10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2005

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934 For the transition period from _____________to _____________

Commission file number: 0-30318

VENTIV HEALTH, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction No. of Incorporation or Organization) 52-2181734 (I.R.S. Employer Identification No.)

200 Cottontail Lane Vantage Court North; Somerset, New Jersey 08873

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (800) 416-0555

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: Common Stock

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [_]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [_]Accelerated filer [X]Non-accelerated filer []

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [_] No [X]

Based on the closing sale price on the Nasdaq National Market as of the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $479,018,656. For the purposes of this calculation, shares owned by officers, directors and 10% shareholders known to the registrant have been deemed to be owned by affiliates. This determination of affiliate status is not a determination for other purposes.

As of March 3, 2006, there were 28,553,939 outstanding shares of the registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's Definitive Proxy Statement to be filed with the Commission for use in connection with the 2006 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

Item	Description
PART I
1	Business
1A	Risk Factors
1B	Unresolved Staff Comments
2	Properties
3	Legal Proceedings
4	Submission of Matters to a Vote of Securities Holders
PART II
5	Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchase of Equity Securities
6	Selected Financial Data
7	Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A	Quantitative and Qualitative Disclosures About Market Risk
8	Financial Statements and Supplementary Data
9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
9A	Controls and Procedures
9B	Other Information
PART III
10	Directors and Executive Officers of the Registrant
11	Executive Compensation
12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13	Certain Relationships and Related Transactions
14	Principal Accounting Fees and Services
PART IV
15	Exhibits and Financial Statement Schedules

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

 This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Specifically, this report contains forward-looking statements regarding:

· our estimates regarding our liquidity, capital expenditures and sources of both, and our ability to fund our operations and planned capital expenditures for the foreseeable future;

· our strategy to address the need to offer additional services through acquisitions of other companies, including the personnel of such companies;

· our expectations regarding our pursuit of additional debt or equity sources to finance our internal growth initiatives or acquisitions;

· our belief that our growth and success will depend on our ability to continue to enhance the quality of our existing services, introduce new services on a timely and cost-effective basis, integrate new services with existing services, increase penetration with existing customers, recruit, motivate and retain qualified personnel and economically train existing sales representatives and recruit new sales representatives;

· our belief that there are ample opportunities for cross-selling to our existing clients;

· our anticipation that it will be necessary to continue to select, invest in and develop new and enhanced technology and end-user databases on a timely basis in the future in order to maintain our competitiveness;

· our expectations regarding the impact of our acquisitions, joint ventures and partnerships; and

· our expectations regarding the impact of the adoption of certain accounting standards.

These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:

· our ability to sufficiently increase our revenues and maintain or decrease expenses and cash capital expenditures to permit us to fund our operations;

· our ability to continue to comply with the covenants and terms of our credit facility and to access sufficient capital to fund our operations;

· our ability to grow our existing client relationships, obtain new clients and cross-sell our services;

· our ability to successfully operate new lines of business;

· our ability to manage our infrastructure and resources to support our growth;

· our ability to successfully identify new businesses to acquired, conclude acquisition negotiations and integrate the acquired businesses into our operations;

· any disruptions, impairments, or malfunctions affecting software as well as excessive costs or delays that may adversely impact our continued investment in and development of software;

· our ability to comply with all applicable laws as well as our ability to successfully implement from a timing and cost perspective any changes in applicable laws;

· our ability to recruit, motivate and retain qualified personnel, including sales representatives;

· the actual impact of the adoption of certain accounting standards; and

· changes in trends in the pharmaceutical industry or in pharmaceutical outsourcing.

 Investors should carefully consider these risk factors and the additional risk factors outlined in more detail in Item 1A, Risk Factors, in this report.

PART I

Item 1. Business.

Overview

We are a leading provider of value-added services to the pharmaceutical and life sciences industries. We support a broad range of clinical development, communications and commercialization activities that are critical to our customers' ability to complete the development of new pharmaceutical products, diagnostics and medical devices, and successfully commercialize them over their entire lifecycle. Our goal is to assist our customers in meeting their objectives in each of these areas by providing our services on a flexible and cost-effective basis. We provide services to over 150 client organizations, including 18 of the top 20 global pharmaceutical companies and numerous emerging and specialty biotechnology companies.

Our service offerings reflect the changing needs of our clients as their products move through the late-stage development and regulatory approval processes and into product launch and full commercial life. We have established expertise and leadership in providing the services our clients require at each of these stages of product development and commercialization and seek to address their outsourced service needs on a comprehensive basis throughout the product life cycle.

We provide our services through a portfolio of subsidiary companies that have historically conducted their operations as "Ventiv Health, Inc." As of the date of this report, we have changed our corporate brand name to inVentiv Health, Inc. as part of a re-branding initiative that began when we acquired inChord Communications, Inc. ("inChord"), a healthcare marketing and communications company, in October 2005. The legal name change will be effected following our annual shareholders meeting in June 2006, subject to receipt of stockholder approval.

Business Segments

We have organized our businesses into three complementary operating divisions, which correspond to our operating segments: inVentiv Clinical, inVentiv Communications and inVentiv Commercial. Our operating segment reporting was modified in 2005 to account for organizational changes in our business and the cumulative effect of our acquisition activity. In 2004, we managed three operating segments: inVentiv Commercial, inVentiv Clinical and inVentiv Analytic Services. Because of the functional relationship of our planning and analytics services business to our contract sales and regulatory compliance businesses, we have included planning and analytics within inVentiv Commercial for 2005. The inVentiv Communications segment was formed principally through the acquisition of inChord, in October 2005, and of Adheris, Inc. ("Adheris"), an industry leader in the area of patient compliance and persistency programs, in February 2006.

The following is a detailed description of our three operating segments:

inVentiv Clinical

inVentiv Clinical provides services in the areas of clinical development and clinical trial support. inVentiv Clinical includes the Smith Hanley group of companies (Smith Hanley Associates ("SHA"), Smith Hanley Consulting Group ("SHCG"), MedFocus and Anova Clinical Resources) and HHI Clinical and Statistical Research Services ("HHI"). inVentiv Clinical has also established international execution capabilities through an exclusive joint venture agreement with SIRO Clinpharm Pvt. Ltd., India's largest domestic contract research organization. inVentiv Clinical's service offerings include:

· Clinical Staffing & Recruiting. Through SHCG and MedFocus, we meet staffing and recruiting needs of more than 65 pharmaceutical and biotechnology clients, including 14 of the top 20 global pharmaceutical companies, for SAS™ programmers, data managers, statisticians, monitors and clinical research associates, study & project managers, clinical trials coordinators, safety/regulatory staff, medical writers, scientific and laboratory staff and other clinical personnel. We provide clinical staffing clients with flexibility in managing and executing clinical trials internally and allow them to avoid the expense of hiring and training a full staff. We draw from a database of over 30,000 candidates that is continually expanded through new recruiting techniques that include search engines, job fairs, conferences and referral bonuses.

· Data Management and Statistical Analyses. We provide data management and statistical analysis services through HHI. HHI has performed these services for over 150 clinical trials. HHI complements SHCG and MedFocus’s contract service pool with a statistically-knowledgeable physician and medically-knowledgeable statisticians to deliver well-organized research used in clinical trial and clinical program design, data management, data analysis, double key data entry and validation, reporting and standard operating procedures writing. This bi-disciplinary expertise enables HHI to set up, manage and present data to help pharmaceutical clients move from the preclinical stage through the drug approval process and post-commercialization oversight.

· Executive Placement. We provide executive placement services through SHA, which is one of the oldest and most respected executive placement organizations focused primarily on statisticians and data-related functions. 

inVentiv Communications

inVentiv Communications provides a full suite of advertising, communications and other functionally related services through inChord's specialty companies described below, and offers innovative patient pharmaceutical compliance programs through Adheris.

· Advertising and Communications Support. Advertising and communications support services are delivered to pharmaceutical industry clients through four separate inChord agencies:

·   GSW Worldwide and Palio are full-service agencies that create marketing solutions through advertising, public relations, market access strategies, media and    market research. GSW has established international reach through a network of ten international affiliate relationships.

·   Navicor specializes in oncology and immunology expertise.

·   Stonefly conducts advertising, marketing, and public relations services focused primarily on biotechnology and emerging pharmaceutical companies.

· Medical Education. Cadent Medical Communications and Center for Biomedical Continuing Education ("CBCE") provide education and communications services to build advocacy for pharmaceutical and biotech brands. CBCE is an accredited provider of continuing medical education for physicians.

· Branding Consultation. Y Brand is a specialized consulting group providing branding solutions for products, product science and technologies, therapeutic franchises and corporations.

· Interactive Communication Development. Blue Diesel is a multi-faceted interactive communications company that strategically blends direct marketing, interactive technology and creative design to provide evidence-based marketing solutions.

· Consulting and Contract Marketing. Creative Healthcare Solutions, LLC (“CHS”) is a leading provider of contract marketing services for pharmaceutical and biotech companies. CHS supports product teams by adding expertise in brand management, new product planning, market research and business development.

 Through Adheris, we provide a variety of patient support services with a proven history of improving medication adherence across nearly every chronic therapeutic category. By partnering with pharmacies around the country, Adheris’ programs build on the pharmacist-patient relationship and trust with personalized letters from pharmacists themselves. Adheris programs comply with the patient privacy provisions of the Health Insurance Portability & Accountability Act of 1996, ("HIPAA"), and its OnSyte(TM) technology allows retail pharmacies to help patients stay on therapy while protecting their confidentiality and private medical information.

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inVentiv Commercial

inVentiv Commercial provides a wide range of services in the commercialization area. These service offerings are organized principally along the lines of the business units that make up inVentiv Commercial.

· Ventiv Pharma Teams: The Ventiv Pharma Teams group provides outsourced product commercialization programs for prescription pharmaceutical and other life sciences products. inVentiv Commercial maintains and operates systems, facilities, and support services necessary to recruit, train and deploy a customized, full-service, targeted sales force. Ventiv Pharma Teams operates one of the largest pharmaceutical outsourced sales organizations in the United States (“U.S.”). 

Life sciences companies, particularly pharmaceutical manufacturers, have traditionally relied upon product detailing as the primary means of influencing prescription writing patterns and promoting their products. Product detailing consists of a one-on-one meeting in a physician's office where a sales representative reviews the medical profile of a product's Food and Drug Administration approved indications. In order to engage in an effective dialogue, the salesperson must be well educated and highly trained. Recruiting qualified personnel and providing client and product specific training are both core competencies of inVentiv Commercial. 

To accomplish a coordinated recruiting effort, we maintain a national recruitment office that locates and hires potential sales representatives. Our in-house human resources team adheres to selective hiring criteria and conducts detailed evaluations to ensure high quality of representation for our clients. inVentiv Commercial’s recruiters maintain a fully automated database of qualified candidates for immediate hiring opportunities, and our website home page offers an online application for employment. We offer these recruitment services to clients as part of an integrated sales force recruitment, training and management program, or on a stand alone basis. Ventiv Pharma Teams hires a mix of full-time and flex-time representatives in order to accommodate the detailing level required by clients and enhance cost efficiency.

We have one of the largest dedicated training facilities of its type in the U.S. Topics such as sample accountability, negotiation tactics, personal writing skills, integrity selling, time and territory management, team productivity and pharma-manager leadership are covered extensively in order to prepare the representatives for their contact with medical professionals. Our trainers have access to proprietary information about the prescription writing behavior of physicians. We provide this training both for our own and our clients' sales forces, and training and development services are essential to maintaining and building our relationships with the pharmaceutical companies. These strengths are widely recognized as distinguishing inVentiv Commercial from its competitors.

· inVentiv Pharma Analytics: inVentiv Pharma Analytics consists of our Health Products Research (“HPR”) and Total Data Solutions (“TDS”) business units. 

HPR is a leader in the development and implementation of advanced data analysis and research technologies to support client decision making within pharmaceutical and biotechnology companies. HPR combines leading edge technology with advanced statistical techniques and empirical research to deliver strategic and tactical solutions that help pharmaceutical executives maximize their return on investment for promotional resources. HPR’s range of services includes a variety of quantitative and other tools that supports HPR’s clients in optimizing and continually improving the effectiveness of deployed promotional and sales force resources.

TDS collects and analyzes sales force level data necessary to make marketing resource allocation decisions. Sales representatives are equipped with an industry-leading palm-top and laptop sales force automation system developed for inVentiv Commercial. This system enables our sales representatives to rapidly collect sales call and physician profiling information while in the field, which is compiled daily in a central data storage server. Our information processing system allows sales management teams to analyze data regularly, compare the results with targeted initiatives and historical data and make necessary adjustments to the sales strategy. TDS supports Ventiv Pharma Teams’ needs and also offers this sales force automation system on a stand alone basis to clients.

 

· inVentiv Pharma Services: inVentiv Pharma Services includes three broad categories of offerings:

o   Patient Support Programs: We offer patient assistance programs and reimbursement counseling through our Franklin Group business unit. Franklin Group has established a leadership position in providing reliable and innovative patient assistance programs, reimbursement counseling, web-based programs, missions programs and proactive fulfillment. Franklin also provides a variety of additional patient support services to clients, including support in Medicare Part D education.

o   Regulatory Compliance Services: Through our Franklin Group, Lincoln Ltd. and Pharmaceutical Resource Solutions business units, we provide independent oversight of Prescription Drug Marketing Act (“PDMA”) and Office of Inspector General compliance to clients and to internal Ventiv Pharma Teams. Our expertise in PDMA compliance issues is nationally recognized. Franklin Group serves as a liaison for the pharmaceutical industry and consultant to the Food & Drug Administration (“FDA”) and has an ongoing working relationship with the Department of Justice. We provide a number of processes, systems and services to help clients comply with federal and state regulations specific to sample accountability, including auditing of sample accountability compliance by field force professionals and "whole systems" sample accountability assessments. Franklin also licenses software solutions for the implementation of sophisticated PDMA compliance strategies.

o   Non-Personal Promotion: We provide assembly, mailing, fulfillment, pharmacy, teleservices and eServices through our Promotech Research Associates business unit. Promotech maintains a newly expanded facility with over 62,000 square feet that includes an environmentally controlled, FDA and Drug Enforcement Agency (“DEA”) certified and PDMA compliant warehouse, office space and a 64-station call center.

Acquisitions

The pursuit of strategic acquisitions is a core part of our business strategy. We believe that our expertise in identifying potential acquisition targets, assessing their importance to our operational and growth objectives, diligencing and completing the acquisition of appropriate businesses and effectively integrating them with our existing operations is a significant competitive advantage. The businesses making up inVentiv Clinical and inVentiv Communications, and the regulatory compliance and patient components of inVentiv Commercial, were added through acquisitions during the past several years.

The following is a summary of our acquisitions to date:

Target	Type of Business	Location	Month Acquired
Adheris	Patient pharmaceutical compliance	Massachusetts	February 2006
inChord	Advertising and communications support	Ohio	October 2005
PRS	Regulatory compliance	Pennsylvania	August 2005
HHI	Data management and statistical analyses	Maryland	November 2004
Smith Hanley	Contract research and clinical trial support	Connecticut	October 2004
Franklin	Patient support programs	New Jersey	June 2004

In addition to adding core functionality in virtually every area of our business, our acquisition activity has expanded our geographic reach and visibility both domestically and internationally.

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International Operations

As part of the acquisition of inChord in October 2005, we added inChord’s U.K.-based operations. These operations, based in London, provide advertising, marketing and public relations services to clients throughout Europe. As previously mentioned, in December 2005, we entered into an exclusive joint venture agreement with SIRO Clinpharm Pvt. Ltd., India's largest domestic contract research organization, to offer pharmaceutical companies India-based clinical data management services. This project is in the development stage and has not commenced providing client services.

As a result of the acquisition of inChord, the Company has a 15% ownership interest in Heart Reklambyra AB (“Heart”), an advertising agency located in Sweden and a 44% interest in Angela Liedler GmbH (“Liedler”), a service provider of communication and marketing tools for technical, medical and pharmaceutical products, located in Germany. Both of these investments are accounted for by using the equity method of accounting.

Clients

We provide our services to leading pharmaceutical and life sciences companies as well as emerging and specialty biotechnology companies. During 2005, approximately 56% of our revenues were derived from our ten largest clients. Our ten largest clients during 2005, listed alphabetically, were as follows: ALTANA Pharma (“ALTANA”), Astellas Pharma, Inc., Bristol-Myers Squibb Company (“BMS”), Daiichi Pharmaceutical Corporation, Eli Lilly and Company, Fournier Pharmaceuticals, Ltd., Glaxo Smith Kline, Inc., Johnson and Johnson, Noven Pharmaceuticals, Inc. and sanofi-aventis Group. Two clients accounted for approximately 14% and 11%, respectively, of our total revenue for the year ended December 31, 2005. Two clients accounted for 16%, and 14%, respectively, of our revenues during 2004. No other clients accounted for more than 10% of revenue in 2005 or 2004.

We consider our close relationships with leading pharmaceutical manufacturers to be an important competitive advantage, providing us with a source for recurring revenues as well as sales growth opportunities as our clients launch new products and as we develop new offerings. Our services are typically sold to similar target groups within the client organization, typically their clinical or their marketing and sales departments and brand teams. This provides the basis for continuous interaction and feedback, allowing us to continuously improve our services and identify new business opportunities, a process augmented by the longevity of many of our client relationships. We have developed sustained relationships with large, mid-tier and emerging pharmaceutical clients that provide us with recurring revenue streams and cross-selling opportunities. Our ability to perform services and add value at every part of the product life cycle enhances our ability to develop new business opportunities and form long-lasting relationships with clients.

Our relationships with a client's clinical or marketing and sales organizations also benefit from high switching costs, as retaining another sales force or advertising agency and redesigning a marketing program creates substantial additional expense and causes losses in time and productivity for our clients. In addition, successful marketing and sales outsourcers have established their reputations due to sophisticated performance evaluation capabilities, and clients are unlikely to use vendors without widely recognized expertise.

Competition

We operate in highly competitive industries. Our competitors include a variety of vendors providing services to the pharmaceutical and life sciences industry, including outsourced sales organizations, medical communications agencies and contract research organizations. Each of our business segments faces distinct competitors in the individual markets in which each operates:

·   inVentiv Clinical: The specialty staffing services industry is very competitive and fragmented with relatively few barriers to entry. We compete with several large nationwide temporary staffing companies. Our primary clinical staffing competitors include ClinForce (a division of Cross Country), Managed Clinical Solutions (a division of ICON), ASG, Advanced Clinical Services and Kforce. Competitors in the permanent placement area include Korn Ferry, Reynolds and Reynolds, Heidrick and Struggles as wells as numerous smaller specialty permanent placement groups. compete with us, however we are one of the only national firms that specializes exclusively in professional clinical trials research personnel.

·   inVentiv Communications: Marketing and communications services is a relatively fragmented and competitive market. Our Communications group competes with the healthcare offerings of the five large global advertising holding companies, which include WPP, Omnicom, Publicis, IPG and Havas. In addition, we compete with a large number of smaller specialized agencies that have focused either by therapeutic area or a particular service offering.

·   inVentiv Commercial: The majority of sales teams are managed internally by our clients, and we compete with our clients' alternative choices of managing their needs internally or partnering with another pharmaceutical company. In addition, a small number of providers comprise the market for outsourced sales teams, and we believe that inVentiv, Innovex (Quintiles) and Professional Detailing, Inc. combined account for the majority of the U.S. outsourced sales team market share. The rest of the industry is fragmented, with a number of small providers attempting to develop niche services. One or more of our large competitors in the outsourced sales team market could become significant competitors with regard to the other services we offer by either developing additional capabilities or acquiring smaller companies.

We believe that our business units individually and our organization as a whole have a variety of competitive advantages that have allowed us to compete successfully in the marketplaces for our services. These advantages include the following:

·   Leading Position Within Service Categories: We believe that our divisions, and the business units within each division, have achieved positions of leadership within their service areas. inChord is a major force in advertising and communications and, prior to its acquisition by Ventiv was the largest privately held healthcare marketing organization in the world. inVentiv Clinical is recognized as a leader in clinical trials staffing and a leading provider of clinical trials-related SAS programmers, statisticians, data management and monitoring personnel to the major pharmaceutical and biotechnology companies. Ventiv Pharma Teams provides product detailing services to a large number of physicians, nurses, pharmacists and formularies. Our businesses have extensive experience and proven track records that support our sales efforts.

·   Comprehensive Service Offering: We are one of the largest providers of pharmaceutical services in the U.S. and offer a broad range of services. These are important factors to our clients and potential clients, many of whom prefer to work with organizations that can provide a comprehensive services suite and have a proven track record.

·   Broad and Diversified Client Base: In addition to serving many of the largest pharmaceutical companies, we also serve a large number of mid-size and smaller biotech and life sciences companies. As each of these companies uses our services, our relationship is expanded and the opportunity to cross-sell products increases. Our client base of over 150 pharmaceutical and biotechnology clients is broad and diversified, and with many of these clients we have maintained long-term relationships that help us in continuing to win new business.

·   Proprietary Technologies and Data: We maintain and operate a number of proprietary software programs and systems for marketing development and data gathering. We invest in technology and have developed and deployed cutting-edge marketing and sales force automation tools. Our technical advantages in the sales force automation area are important for the management of sales and marketing campaigns for pharmaceutical products throughout their life cycle, particularly during the product launch phase.

·   Experienced Management Team: Our management team includes executives with substantial expertise in pharmaceutical and healthcare services, as well as substantial background within pharmaceutical companies themselves, including managing pharmaceutical sales forces, establishing sales and marketing strategies, and product management industry experience. The team also has extensive experience in the areas of outsourced staffing, permanent placement and executive search services. We believe our mix of senior management with pharmaceutical services experience, entrepreneurial talent and strategic perspective is unique in the industry.

Seasonality

Although our business is subject to variability as a result of the ongoing startup and completion of contracts, periodic receipt of incentive fees and the ramp up of product revenues in certain contracts, our business is not generally subject to seasonal variation.

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Employees

At December 31, 2005, we employed approximately 4,200 people in our operations. Many aspects of our business are very labor intensive and the turnover rate of employees in our industry, and in corresponding segments of the pharmaceutical industry, is generally high, particularly with respect to sales force employees. We believe our turnover rate is comparable to that of other outsourced service organizations and internal pharmaceutical sales and marketing departments. We believe that our relations with our employees are satisfactory.

Government Regulation

Our pharmaceutical and life sciences clients are subject to extensive government regulation. Generally, compliance with these regulations is the responsibility of those clients. However, several of our businesses are themselves subject to the direct effect of government regulation. We could be subject to a variety of enforcement or private actions for our failure or the failure of our clients to comply with such regulations.

 Our inVentiv Communications segment is subject to all of the risks, including regulatory risks, that advertising companies generally experience as well as risks that relate specifically to the provision of advertising services to the pharmaceutical industry. There has been an increasing tendency in the U.S. on the part of advertisers to resort to the courts and industry and self-regulatory bodies to challenge comparative advertising on the grounds that the advertising is false and deceptive. Through the years, there has been a continuing expansion of specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements with respect to the advertising for certain products.

 In February 2006, we acquired Adheris, Inc., which, through our inVentiv Communications segment, provides persistence and compliance programs, principally in the form of refill reminder communications to pharmacy chains. These activities are subject to regulation under HIPAA, the Federal Health Care Programs Antikickback Law and corresponding state laws. We believe that Adheris's activities comply with all applicable federal and state laws. Certain of these laws are subject to change and interpretation that is evolving, particularly at the state level. We could incur significant expenses if Adheris's activities are determined to be non-compliant and, depending the extent and scope of any such regulatory developments, our business could be materially and adversely affected.

Our inVentiv Commercial segment provides contract sales services to the pharmaceutical industry and employs sales representatives who handle and distribute samples of pharmaceutical products. The handling and distribution of prescription drug products are subject to regulation under the Prescription Drug Marketing Act of 1987 and other applicable federal, state and local laws and regulations. These laws and regulations regulate the distribution of drug samples by mandating storage, handling, solicitation and record-keeping requirements for drug samples and by banning the purchase or sale of drug samples.

Some of our physician education services in our inVentiv Commercial segment are subject to a variety of federal and state regulations relating to both the education of medical professionals and the marketing and sale of pharmaceuticals. In addition, certain ethical guidelines promulgated by the American Medical Association ("AMA") govern the receipt by physicians of gifts in connection with the marketing of healthcare products. These guidelines govern the honoraria and other items of value that AMA physicians may receive, directly or indirectly, from pharmaceutical companies. Any changes in such regulations or their application could have a material adverse effect on inVentiv. Failure to comply with these requirements could result in the imposition of fines, loss of licenses and other penalties and could have a material adverse effect on inVentiv.

From time to time, state and federal legislation is proposed with regard to the use of proprietary databases of consumer and health groups. The uncertainty of the regulatory environment is increased by the fact that we generate and receive data from many sources. As a result, there are many ways government might attempt to regulate our use of this data. Any such restriction could have a material adverse effect on inVentiv.

Available Information

We make available on our website, located at www.inventivhealth.com, the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the United States Securities and Exchange Commission (“SEC”): our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings are available free of charge. Information found on our website should not be considered part of this annual report on Form 10-K.

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Item 1A.  Risk Factors

Risks Related to Our Business

We are a multi-faceted organization encompassing numerous segments, each with its own particular risks and uncertainties. A wide range of factors could materially affect our financial results and the performance of our stock price. The most significant factors affecting our operations include the following:

Our revenues are dependent on expenditures by companies in the pharmaceutical and life sciences industries, and a variety of factors could cause the overall levels of those expenditures to decline.

Our revenues are highly dependent on expenditures by companies in the pharmaceutical and other life sciences industries for advertising, promotional, marketing and sales, recruiting, clinical staffing and support and compliance services. Any decline in aggregate demand for these services could negatively affect our business.

·   Advertising, promotional, marketing and sales expenditures by pharmaceutical manufacturers have in the past been, and could in the future be, negatively impacted by, among other things, governmental reform or private market initiatives intended to reduce the cost of pharmaceutical products or by governmental, medical association or pharmaceutical industry initiatives designed to regulate the manner in which pharmaceutical manufacturers promote their products.

·   Consolidation in the pharmaceutical industry could negatively affect certain of our business units by reducing overall outsourced expenditures, particularly in the sales, marketing and staffing areas.

·   Companies may elect to perform advertising, promotional, marketing, sales, compliance and other services internally based on industry and company-specific factors such as the rate of new product development and FDA approval of those products, number of sales representatives employed internally in relation to demand for or the need to promote new and existing products and competition from other suppliers.

·   Companies may elect to perform clinical tasks internally based on industry and company-specific factors such as the rate of new product development and FDA approval of those products, the number of clinical professionals employed internally in relation to the demand for or the need to develop new drug candidates, and competition from other suppliers.

Many of the contracts under which we provide services are subject to termination on short notice, which may make our revenues less predictable.

We provide services to many of our most significant clients under contracts that our clients may cancel on short notice (generally 10 to 120 days, depending on the specific business unit). In addition, many of our pharmaceutical sales contracts provide our clients with the opportunity to internalize the sales forces under contract. Although we have been successful in a number of cases in negotiating longer-term commitments and a non-cancelable initial period for pharmaceutical sales contracts, we cannot be assured that clients will renew relationships beyond the expiration date of existing contracts in any of our business units. We cannot assure you that our most significant clients will continue to do business with us over the long term. If any of our significant clients elect to cancel, convert or not renew their contracts, it could have a material adverse effect on our consolidated results of operations.

We are in the process of integrating several significant acquisitions and expect to make future acquisitions which will involve additional risks

 For the past several years, a significant component of our growth strategy has been the addition through acquisitions of businesses that complement us strategically and are accretive to earnings. We have and will continue to seek to address the need to offer additional services through acquisitions of other companies, including the personnel such acquisitions may bring to us. The current market for acquisition targets in our industry is extremely competitive, and we may not be successful in continuing to identify, successfully bid for and complete acquisitions necessary to achieve our operational and financial goals.

 Some of our acquisitions, including the acquisition of PRS, inChord and Adheris, were completed only recently. Operational and financial integration of the acquired businesses is not yet complete and we may experience difficulties in completing the integration processes. Among other things, we are generally required to document internal controls under Section 404 of the Sarbanes-Oxley Act for each of our acquired business units by the end of the first fiscal year following the year in which the acquisition occurs. We may not be successful in recognizing material weaknesses in internal controls over financial reporting for our acquired businesses and may have difficulty remedying any such material weaknesses on a timely basis. More generally, we may experience difficulties in the integration of personnel and technologies across diverse business platforms.

Acquisitions involve numerous risks in addition to integration risk, including the following:

·   diversion of management’s attention from normal daily operations of the business;

·   insufficient revenues to offset increased expenses associated with acquisitions; and

·   the potential loss of key customers or employees of the acquired companies.

Acquisitions, and related acquisition earnouts, may also cause us to deplete our cash reserves and/or increase our leverage, and therefore increase the financial risk of our capital structure; assume liabilities of the acquired businesses; record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges; incur amortization expenses related to certain intangible assets; or become subject to litigation.

Mergers and acquisitions of new businesses are inherently risky, and no assurance can be given that our previous or future acquisitions will be successful and will not materially and adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate acquisitions we make could harm our operational and consolidated financial results in a material way.

We may not be successful in managing our infrastructure and resources to support continued growth.

Our ability to grow also depends to a significant degree on our ability to successfully leverage our existing infrastructure to perform services for our clients, develop and successfully implement new sales channels for the services we offer and to enhance and expand the range of services that we can deliver to our customers. Our growth will also depend on a number of other factors, including our ability to

·   maintain the high quality of the services we provide to our customers;

·   increase our penetration with existing customers;

·   recruit, motivate and retain qualified personnel;

·   implement operational and financial systems and additional management resources to operate efficiently and effectively regardless of market conditions.

We cannot assure you that we will be able to manage or expand our operations effectively to address current or future demand and market conditions. If we are unable to manage our infrastructure and resources effectively, our business, consolidated financial condition and consolidated results of operations could be materially and adversely affected.

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We are subject to a high degree of government regulation.

We are subject to a high degree of government regulation. Significant changes in these regulations, or our failure to comply with them, could impose additional costs on us or otherwise negatively affect our operations. See the discussion under "Business - Government Regulation" above.

Our services are subject to evolving industry standards and rapid technological changes.

The markets for our services are characterized by rapidly changing technology, evolving industry standards and frequent introduction of new and enhanced services. To succeed, we must continue to enhance our existing services; introduce new services on a timely and cost-effective basis to meet evolving customer requirements; integrate new services with existing services; achieve market acceptance for new services; and respond to emerging industry standards and other technological changes.

We may be adversely affected by customer concentration.

We have two customers, individually, that accounted for in excess of 10% of our net revenues for the year ended December 31, 2005, and our largest customer during such year accounted for 14% of net revenues. If any large customer decreases or terminates its relationship with us, our business, results of consolidated operations or consolidated financial position could be materially adversely affected.

We may lose or fail to attract and retain key employees and management personnel.

Our key managerial and other employees are among our most important assets. An important aspect of our competitiveness is our ability to attract and retain key employees and management personnel. Compensation for these key employees and management personnel is an essential factor in attracting and retaining them, and there can be no assurance that we will offer a level of compensation sufficient to do so. Equity-based compensation, including compensation in the form of options and restricted stock, plays an important role in our compensation of new and existing employees. Because of limitations on the number of shares available for future grant under our equity incentive plan, we may be unable to meet the compensation requirements of our key employees and management personnel.

We may incur liability in connection with litigation.

We are subject from time to time to claims made by third parties relating to our business. We do not believe that any claims that are currently pending will have a material adverse effect on us. Litigation is inherently uncertain, however, and we cannot assure you that we will not suffer such an effect as a consequence of any pending or future claims.

See Item 3 - Legal Proceedings for a description of certain pending litigation.

We may not be able to comply with the requirements of our credit facility.

In connection with our acquisition of inChord, we entered into a syndicated credit facility with UBS AG, Stamford Branch and others. The current outstanding balance under this facility was approximately $174.6 million as of March 1, 2006, which is attributable to a $175 million term loan component. The term loan will mature on the sixth anniversary of the credit facility, with scheduled quarterly amortization of 1% per year during years one through five and 95% during year six. The revolving loans will mature on the sixth anniversary of the credit facility. Amounts advanced under the credit facility must be prepaid with a portion of our "Excess Cash Flow", as defined in the credit agreement. The credit facility contains numerous operating covenants that have the effect of reducing management's discretion in operating our businesses, including covenants limiting:

·   the incurrence of indebtedness;

·   the creation of liens on our assets;

·   sale-leaseback transactions;

·   acquisitions;

·   guarantees;

·   payment of dividends; and

·   fundamental changes and transactions with affiliates.

The credit facility also requires that we meet certain ongoing performance tests relating to leverage, interest rate coverage and fixed charge coverage ratios that vary based on the amount of time elapsed since the initial extension of credit. If we are unable to comply with the requirements of the credit facility, our lenders could refuse to advance additional funds to us and/or seek to enforce remedies against us. Any such developments would have a material adverse effect on inVentiv. As of the date of this report, we comply with the requirements of our credit facility.

Our future financial results may not be consistent with our guidance.

From time to time, we communicate to the market guidance relating to our revenue, earnings per share and other financial measures. These statements are intended to provide metrics against which to evaluate our performance, but they should not be understood as predictions or assurances of our future performance. Our ability to meet any projected financial result milestone is subject to inherent risks and uncertainties, and we caution investors against placing undue reliance on our published guidance. See "Cautionary Statement Regarding Forward-Looking Disclosure" above.

Risks Related to our Common Stock

The trading price of our common stock may be volatile, and you may not be able to sell your shares at or above the price at which you acquire them.

The trading price of our common stock may fluctuate significantly. Factors affecting the trading price of our common stock include:

·   variations in operating results;

·   the gain or loss of significant customers or suppliers;

·   announcements relating to our acquisition of other businesses;

·   changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common stock; and

·   market conditions in our industry, the industries of our customers and our suppliers and the economy as a whole.

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In addition, if the market for health care stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, consolidated operating results or consolidated financial condition.

Anti-takeover provisions in our organizational documents make any change in control more difficult.

Our certificate of incorporation and by-laws contain provisions that may delay or prevent a change in control, may discourage bids at a premium over the market price of our common stock and may affect adversely the market price of our common stock and the voting and other rights of the holders of our common stock. These provisions include:

·   limitations on the ability of our shareholders to call a special meeting of shareholders;

·   our ability to issue additional shares of our common stock without shareholder approval;

·   our ability to issue preferred stock with voting or conversion rights that adversely affect the voting or other rights of holders of common stock without their approval;

·   provisions that provide that vacancies on the board of directors, including any vacancy resulting from an expansion of the board, may be filled by a vote of the directors in office at the time of the vacancy; and

·   advance notice requirements for raising matters of business or making nominations at shareholders’ meetings.

Our acquisition activity may dilute your equity interest and negatively affect the trading price of our common stock.

We have historically chosen to satisfy a significant portion of the consideration paid for acquired businesses in the form of shares of our common stock, including by reserving the right to satisfy a portion of any contingent, or "earnout", consideration, by issuing additional shares of our common stock. The potential earnout obligations under the terms of our completed acquisitions may be material individually or in the aggregate. Acquisitions we make in the future, and any earnout consideration from completed acquisitions that we satisfy through the issuance of our common stock, may significantly dilute your equity interest and may negatively affect the trading price of our common stock.

A substantial number of our securities are eligible for future sale and this could affect the market price for our stock.

The market price of our common stock could drop due to sales of a large number of shares of our common stock or the perception that these sales could occur. As of March 3, 2006, we had 28,553,939 shares of common stock outstanding. Of these shares, a total of 1,212,319 shares were subject to resale restrictions and will become eligible for sale pursuant to Rule 144 over the next several years or earlier if Ventiv elects to register those shares for resale on a voluntary basis. Shares issued in future acquisitions, and shares issued in satisfaction of earnout obligations under completed acquisitions, may add substantially to the number of shares available for future sale.

In addition, as of March 3, 2006, approximately 2,956,705 shares of our common stock were subject to outstanding stock options. Holders of our stock options are likely to exercise them, if ever, at a time when we otherwise could obtain a price for the sale of our securities that is higher than the exercise price per security of the options or warrants. This exercise, or the possibility of this exercise, may reduce the price of our common stock.

Item 1B. Unresolved Staff Comments

We have received no written comments regarding its periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of its 2005 fiscal year and that remain unresolved.

Item 2. Properties.

As of December 31, 2005, we leased 29 facilities totaling 543,241 square feet, including our principal executive offices located in Somerset, New Jersey. Seven facilities totaling 54,878 square feet are leased by the inVentiv Clinical segment, 12 facilities totaling 209,968 square feet are leased by the inVentiv Communications segment, eight facilities totaling 220,232 square feet are leased by the inVentiv Commercial segment, and two facilities with approximately 58,163 square feet is leased by the Other (corporate) segment. These leases expire at varying dates through 2015. Leased facilities increased during 2005 due to the acquisition of inChord. We believe that our facilities are adequate for our present and reasonably anticipated business requirements.

Item 3. Legal Proceedings.

We are subject to lawsuits, investigations and claims arising out of the conduct of our business, including those related to commercial transactions, contracts, government regulation and employment matters. Certain claims, suits and complaints have been filed or are pending against us. With the exception of the litigation described below, all such matters are of a kind routinely experienced in our business and are consistent with our historical experience.

Adheris is subject to the following litigation, which was pending at the time of our acquisition of Adheris:

John Weld, Jr., on behalf of himself and all other similarly situated v. CVS Pharmacy, Inc., Elensys Care Services, Inc. and Glaxo Wellcome, Inc. (Civil Action No. 98-0897F). Adheris, which was formerly known as Elensys Care Services, Inc., is a named defendant in the above-referenced class action lawsuit filed in Suffolk Superior Court in Massachusetts on February 20, 1998. On July 15, 1998, Mr. Weld’s complaint was amended to include another plaintiff and to add Warner-Lambert, Merck, Hoffman La-Roche, BioGen and BioTech as additional defendants. The plaintiff claims that the defendants violated the plaintiff’s right to privacy and confidentiality by sending the plaintiff letters based on the plaintiff’s prescription history and by CVS sharing the plaintiff’s prescription data with Adheris and the other parties. The plaintiff is seeking damages and injunctive relief in this lawsuit. On February 23, 2006, the class in this action was decertified by the court due to the class plaintiffs' failure to prosecute the action and the case was dismissed as to one of the two named plaintiffs. The dismissal was stayed for 60 days in order to allow a new party and a new law firm to continue the litigation if a suitable class representative and class counsel step forward. The second named plaintiff was permitted to proceed on an individual basis. We intend to defend this suit vigorously. We do not believe that this action will have a material adverse effect on inVentiv.

Utility Consumer Action Network v. Albertson’s Inc.(Case No. GIC 830069). This action was filed on May 17, 2004 in California Superior Court against Albertson’s Inc. three other drug store chains and 17 pharmaceutical companies alleging violations of the California Unfair Competition Law and the California Confidentiality of Medical Information Act arising from the operation of manufacturer-sponsored, pharmacy-based compliance programs similar to Adheris's programs. The plaintiff is seeking "equitable monetary relief", disgorgement, statutory damages and penalties, injunctive relief and reimbursement of attorneys' fees in this lawsuit. The defendants in this case have moved for dismissal of the lawsuit. A decision on that motion is pending. An amended complaint was filed on November 4, 2004 naming Adheris as an additional defendant but the amended complaint has not been served on Adheris. We do not believe that this action will have a material adverse effect on inVentiv.

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

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2005.

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PART II

Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchase of Equity Securities.

The following table contains the high and low sales prices of our common stock traded on the Nasdaq National Market (ticker symbol “VTIV”) during the periods indicated:

	High		Low
Year ended December 31, 2005
First Quarter	$	26.17	$	19.47
Second Quarter	$	24.60	$	17.22
Third Quarter	$	27.23	$	19.00
Fourth Quarter	$	27.65	$	23.20
		High		Low
Year ended December 31, 2004
First Quarter	$	13.92	$	9.36
Second Quarter	$	18.40	$	13.87
Third Quarter	$	16.95	$	12.94
Fourth Quarter	$	20.67	$	16.65

On March 3, 2006, there were approximately 182 record holders of our common stock.

To date, we have not declared cash dividends on our common stock and are currently restricted from doing so under our credit agreement. We do not anticipate paying any cash dividends in the foreseeable future.

The following table summarizes securities authorized for issuance under our equity compensation plans as of December 31, 2005:

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders
1999 Stock Incentive Plan	2,971,420	$10.47	1,020,584	*
Equity compensation plans not approved by security holders	-	-	-
Total	2,971,420		1,020,584
* The 1999 Stock Incentive Plan authorizes the issuance of stock options, restricted stock, restricted stock units and stock appreciation rights. To date we have not issued any restricted stock units or stock appreciation rights.

During the fourth quarter of 2005, we did not repurchase any of our outstanding equity securities and, to our knowledge, no “affiliated purchaser” of inVentiv repurchased any of our outstanding securities.

The transfer agent for our common stock is American Stock Transfer and Trust Company, 6201 Fifteenth Avenue, Brooklyn, New York, 11219.

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Item 6. Selected Financial Data.

SELECTED FINANCIAL DATA

The following table summarizes certain of our historical financial data and is qualified in its entirety by reference to, and should be read in conjunction with, our historical consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Historical financial information may not be indicative of our future performance. See also "Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations".

	For the Years Ended December 31,
	2005		2004		2003			2002		2001
	(in thousands, except per share data)
Revenues	$	556,312	$	352,184	$	224,453		$	215,387	$	294,763
Income (losses) from continuing operations	$	43,082	$	30,130	$	9,895		$	4,941	$	(16,060	)
Income (losses) from discontinued operations	$	781	$	1,002	$	(4,119	)	$	2,951	$	(42,442	)
Net income (losses)	$	43,863	$	31,132	$	5,776		$	7,892	$	(58,502	)
Basic earnings (losses) per share:
Continuing operations	$	1.60	$	1.26	$	0.43		$	0.22	$	(0.71	)
Discontinued operations	$	0.03	$	0.04	$	(0.18	)	$	0.13	$	(1.87	)
Net income (losses)	$	1.63	$	1.30	$	0.25		$	0.35	$	(2.58	)
Diluted earnings (losses) per share:
Continuing operations	$	1.53	$	1.18	$	0.42		$	0.22	$	(0.71	)
Discontinued operations	$	0.03	$	0.04	$	(0.18	)	$	0.13	$	(1.87	)
Net income (losses)	$	1.56	$	1.22	$	0.24		$	0.35	$	(2.58	)
Shares used in computing basic earnings (losses) per share		26,875		23,951		22,919			22,842		22,648
Shares used in computing diluted earnings (losses) per share		28,165		25,437		23,801			22,857		22,648
Balance sheet data:
Total assets	$	583,894	$	287,452	$	180,708		$	153,418	$	232,343
Long-term debt (a)	$	190,508	$	24,898	$	18,488		$	8,904	$	16,947
Total equity	$	253,219	$	172,444	$	107,725		$	96,446	$	87,206

(a) Long-term debt includes the non-current portion of our credit arrangement (for 2005) and capital lease obligations (for all years) but excludes the current portion of our credit agreement and capital lease obligations.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements, accompanying notes and other financial information included in this Annual Report on Form 10-K for the years ended December 31, 2005, 2004 and 2003.

Introduction

Our business is organized for managerial purposes along the lines of our reporting segments. Our three operating segments are inVentiv Clinical, inVentiv Communications and inVentiv Commercial. A fourth reporting segment, "Other", is a non-operating segment that consists of corporate and executive managerial functions. Our operating segment reporting was modified in 2005 to account for organizational changes in our business and the cumulative effect of our acquisition activity. In 2004, we managed three operating segments: inVentiv Commercial, inVentiv Clinical and inVentiv Analytic Services. The modification of our operating segments for 2005 was driven by the following factors:

·   The inclusion of our planning and analytics services business in inVentiv Commercial for 2005 reflects the functional relationship of that business to our contract sales and regulatory compliance businesses.

·   The inVentiv Communications segment was formed principally through the acquisition of inChord Communications, Inc. ("inChord"), a healthcare marketing and communications company, in October 2005 and Adheris, Inc. ("Adheris"), an industry leader in the area of patient compliance and persistency programs, in February 2006.

Critical Accounting Policies

Revenue Recognition

The following is a summary of the Company’s revenue recognition policy, based on the segment and services we provide:

inVentiv Clinical

·   Clinical Staffing- Revenues from temporary personnel services, outsourcing and outplacement are recorded when services are rendered.

·   Clinical Analysis and Data Management- Revenues are mainly achieved and recorded based on milestones, depending on the terms of the contracts.

·   Executive Placement- Permanent placement services revenues are recorded at the time a candidate begins full-time employment. Any write-offs due to cancellations and/or billing adjustments historically have been insignificant.

inVentiv Communications

·   Advertising and Communication support- Retainer revenue is recognized under the proportional performance method, by relating the actual hours of work performed to date to the current estimated total hours of the respective projects. Any anticipated losses on projects are recognized when such losses are anticipated. Time and production billings are billed as incurred for actual time and expenses.

·   Branding Consultation- Revenues are mainly based on fee for service, based on the contract.

·   Patient and Physician Education- For its meeting and event services business, the Company uses either the completed contract method or bases revenue recognition on defined milestones, depending on the terms of the specific contracts.

·   Interactive Communication Development- Time and production billings are billed as incurred for actual time and expenses.

inVentiv Commercial

·   Sales and Marketing Teams- Revenues and associated costs under pharmaceutical detailing contracts are generally based on the number of physician calls made or the number of sales representatives utilized. Most of our Sales and Marketing Teams’ contracts involve two phases, a “deployment phase”, typically three months, in which we perform initial recruiting, training and preparation for deployment of the field force at the start of a new contract, and the “Promotion phase” in which our deployed field force actively promotes specified products for clients through face-to-face interactions with physicians referred to as “detailing”.   Most of our Ventiv Pharma Teams contracts specify a separate fee for the initial “deployment phase” of a project. We consider the deployment phase to be a separate and distinct earnings process and recognize the related revenues throughout the deployment phase, which typically spans a period of two to three months at the beginning of the first year of a contract. We generally recognize revenue during the “promotion phase” of our Ventiv Pharma Teams contracts on a straight-line basis based on the size of the deployed field force.
Many of the product detailing contracts allow for additional periodic incentive fees to be earned once agreed upon performance benchmarks have been attained. Revenue earned from incentive fees is recognized when we are reasonably assured that payment will be made, and is typically based upon verification through calculation of achievement, third party data or client verification. Many contracts also stipulate penalties if agreed upon performance benchmarks have not been met. These penalties are recognized upon verification of performance shortfalls.
Non-refundable conversion fees are earned and recognized as revenue when one of our sales professionals accepts a firm offer of permanent employment from a customer during the term of a contract.

·   Planning and Analytics- Revenues for HPR generally include fixed fees, which are recognized when monthly services are performed based on the proportional performance method and when payment is reasonably assured. HPR’s initial contracts typically range from one month to one year. Revenues for additional services are recognized when the services are provided and payment is reasonably assured.

·   Regulatory Compliance and Patient Assistance- For regulatory compliance, revenues are recorded based on both fixed fees as well as fees for specific compliance related services both of which are recognized when monthly services are performed, while patient assistance programs depend on the number of patients served and are recognized as each service is performed.

·   Marketing Support Services- Revenues are recorded based on time incurred and fulfillment requirements based on contractual terms.

·   Professional Development and Training- Revenues are generally recorded as training courses are completed.

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General

Reimbursable Costs

Reimbursable costs, including those relating to travel and out-of pocket expenses, sales force bonuses tied to individual or product revenues, and other similar costs, are generally included in revenues, and an equivalent amount of reimbursable expenses is included in costs of services in the period in which such amounts have been finalized. In certain cases, based on the Company’s analysis of Emerging Issues Task Force Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and related accounting literature, the Company may also record certain reimbursable transactions, such as the placement of media advertisements where we act as an agent, as net revenues.

Loss Contracts

We periodically analyze our contracts to determine the likelihood and amount of any potential loss on a contract resulting from lower than anticipated product, field force or other performance. In the event that current information illustrates a loss is likely to be incurred over the remaining life of the contract, we accrue that loss at the time it becomes probable. We did not have any material loss contracts in 2005.

Billing

Customers are invoiced according to agreed upon billing terms. Contracts that are invoiced prior to performance of related services are recorded as client advances and unearned revenue and are not recognized as revenues until earned, in accordance with our revenue recognition policies. Amounts earned for revenues recognized before the agreed upon billing terms have been met are recorded as revenue and included in unbilled services. Upon billing, these amounts are transferred to billed accounts receivable.

 Goodwill and Other Intangible Assets

With our aforementioned acquisitions, we have material intangible assets, including goodwill and other identifiable finite and indefinite-lived acquired intangibles. The identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition, as well as the completion of annual impairment tests, require significant management judgments and estimates. These estimates are made based on, among others, consultations with an accredited independent valuation consultant, reviews of projected future income cash flows and statutory regulations. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of our goodwill and other intangible assets, and potentially result in a different impact to our results of operations. Furthermore, changes in business strategy and/or market conditions may significantly impact these judgments thereby impacting the fair value of these assets, which could result in an impairment of the goodwill. We performed annual impairment tests as of June 2005 and concluded that the existing goodwill and tradename balances were not impaired. As of December 31, 2005, we had goodwill of approximately $173.8 million and other intangibles (net) of $117.6 million in the Consolidated Balance Sheet.

Claims and Insurance Accruals

We maintain self-insured retention limits for certain insurance policies. The liabilities associated with the risk we retain are estimated in part based on historical experience, third-party actuarial analysis, demographics, nature and severity, past experience and other assumptions. The liabilities for self-funded retention are included in claims and insurance reserves based on claims incurred, with liabilities for unsettled claims and claims incurred but not yet reported being actuarially determined with respect to workers’ compensation and auto liability claims and estimated based on management’s evaluation of the nature and severity of individual claims and historical experience with respect to all other liabilities. A significant number of these claims typically take several years to develop and even longer to ultimately settle. These estimates tend to be reasonably accurate over time; however, the actual liabilities could vary materially from management's estimates and assumptions regarding severity of claims, medical cost inflation, as well as specific case facts can create short-term volatility in estimates. Management believes that these reserves are adequate.

Income Taxes

Deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax bases of assets and liabilities and are measured using the tax rates and laws that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized. Realization is dependent on generating sufficient taxable income of a specific nature prior to the expiration of any loss carryforwards or capital losses. The asset may be reduced if estimates of future taxable income during the carryforward period are reduced. In addition, we maintain reserves for certain tax items, which are included in income taxes payable on our consolidated balance sheet. We periodically review these reserves to determine if adjustments to these balances are necessary.

Derivative Financial Instruments

We enter into interest rate swap agreements to modify the interest rate characteristics of our outstanding long-term debt. At hedge inception, and at least quarterly thereafter, we assess whether derivatives used to hedge transactions are highly effective in offsetting changes in the cash flow of the hedged item. To the extent the instruments are considered to be effective, changes in fair value are recorded as a component of other comprehensive income (loss). To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings (interest expense). The fair values of our interest rate swaps are obtained from dealer quotes. These values represent the estimated amount we would receive or pay to terminate the agreement taking into consideration the difference between the contract rate of interest and rates currently quoted for agreements of similar terms and maturities.

Recent Business Developments

Ventiv Pharma Teams Contracts

Ventiv Pharma Teams contracts often involve the deployment of large numbers of sales representatives and may have appreciable impacts on revenues and earnings. The following are brief summaries of the most significant Ventiv Pharma Teams’ contracting events during 2004 and 2005, which are discussed further in the comparative analysis of our financial results below:

During the first quarter of 2004, we won several new contracts, mainly comprising of small to mid-size clients looking to enter new markets or looking to build infrastructure. Among the notable contracts were Synthon Pharmaceuticals, Ltd. and ISTA Pharmaceuticals, Inc.

During the second quarter of 2004, we won two additional contracts, one with an existing client and another for a new client, Yamanouchi Pharmaceutical Company, Ltd., in which deployment occurred during the fourth quarter of 2004.

In June 2004, Watson Pharmaceuticals, Inc. (“Watson”) elected to exercise its option to not continue its sales force contract for a second year, effective on or about August 1, 2004. This action was related to Watson’s strategic decision to refocus its broader business priorities, and was not a reflection on the performance of our sales team. 

In July 2004, we entered into an agreement with sanofi-aventis to provide a national sales force including recruiting, training and operational support. The size of this agreement was subsequently reduced in the fourth quarter of 2005.

During the third quarter of 2004, we won two significant new contracts with large, global pharmaceutical firms, including one contract with Bristol-Myers Squibb. To accommodate these and other new contracts, we agreed to an early wind-down of our contracts with Bayer Pharmaceuticals Corporation (“Bayer”) in order to redeploy its sales representatives from these older contracts to recently announced new multi-year contracts.

In July 2005, one of our two ALTANA Pharma sales teams was converted from full-time inVentiv employees to full-time ALTANA employees. Our second ALTANA sales team continues to service our continuing ALTANA contract.

During the year ended December 31, 2005, we won several new contracts mainly comprised of small to mid-size clients looking to enter new markets or looking to build infrastructure, including NPS and Connetics. These wins were offset by certain contract conversions, mainly as described above relating to ALTANA.

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Acquisitions

In March 2006, we entered into an agreement for the acquisition of Synergos, LLP ("Synergos"). Synergos is a focused clinical services provider with expertise in clinical trial management services, particularly project management and monitoring as well as investigator and patient recruitment. The Synergos acquisition agreement provides for up front purchase consideration of $5.75 million in cash and stock, plus earn-out payments for exceeding specified financial targets. The Synergos acquisition is expected to close during the second quarter of 2006.

Also in March 2006, we entered into an agreement for the acquisition of Jeffrey Simbrow Associates Inc. (and certain of its affiliated companies) ("JSAI"), Canada's leading healthcare marketing and communications agency. Under the terms of the agreement, inVentiv will acquire JSAI for CAD$10.0 million in cash and stock, plus earn-out payments for exceeding specified financial targets. The JSAI acquisition is expected to close during the second quarter of 2006.

In February 2006, we acquired Adheris for approximately $67 million in cash and stock, including certain working capital adjustments but exclusive of direct acquisition costs and post-closing adjustments, which have not yet been finalized. Adheris is a Massachusetts-based industry leader in the area of patient compliance and persistency programs. We will be obligated to make certain earn-out payments, which may be material, contingent on Adheris's performance measurements in 2006, 2007 and 2008. Adheris's financial results will be reported under inVentiv Communications from the date of its acquisition and accordingly are not reflected in our 2005 consolidated financial results.

In October 2005, we acquired all of the outstanding capital stock of inChord for approximately $196.8 million of cash and stock (taking into account certain post-closing adjustments and direct acquisition costs) for approximately $18.6 million in net assets. To help finance the transaction, we entered into a credit agreement that is discussed in further detail below. We acquired inChord to expand our service portfolio in the marketing and communications arena, expand our market position in the pharmaceutical services market and achieve cross-selling opportunities by leveraging our existing businesses. We will be obligated to make certain earn-out payments, which may be material, contingent on inChord’s performance measurements from 2005 through 2007. The amount due with respect to inChord for 2005 is expected to be approximately $3.6 million of cash and stock, which we accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review.

The results of inChord have been reflected in the inVentiv Communications segment since the date of acquisition. The purchase price and direct transaction costs were allocated to the assets purchased and liabilities assumed, based on their respective fair values at the date of acquisition. However, changes to the estimates of the fair values of inChord’s assets acquired and liabilities assumed may be necessary as additional information becomes available including the finalization of a third-party valuation of certain intangible assets.

In August 2005, we acquired the net assets of PRS, a provider of compliance management and marketing support services based in Horsham, Pennsylvania. PRS specializes in pharmaceutical sample management and compliance services; its operations are similar in nature to the business of Franklin Group, Inc. and Lincoln Ltd, Inc. (together, “Franklin”), which we acquired in June 2004. The closing consideration for the transaction was approximately $13.6 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) for approximately $1.0 million of net assets. We will be obligated to make certain earn-out payments, which may be material, contingent on PRS’s performance measurements in 2005 and 2006. The amount due with respect to PRS for 2005 is expected to be approximately $0.3 million in cash and stock, which the Company accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review. The results of PRS have been reflected in the inVentiv Commercial segment since the date of acquisition. The purchase price and direct transaction costs were allocated to the assets purchased and liabilities assumed, based on their respective fair values at the date of acquisition. However, changes to the estimates of the fair values of PRS’s assets acquired and liabilities assumed may be necessary as additional information becomes available including the finalization of a third-party valuation of certain intangible assets.

In November 2004, we acquired the net assets of HHI. HHI, based in Baltimore, Maryland, is a specialized statistical analysis and data management provider to the U.S. pharmaceutical industry. HHI complements our Smith Hanley business by offering clients the option of outsourced clinical support services as an alternative to internal staffing. The closing consideration for the transaction was approximately $6.2 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) for approximately $0.8 million of net assets. We will be obligated to make certain earn-out payments, which may be material, contingent on HHI’s performance measurements in 2005 and 2006. The amount due with respect to HHI for 2005 is expected to be approximately $5.0 million in cash and stock, which the Company accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review. The results of HHI have been reflected in the inVentiv Clinical segment since the date of acquisition.

In October 2004, we acquired the net assets of Smith Hanley. Smith Hanley specializes primarily in providing late-stage clinical staffing and recruiting services to the U.S. pharmaceutical industry. We acquired Smith Hanley to expand our service portfolio in the clinical services and recruitment areas, expand our market position in the pharmaceutical services market and achieve cross-selling opportunities by leveraging our existing sales force and relationships. We acquired approximately $9.5 million of net assets for consideration of approximately $52.9 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) and will be obligated to make certain earn-out payments, which may be material, contingent on Smith Hanley’s performance measurements in 2004 and 2005. Smith Hanley’s 2004 earn-out paid in 2005 was approximately $6.6 million, for which $6.8 million was previously accrued for at December 31, 2004; the portion adjusted in 2005 mainly relates to the finalization of the 2004 earn-out. The amount due with respect to Smith Hanley for 2005 is expected to be approximately $4.0 million in cash and stock, which we accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review. The results of Smith Hanley have been reflected in the inVentiv Clinical segment since the date of acquisition.

In June 2004, we acquired the net assets of Franklin, based in Somerville, New Jersey. Franklin specializes primarily in conducting patient assistance programs and pharmaceutical compliance services. We paid approximately $11.3 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) to acquire approximately $2.7 million of net assets. We are obligated to make certain earn-out payments, which may be material, contingent on Franklin’s performance measurements during 2004 through 2006. Franklin’s 2004 earn-out paid in 2005 was approximately $1.8 million, $1.7 million of which was accrued for at December 31, 2004; the portion adjusted in 2005 mainly relates to the finalization of the 2004 earn-out. The amount due with respect to Franklin for 2005 is expected to be approximately $3.2 million in cash and stock, which the Company accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review. Franklin’s financial results have been reflected in the inVentiv Commercial segment since the date of acquisition.

A summary of the purchase price consideration for the acquisitions is as follows:

Purchase price consideration	Franklin		Smith Hanley		HHI		PRS		inChord
Cash *	$	6,667	$	30,000	$	5,000	$	9,100	$	172,500
Stock		3,580		21,215		747		4,105		12,145
Direct acquisition and other Post-closing adjustments		1,064		1,685		478		440		12,149
Contingent consideration for completed measurement periods		5,065		10,603		4,995		272		3,619
Total	$	16,376	$	63,503	$	11,220	$	13,917	$	200,413

* Cash provided for the acquisition of inChord is pursuant to the credit agreement entered into on October 5, 2005.

The following represents the allocation of the purchase price to the acquired assets of Franklin, Smith Hanley, HHI, PRS and inChord. The allocations are based upon the estimated fair value of the assets acquired and liabilities assumed as of the respective acquisition date.

Allocation of purchase price	Franklin			Smith Hanley			HHI			PRS			inChord
Current assets	$	3,165		$	13,859		$	1,005		$	1,368		$	66,223
Property and equipment, and other noncurrent assets		432			670			48			183			8,533
Goodwill		11,133			36,631			8,795			9,081			87,537
Identifiable intangible assets		2,557			17,400			1,610			3,870			94,300
Liabilities assumed		(911	)		(5,057	)		(238	)		(585	)		(56,165	)
Minority interest		--			--			--			--			(15	)
Total	$	16,376		$	63,503		$	11,220		$	13,917		$	200,413

 Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets.

Divesting Transactions

During 2002 and 2003, we divested our Communications and European Contract Sales businesses. We have been receiving payments subsequent to some of these divestitures based on the subsequent earnings of the divested unit. For the years ended December 31, 2005 and 2004, we received approximately $1.7 million and $2.1 million, respectively, relating to these divestitures.

14

Results of Operations

The following sets forth, for the periods indicated, certain components of our operating earnings, including such data stated as a percentage of revenues

	For the Years Ended December 31,
	2005						2004						2003
	(in thousands, except for per share data)
Revenues:				Percentage*						Percentage*						Percentage *
inVentiv Clinical	$	113,700			20.4	%	$	21,688			6.2	%	$	--			--
inVentiv Communications		48,726			8.8	%		--			--			--			--
inVentiv Commercial		393,886			70.8	%		330,496			93.8	%		224,453			100.0	%
Total revenues		556,312			100.0	%		352,184			100.0	%		224,453			100.0	%
Cost of services:
inVentiv Clinical		75,177			66.1	%		14,487			66.8	%		--			--
inVentiv Communications		32,440			66.6	%		--			--			--			--
inVentiv Commercial		309,408			78.6	%		265,246			80.3	%		182,658			81.4	%
Total cost of services		417,025			75.0	%		279,733			79.4	%		182,658			81.4	%
Selling, general and administrative expenses		79,313			14.3	%		38,539			10.9	%		26,223			11.7	%
Other operating income		--			--			264			--			392			0.2	%
Total operating income	$	59,974			10.8	%	$	34,176			9.7	%	$	15,964			7.1	%
Interest expense		(3,955	)		(0.7	)%		(922	)		(0.3	)%		(549	)		(0.3	)%
Interest income		1,409			0.3	%		678			0.2	%		413			0.2	%
Income from continuing operations before income tax provision, minority interest in income of subsidiary and income from equity investments		57,428			10.4	%		33,932			9.6	%		15,828			7.0	%
Income tax provision		(14,229	)		(2.6	)%		(3,802	)		(1.1	)%		(5,933	)		(2.6	)%
Income from continuing operations before minority interest in income of subsidiary and income from equity investments		43,199			7.8	%		30,130			8.5	%		9,895			4.4	%
Minority interest in income of subsidiary		(224	)		--			--			--			--			--
Equity earnings in investments		107			--			--			--			--			--
Income from continuing operations		43,082			7.8	%		30,130			8.5	%		9,895			4.4	%
Income (losses) from discontinued operations:
Losses from discontinued operations, net of taxes		--			--			--			--			(4,092	)		(1.8	)%
Gains (losses) on disposals of discontinued operations, net of taxes		781			0.1	%		1,002			0.3	%		(4,406	)		(2.0	)%
Tax benefit related to the disposal of a discontinued operation		--			--			--			--			4,379			2.0	%
Income (losses) from discontinued operations		781			0.1	%		1,002			0.3	%		(4,119	)		(1.8	)%
Net income	$	43,863			7.9	%	$	31,132			8.8	%	$	5,776			2.6	%
Earnings (losses) per share:
Continuing operations:
Basic	$	1.60					$	1.26					$	0.43
Diluted	$	1.53					$	1.18					$	0.42
Discontinued operations:
Basic	$	0.03					$	0.04					$	(0.18	)
Diluted	$	0.03					$	0.04					$	(0.18	)
Net income:
Basic	$	1.63					$	1.30					$	0.25
Diluted	$	1.56					$	1.22					$	0.24

 * Cost of services is expressed as a percentage of segment revenue. All other line items are displayed as a percentage of total revenues.

15

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenues: Revenues increased by approximately $204.1 million, or 58.0%, to $556.3 million in the year ended December 31, 2005, from $352.2 million in the year ended December 31, 2004, mainly due to increased business in our inVentiv Commercial business and company acquisitions during 2004 and 2005, as more fully described below.

As a result of the fourth quarter 2004 acquisitions in inVentiv Clinical, the segment has contributed approximately $21.7 million of revenues in 2004 and $113.7 million of revenues for the year ended December 31, 2005. inVentiv Clinical’s clientele consists of a wide range of pharmaceutical, biotechnology and medical device companies, as well as to their outsourced service providers to those sectors. The key driver of increased business was due to increased hiring in permanent placement and clinical staffing.

In our inVentiv Communications segment, which was initially established in October 2005 via acquisition, there was approximately $48.7 million of revenue recorded from the acquisition date through December 31, 2005. This segment specializes in pharmaceutical advertising, branding, marketing and medical education.

    Revenues in our inVentiv Commercial business were $393.9 million in the year ended December 31, 2005, an increase of $63.4 million or 19.2% from $330.5 million in the year ended December 31, 2004, and accounted for 70.8% of total revenues for the year ended December 31, 2005. The majority of this growth is due to increased business in our Sales & Marketing Teams; a new contract with sanofi-aventis during the third quarter of 2004; and two additional contracts with large, global pharmaceutical firmsduring the fourth quarter of 2004, one of which was BMS. The increases from these significant contract wins (described above) were offset by decreases attributable to contract conversions of certain clients, including ALTANA, as discussed in Recent Business Developments; Watson’s election to terminate its sales force contract effective August 1, 2004; and the redeployment of Bayer representatives from older contracts to new multi-year contracts with other clients, as discussed previously. There were also two acquisitions (Franklin in June 2004 and PRS in August 2005), which contributed to the increase in revenues. 

 Cost of Services: Cost of services increased by approximately $137.3 million or 49.1%, to $417.0 million during the year ended December 31, 2005 from $279.7 million in the year ended December 31, 2004, mainly due to increased business in our inVentiv Commercial business and company acquisitions during 2004 and 2005, as mentioned previously. Cost of services decreased as a percentage of revenues to 75.0% from 79.4% in the year ended December 31, 2005 and 2004, respectively. The 2004 and 2005 acquisitions in the inVentiv Clinical and inVentiv Communications segments generally tend to have higher margins than the inVentiv Commercial group due to the nature of the services provided.

inVentiv Clinical’s cost of services in 2005 was approximately $75.2 million, compared to approximately $14.5 million during the fourth quarter of 2004, when the segment was established via the Smith Hanley and HHI acquisitions. Cost of services as a percentage of revenues was in line from the previous year. The increase in cost was due to the full year effect of the acquisitions and increased hiring in permanent placement and clinical staffing.

Our inVentiv Communications segment incurred approximately $32.4 million in cost of services from the October 5, 2005 acquisition date through December 31, 2005. The segment’s cost of services was approximately 66.6 % of the segment’s revenues.

Cost of services at the inVentiv Commercial business increased by approximately $44.2 million, or 16.6%, to $309.4 million in the year ended December 31, 2005 from $265.2 million in the year ended December 31, 2004. This variance percentage is lower than the percentage increase in revenue between the related periods. Cost of services was 78.6% of inVentiv Commercial revenue in the year ended December 31, 2005, compared to 80.3% in the year ended December 31, 2004. The decrease of cost of services as a percentage of revenue in 2005 as compared to 2004 was attributable to ongoing cost savings measures implemented by management to align our support and infrastructure with the current level of operations. In addition, we acquired Franklin in June 2004, as described previously, which is a higher margin division than the core commercial services business.

Selling, General and Administrative Expenses (“SG&A”): SG&A expenses increased by approximately $40.8 million, or 105.8%, to $79.3 million from $38.5 million in the years ended December 31, 2005 and 2004, respectively. This increase was primarily due to increased compensation levels in 2005 versus 2004, SG&A expenses incurred at the divisions acquired in 2004 and 2005, increases in professional fees related to increased acquisitions and compliance with the internal control standards of Section 404 of the Sarbanes-Oxley Act of 2002, and the hiring of an internal audit department in 2005.

SG&A expenses at our inVentiv Clinical business units, which were acquired during the fourth quarter of 2004, were approximately $29.0 million during the year ended December 31, 2005, compared to $5.5 million during the fourth quarter of 2004.

SG&A expenses at our newly acquired inVentiv Communications businesses were approximately $10.6 million in 2005, which reflects expenses incurred during the fourth quarter, when the inChord acquisition was consummated. At the acquisition date, the Company assumed a $7.5 million existing liability on inChord’s balance sheet relating to certain performance thresholds of the segment over a three-year period. The Company will continue to periodically monitor these performance thresholds, which may result in up to an additional $7.5 million of future expenses if and when it is probable that additional thresholds will be met.

SG&A expenses at inVentiv Commercial increased by approximately $5.0 million, or 20.8%, to $29.0 million in the year ended December 31, 2005 from $24.0 million incurred in the year ended December 31, 2004. This increase was due to increased compensation and benefits in 2005 versus 2004, mainly due to increased results during 2005; $2.1 million of additional SG&A at Franklin, which was acquired in June 2004; and additional SG&A at PRS, which was acquired in August 2005.

Other SG&A was approximately $10.6 million for the year ended December 31, 2005, an increase of approximately $1.6 million or 18.2% from $9.0 million for the year ended December 31, 2004. The increase was mainly related to increases in compensation as a result of improved company performance, professional fees primarily related to increased acquisitions and our compliance with the internal control standards of Section 404 of the Sarbanes-Oxley Act of 2002, and the hiring of an internal audit department in 2005. Due to increased acquisitions over the last two years, our internal and external audit expenses have increased substantially from 2004.

Provision for Income Taxes: In March 2005, we recorded a tax benefit of approximately $1.6 million primarily related to prior period tax contingencies, which are no longer required. During the third quarter of 2005, we recorded a tax benefit of approximately $6.7 million primarily related to the reversal of a previously recorded valuation allowance as the Company determined an additional portion of its deferred tax asset was more likely than not expected to be realized. Excluding these tax benefits, our annual effective tax rate was 39.2% in 2005.

During the fourth quarter of 2004, we recorded a tax benefit of approximately $7.1 million primarily related to the divestiture and shutdown of certain former subsidiaries. Our tax rate during the fourth quarter benefited additionally from $2.0 million of net federal & state tax adjustments and other one-time reversals, primarily related to prior period tax contingencies, which are no longer required. Excluding these tax benefits, our annual effective tax rate was 38.0% in 2004.

Our current effective tax rate is based on current projections for earnings in the tax jurisdictions in which we do business and is subject to taxation. Our effective tax rate could fluctuate due to changes in earnings between operating entities and related tax jurisdictions, or due to the potential tax impact arising from previous divestitures.

Discontinued Operations: For the year ended December 31, 2005 and 2004, income from discontinued operations, net of taxes, was $0.8 million and $1.0 million, respectively, which mainly consisted of contingency payments due from our previously divested Germany and Hungary (2004 only) based operations, as more fully described in Recent Business Developments.

Net Income and Earnings Per Share (“EPS”): Our net income increased by approximately $12.8 million from $31.1 million in 2004 to $43.9 million in 2005. Diluted earnings per share increased to $1.56 per share for the year ended December 31, 2005 from $1.22 for the year ended December 31, 2004.  Operating results were higher due to increased revenues from certain contracts; the middle to late 2004 and 2005 acquisitions; and various cost saving strategies in 2005. This was slightly offset by the higher tax benefits recorded in 2004 than 2005.

16

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Revenues: Revenues increased by approximately $127.7 million, or 56.9%, to $352.2 million in the year ended December 31, 2004, from $224.5 million in the year ended December 31, 2003, mainly due to increased business in our inVentiv Commercial business and company acquisitions during 2004, as more fully described below.

As a result of the fourth quarter 2004 acquisitions in inVentiv Clinical, we increased our revenues by approximately $21.7 million. inVentiv Clinical’s clientele consists of a wide range of pharmaceutical, biotechnology and medical device companies, as well as to their outsourced service providers to those sectors. Since inVentiv Clinical was created as a result of 2004 acquisitions, there were no revenues generated for this segment in 2003.

Revenues in our inVentiv Commercial business were $330.5 million in the year ended December 31, 2004, an increase of $106.0 million or 47.2% from $224.5 million in the year ended December 31, 2003, and accounted for 93.8% of total revenues for the year ended December 31, 2004. This increase resulted primarily from new contracts won in 2004, ranging from small to mid-size clients looking to enter new markets or build infrastructure, to large, global pharmaceutical companies with existing infrastructure, and including several new contracts during the first half of 2004; a new contract with sanofi-aventis during the third quarter of 2004; two additional contracts with large, global pharmaceutical firms, one of which was BMS. The increases from these significant contract wins (described above) were offset by decreases attributable to conversions of sales teams for Endo Pharmaceutical, Inc. and Boehringer Ingleheim Pharmaceuticals, Inc. during the fourth quarter of 2003, Watson’s election to terminate its sales contract effective August 1, 2004, and the redeployment of Bayer representatives from older contracts to recently announced new multi-year contracts with other clients, as discussed previously. Revenues from the sanofi-aventis and other 2004 contract wins are expected to offset the preceding losses and diversify our client base. Finally, we acquired Franklin on June 9, 2004, resulting in additional revenue in 2004 since the acquisition date.

Cost of Services: Cost of services increased by approximately $97.0 million or 53.1%, to $279.7 million during the year ended December 31, 2004 from $182.7 million in the year ended December 31, 2003. Cost of services decreased as a percentage of revenues to 79.4% from 81.4% in the years ended December 31, 2004 and 2003, respectively.

Cost of services at the inVentiv Clinical business was approximately $14.5 million for the period from the respective acquisition dates to December 31, 2004. Cost of services represented approximately 66.8% of inVentiv Clinical revenues during this period. Gross margins related to this business tend to be higher than the core commercial services business. Since inVentiv Clinical was created as a result of 2004 acquisitions, there was no cost of services for this segment in 2003.

Cost of services at the inVentiv Commercial business increased by approximately $82.5 million, or 45.2%, to $265.2 million in the year ended December 31, 2004 from $182.7 million in the year ended December 31, 2003. This variance percentage is lower than the percentage increase in revenue between the related periods. Cost of services was 80.3% of inVentiv Commercial revenue in the year ended December 31, 2004, compared to 81.4% in the year ended December 31, 2003. The decrease of cost of services as a percentage of revenue in 2004 as compared to 2003 was attributable to ongoing cost savings measures implemented by management to align our support and infrastructure with the current level of operations. In addition, we acquired Franklin, as described previously, which is a higher margin division than the core commercial services business.

Selling, General and Administrative Expenses: SG&A expenses increased by approximately $12.3 million, or 47.0%, to $38.5 million from $26.2 million in the year ended December 31, 2004 and 2003, respectively. This increase was primarily due to increased compensation levels in 2004 versus 2003, SG&A expenses incurred from the 2004 acquisitions, and increases in professional fees related to compliance with the internal control standards of Section 404 of the Sarbanes-Oxley Act of 2002.

SG&A expenses at inVentiv Clinical businesses were approximately $5.5 million in 2004, which reflects expenses incurred during the fourth quarter, when the acquisitions were consummated. Since inVentiv Clinical was created as a result of 2004 acquisitions, there were no SG&A expenses for this segment in 2003.

SG&A expenses at inVentiv Commercial increased by approximately $3.3 million, or 16.1%, to $24.0 million in the year ended December 31, 2004 from $20.7 million incurred in the year ended December 31, 2003. This increase was due to increased compensation levels in 2004 versus 2003 due to increased results during the current year, increased rent expense due to inVentiv Commercial occupying additional space, which it previously subleased to a third party, and expenses related to Franklin in 2004.

Other SG&A was approximately $9.0 million for the year ended December 31, 2004, an increase of approximately $3.5 million or 63.1% from $5.5 million for the year ended December 31, 2003. The increase was mainly related to increases in compensation as a result of improved company performance, and professional fees primarily related to our compliance with the internal control standards of Section 404 of the Sarbanes-Oxley Act of 2002.

Provision for Income Taxes: During the fourth quarter of 2004, we recorded a tax benefit of approximately $7.1 million primarily related to the divestiture and shutdown of certain former subsidiaries. Our tax rate during the fourth quarter benefited additionally from $2.0 million of net federal & state tax adjustments and other one-time reversals, primarily related to prior period tax contingencies, which are no longer required. Excluding these tax benefits, our annual effective tax rate was 38.0% in 2004. We recorded a provision for income taxes on continuing operations using an estimated effective tax rate of 37.5% for the year ended December 31, 2003. Our current effective tax rate is based on current projections for earnings in the tax jurisdictions in which we do business and is subject to taxation. Our effective tax rate could fluctuate due to changes in earnings between operating entities and related tax jurisdictions, or to the potential tax impact arising from previous divestitures.

Discontinued Operations: For the year ended December 31, 2004 and 2003, income (losses) from discontinued operations, net of taxes, were income of $1.0 million and losses of $4.1 million, respectively. The 2004 gains on disposals of discontinued operations of mainly consisted of contingency payments due from our previously divested Germany, Hungary and Alpharetta, Georgia-based operations, as more fully described in Recent Business Developments, offset by increased expenses in our facility remaining from a previously-divested business segment.

For the year ended December 31, 2003, operating losses of $4.1 million mainly consisted of the results of our France-based operations. In addition, we incurred approximately $4.4 million of losses related to the disposals of the units described in Recent Business Developments, consisting of the following: we wrote off net liabilities and currency translation adjustments of approximately $5.1 million, mainly related to the sale of its France-based business unit; we incurred approximately $1.2 million of expenses, comprised primarily of legal and severance fees associated with the sale of its France and UK-based business units, and adjustments of residual balances in entities divested; we recorded a loss of $0.6 million on the sale of the assets and business of its Hungary-based contract sales business unit; these adjustments were offset in 2003 by contingent consideration of approximately $0.5 million recognized pursuant to divestiture agreements on the sale of our Germany and Hungary-based contract sales business units; as a result of these adjustments, there were approximately $2.0 million of tax benefits recorded in 2003.

Finally, in connection with the completion of the divestiture of our France-based contract sales business unit in 2003, we recorded an estimated $4.4 million tax benefit relating to the disposal of this business unit.

Net Income and Earnings Per Share: Our net income increased by approximately $25.3 million from $5.8 million in 2003 to $31.1 million in 2004. Diluted earnings per share increased to $1.22 per share for the year ended December 31, 2004 from $0.24 for the year ended December 31, 2003.  Operating results were higher due to increased revenues from certain contracts; the acquisitions of Franklin and the companies comprising inVentiv Clinical; various cost saving strategies in 2004; and the tax benefit and one-time tax adjustments recorded in 2004. During 2004, we started to realize earnings from discontinued operations related to the receipt of post acquisition contingent consideration from the divested entities, while incurring losses from discontinued operations in 2003 from our previously divested business units.

Off-Balance-Sheet Arrangements

As of December 31, 2005, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

17

Liquidity and Capital Resources

At December 31, 2005, inVentiv had $73.1 million of unrestricted cash and equivalents, an increase of $22.3 million from December 31, 2004. For the year ended December 31, 2004, compared to December 31, 2005, cash provided by operations increased by $6.3 million from $49.0 million to $55.3 million. Cash used in investing activities increased from $45.5 million in the year ended December 31, 2004 to $196.1 million in the year ended December 31, 2005. Cash provided in financing activities increased by $171.0 million from a use of $7.8 million to a source of $163.2 million over the same comparative periods.

Cash provided by operations was $55.3 million during the year ended December 31, 2005, while cash provided by operations was $49.0 million in the year ended December 31, 2004. This is mainly due to increased volume of business, as described in the Results of Operations section above, and collections of certain receivables at inVentiv Communications.

Cash used in investing activities was $196.1 million for the year ended December 31, 2005 compared to $45.5 million used during the same period in 2004. The Company paid approximately $172.5 million and $9.1 million in 2005 for the acquisitions of inChord and PRS, respectively, versus $6.7 million, $30.0 million, and $4.6 million of purchase price for the acquisition of Franklin, Smith Hanley and HHI in 2004, both excluding acquisition costs. In 2005, the Company also paid approximately $5.2 million of cash relating to 2004 earn-outs, the majority of which was accrued at the end of 2004. The Company has existing letters of credit for insurance on its automobile fleet in its inVentiv Commercial business segment. Any changes in these letters of credit and changes in the principal of client escrow accounts constitute the increases in restricted cash.These letters of credit have been fully cash collateralized by the Company in 2004 and 2005. In 2005, the Company entered into a Deferred Compensation Plan for certain key employees and funded the liability with a corporate-owned life insurance (“COLI”) program in a rabbi trust whereby it purchases life insurance policies covering the lives of certain employees, with the Company named as beneficiary. In 2005, the Company invested approximately $1.4 million in the COLI program.

Cash provided by financing activities was $163.2 million compared to cash used of $7.8 million for the years ended December 31, 2005 and 2004, respectively. The increase was primarily due to the activation of our credit agreement in connection with the acquisition of inChord. The Company received $6.8 million of proceeds from the exercise of stock options, versus $3.2 million for the year ended December 31, 2004. Also, the Company made capital lease payments of $14.6 million and $11.0 million for the same periods in 2005 and 2004, respectively, mainly under the fleet lease agreement in its inVentiv Commercial business segment.

Our principal external source of liquidity is our syndicated, secured credit agreement, which we entered into with UBS AG, Stamford Branch, and others in connection with the inChord acquisition. The key features of this credit facility are as follows:

·   A $175 million term loan facility was made available to inVentiv in a single drawing at the time of the inChord transaction. The credit agreement also includes a $50 million revolving credit facility, of which $5 million is available for the issuance of letters of credit, and a $5 million swingline facility.

·   The term loan will mature on the sixth anniversary of the Credit Agreement, with scheduled quarterly amortization of 1% per year during years one through five and 95% during year six. The revolving loans will mature on the sixth anniversary of the Credit Agreement.

·   Amounts advanced under the credit agreement must be prepaid with a percentage, determined based on a leverage test set forth in the credit agreement, of Excess Cash Flow (as defined in the credit agreement) and the proceeds of certain non-ordinary course asset sales and certain issuances of debt obligations or equity securities of inVentiv and its subsidiaries, subject to certain exceptions. We may elect to prepay the loans, in whole or in part at any time, in certain minimum principal amounts, without penalty or premium (other than normal LIBOR break funding costs). Amounts borrowed under the credit agreement that are repaid or prepaid may not be reborrowed.

·   Interest on the loans accrue, at our election, at either (1) the Alternate Base Rate (which is the greater of UBS’s prime rate and federal funds effective rate plus 1/2 of 1%) or (2) the Adjusted LIBOR Rate, with interest periods determined at our option of 1, 2, 3 or 6 months (or, if the affected lenders agree, 9 months), in each case plus a spread based on the type of loan and method of interest rate determination elected.

·   The credit agreement contains, among other things, conditions precedent, representations and warranties, covenants and events of default customary for facilities of this type. Such covenants include certain limitations on indebtedness, liens, sale-leaseback transactions, guarantees, fundamental changes, dividends, acquisitions and transactions with affiliates. The credit agreement also includes covenants under which we are required to maintain a maximum leverage ratio and minimum interest rate coverage and fixed charge coverage ratios that vary based on the amount of time elapsed since the initial extension of credit.

Effective October 2005, we entered into a three-year swap arrangement for $175 million to hedge against the six-year $175 million loan arrangement entered into to facilitate the acquisition of inChord. This arrangement is discussed more fully under Item 7A - Quantitative and Qualitative Disclosures About Market Risk.

We believe that our cash and equivalents, cash to be provided by operations and available credit under our credit facility will be sufficient to fund our current operating requirements over the next 12 months. However, we cannot assure you that these sources of liquidity will be sufficient to fund all internal growth initiatives, investments and acquisition activities that we may wish to pursue. If we pursue significant internal growth initiatives or if we wish to acquire additional businesses in transactions that include cash payments as part of the purchase price, we may pursue additional debt or equity sources to finance such transactions and activities, depending on market conditions.

Commitments and Contractual Obligations

A summary of our current contractual obligations and commercial commitments is as follows:

(Amounts in thousands)			Amounts Due In
Contractual Obligations		Total Obligation		Less than 1 Year		1 - 3 years		3 -5 years	More than 5 years
Long term debt obligations (a)	$	231,773	$	12,506	$	24,688	$	65,933	$	128,646
Capital lease obligations (b)		31,417		12,243		17,254		1,920		--
Operating leases (c)		55,274		12,185		18,507		11,592		12,990
Total obligations	$	318,464	$	36,934	$	60,449	$	79,445	$	141,636

18

(a)  These future commitments represent the principal and interest payments under the $175 million term loan under our credit facility.

(b)  These future commitments include interest and management fees, which are not recorded on the Consolidated Balance Sheet as of December 31, 2005 but will be recorded as incurred.

(c)  Operating leases include facility lease obligations in which the lease agreement may expire during the five-year period, but are expected to continue on a monthly basis beyond the lease term, as provided for in the leasing arrangements.

The acquisition agreements entered into in connection with our acquisitions include earn-out provisions pursuant to which the sellers will become entitled to additional consideration, which may be material, if the acquired businesses achieve specified performance measurements. See footnote 3 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Effect of Inflation

Because of the relatively low level of inflation experienced in the United States, inflation did not have a material impact on our consolidated results of operations for 2005 or 2004.

New Accounting Pronouncements

On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 45-3, Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners (“FIN 45-3”). FIN 45-3 amends FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to expand the scope to include guarantees granted to a business, such as a physician’s practice, or its owner(s), that the revenue of the business for a period will be at least a specified amount. Under FIN 45-3, the accounting requirements of FIN 45 are effective for any new revenue guarantees issued or modified on or after January 1, 2006 and the disclosure of all revenue guarantees, regardless of whether they were recognized under FIN 45, is required for all interim and annual periods beginning after January 1, 2006. We do not expect the adoption of FIN 45-3 to have a material impact on our consolidated balance sheets, consolidated income statements or consolidated statements of cash flows.

In June 2005, the FASB issued Statement of Financial Account Standard (“SFAS”) No. 154, Accounting Changes and Error Corrections, (“SFAS No.154”) a replacement of Accounting Principles Board ("APB") Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the accounting for and the reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles required recognition by recording a cumulative effect adjustment within net income in the period of change. SFAS No. 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the specific period effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. We do not expect the implementation of SFAS No. 154 to have an impact on our consolidated balance sheets, consolidated income statements or consolidated statements of cash flows.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) that provides additional guidance in applying the provisions of SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”). SFAS No. 123R requires that compensation cost relating to share-based payment transactions be recognized in the financial statements based on the fair value of the equity or liability instruments issued. SFAS No. 123R covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SAB 107 describes the SEC staff's expectations in determining the assumptions that underlie fair value estimates and discusses the interaction of SFAS No. 123R with certain existing SEC guidance. The provisions of SAB 107 will be applied upon adoption of SFAS No. 123R. In April 2005, the SEC adopted a new rule that allows companies to implement SFAS No. 123R at the beginning of their next fiscal year, instead of the next reporting period that begins after June 15, 2005. As such, we are required to adopt SFAS No. 123R in our first quarter of 2006, beginning January 1, 2006. Under SFAS No. 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition alternatives include prospective and retroactive adoption methods. Under the retroactive methods, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and share awards at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive methods would record compensation expense for all unvested stock options and share awards beginning with the first period restated. We are evaluating the requirements of SFAS No. 123R and we expect that the adoption of SFAS No. 123R will have a material impact on our consolidated results of operations and earnings per share. We plan to continue to use the Black-Scholes model for stock compensation valuation. Based on grants of stock compensation issued through 2005, we estimate approximately $2.4 million (net of $1.6 million of taxes) of compensation relating to the expensing of stock options in 2006 and $1.0 million (net of $0.6 million of taxes) relating to the vesting of restricted shares.

In December 2004, the FASB issued SFAS No. 123R, which replaces SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”) and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after December 31, 2005, with early adoption encouraged. In addition, SFAS No. 123R will cause unrecognized expense (based on the amounts in our pro forma footnote disclosure) related to options vesting after the date of initial adoption to be recognized as a charge to consolidated results of operations over the remaining vesting period.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Long-Term Debt Exposure

At December 31, 2005, Ventiv had $174.6 million debt outstanding under its unsecured term loan. See Liquidity and Capital Resources section for further detail on inVentiv’s credit agreement. inVentiv will incur variable interest expense with respect to its outstanding loan. This interest rate risk may be partially offset by our derivative financial instrument, as described below. Based on our debt obligation outstanding at December 31, 2005, a hypothetical increase or decrease of 10% in the variable interest rate would have an immaterial effect on interest expense due to the fixed rate associated with the derivative financial instrument.

Derivative Financial Instrument

Effective October 2005, we entered into a three-year swap arrangement for $175 million to hedge against the six-year $175 million loan arrangement entered into to facilitate the acquisition of inChord. We entered into this interest rate swap agreement to modify the interest rate characteristics of our outstanding long-term debt and have designated this qualifying instrument as a cash flow hedge. At hedge inception, and at least quarterly thereafter, we assess whether derivatives used to hedge transactions are highly effective in offsetting changes in the cash flow of the hedged item. To the extent the instruments are considered to be effective, changes in fair value are recorded as a component of other comprehensive income (loss). To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings (interest expense).

For the year ended December 31, 2005, we recorded a $0.3 million reduction to interest expense relating to the mark-to-market adjustment required to record hedge ineffectiveness to earnings, and a corresponding derivative asset of approximately $0.3 million, which was recorded as Deposits and Other Assets on the December 31, 2005 consolidated balance sheet. The fair values of our interest rate swaps are obtained from dealer quotes. These values represent the estimated amount we would receive or pay to terminate the agreement taking into consideration the difference between the contract rate of interest and rates currently quoted for agreements of similar terms and maturities.

Foreign Currency Exchange Rate Exposure

inVentiv is not currently affected by foreign currency exchange rate exposure, except for any fluctuations in the foreign bank accounts remaining from the divestitures of inVentiv’s European business units and our equity investments and minority interests in inVentiv Communications’ foreign business units, which are not material to our financial statements. At December 31, 2005, the accumulated other comprehensive earnings was approximately $0.2 million.

20

Item 8. Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

Report of Management   

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2005 and 2004

Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2005, 2004, and 2003

Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003

Notes to Consolidated Financial Statements

21

REPORT OF MANAGEMENT

Management's Report on Financial Statements

Our management is responsible for the preparation, integrity and fair presentation of information in our consolidated financial statements, including estimates and judgments. The consolidated financial statements presented in this report have been prepared in accordance with accounting principles generally accepted in the United States of America. Our management believes the consolidated financial statements and other financial information included in this report fairly present, in all material respects, our consolidated financial condition, consolidated results of operations and consolidated cash flows as of and for the periods presented in this report. The consolidated financial statements have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and procedures that:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

• provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Our system contains self monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

Our management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our assessment excludes the PRS and inChord businesses we acquired in 2005 as allowed under the rules and clarifications provided by the Securities and Exchange Commission and the Public Company Accounting Oversight Board (United States). The financial statements of these acquired businesses constitute 9% and 45% of revenues and total assets, respectively, of the consolidated financial statement amounts as of and for the year ended December 31, 2005. Based on this evaluation, our management concluded that our system of internal control over financial reporting was effective as of December 31, 2005. Our management's assessment of the effectiveness of our internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

22

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of Ventiv Health, Inc.

Somerset, New Jersey

We have audited the accompanying consolidated balance sheets of Ventiv Health, Inc. and subsidiaries (the "Company") as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15. We also have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management's Report on Internal Control Over Financial Reporting, management excluded from their assessment the internal control over financial reporting at Pharmaceutical Resource Solutions LLC (“PRS”) and inChord Communications, Inc. (“inChord”), which were acquired in August and October 2005, respectively, and whose financial statements reflect total assets and revenues constituting 45% and 9% of the related consolidated financial statement amounts as of and for the year ended December 31, 2005. Accordingly, our audit did not include the internal control over financial reporting at PRS and inChord. The Company's management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule, an opinion on management's assessment, and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Note 2, during 2005, the Company changed the presentation of its consolidated statements of cash flows to separately present the cash flows from operating, investing and financing activities of discontinued operations within the respective categories of operating, investing and financing activities of the Company and retroactively revised the consolidated statements of cash flows for the years ended December 31, 2004 and 2003 for the change.

/s/ Deloitte & Touche LLP

Parsippany, New Jersey

March 14, 2006

23

VENTIV HEALTH, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	December 31,
		2005			2004
ASSETS
Current assets:
Cash and equivalents	$	73,102		$	50,809
Restricted cash		3,878			2,488
Accounts receivable, net of allowances for doubtful accounts of $3,979 and $1,980 at
December 31, 2005 and 2004, respectively		112,782			56,534
Unbilled services		41,206			36,130
Prepaid expenses and other current assets		5,737			2,755
Current deferred tax assets		4,029			8,226
Total current assets		240,734			156,942
Property and equipment, net		36,637			40,226
Equity investments		5,183			--
Goodwill		173,777			64,823
Other intangibles, net		117,606			21,370
Deferred tax assets		3,428			3,583
Deposits and other assets		6,529			508
Total assets	$	583,894		$	287,452
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capital lease obligations	$	10,859		$	12,004
Current portion of long-term debt		1,750			--
Accrued payroll, accounts payable and accrued expenses		77,816			56,076
Current income tax liabilities		7,359			12,113
Client advances and unearned revenue		29,393			9,184
Total current liabilities		127,177			89,377
Capital lease obligations		17,695			24,898
Long-term debt		172,813			--
Other non-current liabilities		12,994			733
Total liabilities		330,679			115,008
Commitments and contingencies
Minority interests		(4	)		--
Stockholders’ Equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued and outstanding at
December 31, 2005 and 2004, respectively		--			--
Common stock, $.001 par value, 50,000,000 shares authorized; 27,862,436 and 25,705,012
Shares issued and outstanding at December 31, 2005 and 2004, respectively		28			26
Additional paid-in-capital		233,441			193,061
Deferred compensation		(3,563	)		(420	)
Accumulated other comprehensive income		221			320
Accumulated earnings (deficit)		23,092			(20,543	)
Total stockholders’ equity		253,219			172,444
Total liabilities and stockholders’ equity	$	583,894		$	287,452

The accompanying notes are an integral part of these consolidated financial statements.

24

VENTIV HEALTH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	For the Years Ended December 31,
	2005			2004			2003
Revenues	$	556,312		$	352,184		$	224,453
Operating expenses:
Cost of services		417,025			279,733			182,658
Selling, general and administrative expenses		79,313			38,539			26,223
Other operating income		--			(264	)		(392	)
Total operating expenses		496,338			318,008			208,489
Operating income		59,974			34,176			15,964
Interest expense		(3,955	)		(922	)		(549	)
Interest income		1,409			678			413
Income from continuing operations before income tax provision, minority interest in income of subsidiary and income from equity investments		57,428			33,932			15,828
Income tax provision		(14,229	)		(3,802	)		(5,933	)
Income from continuing operations before minority interest in income of subsidiary and income from equity investments		43,199			30,130			9,895
Minority interest in income of subsidiaries		(224	)		--			--
Equity earnings in investments		107			--			--
Income from continuing operations		43,082			30,130			9,895
Income (losses) from discontinued operations:
Losses from discontinued operations, net of tax expense of $63 for the year ended December 31, 2003		--			--			(4,092	)
Gains (losses) on disposals of discontinued operations, net of tax (expense)benefit of ($442), ($547), and $2,056 for the years ended December 31, 2005, 2004 and 2003, respectively		781			1,002			(4,406	)
Tax benefit related to the disposal of a discontinued operation		--			--			4,379
Income (losses) from discontinued operations		781			1,002			(4,119	)
Net income	$	43,863		$	31,132		$	5,776
Earnings (losses) per share:
Continuing operations:
Basic	$	1.60		$	1.26		$	0.43
Diluted	$	1.53		$	1.18		$	0.42
Discontinued operations:
Basic	$	0.03		$	0.04		$	(0.18	)
Diluted	$	0.03		$	0.04		$	(0.18	)
Net income:
Basic	$	1.63		$	1.30		$	0.25
Diluted	$	1.56		$	1.22		$	0.24
Weighted average common shares outstanding:
Basic		26,875			23,951			22,919
Diluted		28,165			25,437			23,801

The accompanying notes are an integral part of these consolidated financial statements.

25

VENTIV HEALTH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the years ended December 31, 2005, 2004 and 2003

(in thousands)

	Common Stock		Additional Paid-In Capital			Accumulated earnings/ (deficit)			Deferred Compen- Sation			Compre-hensive Income (Losses)			Accumulated Other Comprehen-sive Income (Losses)			Total
Balance at January 1, 2003	$	23	$	158,619		$	(57,451	)	$	(457	)				$	(4,288	)	$	96,446
Net income		--		--			5,776			--		$	5,776			--			5,776
Foreign currency translation Adjustment		--		--			--			--			(1,913	)		(1,913	)		(1,913	)
Write-off of currency translation adjustments from divestitures		--		--			--			--			6,304			6,304			6,304
												$	10,167
Vesting of restricted shares		--		--			--			397						--			397
Exercise of stock options		--		555			--			--						--			555
Issuance of restricted shares		--		85			--			(85	)					--			--
Tax benefit from exercise of employee stock options and vesting of restricted stock		--		345			--			--						--			345
Executive share surrender		--		(185	)		--			--						--			(185	)
Other		--		(60	)		--			60						--			--
Balance at December 31, 2003		23		159,359			(51,675	)		(85	)					103			107,725
Net income		--		--			31,132			--		$	31,132			--			31,132
Foreign currency translation Adjustment		--		--			--			--			217			217			217
												$	31,349
Vesting of restricted shares		--		--			--			64						--			64
Compensation expense		--		74			--			--						--			74
Exercise of stock options		2		3,196			--			--						--			3,198
Issuance of restricted shares		--		399			--			(399	)					--			--
Tax benefit from exercise of employee stock options and vesting of restricted stock		--		4,493			--			--						--			4,493
Issuance of shares in connection with acquisitions		1		25,540			--			--						--			25,541
Balance at December 31, 2004		26		193,061			(20,543	)		(420	)					320			172,444
Net income		--		--			43,863			--		$	43,863			--			43,863
Foreign currency translation Adjustment		--		--			--			--			(99	)		(99	)		(99	)
												$	43,764
Vesting of restricted shares		--		--			--			694						--			694
Compensation expense		--		435			--			--						--			435
Exercise of stock options		1		6,831			--			--						--			6,832
Issuance of restricted shares		--		3,858			--			(3,858	)					--			--
Cancellation of restricted shares		--		(21	)		--			21						--			--
Tax benefit from exercise of employee stock options and vesting of restricted stock		--		9,772			--			--						--			9,772
Issuance of shares in connection with acquisitions		1		19,505			--			--						--			19,506
Cash distribution TSP		--		--			(228	)		--						--			(228	)
Balance at December 31, 2005	$	28	$	233,441		$	23,092		$	(3,563	)				$	221		$	253,219

The accompanying notes are an integral part of these consolidated financial statements.

26

VENTIV HEALTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	For the Years Ended
	December 31,
	2005			2004			2003
Cash flows from operating activities:				(Revised) (1)			(Revised) (1)
Net income from continuing operations	$	43,082		$	30,130		$	9,895
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		15,491			15,602			9,485
Amortization		1,934			306			19
Earnings of equity investments		(107	)		--			--
Minority interest in income of TSP		224			--			--
Fair market value adjustment on derivative financial instrument		(269	)		--			--
Deferred taxes		4,352			(4,711	)		2,316
Gain on sale of real estate		--			--			(392	)
Stock compensation expense		694			138			397
Tax benefit from stock option exercises and vesting of restricted shares		9,772			4,493			345
Executive share surrender		--			--			(185	)
Changes in assets and liabilities, net of effects from discontinued operations:
Accounts receivable, net		(20,204	)		(1,186	)		(13,140	)
Unbilled services		10,348			(9,522	)		(6,800	)
Prepaid expenses and other current assets		6,521			(1,208	)		280
Accrued payroll, accounts payable and accrued expenses		(6,401	)		8,413			3,926
Current income tax liabilities		(4,754	)		2,948			5,886
Client advances and unearned revenue		(8,186	)		4,286			1,134
Other		3,757			397			341
Net cash provided by continuing operations		56,254			50,086			13,507
Net cash (used in) provided by discontinued operations		(951	)		(1,125	)		2,879
Net cash provided by operating activities		55,303			48,961			16,386
Cash flows from investing activities:
Restricted cash balances		(1,332	)		(816	)		22
Investment in cash value of life insurance policies		(1,382	)		--			--
Cash paid for acquisitions, net of cash acquired		(187,002	)		(44,943	)		--
Acquisition earn-out payments		(5,181	)		--			--
Equity investments		(115	)		--			--
Purchases of property and equipment		(5,936	)		(5,697	)		(3,642	)
Proceeds from manufacturers rebates on leased vehicles		3,093			3,799			1,478
Proceeds from sale of real estate		--			--			1,099
Net cash used in continuing operations		(197,855	)		(47,657	)		(1,043	)
Net cash provided by discontinued operations		1,732			2,141			1,280
Net cash (used in) provided by investing activities		(196,123	)		(45,516	)		237
Cash flows from financing activities:
Borrowings on credit agreement		175,000			--			--
Repayments on credit agreement		(437	)		--			--
Repayments of capital lease obligations		(14,624	)		(11,021	)		(6,354	)
Fees to establish credit agreement		(3,330	)		--			--
Proceeds from exercise of stock options		6,831			3,198			555
Distributions to minority interests in affiliated partnership		(228	)		--			--
Net cash provided by continuing operations		163,212			(7,823	)		(5,799	)
Net cash provided by discontinued operations		--			--			--
Net cash provided by (used in) financing activities		163,212			(7,823	)		(5,799	)
Effect of exchange rate changes		(99	)		217			(1,913	)
Net increase (decrease) in cash and equivalents		22,293			(4,161	)		8,911
Cash and equivalents, beginning of year		50,809			54,970			46,059
Cash and equivalents, end of year	$	73,102		$	50,809		$	54,970
Supplemental disclosures of cash flow information:
Cash paid for interest	$	4,090		$	857		$	352
Cash paid for income taxes	$	5,296		$	1,641		$	462
Supplemental disclosure of non-cash activities:
Vehicles acquired through capital lease agreements	$	10,845		$	16,581		$	19,463
Vehicles disposed through capital lease agreements	$	1,232			--			--
Stock issuance related to acquisitions	$	19,506		$	25,541			--

(1)   See footnote 2 for further details.

The accompanying notes are an integral part of these consolidated financial statements.

27

VENTIV HEALTH, INC.

Notes to Consolidated Financials Statements

1. Organization and Business:

Ventiv Health Inc. (together with its subsidiaries, “Ventiv”, or the “Company”) is a leading provider of value-added services to the pharmaceutical and life sciences industries. We support a broad range of clinical development, communications and commercialization activities that are critical to our customers' ability to complete the development of new drug products and medical devices and successfully bring them to market. Our goal is to assist our customers in meeting their objectives in each of these areas by providing our services on a flexible and cost-effective basis. We provide services to over 150 client organizations, including 18 of the top 20 global pharmaceutical companies and numerous emerging and specialty biotechnology companies.

Our service offerings reflect the changing needs of our clients as their products move through the late-stage development and regulatory approval processes and into product launch. We have established expertise and leadership in providing the services our clients require at each of these stages of product development and commercialization and seek to address their outsourced service needs on a comprehensive basis throughout the product life cycle.

We provide our services through a portfolio of subsidiary companies that have historically conducted their operations as "Ventiv Health, Inc." As of the date of this report, we have changed our corporate brand name to inVentiv Health, Inc. as part of a re-branding initiative that began when we acquired inChord Communications, Inc. ("inChord"), a healthcare marketing and communications company, in October 2005. The legal name change will be effected following our annual shareholders meeting in June 2006, subject to receipt of stockholder approval.

Business Segments

We currently serve our clients primarily through three business segments, which correspond to our reporting segments for 2005:

·   inVentiv Clinical, which provides services related to permanent placement, clinical staffing, data collection and management and functional service provision. This segment was initially built through several businesses that were acquired in the fourth quarter of 2004: the Smith Hanley group of companies (which includes Smith Hanley Associates, Smith Hanley Consulting Group and MedFocus) and HHI Clinical & Statistical Research Services (“HHI”).

·   inVentiv Communications, which provides services related to pharmaceutical advertising, branding, interactive communication development and patient and physician education. This segment includes inChord and Adheris, Inc. ("Adheris"), a patient compliance and persistence communications company, which we acquired in the first quarter of 2006, as more fully discussed below.

·   inVentiv Commercial, which consists of our outsourced sales and marketing teams, planning and analytics services, sample accountability and patient assistance businesses, marketing support services, professional development and training, and recruitment of sales representatives in the commercial services area.

Our services are designed to develop, execute and monitor strategic and tactical sales and marketing plans and programs for the promotion of pharmaceutical, biotechnology and other life sciences products.

2. Summary of Significant Accounting Policies:

Basis of Presentation

The consolidated financial statements include the accounts of Ventiv Health, Inc., its wholly owned subsidiaries and its 53% owned subsidiary, Taylor Search Partners (“TSP”), which was acquired in conjunction with the acquisition of inChord. Our continuing operations consist primarily of three business segments: inVentiv Clinical, inVentiv Communications and inVentiv Commercial. All significant intercompany transactions have been eliminated in consolidation.

As a result of the acquisition of inChord, we have a 15% ownership interest in Heart Reklambyra AB (“Heart”), an advertising agency located in Sweden and a 44% interest in Angela Liedler GmbH (“Liedler”), a service provider of communication and marketing tools for technical, medical and pharmaceutical products, located in Germany. Both of these investments are accounted for by using the equity method of accounting.

In December 2005, we entered into an exclusive joint venture agreement with SIRO Clinpharm Pvt. Ltd., India's largest domestic contract research organization, to offer pharmaceutical companies India-based clinical data management services. This project is in the development stage and has not commenced providing client services.

Consolidated Statements of Cash Flows

During 2005, the Company changed the presentation of its consolidated statements of cash flows to separately present the cash flows from discontinued operations within the categories of operating, investing and financing activities. In addition, the Company has corrected the classification of changes in restricted cash balances previously included within operating activities and financing activities to properly reflect such changes within investing activities. A summary of the effects of the change in presentation on the consolidated statements of cash flows for the years ended December 31, 2004 and 2003 is as follows:

	Year Ended December 31,
(in thousands)	2004			2003
Net cash flows provided by operating activities as previously reported	$	50,270		$	14,317
Change in net cash flows from discontinued operations		(1,125	)		2,879
Changes in net cash flows from restricted cash balances		(184	)		(810	)
Net cash flows provided by operating activities as currently reported	$	48,961		$	16,386
Net cash flows (used in) provided by investing activities as previously reported	$	(44,700	)	$	215
Changes in net cash flows from restricted cash balances		(816	)		22
Net cash flows (used in) provided by investing activities as currently reported	$	(45,516	)	$	237
Net cash flows used in financing activities as previously reported	$	(8,823	)	$	(6,587	)
Changes in net cash flows from restricted cash balances		1,000			788
Net cash flows used in financing activities as currently reported	$	(7,823	)	$	(5,799	)

28

Cash and Equivalents

Cash and equivalents are comprised principally of amounts in operating accounts, money market investments and other short-term instruments. These accounts are stated at cost, which approximates market value, and have original maturities of three months or less. Approximately $0.1 million and $0.7 million were held in escrow on behalf of clients and included in restricted cash at December 31, 2005 and 2004, respectively.

Revenue Recognition

Here is a summary of our revenue recognition policy, based on the segment and services we provide:

inVentiv Clinical

·   Clinical Staffing- Revenues from temporary personnel services, outsourcing and outplacement are recorded when services are rendered.

·   Clinical Analysis and Data Management- Revenues are mainly achieved and recorded based on milestones, depending on the terms of the contracts.

·   Executive Placement- Permanent placement services revenues are recorded at the time a candidate begins full-time employment. Any write-offs due to cancellations and/or billing adjustments historically have been insignificant.

inVentiv Communications

·   Advertising and Communication support- Retainer revenue is recognized under the proportional performance method, by relating the actual hours of work performed to date to the current estimated total hours of the respective projects. Any anticipated losses on projects are recognized when such losses are anticipated. Time and production billings are billed as incurred for actual time and expenses.

·   Branding Consultation- Revenues are mainly based on fee for service, based on the contract.

·   Patient and Physician Education- For its meeting and event services business, we use either the completed contract method or bases revenue recognition on defined milestones, depending on the terms of the specific contracts.

·   Interactive Communication Development- Time and production billings are billed as incurred for actual time and expenses.

inVentiv Commercial

·   Sales and Marketing Teams- Revenues and associated costs under pharmaceutical detailing contracts are generally based on the number of physician calls made or the number of sales representatives utilized. Most of our Sales and Marketing Teams’ contracts involve two phases, a “deployment phase”, typically three months, in which we perform initial recruiting, training and preparation for deployment of the field force at the start of a new contract, and the “Promotion phase” in which our deployed field force actively promotes specified products for clients through face-to-face interactions with physicians referred to as “detailing”.

Most of our Ventiv Pharma Teams contracts specify a separate fee for the initial “deployment phase” of a project. We consider the deployment phase to be a separate and distinct earnings process and recognize the related revenues throughout the deployment phase, which typically spans a period of two to three months at the beginning of the first year of a contract. We generally recognize revenue during the “promotion phase” of our Ventiv Pharma Teams contracts on a straight-line basis based on the size of the deployed field force. The accounting for the two phases is based on our analysis of Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.

Many of the product detailing contracts allow for additional periodic incentive fees to be earned once agreed upon performance benchmarks have been attained. Revenue earned from incentive fees is recognized when we are reasonably assured that payment will be made, and is typically based upon verification through calculation of achievement, third party data or client verification. Many contracts also stipulate penalties if agreed upon performance benchmarks have not been met. These penalties are recognized upon verification of performance shortfalls.

We provide services to many of our most significant clients under contracts that our clients may cancel, typically on 10 to 120 days notice. In addition, many of the Ventiv Pharma Teams contracts provide our clients with the opportunity to internalize the sales forces ("sales force conversion") under contract, with sufficient notice. Although Ventiv Pharma Teams has been successful in a number of cases in negotiating longer-term commitments and an initial non-cancelable contract period, we cannot be assured that clients will renew relationships beyond the expiration date of existing contracts. Normally, if a client terminates a project, the client remains obligated to pay for services performed and reimbursable expenses incurred through the date of termination.

Non-refundable conversion fees are earned and recognized as revenue when one of our sales professionals accepts a firm offer of permanent employment from a customer during the term of a contract.

·   Planning and Analytics- Revenues for HPR generally include fixed fees, which are recognized when monthly services are performed based on the proportional performance method and when payment is reasonably assured. HPR’s initial contracts typically range from one month to one year. Revenues for additional services are recognized when the services are provided and payment is reasonably assured.

·   Regulatory Compliance and Patient Assistance- For regulatory compliance, revenues are recorded based on both fixed fees as well as fees for specific compliance related services both of which are recognized when monthly services are performed, while patient assistance programs depend on the number of patients served and are recognized as each service is performed.

·   Marketing Support Services- Revenues are recorded based on time incurred and fulfillment requirements based on contractual terms.

·   Professional Development and Training- Revenues are generally recorded as training courses are completed.

General

Reimbursable Costs

Reimbursable costs, including those relating to travel and out-of pocket expenses, sales force bonuses tied to individual or product revenues, and other similar costs, are generally included in revenues, and an equivalent amount of reimbursable expenses is included in costs of services in the period in which such amounts have been finalized. In certain cases, based on our analysis of Emerging Issues Task Force Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and related accounting literature, we may also record certain reimbursable transactions, such as the placement of media advertisements where we act as an agent, as net revenues.

Loss Contracts

The Company periodically analyzes its contracts to determine the likelihood and amount of any potential loss on a contract resulting from lower than anticipated product, field force or other performance. In the event that current information illustrates a loss is likely to be incurred over the remaining life of the contract, the Company accrues that loss at the time it becomes probable. The Company did not have any material loss contracts in 2005.

29

Billing

Customers are invoiced according to agreed upon billing terms. Contracts that are invoiced prior to performance of related services are recorded as client advances and unearned revenue and are not recognized as revenues until earned, in accordance with our revenue recognition policies. Amounts earned for revenues recognized before the agreed upon billing terms have been met are recorded as revenue and included in unbilled services. Upon billing, these amounts are transferred to billed accounts receivable.

Receivables

 Receivables consist of amounts billed and currently due from customers and unbilled amounts which have been earned but not yet billed. With the exception of amounts relating to certain contracts with pre-determined billing intervals, all amounts that are unbilled at the end of each monthly period are billed during the immediately succeeding monthly period.

Property and Equipment

Property and equipment is stated at cost. We depreciate furniture, fixtures and office equipment on a straight-line basis over three to seven years; computer equipment over two to five years and buildings up to thirty nine years. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful lives of the improvements. We amortize the cost of vehicles under capital leases on a straight-line basis over the term of the lease.

 Goodwill and Other Intangible Assets

With the acquisition of Smith Hanley and other businesses we have acquired, material intangible assets, including goodwill and other identifiable finite and indefinite-lived acquired intangibles. The identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition, as well as the completion of annual impairment tests, require significant management judgments and estimates. These estimates are made based on, among others, consultations with an accredited independent valuation consultant, reviews of projected future income cash flows and statutory regulations. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of our goodwill and other intangible assets, and potentially result in a different impact to our results of operations. Furthermore, changes in business strategy and/or market conditions may significantly impact these judgments thereby impacting the fair value of these assets, which could result in an impairment of the goodwill. Goodwill is tested at least annually for impairment. In 2005, we performed an annual impairment as of the valuation date of June 30, 2005 and concluded that the existing goodwill and tradename balances were not impaired. As of December 31, 2005, goodwill of approximately $173.8 million and other intangibles (net) of $117.6 million were recorded in the Consolidated Balance Sheet.

Impairment of Long-Lived Assets

Statement of Financial Accounting Standards (“SFAS”) No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets,establishes accounting standards for the impairment of long-lived assets. The Company reviews its long-lived assets, including property and equipment, for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Events or circumstances that would result in an impairment review primarily include operations reporting sustained losses or a significant change in the use of an asset. An impairment loss would be recognized based on the amount by which the carrying value of the asset exceeds its fair value. There were no material impairment losses in 2005.

Claims and Insurance Accruals

We maintain self-insured retention limits for certain insurance policies. The liabilities associated with the risk retained by us are estimated in part based on historical experience, third-party actuarial analysis, demographics, nature and severity, past experience and other assumptions. The liabilities for self-funded retention are included in claims and insurance reserves based on claims incurred, with liabilities for unsettled claims and claims incurred but not yet reported being actuarially determined with respect to workers’ compensation and auto liability claims and with respect to all other liabilities, estimated based on management’s evaluation of the nature and severity of individual claims and historical experience. However, these estimated accruals could be significantly affected if our actual costs differ from these assumptions. A significant number of these claims typically take several years to develop and even longer to ultimately settle. These estimates tend to be reasonably accurate over time; however, assumptions regarding severity of claims, medical cost inflation, as well as specific case facts can create short-term volatility in estimates. 

Earnings Per Share (“EPS”)

Basic net earnings per share excludes the effect of potentially dilutive securities and is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share reflect the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted earnings per share when their inclusion would be antidilutive. A summary of the computation of basic and diluted earnings per share from continuing operations is as follows:

	Year Ended December 31,
	2005		2004		2003
	(in thousands, except per share data)
Basic EPS from Continuing Operations Computation
Income from continuing operations	$	43,082	$	30,130	$	9,895
Weighted average number of common shares outstanding		26,875		23,951		22,919
Basic EPS from continuing operations	$	1.60	$	1.26	$	0.43
Diluted EPS from Continuing Operations Computation
Income from continuing operations	$	43,082	$	30,130	$	9,895
Adjustments		--		--		--
Adjusted income from continuing operations	$	43,082	$	30,130	$	9,895
Weighted average number of common shares outstanding		26,875		23,951		22,919
Stock options (1)		1,265		1,482		882
Restricted awards (2)		25		4		--
Total diluted common shares outstanding		28,165		25,437		23,801
Diluted EPS from continuing operations	$	1.53	$	1.18	$	0.42

(1)   For the years ended December 31, 2005, December 31, 2004 and December 31, 2003, 55,911 shares, 377,121 shares, and 1,600,648 shares, respectively, were excluded from the calculation of diluted EPS because the grant prices exceeded the market prices during those periods.

(2)   For the years ended December 31, 2005 and December 31, 2004, 9,770 shares and 3,826 shares, respectively, were excluded from the calculation of diluted EPS because the grant prices exceeded the market prices during those periods.

30

Income Taxes

Deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax bases of assets and liabilities and are measured using the tax rates and laws that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized. Realization is dependent on generating sufficient taxable income of a specific nature prior to the expiration of any loss carryforwards or capital losses. The asset may be reduced if estimates of future taxable income during the carryforward period are reduced. In addition, we maintain reserves for certain tax items, which are included in income taxes payable on our consolidated balance sheet. We periodically review these reserves to determine if adjustments to these balances are necessary.

Foreign Currency Translations

We are not currently affected by foreign currency exchange rate exposure, except for any fluctuations in the foreign bank accounts remaining from the divestitures of inVentiv’s European business units and our equity investments and minority interests in inVentiv Communications’ foreign business units, which are not material to our consolidated financial statements. At December 31, 2005, the accumulated other comprehensive earnings was approximately $0.2 million.

Use of Estimates

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements include certain amounts that are based on management's best estimates and judgments.  Estimates are used in determining items such as reserves for accounts receivable, certain assumptions related to goodwill and intangible assets, deferred tax valuation, and amounts recorded for contingencies and other reserves.  Because of the uncertainty inherent in such estimates, actual results may differ from these estimates.  We are not aware of reasonably likely events or circumstances that would result in different amounts being reported that would have a material impact on consolidated results of operations or consolidated financial condition.

Fair Value of Liquid Financial Instruments

The carrying amount of our cash and cash equivalents, accounts receivable, unbilled services and accounts payable approximate fair value because of the relatively short maturity of these instruments.

Derivative Financial Instruments

We enter into interest rate swap agreements to modify the interest rate characteristics of our outstanding long-term debt. At hedge inception, and at least quarterly thereafter, we assess whether derivatives used to hedge transactions are highly effective in offsetting changes in the cash flow of the hedged item. To the extent the instruments are considered to be effective, changes in fair value are recorded as a component of other comprehensive income (loss). To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings (interest expense). The fair values of our interest rate swaps are obtained from dealer quotes. These values represent the estimated amount we would receive or pay to terminate the agreement taking into consideration the difference between the contract rate of interest and rates currently quoted for agreements of similar terms and maturities.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist of accounts receivable and unbilled services. We place our investments in highly rated financial institutions, U.S. Treasury bills, money market accounts, investment grade short-term debt instruments. We are subject to credit exposure to the extent we maintain cash balances at one institution in excess of the Federal Depository Insurance Company limit of $100,000. Our receivables are concentrated with its major pharmaceutical clients. We do not require collateral or other security to support clients' receivables.

Accounting for Stock Options

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123 (“SFAS No. 148”), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted the disclosure requirements of SFAS No. 148 as of December 31, 2002. We account for stock-based employee compensation arrangements in accordance with provisions of APB 25, and complies with the disclosure provisions of SFAS No. 123, as amended. Under APB 25, compensation expense is based on the difference, if any, on the date of grant, between the quoted market price of our stock and the exercise price.

The following table illustrates the effect on net income and net earnings per share attributable to common shareholders if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation arrangements:

	Year Ended December 31,
	2005			2004			2003
	(in thousands, except per share data)
Net income attributable to common shareholders, as reported	$	43,863		$	31,132		$	5,776
Less: stock-based employee compensation expense determined under the fair value method, net of related income tax		(3,663	)		(2,637	)		(1,395	)
Pro forma net income	$	40,200		$	28,495		$	4,381
Net earnings per share attributable to common shareholders:
As reported: Basic	$	1.63		$	1.30		$	0.25
As reported: Diluted	$	1.56		$	1.22		$	0.24
Pro forma: Basic	$	1.50		$	1.19		$	0.19
Pro forma: Diluted	$	1.43		$	1.12		$	0.18

31

New Accounting Pronouncements

On November 10, 2005, the FASB issued Interpretation No. 45-3, Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners (“FIN 45-3”). FIN 45-3 amends FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to expand the scope to include guarantees granted to a business, such as a physician’s practice, or its owner(s), that the revenue of the business for a period will be at least a specified amount. Under FIN 45-3, the accounting requirements of FIN 45 are effective for any new revenue guarantees issued or modified on or after January 1, 2006 and the disclosure of all revenue guarantees, regardless of whether they were recognized under FIN 45, is required for all interim and annual periods beginning after January 1, 2006. We do not expect the adoption of FIN 45-3 to have a material impact on our consolidated results of operations or consolidated financial position.

In June 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Account Standard (“SFAS”) No. 154, Accounting Changes and Error Corrections, (“SFAS No.154”) a replacement of Accounting Principles Board ("APB") Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the accounting for and the reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles required recognition by recording a cumulative effect adjustment within net income in the period of change. SFAS No. 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the specific period effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. We do not expect the implementation of SFAS No. 154 to have an impact on our consolidated balance sheets, consolidated income statements or consolidated statements of cash flows.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) that provides additional guidance in applying the provisions of SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”). SFAS No. 123R requires that compensation cost relating to share-based payment transactions be recognized in the financial statements based on the fair value of the equity or liability instruments issued. SFAS No. 123R covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SAB 107 describes the SEC staff's expectations in determining the assumptions that underlie fair value estimates and discusses the interaction of SFAS No. 123R with certain existing SEC guidance. The provisions of SAB 107 will be applied upon adoption of SFAS No. 123R. In April 2005, the SEC adopted a new rule that allows companies to implement SFAS No. 123R at the beginning of their next fiscal year, instead of the next reporting period that begins after June 15, 2005. As such, we are required to adopt SFAS No. 123R in our first quarter of 2006, beginning January 1, 2006. Under SFAS No. 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition alternatives include prospective and retroactive adoption methods. Under the retroactive methods, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and share awards at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive methods would record compensation expense for all unvested stock options and share awards beginning with the first period restated. We plan to continue to use the Black-Scholes model for stock compensation valuation. Based on grants of stock compensation issued through 2005, we estimate approximately $2.4 million (net of $1.6 million of taxes) of compensation relating to the expensing of stock options in 2006 and $1.0 million (net of $0.6 million of taxes) relating to the vesting of restricted shares.

In December 2004, the FASB issued SFAS No. 123R, which replaces SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”) and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after December 31, 2005, with early adoption encouraged. In addition, SFAS No. 123R will cause unrecognized expense (based on the amounts in our pro forma footnote disclosure) related to options vesting after the date of initial adoption to be recognized as a charge to results of operations over the remaining vesting period.

3. Acquisitions:

In March 2006, we entered into an agreement for the acquisition of Synergos, LLP ("Synergos"). Synergos is a focused clinical services provider with expertise in clinical trial management services, particularly project management and monitoring as well as investigator and patient recruitment. The Synergos acquisition agreement provides for up front purchase consideration of $5.75 million in cash and stock, plus earn-out payments for exceeding specified financial targets. The Synergos acquisition is expected to close during the second quarter of 2006.

Also in March 2006, we entered into an agreement for the acquisition of Jeffrey Simbrow Associates Inc. (and certain of its affiliated companies) ("JSAI"), Canada's leading healthcare marketing and communications agency. Under the terms of the agreement, Ventiv will acquire JSAI for CAD$10.0 million in cash and stock, plus earn-out payments for exceeding specified financial targets. The JSAI acquisition is expected to close during the second quarter of 2006.

In February 2006, we acquired Adheris for approximately $67 million in cash and stock, exclusive of direct acquisition costs and post-closing adjustments, which have not yet been finalized. Adheris is a Massachusetts-based industry leader in the area of patient compliance and persistency programs. We will be obligated to make certain earn-out payments, which may be material, contingent on Adheris's performance measurements in 2006, 2007 and 2008. Adheris's financial results will be reported under inVentiv Communications from the date of its acquisition and accordingly are not reflected in our 2005 consolidated financial results.

In October 2005, we acquired all of the outstanding capital stock of inChord for approximately $196.8 million of cash and stock, including certain post-closing adjustments and direct acquisition costs, for approximately $18.6 million in net assets. To help finance the transaction, we entered into a credit agreement dated October 5, 2005, as more fully described in footnote 8. We acquired inChord to expand our service portfolio in the marketing and communications arena, expand our market position in the pharmaceutical services market and achieve cross-selling opportunities by leveraging our existing businesses. We will be obligated to make certain earn-out payments, which may be material, contingent on inChord’s performance measurements from 2005 through 2007. The amount due with respect to inChord for 2005 is expected to be approximately $3.6 million in cash and stock, which we accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review.

The results of inChord have been reflected in the inVentiv Communications segment since the date of acquisition. The purchase price and direct transaction costs were allocated to the assets purchased and liabilities assumed, based on their respective fair values at the date of acquisition. However, changes to the estimates of the fair values of inChord’s assets acquired and liabilities assumed may be necessary as additional information becomes available including the finalization of a third-party valuation of certain intangible assets.

In August 2005, we acquired the net assets of PRS, a provider of compliance management and marketing support services based in Horsham, Pennsylvania. PRS specializes in pharmaceutical sample management and compliance services; its operations are similar in nature to the business of Franklin Group, Inc. and Lincoln Ltd, Inc. (together, “Franklin”), which we acquired in June 2004. The closing consideration for the transaction was approximately $13.6 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) for approximately $1.0 million of net assets. We will be obligated to make certain earn-out payments, which may be material, contingent on PRS’s performance measurements in 2005 and 2006. The amount due with respect to PRS for 2005 is expected to be approximately $0.3 million in cash and stock, which the Company accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review. The results of PRS have been reflected in the inVentiv Commercial segment since the date of acquisition. The purchase price and direct transaction costs were allocated to the assets purchased and liabilities assumed, based on their respective fair values at the date of acquisition. However, changes to the estimates of the fair values of PRS’s assets acquired and liabilities assumed may be necessary as additional information becomes available including the finalization of a third-party valuation of certain intangible assets.

In November 2004, we acquired the net assets of HHI. HHI, based in Baltimore, Maryland, is a specialized statistical analysis and data management provider to the U.S. pharmaceutical industry. HHI complements our Smith Hanley business by offering clients the option of outsourced clinical support services as an alternative to internal staffing. The closing consideration for the transaction was approximately $6.2 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) for approximately $0.8 million of net assets. We will be obligated to make certain earn-out payments, which may be material, contingent on HHI’s performance measurements in 2005 and 2006. The amount due with respect to HHI for 2005 is expected to be approximately $5.0 million in cash and stock, which the Company accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review. The results of HHI have been reflected in the inVentiv Clinical segment since the date of acquisition.

In October 2004, we acquired the net assets of Smith Hanley. Smith Hanley specializes primarily in providing late-stage clinical staffing and recruiting services to the U.S. pharmaceutical industry. We acquired Smith Hanley to expand our service portfolio in the clinical services and recruitment areas, expand our market position in the pharmaceutical services market and achieve cross-selling opportunities by leveraging our existing sales force and relationships. We acquired approximately $9.5 million of net assets for consideration of approximately $52.9 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) and will be obligated to make certain earn-out payments, which may be material, contingent on Smith Hanley’s performance measurements in 2004 and 2005. Smith Hanley’s 2004 earn-out paid in 2005 was approximately $6.6 million, for which $6.8 million was previously accrued for at December 31, 2004; the portion adjusted in 2005 mainly relates to the finalization of the 2004 earn-out. The amount due with respect to Smith Hanley for 2005 is expected to be approximately $4.0 million in cash and stock, which the Company accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review. The results of Smith Hanley have been reflected in the inVentiv Clinical segment since the date of acquisition.

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In June 2004, inVentiv acquired the net assets of Franklin, based in Somerville, New Jersey. Franklin specializes primarily in conducting patient assistance programs and pharmaceutical compliance services. We paid approximately $11.3 million in cash and stock (taking into account post-closing adjustments and direct acquisition costs) to acquire approximately $2.7 million of net assets. We are obligated to make certain earn-out payments, which may be material, contingent on Franklin’s performance measurements during 2004 through 2006. Franklin’s 2004 earn-out paid in 2005 was approximately $1.8 million, $1.7 million of which was accrued for at December 31, 2004; the portion adjusted in 2005 mainly relates to the finalization of the 2004 earn-out. The amount due with respect to Franklin for 2005 is expected to be approximately $3.2 million in cash and stock, which the Company accrued at December 31, 2005, but is subject to review mechanisms set forth in the acquisition agreement and may change materially based on such review. Franklin’s financial results have been reflected in the inVentiv Commercial segment since the date of acquisition.

A summary of the purchase price consideration for the acquisitions is as follows:

Purchase price consideration	Franklin		Smith Hanley		HHI		PRS		inChord
Cash *	$	6,667	$	30,000	$	5,000	$	9,100	$	172,500
Stock		3,580		21,215		747		4,105		12,145
Direct acquisitions and other post-closing adjustments		1,064		1,685		478		440		12,149
Contingent consideration		5,065		10,603		4,995		272		3,619
Total	$	16,376	$	63,503	$	11,220	$	13,917	$	200,413

* Cash provided for the acquisition of inChord is pursuant to the credit agreement entered into on October 5, 2005.

The following represents the allocation of the purchase price to the acquired assets of Franklin, Smith Hanley and HHI. The allocations are based upon the estimated fair value of the assets acquired and liabilities assumed as of the respective acquisition date.

Allocation of purchase price	Franklin			Smith Hanley			HHI			PRS			inChord
Current assets	$	3,165		$	13,859		$	1,005		$	1,368		$	66,223
Property and equipment, and other noncurrent assets		432			670			48			183			8,533
Goodwill		11,133			36,631			8,795			9,081			87,537
Identifiable intangible assets		2,557			17,400			1,610			3,870			94,300
Liabilities assumed		(911	)		(5,057	)		(238	)		(585	)		(56,165	)
Minority interest		--			--			--			--			(15	)
Total	$	16,376		$	63,503		$	11,220		$	13,917		$	200,413

Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets. Goodwill and other intangible assets are more fully described in Footnote 7.

The following table provides unaudited pro forma results of operations for the periods noted below, as if the 2005 acquisitions had been made at the beginning of each period. The pro forma amounts are not necessarily indicative of the results that would have occurred if the acquisitions had been completed at that time.

	2005		2004
Revenues	$	693,304	$	589,767
Income from continuing operations		46,314		38,423
Net income		47,095		39,425
Earnings per share:
Basic	$	1.72	$	1.53
Diluted	$	1.65	$	1.44

4. Significant Clients:

During the year ended December 31, 2005, two clients accounted for approximately 14% and 11%, individually, of our total revenues spread across the inVentiv Commercial, inVentiv Communications and inVentiv Clinical segments. For the year ended December 31, 2004, two clients serving the inVentiv Commercial segment accounted for approximately 16% and 14%, individually, of our total revenues. During 2003, two clients serving the inVentiv Commercial segment accounted for approximately 23% and 18%, individually, of our total revenues.

5. Restricted Cash:

In October 2005, we pledged approximately $0.7 million of cash as collateral on an outstanding standby letter of credit to support the security deposit relating to the New York office rental for the inVentiv Commercial segment. The beneficiary has not drawn on this letter of credit. As this cash has been pledged as collateral, it is restricted from use for general purposes and has been classified accordingly in the Consolidated Balance Sheet as of December 31, 2005.

In June 2005, we pledged approximately $0.3 million of cash as collateral on an outstanding standby letter of credit to support the security deposit relating to the New York office rental for the inVentiv Clinical segment. The beneficiary has not drawn on this letter of credit. As this cash has been pledged as collateral, it is restricted from use for general purposes and has been classified accordingly in the Consolidated Balance Sheet as of December 31, 2005.

In January 2005, we pledged additional cash as collateral of approximately $1.0 million, for a total of approximately $2.0 million, on an existing outstanding standby letter of credit to support the insurance policy relating to a fleet leasing arrangement for the inVentiv Commercial segment, opened in January 2004. The beneficiary has not drawn on this letter of credit. As this cash has been pledged as collateral, approximately $2.0 million and $1.0 million has been restricted from use for general purposes and classified accordingly in the Consolidated Balance Sheets as of December 31, 2005 and December 31, 2004, respectively.

In March 2003, we pledged approximately $0.8 million of cash as collateral on an outstanding standby letter of credit, issued in support of the insurance policy relating to a fleet leasing arrangement for the inVentiv Commercial segment. The beneficiary has not drawn on this letter of credit. As this cash has been pledged as collateral, it is restricted from use for general purposes and has been classified accordingly in the Consolidated Balance Sheet as of December 31, 2005 and December 31, 2004.

We often receive cash advances from our clients as funding for specific projects and engagements. These funds are deposited into segregated bank accounts and used solely for purposes relating to the designated projects. Although these funds are not held subject to formal escrow agreements, we consider these funds to be restricted and have classified these balances accordingly. Cash held in such segregated bank accounts totaled approximately $0.1 million and $0.7 million held in escrow on behalf of clients and was included in restricted cash in the Consolidated Balance Sheet at December 31, 2005 and 2004, respectively.

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6. Property and Equipment, net:

Property and equipment consist of the following:

	As of December 31,
	2005			2004
	(in thousands)
Land	$	---		$	---
Buildings and leasehold improvements		6,797			2,973
Computer equipment and software		18,036			16,896
Vehicles		34,525			44,397
Furniture and fixtures		4,031			3,600
		63,389			67,866
Accumulated depreciation		(26,752	)		(27,640	)
	$	36,637		$	40,226

The vehicles have been recorded under the provisions of a capital lease. Our inVentiv Commercial segment has entered into a lease agreement to provide fleets of automobiles for sales representatives for certain client engagements.

Depreciation expense of property and equipment totaled $15.5 million, $15.6 million and $9.5 million in 2005, 2004 and 2003, respectively. In 2005, 2004, and 2003 inVentiv recorded $10.5 million, $11.0 million and $5.7 million of depreciation, respectively, on vehicles under capital lease.

7. Goodwill and Other Intangible Assets:

Goodwill consists of the following:

(in thousands)	January 1, 2005		2005 Acquisitions		Contingent (1) Consideration		December 31, 2005
inVentiv Clinical	$	36,509	$	152	$	8,766	$	45,427
inVentiv Communications		--		83,919		3,619		87,538
inVentiv Commercial		28,314		8,834		3,664		40,812
Total	$	64,823	$	92,905	$	16,049	$	173,777

(1) The contingent consideration represents amounts accrued for 2005 earnouts and adjustments relating to the finalization of the 2004 earnouts (see Note 3 for further details).

Other intangible assets consist of the following:

	December 31, 2005							December 31, 2004
(in thousands)			Accumulated							Accumulated
	Gross		Amortization			Net		Gross		Amortization			Net
Customer relationships (1)	$	37,787	$	(2,098	)	$	35,689	$	7,567	$	(282	)	$	7,285
Noncompete agreement (1)		690		(103	)		587		240		(5	)		235
Other		260		(190	)		70		260		(170	)		90
Total definite-life intangibles		38,737		(2,391	)		36,346		8,067		(457	)		7,610
Tradename (1)		81,260		--			81,260		13,760		--			13,760
Total other intangibles	$	119,997	$	(2,391	)	$	117,606	$	21,827	$	(457	)	$	21,370

(1)   The changes in other intangible assets arose from 2005 and 2004 acquisitions (see Note 3 for further details).

The business combinations discussed in footnote 3 above resulted in approximately $153.1 million of goodwill (all of which is expected to be deductible for tax purposes) and the following other intangible assets:

Intangible asset	Amount (in thousands)		Weighted average amortization period
Tradename	$	81,260		Indefinite
Customer relationships		37,787		11.5 years
Noncompete agreement		690		4.7 years
Total	$	119,737

Amortization expense, based on intangibles subject to amortization held at December 31, 2005, is expected to be $3.8 million annually from 2006 through 2007, $3.7 million in 2008, $3.3 million in 2009, $3.0 million in 2010 and $18.7 million thereafter.

8. Debt:

Our principal external source of liquidity is our syndicated, secured credit agreement, which we entered into with UBS AG, Stamford Branch, and others in connection with the inChord acquisition. The key features of this credit facility are as follows:

·   A $175 million term loan facility was made available to us in a single drawing at the time of the inChord transaction. The credit agreement also includes a $50 million revolving credit facility, of which $5 million is available for the issuance of letters of credit, and a $5 million swingline facility.

·   The term loan will mature on the sixth anniversary of the Credit Agreement, with scheduled quarterly amortization of 1% per year during years one through five and 95% during year six. The revolving loans will mature on the sixth anniversary of the Credit Agreement.

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·   Amounts advanced under the credit agreement must be prepaid with a percentage, determined based on a leverage test set forth in the credit agreement, of Excess Cash Flow (as defined in the credit agreement) and the proceeds of certain non-ordinary course asset sales and certain issuances of our debt obligations or equity securities, subject to certain exceptions. We may elect to prepay the loans, in whole or in part at any time, in certain minimum principal amounts, without penalty or premium (other than normal LIBOR break funding costs). Amounts borrowed under the credit agreement that are repaid or prepaid may not be reborrowed.

·   Interest on the loans accrue, at our election, at either (1) the Alternate Base Rate (which is the greater of UBS’s prime rate and federal funds effective rate plus 1/2 of 1%) or (2) the Adjusted LIBOR Rate, with interest periods determined at our option of 1, 2, 3 or 6 months (or, if the affected lenders agree, 9 months), in each case plus a spread based on the type of loan and method of interest rate determination elected.

·   The credit agreement contains, among other things, conditions precedent, representations and warranties, covenants and events of default customary for facilities of this type. Such covenants include certain limitations on indebtedness, liens, sale-leaseback transactions, guarantees, fundamental changes, dividends, acquisitions and transactions with affiliates. The credit agreement also includes covenants under which we are required to maintain a maximum leverage ratio and minimum interest rate coverage and fixed charge coverage ratios that vary based on the amount of time elapsed since the initial extension of credit. As of the date of this report, we comply with the requirements of our credit facility.

The three-month LIBOR base rate as of December 31, 2005 was 4.53%. As mentioned in footnote 11, the Company entered into a derivative financial instrument to hedge against this $175 million term loan facility.

During 2005, we incurred costs of approximately $3.3 million related to the credit agreement. These amounts are classified as deferred financing costs and are included as Deposits and Other Assets on the December 31, 2005 consolidated balance sheet. These deferred financing costs are amortized as interest expense over the life of the loan. At December 31, 2005, the Company had approximately $174.6 million outstanding on the unsecured term loan and no amounts outstanding under the credit facility. The following table displays the required future commitment of the principal payment on the loan.

Years Ending December 31,
2006	$	1,750
2007		1,750
2008		1,750
2009		1,750
2010		42,900
Thereafter		124,700
Total minimum lease payments	$	174,600

9. Accrued Payroll, Accounts Payable and Accrued Expenses:

Accrued payroll, accounts payable and accrued expenses consist of the following:

	December 31,
	2005		2004
	(in thousands)
Accrued payroll and related employee benefits	$	24,236	$	21,869
Accounts payable		7,295		2,901
Accrued insurance		5,872		4,899
Accrued commissions		3,979		3,377
Accrued professional fees		2,441		2,058
Accrued meeting fees		1,511		1,721
Contingent consideration from acquisitions		16,120		8,504
Accrued expenses		16,362		10,747
	$	77,816	$	56,076

10. Leases:

We lease certain facilities, office equipment and other assets under non-cancelable operating leases. Our operating leases are generally expensed on a straight-line basis and may include certain renewal options and escalation clauses.

The following is a schedule of future minimum lease payments for these operating leases at December 31, 2005 (in thousands):

Years Ending December 31,
2006	$	12,185
2007		10,843
2008		7,664
2009		5,910
2010		5,682
Thereafter		12,990
Total minimum lease payments	$	55,274

Rental expense charged to operations was approximately $5.6 million, $2.5 million and $2.6 million for the years ended December 31, 2005, 2004 and 2003, respectively. In February 2003, we started to receive sublease payments for one of our facilities, which was formerly occupied by one of its divested units. In 2005 and 2004, approximately $0.9 million and $0.9 million, respectively, of sublease income was received and offset against the obligation. We expect to collect for years ending December 31, 2006 and 2007, approximately $1.5 million in each year, under the sublease agreement, and an additional $0.4 million through the contract expiration in March 2008.

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We also have commitments under capital leases. The following is a schedule of future minimum lease payments for these capital leases at December 31, 2005 (in thousands):

	(a)
Years Ending December 31,
2006	$	12,243
2007		11,067
2008		6,187
2009		1,920
2010		--
Total minimum lease payments		31,417
Amount representing interest and management fees		(2,863	)
		28,554
Current portion		(10,859	)
Non-current lease obligations	$	17,695

(a) These future commitments include interest and management fees, which are not recorded on the Consolidated Balance Sheet as of December 31, 2005 but will be recorded as incurred.

11. Derivative Financial Instruments:

Effective October 2005, we entered into a three- year swap arrangement for $175 million to hedge against the six-year $175 million loan arrangement entered into to facilitate the acquisition of inChord. We entered into this interest rate swap agreement to modify the interest rate characteristics of our outstanding long-term debt and have designated this qualifying instrument as a cash flow hedge. At hedge inception, and at least quarterly thereafter, we assess whether derivatives used to hedge transactions are highly effective in offsetting changes in the cash flow of the hedged item. To the extent the instruments are considered to be effective, changes in fair value are recorded as a component of other comprehensive income (loss). To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings (interest expense).

For the year ended December 31, 2005, we recorded a $0.3 million reduction to interest expense relating to the mark-to-market adjustment required to record hedge ineffectiveness to earnings, and a corresponding derivative asset of approximately $0.3 million, which was recorded as Other Assets on the December 31, 2005 Consolidated Balance Sheet. The fair values of our interest rate swaps are obtained from dealer quotes. These values represent the estimated amount we would receive or pay to terminate the agreement taking into consideration the difference between the contract rate of interest and rates currently quoted for agreements of similar terms and maturities.

12. Commitments and Contingencies:

We are subject to lawsuits, investigations and claims arising out of the conduct of our business, including those related to commercial transactions, contracts, government regulation and employment matters. Certain claims, suits and complaints have been filed or are pending against us. In the opinion of management and based on the advice of legal counsel, no matters outstanding as of December 31, 2005 are likely to have a material adverse effect on inVentiv.

Pursuant to the acquisition of inChord, the Company assumed a $7.5 million existing liability on inChord’s balance sheet relating to certain performance thresholds of the segment over a three-year period. The Company will continue to periodically monitor these performance thresholds, which may result in up to an additional $7.5 million of future expenses if and when it is probable that the additional thresholds will be met.

13. Common Stock and Stock Incentive Plans:

As amended June 16, 2004, our 1999 Stock Incentive Plan (“Stock Plan”) authorizes us to grant incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units and stock appreciation rights ("SARs”). The aggregate number of shares of our common stock that may be issued under the Stock Plan upon exercise of options, SARs or in the form of restricted stock is 7.2 million shares, which was increased from 4.8 million shares in June 2004 as approved by a majority shareholder vote.

The exercise price of options granted under the Stock Plan may not be less than 100% of the fair market value per share of our common stock on the date of the option grant. The vesting and other provisions of the options are determined by the Compensation Committee of our Board of Directors.

A summary of the option activity within the Stock Plan, is as follows:

	Number of Shares			Weighted Average Exercise Price Per Share
	(in thousands)
Outstanding options at January 1, 2003		3,892		$	3.43
Granted		371			6.75
Exercised		(181	)		3.08
Forfeited or expired		(218	)		3.61
Outstanding options at December 31, 2003		3,864			3.76
Granted		1,467			16.51
Exercised		(1,059	)		3.02
Forfeited or expired		(64	)		3.63
Outstanding options at December 31, 2004		4,208			8.39
Granted		175			24.41
Exercised		(1,282	)		5.33
Forfeited or expired		(130	)		12.54
Outstanding options at December 31, 2005		2,971		$	10.47
Exercisable at:
December 31, 2003		1,987		$	4.24
December 31, 2004		1,681		$	4.64
December 31, 2005		1,470		$	7.82

Options outstanding and exercisable have exercise price ranges and weighted average remaining contractual lives of:

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(options below are presented in thousands)

				Outstanding Options		Exercisable Options
Exercise Price Range			Numbers of Options	Weighted Average Exercise Price	Weighted Average Remaining Life (years)	Number of Options	Weighted Average Exercise Price
$1.19	To	$1.60	13	$1.45	6.62	--	$--
$1.66	To	$1.66	647	1.66	6.95	383	1.66
$1.68	To	$4.00	365	3.50	6.77	259	3.68
$4.11	To	$8.06	313	7.86	3.92	305	7.95
$8.14	To	$14.88	305	9.38	7.43	141	9.00
$15.05	To	$15.48	30	15.28	8.52	3	15.38
$15.96	To	$15.96	433	15.96	8.73	283	15.96
$16.86	To	$17.25	512	17.06	8.78	82	17.06
$17.57	To	$25.63	277	19.01	8.77	14	18.35
$26.76	To	$26.76	76	26.76	9.76	--	--
			2,971			1,470

The fair value of each option grant is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions.

	2005	2004	2003
Expected life of option	4.78 yrs	4.42 yrs	4.00 yrs
Risk-free interest rate	4.27%	3.52%	3.06%
Expected volatility	63.62%	87.30%	94.51%
Expected dividend yield	0.00%	0.00%	0.00%

During the fourth quarter of 2005, we engaged an independent consultant to analyze our expected volatility and expected life of stock options. Based on these independent results, management concluded that the current expected volatility for options granted during the fourth quarter of 2005 should be 45% and the expected life of the options granted should range between 5.5 and 6.0 years, depending on the grantee’s employee status. These conclusions were based on several factors, including past company history, current and future trends, comparable benchmarked data and other key metrics. We will continue to assess these variables on a periodic basis as we start to expense stock-based compensation in 2006 and beyond.

The weighted average option fair value at date of grant was $13.24, $10.95 and $4.54 at December 31, 2005, 2004 and 2003, respectively.

During 1999, we granted 831,502 shares of restricted stock to certain key employees, of which 269,608 of the shares vested upon grant with the remaining shares of restricted stock vesting ratably over the four years following the grant date and currently fully vested. During 2005 and 2004, we issued 186,356 shares and 23,122 shares of restricted stock, respectively, which vest over a period of two to three years.

A summary of the restricted shares activity within the Stock Plan is as follows:

	Restricted Stock
	Number of Shares
	(in thousands)
January 1, 2003	626
Granted	10
Cancelled	--
December 31, 2003 (626 shares vested)	636
Granted	23
Cancelled	--
December 31, 2004 (631 shares vested)	659
Granted	186
Cancelled	(1)
December 31, 2005 (636 shares vested)	844

During 2005, 2004 and 2003, we recognized compensation expense related to the vesting of restricted shares of $0.7 million, $0.1 million and $0.4 million, respectively.

14. Benefit Plans:

Ventiv Health, Inc. and certain of its subsidiaries maintain a defined contribution benefit plans. Costs incurred by us related to this plan amounted to approximately $1.1 million, 0.7 million, and $0.5 million for 2005, 2004 and 2003, respectively.

On November 22, 2004, we adopted the Ventiv Health, Inc. Deferred Compensation Plan (the "Plan"), which was approved by our Board of Directors. The Plan provides eligible management and other highly compensated employees with the opportunity to defer, on a pre-tax basis, their salary, bonus, and other specified cash compensation and to receive the deferred amounts, together with a deemed investment return (positive or negative), either at a pre-determined time in the future or upon termination of employment with Ventiv Health, Inc. or an affiliated employer participating in the Plan. The compensation deferrals were initiated in 2005. The deferred compensation liability of approximately $1.9 million was included in other liabilities in our Consolidated Balance Sheets as of December 31, 2005. The Plan does not provide for the payment of above-market interest to participants.

To assist in the funding of the Plan obligation, we participate in a corporate-owned life insurance program in a rabbi trust whereby it purchases life insurance policies covering the lives of certain employees, with Ventiv Health, Inc. named as beneficiary. Rabbi trusts are grantor trusts generally set up to fund compensation for a select group of management or highly paid executives. The cash value of the life insurance policy as of December 31, 2005 was approximately $1.9 million and is currently classified in Deposits and other assets on our Consolidated Balance Sheets.

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15. Income Taxes:

Our income tax provision (benefit) included the following components:

	For the Years Ended
	December 31,
	2005			2004			2003
	(in thousands)
Current:
U.S.—Federal	$	10,854		$	7,808		$	4,998
U.S.—State and local		1,721			1,707			629
	$	12,575		$	9,515		$	5,627
Deferred:
U.S.—Federal	$	1,739		$	(5,050	)	$	284
U.S.—State and local		(85	)		(663	)		22
	$	1,654		$	(5,713	)	$	306
Income tax provision	$	14,229		$	3,802		$	5,933

The provision for taxes on net income (losses) differs from the amount computed by applying the U.S. federal income tax rate as a result of the following:

	For the Years Ended
	December 31,
	2005	2004	2003
Taxes at statutory U.S. federal income tax rate	35.0%	35.0%	35.0%
State and local income taxes, net of federal tax benefit	4.6	4.7	4.1
Utilization of net operating losses / other tax benefits	(15.3)	(29.2)	(1.7)
Other permanent differences	0.5	0.7	0.1
Effective tax rate	24.8%	11.2%	37.5%

In March 2005, the Company recorded a tax benefit of approximately $1.6 million primarily related to prior period tax contingencies, which are no longer required. During the third quarter of 2005, the Company recorded a tax benefit of approximately $6.7 million primarily related to the reversal of previously recorded valuation allowance as the Company determined that it was more likely than not that an additional portion of its deferred tax asset was expected to be realized. Additional tax benefits related to the vesting of restricted stock and the exercise of stock options in the amount of $9.7 million were credited directly to “Additional paid-in-capital” in the Consolidated Balance Sheet and statement of stockholders’ equity.

Deferred income taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities. As of December 31, 2005 and 2004, the deferred tax assets and liabilities consisted of the following:

	As of December 31,
	2005	2004
Current Deferred Assets:	(in thousands)
Accrued expenses	$2,800	$6,530
Net operating loss carryforwards	3,546	3,545
Deferred revenue	331	--
Other	297	424
Subtotal	6,974	10,499

Non-Current Deferred Assets:

Deferred Compensation	232	7
Intangible Assets	1,774	4,001
Net operating loss carryforwards	12,235	20,048
Fixed Assets	16,481	11,777
Other	1,257	388
Subtotal	31,979	36,221
Gross Deferred Assets	38,953	46,720
Current Deferred Liabilities:
Accrued Expenses	(2,075)	(1,301)
Other	(870)	(972)
Subtotal	(2,945)	(2,273)
Non-Current Deferred Liabilities:
Property and Equipment	(18,490)	(12,606)
Other	(14)	(14)
Subtotal	(18,504)	(12,620)
Gross Deferred Liabilities	(21,449)	(14,893)
Valuation Allowance	(10,047)	(20,018)
Net deferred tax assets	$7,457	$11,809

During 2004, a deferred tax asset in the amount of $23.6 million was established for net operating loss carryforwards primarily related to the divestiture of certain subsidiaries. A valuation allowance of $20 million was established at that time related to net operating loss carryforwards for which the Company had concluded it was more likely than not that these loss carryforwards would not be realized in future periods. Management revised its assessment in the third quarter of 2005 and recorded a tax benefit of approximately $6.7 million primarily related to the reversal of a previously recorded valuation allowance as the Company determined an additional portion of its deferred tax asset was more likely than not expected to be realized. This and other items resulted in a reduction in the overall valuation allowance for deferred tax assets. The deferred tax asset related to loss carryforwards was also reduced for such assets utilized during the year ended December 31, 2005. For financial statement purposes, federal net operating loss carryforwards of approximately $45 million exist at December 31, 2005 and will begin to expire in 2022. A capital tax loss carryover in the amount of approximately $2.8 million exists at December 31, 2005 and will begin to expire in 2007. A valuation allowance has been recorded against the capital loss carryovers as management believes it is more likely than not that the associated deferred tax asset will not be realized in the future. Management continually assesses whether inVentiv's deferred tax asset position is realizable and has concluded that it is more likely than not that the reported deferred tax asset is realizable at December 31, 2005.

38

16. Discontinued Operations:

For the year ended December 31, 2005 and 2004, income from discontinued operations, net of taxes, were $0.8 million and $1.0 million, respectively. For the years ended December 31, 2005 and 2004, income from discontinued operations, net of taxes, mainly consisted of contingency payments due from our previously divested Germany and Hungary-based operations.

17. Related Parties:

We are currently in a lease with Olde Worthington Road LLC for inVentiv Communications’ Services’ current headquarters facility in Westerville, Ohio. This facility is partially owned by the current inVentiv Communications’ Chief Executive Officer (who is also a member of the Board of Directors), his brothers and other current employees of inVentiv Communications through their ownership in GSW Capital LLC. GSW Capital LLC is a 50% owner of Olde Worthington Road LLC. The term of the lease is fifteen years, and expires on September 30, 2015 (subject to an early termination option effective as of September 30, 2010 in favor of inChord).

18. Segment Information:

In 2004, we managed three operating segments: inVentiv Commercial, Planning and Analytics and inVentiv Clinical, and our non-operating reportable segment, “Other”. As a result of the fourth quarter acquisitions in the clinical services arena and the commonality of the nature of the commercial services we provide, our planning and analytics services business unit which was operated as a separate reporting segment (Ventiv Analytic Services) during 2004, is now included as part of inVentiv Commercial for operating and segment reporting purposes.

In August 2005, we acquired PRS, which is reported in the inVentiv Commercial segment from the date of its acquisition. In October 2005, we acquired inChord, which is reported in a separate operating segment, inVentiv Communications, from the date of its acquisition. We identified the inVentiv Commercial, inVentiv Communications and inVentiv Clinical segments as the three primary operating segments based on the way management makes operating decisions and assesses performance.

Subsequent to the inChord acquisition, which formed the inVentiv Communications segment in October 2005, our 2005 reportable segments are:

·   inVentiv Clinical, which provides services related to permanent placement, clinical staffing, data collection and management and functional service provision

·   inVentiv Communications, which provides services related to pharmaceutical advertising, branding, interactive communication development and patient and physician education

·   inVentiv Commercial, which consists of our outsourced sales and marketing teams, planning and analytics services, sample accountability and patient assistance businesses, marketing support services, professional development and training, and recruitment of sales representatives in the commercial services area.

·   Other, which encompasses the activities of the corporate management group.

For the year ended December 31, 2005 (in thousands):

	inVentiv Clinical		inVentiv Communications		inVentiv Commercial		Other			Total
Revenues	$	113,717	$	48,901	$	394,552	$	--		$	557,170
Less: Intersegment revenues		17		175		666		--			858
Reported Revenues		113,700		48,726		393,886		--			556,312
Depreciation and amortization		1,241		679		15,420		85			17,425
Interest expense		--		19		1,275		2,661			3,955
Interest income		35		47		114		1,213			1,409
Segment income (loss)(1)	$	9,563	$	5,677	$	54,271	$	(12,083	)	$	57,428

For the year ended December 31, 2004 (in thousands):

	inVentiv Clinical		inVentiv Communications		inVentiv Commercial		Other			Total
Revenues	$	21,694		--	$	330,953	$	--		$	352,647
Less: Intersegment revenues		6		--		457					463
Reported revenues		21,688		--		330,496					352,184
Depreciation and amortization		219		--		15,613		76			15,908
Restructuring		--		--		249		15			264
Interest expense		--		--		627		295			922
Interest income		5		--		51		622			678
Segment income (loss) (1)	$	1,709		--	$	40,873	$	(8,650	)	$	33,932

For the year ended December 31, 2003 (in thousands):

	inVentiv Clinical		inVentiv Communications		inVentiv Commercial		Other			Total
Revenues	$	--	$	--	$	225,242	$	--		$	225,242
Less: Intersegment revenues		--		--		789		--			789
Reported revenues		--		--		224,453		--			224,453
Depreciation and amortization		--		--		9,333		171			9,504
Gain on sale of real estate		--		--		392		--			392
Interest expense		--		--		279		270			549
Interest income		--		--		13		400			413
Segment income (loss) (1)	$	--	$	--	$	21,213	$	(5,385	)	$	15,828

39

⁽¹⁾ Income from continuing operations before income tax provision, minority interest in income of subsidiary and income from equity investments

(in thousands)	December 31,
	2005		2004
Total Assets:
inVentiv Clinical	$	84,731	$	74,258
inVentiv Communications		248,986		--
inVentiv Commercial		171,468		158,367
Other		78,709		54,827
Total assets	$	583,894	$	287,452

19. Selected Quarterly Financial Data (unaudited, in thousands):

The following table summarizes financial data by quarter for inVentiv for 2005 and 2004.

	2005 Quarter Ended (b)
	March 31		June 30		Sept. 30		Dec. 31			Total (a)
	(in thousands, except per share amounts)
Revenues	$	120,859	$	131,788	$	128,359	$	175,306		$	556,312
Gross profit		27,147		32,027		30,595		49,518			139,287
Income from continuing operations		9,192		9,032		15,033		9,825			43,082
Income (losses) from discontinued operations		99		1,463		78		(859	)		781
Net income		9,291		10,495		15,111		8,966			43,863
Earnings (losses) per share (a)
Continuing operations:
Basic	$	0.35	$	0.34	$	0.56	$	0.35		$	1.60
Diluted	$	0.33	$	0.32	$	0.53	$	0.35		$	1.53
Discontinued operations:
Basic	$	0.01	$	0.05	$	0.00	$	(0.03	)	$	0.03
Diluted	$	0.01	$	0.06	$	0.01	$	(0.05	)	$	0.03
Net income:
Basic	$	0.36	$	0.39	$	0.56	$	0.32		$	1.63
Diluted	$	0.34	$	0.38	$	0.54	$	0.30		$	1.56

	2004 Quarter Ended (b)
	March 31		June 30		Sept. 30		Dec. 31			Total (a)
	(in thousands, except per share amounts)
Revenues	$	70,661	$	75,221	$	88,853	$	117,449		$	352,184
Gross profit		14,350		14,924		16,831		26,346			72,451
Income from continuing operations		4,948		4,855		5,087		15,240			30,130
Income (losses) from discontinued operations		155		1,754		223		(1,130	)		1,002
Net income (losses)		5,103		6,609		5,310		14,110			31,132
Earnings (losses) per share (a)
Continuing operations:
Basic	$	0.22	$	0.21	$	0.21	$	0.60		$	1.26
Diluted	$	0.20	$	0.19	$	0.20	$	0.57		$	1.18
Discontinued operations:
Basic	$	--	$	0.07	$	0.01	$	(0.04	)	$	0.04
Diluted	$	0.01	$	0.07	$	0.01	$	(0.05	)	$	0.04
Net income (losses):
Basic	$	0.22	$	0.28	$	0.22		0.56		$	1.30
Diluted	$	0.21	$	0.26	$	0.21		0.52		$	1.22

(a)The sum of the net earnings per share do not add up to the full year amount due to rounding and because the quarterly calculations are based on varying numbers of shares outstanding.

(b)The above tables have been reclassified as per SFAS No. 144 for the effects of discontinued operations. See Note 17 for a further description.

40

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2005, 2004 and 2003

(in thousands)

			Additions				Deductions
	Balance at Beginning Of Year		Charged to Cost and Expense		Charged to other Accounts (1)		from Reserve for Purpose for which Reserve was Created		Balance at End Of Year
Allowances for Doubtful Accounts:
Year ended December 31, 2005	$	1,980	$	1,404	$	2,039	$	1,444	$	3,979
Year ended December 31, 2004	$	2,019	$	643	$	141	$	823	$	1,980
Year ended December 31, 2003	$	1,178	$	1,790	$	--	$	949	$	2,019

⁽¹⁾ Reserves acquired with the acquisition of Franklin, Smith Hanley, HHI, PRS and inChord.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), as of the end of the period covered by this annual report on Form 10-K. Our assessment excludes the PRS and inChord businesses we acquired in 2005 as allowed under the rules and clarifications provided by the Securities and Exchange Commission and the Public Company Accounting Oversight Board (United States). The financial statements of these acquired businesses constitute 9% and 45% of revenues and total assets, respectively, of the consolidated financial statement amounts as of and for the year ending December 31, 2005. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2005 our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and that material information relating to us and our consolidated subsidiaries is made known to management, including the Chief Executive Officer and Chief Financial Officer during the period when our periodic reports are being prepared. There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Please refer to the Report of Independent Registered Public Accounting Firm included in Item 8A of this report. 

Management’s Report on Internal Control over Financial Reporting

Management’s Report on Internal Control Over Financial Reporting and the corresponding Report of Independent Registered Public Accounting Firm are included in Item 8, Financial Statements and Supplementary Data, of this report. See page 32.

Item 9B. Other Information.

At its meeting on December 15, 2005, our Compensation Committee approved an increase in John Emery's base salary from $308,827 to $318,270 and an increase in Terrell Herring's base salary from $345,000 to $360,500, in each case effective January 1, 2006.

41

PART III

Item 10. Directors and Executive Officers of the Registrant.

The following table sets forth certain information concerning our current executive officers and directors:

Name	Age	Positions with Company
Daniel M. Snyder	41	Chairman of the Board
Eran Broshy	47	Chief Executive Officer and Director
John R. Emery	49	Chief Financial Officer and Secretary
Terrell G. Herring	42	President and Chief Executive Officer, inVentiv Commercial, and Director
Blane Walter	35	President and Chief Executive Officer, inVentiv Communications, and Director
A. Clayton Perfall	47	Director
Donald Conklin	69	Director
John R. Harris	57	Director
Per G.H. Lofberg	58	Director
Mark Jennings	43	Director

Daniel M. Snyder - Mr. Snyder has served as the Chairman of the Board of Directors of the Company since October 2001 and previously served as Co-Chairperson since inVentiv's separation from Snyder Communications, Inc. in September 1999. Mr. Snyder is the Owner and Chairman of the Washington Redskins football team. Mr. Snyder was Chairman and a founder of Snyder Communications, Inc. and served as Chief Executive Officer of Snyder Communications and its predecessors from 1987 to September 2000. Mr. Snyder is Chairman of the Board of Directors of Six Flags Incorporated.

Eran Broshy - Mr. Broshy has served as a director and the Chief Executive Officer of the Company since inVentiv's separation from Snyder Communications, Inc. in September 1999. Prior to joining inVentiv, Mr. Broshy spent 14 years with the Boston Consulting Group, and most recently served as the partner responsible for the firm’s North American healthcare practice. From 1998 to 1999, Mr. Broshy served as President and Chief Executive Officer of Coelacanth Corporation, a privately-held biotechnology company. Mr. Broshy is a member of the Board of Directors of Neurogen Corporation.

John R. Emery - Mr. Emery has served as the Chief Financial Officer of the Company since August 2001. Prior to that time, Mr. Emery was Chief Financial Officer of MedQuist Inc. During his tenure at MedQuist, revenues increased nearly five-fold and market capitalization increased from approximately $200 million to $1.5 billion. During this period MedQuist also completed a $230 million acquisition of its largest competitor, acquired 20 smaller competitors and sold a 65% equity stake in the company to Philips Electronics for $1.2 billion. Prior to joining MedQuist, Mr. Emery held the positions of CFO and Senior Vice President of Operations at Integra LifeSciences Corporation.

Terrell G. Herring - Mr. Herring has been a director of the Company since October 2005.Mr. Herring has served as the President and Chief Executive Officer of inVentiv Commercial since October 2005. Since joining the Company in November 1999, Mr. Herring has held the positions of National Business Director, Vice President and General Manager, U. S. Sales, President and COO, inVentiv Pharma Services and President and COO, inVentiv Commerical. He has more than 18 years experience in the pharmaceutical sales industry. Before joining inVentiv, Mr. Herring was the Senior National Sales Director at Noven Pharmaceuticals where he focused on transdermal delivery and women's health marketing. He began his career at Ciba-Geigy Pharmaceuticals and Solvay Pharmaceuticals where he held various sales management, training, development, marketing, and operations positions.

Blane Walter - Mr. Walter has been a director of the Company since October 2005. Mr. Walter has served as the President and Chief Executive Officer of inVentiv Communications since the acquisition of inChord Communications, Inc. (“inChord”) in October 2005. Mr. Walter joined inChord (then known as Gerbig, Snell/Weisheimer & Associates) as an Account Manager in 1994. In 1996, he became a Partner and later purchased the company in 2000. Under his direction as Chairman and CEO, inChord became the largest privately-held healthcare communication company in the world, with affiliates throughout the world.Prior to inChord, Mr. Walter worked as a financial analyst in New York City for Smith Barney in mergers and acquisitions.

A. Clayton Perfall - Mr. Perfall has been a director of the Company since inVentiv's separation from Snyder Communications, Inc. in September 1999. He currently serves as Chief Executive Officer of AHL Services, Inc. a non-pharmaceutical, outsourced sales and marketing company. Prior to taking this position in October 2001, Mr. Perfall served as Chief Executive Officer of Convergence Holdings, Corp. Prior to taking this position in January 2001, Mr. Perfall served as the Chief Financial Officer and a director of Snyder Communications, Inc. from 1996 to September 2000. Prior to joining Snyder Communications, Inc., Mr. Perfall spent fifteen years with Arthur Andersen LLP.

Donald R. Conklin - Mr. Conklin has been a director of the Company since September 1999. Prior to joining the Company's Board, Mr. Conklin worked for 39 years with Schering-Plough Corporation. He was President of the Worldwide Pharmaceutical Operations for nine years and concluded his career as Chairman of the Health Care Products division for three years. Mr. Conklin is a member of the Board of Directors of Alfacell, Inc.

John R. Harris - Mr. Harris has been a director of the Company since May 2000. Mr. Harris is currently Chief Executive Officer of eTelecare Global Solutions, a leading teleservices company. Until January 2005 Mr. Harris served as Chief Executive Officer of Seven Worldwide Inc., a digital content management company. From July 2002 to December 2003, he served as Chief Executive Officer and President of Delinea Corporation, an application and business process management company serving the energy industry. From August 2001 to July 2002, Mr. Harris served as Chief Executive Officer and President of Exolink. He was Chairman and Chief Executive Officer of Ztango, Inc. from 1999 to 2001. Mr. Harris previously spent 25 years with Electronic Data Systems, during which he held a variety of executive leadership positions including Executive and President of EDS's four strategic business units. Mr. Harris is a member of the Board of Directors of PTEK Holdings, Inc and Answerthink, Inc..

Per G.H. Lofberg -Mr. Lofberg has been a director of the Company since February 2005. Mr. Lofberg brings over 30 years pharmaceutical and health care industry experience to inVentiv Health. He is currently President and CEO of Merck Capital Ventures, LLC, a position that he has held since 2000. From 1993-2000, Mr. Lofberg was Chairman of Merck-Medco Managed Care, LLC, a wholly-owned subsidiary of Merck & Co., Inc. and the country’s largest provider of prescription drug benefit management services. Under his leadership, Merck-Medco grew from $3 billion to $23 billion in revenues. Mr. Lofberg joined Merck-Medco in 1988 as Senior Executive Vice President, a member of the Office of the President and a Director. Before Merck-Medco, Mr. Lofberg was a Partner at The Boston Consulting Group and oversaw the firm’s worldwide health care practice.

Mark E. Jennings - Mr. Jennings has been a director of the Company since February 2005. Mr. Jennings is the Managing Partner and co-founder of Generation Partners, a $325 million private investment firm focused on providing growth capital to companies primarily in the business and information services, communications and healthcare sectors. Prior to founding Generation in 1995, Mr. Jennings was a Partner of Centre Partners, a private investment firm affiliated with Lazard Frères & Co. Mr. Jennings began his career at Goldman Sachs & Co. where he advised companies in the areas of financial strategy, public offerings, mergers & acquisitions and leveraged buyouts. Through Generation and predecessor firms, he has invested in more than 50 companies and has served as a director on 20 boards. Mr. Jennings is also the Chairman of the Board of Trustees of Post University, Inc., a 115 year-old regionally-accredited University and is on the Board of Directors of the Spiritual Cinema Circle, a mult-faith organization dedicated to fitness that inspire, heal and transform.

Audit Committee and Audit Committee Financial Expert

The Audit Committee is comprised of Messrs. Perfall (Chairman), Conklin and Harris. The Audit Committee oversees the accounting and financial reporting processes of the Company, as well as the audits of the financial statements of the Company.  The Board has determined that all members of the Audit Committee are independent directors, and otherwise satisfy the requirements for service on the Audit Committee, under the rules of the Securities and Exchange Commission (the “SEC”) and the NASD. The Board has determined that Mr. Perfall qualifies as an “audit committee financial expert” as defined by the rules of the SEC.

42

Material Changes to Procedures for Shareholder Recommendations

There have been no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors since the filing of our proxy statement with respect to our 2005 Annual Meeting of Stockholders. The Nominating and Corporate Governance Committee will consider written proposals from stockholders for nominees for director. All bona fide shareholder-recommended candidates will be considered on the same basis as other candidates. Any such nominations should be submitted to the Chairman of the Nominating and Corporate Governance Committee, c/o Ventiv Health, Inc., 200 Cottontail Lane, Vantage Court North, Somerset, New Jersey 08873, and should include the following: (a) all information relating to such nominee that is required to be disclosed pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including such person's written consent to being named in the proxy statement as a nominee and to serving as director if elected); (b) whether the candidate qualifies as “independent” under NASD rules and for service on the Audit Committee under SEC rules; (c) the name and address of the recommending shareholder, as they appear on the Corporation’s books, and of any beneficial owner on whose behalf the recommendation is made; (d) the class and number of shares of the Company that are beneficially owned and held of record by such shareholder and any such beneficial owner; (e) information regarding whether the recommending shareholder, beneficial owner or candidate or their affiliates have any plans or proposals for the Company; and (f) whether the recommending shareholder, beneficial owner or candidate seeks to use the nomination to redress personal claims or grievances against the Company or to further personal interests or special interests not shared by shareholders at large.

Code of Business Ethics and Conduct

We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers (including our chief executive officer, chief financial officer, chief accounting officer and any person performing similar functions) and employees. We have made the Code of Business Conduct available on our website at www.inventivhealth.com

Item 11. Executive Compensation.

Summary Compensation Table

The following Summary Compensation Table sets forth the compensation earned for each of the last three completed fiscal years by (i) the person who served as our chief executive officer during the last completed fiscal year and (ii) each of our officers other than our chief executive officer who was serving as an executive officer at the end of the last completed fiscal year.

SUMMARY COMPENSATION TABLE

	Annual Compensation							Long-Term Compensation Awards
Name and Principal Position(s)	Year		Salary		Bonus (1)			Restricted Stock Award(s)($) (2)		Securities Underlying Options		All Other Compensation (3)
Eran Broshy		2005	$	535,137	$	600,000(4)(5	)		--		--	$	3,500
Chief Executive Officer		2004	$	519,841	$	919,841			--		200,000	$	3,250
Ventiv Health, Inc.		2003	$	504,587	$	600,000			--		55,000	$	3,000
John R. Emery		2005	$	308,827	$	277,945(5	)	$	50,006		--		--
Chief Financial Officer		2004	$	300,000	$	370,000			--		100,000		--
Ventiv Health, Inc.		2003	$	291,779	$	229,103			--		15,000		--
Terrell G. Herring		2005	$	345,000	$	345,000(5	)	$	102,480		--	$	3,450
President & COO		2004	$	304,615	$	429,615		$	175,009		150,000	$	2,939
inVentiv Commercial Services		2003	$	291,187	$	410,098		$	84,500		20,000	$	3.000
Blane Walter (6)		2005	$	104,192	$	14,565			--		--		--
President & CEO
inVentiv Communications Services

(1)   Bonuses to executive officers are awarded at the discretion of the Compensation Committee of the Board of Directors and are disclosed for the year in which they are awarded.

(2)   In January 2005, the Company granted Mr. Emery 2,431 shares of restricted Common Stock, one-third of which vested on January 1, 2006 and two-thirds will vest on January 1, 2007. The restricted stock agreements for these grants prohibit Mr. Emery from transferring any of his restricted shares during the vesting period.

In December 2003, the Company granted Mr. Herring 10,000 shares of restricted Common Stock, which are fully vested. In December 2004, the Company granted Mr. Herring 10,122 shares of restricted Common Stock, one-third of which vested on January 1, 2006 and two-thirds will vest on January 1, 2007. In March 2005, the Company granted Mr. Herring 4,000 shares of restricted Common Stock, which vest equally on the first three anniversaries of the date of grant. The restricted stock agreements for these grants prohibit Mr. Herring from transferring any of his restricted shares during the respective vesting periods.

Dividends will be paid on shares of restricted stock granted to the Company’s executive officers if dividends are paid on the Company’s capital stock. The Company has never paid dividends and has no plan to do so in the foreseeable future.

As of December 31, 2005 Mr. Herring held a total of 14,122 shares of restricted (unvested) stock having a value of $277,489 and Mr. Emery held a total of 2,431 shares of restricted (unvested) stock having a value of $50,006. No other named executive officer held unvested shares of restricted stock as of December 31, 2005.

(3)   Represents matching contributions made by us under our 401 (k) savings plan.

(4)   Of the total bonus of $919,841awarded to Mr. Broshy for 2004, Mr. Broshy elected to defer approximately $389,881 in accordance with the Ventiv Health, Inc. Deferred Compensation Plan.

(5)   Does not include discretionary bonuses, if any, that may be awarded after the date of this report with respect to 2005.

(6)   Mr. Walter joined the Company in October 2005, a consequence of the acquisition of inChord. Prior to joining the Company, Mr. Walter served as the Chief Executive Officer of inChord. Pursuant to Mr. Walter’s employment agreement, he is entitled to receive an annual salary of $387,000.

Option Grants in Fiscal 2005

There were no options granted in 2005 to the executive officers.

43

Aggregated Option Exercises in Fiscal 2005 and Year-End Option Values

The following table sets forth information with respect to options exercised during fiscal 2005 to the individuals named in the Summary Compensation Table pursuant to the Company’s 1999 Stock Incentive Plan.

Name	Shares Acquired on Exercise		Value Realized ($)		Number of Securities Underlying Unexercised Options/SARs at Fiscal Year End Exercisable/Unexercisable		Value of Unexercised in-the-money Options/SARs Fiscal Year End Exercisable/Unexercisable
Eran Broshy		400,000	$	7,960,317		421,438/57,500	$	5,828,653 / $1,076,550
John R. Emery		103,750		1,734,014		70,000/77,500	$	536,900/ $1,534,750
Terrell G. Herring		85,750		1,387,587		--/156,250	$	--/ $1,746,513

Compensation of Directors

All non-management directors receive compensation of $35,000 per year plus $1,000 for attendance at each Board of Directors or Board Committee meeting, other than telephonic meetings. In addition, Board Committee Chairpersons receive additional annual compensation in the following amounts: Daniel M. Snyder (Chairman of the Board) - $15,000, A. Clayton Perfall (Chairman of the Audit Committee) - $25,000, and Per G.H. Lofberg, who is Chairman of the Compensation Committee (and cannot receive equity compensation pursuant to his current employment agreement with Merck Capital Ventures, LLC, his principal employer) - $90,000, effective June 15, 2005. Eran Broshy, Terrell G. Herring and Blane Walter are not additionally compensated for attending Board meetings.

Option and restricted stock award grants for non-management directors are determined by the Compensation Committee from time to time. Non-management members of the Board of Directors have received options to purchase shares of Common Stock and restricted stock awards in the Company at the following dates and in the following amounts:

	Date	Number of Restricted Stock Awards
Daniel M. Snyder	June 2005	20,000
A. Clayton Perfall	June 2005	20,000
Donald Conklin	June 2005	20,000
John R. Harris	June 2005	20,000
Mark E. Jennings	June 2005(1)	20,000

⁽¹⁾ On June 15, 2005, Mr. Jennings agreed to surrender for cancellation the 25,000 options granted to Mr. Jennings on February 9, 2005.

 Non-management directors’ 2005 restricted stock awards vest at a rate of 25% per year on the anniversary of the grant date.

Executive Employment Contracts

We have entered into employment agreements with each of the named officers below and on such terms and conditions as are described.

Eran Broshy. On June 14, 1999, Snyder Communications, Inc. retained the services of Mr. Broshy as President of Snyder Communications, Inc.'s healthcare group. Under the terms of Mr. Broshy's employment agreement, which was assumed by us in connection with our spin-off from Snyder Communications, Inc., and an amendment to the employment agreement made April 8, 2002, he was entitled to an initial annual base salary of $490,000; his base salary currently in effect in 2006 is $560,000, as compared to $535,137 for 2005 and $519,841 for 2004. He is also eligible for an annual bonus award of up to 100% of annual base salary, with the target bonus being 50% of annual base salary, based on certain performance measures. Any bonus determination, either within or outside of Mr. Broshy’s contractual range, is discretionary. During 2005, Mr. Broshy was awarded a bonus of $600,000.

The agreement provides that upon a "change in control" of Ventiv, the vesting of both the stock options and any restricted stock will accelerate so that Mr. Broshy's options and restricted stock would be fully vested, and that Mr. Broshy would be awarded a lump sum equal to two times his annual base salary plus two times his target bonus unless he continues to be employed by us for at least 18 months. For purposes of his employment agreement, "change in control" means any sale, transfer or other disposition of all or substantially all of our assets or the consummation of a merger or consolidation which results in our stockholders immediately prior to such transaction owning, in the aggregate, less than a majority of the surviving entity. In the event of Mr. Broshy’s termination without cause, he is entitled to receive a lump sum of one time his annual base salary plus target bonus, plus up to an additional twelve monthly payments of his monthly base salary plus target bonus offset by any compensation Mr. Broshy earns through other employment.

John R. Emery. Ventiv Health, Inc. entered into an employment agreement with John R. Emery on August 13, 2001, which was amended as of January 1, 2004. Mr. Emery was entitled to an initial annual base salary of $270,000; his base salary currently in effect in 2006 is $318,270, as compared to $308,827 for 2005 and $300,000 for 2004. He is also eligible for an annual bonus award of up to 100% of annual base salary, with the target bonus being 50% of annual base salary, based on certain performance measures. Any bonus determination, either within or outside of Mr. Emery’s contractual range, is discretionary. During 2005, Mr. Emery was awarded a bonus of $277,945.  Mr. Emery was also granted 2,341 shares of restricted stock, one-third of which vested on January 1, 2006 and two-thirds will vest on January 1, 2007.

In the event of Mr. Emery's termination without cause, he is entitled to receive his base salary until the earlier of twenty-six (26) weeks after his termination or the date he gains new employment. The agreement provides that upon a "change in control" of Ventiv, the vesting of stock options will accelerate so that Mr. Emery’s options would be fully vested in the event that Mr. Emery is terminated without cause within six months following the change in control. For purposes of his employment agreement, "change in control" means any sale, transfer or other disposition of all or substantially all of our assets or the consummation of a merger or consolidation which results in our stockholders immediately prior to such transaction owning, in the aggregate, less than a majority of the surviving entity. Mr. Emery’s agreement also provides that in the event of a change in control, Mr. Emery will be eligible for payments of up to one year of base salary in lieu of severance or any other payments, in the event that Mr. Emery has appropriately fulfilled his obligations to facilitate such change in control for a period of up to one year following such change in control.

Terrell G. Herring. Mr. Herring’s employment agreement executed in April 2002 entitled him to an initial annual base salary of $230,000; his base salary currently in effect in 2006 is $360,500, as compared to $345,000 for 2005 and $304,615 for 2004. He is also eligible for an annual bonus of up to 100% of base salary, with the target bonus being 50% of annual base salary, based on certain performance measures. Any bonus determination, either within or outside of Mr. Herring’s contractual range, is discretionary, except that Mr. Herring has been guaranteed a minimum $100,00 bonus payout with respect to 2006 contingent upon continued employment. During 2005, Mr. Herring was awarded a bonus of $345,000.  In March 2005 Mr. Herring was granted 4,000 shares of restricted stock, which vest equally on the first three anniversaries of the date of grant.  We have also agreed to provide Mr. Herring with life insurance in a minimum amount of $1 million.

44

 In the event of Mr. Herring's termination without cause or his resignation for good reason, he is entitled to receive a lump sum payment equal to 52 weeks' base salary and continuation of his base salary until the earlier of 26 weeks after his termination or the date he gains new employment. The agreement provides that upon a "change in control" of Ventiv, Mr. Herring may become entitled to an additional payment equal to 18 months' base salary, subject to his having satisfactorily performed his employment duties and having used his best efforts to facilitate the "change in control", if Mr. Herring is either terminated without cause within two months prior to the "change in control" or is employed on the date of the "change in control", provided that if he is so employed but his employment terminates prior to the six month anniversary of the "change in control" for any reason other than a termination without cause by us, the additional payment will be equal to 9 months' base salary. The agreement further provides that upon a "change in control" of Ventiv, the vesting of stock options will accelerate so that Mr. Herring’s options would be fully vested in the event that Mr. Herring is terminated without cause within six months following the change in control. For purposes of his employment agreement, "change in control" means any sale, transfer or other disposition of all or substantially all of our assets or the consummation of a merger or consolidation which results in our stockholders immediately prior to such transaction owning, in the aggregate, less than a majority of the surviving entity.

Blane Walter. Mr. Walter's employment agreement was executed on September 6, 2005, became effective on October 5, 2005 upon the closing of the inChord acquisition and continues through December 31, 2007. Mr. Walter was entitled to an initial annual base salary of $387,000, subject to such increases as may be approved by our Board or the Compensation Committee. Prior to the termination date, Mr. Walter’s employment may be terminated by the Employer only (i) for cause, (ii) in the event that inChord fails to achieve certain specified performance measures or (iii) a contractually stipulated settlement of certain obligations under the inChord acquisition agreement occurs simultaneously with the termination.

 The employment agreements described above for Messrs. Broshy, Emery and Herring contain non-competition commitments during the term of employment and for a period of 12 months after termination of employment. The employment agreement described above for Mr. Walter contains a non-competition commitment ending on October 5, 2010. Additionally, each employment agreement contains a non-solicitation provision and provides for assignment by the employee to his employer of any work products developed by him during the term of his employment.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee for the 2005 fiscal year, effective February 2005, were Per Lofberg and Donald Conklin. No member of the Compensation Committee was at any time during the 2005 fiscal year or at any other time an officer or employee of Ventiv, and no member had any relationship with Ventiv requiring disclosure under Item 404 of Regulation S-K. None of our executive officers has served on the board of directors or compensation committee of any other entity that has or has had one or more executive officers who served as a member of the Board of Directors or the Compensation Committee during the 2005 fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information, to our knowledge, as of March 1, 2006 (except as otherwise noted), with respect to the beneficial ownership of the Common Stock by (i) each person known to us to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii) each director and nominee for director, (iii) each of our executive officers named in the Summary Compensation Table under "Executive Compensation," and (iv) all of our directors and executive officers as a group.

Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all shares of Common Stock beneficially owned. The number of shares beneficially owned by each person or group as of March 1, 2006 includes shares of Common Stock that such person or group had the right to acquire on or within 60 days after March 1, 2006, including, but not limited to, upon the exercise of options. References to options in the footnotes of the table below include only options to purchase shares that were exercisable on or within 60 days after March 1, 2006.

Name and Address of Beneficial Owner (1)	Number of Shares and Nature of Beneficial Ownership	Percent of Class (2)
Daniel M. Snyder (3)(4)	1,300,001	4.6%
A. Clayton Perfall (5)	100,000	*
Donald R. Conklin (6)	80,000	*
John R. Harris (5)	50,000	*
Mark E. Jennings (7)	10,000	*
Per G.H. Lofberg	--	--
Eran Broshy (8)	491,762	1.7%
John R. Emery (9)	120,810	*
Terrell G. Herring	13,374	*
Blane Walter	416,180	1.5%
All directors and executive officers as a group (9 persons)	2,582,127	8.9%

* Denotes less than 1%.

(1)   Except as noted, the address for each such beneficial owner is c/o Ventiv Health, Inc., 200 Cottontail Lane, Vantage Court North, Somerset, New Jersey 08873

(2)   Percentage ownership is calculated by dividing the number of shares beneficially owned by each person or group listed in the table by the sum of the 27,862,436 shares of Common Stock outstanding on March 1, 2006 plus the number of shares of Common Stock that such person or group had the right to acquire on or within 60 days after March 1, 2006.

(3)   Includes 300,000 shares of Common Stock issuable upon exercise of options. The address for Daniel M. Snyder is 21300 Redskin Park Drive, Ashburn, Virginia 20147.

(4)   Mr. Snyder holds interests in three private investment companies ("Private Funds") to which shares of our capital stock or our predecessor, Snyder Communications, Inc., were contributed in exchange for interests in the Private Funds.  Under certain circumstances (principally at the discretion of the Private Funds), Mr. Snyder may receive shares of Common Stock held by the Private Funds in satisfaction of redemption rights.  No such shares have been included in Mr. Snyder's beneficial ownership of Common Stock set forth in the above table.

(5)   All shares reported comprise of Common Stock issuable upon exercise of options.

(6)   Includes 70,000 shares of Common Stock issuable upon exercise of options and 10,000 shares of Common Stock held after the exercise of options.

(7)   All shares were purchased in the open market prior to election to the Board of Directors.

(8)   Includes 421,438 shares of Common Stock issuable upon exercise of options.  In addition, Mr. Broshy holds an interest in a Private Fund to which shares of our common stock were contributed in exchange for such interest. Under certain circumstances, Mr. Broshy may receive shares of common stock held by the Private Fund in satisfaction of redemption rights. No such shares have been included in Mr. Broshy's beneficial ownership of common stock set forth in the above table.

(9)   Includes 120,000 shares of Common Stock issuable upon exercise of options.

Please refer to Item 5 of this report for a summary of securities authorized for issuance under the Company’s equity compensation plans as of December 31, 2005.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than ten percent (10%) of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the Nasdaq National Market System. In addition, under Section 16(a), trusts for which a reporting person is a trustee and a beneficiary (or for which a member of his immediate family is a beneficiary) may have a separate reporting obligation with regard to ownership of our Common Stock and other equity securities. Such reporting persons are required by rules of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) reports they file. Based upon a review of the copies of such forms furnished to us and written representations from and communications with our executive officers, directors and greater than ten percent (10%) beneficial stockholders, we believe that during 2005, all transactions were timely reported except as set forth below. To our knowledge, all forms relating to transactions during 2005 have been timely filed.

Item 13. Certain Relationships and Related Transactions.

Our inChord subsidiary is party to a lease with Olde Worthington Road LLC for inVentiv Communications’ current headquarters facility in Westerville, Ohio. This facility is partially owned by the current inVentiv Communications’ Chief Executive Officer (who is also a member of the Board of Directors), his brothers and other current employees of inVentiv Communications through their ownership in GSW Capital LLC. GSW Capital LLC is a 50% owner of Olde Worthington Road LLC. The term of the lease is fifteen years, and expires on September 30, 2015 (subject to an early termination option effective as of September 30, 2010 in favor of inChord). The entry by inChord into this lease preceded our acquisition of inChord and, accordingly, no person who has a financial interest in this transaction was one of our executive officers or directors at the time the lease was executed.

Item 14. Principal Accounting Fees and Services.

Audit Fees

The aggregate fees billed or expected to be billed for the audit of the Company's annual financial statements for the fiscal years ended December 31, 2005 and 2004 and for the reviews of the financial statements included in the Company's Quarterly Reports on Form 10-Q were $2.6 million and $1.8 million, respectively. The $2.6 million of audit fees incurred from Deloitte & Touche LLP for 2005 services included approximately $1.4 million related to the audit of the Company’s internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002.

Audit-Related, Tax and Other Fees

The aggregate fees of approximately $0.5 million and $0.4 million for audit-related services by Deloitte & Touche LLP during 2005 and 2004, respectively, were primarily for due diligence work and other acquisition-related costs. The aggregate fees billed for tax services by Deloitte & Touche LLP during 2004 were approximately $0.1 million. These fees related to tax services provided in our previously divested UK-based business unit. No other fees besides the audit, audit-related and tax fees previously mentioned were billed by Deloitte & Touche LLP in the Company’s last two fiscal years.

Pre-Approval Policies and Procedures

It is the Audit Committee’s policy to approve in advance the types of audit, audit-related, tax, and any other services to be provided by the Company’s independent registered public accounting firm.

The Audit Committee has approved all of the aforementioned independent registered public accounting firm’s services and fees for 2005 and 2004 and, in doing so, has considered whether the provision of such services is compatible with maintaining independence.

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PART IV

(a) 1. The following Consolidated Financial Statements of Ventiv Health, Inc. are filed under "Item 8. Financial Statements and Supplementary Data."

Consolidated Balance Sheets as of December 31, 2005 and 2004

Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003.

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2005, 2004 and 2003.

Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003.

Notes to Consolidated Financial Statements

2. The following financial statement schedule is filed under "Item 8. Financial Statements and Supplementary Data."

Schedule II--Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or are not required under Regulation S-X.

3. The following exhibits are filed herewith or are incorporated herein by reference, as indicated.

Exhibit	Description
3.1	Amended and Restated Certificate of Incorporation of Ventiv Health, Inc. (filed as Exhibit 3.1 to the Registrant's Form 10 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
3.2	Amended and Restated By-Laws of Ventiv Health, Inc. (filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed June 21, 2005. *
4.1	Specimen form of certificate representing Ventiv Health, Inc. common stock (filed as Exhibit 4.1 to the Registrant's Form 10 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.1	Form of Distribution Agreement between Snyder Communications, Inc. and Ventiv Health, Inc. (filed as Exhibit 10.1 to the Registrant's Form 10 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.2	Form of Tax Sharing Agreement between Snyder Communications, Inc. and Ventiv Health, Inc. (filed as Exhibit 10.2 to the Registrant's Form 10 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.4	Ventiv Health, Inc. 1999 Stock Incentive Plan (filed as Appendix A to the Registrant’s 2004 Proxy Statement filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.4.1	Form of Executive Officer Stock Option Agreement (filed as Exhibit 10.4.1 to the Registrant's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004 with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.4.2	Form of Director Stock Option Agreement (filed as Exhibit 10.4.2 to the Registrant's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004 with the Securities and Exchange Commission under the Securities Act of 1934, as amended). * .
10.4.3	Form of Restricted Stock Agreement (filed as Exhibit 10.4.3 to the Registrant's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2004 with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.4.4	Form of Director Restricted Stock Agreement. (filed as Exhibit 10.4.4 to the Registrant's Form 8-K filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended, on June 21, 2005). *
10.4.5	Form of Executive Officer Restricted Stock Agreement. (filed as Exhibit 10.4.5 to the Registrant's Form 8-K filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended, on June 21, 2005).*
10.5	Employment Agreement, dated June 14, 1999 by and between Eran Broshy and Snyder Communications, Inc. (filed as Exhibit 10.5 to the Registrant's Form 10 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.5.1	Amendment dated January 1, 2004 to Employment Agreement, dated June 14, 1999, by and between Eran Broshy and Snyder Communications, Inc. (filed as Exhibit 10.5.1 to the Registrant's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003 with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.9	Employment Agreement, dated August 13, 2001 by and between John R. Emery and Ventiv Health, Inc. (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.9.1	Amendment dated January 1, 2004 to Employment Agreement, dated August 13, 2001, by and between John R. Emery and Ventiv Health, Inc. (filed as Exhibit 10.9.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.11	Employment Agreement, dated April 8, 2002 by and between Terrell Herring and Ventiv Health, Inc. (filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.11.1	Amendment dated January 1, 2004 to Employment Agreement, dated April 8, 2002, by and between Terrell Herring and Ventiv Health, Inc. (filed as Exhibit 10.11.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.12	Asset Purchase Agreement dated as of September 21, 2004 among Ventiv Health, Inc., Smith Hanley Holding Corporation and the other parties thereto (filed as Exhibit 2.1 to the Registrant's Form 8-K/A filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended, on December 29, 2004). * #
10.13	Ventiv Health, Inc. 2005 Deferred Compensation Plan (filed as Exhibit 10.1 to the Registrant's Form 8-K filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended, on November 29, 2004). *
10.14	Asset Purchase Agreement dated as of November 19, 2004 among Ventiv Health, Inc., HHI, L.L.C. and the other parties thereto (filed as Exhibit 10.14 to the Registrant's Quarterly Report on Form 10-Q for the three months ended March 31, 2005 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.15	Asset Purchase Agreement dated as of August 5, 2005 among Ventiv Health, Inc., Pharmaceutical Resource Solutions LLC and the other parties thereto (filed as Exhibit 10.15 to the Registrant's Quarterly Report on Form 10-Q for the three months ended September 30, 2005 filed with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.16	Acquisition Agreement dated September 6, 2005 by and among inChord Communications, Inc., the shareholders of inChord Communications, Inc., Ventiv Health, Inc. and Accordion Holding Corporation (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed October 11, 2006 with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.17	Form of Indemnification Agreement entered into with each executive officer and director of Ventiv (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed October 11, 2006 with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.18	Employment Agreement dated as of September 6, 2005 between inChord Communications, Inc. and R. Blane Walter (filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed October 11, 2006 with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.19	Credit Agreement dated as of October 5, 2005 among Ventiv Health, Inc., the Subsidiary Guarantors, the lenders party thereto, UBS Securities LLC, as bookmanager, as joint lead arranger, and as documentation agent, UBS Loan Finance LLC, as swingline lender, UBS AG, Stamford Branch, as issuing bank, as administrative agent for the Lenders and as collateral agent, Banc of America Securities LLC, as joint lead arranger, and Bank of America, N.A., as syndication agent (filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed October 11, 2006 with the Securities and Exchange Commission under the Securities Act of 1934, as amended). *
10.20	Agreement and Plan Merger dated as of February 2, 2006 among inVentiv Health, Inc., Acorn Acquisition Corp., Adheris, Inc. and Eugene W. Williams II, solely in his capacity as stockholder representative.
21.1	Subsidiaries of Ventiv Health, Inc.
23	Consent of Deloitte & Touche LLP.
31.1	Chief Executive Officer’s Certification Pursuant to Rule 13a-14(a) of the Exchange Act
31.2	Chief Financial Officer’s Certification Pursuant to Rule 13a-14(a) of the Exchange Act
32.1	Chief Executive Officer's Certification of Financial Statements Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Chief Financial Officer's Certification of Financial Statements Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Incorporated by reference.

# Confidential treatment requested.

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

VENTIV HEALTH, INC.

By:	/s/ John R. Emery
	John R. Emery
	Chief Financial Officer

Date: March 15, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ ERAN BROSHY	Chief Executive Officer and Director	March 15 2006
Eran Broshy	(Principal Executive Officer)
/s/ JOHN R. EMERY	Chief Financial Officer	March 15, 2006
John R. Emery	(Principal Financial Officer and Principal Accounting Officer)
/s/ TERRELL G. HERRING	President and CEO, inVentiv Commercial Services	March 15, 2006
Terrell G. Herring	(Director)
/s/ BLANE WALTER	President and CEO, inVentiv Communications Services	March 15 2006
Blane Walter	(Director)
/s/ DANIEL M. SNYDER	Chairman of the Board	March 15, 2006
Daniel M. Snyder
/s/ DONALD R. CONKLIN	Director	March 15, 2006
Donald R. Conklin
/s/ JOHN R. HARRIS	Director	March 15, 2006
John R. Harris
/s/ MARK E. JENNINGS	Director	March 15, 2006
Mark E.Jennings
/s/ PER G.H. LOFBERG	Director	March 15, 2006
Per G.H. Lofberg
/s/ A. CLAYTON PERFALL	Director	March 15, 2006
A. Clayton Perfall

EX-10.20

______________________________________________________________________________

AGREEMENT AND PLAN OF MERGER

among

VENTIV HEALTH, INC.

ACORN ACQUISITION CORP.

ADHERIS, INC.

and

THE STOCKHOLDER REPRESENTATIVE

_____________________________________________________________________________

{NY001821;1}

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of February 2, 2006 (the “Agreement”), by and among (a) Ventiv Health, Inc., a Delaware corporation (“Parent”); (b) Acorn Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”); (c) Adheris, Inc., a Delaware corporation (the “Company”); and (d) Eugene W. Williams II, solely in his capacity as stockholder representative (the “Stockholder Representative”).

W I T N E S S E T H

WHEREAS, Parent has offered to acquire the Company for consideration consisting of (i) a combination of cash and Parent Common Stock (as defined in Section 1.2 below) having an aggregate value of $60 million (the "Base Purchase Price"), subject to adjustment as provided herein, and (ii) additional consideration contingent upon the performance of the Company during 2006, 2007 and 2008, as more fully set forth herein (together with the Base Purchase Price, the “Purchase Price”)

WHEREAS, the respective boards of directors of Parent, Merger Sub and the Company have approved this Agreement and have determined that it is advisable that Merger Sub be merged with and into the Company (the “Merger”) on the terms and conditions set forth herein and in accordance with the provisions of the General Corporation Law of the State of Delaware (the “DGCL”);

WHEREAS, Parent, Merger Sub and the Company desire to make certain representations and warranties and other agreements in connection with the Merger;

WHEREAS, the Company’s capital stock consists of common stock, $.01 par value (the “Common Stock”), Series A Convertible Preferred Stock, $.10 par value (the “Series A Preferred Stock”), Series C Convertible Preferred Stock, $.10 par value (the “Series C Preferred Stock”), Series D Convertible Preferred Stock, $.10 par value (the “Series D Preferred Stock”), and Series E Convertible Preferred Stock, $.10 par value (the “Series E Preferred Stock”); and

WHEREAS, in order to induce Parent and Merger Sub to enter into this Agreement, (i) the holders of a majority of the voting power represented by the Company Stock are entering into (a) a Consent, Waiver and Voting Agreement with Parent and (b) a written consent to the execution and delivery by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby, (ii) certain key employee-stockholders of the Company are entering into Joinder Agreements (the “Joinder Agreements”) with the Company and (iii) certain key employees of the Company (the “Key Employees”) are entering into Employment Agreements (the “Key Employee Employment Agreements”) with the Company, in each case concurrently with the execution hereof.

NOW, THEREFORE, Parent, Merger Sub, the Company and the Stockholder Representative hereby agree as follows:

ARTICLE 1.DEFINITIONS

1.1Certain Matters of Construction

A reference to an Article, Section, Exhibit or Schedule shall mean an Article of, a Section in, or Exhibit or Schedule to this Agreement unless otherwise expressly stated. The titles and headings herein are for reference purposes only and shall not in any manner limit the construction of this Agreement which shall be considered as a whole. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.”

1.2Certain Definitions

As used herein, the following terms shall have the following meanings:

Additional Merger Consideration: any funds or shares of Parent Common Stock that become available for distribution with respect to the Company Stock pursuant to Section 2.4, 2.5, 8.1 or 8.2 or as a result of the release of any portion of the Escrow Fund or the Expense Reserve or otherwise pursuant to this Agreement.

Affiliate

: with respect to any Person, any Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person where control (including with correlative meaning controlled by and under common control with) as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

Agreement: the meaning set forth in Recitals hereto.

Applicable Conversion Ratio: with respect to each series of Preferred Stock, the sum of the Fixed Conversion Ratio and the Variable Conversion Ratio applicable to each such series.

Applicable Series A Accretion Amount: the Series A-1 Accretion Amount for shares of Series A Preferred Stock issued on January 11, 1995 or the Series A-2 Accretion Amount for shares of Series A Preferred Stock issued on July 11, 1995.

Applicable Series C Accretion Amount: the Series C-1 Accretion Amount for shares of Series C Preferred Stock issued on May 19, 1997, the Series C-2 Accretion Amount for shares of Series C Preferred Stock issued on September 30, 1997, or the Series C-3 Accretion Amount for shares of Series C Preferred Stock issued on December 31, 1997.

Assumed Closing Date: February 28, 2006.

Balance Sheet: the meaning set forth in Section 3.5 hereof.

Balance Sheet Date: the meaning set forth in Section 3.5 hereof.

Blackstone: The Blackstone Group, L.P.

Blackstone Agreement: the engagement letter agreement between Blackstone and the Company dated September 8, 2004, as amended as of the date of this Agreement.

Blackstone Fee: the investment banking fees payable to Blackstone at the Closing in connection with the consummation of the Merger pursuant to the Blackstone Agreement.

Business Day: any day which is neither a Saturday, nor a Sunday nor a public holiday under the laws of United States of America or the State of New York applicable to a national banking association.

Certificate: the meaning set forth in Section 2.6 hereof.

Certificate of Incorporation: the Certificate of Incorporation, as amended, of the Company (including the Certificate of Designation of each series of the Preferred Stock).

Certificate of Merger: the meaning set forth in Section 2.1 hereof.

Claim: the meaning set forth in Section 8.3 hereof.

Closing: the meaning set forth in Section 2.9 hereof.

Closing Consideration per Share: the quotient obtained by dividing (i) an amount equal to 97.67% of the Net Closing Date Cash Distribution by (ii) the number of shares of Common Stock outstanding at the Effective Time (calculated on a Fully Diluted Basis).

Closing Date: the meaning set forth in Section 2.9 hereof.

Closing Date Balance Sheet: the meaning set forth in Section 2.4(c) hereof.

Closing Date Cash Distribution: the meaning set forth in Section 2.3(a) hereof.

Closing Net Assets: the difference, determined in accordance with GAAP, between the total assets reflected on the Closing Date Balance Sheet and the total Liabilities of the Company reflected on the Closing Date Balance Sheet (including accrued and unpaid vacation to the extent required in accordance with GAAP).

Closing Net Assets Statements: the meaning set forth in Section 2.4(c).

Code: the United States Federal Internal Revenue Code of 1986, as amended.

Common Stock: the meaning set forth in Recitals hereto.

Company: the meaning set forth in Recitals hereto.

Company Disclosure Schedule: the meaning set forth in Article 3 hereof.

Company Option: an option to purchase Common Stock granted under the Company Option Plans.

Company Option Plans: the Company’s 1994 Incentive and Non-Statutory Stock Option Plan and the Company’s 2004 Stock Incentive Plan.

Company Stock: all Common Stock and Preferred Stock outstanding at the Effective Time.

Company Stock Percentage: 100 minus the Designated Option Share Percentage.

Contract: any contract, agreement, indenture, note, bond, loan, mortgage, license, instrument, lease, commitment or other arrangement or agreement.

Designated Option: an Outstanding Option held by a person who is not an accredited investor within the meaning of Rule 501 under the Securities Act and is set forth on Schedule 6.5.

Designated Option Share: a share of Company Stock issued upon exercise of a Designated Option.

Designated Option Share Earnout Amount: the Designated Option Share Percentage of each Earnout Amount.

Designated Option Share Percentage: the percentage, determined on a Fully Diluted Basis, of the outstanding shares of Common Stock issued upon exercise of Designated Options.

Designated Stockholder: a Stockholder who is party to a Joinder Agreement.

DGCL: the meaning set forth in Recitals hereto.

Dissenting Shares: the meaning set forth in Section 2.8(a) hereof.

EBIT: the meaning set forth in Schedule 1.2(A).

Effective Date: the meaning set forth in Section 2.1 hereof.

Effective Time: the meaning set forth in Section 2.1 hereof.

Encumbrance: any mortgage, pledge, lien, claim, charge, security interest, lease or other encumbrance.

Environmental Law: means any foreign, federal, state or local statute, regulation, ordinance, or rule of common law as now or hereafter in effect in any way or any other legally binding requirement relating to the environment, natural resources or protection of human health and safety including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 etseq.), the Hazardous Materials Transportation Act (49 U.S.C. App. § 1801 etseq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 etseq.), the Clean Water Act (33 U.S.C. § 1251 etseq.), the Clean Air Act (42 U.S.C. § 7401 etseq.) the Toxic Substances Control Act (15 U.S.C. § 2601 etseq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136 etseq.), and the Occupational Safety and Health Act (29 U.S.C. § 651 etseq.), and the regulations promulgated pursuant thereto.

Escrow Agreement: the meaning set forth in Section 2.3 hereof.

Escrow Fund: the meaning set forth in Section 2.3 hereof.

Escrowed Cash: the meaning set forth in Section 2.3 hereof.

Estimated Closing Net Assets: the meaning set forth in Section 2.4(b) hereof.

Estimated Closing Net Assets Statement: the meaning set forth in Section 2.4(b) hereof.

Exchange Agent: the meaning set forth in Section 2.3(a) hereof.

Exchange Agreement: the meaning set forth in Section 2.3(a) hereof.

Execution Date: the date of execution of this Agreement.

Expense Reserve: the meaning set forth in Section 2.3(a) hereof.

Fair Market Value: the average closing bid price of Parent Common Stock quoted on NASDAQ over a period of 20 consecutive trading days the latest of which shall be the trading day immediately preceding the date as of which "Fair Market Value" is being determined.

Financial Statements: the meaning set forth in Section 3.5 hereof.

Fixed Conversion Ratio: with respect to a share of Series A Preferred Stock, 10.870; with respect to a share of Series C Preferred Stock, 8.889; with respect to a share of Series D Preferred Stock, 10.235; and with respect to a share of Series E Preferred Stock, 10.235.

Fully Diluted Basis: for the purpose of any calculation, the performance of such calculation taking into account (a) all shares of Common Stock actually issued and outstanding at the time of such determination and (b) all shares of Common Stock that are then issuable upon the exercise or conversion of all outstanding securities or rights exercisable for or convertible into Common Stock at the time of determination, including Dissenting Shares and outstanding shares of Preferred Stock (based on the Applicable Conversion Ratios) and outstanding Company Options that are exercisable at such time of determination, including by virtue of the acceleration thereof as provided in Section 6.5, but excluding Company Options that are cancelled pursuant to Section 6.5.

GAAP: United States generally accepted accounting principles.

Governmental Entity: any court or other governmental or public body or authority.

Hazardous Material: means any substance, material or waste which is regulated by the United States, the foreign jurisdictions in which Company conducts business, or any state, local or foreign governmental authority including, without limitation, petroleum and its by-products, asbestos, and any material or substance which is defined as a “hazardous waste,” “hazardous substance,” “hazardous material,” “restricted hazardous waste,” “industrial waste,” “solid waste,” “contaminant,” “pollutant,” “toxic waste” or “toxic substance” under any provision of Environmental Law.

HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Indemnitee: the meaning set forth in Section 8.3 hereof.

Indemnitor: the meaning set forth in Section 8.3 hereof.

Initial Cash Payment: $45 million, increased dollar-for-dollar (but not in excess of $13,000,000) by the amount by which Estimated Closing Net Assets exceeds the Net Tax Benefit reflected on the Estimated Closing Net Assets Statement or decreased dollar-for-dollar by the amount by which Estimated Closing Net Assets are less than the Net Tax Benefit reflected on the Estimated Closing Net Assets Statement.

Initial Share Number: the number of Initial Shares.

Initial Shares: shares of Parent Common Stock having an aggregate Fair Market Value as of the Closing Date equal to the difference between $15,000,000 and the amount of the Escrowed Cash.

Intellectual Property: means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations and renewals in connection therewith, (d) all mask works and all applications, registrations and renewals in connection therewith, (e) all trade secrets and confidential information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium).

Investment Agreements: the Amended and Restated Investor Rights Agreement dated July 30, 1998 by and among the Company and the parties listed therein, as amended and the Amended and Restated Stockholders Agreement dated May 9, 1997 by and among the Company and the parties listed therein.

Joint Information Statement/Private Placement Memorandum: the joint information statement and private placement memorandum to be prepared by the Company and Parent for the purpose of soliciting the consent of the Stockholders to the transactions contemplated by this Agreement and effecting a private placement of the Shares.

Law: any federal, state, local or foreign law (including common law), statute, code, ordinance, rule, regulation or binding administrative pronouncement.

Knowledge: with respect to the Company, the actual subjective knowledge of each individual party to a Joinder Agreement or a Key Employee Employment Agreement and matters that an individual in the position of such individual, in light of the relevant circumstances, reasonably would be expected to know upon due inquiry.

Liabilities: liabilities or obligations, fixed, accrued, contingent or otherwise (whether known or unknown, asserted or unasserted), including liabilities for Taxes or other governmental charges and any penalties, interest or fines thereon or in respect thereof.

Losses: the meaning set forth in Section 8.1(a) hereof.

Market Price: the “market price of a common share” determined by the Board of Directors of the Company pursuant to the Certificate of Incorporation for purposes of determining the conversion ratios applicable to the Preferred Stock.

Material Adverse Effect: with respect to any Person, any materially adverse change in or effect on the condition (financial or otherwise), business, operations, assets, properties, prospects, results of operations, capitalization, cash flows or employee, client or customer relations of such Person except for (a) the direct effects of compliance with this Agreement on the operating performance of such Person, including expenses reasonably incurred by such Person in entering into this Agreement and consummating the transactions contemplated by this Agreement and (b) any change proximately caused by the public announcement of this Agreement or the Merger.

Merger: the meaning set forth in Recitals hereto.

Merger Consideration: collectively, the Net Closing Date Cash Distribution and any Additional Merger Consideration.

Merger Sub: the meaning set forth in Recitals hereto.

Net Tax Benefit: at any time, the amount (positive or negative) by which (i) the difference between "Prepaid Tax" and "Accrued Tax" on the Closing Date Balance Sheet exceeds (ii) the difference between "Prepaid Tax" and "Accrued Tax" on Company's December 31, 2005 balance sheet.

Neutral Accountant: Grant Thornton LLP or, if Grant Thornton LLP is not independent in the reasonable determination of Parent or the Stockholder Representative, then an independent auditing firm of nationally or regionally recognized standing selected by the mutual agreement of Parent and the Stockholder Representative within 15 days of the date on which the Neutral Accountant is proposed to begin serving or, if Parent and the Stockholder Representative are unable to agree within such period, an independent auditing firm of nationally or regionally recognized standing selected jointly by two other such firms, one of which shall be specified by Parent and one of which shall be specified by the Stockholder Representative, within 15 days after the expiration of such period.

NOL Realization: the realized value of the net operating losses reported on the Company's 2005 Massachusetts tax return assuming that Parent has adequate profits during 2006 to fully utilize such net operating losses.

Option Loans: the loans made to Company employees prior to the date hereof, and the loans to be made to Company employees pursuant to Section 6.5, in connection with the exercise by such employees of Company Options.

Option Exercise Prices: the exercise prices of any Company Options that are or have been exercised prior to the Effective Time that have not been paid in full at the Effective Time, to the extent of such non-payment.

Option Share: a share of Company Stock issued upon exercise of an Outstanding Option.

Order: any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award.

Outstanding Option: a stock option outstanding as of the date of this Agreement under either of the Company Option Plans.

Parent: the meaning set forth in Recitals hereto.

Permit: a governmental franchise, easement, permit, right, application, filing, registration, license or other authorization.

Permitted Encumbrances: (a) liens for current taxes not yet due and payable, (b) liens, pledges or deposits incurred or made in connection with workmen’s compensation, unemployment insurance and other social security benefits incurred in the ordinary course of business that are listed on Schedule 1.2(C) and (c) liens under Article 9 of the Uniform Commercial Code that are purchase money security interests that are listed on Schedule 1.2(C), none of which liens described in (a) through (c) are material in the aggregate or individually.

Person: an individual, a corporation, an association, a partnership, an estate, a limited liability company, a trust and any other entity or organization.

Preferred Stock: all of the Company’s Series A Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock.

Pro Rata Portion: a fraction equal to (i) (a) with respect to each series of Preferred Stock, the Applicable Conversion Ratio, and (b) with respect to a share of Common Stock, 1.000, divided by (ii) the total number of shares of Common Stock outstanding at the Effective Time determined on a Fully Diluted Basis.

Proceedings and Expenses: the meaning set forth in Section 8.1(b) hereof.

Purchase Price: the meaning set forth in Recitals hereto.

Release: means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, migration or leaching into the indoor or outdoor environment, or into or out of any property.

Remedial Action: means all actions to (x) clean up, remove, treat or in any other way address any Hazardous Material; (y) prevent the Release of any Hazardous Material so it does not endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; or (z) perform pre-remedial studies and investigations or post-remedial monitoring and care.

Response Notice: the meaning set forth in Section 8.4 hereof.

Securities Act: The Securities Act of 1933, as amended.

Series A Preferred Stock: the meaning set forth in Recitals hereto.

Series A-1 Accretion Amount: an amount with respect to each share of Series A Preferred Stock originally issued on January 11, 1995 equal to $155.10, plus an additional amount equal to $0.060 per share for each day from and after the Assumed Closing Date to but excluding the Closing Date.

Series A-2 Accretion Amount: an amount with respect to each share of Series A Preferred Stock originally issued on July 11, 1995, equal to $144.60, plus an additional amount equal to $0.057 per share for each day from and after the Assumed Closing Date to but excluding the Closing Date.

Series C Preferred Stock: the meaning set forth in Recitals hereto.

Series C-1 Accretion Amount: an amount with respect to each share of Series C Preferred Stock originally issued on May 19, 1997, equal to $109.69, plus an additional amount equal to $0.049 per share for each day from and after the Assumed Closing Date to but excluding the Closing Date.

Series C-2 Accretion Amount: an amount with respect to each share of Series C Preferred Stock originally issued on September 30, 1997, equal to $102.95, plus an additional amount equal to $0.048 per share for each day from and after the Assumed Closing Date to but excluding the Closing Date.

Series C-3 Accretion Amount: an amount with respect to each share of Series C Preferred Stock originally issued on December 31, 1997, equal to $98.73, plus an additional amount equal to $0.047 per share for each day from and after the Assumed Closing Date to but excluding the Closing Date.

Series D Accretion Amount: an amount with respect to each share of Series D Preferred Stock equal to $89.16, plus an additional amount equal to $0.044 per share for each day from and after the Assumed Closing Date to but excluding the Closing Date.

Series D Certificate of Designation: Certificate of the Voting Powers, Designation, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of the Series D Convertible Preferred Stock of the Company.

Series D Closing Payment: an amount equal to the product of the Series D Payment Percentage and the Net Closing Date Cash Distribution.

Series D Closing Payment Per Share: an amount equal to the Series D Closing Payment divided by the number of shares of Series D Preferred Stock issued and outstanding at the Effective Time.

Series D Payment Percentage: 2.33%, representing the aggregate percentage interest of the former holders of Series D Preferred Stock in each distribution of Merger Consideration arising under (x) Section 6(c) of the Series D Certificate of Designation and (y) Section 5(a)(i) of the Series D Purchase Agreement.

Series D per Share Payment Percentage: the Series D Payment Percentage divided by the number of shares of Series D Preferred Stock issued and outstanding at the Effective Time.

Series D Preferred Stock: the meaning set forth in Recitals hereto.

Series D Purchase Agreement: the Purchase Agreement dated July 29, 1998 between the Company and Grey Ventures, Inc.

Series E Accretion Amount: an amount per share with respect to each share of Series E Preferred Stock equal to $77.47, plus an additional amount equal to $0.042 per share for each day after the Assumed Closing Date to and including the Closing Date.

Series E Preferred Stock: the meaning set forth in Recitals hereto.

Specified Liabilities: the meaning set forth in Section 2.4(b) hereof.

Specified Liabilities Schedule: the meaning set forth in Section 2.4(b) hereof.

Stockholder Approval: a majority of the shares of Company Stock, voting together as a single class on an as converted basis in accordance with the Certificate of Incorporation and the DGCL.

Stockholders: all holders of Company Stock at the Effective Time (including all holders of Company Stock issued upon exercise of Outstanding Options prior to the Effective Time).

Stockholder Representative: the meaning set forth in Recitals hereto.

Straddle Period: the meaning set forth in Section 9.2 hereof.

Survival Period: the meaning set forth in Section 8.5 hereof.

Surviving Corporation: the meaning set forth in Section 2.1 hereof.

Tax Refund Payment: the Company's 2005 federal tax refund payment.

Tax Returns: the meaning set forth in Section 3.9(d) hereof.

Taxes: the meaning set forth in Section 3.9(d) hereof.

Third-party Parent Claims: the meaning set forth in Section 8.6 hereof.

Transaction Documents: with respect to any Person, this Agreement, together with any other agreements, instruments, certificates and documents executed by such Person in connection herewith or therewith.

Variable Conversion Ratio: the quotient obtained by dividing (i) with respect to a share of Series A Preferred Stock, the Applicable Series A Accretion Amount; with respect to a share of Series C Preferred Stock, the Applicable Series C Accretion Amount; with respect to a share of Series D Preferred Stock, the Series D Accretion Amount; and with respect to a share of Series E Preferred Stock, the Series E Accretion Amount, by (ii) the Market Price.

ARTICLE 2.THE MERGER

2.1Procedure for the Merger. The Merger Sub shall be merged, in accordance with the applicable provisions of the DGCL, with and into the Company, which shall be the surviving corporation and is sometimes referred to herein as the “Surviving Corporation.” The Merger shall be effected by filing a certificate of merger substantially in the form attached as Exhibit A hereto (the “Certificate of Merger”) with the Secretary of State of the State of Delaware in accordance with the applicable provisions of the DGCL. The effective date of the Merger (the “Effective Date”) shall be the date upon which the Certificate of Merger shall have been filed with the Secretary of State of the State of Delaware and the effective time of the Merger (the “Effective Time”) shall be the time of the filing of the Certificate of Merger with the Secretary of State of the State of Delaware. The Certificate of Merger will be filed within three (3) Business Days after the satisfaction of the conditions precedent set forth in Article 7.

2.2Surviving Corporation.

(1)Corporate Existence. The Surviving Corporation shall continue its corporate existence under the laws of the State of Delaware. The separate corporate existence of the Merger Sub shall cease at the Effective Time.

(2)Certificate of Incorporation and By-Laws. The Certificate of Incorporation of the Surviving Corporation shall be amended and restated to read the same as the Certificate of Incorporation of Merger Sub as in effect immediately prior to the Effective Time (except that such Certificate of Incorporation shall continue to reflect the name of the Surviving Corporation as “Adheris, Inc.”) until the same may be further amended thereafter in accordance with the DGCL and such Certificate of Incorporation. The by-laws of Merger Sub, as in effect immediately prior to the Effective Time, shall be amended and restated to read the same as the by-laws of the Surviving Corporation, except that all references to the Merger Sub in the by-laws of the Surviving Corporation shall be changed to refer to “Adheris, Inc.”, until the same shall be amended thereafter in accordance with the DGCL, the Certificate of Incorporation and such by-laws.

(3)Directors and Officers. As of the Effective Time, (i) the directors of Merger Sub shall be the sole directors of the Surviving Corporation and (ii) the officers of the Company shall remain officers of the Surviving Corporation until such time as they are removed in accordance with the governing documents of the Surviving Corporation, in each case to hold office in accordance with the Certificate of Incorporation and the by-laws of the Surviving Corporation.

(4)Effect of the Merger. As of the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all the debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

2.3Payment of Merger Consideration; Status and Conversion of Securities.

(a)Payment of Merger Consideration. At the Closing, (i) the difference between the Initial Cash Payment and the amount of the Specified Liabilities set forth on the Specified Liabilities Schedule (the "Closing Date Cash Distribution"), reduced by the Net Tax Benefit reflected on the Estimated Net Assets Statement, shall be paid by Parent to the non-interest bearing IOLTA account of The Feinberg Law Group, LLC, as exchange agent (the “Exchange Agent”), by wire transfer of immediately available funds pursuant to an exchange agreement by and among Parent, the Company, the Stockholder Representative and the Exchange Agent in the form attached hereto as Exhibit B (the “Exchange Agreement”) and (ii) (A) the Initial Shares and (B) cash in an amount equal to the Designated Option Percentage of $15 million (the “Escrowed Cash” and, together with the Initial Shares and any additions thereto or substitutions therefor in accordance with the terms of the Escrow Agreement, the “Escrow Fund”) shall be deposited by Parent with Bank of New York, as escrow agent (the "Escrow Agent") pursuant to an escrow agreement among Parent, the Stockholder Representative and the Escrow Agent in the form attached hereto as Exhibit C (the “Escrow Agreement”), which shall include, among other things, provisions permitting (x) Parent at the conclusion of the escrow period contemplated by the Escrow Agreement, to request that all or a portion of the Escrow Fund be maintained in escrow to secure indemnity claims in favor of Parent Indemnities and (y) the Stockholder Representative, at the conclusion of the escrow period contemplated by the Escrow Agreement, to seek arbitration of the reasonableness of withholding any portion of the Escrow Fund in respect of then pending indemnity claims in favor of Parent Indemnitees, all as more fully set forth in the Escrow Agreement. The Initial Shares shall be represented by a single stock certificate in the name of the Stockholder Representative, as nominee for the Stockholders at the time the Initial Shares are deposited with the Escrow Agent, and any portion of the Initial Shares that become distributable as Additional Merger Consideration shall be re-registered in the names of the Stockholders to whom such Initial Shares are to be released.

A $200,000 portion of the Closing Date Cash Distribution shall be held in reserve by the Exchange Agent to fund the fees and expenses of the Stockholder Representative (together with any amounts retained by the Exchange Agent on behalf of the Stockholder Representative, following receipt by the Exchange Agent of written instructions from the Stockholder Representative, (i) from amounts available for distribution to Stockholders in accordance with the Escrow Agreement or (ii) pursuant to Section 8.7(b), the “Expense Reserve”). The Closing Date Cash Distribution less the Expense Reserve (the "Net Closing Date Cash Distribution") shall be distributed by the Exchange Agent to the holders of Company Stock (other than Dissenting Shares) pursuant to the exchange procedures set forth in Section 2.6 and the Exchange Agreement. The fees and expenses of the Exchange Agent shall be borne by the Stockholder Representative. The fees and expenses of the Escrow Agent shall be paid 50% by the Stockholder Representative from the Expense Reserve and 50% by Parent.

(b)Effect on Company Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities:

(i)Each share of Common Stock held by the Company as a treasury share shall be canceled and retired and no consideration shall be delivered in exchange thereof.

(ii)Each share of Series A Preferred Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) shall be converted into the right to receive (A) an amount of cash equal to the product of the Applicable Conversion Ratio and the Closing Consideration Per Share and (B) a Pro Rata Portion of 97.67% of any Additional Merger Consideration. As of the Effective Time, all such shares of Series A Preferred Stock shall cease to be outstanding, and each holder of a certificate representing any such share or shares of Series A Preferred Stock shall cease to have any rights with respect thereto except the right to receive the foregoing consideration in respect thereof.

(iii)Each share of Series C Preferred Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) shall be converted into the right to receive (A) an amount of cash equal to the product of the Applicable Conversion Ratio and the Closing Consideration Per Share and (B) a Pro Rata Portion of 97.67% of any Additional Merger Consideration. As of the Effective Time, all such shares of Series C Preferred Stock shall cease to be outstanding, and each holder of a certificate representing any such share or shares of Series C Preferred Stock shall cease to have any rights with respect thereto except the right to receive the foregoing consideration in respect thereof.

(iv)Each share of Series D Preferred Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) shall be converted into the right to receive (A) an amount of cash equal to the product of the Applicable Conversion Ratio and the Closing Consideration Per Share, (B) the Series D Closing Payment per Share, (C) a Pro Rata Portion of 97.67% of any Additional Merger Consideration and (D) the Series D per Share Payment Percentage of any Additional Merger Consideration. As of the Effective Time, all such shares of Series D Preferred Stock shall cease to be outstanding, and each holder of a certificate representing any such share or shares of Series D Preferred Stock shall cease to have any rights with respect thereto except the right to receive the foregoing consideration in respect thereof.

(v)Each share of Series E Preferred Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) shall be converted into the right to receive (A) an amount of cash equal to the product of the Applicable Conversion Ratio and the Closing Consideration Per Share and (B) a Pro Rata Portion of 97.67% of any Additional Merger Consideration. As of the Effective Time, all such shares of Series E Preferred Stock shall cease to be outstanding, and each holder of a certificate representing any such share or shares of Series E Preferred Stock shall cease to have any rights with respect thereto except the right to receive the foregoing consideration in respect thereof.

(vi)Each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) shall be converted into the right to receive (A) an amount of cash equal to the Closing Consideration Per Share and (B) a Pro Rata Portion of 97.67% of any Additional Merger Consideration. As of the Effective Time, all such shares of Common Stock shall cease to be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such share or shares of Common Stock shall cease to have any rights with respect thereto, except the right to receive the foregoing consideration in respect thereof.

(c)Capital Stock of Merger Sub. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities, each share of the common stock, $.01 par value of the Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation and each certificate evidencing ownership of any shares of Merger Sub shall evidence ownership of the same number of shares of common stock of the Surviving Corporation.

(d)Form of Additional Merger Consideration. Additional Merger Consideration consisting of all or any portion of the Escrowed Cash shall be paid solely to former holders of Designated Options in respect of the Designated Option Shares formerly held by them. The Designated Option Share Percentage of any Additional Merger Consideration that is an Earnout Amount shall be paid in cash solely to former holders of Designated Options in respect of the Designated Option Shares formerly held by them.

(e)Required Withholding. Parent, the Company and the Exchange Agent shall be entitled to deduct and withhold from any Merger Consideration payable under this Agreement such amounts as may be required to be deducted or withheld therefrom under (i) the Code, (ii) any applicable state, local or foreign Tax Laws or (iii) any other applicable Laws. To the extent that any amounts are so deducted and withheld, those amounts shall be treated as having been paid to the Person in respect of whom such deduction or withholding was made for all purposes under this Agreement.

(f)Interests in Merger Consideration. Schedule 2.3 sets forth the allocation of cash and Initial Shares among the Stockholders (including holders of Designated Option Shares) on the Closing Date and the Pro Rata Portion of each Stockholder in any Additional Merger Consideration assuming that (i) the Closing occurs on the Assumed Closing Date, (ii) all Designated Options are exercised, (iii) the Specified Liabilities total $2,019,557, (iv) the "market value of a share common stock" as determined in accordance with the Certificate of Incorporation is $65.61 per share and (v) the other assumptions set forth therein.

2.4Net Asset Adjustment

(a)(I) The Base Purchase Price shall be (i) increased dollar-for-dollar by the amount by which the Final Closing Net Assets exceeds the Net Tax Benefit as determined taking into account the Final Closing Net Assets Statement (after the completion of the procedures specified in Sections 2.4(c) and (d)) (the "Final Net Tax Benefit") or (ii) decreased dollar-for-dollar by the amount by which Final Closing Net Assets are less than the Final Net Tax Benefit. The payment in respect of any such adjustment described in paragraph (III) of this Section 2.4(a) shall not be due until the later of (x) the date the Company receives the Tax Refund Payment and (y) August 15, 2006. If (A) the difference between the sum of (x) the Tax Refund Payment and (y) the value of the net operating losses reflected on the Company's filed 2005 Massachusetts income tax return varies by more than 5% (positively or negatively) from (B) the Final Net Tax Benefit, each of Parent and the Stockholder Representative shall have the right to require the Final Closing Net Assets Statement to be adjusted so that the amounts accrued thereon in respect of the Final Net Tax Benefit reflect the Company's actual experience, and such statement as so adjusted shall thereafter be the "Final Closing Net Assets Statement" of paragraphs (II) and (III) of this Section 2.4(a) and the Final Net Tax Benefit set forth in paragraph 1 of Schedule 2.5.

(II) If Final Closing Net Assets are less than Estimated Closing Net Assets, Parent shall have the right to recover an amount equal to the amount of such shortfall either (i) reduced by two times the amount by which the Final Net Tax Benefit exceeds the Net Tax Benefit determined on the basis of the Estimated Closing Net Assets Statement or (ii) increased by two times the amount by which the Net Tax Benefit determined on the basis of the Estimated Closing Net Assets Statement exceeds the Final Net Tax Benefit. The difference between (x) the amount determined in accordance with the preceding sentence and (y) the amount, if any, by which the Final Net Tax Benefit exceeds the Net Tax Benefit determined on the basis of the Estimated Closing Net Assets Statement, may be recovered by Parent (A) from the Tax Refund Payment, (B) by reflecting a reduction of net operating losses available to the Company on the Final Closing Net Assets Statement or (C) in the same manner in which Parent may seek recourse with respect to an indemnifiable Loss pursuant Article VIII and the Escrow Agreement (without application of Section 8.7(a)). Except to the extent of any such recovery, the Tax Refund Payment (or, if less, a portion of the Tax Refund Payment equal to the Final Net Tax Benefit) shall be distributed to the Exchange Agent within five business days of the final determination of the Final Closing Net Assets Statement (whether pursuant to Sections 2.4(c) and (d) or Section 2.4(a)(I)).

(III) In the event that Final Closing Net Assets exceed Estimated Closing Net Assets, Parent shall make a payment to the Exchange Agent within five business days of the final determination of the Final Closing Net Assets Statement (whether pursuant to Sections 2.4(c) and (d) or Section 2.4(a)(I)) equal to such excess either (i) reduced by two times the amount by which the Final Net Tax Benefit exceeds the Net Tax Benefit determined in accordance with the Estimated Closing Net Assets Statement or (ii) increased by two times the amount by which the Net Tax Benefit determined in accordance with the Estimated Closing Net Assets Statement exceeds the Final Net Tax Benefit.

(b)Not less than three business days prior to the Closing Date, the Company will prepare and deliver to Parent and the Stockholder Representative (i) a good faith estimate (the "Estimated Closing Net Assets Statement") of Closing Net Assets (the “Estimated Closing Net Assets”) and (ii) a schedule (the "Specified Liabilities Schedule") of (A) the amount of fees owed at Closing by the Company to its or his attorneys and accountants (which amount will be paid directly by Parent to such attorneys and accountants at the Closing) and (B) the amount of the Blackstone Fee (which amount shall be paid directly by Parent to Blackstone at the Closing) (collectively, the "Specified Liabilities"). The Estimated Net Assets Statement and the Specified Liabilities Schedule shall be reasonably acceptable to Parent.

(c)Within sixty (60) days after the Closing, Parent shall prepare or cause to be prepared and delivered to the Stockholder Representative (a) a balance sheet of the Company immediately prior to the Effective Time (the “Closing Date Balance Sheet”), (b) a statement of Closing Net Assets (together with the Closing Date Balance Sheet, the "Closing Net Assets Statement"). The Closing Date Balance Sheet shall not give effect to the transactions contemplated by this Agreement other than (i) the payment on behalf of the Company of the Specified Liabilities set forth on the Specified Liabilities Schedule (with the result that the Specified Liabilities set forth on the Specified Liabilities Schedule shall not appear on the Closing Date Balance Sheet) and (ii) the reflection thereon in the changes in the Company's tax assets and liabilities attributable to compensation deductions related to the exercise of Company Options (to the extent attributed to pre-Closing periods in accordance with Section 6.5). The Closing Date Balance Sheet and the statement of Closing Net Assets included in the Closing Net Assets Statement will be prepared and determined in accordance with GAAP and the accounting policies and practices of the Company and consistent with the balance sheet attached hereto as Exhibit D. Parent shall provide the Stockholder Representative and a single accounting firm for the Stockholder Representative reasonable access to all (i) work papers and written procedures used to prepare the Closing Net Assets Statement and (ii) books and records and personnel to the extent reasonably necessary to enable the Stockholder Representative and such accounting firm to conduct a sufficient review of the Closing Net Assets Statement and verify the calculation of Closing Net Assets. If the Stockholder Representative disputes the Closing Net Assets as shown on the Closing Net Assets Statement prepared by Parent, the Stockholder Representative shall deliver to Parent within sixty (60) days after receipt of the Closing Net Assets Statement a statement (the “Dispute Notice”) setting forth the Stockholder Representative’s calculation of the Closing Net Assets and describing in reasonable detail the basis for the dispute. The parties shall use reasonable efforts to resolve such differences regarding the determination of the Closing Net Assets within a period of sixty (60) days after the Stockholder Representative has given the Dispute Notice. If the parties resolve such differences, Closing Net Assets agreed to by Parent and the Stockholder Representative shall be deemed to be the “Final Closing Net Assets” and the Closing Net Assets Statement agreed to by Parent and the Stockholder Representative shall be deemed to be the “Final Closing Net Assets Statement.”

(d)If Parent and the Stockholder Representative do not reach a final resolution on the Closing Net Assets within sixty (60) days after the Stockholder Representative has given the Dispute Notice, the Neutral Accountant shall resolve such differences, pursuant to an engagement agreement among Parent, the Stockholder Representative and the Neutral Accountant (which Parent and the Stockholder Representative agree to execute promptly), in the manner provided below. Parent and the Stockholder Representative shall each be entitled to make a presentation to the Neutral Accountant, pursuant to procedures to be agreed to among Parent, the Stockholder Representative and the Neutral Accountant (or, if they cannot agree on such procedures, pursuant to procedures determined by the Neutral Accountant) regarding the calculation of Closing Net Assets, as applicable; and the Neutral Accountant shall be required to resolve the differences between Parent and the Stockholder Representative and determine Closing Net Assets within forty (40) days after the engagement of the Neutral Accountant. Closing Net Assets Amount determined by the Neutral Accountant shall be deemed to be the Final Closing Net Assets and the Closing Net Assets Statement, as adjusted to reflect such determination, shall be deemed to be the Final Closing Net Assets Statement. Such determination by the Neutral Accountant shall be conclusive and binding upon the parties absent fraud or manifest error. In the event either Parent or the Stockholder Representative believes the determination of the Neutral Accountant reflects a manifest error, Parent or the Stockholder Representative shall be entitled to specify the error to the Neutral Accountant in writing, in reasonable detail (with a copy to the other), within ten business days of the date of delivery to the parties of the Neutral Accountant’s determination, and any correction made by the Neutral Accountant (which the Neutral Accountant shall be requested to make within ten business days after such date of delivery) shall supersede the Neutral Accountant’s initial determination. Nothing in this Section 2.4(d) shall be construed to authorize or permit the Neutral Accountant to:

(i)determine any questions or matters whatsoever under or in connection with this Agreement except for the resolution of differences between Parent and the Stockholder Representative regarding the determination of Closing Net Assets; or

(ii)resolve any such differences by making an adjustment to the Closing Net Assets Statement that is outside of the range(s) defined by amounts as finally proposed by Parent and the Stockholder Representative.

(e)Parent and the Stockholder Representative shall each pay one half of the fees and expenses of the Neutral Accountant.

2.5Earnout

(a)The Stockholders will be entitled to additional consideration from Parent as provided in Schedule 2.5 (any such additional consideration, an "Earnout Amount").

(b)At Parent's option, to the extent set forth in Schedule 2.5, each Earnout Amount may be satisfied by the delivery to the Exchange Agent of unregistered shares of Parent Common Stock having a Fair Market Value, determined as of the applicable Final Earnout Amount Determination Date (the "Value Date"), equal to such portion of such Earnout Amount that Parent determines to satisfy by delivery of Parent Common Stock. The amount of each Earnout Amount that may be so satisfied, expressed as a percentage, is referred to herein as the "Share Percentage." Shares of Parent Common Stock issued in satisfaction of any portion of an Earnout Amount are referred to as "Earnout Shares" and, together with the Initial Shares, as the "Shares." In no event will any Shares be issued hereunder if the issuance of such Shares would cause (i) the total number of Shares issued pursuant to this Agreement to exceed 19.9% of the number of shares of Parent Common Stock outstanding immediately prior to the Closing or (ii) the voting power of the Shares issued pursuant to this Agreement to exceed 19.9% of the voting power of the voting securities of Parent outstanding immediately prior to the Closing. Any portion of the Purchase Price that would otherwise be satisfied by the issuance of Shares in excess of such amount, and any other portion of an Earnout Amount that is not satisfied through the issuance of Earnout Shares, will be paid in cash by wire transfer of immediately available funds to the Exchange Agent. Furthermore, no portion of any Designated Option Share Earnout Amount shall be satisfied by the delivery of Earnout Shares. Neither Parent nor any other Person makes any guarantee or representation to the Stockholder Representative or any other Stockholder that any Earnout Amount will be realized.

(c)Parent will at its expense deliver to the Stockholder Representative within 15 days after the completion of the audit of Parent’s consolidated financial statements (which may include an audit of the financial statements of the Surviving Corporation on a non-consolidated basis) with respect to each of calendar year 2006, calendar year 2007 and calendar year 2008 (each, an "Earnout Period") its calculation of EBIT for such period (each, an "Initial EBIT Amount") and the Earnout Amount, if any, payable under this Section 2.5. Parent will provide the Stockholder Representative and the Stockholder Representative's independent auditors with reasonable access to all books and records and working papers to the extent reasonably necessary to enable the Stockholder Representative and such accounting firm to verify such calculations after the delivery thereof. Such calculations will be binding on the parties, absent fraud or manifest error, unless the Stockholder Representative, within 60 days after the delivery of the calculations by Parent to the Stockholder Representative, notifies Parent in writing that it objects to any item or computation in connection with the calculations of the Initial EBIT Amount or the Earnout Amount and specify in reasonable detail the basis for such objection. If Parent and the Stockholder Representative are unable to agree upon the calculations within forty (40) days after any notice of objection has been given by the Stockholder Representative to Parent, then at the election of either the Stockholder Representative or Parent, the dispute will be submitted to the Neutral Accountant for a final determination. Such determination by the Neutral Accountant shall be conclusive and binding upon the parties absent fraud or manifest error. In the event either Parent or the Stockholder Representative believes the determination of the Neutral Accountant reflects a manifest error, Parent or the Stockholder Representative shall be entitled to specify the error to the Neutral Accountant in writing, in reasonable detail (with a copy to the other), within ten business days of the date of delivery to the parties of the Neutral Accountant’s determination, and any correction made by the Neutral Accountant (which the Neutral Accountant shall be requested to make within ten business days after such date of delivery) shall supersede the Neutral Accountant’s initial determination. Nothing in this Section 2.5(c) shall be construed to authorize or permit the Neutral Accountant to:

(i)determine any questions or matters whatsoever under or in connection with this Agreement except for the resolution of differences between Parent and the Stockholder Representative regarding the determination of the Final EBIT Amount and any applicable Earnout Amount; or

(ii)resolve any such differences by making an adjustment to the Final EBIT Amount and any applicable Earnout Amount that is outside of the range(s) defined by amounts as finally proposed by Parent and the Stockholder Representative.

(d) In the event a Neutral Accountant is engaged pursuant to Section 2.5(c), the Neutral Accountant shall have the authority to award to the substantially prevailing party its reasonable expenses (including reasonable fees and disbursements of counsel) incurred in connection with the proceeding before the Neutral Accountant. Absent such an award, each party shall bear its own expenses and Parent and the Stockholder Representative will each bear one-half of the fees, costs and expenses of the Neutral Accountant.

(e) For purposes of this Agreement, with respect to any Earnout Period, (i) the "Final EBIT Amount" for such period means the Initial EBIT Amount for such period, or such other amount as is agreed to by the Stockholder Representative and Parent following a timely notice of objection as contemplated under this Section 2.5(c), or such other amount as is determined by the Neutral Accountant, and (ii) the "Final Earnout Amount Determination Date" for such period means: (x) the date that is sixty-one (61) days after the delivery of Parent's calculation of the Initial EBIT Amount for such period to the Stockholder Representative, (y) such earlier date on which the Stockholder Representative delivers an irrevocable notice to Parent in writing that it agrees with Parent's calculation of such Initial EBIT Amount, or (z) if the Stockholder Representative timely objects to such Initial EBIT Amount, such date on which the Final EBIT Amount in respect thereof is otherwise determined pursuant to this Section 2.5.

(f)In the event of a merger, consolidation or other transaction (a “Conversion Transaction”) as a result of which substantially all of the outstanding shares of Parent Common Stock are converted into the right to receive, in whole or in part, equity securities, if such equity securities are traded on the New York Stock Exchange, the American Stock Exchange, The Nasdaq Stock Market or another securities exchange or interdealer quotation system (“Listed Equity Securities”), (i) any issued Shares, including shares held pursuant to the Escrow Agreement, shall be eligible to participate in any Conversation Transaction on the same basis as other outstanding shares of Parent Common Stock and (ii) any portion of an Earnout Amount that would otherwise be permitted to be satisfied through the issuance of Parent Common Stock shall thereafter be permitted to be satisfied through the issuance of such Listed Equity Securities. For such purpose, such Listed Equity Securities shall be valued at their aggregate Fair Market Value as of the applicable Value Date. In the event that, in any Conversion Transaction, substantially all of the outstanding shares of Parent Common Stock are converted into the right to receive equity securities that are not Listed Equity Securities (or are converted into the right to receive a combination of such equity securities and cash), then, until such equity securities constitute Listed Equity Securities, any Earnout Amount that thereafter becomes due shall be required to be satisfied entirely in cash. In the event of a merger, consolidation or other transaction as a result of which substantially all of the outstanding shares of Parent Common Stock are converted into the right to receive only cash, any Earnout Amount that thereafter becomes due shall be required to be satisfied entirely in cash, provided that if the surviving or transferee entity in such transaction (or an Affiliate thereof) has a class of Listed Equity Securities, any portion of an Earnout Amount that would otherwise be permitted to be satisfied through the issuance of Parent Common Stock shall thereafter be permitted to be satisfied through the issuance of such Listed Equity Securities, valued at their aggregate Fair Market Value as of the applicable Value Date.

2.6Closing of the Company's Transfer Books; Exchange of Certificates for Consideration

(1) At the Effective Time, the transfer books of the Company shall be closed and no transfer of shares of Company Stock shall thereafter be made. If, after the Effective Time, certificates representing shares of Company Stock are presented to the Exchange Agent they shall be canceled and exchanged for the right to receive the applicable portion of the Merger Consideration.

(2)Those persons who are, as of the Effective Time, record holders of a certificate representing Company Stock (a “Certificate”) may tender such Certificates to the Exchange Agent at any time after the Effective Time. Upon receipt of a Stockholder's Certificate, the Exchange Agent shall promptly deliver to such Stockholder that portion of the Merger Consideration payable or distributable in respect of the shares of Company Stock represented by such certificate as such Merger Consideration becomes available for payment or distribution in accordance with the terms hereof.

(3)Any Merger Consideration (other than the Expense Reserve) that remains undistributed by the Exchange Agent to the Stockholders for one year after the date for delivery of such Merger Consideration provided for herein or in the Exchange Agreement (or any earlier time agreed to by Parent and the Exchange Agent) shall be delivered to Parent by the Exchange Agent, upon demand, and any such holders who have not theretofore complied with this Article 2 shall thereafter look only to Parent for payment of their claims for Merger Consideration.

(4)Section 2.6(4) of the Company Disclosure Schedule sets forth (i) the amount of each Option Loan outstanding as of the date hereof, (ii) the amount of each Option Loan to be made available to Company employees between the date of this Agreement and the Effective Time and (iii) the aggregate value of the cash Merger Consideration that will become distributable on the Closing Date (exclusive of Escrowed Cash) to each obligor or prospective obligor with respect to an Option Loan. All principal and interest owing on any Option Loans shall be repaid by deduction from the first amounts payable on the Closing Date (exclusive of Escrowed Cash) to the obligors under such Option Loans, including holders of Designated Option Shares. The aggregate amount credited against the Merger Consideration with respect to Option Loans shall be retained by Parent. Notwithstanding the foregoing, no amounts shall be paid to holders of any Company Stock or Company Options until such holder has complied with the exchange procedures set forth in the Exchange Agreement, including the completion and delivery of the Letter of Transmittal attached thereto, and the amounts payable in respect of shares of Company Stock shall be held in reserve by the Exchange Agent until compliance with such procedures has occurred.

(5)Dissenting Shares shall be excluded from any such distributions of Merger Consideration and treated instead in accordance with Section 2.8 below.

2.8No Further Ownership Rights in Company Stock. The Merger Consideration paid and distributed in respect of Certificates surrendered pursuant to Section 2.6 shall be deemed to have been paid and distributed in full satisfaction of all rights pertaining to the shares of Company Stock theretofore represented by such Certificates. If, after the Effective Time, Certificates are presented to the Surviving Corporation or Parent for any reason, they shall be exchanged as provided in this Article 2, except as otherwise provided by law.

2.8Dissenting Shares

(1) Notwithstanding any provisions of this Agreement to the contrary, any shares of Company Stock held by a holder who has demanded and perfected his, her or its demand for appraisal of such holder’s shares in accordance with Section 262 of the DGCL (the “Dissenting Shares”) shall not be converted into or represent a right to receive the applicable portion of the Merger Consideration, but shall be entitled only to such rights as are granted by Section 262 of the DGCL. Each such holder shall cease to be a Stockholder for all purposes of this Agreement upon perfection of such holder’s demand for appraisal pursuant to the DGCL. Notwithstanding anything to the contrary in this Agreement or the Exchange Agreement, Parent shall be entitled (i) withhold (or to direct the Exchange Agent to remit to Parent) any of the Merger Consideration not paid on account of such Dissenting Shares pending resolution of the claims of such holders, or (ii) to direct the Exchange Agent to hold any Merger Consideration attributable to such Dissenting Shares and apply such Merger Consideration towards resolution of the claims of such holders, with any deficiency in the amount of Merger Consideration available to resolve such closing being funded by Parent and any excess of Merger Consideration over the amount required to resolve such claims being remitted to Parent upon demand therefor. The remaining Stockholders shall not be entitled to any portion of the Merger Consideration attributable to Dissenting Shares.

(2)Notwithstanding the provisions of subsection (a) of this Section 2.8, if any holder of Company Stock who demands appraisal of his, her or its Company Stock under the DGCL shall effectively withdraw or lose (through the failure to perfect or otherwise) his, her or its right to appraisal, then as of the occurrence of such event such holder's shares shall automatically be converted into and represent only the right to receive the Merger Consideration, without interest thereon, upon surrender of the certificate or certificates representing such shares to the Exchange Agent pursuant to the Exchange Agreement.

(3)The Company shall give prompt notice to Parent of any demand received by the Company for payment or appraisal of the Common Stock, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, which consent shall not be unreasonably withheld, settle or offer to settle any such demand.

2.9Closing

. The Closing (the “Closing”) of the Merger shall take place at the offices of Akerman Senterfitt LLP, 335 Madison Avenue, Suite 2600, New York, New York 10017 at 10:00 a.m. (New York time) no later than three (3) business days following the satisfaction or waiver of the closing conditions set forth in Article 7 (the “Closing Date”) or at such other place or time and date as the parties hereto agree.

2.10Registration Covenants

(a)(i) If (but without any obligation to do so) Parent proposes to register under the Securities Act of 1933, as amended (the "Securities Act"), shares of Parent Common Stock (other than a registration on Form S-4 or Form S-8 or any successor forms, a registration in which the only Parent Common Stock being registered is Parent Common Stock issuable upon conversion of debt securities which are also being registered or a registration that does not contemplate a distribution of the securities being registered on a firmly underwritten basis; it being understood that the filing of a shelf registration statement that contemplates a possible future offering that would give rise to registration rights hereunder shall not give rise to such rights until the applicable “take-down” of securities occurs), then Parent will give the Stockholder Representative written notice at least twenty (20) days in advance of the anticipated effectiveness of the related registration statement. Upon the written request of any Stockholder given within ten (10) days after giving of such notice by Parent (specifying the number of Shares proposed to be offered and sold by such Stockholder and setting forth the agreement of such Stockholder to comply with the provisions of this Section 2.10), Parent will, subject to the provisions of Section 1.8(b), include in such registration statement all of the Shares that each such Stockholder ("Registrable Shares") has requested to be registered (other than Shares then subject to a contractual lock-up pursuant to a Joinder Agreement unless otherwise consented to by Parent in its sole discretion); provided, however, that Parent will have the right to postpone or withdraw any registration statement pursuant to this Section 2.10 without obligation to any Stockholder, and Parent will not be required to disclose the reason for any such postponement or withdrawal or the anticipated duration of any such postponement (and each Stockholder will agree in its written request to include Registrable Shares in any registration to maintain in confidence the pendency of any registration statement that has not been filed and any postponement or withdrawal of a proposed registration). All expenses of such registration, other than underwriting commissions and discounts and legal and other advisory expenses of the Stockholders (with the exception of up to $25,000 in fees and disbursements of a single counsel retained to represent all selling stockholders (including any Stockholders requesting the inclusion of Registrable Shares in such registration), which counsel will be selected by the holders of a majority of the shares of Parent Common Stock sought to be included in such registration), will be borne by Parent.

(ii) Parent may, at its option, but without any obligation to do so, include in any non-underwritten registration of shares of Parent Common Stock (including any shelf registration statement filed by Parent, in whole or in part, for such purpose) any or all shares of Parent Common Stock issued or to be issued for the account of the Stockholders hereunder.

(iii) Parent may, but shall not be required to, include in any registration statement to which this Section 2.10 is applicable shares of Parent Common Stock subject to a contractual lock-up pursuant to a Joinder Agreement or other agreement with Parent. The inclusion of any shares of Parent Common Stock in such a registration statement shall not affect the operation of any such contractual lock-up to which such shares are then subject except as otherwise agreed by Parent in its sole discretion.

(b)Parent will not be required under Section 2.10(a)(i) to include Registrable Shares in an underwriting subject thereto unless the Stockholders proposing to include such Registrable Shares accept the terms of the underwriting as agreed upon in good faith between Parent and the underwriters (and become parties to the related underwriting agreement and any other customary arrangements relating to the offering of securities by selling stockholders, including custody arrangements), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by Parent. If the total number of shares of Parent Common Stock, including Registrable Shares, to be included in such offering exceeds, in the underwriters' sole discretion, the number of shares that can be included without adversely affecting the success of the offering, then Parent will be required to include in the offering only that number of shares of Parent Common Stock, including Registrable Shares, which the underwriters determine in their sole discretion will not adversely affect the success of the offering (the "Maximum Offering Size"). In such event, Parent will include in the registration statement relating to the offering (i) first, all shares of Parent Common Stock to be offered by Parent and (ii) second, to the extent the Maximum Offering Size exceeds the number of shares to be offered by Parent, the shares of Parent Common Stock proposed to be included by the selling stockholders, including the Stockholders proposing to include Registrable Shares in such registration statement. The shares of Parent Common Stock to be included in such registration statement pursuant to the preceding clause (ii) (the "Remaining Availability") will be allocated pro rata among such selling stockholders according to the total number of shares of Parent Common Stock owned by such selling stockholders (or in such other proportions as are mutually agreed to by such selling stockholders). No Stockholder will be entitled to include in a registration statement pursuant to this Section 2.10 Registrable Shares that may be sold pursuant to Rule 144 under the Securities Act during the three months following the date such registration statement becomes effective (the "144 Exception"). Parent may require each Stockholder to promptly furnish to Parent, as a condition precedent to including such Stockholder's Registrable Shares in any registration, such information regarding the distribution of such Stockholder's Registrable Shares as Parent or the underwriters may from time to time reasonably request in writing, but in no event will any Stockholder be required to make representations or warranties, or provide any indemnity, in connection with any transaction contemplated by this Section 2.10 except as to its ownership of, and the absence of Liens or other restrictions on, shares it is including in an offering and the information referred to in the first clause of this sentence that has been furnished by such Stockholder in writing.

(c)In the event Parent effects a registration to which Section 2.10 is applicable, except to the extent such registration is postponed or withdrawn by Parent, Parent will, as expeditiously as reasonably possible:

(i) prepare and file with the Securities and Exchange Commission (the "SEC") such amendments and supplements to the related registration statement and the prospectus included therein as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of the securities covered by such registration statement;

(ii) furnish to the Stockholders without charge such number of copies of a prospectus and other documents as they may reasonably request in order to facilitate the disposition of the Registrable Shares included in such registration;

(iii) notify the Stockholders at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and provide the Stockholders with such amendment or supplement to such prospectus as may be required to ensure that such prospectus does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

(iv) cooperate with the Stockholders to facilitate the timely preparation and delivery of certificates representing Registrable Shares to be sold, which certificates will not bear any restrictive legends; and

(v) cause the Registrable Shares included in such registration statement to be listed on the same principal securities exchange or interdealer quotation system on which Parent Common Stock is then listed.

(d)With a view to making available to each Stockholder the benefits of Rule 144 under the Securities Act to the extent Parent has not made available to such Stockholder the opportunity to dispose of such securities in a registered offering, Parent agrees, for so long as Parent Common Stock is registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to:

(i)make and keep public information available (as those terms are defined in Rule 144, including paragraph (c)(2) of such Rule);

(ii)file with the SEC in a timely manner reports and other documents, if any, required of Parent under the Exchange Act and comply with all other public information reporting requirements of the SEC that are conditions to the availability of Rule 144;

(iii)furnish to the Stockholders promptly upon request a written statement by Parent as to its compliance with the reporting requirements of Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of Parent filed with the SEC, if any, and such other reports and documents of Parent as the Stockholders may reasonably request in availing themselves of any rule or regulation of the SEC allowing the Stockholders to sell Shares without registration; and

(iv)from time to time, upon the request of any Stockholder, cause counsel to Parent promptly to issue, at the expense of Parent, an opinion to the transfer agent for the Parent Common Stock and the broker for the applicable Stockholder confirming that shares of Parent Common Stock issued hereunder may be sold without registration under the Securities Act pursuant to Rule 144 promulgated under the Securities Act.

  To the extent that shares of Parent Common Stock issued to any Stockholder hereunder and held by such Stockholder are included in a registration statement filed pursuant to this Section 2.10, such Stockholder shall be prohibited from disposing of such shares of Parent Common Stock other than pursuant to such registration statement. During the period from the date on which Parent notifies a Stockholder of its intent to include any of such Stockholder’s shares of Parent Common Stock in a registration statement filed pursuant to this Section 2.10 through the earlier of the date Parent abandons its efforts to effect the related registration of shares (provided that Parent uses its reasonable best efforts to do so through the date of such registration) and the date such registration statement is formally withdrawn (or otherwise ceases to be effective other than on an interim basis related to the filing of a post-effective amendment), such Stockholder shall be prohibited from disposing of any shares of Parent Common Stock that are the subject of such notice, provided they are included in such registration statement upon filing, by any means other than (i) prior to the filing of such registration statement, pursuant to an exemption from registration other than the exemption provided by Rule 144 under the Securities Act or (ii) pursuant to such registration statement, and shall in no event file a Form 144 with respect to such shares of Parent Common Stock. Each Stockholder shall take any and all actions reasonably requested by Parent to facilitate the inclusion of such Stockholder’s shares in a registration to which this Section 2.10 is applicable.

(e)(i)Parent will indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Shares registered pursuant to this Section 2.10, the officers, directors and agents, affiliates, advisors, brokers and employees of each of them, each person who controls such holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents, affiliates, advisors, brokers and employees of any such controlling person, from and against all Losses, as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except to the extent the same are based solely upon information with respect to such holder furnished in writing to Parent by such holder expressly for use therein; provided, however, that Parent will not be liable to any holder of Registrable Shares to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if either (A)(i) such holder failed to send or deliver a copy of the prospectus with or prior to the delivery of written confirmation of the sale by such holder of a Registrable Share to the person asserting the claim from which such Losses arise and (ii) the prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission or (B) such untrue statement or alleged untrue statement or such omission or alleged omission is corrected in an amendment or supplement to the prospectus previously furnished by or on behalf of Parent with copies of the prospectus as so amended or supplemented delivered by Parent, and such holder thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently with the sale of a Registrable Share to the person asserting the claim from which such Losses arise; provided, further, however, that the indemnity agreement contained in this Section 2.10(e)(i) will not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of Parent (which consent will not be unreasonably withheld). The rights of any holder of Registrable Shares hereunder will not be exclusive of the rights of any holder of Registrable Shares under any other agreement or instrument of any holder of Registrable Shares to which Parent or one of its Affiliates is a party.

(ii) Each holder of Registrable Securities registered pursuant to this Section 2.10 will indemnify and hold harmless, to the fullest extent permitted by law, Parent and its Affiliates, the officers, directors and agents, affiliates, advisors, brokers and employees of each of them, each underwriter of securities covered by a registration statement subject to this Section 2.10, each person who controls any such Person (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), the officers, directors, agents, affiliates, advisors, brokers and employees of any such underwriter or controlling person and each other holder of Registrable Securities, from and against all Losses, as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent the same are based upon information with respect to such holder furnished in writing to Parent by such holder expressly for use therein and was relied on by Parent in the preparation thereof; provided, however, that the indemnity agreement contained in this Section 2.10(e)(ii) will not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of such holder of Registrable Securities (which consent will not be unreasonably withheld). The rights of Parent and its Affiliates hereunder will not be exclusive of the rights of Parent and its Affiliates under any other agreement or instrument Parent or any of its Affiliates to which any holder of Registrable Securities is a party. In no event will the liability of any selling holder of Registrable Securities hereunder be greater in amount than the dollar amount of proceeds (net of payment of all expenses and underwriters' discounts and commissions) received by such holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

2.11Transferability; Legending of Shares

. Except as provided in Section 2.10(d)(iv) above, no Stockholder will be permitted to transfer any Shares in the absence of an effective registration statement unless such Stockholder has furnished Parent with an opinion of counsel, reasonably satisfactory to Parent, that such disposition does not require registration of such Shares under the Securities Act, or Parent determines that such opinion of counsel is unnecessary. Parent will not require opinions of counsel for transfers of Shares made pursuant to Rule 144 if Parent is provided with any certificates or other evidence of compliance with Rule 144 reasonably required by it in connection with such transfer (including a copy of the relevant Form 144). The certificates representing the Shares issued hereunder will be issued with customary legends substantially similar to those on certificates of unregistered shares issued to officers or directors of Parent.

2.12Stockholder Representative.

(1)The Stockholder Representative is hereby constituted and appointed as agent for and on behalf of the Stockholders (other than the holders of Dissenting Shares). The Stockholder Representative shall incur no liability to the Stockholders with respect to any action taken or suffered by a Stockholder Representative in reliance upon any note, direction, instruction, consent, statement or other documents believed by the Stockholder Representative to be genuinely and duly authorized, nor for other action or inaction except his, her or its own willful misconduct or gross negligence. The Stockholder Representative may, in all questions arising under this Agreement, rely on the advice of counsel and the Stockholder Representative shall not be liable to the Stockholders for anything done, omitted or suffered in good faith by the Stockholder Representative based on such advice.

(2)In the event of the death or permanent disability of the Stockholder Representative, or his resignation as Stockholder Representative, a successor Stockholder Representative shall be elected by a majority vote of the Stockholders (other than the holders of Dissenting Shares), with each such Stockholder (or his, her or its successors or assigns) to be given a vote equal to the number of votes represented by the shares of Common Stock held by such Stockholder (calculated on an Fully Diluted Basis) immediately prior to the Effective Time. Each successor Stockholder Representative shall have all of the power, authority, rights and privileges conferred by this Agreement upon the original Stockholder Representative, and the term “Stockholder Representative” as used herein shall be deemed to include any successor Stockholder Representative.

(3)The Stockholder Representative shall have full power and authority to represent the Stockholders (other than the holders of Dissenting Shares), and their successors, with respect to all matters arising under Article 2 and Article 8 and all actions taken by any Stockholder Representative hereunder shall be binding upon the Company Stockholders, and their successors, as if expressly confirmed and ratified in writing by each of them. Without limiting the generality of the foregoing, the Stockholder Representative shall have full power and authority to interpret all of the terms and provisions of this Agreement, to compromise any claims asserted hereunder and to authorize any release of the Merger Consideration to be made with respect thereto, on behalf of the Company Stockholders and their successors.

(4)The Stockholder Representative shall be reimbursed for all expenses incurred by him out of the Expense Reserve pursuant to the terms of the Exchange Agreement, unless such fees and expenses are to be reimbursed by Parent pursuant to Article 8.

2.13Closing Receivables

. In the event that any account receivable shown on the Final Closing Net Assets Statement has not been collected in full by the six-month anniversary of the Closing (each an “Unpaid Receivable”), the face amount thereof, net of any unused portion of the receivables reserve reflected on the Final Closing Net Assets Statement (up to the face amount of the receivable), shall be established as a credit in favor of Parent. Such credit may be satisfied in the same manner in which Parent may seek recourse with respect to an indemnifiable Loss pursuant Article VIII and the Escrow Agreement (without application of Section 8.7(a)). All Unpaid Receivables shall continue to be collected by the Company in the ordinary course and consistent with procedures employed in the Company's recent historical practice, and if a payment is received by the Company with respect to an Unpaid Receivable with respect to which a credit has been satisfied in accordance with the preceding sentence, the Company shall make a corresponding payment to the Exchange Agent (or, if such satisfaction was effected by a release from the Escrow Fund and the Escrow Fund has not been fully released, to the Escrow Agent) up to the amount of such credit that was so satisfied. In the event the Company receives funds, not designated as being in payment of a specific account receivable, from a customer that is an account debtor with respect to both Unpaid Receivables and other accounts receivable, such funds shall be allocated to the oldest balance (excluding any balance that is in dispute with the account debtor). Subject to compliance with the preceding sentence, neither Parent, the Company nor any of their respective Affiliates shall have any liability to the Stockholders for the collection of any Unpaid Receivable.

2.14Additional Actions. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement or to vest, perfect or confirm in the Surviving Corporation title to or ownership or possession of any property, right, privilege, power, franchise or other asset of either the Company or Merger Sub acquired or to be acquired by reason of, or as a result of, the Merger, the officers and directors of the Company and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action, so long as such action is consistent with this Agreement.

ARTICLE 3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY

On or prior to the date hereof, the Company has delivered to Parent both a schedule to this Agreement and a schedule to a separate Confidential Disclosure Agreement (collectively, the “Company Disclosure Schedule”) setting forth, among other matters, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in this Article 3; provided that (a)the Company Disclosure Schedule includes only such items as are necessary to result in providing true and correct representations and warranties and(b) the inclusion of an item in the Company Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by the Company that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse Effect. The Company Disclosure Schedule makes explicit reference to the particular representation or warranty as to which exception is taken, which in each case shall constitute the sole representation and warranty as to which such exception shall apply, provided that the disclosures in the Company Disclosure Schedule that are set forth expressly therein with particularity will apply to all representations and warranties. The disclosure of the existence of a contract on the Company Disclosure Schedule shall not, without more, constitute the disclosure of any particular provisions of such contract or the actual or potential consequences thereof.

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

3.1Organization and Good Standing of the Company. The Company is an corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business. The Company is duly qualified or authorized to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which it owns or leases real property and each other jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification or authorization, except where the failure to be so qualified or authorized would not have a Material Adverse Effect. Section 3.1 of the Company Disclosure Schedule sets forth a true, correct and complete list of each jurisdiction in which the Company is qualified or authorized to do business as a foreign corporation.

3.2Capitalization; Stockholders

(1)The authorized capital stock of the Company consists of 5,000,000 shares of Common Stock, of which 664,440 are validly issued and outstanding, fully paid and nonassessable and 15,810 are registered in the name of the Company as treasury shares; 30,000 shares of Series A Preferred Stock, of which 14,450 shares are validly issued and outstanding, fully paid and nonassessable and are convertible at the Applicable Conversion Ratio into 190,432 shares of Common Stock; 10,000 shares of Series B Preferred Stock, of which no shares are validly issued and outstanding; 20,000 shares of Series C Preferred Stock, of which 15,420 shares are validly issued and outstanding, fully paid and nonassessable and are convertible at the Applicable Conversion Ratio into 161,789 shares of Common Stock; 13,678 shares of Series D Preferred Stock, of which 13,678 shares are validly issued and outstanding, fully paid and nonassessable and are convertible at the Applicable Conversion Ratio into 158,582 shares of Common Stock; and 36,051 shares of Series E Preferred Stock, of which 10,000 shares are validly issued and outstanding, fully paid and nonassessable and are convertible at the Applicable Conversion Ratio into 114,158 shares of Common Stock. There are no other shares of capital stock of the Company issued or outstanding. The Series D Payment Percentage, as determined in accordance with the Certificate of Incorporation and the Series D Purchase Agreement, is 2.33%. All of the outstanding shares of the Company’s capital stock (i) have been issued in compliance with any preemptive rights, rights of first refusal or similar rights of shareholders and the terms of any agreement or other understanding binding upon the Company or the Stockholders and (ii) have been offered and sold pursuant to a valid exemption from registration under the Securities Act and are otherwise in compliance with such securities laws, the rules and regulations thereunder and state securities or “blue-sky” laws and regulation.

(2)The Company has reserved 475,000 shares of Common Stock for issuance under its 1994 Incentive and Non-Statutory Stock Option Plan, of which options to purchase 140,250 shares are outstanding as of the date of this Agreement and the Company has reserved 30,000 shares of Common Stock for issuance under its 2004 Stock Option Plan, of which options to purchase 24,500 shares are outstanding on the date of this Agreement. Section 3.2(2) of the Company Disclosure Schedule accurately sets forth, with respect to each Company Option that is outstanding as of the date hereof: (i) the name of the holder of such Company Option, (ii) the total number of shares of Common Stock that are subject to such Company Option and the number of shares of Common Stock with respect to which such Company Option is immediately exercisable; (iii) the date on which such Company Option was granted and the term of such Company Option; (iv) the vesting schedule of such Company Option; and (v) the exercise price per share of Common Stock purchasable under such Company Option. No consent is required from the holders of the Company Options in connection with the acceleration and cancellation of such Company Options as contemplated by Section 6.5. Section 6.5 of the Company disclosure Schedule includes a list of the Designated Options (including the exercise prices thereof and the number of shares of Common Stock subject thereto) and the holders thereof.

(3)Except for the Investment Agreements, there are no voting agreements, voting trusts or other agreements (including, but not limited to, contractual or statutory preemptive rights or cumulative voting rights), commitments or understandings with respect to the voting or transfer of the capital stock or other equity interests of the Company.

(4)Except as described in paragraphs (1) through (3) above, the Company does not have outstanding (i) any stock or other securities convertible into or exchangeable for shares of its capital stock or other equity interests or containing profit participation features, (ii) any options, warrants, equity securities, calls, rights, commitments or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company or obligating the Company to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement or (iii) any other agreement, commitment or understanding (other than the agreements set forth in Section 6(c) of the Series D Certificate of Designation and Section 5(a)(i) of the Series D Purchase Agreement) of any character, including, but not limited to, participation rights, relating to the issued or unissued capital stock or other securities of the Company. The Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or other equity interests or any warrants, options or other rights to acquire its capital stock or other equity interests.

(5)The Company has no subsidiaries nor does the Company own any equity or debt interest in any other entity.

(6)The outstanding shares of Company Stock of each class or series are owned in the amounts and by the Persons listed in Section 3.2 of the Company Disclosure Schedule.

(7)The parties acknowledge that the representations and warranties contained in paragraph (1) above assume that the Closing Date occurs on the Assumed Closing Date.

3.3Authorization; No Conflict. The Company has the requisite corporate power and authority to enter into this Agreement and the other Transaction Documents and to consummate the transactions contemplated by this Agreement and the other Transaction Documents. The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and the Stockholder Representative and, assuming the due authorization, execution and delivery by Parent and Merger Sub, constitutes the valid and binding obligation of the Company and the Stockholder Representative, enforceable against the Company and the Stockholder Representative in accordance with its terms. The execution and delivery of the Transaction Documents by the Company and the Stockholder Representative do not, and the consummation of the transactions contemplated by the Transaction Documents and compliance with the provisions of the Transaction Documents by the Company and the Stockholder Representative will not, (i) conflict with the Certificate of Incorporation or by-laws (or comparable organizational documents) of the Company, (ii) result in any breach, violation or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or creation or acceleration of any obligation or right of a third party or loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or the Stockholder Representative under, any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, license or other authorization applicable to the Company or Stockholder Representative or their respective properties or assets, or (iii) subject to the governmental filings and other matters referred to in the following sentence, conflict with or violate any Law applicable to the Company or the Stockholder Representative or their respective properties or assets or any judgment, order or decree to which the Company or the Stockholder Representative or their respective properties or assets are subject. No authorization, consent or approval of, or filing with or notice to, any Governmental Entity is necessary for the execution and delivery of the Transaction Documents by the Company or the consummation by the Company of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and (ii) the filing of a pre-merger notification report under the HSR Act and any other documents or information requested by the United States Department of Justice or the United States Federal Trade Commission in connection therewith.

3.4Corporate Records.

(a)The Company has delivered to Parent true, correct and complete copies of the Certificate of Incorporation (certified by the Secretary of State of the State of Delaware) and by-laws of the Company.

(b)The minute books of the Company previously made available to Parent contain all existing records of meetings and other corporate action of the stockholders and board of directors (including committees thereof) of the Company, and such records do not omit the disclosure of any corporate actions required to be referenced in the Company Disclosure Schedule. The stock certificate books and stock transfer ledgers of the Company previously made available to Parent are true, correct and complete.

(c)The books, records and accounts of the Company accurately and fairly present in all material respects the financial condition, results of operations, members’ equity and cash flows of the Company. The Company has not engaged in any transaction with respect to its business, maintained any bank account for its business or used any of its funds, except for transactions, bank accounts and funds which have been and are reflected in the normally maintained books, records and accounts of the Company. The Company is not aware that any fraud, whether or not material, has occurred that involves or involved management or other employees who have a significant role in the Company’s system of internal accounting control.

3.5Financial Statements.   Included in Section 3.5 of the Company Disclosure Schedule are the audited balance sheets of the Company as at December 31, 2003 and 2004, the unaudited balance sheet of the Company as at December 31, 2005 and the related statements of income, cash flow and stockholders’ equity of the Company for the periods then ended (such statements, including the related notes and schedules thereto, are referred to herein as the “Financial Statements”). The Financial Statements have been prepared from the books and records of the Company and fairly present in all material respects the financial position and results of operations, cash flows and shareholders’ equity of the Company as at the dates and for the periods reflected thereon in accordance with GAAP applied on a consistent basis throughout the periods indicated, subject in the case of the December 31, 2005 balance sheet, and the related statements of income, cash flow and stockholders’ equity for the period then ended, to normal year-end audit adjustments, which are not expected to be material individually or in the aggregate, and to the reconciliation of management statements to audited financial statements in accordance with past practice as set forth in Section 3.5 of the Company Disclosure Schedule. The reserves reflected in the Financial Statements are adequate, appropriate and reasonable and have been calculated in a consistent manner. The Company does not have any Liabilities, including, without limitation, Liabilities on account of Taxes or governmental charges or penalties, interest or fines thereon or in respect thereof, except (i) to the extent specifically reflected and accrued for or specifically reserved against in the Financial Statements and (ii) for liabilities and obligations incurred in the ordinary and usual course of business consistent with past custom and practices since the Balance Sheet Date or incurred in connection with the transactions contemplated hereby, which, individually and in the aggregate, are not material. The financial forecast (the "2006 Financial Projection") for the Company for the fiscal year 2006 included in Section 3.5 of the Company Disclosure Schedule was prepared by management in good faith based upon assumptions that management believes are reasonable. Parent acknowledges and agrees that (i) the Company makes no guarantee or representation that the results estimated in the 2006 Financial Projection will be realized, (ii) the factors upon which the assumptions and estimate were based may change after the date hereof and (iii) the results estimated in the 2006 Financial Projection may differ from actual results. For purposes hereof, the balance sheet of the Company as at December 31, 2005 included in the Financial Statements shall be the “Balance Sheet” and December 31, 2005 shall be the “Balance Sheet Date.”

3.6Compliance with Laws; Certain Regulatory Disclosures

. (a) The Company is, and has at all times been, (i) to its Knowledge, in compliance with all state privacy, anti-kickback and similar Laws and (ii) in compliance in all material respects with all other Laws applicable to it or the operation, use, occupancy or ownership of its assets or properties or the conduct of its business, and the Company has not received notice (written or oral) from any Governmental Entity (including any state pharmacy board or comparable body) of, and has no Knowledge of, any failure to so comply. The Company holds all material Permits necessary under Law for the conduct of the Company’s business as currently conducted or proposed to be conducted, and the operations of the Company are not being conducted in violation of any Permit held by it. There is no investigation by a Governmental Entity pending against or, to the Knowledge of the Company, threatened against the Company.

(b) The Company began conducting refill reminder programs in 1995 and currently conducts refill reminder programs in all 50 states of the United States. Included in Section 3.6 of the Company Disclosure Schedule are (i) a copy of every written communication (A) received by the Company or, to the extent a copy thereof was provided to the Company, by any other Person (including any pharmacy, pharmacy chain or pharmaceutical manufacturing client of the Company) since the Company's inception from any federal, state or local regulatory authority (including any board of pharmacy) having jurisdiction over the Company and relating directly to a regulatory inquiry or claimed violation of Law or (B) sent by the Company or, to the extent a copy thereof was provided to the Company, by any other Person (including any pharmacy, pharmacy chain or pharmaceutical manufacturing client of the Company) since the Company's inception to any federal, state or local regulatory authority (including any board of pharmacy) having jurisdiction over the Company and relating directly to a regulatory inquiry or claimed violation of Law and (ii) a copy of each material written communication from any consultant or advisor, including counsel, engaged in connection with any federal or state legal or regulatory matter involving privacy, anti-kickback or other health care-related regulation that includes substantive advice regarding compliance, enforcement risk or potential liability (whether to a Governmental Entity or a private party) that either (x) is inconsistent with the draft memorandum dated January 14, 2005 titled The Legal and Regulatory Environment for Adheris's Prescription Drug Patient Adherence and Educational Programs (the “White Paper”) and was prepared later than January 14, 2005 or (y) addresses state law regulatory risks to any extent, regardless of the date of preparation. The Company has not received any advice from any such consultant or advisor, including counsel, that varies materially from or is in conflict or inconsistent with the statements, substantive assessments or conclusions set forth in the White Paper. The White Paper reflects the Company’s good faith assessment of the matters set forth therein and does not misstate any material fact or omit to state any material fact required to be stated therein in order to make the statements made therein, under the circumstances under which they were made, not misleading.

3.7 Real Property.

(a)The Company does not own in fee any real property or interest in real property. Section 3.7 of the Company Disclosure Schedule sets forth a complete list of all real property and interests in real property leased by the Company (individually, a “Real Property Lease” and the real properties specified in such leases being referred to herein individually as a “Company Property” and collectively as the “Company Properties”) as lessee. The Company Property constitutes all interests in real property currently used or currently held for use in connection with, or which are necessary for the continued operation of, the business of the Company as currently conducted or proposed to be conducted. The Company has a valid and enforceable leasehold interest under each of the Real Property Leases, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). The Company has not received any notice of, and has no Knowledge of, any default or event that with notice or lapse of time, or both, would constitute a default under any of the Real Property Leases and the Company and each other party thereto is in compliance with the obligations of such party thereunder. All of the Company Property, buildings, fixtures and improvements thereon owned or leased by the Company are in good operating condition and repair (subject to normal wear and tear). The Company has delivered or otherwise made available to Parent true, correct and complete copies of the Real Property Leases, together with all amendments, modifications or supplements, if any, thereto.

(b)The Company has all certificates of occupancy and Permits of any Governmental Entity necessary or useful for the current use and operation of each Company Property, and the Company has fully complied with all conditions of the Permits applicable to it. No default or violation, or event that with the lapse of time or giving of notice or both would become a default or violation, has occurred in the due observance of any Permit.

(c)There does not exist any actual or, to the Knowledge of the Company, threatened or contemplated condemnation or eminent domain proceeding that affects Company Property or any part thereof, and the Company has not received any notice, oral or written, of the intention of any Governmental Entity or other Person to take or use all or any part thereof.

3.8Tangible Assets.

(a) Company Disclosure Schedule lists all leases of personal property (“Personal Property Leases”) relating to personal property used in the business of the Company as currently conducted or proposed to be conducted or to which the Company is a party or by which the properties of the Company are bound. The Company has delivered or otherwise made available to Parent true, correct and complete copies of the Personal Property Leases, together with all amendments, modifications or supplements thereto.

(b)The Company has a valid leasehold interest under each of the Personal Property Leases under which it is a lessee, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity), and there is no default under any Personal Property Lease by the Company or by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder, and the Company and each other party thereto is in compliance with all obligations of the Company or such other party, as the case may be, thereunder.

(c)The Company has good and marketable title to its property and assets as of the date hereof (which include, without limitation, all of the items of tangible personal property reflected in the Balance Sheet), free and clear of any and all Liens other than the Permitted Encumbrances. All tangible personal property of the Company, and all of the items of tangible personal property used by the Company under the Personal Property Leases, are in good condition and in a state of good maintenance and repair (ordinary wear and tear excepted) and are suitable for the purposes used. The Company's assets include all assets, rights and interests reasonably required for the continued conduct of the business of the Company as currently conducted or proposed to be conducted.

3.9Absence of Liabilities. The Company has no Liabilities except (a) to the extent specifically reflected and accrued for or specifically reserved against in the Balance Sheet, (b) for Liabilities incurred subsequent to the Balance Sheet Date in the ordinary course of business consistent with past custom and practice and (c) for liabilities specifically identified in Section 3.9 of the Company Disclosure Schedule. Without limitation of the foregoing, except as set forth on the Balance Sheet, the Company is not a party to any Contract for which the Company is liable for borrowed money either directly or indirectly, whether as principal, guarantor, indemnitor or otherwise, except for accounts payable incurred in the ordinary course of business.

3.10Litigation. Except as set forth in Section 3.10 of the Company Disclosure Schedule, there is no suit, action, proceeding, investigation, complaint or claim pending or, to the knowledge of the Company, threatened against the Company (or pending or threatened against any of the managers, officers, directors or key employees of the Company in relation to the Company or its business) before any court or other Governmental Entity or any arbitral tribunal, nor is there any basis for any such suit, action, proceeding, investigation, complaint or claim. Except as set forth in Section 3.10 of the Company Disclosure Schedule, the Company has not received any written opinion or memorandum or legal advice from legal counsel retained by the Company to the effect that it is exposed, from a legal standpoint, to any material Liability. The Company is not engaged in any legal action to recover monies due it or for damages sustained by it. Section 3.10 of the Company Disclosure Schedule sets forth a list of all closed litigation matters to which the Company was a party during the five (5) years preceding the date hereof, the date such litigation was commenced or concluded, and the nature of the resolution thereof (including amounts paid in settlement or judgment). The Company is not subject to any Order of any Governmental Entity.

3.11Taxes.

(1)The Company has timely filed all Tax Returns (as defined below) that it was required to file. All such Tax Returns were correct and complete in all respects. All Taxes (as defined below) owed by the Company (whether or not shown on any Tax Return) have been paid or adequate reserves for the payment thereof have been established therefor. The Company is not the beneficiary of any extension of time within which to file any Tax Return. No written notice has been received from a taxing authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Encumbrances on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax.

(2)The Company has withheld and paid to the appropriate taxing authority or other Governmental Entity all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.

(3)The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

(4)To the extent that the Company incurs Taxes after the date hereof with respect to periods ending on or prior to the Closing date, the Company shall pay all such Taxes on or prior to the Closing Date in compliance with all applicable laws and regulations, or if such Taxes are not yet due and payable on such date, the amount of such Taxes shall be accrued on the Closing Date Balance Sheet.

(5)With respect to each taxable period of the Company, either such taxable period has been audited by the relevant taxing authority or other relevant Governmental Entity or the time for assessing or collecting Taxes with respect to each such taxable period has closed and such taxable period is not subject to review by any relevant taxing authority or other relevant Governmental Entity.

(6)No deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Taxes has been asserted or assessed by any taxing authority or other Governmental Entity against the Company.

(7)There is no action, suit, Governmental Entity proceeding, or audit or claim for refund in progress, pending or threatened against or with respect to the Company regarding Taxes.

(8)The Company will not be required (A) as a result of a change in method of accounting for a taxable period ending on or prior to the Closing Date, to include any adjustment under Section 481(c) of the Code in taxable income for any taxable period (or portion thereof) beginning after the Closing or (B) as a result of any “closing agreement,” as described in Section 7121 of the Code, to include any item of income or exclude any item of deduction from any taxable period (or portion thereof) beginning after the Closing.

(9)The Company has not been a member of an affiliated group (as defined in Section 1504 of the Code), filed or been included in a combined, consolidated or unitary income Tax Return, and is not a partner, member, owner or beneficiary of any entity treated as a partnership or a trust for Tax purposes. The Company has no liability for Taxes of any person under regulation 1.1502-6 of the Code or similar state or local laws or any successor or transferee liability for Taxes.

(10)The Company is not a party to or bound by any Tax allocation or Tax sharing agreement and has no contractual obligation to indemnify any other Person with respect to Taxes.

(11)As a result of the Merger neither the Company nor Parent nor any Affiliate of either will be obligated to make a payment to a person that will be a “parachute payment” to a “disqualified individual” as those terms are defined in section 280G of the Code.

(12)The Company is not and has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

(13)True, correct and complete copies of all income and sales Tax Returns filed by or with respect to the Company for taxable periods ending on or after December 31, 2002 have been furnished or made available to Parent.

(14)The Company has not participated in any reportable transaction as contemplated in Treasury Regulations Section 1.6011-4.

(15)The Company has not taken any action that is not in accordance with past practice that could defer a liability for Taxes of the Company from any taxable period ending on or before the Closing Date to any taxable period ending after such date.

(16)The Company is not subject to Tax, nor does it have a permanent establishment in, any foreign jurisdiction.

(17)There is currently no limitation on the utilization of net operating losses, capital losses, built-in losses, tax credits or similar items of the Company under Sections 269, 382, 383, 384 or 1502 of the Code and the Treasury Regulations thereunder (and comparable provisions of state, local or foreign law).

(18)The Company has not been a party to any transaction governed by Section 355 of the Code.

As used herein, “Tax Returns” shall mean all returns and reports of or with respect to any Tax which are required to be filed by or with respect to the Company; “Taxes” shall mean all taxes, charges, imposts, tariffs, governmental fees, levies or other similar assessments or liabilities, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use transfers, licensing, employment, payroll and franchises imposed by a taxing authority under any statute, law, rule or regulation, and such terms shall include any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof “Taxes” also includes any transferee or secondary liability for Taxes and any liability pursuant to an agreement or otherwise, including liability arising as a result of being or ceasing to be a member of any affiliated group, or being included or required to be included in any Tax Return relating thereto.

3.12Employee Benefits.

(a)Section 3.12 of the Company Disclosure Schedule sets forth a complete and correct list of (i) all “employee benefit plans,” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and any other pension plans or employee benefit arrangements, programs or payroll practices (including without limitation severance pay, vacation pay, company awards, salary continuation for disability, sick leave, retirement, deferred compensation, bonus or other incentive compensation, stock purchase arrangements or policies, hospitalization, medical insurance, life insurance and scholarship programs) that is currently in effect or was maintained, sponsored or contributed to by the Company within the last six years to which the Company contributes or is obligated to contribute thereunder with respect to employees of the Company, or that has been approved before the date hereof but is not yet effective (“Employee Benefit Plans”) and (ii) all “employee pension plans,” as defined in Section 3(2) of ERISA, maintained by the Company or any trade or business (whether or not incorporated) which are under control of, or which are treated as a single employer with, the Company under Section 414(b), (c), (m) or (o) of the (“ERISA Affiliate”) or to which the Company or any ERISA Affiliate contributed or is obligated to contribute thereunder (“Pension Plans”) within the last six years. Section 3.12 of the Company Disclosure Schedule identifies, in separate categories, Employee Benefit Plans or Pension Plans that are (i) subject to Section 4063 and 4064 of ERISA (“Multiple Employer Plans”), (ii) multiemployer plans (as defined in Section 4001(a)(3) of ERISA) (“Multiemployer Plans”) or (iii) “benefit plans”, within the meaning of Section 5000(b)(1) of the Code providing continuing benefits after the termination of employment (other than as required by Section 4980B of the Code or Part 6 of Title I of ERISA and at the former employee’s or his beneficiary’s sole expense).

(b)Neither the Company nor any ERISA Affiliate maintains, sponsors, or contributes, or has, within the past six years, maintained, sponsored or had any obligation to contribute to, for the benefit of current or former employees a defined benefit plan subject to Title IV of ERISA, (ii) any Multiemployer Plan or (iii) any Multiple Employer Plan.

(c)Each of the Employee Benefit Plans and Pension Plans intended to qualify under Section 401 of the Code (“Qualified Plans”) so qualifies and has received a determination letter from the IRS to such effect and the trusts maintained thereto are exempt from federal income taxation under Section 501 of the Code and nothing has occurred or is expected to occur with respect to the operation of any such plan which caused or would cause the loss of such qualification or exemption or the imposition of any liability, penalty or tax under ERISA or the Code.

(d)All contributions and premiums required by Law or by the terms of any Employee Benefit Plan or Pension Plan or any agreement relating thereto have been timely made (without regard to any waivers granted with respect thereto) to any funds or trusts established thereunder or in connection therewith, and no accumulated funding deficiencies exist in any of such plans.

(e)There has been no violation of or failure to comply with ERISA or the Code with respect to the filing of applicable returns, reports, documents and notices regarding any of the Employee Benefit Plans or Pension Plans with the DOL, the IRS, the PBGC or any other Governmental Entity or the furnishing of such notices or documents to the participants or beneficiaries of the Employee Benefit Plans or Pension Plans.

(f)True, correct and complete copies of the following documents, with respect to each of the Employee Benefit Plans and Pension Plans, have been delivered to Parent: (A) any plans and related trust documents (all amendments thereto), investment management agreements, administrative service contracts, group annuity contracts, insurance contracts, collective bargaining agreements and employee handbooks, (B) the most recent Forms 5500 for the past three years and schedules thereto, (C) the most recent financial statements and actuarial valuations for the past three years, (D) the most recent IRS determination letter, (E) the most recent summary plan descriptions (including letters or other documents updating such descriptions) and (F) written descriptions of all non-written agreements relating to the Employee Benefit Plans and Pension Plans.

(g)There are no pending Legal Proceedings which have been asserted or instituted or, to the Knowledge of the Company, threatened against any of the Employee Benefit Plans or Pension Plans, the assets of any such plans or of any related trust or the Company, the plan administrator or any fiduciary of the Employee Benefit Plans or Pension Plans with respect to the operation of such plans (other than routine, uncontested benefit claims), and there are no facts or circumstances which could form the basis for any such Legal Proceeding. No Employee Benefit Plan or Pension Plan is under audit or investigation by the IRS, DOL, or any other Government Body and no such completed audit, if any, has resulted in the imposition of Tax, interest, or penalty.

(h)Each of the Employee Benefit Plans and Pension Plans complies with and has been maintained in accordance with its terms and all provisions of applicable Law, including ERISA and the Code, and all reporting and disclosure requirements have been satisfied on a timely basis.

(i)The Company and any ERISA Affiliate which maintains a “group health plan” within the meaning of Section 5000(b)(1) of the Code and each plan sponsor or administrator has complied with the COBRA reporting, disclosure, notice, election, and other benefit continuation and coverage requirements of Section 4980B of the Code or Part 6 of Title I of ERISA and the applicable regulations thereunder and any comparable state laws, and has not incurred any direct or indirect liability, and is not subject to any loss, assessment or excise tax, penalty, loss of federal income tax deduction or other sanction arising on account of or in respect of any direct or indirect failure at any time to comply with any such federal or state benefit continuation coverage requirements.

(j)Neither the Company nor a “party in interest” or “disqualified person” with respect to the Employee Benefit Plans or Pension Plans has engaged in a “prohibited transaction” within the meaning of Section 4975 of the Code or Section 406 of ERISA which has subjected or could subject the Company, any ERISA Affiliates, Parent, Parent or any trustee, administrator or other fiduciary to a tax penalty on prohibited transaction or any other liabilities with respect thereto.

(k)Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any employee; (ii) increase any benefits otherwise payable under any Employee Benefit Plan or Pension Plan; or (iii) result in the acceleration of the time of payment or vesting of any such benefits.

(l)No membership interest or other security issued by the Company forms or has formed a material part of the assets of any Employee Benefit Plan or Pension Plan.

(m)The consummation of the transactions contemplated by this Agreement will not give rise to any liability for termination of any agreements related to any Employee Benefit Plan or Pension Plan.

(n)No amounts payable under any Employee Benefit Plan and Pension Plan will fail to be deductible for federal income tax purposes by virtue of Section 280G of the Code.

(o)Each Employee Benefit Plan or Pension Plan that purports to provide benefits which qualify for tax-favored treatment under Sections 79, 105, 106, 117, 120, 125, 127, 129, and 132 of the Code satisfies the requirements of said Section(s).

(p)Each Employee Benefit Plan that purports to defer income complies with Section 409A of the Code, and the Company is not expected to have any future withholding tax obligations with respect to Code section 409A under any benefit plan.

(q)Each Employee Benefit Plan, or Pension Plan, its related trust and insurance agreement may be unilaterally amended or terminated on no more than 90 days notice.

3.13Labor.

(a)The Company is not a party to any labor or collective bargaining agreement and there are no labor or collective bargaining agreements which pertain to employees of the Company.

(b)No employees of the Company are represented by any labor organization. No labor organization or group of employees of the Company has made a pending demand for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the Knowledge of the Company, threatened to be brought or filed, with the National Labor Relations Board or other labor relations tribunal. There is no organizing activity involving the Company pending or, to the Knowledge of the Company, threatened by any labor organization or group of employees of the Company.

(c)There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) grievances or other labor disputes pending or, to the Knowledge of the Company, threatened against or involving the Company. There are no unfair labor practice charges, grievances or complaints pending or, to the Knowledge of the Company, threatened by or on behalf of any employee or group of employees of the Company.

(d)There are no complaints, charges or claims against the Company pending or, to the Knowledge of the Company, threatened which could be brought or filed, with any public or Governmental Entity based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by the Company, of any individual.

(e)The Company is in compliance with all Laws and Orders relating to the employment of labor, including all such Laws and orders relating to wages, hours, the Worker Adjustment and Retraining Notification Act and any similar state, local or foreign “plant closing” Law (“WARN”), collective bargaining, discrimination, civil rights, safety and health, worker’s compensation, payment of overtime wages and the collection and payment of withholding and/or social security taxes and any similar tax.

(f)There has been no “mass layoff” or “plant closing” as defined by WARN with respect to the Company within the six (6) months prior to making this representation.

(g)To the Knowledge of the Company, no executive, key employee, or group of employees currently has any plans to terminate employment with the Company independently of or as a result of this Agreement.

3.14Contracts. (a) Section 3.14 of the Company Disclosure Schedule sets forth all of the following Contracts to which the Company is a party or by which it is bound (collectively, the “Material Contracts”) and categorizes such Contracts by the types described below: (i) Contracts relating to the employment of any Person, or any bonus, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement, retention, severance, change of control or other employee benefit plan or arrangement, (ii) Contracts other than those described in clause (i) with any current or former officer, director or employee of the Company, or any Affiliate of the Company or any such Person; (iii) Contracts with any employee or labor union or association representing any employee; (iv) Contracts relating to future capital expenditures other than Contracts not exceeding $25,000 individually or $75,000 in the aggregate, (v) Contracts for the sale of any assets other than in the ordinary course of business; (vi) joint venture or partnership agreements; (vii) Contracts limiting the ability of the Company or any Subsidiary to engage in any line of business or to compete with any Person or to conduct business in any geographical area or to solicit any Person for employment, (viii) Contracts relating to the confidentiality or limitation on use of any information (other than confidentiality agreements executed in connection with the Company's exploration of strategic alternatives, including a possible sale or merger of the Company, with respect to which the Company has no material obligations other than standard confidentiality undertakings with respect to suitor-provided information); (ix) Contracts entered into within the last five years relating to the acquisition of any equity interests or assets of any other Person or the disposition of any assets other than in the ordinary course of business consistent with past practices; (x) Contracts relating to any indebtedness of the Company, including credit facilities, promissory notes, security agreements, and other credit support arrangements, (xi) Contracts relating to any loan (other than accounts receivable from trade debtors in the ordinary and usual course of business consistent with past custom and practice) or advance to (other than ordinary course travel allowances to the employees of the Company), or investments in, any Person; (xii) Contracts relating to any guarantee or other contingent Liability in respect of any indebtedness or obligation of any Person (other than the endorsement of negotiable instruments for collection in the ordinary and usual course of business consistent with past custom and practice), (xiii) (A) all customer Contracts currently in effect (listing all statements of work, task orders or similar documents currently in effect with respect to each such Contract) and (B) all currently outstanding written proposals to customers, (xiv) any license agreement relating in whole or in part to Intellectual Property (other than standard "off-the-shelf" or "shrink-wrap" license agreements), (xv) any Contract which involves aggregate payments of $25,000 or more or which is not cancelable without penalty within 120 days, (xvi) any Contracts not described above outside the ordinary and usual course of business consistent with past custom and practice and (xvii) any other Contracts, other than Real Property Leases and customer contracts, with respect to which the amount to be paid or received thereunder in the future could reasonably be expected to exceed $25,000 in any calendar year or $100,000 in the aggregate.

Correct and complete copies of the written Contracts required to be set forth in Section 3.14 of the Company Disclosure Schedule have previously been furnished to Parent. For purposes of the preceding sentence, an agreement, proposal or statement of work being performed by the Company that has been reduced to writing but has not been signed by the counterparty shall be considered a written Contract. Except as set forth in Section 3.14 of the Company Disclosure Schedule, all of the Material Contracts and Real Property Leases shall, following the Closing, remain enforceable by the Company and binding on the other parties thereto, without the consent, approval, novation or waiver of any third party, except that enforceability may be limited by any applicable statute of frauds, conduct of the Company from and after the Effective Time and any bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar law relating to or affecting the rights of creditors generally, which law may be in effect from time to time. The Company is not in default, nor has any event occurred which, with the giving of notice or the passage of time or both, would constitute a default, under any Material Contract or Real Property Lease or any other obligation owed by the Company, and, to the Knowledge of the Company, no event has occurred which, with the giving of notice or the passage of time or both, would constitute a default by any other party to any such Material Contract, Lease or obligation. Each of the Material Contracts and Real Property Leases is in full force and effect, is valid and enforceable in accordance with its terms, except that enforceability may be limited by any applicable statute of frauds, conduct of the Company from and after the Effective Time and any bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar law relating to or affecting the rights of creditors generally, which law may be in effect from time to time, and is not subject to any claims, charges, setoffs or defenses.

3.15Intellectual Property.

(a)The Company owns, free and clear from all Liens (other than Permitted Encumbrances) or otherwise possesses legally enforceable rights to use all of the Intellectual Property reasonably necessary to the conduct of business of the Company as currently conducted or proposed to be conducted. The Intellectual Property owned by the Company (“Owned Intellectual Property”) and the Intellectual Property licensed to the Company comprise all of the Intellectual Property that is or has at any time been used in or is reasonably necessary to conduct the business of the Company as currently conducted or proposed to be conducted.

(b)Section 3.15(b)(i) of the Company Disclosure Schedule sets forth a true, complete and correct list of all Owned Intellectual Property for which a registration or application has been filed with a Governmental Entity, including patents, trademarks, service marks and copyrights, issued by or registered with, or for which any application for issuance or registration thereof has been filed with, any Governmental Entity. Section 3.15(b)(ii) of the Company Disclosure Schedule sets forth a complete and correct list of all trademarks, service marks and other trade designations that are Owned Intellectual Property and not otherwise identified in Section 3.15(b)(i) of the Company Disclosure Schedule. Section 3.15(b)(iii) of the Company Disclosure Schedule also sets forth a complete and correct list of all written or oral licenses and arrangements (other than ordinary course licenses of commercially available software), (i) pursuant to which the use by any Person of Intellectual Property is permitted by the Company, and (ii) pursuant to which the use by the Company of Intellectual Property is permitted by any Person (collectively, the “Intellectual Property Licenses”). The Intellectual Property Licenses are in full force and effect.

(c)Nothing will interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any Intellectual Property rights of third parties as a result of the continued operation of the business of the Company as currently conducted or proposed to be conducted.

(d)To the Knowledge of the Company, no Intellectual Property that is Owned Intellectual Property or subject to any Intellectual Property License is being infringed by third parties. There is no claim or demand of any Person pertaining to, or any proceeding which is pending or, to the Knowledge of the Company, threatened, that challenges the rights of the Company in respect of any Owned Intellectual Property, or claims that any default exists under any Intellectual Property License.

(e)The Company has no Liability relating to (i) the creation by the Company or an employee or independent contractor of the Company of Intellectual Property in connection with the performance of services for a customer of the Company or (ii) any failure of the Company or any such employee or independent contractor to assign rights therein to such customer

(f)All computer programs and software, including source code, object code and databases, which are owned, used or licensed by the Company, and all computer programs and software, including source code, object code and databases, transferred by the Company to its respective customers or any other transferees, (i) conform with all specifications, representations, warranties, and other descriptions established by the Company or conveyed thereby to its customers or other transferees, (ii) are free of any defects, deficiencies, bugs, errors, viruses or other contaminants or corruptants which materially and adversely affect the principal functionalities as a whole, (iii) have been upgraded as necessary so that all thereof is functional on currently available platforms, and (iv) have been fully maintained by the Company on behalf of its customers and other transferees to their reasonable satisfaction; provided, however, this Section 3.15(f) does not apply to intellectual property that has been or is commercially available to the general public by third parties other than Company for ownership, license or use.

(g)All source and object codes relating to all of the products of the Company, and all modules, module works in process for new modules or derivative works or improvements on existing modules (collectively, the “Program Codes”) substantially conform to the principal functionalities intended for the end users of such Program Codes. No Person other than the Company possesses a copy, in any form (print, electronic or otherwise), of any of the Program Codes.

3.16Absence of Changes or Events. Except as specifically identified in Section 3.16 of the Disclosure Schedule as an event which is reasonably likely to give rise to a Material Adverse Effect, since December 31, 2004, there has been no Material Adverse Effect nor has there occurred any event which is reasonably likely to result in a Material Adverse Effect. Except as set forth in Section 3.16 of the Company Disclosure Schedule, since September 30, 2005, the Company has conducted its business and operations only in the ordinary and usual course of business consistent with past custom and practice and has incurred no Liabilities other than in the ordinary and usual course of business consistent with past custom and practice. Except as set forth in Section 3.16 of the Company Disclosure Schedule, since September 30, 2005 (and, with respect to clauses (c), (e), (l), (m) and (o), December 31, 2004), the Company has not:

(a)sold, assigned or transferred any asset or property right (other than sales of assets in the ordinary and usual course of business consistent with past practice), or mortgaged, pledged or subjected them to any Lien, charge or other restriction, except for Permitted Encumbrances;

(b)sold, assigned, transferred, abandoned or permitted to lapse any Permit or any of the Intellectual Property or other intangible assets of the Company, disclosed any material confidential information or trade secret to any person or granted any license or sublicense of any rights under or with respect to any Intellectual Property or other intangible assets;

(c)made or granted any increase in, or amended or terminated, any existing plan, program, policy or arrangement, including, without limitation, any Employee Benefit Plan or arrangement or adopted any new Employee Benefit Plan or arrangement or entered into any new collective bargaining agreement or multi-employer plan;

(d)conducted the cash management customs and practices (including the timing of collection of receivables and payment of payables and other current liabilities) and maintained the books and records of the Company other than in the usual and ordinary and usual course of business consistent with past custom and practice;

(e)made any material loans or advances to, or guarantees for the benefit of, or entered into any transaction with any employee, officer or director of the Company;

(f)suffered any extraordinary loss, damage, destruction or casualty loss or waived any rights of material value, whether or not covered by insurance and whether or not in the ordinary and usual course of business consistent with past practice;

(g)received notification, and the Company has no Knowledge, that any client, customer or supplier will, except as reflected in the 2006 Projection, (i) stop or decrease in any respect the rate of business done with the Company, (ii) make any or seek to make any other alteration to its relationship with the Company or (iii) seek to have any agreement, arrangement, contract or commitment amended or otherwise modified in a manner that has the effect of reducing the margins of the Company or otherwise adversely affects the Company;

(h)declared, set aside or paid any dividend or distribution of cash or other property to any stockholder or member or purchased, redeemed or otherwise acquired any Company Stock or made any other payments to any stockholder;

(i)amended or authorized the amendment of the organizational documents of the Company;

(j)waived any right or canceled or compromised any debt or claim, other than in the ordinary and usual course of business consistent with past practice;

(k)made (or incurred obligations to make) capital expenditures in an amount which exceeds $25,000 for any item or $100,000 in the aggregate;

(l)increased the compensation payable to any salaried employee except in the ordinary and usual course of business consistent with past practices;

(m)hired or terminated any senior management employee (whether or not in the ordinary and usual course of business consistent with past practice) who has an annual salary in excess of $100,000;

(n)borrowed any money (other than trade payables or other current expenses, all in the ordinary and usual course of business consistent with past practice) or issued any bonds, debentures, notes or other corporate securities evidencing money borrowed;

(o)adopted or made any change in any financial or Tax accounting methods, principles or practices or made or changed any Tax elections;

(p)engaged in any merger or consolidation with any other entity (or any transaction having a similar effect) or any acquisition of any business unit or operation (however effected) of any other Person;

(q)purchased any asset outside the ordinary course of business (other than as set forth in Section 3.16(k));

(r)engaged in any sale, lease or other conveyance of all or any portion of (or any interest in) any property owned by the Company outside the ordinary course of business consistent with past custom and practice; or

(s)committed, whether in writing or otherwise, to any of the foregoing.

3.17Environmental Matters.

(a)The operations of the Company are in compliance with all applicable Environmental Laws and all Permits issued pursuant to Environmental Laws or otherwise (“Environmental Permits”);

(b)The Company has obtained and currently maintains all Environmental Permits required under all applicable Environmental Laws necessary to operate its business;

(c)The Company is not the subject of any outstanding written Order or Contract with any Governmental Entity or other Person respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened Release of a Hazardous Material;

(d)The Company has not received any written communication alleging either that the Company may be in violation of any Environmental Law or Environmental Permit or that the Company may have any liability under any Environmental Law;

(e)The Company has not incurred, assumed or undertaken any current contingent liability in connection with any Release of any Hazardous Materials into the indoor or outdoor environment (whether on-site or off-site) and there are no facts, circumstances or conditions relating to, arising out of or attributable to the Company that could give rise to liability under Environmental Laws;

(f)There are no judicial or administrative proceedings pending or, to the Knowledge of the Company, threatened against the Company that allege a violation of, or seek to impose liability pursuant to, Environmental Laws or Environmental Permits and there are no investigations of the business, operations, or currently or previously owned, operated or leased property of the Company pending or, to the Company’s Knowledge, threatened which could result in the Company incurring any liability pursuant to any Environmental Law;

(g)There is not located at any of the properties of the Company any (i) underground storage tanks, (ii) asbestos-containing material or (iii) equipment containing polychlorinated biphenyls; and

(h)The Company has provided to Parent all environmentally related audits, studies, reports, analyses, and results of investigations that have been performed with respect to the currently or previously owned, leased or operated properties of the Company.

3.18Receivables; Payables.

(a)The accounts receivable of the Company reflected in the Financial Statements and/or Final Closing Net Assets Statement have arisen in bona fide arm’s-length transactions in the ordinary and usual course of business consistent with past custom and practice, and, subject to the allowance for doubtful accounts set forth in the Financial Statements or, if applicable, Final Closing Net Assets Statement, all such receivables are valid and binding obligations of the account debtors without any counterclaims, setoffs or other defenses thereto. All work-in-process or accrued billing reflected in the Financial Statements and/or Final Closing Net Assets Statement has been performed pursuant to a written or oral customer order or contract therefor and shall become accounts receivable in due course, except to the extent that any such order or contract fails to become an account receivable, in whole or in part, due to any action or inaction of the Company after the Effective Time.

(b)All accounts payable of the Company reflected on the Financial Statements and/or Final Closing Net Assets Statement are the result of bona fide transactions in the ordinary course of business and have been paid or are not yet due and payable, except for accounts payable that are being disputed in good faith in an appropriate manner.

3.19Related Party Transactions. Except as described in Section 3.19 of the Company Disclosure Schedule, the Company has not loaned or borrowed any amounts from and does not have outstanding any indebtedness or other similar obligations to or owing from any Affiliate of the Company. Neither the Company nor any Affiliate of the Company nor any officer or employee of any of them (i) owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee or partner of, or consultant to, or lender to or borrower from or has the right to participate in the profits of, any Person which is (A) a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Company, (B) engaged in a business related to the business of the Company, or (C) a participant in any transaction to which the Company is a party or (ii) is a party to any Contract with the Company other than any Contract related to the employment by the Company of such officer or employee of the Company. The Company does not have any Contract or understanding with any officer, director, employee or shareholder of the Company, or any Affiliate of any such Person, that is not disclosed in Section 3.14 of the Company Disclosure Schedule and that relates, directly or indirectly, to the subject matter of any Transaction Document or the consideration payable thereunder or that contains any terms, provisions or conditions relating to the Company’s entry into or performance of any Transaction Document (including any terms, provisions or conditions the consequences of which are dependent upon any of the matters addressed by Section 2.5).

3.20Clients; Projects. A true and accurate matrix listing, by product, each program operated by the Company for each pharmaceutical manufacturer, pharmacy or pharmacy chain with which the Company does business (whether or not pursuant to a written Contract) is listed in Section 3.20 of the Company Disclosure Schedule. Except as set forth on Section 3.20 of the Company Disclosure Schedule, no client or customer has cancelled or otherwise terminated reduced, or threatened to cancel or terminate or reduce, its relationship with the Company except as a consequence of the expiration of statements of work, tasks orders and the like that were not contemplated by the 2006 Financial Projection to be renewed. All current programs are proceeding according to plan and budget in all material respects and are expected to be completed in a materially timely manner.

3.21Insurance. Section 3.21 of the Company Disclosure Schedule includes a correct and complete list and description, including policy number, coverage and deductible, of all insurance policies owned by the Company, correct and complete copies of which policies have previously been delivered to Parent. Such policies are in full force and effect, all premiums due thereon have been paid and the Company is not in default thereunder. The Company has not received any notice of cancellation or intent to cancel or increase or intent to increase premiums with respect to such insurance policies nor is there any basis for any such action. All such insurance policies contain coverage that is reasonably adequate and prudent in light of the risks inherent in the Company’s and the Subsidiaries’ business. Section 3.21 of the Company Disclosure Schedule also contains a list of all pending claims and any claims in the past three (3) years with any insurance company by the Company and any instances within the previous three (3) years of a denial of coverage of the Company by any insurance company.

3.22Certain Agreements. (a) The only broker or finder that has acted for the Company in connection with this Agreement or the transaction contemplated hereby or that may be entitled to any brokerage fee, finder’s fee or commission in respect thereof is Blackstone. The Company is fully responsible for the payment of any and all amounts due to Blackstone, including by way of indemnification, pursuant to the Blackstone Agreement and Blackstone’s fees and expenses thereunder through the Closing Date have been paid by the Company (to the extent such fees have been due and payable prior to the date hereof) or shall be paid as provided in Section 2.4(b).

(b) The Company is fully responsible for the payment of any and all amounts due to the Exchange Agent, including by way of indemnification, pursuant to the Exchange Agreement and the Exchange Agent's fees and expenses thereunder through the Closing Date have been paid by the Company (to the extent such fees have been due and payable prior to the date hereof).

3.23No Misrepresentation. No representation or warranty of the Company contained in this Transaction Documents or in any exhibits or schedule thereto or in any certificate or other instrument furnished by the Company to Parent pursuant to the terms thereof, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

3.24  Joint Information Statement/Private Placement Memorandum. The information tobe supplied by or on behalf of the Company for inclusion in the Joint Information Statement/Private Placement Memorandum shall not at the time the Joint Information Statement/Private Placement Memorandum is distributed to Stockholders contain any untrue statement of a material fact or omit to state any material fact required to be stated in the Joint Information Statement/Private Placement Memorandum or necessary in order to make the statements in the Joint Information Statement/Private Placement Memorandum, in light of the circumstances under which they were made, not misleading. The information supplied by or on behalf of the Company for inclusion in the Joint Information Statement/Private Placement Memorandum shall not, on the date the Joint Information Statement/Private Placement Memorandum is first mailed to Stockholders and at the Effective Time, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made in the Joint Information Statement/Private Placement Memorandum not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the Merger which has become false or misleading. If at any time prior to the Effective Time any event relating to the Company or any of its Affiliates, officers or directors should be discovered by the Company which should be set forth in an amendment to the Joint Information Statement/Private Placement Memorandum or a supplement to the Joint Information Statement/Private Placement Memorandum, the Company shall promptly inform Parent.

ARTICLE 4REPRESENTATIONS AND WARRANTIES OF ARENT AND MERGER SUB

Parent and Merger Sub jointly and severally represent and warrant to the Company and the Stockholders as follows:

4.1Corporate Status of Parent and Merger Sub. Parent and Merger Sub are each duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with the requisite corporate power to own, operate and lease its properties and to carry on its business as now being conducted.

4.2Authority for Agreement. Parent and Merger Sub have the requisite corporate power and authority to enter into this Agreement and the other Transaction Documents and to consummate the transactions contemplated by this Agreement and the other Transaction Documents. The execution and delivery of this Agreement and the other Transaction Documents by Parent and Merger Sub and the consummation by Parent and Merger Sub of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement has been duly executed and delivered by Parent and Merger Sub and, assuming the due authorization, execution and delivery by the Company and the Stockholder Representative, constitutes the valid and binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub and the Stockholder Representative in accordance with its terms.

4.3No Conflict. The execution and delivery of the Transaction Documents by Parent and Merger Sub do not, and the consummation of the transactions contemplated by the Transaction Documents and compliance with the provisions of the Transaction Documents by Parent and Merger Sub will not, (i) conflict with the Certificate of Incorporation or by-laws (or comparable organizational documents) of Parent or Merger Sub, (ii) result in any breach, violation or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or creation or acceleration of any obligation or right of a third party or loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent or Merger Sub under, any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, license or other authorization applicable to Parent or Merger Sub or their respective properties or assets, or (iii) subject to the governmental filings and other matters referred to in the following sentence, conflict with or violate any law applicable to Parent or Merger Sub or their respective properties or assets or any judgment, order or decree to which Parent or Merger Sub or their respective properties or assets are subject. No authorization, consent or approval of, or filing with or notice to, any Governmental Entity is necessary for the execution and delivery of the Transaction Documents by Parent or Merger Sub or the consummation by Parent or Merger Sub of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and (ii) the filing of a pre-merger notification report under the HSR Act and any other documents or information requested by the United States Department of Justice or the United States Federal Trade Commission in connection therewith.

4.4SEC Reports. Since January 1, 2005 Parent has filed all required reports, schedules, forms, statements and other documents with the SEC (such documents filed since January 1, 2005, together with all exhibits and schedules thereto and documents incorporated by reference therein, collectively referred to herein as the "Parent SEC Documents"). As of their respective dates, Parent SEC Documents complied (or will comply, in the case of Parent SEC Documents filed prior to the Closing) in all material respects with the requirements of the Securities Act, or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to Parent SEC Documents, and none of Parent SEC Documents contained (or will contain, in the case of Parent SEC Documents filed prior to the Closing) 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 Parent included in Parent SEC Documents, as of their respective dates, complied (or will comply, in the case of Parent SEC Documents filed prior to the Closing) in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared (or will be prepared, in the case of Parent SEC Documents filed during the Closing Period) in accordance with GAAP (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present (or will fairly present, in the case of Parent SEC Documents filed prior to the Closing) the financial position of Parent and its consolidated subsidiaries as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and other adjustments described therein that are not expected by Parent to be material individually or in the aggregate).No Material Adverse Effect has occurred with respect to Parent since September 30, 2005.

4.5Availability of Funds. Parent has financial resources available to fund the payment of the Purchase Price hereunder.

4.6No Undisclosed Liabilities. Except as disclosed in the Parent SEC Documents filed prior to the date hereof, and except for liabilities incurred since September 30, 2005 in the ordinary course of business consistent with past practices, Parent and its subsidiaries do not have any liabilities, either accrued, contingent or otherwise (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due or to become due, which individually or in the aggregate, are reasonably likely to have a Material Adverse Effect on Parent and its subsidiaries, taken as a whole.

4.7 Litigation. Except as described in the Parent SEC Documents filed prior to the date hereof, there is no action, suit or proceeding, claim, arbitration or investigation against Parent or any of its subsidiaries pending or as to which Parent or any such subsidiary has received any written notice of assertion, which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on Parent and its subsidiaries, taken as a whole, or a material adverse effect on the ability of Parent to consummate the transactions contemplated by this Agreement.

4.8Compliance With Laws. Parent and each of its subsidiaries has complied with, is not in violation of, and has not received any notices of violation with respect to, any federal, state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business, except for failures to comply or violations which, individually or in the aggregate, have not had and are not reasonably likely to have a Material Adverse Effect on Parent and its subsidiaries, taken as a whole.

4.9 Joint Information Statement/Private Placement Memorandum. The information tobe supplied by Parent for inclusion in the Joint Information Statement/Private Placement Memorandum shall not at the time the Joint Information Statement/Private Placement Memorandum is distributed to Stockholders contain any untrue statement of a material fact or omit to state any material fact required to be stated in the Joint Information Statement/Private Placement Memorandum or necessary in order to make the statements in the Joint Information Statement/Private Placement Memorandum, in light of the circumstances under which they were made, not misleading. The information supplied by Parent for inclusion in the Joint Information Statement/Private Placement Memorandum shall not, on the date the Joint Information Statement/Private Placement Memorandum is first mailed to Stockholders and at the Effective Time, contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made in the Joint Information Statement/Private Placement Memorandum not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the Merger which has become false or misleading. If at any time prior to the Effective Time any event relating to Parent or any of its Affiliates, officers or directors should be discovered by Parent which should be set forth in an amendment to the Joint Information Statement/Private Placement Memorandum or a supplement to the Joint Information Statement/Private Placement Memorandum, Parent shall promptly inform the Company.

4.10Status of the Shares of Parent Common Stock. The shares of Parent Common Stock to be issued hereunder have been duly authorized and, when issued in accordance with this Agreement, will be validly issued, fully paid and nonassessable shares of Parent Common Stock and will be free and clear of all Encumbrances created by or through Parent other than transfer restrictions arising as a matter of law. The issuance and delivery of the shares of Parent Common Stock issued hereunder are not subject to any preemptive right or right of first refusal arising under Parent’s charter documents.

4.11 No Brokers. Parent has no Liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Company or its Stockholders shall have any Liability.

4.12Exempt Issuance. Assuming the accuracy, as of the date of each issuance of shares of Parent Common Stock hereunder, of the information provided to Parent and the Exchange Agent by the Stockholders in the Accredited Status Questionnaires completed by the Stockholders in connection with the Merger, the issuance of shares of Parent Common Stock in the manner contemplated by this Agreement will be exempt from the registration requirements of the Securities Act, as in effect on the date hereof.

ARTICLE 5.CONDUCT PRIOR TO THE EFFECTIVE TIME

5.1Conduct of Business of the Company. Between the date hereof and the Effective Time or the date, if any, on which this Agreement is earlier terminated pursuant to its terms, the Company shall (a) conduct its business and operations only in the ordinary and usual course of business consistent with past custom and practice and incur no Liabilities other than in the ordinary and usual course of business consistent with past custom and practice, (b) pay its debts and taxes when due, subject to good faith disputes over such debts or taxes that are contested by appropriate proceedings that do not result in the forfeiture of, or the imposition of any Lien on, any property or rights of the Company, (c) use all reasonable efforts consistent with past practices and policies to preserve intact the Company’s present business organization, to keep available the services of its present officers and employees and to preserve its relationships with customers, suppliers and others having business relationships with it, to the end that the Company’s goodwill and ongoing business be unimpaired at the Effective Time, (d) promptly notify Parent of any event or occurrence (i) that is not in the ordinary course of business of the Company which will result or could reasonably be expected to result in costs to the Company, individually or in the aggregate, in excess of $25,000 or (ii) that could reasonably be expected to prevent or materially delay the consummation of the transactions contemplated hereunder, (e) not issue (i) any Company Stock other than shares of Common Stock issued upon exercise of Outstanding Options that are not cancelled pursuant to Section 6.5 or (ii) any options, warrants, equity securities, calls, rights, commitments or agreements obligating the Company to issue any Company Stock and (f) not take or omit to take any action the taking or omission of which would prevent cause any representation or warranty contained in Section 3.16 to be untrue.

5.2Acquisition Proposals. The Company will not (and the Company will cause its Affiliates and any other Person acting on its behalf not to):

(i)directly or indirectly, solicit, initiate or knowingly facilitate or encourage the making by any Person (other than Parent) of any inquiry, proposal or offer that constitutes or would reasonably be expected to lead to, a proposal for any merger, consolidation, recapitalization, reorganization, share exchange, business combination, liquidation, dissolution or similar transaction involving the Company and a third party, or any acquisition by a third party of any the Shares or any business or assets of the Company, or any combination of the foregoing, in a single transaction or a series of related transactions (in each case, an “Acquisition Proposal”);

(ii)directly or indirectly, participate or engage in discussions or negotiations concerning an Acquisition Proposal (and the Company shall immediately cease and cause to be terminated any existing discussions or negotiations with any third parties conducted heretofore with respect to any Acquisition Proposal), or furnish or disclose to any Person any information with respect to or in furtherance of any Acquisition Proposal, or provide access to its properties, books and records or other information or data to any Person with respect to or in furtherance of any Acquisition Proposal; or

(iii)execute or enter into any agreement, understanding or arrangement with respect to any Acquisition Proposal, or approve or recommend or propose to approve or recommend any Acquisition Proposal or any agreement, understanding or arrangement relating to any Acquisition Proposal (or resolve or authorize or propose to agree to do any of the foregoing actions).

ARTICLE 6.ADDITIONAL AGREEMENTS

6.1Expenses. Each party hereto shall be responsible for its own costs and expenses in connection with the Merger, including fees and disbursements of consultants, investment bankers and other financial advisors, brokers and finders, counsel and accountants. If the Merger is consummated, all such costs and expenses will either be paid from the Initial Cash Amount as provided in Section 2.4 or reflected on the Final Closing Net Assets Statement.

6.2Access and Information. (a) The Company and Parent shall afford to the other and to the other’s officers, employees, accountants, counsel and other authorized representatives full and complete access, upon 24 hours advance telephone notice, during regular business hours, throughout the period prior to the earlier of the Effective Time or the termination of this Agreement, to its offices, properties, books and records, and shall use reasonable efforts to cause its representatives and independent public accountants to furnish to the other party such additional financial and operating data and other information as to its business, customers, vendors and properties as the other party may from time to time reasonably request. The Company and Parent shall exercise such rights in a manner so as not to interfere unreasonably with the normal business operations of the other.

(b) During the period from the date of this Agreement through the Closing Date, the Company shall provide Parent, as soon as reasonably practicable, with (i) any communications, advice or other material information relevant to regulatory developments or legal compliance matters and (ii) information regarding any developments, positive or negative, that bear materially on the Company's projected financial results for 2006, in each case to the extent received by the Company, any member of senior management or the Stockholder Representative.

6.3Employment and Benefit Plans. If the Closing occurs, from the Closing Date until the earlier of January 1, 2009 and the first Final Earnout Amount Determination Date on which it is determined that no Earnout Amount is payable, Parent will cause the Company to provide to Persons employed by the Company immediately prior to the Effective Time who continue such employment following the Effective Time (collectively, the "Employees"), except as otherwise consented to by the Stockholder Representative, (i) compensation at the general compensation levels prevailing as of the Effective Time and (ii) benefits that are substantially comparable in the aggregate to the benefits by the benefit plans listed in Section 6.3 of the Company Disclosure Schedule). If the Closing occurs, for all purposes under the employee benefit plans of Parent and its Affiliates providing benefits to any Employee after the Effective Time (the "New Plans"), each Employee will receive credit for his or her service with the Company and its Affiliates before the Effective Time (including predecessor or acquired entities or any other entities for which the Company and its Affiliates have given credit for prior service), for purposes of eligibility, vesting and benefit accrual (but not (i) for purposes of eligibility for subsidized early retirement benefits, (ii) for purposes of benefit accrual under defined benefit pension plans, and (iii) for any new program for which credit for benefit accrual for service prior to the effective date of such program is not given to similarly situated employees of Parent other than the Employees) to the same extent as such Employee was entitled, before the Effective Time, to credit for such service under any similar or comparable Company benefit plan (except to the extent such credit would result in a duplication of accrual of benefits). Notwithstanding the foregoing, if requested by Parent at least 5 days prior to the Closing Date, the Company agrees to adopt board resolutions terminating its 401(k) plan immediately prior to Closing Date.  Parent agrees not to make such a request unless materials delivered by Company after the signing of this Agreement evidence previously undisclosed liabilities.

6.4Reasonable Efforts. (a) Subject to terms and conditions herein provided, each of the parties agrees to use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the Merger and the other transactions contemplated by this Agreement. Without limiting the generality of the foregoing, the Company and Parent each will use all reasonable efforts to obtain all approvals, authorizations, consents and waivers from, and give all notices to, any public or private third parties that are necessary on its part in order to effect the transactions contemplated hereby.

(b) Parent and the Company will (i) not later than five (5) business days after the Agreement Date, make the filings required of such party under the HSR Act with respect to the Transaction and the other transactions contemplated by this Agreement, (ii) comply at the earliest practicable date with any request under the HSR Act for additional information, documents or other materials received by such party from the Federal Trade Commission or the Department of Justice or any other Governmental Entity in respect of such filings or the Transaction and the other transactions contemplated by this Agreement, and (iii) cooperate with the other party in connection with making any filing under the HSR Act and in connection with any filings, conferences or other submissions related to resolving any investigation or other inquiry by any such Governmental Entity under the HSR Act or other law with respect to the Transaction and the other transactions contemplated by this Agreement. Each of Parent and the Company will cause each of their respective Affiliates to use its reasonable best efforts to obtain (and will cooperate with each other in obtaining) the termination of all waiting periods under the HSR Act and not to extend any waiting period under the HSR Act. Prior to the termination of this Agreement, each party will prosecute, cooperate in and defend against any litigation instituted by the Federal Trade Commission or the Department of Justice or any other Governmental Entity that seeks to restrain or prohibit the consummation of the Transaction or that seeks to impose material limitations on the ability of Parent, the Company or any of their respective Affiliates to acquire, operate or hold, or to require Parent, the Company or any of their respective Affiliates to dispose of or hold separate, any material portion of their assets or business or the Company's assets or business after the Effective Time.

6.5Stock Options. Prior to the Closing, the Company shall issue a notice to each holder of Company Options of the acceleration, contingent upon the Closing, of the time for exercise of all unexercised and unexpired Company Options (including unvested Company Options) to the date that is ten (10) business days prior to the Closing and advising each holder of Company Options that the Company shall deem such Company Options exercised immediately prior to the Effective Time and the holders thereof to have accepted from the Company an Option Loan equal to the Option Exercise Prices of such Company Options. The Company shall provide the holders of all Company Options with any other notices required to be given to such holders in connection with the consummation of the Merger pursuant to the terms of the Company Options, except to the extent that such notice requirements have been waived by such holders. All Option Loans shall be paid out of the proceeds payable to the exercising holders of such Company Options as provided in Section 2.6(4) above, and any related security or pledge agreements covering the shares of Common Stock pledged in connection with such Option Loans shall be terminated upon payment of such loans as aforesaid. For Tax reporting purposes, compensation deductions arising from the initial exercise of the Company Options shall be reported as pre-Closing deductions and compensation deductions arising from the payment of Additional Merger Consideration shall be reported as post-Closing deductions.

6.6Conduct of the Business During the Earnout Period. (a) The Surviving Corporation shall be controlled by a Board of Directors, elected or appointed, directly or indirectly, by Parent (the "Board") and the operation of the Surviving Corporation shall be subject to the plenary control of the Board. Ultimate authority for all decisions affecting the Business shall rest with the Board or its designees.

(b) Until January 1, 2009, except as expressly contemplated by this Agreement or consented to by the Stockholder Representative, (i) Parent will cause the business of the Surviving Corporation to be operated as a standalone business, (ii) Parent will act in good faith with respect to the operation of the Surviving Corporation’s business and the calculation of the Earnout Amounts and (iii) Parent will not, and will not cause the Surviving Corporation to, take any action or enter into any agreement or commitment with respect to the Surviving Corporation that artificially increases or decreases the amount of any Earnout Amount.

(c) Without in any way limiting the provisions of Section 6.6(b) above, until January 1, 2009, except as expressly contemplated by this Agreement or consented to in writing by the Stockholder Representative:

(i)neither Parent nor the Stockholder Representativeshall, or shall cause the Surviving Corporation to, enter into any agreements on terms inconsistent with past practices that has the effect of artificially shifting revenues or expenses into or out of the Surviving Corporation during any period with respect to which an Earnout Amount is calculated;

(ii)neither Parent nor the Stockholder Representativeshall cause the Surviving Corporation to (A) sell, lease, spin off, or otherwise dispose of all or any material amount of the Surviving Corporation’s assets other than (1) in the ordinary course of business consistent with past practice or (2) non-performing assets or assets relating to operations discontinued or to be discontinued or (B) become a party to any merger or, consolidation, or commence voluntary liquidation proceedings with respect to the Surviving Corporation, except, in the case of Parent, for the purpose of reincorporating the Surviving Corporation in another jurisdiction;

(iii)neither Parent nor the Stockholder Representative shall cause the Surviving Corporation to make any investment outside of the ordinary course of business of the Surviving Corporation (consistent with past practices) involving an aggregate amount of $100,000 or more (which amount includes the amount of assumed Liabilities), including without limitation any creation or acquisition of a new line of business, whether by merger, joint venture, purchase of assets or securities or otherwise;

(iv)neither Parent nor any other controlled Affiliate of Parent (other than a wholly owned subsidiary of the Surviving Corporation) shall create any entity which competes with the pharmacy chain patient refill reminder business of the Surviving Corporation, as currently conducted by the Company, and neither Parent nor any other controlled Affiliate of Parent (other than a wholly owned subsidiary of the Surviving Corporation) shall assist any entity which Parent does not control to create any entity that competes with such business (it being understood that the conduct of a so-called “opt-in” program, including such a program involving patient persistence or compliance, will not be deemed to be competitive with such business if, and only if, such program does not access or otherwise use the Company’s pharmacy chain based data or data obtained directly from pharmacy chains;

(v)neither Parent nor any other controlled Affiliate of Parent (other than a wholly owned subsidiary of the Surviving Corporation) shall cause or permit the Surviving Corporation to transfer all or any portion of the Surviving Corporation’ business with any client or customer to Parent or any of its other controlled Affiliates;

(vi)in the event Parent or nor any other controlled Affiliate of Parent (other than a wholly owned subsidiary of the Surviving Corporation) provides the Surviving Corporation with any business services, such services shall be charged to the Surviving Corporation at rates no higher than the Surviving Corporation would incur on a stand-alone basis in accordance with existing practice, provided that nothing herein shall prevent Parent from providing to the Surviving Corporation the services contemplated by paragraphs (b) through (e) of Schedule 1.2(A) or allocating the costs of such services to the Surviving Corporation in the manner contemplated by said paragraphs (b) through (e);

(vii)except as contemplated by the preceding clause (vi) or Schedule 1.2(A), all agreements and transactions between Parent or any controlled Affiliate of Parent (other than a wholly owned subsidiary of the Surviving Corporation) and the Surviving Corporation shall be entered into solely on arm’s length and commercially reasonable terms;

(viii)Parent shall not permit the Surviving Corporation to have insufficient capital for budgeted marketing, development, ordinary course capital expenditures and general operations or carrying out any business plans, provided that the applicable budget or business plan has been approved by the Board of Directors of Parent; and

(ix)Parent shall not cause the Surviving Corporation to bundle sales of the Surviving Corporation’ products and services with any products or services of Parent or any controlled Affiliate of Parent (other than a wholly owned subsidiary of the Surviving Corporation);

(x)Parent shall not permit the Surviving Corporation to make any changes to its Certificate of Incorporation or by-laws that affect the liability or indemnification rights of any officers or directors of the Surviving Corporation; and

(xi)Parent shall cause the Company to maintain insurance, including insurance covering regulatory liabilities, that is generally consistent with the Company's recent historical practice to the extent commercially available at a reasonable cost.

(d) Notwithstanding the foregoing, in no event shall Parent or any Affiliate of Parent be prohibited from (A) engaging in transactions with the Surviving Corporation in the ordinary course of business of Parent or such Affiliate, including treasury operations, that do not affect the calculation of any Earnout Amount, or any other transactions on arms'-length terms or (B) requiring the Key Employees to devote a reasonable amount of time to Parent-level management coordination and review, including participation in inter-division meetings and preparation therefor.

(e) During the Earnout Period, the executive bonus performance level and payment terms shall generally be in accordance with past practice, and the consent of Parent will be required for the payment of any executive bonus compensation other than up to $150,000 in bonuses to be paid with respect to the Company's 2005 fiscal year, provided that Parent's consent to the payment of bonuses consistent with the 2006 bonus levels approved by the Company prior to the date hereof shall not be unreasonably withheld. The consent of Stockholder Representative will be required for any increases in aggregate bonus awards to executive officers outside the ordinary course of business prior to January 1, 2009. During the Earnout Period, the consent of Parent will be required for any capital expenditures materially in excess of (i) for 2006, the amount set forth in the Company's 2006 plan submitted to Parent prior to the date hereof and (ii) for 2007 and 2008, amounts consistent with past practice and the growth of the Business.

(f) The restrictions contained in clauses (ix) and (xi) of Section 6.6(b) may be waived by the Senior Officer. The restrictions contained in clauses (xi) shall cease to have any force or effect if there is no Senior Officer. The restrictions contained in clauses (ix) shall not apply if (I) there is no Senior Officer and (II) the effect of the bundling does not reduce the price of the Surviving Corporation’s products or services to below 90% of what would otherwise have been charged for such products or services. Except as provided in the three preceding sentences, any restriction on Parent or any of its Affiliates set forth in Section 6.6(b) may be waived or modified by the Stockholder Representative (including, with respect to clause (ix), where the conditions in the preceding sentence are not satisfied). As used herein, “Senior Officer” means Mike Evanisko or, if Mike Evanisko is no longer serving as an executive officer of the Company, Dan Rubin or, if neither Mike Evanisko nor Dan Rubin is serving as an executive officer of the Company, Howie Rodenstein for so long as he is serving as an executive officer of the Company.

6.7 Public Announcements. Upon execution of this Agreement, Parent may issue a press release and/or other public announcement with respect thereto, provided that the Stockholder Representative is first provided with a reasonable opportunity to review and comment on such press release. Prior to the Closing, Parent may make any other public disclosure it believes in good faith is required by law or any listing or trading agreement or rules concerning its publicly traded securities, in each case after providing the Stockholder Representative with a reasonable opportunity to review and comment on such public disclosure and may make other external communications consistent with disclosure that has previously been so reviewed by the Stockholder Representative. From and after the execution of this Agreement (until such time as this Agreement is terminated), the Company will not, and will cause its Affiliates not to, issue any press release or otherwise make any similar public announcement with respect to the transactions contemplated by this Agreement without the prior written consent of Parent (not to be unreasonably withheld or delayed).

6.8No Code Section 338 Election. Neither Parent, Merger Sub or any of their Affiliates shall make any election under Code Section 338 with respect to the transactions contemplated by this Agreement.

ARTICLE  7.CONDITIONS TO CLOSING

7.1Closing Conditions of Merger Sub and Parent.  The Closing and the obligations of Merger Sub and Parent hereto to effect the Merger shall be subject to the fulfillment of the following conditions:

(a)Stockholder Approval shall have been obtained for the Merger;

(b)no judgment or order shall have been entered by any Governmental Entity of competent jurisdiction and shall be in effect that prevents the consummation of the Merger, provided that the Company shall have used its reasonable best efforts to prevent the entry of any such a judgment or order and to appeal as promptly as possible any such judgment or order that may be entered;

(c)30 days (or such lesser number of days as shall be permissible under the Certificate of Incorporation of the Company, including the Certificates of Designation of each series of Preferred Stock) shall have elapsed since the giving to the holders of each series of Preferred Stock of the written notice of the Merger required with respect to such series in accordance with the terms of the Certificate of Incorporation;

(d)the Board of Directors of the Company shall have adopted a resolution (which may be contingent upon the closing of the Merger) accelerating the time for exercise of all unexercised and unexpired Company Options (including unvested Company Options) and the notice to holders of Company Options required by Section 6.5 shall have been timely given;

(e)the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects, except for representations and warranties of the Company that are qualified by materiality, Knowledge or Material Adverse Effect, which shall be true and correct, in each case when made and on and as of the Closing Date, as though made on and as of the Closing Date (provided that (i) the accuracy as of the Closing Date of the representations and warranties contained in fifth sentence of Section 3.5 and in the first sentence of Section 3.20 shall not be a condition to Closing and (ii) the accuracy as of the Closing Date of the representations and warranties contained in Section 3.16(g) and the second sentence of Section 3.20 shall not be a condition to Closing except to the extent any inaccuracy results, or could reasonably be expected to result, in a Material Adverse Effect); the Company shall have performed and complied in all material respects with the covenants and agreements required by this Agreement to be performed or complied with by the Company prior to or at the Closing; and Parent shall have been furnished with a certificate dated the Closing Date signed on behalf of the Company by an executive officer and on behalf of the Stockholders by the Stockholder Representative to the foregoing effect;

(f)the Company, the Stockholder Representative and the Exchange Agent shall have executed the Exchange Agreement;

(g)the Company, the Stockholder Representative and the Escrow Agent shall have executed the Escrow Agreement;

(h)the Feinberg Law Group, LLC, counsel to the Company, shall have delivered its opinion in the form attached as Exhibit E hereto;

(i)the total number of Dissenting Shares, exclusive of shares held by Grey Ventures, Inc. or any of its Affiliates (or any other person or entity acting in concert with Grey Ventures, Inc. or any such Affiliates) shall not be greater than or equal to 2.5% of the total number of shares of Company Stock outstanding immediately prior to the Effective Time, calculated on an as converted basis;

(j)the waiting period applicable to the consummation of the Merger under the HSR Act, if any, shall have expired or terminated,

(k)the Investment Agreements shall have been terminated pursuant to instruments or actions reasonably satisfactory to Parent and its counsel;

(l)the Company shall have provided to Parent a statement, meeting the requirements of Treasury Regulation Section 1.1445-2(c)(3), certifying that none of the stock of the Company constitutes a United States real property interest within the meaning of Section 897;

(o)Parent shall have received a letter from Blackstone confirming (A) that it shall not seek to recover any amounts under or with respect to the engagement letter agreement between Blackstone and the Company dated September 8, 2004 from Parent or Merger Sub or, following the Closing, the Company or any of their respective Affiliates (other than the Shareholders) in excess of the Closing Date payment identified on the Specified Liabilities Schedule and (B) the waiver and release of any other post-closing obligation of the Company under such engagement letter;

(p)there shall be no more than 35 non-accredited investors included in the Persons who may be entitled to receive any portion of the non-cash Merger Consideration;

(q)Parent shall have received from the Company a financial forecast for the Company’s 2006 fiscal year prepared as of a date no earlier than five business days prior to the Closing Date and such financial forecast shall not reflect any Material Adverse Effect as compared to the 2006 Financial Projection; and

(r)Parent shall have received from the Company a true and accurate matrix listing, by product, each program operated by the Company for each pharmaceutical manufacturer, pharmacy or pharmacy chain with which the Company does business (whether or not pursuant to a written Contract) prepared as of a date no earlier than five business days prior to the Closing Date and such financial forecast shall not reflect any Material Adverse Effect as compared to the matrix included in Section 3.20 of the Company Disclosure Schedule.

7.2Closing Conditions of the Company.The Closing and the obligations of the Company hereto to effect the Merger shall be subject to the fulfillment of the following conditions:

(a)no judgment or order shall have been entered by any Governmental Entity of competent jurisdiction and shall be in effect that prevents the consummation of the Merger, provided that the Company shall have used its reasonable best efforts to prevent the entry of any such a judgment or order and to appeal as promptly as possible any such judgment or order that may be entered;

(b)the representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and correct in all material respects, except for representations and warranties of Parent and Merger Sub that are qualified by materiality, Knowledge or Material Adverse Effect, which shall be true and correct, in each case when made and on and as of the Closing Date, as though made on and as of the Closing Date; Parent and Merger Sub shall have performed and complied in all material respects with the covenants and agreements required by this Agreement to be performed or complied with by them prior to or at the Closing; and the Company shall have been furnished with a certificate dated the Closing Date signed on behalf of Merger Sub by an executive officer of Parent and on behalf of Parent by an executive officer of Merger Sub;

(c)Parent and the Exchange Agent shall have executed the Exchange Agreement;

(d)the Company and the Escrow Agent shall have executed the Escrow Agreement;

(e)Akerman Senterfitt LLP, counsel to Parent and Merger Sub, shall have delivered its opinion in the form attached as Exhibit F hereto; and

(f)the waiting period applicable to the consummation of the Merger under the HSR Act, if any, shall have expired or terminated.

ARTICLE 8.INDEMNIFICATION

From and after the Effective Time, the parties shall be indemnified as set forth below:

8.1Indemnification of Parent and the Surviving Corporation.Parent, the Surviving Corporation and their respective Affiliates, the directors, officers, employees, affiliates, agents and representatives of the foregoing and the successors and assigns thereof (collectively, the "Parent Indemnitees") shall be entitled to reimbursement and indemnification by the Stockholders from and against any and all claims, liabilities, obligations, losses, fines, costs, proceedings or damages (whether absolute, accrued, conditional or otherwise and whether or not resulting from third party claims), including all reasonable fees and disbursements of counsel but excluding any allocation of internal compensation costs, incurred in the investigation or defense of any of the same or in asserting any of their respective rights hereunder (collectively, “Losses”), resulting from or arising out of the following matters, regardless of any investigation made at any time by or on behalf of any Parent Indemnitee, or any information any Parent Indemnitee may have (including, with respect to paragraphs (3) and (4) below, any information disclosed in the Company Disclosure Schedule regarding regulatory matters or litigation or the risks and uncertainties relating thereto):

(1)any misrepresentation or breach of any warranty (other than breaches of Section 3.11, which shall be governed by Article 9) of the Company or any Stockholder (whether or not in such Stockholder’s capacity as such) contained in the Transaction Documents; provided that in determining whether any such misrepresentation or breach occurred, any dollar amount thresholds, materiality qualifiers and Material Adverse Effect qualifier contained in any representation or warranty therein shall be disregarded;

(2)any breach by the Company or the Stockholder Representative of any covenant or agreement made or contained in the Transaction Documents;

(3)except (A) as specifically set forth on the Final Net Assets Statement and (B) obligations of the Company to be paid or performed after the Closing Date under the existing Real Property Lease and the Material Contracts (except to the extent such obligations, but for a breach or default by the Company, would have been paid, performed or otherwise discharged on or prior to the Closing Date or to the extent the same arise out of any such breach or default), any Liabilities of the Company or any of its Affiliates of any kind or nature whatsoever, including (i) any Liabilities arising out of, relating to, resulting from, any failure of the Company or any of its Affiliates to comply in all respects with applicable Law (including the Health Insurance Portability & Accountability Act of 1996, the Federal Health Care Programs Antikickback Law and corresponding state Laws) at all times from the formation of the Company through the Effective Time or (ii) caused by any other transaction, status, event, condition, occurrence or situation existing, arising or occurring on or prior to the Closing Date;

(4)the matters disclosed or required to be disclosed in Section 3.10 of the Company Disclosure Schedule;

(5)any and all amounts payable to Blackstone with respect to the Blackstone Agreement or to the Exchange Agent pursuant to the Exchange Agreement; and

(6)any and all Losses arising under Section 262 of the DGCL or required to be paid by any Parent Indemnitee as a consequence of or in connection with any proceeding brought pursuant thereto with respect to any Dissenting Shares.

For purposes of the preceding clause (4) only, “Losses” shall exclude any portion of a judgment or award attributable to the post-Closing conduct of the Company or any of its Affiliates and shall not include any claim for consequential damages arising from a change in the business operations of the Company in response to any such judgment or award (whether attributable to the pre-Closing or post-Closing conduct of the Company). For purposes of the preceding clause (5), “Losses” shall consist of (x) any amount by which the aggregate awards to claimants in all proceedings under Section 262 of the DGCL exceeds the Merger Consideration allocable to the Company Stock held by such claimants and (y) all other expenses (reasonable attorneys’ fees and disbursements, court costs, etc.) incurred by any Parent Indemnitee in connection with such proceedings. In the event the aggregate awards to claimants in all proceedings under Section 262 of the DGCL is less than the Merger Consideration allocable to the Company Stock held by such claimants, the difference will be offset against any Losses described in clause (y) of the preceding sentence and any excess over such Losses will be paid by Parent to the Stockholder Representative for the account of the Stockholders.

8.2Indemnification of the Stockholders.Parent and Merger Sub, jointly and severally, covenant and agree with the Company that they shall reimburse and indemnify and hold the Stockholders and their respective directors, officers, employees, affiliates, agents, representatives, successors and assigns (the “Stockholder Indemnitees”) harmless from, against and in respect of Losses resulting from or arising out of the following matters, regardless of any investigation made at any time by or on behalf of any Stockholder Indemnitee, or any information any Stockholder Indemnitee may have:

(2)any misrepresentation or breach of any warranty of Parent or Merger Sub contained in the Transaction Documents; provided that in determining whether any such misrepresentation or breach occurred, any dollar amount thresholds, materiality qualifiers and Material Adverse Effect qualifier contained in any representation or warranty therein shall be disregarded;

(3)any failure of Parent or Merger Sub to perform any covenant or agreement made or contained in the Transaction Documents or fulfill any obligation in respect thereof; and

(4)except as provided in Section 8.1(3), any and all Losses arising solely from the post-closing conduct of the Company’s business.

8.3Method of Asserting Claims.Other than with respect to Taxes, which shall be governed by Article 9, the following procedures shall apply to any claim for indemnification hereunder:

(a) Third Party Claims. In the case of any claim asserted by a third party against a party entitled to indemnification under this Agreement (the “Indemnified Party”), notice shall be given by the Indemnified Party to the party required to provide indemnification (the “Indemnifying Party”) as soon as practicable after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and the Indemnified Party shall, so long as the Indemnifying Party has acknowledged in writing it liability for indemnification hereunder, permit the Indemnifying Party (at the expense of such Indemnifying Party) to assume control over the defense of any third party claim or any litigation with a third party resulting therefrom; provided, however, that (a) the counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation shall be subject to the approval of the Indemnified Party (which approval shall not be unreasonably withheld or delayed), (b) the Indemnified Party may participate in such defense at such Indemnified Party’s expense (which shall not be subject to reimbursement hereunder except as provided below), and (c) the failure by any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement except and only to the extent that such Indemnifying Party is actually and materially damaged as a result of such failure to give notice. Except with the prior written consent of the Indemnified Party, no Indemnifying Party, in the defense of any such claim or litigation, shall consent to entry of any judgment or enter into any settlement that provides for injunctive or other nonmonetary relief affecting the Indemnified Party or that does not include as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnified Party of a general release from any and all liability with respect to such claim or litigation. Notwithstanding the foregoing, if both the Indemnifying Party and the Indemnified Party are parties to an action (or to separate actions covering substantially the same claims and subject matter where a determination in one action would have a res judicata effect in the other action or to an action and a related claim for indemnification) and the Indemnified Party shall in good faith determine that the Indemnified Party may have available to it one or more defenses or counterclaims that are inconsistent with one or more of those that may be available to the Indemnifying Party in respect of such claim or any litigation relating thereto, the Indemnified Party shall have the right at all times to take over and assume control over the defense, settlement, negotiations or litigation relating to any such claim at the sole cost of the Indemnifying Party; provided, however, that (i) if the Indemnified Party does so take over and assume control, the Indemnified Party shall not settle such claim or litigation without the prior written consent of the Indemnifying Party, such consent not to be unreasonably withheld or delayed, (ii) the Indemnifying Party shall at all times have the right to participate in the defense of such claim or action and (iii) if the nature of the claim or any litigation related thereto is of a type as to which liability has been allocated hereunder between the Indemnifying Party and the Indemnified Party based on whether such claim is based on pre-Closing or post-Closing conduct or in any other specified manner, then the Indemnified Party’s right to take over and assume control of the defense of such claim or litigation shall relate only to the portion of the liability therefore that has been so allocated to the Indemnified Party. If the Indemnifying Party does not accept the defense of any matter as above provided within thirty (30) days after receipt of the notice from the Indemnified Party described above, the Indemnified Party shall have the full right to defend against any such claim or demand at the sole cost of the Indemnifying Party and shall be entitled to settle or agree to pay in full such claim or demand. In any event, the Indemnifying Party and the Indemnified Party shall reasonably cooperate in the defense of any claim or litigation subject to this Article 8 and the records of each shall be reasonably available to the other with respect to such defense.

(b) Non-Third Party Claims. With respect to any claim for indemnification hereunder which does not involve a third party claim, the Indemnified Party will give the Indemnifying Party written notice of such claim. The Indemnifying Party may acknowledge and agree by notice to the Indemnified Party in writing to satisfy such claim within twenty (20) days of receipt of notice of such claim from the Indemnified Party. If the Indemnifying Party shall dispute such claim, the Indemnifying Party shall provide written notice of such dispute to the Indemnified Party within such twenty (20) day period, setting forth in reasonable detail the basis of such dispute. Upon receipt of notice of any such dispute, the Indemnified Party and the Indemnifying Party shall use reasonable efforts to resolve such dispute within thirty (30) days of the date such notice of dispute is received. If the Indemnifying Party shall fail to provide written notice to the Indemnified Party within twenty (20) days of receipt of notice from the Indemnified Party that the Indemnifying Party either acknowledges and agrees to pay such claim or disputes such claim, the Indemnifying Party shall be deemed to have acknowledged and agreed to pay such claim in full and to have waived any right to dispute such claim. Once (a) the Indemnifying Party has acknowledged and agreed to pay any claim pursuant to this Section 8.3, (b) any dispute under this Section 8.3 has been resolved in favor of indemnification by mutual agreement of the Indemnifying Party and the Indemnified Party, or (c) any dispute under this Section 8.3 has been finally resolved in favor of indemnification by order of a court of competent jurisdiction or other tribunal (including an arbitrator contemplated by this agreement) having jurisdiction over such dispute, then the Indemnifying Party shall pay the amount of such claim to the Indemnified Party within twenty (20) days of the date of acknowledgement by the Indemnifying Party or final resolution in favor of indemnification, as the case may be, to such account and in such manner as is designated in writing by the Indemnified Party.

18.4 Nature and Survival of Representations and Agreements.The representations and warranties made by the parties pursuant to Article 3 (other than pursuant to Section 3.11, which shall be governed by Article 9, and other than pursuant to Sections 3.2, 3.3, 3.6, 3.8(c) (first sentence only), 3.12 and 3.17, which shall survive until 30 days after the applicable statute of limitations) and Article 4 (other than pursuant to Sections 4.2 and 4.3, which shall survive until thirty (30) days after the applicable statute of limitations) of this Agreement shall survive the Closing until fifteen (15) days after the completion of the audit of Parent’s consolidated financial statements (which may include an audit of the financial statements of the Surviving Corporation on a non-consolidated basis) with respect to 2006.

8.5Exclusive Remedy.  The indemnifications provided for in this Article 8 and in Article 9 shall be the sole and exclusive post-Closing remedies available to any party against the Company, Parent or Merger Sub for any claims for monetary damages under or based upon the Transaction Documents. The preceding sentence shall not limit the right of any party to seek injunctive or other equitable relief.

8.7Limitations. (a) (i) Parent Indemnitees shall have no right to reimbursement and indemnification pursuant to this Article 8 with respect to any claim resulting from or arising out of matters described in clause (1) of Section 8.1 or, except for claims based on an inaccuracy of the Closing Date Balance Sheet or any failure of the Company or any of its Affiliates to comply in all respects with applicable Law (including the Health Insurance Portability & Accountability Act of 1996, the Federal Health Care Programs Antikickback Law and corresponding state Laws), with respect to any claim resulting from or arising out of matters described in clause (3) of Section 8.1 (and not resulting from or arising out of matters described in the remaining clauses of Section 8.1) unless and until the aggregate amount of all such claims exceeds $200,000 (the “Threshold Amount”), in which Parent Indemnitees may seek indemnification for the amount of all claims in excess of the Threshold Amount.

(ii) In no event shall the aggregate liability of Parent and Merger Sub under Section 8.2 for all claims thereunder exceed the maximum amount for which the Stockholders may be answerable in accordance with Section 8.7(b).

(b) Parent Indemnitees may satisfy claims for indemnification pursuant to either this Article 8 or Article 9 solely (i) by set-off against any Additional Merger Consideration (exclusive of the Escrow Fund) and (ii) by asserting claims against the Escrow Fund in accordance with the terms of the Escrow Agreement. Parent Indemnitees shall be required to exhaust their rights of set-off pursuant to the preceding sentence prior to seeking collection of any claim from the Escrow Fund, provided that (x) no Parent Indemnitee shall be prevented from asserting a claim against the Escrow Fund prior to its release for the purpose of preserving its rights in the event the magnitude of any offset against currently available amounts is or may be insufficient to satisfy an indemnification claim of a Parent Indemnitee and (y) no Parent Indemnitee shall be required to defer either the assertion of a claim against the Escrow Fund or the collection of such claim from the Escrow Fund as a consequence of the potential subsequent accrual of an amount against which such right of set-off may be exercised. Parent Indemnitees shall be entitled to assert rights of set-off against the cash portion of any Additional Merger Consideration only if the Escrow Fund has been released or exhausted (including by reason of the magnitude of claims pending against the Escrow Fund equaling or exceeding its value (valuing Disputed Amounts (as defined in the Escrow Agreement) at their face amounts)) and rights of set-off have been asserted against all non-cash Additional Merger Consideration. To the extent set-off rights have not been asserted against any Additional Merger Consideration, the Stockholder Representative shall have the right to retain a reasonable portion thereof in the Expense Reserve prior to the distribution of such Additional Merger Consideration to the Stockholders.

(c) For purposes of satisfying any indemnity claim by a Parent Indemnitee, shares of Parent Common Stock (whether Initial Shares or Earnout Shares) will be valued based on their Fair Market Value on the date liability for such claim is the subject of a final determination.

8.8Treatment as Purchase Price Adjustment. Parent, the Stockholders and the Company each agree to report each indemnification payment under this Article 8 as an adjustment to the Purchase Price for federal income tax purposes to the extent permitted by applicable Law.

ARTICLE 9.TAX INDEMNIFICATION AND PROCEDURES

19.1Indemnification of Parent and the Surviving Corporation for Taxes.Parent Indemnitees shall be entitled to reimbursement and indemnification by the Stockholders from and against following, regardless of any investigation made at any time by or on behalf of Parent or Merger Sub, or any information Parent and Merger Sub may have:

(1)any and all Losses incurred by Parent or the Surviving Corporation resulting from, or which exists or arises due to, any inaccuracy or breach of the representations and warranties made in Section 3.11 of this Agreement;

(2)Taxes payable by or with respect to the Company for any Tax year or Tax period ending on or before the Closing Date, and, in the case of a Straddle Period, to the extent apportioned to the period that ends at the close of the Closing Date under Section 9.2, in each case other than Taxes reflected as liabilities on the Closing Date Balance Sheet and taken into account in determining any adjustment to the Purchase Price under Section 2.4(a); and

(3)Taxes imposed on the Company pursuant to any obligation to contribute to the payment of a Tax determined on a consolidated, combined or unitary or other group basis with respect to a group of corporations that includes or included the Company at any time on or before the Closing Date, including, without limitation, any such obligation arising under Treasury Regulations Section 1.1502-6 or similar provision of state, local or foreign law.

9.2Straddle Periods. For the sole purpose of appropriately apportioning any Taxes relating to a Tax year or Tax period that begins before and ends after the Closing Date (a “Straddle Period”), such apportionment shall be made assuming that the Company had a taxable year that ended at the close of business on the Closing Date. In the case of property Taxes and similar Taxes which apply ratably to a taxable period, the amount of Taxes allocable to the portion of the Straddle Period ending on the Closing Date shall equal the Tax for the period multiplied by a fraction, the numerator of which shall be the number of days in the period up to and including the Closing Date, and the denominator of which shall be the total number of days in the period.

9.3Tax Return Preparation. Parent shall prepare and file, or cause to be prepared and filed, at its own expense, all Tax Returns for the Company or the Surviving Entity required to be filed after the Closing Date (including with respect to Straddle Periods), it being understood that all Taxes shown as due and payable on such Tax Returns shall be the responsibility of Parent, except for such Taxes required to be indemnified under Section 9.1. Parent shall permit the Stockholder Representative to review and comment on each such Tax Return that includes Taxes required to be indemnified under Section 9.1 prior to filing and shall make such revisions to such Tax Returns as are reasonably requested by the Stockholder Representative.

9.4Cooperation. After the Closing, Parent and the Stockholder Representative shall promptly make available or cause to be made available to the other, as reasonably requested, and to any taxing authority, all information, records or documents relating to Tax liabilities and potential Tax liabilities relating to the Company for all periods prior to or including the Closing Date and shall preserve all such information, records and documents until the expiration of any applicable statute of limitations or extensions thereof.

9.5Treatment as Purchase Price Adjustment. Parent, the Stockholders and the Company each agree to report each indemnification payment under this Article 9 as an adjustment to the Purchase Price for federal income tax purposes to the extent permitted by applicable Law.

9.6Survival and Applicability. The indemnification obligations contained in this Article 9 shall be the sole remedy available to Parent and the Surviving Corporation in connection with Taxes, and nothing in Article 8 shall apply to Losses or claims with respect to Taxes. The obligations described in this Article 9 shall survive the Closing and shall continue in full force and effect until 30 days after the applicable statute of limitations, giving effect to extensions thereto, has expired with respect to each such Tax.

ARTICLE 10.TERMINATION

10.1Termination Events. This Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time:

(1)by mutual written consent of Parent, Merger Sub and the Company;

(2)by Parent if (i) there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company, such breach has not been cured within ten business days after written notice to the Company or (ii) Stockholder Approval has not been obtained within thirty (30) days of the date of this Agreement;

(3)by the Company if there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Parent or Merger Sub and such breach has not been cured within ten business days after written notice to Parent;

(4)by any party hereto if (i) there shall be a final, non-appealable order of any federal or state court in effect preventing consummation of the Merger, or (ii) there shall be any final action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity which would make consummation of the Merger illegal or which would prohibit Parent’s or the Surviving Corporation’s ownership or operation of all or any portion of the business or assets of the Company, or compel Parent or the Surviving Corporation to dispose of or hold separate all or a material portion of the business or assets of the Company or Parent or Merger Sub as a result of the Merger; or

(5)by any party hereto if the Merger shall not have been consummated by May 1, 2006, provided that the right to terminate this Agreement under this Section shall not be available to any party whose failure to fulfill any material obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date.

10.2Effect of Termination. In the event of termination of this Agreement as provided in Section 10.1 hereof, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Merger Sub, the Company or their respective officers, directors, stockholders or Affiliates, or the Stockholder Representative, except to the extent that a party hereto is in breach of any of its covenants or agreements set forth in this Agreement; provided, however, that the provisions of Section 10.3 of this Agreement and the Confidentiality Agreement dated as of October 11, 2005 between Parent and the Company shall remain in full force and effect and survive any termination of this Agreement.

ARTICLE 11.MISCELLANEOUS

11.1Amendments and Supplements. This Agreement may not be amended, modified or supplemented by the parties hereto in any manner, except (a) prior to the Effective Time, by an instrument in writing signed by Parent, Merger Sub, the Company and the Stockholder Representative and (b) after the Effective Time, by an instrument in writing signed by Parent, the Surviving Corporation and the Stockholder Representative.

11.2Waiver. The terms and conditions of this Agreement may be waived only by a written instrument signed by the party waiving compliance. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of or non-compliance with this Agreement shall be held to be a waiver of any other or subsequent breach or non-compliance. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity.

11.3Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of New York, without regard to its principles of conflicts of laws.

11.4Notice. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered by hand, sent by electronic or facsimile transmission with confirmation of receipt, sent via a reputable overnight courier service with confirmation of receipt requested, or mailed by registered or certified mail (postage prepaid and return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice), and shall be deemed given on the date on which delivered by hand or otherwise on the date of receipt as confirmed:

To Parent or Merger Sub:

Ventiv Health, Inc.

200 Cottontail Lane

Vantage North Court

Somerset, New Jersey 08873

Facsimile: (732) 537-5033

Attention:Chief Executive Officer

With a copy to:

Akerman Senterfitt LLP

335 Madison Avenue

Suite 2600

New York, New York 10017

Facsimile: (212) 880-8965

Attention: Kenneth G. Alberstadt, Esq.

To the Company:

Adheris, Inc.

One Van de Graaff Drive, Suite 502

Burlington, MA 01803

Fax: 781-229-8878

Attn: Michael J. Evanisko, Chairman of the Board

With a copy to:

The Feinberg Law Group, LLC

57 River Street, Suite 204

Wellesley, MA 02481

Facsimile: 781-283-5776

Attn: David H. Feinberg, Esq.

To the Stockholder Representative:

Eugene W. Williams II

In care of Cambridge Healthtech Advisors, Inc.

1000 Winter Street

Suite 3000

Waltham, MA 02451

Fax: 781-547-0100

With copies to:

The Feinberg Law Group, LLC

57 River Street, Suite 204

Wellesley, MA 02481

Facsimile: 781-283-5776

Attn: David H. Feinberg, Esq.

and, to the extent such notice or other communication does not contain any information deemed by the sender, in its sole discretion, to constitute confidential or proprietary information,

Lance P.Maerov

WPP Group USA, Inc.

Senior Vice President, Corporate Development

125 Park Avenue

4th Floor

New York, NY 10017

Fax: 212-632-2453

11.5Entire Agreement. This Agreement, and the documents and instruments and other agreements among the parties hereto executed pursuant to this Agreement, constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof, but excluding written nondisclosure agreements between Parent and the Company, which shall remain in effect in accordance with their terms. Each party hereto acknowledges that, in entering into this Agreement and completing the transactions contemplated hereby, such party is not relying on any representation, warranty, covenant or agreement not expressly stated in this Agreement, the Company Disclosure Schedule or the other agreements, certificates and other documents among or between the parties executed pursuant to this Agreement.

11.6Binding Effect; Assignability. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Except as provided in Articles II and VIII, nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity not a party to this Agreement. No assignment of this Agreement or of any rights or obligations hereunder may be made by any party hereto (by operation of law or otherwise) without the prior written consent of Parent, the Company and the Stockholder Representative and any attempted assignment without the required consents shall be void, provided that no such consent shall be required for any such assignment (i) of Parent’s rights and obligations hereunder (a) in connection with a sale or other transfer (whether directly or indirectly, including by merger or consolidation) of substantially all of the assets of Parent and its consolidated subsidiaries, so long as the surviving or transferee entity in such transaction undertakes to comply with Parent’s obligations under this Agreement or (b) to an Affiliate of Parent, provided that Parent remains liable therefor, (ii) of the Surviving Corporation’s rights and obligations hereunder in connection with a sale or other transfer (whether directly or indirectly, including by merger or consolidation) of the Company’s business or (iii) of Parent’s rights hereunder as security for the obligations of Parent or any Affiliate of Parent under a credit agreement entered into with a bank or other financial institution. .

11.7Legending of Shares. All certificates evidencing Shares issued hereunder shall bear a legend substantially to the following effect:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTES OF SUCH ACT.

The certificates evidencing the Shares may also bear any legends required by applicable blue sky laws. No holder of any Shares shall be permitted to transfer such Shares in the absence of an effective registration statement unless such holder has furnished Parent with an opinion of counsel, reasonably satisfactory to Parent, that such disposition does not require registration of such Shares under the Securities Act. Parent shall be entitled to issue stop transfer instructions to the foregoing effect to the transfer agent for the Parent Common Stock.

11.8Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, each of which shall remain in full force and effect.

11.9Counterparts. This Agreement may be executed by facsimile, and in one or more counterparts, all of which together shall constitute one and the same agreement.

* * *

IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of Merger to be executed as an agreement under seal as of the date first above written.

ADHERIS, INC.

By: /s/ Michael J. Evanisko

Name: Michael J. Evanisko

Title: Chairman

VENTIV HEALTH, INC.

By: /s/ John Emery

Name: John Emery

Title: Chief Financial Officer

and Secretary

ACORN ACQUISITION CORP.

By: /s/ John Emery

Name: John Emery

Title: Vice President

STOCKHOLDER REPRESENTATIVE:

/s/ Eugene W. Williams IIName: Eugene W. Williams II

EX-21.1

21.1 Subsidiaries

As of December 31, 2005, all of the below listed direct or indirect subsidiaries of Ventiv Health, Inc. and their direct and indirect subsidiaries will be, either directly or indirectly, 100% owned by Ventiv Health, Inc.

Legal Entity	Incorporation State	Country
Health Products Research, Inc.	New Jersey	US
Ventiv Health (Georgia), Inc.	Georgia	US
MMD, Inc.	New Jersey	US
Promotech Research Associates, Inc.	Colorado	US
Scientific Exchange, Inc.	Connecticut	US
Ventiv Health Communications, Inc.	Delaware	US
Ventiv Commercial Services, LLC	New Jersey	US
VIS Financial, LLC	Delaware	US
Franklin Pharma Services, LLC	New Jersey	US
Pharmaceutical Resource Solutions LLC	Delaware	US
Smith Hanley Holding Corp.	Delaware	US
Smith Hanley Consulting Group, LLC	Delaware	US
MedFocus, LLC	Delaware	US
Ventiv Clinical Solutions LLC	Delaware	US
Smith Hanley Associates, LLC	Delaware	US
Anova Clinical Resources, LLC	Delaware	US
HHI Clinical & Statistical Research Services, LLC	Delaware	US
Ventiv Health, LLC	Delaware	US
Adheris, Inc.	Delaware	US
InChord Holding Corporation	Delaware	US
InChord Communications, Inc.	Ohio	US
Gerbig, Snell Weisheimer Advertising, LLC	Ohio	US
GSW Building Associates, LLC	Ohio	US
Creative Healthcare Solutions, LLC	Ohio	US
Creative Healthcare Solutions, LLC dba Palio Communications	Ohio	US
Blue Diesel, LLC	Ohio	US
Health Process Management LLC	Ohio	US
Y Brand Outlook LLC	Ohio	US
Cadent Medical Communications LLC	Ohio	US
Stonefly Communications Group LLC	Ohio	US
Navicor Group LLC	Ohio	US
InChord Global LLC	Ohio	US
The Center for Biomedical Continuing Education LLC	Ohio	US
InChord Group Limited		UK
Inchord, Ltd.		UK
Halliday Jones Sales Limited		UK
Kestrel Healthcare Limited		UK
Rapid Deployment Group Limited		UK
Rapid Deployment Limited		UK
Consultancy Practice Limited		UK
Clinical Communications (UK) Limited		UK
Health Products Research (UK) Limited		UK
Ventiv Health Limited		UK
Ventiv Holdings (UK)		UK
Imedex Netherlands, B.V.		Netherlands
Houdstermaatschappij Boussauw Holding, B.V.		Netherlands
Imedex Holding, B.V.		Netherlands
Silver Blue Holding, B.V.		Netherlands
Laboratoire Socopharm SARL		France
Ventiv Health France SAS		France
Ventiv Pharma Services Canada, Inc.		Canada
Pharmaceutical Resource Solutions of Puerto Rico, Inc.		Puerto Rico

EX-23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-90239, 333-117378 and 333-120683 on Form S-8 of our report dated March 14, 2006 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the revision of the consolidated statements of cash flows for the years ended December 31, 2004 and 2003 discussed in Note 2), relating to the consolidated financial statements and financial statement schedule of Ventiv Health, Inc. and management’s report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Ventiv Health, Inc. for the year ended December 31, 2005.

/s/ Deloitte & Touche LLP

Parsippany, New Jersey

March 14, 2006

EX-31.1

Exhibit 31.1

CERTIFICATIONS

Certification Pursuant to Rule 13a-14(a) of the Exchange Act

I, Eran Broshy, certify that:

1.     I have reviewed this annual report on Form 10-K of Ventiv Health, Inc.;

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

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

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

 (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 15, 2006	By:	/s/ Eran Broshy
		Eran Broshy
		Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to Rule 13a-14(a) of the Exchange Act

I, John Emery, certify that:

1.     I have reviewed this annual report on Form 10-K of Ventiv Health, Inc.;

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

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

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

 (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 15, 2006	By:	/s/ John R. Emery
		John R. Emery
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Ventiv Health, Inc. (the “Company”) on Form 10-K for the annual period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eran Broshy, Chief Executive Officer of Ventiv, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and to the best of my knowledge and belief, that:

(1)  The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 (16 U.S.C. 78m or 78o(d)); and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ventiv.

Date: March 15, 2006	By:	/s/ Eran Broshy
		Eran Broshy
		Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Ventiv Health, Inc. and will be retained by Ventiv Health, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Ventiv Health, Inc. (the “Company”) on Form 10-K for the annual period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John R. Emery, Chief Financial Officer of Ventiv, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and to the best of my knowledge and belief, that:

(1)  The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 (16 U.S.C. 78m or 78o(d)); and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ventiv.

Date: March 15, 2006	By:	/s/ John R. Emery
		John R. Emery
		Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Ventiv Health, Inc. and will be retained by Ventiv Health, Inc. and furnished to the Securities and Exchange Commission or its staff upon request