ARRANGEMENT AGREEMENT between LORUS THERAPEUTICS INC. and NUCHEM PHARMACEUTICALS INC. and GENESENSE TECHNOLOGIES INC. and 6650309 CANADA INC. and PINNACLE INTERNATIONAL LANDS, INC. and 6707157 CANADA INC.

as soon as reasonably practicable, apply to the Court in a manner acceptable to Investor, acting reasonably, under Section 192 of the CBCA, for the Interim Order, providing for, among other things, the calling of the Old Lorus Securityholders’ Meeting, and thereafter proceed with and diligently seek the Interim Order;

lawfully convene and hold the Old Lorus Securityholders’ Meeting for the purpose of, among other things, considering the Arrangement Resolution and the other matters set forth in the Information Circular as soon as reasonably practicable and in any event, no later than the seventh Business Day immediately preceding the Outside Date;

subject to obtaining any approvals as are required by the Interim Order, proceed with and diligently pursue the application to the Court for the Final Order; and

subject to obtaining the Final Order, exert reasonable commercial efforts to make such arrangements with the Director as may be necessary or desirable to permit the filing with the Director of the Articles of Arrangement.

2.3

Interim Order

Old Lorus confirms that the Interim Order will provide:

for the class of persons to whom notice is to be provided in respect of the Arrangement and the Old Lorus Securityholders’ Meeting and for the manner in which such notice is to be provided;

that the requisite approval for the Arrangement will be (i) not less than 66 2/3% of the vote cast by the Old Lorus Securityholders, and (ii) such other approvals, if any, as may be required by applicable

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Securities Laws, with each holder of Old Lorus Shares entitled to vote thereon being entitled to one vote for each Old Lorus Share held, each holder of Old Lorus Options entitled to vote thereon being entitled to one vote for each Old Lorus Option held, each holder of Old Lorus Debentures entitled to vote thereon being entitled to one vote for each whole Old Lorus Share into which such holder’s Old Lorus Debentures are convertible and each holder of Old Lorus Warrants entitled to vote thereon being entitled to one vote for each whole Old Lorus Share for which such holder’s Old Lorus Warrants are exercisable;

for the grant of the Dissent Rights;

that, in all other respects, the terms and conditions of the Old Lorus Governing Documents, including quorum requirements and all other matters, will apply in respect of the Old Lorus Securityholders’ Meeting; and

for such other matters as the Parties may agree, acting reasonably.

2.4

Information Circular

As promptly as practicable after execution of this Agreement, Old Lorus will prepare, and Investor will co-operate in the preparation of, the Information Circular (setting forth inter alia the recommendation of Old Lorus’ board of directors set forth in Section 2.5(a)(ii) and the opinion of Old Lorus’ advisors referred to in Section 2.5(b)) and Old Lorus and Investor will, on a timely basis, use their reasonable commercial efforts to co-operate in the preparation of all other documents and filings and the seeking and obtaining of all consents, orders and approvals, including regulatory and judicial orders and approvals and other matters reasonably determined by Old Lorus and Investor to be necessary in connection with this Agreement and the Arrangement. Old Lorus will ensure that the Information Circular and other documents, filings, consents, orders and approvals contemplated by this Section 2.4 and mailed to the Old Lorus Securityholders and other persons required by law are in accordance with Securities Laws, the CBCA, the requirements of the TSX, the requirements of the AMEX and all other Applicable Laws. The term “Information Circular” will mean such proxy or other required information statement or circular, as the case may be, and all related materials at the time required to be mailed to the Old Lorus Securityholders in connection with the Old Lorus Securityholders’ Meeting and all amendments or supplements thereto, if any. Old Lorus, Pinnacle and Investor each will use all reasonable commercial efforts to obtain and furnish the information required to be included in the Information Circular. The information to be provided by Old Lorus, Pinnacle and Investor for use in the Information Circular, on both the date the Information Circular is first mailed to Old Lorus Securityholders and on the date the Old Lorus Securityholders’ Meeting is held, will not contain any misrepresentation, and Old Lorus, Pinnacle and Investor each agree to correct promptly any such information provided by any of them for use in the Information Circular which has ceased to meet such standard. In any such event, Old Lorus will prepare a supplement or amendment to the Information Circular or such application or other document, as required, and, if required, will cause the same to be distributed to the Old Lorus Securityholders and/or filed with the Canadian Securities Regulatory Authorities, stock exchanges and/or other Governmental Authority after Pinnacle, Investor and its advisors have had a reasonable opportunity to review and comment on all such documentation and all such documentation is in form and content reasonably satisfactory to Pinnacle and Investor.

2.5

Old Lorus Board Recommendation and Fairness Opinion

Old Lorus represents and warrants to Investor and Pinnacle that all members or its board of directors entitled to vote thereon have, upon consultation with its advisors, has unanimously determined that:

the Arrangement is fair, from a financial point of view, to Old Lorus Securityholders and is otherwise in the best interests of Old Lorus and Old Lorus Securityholders; and

Old Lorus’ board of directors will unanimously recommend that Old Lorus Securityholders vote in favour of the Arrangement, which recommendation may not be withdrawn, modified or changed in any manner except as set forth herein.

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Old Lorus represents and warrants to Investor and Pinnacle that its board of directors has received a preliminary opinion, subject to the qualifications set out therein, from Deloitte & Touche LLP, that the Arrangement is fair, from a financial point of view, to Old Lorus Securityholdersand that such financial advisor has advised it that it will provide a written opinion to such effect before the application for the Interim Order.

2.6

Final Order

As promptly as practicable following the approval of the Arrangement by Old Lorus Securityholders, Old Lorus will apply to the Court, in a manner acceptable to Investor, acting reasonably, for the Final Order.

ARTICLE 3
PUBLICITY

3.1

Publicity

Each Party will advise, consult and cooperate with all other Parties prior to issuing, or permitting any of its directors, officers, employees or agents to issue, any news release or other written public statement with respect to this Agreement, the transactions contemplated hereby or any other matters, from the date hereof until the Effective Time. No Party will issue any such news release or make any such writtenpublic statement prior to such consultation, except as may be required by Applicable Laws including, for greater certainty, in order to fulfil Old Lorus’ continuous disclosure obligations under Securities Laws or pursuant to the rules of the TSX or the AMEX and only after using its reasonable commercial efforts to consult the other Parties taking into account the time constraints to which it is subject as a result of such law or obligation.

ARTICLE 4
REPRESENTATION AND WARRANTIES OF OLD LORUS

4.1

Representations and Warranties of Old Lorus

Except as set out under the corresponding section of the Disclosure Letter, which Disclosure Letter will be deemed a part hereof, Old Lorus hereby represents and warrants to Investor and Pinnacle as follows in this Section 4.1 and acknowledges that Investor and Pinnacle are relying upon those representations and warranties in connection with entering into this Agreement. Any disclosure set forth in a section or subsection of the Disclosure Letter discloses an exception to a representation or warranty made in the correspondingly numbered or otherwise specified section or subsection of this Agreement. Any disclosure made under one section or subsection of the Disclosure Letter will be deemed to be disclosed under one or more other sections or subsections of the Disclosure Letter only to the extent specific reference to the relevant section(s) or subsection(s) of the representations and warranties or covenants of this Agreement is made.

Subsidiaries. Each of the direct and indirect subsidiaries of Old Lorus (each, a “Subsidiary”) is set out in Section 4.1(a) of the Disclosure Letter. The Company owns directly (i) all of the issued and outstanding shares or other equity interests in the capital of GeneSense, (ii) all of the issued and outstanding shares or other equity interests in the capital of New Lorus and (iii) 80% of the issued and outstanding voting share capital and 100% of the issued and outstanding non-voting preference share capital of XxXxxx, in each case free and clear of any Liens. All the issued and outstanding shares in the capital of each Subsidiary are validly issued and are fully paid, non-assessable and free of pre-emptive and similar rights to subscribe for or purchase securities.

Organization, Authority. Old Lorus and each Subsidiary is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite corporate power and authority to own and use its Property and to carry on its business as currently conducted. Neither Old Lorus nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, by-laws or other organizational or constating documents. Each of Old Lorus and the Subsidiaries is

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duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or Property owned or leased by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in a Material Adverse Effect and, to the knowledge of Old Lorus, no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

Authorization; Enforcement. Each of Old Lorus and the Subsidiaries has full right, corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise carry out its respective obligations hereunder. The execution and delivery of this Agreement by each of Old Lorus and the Subsidiaries and the consummation by each of them of the transactions contemplated hereby have been duly authorized by their respective boards of directors, and, subject to the approval of the Arrangement Resolution by the Old Lorus Securityholders, no further action is required by Old Lorus or any Subsidiary, their boards of directors or their shareholders, in connection therewith. This Agreement has been (or upon delivery will have been) duly executed by each of Old Lorus and the Subsidiaries and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of each of Old Lorus and the Subsidiaries, enforceable against them in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally; (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies; and (iii) insofar as indemnification and contribution provisions may be limited by Applicable Law.

No Conflicts. The execution, delivery and performance of this Agreement by each of Old Lorus and the Subsidiaries, the completion of the transactions contemplated hereby and the fulfillment and compliance by each of Old Lorus and the Subsidiaries with any of the terms and provisions hereof will not (i) conflict with or violate any provision of their respective certificates or articles of incorporation, by-laws or other organizational or constating documents, or (ii), subject to the Required Approvals, conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of their respective Property, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any Material Contract, or (iii) subject to the Required Approvals, conflict with or result in a violation of any Intellectual Property Right or any Applicable Laws to which Old Lorus or a Subsidiary is subject, or by which any Property of Old Lorus or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

Filings, Consents and Approvals. Old Lorus is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any Governmental Authority or other Person in connection with the execution, delivery and performance by Old Lorus of this Agreement, other than (i) filings disclosed in Section 4.1(e) of the Disclosure Letter, (ii) the obtaining of Old Lorus Securityholder approval at the Old Lorus Securityholders’ Meeting in accordance with Applicable Laws, (iii) the obtaining of the Interim Order and the Final Order, (iv) applications to the AMEX and the TSX for the delisting of the Old Lorus Shares and the listing of the New Lorus Shares, (v) any other required filings with one or more of the Canadian Securities Regulatory Authorities, (vi) any other required approvals of any Trading Market, and (vii) any notice to TEMIC if required (collectively, the “Required Approvals”).

Capitalization. The capitalization of Old Lorus is as described in the interim financial statements for the six month period ended November 30, 2006 filed on SEDAR. Since May 31, 2006, Old Lorus has not issued any securities other than pursuant to the Old Lorus Debentures, the exercise of employee stock options under the Old Lorus Stock Option Plans and pursuant to the conversion or exercise of outstanding Old Lorus Share Equivalents. No Person has any right of first refusal, pre-emptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement. Except as a result of the Old Lorus Stock Option Plans, the Old Lorus Debentures and the Old Lorus Warrants, there are no outstanding options, warrants, script rights to subscribe to, calls or

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commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any Old Lorus Shares, or contracts, commitments, understandings or arrangements by which Old Lorus or any Subsidiary is or may become bound to issue additional Old Lorus Shares or Old Lorus Share Equivalents. All of the outstanding Old Lorus Shares are validly issued, fully paid and nonassessable and to the knowledge of Old Lorus, have been issued in compliance with all Applicable Laws and, to the knowledge of Old Lorus, none of such outstanding Old Lorus Shares was issued in violation of any pre-emptive rights or similar rights to subscribe for or purchase securities. Other than agreements entered into in connection with the Arrangement, there are no shareholders agreements, voting agreements or other similar agreements with respect to Old Lorus’ authorized capital to which Old Lorus is a party or, to the knowledge of Old Lorus, between or among any of the Old Lorus Shareholders.

Ownership of Shares. To the knowledge of Old Lorus, based solely on a review of information concerning Old Lorus publicly disclosed on SEDAR as of May 1, 2007:

save and except for the Lock-Up Holders, no Person, whether alone or jointly or in concert with others, beneficially owns, or exercises control or direction over, more than 10% of the issued and outstanding Old Lorus Shares; and

the Lock-Up Holders (together with any person acting jointly or in concert with the Lock-Up Holders) do not beneficially own, or exercise control or direction over, in the aggregate, more than 25% of the issued and outstanding common shares of Old Lorus.

(h)

Continuous Reports; Financial Statements. Old Lorus has filed or submitted all reports, financial statements, schedules, forms, statements and other documents required to be filed or submitted by it under the Securities Laws, for the three years preceding the date of this Agreement (or such shorter period as Old Lorus may have been required by the Securities Laws to file or submit such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “Continuous Disclosure Reports”) on a timely basis or has received a valid extension of such time of filing or submission and has filed or submitted any such Continuous Disclosure Reports prior to the expiration of any such extension, except where a failure to do so could not have or could not reasonably be expected to have a Material Adverse Effect. As of their respective dates, the Continuous Disclosure Reports complied with the material requirements of the Securities Laws, and none of the Continuous Disclosure Reports, when filed or submitted, 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. The financial statements of Old Lorus included in the Continuous Disclosure Reports have been prepared in accordance with Canadian generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of Old Lorus and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

No Undisclosed Liabilities. Except for liabilities and obligations:

incurred in the ordinary course of business and consistent with past practice;

disclosed in the financial statements of Old Lorus and forming part of the Continuous Disclosure Reports; or

incurred pursuant to the terms of this Agreement,

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Old Lorus has not incurred any liabilities of any nature, whether accrued, contingent or otherwise (or which would be required by generally accepted accounting principles to be reflected on a balance sheet of Old Lorus). All material accounts payable and accrued liabilities are shown in the financial statements included within the Continuous Disclosure Reports, have been disclosed in writing to Investor.

(j)

Material Changes. Since the date of the latest audited financial statements included within the Continuous Disclosure Reports and except as specifically disclosed in the Continuous Disclosure Reports:

there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect;

Old Lorus has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in Old Lorus’ financial statements pursuant to GAAP or required to be disclosed in filings made or required to be made pursuant to the Securities Laws;

Old Lorus has not altered its method of accounting except as required by GAAP;

Old Lorus has not declared or made any dividend or distribution of cash or other Property to the Old Lorus Shareholders or purchased, redeemed or made any agreements to purchase or redeem any of the Old Lorus Shares; and

Old Lorus has not issued any equity securities to any officer, director or Affiliate, except pursuant to the Old Lorus Stock Option Plans or the Old Lorus Share Purchase Plan.

Old Lorus does not have pending before any of the Canadian Securities Regulatory Authorities any confidential material change report.

(k)

Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of Old Lorus, threatened or contemplated (including by any of the Canadian Securities Regulatory Authorities) against or affecting Old Lorus, any Subsidiary or any of their respective Property, Intellectual Property Rights, or, to the knowledge of Old Lorus, any current officer or director or former officer or director of Old Lorus before or by any Governmental Authority which (i) adversely affects or challenges the legality, validity or enforceability of this Agreement or (ii) could, if there were an unfavourable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither Old Lorus nor any Subsidiary, nor, to the knowledge of Old Lorus, any director or officer thereof, is the subject of any action involving a claim of violation of or liability under the Applicable Laws or a claim of breach of fiduciary duty. No stop order or other order suspending the trading in securities of Old Lorus is outstanding.

(l)

Labour Relations. Section 4.1(l) of the Disclosure Letter contains a list of every benefit plan, program, agreement or arrangement (whether written or unwritten) maintained, contributed to, or provided by Old Lorus or any Subsidiary for the benefit of any of its employees or former employees or independent contractors of Old Lorus or any Subsidiary employed or retained in connection with the conduct of its business or their respective dependants or beneficiaries (the “Benefit Plans”) including all bonus, deferred compensation, incentive compensation, share purchase, share option, stock appreciation, phantom stock, savings, profit sharing, severance or termination pay, health or other medical, life, disability or other insurance (whether insured or self-insured), supplementary unemployment benefit, pension, retirement and supplementary retirement plans, programs, agreements and arrangements except for any statutory plans to which the Vendor is obliged to contribute or comply including the Canada/Québec Pension Plan, or plans administered pursuant to applicable federal or provincial health, worker’s compensation and employment insurance legislation. All of the

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Benefit Plans are fully funded in accordance with their terms and all Applicable Laws and generally accepted actuarial principles and practices. None of the Benefit Plans are multi-employer plans. Old Lorus and each Subsidiary is employing all its employees in material compliance with all applicable taxation, health, labour and employment laws, rules, regulations, notices, and orders. Neither Old Lorus nor any Subsidiary is a party to or bound by any collective bargaining agreement. No labour dispute exists or, to the knowledge of Old Lorus, is imminent with respect to any of the employees of Old Lorus which could reasonably be expected to result in a Material Adverse Effect.

(m)

Compliance. To the knowledge of Old Lorus, neither Old Lorus nor any Subsidiary:

is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by Old Lorus or any Subsidiary under), nor has Old Lorus or any Subsidiary received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other material agreement or instrument, including the Material Contracts, to which it is a party or by which it or any of its Property is bound (whether or not such default or violation has been waived);

is in violation of any order of any Governmental Authority; or

is or has been in violation of any Applicable Law,

except in each case as could not have a Material Adverse Effect.

(n)

Material Contracts. The Material Contracts, the Intellectual Property Rights and Old Lorus’s arrangements with certain of its employees constitute all agreements, contracts, licenses, arrangements, certificates, rights and other agreements that are material to or necessary for the conduct of Old Lorus’ business as currently conducted or expected to be conducted prior to the Effective Time.

(o)

Regulatory Permits. Old Lorus and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate Governmental Authorities necessary to conduct their respective businesses as described in the Continuous Disclosure Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(p)

Title to Property. Old Lorus and the Subsidiaries do not own real property. Old Lorus and the Subsidiaries have good and marketable title in all personal property (tangible or intangible) owned by them that is material to the business of Old Lorus and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by Old Lorus and the Subsidiaries and Liens for the payment of federal, provincial, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property (including facilities) held under lease by Old Lorus and the Subsidiaries is held by them under valid, subsisting and enforceable leases of which Old Lorus the Subsidiaries are in compliance, except as would not have a Material Adverse Effect.

(q)

Intellectual Property. Old Lorus and the Subsidiaries have title to, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights necessary or material for use (as determined by Old Lorus, acting commercially reasonably) in connection with their respective businesses as currently conducted and anticipated to be conducted, as described in the Continuous Disclosure Reports and except where the failure to do so would not have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither Old Lorus nor any Subsidiary has received a written notice that the Intellectual

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Property Rights used by Old Lorus or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of Old Lorus: (i) all such Intellectual Property Rights are enforceable; and (ii) there is no existing infringement by another Person of any of the Intellectual Property Rights.

(r)

Insurance. Old Lorus and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which Old Lorus and the Subsidiaries are engaged. Neither Old Lorus nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(s)

Transactions With Affiliates and Employees. Except as set out in the Continuous Disclosure Reports, none of the current officers or directors of Old Lorus, and, to the knowledge of Old Lorus, none of the employees of Old Lorus, is a party to any transaction with Old Lorus or any Subsidiary (other than for services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for leasing, rental or licensing to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of Old Lorus, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, other than:

for payment of salary or consulting fees for services rendered;

reimbursement for expenses incurred on behalf of Old Lorus; and

for other employee benefits, including the Share Purchase Plan and stock option agreements under the Stock Option Plans.

(t)

Securities Laws; Internal Accounting Controls. Old Lorus is in material compliance with all provisions of the Securities Laws which are applicable to it. Old Lorus and the Subsidiaries maintain a system of internal accounting controls as required by MI 52-109. Old Lorus has established disclosure controls and procedures as required by MI 52-109 for Old Lorus and designed such disclosure controls and procedures to ensure that material information relating to Old Lorus, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which Old Lorus’ most recently filed periodic report under Canadian Securities Laws is being prepared. Old Lorus’ certifying officers have evaluated the effectiveness of Old Lorus’ controls and procedures as of the date prior to the filing date of the most recently filed periodic report under Canadian Securities Laws (such date, the “Evaluation Date”). Old Lorus presented in its most recently filed periodic report under Canadian Securities Laws the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date to the extent required by MI 52-109. Since the Evaluation Date, except as disclosed in the Continuous Disclosure Reports, there have been no significant changes in Old Lorus’ internal disclosure controls and procedures or its internal control over financial reporting (as such terms are defined in Section 1.1 of MI 52-109) or, to Old Lorus’ knowledge, in other factors that could significantly affect Old Lorus’ internal disclosure controls and procedures or its internal control over financial reporting.

(u)

Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by Old Lorus to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement.

Listing and Maintenance Requirements. The Old Lorus Shares are listed on the TSX and the AMEX, and except as contemplated by the Arrangement, Old Lorus has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the listing of the Old Lorus Shares on the TSX or the AMEX nor has Old Lorus received any notification that the TSX or the AMEX is contemplating terminating such listing. Old Lorus has not, in the 12 months preceding the date of this Agreement, received notice from any Trading Market on which the Old Lorus Shares are or have been

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listed or quoted to the effect that Old Lorus is not in compliance with the listing or maintenance requirements of such Trading Market, except as would not have a Material Adverse Effect.

(w)

Disclosure. The Disclosure Letter to this Agreement and the representations and warranties made herein are true and correct with respect to the statements made therein and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

(x)

Solvency. The Continuous Disclosure Reports set out as of the dates thereof all outstanding secured and unsecured Indebtedness of Old Lorus or any Subsidiary, or for which Old Lorus or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” will mean:

any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business);

all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in Old Lorus’ balance sheet (or the notes thereto), except obligations in respect of indemnification, guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and

the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.

Neither Old Lorus nor any Subsidiary is in default with respect to any Indebtedness, except as would not have a Material Adverse Effect.

(y)

Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, Old Lorus and each Subsidiary has duly and timelyfiled, in prescribed form, all necessary federal, provincial, state and foreign income and franchise tax and information returns which accurately report income, losses, and other information as required under Applicable Laws for all periods prior to the date hereof and has paid, including instalments and prepayments of taxes, or accrued all taxes shown as due thereon and all taxes now owing have been paid, and has placed an adequate reserve on its books with respect to taxes owing (net of any instalments paid) and there are no outstanding agreements or waivers extending the statutory period of limitations applicable to any federal, provincial or other tax return for any period, and all payments to any non-resident of Canada have been made in accordance with all applicable legislation in respect of withholding tax and there are no assessments or reassessments pursuant to which there are amounts owing or discussions in respect thereof with any taxing authority relating to Old Lorus or any Subsidiary, and Old Lorus and each Subsidiary has withheld from each payment made to any of its officers, directors, and employees and former officers, directors, and employees the amount of all taxes (including, without limitation, income tax) and other deductions required to be withheld therefrom and has paid the same to the proper tax or other authority within the time required by Applicable Law.

(z)

Accountants. Old Lorus’ accountants are set out on Section 4.1(z) of the Disclosure Letter. To the knowledge of Old Lorus, such accountants are independent accountants as may be required by the CBCA and the Securities Laws.

4.2

Any investigation by Pinnacle, Investor or their respective advisors will not mitigate, diminish or affect the representations and warranties of Old Lorus made in or pursuant to this Agreement.

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4.3

Except for the representations and warranties contained in this Agreement or in any other agreement or instrument contemplated hereby or by the Plan of Arrangement, Old Lorus makes no other express or implied representation or warranty with respect to any matters not specifically represented herein.

ARTICLE 5
REPRESENTATION AND WARRANTIES OF OLD LORUS

5.1

Representations and Warranties of New Lorus

New Lorus hereby represents and warrants to Investor and Pinnacle as of the date of this Agreement as follows in this Section 5.1 and acknowledges that Investor and Pinnacle are relying upon those representations and warranties in connection with entering into this Agreement.

Organization, Authority. New Lorus is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder.

Authorization; Enforcement. The execution and delivery of this Agreement by New Lorus and the consummation by it of the transactions contemplated hereby have been duly authorized by the board of directors of New Lorus, and no further action is required by New Lorus or its board of directors or shareholders, in connection therewith. This Agreement has been (or upon delivery will have been) duly executed by New Lorus and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of New Lorus enforceable against it in accordance with its terms except:

as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally;

as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies; and

insofar as indemnification and contribution provisions may be limited by Applicable Law.

No Conflicts. The execution, delivery and performance of this Agreement by New Lorus, the completion of the transactions contemplated hereby and the fulfillment and compliance by New Lorus with any of the terms and provisions hereof will not (i) conflict with or violate any provision of its certificate or articles of incorporation, by-laws or other organizational or constating documents, or (ii), subject to the Required Approvals, conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of its Property, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a New Lorus debt or otherwise) or other understanding to which New Lorus is a party or by which any Property of New Lorus is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any Applicable Laws to which New Lorus is subject, or by which any Property of New Lorus is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

Filings, Consents and Approvals. New Lorus is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any Governmental Authority or other Person in connection with the execution, delivery and performance by New Lorus of this Agreement, other than:

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the obtaining of the Interim Order and the Final Order;

an application to the TSX and AMEX for the listing of the New Lorus Common Shares for trading thereon in the time and manner required hereby and thereby;

any other required filings with one or more of the Canadian Securities Regulatory Authorities; and

any other required approvals of any Trading Market.

Capitalization. The capitalization of New Lorus consists of an unlimited number of common shares. New Lorus has not issued any securities other than one common share to Old Lorus. No Person has any right of first refusal, pre-emptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement and the Arrangement. There are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any New Lorus Common Shares, or contracts, commitments, understandings or arrangements by which New Lorus is or may become bound to issue additional New Lorus Common Shares. All of the outstanding New Lorus Common Shares are validly issued, fully paid and nonassessable, to the knowledge of New Lorus, have been issued in compliance with all Applicable Laws and, to the knowledge of New Lorus, none of such outstanding New Lorus Common Shares was issued in violation of any pre-emptive rights or similar rights to subscribe for or purchase securities. There are no shareholders agreements, voting agreements or other similar agreements with respect to New Lorus’ authorized capital to which New Lorus is a party or, to the knowledge of New Lorus, between or among any of the shareholders of New Lorus.

Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of New Lorus, threatened or contemplated (including by any of the Canadian Securities Regulatory Authorities) against or affecting New Lorus or any of its Property or, to the knowledge of New Lorus, any current officer or director or former officer or director of New Lorus before or by any Governmental Authority which (i) adversely affects or challenges the legality, validity or enforceability of this Agreement or (ii) could, if there were an unfavourable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither New Lorus, nor, to the knowledge of New Lorus, any director or officer thereof, is the subject of any action involving a claim of violation of or liability under the Applicable Laws or a claim of breach of fiduciary duty.

5.2

Any investigation by Pinnacle, Investor or their respective advisors will not mitigate, diminish or affect the representations and warranties of New Lorus made in or pursuant to this Agreement.

5.3

Except for the representations and warranties contained in this Agreement or in any other agreement or instrument contemplated hereby or by the Plan of Arrangement, New Lorus makes no other express or implied representation or warranty with respect to any matters not specifically represented herein.

ARTICLE 6
REPRESENTATION AND WARRANTIES OF INVESTOR

6.1

Representations and Warranties of Investor

Investor hereby represents and warrants to Old Lorus, New Lorus, GeneSense and XxXxxx as of the date of this Agreement as follows in this Section 6.1 and acknowledges that Old Lorus, New Lorus, GeneSense and XxXxxx are relying upon those representations and warranties in connection with entering into this Agreement.

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Organization, Authority. Investor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder.

Authorization; Enforcement. The execution and delivery of this Agreement by Investor and the consummation by it of the transactions contemplated hereby have been duly authorized by the board of directors of Investor, and no further action is required by Investor or its board of directors or shareholders, in connection therewith. This Agreement has been (or upon delivery will have been) duly executed by Investor and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of Investor enforceable against it in accordance with its terms except:

as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies; and

insofar as indemnification and contribution provisions may be limited by Applicable Laws.

No Conflicts. The execution, delivery and performance of this Agreement by Investor, the completion of the transactions contemplated hereby and the fulfillment and compliance by Investor with any of the terms and provisions hereof will not (i) conflict with or violate any provision of its certificate or articles of incorporation, by-laws or other organizational or constating documents, or (ii), conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of its Property, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Investor debt or otherwise) or other understanding to which Investor is a party or by which any Property of Investor is bound or affected, or (iii) conflict with or result in a violation of any Applicable Laws to which Investor is subject, or by which any Property of Investor is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Pinnacle Material Adverse Effect.

Filings, Consents and Approvals. Investor is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any Governmental Authority or other Person in connection with the execution, delivery and performance by Investor of this Agreement, other than (i) the obtaining of the Interim Order and the Final Order, and (ii) any other required filings with one or more of the Canadian Securities Regulatory Authorities.

Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of Investor, threatened or contemplated (including by any of the Canadian Securities Regulatory Authorities) against or affecting Investor or any of its Property or, to the knowledge of Investor, any current officer or director or former officer or director of Investor before or by any Governmental Authority which (i) adversely affects or challenges the legality, validity or enforceability of this Agreement or (ii) could, if there were an unfavourable decision, have or reasonably be expected to result in a Pinnacle Material Adverse Effect. Neither Investor, nor, to the knowledge of Investor, any director or officer thereof, is the subject of any action involving a claim of violation of or liability under the Applicable Laws or a claim of breach of fiduciary duty.

Funds Available. Investor has made adequate financial arrangement prior to the execution of this Agreement to ensure that sufficient funds are available to allow Investor to carry out its obligations hereunder.

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6.2

Any investigation by Old Lorus, New Lorus, NuChem, GeneSense or their respective advisors will not mitigate, diminish or affect the representations and warranties of Investor made in or pursuant to this Agreement.

6.3

Except for the representations and warranties contained in this Agreement or in any other agreement or instrument contemplated hereby or by the Plan of Arrangement, Investor makes no other express or implied representation or warranty with respect to any matters not specifically represented herein.

ARTICLE 7
REPRESENTATION AND WARRANTIES OF PINNACLE

7.1

Representations and Warranties of Pinnacle

Pinnacle hereby represents and warrants to Old Lorus, New Lorus, GeneSense and XxXxxx as of the date of this Agreement as follows in this Section 7.1 and acknowledges that Old Lorus, New Lorus, GeneSense and XxXxxx are relying upon those representations and warranties in connection with entering into this Agreement.

Organization, Authority. Pinnacle is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder.

Authorization; Enforcement. The execution and delivery of this Agreement by Pinnacle and the consummation by it of the transactions contemplated hereby have been duly authorized by the board of directors of Pinnacle, and no further action is required by Pinnacle or its board of directors or shareholders, in connection therewith. This Agreement has been (or upon delivery will have been) duly executed by Pinnacle and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of Pinnacle enforceable against it in accordance with its terms except:

as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies; and

insofar as indemnification and contribution provisions may be limited by Applicable Laws.

No Conflicts. The execution, delivery and performance of this Agreement by Pinnacle, the completion of the transactions contemplated hereby and the fulfillment and compliance by Pinnacle with any of the terms and provisions hereof will not (i) conflict with or violate any provision of its certificate or articles of incorporation, by-laws or other organizational or constating documents, or (ii), conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of its Property, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Pinnacle debt or otherwise) or other understanding to which Pinnacle is a party or by which any Property of Pinnacle is bound or affected, or (iii) conflict with or result in a violation of any Applicable Laws to which Pinnacle is subject, or by which any Property of Pinnacle is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Pinnacle Material Adverse Effect.

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Filings, Consents and Approvals. Pinnacle is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any Governmental Authority or other Person in connection with the execution, delivery and performance by Pinnacle of this Agreement, other than (i) the obtaining of the Interim Order and the Final Order, and (ii) any other required filings with one or more of the Canadian Securities Regulatory Authorities.

Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of Pinnacle, threatened or contemplated (including by any of the Canadian Securities Regulatory Authorities) against or affecting Pinnacle or any of its Property or, to the knowledge of Pinnacle, any current officer or director or former officer or director of Pinnacle before or by any Governmental Authority which (i) adversely affects or challenges the legality, validity or enforceability of this Agreement or (ii) could, if there were an unfavourable decision, have or reasonably be expected to result in a Pinnacle Material Adverse Effect. Neither Pinnacle, nor, to the knowledge of Pinnacle, any director or officer thereof, is the subject of any action involving a claim of violation of or liability under the Applicable Laws or a claim of breach of fiduciary duty.

Funds Available. Pinnacle has made adequate financial arrangement prior to the execution of this Agreement to ensure that sufficient funds are available to allow Pinnacle and the Investor to carry out its obligations hereunder.

7.2

Any investigation by Old Lorus, New Lorus, NuChem, GeneSense or their respective advisors will not mitigate, diminish or affect the representations and warranties of Pinnacle made in or pursuant to this Agreement.

7.3

Except for the representations and warranties contained in this Agreement or in any other agreement or instrument contemplated hereby or by the Plan of Arrangement, Pinnacle makes no other express or implied representation or warranty with respect to any matters not specifically represented herein.

ARTICLE 8
COVENANTS OF OLD LORUS

8.1

Covenants of Old Lorus

Old Lorus covenants and agrees that, except as contemplated in this Agreement or the Plan of Arrangement, until the Effective Date or the day upon which this Agreement is terminated, whichever is earlier:

except to the extent required to implement the transactions contemplated by this Agreement and except as previously disclosed in writing to or with the prior written consent of Investor, it will conduct its business, and will cause XxXxxx and GeneSense to conduct their respective businesses, in the usual, ordinary and regular course of business and consistent with past practices;

except as previously disclosed in writing to Investor or as otherwise set out in this Agreement, it will not, without the prior written consent of Investor, which will not (except in the case of clause 8.1(b)(v)) be unreasonably withheld or delayed, directly or indirectly do or permit to occur any of the following:

issue or agree to issue any of its shares or any options, warrants, calls, conversion privileges or rights of any kind to acquire any of its shares, except pursuant to the Old Lorus Options, Old Lorus Warrants and Old Lorus Debentures;

sell, pledge, hypothecate, lease, dispose of, encumber any of its assets, which, in such case, are individually or in the aggregate material, or agree to do any of the foregoing; except

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pursuant to the purchase and sale agreements contemplated by the Plan of Arrangement or in the ordinary course of business consistent with past practice;

amend or propose to amend the Old Lorus Governing Documents;

split, combine or reclassify the Old Lorus Shares, or declare, set aside or pay any dividend or other distribution payable in cash, stock, property or otherwise with respect to the Old Lorus Shares;

take any action that results in, or could reasonably be expected to result in, Old Lorus’ tax pools being reduced;

(vi)

redeem, purchase or offer to purchase any of its securities unless otherwise required by the terms of such securities;

(vii)

reorganize, amalgamate or merge with any other person, corporation, partnership or other business organization whatsoever;

(viii)

acquire or, unless disclosed to Investor, agree to acquire any person, corporation, partnership, joint venture or other business organization or division or acquire or agree to acquire any assets, which, in each case, are individually or in the aggregate material or out of the ordinary course of business consistent with past practice;

(ix)

settle or compromise any claim brought by any present, former or purported holder of any of its securities in connection with the transactions contemplated by this Agreement or the Plan of Arrangement;

(x)

take any action that would interfere with or be inconsistent with the completion of the transactions contemplated hereby or that would render, or that reasonably may be expected to render, any representation or warranty made by it in this Agreement untrue in any material respect at any time prior to the Effective Date if then made; or

(xi)

take any action, refrain from taking any action, or permit any action to be taken or not taken, inconsistent with this Agreement or which would reasonably be expected to significantly impede the consummation of the Arrangement;

it will:

use its reasonable commercial efforts (taking into account insurance market conditions and offerings and industry practices) to cause its current insurance (or re-insurance) policies not to be cancelled or terminated or any of the coverage thereunder to lapse, except where such cancellation, termination or lapse would not individually or in the aggregate have a Material Adverse Effect, unless simultaneously with such termination, cancellation or lapse, replacement policies underwritten by insurance and re-insurance companies of nationally recognized standing providing coverage equal to or greater than the coverage under the cancelled, terminated or lapsed policies for substantially similar premiums are in full force and effect;

use its reasonable commercial efforts to preserve intact its business organization and goodwill, to keep available the services of its officers, employees and consultants as a group and to maintain satisfactory relationships with partners, suppliers, agents, distributors, customers and others having business relationships with it;

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perform and comply with all material covenants and conditions contained in all contracts, leases, grants, agreements, permits, licences orders and documents governing its assets or to which its assets are subject;

Recommendation of the Old Lorus Board of Directors

obtain, on or before the Effective Date, a discharge of the Personal Property Security Act (Ontario) registrations against Old Lorus listed in Schedule B;

(v)

promptly notify Investor of any Material Adverse Change, or any change, effect, event, occurrence or change in a state of facts which could, with the passage of time, reasonably be expected to become or result in a Material Adverse Change, and of any Governmental Authority or third party written complaints, investigations or hearings (or communications indicating that the same may be contemplated in respect of the Arrangement); and

(vi)

satisfy all Officer Obligations on or prior to the Effective Date, which obligation may be satisfied by causing New Lorus to assume such obligations on terms and conditions satisfactory to Investor, acting reasonably;

(d)

it will use its reasonable commercial efforts to satisfy (or cause the satisfaction of) the conditions precedent to its obligations hereunder to the extent the same is within its control and take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or advisable under all Applicable Laws to complete the Arrangement, including using its reasonable commercial efforts to:

(i)

obtain all necessary waivers, consents and approvals required to be obtained by it from other parties to contracts;

(ii)

obtain all necessary consents, approvals and authorizations that are required to be obtained by it under any Applicable Laws;

(iii)

effect all necessary registrations and filings and submissions of information requested by Governmental Authorities required to be effected by it in connection with the Arrangement and participate and appear in any proceedings of any Party before Governmental Authorities in connection with the Arrangement;

(iv)

oppose, lift or rescind any injunction or restraining order or other order or action seeking to stop, or otherwise adversely affecting the ability of the Parties to consummate, the transactions contemplated hereby or by the Plan of Arrangement;

(v)

fulfil all conditions and satisfy all provisions of this Agreement;

(vi)

cooperate with Pinnacle and Investor in connection with the performance by it of its obligations hereunder; and

(vii)

conduct its affairs, and cause the affairs of each of the Subsidiaries to be conducted, so that all of their respective representations and warranties contained hereinwill be true and correct in all material respects on and as of the Effective Date as if made thereon;

(e)

it will discuss and consider such pre-arrangement steps or amendments to the Plan of Arrangement as may be proposed by Investor and implement such pre-arrangement steps or such amendments that it considers to be in the best interests of the Old Lorus Securityholders, provided such steps are agreed to in writing by Investor;

(f)

it will make or cooperate as necessary in the making of all necessary filings and applications under all Applicable Laws required in connection with the transactions contemplated hereby and take all reasonable action necessary to be in compliance with such Applicable Laws;

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(g)

it will, in a timely and expeditious manner:

(i)

file, proceed with and diligently prosecute an application to the Court for the Interim Order with respect to the Arrangement, provided that, notwithstanding the foregoing, the Parties agree to consult regarding the terms of, and the obtaining of, the Interim Order;

(ii)

carry out the terms of the Interim Order;

(iii)

prepare, in consultation with Investor, and file where required by law the Information Circular in all jurisdictions where the same is required to be filed and mail the same as ordered by the Interim Order and in accordance with all Applicable Laws, complying in all material respects with all Applicable Laws on the date of mailing thereof and containing full, true and plain disclosure of all material facts relating to the Arrangement and Old Lorus and not containing any misrepresentation, as defined under such Applicable Laws, with respect thereto;

(iv)

prepare, in consultation with Investor, and file where required by law any mutually agreed (or otherwise required by Applicable Laws) amendments or supplements to the Information Circular with respect to the Old Lorus Securityholders’ Meeting and mail the same as required by the Interim Order and in accordance with all Applicable Laws, in all jurisdictions where the same is required;

(v)

solicit proxies for the approval of the Arrangement and related matters in accordance with Applicable Laws;

(vi)

convene the Old Lorus Securityholders’ Meeting as ordered by the Interim Order;

(vii)

provide notice to Investor of the Old Lorus Securityholders’ Meeting and allow Investor’s representatives to attend the Old Lorus Securityholders’ Meeting unless such attendance is prohibited by the Interim Order;

(viii)

conduct the Old Lorus Securityholders’ Meeting in accordance with the Interim Order, the Old Lorus Governing Documents and any instrument governing such meeting, as applicable, and as otherwise required by Applicable Laws;

(ix)

subject to the approval of the Arrangement at the Old Lorus Securityholders’ Meeting, forthwith proceed with and diligently prosecute an application for the Final Order; and

(x)

carry out the terms of the Final Order (to the extent within its power);

(h)

except for individual proxies and other non-substantive communications and materials relating to the Old Lorus Securityholders’ Meeting, furnish promptly to Investor a copy of each notice, report, report of proxies submitted, schedule or other document or communication delivered, filed or received by Old Lorus in connection with the Arrangement or the Interim Order, the Old Lorus Securityholders’ Meeting or any other meeting of Old Lorus Securityholders or class of security holders which all such holders, as the case may be, are entitled to attend, any filings under Applicable Laws and any dealings with regulatory agencies in connection with, or in any way affecting, the transactions contemplated herein;

(i)

subject to the terms hereof, in a timely and expeditious manner, provide to Investor all information as may be reasonably requested by Investor with respect to Old Lorus and its business and properties;

(j)

it will, within two Business Days of Old Lorus receiving any written audit inquiry, assessment, reassessment, confirmation or variation of an assessment, indication that tax assessment is being considered, request for filing of a waiver or extension of time or any other notice in writing relating to

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taxes, interest, penalties, losses or tax pools (an “Assessment”), deliver to Investor a copy thereof together with a statement setting out, to the extent then determinable, an estimate of the obligations, if any, of Old Lorus, or the appropriate Affiliate, on the assumption that such Assessment is valid and binding; and

(k)

undertake and carry out the transactions described in the Plan of Arrangement.

8.2

The Information Circular will include the recommendation of the board of directors of Old Lorus to the Old Lorus Securityholders in respect of the Arrangement as set out in Section 2.5. Notwithstanding any other provision of this Agreement, the board of directors of Old Lorus may change its recommendation to the Old Lorus Securityholders in respect of the Arrangement from that set forth herein, as applicable, if such board concludes, in good faith, after receiving the advice of outside counsel and financial advisors that is reflected in the minutes of a meeting of the board, that such action is necessary for such board to act in a manner consistent with its fiduciary duty or Applicable Laws and, in the event that Sections 8.3 or 8.4 and 12.1 are applicable, if Old Lorus and its board are in compliance with those sections and Old Lorus has paid any fee applicable under Article 12. The foregoing will not relieve Old Lorus from its obligation to proceed to call and hold the Old Lorus Securityholders’ Meeting, solicit proxies for such meeting and hold the vote of Old Lorus Securityholders in respect of the Arrangement at such meeting.

8.3

Old Lorus Covenant Regarding Non-Solicitation

Old Lorus will immediately terminate and cause to be terminated all solicitations, initiations, encouragements, discussions or negotiations with any parties conducted prior to the date hereof by Old Lorus, or its officers, directors, employees, legal counsel, financial advisors, experts, representatives agents, or other persons acting on its behalf, with respect to any Acquisition Proposal.

Old Lorus will not, directly or indirectly, through any officer, director, employee, legal counsel, financial advisor, expert, representative, agent, or other person acting on its behalf, solicit, initiate, invite or knowingly encourage (including by way of furnishing confidential information or entering into any form of agreement, arrangement or understanding) the initiation of or participate in, any inquiries or proposals regarding an Acquisition Proposal, provided that nothing contained in this Section 8.3 or other provisions of this Agreement (including, without limitation, Section 8.1) will prevent the board of directors of Old Lorus from considering, negotiating, approving or recommending to the Old Lorus Securityholders an agreement in respect of an unsolicited written Acquisition Proposal:

which did not result from a breach of this Section 8.3(b);

in respect of which any required financing has been demonstrated to the satisfaction of the board of directors of Old Lorus, acting in good faith, to be reasonably likely to be obtained;

in respect of which the board of directors of Old Lorus determines (having consulted outside counsel) that in the exercise of its fiduciary duty it would be necessary for such board of directors to take such action in order to avoid breaching its fiduciary duties; and

in respect of which the board of directors of Old Lorus determines in good faith, after consultation with financial advisors, if consummated in accordance with its terms, would result in a transaction more favourable financially to its securityholders than the Arrangement,

(any such Acquisition Proposal that satisfies clauses (i) through (iv) above being referred to herein as a “Superior Proposal”).

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Old Lorus agrees not to release any third party from any confidentiality agreement in respect of an Acquisition Proposal to which such third party is a party. Old Lorus further agrees not to release any third party from any standstill agreement to which such third party is a party, unless such third party has made a Superior Proposal.

Old Lorus will promptly notify Investor of any current or any future Acquisition Proposal of which any of Old Lorus’ directors or senior officers become aware, or any amendments to the foregoing, or any request for non-public information relating to Old Lorus in connection with an Acquisition Proposal or for access to the properties, books or records or for a list of the securityholders of Old Lorus by any person or entity that informs Old Lorus that it is considering making an Acquisition Proposal. Such notice will include a copy of all written communications and a description of the material terms and conditions of any proposal and provide such details of the proposal, inquiry or contact as Investor may reasonably request, including without limitation the identity of the person and controlling person, if any, making such proposal, inquiry or contact.

If Old Lorus receives a request for material non-public information from a Person who proposes an Acquisition Proposal in respect of Old Lorus, and the board of directors of Old Lorus determines that such proposal would be a Superior Proposal pursuant to Section 8.3(b), assuming the satisfactory outcome of a due diligence condition, then, and only in such case, the board of directors may, subject to the execution of a confidentiality agreement and provided Old Lorus sends a copy of any such confidentiality agreement to Investor immediately upon its execution, provide such person with access to non-public information. Old Lorus will provide Investor with a list of the information provided to the person making the Superior Proposal.

Old Lorus will ensure that its directors and officers and any financial advisors or other advisors or representatives retained by it are aware of the provisions of this Section 8.3, and it will be responsible for any breach of this Section 8.3 by its financial advisors or other advisors or representatives.

8.4

Notice of Superior Proposal Determination

Old Lorus will not accept, approve or recommend or enter into any agreement (except for a confidentiality agreement pursuant to Section 8.3(e)) in respect of an Acquisition Proposal on the basis that it constitutes a Superior Proposal unless (i) it has complied with its obligations under Section 8.3(b), (ii) it has provided Investor with a complete copy of the Acquisition Proposal document which has been determined to be a Superior Proposal, with such deletions as are necessary to protect confidential portions of such Acquisition Proposal document, provided that material terms or conditions or the identity of the controlling person, if any, making the Acquisition Proposal may not be deleted, (iii) four (4) Business Days (the “Notice Period”) will have elapsed from the later of the date Investor received notice of the determination to accept, approve or recommend an agreement in respect of such Acquisition Proposal, and the date Investor received a copy of the Acquisition Proposal document, and (iv) it concurrently terminates this Agreement and pays to Investor the non-completion fee provided for in Section 12.1. During the Notice Period, Old Lorus will provide a reasonable opportunity to Investor to consider, discuss and offer such adjustments in the terms and conditions of this Agreement as would enable Old Lorus to proceed with its recommendation to the Old Lorus Securityholders with respect to the Arrangement; provided however that any such adjustment will be at the discretion of Old Lorus and Investor at the time. The board of directors of Old Lorus will review in good faith any offer made by Investor to amend the terms of this Agreement in order to determine, in its discretion, as part of its exercising its fiduciary duties, whether the proposed amendments would, upon acceptance, result in such Superior Proposal ceasing to be a Superior Proposal. If the board of directors of Old Lorus determines that the Superior Proposal would cease to be a Superior Proposal, it will so advise Investor and will accept the offer by Investor to amend the terms of this Agreement and Old Lorus and Investor agree to take such actions and execute such documents as are necessary to give effect to the foregoing. If the board of directors of Old Lorus continues to believe, in good faith and after consultation with financial advisors and outside counsel, that such Superior Proposal remains a Superior Proposal and therefore rejects the amendments offered by Investor, Old Lorus may, subject to the terms of this Agreement including payment of the non-completion fee provided for in Section 12.1, accept, approve, recommend or enter into an agreement, understanding or arrangement in respect of such Superior Proposal. Each successive material modification of any Acquisition Proposal or a Superior Proposal will constitute a new Acquisition Proposal for the purposes of this Section 8.4 and will require a four (4) Business Day Notice Period from the

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date such amendment is communicated to Investor. Information provided hereunder will constitute confidential information under the Confidentiality Agreement.

8.5

Access to Information

Subject to the Confidentiality Agreementand Applicable Laws, upon reasonable notice, Old Lorus will afford the officers, employees, counsel, accountants and other authorized representatives and advisors of Pinnacle and Investor access, during normal business hours from the date hereof and until the earlier of the Effective Date or the termination of this Agreement, to its properties, books, contracts and records as well as to its management personnel, and, during such period, Old Lorus will furnish promptly to Pinnacle and Investor (without duplication) all information concerning its business, properties and personnel as Pinnacle or Investor may reasonably request.

ARTICLE 9
COVENANTS OF INVESTOR

9.1

Covenants of Investor

Investor covenants in favour of Old Lorus, NuChem, GeneSense and New Lorus and agrees that, except as contemplated in this Agreement or the Plan of Arrangement, until the Effective Date or the day upon which this Agreement is terminated, whichever is earlier:

it will:

not take any action, refrain from taking any action, or permit any action to be taken or not taken that would interfere with or be inconsistent with the completion of the transactions contemplated hereby or that would render, or that reasonably may be expected to render, any representation or warranty made by it in this Agreement untrue in any material respect at any time prior to the Effective Date if then made; and

promptly notify Old Lorus of receipt by Investor of any Governmental Authority or third party written complaints, investigations or hearings (or communications indicating that the same may be contemplated) in respect of the Arrangement;

it will use all reasonable commercial efforts to satisfy (or cause the satisfaction of) the conditions precedent to its obligations hereunder to the extent the same is within its control and take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or advisable under all Applicable Laws to complete the Arrangement, including using its reasonable commercial efforts to:

obtain all necessary waivers, consents and approvals required to be obtained by it from other parties to contracts;

obtain all necessary consents, approvals and authorizations that are required to be obtained by it under any Applicable Laws;

fulfil all conditions and satisfy all provisions of this Agreement;

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(vi)

cooperate with Old Lorus in connection with the performance by it of its obligations hereunder; and

(vii)

conduct its affairs so that all of its representations and warranties contained herein will be true and correct in all material respects on and as of the Effective Date as if made thereon;

it will discuss and consider such pre-arrangement steps or amendments to the Plan of Arrangement as may be proposed by Old Lorus and implement such pre-arrangement steps or such amendments that it considers to be in its best interests, provided such steps are agreed to in writing by Old Lorus;

it will, subject to the terms hereof, in a timely and expeditious manner, provide to Old Lorus all information as may be reasonably requested by Old Lorus or as required by the Interim Order or Applicable Laws with respect to Investor and its business and properties.

ARTICLE 10
COVENANTS OF PINNACLE

10.1

Covenants of Pinnacle

Pinnacle covenants in favour of Old Lorus, NuChem, GeneSense and New Lorus and agrees that, except as contemplated in this Agreement or the Plan of Arrangement, until the Effective Date or the day upon which this Agreement is terminated, whichever is earlier:

promptly notify Old Lorus of receipt by Pinnacle of any Governmental Authority or third party written complaints, investigations or hearings (or communications indicating that the same may be contemplated) in respect of the Arrangement;

fulfil all conditions and satisfy all provisions of this Agreement;

cooperate with Old Lorus in connection with the performance by it of its obligations hereunder; and

conduct its affairs so that all of its representations and warranties contained herein will be true and correct in all material respects on and as of the Effective Date as if made thereon; and

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ARTICLE 11
CONDITIONS PRECEDENT

11.1

Mutual Conditions Precedent

The respective obligations of the Parties hereto to consummate the transactions contemplated hereby, and in particular the Arrangement, are subject to the satisfaction, on or before the Effective Date or such other time as is specified below, of the following conditions, any of which may be waived by the mutual consent of such Parties without prejudice to their right to rely on any other of such conditions:

the Interim Order will have been granted in form and substance satisfactory to each of Old Lorus and Investor, acting reasonably and will not have been set aside or modified in a manner unacceptable to such parties, acting reasonably, on appeal or otherwise;

on or before June 30, 2007, the Arrangement Resolution will have been passed by the Old Lorus Securityholders in form and substance satisfactory to each of Old Lorus and Investor, acting reasonably, duly approving the Arrangement in accordance with the Interim Order and the requirements of applicable Securities Laws, as applicable;

on or before July 15, 2007, the Final Order will have been granted in form and substance satisfactory to each of Old Lorus and Investor each acting reasonably;

each of the Lock-Up Holders will have (i) voted all Old Lorus Shares held by, or under the control or direction of, them in favour of the Arrangement, and (ii) agreed, subject to certain terms and conditions, to sell to Investor at the Effective Time all of the Old Lorus Voting Shares (as defined in the Plan of Arrangement) held by each Lock-Up Holder pursuant to written documentation (which remains in full force and effect) in form and substance satisfactory to each of Old Lorus and Investor, each acting reasonably, and the Investor, acting reasonably, will be satisfied that no condition exists that has resulted in, or could result in, any of the Lock-Up Holders failing to sell all of its Old Lorus Voting Shares to the Investor pursuant to the Arrangement;

the Articles of Arrangement, together with the Final Order, to be filed with the Director in accordance with the Arrangement and Section 192(6) of the CBCA, will be in form and substance satisfactory to each of Old Lorus and Investor, each acting reasonably;

the TSX will have accepted notice of the Arrangement and the transactions contemplated thereby and will have approved the listing of the New Lorus Shares, subject only to the conditions that may be imposed by the TSX;

the AMEX will have accepted notice of the Arrangement and the transactions contemplated and will have approved the listing of the New Lorus Shares, subject only to the conditions that may be imposed by the AMEX;

(h)

subject to Section 11.4(c), the Arrangement will have become effective on or before the Outside Date;

there will be no action taken under any Applicable Law that:

makes illegal or otherwise directly or indirectly restrains, enjoins or prohibits the Arrangement or any other transactions contemplated herein;

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results in a judgment or assessment of material damages directly or indirectly relating to the transactions contemplated herein; or

has had or, if the Arrangement was consummated, would reasonably be expected to result in, a Material Adverse Effect on Old Lorus, NuChem, GeneSense, New Lorus, Pinnacle or Investor;

(j)

the Pinnacle Share Purchase Agreement contemplated by the Plan of Arrangement will have been executed on terms satisfactory to New Lorus and Investor, acting reasonably, in accordance with this Agreement;

(k)

the Escrow Agreement will have been executed on terms satisfactory to the Investor and New Lorus, acting reasonably;

(l)

each of the Asset Transfer Agreements and the Subsidiary Share Transfer Agreements will have been executed and delivered by each of the parties thereto and each of the transactions contemplated by such agreements will have been completed in accordance with the terms thereof;

(m)

the Indemnification Agreement will have been executed on terms satisfactory to Investor, New Lorus and Old Lorus, each acting reasonably, in accordance with this Agreement;

(n)

no material action or proceeding will be pending or threatened by any Person or Governmental Authority to enjoin or prohibit the Arrangement from being completed, or result in a judgment in material damages relating to the transaction as contemplated herein;

(o)

other than the Lock-Up Holders (except to the extent that any Lock-Up Holder has terminated any agreement contemplated by Section 11.1(d)), no Person, whether alone or jointly or in concert with others, will, immediately prior to the Effective Date, beneficially own, or exercise control or direction over, more than 10% of the then issued and outstanding Old Lorus Shares;

(p)

immediately prior to the Effective Date, the Lock-Up Holders (together with any person acting jointly or in concert with the Lock-Up Holders) will not beneficially own, or exercise control or direction over, in the aggregate, more than 25% of the then issued and outstanding common shares of Old Lorus; and

(q)

Pinnacle, in its reasonable judgment, will be satisfied that, immediately prior to the Effective Time, Old Lorus shareholders resident in the United States do not hold, in the aggregate, more than 10% of the outstanding Old Lorus Shares.

The foregoing conditions are for the mutual benefit of each of Old Lorus and Investor and may be asserted by each of Old Lorus and Investor regardless of the circumstances and may be waived by each of Old Lorus and Investor in their sole discretion, in whole or in part, at any time and from time to time without prejudice to any other rights which Old Lorus or Investor may have.

11.2

Conditions to Obligations of Old Lorus

The obligations of Old Lorus to consummate the transactions contemplated hereby, and in particular the Arrangement, are subject to the satisfaction, on or before the Effective Date or such other time as is specified below, of the following conditions:

each of the acts and undertakings of Pinnacle and Investor to be performed on or before the Effective Date pursuant to the terms of this Agreement will have been duly performed by Pinnacle and Investor in accordance with the terms of this Agreement and the Plan of Arrangement;

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except as affected by the transactions contemplated by this Agreement, the representations and warranties of Investor contained in Section 6.1 and the representations and warranties of Pinnacle contained in Section 7.1 will be true and correct in all material respects on the Effective Date with the same force and effect as though such representations and warranties had been made at and as of such time (except to the extent that such representations and warranties speak as of a particular date) except where the failure of such representations and warranties to be true and correct would not have a Material Adverse Effect on Pinnacle or Investor, and both Pinnacle and Investor will have complied in all material respects with their respective covenants in this Agreement and Old Lorus will have received certificates to that effect, dated the Effective Date, from a senior officer of each of Pinnacle and Investor, respectively, acting solely on behalf of the company in question and not in his personal capacity, to the best of his information and belief having made reasonable inquiry and Old Lorus will have no actual knowledge to the contrary;

there will not have occurred a Material Adverse Change in respect of Pinnacle or Investor;

all requisite consents, orders, approvals and authorizations, including, without limitation, regulatory and judicial approvals and orders, required or necessary for the completion of the Arrangement will have been completed or obtained on terms and conditions satisfactory to Old Lorus, acting reasonably, and all applicable statutory or regulatory waiting periods to the transactions contemplated under the Arrangement, will have been expired or been terminated, and no objection or opposition will have been filed, initiated or made by any regulatory authority during any applicable statutory or regulatory period;

holders of Old Lorus Shares will not have exercised the Dissent Rights or similar rights, and will not have instituted proceedings to exercise the Dissent Rights or similar rights in connection with the Arrangement (other than holders of Old Lorus Shares representing, in the aggregate, not more than 2.5% of the outstanding Old Lorus Shares);

Old Lorus will have received a written fairness opinion from Deloitte & Touche LLP confirming its preliminary opinion that the consideration to be issued pursuant to the Arrangement is fair, from a financial point of view, to the Old Lorus Securityholders, which opinion will have been included in the Information Circular; and

there being no change in law (including a proposal by the Minister of Finance of Canada to amend the Income Tax Act (Canada) or any announcement, governmental or regulatory initiative, condition, event or development involving a change or a prospective change) that in the judgment of Old Lorus, acting reasonably, directly or indirectly, has or may have a Material Adverse Effect on or with respect to Old Lorus, GeneSense, XxXxxx or New Lorus, with respect to the regulatory regime applicable to their respective businesses and operations, or with respect to consummating the transactions contemplated by the Plan of Arrangement.

The conditions in this Section 11.2 are for the exclusive benefit of Old Lorus and may be asserted by Old Lorus regardless of the circumstances or may be waived by Old Lorus in its sole discretion, in whole or in part, at any time and from time to time without prejudice to any other rights which Old Lorus may have.

11.3

Conditions to Obligations of Pinnacle and Investor

The obligations of Pinnacle and Investor to consummate the transactions contemplated hereby, are subject to the satisfaction, on or before the Effective Date or such other time as is specified below, of the following conditions:

each of the acts and undertakings of each of Old Lorus, NuChem, GeneSense and New Lorus to be performed on or before the Effective Date pursuant to the terms of this Agreement will have been duly performed by each of Old Lorus, NuChem, GeneSense and New Lorus in accordance with the terms of this Agreement and the Plan of Arrangement;

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except as affected by the transactions contemplated by this Agreement, the representations and warranties of Old Lorus contained in Section 4.1 and of New Lorus contained in Section 5.1 will be true in all material respects on the Effective Date with the same force and effect as though such representations and warranties had been made at and as of such time (except to the extent such representations and warranties speak as of a particular date) except where the failure of such representations and warranties to be true and correct would not have a Material Adverse Effect on Old Lorus, and Old Lorus will have complied in all material respects with its covenants in this Agreement and Investor will have received certificates to that effect, dated the Effective Date, from a senior officer of each of Old Lorus, NuChem, GeneSense and New Lorus respectively, acting solely on behalf of the company in question and not in his personal capacity, to the best of his information and belief having made reasonable inquiry and Investor will have no actual knowledge to the contrary provided that, Old Lorus will have the ability in such certificate to update the representation and warranty of Old Lorus contained in Section 4.1(g) hereof as at the Effective Date;

there will not have occurred any Material Adverse Change in respect of Old Lorus or any Subsidiary;

the directors and officers of Old Lorus identified by Investor will have provided their resignations, together with mutual releases in favour of Old Lorus and Investor, effective on the Effective Date, each in a form and substance and on such terms as are satisfactory to Investor, acting reasonably;

Old Lorus will not have declared or paid any dividends or made any other distributions of any of its securities or granted any further options or warrants or any right or privilege capable of becoming an option or agreement in respect of its securities;

Investor will be satisfied that all steps have been taken to ensure that all liabilities and obligations of Old Lorus will have been paid or otherwise extinguished or assumed and Investor will have received such releases or other evidence of the satisfaction or assumption of such liabilities, as Investor, in its sole discretion considers appropriate or necessary;

all security registrations against Old Lorus will have been discharged; and

(h)

there being no change in law (including a proposal by the Minister of Finance of Canada to amend the Income Tax Act (Canada) or any announcement, governmental or regulatory initiative, condition, event or development involving a change or a prospective change) that in the judgment of Investor or Pinnacle, acting reasonably, directly or indirectly, has or may have a Material Adverse Effect on or with respect to Old Lorus, GeneSense or XxXxxx, with respect to the regulatory regime applicable to their respective businesses and operations, or with respect to consummating the transactions contemplated by the Plan of Arrangement.

The conditions described in this Section 11.3 are for the exclusive benefit of Investor and may be asserted by Investor regardless of the circumstances or may be waived by Investor in its sole discretion, in whole or in part, at any time and from time to time without prejudice to any other rights which Investor may have.

11.4

Notice and Cure Provisions and Effect of Failure to Comply with Conditions

Each of Old Lorus, NuChem, GeneSense, New Lorus, Pinnacle and Investor will give prompt notice to the others of the occurrence, or failure to occur, at any time from the date hereof to the Effective Date of any event or state of facts which occurrence or failure would, or would be likely to, (i) cause any of the representations or warranties of any Party contained herein to be untrue or inaccurate in any material respect, or (ii) result in the failure to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by any Party hereunder provided, however, that no such notification will affect the representations or warranties of the Parties or the conditions to the obligations of the Parties hereunder.

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Subject to Section 11.4(c), if any of the conditions precedents set forth in Sections 11.1, 11.2 or 11.3 hereof will not be complied with or waived by the Party for whose benefit such conditions are provided on or before the date required for the performance thereof, then the Party for whose benefit the condition precedent is provided may, in addition to any other remedies they may have at law or equity, rescind and terminate this Agreement pursuant to Section 14.1 provided that the Party intending to rely thereon has delivered a written notice to the other Parties, specifying in reasonable detail all breaches of covenants, representations and warranties or other matters which the Party delivering such notice is asserting as the basis for the non-fulfilment of the applicable conditions precedent. If any such notice is delivered, provided that a Party is proceeding diligently to cure such matter and such matter is capable of being cured (except matters arising out of the failure to make appropriate disclosure in the Disclosure Letter delivered on the date of execution of this Agreement) no Party may terminate this Agreement until the later of the Outside Date and the expiration of a period of 30 days from the date of such notice. If such notice has been delivered prior to the date of the Old Lorus Securityholders’ Meeting, such meeting will be postponed until the expiry of such period. If such notice has been delivered prior to the making of the applications for Final Order or the filing of the Articles of Arrangement, such applications and such filings will be postponed until the expiry of such period. More than one such notice may be delivered by a Party.

If the conditions precedent set forth in Section 11.1(o) cannot be satisfied at the Effective Date, the Effective Date will be reset to the date that is three Business Days after the first date that such condition precedent can be complied with, provided that the Effective Date occurs on or prior to July 31, 2007 or such other date as agreed in writing by the Parties.

11.5

Satisfaction of Conditions

The conditions set out in this Article 11 are conclusively deemed to have been satisfied, waived or released when, with the agreement of the Parties, Articles of Arrangement are filed under the CBCA to give effect to the Arrangement.

ARTICLE 12
AGREEMENT AS TO NON-COMPLETION FEE

12.1

Lorus Non-Completion Fee

If at any time after the execution of this Agreement and prior to the termination of this Agreement pursuant to Article 14:

the board of directors of Old Lorus withdraws, qualifies or changes any of its recommendations or determinations referred to in Section 2.5(a) in a manner adverse to Investor or resolves to do so prior to the Effective Date; provided that if the board of directors of Old Lorus determines in good faith that Pinnacle or Investor is in material breach of any of its representations, warranties or covenants hereunder and communicates such determination to the Old Lorus Securityholders, such communication will not constitute a withdrawal or qualification of the recommendation of the board of directors of Old Lorus referred to in Section 2.5(a); or

Old Lorus accepts, approves, recommends or enters into any contractual agreement with any Person in respect of an Acquisition Proposal prior to the Old Lorus Securityholders’ Meeting, excluding a confidentiality agreement entered into in compliance with Section 8.3; or

except as contemplated by Section 8.4 with respect to Investor’s right to respond to any Superior Proposal, Old Lorus publicly announces its intention to do any of the foregoing; or

the Old Lorus Securityholders’ Meeting is cancelled, adjourned or postponed except with the prior written consent of Pinnacle.

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(each of the above being a “Lorus Payment Event”), then Old Lorus will pay to Investor the amount of $600,000 as a non-completion fee in immediately available funds to an account designated by Investor within two Business Days after the occurrence of any one of the Lorus Payment Events. Notwithstanding anything to the contrary, if a payment has been made under any of Section 12.1(a), 12.1(b), 12.1(c) or 12.1(d), no further payment will be required under any of Section 12.1(a), 12.1(b), 12.1(c) or 12.1(d).

12.2

Pinnacle Non-Completion Fee

If at any time after the execution of this Agreement and prior to the termination of this Agreement pursuant to Article 14, except in the event that the board of directors of Pinnacle or Investor determines in good faith that Old Lorus is in material breach of any of its representations, warranties or covenants hereunder, the board of directors of Pinnacle or Investor withdraws its approval for the entering into of this Agreement or, resolves to do so prior to the Effective Date (a “Pinnacle Payment Event”), then Pinnacle and Investor will be liable to pay to Old Lorus, on a joint and several basis, the amount of $600,000 as a non-completion fee in immediately available funds to an account designated by Old Lorus within two Business Days after the occurrence of any one of the Pinnacle Payment Events.

12.3

Liquidated Damages

Each Party acknowledges that the amounts set out in Sections 12.1 and 12.2 represent liquidated damages which are a genuine pre-estimate of the damages, including opportunity costs, which Investor or Old Lorus, as applicable, will suffer or incur as a result of the event giving rise to such damages and resultant termination of this Agreement, and are not penalties. Each Party irrevocably waives any right it may have to raise as a defence that any such liquidated damages are excessive or punitive.

12.4

Limited Remedy

For greater certainty, each of Investor and Old Lorus agrees that the compensation or damages to be received pursuant to this Article 12 is the sole remedy in compensation or damages of Investor and Old Lorus in respect of a Lorus Payment Event or a Pinnacle Payment Event, as applicable, provided however that nothing contained in this Article 12 or Section 14.1, including the payment of an amount under this Article 12, will relieve or have the effect of relieving Pinnacle, Investor or Old Lorus, in any way from liability for damages incurred or suffered by Pinnacle, Investor or Old Lorus as a result of a breach of this Agreement by Pinnacle, Investor or Old Lorus, as applicable, acting in bad faith with a clear intent and design to prevent the conditions precedent to this Agreement’s completion from being satisfied. Nothing herein will preclude a Party from seeking injunctive relief to restrain any breach or threatened breach of the covenants or agreements set forth in this Agreement or the Confidentiality Agreement or otherwise to obtain specific performance of any of such act, covenant or agreement.

ARTICLE 13
IDEMNIFICATION

13.1

Indemnification by Old Lorus and New Lorus

Subject to Section 13.2(b) hereof, each of Old Lorus and New Lorus hereby covenants and agrees to indemnify and save harmless Pinnacle, Investor and their respective directors, officers and employees (collectively, the “Indemnified Parties”) from and against all liabilities, claims, losses (excluding loss of profits and indirect or consequential losses), costs (including without limitation legal fees and disbursements on a solicitor and his own client basis) fines, penalties, damages and expenses to which any Indemnified Party may be subject or may suffer or incur, whether under the provisions of any statute or otherwise, in any way caused by or arising directly or indirectly by reason or in consequence of:

any incorrectness in or breach of any representation or warranty of Old Lorus or New Lorus contained in this Agreement or any other certificate or instrument executed and delivered pursuant to this Agreement;

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any information or statement contained in the Information Circular relating to Old Lorus or New Lorus (other than the Pinnacle Information) or the business, operations, results of operations, assets, capitalization, financial condition, rights, liabilities or prospects of Old Lorus or New Lorus and whether on a prospective or pro forma basis (other than the Pinnacle Information), containing a misrepresentation; or

any breach of any covenant or other obligation of Old Lorus or New Lorus contained herein.

13.2

Limitation on Indemnification by Old Lorus and New Lorus

(1)

Notwithstanding the provisions of Section 13.1 and except in the case of fraud:

neither Old Lorus nor New Lorus will have any obligation to indemnify an Indemnified Party for any Claims contemplated by Section 13.1(i) or Section 13.1(ii) in excess, either individually or in the aggregate, of the purchase price paid by Investor to New Lorus for the shares of Old Lorus pursuant to the Pinnacle Share Purchase Agreement (and for the purposes of this Section 13.2(1)(a), all Claims (as determined by a non-appealable court of competent jurisdiction or pursuant to a binding settlement between the parties) by an Indemnified Party will be aggregated with all claims and demands by the Purchaser Indemnified Parties (as defined in the Pinnacle Share Purchase Agreement) pursuant to section 7.02 of the Pinnacle Share Purchase Agreement); and

neither Old Lorus nor New Lorus will have any obligation to indemnify an Indemnified Party under Section 13.1 for any Claim contemplated by Section 13.1(i) or Section 13.1(ii) unless the amount of such Claim, or series of related Claims, exceeds an amount equal to $20,000, in which case Old Lorus and New Lorus will, subject to Section 13.2(2), be liable for all such Claims.

(2)

Notwithstanding any other provision of this Agreement, (i) up to the Effective Time, the obligations of Old Lorus and New Lorus under Section 13.1 will be joint and several, and (ii) from and after the Effective Time, Old Lorus will have no liability whatsoever with respect to any claim for indemnification under Section 13.1 made against New Lorus, whether or not such claim relates to any matter or thing arising prior to the Effective Time. New Lorus agrees that it will not make any claim or take any proceeding against Old Lorus with respect to any matter which any Indemnified Party is entitled to indemnification under Section 13.1 which may result in any claim arising against Old Lorus for contribution or indemnity or other relief.

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13.3

Indemnification by Pinnacle and Investor

Each of Pinnacle and Investor hereby covenants and agrees to indemnify Old Lorus, GeneSense, XxXxxx and New Lorus and their directors, officers and employees on a joint and several basis with respect to from and against all liabilities, claims, losses (excluding loss of profits and indirect or consequential losses), costs (including without limitation legal fees and disbursements on a solicitor and his own client basis) fines, penalties, damages and expenses to which any Indemnified Party (as defined below) may be subject or may suffer or incur, whether under the provisions of any statute or otherwise, in any way caused by or arising directly or indirectly by reason or in consequence of:

any incorrectness in or breach of any representation or warranty of Pinnacle or Investor contained in this Agreement or any other certificate or instrument executed and delivered pursuant to this Agreement;

any misrepresentation in the Pinnacle Information; or

any breach of any covenant or other obligation of Pinnacle or Investor contained herein;

and the provisions of subsection 13.1 will apply mutatis mutandis to such indemnity, with Old Lorus, GeneSense, XxXxxx and New Lorus and their directors, officers and employees as the “Indemnified Party”.

13.4

Limitation on Indemnification by Pinnacle and Investor

Notwithstanding the provisions of Section 11.3 and except in the case of fraud:

neither Pinnacle nor Investor will have any obligation to indemnify Old Lorus, GeneSense, XxXxxx or New Lorus or any of their respective directors, officers and employees for any Claims contemplated by Section 13.3(i) or Section 13.3(ii) in excess, either individually or in the aggregate, of the purchase price paid by Investor to New Lorus for shares of Old Lorus pursuant to the Pinnacle Share Purchase Agreement (and for the purposes of this Section 13.4(a), all Claims by Old Lorus, GeneSense, XxXxxx or New Lorus or any of their respective directors, officers and employees will be aggregated with all claims and demands by New Lorus pursuant to section 7.02 of the Pinnacle Share Purchase Agreement); and

neither Pinnacle nor Investor will have any obligation to indemnify Old Lorus, GeneSense, XxXxxx or New Lorus or any of their respective directors, officers and employees under Section 13.3 for any Claim contemplated by Section 13.3(i) or Section 13.3(ii) unless the amount of such Claim, or series of related Claims, exceeds an amount equal to $20,000, in which case Pinnacle and Investor will be liable for all such Claims.

13.5

Exclusive Remedy

From and after the completion of the transactions herein contemplated, the rights of indemnity set forth in this Article 13 are the sole and exclusive remedies of each party in respect of any inaccuracy or misrepresentation in any representation or warranty, or breach of covenant or other obligation by another Party under this Agreement, other than as set out in Article 12. Accordingly, each of the Parties waive, from and after the Effective Date, any and all rights, remedies and claims that such Party may have against another Party, whether at law, under any statute or in equity (including claims for contribution or other rights of recovery arising under any Environmental Law, claims for breach of contract, breach of representation and warranty, negligent representation and all claims for breach of duty), or otherwise, directly or indirectly, relating to the provisions of this Agreement other than any right, remedy or claim of such party (i) expressly provided for in Article 12 or Article 13, (ii) arising with respect to any fraud, and (iii) under or arising with respect to any agreement (other than this Agreement) to which such Party is a party. This Article 13 will remain in full force and effect in all circumstances and will not be terminated by any breach (fundamental, negligent or otherwise) by any Party of its representations, warranties, covenants or other obligations under this Agreement or under any ancillary document or by any termination or rescission of this Agreement by any Party.

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13.6

Survival

All covenants, representations and warranties of each Party contained in this Agreement will survive the completion of the Arrangement and will continue in full force and effect, subject to the provisions of this Article 13.

ARTICLE 14
TERMINATION, AMENDMENT AND WAIVER

14.1

Termination

Subject to Section 14.2, this Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the Arrangement by the Old Lorus Securityholders, by the mutual agreement of Old Lorus and Investor or by written notice promptly given to the other Parties based on the following:

by either Old Lorus or Investor, with respect to termination rights specified in Section 11.1, 11.2 or 11.3, other than as a result of a breach of this Agreement by the terminating Party which has not been cured in accordance with Section 11.4;

by Investor upon the occurrence of a Lorus Payment Event as provided in Section 12.1;

by Old Lorus upon the acceptance of a Superior Proposal pursuant to, and in accordance with, Sections 8.3 and 8.4 but only so long as the Arrangement has not been approved by the requisite majority of Old Lorus Securityholders; or

by Old Lorus upon the occurrence of a Pinnacle Payment Event as provided in Section 12.2.

This Agreement will be automatically terminated if the Old Lorus Securityholders do not approve the Arrangement at the Old Lorus Securityholders’ Meeting.

14.2

Effect of Termination

In the event of the termination of this Agreement as provided in Section 14.1, this Agreement will forthwith have no further force or effect and there will be no obligation on the part of Old Lorus, NuChem, GeneSense, New Lorus or Investor hereunder except as set forth in Article 12, which provisions will survive the termination of this Agreement. Nothing in this Section 14.2 will relieve any Party from liability for any breach of this Agreement.

14.3

Amendment

This Agreement may be amended by mutual agreement between the Parties. This Agreement may not be amended except by an instrument in writing signed by the appropriate officers on behalf of each of the Parties.

14.4

Waiver

Old Lorus, NuChem, GeneSense and New Lorus, on the one hand, and Investor, on the other hand, may:

extend the time for the performance of any of the obligations or other acts of the other;

waive compliance with any of the agreements of the other or the fulfillment of any conditions to its own obligations contained herein; or

waive inaccuracies in any of the representations or warranties of the other contained herein or in any document delivered by the other; provided, however, that any such extension or waiver will be valid only if set forth in an instrument in writing signed on behalf of such Party.

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ARTICLE 15
CLOSING

15.1

Closing Date

The date of Closing will be the date selected by Old Lorus and Investor, which date, subject to Section 11.4(c) will not be later than the date that is fifteen (15) days following the receipt of such the Final Order (or such later date as Old Lorus and Pinnacle may agree), and on such date the Closing will occur in accordance with Sections 15.2 and 15.3 (the “Closing Date”).

15.2

Effect of Closing

On the Closing Date, as promptly as practicable after the satisfaction or, to the extent permitted hereunder, the waiver of the conditions set forth in Article 11, the Parties will cause the Arrangement to be consummated by the filing of the Articles of Arrangement and any other necessary documents prepared in accordance with the provisions of this Agreement and the CBCA with the Director in accordance with the CBCA, and at the Effective Time on the Effective Date, as specified in the Plan of Arrangement and the other transactions contemplated by the Plan of Arrangement will occur.

15.3

Place of Closing

The Closing as detailed in Section 15.2 will take place at the offices of XxXxxxxx in Toronto, Ontario at the Closing Timeon the Closing Date.

15.4

Other Closing Matters

In addition to the other matters required to be delivered under the terms and conditions of this Agreement, each of Old Lorus, NuChem, GeneSense, New Lorus and Investor will deliver, at the Closing, such customary certificates, resolutions and other closing documents as may be required by the other Parties hereto, acting reasonably.

ARTICLE 16
GENERAL PROVISIONS

16.1

Notices

Any notice, request, consent, waiver, direction or other communication required or permitted to be given under this Agreement will be in writing and may be given by delivering same or sending same by facsimile transmission or by delivery addressed to the Party to which the notice is to be given at its address for service herein. Any such notice, request, consent, waiver, direction or other communication will, if delivered, be deemed to have been given and received on the day on which it was delivered to the address provided herein (if that day is a Business Day, and if it is not, then on the next succeeding Business Day), and if sent by facsimile transmission will be deemed to have been given and received at the time of receipt unless actually received after 4:00 p.m. at the point of delivery, in which case it will be deemed to have been given and received on the next Business Day.

(a)	If to Pinnacle or Investor	Xxxxx 000 000 Xxxxx Xxxxxx Xxxxxxxxx, XX X0X 0X0

		Attention: President Fax: (000) 000-0000

Attention: Director of Finance

Fax: (000) 000-0000

16.2

Fees and Expenses

Subject to Section 16.2(b), each Party will be responsible for its own fees and expenses in connection with the negotiation of this Agreement and the implementation of the Arrangement. Old Lorus will bear all costs associated with the costs of printing and mailing the Information Circular, transfer agent and depository costs, audit costs, listing fees and the provision of any fairness opinion.