance with the terms of this Lease. The subsequent acceptance of rent under this Lease by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of a lesser sum than the sum then due shall be deemed to be other than on account of the earliest

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installment of such rent or other amount due, nor shall any endorsement or statement on any check or any letter accompanying any check be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such installment or other amount or pursue any other remedy available to Landlord.

39.  IDENTIFICATION OF TENANT.    If more than one person signs this Lease as Tenant, the act of or notice from, or notice or refund to, or the signature of, any one or more of them with respect to this Lease shall be binding upon Tenant.

40.  PARKING.    Unless Tenant is in default under this Lease, Tenant shall be entitled to use the number of vehicle parking spaces designated in Subparagraph 1(h). Tenant’s use of its vehicle parking spaces shall be free of charge during the Term. Neither Tenant nor its employees or invitees shall use more parking spaces than designated in Subparagraph 1(h). If Landlord determines in its sole discretion that it is necessary for orderly and efficient parking, all or any portion of any unreserved or unassigned parking spaces may be assigned to, made available to or reserved by Landlord for other tenants or users of the Building. If Landlord has not assigned specific spaces to Tenant, neither Tenant nor its employees shall use any spaces which have been so specifically assigned by Landlord to other tenants or for other uses such as visitor parking or which have been designated by Landlord or governmental entities as being restricted to certain uses.

(a)  Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant’s employees, suppliers, shippers, contractors, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities.

(b)  If Tenant permits or allows any of the prohibited activities described in this Paragraph 40, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove, tow away, or impound the vehicle involved and charge the cost to Tenant, which cost shall be payable within fifteen (15) days after demand by Landlord with interest thereon at the Lease Interest Rate from the date Landlord incurs that cost.

(c)  The use by Tenant, its employees and invitees, of the parking facilities of the Building shall be on the additional terms and conditions set forth in attached Exhibit G, and shall be subject to such other agreement between Landlord and Tenant as may hereinafter be established.

41.  FORCE MAJEURE.    Except for Tenant’s monetary obligations under this Lease, neither Landlord nor Tenant shall have any liability whatsoever to the other on account of (a) the inability to fulfill, or delay in fulfilling, any obligation under this Lease, the Premises Preparation Agreement, or any other Lease attachment by reason of strike, other labor trouble, governmental preemption or priorities or other controls in connection with a national or other public emergency, or shortages of fuel, supplies or labor resulting therefrom, governmental permitting, or any other cause, whether similar or dissimilar to the above, beyond its reasonable control; or (b) any failure or defect in the supply, quantity or character of electricity or water furnished to the Premises, by reason of any requirement, act or omission of the public utility or others furnishing the Building with electricity or water, or for any other reason, whether similar or dissimilar to the above, beyond its reasonable control. If this Lease or any Exhibit specifies a time period for performance of an obligation, that time period shall be extended by the period of any delay in performance caused by any of the events of force majeure described above.

42.  TERMS, HEADINGS AND CONSTRUCTION.    The title and paragraph headings are not a part of this Lease and shall have no effect upon the construction or interpretation of any part of this Lease. “Or” is not exclusive. Unless stated otherwise, references to paragraphs and subparagraphs are to those in this Lease. This Lease shall be strictly construed neither against Landlord nor Tenant.

43.  TIME.    Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor, including specifically and without limitation, Tenant’s obligation to make any payments, give any notices.

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44.  PRIOR AGREEMENT; AMENDMENTS.    This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreements or understanding or letter or proposal pertaining to any such matters shall be effective for any purpose. No provisions of this Lease may be amended or added to, whether by conduct, oral or written communication, or otherwise, except by an agreement in writing signed by the parties hereto or their respective successors-in-interest. No other provision of this Lease shall modify the effect of this paragraph.

45.  SEVERABILITY.    Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision of this Lease, and such other provisions shall remain in full force.

46.  RECORDING.    Neither this Lease nor a short form memorandum of this Lease shall be recorded.

47.  LIMITATION ON LIABILITY AND TIME.    In consideration of the benefits accruing under this Lease, Tenant and all successors and assigns agree that, in the event of any actual or alleged failure, breach or default under this Lease by Landlord: (a) the sole and exclusive remedy shall be against the Landlord’s interest in the Building; (b) no partner of Landlord shall be named as a party in any suit or proceeding (except as may be necessary to secure jurisdiction of the partnership, if applicable); (c) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (d) no judgment will be taken against any partner of Landlord (if applicable); (e) no writ of execution will ever be levied against the assets of any partner of Landlord; (f) the obligations of Landlord under this Lease do not constitute personal obligations of the individual partners, directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the individual partners, directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease; and (g) any claim, defense, or other right of Tenant arising in connection with this Lease or negotiations before this Lease was signed shall be barred unless Tenant files an action or interposes a defense based thereon within one hundred eighty (180) days after the date of the alleged event on which Tenant is basing its claim, defense or right. In the event of a breach or default by Landlord under this Lease, in no event shall Tenant have the right to terminate this Lease as a result of such breach or default, and Tenant’s remedies (subject to the provisions of this Paragraph 47) shall be limited to damages and/or an injunction.

48.  TRAFFIC IMPACT.    Tenant agrees that Tenant and its employees, invitees, and contractors shall comply with the provisions of Exhibit G (Traffic and Parking Rules and Regulations).

49.  INTENTIONALLY OMITTED.

50.  MODIFICATION FOR LENDER OR GOVERNMENT.    If, in connection with obtaining construction, interim or permanent financing or refinancing for the Building or all or part of the Project, a lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the duties or obligations of Tenant under this Lease or materially adversely affect the leasehold interest hereby created or Tenant’s rights under this Lease. In addition, the parties agree to promptly sign all documents reasonably required by any governmental agency from time to time in connection with the Premises, provided that those documents do not materially adversely affect the rights or obligations of the parties under this Lease.

51.  FINANCIAL STATEMENTS.    When reasonably requested by Landlord, Tenant shall, upon ten (10) days notice from Landlord (but no more often than twice per calendar year), provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statement(s) shall be safeguarded and treated as confidential by Landlord and shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. The above ten-day notice is the only notice Landlord is required to give Tenant in connection with Tenant’s financial statements and shall be in lieu of and not in addition to the notice and cure period otherwise provided for under Subparagraph 25(a)(iii). Tenant’s failure to comply with its obligations under this Paragraph 51 shall constitute a material default under this Lease.

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32

52.  QUIET ENJOYMENT.    Landlord covenants that upon Tenant paying the rent required under this Lease and paying all other charges and performing all of the covenants and provisions on Tenant’s part to be observed and performed under this Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises in accordance with this Lease.

53.  TENANT’S SIGNS.

(a)  Tenant may, at its sole cost and expense, place its signs displaying its logo and graphics on the entrance doors to the Premises and in Landlord designated locations in the hallways on floors wholly leased by Tenant. On partial floors leased by Tenant, Tenant, at its sole cost and expense, may place its signs on entrance doors to the Premises, provided the number, size, color, style, material and location of such signs conform to Landlord’s graphics program for the Building and Landlord shall place directional signs to the Premises, at Tenant’s expense, at a location determined by Landlord.

(b)  Unless specifically set forth to the contrary in an addendum to this Lease, Tenant shall not place any sign on the exterior of the Building, or within the Building if such sign may be seen from outside of the Building or on any Building sign monument or other device constructed for the placement of tenant signs.

(c)  All Tenant signs installed by Landlord or Tenant shall comply with all applicable requirements of all governmental authorities having jurisdiction and shall be installed in a good and workmanlike manner. Such signs shall be maintained and kept in good repair at Tenant’s sole cost and expense, and, on expiration or earlier termination of the Term, removed at Tenant’s sole cost and expense.

54.  NO LIGHT, AIR OR VIEW EASEMENT.    Any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to the Project shall in no way affect this Lease, abate any payment owed by Tenant under the Lease, or otherwise impose any liability on Landlord.

55.  TENANT AS CORPORATION, PARTNERSHIP, OR LIMITED LIABILITY COMPANY.    If Tenant executes this Lease as a corporation or limited liability company, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that the individuals executing this Lease on Tenant’s behalf are duly authorized to execute and deliver this Lease on its behalf. If tenant is a corporation, Tenant further represents and warrants that this Lease has been authorized in accordance with a duly adopted resolution of the board of directors of Tenant, a copy of which is to be delivered to Landlord on execution of this Lease, and in accordance with the by-laws of Tenant and that this Lease is binding upon Tenant in accordance with its terms. If Tenant executes this Lease as a partnership, (a) each general partner shall be jointly and severally liable for keeping, observing and performing all the provisions of this Lease to be kept, observed or performed by Tenant and (b) the term “Tenant” shall mean and include each general partner jointly and severally and the act of or notice from, or notice or refund to, or the signature of, any one or more of them with respect to this Lease shall be binding on Tenant and each and all of the general partners of Tenant with the same effect as if each of them had so acted or so given or received such notice or refund or so signed. Dissolution of any partnership which is a Tenant under this Lease shall be deemed to be an assignment jointly to all of the partners, who shall thereafter be subject to the terms of this Lease as if each such former partners had initially signed this Lease as individuals.

56.  COUNTERPARTS.    This Lease may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

57.  JOINT AND SEVERAL LIABILITY.

This Lease and the obligations set forth herein shall be the joint and several obligations of all persons, entities or parties to this Lease and shall be binding upon them and their heirs, personal representatives, and permitted successors and assigns, if any.

58.  NO OFFER.    The submission of this Lease and any ancillary documents to Tenant shall not constitute an offer to Lease, and Landlord shall have no obligation of any kind, express or implied, to lease the

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Premises to Tenant until Landlord has approved, executed and returned to Tenant a fully signed copy of this Lease together with any ancillary documents Landlord may require.

THEREFORE, the parties have executed this Lease as of the date first written above.

LANDLORD:		TENANT:
BERNARDO WINDELL, LLC, a California limited liability company		SYNBIOTICS CORPORATION, a California corporation
By:	/s/    MICHAEL S. MARTIN	By:	/s/    PAUL A. ROSINACK
	President		President & CEO
		By:	/s/    MICHAEL K. GREE
			CFO
			[Signatories for Lessee shall be (1) any of the chairmen of the board, the president or any vice-president and (2) any of the secretary, any assistant secretary, the chief financial officer or any assistant treasurer.]

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OUTLINE OF FLOOR PLAN OF PREMISES

Graphical depiction of the floor plan of the premises located at 11011 Via Frontera, San Diego, CA 92127.

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Exhibit A-1

SITE PLAN OF THE PREMISES

(including Parking Areas)

Graphical depiction of the site plan of the premises located at 11011 Via Frontera, San Diego, CA 92127.

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Exhibit A-2

PREMISES PREPARATION AGREEMENT

In connection with the lease to which this Premises Preparation Agreement is attached (the “Lease”), and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant agree as follows:

1.  Landlord shall, at Landlord’s sole cost, cause only the following work to be completed at the Premises (collectively, “Landlord’s Work”): (i) construct a demising wall dividing the Premises from the remainder of the Building (the “Vacated Space”) as depicted on attached Exhibit “1”, (ii) disconnect all life safety, mechanical, electrical, HVAC and other Building systems between the Vacated Space and the Premises and (iii) reconnect the HVAC system to the Premises, provided that Tenant shall be solely responsible, at Tenant’s sole cost and expense, to provide electrical power to the HVAC system to the extent necessary after disconnection of the HVAC and electrical systems as described above. Notwithstanding the foregoing, Landlord shall in no event be required to re-connect any of the Building systems (other than the HVAC system) to the Premises, or otherwise reconfigure or upgrade the Building systems serving the Premises to match the configuration and capacity (including electrical capacity) of the Existing Premises, which connections (including installation of any necessary wires within the demising wall to connect the electrical system to the Premises), reconfiguration and/or upgrading (“Tenant’s Connections”) shall be Tenant’s sole responsibility at Tenant’s sole cost and which shall be subject to all of the applicable terms and conditions of the Lease, including, without limitation, Paragraph 14 of the Lease (Alterations). Provided Tenant has otherwise complied with all of the applicable terms and conditions of the Lease, Tenant may perform Tenant’s Connections concurrently with Landlord’s Work, provided that Tenant does not interfere with the performance of Landlord’s Work. Except for Landlord’s Work, Landlord shall not be required to construct any additional improvements in the Premises nor shall Landlord be required to contribute any allowance towards any additional improvements to the Premises; provided, however, that Landlord shall be responsible for providing electrical power and meters to the Vacated Space and shall pay for all costs relating to the removal of the existing equipment in the Vacated Space. Tenant shall cooperate with Landlord in connection with construction of Landlord’s Work, including, without limitation, following Landlord’s reasonable instructions and requests regarding coordination of Landlord’s Work and Tenant’s Connections. In addition, Tenant shall expedite the installation of Tenant’s Connections. If Landlord is delayed in completing Landlord’s Work because Tenant has not completed Tenant’s Connections, then Landlord may, after five (5) days written notice to Tenant, install Tenant’s Connections at Tenant’s sole cost and expense.

2.  Tenant shall accept the Premises upon the Commencement Date, notwithstanding the fact that Landlord’s Work may not be Substantially Complete. “Substantial Completion” or “Substantially Complete”) means that Landlord has satisfactorily completed Landlord’s Work and Landlord’s Work shall be deemed complete notwithstanding the fact that minor details of Landlord’s Work which do not materially interfere with Tenant’s use of the Premises remain to be performed (items normally referred to as “punch—list” items), which items shall be promptly completed or corrected by Landlord.

3.  If Tenant requests any changes to Landlord’s Work prior to completion of Landlord’s Work, Landlord shall not unreasonably withhold its consent to any such changes, providing that the changes do not adversely affect the Building’s structure, systems, equipment or appearance, but if such changes increase the cost to Landlord of performing Landlord’s Work, Tenant shall pay such additional costs prior to Landlord’s commencement of Landlord’s Work. In addition, to the extent Landlord’s inability to tender possession of the Premises to Tenant on the Commencement Date is caused by any of the “Tenant Delays” listed below, then the date on which Tenant is to begin paying rent under the Lease shall be the date that rent would have begun under the terms of the Lease but for the following Tenant Delays:

(a)  Tenant’s negligence or breach of this Lease;

(b)  A delay in Substantial Completion of the Work resulting from changes to the Work requested by Tenant;

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Exhibit B

1

(c) Tenant’s request for materials, finishes or installations other than those readily available;

(d) Tenant’s request to deviate from the standards for the Building (as determined by Landlord); or

(e) Tenant’s failure to timely make any payment due from Tenant under this Exhibit or the Lease.

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Exhibit B

2

EXHIBIT “1”

Graphical depiction of the floor plan of the premises located at 11011 Via Frontera, San Diego, CA 92127.

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Exhibit B-1

[INTENTIONALLY OMITTED]

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Exhibit C

1

STANDARDS FOR UTILITIES AND SERVICES

The following standards for utilities and services are in effect. Landlord reserves the right to adopt nondiscriminatory modifications and additions hereto.

1.  The air conditioning system achieves maximum cooling when the window coverings are extended to the full width of the window opening. Landlord shall not be responsible for room temperatures if Tenant does not keep all window coverings in the Premises fully extended whenever the system is in operation. Tenant agrees to cooperate fully at all times with Landlord, and to abide by all reasonable regulations and requirements which Landlord may prescribe for the proper functioning and protection of the air conditioning system. Tenant agrees not to connect any apparatus, device, conduit or pipe to any Building system without Landlord’s prior written approval. Tenant further agrees that neither Tenant nor its servants, employees, agents, visitors, licensees or contractors shall at any time enter, adjust, tamper with, touch or otherwise in any manner affect the mechanical installations or facilities of the Building or the Project. The cost of maintenance and service calls to adjust and regulate the air conditioning system shall be charged to Tenant if the need for maintenance work results from either Tenant’s adjustment of room thermostats or Tenant’s failure to comply with its obligations under this Exhibit, including keeping window coverings fully extended.

2.  Tenant’s use of electric current shall never exceed the capacity of the feeders to the Building, or the risers or wiring installation.

3.  Tenant shall keep the meter and installation equipment in good working order and repair at Tenant’s sole cost and expense, in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to pay for water consumed, as shown on the meter, as and when bills are rendered, and on default in making such payment, Landlord may pay such charges and collect the charges from Tenant. Any such costs or expenses incurred, or payments made by Landlord for any of the reasons or purposes set forth in this Paragraph, shall be deemed to be additional rent payable by Tenant and collectible by Landlord as such.

4.  Tenant shall pay to Landlord the cost of removal of any of Tenant’s refuse and rubbish to the extent that the amount of Tenant’s refuse and rubbish exceeds that usually generated by other offices in the Building.

5.  Landlord reserves the right to temporarily stop service of the plumbing, ventilation, air conditioning, telephone and electrical systems, when necessary, by reason of accident or emergency, or for repairs, alterations or improvements, when in the judgment of Landlord such actions are desirable or necessary to be made, until the repairs, alterations or improvements shall have been completed, and Landlord shall have no responsibility or liability for failure to supply plumbing, ventilating, air conditioning, telephone or electric service, when prevented from so doing by strike or accident or by any cause beyond Landlord’s reasonable control, or by laws, rules, orders, ordinances, directions, regulations or by reason of the requirements of any federal, state, county or municipal authority or failure of gas, oil or other suitable fuel supply or inability by exercise of reasonable diligence to obtain gas, oil or other suitable fuel supply. Any obligations of Landlord to furnish any services pursuant to any of the provisions of this Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of a strike or labor trouble or any other cause whatsoever beyond Landlord’s control.

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Exhibit D

1

SAMPLE FORM OF

TENANT ESTOPPEL CERTIFICATE

TO:                                                                      , a                                                                       (“Landlord”) and                                                                              , a                             .

The undersigned,                                      (“Tenant”), hereby certify to                                                       a                                                      , as follows:

1.  Attached hereto is a true, correct and complete copy of that certain lease dated                 , 2002, between Landlord and Tenant (the “Lease”), which demises premises located at Suite         ,                                                                              , California (the “Premises”). The Lease is now in full force and has not been amended, modified or supplemented, except as set forth in Paragraph 4 below.

2.  The term of the Lease commenced on                     , 2002.

3.  The term of the Lease shall expire on                      , 20    . There are                  options to extend the Lease term for a total period of          years, none of which has been exercised. There are no options to expand the Premises.

4.  The Lease has: (Initial one)

(                ) not been amended, modified, supplemented, extended, renewed or assigned.

(                 ) been amended, modified, supplemented, extended, renewed or assigned by the following described agreements, copies of which are attached hereto:

__________________________________________________

__________________________________________________

5.  Tenant has accepted and is now in possession of the Premises.

6.  Tenant acknowledges that Landlord’s interest in the Lease will be assigned to                          and that no modification, adjustment, revision or cancellation of the Lease or amendments thereto shall be effective unless the prior written consent of                                        is obtained.

7.  The amount of fixed monthly rent is $                                         .

8.  The amount of security deposits (if any) is $                     . No other security deposits have been made.

9.  Tenant is paying the full lease rental, which has been paid in full as of the date of this Certificate. No rent or other amount under the Lease has been paid for more than thirty (30) days in advance of its due date.

10.  All work required to be performed by Landlord under the Lease and the Premises Preparation Agreement (as defined in the Lease) has been completed.

11.  There are no defaults on the part of the Landlord or Tenant under the Lease.

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Exhibit E

1

12.  Tenant has no defense as to its obligations under the Lease and claims no set-off or counterclaim against Landlord.

13.  Tenant has no right to any concession (rental or otherwise) or similar compensation in connection with renting the space it occupies except as provided in the Lease.

All provisions of the Lease and the amendments thereto (if any) referred to above are hereby ratified.

The foregoing certification is made with the knowledge that Landlord is about to sell the Property to                                          or that                                                                       is about to fund a loan to Landlord, which sale/loan Tenant understands is scheduled to close on                                      , and that in either case the named party is relying upon the representations herein made in proceeding with that execution. Tenant shall take all steps reasonably necessary to keep the transaction and party described in this Certificate confidential. If there is any change in the information provided in this Certificate between now and the closing described above, Tenant shall immediately inform you of that change.

This Certificate has been duly executed and delivered by the authorized officers of the undersigned as of                                     , 2002.

“TENANT”

By:
	Its:

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Exhibit E

2

RULES AND REGULATIONS

1.  Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building or the Project without the prior written consent of Landlord. Landlord shall have the right to remove, at Tenant’s expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall comply with all then-applicable governmental requirements and shall be printed, painted, affixed or inscribed at the expense of Tenant by a person or company designated by Landlord.

2.  Tenant shall not place anything against or near glass partitions or doors or windows, other than the Building Standard window covering, which is visible from outside the Premises.

3.  Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, escalators, or stairways of the Building or the Project. The halls, passages, exits, entrances, escalators and stairways are not open to the general public, but are open, subject to reasonable regulations, to Tenant’s business invitees. Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Project and its tenants; provided that nothing contained in these Rules and Regulations shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant shall go upon the roof(s) of the Project.

4.  If provided by Landlord, the directory of the Building will be provided, free of charge, exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom.

5.  Landlord will furnish Tenant, free of charge, with two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install any new additional lock or bolt on any door of the Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys to all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord the cost of the key(s).

6.  If Tenant requires telegraphic, telephonic, burglar alarm, satellite dishes, antennae or similar services, it shall first obtain Landlord’s written approval (which Landlord may give or withhold in its sole discretion), and shall comply with Landlord’s instructions in their installation.

7.  Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant’s expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building, shall be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devises sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building or Project by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant.

8.  Tenant shall not use or keep in the Premises any firearms, explosives, kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to

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Exhibit F

1

Landlord or other occupants of the Building by reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or about the Premises any birds or animals.

9.  Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord.

10.  Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building’s heating and air conditioning and to comply with any governmental energy saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls. Tenant shall keep corridor doors closed, and shall keep all window coverings pulled down.

11.  Landlord reserves the right, exercisable after thirty (30) days written notice to Tenant and without liability to Tenant, to change the name and street address of the Building, provided that Landlord pays all of Tenant’s reasonable costs associated with such name or address change.

12.  Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing and locking the doors or by other appropriate action.

13.  Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and all lights, electricity, gas or air outlets before Tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.

14.  Tenant shall not obtain for use on the Premises food, beverage, towel or other similar services or accept upon the Premises sandwich or other food services, barbering or shoeshine service, or similar business vendors without Landlord’s prior written approval (which may be withheld in Landlord’s subjective good faith discretion), and then only at such hours and under such regulations as may be fixed by Landlord.

15.  The lavatories, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no inappropriate substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it.

16.  Tenant shall not sell, or permit the sale at retail of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Project. Tenant shall not use the Premises for any business or activity other than that specifically provided for in this Lease.

17.  Tenant shall not install any radio or television antenna, loudspeaker, satellite dishes or other devices on the roof(s) or exterior walls of the Building or the Project. Tenant shall not interfere with radio or television broadcasting or reception from or in the Project or elsewhere.

18.  Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part of the Premises, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes in partitions, floors or ceilings for wires or any other purpose. Tenant shall not affix anyDD floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall, at its sole cost, repair any damage resulting from noncompliance with this rule.

Landlord’s Initials	Tenant’s Initials
SMS	PAR

Exhibit F

2

19.  Except for the two (2) vending machines presently operated on the Premises by Tenant, Tenant shall not install, maintain or operate upon the Premises any vending machines without the prior written consent of Landlord.

20.  Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Project are prohibited, and Tenant shall cooperate with Landlord to prevent such activities.

21.  Landlord reserves the right to exclude or expel from the Project any person who, in Landlord’s judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of these Rules and Regulations or any other rules and regulations of the Building.

22.  Tenant shall store all its trash and garbage within its Premises or in other facilities provided by Landlord. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord.

23.  The Premises shall not be used for the sale of merchandise directly to the general public, or for lodging or for manufacturing of any kind (except as permitted under this Lease), nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking shall be done or permitted on the Premises without Landlord’s consent, except the use by Tenant of Underwriters’ Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, and the use of a microwave oven for employees use shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

24.  Tenant shall not use in any area designated as office space in the Project any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve; provided, however, that Tenant may use (a) one (1) small electric fork-lift in the warehouse area of the Premises only, provided such fork-lift is equipped with rubber tires and side guards so as not to damage the floor or foundation of the Premises and (b) hand carts in the Premises equipped with rubber tires and side guards. Tenant shall not bring any other vehicles of any kind into the Building.

25.  Without the written consent of Landlord, Tenant shall not use the name of the Building or the Project in connection with or in promoting or advertising the business of Tenant except as Tenant’s address.

26.  Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

27.  Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.

28.  To the extent Landlord reasonably deems it necessary (i) to provide to third parties access to portions of the Common Areas in order to comply with any applicable law, Landlord may do so without breaching this Lease, and (ii) to exercise exclusive control over any portions of the Common Areas for the mutual benefit of the tenants in the Project, Landlord may do so subject to nondiscriminatory additional Rules and Regulations.

29.  Tenant’s requirements will be attended to only upon appropriate application to Landlord’s asset management office for the Project by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord.

Landlord’s Initials	Tenant’s Initials
SMS	PAR

Exhibit F

3

30.  Tenant shall abide by all restrictions Landlord places on smoking within the Building. Notwithstanding the foregoing, Landlord shall not be required to impose any restrictions on smoking within the Building for the benefit of Tenant. No decision of Landlord to permit or prohibit smoking shall be construed as a breach of this Lease by Landlord.

31.  Tenant shall comply with all (a) crime prevention programs, (b) hazardous materials disclosure and control programs, and (c) water conservation programs which Landlord is required to participate in under (i) any restrictive covenants which may now or hereafter exist or (ii) any other agreements which may now exist or hereafter be executed which affect the use and operation of the Premises or Project.

32.  Tenant shall promptly provide Landlord with any information Landlord, any mortgagee or beneficiary with a lien on the Building, any ground lessor with respect to the Building, or any governmental agency may reasonably request.

33.  Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against Tenant or any other tenant of the Project.

34.  These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease.

35.  Landlord reserves the right to modify these Rules and Regulations and adopt such other reasonable and non-discriminatory rules and regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project and for the preservation of good order in the Project. Tenant agrees to abide by all the Rules and Regulations stated herein and any additional rules and regulations which are adopted.

36.  Tenant shall be responsible for the observance of all of the foregoing rules by Tenant’s employees, agents, contractors, clients, customers, invitees, guests and other users of the Premises.

Landlord’s Initials	Tenant’s Initials
SMS	PAR

Exhibit F

4

TRAFFIC AND PARKING RULES AND REGULATIONS

The following rules and regulations shall govern the use of the parking facilities designated on Exhibit A-2 of the Lease in connection with the use of the Premises.

1.  Except to the extent caused by the gross negligence or willful misconduct of Landlord or the Landlord Parties, Landlord assumes no responsibility for any damage to any vehicle parked in the parking areas or for any goods left in any such vehicle. All such liability is specifically assumed by the operator of any such vehicle as a condition of parking.

2.  Tenant shall not (a) park or permit its employees to park in any parking areas designated by Landlord as areas for parking by visitors to the Project, (b) park or permit its employees, guests, invitees or visitors to park in the residential or commercial neighborhoods contiguous to the Project, (c) leave vehicles in the parking areas overnight, or (d) park any vehicles in the parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or four wheeled trucks. No propane or natural gas powered vehicles shall be allowed to park in the parking areas.

3.  Parking cards, stickers, or any other devices or forms of identification supplied by Landlord as a condition of use of the parking facilities shall remain the property of Landlord. Such parking identification device must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Devices are not transferable and any device in the possession of an unauthorized holder will be void. Landlord reserves the right to change the location of Tenant’s reserved parking spaces, if any, from time to time.

4.  No overnight or extended term storage of vehicles shall be permitted.

5.  Vehicles must be parked entirely within painted stall lines of a single parking stall.

6.  All directional signs and arrows must be observed.

7.  The speed limit within all parking areas shall be five (5) miles per hour.

8.  Parking is prohibited in any area other than those specifically designated for parking.

9.  All parkers are required to park and lock their own vehicles. All responsibility for damage to vehicles is assumed by the parker.

10.  Loss or theft of parking identification devices must be reported to Landlord’s asset management office for the Project immediately, and a lost or stolen report must be filed by the Tenant or user of such parking identification device at the time. Landlord has the right to exclude any vehicle from the parking facilities that does not have an identification device.

11.  Any parking identification devices reported lost or stolen found on any unauthorized vehicle will be confiscated and the illegal holder will be subject to prosecution.

12.  Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited.

13.  The parking operators, managers or attendants are not authorized to make or allow any exceptions to these rules and regulations.

Landlord’s Initials	Tenant’s Initials
SMS	PAR

Exhibit G

1

14.  Tenant’s continued right to use any parking spaces in the parking facilities is conditioned upon Tenant abiding by these rules and regulations and those contained in this Lease. Further, if this Lease terminates for any reason whatsoever, Tenant’s right to use the parking spaces in the parking facilities shall terminate concurrently with the Lease.

15.  Tenant agrees to sign a parking agreement with Landlord or Landlord’s parking operator within five (5) days of request, which agreement shall be consistent with this Lease and these rules and regulations.

16.  Landlord reserves the right to refuse the issuance of parking cards, stickers or other parking identification devices to any tenant or person or their respective agents or representatives who willfully refuse to comply with these rules and regulations and all posted or unposted city, state or federal ordinances, laws or agreements.

17.  Tenant and its employees shall comply with any traffic management and/or environmental regulation program now or hereafter in effect, whether imposed by local, regional, state or federal governmental or quasi-governmental agencies (collectively, “TDM Program”) which has been or may hereafter be applicable to Tenant, the Building or the Project. Tenant acknowledges that such a TDM Program may cause Tenant inconvenience, but nonetheless agrees to cooperate in the formation of, and comply with the provisions of, any such TDM Program. Additionally, Tenant shall (a) participate in any employee commute transportation surveys reasonably required by Landlord, and (b) adhere to measures that Landlord may enact in order to comply with existing and future laws relating to traffic control or flow applicable to the Project. Any breach by Tenant of any of its covenants in this Paragraph 17 may result in penalty fees being assessed against Landlord; therefore, Tenant shall be liable to Landlord for all such fees, plus interest thereon, assessed on account of any such breach, and that breach shall also constitute a material default under this Lease.

18.  Landlord reserves the right to modify these rules and regulations or adopt such other reasonable and nondiscriminatory rules and regulations for the parking facilities as it deems necessary for the operation of the parking facilities, provided that such rules or regulations do not decrease the total number of Tenant’s parking spaces or materially impair Tenant’s access to the Premises. Landlord may refuse to permit any person who violates these rules to park in the parking facilities, and any violation of the rules shall subject the vehicle to removal at such vehicle owner’s expense.

Landlord’s Initials	Tenant’s Initials
SMS	PAR

Exhibit G

2

EX-10.7.2

Exhibit 10.7.2

EMPLOYMENT SEPARATION AND
GENERAL RELEASE AGREEMENT

          THIS EMPLOYMENT SEPARATION AND GENERAL RELEASE AGREEMENT (hereinafter “AGREEMENT”) is made and entered into by and between Paul A. Rosinack (hereinafter “ROSINACK”) and Synbiotics Corporation (hereinafter “SYNBIOTICS”), effective as of September 24, 2002, and inures to the benefit of each of SYNBIOTICS’ current, former and future parents, subsidiaries, related entities, employee benefit plans and their fiduciaries, predecessors, successors, officers, directors, shareholders, agents, employees, members and assigns.

RECITALS

          A.     ROSINACK has been through September 24, 2002 SYNBIOTICS’ President and Chief Executive Officer and a member of SYNBIOTICS’ Board of Directors.

          B.     Notwithstanding and in addition to any other written resignations, by executing this AGREEMENT, ROSINACK resigns from his employment with and from any and all of his positions as a director, officer and employee of SYNBIOTICS and its subsidiary Synbiotics Europe SAS effective September 24, 2002.

          C.     ROSINACK and SYNBIOTICS wish to resolve permanently and amicably any and all disputes arising or which may ever arise out of ROSINACK’s employment with SYNBIOTICS.

          D.     SYNBIOTICS wishes to retain ROSINACK as a consultant to SYNBIOTICS beginning September 25, 2002, and ROSINACK wishes to provide personal services to SYNBIOTICS in return for certain compensation, as more specifically identified herein.

          THEREFORE, in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between ROSINACK, on the one hand, and SYNBIOTICS, on the other, as follows:

          1.     Incorporation of Recitals.  The Recitals and identification of the parties to, and beneficiaries of, this AGREEMENT are incorporated by reference as though fully set forth herein.

          2.     Basic Entitlements.  SYNBIOTICS agrees to pay to ROSINACK all of his wages (including his accrued and unused vacation time) accrued through September 24, 2002 on or before September 24, 2002.  The parties agree that this amount is $20,034.29, before applicable tax withholding.

                  SYNBIOTICS agrees to pay ROSINACK severance of $116,574.12, before any applicable tax withholding, on or before September 24, 2002.

                  Except as expressly provided in this Section 2, ROSINACK hereby waives and renounces any and all other amounts which are or may become due to him under his Employment Agreement dated October 25, 1996, as amended February 14, 2001 (including the severance provisions thereof), and under any other written or oral compensation arrangement.

                  ROSINACK acknowledges that effective upon his employment termination he will be unable to continue his participation in SYNBIOTICS’ stock option plan, 401(k) plan, Section 125 cafeteria plan, or, except as allowed by COBRA, any other SYNBIOTICS perquisite, employee benefit plan or fringe benefit plan.

          3.     Additional Benefits.  SYNBIOTICS agrees to provide the following to ROSINACK, which the parties acknowledge ROSINACK would not have been entitled to receive but for this AGREEMENT, in consideration for this AGREEMENT.

                  (a)     SYNBIOTICS agrees to pay ROSINACK additional severance of $19,429.02, before any applicable tax withholding, on April 24, 2003, and additional severance of $19,429.02, before any applicable tax withholding, on May 24, 2003.

                  (b)     ROSINACK may retain the SYNBIOTICS laptop computer system which he used (subject to Sections 7 and 8.1 below).

                  (c)     The payments described in Section 4(a) below.

          4.     COBRA Benefits.  ROSINACK acknowledges that he has been provided with forms by which he may maintain his and his eligible dependents’ participation in SYNBIOTICS’ group medical and dental insurance plans pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).  SYNBIOTICS agrees that if ROSINACK timely elects to continue his and his eligible dependents’ participation in SYNBIOTICS’ group medical and dental insurance plans pursuant to COBRA, (a) SYNBIOTICS will pay the employer portion of the COBRA premiums therefor on behalf of ROSINACK and his eligible dependents, until May 24, 2003, (b) ROSINACK will pay the employer portion thereafter if he chooses to continue COBRA coverage, and (c) ROSINACK will at all times pay (to SYNBIOTICS) the employee portion.  Nothing herein shall limit the right of SYNBIOTICS to change the provider and/or the terms of its group medical and/or dental insurance plan at any time hereafter.

          5.     No Employment Agreement.  The parties acknowledge and agree that this AGREEMENT is not an employment agreement, that the employment relationship between the parties has terminated, and that all prior agreements concerning employment and/or consultancy, whether oral or written, are superseded by this AGREEMENT. 

          6.     Consulting Agreement. 

                  6.1     Term.  SYNBIOTICS agrees that commencing upon September 25, 2002, and continuing through March 24, 2003, it shall retain ROSINACK as an independent contractor consultant (the “Consulting Period”).  ROSINACK agrees to assist SYNBIOTICS as an independent contractor consultant during the Consulting Period. Upon SYNBIOTICS’ request, ROSINACK shall provide seven full business days of consulting services before October 24,

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2002, plus up to two hours of consulting services each month within each month from October 25, 2002 to March 24, 2003 (together, the “Core Time”).

                  6.2     Compensation.  During the Consulting Period, SYNBIOTICS shall pay to ROSINACK for his consulting services the gross sum of $1,000 for each day of consulting which is provided in addition to the Core Time.  No sum shall be payable to ROSINACK hereunder in respect of the Core Time.  The consulting fee shall be due and payable to ROSINACK in arrears semimonthly.

                  6.3     Duties.  During the Consulting Period, ROSINACK agrees to make himself available to provide oral or written advice and input on SYNBIOTICS business matters, as may be requested of him from time to time by Christopher Hendy and/or Thomas Donelan.  ROSINACK shall report only to Christopher Hendy and/or Thomas Donelan, and shall communicate only with such persons, unless specifically directed otherwise by Christopher Hendy and/or Thomas Donelan.  ROSINACK shall comply with all applicable laws in the course of his work.  All works of authorship made by ROSINACK in the course of his duties shall be “works made for hire.” ROSINACK agrees that SYNBIOTICS shall own the copyright on such works of authorship with no license back to ROSINACK, and that SYNBIOTICS shall own the patent rights on all inventions made by ROSINACK in the course of his duties (again with no license back to ROSINACK).  ROSINACK shall provide all reasonable assistance to SYNBIOTICS in evidencing and prosecuting SYNBIOTICS’ copyright and patent rights in such works of authorship and inventions.

                  6.4     Time Commitment.  This Section 6.4 is subject to Section 6.1.  During the Consulting Period, ROSINACK shall make himself available to SYNBIOTICS to perform consulting duties on a reasonable, part-time, as-needed basis as requested by SYNBIOTICS.  SYNBIOTICS agrees to provide ROSINACK with reasonable advance notice of its need for his services.  SYNBIOTICS and ROSINACK shall use reasonable efforts to coordinate any scheduling conflicts between ROSINACK’s other activities and engagements and the services to be performed by ROSINACK for SYNBIOTICS.

                  6.5     Independent Contractor.  ROSINACK acknowledges that he is an independent contractor, is not an agent or employee of SYNBIOTICS, is not entitled to any Company employment rights or benefits and is not authorized to act on behalf of SYNBIOTICS.  ROSINACK shall be solely responsible for any and all tax obligations of ROSINACK, including but not limited to, all city, state and federal income taxes, social security withholding tax, workers’ compensation insurance and other self employment tax incurred by ROSINACK. SYNBIOTICS shall not dictate the work hours of ROSINACK during the term of this AGREEMENT.  The parties hereby acknowledge and agree that SYNBIOTICS shall have no right to control the manner, means, or method by which ROSINACK performs the services called for by this AGREEMENT.  Rather, SYNBIOTICS shall be entitled only to direct ROSINACK with respect to the elements of services to be performed by ROSINACK and the results to be derived by SYNBIOTICS, to inform ROSINACK as to where and when such services shall be performed, to limit and identify the persons at SYNBIOTICS with whom ROSINACK may communicate, and to review and assess the performance of such services by ROSINACK for the purposes of assuring that such services have been performed and confirming that such results were satisfactory.  SYNBIOTICS shall be entitled to exercise broad general

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power of supervision and control over the results of work performed by ROSINACK to ensure satisfactory performance, including the right to inspect, the right to stop work, the right to make suggestions or recommendations as to the details of the work, and the right to propose modifications to the work.

                  6.6     No Agency Relationship.  Nothing herein shall be deemed to create an agency relationship between the parties hereto.  ROSINACK understands and agrees that, except as specifically and in writing directed to do so by Christopher Hendy and/or Thomas Donelan, he is not authorized to bind or to act on behalf of SYNBIOTICS, and he agrees not to purport otherwise.

                  6.7     Business Expenses.  It is expressly understood and agreed that during the Consulting Period, ROSINACK shall not incur any business expenses without the prior approval of Christopher Hendy and/or Thomas Donelan.  To the extent such business expenses have been approved in advance, SYNBIOTICS shall reimburse ROSINACK for reasonable business expenses incurred by him as a necessary consequence of his performance of his consulting duties on SYNBIOTICS’ behalf.  ROSINACK shall submit written requests for reimbursement of said business expenses, together with supporting receipts, on or before the last day of each month of the Consulting Period.  Reimbursement of ROSINACK’s business expenses shall be paid in the time and manner which are consistent with SYNBIOTICS’ current policy concerning employee/consultant business expenses.

                  6.8     Outside Activities.  It is expressly understood and agreed that during the Consulting Period, ROSINACK may accept other employment.  ROSINACK may also engage in civic and not-for-profit activities.

          7.     Proprietary Information Obligations.

                  7.1     Agreement.  ROSINACK acknowledges that he is a party to and bound by the terms and conditions of that certain confidentiality/inventions Agreement by and between SYNBIOTICS and him dated October 25, 1996 (the “Proprietary Information Agreement”).

                  7.2     Remedies.  ROSINACK understands that his duties under the Proprietary Information Agreement survive the termination of his employment with SYNBIOTICS and continue to remain in effect during his consultancy to SYNBIOTICS, and will survive the expiration or termination of this AGREEMENT.  ROSINACK acknowledges that a remedy at law for any breach or threatened breach by him of the provisions of the Proprietary Information Agreement would be inadequate, and he therefore agrees that SYNBIOTICS shall be entitled to injunctive relief in case of any such breach or threatened breach.

          8.     Trade Secrets and Confidential Information.

                  8.1     Valuable Confidential Information.  ROSINACK acknowledges that SYNBIOTICS has invested substantial time, money and resources in the development and retention of its inventions, confidential information (including trade secrets), customers, accounts and business partners, and further acknowledges that during the course of his employment with SYNBIOTICS ROSINACK had access to SYNBIOTICS’ inventions and confidential information (including trade secrets), and was introduced to existing and prospective customers,

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 accounts and business partners of SYNBIOTICS.  The parties acknowledge that in connection with ROSINACK’s provision of consulting services to SYNBIOTICS, he may continue to have access to SYNBIOTICS’ inventions and confidential information (including trade secrets).  ROSINACK acknowledges and agrees that any and all “goodwill” associated with any existing or prospective customer, account or business partner belongs exclusively to SYNBIOTICS, including, but not limited to, any goodwill created as a result of direct or indirect contacts or relationships between ROSINACK and any existing or prospective customers, accounts or business partners. 

                  8.2     Non-Solicitation.  During the Consulting Period, ROSINACK agrees not to interfere with the business of SYNBIOTICS by soliciting or inducing any employee or consultant of SYNBIOTICS to terminate his or her employment or engagement with SYNBIOTICS, or to reduce his or her time commitment or scope of services provided to SYNBIOTICS.  The foregoing restrictions shall apply to ROSINACK regardless of whether he is acting directly or indirectly, alone or in concert with others.  ROSINACK understands and agrees that he cannot and will not do indirectly that which he cannot do directly.

                  8.3     Savings Clause.  If any restriction set forth above within this section is held to be unreasonable, then ROSINACK agrees, and hereby submits, to the reduction and limitation of such prohibition to such scope as shall be deemed reasonable.

                  8.4     Injunctive Relief.  ROSINACK expressly agrees that the covenants set forth in this Section 8 are reasonable and necessary to protect SYNBIOTICS and its legitimate business interests, and to prevent the unauthorized dissemination of confidential information to competitors of SYNBIOTICS.  ROSINACK also agrees that SYNBIOTICS will be irreparably harmed and that damages alone cannot adequately compensate SYNBIOTICS if there is a violation of the provisions of this Section 8 by ROSINACK, and that injunctive relief against ROSINACK is essential for the protection of SYNBIOTICS.  Therefore, in the event of any such breach, it is agreed that, in addition to any other remedies available, SYNBIOTICS shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction, plus attorneys’ fees actually incurred for the securing of such relief.

          9.     General Release. 

                  9.1     General Release.  ROSINACK, for himself, and his wife, relatives, heirs, executors, administrators, assigns and affiliates, past, present and future, fully and forever releases and discharges SYNBIOTICS and each of its current, former and future parents, subsidiaries, related entities, affiliates, employee benefit plans and its and their fiduciaries, predecessors, successors, officers, directors, shareholders, agents, employees, members and assigns (collectively, “Releasees”), with respect to any and all claims, liabilities, causes of action, suits, debts, contracts, agreements, promises, demands, losses, settlements, diminutions in value, judgments, damages, penalties, costs and expenses (including, without limitation, attorneys’ fees) of every nature, kind and description, in law, equity or otherwise (collectively, “Claims”), which have arisen, occurred or existed at any time before the signing of this AGREEMENT (even if they do not become matured or known until after the signing), including, without limitation, any and all Claims arising out of or relating to ROSINACK’s employment with SYNBIOTICS or the cessation of that employment or his Employment Agreement;

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provided, however, that claims under his Indemnification Agreement and the Proprietary Information Agreement, state unemployment insurance benefits, workers compensation insurance benefits, benefit entitlements vested as of September 24, 2002 pursuant to the written terms of any SYNBIOTICS employee benefit plan, and enforcement of this AGREEMENT are excluded from the definition of “Claims” and are not released.

                  9.2     Knowing Waiver of Employment Related Claims.  ROSINACK understands and agrees that, without limitation, he is waiving and releasing any and all rights he may have had, now has, or in the future may have, to pursue against SYNBIOTICS or any of the other Releasees any and all remedies available to him under any employment-related Claims and causes of action, including without limitation, claims of wrongful discharge, breach of contract, breach of the covenant of good faith and fair dealing, fraud, violation of public policy, defamation, discrimination, personal injury, physical injury, emotional distress, claims under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Federal Rehabilitation Act, the Family and Medical Leave Act, the California Fair Employment and Housing Act, the California Family Rights Act, the Equal Pay Act of 1963, the provisions of the California Labor Code and any other federal, state or local laws and regulations relating to employment, conditions of employment (including wage and hour laws) and/or employment discrimination (all subject to Section 9.1 above).

                  9.3     Waiver of Civil Code § 1542.  ROSINACK expressly waives any and all rights and benefits conferred upon him by Section 1542 of the Civil Code of the State of California, which states as follows, and under all federal, state and/or common-law statutes or principles of similar effect:

        “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

ROSINACK expressly agrees and understands that the release given by him pursuant to this AGREEMENT applies to all unknown, unsuspected and unanticipated Claims which ROSINACK may have against SYNBIOTICS or any of the other Releasees.

                  9.4     No Prior Assignments.  ROSINACK represents and warrants that there has been no assignment or other transfer of any interest in any Claim which ROSINACK may have against SYNBIOTICS or any of the other Releasees, or any of them, and ROSINACK agrees to defend, indemnify and hold SYNBIOTICS and the other Releasees, and each of them, harmless from any liability, claims, demands, damages, settlements, judgments, penalties, costs, expenses and attorneys’ fees incurred by SYNBIOTICS or any of the other Releasees, or any of them, as a result of any person asserting any such assignment or transfer.  It is the intention of the parties that this indemnity does not require payment as a condition precedent to recovery by SYNBIOTICS and the other Releasees under the indemnity, and that this indemnity shall be payable as incurred and on demand.

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                  9.5     Denial of Liability and Obligation.  This AGREEMENT is not intended to and shall not constitute any admission or concession of any kind by SYNBIOTICS or any other person as to the existence of any liability or obligation to ROSINACK under any Claim.  SYNBIOTICS and the other Releasees specifically deny the existence of any such liability or obligation to ROSINACK.

          10.   Promise to Refrain from Suit or Administrative Action.  ROSINACK promises and agrees that he will never sue SYNBIOTICS or any of the other Releasees, or otherwise institute or participate in any legal or administrative proceedings against SYNBIOTICS or any of the other Releasees (or aid anyone else to do so), with respect to any Claim covered by the release provisions of this AGREEMENT.  ROSINACK agrees that if ROSINACK violates this Section 10 in any manner or in any manner asserts against SYNBIOTICS or any of the other Releasees, or any of them, any of the Claims released hereunder, then ROSINACK will pay to SYNBIOTICS and the other Releasees, and each of them, in addition to any other damages caused to SYNBIOTICS and the other Releasees thereby, all attorneys’ fees incurred by SYNBIOTICS and the other Releasees in defending or otherwise responding to said lawsuit, proceeding or Claim.  Notwithstanding the foregoing, ROSINACK does not waive any rights to unemployment compensation and does not waive any rights to workers compensation claims under the California Labor Code.

          11.   Full Defense.  It is specifically understood and agreed that this AGREEMENT may be pleaded as a full and complete defense to and may be used as the basis for an injunction against any action, arbitration, suit, or other proceeding which may be instituted, prosecuted or attempted in breach of this AGREEMENT.

          12.   Assumption of Risk as to Facts.  The parties both understand that if the facts with respect to which they are executing this AGREEMENT are later found to be other than or different from the facts both or either of them now believe to be true, they expressly accept and assume the risk of such possible difference in fact and agree that this AGREEMENT shall remain effective despite any difference of fact.

          13.   No Outside Representations.  No representation, warranty, condition, promise, understanding or agreement of any kind with respect to the subject matter hereof has been made by either party or by anyone else, nor shall any such be relied upon by either party, except those contained herein.  There were no inducements to enter into this AGREEMENT, except for what is expressly set forth in this AGREEMENT.

          14.   Severability.  All provisions contained herein are severable and in the event that any of them shall be held to be to any extent invalid or otherwise unenforceable by any court of competent jurisdiction, such provision shall be construed as if it were written so as to effectuate to the greatest possible extent the parties’ expressed intent; and in every case the remainder of this AGREEMENT shall not be affected thereby and shall remain valid and enforceable, as if such affected provision were not contained herein.

          15.   Entire Agreement.  This AGREEMENT represents and contains the entire agreement and understanding between the Parties with respect to the subject matter of this Agreement (which is deemed to include, without limitation, ROSINACK’s employment with

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SYNBIOTICS, all rights and benefits in connection therewith, all written or oral contracts  relating thereto, ROSINACK’s retention bonus, stock and stock options, and all matters relating to the cessation or termination of such employment), and completely supersedes any and all prior or contemporaneous agreements, understandings, arrangements, commitments, negotiations and discussions of the Parties, whether oral or written (all of which shall have no substantive significance or evidentiary effect); provided, that the Parties hereby confirm that except as expressly provided herein this AGREEMENT does not in any way supersede the Proprietary Information Agreement, or the shares owned by ROSINACK.  Each Party acknowledges, represents and warrants that he or it has not relied on any representation, agreement, understanding, arrangement or commitment which has not been expressly set forth in this AGREEMENT.  Each Party acknowledges, represents and warrants that this AGREEMENT is fully integrated and not in need of parol evidence in order to reflect the intentions of the Parties.  The Parties specifically intend that the literal words of this AGREEMENT shall, alone, conclusively determine all questions concerning the Parties’ intent.  This AGREEMENT may not be amended or modified or waived except by an agreement signed by all Parties.

          16.   Tax Consequences.  Except as expressly set forth herein, SYNBIOTICS shall have no obligation to ROSINACK with respect to any tax obligations incurred as the result of or attributable to this AGREEMENT or arising from any payments made or to be made hereunder.  Any payments made pursuant to this AGREEMENT shall be subject to such withholding and reports as may be required by any then-applicable laws or regulations of any state or federal taxing authority.

          17.   Waiver, Amendment and Modification of AGREEMENT.  The parties agree that no waiver, amendment or modification of any of the terms of this AGREEMENT shall be effective unless in writing and signed by all parties affected by the waiver, amendment or modification.  No waiver of any term, condition or default of any  term of this AGREEMENT shall operate or be construed as a waiver of any preceding or succeeding breach of the same or any other term or provision, or a waiver of any contemporaneous breach of any other term or provision, or a continuing waiver of the same or any other term or provision.  No failure or delay by a party in exercising any right, power, or privilege hereunder or other conduct by a party shall operate as a waiver thereof, in the particular case or in any past or future case, and no single or partial exercise thereof shall preclude the full exercise or further exercise of any right, power, or privilege.  No action taken pursuant to this AGREEMENT shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein.

          18.   Representation by Counsel.  The parties acknowledge that they have the right to have been represented in by counsel of their own choosing, and that they have entered into this AGREEMENT voluntarily, without coercion, and based upon their own judgment and not in reliance upon any representations or promises made by the other party or parties or any undersigned attorneys, other than those contained within this AGREEMENT.  The parties further agree that if any of the facts or matters upon which they now rely in making this AGREEMENT hereafter prove to be otherwise, this AGREEMENT will nonetheless remain in full force and effect.  ROSINACK acknowledges that Brobeck, Phleger & Harrison LLP, SYNBIOTICS’ lawyers, has represented SYNBIOTICS only and has not represented or advised him in connection with this AGREEMENT.

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          19.   California Law.  The parties agree that this AGREEMENT and its terms shall be construed under California law. 

          20.   Agreement to Arbitrate Claims Arising from AGREEMENT.  The parties agree that with the exception of disputes and claims identified below, if any dispute arises concerning interpretation and/or enforcement of the terms of this AGREEMENT, said dispute shall be resolved by binding arbitration conducted before a single arbitrator in San Diego, California in accordance with the American Arbitration Association’s National Rules for the Resolution of Employment Disputes, and in accordance with the guidelines delineated by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services, Inc. (2000).  Notwithstanding this agreement to arbitrate, neither party shall be precluded from seeking injunctive relief in a judicial forum.

          21.   Drafting.  The parties agree that this AGREEMENT shall be construed without regard to the drafter of the same and shall be construed as though each party to this AGREEMENT participated equally in the preparation and drafting of this AGREEMENT.

          22.   Counterparts.  This AGREEMENT may be signed in counterparts and said counterparts shall be treated as though signed as one document.

          23.   Reasonable Cooperation.  ROSINACK agrees:

                  (a)     To immediately relinquish SYNBIOTICS credit cards and keys and any other SYNBIOTICS property (except as set forth in Section 2(b)) and otherwise comply with SYNBIOTICS’ practices and procedures for terminated employees.  Without limitation, he shall not retain copies of any SYNBIOTICS documents or files.

                  (b)     Subject to Sections 6.1 and 6.2, to respond to reasonable requests from SYNBIOTICS for information, and, upon SYNBIOTICS’ reasonable request, to provide testimony and other assistance in any litigation or other proceeding in which he is not a party adverse to SYNBIOTICS; provided, that no consulting fee shall be charged for the first full day of trial attendance.

          24.   Period to Consider Terms of AGREEMENT.  ROSINACK acknowledges that ROSINACK originally received a form of this AGREEMENT on September 19, 2002, and was given 27 days thereafter in which to consider this AGREEMENT (including ROSINACK’s waivers made in this AGREEMENT).  ROSINACK acknowledges that SYNBIOTICS committed to him that if SYNBIOTICS would apply no coercion to sign early so that, if ROSINACK decided to sign it in less than 27 days, ROSINACK would do so voluntarily and of his own free will.  ROSINACK also acknowledges that SYNBIOTICS made clear that its September 19, 2002 offer to enter into this AGREEMENT would not be withdrawn or altered even if ROSINACK took the full 27 days, and that he would receive no different terms if he signed before the full 27 days or if he took the full 27 days.  ROSINACK acknowledges that ROSINACK has read and understands this AGREEMENT, and that ROSINACK has been encouraged to consult and has consulted an attorney and obtained independent legal advice regarding this AGREEMENT.  The form of this AGREEMENT has been revised in accordance with certain requests made by ROSINACK and his attorney.   ROSINACK has not been coerced

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into signing this AGREEMENT and is entering into this AGREEMENT voluntarily and of ROSINACK’s own free will.  ROSINACK further acknowledges that the waivers ROSINACK is making in this AGREEMENT are knowing, conscious and voluntary and are made with full appreciation that ROSINACK is forever foreclosed from pursuing any of the rights so waived.

          25.   Revocation of AGREEMENT.  ROSINACK understands that after executing this AGREEMENT, he has the right to revoke it within seven (7) days after his execution of it.  ROSINACK understands that this AGREEMENT will not become effective and enforceable unless the seven day revocation period passes and ROSINACK does not revoke the AGREEMENT in writing.  ROSINACK understands that this AGREEMENT may not be revoked after the seven day revocation period has passed.  ROSINACK understands that any revocation of this AGREEMENT must be made in writing and delivered to SYNBIOTICS within the seven day period, and that if he does so revoke the AGREEMENT, he shall not be entitled to receive any of the benefits described herein (except for those described in Section 2).

Dated:  September 24, 2002		/s/ PAUL A. ROSINACK
		PAUL A. ROSINACK
	SYNBIOTICS CORPORATION
Dated: September 24, 2002	By	/s/ CHRISTOPHER P. HENDY
		Christopher P. Hendy Vice President

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EX-10.8.2

Exhibit 10.8.2

EMPLOYMENT SEPARATION AND
GENERAL RELEASE AGREEMENT

          THIS EMPLOYMENT SEPARATION AND GENERAL RELEASE AGREEMENT (hereinafter “AGREEMENT”) is made and entered into by and between Michael K. Green (hereinafter “GREEN”) and Synbiotics Corporation (hereinafter “SYNBIOTICS”), effective as of September 19, 2002, and inures to the benefit of each of SYNBIOTICS’ current, former and future parents, subsidiaries, related entities, employee benefit plans and their fiduciaries, predecessors, successors, officers, directors, shareholders, agents, employees, members and assigns.

RECITALS

          A.     GREEN has been through September 19, 2002 SYNBIOTICS’ Senior Vice President and Chief Financial Officer and Secretary.

          B.     Notwithstanding and in addition to any other written resignations, by executing this AGREEMENT, GREEN resigns from his employment with and from any and all of his positions as a director, officer and employee of SYNBIOTICS and its subsidiary Synbiotics Europe SAS effective September 19, 2002.

          C.     GREEN and SYNBIOTICS wish to resolve permanently and amicably any and all disputes arising or which may ever arise out of GREEN’s employment with SYNBIOTICS.

          D.     SYNBIOTICS wishes to retain GREEN as a consultant to SYNBIOTICS beginning September 20, 2002, and GREEN wishes to provide personal services to SYNBIOTICS in return for certain compensation, as more specifically identified herein.

          THEREFORE, in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between GREEN, on the one hand, and SYNBIOTICS, on the other, as follows:

          1.     Incorporation of Recitals.  The Recitals and identification of the parties to, and beneficiaries of, this AGREEMENT are incorporated by reference as though fully set forth herein.

          2.     Basic Entitlements.  SYNBIOTICS agrees to pay to GREEN all of his wages (including his accrued and unused vacation time) accrued through September 19, 2002 on September 19, 2002.  The parties agree that this amount is $39,070.43, before applicable tax withholding.

                  SYNBIOTICS agrees to pay GREEN severance of $94,062, before any applicable tax withholding, on September 19, 2002.

                  Except as expressly provided in this Section 2, GREEN hereby waives and renounces any and all other amounts which are or may become due to him under his Employment Agreement dated July 9, 1997, as amended February 14, 2001 (including the severance provisions thereof), and under any other written or oral compensation arrangement.

                  GREEN acknowledges that effective upon his employment termination he will be unable to continue his participation in SYNBIOTICS’ stock option plan, 401(k) plan, Section 125 cafeteria plan, or, except as allowed by COBRA, any other SYNBIOTICS perquisite, employee benefit plan or fringe benefit plan.

          3.     Additional Benefits.  SYNBIOTICS agrees to provide the following to GREEN, which the parties acknowledge GREEN would not have been entitled to receive but for this AGREEMENT, in consideration for this AGREEMENT.

                  (a)     SYNBIOTICS agrees to pay GREEN additional severance of $15,677, before any applicable tax withholding, on April 19, 2003, and additional severance of $15,677, before any applicable tax withholding, on May 19, 2003.

                  (b)     GREEN may retain the SYNBIOTICS laptop computer system which he used (subject to Sections 7 and 8.1 below).

                  (c)     The payments described in Section 4(a) below.

          4.     COBRA Benefits.  GREEN acknowledges that he has been provided with forms by which he may maintain his and his eligible dependents’ participation in SYNBIOTICS’ group medical and dental insurance plans pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).  SYNBIOTICS agrees that if GREEN timely elects to continue his and his eligible dependents’ participation in SYNBIOTICS’ group medical and dental insurance plans pursuant to COBRA, (a) SYNBIOTICS will pay the employer portion of the COBRA premiums therefor on behalf of GREEN and his eligible dependents, until May 19, 2003, (b) GREEN will pay the employer portion thereafter if he chooses to continue COBRA coverage, and (c) GREEN will at all times pay (to SYNBIOTICS) the employee portion.  Nothing herein shall limit the right of SYNBIOTICS to change the provider and/or the terms of its group medical and/or dental insurance plan at any time hereafter.

          5.     No Employment Agreement.  The parties acknowledge and agree that this AGREEMENT is not an employment agreement, that the employment relationship between the parties has terminated, and that all prior agreements concerning employment and/or consultancy, whether oral or written, are superseded by this AGREEMENT. 

          6.     Consulting Agreement. 

                  6.1     Term.  SYNBIOTICS agrees that commencing upon September 20, 2002, and continuing through March 19, 2003, it shall retain GREEN as an independent contractor consultant (the “Consulting Period”).  GREEN agrees to assist SYNBIOTICS as an independent contractor consultant during the Consulting Period.  Upon SYNBIOTICS’ request, GREEN shall provide three full business days of consulting services before October 19, 2002, plus up to two

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hours of consulting services each month within each month from October 20, 2002 to March 19, 2003 (together, the “Core Time”).

                  6.2     Compensation.  During the Consulting Period, SYNBIOTICS shall pay to GREEN for his consulting services the gross sum of $1,000 for each day of consulting which is provided in addition to the Core Time.  No sum shall be payable to GREEN hereunder in respect of the Core Time.  The consulting fee shall be due and payable to GREEN in arrears semimonthly.

                  6.3     Duties.  During the Consulting Period, GREEN agrees to make himself available to provide oral or written advice and input on SYNBIOTICS business matters, as may be requested of him from time to time by Christopher Hendy and/or Thomas Donelan.  GREEN shall report only to Christopher Hendy and/or Thomas Donelan, and shall communicate only with such persons, unless specifically directed otherwise by Christopher Hendy and/or Thomas Donelan.  GREEN shall comply with all applicable laws in the course of his work.  All works of authorship made by GREEN in the course of his duties shall be “works made for hire.” GREEN agrees that SYNBIOTICS shall own the copyright on such works of authorship with no license back to GREEN, and that SYNBIOTICS shall own the patent rights on all inventions made by GREEN in the course of his duties (again with no license back to GREEN).  GREEN shall provide all reasonable assistance to SYNBIOTICS in evidencing and prosecuting SYNBIOTICS’ copyright and patent rights in such works of authorship and inventions.

                  6.4     Time Commitment.  This Section 6.4 is subject to Section 6.1.  During the Consulting Period, GREEN shall make himself available to SYNBIOTICS to perform consulting duties on a reasonable, part-time, as-needed basis as requested by SYNBIOTICS.  SYNBIOTICS agrees to provide GREEN with reasonable advance notice of its need for his services. SYNBIOTICS and GREEN shall use reasonable efforts to coordinate any scheduling conflicts between GREEN’s other activities and engagements and the services to be performed by GREEN for SYNBIOTICS.

                  6.5     Independent Contractor.  GREEN acknowledges that he is an independent contractor, is not an agent or employee of SYNBIOTICS, is not entitled to any Company employment rights or benefits and is not authorized to act on behalf of SYNBIOTICS.  GREEN shall be solely responsible for any and all tax obligations of GREEN, including but not limited to, all city, state and federal income taxes, social security withholding tax, workers’ compensation insurance and other self employment tax incurred by GREEN.  SYNBIOTICS shall not dictate the work hours of GREEN during the term of this AGREEMENT.  The parties hereby acknowledge and agree that SYNBIOTICS shall have no right to control the manner, means, or method by which GREEN performs the services called for by this AGREEMENT.  Rather, SYNBIOTICS shall be entitled only to direct GREEN with respect to the elements of services to be performed by GREEN and the results to be derived by SYNBIOTICS, to inform GREEN as to where and when such services shall be performed, to limit and identify the persons at SYNBIOTICS with whom GREEN may communicate, and to review and assess the performance of such services by GREEN for the purposes of assuring that such services have been performed and confirming that such results were satisfactory.  SYNBIOTICS shall be entitled to exercise broad general power of supervision and control over the results of work performed by GREEN to ensure satisfactory performance, including the right to inspect, the right

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to stop work, the right to make suggestions or recommendations as to the details of the work, and the right to propose modifications to the work.

                  6.6     No Agency Relationship.  Nothing herein shall be deemed to create an agency relationship between the parties hereto.  GREEN understands and agrees that, except as specifically and in writing directed to do so by Christopher Hendy and/or Thomas Donelan, he is not authorized to bind or to act on behalf of SYNBIOTICS, and he agrees not to purport otherwise.

                  6.7     Business Expenses.  It is expressly understood and agreed that during the Consulting Period, GREEN shall not incur any business expenses without the prior approval of Christopher Hendy and/or Thomas Donelan.  To the extent such business expenses have been approved in advance, SYNBIOTICS shall reimburse GREEN for reasonable business expenses incurred by him as a necessary consequence of his performance of his consulting duties on SYNBIOTICS’ behalf.  GREEN shall submit written requests for reimbursement of said business expenses, together with supporting receipts, on or before the last day of each month of the Consulting Period.  Reimbursement of GREEN’s business expenses shall be paid in the time and manner which are consistent with SYNBIOTICS’ current policy concerning employee/consultant business expenses.

                  6.8     Outside Activities.  It is expressly understood and agreed that during the Consulting Period, GREEN may accept other employment.  GREEN may also engage in civic and not-for-profit activities.

          7.     Proprietary Information Obligations.

                  7.1     Agreement.  GREEN acknowledges that he is a party to and bound by the terms and conditions of that certain confidentiality/inventions Agreement by and between SYNBIOTICS and him dated May 20, 1991 (the “Proprietary Information Agreement”).

                  7.2     Remedies.  GREEN understands that his duties under the Proprietary Information Agreement survive the termination of his employment with SYNBIOTICS and continue to remain in effect during his consultancy to SYNBIOTICS, and will survive the expiration or termination of this AGREEMENT.  GREEN acknowledges that a remedy at law for any breach or threatened breach by him of the provisions of the Proprietary Information Agreement would be inadequate, and he therefore agrees that SYNBIOTICS shall be entitled to injunctive relief in case of any such breach or threatened breach.

          8.     Trade Secrets and Confidential Information.

                  8.1     Valuable Confidential Information.  GREEN acknowledges that SYNBIOTICS has invested substantial time, money and resources in the development and retention of its inventions, confidential information (including trade secrets), customers, accounts and business partners, and further acknowledges that during the course of his employment with SYNBIOTICS GREEN had access to SYNBIOTICS’ inventions and confidential information (including trade secrets), and was introduced to existing and prospective customers, accounts and business partners of SYNBIOTICS.  The parties acknowledge that in connection with GREEN’s provision of consulting services to SYNBIOTICS, he may continue to have access to

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SYNBIOTICS’ inventions and confidential information (including trade secrets).  GREEN acknowledges and agrees that any and all “goodwill” associated with any existing or prospective customer, account or business partner belongs exclusively to SYNBIOTICS, including, but not limited to, any goodwill created as a result of direct or indirect contacts or relationships between GREEN and any existing or prospective customers, accounts or business partners. 

                  8.2     Non-Solicitation.  During the Consulting Period, GREEN agrees not to interfere with the business of SYNBIOTICS by soliciting or inducing any employee or consultant of SYNBIOTICS to terminate his or her employment or engagement with SYNBIOTICS, or to reduce his or her time commitment or scope of services provided to SYNBIOTICS.  The foregoing restrictions shall apply to GREEN regardless of whether he is acting directly or indirectly, alone or in concert with others.  GREEN understands and agrees that he cannot and will not do indirectly that which he cannot do directly.

                  8.3     Savings Clause.  If any restriction set forth above within this section is held to be unreasonable, then GREEN agrees, and hereby submits, to the reduction and limitation of such prohibition to such scope as shall be deemed reasonable.

                  8.4     Injunctive Relief.  GREEN expressly agrees that the covenants set forth in this Section 8 are reasonable and necessary to protect SYNBIOTICS and its legitimate business interests, and to prevent the unauthorized dissemination of confidential information to competitors of SYNBIOTICS.  GREEN also agrees that SYNBIOTICS will be irreparably harmed and that damages alone cannot adequately compensate SYNBIOTICS if there is a violation of the provisions of this Section 8 by GREEN, and that injunctive relief against GREEN is essential for the protection of SYNBIOTICS.  Therefore, in the event of any such breach, it is agreed that, in addition to any other remedies available, SYNBIOTICS shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction, plus attorneys’ fees actually incurred for the securing of such relief.

          9.     General Release. 

                  9.1     General Release.  GREEN, for himself, and his wife, relatives, heirs, executors, administrators, assigns and affiliates, past, present and future, fully and forever releases and discharges SYNBIOTICS and each of its current, former and future parents, subsidiaries, related entities, affiliates, employee benefit plans and its and their fiduciaries, predecessors, successors, officers, directors, shareholders, agents, employees, members and assigns (collectively, “Releasees”), with respect to any and all claims, liabilities, causes of action, suits, debts, contracts, agreements, promises, demands, losses, settlements, diminutions in value, judgments, damages, penalties, costs and expenses (including, without limitation, attorneys’ fees) of every nature, kind and description, in law, equity or otherwise (collectively, “Claims”), which have arisen, occurred or existed at any time before the signing of this AGREEMENT (even if they do not become matured or known until after the signing), including, without limitation, any and all Claims arising out of or relating to GREEN’s employment with SYNBIOTICS or the cessation of that employment or his Employment Agreement; provided, however, that claims under his Indemnification Agreement and the Proprietary Information Agreement, state unemployment insurance benefits, workers compensation insurance benefits, benefit entitlements vested as of September 19, 2002 pursuant to the written terms of any

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SYNBIOTICS employee benefit plan, and enforcement of this AGREEMENT are excluded from the definition of “Claims” and are not released.

                  9.2     Knowing Waiver of Employment Related Claims.  GREEN understands and agrees that, without limitation, he is waiving and releasing any and all rights he may have had, now has, or in the future may have, to pursue against SYNBIOTICS or any of the other Releasees any and all remedies available to him under any employment-related Claims and causes of action, including without limitation, claims of wrongful discharge, breach of contract, breach of the covenant of good faith and fair dealing, fraud, violation of public policy, defamation, discrimination, personal injury, physical injury, emotional distress, claims under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Federal Rehabilitation Act, the Family and Medical Leave Act, the California Fair Employment and Housing Act, the California Family Rights Act, the Equal Pay Act of 1963, the provisions of the California Labor Code and any other federal, state or local laws and regulations relating to employment, conditions of employment (including wage and hour laws) and/or employment discrimination (all subject to Section 9.1 above).

                  9.3     Waiver of Civil Code § 1542.  GREEN expressly waives any and all rights and benefits conferred upon him by Section 1542 of the Civil Code of the State of California, which states as follows, and under all federal, state and/or common-law statutes or principles of similar effect:

        “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

GREEN expressly agrees and understands that the release given by him pursuant to this AGREEMENT applies to all unknown, unsuspected and unanticipated Claims which GREEN may have against SYNBIOTICS or any of the other Releasees.

                  9.4     No Prior Assignments.  GREEN represents and warrants that there has been no assignment or other transfer of any interest in any Claim which GREEN may have against SYNBIOTICS or any of the other Releasees, or any of them, and GREEN agrees to defend, indemnify and hold SYNBIOTICS and the other Releasees, and each of them, harmless from any liability, claims, demands, damages, settlements, judgments, penalties, costs, expenses and attorneys’ fees incurred by SYNBIOTICS or any of the other Releasees, or any of them, as a result of any person asserting any such assignment or transfer.  It is the intention of the parties that this indemnity does not require payment as a condition precedent to recovery by SYNBIOTICS and the other Releasees under the indemnity, and that this indemnity shall be payable as incurred and on demand.

                  9.5     Denial of Liability and Obligation.  This AGREEMENT is not intended to and shall not constitute any admission or concession of any kind by SYNBIOTICS or any other person as to the existence of any liability or obligation to GREEN under any Claim. 

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SYNBIOTICS and the other Releasees specifically deny the existence of any such liability or obligation to GREEN.

          10.   Promise to Refrain from Suit or Administrative Action.  GREEN promises and agrees that he will never sue SYNBIOTICS or any of the other Releasees, or otherwise institute or participate in any legal or administrative proceedings against SYNBIOTICS or any of the other Releasees (or aid anyone else to do so), with respect to any Claim covered by the release provisions of this AGREEMENT.  GREEN agrees that if GREEN violates this Section 10 in any manner or in any manner asserts against SYNBIOTICS or any of the other Releasees, or any of them, any of the Claims released hereunder, then GREEN will pay to SYNBIOTICS and the other Releasees, and each of them, in addition to any other damages caused to SYNBIOTICS and the other Releasees thereby, all attorneys’ fees incurred by SYNBIOTICS and the other Releasees in defending or otherwise responding to said lawsuit, proceeding or Claim. Notwithstanding the foregoing, GREEN does not waive any rights to unemployment compensation and does not waive any rights to workers compensation claims under the California Labor Code.

          11.   Full Defense.  It is specifically understood and agreed that this AGREEMENT may be pleaded as a full and complete defense to and may be used as the basis for an injunction against any action, arbitration, suit, or other proceeding which may be instituted, prosecuted or attempted in breach of this AGREEMENT.

          12.   Assumption of Risk as to Facts.  The parties both understand that if the facts with respect to which they are executing this AGREEMENT are later found to be other than or different from the facts both or either of them now believe to be true, they expressly accept and assume the risk of such possible difference in fact and agree that this AGREEMENT shall remain effective despite any difference of fact.

          13.   No Outside Representations.  No representation, warranty, condition, promise, understanding or agreement of any kind with respect to the subject matter hereof has been made by either party or by anyone else, nor shall any such be relied upon by either party, except those contained herein.  There were no inducements to enter into this AGREEMENT, except for what is expressly set forth in this AGREEMENT.

          14.   Severability.  All provisions contained herein are severable and in the event that any of them shall be held to be to any extent invalid or otherwise unenforceable by any court of competent jurisdiction, such provision shall be construed as if it were written so as to effectuate to the greatest possible extent the parties’ expressed intent; and in every case the remainder of this AGREEMENT shall not be affected thereby and shall remain valid and enforceable, as if such affected provision were not contained herein.

          15.   Entire Agreement.  This AGREEMENT represents and contains the entire agreement and understanding between the Parties with respect to the subject matter of this Agreement (which is deemed to include, without limitation, GREEN’s employment with SYNBIOTICS, all rights and benefits in connection therewith, all written or oral contracts  relating thereto, GREEN’s retention bonus, stock and stock options, and all matters relating to the cessation or termination of such employment), and completely supersedes any and all prior or

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contemporaneous agreements, understandings, arrangements, commitments, negotiations and discussions of the Parties, whether oral or written (all of which shall have no substantive significance or evidentiary effect); provided, that the Parties hereby confirm that except as expressly provided herein this AGREEMENT does not in any way supersede the Proprietary Information Agreement, or the shares owned by GREEN.  Each Party acknowledges, represents and warrants that he or it has not relied on any representation, agreement, understanding, arrangement or commitment which has not been expressly set forth in this AGREEMENT.  Each Party acknowledges, represents and warrants that this AGREEMENT is fully integrated and not in need of parol evidence in order to reflect the intentions of the Parties.  The Parties specifically intend that the literal words of this AGREEMENT shall, alone, conclusively determine all questions concerning the Parties’ intent.  This AGREEMENT may not be amended or modified or waived except by an agreement signed by all Parties.

          16.   Tax Consequences.  Except as expressly set forth herein, SYNBIOTICS shall have no obligation to GREEN with respect to any tax obligations incurred as the result of or attributable to this AGREEMENT or arising from any payments made or to be made hereunder.  Any payments made pursuant to this AGREEMENT shall be subject to such withholding and reports as may be required by any then-applicable laws or regulations of any state or federal taxing authority.

          17.   Waiver, Amendment and Modification of AGREEMENT.  The parties agree that no waiver, amendment or modification of any of the terms of this AGREEMENT shall be effective unless in writing and signed by all parties affected by the waiver, amendment or modification.  No waiver of any term, condition or default of any  term of this AGREEMENT shall operate or be construed as a waiver of any preceding or succeeding breach of the same or any other term or provision, or a waiver of any contemporaneous breach of any other term or provision, or a continuing waiver of the same or any other term or provision.  No failure or delay by a party in exercising any right, power, or privilege hereunder or other conduct by a party shall operate as a waiver thereof, in the particular case or in any past or future case, and no single or partial exercise thereof shall preclude the full exercise or further exercise of any right, power, or privilege.  No action taken pursuant to this AGREEMENT shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein.

          18.   Representation by Counsel.  The parties acknowledge that they have the right to have been represented in by counsel of their own choosing, and that they have entered into this AGREEMENT voluntarily, without coercion, and based upon their own judgment and not in reliance upon any representations or promises made by the other party or parties or any undersigned attorneys, other than those contained within this AGREEMENT.  The parties further agree that if any of the facts or matters upon which they now rely in making this AGREEMENT hereafter prove to be otherwise, this AGREEMENT will nonetheless remain in full force and effect.  GREEN acknowledges that Brobeck, Phleger & Harrison LLP, SYNBIOTICS’ lawyers, has represented SYNBIOTICS only and has not represented or advised him in connection with this AGREEMENT.

          19.   California Law.  The parties agree that this AGREEMENT and its terms shall be construed under California law. 

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          20.   Agreement to Arbitrate Claims Arising from AGREEMENT.  The parties agree that with the exception of disputes and claims identified below, if any dispute arises concerning interpretation and/or enforcement of the terms of this AGREEMENT, said dispute shall be resolved by binding arbitration conducted before a single arbitrator in San Diego, California in accordance with the American Arbitration Association’s National Rules for the Resolution of Employment Disputes, and in accordance with the guidelines delineated by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services, Inc. (2000).  Notwithstanding this agreement to arbitrate, neither party shall be precluded from seeking injunctive relief in a judicial forum.

          21.   Drafting.  The parties agree that this AGREEMENT shall be construed without regard to the drafter of the same and shall be construed as though each party to this AGREEMENT participated equally in the preparation and drafting of this AGREEMENT.

          22.   Counterparts.  This AGREEMENT may be signed in counterparts and said counterparts shall be treated as though signed as one document.

          23.   Reasonable Cooperation.  GREEN agrees:

                  (a)     To immediately relinquish SYNBIOTICS credit cards and keys and any other SYNBIOTICS property (except as set forth in Section 2(b)) and otherwise comply with SYNBIOTICS’ practices and procedures for terminated employees.  Without limitation, he shall not retain copies of any SYNBIOTICS documents or files.

                  (b)     Subject to Sections 6.1 and 6.2, to respond to reasonable requests from SYNBIOTICS for information, and, upon SYNBIOTICS’ reasonable request, to provide testimony and other assistance in any litigation or other proceeding in which he is not a party adverse to SYNBIOTICS; provided, that no consulting fee shall be charged for the first full day of trial attendance.

          24.   Period to Consider Terms of AGREEMENT.  GREEN acknowledges that GREEN originally received a form of this AGREEMENT on September 19, 2002, and was given 23 days thereafter in which to consider this AGREEMENT (including GREEN’s waivers made in this AGREEMENT).  GREEN acknowledges that SYNBIOTICS committed to him that if SYNBIOTICS would apply no coercion to sign early so that, if GREEN decided to sign it in less than 23 days, GREEN would do so voluntarily and of his own free will.  GREEN also acknowledges that SYNBIOTICS made clear that its September 19, 2002 offer to enter into this AGREEMENT would not be withdrawn or altered even if GREEN took the full 23 days, and that he would receive no different terms if he signed before the full 23 days or if he took the full 23 days.  GREEN acknowledges that GREEN has read and understands this AGREEMENT, and that GREEN has been encouraged to consult and has consulted an attorney and obtained independent legal advice regarding this AGREEMENT.  The form of this AGREEMENT has been revised in accordance with certain requests made by GREEN and his attorney.   GREEN has not been coerced into signing this AGREEMENT and is entering into this AGREEMENT voluntarily and of GREEN’s own free will.  GREEN further acknowledges that the waivers GREEN is making in this AGREEMENT are knowing, conscious and voluntary and are made

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with full appreciation that GREEN is forever foreclosed from pursuing any of the rights so waived.

          25.   Revocation of AGREEMENT.  GREEN understands that after executing this AGREEMENT, he has the right to revoke it within seven (7) days after his execution of it.  GREEN understands that this AGREEMENT will not become effective and enforceable unless the seven day revocation period passes and GREEN does not revoke the AGREEMENT in writing.  GREEN understands that this AGREEMENT may not be revoked after the seven day revocation period has passed.  GREEN understands that any revocation of this AGREEMENT must be made in writing and delivered to SYNBIOTICS within the seven day period, and that if he does so revoke the AGREEMENT, he shall not be entitled to receive any of the benefits described herein (except for those described in Section 2).

Dated:  September 24, 2002		/s/ MICHAEL K. GREEN
		MICHAEL K. GREEN
	SYNBIOTICS CORPORATION
Dated: September 19, 2002	By	/s/ CHRISTOPHER P. HENDY
		Christopher P. Hendy Vice President

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EX-10.86

Exhibit 10.86

ASSET PURCHASE AGREEMENT

ACQUISITION OF CERTAIN ASSETS OF

SYNBIOTICS CORPORATION

BY

DANAM ACQUISITION CORP.

AN INDIRECT WHOLLY OWNED SUBSIDIARY OF

DREW SCIENTIFIC GROUP PLC

DATED: AUGUST 30, 2002

TABLE OF CONTENTS

		Page
ARTICLE 1.  DEFINITIONS		1
1.1	Certain Defined Terms	1
1.2	Other Definitions	4
ARTICLE 2.    PURCHASE AND SALE OF ASSETS		5
2.1	Sale of Assets	5
2.2	Assumption of Liabilities	7
2.3	Purchase Consideration	8
2.4	Time and Place of Closing	9
2.5	Transfer of Subject Assets	9
2.6	Delivery of Records and Contracts	9
2.7	Further Assurances	9
2.8	Other Closing Deliveries	10
2.9	Allocation of Purchase Price	11
2.10	Employees	11
2.11	Correspondence, Seller Accounts Receivable, etc	11
2.12	Public Announcements; Company Literature	11
ARTICLE 3.    REPRESENTATIONS AND WARRANTIES OF SELLER		12
3.1	Organization, Authority and Qualification of Seller	12
3.2	No Conflict	12
3.3	Governmental Consents and Approvals	12
3.4	Public Filings; Financial Statements	13
3.5	No Undisclosed Liabilities	13
3.6	Absence of Certain Changes or Events	13
3.7	Conduct of the Business	14
3.8	Litigation	14
3.9	Compliance with Laws	14
3.10	Environmental Matters	14
3.11	Material Contracts	14
3.12	Intellectual Property	15
3.13	Title to Properties; Condition of Properties; Absence of Encumbrances	17
3.14	Employee Benefit Matters; Labor Matters	17
3.15	Brokers	18
3.16	Taxes	18
ARTICLE 4.    REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER		18
4.1	Organization and Authority of Parent and Buyer	18
4.2	No Conflict	19

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		Page
4.3	Ownership and Control of Buyer	19
4.4	Governmental Consents and Approvals	19
4.5	Litigation	19
4.6	Brokers	20
ARTICLE 5.    CONDITIONS TO TRANSACTION		20
5.1	Conditions to Each Party’s Obligation To Effect the Transaction	20
5.2	Additional Conditions to Obligations of Parent and Buyer	20
5.3	Additional Conditions to Obligations of Seller	20
ARTICLE 6.    INDEMNIFICATION		21
6.1	Survival of Representations and Warranties	21
6.2	Indemnification by Seller	21
6.3	Indemnification by Parent and Buyer	21
6.4	Claims for Indemnification	22
6.5	Limits on Indemnification	23
ARTICLE 7.    GENERAL PROVISIONS		23
7.1	Waiver	23
7.2	Expenses	23
7.3	Notices	23
7.4	Headings	24
7.5	Severability	25
7.6	Entire Agreement	25
7.7	Assignment	25
7.8	No Third Party Beneficiaries	25
7.9	Amendment	25
7.10	Governing Law and Venue	25
7.11	Counterparts	26
7.12	Specific Performance	26
7.13	Bulk Sales Law	26

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ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT entered into as of the 30th day of August, 2002 among Drew Scientific Group PLC, a company organized under the laws of England and Wales (“Parent”), Danam Acquisition Corp., a Delaware corporation and an indirect, wholly owned subsidiary of Parent (“Buyer”) and Synbiotics Corporation, a California corporation (“Seller”).

RECITAL

WHEREAS, the Buyer wishes to acquire certain of the properties and assets of Seller relating to the development, manufacture and marketing of instruments and reagents used by veterinarians to measure animal blood chemistry information, operating under the names “ProChem” and “QVET” (together, the “Businesses”), and Seller wishes to convey such assets to Buyer, subject to the terms and conditions set forth in this Agreement (the “Transaction”).

WHEREAS, Seller is a party to that certain License Agreement dated February 25, 1998 with Microlab Systems, Inc., a Delaware corporation, a copy of which is attached hereto as Exhibit A, whereby Seller granted to Microlab an exclusive license in the human license field to certain of Seller’s patent and other intellectual property rights (the “Microlab License”) and such Microlab License comprises a portion of the properties and assets of Seller relating to the Businesses which Seller wishes to assign to Buyer and Buyer wishes to assume.

NOW, THEREFORE, in consideration for the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, in order to consummate said sale, the parties hereto agree as follows:

ARTICLE 1.    DEFINITIONS

1.1  Certain Defined Terms.    As used in this Agreement, the following terms shall have the following meanings:

“Action” means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority.

“Affiliate” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person.

“Agreement” or “this Agreement” means this Asset Purchase Agreement among Parent, Buyer and Seller (including the Exhibits and Schedules hereto) and all amendments hereto made in accordance with the provisions of Section 7.9 hereof.

“Basket Amount” means the sum of $15,000.

“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in Wilmington, Delaware.

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

“Control” (including the terms “controlled by” and “under common control with”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.

“Encumbrance” means any security interest, pledge, mortgage, lien (including, without limitation, environmental and tax liens), charge, encumbrance or adverse claim of any kind, including, without limitation, any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership, but excluding Permitted Encumbrances.

“Governmental Authority” means any United States federal, state, local, supranational or any foreign government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

“Intellectual Property” means (i) United States, international and foreign patents, patent registrations and applications and statutory invention registrations, (ii) trademarks, service marks, trade dress, logos, symbols, brand names, Internet domain names, trade names, d/b/a’s, assumed names and other source identifiers, including registrations and applications for registration thereof, (iii) published and unpublished works of authorship, whether copyrightable or not (including without limitation databases and other compilations of information), copyrights, and registrations and applications for registration thereof, and all renewals, extensions, restorations and reversions thereof, (iv) confidential and proprietary information, including trade secrets and know-how, including processes, databases, schematics, formulae, drawings, prototypes, models, designs and customer lists, (v) material computer software developed by or on behalf of a Person, or manufactured, distributed, sold, licensed or marketed by a Person, and (vi) all other intellectual or proprietary rights of a Person.

“Intellectual Property Contracts” shall mean all agreements to which Seller is a party entered into in connection with the conduct of the Businesses concerning Intellectual Property (other than over-the-counter “shrink-wrap” licenses and related agreements), including without limitation agreements granting Seller or its Affiliates rights to use Intellectual Property in the conduct of the Businesses, agreements granting rights to use Seller Intellectual Property, confidentiality agreements, trademark coexistence agreements, trademark consent agreements and nonassertion agreements to which Seller is a party and which relate to the conduct of the Businesses.

“Knowledge of Seller” or “Known to Seller” shall mean, with respect to any representation or warranty of Seller set forth in this Agreement, the actual or constructive knowledge or awareness of any of the executive officers of Seller, including, without limitation,

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Paul Rosinack and Michael Green, to the extent such knowledge would have been obtained by due inquiry of the officers, directors or employees of Seller charged with responsibility for the particular matter that is the subject of such representation or warranty.

“Law” means any federal, state, local or foreign statute, law, ordinance, regulation, rule, code, Governmental Order, other requirement or rule of law that may be enforced by a Governmental Authority.

“Leased Real Property” means the real property located at 1721 Black River Road, Rome, New York 13440 leased by Seller, as tenant, from 1721 Black River Boulevard Corporation pursuant to an oral month-to-month lease and all other leasehold interests therein.

“Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Law), Action or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking, that relate to or affect the Subject Assets or the Businesses

“Material Adverse Effect” means any circumstance, change in, or effect on any Person or its business that, individually or in the aggregate with any other circumstances, changes in, or effects on, any Person or its business is, or would be reasonably expected to be, materially adverse to such business or the assets or the financial condition or results of operations of such Person.

“Permitted Encumbrances” means such of the following to the extent they affect the Subject Assets or the Businesses and as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Encumbrances imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s liens and other similar liens arising in the ordinary course of business securing obligations that (i) are not overdue for a period of more than thirty (30) days and (ii) are not in excess of $25,000 in the case of a single property or $50,000 in the aggregate at any time; (c) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations; (d) minor survey exceptions, reciprocal easement agreements and other customary encumbrances on title to real property that (i) were not incurred in connection with any indebtedness, and (ii) do not, individually or in the aggregate, materially adversely affect the value or use of such property for its current and anticipated purposes and (e) Encumbrances arising out of or with respect to equipment leases and other personal property leases to which Seller is a party and pursuant to which any of the Subject Assets are bound.

“Person” means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.

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“Registered” shall mean issued, registered, renewed or the subject of a pending application.

“Seller Intellectual Property” means Intellectual Property owned by Seller and used in connection with the operation of the Businesses.

“Seller Systems” shall mean all computer hardware, software, systems and equipment of Seller material to or necessary to conduct the Businesses as they are currently conducted and located in Rome, New York.

“Subsidiary” means, with respect to a party, any corporation or other organization, whether incorporated or unincorporated, of which (i) such party or any other Subsidiary of such party is a general partner (excluding partnerships, the general partnership interests of which held by such party or any Subsidiary of such party do not have a majority of the voting interest in such partnership) or (ii) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries.

“U.S. GAAP” means United States generally accepted accounting principles.

1.2  Other Definitions.    The meanings of the following additional terms can be found in the sections of this Agreement indicated below:

Term	Section
Assigned Contracts	Section 2.1
Assumed Liabilities	Section 2.2
Assumed Warranty Obligations	Section 2.2
Businesses	Preamble
Businesses’ Records	Section 2.1
Buyer	Preamble
Buyer Indemnified Parties	Section 6.2
Closing	Section 2.4
Closing Date	Section 2.4
Continuing Employees	Section 2.10
Dispute	Section 7.10
Environmental Law	Section 3.10
Environmental Permits	Section 3.10
ERISA	Section 3.14
Exchange Act	Section 3.3
Excluded Assets	Section 2.1
Indemnified Party	Section 6.4
Indemnifying Party	Section 6.4
Inventory	Section 2.1
IRS	Section 3.14

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Loss	Section 6.2
Material Contracts	Section 3.11
Parent	Preamble
Promissory Note	Section 2.3
Purchase Price	Section 2.3
Securities Act	Section 3.3
Security Agreements	Section 2.8(a)(iv)
Seller	Preamble
Seller Accounts Receivable	Section 2.1
Seller Benefit Plans	Section 3.14
Seller Indemnified Parties	Section 6.3
Seller SEC Reports	Section 3.4
Seller Statements of Revenues and Expenses	Section 3.4
Seller Third Party Intellectual Property	Section 3.12
Statement of Assets	Section 3.4
Subject Assets	Section 2.1
Suit	Section 3.12
Third Parties	Section 2.2
Third Party Claims	Section 6.4
Transaction	Preamble
Warranty Cap	Section 2.2

ARTICLE 2.    PURCHASE AND SALE OF ASSETS.

2.1  Sale of Assets.

(a)  Subject to the provisions of this Agreement and except as expressly excluded in Section 2.1(b), Seller agrees to sell and Buyer agrees to purchase at the Closing, all of the personal properties, assets and business of Seller used in the operation of the Businesses, tangible and intangible, wherever located, including, without limitation, the following:

(i)  All of the current equipment, furnishings, fixtures, supplies and other personal property used in the operation of the Businesses, including, without limitation, the items identified on Schedule 2.1(a)(i) attached hereto;

(ii)  Subject to the provisions of this Agreement, all of Seller’s right, title and interest in and to all financial, accounting and other business records of Seller relating to the Businesses or any of the Subject Assets (the “Businesses’ Records”);

(iii)  (A) All of Seller’s rights and interests in and to the Seller Intellectual Property, including, without limitation, the Seller Intellectual Property identified on Schedule 2.1(a)(iii)(A); (B) all of Seller’s rights to use Seller Third Party Intellectual Property in Seller’s manufacture, sale or distribution of any products of the Businesses, if any, all of which licenses or other rights are identified on Schedule 2.1(a)(iii)(B); and (C) any Seller Intellectual Property under research or development prior to or on the Closing Date;

(iv)  All of the goodwill relating to the operation of the Businesses;

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(v)  All of Seller’s rights and interests in and to the contracts identified on Schedule 2.1(a)(v) (“Assigned Contracts”);

(vi)  all inventory of products of the Businesses, including raw materials, work-in-progress and finished goods with respect thereto (“Inventory”);

(vii)  copies of the Businesses’ customer lists, customer records, customer files and histories, open customer invoices, lists of suppliers and vendors and all records relating thereto, historical purchase and sale records, records with respect to production, engineering, product development, costs, price lists, advertising matters, catalogues, photographs, sales and marketing materials, product materials, purchasing materials, camera-ready art, manufacturing and quality control records and procedures, research and development, files and data, media materials and plates and other records, in each case used in connection with the Businesses;

(viii)  any and all claims, deposits, prepayments, prepaid assets, refunds, causes of action, rights of recovery, rights of setoff and rights of recoupment related to the Businesses or the Subject Assets;

(ix)  to the extent their transfer is permitted by law, all consents, approvals, authorizations or other order of, action by, filing with or notification to any Governmental Authority related to the Businesses or the Subject Assets; and

(x)  all guarantees, warranties, indemnities and similar rights in favor of Seller with respect to the Businesses or any of the Subject Assets.

The assets, property and business of Seller to be sold to and purchased by Buyer under this Agreement are hereinafter sometimes referred to as the “Subject Assets.”

(b)  The following assets (the “Excluded Assets”) shall be excluded from the Subject Assets:

(i)  Accounts receivable generated in connection with the Businesses prior to and in existence as of the Closing Date (“Seller Accounts Receivable”);

(ii)  Inventory and supplies used in connection with the Businesses which are disposed of in the ordinary course of business prior to the Closing;

(iii)  Seller’s corporate franchise, stock record books, corporate record books containing minutes of meetings of directors and stockholders and such other records as have to do exclusively with Seller’s organization or stock capitalization not related primarily to the Businesses; and

(iv)  Any of Seller’s assets, whether tangible or intangible, not related to the operation of the Businesses.

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2.2  Assumption of Liabilities.

(a)    Upon the sale and purchase of the Subject Assets, except as excluded in Section 2.2(b) hereof, Buyer shall assume and agree to pay or discharge when due the following:

(i)  All of the liabilities and obligations of Seller arising under leases related to equipment and personal property of the Businesses and the Leased Real Property, as identified on Schedule 2.2(a)(i);

(ii)  All of the liabilities and obligations of Seller arising under the unfilled portions of those sales orders from customers of the Businesses, as identified in Schedule 2.2(a)(ii), existing on the Closing Date;

(iii)  All of the liabilities and obligations of Seller arising under the unfilled portions of those purchase orders to vendors of the Businesses, as identified in Schedule 2.2(a)(iii), existing on the Closing Date;

(iv)  All of the liabilities and obligations of Seller arising under the Assigned Contracts, solely to the extent such obligations and liabilities arise and relate to events, acts or omissions occurring after the Closing Date and become due and payable after the Closing Date; and

(v)  Liabilities and obligations of Seller not in excess of Fifteen Thousand Dollars ($15,000) (the “Warranty Cap”), in the aggregate, arising under outstanding warranty service agreements of Seller in effect prior to the Closing and relating to, arising under or in respect of products of the Businesses sold within the twelve (12) months prior to the Closing (“Assumed Warranty Obligations”); provided, however, that the Warranty Cap shall not include, and Buyer shall be deemed to have assumed, any and all liabilities and obligations arising under outstanding warranty service agreements of Seller in effect prior to the Closing if such liability or obligation arises in respect of products of the Businesses for which Buyer (including any of Buyer’s employees, consultants or contractors and any customers of the Businesses acting at Buyer’s direction) has previously provided any service, upgrade or repair work of any kind.

The foregoing liabilities to be assumed by Buyer under this Agreement are hereinafter sometimes referred to as the “Assumed Liabilities.”

(b)    Except to the extent expressly assumed pursuant to Section 2.2(a) above, Buyer does not assume and shall not be liable for any debt, obligation, responsibility or liability of Seller, or any Affiliate of Seller, or any claim against any of the foregoing, whether known or unknown, contingent or absolute, or otherwise. Without limiting the foregoing sentence, Buyer shall have no responsibility with respect to the following, whether or not disclosed in a schedule hereto:

(i)  accounts payable or any other Liabilities of or relating to the Businesses arising prior to the Closing Date;

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(ii)  Liabilities of Seller not related to or arising in connection with the Businesses;

(iii)  Liabilities for alleged infringement or other claimed violation or misuse of any Intellectual Property, including, without limitation, patents, trade secrets and other proprietary information, by Seller or any Affiliate of Seller based upon or originating in events occurring prior to the Closing Date;

(iv)  Liabilities resulting from or arising in connection with any alleged breach of contract based upon or originating in events occurring prior to the Closing Date;

(v)  Liabilities for taxes of any kind arising prior to the Closing Date, including taxes related to or arising from the transfers contemplated hereby;

(vi)  Liabilities to employees of Seller, whether for accident, disability or worker’s compensation insurance or benefits, benefits under any Seller Benefit Plans, back pay, accrued vacation or obligations related to or resulting from severance of employment by Seller;

(vii)  Liabilities incurred by Seller in connection with this Agreement and the transactions provided for herein, including counsel’s and accountant’s fees, filing fees, transfer and other taxes, and expenses pertaining to its liquidation or the performance by Seller of its obligations hereunder;

(viii)  Other than the Assumed Warranty Obligations, Liabilities arising out of the sale to or use by customers or others of any product of the Businesses manufactured, distributed or sold by Seller; and

(c)    The assumption of the Assumed Liabilities by Buyer hereunder shall be treated as independent of Buyer’s and Parent’s existing business and shall not enlarge any rights of third parties (“Third Parties”) under contracts or arrangements with Parent, Buyer or Seller or any of their respective Subsidiaries. Nothing herein shall prevent Buyer from contesting in good faith with any Third Parties any of the Assumed Liabilities; provided, however, that Buyer shall be solely responsible for any additional liabilities and obligations resulting from any such contest, including, without limitation, any and all fees, costs and expenses of its professional advisers and other agents and representatives.

2.3  Purchase Consideration.    In consideration of the sale by Seller to Buyer of the Subject Assets, Buyer agrees to assume the Assumed Liabilities and to deliver, or cause Parent to deliver to the Seller at the Closing a five-year, secured promissory note in the principal amount of Five Hundred Thousand Dollars ($500,000) and bearing interest at the rate of five percent (5%) per annum made payable to Seller in substantially the form attached hereto as

8

Exhibit B (the “Promissory Note”). In support of the Buyer’s obligations under the Promissory Note, Parent shall also deliver to Seller at the Closing a Guaranty in substantially the form attached hereto as Exhibit C (the “Guaranty”) duly executed by Parent pursuant to which Parent shall guarantee the obligations of Buyer under the Promissory Note. The Promissory Note shall be subject to the provisions of this Agreement and shall permit Buyer to offset against the outstanding principal amount thereof any indemnification obligations determined to be payable by Seller to Buyer under Article 6 hereof. Simultaneously with the Closing, Seller intends to assign the Promissory Note, the Security Agreements and the Guaranty to Comerica Bank—California pursuant to an Assignment of Note and Guaranty in substantially the form attached hereto as Exhibit D. The face amount of the Assumed Liabilities and the Purchase Shares are referred to herein collectively as the “Purchase Price”.

2.4  Time and Place of Closing.    The closing of the purchase and sale contemplated by in this Agreement (herein called the “Closing”) shall be effective as of August 31, 2002 or such other date as the parties hereto shall mutually agree (the “Closing Date”).

2.5  Transfer of Subject Assets.    At the Closing, Seller shall deliver or cause to be delivered to Buyer good and sufficient instruments of transfer transferring to Buyer title to all the Subject Assets, including bills of sale, assignments of trademarks and patents, and such other instruments of transfer as may be required. At the Closing, Buyer shall deliver or cause to be delivered to Seller good and sufficient instruments of assumption evidencing the assumption by Buyer of the Assumed Liabilities, and such other instruments of assumption as may be required. Such instruments of transfer and assumption (a) shall be in form and substance reasonably satisfactory to counsel for Buyer and Parent, and (b) shall effectively vest in Buyer good and marketable title to all the Subject Assets, free and clear of all Encumbrances, except for Permitted Encumbrances.

2.6  Delivery of Records and Contracts.    At the Closing, Seller shall deliver or cause to be delivered to Buyer the Assigned Contracts, with such assignments thereof and consents to assignments as are required pursuant to the terms of such Assigned Contracts and are necessary to assure the full benefit thereof. Seller shall also deliver to Buyer at the Closing all of the Businesses’ Records and Seller shall take all requisite steps to put Buyer in actual possession and operating control of the Subject Assets and the Businesses. After the Closing, Buyer shall afford to Seller and its accountants, attorneys and other representatives reasonable access to the Businesses’ Records and shall permit Seller to make extracts and copies therefrom for the purpose of preparing such tax returns, financial statements (including audited financial statements) and other reports and filings of Seller as may be required after the Closing and for other proper purposes approved by Buyer acting reasonably and in good faith.

2.7  Further Assurances.    Seller from time to time after the Closing at the request of Buyer (acting reasonably and in good faith) and without further consideration shall execute and deliver further instruments of transfer and assignment (in addition to those delivered under Sections 2.5 and 2.6), and take such other action as Buyer may reasonably require to more effectively transfer and assign to, and vest in, Buyer each of the Subject Assets and to carry out the purposes of this Agreement. Each of Buyer and Parent from time to time after the Closing at the request of Seller (acting reasonably and in good faith) and without further consideration shall execute and deliver further instruments of assumption (in addition to those delivered under

9

Section 2.6), and take such other action as Seller may reasonably require to more effectively evidence the assumption by Buyer of the Assumed Liabilities and to carry out the purposes of this Agreement. To the extent that the assignment of any lease, contract, commitment or right shall require the consent of other parties thereto, this Agreement shall not constitute an assignment thereof; however, Seller shall use its commercially reasonable, good faith efforts before and after the Closing to obtain any necessary consents or waivers required pursuant to the terms of such leases, contracts, commitments or rights. Nothing herein shall be deemed a waiver by Buyer of its right to receive at the Closing an effective assignment of each of the leases, contracts, commitments or rights of Seller which constitute a portion of the Subject Assets.

2.8  Other Closing Deliveries.

(a)  Seller Deliveries.    In addition to those other deliveries required pursuant to this Article 2, Seller shall deliver to the Parent at the Closing:

(i)  a certificate of the Secretary of Seller, certifying that the board of directors of Seller have duly adopted resolutions authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby;

(ii)  a copy of (a) the articles of incorporation, as amended, of Seller, certified by the Secretary or Assistant Secretary of Seller and (b) the by-laws of Seller, certified by the Secretary or Assistant Secretary of Seller;

(iii)  a good standing certificate for Seller from the Secretary of State of California dated as of a date not earlier than ten (10) Business Days prior to the Closing Date; and

(iv)  a Security Agreement and a Patent and Trademark Security Agreement between Seller and Buyer substantially in the forms attached hereto as Exhibit E (the “Security Agreements”).

(b)  Buyer and Parent Deliveries.    In addition to those other deliveries required pursuant to this Article 2, Parent and/or Buyer, as the case may be, shall deliver to Seller at the Closing:

(i)  a certificate of the Secretary or Assistant Secretary of Buyer and Parent, respectively, certifying that the boards of directors of Buyer and Parent have duly adopted resolutions authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby;

(ii)  a copy of (a) the certificate of incorporation, as amended, of Buyer, certified by the Secretary or Assistant Secretary of Buyer and (b) the by-laws of Buyer, certified by the Secretary or Assistant Secretary of Buyer;

(iii)  a good standing certificate for Buyer from the Secretary of State of Delaware as of a date not earlier than ten (10) Business Days prior to such Closing Date; and

(iv) the Security Agreements, executed by Buyer.

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2.9  Allocation of Purchase Price.    The Purchase Price shall represent payment for the Subject Assets at the prices shown on a memorandum to be jointly prepared and initialed by the parties and delivered at the Closing or as soon thereafter as required information is made available. The prices reflected in said memorandum shall represent fair market values of the Subject Assets at the Closing, to the best of the knowledge and belief of the parties hereto, and the parties hereto agree that they will not take a position inconsistent with such allocation for Federal income tax purposes.

2.10  Employees.    As of the Closing Date, Buyer shall have the right to offer employment to any of those persons actively employed as of the Closing Date by Seller full time in the Businesses (the “Continuing Employees”) and as of the Closing Date, Seller shall terminate all of the Continuing Employees.

2.11  Correspondence, Seller Accounts Receivable, etc.    Each of Buyer and Parent agrees that, subsequent to the Closing, each of Buyer and Parent shall deliver or cause to be delivered to Seller, promptly after the receipt thereof and in the form received, all inquiries, correspondence and other items and materials received by either Buyer or Parent from any Person with respect to any of the Excluded Assets, including, without limitation, any and all Seller Accounts Receivable or any liabilities and obligations that are not Assumed Liabilities. Without limiting the generality of the foregoing, subsequent to the Closing, each of Buyer and Parent covenants and agrees to deliver on a weekly basis any notices, requests, invoices and the like with respect to accounts payable or trade payable that do not constitute Assumed Liabilities and any funds and any checks, notes, drafts and other instruments for the payment of money, duly endorsed by Buyer and Parent, received by either Buyer or Parent comprising payment of any accounts, notes or other Seller Accounts Receivable or otherwise constituting part of the Excluded Assets.

2.12  Public Announcements; Company Literature.    None of Parent, Buyer or Seller, or any officer, director, employee, representative or agent thereof, shall issue any press release or otherwise make any public statements with respect to the transactions contemplated by this Agreement, without the prior consent of Parent and Buyer (in the case of Seller) or Seller (in the case of Parent or Buyer), except as may be required by applicable law. If any party determines, with the advice of counsel, that it is required by applicable law to make this Agreement or any terms thereof public, it shall, consult with the other parties regarding such disclosure and seek confidential treatment for such terms or portions of this Agreement as may be requested by the other parties.

2.13  Certain Trademark Matters.    Buyer, Parent and Seller are each aware that, according to the records of the United States Patent and Trademark Office (the “USPTO”), the QVET Trademark (as hereinafter defined) was canceled effective July 13, 2003. As of the date hereof Seller has made application to refile the QVET Trademark with the USPTO and such application has been assigned the following serial number by the USPTO: Serial No. 78/159,605 (the “Application”). Seller covenants and agrees without further consideration to use its commercially reasonable best efforts to cause the QVET Trademark to be reinstated and to prosecute the Application. The drafting, filing and prosecution of the Application and related documents shall be the responsibility of Seller, subject to an obligation by Seller to keep Buyer and Parent informed of all material developments with respect to the foregoing activities. For

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purposes hereof, the “QVET Trademark” means the “QVET” trademark, registration no. 1902542, registered July 4, 1995.

ARTICLE 3.    REPRESENTATIONS AND WARRANTIES OF SELLER.

As an inducement to Parent and Buyer to enter into this Agreement, Seller hereby represents and warrants to Parent and Buyer as of the date hereof as follows:

3.1  Organization, Authority and Qualification of Seller.    Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and Seller has all necessary corporate power and corporate authority to enter into this Agreement and to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The Seller is duly qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of the Businesses makes such qualification necessary except where failure to be so qualified would not have a Material Adverse Effect on the Businesses. The execution and delivery of this Agreement by Seller, the performance by Seller of its obligations hereunder and the consummation by Seller of the transactions contemplated hereby have been duly authorized by all requisite action on the part of Seller. This Agreement has been duly executed and delivered by Seller, and (assuming due authorization, execution and delivery by Buyer and Parent) constitutes the legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms. Seller is not in violation of any of the provisions of its articles of incorporation or by-laws.

3.2  No Conflict.    Except as set forth on Schedule 3.2, assuming the making and obtaining of all filings, notifications, consents, approvals, authorizations and other actions referred to in Section 3.5 hereof, except as may result from any facts or circumstances relating solely to Parent or Buyer, the execution, delivery and performance of this Agreement by Seller does not and will not (a) violate, conflict with or result in the breach of any provision of the articles of incorporation or by-laws of Seller, (b) conflict with or violate any Law or Governmental Order applicable to Seller in the conduct of the Businesses or the Subject Assets (c) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the Subject Assets pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument, obligation or arrangement to which Seller is a party or by which any of Subject Assets is bound or affected, except, with respect to clauses (b) and (c), as would not, individually or in the aggregate, have a Material Adverse Effect on the Businesses.

3.3  Governmental Consents and Approvals.    The execution, delivery and performance of this Agreement by Seller do not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to any Governmental Authority, except for the applicable requirements, if any, of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and filings, if any, under applicable trademark and patent laws, and except to the extent that the failure to obtain any consent, approval, authorization or other order of or

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action by, or make any filing with or notification to any Governmental Authority would not, individually or in the aggregate, have a Material Adverse Effect on the Businesses.

3.4  Public Filings; Financial Statements.

(a)    Since December 31, 1998, Seller has filed with the SEC all required reports, schedules, forms, statements and other documents required under the Securities Act and the Exchange Act, (together with all other required reports, schedules, forms, statements and other such documents filed after the date hereof (the “Seller SEC Reports”)). As of their respective dates, the Seller SEC Reports complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Seller SEC Reports, and, except to the extent that information contained in any Seller SEC Report has been revised or superseded by a later filed Seller SEC Report, none of the Seller SEC Reports, when filed, 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 light of the circumstances under which they were made, not misleading.

(b)    The financial statements of Seller included in the Seller SEC Reports, comply as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with U.S. GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of Seller and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal recurring year-end audit adjustments) and are consistent in all material respects with the books and records of Seller.

(c)  Seller has provided Buyer with (i) unaudited, internally prepared statements of historical revenues and expenses of Seller related to the Businesses as of December 31, 2001 for the twelve (12) month period then ended (collectively, the “Seller Statement of Revenues and Expenses”) and (ii) an unaudited, internally prepared statements of assets showing all assets of Seller used in the conduct of the Businesses as of December 31, 2001 (the “Statement of Assets”). The Seller Statements of Revenues and Expenses (i) fairly present in all material respects the revenues and expenses of Seller related to the Businesses as of the date thereof and for the period indicated, and (ii) are consistent in all material respects with the books and records of the Businesses. The Statement of Assets (i) fairly present in all material respects the assets of Seller used in the conduct of the Businesses as of the date thereof and (ii) are consistent in all material respects with the books and records of the Businesses.

3.5  No Undisclosed Liabilities    There are no Liabilities of Seller related to the Businesses which would constitute Assumed Liabilities hereunder, other than the Assumed Liabilities described in Section 2.2 hereof.

3.6  Absence of Certain Changes or Events    Except as expressly contemplated by this Agreement or as disclosed in Seller press releases, since December 31, 2001, there has not been (i) any change in the financial condition or results of operations of the

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Businesses or the Subject Assets, that has had, or is reasonably likely to have, a Material Adverse Effect on the Businesses; or (ii) any damage, destruction or loss to any of the Subject Assets (whether or not covered by insurance) with respect to Seller having a Material Adverse Effect on the Businesses.

3.7  Conduct of the Business    Since December 31, 2001, except as contemplated by, or disclosed pursuant to, this Agreement, Seller has conducted the Businesses only in the ordinary course and in a manner consistent with past practices.

3.8  Litigation    There are no Actions by or against Seller and relating to the Businesses, or affecting any of the Subject Assets of Seller, pending before any Governmental Authority or, to the Knowledge of Seller threatened to be brought by or before any Governmental Authority. Neither Seller, in connection with the conduct of the Businesses, nor any of the Subject Assets, is subject to any Governmental Order (nor, to the Knowledge of Seller, are there any such Governmental Orders threatened to be imposed by any Governmental Authority) which has or has had, individually or in the aggregate, a Material Adverse Effect on the Businesses.

3.9  Compliance with Laws    Seller is not in default or violation of any Law or Governmental Order (including, but not limited to, those of any quasi-governmental regulatory agency and including Environmental Laws), except for such defaults or violations that would not, individually or in the aggregate, have a Material Adverse Effect on the Businesses.

3.10 Environmental Matters.    The use and operation by Seller of all facilities and properties used in the Businesses are and at all times have been, in compliance with all applicable federal, state, foreign and local laws, statutes, rules, regulations and ordinances relating to environmental, human health and safety from pollution or other environmental degradation (“Environmental Law”), except for noncompliance which would not, individually or in the aggregate, have a Material Adverse Effect on the Businesses, and no action, suit or proceeding under any Environmental Law has been filed, commenced, or, to the Knowledge of Seller, threatened with or against Seller alleging any failure to so comply. Seller has received and currently has in effect all permits, approvals, licenses or other authorizations required under any Environmental Law (“Environmental Permits”) required to allow it to conduct the Businesses as currently conducted, except where the failure to hold, receive or maintain in effect such Environmental Permits does not have a Material Adverse Effect on the Businesses.

3.11  Material Contracts.

(a)  Except as set forth in Schedule 3.11 hereto, there are no Assigned Contracts to which Seller is a party that are material to the Businesses of Seller (“Material Contracts”).

(b)  Each Material Contract is valid and binding on Seller, as applicable, and is in full force and effect. Seller is not in material breach of, or default under, any Material Contract.

(c)  To the Knowledge of Seller, no other party to any Material Contract is in breach thereof or default thereunder.

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3.12  Intellectual Property.

(a)  Schedule 3.12 hereto contains a complete list of (i) Registered or material Seller Intellectual Property and (ii) Intellectual Property Contracts. Seller owns or is licensed or otherwise possesses legally enforceable rights to use Seller Intellectual Property, Seller Systems (and with respect to computer software constituting Seller Systems in both source code and object code form) that are used by Seller in the Businesses as currently conducted. Except as set forth in Schedule 3.12, all such rights are free of all Encumbrances (other than Permitted Encumbrances) and are fully assignable by Seller to Buyer, without payment, consent of any Person or other condition or restriction. Seller is not aware of any basis for invalidity or unenforceability of any Seller Intellectual Property or Intellectual Property Contracts, including any licenses, sublicenses and other agreements to which Seller is a party and pursuant to which Seller is authorized to use and assign (i) any third party Intellectual Property (other than over-the-counter “shrink-wrap” licenses and related agreements), including software mask or works, which is incorporated in, or is used to form a part of, any product of the Businesses, or (ii) any trade secret of a third party in or as to any product of the Businesses (the “Seller Third Party Intellectual Property”). To the Knowledge of Seller, all Seller Third Party Intellectual Property has been properly and validly licensed to Seller by the licensor of such property.

(b)  Seller is not, nor will it be as a result of the execution and delivery of this Agreement or the performance of its obligations hereunder, in breach or violation of any Intellectual Property Contract. Except as set forth in Schedule 3.12 hereto, no suit, action, reissue proceeding, reexamination proceeding, opposition proceeding, cancellation, arbitration, mediation or other proceeding (collectively, “Suit”) is pending, and no written claims or written demands have been received by Seller or its officers or directors, or to the Knowledge of Seller, its employees or agents, with respect to Seller Intellectual Property or Seller Third Party Intellectual Property (to the extent arising out of any use, reproduction or distribution of such Seller Third Party Intellectual by or through Seller), and to the Knowledge of Seller, no such Suits or written claims or written demands have been threatened or asserted other than those which have been settled or otherwise fully resolved, as disclosed in Schedule 3.12 hereto. No Suit is pending, no written claims or demands have been received by, or threatened or asserted by or, to the Knowledge of Seller, against, Seller and Seller has no Knowledge of any valid grounds for any bona fide claims: (i) against Seller to the effect that Seller in the conduct of the Businesses infringes on any Intellectual Property; (ii) against the use of any Seller Intellectual Property or Seller Systems used in the Businesses as currently conducted by Seller; (iii) challenging the ownership, validity, enforceability or effectiveness of any Seller Intellectual Property; or (iv) challenging Seller’s license or legally enforceable right to use, or, to the Knowledge of Seller, the validity, enforceability or effectiveness of, Seller Third Party Intellectual Property. To the Knowledge of Seller, Seller is not violating and has not violated any Intellectual Property rights.

(c)  Except as set forth on Schedule 3.12, all Seller Intellectual Property is valid, subsisting and enforceable and has been properly maintained and renewed in accordance with all applicable laws and regulations in the U.S. and foreign countries where applicable. To the Knowledge of Seller, there has been and is no unauthorized use, disclosure, infringement, violation or misappropriation of any of Seller Intellectual Property or Seller Third Party Intellectual Property.

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(d)  Except as set forth on Schedule 3.12, no Seller Intellectual Property has been abandoned, canceled or adjudicated invalid (excepting any expirations in the ordinary course), or is subject to any outstanding Governmental Order restricting in any manner the use or licensing thereof by Seller or adversely affecting Seller’s rights thereto. To the Knowledge of Seller, no Seller Third Party Intellectual Property has been abandoned, canceled or adjudicated invalid (excepting any expirations in the ordinary course), or is subject to any outstanding Governmental Order restricting in any manner the licensed use thereof by Seller or adversely affecting or reflecting Seller’s rights thereto. Except for contracts licensing Seller’s products executed in the ordinary course of business and in accordance with Seller’s past practices, Seller has not entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual Property relating to the Businesses.

(e)  No Suit is pending concerning any claim or position that Seller or, to the Knowledge of Seller, another Person has breached an Intellectual Property Contract. There exists no event, condition or occurrence which, with the giving of notice or lapse of time, or both, would constitute a breach or default by Seller or, to the Knowledge of Seller, another Person under any Intellectual Property Contract. No party to any Intellectual Property Contract has given Seller written notice of its intention to cancel, terminate or fail to renew any Intellectual Property Contract.

(f)  Except as set forth in Schedule 3.12 hereto, Seller has taken all reasonable measures to protect and preserve the validity and enforceability of Seller Intellectual Property. To the Knowledge of Seller, no trade secret or confidential information material to the Businesses of Seller has been misappropriated for the benefit of any person other than Seller or disclosed to any Persons other than employees or contractors of Seller who use such trade secret or confidential information in the ordinary course of employment or contract performance and who executed appropriate confidentiality agreements. Seller has no written or oral agreements with directors, officers, employees, contractors, agents or consultants with respect to the ownership of inventions, trade secrets or other works created by them as a result of which any such director, officer, employee, contractor, agent or consultant may have nonexclusive rights to the portions of Seller Intellectual Property so created by such individual.

(g)  No director, officer, employee, contractor, agent or consultant of Seller owns, directly or indirectly, in whole or in part, any Seller Intellectual Property that Seller has used, is presently using, or the use of which is reasonably necessary to its conduct of the Businesses as now conducted.

(h)  Seller has not deposited, nor is it obligated to deposit, any source code relating to Seller Systems into any source code escrows or similar arrangements and Seller is not under any contractual or other obligation to disclose the source code or any other material proprietary information relating to the Seller Systems or included in or related to the products of the Businesses to any third party.

(i)  To the Knowledge of Seller, all copyrightable works of authorship constituting Seller Intellectual Property were developed and authored as original works of authorship either by full-time employees of Seller or its stockholders within the normal scope of their employment as works for hire, or by third persons as works for hire under an express

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written agreement so stating or under a written agreement expressly transferring and assigning all rights to Seller.

3.13  Title to Properties; Condition of Properties; Absence of Encumbrances.

(a)  Set forth on Schedule 3.13 hereto is a complete list of (i) all Leased Real Property of Seller, (ii) machinery, equipment and other personal property with a fair market value in excess of Two Thousand Dollars ($2,000) used or owned by Seller in connection with the Businesses as of the date hereof, and (iii) leases under which Seller leases any personal property in connection with the Businesses at the date hereof with annual rental payments in excess of Fifteen Thousand Dollars ($15,000). Other than the Leased Real Property described on Schedule 3.13 hereto, Seller has no ownership or leasehold interest in any real property relating to the Businesses.

(b)  Except as set forth on Schedule 3.13, Seller has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of the Subject Assets, free and clear of any Encumbrances, except for Permitted Encumbrances.

(c)  The Subject Assets include all assets necessary to operate the Businesses in the same manner that the Businesses were operated by Seller prior to the Closing Date. All tangible Subject Assets, except for certain sales representative demonstration units and Inventory located in Lyon, France, are located in the State of New York.

(d)  All buildings, machinery and equipment used or owned by Seller in connection with the Businesses (i) are in operating condition, normal wear and tear excepted, are adequate for the uses to which they are being put, and have been adequately maintained, and (ii) to the Knowledge of Seller, conform in all material respects with all applicable ordinances, regulations and zoning, safety or other laws, and Seller does not know of any pending or threatened change of any such ordinance, regulation or zoning, safety or other law, and there is no pending or, to the Knowledge of Seller, threatened condemnation of, any such property.

3.14  Employee Benefit Matters; Labor Matters.

(a)  For purposes of this Agreement, “Seller Benefit Plans” means the following (but only to the extent they are applicable to or cover individuals employed by Seller in connection with the Businesses) (i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) and all bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements, whether legally enforceable or not, to which Seller is a party, with respect to which Seller has any obligation or which are maintained, contributed to or sponsored by Seller for the benefit of any current or former employee, officer or director of Seller, (ii) each employee benefit plan for which Seller could incur liability under Section 4069 of ERISA in the event such plan has been or was to be terminated, (iii) any plan in respect of which Seller could incur liability under Section 4212(c) of ERISA and (iv) any contracts or arrangements between Seller or any of its

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Affiliates and any employee of Seller including, without limitation, any contracts or arrangements relating to a sale of Seller.

(b)  No Seller Benefit Plan provides health or life insurance benefits for retirees and no retirees of Seller currently receive health or life insurance benefits.

(c)  Each Seller Benefit Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service (“IRS”) and each trust established in connection with any Seller Benefit Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code has received a determination letter (or is reasonably expected to receive a determination letter) from the IRS that it is so exempt.

(d)  No Seller Benefit Plan is a multiemployer pension plan (as defined in Section 3(37) of ERISA) or other pension plan subject to Title IV of ERISA or the minimum funding rules of ERISA or the Code and neither Seller, nor any other trade or business (whether or not incorporated) that is or was under “common control” with Seller (within the meaning of ERISA Section 4001) or with respect to which Seller could otherwise incur liability under Title IV of ERISA has sponsored or contributed to or been required to contribute to any such pension plan.

3.15  Brokers.    Except as set forth on Schedule 3.15, No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller.

3.16  Taxes.    Seller has filed or has obtained presently effective extensions with respect to all federal, state, county, local and foreign tax returns which are required to be filed by it, such returns are true and correct and all taxes shown thereon to be due and payable have been timely paid, other than those not delinquent. Federal tax returns of Seller have not been audited by the IRS and no controversy with respect to taxes of any type is pending or, to the Knowledge of Seller, threatened. Seller has withheld or collected from each payment made to its employees of the Businesses the amount of all taxes required to be withheld or collected therefrom and has paid all such amounts to the appropriate taxing authorities when due. Seller has not received any notice of deficiency or assessment of additional taxes and is not a party to any action or proceeding by any federal, state, local or foreign governmental authority for assessment or collection of taxes, assessments or other governmental charges.

ARTICLE 4.    REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER

As an inducement to Seller to enter into this Agreement, Parent and Buyer jointly and severally represent and warrant to Seller as of the date hereof as follows:

4.1  Organization and Authority of Parent and Buyer.    Each of Parent and Buyer is a corporation duly organized, validly existing and, to the extent such concept applies, in good standing under the laws of the jurisdiction of its incorporation, has all necessary corporate power and corporate authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery

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of this Agreement by Parent and Buyer, the performance by Parent and Buyer of their respective obligations hereunder and the consummation by Parent and Buyer of the transactions contemplated hereby have been duly authorized by all requisite action on the part of Parent and Buyer. This Agreement has been duly executed and delivered by Parent and Buyer, and (assuming due authorization, execution and delivery by Seller) constitutes the legal, valid and binding obligations of Parent and Buyer enforceable against Parent and Buyer in accordance with its terms. Neither Buyer nor Parent is in violation of any of the provisions of its respective organizational documents or certificate of incorporation and by-laws.

4.2  No Conflict.    Assuming the making and obtaining of all filings, notifications, consents, approvals, authorizations and other actions referred to in Section 4.3 hereof, except as may result from any facts or circumstances relating solely to Seller, the execution, delivery and performance of this Agreement by Parent and Buyer does not and will not (a) violate, conflict with or result in the breach of any provision of the organizational documents of Parent or the certificate of incorporation or bylaws of Buyer, (b) conflict with or violate any Law or Governmental Order applicable to Parent or Buyer or (c) conflict with, or result in any breach of, constitute a default (or event which with the giving of notice or lapse or time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation, or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of Parent or Buyer pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Parent or Buyer is a party or by which any of such assets or properties are bound or affected which, with respect to clauses (b) and (c) above, as would not, individually or in the aggregate, have a Material Adverse Effect on the ability of Parent or Buyer to consummate the transactions contemplated by this Agreement or to perform any of their respective obligations hereunder, including, without limitation, Buyer’s obligations under the Promissory Note and Security Agreements and Parent’s obligations under the Guaranty.

4.3  Ownership and Control of Buyer.

Buyer is an indirect, wholly owned subsidiary of Parent.

4.4  Governmental Consents and Approvals.    The execution, delivery and performance of this Agreement by Parent and Buyer do not and will not require any consent, approval, authorization or other order of, action by, filing with, or notification to, any Governmental Authority, except for filings with the U.S. Department of Commerce, Bureau of Economic Analysis, and except to the extent that the failure to obtain any consent, approval, authorization or other order of or action by, or make any filing with or notification to any Governmental Authority would not, individually or in the aggregate, have a Material Adverse Effect on Parent or Buyer.

4.5  Litigation.    There are no Actions by or against Parent or Buyer pending before any Governmental Authority or, to the knowledge of Parent or Buyer threatened to be brought by or before any Governmental Authority, which seek to restrain or enjoin (i) the consummation of the transactions contemplated hereby or (ii) the performance by either Buyer or Parent of any of their respective obligations hereunder, including, without limitation, Buyer’s

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obligations under the Promissory Note and Security Agreements and Parent’s obligations under the Guaranty. Neither Buyer nor Parent is subject to any Governmental Order (nor, to the knowledge of Buyer and Parent, are there any such Governmental Orders threatened to be imposed by any Governmental Authority) which has or has had, individually or in the aggregate, a Material Adverse Effect on the on the ability of Parent or Buyer to consummate the transactions contemplated by this Agreement or to perform any of their respective obligations hereunder, including, without limitation, Buyer’s obligations under the Promissory Note and Security Agreements and Parent’s obligations under the Guaranty.

4.6  Brokers.    No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Buyer.

ARTICLE 5.    CONDITIONS TO TRANSACTION

5.1  Conditions to Each Party’s Obligation To Effect the Transaction.    The respective obligations of each party to this Agreement to effect the Transaction shall be subject to the satisfaction at or prior to the Closing of the condition that each of the parties shall have obtained authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity, the failure of which to file, obtain or occur is reasonably likely to have a Material Adverse Effect on Parent.

5.2  Additional Conditions to Obligations of Parent and Buyer.    The obligations of Parent and Buyer to effect the Transaction are subject to the satisfaction at or prior to the Closing of each of the following conditions:

(a)  Consents.    Seller shall have obtained and delivered to Parent and Buyer all material waivers, permits, consents, approvals or other authorizations necessary to be obtained by it to consummate the Transaction, and effect all material registrations, filings and notices necessary to be affected by it to consummate the Transaction.

(b)  Due Diligence.    Parent shall have completed its business, accounting, legal and environmental due diligence with respect to the Businesses and the Subject Assets and the results thereof shall have been satisfactory to Parent, in its sole and absolute discretion.

(c)  Other Deliveries.    Seller shall have executed and delivered the documents required by it to be executed and delivered by Seller pursuant to Article 2 hereof.

5.3  Additional Conditions to Obligations of Seller.    The obligation of Seller to effect the Transaction is subject to the satisfaction at or prior to the Closing of each of the following conditions:

(a)  Consents.    Parent and Buyer shall have obtained and delivered to Seller all material waivers, permits, consents, approvals or other authorizations necessary to be obtained by them to consummate the Transaction, and effected all material registrations, filings and notices necessary to be affected by them to consummate the Transaction.

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(b)  Other Deliveries.    Buyer and Parent shall have executed and delivered the documents required by them to be executed and delivered by Buyer and/or Parent pursuant to Article 2 hereof.

ARTICLE 6.    INDEMNIFICATION

6.1  Survival of Representations and Warranties.    The representations and warranties of the respective parties contained in this Agreement and all statements contained in this Agreement, and all schedules hereto shall survive until the date that is eighteen (18) months after the date hereof, except with respect to the representations and warranties set forth in Section 3.10 (Environmental Matters) and Section 3.16 (Taxes), which shall survive the Closing until expiration of the applicable statute of limitations. If written notice of a claim has been given prior to the expiration of the applicable representations and warranties by either party, then the relevant representations and warranties of the other party shall survive as to such claim, until such claim has been finally resolved.

6.2  Indemnification by Seller.

(a)  Subject to the limitations in Section 6.5 below, Seller shall defend, indemnify and hold harmless each of Parent, Buyer, their Affiliates and their successors and assigns and the officers, directors, employees and agents of Parent, Buyer, their Affiliates and their successors and assigns (collectively, the “Buyer Indemnified Parties”) from and against all liabilities, losses, damages, claims, costs and expenses, interest, awards, judgments and penalties (including, without limitation, reasonable attorneys’ fees and expenses) actually suffered or incurred by any of them (including, without limitation, any Action brought or otherwise initiated by any of them) (hereinafter a “Loss”):

(i)  resulting from any breach of any of the representations or warranties made by Seller in or pursuant to this Agreement;

(ii)  resulting from any breach of any covenant or agreement made by Seller in or pursuant to this Agreement; and

(iii)  in respect of any liability or obligation of Seller not included in the Assumed Liabilities.

(b)  Any amount which is determined (either by mutual agreement of all of the parties hereto or by final resolution of a Dispute in accordance with Section 7.10 hereof after following the procedures set forth in Section 6.4 hereof) to be due and payable to any of the Buyer Indemnified Parties under Section 6.2(a) shall first be paid or otherwise satisfied by offset against the outstanding principal balance of the Promissory Note until the same has been exhausted. Any claims in excess of the amount available by offset against the Promissory Note may be covered by the Buyer Indemnified Parties from Seller by whatever remedy is available at law or equity.

6.3  Indemnification by Parent and Buyer.    Subject to the limitations in Section 6.5 below, Buyer and Parent shall jointly and severally indemnify and hold harmless

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each of Seller and its successors, officers, directors, employees and agents (collectively, the “Seller Indemnified Parties”) from and against all Losses incurred by them:

(i)  resulting from any breach of any of the representations or warranties made by Parent or Buyer in or pursuant to this Agreement;

(ii)  resulting from any breach of any covenant or agreement made by Parent or Buyer in or pursuant to this Agreement; and

(iii)  in respect of any liability or obligation that is an Assumed Liability.

6.4  Claims for Indemnification    Whenever a claim shall arise for indemnification under this Article 6 the party entitled to indemnification (the “Indemnified Party”) shall give notice to the other party (the “Indemnifying Party”) of any matter that the Indemnified Party has determined has given or could give rise to a right of indemnification under this Agreement promptly, but in no event later than thirty (30) days, except with respect to any claim exceeding, or potential Loss reasonably likely to exceed, $50,000 (exclusive of legal fees) in which cases such notice shall not be later than ten (10) days, stating the amount of the Loss, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises. The obligations and liabilities of the Indemnifying Party under this Article 6 with respect to Losses arising from claims of any third party which are subject to the indemnification provided for in this Article 6 (“Third Party Claims”) shall be governed by and contingent upon the following additional terms and conditions: if an Indemnified Party shall receive notice of any Third Party Claim, the Indemnified Party shall give the Indemnifying Party notice of such Third Party Claim following receipt by the Indemnified Party of such notice in the time frame provided above; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of its obligations under this Article 6 except to the extent the Indemnifying Party is materially prejudiced by such failure and shall not relieve the Indemnifying Party from any other obligation or Liability that it may have to any Indemnified Party otherwise than under this Article 6. The Indemnifying Party shall be entitled to assume and control the defense of such Third Party Claim at its expense and through counsel of its choice that is reasonably acceptable to the Indemnified Party if the Indemnifying Party gives notice of its intention to do so to the Indemnified Party within ten (10) days of the receipt of such notice from the Indemnified Party; provided, however, that if there exists or is reasonably likely to exist a conflict of interest that would make it inappropriate in the judgment of the Indemnified Party, in its reasonable discretion, for the same counsel to represent both the Indemnified Party and the Indemnifying Party, then the Indemnified Party shall be entitled to retain its own counsel at the expense of the Indemnifying Party. In the event the Indemnifying Party exercises the right to undertake any such defense against any such Third Party Claim as provided above, the Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party’s expense, all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably required by the Indemnifying Party. Similarly, in the event the Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and

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make available to the Indemnified Party, at the Indemnifying Party’s expense, all such witnesses, records, materials and information in the Indemnifying Party’s possession or under the Indemnifying Party’s control relating thereto as is reasonably required by the Indemnified Party. No such Third Party Claim may be settled by the Indemnifying Party without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed.

6.5    Limits on Indemnification.

(a)  Notwithstanding anything to the contrary contained in this Agreement, the maximum amount of indemnifiable Losses which may be recovered from an Indemnifying Party arising out of or resulting from the causes enumerated in Sections 6.2 and 6.3 shall be Five Hundred Thousand Dollars ($500,000); and no Indemnifying Party shall be required to indemnify any Indemnified Party with respect to any claim for indemnification hereunder unless and until the aggregate amount of all claims against the Indemnifying Party hereunder exceeds the Basket Amount, and then only to the extent such aggregate amount exceeds the Basket Amount; provided, however, there shall be no application of the Basket Amount with respect to any Losses suffered by any Seller Indemnified Parties as a result of a claim for breach or declaration of an event of default or other similar claim by Copelco Capital (or its successors or assigns) arising out of or with respect to the matters set forth on Schedule 3.2 hereto.

(b)  Notwithstanding anything to the contrary elsewhere in this Agreement, Losses shall not include, and no Indemnifying Party shall, in any event, be liable to any other party for, any consequential, punitive or special damages (including, but not limited to, damages for lost profits).

ARTICLE 7.    GENERAL PROVISIONS

7.1  Waiver.    Seller and Buyer may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered by the other party pursuant hereto or (c) waive compliance with any of the agreements of the other party contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term, or a waiver of any other term, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights.

7.2  Expenses.    Except as otherwise specified in this Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.

7.3 Notices.    All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly delivered (i) five (5) business days after they are sent by registered or certified mail, return receipt requested, postage prepaid, (ii) two (2) business days via a reputable international overnight courier service for next business day delivery, or (iii) on the date of delivery if sent by hand or by facsimile, in each case to the

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following addresses and facsimile numbers (or at such other address or facsimile number for a party as shall be specified in a notice given in accordance with this Section 7.3):

(a)  if to Seller, to:

Synbiotics Corporation

11011 Via Frontera

San Diego, California 92127

Attention: Mr. Paul A. Rosinack

Telephone: 858-451-3771

Facsimile: 858-451-5719

with a copy to:

Brobeck, Phleger & Harrison LLP

12390 El Camino Real

San Diego, California 92130

Attention: Hayden J. Trubitt, Esq.

Telephone: 858-720-2750

Facsimile: 858-720-2555

(b)  if to Parent or Buyer:

Drew Scientific Group PLC

Park Road, Barrow In Furness

Cumbria LA14 4QR

United Kingdom

Attention: Michael J. Sipple-Asher

Telephone: 011 44 1229 432089

Facsimile: 011 44 1229 432096

with a copy to:

Brown Rudnick Berlack Israels

8 Clifford Street

London, W1S 2LQ

United Kingdom

Attention: Charles Crosthwaite, Esq.

Telephone: +44-20-7851-6000

Facsimile: +44-20-7851-6100

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

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

7.6  Entire Agreement.    This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof and supersedes all prior agreements and undertakings, both written and oral, among Seller, Parent and Buyer with respect to the subject matter hereof and thereof.

7.7  Assignment.    This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties; provided, however, no party hereto shall assign or delegate any of the rights or obligations created under this Agreement without the prior written consent of the other parties hereto, including, without limitation, Buyer’s obligations under the Promissory Note and Security Agreements and Parent’s obligations under the Guaranty, in each case, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Seller shall have no obligation to seek or obtain the consent of either Buyer or Parent (or any of their respective successors or assigns) pursuant to this Section 7.7 in the event of (a) an assignment of this Agreement to Comerica Bank—California or (b) any Seller Change of Control (as hereinafter defined). For purposes hereof, a “Seller Change of Control” shall mean: (i) a merger, consolidation, stock purchase or other transaction in which securities possessing more than fifty percent (50%) of the total combined voting power of Seller’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of Seller’s assets.

7.8  No Third Party Beneficiaries.    Except for the provisions of Article 6 relating to Indemnified Parties, this Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

7.9  Amendment.    This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, Seller and Parent or (b) by a waiver in accordance with Section 7.1.

7.10  Governing Law and Venue.    THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN, AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (OTHER THAN CHOICE OF LAW PRINCIPLES THEREOF) APPLICABLE TO CONTRACTS TO BE PERFORMED WHOLLY IN SUCH STATE. With respect to the interpretation and enforcement of the provisions of this Agreement and in respect of the

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transactions contemplated hereby, and with respect to any and all claims, disputes, actions or proceedings (each a “Dispute”) arising in connection with this Agreement and the transactions contemplated hereby, the parties hereby (a) irrevocably submit to the jurisdiction of the federal courts of the United States of America located in Suffolk County, Massachusetts in the event of a Dispute initiated by Seller, any Seller Indemnified Party or any of their respective Affiliates; (b) irrevocably submit to the jurisdiction of the federal courts of the United States of America located in San Diego County, California in the event of a Dispute initiated by Buyer, Parent, any Buyer Indemnified Party or any of their respective Affiliates and (c) waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject to such jurisdiction or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the parties irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such courts. The parties hereby consent to and grant any such court’s jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 7.3, or in such other manner as may be permitted by law, shall be valid and sufficient service thereof.

7.11  Counterparts.    This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, any one or more of which may be a faxed copy, 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.

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

7.13  Bulk Sales Law.    Buyer waives compliance by Seller with the obligations imposed on vendors under the Bulk Sales Act, or the equivalent, as a result of the transactions contemplated by this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, Seller, Parent and Buyer have caused this Agreement to be executed by their respective officers thereunto duly authorized, in each case as of the date first written above.

SYNBIOTICS CORPORATION
By:	/s/    PAUL A. ROSINACK
	Paul A. Rosinack President & CEO

DANAM ACQUISITION CORP.
By:	/s/    MICHAEL J. S. ASHER
	Michael J. S. Asher CEO

DREW SCIENTIFIC GROUP PLC
By:	/s/    DAVID BLAIN
	David Blain Finance Director

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ASSET PURCHASE AGREEMENT

List of Schedules

Schedule 2.1(a)(i) Personal Property

Schedule 2.1(a)(iii)(A) Intellectual Property

Schedule 2.1(a)(iii)(B) Third Party Licenses

Schedule 2.1(a)(v) Assigned Contracts

Schedule 2.2(a)(i) Assumed Lease Liabilities

Schedule 2.2(a)(ii) Assumed Sales Orders

Schedule 2.2(a)(iii) Assumed Purchase Orders

Schedule 3.2 Conflicts

Schedule 3.11 Material Contracts

Schedule 3.12 Intellectual Property

Schedule 3.13 Title to Properties; Condition of Properties; Absence of Encumbrances

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Exhibit A

LICENSE AGREEMENT

THIS AGREEMENT, effective as of February 25, 1998 (EFFECTIVE DATE) between Prisma Acquisition Corp., a Delaware corporation, with headquarters offices at 1721 Black River Boulevard, Rome, New York 13440(“PAC”) and Microlab Systems, Inc., a Delaware corporation having offices at 130 East Main Street, Rochester, New York 14604 (“COMPANY”)

WITNESSETH

WHEREAS, under research programs funded by PAC, and by its predecessors in interest PAC owns full right, title and interest in an invention, know-how, trade secrets, copyrights and other intellectual property pertaining to the human clinical and diagnostic uses and applications of its product, known and sold as the ProChem system and components, parts, processes, and methods incorporated therein (“LICENSED PRODUCT”);

WHEREAS, PAC holds issued U.S. Patents Numbers: No. 5,128,104, No. 4,857,735 and No. 4,451,149 covering said invention together with its other intellectual property, in which all of the inventors’ rights, title and interest have been assigned to PAC’s predecessor and acquired by PAC;

WHEREAS, PAC represents to the best of its knowledge and belief that it is the owner of all rights, title and interest in said patent and other intellectual property and has the right and ability to grant the license hereinafter described;

WHEREAS, PAC is interested in licensing the LICENSED PRODUCT and thus benefiting the public and PAC by facilitating the dissemination of the results of its research in the form of useful LICENSED PRODUCTS for the human clinical and diagnostic markets only; and

WHEREAS, COMPANY desires to commercially develop, manufacture, use and distribute such LICENSED PRODUCTs for the human clinical and diagnostic markets throughout the world;

NOW THEREFORE, in consideration of the premises and of the faithful performance of the covenants herein contained, the parties hereto agree as follows:

1.    DEFINITIONS

1.1  The term “ACCOUNTING PERIOD” shall mean each three month period ending March 31, June 30, September 30 and December 31 of each year during the term hereof.

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1.2  The term “AFFILIATE” shall mean any corporation or other legal entity other than COMPANY in whatever country organized, controlling, controlled by or under common control with COMPANY.

The term “control” means possession, direct or indirect, of the powers to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise.

1.3  The term “HUMAN LICENSE FIELD” shall mean the human clinical and diagnostic markets worldwide, excluding entirely and absolutely any applications in the animal or veterinary clinical and diagnostic or other animal or veterinary applications as such terms shall be broadly defined.

1.4  The term “CO-EXCLUSIVE LICENSE FIELD shall mean all markets worldwide, excluding the HUMAN LICENSE FIELD and excluding entirely and absolutely any applications in the animal or veterinary clinical and diagnostic or other animal or veterinary applications as such terms shall be broadly defined. “LICENSE FIELDS” shall mean the HUMAN LICENSE FIELD and the CO-EXCLUSIVE LICENSE FIELD.

1.5  The term “FIRST COMMERCIAL SALE” shall mean in each country the first sale of any LICENSED PRODUCT by COMPANY, its AFFILIATES or SUBLICENSEES, (a) following approval, when such approval is necessary, of the marketing of such LICENSED PRODUCT by the appropriate governmental agency for the country in which the sale is to be made, or (b) when such government approval is not required in a country, the first sale of such LICENSED PRODUCT in that country.

1.6  The term “SUBLICENSEE” shall mean any non-AFFILIATE third party licensed by COMPANY or by an AFFILIATE to make, have made, use or sell any LICENSED PRODUCT.

1.7  The term “NET SALES PRICE” shall mean the GROSS SALES PRICE as defined in (b)-(d) below received or deemed received by COMPANY or any of its AFFILIATES or SUBLICENSEES (“SELLERS”) for the sale or distribution of any LICENSED PRODUCT, less (to the extent appropriately documented) the following amounts actually paid out by COMPANY, its AFFILIATE or SUBLICENSEE or credited against the amounts received by them from the sale or distribution of LICENSED PRODUCT:

(a)  (i)  credits and allowances for price adjustment, rejection, or return of LICENSED PRODUCTS previously sold;

(ii)  rebates and cash discounts to purchasers allowed and taken;

(iii)  amounts for transportation, insurance, handling or shipping charges paid for the account of and invoiced to purchasers;

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(iv)  taxes, duties and other governmental charges levied on or measured by the sale of LICENSED PRODUCTS, whether absorbed by COMPANY or paid by the purchaser so long as COMPANY’S price is reduced thereby, but not franchise or income taxes of any kind whatsoever;

(b)  For any bona fide sale to a bona fide customer by COMPANY or any of its AFFILIATES or SUBLICENSEES, the GROSS SALES PRICE shall be the gross billing price of the LICENSED PRODUCT.

(c)  If COMPANY or any of its AFFILIATES or SUBLICENSEES sell any LICENSED PRODUCT in a bona fide sale as a component of a combination of active functional elements, the GROSS SALES PRICE of the LICENSED PRODUCT shall be determined by multiplying the GROSS SALES PRICE of the combination by the fraction A over A + B, in which “A” is the GROSS SALES PRICE of the LICENSED PRODUCT portion of the combination when sold separately during the ACCOUNTING PERIOD in the country in which the sale was made, and “B” is the GROSS SALES PRICE of the other active elements of the combination sold separately during said ACCOUNTING PERIOD in said country. In the event that no separate sale of either such LICENSED PRODUCT or active elements of the combination is made during said ACCOUNTING PERIOD in said country, the GROSS SALES PRICE of the LICENSED PRODUCT shall be determined by multiplying the GROSS SALES PRICE of such combination by the fraction C over C + D, in which “C” is the standard fully-absorbed cost of the LICENSED PRODUCT portion of such combination, and “D” is the sum of the standard fully-absorbed costs of the other active elements component(s), such costs being arrived at using the standard accounting procedures of COMPANY which will be in accord with generally accepted accounting practices.

(d)  If a SELLER commercially uses or disposes of any LICENSED PRODUCT by itself (as opposed to a use or disposition of the LICENSED PRODUCT as a component of a combination of active functional elements) other than in a bona fide sale to a bona fide customer, the GROSS SALES PRICE hereunder shall be the price which would be then payable in an arm’s length transaction. If a SELLER commercially uses or disposes of any LICENSED PRODUCT as a component of a combination of active functional elements other than in a bona fide sale to a bona fide customer, the GROSS SALES PRICE of the LICENSED PRODUCT shall be determined in accordance with paragraph (c) above, using as the GROSS SALES PRICE of the combination that price which would be then payable in an arm’s length transaction.

(e)  Transfer of a LICENSED PRODUCT within COMPANY or between COMPANY and an AFFILIATE for sale by the transferee shall not be considered a sale, commercial use or disposition for the purpose of the foregoing paragraphs; in the case of such transfer the GROSS SALES PRICE shall be based on sale of the LICENSED PRODUCT by the transferee.

1.8  The term “PATENT RIGHT” shall mean the U.S. Patents numbers 5,128,104, No. 4,857,735 and No. 4,451,149, or the equivalent of such patent, including any division, continuation or any foreign patent application or Letters Patent or the equivalent thereof issuing thereon or reissue, reexamination or extension thereof. PATENT RIGHTS shall also include

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those claims in any continuation-in-part of the aforementioned patent which claim an invention described or claimed in-said patents.

1.9  The term “LICENSED PRODUCT” shall mean any article, device, composition, method or service, the manufacture, use, or sale of which

(a)  absent the licenses granted herein, would infringe a VALID CLAIM of any PATENT RIGHT, or

(b)  does not infringe a VALID CLAIM of any PATENT RIGHT licensed to COMPANY hereunder but the discovery, development,—manufacture or use of which employs TECHNOLOGICAL INFORMATION.

1.10  The term “TECHNOLOGICAL INFORMATION” shall mean any research data, designs, formulas, process information, manufacturing information current vendor lists, clinical data and other information pertaining to any invention or other intellectual property claimed or utilized in the design, manufacture, use, or operation of the LICENSED PRODUCT on the EFFECTIVE DATE.

1.11  The term “VALID CLAIM” shall mean any claim of any PATENT RIGHT that has not been (i) finally rejected or (ii) declared invalid by a patent office or court of competent jurisdiction in the applicable country in any unappealed and unappealable decision.

2.    LICENSE

2.1  PAC hereby grants COMPANY:

(a)  an exclusive, worldwide, perpetual, royalty-bearing license in the HUMAN LICENSE FIELD under PAC’s rights in PATENT RIGHTS to make, have made, make, have made modifications, upgrades, and derivatives, use and sell and have sold LICENSED PRODUCTS;

(b)  to the extent an exclusive license is not available to COMPANY in a country, a non-exclusive, royalty-bearing license in the HUMAN LICENSE FIELD under PATENT RIGHTS to make, have made, use and sell LICENSED PRODUCTS;

(c)  the right to sublicense PATENT RIGHTS exclusively and/or coexclusively licensed to COMPANY in the HUMAN LICENSE FIELD and/or the CO-EXCLUSIVE LICENSE FIELD(but not to persons who conduct, or whose Affiliates conduct, any animal or veterinary clinical or diagnostic business without the express written consent of PAC); and

(d)  a co-exclusive, worldwide, perpetual, royalty-bearing license in the CO-EXCLUSIVE LICENSE FIELD under PAC’s rights in PATENT RIGHTS to make, have made, make, have made modifications, upgrades, and derivatives, use and sell and have sold LICENSED PRODUCTS.

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The above licenses to sell LICENSED PRODUCTS include the right to grant to the purchaser of LICENSED PRODUCTs from COMPANY, its AFFILIATES, and SUBLICENSEES the right to use such purchased LICENSED PRODUCTS in a method coming within the scope of PATENT RIGHT.

2.2  The granting of any license hereunder is subject to PAC’s right to make and to use and sell the subject matter described and claimed in PATENT RIGHT for all purposes and applications in the animal or veterinary markets or applications fields, which shall be broadly defined, and in the CO-EXCLUSIVE LICENSE FIELD.

2.3  Within three (3) months of EFFECTIVE DATE, upon request by COMPANY, PAC shall disclose to COMPANY, in confidence, TECHNOLOGICAL INFORMATION which COMPANY will be entitled to use to the extent such use does not infringe any patent not licensed to COMPANY hereunder.

2.4  PAC shall have the right to license any PATENT RIGHT to any other party for the purpose of manufacturing, using or selling of any LICENSED PRODUCT outside of the LICENSE FIELDS.

2.5  It is understood that nothing herein shall be construed to grant COMPANY a license express or implied under any patent owned solely or jointly by PAC other than the PATENT RIGHTS expressly licensed hereunder.

3.    FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHT

3.1  PAC shall be responsible for the preparation, filing, prosecution and maintenance of all patent applications and patents included in PATENT RIGHTS. COMPANY shall reimburse PAC for all reasonable costs (“Costs”) incurred by PAC for the preparation, filing, prosecution and maintenance of all PATENT RIGHTS with specific applicability and/or relevance to the human clinical and diagnostic markets as follows:

Subject to paragraph 3.2, for all Costs incurred by PAC from and after the EFFECTIVE DATE, COMPANY shall reimburse PAC upon receipt of invoices from PAC;

3.2  With respect to any PATENT RIGHT, each document or a draft thereof pertaining to the filing, prosecution, or maintenance of such PATENT RIGHT, including but not limited to each patent application, office action, response to office action, request for terminal disclaimer, and request for reissue or reexamination of any patent issuing from such application shall be provided to COMPANY as follows. Documents received from any patent office or counsel’s analysis thereof shall be provided promptly after receipt. For a document to be filed in any patent office, a draft of such document shall be provided sufficiently prior to its filing, to allow for review and comment by the other party. If as a result of the review of any such document, COMPANY shall elect not to pay or continue to pay the Costs for such PATENT RIGHT, COMPANY shall so notify PAC within thirty (30) days of COMPANY’s receipt of such document and COMPANY shall thereafter be relieved of the obligation to pay any additional Costs regarding such PATENT RIGHT incurred after the receipt of such notice by PAC. Such

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U.S. or foreign patent application or patent shall thereupon cease to be a PATENT RIGHT hereunder and PAC shall be free to license its rights to that particular U.S. patent application or patent to any other party on any terms.

4.    ROYALTIES

4.1  Beginning with the FIRST COMMERCIAL SALE in any country, on all sales of LICENSED PRODUCTS anywhere in the world by COMPANY, its AFFILIATES or SUBLICENSEES, COMPANY shall pay PAC royalties in accordance with the following schedule, such undertaking and schedule having been agreed to for the purpose of reflecting and advancing the mutual convenience of the parties. For each LICENSED PRODUCT sold by COMPANY or its AFFILIATES and SUBLICENSEES:

Two percent (2%) of the NET SALES PRICE.

4.2  Only one royalty under paragraph 4.1 shall be due and payable to PAC by COMPANY for any LICENSED PRODUCT regardless of the number of PATENT RIGHTS covering such LICENSED PRODUCT.

4.3  In addition to the royalties provided for above, COMPANY shall pay PAC two percent ( 2 %) of any and all non-royalty income, including without limitation license fees and milestone payments, received from its AFFILIATES and sublicensees in consideration for the sublicensing of any right or license granted to COMPANY hereunder.

4.4  The payments due under this Agreement shall, if overdue, bear interest until payment at a per annum rate equal to one percent (1 %) above the Wall Street Journal prime rate in effect on the due date, not to exceed the maximum permitted by law. The payment of such interest shall not preclude PAC from exercising any other rights it may have as a consequence of the lateness of any payment.

5.    REPORTS AND PAYMENTS

5.1  COMPANY shall keep, and shall cause each of its AFFILIATES and SUBLICENSEES, if any, to keep full and accurate books of accounts containing all particulars that may be necessary for the purpose of calculating all royalties payable to PAC. Such books of account shall be kept at their principal place of business and, with all necessary supporting data shall, during all reasonable times for the three (3) years next following the end of the calendar year to which each shall pertain be open for inspection at reasonable times by PAC or its designee at PAC’s expense for the purpose of verifying royalty statements or compliance with this Agreement.

5.2  In each year the amount of royalty due shall be calculated annually as of the end of each ACCOUNTING PERIOD and shall be paid annually within the ninety (90) days next following such date, every such payment to be supported by the accounting prescribed in paragraph 5.3 and to be made in United States currency. Whenever conversion from any foreign currency shall be required, such conversion shall be at the rate of exchange thereafter published

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in the Wall Street Journal for the business day closest to the end of the applicable ACCOUNTING PERIOD.

5.3  With each annual payment, COMPANY shall deliver to PAC a full and accurate accounting to include at least the following information:

(a)  Quantity of each LICENSED PRODUCT sold or leased (by country) by COMPANY, and its AFFILIATES and SUBLICENSEES;

(b)  Total billings for each LICENSED PRODUCT (by country);

(c)  Quantities of each LICENSED PRODUCT used by COMPANY and its AFFILIATES and SUBLICENSEES;

(d)  Names and addresses of all SUBLICENSEES of COMPANY; and

(e)  Total royalties payable to PAC.

6.    INFRINGEMENT

6.1  PAC will protect its PATENT RIGHTS from infringement and prosecute infringers when, in its sole judgement, such action may be reasonably necessary, proper and justified.

6.2  If COMPANY shall have supplied PAC with written evidence demonstrating to PAC’s reasonable satisfaction prima facie infringement of a claim of a PATENT RIGHT by a third party in the LICENSE FIELDs, COMPANY may by notice request PAC to take steps to protect the PATENT RIGHT. PAC shall notify COMPANY within three (3) months of the receipt of such notice whether PAC intends to prosecute the alleged infringement. If PAC notifies COMPANY that it intends to so prosecute, PAC shall, within three (three) months of its notice to COMPANY either (i) cause infringement to terminate or (ii) initiate legal proceedings against the infringer. In the event PAC notifies COMPANY that PAC does not intend to prosecute said infringement COMPANY may, upon notice to PAC, initiate legal proceedings against the infringer at COMPANY’s expense and in PAC’s name if so required by law. No settlement, consent judgment or other voluntary final disposition of the suit which invalidates or restricts the claims of such PATENT RIGHTS may be entered into without the consent of PAC, which consent shall not be unreasonable withheld. COMPANY shall indemnify PAC against any order for payment that may be made against PAC in such proceedings.

6.3  In the event one party shall initiate or carry on legal proceedings to enforce any PATENT RIGHT against any alleged infringer in the LICENSE FIELDS, the other party shall fully cooperate with and supply all assistance reasonably requested by the party initiating or carrying on such proceedings. The party which institutes any suit to protect or enforce a PATENT RIGHT shall have sole control of that suit and shall bear the reasonable expenses (excluding legal fees) incurred by said other party in providing such assistance and cooperation as is requested pursuant to this paragraph. The party initiating or carrying on such legal

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proceedings shall keep the other party informed of the progress of such proceedings and said other party shall be entitled to counsel in such proceedings but at its own expense. Any award paid by third parties as the result of such proceedings (whether by way of settlement or otherwise) shall first be applied to reimbursement of the unreimbursed legal fees and expenses incurred by either party and then the remainder shall be divided between the parties as follows:

(a)  (i)  If the amount is based on lost profits, COMPANY shall receive an amount equal to the damages the court determines COMPANY has suffered as a result of the infringement less the amount of any royalties that would have been due PAC on sales of LICENSED PRODUCT lost by COMPANY as a result of the infringement had COMPANY made such sales; and

(ii)  PAC shall receive an amount equal to the royalties it would have received if such sales had been made by COMPANY; or

(b)  As to awards other than those based on lost profits, sixty (60) percent to the party initiating such proceedings and forty (40) percent to the other ply.

6.4  For the purpose of the proceedings referred to in this Article 6, PAC and COMPANY shall permit the use of their names and shall execute such documents and carry out such other acts as may be necessary. The party initiating or carrying on such legal proceedings shall keep the other party informed of the progress of such proceedings and said other party shall be entitled to counsel in such proceedings but at its own expense, said expenses to be off-set against any damages received by the party bringing suit in accordance with the foregoing paragraph 6.3.

7.    INDEMNIFICATION

7.1  (a)  COMPANY shall indemnify, defend and hold harmless PAC and its directors, shareholders, officers, medical and professional staff, employees, and agents and their respective successors, heirs and assigns (the “Indemnitees”), against any liability, damage, loss or expense (including reasonable attorney’s fees and expenses of litigation) incurred by or imposed upon the Indemnitees or any one of them in connection with any claims, suits, actions, demands or judgments arising out of any theory of LICENSED PRODUCT liability (including, but not limited to, actions in the form of tort, warranty, or strict liability) concerning any LICENSED PRODUCT, process or service made, used or sold pursuant to any right or license granted under this Agreement.

(b)  COMPANY’s indemnification under (a) above shall not apply to any liability, damage, loss or expense to the extent that it is directly attributable to the negligent activities, reckless misconduct or intentional misconduct of the Indemnitees.

(c)  COMPANY agrees, at its own expense to provide attorneys reasonably acceptable to PAC to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought.

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(d)  This paragraph 7.1 shall survive expiration or termination of this Agreement.

7.2  (a)  At such time as any LICENSED PRODUCT, process or service relating to, or developed pursuant to, this Agreement is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by COMPANY or by a licensee, affiliate or agent of COMPANY, COMPANY shall, at its sole cost and expense, procure and maintain comprehensive general liability insurance in amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate and naming the Indemnitees as additional insureds. Such COMPANY liability insurance shall provide (i) LICENSED PRODUCT liability coverage and (ii) broad form contractual liability coverage for COMPANY’s indemnification under paragraph 8.1 of this Agreement. If COMPANY elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate) such self-insurance program must be acceptable to PAC. The minimum amounts of insurance coverage required under this paragraph 7.2 shall not be construed to create a limit of COMPANY’s liability with respect to its indemnification under paragraph 7.1 of this Agreement.

(b)  COMPANY shall provide PAC with written evidence of such insurance upon request of PAC. COMPANY shall provide PAC with written notice at least fifteen (15) days prior to the cancellation, non-renewal or material change in such insurance; if COMPANY does not obtain replacement insurance providing comparable coverage prior to the expiration of such fifteen (15) day period, PAC shall have the right to terminate this Agreement effective at the end of such fifteen (15) day period without notice or any additional waiting periods.

(c)  This paragraph 7.2 shall survive expiration or termination of this Agreement.

7.3  OTHER THAN WARRANTIES SET FORTH HEREIN, PAC MAKES NOT WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO COMPANY OR TO ANY THIRD PARTY HEREUNDER OR OTHERWISE AND HEREBY DISCLAIMS THE SAME.

8.    PRODUCT PURCHASE RIGHTS

8.1  COMPANY may from time to time request PAC to manufacture and sell to COMPANY, on terms mutually acceptable to the Parties, LICENSED PRODUCTS, including parts, subsystems, consumables, and components thereof. Upon any such request, the Parties shall negotiate to determine whether they can agree on terms for such manufacture and sale. Absent such agreement, PAC shall have no obligation to manufacture and sell LICENSED PRODUCTS to COMPANY.

9.    TERMINATION

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9.1  If either party shall fail to faithfully perform any of its obligations under this Agreement, the nondefaulting party may give written notice of the default to the defaulting party. Unless such default is corrected within ninety (90) days after such notice, the notifying party may terminate this Agreement and the license hereunder upon thirty (30) days prior written notice, provided that only one such ninety (90) day grace period shall be available in any twelve (12) month period with respect to a default of any particular provision hereunder. Thereafter notice of default of said provision shall constitute termination.

9.2  In the event that any license granted to COMPANY under this Agreement is terminated, any sublicense under such license granted prior to notice of default under Section 9.1 shall remain in full force and effect, provided that:

(i)  the SUBLICENSEE is not then in breach of its sublicense agreement;

(ii)  the SUBLICENSEE agrees to be bound to PAC as the licensor under the terms and conditions of this sublicense agreement, as modified by the provisions of this paragraph 9.2;

(iii)  PAC shall have the right to receive the greater of (a) any payments payable to COMPANY under such sublicense agreement to the extent they are reasonably and equitably attributable to such SUBLICENSEE’s right under such sublicense to use and exploit PATENT RIGHTS and/or TECHNOLOGICAL INFORMATION or (b) the lowest royalty which is within the “Competitive” range as hereinafter defined, at the time PAC’s license to COMPANY is terminated. A royalty rate shall be regarded as “Competitive” if it is within the range of royalty rates that PAC would charge in an arms length transaction with a licensee taking into account the value of the licensed technology at the time PAC’s license to COMPANY is terminated;

(iv)  PAC has the right to terminate such sublicense upon fifteen (15) days prior written notice to COMPANY and such SUBLICENSEE in the event of any material breach of the obligation to make the payments described in clause (iii) of this paragraph 9.2, unless such breach is cured prior to the expiration of such fifteen (15) day period;

(v)  PAC shall not assume, and shall not be responsible to such SUBLICENSEE for, any representations, warranties or obligations of COMPANY to such SUBLICENSEE, other than to permit such SUBLICENSEE to exercise any rights to PATENT RIGHTS and TECHNOLOGICAL INFORMATION that are granted under such sublicense agreement consistent with the terms of this AGREEMENT.

9.3  Upon termination of any license granted hereunder COMPANY shall pay PAC all royalties due or accrued on (i) the sale of LICENSED PRODUCT up to and including the date of termination and (ii) for six (6) months following the date of termination, the sale of LICENSED PRODUCT manufactured prior to the termination date. After such six (6) months, COMPANY may no longer sell any LICENSED PRODUCTs.

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10.    MISCELLANEOUS

10.1  This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof.

10.2  In order to facilitate implementation of this Agreement, PAC and COMPANY are designating the following individuals to act on their behalf with respect to this Agreement for the matter indicated below:

(a)  with respect to all royalty payments, any correspondence pertaining to any PATENT RIGHT, or any notice of the use of PAC’s name, for PAC, the President and Chief Executive Officer, and for COMPANY the President and Chief Executive Officer, provided that correspondence relating to the billing of patent costs shall be copied to, for PAC, the Chief Financial Officer, and for COMPANY, the President and Chief Executive Officer.

(b)  any amendment of or waiver under this Agreement, any written notice including progress reports or other communication pertaining to the Agreement: for PAC, the President and Chief Executive Officer, and for COMPANY the President and Chief Executive Officer.

(c)  the above designations may be superseded from time to time by alternative designations made by: for PAC, the President, and for COMPANY, the President.

10.3  This Agreement may be amended and any of its terms or conditions may be waived only by a written instrument executed by the parties or, in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by either party of any condition shall be deemed as a further or continuing waiver of such condition or term or of any other condition or term.

10.4  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns.

10.5  Any delays in or failures of performance by either party under this Agreement shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the party affected, including but not limited to: Acts of God; acts, regulations or laws of any government; strikes or their concerted acts of worker; fires; floods; explosions; riots; wars; rebellion; and sabotage. Any time for performance hereunder shall be extended by the actual time of delay caused by such occurrence.

10.6  Neither party shall use the name of the other party or of any officer, employee, director, agent, or contractor of the other party or any adaptation thereof in any advertising, promotional or sales literature, publicity or in any document employed to obtain funds or financing without the prior written approval of the party or individual whose name is to be used,

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except as required under the Securities Exchange Act reporting requirements or the Securities Act registration requirements. For PAC, such approval shall be obtained from the President.

10.7  This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York.

10.8  COMPANY may at its own discretion and without approval by PAC transfer its interest or any part thereof under this Agreement to a wholly-owned subsidiary or any assignee or purchaser or licensee of the portion of its business associated with the manufacture and sale of LICENSED PRODUCT. In the event of any such transfer, the transferee shall assume and be bound by the provisions of this Agreement, and the transferor shall remain bound. Otherwise this Agreement shall be assignable by COMPANY only with the consent in writing of PAC which shall not unreasonably be withheld.

10.9  For any and all claims, disputes, or controversies arising under, out of, or in connection with this Agreement, except issues relating to the validity, construction or effect of any PATENT RIGHT, which the parties shall be unable to resolve within sixty (60) days, the party raising such dispute shall promptly advise the other party of such claim, dispute, or controversy in a writing which describes in reasonable detail the nature of such dispute. By not later than five (5) business days after the recipient has received such notice of dispute, each party shall have selected for itself a representative who shall have the authority to bind such party and shall additionally have advised the other party in writing of the name and title of such representative. By not later than ten (10) business days after the date of such notice of dispute, such representatives shall agree upon a third party which is in the business of providing Alternative Dispute Resolution (ADR) services (hereinafter, “ADR Provider”) and shall schedule a date with such ADR Provider to engage in ADR. Thereafter, the representatives of the parties shall engage in good faith in an ADR process under the auspices of the selected ADR Provider. If within the aforesaid thirty (30) business days after the date of the notice of dispute the representatives of the parties have not been able to agree upon an ADR Provider and schedule a date to engage in ADR, or if they have not been able to resolve the dispute within thirty (30) business days after the termination of ADR, the parties shall have the right to pursue any other remedies legally available to resolve such dispute in either the Superior Court of San Diego County, California or in the United States District Court for the Southern District of California, to whose exclusive jurisdiction for such purposes PAC and COMPANY hereby irrevocably consent and submit. Notwithstanding the foregoing, nothing in this Paragraph 10.9 shall be construed to waive any rights or timely performance of any obligations existing under this Agreement.

10.10  If any provision(s) of this Agreement are or become invalid, are ruled illegal by any court of competent jurisdiction or are deemed unenforceable under then current applicable law from time to time in effect during the term hereof, it is the intention of the parties that the remainder of this agreement shall not be effected thereby. It is further the intention of the parties that in lieu of each such provision which is invalid, illegal or unenforceable, there be substituted or added as part of this Agreement a provision which shall be as similar as possible in economic and business objectives as intended by the parties to such invalid, illegal or enforceable provision, but shall be valid, legal and enforceable.

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THE PARTIES have duly executed this Agreement as of the date first shown above written.

MICROLAB SYSTEMS, INC.
By:	/s/    ROBERT A. BEHRENS
	President/CEO

DATE  3/5/98

PRISMA ACQUISITION CORP.
By:	/s/    ROBERT A. BEHRENS
	President/CEO

DATE  3/5/98

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Exhibit B

PROMISSORY NOTE

Incorporated herein by reference to Exhibit 10.87 of this Quarterly Report on Form 10-Q.

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Exhibit C

GUARANTY

Incorporated herein by reference to Exhibit 10.87.1 of this Quarterly Report on Form 10-Q.

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Exhibit D

ASSIGNMENT OF NOTE AND GUARANTY

Incorporated herein by reference to Exhibit 10.87.2 of this Quarterly Report on Form 10-Q.

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Exhibit E

SECURITY AGREEMENT

This Security Agreement (this “Agreement”), dated as of August 31, 2002, is made by and between Danam Acquisition Corp., a Delaware corporation (“Debtor”) and Synbiotics Corporation, a California corporation (the “Secured Party”), the holder of a Secured Promissory Note in the original principal amount of $500,000.00 (the “Note”).

RECITALS

A.  Debtor has executed and delivered the Note in the aggregate principal amount of $500,000.00 and payable to the order of the Secured Party.

B.  In connection with the Note, Debtor desires to grant a security interest in certain collateral to the Secured Party as set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the above recitals and the mutual covenants hereinafter set forth, the parties hereby agree as follows:

SECTION 1  Definitions; Interpretation.

(a)  All capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in the Note.

(b)  As used in this Agreement, the following terms shall have the following meanings:

“Collateral” has the meaning set forth in Section 2.

“Documents” means this Agreement, the Note and all other certificates, documents, agreements and instruments delivered to the Secured Party under the Note or in connection with the Obligations, including, without limitation, the Patent and Trademark Security Agreement of even date herewith between Debtor and Secured Party (the “Patent and Trademark Security Agreement”).

“Event of Default” has the meaning set forth in Section 8.

“Lien” means any mortgage, deed of trust, pledge, security interest, assignment, deposit arrangement, charge or encumbrance, lien, or other type of preferential arrangement.

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“Note” has the meaning set forth in the preamble above, as it may be amended, modified, renewed, extended or replaced from time to time.

“Obligations” means the indebtedness, liabilities and other obligations of Debtor to the Secured Party under or in connection with the Note or any of the other Documents, including, without limitation, all unpaid principal of the Note, all interest accrued thereon, all fees and all other amounts payable by Debtor to the Secured Party thereunder or in connection therewith, whether now existing or hereafter arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined.

“Permitted Lien” means (i) Liens (A) upon or in any property (and proceeds thereof) acquired or held by Debtor or any of its subsidiaries to secure the purchase price of such property or indebtedness incurred solely for the purpose of financing the acquisition of such property, or (B) existing on such property at the time of its acquisition, provided that the Lien is confined solely to the property (and proceeds thereof) so acquired and improvements thereon; (ii) Liens on assets of Persons which become subsidiaries of Debtor after the date hereof, provided that such Liens existed at the time the respective Persons became subsidiaries of Debtor and were not created in anticipation thereof; and (iii) other Liens which arise in the ordinary course of business and do not materially impair Debtor’s ownership or use of the Collateral or the value thereof.

“Person” means an individual, corporation, partnership, joint venture, trust, unincorporated organization, governmental agency or authority, or any other entity of whatever nature.

“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York.

(c)  Where applicable and except as otherwise defined herein, terms used in this Agreement shall have the meanings assigned to them in the UCC.

(d)  In this Agreement, (i) the meaning of defined terms shall be equally applicable to both the singular and plural forms of the terms defined; and (ii) the captions and headings are for convenience of reference only and shall not affect the construction of this Agreement.

SECTION 2  Security Interest.

(a)  As security for the payment and performance of the Obligations, Debtor hereby grants to the Secured Party a security interest in all of Debtor’s right, title and interest in, to and under all of its personal property, wherever located and whether now existing or owned or hereafter acquired or arising, including all accounts, chattel paper, commercial tort claims, deposit accounts, documents, equipment (including all fixtures), general intangibles, instruments, inventory, investment property, letter-of-credit rights, money and all products, proceeds and supporting obligations of any and all of the foregoing (collectively, the “Collateral”). Notwithstanding the foregoing, except for fixtures (as provided in Section 9-102(a)(41) of the UCC), such grant of a security interest shall not extend to, and the term “Collateral” shall not

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include, any asset which would be real property under the law of the jurisdiction in which it is located

(b)  Anything herein to the contrary notwithstanding, (i) Debtor shall remain liable under any contracts, agreements and other documents included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Secured Party of any of the rights hereunder shall not release Debtor from any of its duties or obligations under such contracts, agreements and other documents included in the Collateral, and (iii) the Secured Party shall not have any obligation or liability under any contracts, agreements and other documents included in the Collateral by reason of this Agreement, nor shall the Secured Party be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any such contract, agreement or other document included in the Collateral hereunder.

(c)  This Agreement shall create a continuing security interest in the Collateral which shall remain in effect until terminated in accordance with Section 19 hereof.

SECTION 3  Financing Statements, Etc.    Debtor shall execute and deliver to the Secured Party concurrently with the execution of this Agreement, and Debtor hereby authorizes the Secured Party to file (with or without Debtor’s signature), at any time and from time to time thereafter, all financing statements, assignments, amendments, continuation financing statements, termination statements, account control agreements, and other documents and instruments, in form reasonably satisfactory to the Secured Party, and take all other action, as the Secured Party may reasonably request, to perfect and continue perfected, maintain the priority of or provide notice of the security interest of the Secured Party in the Collateral and to accomplish the purposes of this Agreement. Debtor will cooperate with the Secured Party in obtaining control (as defined in the UCC) of Collateral consisting of deposit accounts, investment property, letter of credit rights and electronic chatter paper. Debtor will join with the Secured Party in notifying any third party who has possession of any Collateral of the Secured Party’s security interest therein and obtaining an acknowledgment from the third party that it is holding the Collateral for the benefit of the Secured Party. Debtor will not create any chattel paper without placing a legend on the chattel paper acceptable to the Secured Party indicating that the Secured Party has a security interest in the chattel paper.

SECTION 4  Representations and Warranties.    Debtor represents and warrants to the Secured Party that:

(a)  Debtor is duly organized, validly existing and in good standing under the law of the jurisdiction of its organization and has all requisite power and authority to execute, deliver and perform its obligations under this Agreement.

(b)  The execution, delivery and performance by Debtor of this Agreement have been duly authorized by all necessary action of Debtor, and this Agreement constitutes the legal, valid and binding obligation of Debtor, enforceable against Debtor in accordance with its terms.

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(c)  No authorization, consent, approval, license, exemption of, or filing or registration with, any governmental authority or agency, or approval or consent of any other Person which has not been obtained, is required for the due execution, delivery or performance by Debtor of this Agreement, except for any filings necessary to perfect any Liens on any Collateral.

(d)  Debtor’s chief executive office and principal place of business (as of the date of this Agreement) is located at the address set forth in Schedule 1; Debtor’s jurisdiction of organization is set forth in Schedule 1; Debtor’s exact legal name is as set forth in the first paragraph of this Agreement; and all other locations where Debtor conducts business or Collateral is kept (as of the date of this Agreement) are set forth in Schedule 1.

(e)  Debtor has rights in or the power to transfer the Collateral, and Debtor is the sole and complete owner of the Collateral, free from any Lien other than Permitted Liens.

(f)  No control agreements exist with respect to any Collateral.

SECTION 5  Covenants.    So long as any of the Obligations remain unsatisfied, Debtor agrees that:

(a)  Debtor shall appear in and defend any action, suit or proceeding which may affect to a material extent its title to, or right or interest in, or the Secured Party’s right or interest in, the Collateral, and shall do and perform all reasonable acts that may be necessary and appropriate to maintain, preserve and protect the Collateral.

(b)  Debtor shall comply in all material respects with all laws, regulations and ordinances, and all policies of insurance, relating in a material way to the possession, operation, maintenance and control of the Collateral.

(c)  Debtor shall give prompt written notice to the Secured Party (and in any event not later than 30 days following any change described below in this subsection) of: (i) any change in the location of Debtor’s chief executive office or principal place of business; (ii) any change in the locations set forth in Schedule 1; (iii) any change in its name; (iv) any changes in its identity or structure in any manner which might make any financing statement filed hereunder incorrect or misleading; (v) any change in its registration as an organization (or any new such registration); or (vi) any change in its jurisdiction of organization; provided that Debtor shall not locate any Collateral outside of the United States nor shall Debtor change its jurisdiction of organization to a jurisdiction outside of the United States.

(d)  Debtor shall carry and maintain in full force and effect, at its own expense and with financially sound and reputable insurance companies, insurance with respect to the Collateral in such amounts, with such deductibles and covering such risks as is customarily carried by companies engaged in the same or similar businesses and owning similar properties in the localities where Debtor operates. Upon the request of the Secured Party, Debtor shall furnish to the Secured Party from time to time with full information as to the insurance carried by it and, if so requested, copies of all such insurance policies. Debtor shall also furnish to the Second Party from time to time upon the request of Secured Party a certificate of Debtor’s insurance

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broker or other insurance specialist stating that all premiums then due on the policies relating to insurance on the Collateral have been paid and that such policies are in full force and effect.

(e)  Debtor shall keep separate, accurate and complete books and records with respect to the Collateral, disclosing the Secured Party’s security interest hereunder.

(f)  Debtor shall not surrender or lose possession of, sell, lease, rent, or otherwise dispose of or transfer any of the Collateral (other than Collateral subject to a Permitted Lien) or any right or interest therein, except in the ordinary course of business or unless such Collateral is replaced by comparable Collateral of similar value; provided that no such disposition or transfer of Collateral consisting of investment property or instruments shall be permitted while any Event of Default exists.

(g)  Debtor shall keep the Collateral free of all Liens except Permitted Liens.

(h)  Debtor shall pay and discharge all taxes, fees, assessments and governmental charges or levies imposed upon it with respect to the Collateral prior to the date on which penalties attach thereto, except to the extent such taxes, fees, assessments or governmental charges or levies are being contested in good faith by appropriate proceedings.

(i)  Debtor shall maintain and preserve its legal existence, its rights to transact business and all other material rights, franchises and privileges necessary or desirable in the normal course of its business and operations and the ownership of the Collateral, except in connection with any transactions expressly permitted by the Note or any other Document.

(j)  Upon the request of the Secured Party, Debtor shall (except with respect to Collateral subject to a Permitted Lien) (i) immediately deliver to the Secured Party, or an agent designated by it, appropriately endorsed or accompanied by appropriate instruments of transfer or assignment, all documents and instruments, all certificated securities with respect to any investment property, all letters of credit and all accounts and other rights to payment at any time evidenced by promissory notes, trade acceptances or other instruments, (ii) cause any securities intermediaries to show on their books that the Secured Party is the entitlement holder with respect to any investment property, and/or obtain account control agreements in favor of the Secured Party from such securities intermediaries, in form and substance satisfactory to the Secured Party, with respect to any investment property, as requested by the Secured Party, and (iii) provide such notice, obtain such acknowledgments and take all such other action, with respect to any chattel paper, documents and letter-of credit rights, as the Secured Party shall reasonably specify.

SECTION 6  Collection of Accounts.    Until the Secured Party exercise its rights hereunder to collect the accounts and other rights to payment, Debtor shall endeavor in the first instance diligently to collect all amounts due or to become due on or with respect to the accounts and other rights to payment. At the request of the Secured Party, upon the occurrence and during the continuance of any Event of Default, all remittances received by Debtor (other than with respect to Collateral subject to a Permitted Lien) shall be held in trust for the Secured Party and, in accordance with the Secured Party’s instructions, remitted to the Secured Party or deposited

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into account(s) of the Secured Party in the form received (with any necessary endorsements or instruments of assignment or transfer). At the request of the Secured Party, upon and after the occurrence of any Event of Default, the Secured Party shall be entitled to (other than with respect to Collateral subject to a Permitted Lien) receive all distributions and payments of any nature with respect to any investment property or instruments, and all such distributions or payments received by the Debtor shall be held in trust for the Secured Party and, in accordance with the Secured Party’s instructions, remitted to the Secured Party or deposited into account(s) with the Secured Party in the form received (with any necessary endorsements or instruments of assignment or transfer). Following the occurrence of an Event of Default any such distributions and payments with respect to any investment property held in any securities account (other than with respect to Collateral subject to a Permitted Lien) shall be held and retained in such securities account, in each case as part of the Collateral hereunder. Additionally, the Secured Party shall have the right (other than with respect to Collateral subject to a Permitted Lien), upon the occurrence of an Event of Default, following prior written notice to the Debtor, to vote and to give consents, ratifications and waivers with respect to any investment property and instruments, and to exercise all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining thereto, as if the Secured Party were the absolute owner thereof; provided that the Secured Party shall have no duty to exercise any of the foregoing rights afforded to it and shall not be responsible to the Debtor or any other Person for any failure to do so or delay in doing so.

SECTION 7  Authorization; Secured Party Appointed Attorney-in-Fact.    The Secured Party shall have the right to, in the name of Debtor, or in the name of the Secured Party or otherwise, upon notice to but without the requirement of assent by Debtor, and Debtor hereby constitutes and appoints the Secured Party (and any of the Secured Party’s officers, employees or agents designated by the Secured Party) as Debtor’s true and lawful attorney-in-fact, with full power and authority to: (i) sign and file any of the financing statements and other documents and instruments which must be executed or filed to perfect or continue perfected, maintain the priority of or provide notice of the Secured Party’s security interest in the Collateral (including any notices to or agreements with any securities intermediary); (ii) assert, adjust, sue for, compromise or release any claims under any policies of insurance; (iii) give notices of control, default or exclusivity (or similar notices) under any account control agreement or similar agreement with respect to exercising control over deposit accounts or securities accounts; and (iv) execute any and all such other documents and instruments, and do any and all acts and things for and on behalf of Debtor, which the Secured Party may deem reasonably necessary or advisable to maintain, protect, realize upon and preserve the Collateral and the Secured Party’s security interest therein and to accomplish the purposes of this Agreement. The Secured Party agrees that, except upon and during the continuance of an Event of Default, it shall not exercise the power of attorney, or any rights granted to the Secured Party, pursuant to clauses (ii), (iii) and (iv). The foregoing power of attorney is coupled with an interest and irrevocable so long as the Obligations have not been paid and performed in full. Debtor hereby ratifies, to the extent permitted by law, all that the Secured Party shall lawfully and in good faith do or cause to be done by virtue of and in compliance with this Section 7.

SECTION 8  Events of Default.    Any of the following events which shall occur and be continuing shall constitute an “Event of Default”:

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(a)  Debtor shall fail to pay when due any amount of principal of or interest on the Note or other amount payable hereunder or under the Note or any other Document or in respect of the Obligations.

(b)  Any representation or warranty by Debtor in this Agreement shall prove to have been incorrect in any material respect when made or deemed made.

(c)  Debtor shall fail to perform or observe in any material respect any other term, covenant or agreement contained in this Agreement, the Note or any other Document on its part to be performed or observed and any such failure shall remain unremedied for a period of 45 days from the occurrence thereof.

(d)  An order of relief under any bankruptcy, reorganization or insolvency laws has been entered against Debtor by a court having jurisdiction or Debtor admits in writing its inability to pay its debts generally as they become due, files a petition for relief under any bankruptcy, reorganization or insolvency laws, consents to the filing of a bankruptcy proceeding against it or the appointment of a receiver for itself or for all or substantially all of its property, or a petition in bankruptcy is filed against it or it makes an assignment for the benefit of its creditors.

(e)  Debtor shall (i) liquidate, wind up or dissolve (or suffer any liquidation, wind-up or dissolution), except to the extent expressly permitted by the Note, (ii) suspend its operations other than in the ordinary course of business, or (iii) take any action to authorize any of the actions or events set forth above in this subsection (e).

(f)  Any levy upon, seizure or attachment of any of the Collateral which shall not have been rescinded or withdrawn within five (5) business days after notice of such seizure or attachment.

(g)  Any loss, theft or substantial damage to, or destruction of, any material portion of the Collateral (unless within 30 days after the occurrence of any such event, Debtor furnishes to the Secured Party evidence reasonably satisfactory to the Secured Party that the amount of any such loss, theft, damage to or destruction of the Collateral is fully insured under policies naming the Secured Party (or with respect to Collateral subject to a Permitted Lien, the lienholder thereof) as an additional named insured or loss payee).

SECTION 9  Remedies.

(a)  Upon the occurrence and continuance of any Event of Default, the Secured Party may declare any of the Obligations to be immediately due and payable and shall have, in addition to all other rights and remedies granted to it in this Agreement, the Note or any other Document, all rights and remedies of the Secured Party under the UCC and other applicable laws. Without limiting the generality of the foregoing, (i) the Secured Party may peaceably and without notice enter any premises of Debtor, take possession of any the Collateral, remove or dispose of all or part of the Collateral on any premises of the Debtor or elsewhere, or, in the case of equipment, render it nonfunctional, and otherwise collect, receive, appropriate and realize upon all or any part of the Collateral, and demand, give receipt for, settle, renew, extend,

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exchange, compromise, adjust, or sue for all or any part of the Collateral, as the Secured Party may determine; (ii) the Secured Party may require the Debtor to assemble all or any part of the Collateral and make it available to the Secured Party at any place and time designated by the Secured Party; (iii) the Secured Party may secure the appointment of a receiver of the Collateral or any part thereof (to the extent and in the manner provided by applicable law); (iv) the Secured Party may sell, resell, lease, use, assign, license, sublicense, transfer or otherwise dispose of any or all of the Collateral in its then condition or following any commercially reasonable preparation or processing (utilizing in connection therewith any of Debtor’s assets, without charge or liability to the Secured Party therefor) at public or private sale, by one or more contracts, in one or more parcels, at the same or different times, for cash or credit, or for future delivery without assumption of any credit risk, all as the Secured Party deems advisable; provided, however, that Debtor shall be credited with the net proceeds of sale only when such proceeds are finally collected by the Secured Party. The Secured Party shall have the right upon any such public sale, and, to the extent permitted by law, upon any such private sale, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption, which right or equity of redemption Debtor hereby releases, to the extent permitted by law. The Secured Party shall give Debtor such notice of any private or public sales as may be required by the UCC or other applicable law.

(b)  For the purpose of enabling the Secured Party to exercise its rights and remedies under this Section 9 or otherwise in connection with this Agreement, Debtor hereby grants to the Secured Party an irrevocable, non-exclusive and assignable license (exercisable without payment or royalty or other compensation to Debtor) to use, license or sublicense any intellectual property Collateral.

(c)  The Secured Party shall not have any obligation to clean up or otherwise prepare the Collateral for sale. The Secured Party has not obligation to attempt to satisfy the Obligations by collecting them from any other Person liable for them, and the Secured Party may release, modify or waive any Collateral provided by any other Person to secure any of the Obligations, all without affecting the Secured Party’s rights against Debtor. Debtor waives any right it may have to require the Secured Party to pursue any third Person for any of the Obligations. The Secured Party may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Secured Party may sell the Collateral without giving any warranties as to the Collateral. The Secured Party may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If the Secured Party sells any of the Collateral upon credit, Debtor will be credited only with payments actually made by the purchaser, received by the Secured Party and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, the Secured Party may resell the Collateral and Debtor shall be credited with the proceeds of the sale.

(d)  To the extent Debtor uses the proceeds of any of the Obligations to purchase Collateral, Debtor’s repayment of the Obligations shall apply on a “first-in, first-out” basis so

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that the portion of the Obligations used to purchase a particular item of Collateral shall be paid in the chronological order the Debtor purchased the Collateral.

(e)  The cash proceeds actually received from the sale or other disposition or collection of Collateral, and any other amounts received in respect of the Collateral the application of which is not otherwise provided for herein, shall be applied first, to the payment of the reasonable costs and expenses of the Secured Party in exercising or enforcing its rights hereunder and in collecting or attempting to collect any of the Collateral, and to the payment of all other amounts payable to the Secured Party pursuant to Section 13 hereof; and second, to the payment of the Obligations. Any surplus thereof which exists after payment and performance in full of the Obligations shall be promptly paid over to Debtor or otherwise disposed of in accordance with the UCC or other applicable law. Debtor shall remain liable to the Secured Party for any deficiency which exists after any sale or other disposition or collection of Collateral.

SECTION 10  Certain Waivers.    Debtor waives, to the fullest extent permitted by law, (i) any right of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling of the Collateral or other collateral or security for the Obligations; (ii) any right to require the Secured Party (A) to proceed against any Person, (B) to exhaust any other collateral or security for any of the Obligations, or (C) to make or give any presentments, demands for performance, notices of nonperformance, protests, notices of protests or notices of dishonor in connection with any of the Collateral; and (iii) all claims, damages, and demands against the Secured Party arising out of the repossession, retention, sale or application of the proceeds of any sale of the Collateral, other than claims for violations of law and willful misconduct.

SECTION 11  Notices.    All notices or other communications hereunder shall be in writing (including by facsimile transmission or by email) and mailed, sent or delivered to the respective parties hereto at or to their respective addresses or facsimile numbers set forth below their names on the signature pages hereof, or at or to such other address or facsimile number as shall be designated by any party in a written notice to the other parties hereto. All such notices and other communications shall be deemed to be delivered when a record (within the meaning of the UCC) has been (i) delivered by hand; (ii) sent by mail upon the earlier of the date of receipt or five business days after deposit in the mail, first class (or air mail as to communications sent to or from the United States) or (iii) sent by facsimile transmission.

SECTION 12  No Waiver; Cumulative Remedies.    No failure on the part of the Secured Party to exercise, and no delay in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights and remedies under this Agreement are cumulative and not exclusive of any rights, remedies, powers and privileges that may otherwise be available to the Secured Party.

SECTION 13  Costs and Expenses.

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(a)  Debtor agrees to pay on demand. All reasonable costs and expenses of the Secured Party, and the reasonable fees and disbursements of the Secured Party, in connection with the enforcement or attempted enforcement of, and preservation of any rights or interests under, this Agreement and the Note, including in any out-of-court workout or other refinancing or restructuring or in any bankruptcy case, and the protection, sale or collection of, or other realization upon, any of the Collateral, including all expenses of taking, collecting, holding, sorting, handling, preparing for sale, selling, or the like, and other such expenses of sales and collections of Collateral, in addition to, and not limited by, this subsection (a).

(b)  Any amounts payable to the Secured Party under this Section 13 or otherwise under this Agreement if not paid upon demand shall bear interest from the date of such demand until paid in full, at the rate of interest set forth in the Note.

SECTION 14  Binding Effect.    This Agreement shall be binding upon, inure to the benefit of and be enforceable by Debtor, the Secured Party and their respective successors and assigns and shall bind any Person who becomes bound as a debtor to this Agreement. Debtor may not assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder without the prior express written consent of the Secured Party. Any such purported assignment, transfer, hypothecation or other conveyance by Debtor without the prior express written consent of the Secured Party shall be null and void and of no force or effect. Debtor acknowledges and agrees that in connection with an assignment of, or grant of a participation in, the Obligations the Secured Party may assign, or grant participations in, all or a portion of its rights and obligations hereunder. Upon any assignment of the Secured Party’s rights hereunder, such assignee shall have, to the extent of such assignment, all rights of the Secured Party hereunder. Debtor agrees that, upon any such assignment, such assignee may enforce directly, without joinder of the Secured Party, the rights of the Secured Party set forth in this Agreement. Any such assignee shall be entitled to enforce the Secured Party’s rights and remedies under this Agreement to the same extent as if it were the original secured party named herein.

SECTION 15  Governing Law.    This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, except as required by mandatory provisions of law and to the extent the validity or perfection of the security interests hereunder, or the remedies hereunder, in respect of any Collateral are governed by the law of a jurisdiction other than New York.

SECTION 16  Entire Agreement; Amendment.    This Agreement together with the Note and the Patent and Trademark Security Agreement contains the entire agreement of the parties with respect to the subject matter hereof and shall not be amended except by the written agreement of the parties.

SECTION 17  Rights Under Note.    This Agreement has been granted in conjunction with the Note and the Patent and Trademark Security Agreement. The rights and remedies of the Secured Party with respect to the security interests granted herein are without prejudice to, and are in addition to those set forth in the Note and/or the Patent and Trademark Security Agreement.

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SECTION 18  Severability.    Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Agreement shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of this Agreement, or the validity or effectiveness of such provision in any other jurisdiction.

SECTION 19  Counterparts.    This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.

SECTION 20  Termination.    Upon payment and performance in full of all Obligations, the security interest created under this Agreement shall terminate and the Secured Party shall promptly execute and deliver to Debtor such documents and instruments reasonably requested by Debtor as shall be necessary to evidence termination of all security interests given by Debtor to the Secured Party hereunder.

SECTION 21  Conflicts.    In the event of any conflict or inconsistency between this Agreement or the Note, the terms of this Agreement shall control.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of the date first above written.

DEBTOR: DANAM ACQUISITION CORP.
By:	/s/    MICHAEL J. S. ASHER
	CEO
c/o Drew Scientific Group PLC Park Road, Barrow In Furness Cumbria LA14 4QR United Kingdom Attn: Michael J. Sipple-Asher Fax: 011 44 1229 432096

SECURED PARTY: SYNBIOTICS CORPORATION
By:	/s/    PAUL A. ROSINACK
	President & CEO
11011 Via Frontera San Diego, CA 92127 Attn: Michael K. Green Fax: (858) 451-5719

[SIGNATURE PAGE TO SECURITY AGREEMENT]

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SCHEDULE 1

to the Security Agreement

1.    Jurisdiction of Organization

Delaware

2.    Chief Executive Office and Principal Place of Business

4230 Shirling Way

Dallas, TX 75237

3.    Other locations where Debtor conducts business or Collateral is kept

178 Christian Street

Oxford, Connecticut 06478

1721 Black River Road

Rome, NY 13440

Schedule 1-1

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PATENT AND TRADEMARK SECURITY AGREEMENT

This PATENT AND TRADEMARK SECURITY AGREEMENT (this “Agreement”), dated as of August 31, 2002, is entered into between Danam Acquisition Corp., a Delaware corporation (“Grantor”) and Synbiotics Corporation, a California corporation (“Lender.

RECITALS

A.  Grantor is contemporaneously herewith, executing to the order of Lender that certain secured promissory note (as amended from time to time, the “Note”) in the original principal amount of $500,000 (the “Principal Amount”) pursuant to which Lender shall make advances to Grantor from time to time in accordance with the terms of the Note which shall not at any time exceed the Principal Amount; and

B.  Grantor is the owner of certain intellectual property, identified below, in which Grantor is granting a security interest to Lender.

NOW THEREFORE, the parties hereto mutually agree as follows:

SECTION 22  GRANT OF SECURITY INTEREST.

To secure the complete and timely payment and performance of all obligations under the Note and this Agreement and any other document executed in connection with or pursuant to either of them, including without limitation the Security Agreement dated as of the date hereof (the “Security Agreement”) between Grantor and Lender (collectively, the “Obligations”), and without limiting any other security interest Grantor has granted to Lender, Grantor hereby grants, assigns, and conveys to Lender a security interest in Grantor’s entire right, title, and interest in and to the following, whether now owned or hereafter acquired (the “Collateral”):

(i)  Each of the trademarks and rights and interest which are capable of being protected as trademarks (including trademarks, service marks, designs, logos, indicia, tradenames, corporate names, company names, business names, fictitious business names, trade styles, and other source or business identifiers, and applications pertaining thereto), which are presently, or in the future may be, owned, created, acquired, or used (whether pursuant to a license or otherwise) by Grantor, in whole or in part, and all trademark rights with respect thereto throughout the world, including all proceeds thereof (including license royalties and proceeds of infringement suits), and rights to renew and extend such trademarks and trademark rights;

(ii)  Each of the patents and patent applications which are presently, or in the future may be, owned, issued, acquired, or used (whether pursuant to a license or otherwise) by Grantor, in whole or in part, and all patent rights with respect thereto throughout the world, including all proceeds thereof (including license royalties and proceeds of infringement suits), foreign filing rights, and rights to extend such patents and patent rights;

(iii)  All of Grantor’s right to the trademarks and trademark registrations listed on Exhibit A attached hereto, as the same may be updated hereafter from time to time;

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(iv)  All of Grantor’s right, title, and interest, in and to the patents and patent applications listed on Exhibit B attached hereto, as the same may be updated hereafter from time to time;

(vi)  All of Grantor’s right, title, and interest in all patentable inventions, and to file applications for patent under federal patent law or regulation of any foreign country, and to request reexamination and/or reissue of the patents, the right (without obligation) to sue or bring interference proceedings in the name of Grantor or in the name of Lender for past, present, and future infringements of the patents, and all rights (but not obligations) corresponding thereto in the United States and any foreign country;

(vii)  the entire goodwill of or associated with the businesses now or hereafter conducted by Grantor connected with and symbolized by any of the aforementioned properties and assets;

(viii)  All general intangibles relating to the foregoing and all other intangible intellectual or other similar property of the Grantor of any kind or nature, associated with or arising out of any of the aforementioned properties and assets and not otherwise described above; and

(ix)  All products and proceeds of any and all of the foregoing (including, without limitation, license royalties and proceeds of infringement suits) and, to the extent not otherwise included, all payment intangibles, payments under insurance, or any payments under any indemnity, warranty, or guaranty payable by reason of loss or damage to or otherwise with respect to the Collateral.

SECTION 23  AFTER-ACQUIRED PATENT OR TRADEMARK RIGHTS.

If Grantor shall obtain rights to any new trademarks, any new patentable inventions or become entitled to the benefit of any patent application or patent for any reissue, division, or continuation, of any patent, or if Grantor shall notify or Lender shall discover that Grantor has rights in other patents or trademarks, then, in any such event, the provisions of this Agreement shall automatically apply thereto. Grantor shall give prompt notice in writing to Lender with respect to any such new trademarks or patents, or renewal or extension of any trademark registration. Without limiting Grantor’s obligation under this Section 2, Grantor authorizes Lender to modify this Agreement by amending Exhibits A or B to include any such new patent or trademark rights. Notwithstanding the foregoing, no failure to so modify this Agreement or amend Exhibits A or B shall in any way affect, invalidate or detract from Lender’s continuing security interest in all Collateral, whether or not listed on Exhibit A or B.

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SECTION 24  GENERAL PROVISIONS.

(a)  Rights Under Note.    This Agreement has been granted in conjunction with the Note and the Security Agreement. The rights and remedies of Lender with respect to the security interests granted herein are without prejudice to, and are in addition to those set forth in the Note and/or the Security Agreement.

(b)  Successors.    The benefits and burdens of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties; provided that Grantor may not transfer any of the Collateral or any rights hereunder, without the prior written consent of Lender, except as specifically permitted hereby.

(c)  Amendment; No Conflict.    This Agreement is subject to modification only by a writing signed by the parties, except as provided in Section 2 of this Agreement. To the extent that any provision of this Agreement conflicts with any provision of the Note or the Copyright Security Agreement, the provision giving Lender greater rights or remedies shall govern, it being understood that the purpose of this Agreement is to add to, and not detract from, the rights granted to Lender under those documents.

(d)  Governing Law.    THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above.

SYNBIOTICS CORPORATION:		DANAM ACQUISITION CORP.:
By:	/s/    PAUL A. ROSINACK	By:	/s/    MICHAEL J. S. ASHER
	President & CEO		CEO

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Exhibit “A”

REGISTERED TRADEMARKS

Trademark/Serial No.	Date
PROCHEM, Reg. No. 2299123	Registered:  December 14, 1999
QVET, Reg. No. 1902542	Registered:  July 4, 1995

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Exhibit “B”

PATENTS

Patent/Application No.	Date
U.S. Patent No. 5,128,104 (CUEVETTE FOR AUTOMATED TESTING MACHINE)	Issued:  July 7, 1992
CANADA Patent Application No. 2137672 (CUEVETTE FOR AUTOMATED TESTING MACHINE)	Filed:    June 9, 1992

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Schedule 2.1 (a)(i)

PERSONAL PROPERTY

Please see Exhibit 2.1(a)(i) attached hereto.

Exhibit 2.1(a)(i)

Tag	Description	Acquire	End	Cost	Method	Percentage		Depreciation	NBV
971	NETFRAME 3100 w/ Landesk	10/1/1998	9/30/2003	7,206.19	Straight-Line	20.00	%	3,362.89	0.00
972	Millennia 400 MAX	10/1/1998	9/30/2003	3,993.34	Straight-Line	20.00	%	1,863.57	0.00
973	Millennia 400 MAX	10/1/1998	9/30/2003	3,993.35	Straight-Line	20.00	%	1,863.57	0.00
974	Millennia 350 Microtower,15.9”	10/1/1998	9/30/2003	2,458.35	Straight-Line	20.00	%	1,147.23	0.00
975	Millennia 350 Microtower,15.9”	10/1/1998	9/30/2003	2,458.35	Straight-Line	20.00	%	1,147.23	0.00
976	Millennia 350 Microtower,15.9”	10/1/1998	9/30/2003	2,458.35	Straight-Line	20.00	%	1,147.23	0.00
977	Millennia 350 Microtower,15.9”	10/1/1998	9/30/2003	2,458.35	Straight-Line	20.00	%	1,147.23	0.00
978	Millennia 350 Microtower,15.9”	10/1/1998	9/30/2003	2,458.39	Straight-Line	20.00	%	1,147.25	0.00
990	21 Series Printer	1/1/1999	12/31/2003	5,676.12	Straight-Line	20.00	%	2,365.04	0.00
1008	Motion Analysis Camera System	3/1/1999	2/28/2007	14,559.82	Straight-Line	12.50	%	3,488.28	0.00
1017	Lambda Spectrometer	4/1/1999	3/31/2007	27,561.74	Straight-Line	12.50	%	6,316.22	0.00
1019	Paint Masking Fixture	4/1/1999	3/31/2007	5,103.99	Straight-Line	12.50	%	1,169.67	0.00
1023	Software	6/1/1999	5/31/2004	567.10	Straight-Line	20.00	%	189.03	0.00
1025	Prototype Silicone Plug Gasket	9/1/1999	8/31/2007	2,100.00	Straight-Line	12.50	%	371.88	0.00
1029	4 Cavity Mold—QVET top	10/1/1999	10/1/2007	207,500.00	Straight-Line	12.50	%	4,322.92	0.00
1030	Husky 900 Series 6 Zone Cntrl	10/1/1999	10/1/2007	7,785.00	Straight-Line	12.50	%	162.18	0.00
1031	Computer P8-P2-35-64	10/1/1999	10/1/2004	2,629.39	Straight-Line	20.00	%	701.17	0.00
1032	Computer P8-CEL-300BX	10/1/1999	10/1/2004	1,228.64	Straight-Line	20.00	%	327.64	0.00
1037	Test Eq.S/N00995(25KV ESD GUN)	11/1/1999	11/1/2007	5,407.09	Straight-Line	12.50	%	844.86	0.00
1051	Differential leak tester	3/1/2000	2/29/2008	9,118.20	Straight-Line	12.50	%	1,044.79	0.00
1054	Computer—D. Hartman	4/1/2000	3/31/2005	1,613.90	Straight-Line	20.00	%	268.99	0.00
1058	Network Printer	4/1/2000	3/31/2005	1,035.29	Straight-Line	20.00	%	172.54	0.00
1073	1515 (2) assembly machines	8/1/2000	7/31/2008	20,082.39	Straight-Line	12.50	%	1,255.15	0.00
1074	Ultra-com thruster system	8/1/2000	7/31/2008	17,523.01	Straight-Line	12.50	%	1,095.19	0.00
1075	Indexing Conveyor	8/1/2000	7/31/2008	33,286.88	Straight-Line	12.50	%	2,080.43	0.00
1076	Controller/pump/actuator mod	8/1/2000	7/31/2008	7,398.90	Straight-Line	12.50	%	462.43	0.00
1077	Four cavity mold for Qvet prod	8/1/2000	7/31/2008	230,000.00	Straight-Line	12.50	%	14,375.00	0.00
1078	Husky 900 Series 6 Zone Contr	8/1/2000	7/31/2008	7,785.00	Straight-Line	12.50	%	486.56	0.00
1096	Air Compressor	9/1/2000	8/31/2008	6,944.66	Straight-Line	12.50	%	361.70	0.00
1097	Tope Plate 1.5 steel welded	10/1/2000	9/30/2008	4,400.00	Straight-Line	12.50	%	183.33	0.00
PRISMA1	ACQUIRED PRISMA MFG EQUIPMENT	3/1/1998	2/28/2006	27,647.50	Straight-Line	12.50	%	10,079.82	0.00
PRISMA 2	ACQUIRED PRISMA TOOLING	3/1/1998	2/28/2006	394,048.29	Straight-Line	12.50	%	143,663.44	0.00

Schedule 2.1(a)(iii)(A)

INTELLECTUAL PROPERTY

Patent/Application No.	Date
U.S. Patent No. 5,128,104 (CUEVETTE FOR AUTOMATED TESTING MACHINE)	Issued: July 7, 1992
CANADA Patent Application No. 2137672 (CUEVETTE FOR AUTOMATED TESTING MACHINE)	Filed June 9, 1992
Trademark/Serial No.	Date
PROCHEM, Reg. No. 2299123	Registered: December 14, 1999
QVET, Reg. No. 1902542	Registered: July 4, 1995

Unregistered Trademarks and Tradenames

PrismaSystems

ProChem Plus

ProChem V

ProCal

ProCheq

HemaCount

Prompt

Schedule 2.1(a)(iii)(B)

THIRD PARTY LICENSES

None.

Schedule 2.1(a)(v)

ASSIGNED CONTRACTS

1.    Master Lease Agreement No. 200021859 between Seller and Copelco Capital.

2.    Oral month-to-month lease agreement between 1721 Black River Boulevard Corporation and Synbiotics Corporation.

3.    Oral distribution relationships with respect to the Business with the distributors listed on Exhibit 2.1(a)(v)-3 attached hereto.

4.    Warranty Service Agreements with customers listed on Exhibit 2.1(a)(v)-4 attached hereto.

5.    The Microlab License.

Schedule 2.1(a)(v)-3

PROCHEM DISTRIBUTEURS EUROPE

DATE	SERIE	SUEDE
29/02/00	3001	SWEVET-PIAB A SJOBO
08/03/00	3013	SWEVET-PIAB A SJOBO
28/04/00	3031	SWEVET-PIAB A SJOBO
03/05/00	3036	SWEVET-PIAB A SJOBO
10/05/00	3043	SWEVET-PIAB A SJOBO
08/08/00	3104	SWEVET-PIAB A SJOBO
08/08/00	3106	SWEVET-PIAB A SJOBO
02/10/00	3132	SWEVET-PIAB A SJOBO
15/11/00	3125	SWEVET-PIAB A SJOBO (PAS PRESENT DANS DOSSIER ADV)
27/11/00	3177	SWEVET-PIAB A SJOBO
28/11/00	3144	SWEVET-PIAB A SJOBO
28/11/00	3153	SWEVET-PIAB A SJOBO
DATE	SERIE	DANEMARK
29/02/00	3005	E-Vet HADERSLEV
29/02/00	3007	E-Vet HADERSLEV
08/03/00	3011	E-Vet HADERSLEV
08/03/00	3012	E-Vet HADERSLEV
12/04/00	3022	E-Vet HADERSLEV
12/04/00	3023	E-Vet HADERSLEV
04/05/00	3040	E-Vet HADERSLEV
05/06/00	3053	E-Vet HADERSLEV
05/06/00	3059	E-Vet HADERSLEV
14/06/00	3069	E-Vet HADERSLEV
14/06/00	3070	E-Vet HADERSLEV
14/06/00	3051	E-Vet HADERSLEV
25/09/00	3124	E-Vet HADERSLEV
25/09/00	3126	E-Vet HADERSLEV
25/09/00	3128	E-Vet HADERSLEV
25/09/00	3129	E-Vet HADERSLEV
25/09/00	3130	E-Vet HADERSLEV
11/12/00	3174	E-Vet HADERSLEV
11/12/00	3178	E-Vet HADERSLEV
DATE	SERIE	Portugal
04/05/00	3037	MERIAL Portugal RIO DE MOURO
04/05/00	3038	MERIAL Portugal RIO DE MOURO
24/05/00	3058	MERIAL Portugal RIO DE MOURO

DATE	SERIE	Portugal
06/06/00	3060	MERIAL Portugal RIO DE MOURO
06/06/00	3061	MERIAL Portugal RIO DE MOURO
08/08/00	3103	MERIAL Portugal RIO DE MOURO
10/10/00	3132	MERIAL Portugal RIO DE MOURO
18/12/00	3188	MERIAL Portugal RIO DE MOURO
28/12/00	3201	MERIAL Portugal RIO DE MOURO
DATE	SERIE	UK
27/03/00	3009	LAB PACK LIMITED COVENTRY
DATE	SERIE	GRECE
29/06/00	3080	GEROLYMATOS KRYONERI ATTIKA
29/06/00	3081	GEROLYMATOS KRYONERI ATTIKA
09/09/00	3123	GEROLYMATOS KRYONERI ATTIKA
20/09/00	3127	GEROLYMATOS KRYONERI ATTIKA
24/10/00	3152	GEROLYMATOS KRYONERI ATTIKA
04/11/00	3149	GEROLYMATOS KRYONERI ATTIKA
03/04/01	3213	GEROLYMATOS KRYONERI ATTIKA

CLIENTS PROCHEM-V FRANCE

CP	VILLE	NOM	N° BAAN	Telephone	Adresse	date achat	SERIE
94460	VALENTON	NISOLE Georges	FV9401	01 43 82 53 38	21 bis rue du Colonel Fabien	29/02/00	3002
90000	BELFORT	GUILHOT&CHRETIEN	FV9001	03 84 28 57 64	13, rue de Mulhouse	01/03/00	3010
91160	LONGJUMEAU	DROUET & DEBOVE	FV9101	01 64 48 81 39	14, avenue du général De Gaulle	08/03/00	3004
13012	MARSEILLE	COULON& Ste CROIX	FV1307	04 91 49 60 11	47, rue de Montaigne	14/03/00	3014
13011	MARSEILLE	LAURENT Christine	FV1308	04 91 43 03 43	18, montée d’Eoures	28/03/00	3016
77100	NANTEUIL les Meaux	HARMAND	FV7701	01 64 33 49 26	11, rue de Melun	12/04/00	3003
78800	HOUILLES	MALOISEL HALLIER	FV7802	01 39 57 49 90	3, rue de la République	17/04/00	3019
95270	VIARMES	LEGLAIVE	FV9501	01 30 35 88 88	19a, avenue de royaumont	18/04/00	3169
92330	SCEAUX	LACOSTE Régis	FV9202	01 47 02 59 58	2, rue de la Marne	19/04/00	3025
81000	ALBI	FABRE François	FV8102	05 63 47 64 47	155, avenue Dembourg	27/04/00	3029
81500	LAVAUR	MASURE&PINTCHMAN	FV8103	05 63 58 39 70	1, place du pont St Roch	27/04/00	3030
69680	CHASSIEU	MOTIN & VULLIERME	FV6902	04 72 47 04 04	44, rue de la République	02/05/00	3035
57100	THIONVILLE	HAUFMAN Pierre	FV5701	03 82 34 4973	23, rue Ste Elisabeth	04/05/00	3039
34300	AGDE	SCHIRRER André	FV3401	04 67 21 17 49	1, rue des Phalènes	10/05/00	3045
60280	VENETTE	CATTEAU Frédéric	FV6001	03 44 36 30 50	2, rue des Méliers	10/05/00	3044
81200	MAZAMET	BIENES&GERARD	FV8104	05 63 61 41 35	10, rue Frédéric Mistral	15/05/00	3046
68600	NEUF BRISACH	ROBERT	FV6802	03 89 72 50 89	13, rue de l’Hôtel de Ville	24/05/00	3057
16250	ST LEGER	DUVAL Raoul	FV1601	05 45 64 11 08	route de Brossac	05/06/00	3052
26170	BUIS LES Baronnies	COUPON PICQUART	FV2602	04 75 28 12 05	Z,A la Palun	15/06/00	3074
59000	LILLE	SEPIETER Bernard	FV5902	03 20 30 75 11	92, rue Léon Gambetta	15/06/00	3073
60300	SENLIS	RIGA	FV6002	03 44 53 20 16	12-14, place des Arènes	15/06/00	3075
59510	HEM	DELFORGE Philippe	FV5905	03 20 82 85 45	59, rue du Dr Coubronne	19/06/00	3076
84120	PERTUIS	MARY & LECERF	FV8405	04 90 09 68 26	312, rue de la Tour	22/06/00	3077

CP	VILLE	NOM	N° BAAN	Telephone	Adresse	date achat	SERIE
59650	VILLENEUVE…	TIERNY Dominique	FV5906	03 20 64 94 19	14, avenue Paul Langevin	28/06/00	3082
59243	QUAROUBLE	PELGRIM Patrick	FV5903	03 27 34 69 40	35, rue Roger Salengro	30/06/00	3054
01500	AMBERIEU EN B…	BOISSIERAS&MONNIER	FV0102	04 74 38 09 08	avenue léon Blum	30/06/00	3078
59243	QUAROUBLE	PELGRIM Patrick	FV5903	03 27 34 69 40	35, rue Roger Salengro	30/06/00	3054
76190	YVETOT	ADRIANSEN	FV7603	02 35 56 97 10	24, rue Carnot	30/06/00	3079
60160	MONTATAIRE	DELAHAYE Gérard	FV6003	03 44 27 51 46	52, rue voltaire	04/07/00	3083
89700	TONNERRE	FICHOT & POITRAT	FV8901	03 86 55 12 48	12, chemin des jumériaux	04/07/00	3084
78600	MAISONS LAFFITE	TRAIN EVAIN	FV7803	01 39 12 00 40	1 Avenue Malesherbes	06/07/00	3085
06200	NICE	POLLET	FV0603	04 93 71 21 41	3, rue Maurice Mignon	21/07/00	3095
06310	BEAULIEU SUR MER	POLLET et PHILIPPON	FV0603	04 93 01 02 14	16, boulevard du Maréchal joffre	02/08/00	3068
33420	RAUZAN	laurence ARMAND	FV3303	05 56 23 61 20	12, rue de l’hôpital	31/08/00	3109
91460	MARCOUSSIS	Eric MORET	FV9102	01 64 49 00 91	2, rue de la Croix de Bellejame	31/08/00	3108
95870	BEZONS	AUCLIN	FV9502	01 30 76 72 79	109bis, rue Edouard Vaillant	18/09/00	3122
03110	NERIS LES BAINS	GIRAUD-AUGER	FV0303	04 70 03 22 65	Chemin de Cheberne	03/10/00	3138
69100	VILLEURBANNE	Maubant-Dunoguiez	FV6903	04 78 84 46 80	148 cours Emile Zola	03/10/00	3135
45220	CHÂTEAU RENARD	Daniel DUPLAY	FV4502	02 38 95 20 27	974 route de Châtillon Colligny	04/10/00	3140
13006	MARSEILLE	CABASSU jean pierre	FV1312	04 91 37 16 30	12 avenue du prado	09/10/00	3145
83400	HYERES	FENECH	FV8304	04 94 38 46 00	20, avenue Paul Bourget	11/10/00	3147
84440	ROBION	FRELY & VIALATTE	FV8406	04 90 76 66 99	Route des Alpes	24/10/00	3151
02130	FERE-EN-TARDENOIS	CHAMPION—MARTINI	FV0202	03 23 82 66 88	5 place de la République	30/10/00	3160
02130	FERE-EN-TARDENOIS	CHAMPION—MARTINI	FV0202	03 23 82 66 88	5 place de la République	30/10/00	3155
57000	METZ	MALLER	FV5702	03 87 55 10 22	63 rue aux Arènes	06/11/00	3158
69280	MARCY L’ETOILE	Ecole Véto de Lyon	FU6903	04 78 87 26 50	1 avenue Bourgelat	09/11/00	3137
57370	PHALSBOURG	GUILLEMOT	FV5703	03 87 24 49 87	1 rue du 23 Novembre	27/11/00	3176
03130	LE DONJON	NAVETAT	FV0304	04 70 99 50 17	11 rue Général de Gaulle	29/11/00	3165
67500	HAGUENAU	FISCHER	FV5704	03 88 93 25 75	1 allée Gustave Huffel	30/11/00	3168
52220	MONTIER EN DER	Bourgois et Parcollet	FV5201	03 25 04 20 77	17 place Notre Dame	11/12/00	3179
27140	GISORS	Dr LA MARLE	FV2707	02 32 55 25 50	138, rue de la libération	21/12/00	3163
59128	FLERS EN ESCREBIEUX	Xavier MASSIN	FV5907	03 27 64 85 54	1, rue du terril	14/12/00	3176
02300	CHAUNY	CAPELLE	FV0203	03 23 52 02 35	83, rue André Ternynck	18/12/00	3187
54490	PIENNES	Vintache et Delaitre	FV5402	03 82 21 92 16	14, rue de Tharandt	18/12/00	3161
56860	SENE	DOUSSET	FV5601	02 97 47 60 60	11, rue d’Irlande	21/12/00	3189
77820	LE CHATELET EN BRIE	CHAUVIN-LETAILLEUR	FV7706	01 60 66 64 24	7, rue de l’Hôtel de Ville	27/12/00	3101
22500	PAIMPOL	JESTIN	FV2201	02 96 22 07 09	7 bis, place Gambetta	28/12/00	3192
75016	PARIS	SCHMIDT	FV7504	01 45 27 23 85	35, rue Leconte de Lisle	28/12/00	3196
77510	REBAIS	CHEBAUT	FV7705	01 64 65 42 62	30, rue du Feaubourg St Nicolas	28/12/00	3195
54000	NANCY	GAREAUX	FV5403	03 83 27 13 10	155 rue Jeanne D’Arc	16/01/01	3209
93160	NOISY LE GRAND	Foumenteze Timmerman	FV9302	01 45 92 33 33	188, avenue Emile Cossonneau	16/01/01	3220

PROCHEM ITALIE

CP	VILLE	NOM	N°BAAN	ADRESSE	date achat	série
41100	MODENA	GAMBIGLIANI	IV0014	medico Veterinario Via bellaria n°346	30/03/00	3017
73100	LECCE	Antonio CONGEDO	IV0015	Ambulatorio Vetrinario Vergara Corso de Giorgi 12	30/03/00	3018
28040	DORMELLETTO	Drssa FERRARI	IV0016	Clinica Veterinaria Lago Maggiore via Gavour 3	22/05/00	3055
20143	MILANO	Dr DELLA CROCE	IV0017	Clinica Veterinaria Ca Bianca via Parenzo 2	22/05/00	3056

CP	VILLE	NOM	N°BAAN	ADRESSE	date achat	serie
48011	ALFONSINE	Carlo DEL ZINGARO	IV0008	STUDIO VETERINARIO via Reale 124	05/06/00	3062
12100	CUENO	PELLEGRINO/MALERBA	IV0020	Ambulatorio Veterinario Associato, via Ettore Rosa, 6	15/06/00	3093
16167	GENOVA NERVI	Paolo MINGARDI	IV0022	STUDIO VETERINARIO via del commercio 8 Pr	15/06/00	3065
25080	BRESCIA	BERTAZZOLI	IV0024	Clinica Veterinaria Croce Blu, v le S, Eufemia, 52/e	24/06/00	3072
46035	OSTAGLIA	PICCININI	IV0026	Ambulatorio Veterinario via Montegrappa 21	27/07/00	3094
00052	CERVERETI	Adriano ARPITI	IV0029	CENTRO VETERINARIO = COVEL ITALIA	07/08/00	3097
12050	GUARENE ( CUENO )	Anna Maria NOE	IV0031	MEDICO VETERINARIO Localita Sotteri n °1	07/08/00	3099
22023	CERRO MAGGIORE	Patrizio DONATI	IV0032	Ambulatorio Veterinario Via A da Giussano, 26	07/08/00	3100
41026	PAVULLO	DEBBIA	IV0033	Ambulatorio Veterinario via Serra Di Porto n°22	09/08/00	3102
48100	RAVENNA	Santarine e Urbanich	IV0030	STUDIO VETERINARIO via Beltramy 14	19/08/00	3101
41028	SERRAMAZZONI	Angela RICCI	IV0034	AMBULATORIO VETRINARIO via XXIV-MAGGIO 272	19/08/00	3105
26020	SAN BASSANO	BAZZA	IV0037	Ambulatorio Veterinario Plazza Kennedy 8	31/08/00	3107
15066	GAVI	Eleonora ANFOSSO	IV0035	MEDICO VETERINARIO via Serravalle 3	23/09/00	3116
41100	MODENA	PAGANI	IV0036	Clinica Veterinaria Privata Wiligelmo Via Allegri 213	23/09/00	3173
25038	PALAZZOLO SULI	Sergio MAFFI	IV0038	MEDICO VETERINARIO Piazza V rosa 10	23/09/00	3120
37057	SAN GIOVANNI	FANINI	IV0041	Ambulatorio Veterinario Piazza Umberto 132	23/09/00	3121
19033	MOLICCIARA-CASTELNOV	CARLI E CHIODO	IV0025	Centro Veterinario Pisani G via Borgolo 15	23/10/00	3087
00015	MONTEROTONDO	BELLI—LISI	IV0044	Ambulatorio Vetrinario via S Martino 10	31/10/00	3111
38074	CENIGA DRO	Ettore ZUCCHELI	IV0043	Ambulatorio Veterinario Via Arco 26/a	03/11/00	3157
36100	VICENZA	Roberto De BIASIO	IV0046	AMBULATORIO VETERINARIO via Legione Antonini 141	17/11/00	3112
17100	SANOVA	M.S GUERRERO	IV0040	CLINICA VETERINARIA via Leoncavallo 17	24/11/00	3148
48020	SAN PIETRO IN Campiano	Federico GARNUM	IV0047	via del Sale 108	25/11/00	3041
40012	SAN MARTINO IN PEDRIOLO	Monica ALBERTI	IV0049	MEDICO VETERINARIO Via Fagnona 10	29/11/00	3162
20052	MONZA	VATTA	IV0048	Ambulatorio Veterinario via Borgazzi Gerolama 38	30/11/00	3171
88100	CATANZARO	salvatore ROTELLE	IV0050	Ambulatorio Veterinario via Martiri di gerace,17	18/12/00	3185
43039	SALSOMAGGIORE	VALLA-SIRELLI	IV0051	Studio veterinario Assiociato via A Garibaldi 5	18/12/00	3186
38068	ROVERETO	HOLZHAUSER e Di CRISTINA	IV0052	AMBULATORIO ASSOCIATO via pasubio 53	20/12/00	3166
40026	IMOLA	Balducci e Cornazzani	IV0055	Ambulatorio Associata Valsanterno via Montanara 252/c	23/01/01	3223
70010	LOCORONTODO	IGNISCI Vitantonio	IV0056	Ambulatorio Veterinario via Monfalcone 13	23/01/01	3224
10056	OULX	BERNARD Pierfranco V	lease Covel Studio Medico Veterinario Corso Ortigara 5		23/01/01	3221

Exhibit 2.1(a)(v)-4

SERVICE AGREEMENT REPORT

MAS90 Customer Number:	Customer Names:	Serial Number:	Date of Purchase:	Date Expires:	Purchase Price:
0001557	VCA Westboro Veterinary Hospital	2144	10/30/01	10/30/02	$	695.00
0001581	Baycrest Animal Clinic	2114	06/04/02	02/04/03	$	0.00
0001265	Bedford Oaks Animal Clinic	2005	02/06/02	02/06/03	$	695.00
0001530	Blackwall Mobile Veterinary Service	2112	01/07/02	01/07/03	$	695.00
0001090	Delta Veterinary Clinic	2027	02/27/01	02/27/03	$	1,200.00
0001230	Town & Country Animal Hospital	2082	02/05/02	02/05/03	$	695.00
0001325	Village Animal Clinic	2042	04/01/01	04/01/03	$	1,200.00
0001543	Roper Mountain Animal Hospital	2136	01/10/02	01/10/03	$	695.00
0001548	All About Pets	2130	02/22/02	02/22/03	$	695.00
0001549	Richland Vet Service	2140	02/25/01	02/25/03	$	1,200.00
0001601	South Trail Animal Hospital	2177	02/05/02	02/05/03	$	695.00
0001611	Ulrich Vet Clinic	2185	04/04/01	04/04/03	$	1,200.00
0001614	Oak Park Animal Hospital	2189	01/30/02	01/30/04	$	1,200.00
0001621	Pet Vet Animal Hospital	2198	07/31/01	07/31/03	$	1,200.00
0001626	Mount Sinai Medical Center	2212	04/01/01	04/01/03	$	1,200.00
0001674	CDC-Center for Disease Control Prevention	2238	05/28/02	05/28/03	$	695.00
0001664	Montrose Vet Clinic	2243	03/12/02	03/12/03	$	695.00
Total Agreements             17			Invoiced Total for Agreements Sold $14,655.00

Schedule 2.2(a)(i)

ASSUMED LEASE LIABILITIES

1.  Master Lease Agreement No. 200021859 between Seller and Copelco Capital.

2.  Oral month-to-month lease agreement between 1721 Black River Boulevard Corporation and Synbiotics Corporation.

Schedule 2.2(a)(ii)

ASSUMED SALES ORDERS

None.

Schedule 2.2(a)(iii)

ASSUMED PURCHASE ORDERS

See Exhibit 2.2(a)(iii) attached hereto.

Exhibit 2.2(a)(iii)

			Quantity			Delivery Date
Order	Line	Item	Ordered	Delivered	Back Ordered		Price	Extended
Supplier : COR53 CORNELL UNIVERSITY/DIAGNOSTIC LAB
200781
	30	CR-005	50	49	1	7/12/2002	8.00	8.00
							Order Total	8.00
							Supplier Total	8.00
Supplier : MED54 MEDICAL ANALYSIS SYSTEMS INC
200784
	10	CR-005	2	0	0	6/25/2002	571.65	1,143.30
							Order Total	1,143.30
							Supplier Total	1,143.30
Supplier : MIC46 MICROGENICS CORPORATION
200799
	10	CR-005	500	0	0	7/23/2002	4.10	2,050.00
	20	CR-005	2,875	0	0	7/23/2002	0.62	1,782.50
							Order Total	3,832.50
200804
	20	CR-005	1	0	0	7/23/2002	50.00	50.00
							Order Total	50.00
							Supplier Total	3,882.50
Supplier : OME01 OMEGA ENGINEERING, INC.
200788
	20	CL-005	1	0	0	6/28/2002	87.50	87.50
							Order Total	87.50
							Supplier Total	87.50
Supplier : WEB71 WEBER MARKING SYSTEMS, INC.
200805
	10	CL-005	6	0	0	8/30/2002	91.96	551.76
							Order Total	551.76
							Supplier Total	551.76
Supplier : WES13 WESTPLEX INDUSTRIES CORP.
200806
	10	CR-001	100,000	0	0	9/6/2002	0.05	5,000.00
	20	CR-001	100,000	0	0	9/6/2002	0.05	5,000.00
	30	CR-001	15,000	0	0	9/6/2002	0.16	2,400.00
							Order Total	12,400.00
							Supplier Total	12,400.00
							Report Total	18,073.06

SCHEDULES WITH RESPECT TO REPRESENTATIONS AND WARRANTIES

OF SYNBIOTICS CORPORATION

This attached schedules (the “Disclosure Schedules”) are being furnished by Synbiotics Corporation, (“Seller”) to Danam Acquisition Corp., (“Buyer”) and Drew Scientific Group PLC, (“Parent”) in connection with the execution and delivery of that certain Asset Purchase Agreement (the “Agreement”) dated as of August 30, 2002 by and among the Buyer, Seller and Parent and contains certain specific information as required by the Agreement and exceptions to the representations and warranties of Seller in the Agreement. Unless the context otherwise requires, all capitalized terms used in this Disclosure Schedule shall have the respective meanings assigned to them in the Agreement. The word “None” when used herein denotes that no exception is taken to the particular representation or warranty.

The bold-faced headings contained in the Disclosure Schedules are included for convenience only, and are not intended to limit the effect of the disclosures contained in the Disclosure Schedules or to expand the scope of the information required to be disclosed in the Disclosure Schedules.

Where terms of an agreement, contract or other document have been described or summarized, such description or summary is not a complete statement of the material terms of the agreement, contract or other document.

80

Schedule 3.2

NO CONFLICT

6.  Section 14 of the Master Lease Agreement No. 200021859 between Seller and Copelco Capital requires the consent of Copelco Capital to assign such Master Lease Agreement. In lieu of granting its consent to assignment, Copelco Capital has requested that Buyer complete a credit application and become an approved lessee.

7.  The consent of Comerica Bank—California, successor by merger to Imperial Bank, including, the release of security interests and termination or partial release of UCC financing statements in or with respect to the Subject Assets, is required in order to consummate the transactions contemplated by the Agreement

81

Schedule 3.11

MATERIAL CONTRACTS

1.  Seller leases the premises located at 1721 Black River Blvd., Rome, New York from 1721 Black River Boulevard Corporation pursuant to an oral month-to-month lease.

2.  Equipment lease referenced in item 1 of Schedule 3.2.

3.  Seller has oral distribution relationships with respect to the Business with the distributors listed on Attachment 3.11-3 hereto (incorporated herein by reference to Exhibit 2.1(a)(v)-3 to Schedule 2.1(a)(v) of Exhibit 10.86 of this Quarterly Report on Form 10-Q).

4.  The Microlab License.

82

Schedule 3.12 (a)

INTELLECTUAL PROPERTY

(i)    Registered Seller Intellectual Property:

Patent/Application No.	Date
U.S. Patent No. 5,128,104 (CUEVETTE FOR AUTOMATED TESTING MACHINE)	Issued: July 7, 1992
CANADA Patent Application No. 2137672 (CUEVETTE FOR AUTOMATED TESTING MACHINE)	Filed June 9, 1992
Trademark/Serial No.	Date
PROCHEM, Reg. No. 2299123	Registered: December 14, 1999
QVET, Reg. No. 1902542	Registered: July 4, 1995

Unregistered Trademarks and Tradenames

PrismaSystems

ProChem Plus

ProChem V

ProCal

ProCheq

HemaCount

Prompt

(ii)    Intellectual Property Contracts

1)  Assignment of Intellectual Property between PrismaSystems Corporation, as assignor and Prisma Acquisition Corp., as assignee, dated as of May 9, 1997 (regarding Patent Nos. 5,128,104, 4,857,735 and 4,451,149). Patent Nos. 4,857,735 and 4,451,149 do not constitute a part of the Subject Assets.

2)  Assignment of Trademark and Trade Names by PrismaSystems Corporation, as assignor to Prisma Acquisition Corp., as assignee (regarding the marks PrismaSystems, ProChem, Prochem Plus, ProChem V, Qvet, ProCal, ProCheq, HemaCount, Prompt and ProCount). The mark ProCount, does not constitute a part of the Subject Assets.

3)  Employees of the Business have signed Seller’s standard form of non-disclosure agreement.

4)  The Microlab License.

The Business’ products contain components that contain certain embedded Intellectual Property of Seller’s vendors and suppliers.

See Schedule 3.13 hereto.

The U.S. PTO requires the payment of certain fees in connection with the recordation of assignments.

See Schedule 3.12(d) hereto.

Schedule 3.12 (c)

1.  See Schedule 3.12(d).

Schedule 3.12 (d)

The following Intellectual Property was, at one time the subject of pending applications filed by PrismaSystems Corp., the predecessor in interest to Prisma Acquisition Corp. which was acquired by Seller in 1998. Seller never utilized or preserved such pending applications. As a result, they have been abandoned.

Patents:

Patent/Application No.	Date
Argentine Patent No. 244.886 Application No. 322.662	Granted: November 30, [year not specified in letter] Filed: June 30, 1992
India Application. No. 364/MAS/92	Filed: June 15, 1992
Israel Application. No. 102,253	Filed: June 18, 1992
Mexico Application No. 922885	Filed: June 15, 1992
European Patent Application No. 92914088.7	June 9, 1992
Brazilian Patent Application No. 9207140-6	June 9, 1992
Pakistan Patent No. 133259 Application No. 0289/92	Accepted March 20, 1994 Filed: June 21, 1992
Taiwan Patent No. NI-60358 Application No. 81105145	Granted: January 11, 1993 Filed: June 30, 1992
Venezuela Application No. 1875/92	Filed: November 30, 1993
Japanese Patent Application International Application No. PCT/US92/0488	Filed: June 9, 1992
Australian Patent Application International Application No. PCT/US92/0488	Filed: June 9, 1992
Chinese Patent Application No. 92105281.2
Trademarks	Date
PRISMASYSTEMS LOGO, Serial No. 74153474	Filed: June 9, 1994

The following trademark was cancelled effective July 13, 2002:

QVET, Reg. No. 1902542

Schedule 3.12 (f)

See Schedule 3.12(d).

Schedule 3.13

TITLE TO PROPERTIES; CONDITION OF PROPERTIES; ABSENCE OF ENCUMBRANCES

3.13(a):

(i):  Seller leases the premises located at 1721 Black River Blvd., Rome, New York from 1721 Black River Boulevard Corporation pursuant to an oral month-to-month lease.

(ii):  See Attachment 3.13(a)(ii) hereto (incorporated herein by reference to Exhibit 2.1(a)(i) to Schedule 2.1(a)(i) of Exhibit 10.86 of this Quarterly Report on Form 10-Q).

(iii):  None.

3.13(b):

None.

Schedule 3.15

BROKERS

None.

EX-10.87

Exhibit 10.87

SECURED PROMISSORY NOTE

$500,000	San Diego, California
	August 31, 2002

FOR VALUE RECEIVED, the undersigned, Danam Acquisition Corp., a Delaware corporation (“Maker”), having its principal place of business located at 178 Christian Street, Oxford, CT 06478, hereby promises to pay to Synbiotics Corporation, a California corporation (“Holder”), having its principal place of business located at 11011 Via Frontera, San Diego, California 92127, the sum of Five Hundred Thousand Dollars ($500,000), as hereinafter provided.

This Secured Promissory Note is issued pursuant to that certain Asset Purchase Agreement (the “Purchase Agreement”), of even date herewith, among Maker, Holder and Drew Scientific Group PLC and is subject to all rights of offset as set forth in Section 6.2 of the Purchase Agreement.

The outstanding principal amount of this Secured Promissory Note (this “Secured Promissory Note”) shall be payable in sixty (60) equal monthly installments of Eight Thousand Three Hundred Thirty-Three Dollars and Thirty-Three Cents ($8,333.33), payable on the last day of each calendar month commencing on September 30, 2002 and ending on August 31, 2007, at which later time the entire principal amount of this Secured Promissory Note then outstanding together with any outstanding accrued and unpaid interest thereon shall be due and payable.

Maker hereby also promises to pay interest on the unpaid principal amount hereof in like money, payable monthly commencing on September 1, 2002 and ending with the final payment of principal due hereunder from the date hereof until payment of the principal amount hereof has been made in full, at a fixed rate of five percent (5%) per annum as set forth on Schedule A attached hereto. Interest shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed.

Principal of this Secured Promissory Note and accrued but unpaid interest thereon is payable in lawful money of the United States of America, in cash, by bank or certified check or by wire transfer of immediately available funds to the Holder at the address set forth below or, in the case of a wire transfer, to the account designated by Holder set forth below.

For Checks:

Comerica Bank—California

9920 La Cinega Blvd., Suite 623

Inglewood, California 90301

Attention: Thomas G. Kinzel, Vice President

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For Wire Transfers:

Comerica Bank—California

Wire Transfer Corporate Service Center

2015 Manhattan Beach Blvd.

Redondo Beach, California 90278-1205

ABA No. #122201444

Account No. #2505100529

Attention: Tom Kinzel; X5760

Reference: Synbiotics Corporation Loan #00708054423; Note #6

This Secured Promissory Note shall be secured by such of Maker’s assets as described in the Security Agreement of even date herewith between Maker and Holder (the “Security Agreement”), and filings reflecting such security interests shall be filed with the appropriate authorities according to the Security Agreement.

Drew Scientific Group PLC, a company organized under the laws of England and Wales (“Guarantor”), which indirectly owns one hundred percent (100%) of the issued and outstanding capital stock of Maker, has guaranteed payment of this Secured Promissory Note pursuant to that certain Guaranty of even date herewith executed by Guarantor (the “Guaranty”).

If any payment required hereunder shall become due on a Saturday, Sunday or legal holiday under the laws of the State of California, the State of Massachusetts or the United Kingdom or any other day on which banking institutions in the City of San Diego, the City of Boston or the City of London are obligated or authorized by law or executive order to close, such payment shall be made on the next succeeding business day.

If (i) Maker fails to make complete payment of any payment due hereunder on any date on which such payment is due, (ii) an order of relief under any bankruptcy, reorganization or insolvency laws has been entered against Maker by a court having jurisdiction, or (iii) Maker admits in writing its inability to pay its debts generally as they become due, files a petition for relief under any bankruptcy, reorganization or insolvency laws, consents to the filing of a bankruptcy proceeding against it or the appointment of a receiver for itself or for all or substantially all of its property, a petition in bankruptcy is filed against it or it makes an assignment for the benefit of its creditors, then, in any such event, Holder, at its option, may exercise any of its rights and remedies set forth in the Security Agreement and may accelerate this Secured Promissory Note and without notice to Maker declare the entire unpaid principal amount of this Secured Promissory Note to be immediately due and payable, whereupon the entire principal amount shall become and be forthwith due and payable, without presentment, due diligence, demand, protest or notice of any kind.

This Secured Promissory Note may be prepaid in whole or in part, without premium or penalty, at any time, but with interest accrued to the date of prepayment. Any prepayment of this Secured Promissory Note in part shall be applied to the installments of principal payable hereunder in the order of maturity thereof.

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No delay or omission of Holder in exercising any right or remedy hereunder shall constitute a waiver of any such right or remedy. Acceptance by Holder of any payment after demand therefor shall not be deemed a waiver of such demand. A waiver on one occasion shall not operate as a bar to or waiver of any such right or remedy on any future occasion.

Maker, regardless of the time, order or place of signing, waives presentment for payment, demand, notice of nonpayment, notice of dishonor, protest of any dishonor, notice of protest and protest of this Secured Promissory Note, and Maker agrees that its liability hereunder shall not be in any manner affected by any indulgences, extension of time, renewal, waiver or modification granted by Holder; and Maker consents to every extension of time, renewal, waiver or modification that may be granted by Holder with respect to the payment or other provisions of this Secured Promissory Note.

Maker agrees to pay all reasonable expenses of the Holder of this Secured Promissory Note in connection with the collection and enforcement of this Secured Promissory Note, including court costs and reasonable attorneys’ fees and disbursements.

This instrument shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to its conflicts of laws principles. Maker hereby agrees that all actions or proceedings arising in connection with this Secured Promissory Note shall be initiated and tried exclusively in the courts located in the County of San Diego, State of California. The aforementioned choice of venue is intended to be mandatory and not permissive in nature, thereby precluding the possibility of litigation between Maker and Holder with respect to or arising out of this Secured Promissory Note in any jurisdiction other than that specified in this paragraph. Maker waives any right it may have to assert the doctrine of forum non conveniens or similar doctrine or to object to venue with respect to any proceeding brought in accordance with this paragraph, and stipulates that the courts located in the County of San Diego, State of California, shall have in personam jurisdiction and venue over Maker for the purposes of litigating any dispute, controversy or proceeding arising out of or related to this Secured Promissory Note. Maker hereby authorizes and accepts service of process sufficient for personal jurisdiction in any action against it as contemplated by this paragraph by registered or certified mail, return receipt requested, postage prepaid, to its address for the giving of notices as set forth in the first paragraph of this Secured Promissory Note. Any final judgment rendered against Maker in any action or proceeding shall be conclusive as to the subject of such final judgment and may be enforced in other jurisdictions in any manner provided by law.

None of the obligations of Maker under this Secured Promissory Note, including, without limitation, Maker’s obligation to pay the indebtedness evidenced hereby nor any part thereof, may be assigned (whether by operation of law or otherwise) by Maker without the express prior written consent of Holder, and the consent to any proposed assignment shall not constitute consent to any subsequent proposed assignment. Any attempted assignment in contravention hereof shall be null and void and of no force or effect.

Holder shall have the right to freely assign this Secured Promissory Note and the right to receive the principal amount hereof and any and all accrued and unpaid interest thereon upon written notice to Maker and without seeking or obtaining any consent or approval of

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Maker; provided, however, that any such assignment shall be of this Secured Promissory Note in its entirety.

The obligations and rights contained herein shall be binding on and inure to the benefit of any permitted assigns, successors, heirs, representatives, agents and other successors in interest.

Executed as an instrument under the laws of the State of New York as of the date first above written.

DANAM ACQUISITION CORP.
By:	/s/    MICHAEL J. S. ASHER
	Michael J. S. Asher CEO

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SCHEDULE A

See attached.

08/16/2002    Page 1

Drew Loan

Compound Period	Monthly
Nominal Annual Rate	5.000%
Effective Annual Rate	5.116%
Periodic Rate	0.4167%
Daily Rate	0.01370%

CASH FLOW DATA

Event	Start Date	Amount	Number	Period	End Date
1  Loan	37,499.00	500,000.00	1
2  Payment	37,529.00	8,333.33	60	Monthly	08/31/2007
Fixed Payment (+ Interest)

AMORTIZATION SCHEDULE—Normal Amortization

	Date	Payment	Interest	Principal	Balance
Loan	08/31/2002				500,000.00
1	09/30/2002	10,416.66	2,083.33	8,333.33	491,666.67
2	10/31/2002	10,381.94	2,048.61	8,333.33	483,333.34
3	11/30/2002	10,347.22	2,013.89	8,333.33	475,000.01
4	12/31/2002	10,312.50	1,979.17	8,333.33	466,666.68
2002 Totals		41,458.32	8,125.00	33,333.32
5	01/31/2003	10,277.77	1,944.44	8,333.33	458,333.35
6	02/28/2003	10,243.05	1,909.72	8,333.33	450,000.02
7	03/31/2003	10,208.33	1,875.00	8,333.33	441,666.69
8	04/30/2003	10,173.61	1,840.28	8,333.33	433,333.36
9	05/31/2003	10,138.89	1,805.56	8,333.33	425,000.03
10	06/30/2003	10,104.16	1,770.83	8,333.33	416,666.70
11	07/31/2003	10,069.44	1,736.11	8,333.33	408,333.37
12	08/31/2003	10,034.72	1,701.39	8,333.33	400,000.04
13	09/30/2003	10,000.00	1,666.67	8,333.33	391,666.71
14	10/31/2003	9,965.27	1,631.94	8,333.33	383,333.38
15	11/30/2003	9,930.55	1,597.22	8,333.33	375,000.05
16	12/31/2003	9,895.83	1,562.50	8,333.33	366,666.72
2003 Totals		121,041.62	21,041.66	99,999.96
17	01/31/2004	9,861.11	1,527.78	8,333.33	358,333.39
18	02/29/2004	9,826.39	1,493.06	8,333.33	350,000.06
19	03/31/2004	9,791.66	1,458.33	8,333.33	341,666.73
20	04/30/2004	9,756.94	1,423.61	8,333.33	333,333.40
21	05/31/2004	9,722.22	1,388.89	8,333.33	325,000.07
22	06/30/2004	9,687.50	1,354.17	8,333.33	316,666.74
23	07/31/2004	9,652.77	1,319.44	8,333.33	308,333.41

08/16/2002    Page 2

Drew Loan

	Date	Payment	Interest	Principal	Balance
24	08/31/2004	9,618.05	1,284.72	8,333.33	300,000.08
25	09/30/2004	9,583.33	1,250.00	8,333.33	291,666.75
26	10/31/2004	9,548.61	1,215.28	8,333.33	283,333.42
27	11/30/2004	9,513.89	1,180.56	8,333.33	275,000.09
28	12/31/2004	9,479.16	1,145.83	8,333.33	266,666.76
2004 Totals		116,041.63	16,041.67	99,999.96
29	01/31/2005	9,444.44	1,111.11	8,333.33	258,333.43
30	02/28/2005	9,409.72	1,076.39	8,333.33	250,000.10
31	03/31/2005	9,375.00	1,041.67	8,333.33	241,666.77
32	04/30/2005	9,340.27	1,006.94	8,333.33	233,333.44
33	05/31/2005	9,305.55	972.22	8,333.33	225,000.11
34	06/30/2005	9,270.83	937.50	8,333.33	216,666.78
35	07/31/2005	9,236.11	902.78	8,333.33	208,333.45
36	08/31/2005	9,201.39	868.06	8,333.33	200,000.12
37	09/30/2005	9,166.66	833.33	8,333.33	191,666.79
38	10/31/2005	9,131.94	798.61	8,333.33	183,333.46
39	11/30/2005	9,097.22	763.89	8,333.33	175,000.13
40	12/31/2005	9,062.50	729.17	8,333.33	166,666.80
2005 Totals		111,041.63	11,041.67	99,999.96
41	01/31/2006	9,027.78	694.45	8,333.33	158,333.47
42	02/28/2006	8,993.05	659.72	8,333.33	150,000.14
43	03/31/2006	8,958.33	625.00	8,333.33	141,666.81
44	04/30/2006	8,923.61	590.28	8,333.33	133,333.48
45	05/31/2006	8,888.89	555.56	8,333.33	125,000.15
46	06/30/2006	8,854.16	520.83	8,333.33	116,666.82
47	07/31/2006	8,819.44	486.11	8,333.33	108,333.49
48	08/31/2006	8,784.72	451.39	8,333.33	100,000.16
49	09/30/2006	8,750.00	416.67	8,333.33	91,666.83
50	10/31/2006	8,715.28	381.95	8,333.33	83,333.50
51	11/30/2006	8,680.55	347.22	8,333.33	75,000.17
52	12/31/2006	8,645.83	312.50	8,333.33	66,666.84
2006 Totals		106,041.64	6,041.68	99,999.96
53	01/31/2007	8,611.11	277.78	8,333.33	58,333.51
54	02/28/2007	8,576.39	243.06	8,333.33	50,000.18
55	03/31/2007	8,541.66	208.33	8,333.33	41,666.85
56	04/30/2007	8,506.94	173.61	8,333.33	33,333.52
57	05/31/2007	8,472.22	138.89	8,333.33	25,000.19
58	06/30/2007	8,437.50	104.17	8,333.33	16,666.86
59	07/31/2007	8,402.78	69.45	8,333.33	8,333.53
60	08/31/2007	8,368.05	34.52	8,333.53	0.00
2007 Totals		67,916.65	1,249.81	66,666.84

08/16/2002    Page 3

Drew Loan

	Date	Payment	Interest	Principal	Balance
Grand Totals		563,541.49	63,541.49	500,000.00

Last interest amount decreased by 0.20 due to rounding.

EX-10.87.1

Exhibit 10.87.1

GUARANTY AGREEMENT

dated as of August 31, 2002

Between

DREW SCIENTIFIC GROUP PLC

and

SYNBIOTICS CORPORATION

GUARANTY AGREEMENT

Dated as of August 31, 2002

In consideration of the execution and delivery by Synbiotics Corporation of the Asset Purchase Agreement of even date herewith, DREW SCIENTIFIC GROUP PLC, a corporation organized under the laws of England and Wales, hereby agrees with SYNBIOTICS CORPORATION as follows (with certain terms used herein being defined in Article 5):

ARTICLE 1

GUARANTY

SECTION 1.1  Guaranty of Payment and Performance.    The Guarantor hereby (a) guarantees to the Guaranteed Party the due and punctual payment, observance and performance of all of the Guaranteed Obligations in accordance with their respective terms and when and as due (whether at maturity, by reason of acceleration or otherwise), or deemed to be due pursuant to Section 1.2, and (b) agrees so to pay, observe or perform the same when so due, or deemed to be due, upon demand.

SECTION 1.2  Continuance and Acceleration of Guaranteed Obligations upon Certain Events.    If:

(a)  the maker of the Promissory Note fails to timely pay any payment when due;

(b)  any event with respect to which any provision of the Asset Purchase Agreement, the Security Agreements or the Promissory Note authorizes the acceleration of the Promissory Note or any other Guaranteed Obligation;

(c)  there occurs an Event of Default (as defined in the Security Agreements) under the Security Agreements;

(d)  any injunction, stay or the like that enjoins any acceleration, or demand for the payment, observance or performance, of any Guaranteed Obligation that would otherwise be required or permitted under the Asset Purchase Agreement or the Promissory Note shall become effective; or

(e)  any Guaranteed Obligation shall be or be determined to be or become discharged, disallowed, invalid, illegal, void or otherwise unenforceable (whether by operation of any present or future law or by order of any court or governmental agency) against the Buyer;

then (i) such Guaranteed Obligations shall, for all purposes of this Agreement, be deemed (A) in the case of clause (d), to continue to be outstanding and in full force and effect notwithstanding the unenforceability thereof against the Buyer and (B) if such is not already the case, to have thereupon become immediately due and payable and to have commenced bearing interest at the post-default rate, and (ii) the Guaranteed Party may, with respect to such Guaranteed

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Obligations, exercise all of the rights and remedies hereunder that would be available to it during an Event of Default.

SECTION 1.3  Recovered Payments.    The Guaranteed Obligations shall be deemed not to have been paid, observed or performed, and the Guarantor’s obligations hereunder in respect thereof shall continue and not be discharged, to the extent that any payment, observance or performance thereof by the Buyer or any other guarantor, or out of the proceeds of any collateral, is recovered from or paid over by or for the account of the Guaranteed Party for any reason, including as a preference or fraudulent transfer or by virtue of any subordination (whether present or future or contractual or otherwise) of the Guaranteed Obligations, whether such recovery or payment over is effected by any judgment, decree or order of any court or governmental agency, by any plan of reorganization or by settlement or compromise by the Guaranteed Party (whether or not consented to by the Buyer, the Guarantor or any other guarantor) of any claim for any such recovery or payment over. The Guarantor hereby expressly waives the benefit of any applicable statute of limitations and agrees that it shall be liable hereunder with respect to any Guaranteed Obligation whenever such a recovery or payment over thereof occurs.

SECTION 1.4  Nature of Guarantor’s Obligations.    The Guarantor’s obligations hereunder (a) are absolute and unconditional, (b) constitute a guaranty of payment and performance and not a guaranty of collection, (c) are as primary obligor and not as a surety only, (d) shall be a continuing guaranty of all present and future Guaranteed Obligations and all promissory notes and other documentation given in extension or renewal or substitution for any of the Guaranteed Obligations and (e) shall be irrevocable.

SECTION 1.5  No Release of Guarantor.    THE OBLIGATIONS OF THE GUARANTOR HEREUNDER SHALL NOT BE REDUCED, LIMITED OR TERMINATED, NOR SHALL THE GUARANTOR BE DISCHARGED FROM ANY THEREOF, FOR ANY REASON WHATSOEVER (other than, subject to Sections 1.3 and 1.9, the payment, observance and performance of the Guaranteed Obligations), including (and whether or not the same shall have occurred or failed to occur once or more than once and whether or not the Guarantor shall have received notice thereof):

(a)  (i) any extension of the time of payment, observance or performance of, (ii) any amendment or modification of any of the other terms and provisions of, (iii) any release, composition or settlement (whether by way of acceptance of a plan of reorganization or otherwise) of, (iv) any subordination (whether present or future or contractual or otherwise) of, or (v) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of, the Guaranteed Obligations;

(b)  (i) any failure to obtain, (ii) any release, composition or settlement of, (iii) any amendment or modification of any of the terms and provisions of, (iv) any subordination of, or (v) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of, any other guaranties of the Guaranteed Obligations;

(c)  (i) any failure to obtain or any release of, (ii) any failure to protect or preserve, (iii) any release, compromise, settlement or extension of the time of payment of any

2

obligations constituting, (iv) any failure to perfect or maintain the perfection or priority of any lien upon, (v) any subordination of any lien upon, or (vi) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of any lien or intended lien upon, any collateral now or hereafter securing the Guaranteed Obligations or any other guaranties thereof;

(d)  any termination of or change in any relationship between the Guarantor and the Buyer, including any such termination or change resulting from a change in the ownership of the Guarantor or the Buyer or from the cessation of any commercial relationship between the Guarantor and the Buyer;

(e)  any exercise of, or any election not or failure to exercise, delay in the exercise of, waiver of, or forbearance or other indulgence with respect to, any right, remedy or power available to the Guaranteed Party, including (i) any election not or failure to exercise any right of setoff, recoupment or counterclaim, (ii) any election of remedies effected by the Guaranteed Party, including the foreclosure upon any real estate constituting collateral, whether or not such election affects the right to obtain a deficiency judgment, and (iii) any election by the Guaranteed Party in any proceeding under the Bankruptcy Code of the application of Section 1111(b)(2) of such Code; and

(f)  ANY OTHER ACT OR FAILURE TO ACT OR ANY OTHER EVENT OR CIRCUMSTANCE THAT (i) VARIES THE RISK OF THE GUARANTOR HEREUNDER OR (ii) BUT FOR THE PROVISIONS HEREOF, WOULD, AS A MATTER OF STATUTE OR RULE OF LAW OR EQUITY, OPERATE TO REDUCE, LIMIT OR TERMINATE THE OBLIGATIONS OF THE GUARANTOR HEREUNDER OR DISCHARGE THE GUARANTOR FROM ANY THEREOF.

SECTION 1.6  Certain Waivers.    The Guarantor waives:

(a)  any requirement, and any right to require, that any right or power be exercised or any action be taken against the Buyer, any other guarantor or any collateral for the Guaranteed Obligations;

(b)  (i) notice of acceptance of and intention to rely on this Agreement, (ii) notice of the making or renewal of any loans or other extensions of credit in connection with or in furtherance of the Asset Purchase Agreement, and notice of the incurrence or renewal of any other Guaranteed Obligations, (iii) notice of any of the matters referred to in Section 1.5 and (iv) all other notices that may be required by applicable Law or otherwise to preserve any rights against the Guarantor under this Agreement, including any notice of default, demand, dishonor, presentment and protest;

(c)  diligence;

(d)  any defense based upon, arising out of or in any way related to (i) any claim that any election of remedies by the Guaranteed Party, including the exercise by the Guaranteed Party of any rights against any collateral, impaired, reduced, released or otherwise extinguished any right that the Guarantor might otherwise have had against the Buyer or any other guarantor or against any collateral, including any right of subrogation, exoneration, reimbursement or contribution or right to obtain a deficiency judgment, (ii) any claim based

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upon, arising out of or in any way related to any of the matters referred to in Section 1.5 and (iii) any claim that this Agreement should be strictly construed against the Guaranteed Party; and

(e)  OTHER THAN BUYER’S OFFSET RIGHTS SET FORTH IN THE ASSET PURCHASE AGREEMENT AND THE PROMISSORY NOTE, ALL OTHER DEFENSES UNDER APPLICABLE LAW THAT WOULD, BUT FOR THIS CLAUSE (e), BE AVAILABLE TO THE GUARANTOR AS A DEFENSE AGAINST OR A REDUCTION OR LIMITATION OF ITS OBLIGATIONS HEREUNDER.

SECTION 1.7  Independent Credit Evaluation.    The Guarantor has independently, and without reliance on any information supplied by the Guaranteed Party, taken, and will continue to take, whatever steps it deems necessary to evaluate the financial condition and affairs of the Buyer, and the Guaranteed Party shall have no duty to advise the Guarantor of information at any time known to it regarding such financial condition or affairs.

SECTION 1.8  Subordination of Rights Against the Buyer, Other Guarantors and Collateral.    All rights that the Guarantor may at any time have against the Buyer, any other guarantor or any collateral for the Guaranteed Obligations (including rights of subrogation, exoneration, reimbursement and contribution and whether arising under applicable Law or otherwise), and all obligations that the Buyer or any other guarantor may at any time have to the Guarantor, are hereby expressly subordinated to the prior payment, observance and performance in full of the Guaranteed Obligations. The Guarantor shall not enforce any of the rights, or attempt to obtain payment or performance of any of the obligations, subordinated pursuant to this Section 1.10 until the Guaranteed Obligations have been paid, observed and performed in full, except that such prohibition shall not apply to routine acts, such as the giving of notices and the filing of continuation statements, necessary to preserve any such rights. If any amount shall be paid to or recovered by the Guarantor (whether directly or by way of setoff, recoupment or counterclaim) on account of any right or obligation subordinated pursuant to this Section 1.8, such amount shall be held in trust by the Guarantor for the benefit of the Guaranteed Party, not commingled with any of the Guarantor’s other funds and forthwith paid over to the Guaranteed Party, in the exact form received, together with any necessary endorsements, to be applied and credited against, or held as security for, the Guaranteed Obligations and the obligations of the Guarantor hereunder.

SECTION 1.9  Payments by the Guarantor.

(a)  Time, Place and Manner.    All payments due to the Guaranteed Party hereunder shall be made to the Guaranteed Party at the Guaranteed Party’s office or at such other address as the Guaranteed Party may designate by notice to the Guarantor. A payment shall not be deemed to have been made on any day unless such payment has been received by the Guaranteed Party, at the required place of payment, in Dollars in funds immediately available to the Guaranteed Party, no later than 12:00 noon (New York time) on such day.

(b)  No Reductions.    Subject to Buyer’s offset rights set forth in the Asset Purchase Agreement and the Promissory Note, all payments due the Guaranteed Party hereunder, and all of the other terms, conditions, covenants and agreements to be observed and performed by the Guarantor hereunder, shall be made, observed or performed by the Guarantor without any

4

reduction or deduction whatsoever, including any reduction or deduction for any set-off, recoupment, counterclaim (whether, in any case, in respect of an obligation owed by the Guaranteed Party to the Guarantor, the Buyer or any other guarantor and, in the case of a counterclaim, whether sounding in tort, contract or otherwise) or tax.

(c)  Authorization to Charge Accounts.    The Guarantor hereby authorizes the Guaranteed Party, if and to the extent any amount payable by the Guarantor hereunder is not otherwise paid when due, to charge such amount against any or all of the accounts of the Guarantor with the Guaranteed Party or any of its Affiliates (whether maintained at a branch or office located within or without the United States), with the Guarantor remaining liable for any deficiency.

(d)  Extension of Payment Dates.    Whenever any payment to the Guaranteed Party hereunder would otherwise be due (except by reason of acceleration) on a day that is not a Business Day, such payment shall instead be due on the next succeeding Business Day. If the date any payment hereunder is due is extended (whether by operation of this Agreement, applicable Law or otherwise), such payment shall bear interest for such extended time at the rate of interest applicable hereunder.

ARTICLE 2

CERTAIN REPRESENTATIONS AND WARRANTIES

The Guarantor represents and warrants as follows:

SECTION 2.1  Organization; Power; Qualification.    The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has the corporate power and authority to own its property and to carry on its business as now being and hereafter proposed to be conducted and is duly qualified and in good standing as a foreign corporation, and authorized to do business, in all jurisdictions in which the character of its property or the nature of its business requires such qualification or authorization, except for qualifications and authorizations the lack of which, singly or in the aggregate, has not had and will not have a Material Adverse Effect on the Guarantor.

SECTION 2.2  Authorization; Enforceability; Required Consents; Absence of Conflicts.    The Guarantor has the power, and has taken all necessary action (including, if a corporation, any necessary stockholder action) to authorize it, to execute, deliver and perform in accordance with its terms this Agreement. This Agreement has been duly executed and delivered by the Guarantor and is a legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally. The execution, delivery and performance in accordance with its terms by the Guarantor of this Agreement do not and (absent any change in any applicable Law or applicable contract) will not (a) require any governmental approval or any other consent or approval, including any consent or approval of the stockholders of the Guarantor or any of its subsidiaries, to have been obtained or any governmental registration to have been made, by the Guarantor or any of its subsidiaries, or (b) violate, conflict with, result in a breach of, constitute a default under, or result in or require the creation of any lien upon any assets of the Guarantor

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under, (i) any contract to which the Guarantor or any of its subsidiaries is a party or by which the Guarantor or any of its subsidiaries or any of their respective properties may be bound or (ii) any applicable Law.

ARTICLE 3

CERTAIN COVENANTS

SECTION 3.1  Preservation of Existence and Franchises, Scope of Business, Compliance with Law, Preservation of Enforceability.    From the Agreement Date and until the Termination Date, the Guarantor shall: (a) preserve and maintain its corporate existence and all of its other franchises, licenses, rights and privileges, (b) engage only in businesses in substantially the same fields as the businesses conducted on the Agreement Date, (c) comply with all applicable Law and (d) take all action and obtain all consents and governmental approvals required so that its obligations hereunder will at all times be legal, valid and binding and enforceable in accordance with their respective terms, except that clauses (a) (except insofar as it requires the Guarantor to preserve its corporate existence) and (c) of this Section 3.1 shall not apply in any circumstance where noncompliance, together with all other noncompliances with this Section 3.1, will not have a Material Adverse Effect on the Guarantor.

ARTICLE 4

MISCELLANEOUS

SECTION 4.1  Notices and Deliveries.

(a)  Manner of Delivery.    All notices, communications and materials (including all Information) to be given or delivered pursuant to this Agreement shall, except in those cases where giving notice by telephone is expressly permitted, be given or delivered in writing (which shall include telex and telecopy transmissions). Demands under Section 1.1(b) may be by telephone. In the event of a discrepancy between any telephonic notice and any written confirmation thereof, such written confirmation shall be deemed the effective notice except to the extent that the Guaranteed Party has acted in reliance on such telephonic notice.

(b)  Addresses.    All notices, communications and materials to be given or delivered pursuant to this Agreement shall be given or delivered at the following respective addresses and telex, telecopier and telephone numbers and to the attention of the following individuals or departments:

(i)  if to the Guarantor, to it at:

  Drew Scientific Group PLC

  Park Road, Barrow In Furness

  Cumbria, LA14 4QR

  United Kingdom

  Telecopier No.: 011-44-1229-432096

  Telephone No.: 011-44-1229-432089

  Attention: Michael J. Sipple-Asher

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(ii)  if to the Guaranteed Party, to it at the address or telex, telecopier or telephone number and to the attention of the individual or department set forth as the notice address for the Guaranteed Party in Section 7.3 of the Asset Purchase Agreement;

or at such other address or telex, telecopier or telephone number or to the attention of such other individual or department as the party to which such information pertains may hereafter specify for the purpose in a notice to the other specifically captioned “Notice of Change of Address”.

(c)  Effectiveness.    Each notice and communication and any material to be given or delivered pursuant to this Agreement shall be deemed so given or delivered (i) if sent by registered or certified mail, postage prepaid, return receipt requested, on the third Business Day after such notice, communication or material, addressed as above provided, is delivered to a United States post office and a receipt therefor is issued thereby, (ii) if sent by any other means of physical delivery, when such notice, communication or material is delivered to the appropriate address as above provided, (iii) if sent by telex, when such notice, communication or material is transmitted to the appropriate number determined as above provided in this Section 4.1 and the appropriate answer-back is received, (iv) if sent by telecopier, when such notice, communication or material is transmitted to the appropriate telecopier number as above provided and is received at such number and (v) if given by telephone, when communicated to the individual or any member of the department specified as the individual or department to whose attention notices, communications and materials are to be given or delivered, except that (A) notices of a change of address, telex, telecopier or telephone number or individual or department to whose attention notices, communications and materials are to be given or delivered shall not be deemed given until received and (B) notices, communications and materials to be given or delivered to the Guaranteed Party pursuant to this Agreement shall not be deemed given or delivered until received by the officer of the Guaranteed Party responsible, at the time, for the administration of the Promissory Note.

(d)  Reasonable Notice.    Any requirement under applicable Law of reasonable notice by the Guaranteed Party to the Guarantor of any event in connection with, or in any way related to, the Asset Purchase Agreement or the Promissory Note, or the exercise by the Guaranteed Party of any of its rights thereunder shall be met if notice of such event is given to the Guarantor in the manner prescribed above at least 10 days before (i) the date of such event or (ii) the date after which such event will occur.

SECTION 4.2  Expenses; Indemnification.    The Guarantor shall:

(a)  pay or reimburse the Guaranteed Party for all reasonable costs and expenses (including fees and disbursements of legal counsel, appraisers, accountants and other experts employed or retained by the Guaranteed Party) incurred by the Guaranteed Party in connection with, arising out of, or in any way related to protecting, preserving, exercising or enforcing any of its rights under or related to this Agreement; and

(b)  indemnify and hold each Indemnified Person harmless from and against all losses (including judgments, penalties and fines) suffered, and pay or reimburse each Indemnified Person for all costs and expenses (including fees and disbursements of legal counsel

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and other experts employed or retained by such Indemnified Person) incurred, by such Indemnified Person in connection with, arising out of, or in any way related to (i) any Guaranty Agreement Related Claim (whether asserted by such Indemnified Person or the Guarantor or any other Person), including the prosecution or defense thereof and any litigation or proceeding with respect thereto (whether or not, in the case of any such litigation or proceeding, such Indemnified Person is a party thereto), or (ii) any investigation, governmental or otherwise, arising out of, related to, or in any way connected with, this Agreement or the relationship established hereunder, except that the foregoing indemnity shall not be applicable to any loss suffered by any Indemnified Person to the extent such loss is determined by a judgment of a court that is binding on the Guarantor and such Indemnified Person, final and not subject to review on appeal, to be the result of acts or omissions on the part of such Indemnified Person constituting (A) willful misconduct, (B) knowing violations of law or (C) in the case of claims by the Guarantor against such Indemnified Person, such Indemnified Person’s failure to observe any other standard applicable to it under any of the other provisions of this Agreement or, but only to the extent not waivable thereunder, Applicable Law.

SECTION 4.3  Amounts Payable Due upon Request for Payment.    All amounts payable by the Guarantor under Section 4.2 and under the other provisions of this Agreement shall, except as otherwise expressly provided, be immediately due upon request for the payment thereof.

SECTION 4.4  Remedies of the Essence.    The various rights and remedies of the Guaranteed Party under this Agreement are of the essence of this Agreement, and the Guaranteed Party shall be entitled to obtain a decree requiring specific performance of each such right and remedy.

SECTION 4.5  Rights Cumulative.    Each of the rights and remedies of the Guaranteed Party under this Agreement shall be in addition to all of its other rights and remedies under this Agreement and applicable Law, and nothing in this Agreement shall be construed as limiting any such rights or remedies.

SECTION 4.6  Amendments; Waivers.    Any term, covenant, agreement or condition of this Agreement may be amended, and any right under this Agreement may be waived, if, but only if, such amendment or waiver is in writing and is signed by the Guaranteed Party and, in the case of an amendment, by the Guarantor. Unless otherwise specified in such waiver, a waiver of any right under this Agreement shall be effective only in the specific instance and for the specific purpose for which given. No election not to exercise, failure to exercise or delay in exercising any right, nor any course of dealing or performance, shall operate as a waiver of any right of the Guaranteed Party under this Agreement or applicable Law, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right of the Guaranteed Party under this Agreement or applicable Law.

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SECTION 4.7 Assignments.

(a)  Assignments.

(i)  Neither this Agreement nor any of the obligations of Guarantor hereunder may be delegated or assigned (whether by operation of law or otherwise) by Guarantor without the express prior written consent of the Guaranteed Party, and the consent to any proposed assignment shall not constitute consent to any subsequent proposed assignment. Any attempted assignment in contravention hereof shall be null and void and of no force or effect. No assignment of any obligation under this Agreement shall release the Guarantor therefrom unless the Guaranteed Party shall have consented to such release in a writing specifically referring to the obligation from which the Guarantor is to be released.

(ii)    The Guaranteed Party shall have the right to assign this Agreement and its rights hereunder and without seeking or obtaining any consent or approval of Guarantor; provided, however, that any such assignment shall be an assignment of the Promissory Note and this Agreement in their entirety.

(b)  Rights of Assignees.    Each assignee of the rights of the Guaranteed Party under this Agreement, if and to the extent the applicable assignment agreement so provides, (i) shall, with respect to its assignment, be entitled to all of the rights of the Guaranteed Party, subject to any conditions imposed on the Guaranteed Party hereunder with respect thereto, and (ii) may exercise any and all rights of set-off or banker’s lien with respect thereto.

SECTION 4.8  Governing Law.    The rights and duties of the Guarantor and the Guaranteed Party under this Agreement (including matters relating to the Maximum Permissible Rate) shall, pursuant to New York General Obligations Law Section 5-1401, be governed by the laws of the State of New York, without regard to its conflicts of laws principles.

SECTION 4.9  Judicial Proceedings; Waiver of Jury Trial.    Any judicial proceeding brought against the Guarantor with respect to any Guaranty Agreement Related Claim may be brought in any court of competent jurisdiction in the County of San Diego, State of California, and, by execution and delivery of this Agreement, the Guarantor (a) accepts, generally and unconditionally, the nonexclusive jurisdiction of such courts and any related appellate court and agrees to be bound by any final judgment rendered thereby in connection with any Guaranty Agreement Related Claim and (b) irrevocably waives any objection it may now or hereafter have as to the venue of any such proceeding brought in such a court or that such a court is an inconvenient forum. The Guarantor hereby waives personal service of process and consents that service of process upon it may be made by certified or registered mail, return receipt requested, at its address specified or determined in accordance with the provisions of Section 4.1(b), and service so made shall be deemed completed on the third Business Day after such service is deposited in the mail. Nothing herein shall affect the right of the Guaranteed Party or any other Indemnified Person to serve process in any other manner permitted by law or shall limit the right of the Guaranteed Party or any other Indemnified Person to bring proceedings against the Guarantor in the courts of any other jurisdiction. Any judicial proceeding by the Guarantor against the Guaranteed Party involving any Guaranty Agreement Related Claim shall be brought only in a court located in the County of San Diego, State of California. THE GUARANTOR

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AND THE GUARANTEED PARTY HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE BOTH PARTIES INVOLVING ANY GUARANTY AGREEMENT RELATED CLAIM.

SECTION 4.10  Severability of Provisions.    Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by applicable Law, the Guarantor hereby waives any provision of applicable Law that renders any provision hereof prohibited or unenforceable in any respect.

SECTION 4.11  Counterparts.    This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument.

SECTION 4.12  Survival of Obligations.    Except as otherwise expressly provided herein, the rights and obligations of the Guarantor, the Guaranteed Party and the other Indemnified Persons hereunder shall survive the Termination Date.

SECTION 4.13  Entire Agreement.    This Agreement embodies the entire agreement between the Guarantor and the Guaranteed Party relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof.

SECTION 4.14  Successors and Assigns.    All of the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

ARTICLE 5

INTERPRETATION

SECTION 5.1  Definitional Provisions.

(a)  Certain Terms Defined by Reference.    Except in the case of “Agreement”, “Agreement Date” and “Representation and Warranty” and as otherwise specified herein, all terms defined in the Asset Purchase Agreement and the Promissory Note are used herein with the meanings therein ascribed to them.

(b)  Other Defined Terms.    For purposes of this Agreement:

“Agreement” means this Agreement, including all schedules, annexes and exhibits hereto.

“Agreement Date” means the date set forth as such on the last signature page hereof.

“Asset Purchase Agreement” means the Asset Purchase Agreement of even date herewith, among Guarantor, Danam Acquisition Corp. and Synbiotics Corporation.

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“Business Day” means any day other than a Saturday, Sunday or any other day on which banks in New York City are authorized to close.

“Buyer” means Danam Acquisition Corp., a Delaware corporation and an indirect, wholly-owned subsidiary of Guarantor.

“Guaranteed Obligations” means all obligations of the Buyer owing to, or in favor or for the benefit of, or purporting to be owing to, or in favor or for the benefit of, the Guaranteed Party, or any Person or Persons that become the Guaranteed Party by reason of any succession or assignment at any time after the Agreement Date, under the Asset Purchase Agreement, the Security Agreements and the Promissory Note (after taking into account such setoffs as may be permitted under the Asset Purchase Agreement), in each case (i) WHETHER NOW EXISTING OR HEREAFTER ARISING OR ACQUIRED and (ii) WHETHER OR NOT AN ALLOWABLE CLAIM AGAINST THE BUYER UNDER THE BANKRUPTCY CODE OR OTHERWISE ENFORCEABLE AGAINST THE BUYER, AND INCLUDING, IN ANY EVENT, INTEREST AND OTHER LIABILITIES ACCRUING OR ARISING AFTER THE FILING BY OR AGAINST THE BUYER OF A PETITION UNDER THE BANKRUPTCY CODE OR THAT WOULD HAVE SO ACCRUED OR ARISEN BUT FOR THE FILING OF SUCH A PETITION.

“Guaranteed Party” means Synbiotics Corporation, a California corporation.

“Guaranteed Party’s Office” means the address of the Guaranteed Party determined in accordance with the provisions of Section 4.1(b).

“Guarantor” means Drew Scientific Group PLC, a corporation organized under the laws of England and Wales.

“Guaranty Agreement Related Claim” means any claim (whether civil, criminal or administrative and whether sounding in tort, contract or otherwise) in any way arising out of, related to, or connected with, this Agreement or the relationship established hereunder, whether such claim arises or is asserted before or after the Agreement Date or before or after the Termination Date.

“Indemnified Person” means any Person that is, or at any time was, the Guaranteed Party, an Affiliate of the Guaranteed Party, or a director, officer, employee or agent of any such Person.

“Promissory Note” means the secured promissory note in the face amount of $500,000 executed by Buyer pursuant to the Asset Purchase Agreement.

“Representation and Warranty” means each representation or warranty made pursuant to or under (i) Article 2 or any other provision of this Agreement or (ii) any amendment to, or waiver of rights under, this Agreement, WHETHER OR NOT, IN THE CASE OF ANY REPRESENTATION OR WARRANTY REFERRED TO IN CLAUSE (i) OR (ii) OF THIS DEFINITION (EXCEPT, IN EACH CASE, TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED), THE INFORMATION THAT IS THE SUBJECT MATTER THEREOF IS WITHIN THE KNOWLEDGE OF THE GUARANTOR.

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“Security Agreements” means the Security Agreement of even date herewith between Danam Acquisition Corp. and Synbiotics Corporation and the Patent and Trademark Security Agreement of even date herewith between Danam Acquisition Corp. and Synbiotics Corporation.

“Termination Date” means the date on which all Guaranteed Obligations are fully paid, satisfied, observed and performed in all respects.

SECTION 5.2  Other Interpretative Provisions.

(a)  Except as otherwise specified herein, all references herein (i) to any Person shall be deemed to include such Person’s successors and assigns, (ii) to any applicable Law defined or referred to herein shall be deemed references to such applicable Law or any successor applicable Law as the same may have been or may be amended or supplemented from time to time and (iii) to any document or contract defined or referred to herein shall be deemed references to such document or contract (and, in the case of any instrument, any other instrument issued in substitution therefor) as the terms thereof may have been or may be amended, supplemented, waived or otherwise modified from time to time.

(b)  When used in this Agreement, the words “herein”, “hereof” and “hereunder” and words of similar import shall refer to this Agreement as a whole and not to any provision of this Agreement, and the words “Article”, “Section”, “Annex”, “Schedule” and “Exhibit” shall refer to Articles and Sections of, and Annexes, Schedules and Exhibits to, this Agreement unless otherwise specified.

(c)  Whenever the context so requires, the neuter gender includes the masculine or feminine, the masculine gender includes the feminine, and the singular number includes the plural, and vice versa.

(d)  Any item or list of items set forth following the word “including”, “include” or “includes” is set forth only for the purpose of indicating that, regardless of whatever other items are in the category in which such item or items are “included”, such item or items are in such category, and shall not be construed as indicating that the items in the category in which such item or items are “included” are limited to such items or to items similar to such items.

(e)  Each authorization in favor of the Guaranteed Party or any other Person granted by or pursuant to this Agreement shall be deemed to be irrevocable and coupled with an interest.

(f)  Except as otherwise indicated, any reference herein to the “Guaranteed Obligations”, the “Asset Purchase Agreement” or the “Promissory Note” or any other collective or plural term shall be deemed a reference to each and every item included within the category described by such collective or plural term, so that (i) a reference to the “Guaranteed Obligations” shall be deemed a reference to any or all of the Guaranteed Obligations; and (ii) a reference to the “obligations” under the “Asset Purchase Agreement” or the “Promissory Note” shall be deemed a reference to each and every obligation thereunder.

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(g)  Except as otherwise specified therein, all terms defined in this Agreement shall have the meanings herein ascribed to them when used in any certificate, opinion or other document delivered pursuant hereto or thereto.

SECTION 5.3  Representations and Warranties.    All Representations and Warranties shall be deemed made (a) in the case of any Representation and Warranty contained in this Agreement at the time of its initial execution and delivery, at and as of the Agreement Date, and (b) in the case of any particular Representation and Warranty, wherever contained, at such other time or times as such Representation and Warranty is made or deemed made in accordance with the provisions of this Agreement or the document pursuant to, under or in connection with which such Representation and Warranty is made or deemed made.

SECTION 5.4  Captions.    Captions to Articles, Sections and subsections of, and Annexes, Schedules and Exhibits to, this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or in any way affect the meaning or construction of any provision of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers all as of the Agreement Date.

DREW SCIENTIFIC GROUP PLC
By:	/s/    MICHAEL J. S. ASHER
	Michael J. S. Asher CEO

SYNBIOTICS CORPORATION
By:	/s/    PAUL A. ROSINACK
	Paul A. Rosinack President & CEO

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EX-10.87.2

Exhibit 10.87.2

ASSIGNMENT OF NOTE AND GUARANTY

This ASSIGNMENT OF NOTE AND GUARANTY (this “Assignment”) is made and entered into as of August 31, 2002, in favor of Comerica Bank—California, a California Banking corporation, (“Bank”) by Synbiotics Corporation, a California corporation (the “Borrower”).

WITNESSETH:

WHEREAS, the Borrower and the Bank have entered into that certain Credit Agreement dated as of April 12, 2000, as amended by that certain First Amendment to Credit Agreement dated as of April 18, 2000, and by that certain Second Amendment to Credit Agreement dated as of November 14, 2000, and by that certain Third Amendment to Credit Agreement dated as of January 25, 2002 (the “Third Amendment”), and all documents, notes and agreements relating thereto (“Loan Documents”); and

WHEREAS, Bank has a fully perfected first position lien and security interest in substantially all of Borrower’s assets; and

WHEREAS, Borrower is freely and voluntarily negotiating with Danam Acquisition Corp. and Drew Scientific Group PLC (“Buyers”) to sell Buyers certain assets located in New York for a purchase price comprised of: (i) the assumption of certain liabilities; and (ii) five Hundred Thousand Dollars ($500,000). Borrower and Buyers are drafting an agreement to reflect this purpose which is dated the same date as this Assignment (“Purchase Agreement”). The assets to be sold to Buyers pursuant to the Purchase Agreement (“Subject Assets”) constitute a portion of the Bank’s collateral for the payment and performance of the monetary and other obligations under the Loan Documents (“Collateral”); and

WHEREAS, Borrower has requested the Bank’s consent to the sale of the Subject Assets and pursuant thereto the Bank and Borrower have entered into a Consent Agreement immediately prior to the execution of this Assignment; and

WHEREAS, the execution of this Assignment is one of the terms and conditions of the Consent Agreement.

NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower agrees as follows:

1.  Transfer and Assignment.    As replacement security for certain Collateral being sold, but without limiting any rights Bank may have in the Collateral Documents (defined below) or under the Loan Documents, the Borrower hereby delivers to and deposits with Bank that certain Secured Promissory Note of even date from Danam Acquisition Corp. (“Maker”) in the principal amount of $500,000 (“Pledged Note”), and hereby assigns and grants to Bank, a

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security interest in and security title to all of its rights, title and interest in and to the Pledged Note, together with all collateral securing, and guarantees of, the Pledged Note, including, all rights, title and interest of the Borrower pursuant to that certain Security Agreement executed by Maker and that certain Patent and Trademark Security Agreement executed by Maker (collectively, the “Security Agreements”) and that certain Guaranty (“Guaranty”) from Drew Scientific Group PLC of even date (collectively, the “Collateral Documents”) for the purpose of securing all of the obligations and Indebtedness (as that term is defined in the Loan Documents) under the Loan Documents. The Pledged Note, Guaranty and Security Agreements are attached hereto as Exhibits A, B and C respectively.

2.  Notice to Maker.    The Borrower has as of this date notified the Buyers of the execution of this Assignment and the pledge of the Pledged Note and Collateral Documents to Bank and has directed the Buyers to make all payments of principal and interest due under the Pledged Note and Collateral Documents directly to the Bank as set forth in the Pledged Note. The Borrower further agrees from time to time to execute any and all assignment or other forms or documents that Bank may deem necessary or appropriate to assign the Pledged Note, any Collateral Document, or proceeds thereof to Bank.

3.  Warranties of the Borrower.    The Borrower hereby warrants to Bank as follows:

(a)  The Borrower has not assigned or subordinated to any Person, other than Bank, any of its rights under the Pledged Note or any Collateral Document;

(b)  The Borrower has not done or omitted to do any act so as to be estopped from exercising any of its rights under the Pledged Note or any Collateral Document;

(c)  No action has been brought or threatened which might prohibit or interfere with the execution and delivery of this Assignment or the performance or discharge of the obligations, duties, covenants, agreements, and liabilities contained herein or in the Pledged Note or any Collateral Document;

(d)  This Assignment, the Purchase Agreement, the Pledged Note and all Collateral Documents are legal, valid, and binding instruments payable and enforceable in accordance with their terms, with no claims, defenses or set-offs with respect thereto except as specifically set forth in the Purchase Agreement, Pledged Note or the Collateral Documents;

(e)  The Borrower has full power and authority to execute and deliver this Assignment, and the execution and delivery hereof does not conflict with any agreement to which the Borrower is a party or any law, order, ordinance, rule, or regulation to which the Borrower is subject or bound, and does not constitute a default under the Pledged Note, any Collateral Document or any other agreement or instrument binding upon the Borrower; and

(f)  There are no liens or other encumbrances affecting the Pledged Note or the Collateral Documents.

4.  Covenants of the Borrower.    The Borrower hereby covenants and agrees as follows:

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(a)  To refrain from renewing, extending, modifying, or amending the Pledged Note or any Collateral Document, and from granting any consents, waivers, or releases therefrom or with respect thereto, without the prior written consent of Bank in each case;

(b)  To appear in and defend any action arising out of or in any manner related to the Pledged Note or any Collateral Document; and

(c)  To execute and deliver such other documentation and such further assurances as Bank shall from time to time require in order to preserve and maintain the security provided hereby.

5.  Rights of Bank upon Default.    Upon the occurrence of an Event of Default under the Loan Documents, Bank may, at its option, without notice, and in addition to its remedies under the Loan Documents, do the following:

(a)  Proceed to exercise any and all of the Borrower’s rights under the Pledged Note and/or any Collateral Document for such period of time as Bank may deem appropriate, with or without the bringing of any legal action in or the appointment of any receiver by any court;

(b)  Do all other acts which Bank may deem necessary or proper to protect Bank’s security interest in the Pledged Note and the Collateral Documents;

(c)  Sell the Pledged Note and/or any Collateral Document in any manner permitted by the Uniform Commercial Code (the “Code”) as enacted in the State of California; provided however, that any such sale shall be of the Pledged Note and/or any Collateral Document in its entirety. Upon any such sale, as applicable, Bank may bid for and purchase the Pledged Note and/or any Collateral Document and apply the proceeds of any sale to the expenses of such sale (including, without limitation, attorneys’ fees) first, and the remainder, if any, as set forth in the Loan Documents; and

(d)  Proceed by suit or suits at law or in equity or by any other appropriate proceeding or remedy to enforce payment of the Pledged Note and/or any Collateral Document and the performance of any term, covenant, condition, or agreement contained herein or therein, and institution of such a suit or suits shall not abrogate the rights of Bank to pursue any other remedies herein granted or to pursue any other remedy available to Bank either at law or in equity.

(e)  In addition, and without limiting the generality of the foregoing, if an Event of Default under the Loan Documents shall have occurred, Bank may exercise as to the Pledged Note and/or any Collateral Document all of the rights, powers, and remedies of the owner thereof, including, without limitation, the following:

(i)  the right to declare the entire unpaid balance of the Pledged Note and/or any Collateral Document immediately due and payable if the same may be accelerated in accordance with the terms of such Pledged Note and the right to proceed against any guarantor of, or any collateral securing, the Pledged Note;

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(ii)  the right to receive the unpaid balance or any part thereof or any interest becoming due and payable thereupon of the Pledged Note and/or any Collateral Document, and upon receipt of the entire unpaid indebtedness evidenced thereby to execute, acknowledge, and deliver, in its own name and on behalf of the Borrower, a satisfaction of the Pledged Note and/or any Collateral Document, or an assignment thereof in form to be recorded, and to retain for its own use the sums so received by it and to apply such sums on account of the Indebtedness; and

(iii)  the right to settle, compromise or release the Pledged Note or any amount due thereunder, or any Collateral Document, in its own name or the name of the Borrower.

6.  Power of Attorney.    The Borrower hereby appoints Bank as its attorney-in-fact to take such actions and execute such documents as Bank may reasonably deem appropriate in the exercise of the rights and powers granted to Bank herein. The power of attorney granted hereby shall be irrevocable and coupled with an interest and shall terminate upon the termination of this Assignment as set forth herein. The Borrower shall indemnify and hold Bank harmless for all losses, costs, damages, fees, and expenses suffered or reasonably incurred in connection with the exercise of this power of attorney and shall release Bank from any and all liability arising in connection with the exercise of this power of attorney; provided, however, the Borrower shall have no obligation to indemnify or release Bank from costs incurred as a result of Bank’s gross negligence or willful misconduct as determined by a final order of a court of competent jurisdiction.

7.  Termination.    Upon payment in full in cash of the Indebtedness and termination of the Loan Documents, this Assignment shall become null and void and Bank shall forthwith execute appropriate documents so providing and shall return the Pledged Note and any Collateral Document, if it has not been paid in full, with appropriate endorsements thereon, together with any proceeds thereof held by Bank and not theretofore applied against the Indebtedness, to the Borrower.

8.  Release.    Without prejudice to any of Bank’s rights under this Assignment, Bank may take or release other security for the payment of the Indebtedness and may apply any other security held by Bank to the satisfaction of the Indebtedness.

9.  No Waiver.    Nothing contained in this Assignment and no act done or omitted by Bank pursuant to the powers and rights granted to Bank hereunder shall be deemed to be a waiver by Bank of Bank’s rights and remedies under any of the Loan Documents or otherwise, and this Assignment is made and accepted without prejudice to any of the rights or remedies granted to Bank in any other document or agreement including, without limitation, the Loan Documents. In addition to the right to receive payments on the Pledged Note and the Collateral Documents as provided in Section 2 of this Assignment, the rights of Bank to collect the Indebtedness and to enforce any other security held therefor by Bank upon the occurrence of an Event of Default under the Loan Documents may be exercised by Bank either prior to, simultaneously with, or subsequent to any action taken by Bank hereunder. It is intended that this paragraph be broadly construed so that all rights, powers, and remedies herein provided or otherwise available to Bank upon the occurrence of an Event of Default under the Loan

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Documents shall continue and be available to Bank until such time as the Indebtedness has been paid in full and the Loan Documents has been terminated.

10.  No Change.    Nothing in this Assignment shall be construed to limit Borrower’s obligations under the Loan Documents except amounts received by Bank pursuant to this Assignment shall be credited against amounts due under the Loan Documents. Borrower shall continue to perform all of its obligations under the Loan Documents.

11.  Notices.    All notices and other communications required or permitted hereunder shall be given in the manner and to the addresses set forth in the Loan Documents.

12.  Modification.    Neither this Assignment nor any provision hereof may be changed orally but only by a written instrument signed by Bank and the Borrower.

13.  Time of the Essence.    Time is of the essence of this Assignment.

14.  Governing Law.    This Assignment shall be governed by and construed and enforced in accordance with the laws of the State of California without regard to the conflict of laws principles thereof.

15.  Counterparts.    This Assignment may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. Delivery of a counterpart hereof by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

16.  Private Sale.    The Borrower recognizes that Bank may be unable to effect a public sale of the Pledged Note and/or the Collateral Documents by reason of certain provisions contained in the federal Securities Act of 1933, as amended, and applicable state securities laws and, under the circumstances then existing, may reasonably resort to a private sale to a restricted group of purchasers who will each be obliged to agree, among other things, to acquire such Pledged Note and/or the Collateral Documents for its own account for investment and not with a view to the distribution or resale thereof. The Borrower agrees that a private sale so made may be at a price and on other terms less favorable to the seller than if such Pledged Note and/or the Collateral Documents were sold at public sale and that Bank has no obligation to delay sale of the Pledged Note and/or the Collateral Documents for the period of time necessary to permit the Maker, even if the Maker would agree, to register or qualify the Pledged Note and/or the Collateral Documents for public sale under the Securities Act of 1933, as amended, and applicable state securities laws. The Borrower agrees that a private sale made under the foregoing circumstances and otherwise in a commercially reasonable manner under the Uniform Commercial Code shall be deemed to have been made in a commercially reasonable manner under the Uniform Commercial Code.

17.  Paragraph Titles.    The paragraph titles herein are for convenience of reference only, and shall not affect in any way the interpretation of any of the provisions hereof.

18.  Capitalized Terms.    Capitalized terms shall bear the meaning given them in the Loan Documents unless separately defined herein.

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19.  Reference.    The Bank and Borrower refer to and by this reference incorporate the jury trial waiver set forth in Section XX of the Third Amendment into this Assignment.

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IN WITNESS WHEREOF, the Borrower has caused this Assignment to be executed under seal as of the day and year first above written.

SYNBIOTICS CORPORATION, A CALIFORNIA CORPORATION
By:	/s/    PAUL A. ROSINACK
	President & CEO

By:	/s/    MICHAEL K. GREEN
	Senior Vice President & CFO

ASSIGNMENT OF NOTE

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MAKER ACKNOWLEDGMENT

The undersigned, being the Maker of the Pledged Note described in the foregoing Assignment, hereby acknowledges the foregoing Assignment to secure the payment and performance of the obligations of the Borrower under the Loan Documents.

The Maker hereby consents to this Assignment and the irrevocable power of attorney granted by the Borrower to the Bank herein, and pursuant to the other Loan Documents upon the occurrence and during the continuation of an Event of Default under the Loan Documents, to (a) perform any act, execute any documents or otherwise to take any action with respect to the Pledged Note, and (b) demand, receive and enforce all of the Borrower’s rights, powers and remedies with respect to this Assignment, the Pledged Note and the other Loan Documents, including, without limitation, the Bank’s right to receive directly or indirectly (or as it otherwise directs) any and all payments to be made to the Borrower.

The Maker acknowledges that the Bank is extending credit and making other financial accommodations to the Borrower pursuant to the Loan Documents in reliance on this Assignment and the power of attorney granted herein, and the covenants made by the Maker, and accordingly, the Maker hereby reaffirms directly to the Bank each such covenant and agrees that the Bank may, but shall have no obligation or duty to, enforce each directly against the Maker.

DANAM ACQUISITION CORP.
By:	/s/    MICHAEL J. S. ASHER

ACKNOWLEDGMENT TO ASSIGNMENT NOTE

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EX-10.88

Exhibit 10.88

STOCK SWAP AGREEMENT

          This Stock Swap Agreement is made on October 31, 2002 between Synbiotics Corporation (“Synbiotics”) and Redwood West Coast, LLC (“Redwood”).

          Synbiotics will issue 2,800 shares of its Series C Preferred Stock to Redwood in exchange for 2,800 shares of outstanding Series B Preferred Stock of Synbiotics owned by Redwood.  This swap shall occur immediately after the execution and delivery of this Agreement and is intended to qualify as a tax-free reorganization under Internal Revenue Code Section 368(a)(1)(E).

          Redwood represents, warrants and covenants to Synbiotics that:

          1.          The Series B Preferred Stock it shall deliver is free and clear of all liens, security interests, encumbrances and adverse claims.

          2.          It is acquiring the Series C Preferred Stock (and any underlying Common Stock) for its own account for investment, and not with a view to any resale or distribution.

          3.          It understands that the Series C Preferred Stock (and any underlying Common Stock) cannot now be publicly traded, and constitutes “restricted securities” as well as “controlled securities” under Rule 144, and will bear an appropriate securities-law legend.

          Synbiotics represents, warrants and covenants to Redwood that:

          1.          The Series C Preferred Stock is duly authorized, its issuance to Redwood in this transaction has been duly authorized, and, upon issuance to Redwood in this transaction, it will be validly issued, fully paid and nonassessable.

          2.           The Common Stock underlying the Series C Preferred Stock is duly authorized and has been duly reserved and, upon issuance of such Common Stock upon conversion of the Series C Preferred Stock in accordance with its terms, will be duly authorized, validly issued, fully paid and nonassessable.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

          This Stock Swap Agreement shall be governed by California law.  It cannot be amended except in writing.  It constitutes the entire agreement of the parties with regard to the subject matter hereof, and supersedes all prior and contemporaneous agreements, negotiations, promises, understandings and arrangements with regard to such subject matter.

SYNBIOTICS CORPORATION
By:	/s/ CHRISTOPHER P. HENDY
	Vice President
REDWOOD WEST COAST, LLC
By:	/s/ THOMAS A. DONELAN
	Thomas A. Donelan, Co-Managing Member

          As the equity owners of Redwood, each of the undersigned represents that, to the extent it or he is for the purpose of blue sky laws treated as a purchaser of the Series C Preferred Stock (and the underlying Common Stock), it or he is acquiring the securities for its or his own account for investment, and not with a view to resale or distribution thereof.

THOMAS A. DONELAN IRA #06-2936
By:	/s/ THOMAS A. DONELAN, TRUSTEE
	/s/ CHRISTOPHER P. HENDY
	Christopher P. Hendy
	/s/ THOMAS A. DONELAN
	Thomas A. Donelan
	/s/ JERRY RUYAN
	Jerry Ruyan
	/s/ ALAN R. HENDY
	Alan R. Hendy

[SIGNATURE PAGE TO STOCK SWAP AGREEMENT]

IRA ACCOUNT #06-3400 CHRISTOPHER P. HENDY
By:	/s/ CHRISTOPHER P. HENDY
IRA ACCOUNT #781-90000-201 JERRY L. RUYAN
By:	/s/ JERRY L. RUYAN
REDWOOD HOLDINGS INC.
By:	/s/ THOMAS A. DONELAN
	President
PROVIDENT BANK, Trustee of the Keating, Muething & Klekamp P.L.L. 401(k) Profit Sharing Plan F.B.O. Gary Kreider
By:	/s/ WILLIAM A. HARDING

[SIGNATURE PAGE TO STOCK SWAP AGREEMENT]

EX-99.1

Exhibit 99.1

Certifications Under Section 906 of the Sarbanes–Oxley Act of 2002

Christopher P. Hendy and Keith A. Butler hereby certify that:

1.	They are the chief executive officer and Chief Financial Officer, respectively, of Synbiotics Corporation.
2.	The Form 10-Q report of Synbiotics Corporation that this certification accompanies fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934.
3.	The information contained in the Form 10-Q report of Synbiotics Corporation that this certification accompanies fairly presents, in all material respects, the financial condition and results of operations of Synbiotics Corporation.

Dated:  November 8, 2002

/s/ CHRISTOPHER P. HENDY

Christopher P. Hendy

/s/ KEITH A. BUTLER

Keith A. Butler