-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LR+op/0nLLk7r1x883OIETXUNmPekq3OUA5zh+NxUn2WR7IFnQHLOlmUlvnGKUXl wbNQ1pK6IqVoxSA8gg+C1w== 0001144204-04-022820.txt : 20041227 0001144204-04-022820.hdr.sgml : 20041224 20041227160757 ACCESSION NUMBER: 0001144204-04-022820 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20041220 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041227 DATE AS OF CHANGE: 20041227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENHANCE BIOTECH INC CENTRAL INDEX KEY: 0001124077 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 954766094 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-31653 FILM NUMBER: 041226537 BUSINESS ADDRESS: STREET 1: 17337 VENTURA BLVD STREET 2: SUITE 224 CITY: ENCINO STATE: CA ZIP: 91316 BUSINESS PHONE: 8187840040 MAIL ADDRESS: STREET 1: 17337 VENTURA BLVD STREET 2: SUITE 224 CITY: ENCINO STATE: CA ZIP: 91316 FORMER COMPANY: FORMER CONFORMED NAME: BECOR COMMUNICATIONS INC DATE OF NAME CHANGE: 20000918 8-K 1 v010415_8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 20, 2004 ENHANCE BIOTECH, INC. (Exact Name of Registrant as Specified in Charter) Delaware 13-3944580 (State or Other Jurisdiction (IRS Employer of Incorporation) (Commission File Number) Identification No.) 712 Fifth Avenue, 19th Floor, New York, NY 10019 (Address of principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (646) 723 8940 Not Applicable (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. (a) As previously announced, on December 20, 2004, the Registrant completed the merger (the "Merger") of Ardent Acquisition Corp. ("AAC"), a wholly-owned subsidiary of the Registrant, with and into Ardent Pharmaceuticals, Inc. ("Ardent"), whereby Ardent Pharmaceuticals, Inc. has become a wholly owned subsidiary of the Registrant. The Merger was pursuant to the terms and conditions of the Agreement and Plan of Merger dated August 11, 2004 (the "Agreement and Plan of Merger") by and among The Registrant, AAC, and Ardent, which was previously filed by the Registrant and is refiled as Exhibit 10.1 hereto, as such Agreement and Plan of Merger was amended by Amendment No. 1 thereto dated November 20, 2004 ("Amendment No. 1") by and among The Registrant, AAC, and Ardent, which Amendment No. 1 is filed as Exhibit 10.2 to this Current Report on Form 8-K. The Agreement and Plan of Merger, as so amended, is sometimes hereafter referred to as the "Agreement and Plan of Merger". Except for certain "Excluded Shares" and "Contingent Fee Shares," as defined below, upon the conclusion of the Merger, on a fully diluted basis, the Registrant's shareholders who were shareholders of the Registrant immediately prior to the Merger owned approximately fifty-five percent (55%), and the former Ardent securities holders own approximately forty-five percent (45%), of the common stock, par value $0.001 per share (the "Common Stock") of the Registrant. "Excluded Shares" include any shares of Common Stock that may be issued upon exercise, exchange or conversion of either (i) securities sold in a "Qualified Financing" or (ii) a certain warrant to purchase 1.5 million shares of Common Stock issued to Bioaccelerate, Inc. ("Bioaccelerate") on August 11, 2004. The Excluded Shares were excluded from the calculation of aggregate share ownership percentages for the Registrant's shareholders and former Ardent securities holders set forth in the preceding paragraph. The Registrant has also reserved shares of Common Stock (the "Contingent Fee Shares") for issuance in settlement of certain fee arrangements entered into by Ardent with its financial advisor for this transaction (sometimes hereinafter referred to as "Century Capital). The Contingent Fee Shares will reduce the number of shares which would otherwise have been available to Ardent's shareholders as merger consideration. As used in the Merger Agreement, the term "Qualified Financing" means an equity financing by the Registrant of at least $10,000,000 with a minimum valuation of at least $1.50 per share of Common Stock. Upon the effectiveness of the Merger, each outstanding share of Ardent common and preferred stock was cancelled automatically and converted into shares of the Registrant's Common Stock. Also, Ardent options, warrants and certain convertible notes which may be exercised or converted to receive shares of Ardent common stock, were converted into securities (or convertible notes, in the case of the convertible notes) which may be exercised or converted to receive shares of the Registrant's Common Stock. In addition, the Registrant reserved for issuance sufficient shares to cover such exercises or conversions as of the conclusion of the Merger (or at maturity of the note in the case of the convertible notes). The shares of Common Stock issued or reserved for issuance at the closing of the Merger are sometimes referred to as the "Merger Shares." The Registrant reserved for issuance the Contingent Fee Shares, consisting of 319,171 shares of Common Stock, of which approximately 234,171 shares are to be issued within fifteen (15) days subsequent to the consummation of the Merger and the balance may be issued upon the occurrence of certain other events. Ardent securities holders have the right to receive Merger Shares according to the following exchange ratios (rounded to 6 decimal places for example only), which is subject to adjustment as provided below: Ardent Enhance ------ ------- 1 share Common Stock* = 0.728920 Shares of Enhance Common Stock 1 share Series A Preferred Stock* = 10.413143 Shares of Enhance Common Stock 1 share Series B Preferred Stock* = 7.289198 Shares of Enhance Common Stock 1 share Series C Preferred Stock* = 0.801812 Shares of Enhance Common Stock 1 share Series D 1 Preferred Stock = 1.228070 Shares of Enhance Common Stock 1 share Series D 2 Preferred Stock = 0.842105 Shares of Enhance Common Stock * The exchange ratios for Ardent common stock as well as Ardent Series A, B and C Preferred Stock reflect the completion of certain transactions pursuant to which the Contingent Fee Shares are to be issued to Ardent's financial advisor, and assume that the entire amount of the Registrant's Common Stock which may be issued to Ardent's financial advisor is so issued. As a consequence, upon the effectiveness of the Merger, in the aggregate, the outstanding shares of Ardent common and preferred stock were converted into, and the outstanding Ardent options, warrants and convertible notes became exercisable or convertible to receive, approximately the following number of shares of Enhance Common Stock: Ardent Common Stock** 16,999,116 Shares Ardent Options** 3,964,857 Shares Ardent Warrants* * 887,858 Shares Ardent Convertible Promissory Notes** 258,584 Shares Series A Preferred Stock** 1,251,139 Shares Series B Preferred Stock** 875,797 Shares Series C Preferred Stock** 801,812 Shares Series D 1 Preferred Stock 1,034,604 Shares Series D 2 Preferred Stock 2,187,340 Shares ** The number of shares of Registrant's Common Stock allotted for Ardent common stock, as well as for Ardent Series A, B and C Preferred Stock, reflect the completion of certain transactions pursuant to which the Contingent Fee Shares are to be issued to Ardent's financial advisor, and assume that the entire amount of the Registrant's Common Stock which may be issued to Ardent's financial advisor is so issued. As a consequence of the effectiveness of the Merger, Ardent securities are to receive approximately 23,149,808 newly-issued Merger Shares, in the aggregate. The Registrant has reserved approximately 5,111,299 Merger Shares in the aggregate for issuance upon exercise of outstanding options, warrants and convertible promissory notes of Ardent not exercised or terminated prior to the Merger. Approximately 319,171 Contingent Fee Shares have been reserved for issuance. Pursuant to the Agreement and Plan of Merger, as amended, the Registrant entered into a Registration Rights Agreement, dated as of December 20, 2004 (the "Registration Rights Agreement"), the form of which is filed as Exhibit 10.3 to this Current Report on Form 8-K. Pursuant to the Registration Rights Agreement, the Registrant has agreed to file a registration statement under the Securities Act to register up to 30,000 shares of the Registrant's Common Stock issued to each Ardent shareholder as merger consideration as soon as practicable after a Qualified Financing, but in no event later than 150 days following the closing of the Merger. Pursuant to the Registration Rights Agreement, the Registrant agreed to use its commercially reasonable best efforts thereafter to cause such registration statement to be declared effective by the Securities and Exchange Commission ("SEC") as soon as practicable on or after the 180th day following the closing of the Merger. The Registrant agreed to furnish corresponding registration rights to its existing shareholders who do not have freely-trading shares. The Registrant also agreed that if the Common Stock is then listed on a national stock exchange, the Registrant will file a listing application with such exchange, and use its best efforts to have admitted to trading on such exchange all shares of Common Stock issued to Ardent shareholders as merger consideration that are covered by a registration statement under the Securities Act which has been declared effective by the SEC. The Registrant agreed to use its commercially reasonable best efforts to keep each such registration statement continuously effective, subject to customary blackout periods and exceptions, for one year following the date upon which each such registration statement is declared effective by the SEC (such period to be extended by the duration of any such blackout period or other period in which the registration statement does not continue to be effective). Pursuant to the Agreement and Plan of Merger, as amended, the Registrant also agreed to file with the SEC, no later than 180 days after the closing of the Merger, a Registration Statement on Form S-8 covering the shares of Common Stock to be issued upon exercise of Ardent stock options which continue to be outstanding after the closing of the Merger, and to use its best efforts to have such Registration Statement become and remain continuously effective under the Securities Act. The Registrant agreed that if the Registrant is then listed on a national stock exchange, the Registrant shall file with such exchange a listing application and use its best efforts to have such shares admitted to trading thereon upon exercise of those stock options. The Registrant agreed to furnish corresponding registration rights in respect of the shares of Common Stock underlying warrants or options held by Bioaccelerate, Inc., the largest holder of the Registrant's securities. All but 1,500,000 of the underlying shares held by Bioaccelerate will continue to be subject to a 12-month lock-up notwithstanding registration. All shares of merger consideration issued to former Ardent security holders shall be "restricted shares" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), and may not be freely traded until either covered by an effective registration statement filed with the SEC under applicable laws (as well as any corresponding filings which may be required under state or other securities laws) or disposed of pursuant to an available exemption to such registration, and certificates evidencing such shares will be legended accordingly. In addition, pursuant to the Agreement and Plan of Merger, as amended, the Registrant obtained and delivered to Ardent agreements by each holder of 5% or more of the Registrant's outstanding shares known to the Registrant for each such holder's shares of the Registrant's Common Stock to be subject to a lock-up period restricting transfer of such shares for a period of 12 months after the effectiveness of the Merger, with such lock-up to end earlier with respect to any shares covered by a registration statement filed by the Registrant pursuant to the Securities Act and declared effective by the SEC. Pursuant to the Agreement and Plan of Merger, Ardent obtained and delivered to the Registrant agreements by its officers and directors to cause shares underlying Ardent options to be subject to the same lock-up arrangements as those described above. Notwithstanding the Registrant's agreements, there can be no assurance that the Registrant will ever file any such registration statement and, even if so, that any such registration statement will ever become effective, or that once effective, such effectiveness will be maintained. Pursuant to the Agreement and Plan of Merger, as amended, at the effective time of the Merger the following individuals, designated by the former board of directors of Ardent, were elected to fill vacancies on the Board of Directors of the Registrant: Dr. Kwen-Jen Chang (also known as Ken Chang), Mr. Jinn Wu and Mr. Timothy C. Gupton. In addition, pursuant to the Agreement and Plan of Merger, as amended, Mr. Christopher Every continues in his positions as a Director of the Registrant and as the President and Chief Executive Officer of the Registrant, and effective upon the Merger the Registrant entered into an employment agreement with Mr. Every, in the form filed as Exhibit 10.4 to this Current Report on Form 8-K (the "Christopher Every Employment Agreement"). The Christopher Every Employment Agreement is a three-year employment agreement which provides for an annual base salary of $225,000, an annual bonus at the Board's discretion based on achieving performance targets, and a stock bonus equal to $35,000 on each of the first, second and third anniversaries of the effective date of the Merger. Also, on the effective date, pursuant to the Registrant's 2004 Incentive Plan, the Registrant granted to Mr. Every options to purchase 1.4 million shares of Common Stock subject to the following vesting schedule: 25% of options vested on the date of grant and 25% will vest on each of the first, second and third anniversaries of the date of grant. If Mr. Every's employment is terminated without cause by the employer or for good reason by the executive, Mr. Every would be entitled to the following: (i) continuing salary payments over a severance period of twelve (12) months if terminated on or after the first anniversary of the effective date of the Merger or continuing salary payments over a severance period lasting until the second anniversary of the effective date if terminated prior to the first anniversary of the effective date, (ii) any accrued but unpaid salary, bonus, expenses and benefits, (iii) continuing coverage under employee benefit plans during the severance period, and (iv) unvested options scheduled to vest over the severance period shall vest immediately upon termination. In accordance with the Agreement and Plan of Merger, as amended, upon the effectiveness of the Merger, Dr. Kwen-Jen Chang (also known as Ken Chang) became the Chief Science Officer and President--Asia Pacific Operations for the Registrant, and the Registrant entered into an employment agreement with Dr. Chang, in the form filed as Exhibit 10.5 to this Current Report on Form 8-K (the "Kwen-Jen Chang Employment Agreement"). The Kwen-Jen Chang Employment Agreement is a three-year term employment agreement which provides for an annual base salary of $222,820, eligibility to receive an annual discretionary bonus based on the attainment of performance targets established by the Board of Directors, and 1,000,000 options to purchase common stock of the Registrant, which options were granted upon the effective date of the Merger. The first 250,000, or 1/4 of the aggregate options granted, were vested on December 20, 2004, the effective date of the Merger. The remainder vest annually in three equal parts on the next three anniversaries. If employment is terminated without cause by the employer or for good reason by the executive, Dr. Chang would be entitled to the following: (i) continuing salary payments over a severance period of twelve (12) months if terminated on or after the first anniversary of the effective date of the Merger or continuing salary payments over a severance period lasting until the second anniversary of the effective date if terminated prior to the first anniversary of the effective date, (ii) any accrued but unpaid salary, bonus, expenses, and benefits, (iii) continuing coverage under employee benefit plans during the severance period, and (iv) unvested options scheduled to vest over the severance period shall vest immediately upon termination. Also pursuant to the Agreement and Plan of Merger, as amended, upon the effectiveness of the Merger, Phillip S. Wise became the Chief Financial Officer of the Registrant, and the Registrant entered into an employment agreement with Mr. Wise, in the form filed as Exhibit 10.6 to this Current Report on Form 8-K (the "Phillip S. Wise Employment Agreement"). The Phillip S. Wise Employment Agreement is a three-year term employment agreement which provides for an annual base salary of $225,000, eligibility to receive an annual discretionary bonus based on the attainment of performance targets established by the Board of Directors, stock bonus equivalent to $35,000 on each of the first three anniversaries of the effective date of the Merger and 1,200,000 options to purchase common stock of the Registrant, which options were granted upon the effective date of the Merger. The first 300,000, or 1/4 of the aggregate options granted, were vested on December 20, 2004, the effective date of the Merger. The remainder vest annually in three equal parts on the next three anniversaries. If employment is terminated without cause by the employer or for good reason by the executive, Mr. Wise would be entitled to the following: (i) continuing salary payments over a severance period of twelve (12) months if terminated on or after the first anniversary of the effective date of the Merger or continuing salary payments over a severance period lasting until the second anniversary of the effective date if terminated prior to the first anniversary of the effective date, (ii) any accrued but unpaid salary, bonus, expenses, and benefits, (iii) continuing coverage under employee benefit plans during the severance period, and (iv) unvested options scheduled to vest over the severance period shall vest immediately upon termination. SECTION 2. FINANCIAL INFORMATION ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS (a) As previously announced, on December 20, 2004, the Registrant completed the merger (the "Merger") of Ardent Acquisition Corp. ("AAC"), a wholly-owned subsidiary of the Registrant, with and into Ardent Pharmaceuticals, Inc. ("Ardent"), whereby Ardent Pharmaceuticals, Inc. has become a wholly owned subsidiary of the Registrant. The Merger was pursuant to the terms and conditions of the Agreement and Plan of Merger dated August 11, 2004 (the "Agreement and Plan of Merger") by and among The Registrant, AAC, and Ardent, which was previously filed by the Registrant and is refiled as Exhibit 10.1 hereto, as such Agreement and Plan of Merger was amended by Amendment No. 1 thereto dated November 20, 2004 ("Amendment No. 1") by and among The Registrant, AAC, and Ardent, which Amendment No. 1 is filed as Exhibit 10.2 to this Current Report on Form 8-K. The Agreement and Plan of Merger, as so amended, is sometimes hereafter referred to as the "Agreement and Plan of Merger". (b) and (d) Except for certain "Excluded Shares" and "Contingent Fee Shares," as defined below, upon the conclusion of the Merger, on a fully diluted basis, the Registrant's shareholders who were shareholders of the Registrant immediately prior to the Merger owned approximately fifty-five percent (55%), and the former Ardent securities holders own approximately forty-five percent (45%), of the common stock, par value $0.001 per share (the "Common Stock") of the Registrant. "Excluded Shares" include any shares of Common Stock that may be issued upon exercise, exchange or conversion of either (i) securities sold in a "Qualified Financing" or (ii) a certain warrant to purchase 1.5 million shares of Common Stock issued to Bioaccelerate, Inc. ("Bioaccelerate") on August 11, 2004. The Excluded Shares were excluded from the calculation of aggregate share ownership percentages for the Registrant's shareholders and former Ardent securities holders set forth in the preceding paragraph. The Registrant has also reserved shares of Common Stock (the "Contingent Fee Shares") for issuance in settlement of certain fee arrangements entered into by Ardent with its financial advisor for this transaction (sometimes hereinafter referred to as "Century Capital). The Contingent Fee Shares will reduce the number of shares which would otherwise have been available to Ardent's shareholders as merger consideration. As used in the Merger Agreement, the term "Qualified Financing" means an equity financing by the Registrant of at least $10,000,000 with a minimum valuation of at least $1.50 per share of Common Stock. Upon the effectiveness of the Merger, each outstanding share of Ardent common and preferred stock was cancelled automatically and converted into shares of the Registrant's Common Stock. Also, Ardent options, warrants and certain convertible notes which may be exercised or converted to receive shares of Ardent common stock, were converted into securities (or convertible notes, in the case of the convertible notes) which may be exercised or converted to receive shares of the Registrant's Common Stock. In addition, the Registrant reserved for issuance sufficient shares to cover such exercises or conversions as of the conclusion of the Merger (or at maturity of the note in the case of the convertible notes). The shares of Common Stock issued or reserved for issuance at the closing of the Merger are sometimes referred to as the "Merger Shares." The Registrant reserved for issuance the Contingent Fee Shares, consisting of 319,171 shares of Common Stock, of which approximately 234,171 shares are to be issued within fifteen (15) days subsequent to the consummation of the Merger and the balance may be issued upon the occurrence of certain other events. Ardent securities holders have the right to receive Merger Shares according to the following exchange ratios (rounded to 6 decimal places for example only), which is subject to adjustment as provided below: Ardent Enhance ----- -------- 1 share Common Stock* = 0.728920 Shares of Enhance Common Stock 1 share Series A Preferred Stock* = 10.413143 Shares of Enhance Common Stock 1 share Series B Preferred Stock* = 7.289198 Shares of Enhance Common Stock 1 share Series C Preferred Stock* = 0.801812 Shares of Enhance Common Stock 1 share Series D 1 Preferred Stock = 1.228070 Shares of Enhance Common Stock 1 share Series D 2 Preferred Stock = 0.842105 Shares of Enhance Common Stock * The exchange ratios for Ardent common stock as well as Ardent Series A, B and C Preferred Stock reflect the completion of certain transactions pursuant to which the Contingent Fee Shares are to be issued to Ardent's financial advisor, and assume that the entire amount of the Registrant's Common Stock which may be issued to Ardent's financial advisor is so issued. As a consequence, upon the effectiveness of the Merger, in the aggregate, the outstanding shares of Ardent common and preferred stock were converted into, and the outstanding Ardent options, warrants and convertible notes became exercisable or convertible to receive, approximately the following number of shares of Enhance Common Stock: Ardent Common Stock** 16,999,116 Shares Ardent Options** 3,964,857 Shares Ardent Warrants* * 887,858 Shares Ardent Convertible Promissory Notes** 258,584 Shares Series A Preferred Stock** 1,251,139 Shares Series B Preferred Stock** 875,797 Shares Series C Preferred Stock** 801,812 Shares Series D 1 Preferred Stock 1,034,604 Shares Series D 2 Preferred Stock 2,187,340 Shares ** The number of shares of Registrant's Common Stock allotted for Ardent common stock, as well as for Ardent Series A, B and C Preferred Stock, reflect the completion of certain transactions pursuant to which the Contingent Fee Shares are to be issued to Ardent's financial advisor, and assume that the entire amount of the Registrant's Common Stock which may be issued to Ardent's financial advisor is so issued. As a consequence of the effectiveness of the Merger, Ardent securities are to receive approximately 23,149,808 newly-issued Merger Shares, in the aggregate. The Registrant has reserved approximately 5,111,299 Merger Shares in the aggregate for issuance upon exercise of outstanding options, warrants and convertible promissory notes of Ardent not exercised or terminated prior to the Merger. Approximately 319,171 Contingent Fee Shares have been reserved for issuance. (c) The Registrant acquired the shares of Ardent from the security holders of Ardent, a privately-held corporation. Although the Registrant had no pre-existing material relationship, other than in respect of the transaction, with any of Ardent's security holders, pursuant to the terms and conditions of the Agreement and Plan of Merger, as amended, upon the effectiveness of the Merger, Dr. Kwen-Jen Chang (also known as Ken Chang), Mr. Jinn Wu and Mr. Timothy C. Gupton, all former directors of Ardent, were elected to the Registrant's Board of Directors. In addition, pursuant to the Agreement and Plan of Merger, as amended, upon the effectiveness of the Merger the Registrant employed Dr. Kwen-Jen Chang, the former Chief Executive Officer, President and Chairman of the Board of Ardent, as the Registrant's Chief Science Officer and President--Asia Pacific Operations, and Phillip S. Wise, former Chief Financial Officer and VP for Commercial and Business Development of Ardent, as the Registrant's Chief Financial Officer. Messrs. Chang and Wise were employed in their respective positions on the terms and conditions of their respective employment agreements, the forms of which are annexed hereto as Exhibits 10.5 and 10.6, respectively. The agreement with Dr. Chang is a three-year term employment agreement which provides for an annual base salary of $222,820, eligibility to receive an annual discretionary bonus based on the attainment of performance targets established by the Board of Directors, and 1,000,000 options to purchase common stock of the Registrant, which options were granted upon the effective date of the Merger. The first 250,000, or 1/4 of the aggregate options granted, were vested on December 20, 2004, the effective date of the Merger. The remainder vest annually in three equal parts on the next three anniversaries. If employment is terminated without cause by the employer or for good reason by the executive, Dr. Chang would be entitled to the following: (i) continuing salary payments over a severance period of twelve (12) months if terminated on or after the first anniversary of the effective date of the Merger or continuing salary payments over a severance period lasting until the second anniversary of the effective date if terminated prior to the first anniversary of the effective date, (ii) any accrued but unpaid salary, bonus, expenses, and benefits, (iii) continuing coverage under employee benefit plans during the severance period, and (iv) unvested options scheduled to vest over the severance period shall vest immediately upon termination. The agreement with Mr. Wise is also a three-year term employment agreement which provides for an annual base salary of $225,000, eligibility to receive an annual discretionary bonus based on the attainment of performance targets established by the Board of Directors, stock bonus equivalent to $35,000 on each of the first three anniversaries of the effective date of the Merger and 1,200,000 options to purchase common stock of the Registrant, which options were granted upon the effective date of the Merger. The first 300,000, or 1/4 of the aggregate options granted, were vested on December 20, 2004, the effective date of the Merger. The remainder vest annually in three equal parts on the next three anniversaries. If employment is terminated without cause by the employer or for good reason by the executive, Mr. Wise would be entitled to the following: (i) continuing salary payments over a severance period of twelve (12) months if terminated on or after the first anniversary of the effective date of the Merger or continuing salary payments over a severance period lasting until the second anniversary of the effective date if terminated prior to the first anniversary of the effective date, (ii) any accrued but unpaid salary, bonus, expenses, and benefits, (iii) continuing coverage under employee benefit plans during the severance period, and (iv) unvested options scheduled to vest over the severance period shall vest immediately upon termination. ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT (a) As previously announced, on December 20, 2004, the Registrant completed the merger (the "Merger") of Ardent Acquisition Corp. ("AAC"), a wholly-owned subsidiary of the Registrant, with and into Ardent Pharmaceuticals, Inc. ("Ardent"), whereby Ardent Pharmaceuticals, Inc. has become a wholly owned subsidiary of the Registrant. The Merger was pursuant to the terms and conditions of the Agreement and Plan of Merger dated August 11, 2004 (the "Agreement and Plan of Merger") by and among The Registrant, AAC, and Ardent, which was previously filed by the Registrant and is refiled as Exhibit 10.1 hereto, as such Agreement and Plan of Merger was amended by Amendment No. 1 thereto dated November 20, 2004 ("Amendment No. 1") by and among The Registrant, AAC, and Ardent, which Amendment No. 1 is filed as Exhibit 10.2 to this Current Report on Form 8-K. The Agreement and Plan of Merger, as so amended, is sometimes hereafter referred to as the "Agreement and Plan of Merger". During 2002, Ardent received $1,925,028 from an affiliate of Elan Pharmaceuticals, pursuant to a convertible debt financing evidenced by a convertible promissory note (the "Ardent Convertible Promossory Note") , in connection with certain joint ventures between Ardent and Elan Pharmaceuticals. Interest on the Ardent Convertible Promissory Note accrues at 9% per annum, compounded on an annual basis, with the initial compounding commencing on the date that is twelve months from and after the original issuance date. The holder has the right to convert in full, including then-outstanding principal and interest, into such number of common shares of Ardent that shall be obtained by dividing the sum of then-outstanding principal and interest by $7.50. To date no payments of principal or interest have been made to Elan on the Ardent Convertible Promissory Note. Pursuant to the Agreement and Plan of Merger, as amended, the Registrant shall cause a new convertible promissory note to be issued in exchange for the Ardent Convertible Promissory Note and the merger consideration allocated to the Ardent Convertible Promissory Note shall be reserved by the Registrant for issuance upon conversion of the new convertible promissory note after the effective time of the Merger. The holder of the new convertible promissory note shall have the right to convert in full, including the then-outstanding principal and interest, into such number of shares of Enhance Common Stock that shall be obtained by dividing the sum of the then-outstanding principal and interest by $10.29. SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS (b) As previously announced, on December 20, 2004, the Registrant completed the merger (the "Merger") of Ardent Acquisition Corp. ("AAC"), a wholly-owned subsidiary of the Registrant, with and into Ardent Pharmaceuticals, Inc. ("Ardent"), whereby Ardent Pharmaceuticals, Inc. has become a wholly owned subsidiary of the Registrant. The Merger was pursuant to the terms and conditions of the Agreement and Plan of Merger dated August 11, 2004 (the "Agreement and Plan of Merger") by and among The Registrant, AAC, and Ardent, which was previously filed by the Registrant and is refiled as Exhibit 10.1 hereto, as such Agreement and Plan of Merger was amended by Amendment No. 1 thereto dated November 20, 2004 ("Amendment No. 1") by and among The Registrant, AAC, and Ardent, which Amendment No. 1 is filed as Exhibit 10.2 to this Current Report on Form 8-K. The Agreement and Plan of Merger, as so amended, is sometimes hereafter referred to as the "Agreement and Plan of Merger". Pursuant to the Agreement and Plan of Merger, as amended, upon the effectiveness of the Merger Mr. Phillip S. Wise became the Chief Financial Officer of the Registrant, replacing Mr. Linden Boyne in that position. Mr. Boyne continues to be the Secretary of the Registrant. (c) Pursuant to the Agreement and Plan of Merger, as amended, effective upon the Merger, Phillip S. Wise became the Chief Financial Officer of the Registrant, and the Registrant entered into an employment agreement with Mr. Wise, in the form filed as Exhibit 10.6 to this Current Report on Form 8-K (the "Phillip S. Wise Employment Agreement"). The Phillip S. Wise Employment Agreement is a three-year term employment agreement which provides for an annual base salary of $225,000, eligibility to receive an annual discretionary bonus based on the attainment of performance targets established by the Board of Directors, stock bonus equivalent to $35,000 on each of the first three anniversaries of the effective date of the Merger and 1,200,000 options to purchase common stock of the Registrant, which options were granted upon the effective date of the Merger. The first 300,000, or 1/4 of the aggregate options granted, were vested on December 20, 2004, the effective date of the Merger. The remainder vest annually in three equal parts on the next three anniversaries. If employment is terminated without cause by the employer or for good reason by the executive, Mr. Wise would be entitled to the following: (i) continuing salary payments over a severance period of twelve (12) months if terminated on or after the first anniversary of the effective date of the Merger or continuing salary payments over a severance period lasting until the second anniversary of the effective date if terminated prior to the first anniversary of the effective date, (ii) any accrued but unpaid salary, bonus, expenses, and benefits, (iii) continuing coverage under employee benefit plans during the severance period, and (iv) unvested options scheduled to vest over the severance period shall vest immediately upon termination. Prior to joining Ardent, Mr. Wise was Director of Marketing for New Product Development and Managed Care Marketing for Glaxo Wellcome. While there he gained experience in acute care areas such as stroke and septic shock, as well as acute and chronic cardiovascular products. Prior to the merger with Glaxo, Mr. Wise managed the Anesthesia Marketing Department for Burroughs Wellcome. He has a Masters in Business Administration from the Colgate Darden School of Business at the University of Virginia and an undergraduate degree in engineering from the Georgia Institute of Technology. (d) Pursuant to the Agreement and Plan of Merger, as amended, upon the effectiveness of the Merger, the following individuals, designated by the former board of directors of Ardent, were elected to fill vacancies on the Board of Directors of the Registrant: Dr. Kwen-Jen Chang (also known as Ken Chang), Mr. Jinn Wu and Mr. Timothy C. Gupton. Upon election to the Registrant's Board of Directors, Mr. Gupton became a member of the Audit Committee of the Registrant's Board of Directors (replacing Mr. David Scales on that Committee) and became the Chairman of the Audit Committee (replacing Mr. Lee J. Cole as Chairman, with Mr. Cole continuing to be a member of the Audit Committee), and became a member of the Compensation Committee of the Registrant's Board of Directors (replacing Mr. Andrew Cosentino on that Committee), and Mr. Wu became a member of the Corporate Governance and Nominating Committee of the Registrant's Board of Directors (replacing Mr. Scales on that Committee). SECTION 8 - OTHER EVENTS ITEM 8.01 OTHER EVENTS. On December 20, 2004, the Registrant issued a press release announcing the completion of the merger (the "Merger") of Ardent Acquisition Corp. ("AAC"), a wholly-owned subsidiary of the Registrant, with and into Ardent Pharmaceuticals, Inc. ("Ardent"), whereby Ardent Pharmaceuticals, Inc. has become a wholly owned subsidiary of the Registrant. That press release is filed as Exhibit 99.1 to this Current Report on Form 8-K, and is incorporated herein by reference. SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired. Registrant will file the required financial statements by amendment within 71 calendar days of the filing of this Current Report on Form 8-K. (b) Pro Forma Financial information. Registrant will file the required financial statements by amendment within 71 calendar days of the filing of this Current Report on Form 8-K. (c) Exhibits. The following exhibits are filed with this report: 10.1 Agreement and Plan of Merger dated August 11, 2004 (the "Agreement and Plan of Merger") by and among Enhance Biotech, Inc., Ardent Acquisition Corp., and Ardent Pharmaceuticals, Inc. 10.2 Amendment No. 1, dated November 20, 2004, by and among the Registrant, and Ardent, to the Agreement and Plan of Merger. 10.3 Registration Rights Agreement dated December 20, 2004. 10.4 Employment Agreement dated December 20, 2004 by and between Enhance Biotech, Inc. and Christopher Every. 10.5 Employment Agreement dated December 20, 2004 by and between Enhance Biotech, Inc. and Kwen-Jen Chang (also known as Ken Chang). 10.6 Employment Agreement dated December 20, 2004 by and between Enhance Biotech, Inc. and Phillip S. Wise. 99.1 Press Release dated December 20, 2004 [Signature on following page.] SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ENHANCE BIOTECH, INC. By: /s/ Christopher Every --------------------------------- Christopher Every Chief Executive Officer Date: December , 2004 EXHIBIT INDEX Exhibit Description - ------- ----------- 10.1 Agreement and Plan of Merger dated August 11, 2004 (the "Agreement and Plan of Merger") by and among Enhance Biotech, Inc., Ardent Acquisition Corp., and Ardent Pharmaceuticals, Inc. 10.2 Amendment No. 1, dated November 20, 2004, by and among the Registrant, and Ardent, to the Agreement and Plan of Merger. 10.3 Registration Rights Agreement dated December 20, 2004. 10.4 Employment Agreement dated December 20, 2004 by and between Enhance Biotech, Inc. and Christopher Every. 10.6 Employment Agreement dated December 20, 2004 by and between Enhance Biotech, Inc. and Kwen-Jen Chang (also known as Ken Chang). 10.6 Employment Agreement dated December 20, 2004 by and between Enhance Biotech, Inc. and Phillip S. Wise. 99.1 Press Release dated December 20, 2004 EX-10.1 2 v010415_ex10-1.txt EXHIBIT 10.1 AGREEMENT AND PLAN OF MERGER BY AND AMONG ENHANCE BIOTECH, INC., ARDENT ACQUISITION CORP. AND ARDENT PHARMACEUTICALS, INC. DATED AUGUST 11, 2004 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE MERGER.............................................................................................8 SECTION 1.1 The Merger......................................................................................8 SECTION 1.2 Closing.........................................................................................9 SECTION 1.3 Effective Time..................................................................................9 SECTION 1.4 Effects of the Merger...........................................................................9 SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving Corporation...........................9 SECTION 1.6 Directors and Officers..........................................................................9 ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES..10 SECTION 2.1 Effect on Capital Stock......................................................................10 SECTION 2.2 Fractional Shares............................................................................12 SECTION 2.3 Exchange of Certificates.....................................................................13 SECTION 2.4 Certain Adjustments..........................................................................14 SECTION 2.5 Shares of Dissenting Shareholders............................................................15 SECTION 2.6 Stock Options................................................................................15 SECTION 2.7 Warrants.....................................................................................16 SECTION 2.8. Convertible Promissory Notes.................................................................16 SECTION 2.9. Tax-Free Reorganization......................................................................16 SECTION 2.10. Issuance of Restricted Shares................................................................17 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................17 SECTION 3.1 Organization, Standing and Corporate Power.....................................................17 SECTION 3.2 Subsidiaries...................................................................................17 SECTION 3.3 Capital Structure..............................................................................18 SECTION 3.4 Authority; Noncontravention....................................................................19 SECTION 3.5 Financial Statements; Undisclosed Liabilities..................................................19 SECTION 3.6 Company Contracts..............................................................................20 SECTION 3.7 Absence of Certain Changes.....................................................................22 SECTION 3.8 Permits; Compliance with Applicable Laws.......................................................24 SECTION 3.9 Absence of Litigation..........................................................................25 SECTION 3.10 Tax Matters...................................................................................26 SECTION 3.11 Employee Benefit Plans........................................................................27 SECTION 3.12 Labor Matters.................................................................................30 SECTION 3.13 Environmental Matters.........................................................................31 SECTION 3.14 Intellectual Property.........................................................................32 SECTION 3.15 Insurance Matters.............................................................................34 SECTION 3.16 Transactions with Affiliates..................................................................34 SECTION 3.17 Voting Requirements...........................................................................34 SECTION 3.18 Brokers.......................................................................................35 SECTION 3.19 Real Property.................................................................................35 SECTION 3.20 Tangible Personal Property....................................................................35 SECTION 3.21 Investment Company............................................................................36 SECTION 3.22 Board Approval................................................................................36 SECTION 3.23 Books and Records.............................................................................36 SECTION 3.24 Accuracy of Information.......................................................................36 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT.............................................................36 SECTION 4.1 Organization, Standing and Corporate Power.....................................................37 SECTION 4.2 Subsidiaries...................................................................................37 SECTION 4.3 Capital Structure..............................................................................37 SECTION 4.4 Authority; Noncontravention....................................................................38 SECTION 4.5 Parent Documents...............................................................................39 SECTION 4.6 Parent Contracts...............................................................................40 SECTION 4.7 Absence of Certain Changes.....................................................................42 SECTION 4.8 Permits; Compliance with Applicable Laws.......................................................43 SECTION 4.9 Absence of Litigation..........................................................................43 SECTION 4.10 Tax Matters...................................................................................43 SECTION 4.11 Employee Benefit Plans........................................................................44 SECTION 4.12 Labor Matters.................................................................................45 SECTION 4.13 Environmental Matters.........................................................................45 SECTION 4.14 Intellectual Property.........................................................................46 SECTION 4.15 Insurance Matters.............................................................................47 SECTION 4.16 Transactions with Affiliates..................................................................48 SECTION 4.17 Voting Requirements...........................................................................48 SECTION 4.18 Brokers.......................................................................................48 SECTION 4.19 Investment Company............................................................................48 SECTION 4.20 Board Approval................................................................................48 SECTION 4.21 Books and Records.............................................................................48 SECTION 4.22 Accuracy of Information.......................................................................48 ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.............................................................49 SECTION 5.1 Conduct of Business by the Company.............................................................49 SECTION 5.2 Advice of Changes..............................................................................50 SECTION 5.3 No Solicitation by the Company.................................................................50 SECTION 5.4 Conduct of Business by Parent..................................................................51 SECTION 5.5 No Solicitation by Parent......................................................................53 SECTION 5.6 Transition.....................................................................................53 ARTICLE VI ADDITIONAL AGREEMENTS................................................................................53 SECTION 6.1 Preparation of the Form S-4, Proxy/Information Statement.............. ........................53 SECTION 6.2 Shareholders' Meeting..........................................................................55 SECTION 6.3 Letters of Company's Accountants...............................................................55 SECTION 6.4 Access to Information; Confidentiality.........................................................55 SECTION 6.5 Commercially Reasonable Efforts...................................... .........................56 SECTION 6.6 Indemnification, Exculpation and Insurance.....................................................56 SECTION 6.7 Fees and Expenses..............................................................................57 SECTION 6.8 Public Announcements...........................................................................58 SECTION 6.9 Corporate Governance of Parent.................................................................58 SECTION 6.10 Agreements with Holders of Company Securities.................................................58 SECTION 6.11 Shareholder Litigation........................................................................59 SECTION 6.12 Voting Agreements and Lock-Up Agreements......................................................59 SECTION 6.13 Employee Benefits.............................................................................60 SECTION 6.14 Cashless Exercise of Stock Options............................................................60 SECTION 6.15 Directors and Officers Insurance..............................................................60 SECTION 6.16 Contingent Fee Shares.........................................................................61 ARTICLE VII CONDITIONS PRECEDENT................................................................................61 SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.....................................61 SECTION 7.2 Conditions to Obligations of Parent and Merger Sub.............................................62 SECTION 7.3 Conditions to Obligations of the Company.......................................................63 SECTION 7.4 Frustration of Closing Conditions..............................................................63 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER..................................................................64 SECTION 8.1 Termination....................................................................................64 SECTION 8.2 Effect of Termination..........................................................................65 SECTION 8.3 Amendment......................................................................................65 SECTION 8.4 Extension; Waiver..............................................................................65 ARTICLE IX GENERAL PROVISIONS...................................................................................65 SECTION 9.1 Nonsurvival of Representations, Warranties and Agreements......................................65 SECTION 9.2 Notices........................................................................................66 SECTION 9.3 Definitions....................................................................................66 SECTION 9.4 Interpretation.................................................................................67 SECTION 9.5 Counterparts...................................................................................68 SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries.................................................68 SECTION 9.7 Governing Law..................................................................................68 SECTION 9.8 Assignment.....................................................................................68 SECTION 9.9 Consent to Jurisdiction........................................................................68 SECTION 9.10 Headings......................................................................................69 SECTION 9.11 Severability..................................................................................69 SECTION 9.12 Enforcement...................................................................................69
EXHIBITS Exhibit A - Lock-Up Period Legend Exhibit B - Initial Lock-Up Period Legend Exhibit C - Form of Employment Agreement for Christopher Every Exhibit D - Form of Employment Agreement for Kwen-Jen Chang Exhibit E - Form of Employment Agreement for Phillip S. Wise iv INDEX OF DEFINED TERMS DEFINED TERMS SECTION DEFINED - ------------- --------------- 5% Holder Section 6.12 Action Section 3.9(a) Adjustment Event Section 2.4 affiliate Section 9.3(a) Agreement Preamble Aggregate Merger Consideration Section 2.1(l)(i) Aggregate Series D-1 Merger Consideration Section 2.1(f) Aggregate Series D-2 Merger Consideration Section 2.1(g) AMEX Section 4.5(d) Articles of Merger Section 1.3 Century Capital Section 6.16 Closing Section 1.2 Closing Date Section 1.2 Code Section 2.6(a) Common Stock Merger Consideration Section 2.1(h) Company Preamble Company Acquisition Proposal Section 5.3(a) Company Articles of Incorporation Section 3.3(d) Company Convertible Promissory Note Section 2.8 Company Common Stock Recitals Company Contract Section 3.6(b) Company Disclosure Schedule Article III Company Financial Statements Section 3.5 Company Material Contracts Section 3.6(b) Company Preferred Stock Section 9.3(f) Company Series A Preferred Stock Section 2.1(c) Company Series B Preferred Stock Section 2.1(d) Company Series C Preferred Stock Section 2.1(e) Company Series D-1 Preferred Stock Section 2.1(f) Company Series D-2 Preferred Stock Section 2.1(g) Company Shareholder Meeting Section 6.2 Company Stock Certificates Section 2.3(b) Company Stock Option Section 2.6(a) Company Stock Plans Section 3.3(a) Company Warrant Section 2.7 Contract Section 3.6(b) Continuing Employees Section 6.3(a) DGCL Recitals Dissenting Shares. Section 2.5 Effective Time Section 1.3 Employee Plans Section 3.11(a) v Environmental Laws Section 3.13(d)(i) Environmental Permits Section 3.13(d)(ii) ERISA Section 3.11(a) ERISA Affiliate Section 3.11(a) Exchange Act Section 4.4(c) Exchange Agent Section 2.3(a) Excluded Parent Shares Section 2.1(l)(ii) Feasibility Study, Option and License Agreement Section 2.1(l)(i) Fiduciary Section 3.11(e) Form S-4 Section 6.1(a) GAAP Section 3.5 Government Entities Section 3.4(c) Governmental Entity Section 3.4(c) Hazardous Substances Section 3.13(d)(iii) Indemnified Parties Section 6.6(a) Indebtedness Section 3.6(b)(xii) Initial Lock-Up Period Section 2.1(j) Intellectual Property Section 3.4(a) IRS Section 3.11(g) ISO Section 2.6(a) knowledge Section 9.3(e) Letter of Transmittal Section 2.3(b) Liens Section 3.2 Lock-Up Period Section 2.1(j) material adverse change Section 9.3(b) material adverse effect Section 9.3(b) Merger Recitals Merger Consideration Section 2.1(h) Merger Sub Preamble Multi-Employer Plans Section 3.11(d) NCBCA Recitals Other Company Documents Section 3.8(c) Other Parent Documents Section 4.8(c) Parent Preamble Parent Acquisition Proposal Section 5.5(a) Parent Authorized Preferred Stock Section 4.3 Parent Common Stock Section 4.3(a) Parent Contracts Section 4.6 Parent Disclosure Schedule Article IV Parent Employee Plans Section 4.11(a) Parent Employee Stock Options Section 4.3(b) Parent SEC Documents Section 4.5 Parent Stock Plans Section 4.3(a) Permits Section 3.8(a) Permitted Liens Section 3.9(b) Permitted Parent Action Section 5.4 vi person Section 9.3(c) Preferred Merger Consideration Section 2.1(g) Proxy/Information Statement Section 6.1(a) Qualified Financing Section 2.1(l)(iii) Related Person Section 3.16 Release Section 3.13(d)(iv) Requisite Regulatory Approvals Section 7.1(b) Resale Prospectus Section 6.1(a) Residual Merger Consideration Section 2.1(l)(iv) Restraints Section 7.2(c) SEC Section 2.6(c) Secretary Section 1.3 Securities Act Section 2.1(j) Series A Merger Consideration Section 2.1(c) Series B Merger Consideration Section 2.1(d) Series C Merger Consideration Section 2.1(e) Series D-1 Merger Consideration Section 2.1(f) Series D-2 Merger Consideration Section 2.1(g) Software Section 3.14(a) SOXA Section 4.5(a) subsidiary Section 9.3(d) Surviving Corporation Section 1.1 Tangible Personal Property Section 3.20 Tax Section 3.10(i)(i) Taxes Section 3.10(i)(i) Tax Return Section 3.10(i)(ii) vii AGREEMENT AND PLAN OF MERGER (this "Agreement") made and entered into on this 11th day of August 2004, by and among ENHANCE BIOTECH, INC., a Delaware corporation ("Parent"), ARDENT ACQUISITION CORP., a North Carolina corporation and wholly owned subsidiary of Parent ("Merger Sub"), and ARDENT PHARMACEUTICALS, INC., a North Carolina corporation (the "Company"). W I T N E S S E T H: WHEREAS, each of Parent, Merger Sub and the Company desire Parent to consummate a business combination with the Company in a transaction whereby, upon the terms and subject to the conditions set forth in this Agreement, Merger Sub will merge with and into the Company (the "Merger"), each outstanding share of common stock, no par value, of the Company ("Company Common Stock") (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), will be converted into the right to receive the Common Stock Merger Consideration and each outstanding share of preferred stock of the Company (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares) will be converted into the right to receive the Preferred Merger Consideration, and the Company will be the surviving corporation in the Merger; WHEREAS, the Board of Directors of the Company has determined and resolved that the Merger and all of the transactions contemplated by this Agreement are in the best interest of the holders of Company Common Stock and Company Preferred Stock, that the Merger is fair and advisable, and has approved this Agreement in accordance with the North Carolina Business Corporation Act, as amended (the "NCBCA"), and has further resolved to recommend to all holders of Company Common Stock and Company Preferred Stock that they authorize, approve and adopt this Agreement and the transactions contemplated hereby; and WHEREAS, the Board of Directors of Parent has determined and resolved that the Merger and all of the transactions contemplated by this Agreement are in the best interest of Parent and the holders of Parent Common Stock and has adopted this Agreement in accordance with the Delaware General Corporation Law, as amended (the "DGCL"), and Parent, as sole shareholder of Merger Sub, has adopted this Agreement in accordance with the NCBCA. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I THE MERGER SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the NCBCA, at the Effective Time Merger Sub shall be merged with and into the Company and the Company shall be the surviving corporation in the Merger (the "Surviving Corporation") and, as such, the Company shall continue its corporate existence as a direct, wholly owned subsidiary of Parent under the laws of the State of North Carolina, and the separate corporate existence of Merger Sub thereupon shall cease. SECTION 1.2 CLOSING. Subject to the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to consummation of the Merger contained in Article VII hereof, the closing of the Merger (the "Closing") shall take place at 10:00 a.m., New York time, on a date to be specified by the parties (the "Closing Date"), which date shall not be later than the third business day next following the satisfaction or, to the extent permitted by applicable law, waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or, to the extent permitted by applicable law, waiver of those conditions), unless another time or date is agreed to by the parties hereto. The Closing will be held at the offices of Parent at 712 Fifth Avenue, 19th Floor, New York, New York 10019 or at such other location as is agreed to by the parties hereto. SECTION 1.3 EFFECTIVE TIME. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing the parties shall cause the Merger to be consummated by filing with the Secretary of State of the State of North Carolina (the "Secretary") articles of merger (the "Articles of Merger") duly executed and so filed in accordance with the NCBCA and shall make all other filings and recordings required under the NCBCA to effectuate the Merger and the transactions contemplated by this Agreement. The Merger shall become effective at such time as the Articles of Merger is duly filed with the Secretary, or at such subsequent date or time as Parent and the Company mutually shall agree and specify in the Articles of Merger (the time the Merger becomes so effective being hereinafter referred to as the "Effective Time"). SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in Section 55-11-06 of the NCBCA. SECTION 1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION. The certificate of incorporation of the Surviving Corporation shall be amended and restated to mirror the certificate of incorporation of the Merger Sub and as so amended shall be the certificate of incorporation of the Surviving Corporation until thereafter amended or restated as provided therein or by applicable law. The by-laws of Merger Sub in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until thereafter amended or restated as provided therein or by applicable law. SECTION 1.6 DIRECTORS AND OFFICERS. The directors of Merger Sub at the Effective Time shall, from and after the Effective Time, be and become the directors of the Surviving Corporation until their successors shall have been duly elected and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and by-laws of the Surviving Corporation and the NCBCA. The officers of Merger Sub at the Effective Time shall, from and after the Effective Time, be and become the officers of the Surviving Corporation until their successors shall have been duly appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and the by-laws of the Surviving Corporation. 9 ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES SECTION 2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger and automatically without any action on the part of any holder of capital stock of Parent, Merger Sub or the Company, respectively: (A) Capital Stock of Merger Sub. Each then outstanding share of common stock, no par value, of Merger Sub shall be converted into and become one duly authorized, validly issued, fully paid and nonassessable share of common stock, no par value, of the Surviving Corporation. (B) Cancellation of Treasury Stock and Parent Owned Stock. Each share of Company Common Stock and Company Preferred Stock then issued and held in the Company's treasury and each share of Company Common Stock and Company Preferred Stock then owned by Parent, Merger Sub or any other wholly owned subsidiary of Parent, shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (C) Series A Convertible Exchangeable Preferred Stock. Each share of the Series A Convertible Exchangeable Preferred Stock, no par value, of the Company ("Company Series A Preferred Stock") issued and outstanding immediately prior to the Effective Time (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), shall be converted into and become the right to receive, subject to Section 2.2, 0.000041762166263% of the Residual Merger Consideration (the "Series A Merger Consideration"). (D) Series B Convertible Exchangeable Preferred Stock. Each share of the Series B Convertible Exchangeable Preferred Stock, no par value, of the Company ("Company Series B Preferred Stock") issued and outstanding immediately prior to the Effective Time (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), shall be converted into and become the right to receive, subject to Section 2.2, 0.000029233509085% of the Residual Merger Consideration (the "Series B Merger Consideration"). (E) Series C Convertible Preferred Stock. Each share of the Series C Convertible Preferred Stock, no par value, of the Company ("Company Series C Preferred Stock") issued and outstanding immediately prior to the Effective Time (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), shall be converted into and become the right to receive, subject to Section 2.2, 0.000002923350909% of the Residual Merger Consideration (the "Series C Merger Consideration"). (F) Series D-1 Convertible Preferred Stock. Each share of the Series D-1 Convertible Preferred Stock, no par value, of the Company ("Company Series D-1 Preferred Stock") issued and outstanding immediately prior to the Effective Time (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), shall be converted into and become the right to receive, subject to Section 2.2, 1.111111111 shares of Parent Common Stock (the "Series D-1 Merger Consideration"). The "Aggregate Series D-1 Merger Consideration" shall be calculated by multiplying (i) the number of shares of Company Series D-1 Preferred Stock outstanding immediately prior to the Effective Time and (ii) the Series D-1 Merger Consideration. 10 (G) Series D-2 Convertible Preferred Stock. Each share of the Series D-2 Convertible Preferred Stock, no par value, of the Company ("Company Series D-2 Preferred Stock") issued and outstanding immediately prior to the Effective Time (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), shall be converted into and become the right to receive, subject to Section 2.2, 0.761904487 shares of Parent Common Stock (the "Series D-2 Merger Consideration, together with the Series A Merger Consideration, the Series B Merger Consideration, the Series C Merger Consideration and the Series D-1 Merger Consideration, the "Preferred Merger Consideration"). The "Aggregate Series D-2 Merger Consideration" shall be calculated by multiplying (i) the number of shares of Company Series D-2 Preferred Stock outstanding immediately prior to the Effective Time and (ii) the Series D-2 Merger Consideration. (H) Company Common Stock. Each then outstanding share of Company Common Stock (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), shall be converted into and become the right to receive, subject to Section 2.2, 0.000002923350909% of the Residual Merger Consideration (the "Common Stock Merger Consideration", together with the Preferred Merger Consideration, the "Merger Consideration"). The Common Stock Merger Consideration includes the amount of Parent Common Stock reserved for issuance pursuant to Sections 2.6, 2.7 and 2.8 with respect to the Company Stock Options, Company Warrants and Company Convertible Preferred Notes. Except as expressly stated in writing elsewhere in this Agreement, the Merger Consideration consists exclusively of shares of Parent Common Stock. (I) If after the date hereof but prior to the Effective Time, any holder of Company Preferred Stock converts such preferred stock into Company Common Stock, in accordance with the terms of such preferred stock, then the Preferred Merger Consideration allocated to such preferred stock shall be reallocated to the Common Stock Merger Consideration. (J) Shares of Parent Common Stock issued as Merger Consideration shall be registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 6.1 hereof. Notwithstanding the foregoing, (A) if Parent has consummated a Qualified Financing on or prior to the Closing Date, all shares issued to each holder of Company Common Stock or Company Preferred Stock, as the case may be, as Merger Consideration, in excess of 30,000 shares of Parent Common Stock shall be subject to a lock-up period restricting transfer of such shares for a period of 12 months after the Closing Date (the "Lock-Up Period") and each certificate representing such shares shall bear a restrictive legend substantially as set forth on Exhibit A attached hereto or (B) if Parent has not consummated a Qualified Financing on or prior to the Closing Date, the first 30,000 (or fewer) shares issued to each holder of Company Common Stock or Company Preferred Stock, as the case may be, as Merger Consideration shall be subject to a lock-up period (the "Initial Lock-Up Period") restricting transfer of such shares for a period ending on the earlier of (i) the 30th day following the date of consummation by Parent of a Qualified Financing or (ii) the 180th day following the Closing Date, and each certificate representing such shares shall bear a restrictive legend substantially as set forth on Exhibit B attached hereto, and all additional shares issued to such holders as Merger Consideration shall be subject to a restriction on transfer of such shares for the Lock-Up Period, and each certificate representing such shares shall bear a restrictive legend substantially as set forth on Exhibit A attached hereto. Separate stock certificates shall be issued representing the shares of Merger Consideration subject to either the Initial Lock-Up Period or the Lock-Up Period. 11 (K) At the Effective Time, the Company Preferred Stock and the Company Common Stock shall cease to be outstanding and be cancelled and retired. (L) As used in this Agreement: (i) "Aggregate Merger Consideration" means the amount equal to the following: (a) the sum of the number of Parent Common Stock outstanding at the Effective Time, on a fully diluted basis, less any "Excluded Parent Shares" as hereinafter defined, (b) divided by fifty-five percent (55%), (c) multiplied by forty-five percent (45%) and (d) less 233,807 shares of Parent Common Stock. The Aggregate Merger Consideration shall be further reduced (x) by 85,000, if a Qualified Financing is not consummated prior to or on the Closing Date and (y) by 85,000, if the Company does not enter into a Feasibility Study, Option and License Agreement as described in Section 3.18 of the Company Disclosure Schedule (the "Feasibility Study, Option and License Agreement") prior to or on the Closing Date. (ii) "Excluded Parent Shares" means (a) any shares of Parent Common Stock issued in a Qualified Financing between the date hereof and the Effective Time or (b) any shares of Parent Common Stock that may be issued upon exercise, exchange or conversion of (x) any Parent securities sold to investors in a Qualified Financing between the date hereof and the Effective Time or (y) the warrant to purchase 1,500,000 shares of Parent Common Stock at an exercise price of $3.00 per share issued to Bioaccelerate, Inc. on August 11, 2004. (iii) "Qualified Financing" means an equity financing by Parent of at least $10,000,000 with a minimum valuation of at least $1.50 per share of Parent Common Stock. (iv) "Residual Merger Consideration" means the amount equal to the following: (a) the Aggregate Merger Consideration, (b) less the Aggregate Series D-1 Merger Consideration and (c) less the Aggregate Series D-2 Merger Consideration. SECTION 2.2 FRACTIONAL SHARES. No certificates representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Company Stock Certificates. In the event that a holder of a Company Stock Certificate would be entitled to receive in the Merger a fractional share interest in exchange for such Company Stock Certificate, then (i) any such fractional share greater than or equal to one-half of a share (0.5) shall be rounded up to the next whole share number and (ii) any such fractional share less than one-half of a share (0.5) shall be rounded down to the preceding whole share number. 12 SECTION 2.3 EXCHANGE OF CERTIFICATES. (A) As soon as reasonably practicable following the Effective Time, Parent shall deposit with Parent's transfer agent, Liberty Stock Transfer, or a nationally reputable bank or trust company in the United States as may be designated by Parent (the "Exchange Agent"), for the benefit of the holders of shares of Company Common Stock and Company Preferred Stock and for exchange in accordance with this Section 2.3, the Aggregate Merger Consideration issuable pursuant to Section 2.1 less the merger consideration allocated and reserved with respect to the (i) Company Stock Options, (ii) Company Warrants, and (iii) Company Convertible Promissory Notes. (B) As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate (or certificates) which immediately prior to the Effective Time represented outstanding shares of Company Common Stock or Company Preferred Stock, as the case may be (the "Company Stock Certificates"), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Company Stock Certificate(s) shall pass, only upon delivery of the Company Stock Certificate(s) (or affidavits of loss in lieu of such certificates) (the "Letter of Transmittal") to the Exchange Agent and shall be in such form and have such other provisions as Parent or the Exchange Agent reasonably may specify, together with a substitute Form W-9) and (ii) instructions for use thereof in surrendering Company Stock Certificate(s) in exchange for the Merger Consideration. Upon surrender to the Exchange Agent of a Company Stock Certificate in proper form for cancellation, together with a duly executed letter of transmittal, the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor a certificate (or certificates) representing such whole number of shares of Parent Common Stock such Company shareholder is entitled to receive pursuant to Section 2.1 and Section 2.2 in such denominations and registered in such names as such holder may request. The shares represented by the Company Stock Certificate so surrendered shall forthwith be cancelled. The Letter of Transmittal shall provide (i) procedures for holders whose Company Stock Certificates are lost, stolen or destroyed to receive the Merger Consideration and (ii) procedures for the transfer of ownership of shares of the Company Common Stock that is not registered on the stock transfer books and records of the Company. Until surrendered in accordance with this Section 2.3 and as specified in the Letter of Transmittal, each Company Stock Certificate shall be deemed at all times from and after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration as provided in this Article II. (C) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared or made after the Effective Time in respect of shares of Parent Common Stock having a record date after the Effective Time shall be paid to the holder of any unsurrendered Company Stock Certificate until the holder shall surrender such Company Stock Certificate as provided in this Section 2.3. Subject to applicable law, following surrender of any such Company Stock Certificate, there shall be paid to the holder of the certificates representing shares of Parent Common Stock issued in exchange therefor, in each case without any interest thereon, (i) at the time of such surrender, the amount of dividends or other distributions, if any, having a record date after the Effective Time theretofor payable with respect to such shares of Parent Common Stock and not paid, less the amount of all required withholding Taxes in respect thereof, and (ii) at the appropriate payment date subsequent to surrender, the amount of dividends or other distributions having a record date after the Effective Time but prior to the date of such surrender and having a payment date subsequent to the date of such surrender and payable with respect to such shares of Parent Common Stock, less the amount of all required withholding Taxes in respect thereof. 13 (D) All shares of Parent Common Stock issued upon surrender of Company Stock Certificates in accordance with this Article II and as specified in the Letter of Transmittal shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such shares of Company Common Stock or Company Preferred Stock represented thereby and, as of the Effective Time, the stock transfer books and records of the Company shall be closed and there shall be no further registration of transfers on the stock transfer books and records of the Company of shares of Company Common Stock and Company Preferred Stock outstanding immediately prior to the Effective Time. If, after the Effective Time, Company Stock Certificates are properly presented to the Surviving Corporation for any reason (but otherwise in accordance with this Article II and as specified in the Letter of Transmittal), they shall be cancelled and exchanged as provided in this Section 2.3. (E) At any time following the six-month anniversary of the Effective Time, Parent shall be entitled to require the Exchange Agent to deliver to it any remaining portion of the Merger Consideration not theretofore distributed to former holders of shares of Company Common Stock and Company Preferred Stock (including any interest received with respect thereto and other income resulting from investments thereof by the Exchange Agent, as directed by Parent), and such former holders shall be entitled to look only to the Parent (subject to abandoned property, escheat and other similar laws) with respect to the Merger Consideration and dividends or other distributions with respect to Parent Common Stock, if any, payable upon due surrender of their Company Stock Certificates, in all cases without any interest thereon and less all required withholding Taxes. Notwithstanding the foregoing, neither the Parent nor the Exchange Agent shall be liable to any holder of a Company Stock Certificate for Merger Consideration (or dividends or distributions in respect thereof) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. SECTION 2.4 CERTAIN ADJUSTMENTS. If after the date hereof and prior to the Effective Time and to the extent permitted by this Agreement, the outstanding shares of Parent Common Stock, Company Common Stock or Company Preferred Stock shall be changed into a different number, class or series of shares by reason of any reclassification, recapitalization or combination, forward stock split, reverse stock split, stock dividend or rights issued in respect of such stock, or any similar event shall occur (any such action, an "Adjustment Event"), the Merger Consideration shall be adjusted correspondingly to provide to the holders of Company Common Stock and the Company Preferred Stock the right to receive the same economic effect as contemplated by this Agreement immediately prior to such Adjustment Event and Parent's payment obligations likewise shall be correspondingly adjusted such that it shall be required to pay and deliver not more than the aggregate Merger Consideration contemplated by this Agreement. The parties acknowledge and agree that Parent intends to increase it's authorized, but unissued securities pursuant to Section 5.4(a), and that change shall not result in any adjustment pursuant to this Section. 14 SECTION 2.5 SHARES OF DISSENTING SHAREHOLDERS. Notwithstanding anything in this Agreement to the contrary, any shares of Company Common Stock and Company Preferred Stock that are outstanding as of the Effective Time and that are held by a shareholder who has properly exercised his appraisal rights under Sections 55-13-20 through 55-13-28 of the NCBCA (the "Dissenting Shares) shall not be converted into the right to receive the Merger Consideration; provided, however, if any such holder shall have failed to perfect or shall have effectively withdrawn or lost such shareholder's right to dissent from the Merger under the NCBCA and to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to and subject to the requirements of the NCBCA, each share of such holder's Company Common Stock or Preferred Stock, as the case may be, thereupon shall be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the Common Stock Merger Consideration or Preferred Merger Consideration respectively, in accordance with Section 2.1. The Company shall give Parent prompt written notice of (i) all demands for appraisal or payment for shares of Company Common Stock or Company Preferred Stock received by the Company prior to the Effective Time in accordance with the NCBCA and (ii) any settlement or offer to settle any such demands. SECTION 2.6 STOCK OPTIONS. (A) At the Effective Time each outstanding option to purchase shares of Company Common Stock (a "Company Stock Option") granted under the Company's 1997 stock option plan and granted outside said plan shall be automatically amended to constitute an option to acquire such Common Stock Merger Consideration as the holder of such Company Stock Option would have been entitled to receive in the Merger had such holder exercised such Company Stock Option in full immediately prior to the Effective Time; provided, however, that with respect to any Company Stock Option which is an incentive stock option (an "ISO") within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), the determination of the exercise price, number of shares purchasable and terms and conditions of vesting shall in all respects comply with Section 424(a) of the Code. (B) As promptly as practicable after the Effective Time, Parent shall deliver to each holder of a Company Stock Option a notice that accurately reflects the changes to such options as contemplated by subsection (a) of this Section 2.6. (C) The Merger Consideration allocated to the Company Stock Options shall be reserved out of the Common Stock Merger Consideration by Parent for issuance upon the exercise of all Company Stock Options after the Effective Time. Notwithstanding the foregoing, if any Company Stock Option expires or is forfeited or cancelled, pursuant to its terms, after the Effective Date, the Parent Common Stock underlying such stock option shall no longer be reserved and shall be released as treasury stock to Parent. With respect to such Parent Common Stock, Parent shall file, no later than 180 days after the Effective Time, with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-8 and use its best efforts to have such registration statement become and remain continuously effective under the Securities Act and, if the Company is then listed on a national stock exchange, file with such exchange a listing application and use its best efforts to have such shares admitted to trading thereon upon exercises of Company Stock Options. Parent shall also use its best efforts to ensure that all ISO's continue to qualify as such at all times after the Effective Time. 15 SECTION 2.7 WARRANTS. (A) At the Effective Time, to the extent not exercised prior to the Effective Time, each outstanding warrant to purchase shares of Company Common Stock (a "Company Warrant") set forth on Schedule 2.7 of the Company Disclosure Schedule hereof shall be automatically amended to constitute a warrant to acquire such Common Stock Merger Consideration as the holder of such Company Warrants would have been entitled to receive in the Merger had such holder exercised such Company Warrant in full immediately prior to the Effective Time. (B) As promptly as practicable after the Effective Time, Parent shall deliver to each holder of a Company Warrant a notice that accurately reflects the Common Stock Merger Consideration each such holder is entitled to receive upon the exercise of such holder's Company Warrant. (C) The Merger Consideration allocated to the Company Warrants shall be reserved for issuance out of the Common Stock Merger Consideration by Parent for issuance upon exercise in full of all Company Warrants after the Effective Time and shall register such Parent Common Stock reserved for issuance upon the exercise of the Company Warrants on the Form S-4. Notwithstanding the foregoing, upon the expiration of the Company Warrants, such Parent Common Stock reserved for issuance upon the exercise of the Company Warrants shall no longer be reserved and shall be released as treasury stock to Parent. SECTION 2.8. CONVERTIBLE PROMISSORY NOTES. At the Effective Time the Convertible Promissory Note dated October 19, 1999 of the Company and the Convertible Promissory Note dated April 14, 2000 of the Company (collectively, the "Company Convertible Promissory Notes") shall remain as debt on the books of the Surviving Company and Parent shall cause the Surviving Entity to exchange, pursuant to the terms of such Company Convertible Promissory Notes, the Company Convertible Promissory Notes for notes of the Surviving Entity. The Merger Consideration allocated to the Company Convertible Promissory Notes shall be reserved by Parent for issuance out of the Common Stock Merger Consideration upon conversion of the Company Convertible Promissory Notes after the Effective Time. Notwithstanding the foregoing, upon the repayment and retirement of the outstanding debt evidenced by the Company Convertible Promissory Notes, such Parent Common Stock reserved for issuance upon the conversion of the Company Convertible Promissory Notes shall no longer be reserved and shall be released as treasury stock to Parent. SECTION 2.9. TAX-FREE REORGANIZATION. The Merger is intended to be a reorganization within the meaning of Section 368 of the Code, and this Agreement is intended to be a "plan of reorganization" within the meaning of the regulations promulgated under Section 368 of the Code. 16 SECTION 2.10. ISSUANCE OF RESTRICTED SHARES. Any shares of Parent Common Stock issued upon exercise of any Company Stock Option or Company Warrant, or upon conversion of any Company Convertible Promissory Note, after the Effective Time shall be issued as "restricted securities," as defined in the Securities Act, unless such shares have been registered by Parent under the Securities Act in a registration statement filed with, and declared effective by, the SEC after the Effective Time. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on the Disclosure Schedule delivered by the Company to Parent prior to the execution of this Agreement which hereby is incorporated by reference in and constitutes an integral part of this Agreement (the "Company Disclosure Schedule") and making specific reference to the particular subsection(s) of this Agreement to which exception is being taken, the Company hereby represents and warrants to Parent and Merger Sub as follows: SECTION 3.1 Organization, Standing and Corporate Power. (A) Each of the Company and its subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power, as the case may be, and requisite authority to carry on its business as presently being conducted. Each of the Company and its subsidiaries is duly qualified or licensed to conduct business and is in good standing in each jurisdiction listed in Section 3.1 of the Company Disclosure Schedule. Each of the Company and its subsidiaries is duly qualified or licensed to conduct business in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing individually or in the aggregate would not reasonably be expected to have a material adverse effect on the Company. (B) The Company has delivered or made available to Parent prior to the execution of this Agreement complete and correct copies of the certificate of incorporation and by-laws or other organizational documents of the Company and its subsidiaries, as in effect at the date of this Agreement, and which shall be in effect as of the Closing Date. SECTION 3.2 SUBSIDIARIES. Section 3.2 of the Company Disclosure Schedule lists the names and jurisdiction of incorporation or organization of all the subsidiaries of the Company, whether consolidated or unconsolidated. The outstanding securities of the subsidiaries of the Company are set forth in Section 3.2 of the Company Disclosure Schedules and all outstanding shares of capital stock of, or other equity interests in, each such subsidiary: (i) have been duly authorized, validly issued and are fully paid and nonassessable; (ii) are owned directly or 17 indirectly by the Company, free and clear of all pledges, claims, liens, charges, encumbrances, adverse claims, mortgages and security interests of any kind or nature whatsoever (collectively, "Liens"); and (iii) are free of all other restrictions (including restrictions on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests) that would prevent the operation by the Surviving Corporation of such subsidiary's business as presently conducted. Except as set forth above or in Section 3.2 of the Company Disclosure Schedule, the Company does not own, directly or indirectly, any capital stock of or other equity or voting interests in any person. SECTION 3.3 CAPITAL STRUCTURE. The authorized capital stock of the Company consists of 100,000,000 shares of Company Common Stock, 200,000 shares of Company Series A Preferred Stock, 200,000 shares of Company Series B Preferred Stock, 2,500,000 shares of Company Series C Preferred Stock, 2,200,000 Company Series D-1 shares of Preferred Stock and 4,600,000 shares of Company Series D-2 Preferred Stock. As of the date hereof: (A) (i) 23,943,307 shares of Company Common Stock are issued and outstanding; (ii) no (0) shares of Company Common Stock are held by the Company in its treasury and no (0) shares of Company Common Stock are held by subsidiaries of the Company; (iii) 5,000,000 shares of Company Common Stock were reserved for issuance pursuant to the Company's 1997 incentive stock option plan, agreements and arrangements providing for equity-based compensation to any director, employee, consultant or independent contractor of the Company or any of its subsidiaries (collectively, the "Company Stock Plans"), of which 4,062,000 shares are subject to outstanding Company Stock Options (iv) an additional 1,377,360 shares are subject to outstanding Company Stock Options issued outside the Company Stock Plans and (v) 1,218,046 warrants to purchase shares of Company Common Stock are issued and outstanding; (B) (i) 120,150 shares of Company Series A Preferred Stock are issued and outstanding, (ii) 120,150 shares of Company Series B Preferred Stock are issued and outstanding, (iii) 1,000,000 shares of Company Series C Preferred Stock are issued and outstanding, (iv) 795,715 shares of Company Series D-1 Preferred Stock are issued and outstanding and (v) 2,453,333 shares of Company Series D-2 Preferred Stock are issued and outstanding; (C) Section 3.3 of the Company Disclosure Schedule lists, as of the close of business on the date hereof, all outstanding Company Stock Options, the number of shares subject to each such Company Stock Option, the grant date, exercise price, term and vesting schedule of each such Company Stock Option and the names of the holders thereof. (D) All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and are not subject to preemptive rights created by statute, the Company's Articles of Incorporation as amended by the Articles of Amendment (the "Company's Articles of Incorporation") or any agreement to which the Company is a party or by which the Company may be bound. Except as set forth in this Section and except for changes since the date of this Agreement resulting from the exercise of Company Stock Options outstanding on such date, there are outstanding (i) no shares of capital stock or other voting securities of the Company, (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, other than the Company Preferred Stock and Company Convertible Promissory Notes, and (iii) no options or other rights to acquire from the Company, and no obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock of the Company, other than the Company Warrants. 18 SECTION 3.4 AUTHORITY; NONCONTRAVENTION. (A) The Company has the corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. Except for any required approval by the Company's shareholders in connection with the consummation of the Merger, all corporate acts and proceedings required to be taken by or on the part of the Company to authorize the Company to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby have been duly and validly taken. This Agreement constitutes a valid and binding agreement of the Company. (B) The execution and delivery of this Agreement does not and the consummation of the transactions contemplated hereby will not conflict with or result in a violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation under (i) any provision of the Company's Articles of Incorporation, (ii) any loan or credit agreement, note, mortgage, indenture, lease or other Company Material Contract or (iii) instrument, permit, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. (C) The execution, delivery and performance by the Company of this Agreement and the consummation of the Merger by the Company require no consent, approval, order or authorization of, action by or in respect of, or registration or filing with, any governmental body, court, agency, official or authority (each, a "Governmental Entity," collectively "Government Entities") other than the filing of a certificate of merger in accordance with the Secretary. (D) The execution and delivery of this Agreement and the consummation of the Merger will not result in the creation of any Lien upon any asset of the Company. (E) Except as set forth in Section 3.4(e) of the Company Disclosure Schedule, no consent, approval, waiver or other action by any person (other than the governmental authorities referred to in (b) above) under any indenture, lease, instrument or other material contract, agreement or document to which the Company is a party or by which the Company is bound is required or necessary for, or made necessary by reason of, the execution, delivery and performance of this Agreement by the Company or the consummation of the Merger. SECTION 3.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. (A) The Company has furnished to the Parent true, correct and complete copies of: (i) audited balance sheets of the Company and its subsidiaries as of December 31, 2002 and December 31 2003 and an unaudited balance sheet of the Company and its subsidiaries as of June 30, 2004; and (ii) audited income statements of the Company and its subsidiaries as of December 31, 2002 and December 31, 2003 and an unaudited income statement of the Company and its subsidiaries for the three-month 19 periods ended March 31, 2004 and June 30, 2004 (collectively, the "Company Financial Statements"). The Company Financial Statements have been prepared by the Company and its subsidiaries on the basis of the books and records maintained by the Company and its subsidiaries in the ordinary course of business in a manner consistently used and applied throughout the periods involved. The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") and fairly present in all material respects the financial condition of the Company and its subsidiaries as at the respective dates thereof, except that the Company and its subsidiaries' unaudited balance sheet as of June 30, 2004 and income statements for the three-month periods ended March 31, 2004 and June 30, 2004 are subject to normal year end adjustments in the ordinary course of business. (B) Except for liabilities (i) set forth in Section 3.5 of the Company Disclosure Schedule or (ii) reflected in the Company's audited financial statements as at, and for the period ending, December 31, 2003, the Company has no material liabilities or obligations, whether absolute, accrued, contingent or otherwise. Since December 31, 2003, the Company has incurred no material liabilities or obligations, whether absolute, accrued, contingent or otherwise except (x) in the ordinary course of the Company's business consistent with past practices or (y) in connection with the negotiation and consummation of this Agreement and the transactions contemplated hereby. SECTION 3.6 COMPANY CONTRACTS. (A) Section 3.6 of the Company Disclosure Schedule lists all Company Material Contracts. Each Company Material Contract is valid and binding on and enforceable against the Company (or, to the extent a subsidiary of the Company is a party, such subsidiary) and, to the knowledge of the Company, each other party thereto and is in full force and effect. Neither the Company nor any of its subsidiaries is in breach or default under any Company Material Contract. Neither the Company nor any subsidiary of the Company knows of, or has received notice of, any violation, default, right of acceleration of any obligation or loss of a material benefit under (nor, to the knowledge of the Company, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation, default, right of acceleration of any obligation or loss of a material benefit, under) any Company Material Contract by any other party thereto. Prior to the date hereof, the Company has delivered to Parent true and complete copies of all Company Material Contracts. (B) As used in this Agreement, "Contract" shall mean any contract, note, bond, restrictive agreement of any kind, mortgage, indenture, evidence of indebtedness, guarantee, make-well or make-whole agreement, license agreement, lease, arrangement, commitment or other instrument or obligation to which a person or any of its subsidiaries is a party or by which such person or any of its subsidiaries is bound or to which any of such person's or any of its subsidiaries' assets or properties are subject, in each such case whether written or oral. As used in this Agreement, "Company Contract" shall mean any Contract of the Company or any of its subsidiaries. As used in this Agreement, "Company Material Contract" shall mean any Contract which is material to the Company including, without limitation, each of the following: (i) any Contract that (A) involves the payment or potential payment, pursuant to the terms of any such Contract, by or to the Company or any of its subsidiaries, of more than $50,000 individually or more than $200,000 in the aggregate and (B) cannot be terminated within thirty (30) calendar days after giving notice of termination without resulting in any material cost or penalty to the Company or any of its subsidiaries; 20 (ii) any Contract which contains provisions which in any non-de minimis manner restrict, or may restrict, the conduct of business as presently conducted by the Company or any of its subsidiaries; (iii) any Contract restricting in any way the right of the Company or any subsidiary to engage in business or to compete in any business; (iv) any Contract providing for the indemnification or surety by the Company or any subsidiary of the Company; (v) any strategic alliance, revenue sharing joint venture or partnership agreement of the Company or any subsidiary of the Company; (vi) any Contract which grants any right of first or last refusal or right of first or last offer or similar right or that limits or purports to limit the ability of the Company or any of its subsidiaries to own, operate, sell, transfer, pledge or otherwise dispose of any material amount of assets or business; (vii) any Contract providing for any material future payments that are conditioned, in whole or in part, on a change of control of the Company or any of its subsidiaries; (viii) any employment agreement or any agreement or arrangement with any officer, director or key employee of the Company or any subsidiary of the Company; (ix) any Contract of the Company or any of its subsidiaries providing for or pertaining to employment or consultation services for a specified or unspecified term except for (A) Contracts involving payment of less than $50,000 individually or less than $200,000 in the aggregate, and (B) Contracts which can be terminated within thirty (30) calendar days after giving notice of termination without resulting in any material cost or penalty to the Company or any of its subsidiaries, including, without limitation, any material severance pay or post-employment liabilities or obligations of the Company or any of its subsidiaries; (x) any Contract pertaining to the use of or granting of any right to use or practice any rights under any Intellectual Property of the Company, whether the Company is the licensee or licensor thereunder, except for Contracts under which the Company or any of its subsidiaries is a licensee or "off-the-shelf" software provided that, to the Company's knowledge, there is no default under any such Contract; (xi) any Contract pursuant to which the Company or any of its subsidiaries leases or uses any real property; (xii) any Contract relating to Indebtedness of the Company or any of its subsidiaries in excess of $50,000 or to preferred stock issued by the Company or any of its subsidiaries (other than Indebtedness owing to or preferred stock owned by the Company or any 21 of its wholly-owned subsidiaries). As used in this Agreement the term "Indebtedness" means, with respect to a person, all obligations of such person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases, (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other person, and (vi) make-well or make-whole agreements entered into on behalf of any other person; (xiii) any Contract with distributors, dealers, manufacturers, manufacturer's representatives, sales agencies, franchisees, or pre-clinical or clinical trial testing entities; (xiv) any Contract relating to (A) the future disposition or acquisition of any assets or properties of the Company or any of its subsidiaries, other than dispositions or acquisitions in the ordinary course of business consistent with past practice, and (B) any merger or other type of business combination; (xv) any Contract between or among the Company or any of its subsidiaries, on the one hand, and any officer, director, employee or shareholder of the Company or any of its subsidiaries, or any affiliate or associate of the Company (other than the Company or any of its subsidiaries, which inter-company transactions are not the subject of this clause), on the other hand; (xvi) any collective bargaining or similar labor Contracts; (xvii) any Contracts that (A) limit or contain restrictions on the ability of the Company or any of its subsidiaries to declare or pay dividends on, to make any other distribution in respect of or to issue or purchase, redeem or otherwise acquire its capital stock, to incur Indebtedness, to incur or suffer to exist any lien, to purchase or sell any assets and properties, to change the lines of business in which it participates or engages or to engage in any business combination or (B) require the Company or any of its subsidiaries to maintain specified financial ratios or levels of net worth or other indicia of financial condition; (xviii) any Contract that (A) involves the payment or potential payment, pursuant to the terms of any such Contract, by or to the Company or any of its subsidiaries, of more than $50,000 and (B) cannot be terminated within thirty (30) calendar days after giving notice of termination without resulting in any material cost or penalty to the Company or any of its subsidiaries; and (xix) any Contract not made in the ordinary course of business which is material to the Company and its subsidiaries, taken as a whole, or which reasonably would be expected (x) to delay the consummation of the Merger or any of the transactions contemplated by this Agreement or (y) to have a material adverse effect on the Company. SECTION 3.7 ABSENCE OF CERTAIN CHANGES. Except for the execution and delivery of this Agreement and the transactions to take place pursuant hereto on the Closing Date, since December 31, 2003, (i) there has not been any material adverse change in the Company or any event which either individually or when aggregated with other event(s) has or reasonably would be expected to have a material adverse effect on the Company, or (ii) there are not, to the Company's knowledge, any facts, circumstances or events that make it reasonably likely that the Company will not be able to fulfill its obligations under this Agreement in all material respects. Without limiting the foregoing, except as set forth in Section 3.7 of the Company Disclosure Schedule, there has not occurred between December 31, 2003 and the date hereof: . 22 any declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock of the Company or any subsidiary not wholly owned by the Company, or any direct or indirect redemption, purchase or other acquisition by the Company or any subsidiary of any such capital stock of or any option or warrant with respect to the Company or any subsidiary not wholly owned by the Company; any authorization, issuance, sale or other disposition by the Company or any subsidiary of any shares of capital stock of or option or warrant with respect to the Company or any subsidiary, or any modification or amendment of any right of any holder of any outstanding shares of capital stock of or any option or warrant with respect to the Company or any subsidiary; (x) any increase in the salary, wages or other compensation of any officer, employee or consultant of the Company or any subsidiary whose annual salary is, or after giving effect to such change would be, $50,000 or more; (y) any establishment or modification of (A) targets, goals, pools or similar provisions in respect of any fiscal year under any compensation or benefit plan, employment Contract or other employee compensation arrangement or (B) salary ranges, increase guidelines or similar provisions in respect of any compensation or benefit plan, employment Contract or other employee compensation arrangement; or (z) any adoption, entering into, amendment, modification or termination (partial or complete) of any compensation or benefit plan except to the extent required by applicable law and, in the event compliance with legal requirements presented options, only to the extent that the option which the Company or subsidiary reasonably believed to be the least costly was chosen; (A) incurrences by the Company or any of the subsidiaries of Indebtedness in an aggregate principal amount exceeding $50,000 (net of any amounts discharged during such period), or (B) any voluntary purchase, cancellation, prepayment or complete or partial discharge in advance of a scheduled payment date with respect to, or waiver of any right of the Company or any subsidiary under, any Indebtedness of or owing to the Company or any subsidiary (in either case other than any Indebtedness of the Company or a subsidiary owing to the Company or a wholly-owned subsidiary); any physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of the plant, real or personal property or equipment of the Company or any subsidiary in an aggregate amount exceeding $50,000; any material change in (x) any pricing, investment, accounting, financial reporting, inventory, credit, allowance or tax practice or policy of the Company or any subsidiary, (y) any method of calculating any bad debt, contingency or other reserve of the Company or any subsidiary for accounting, financial reporting or tax purposes or (z) the fiscal year of the Company or any subsidiary; 23 any write-off or write-down of or any determination to write off or down any of the assets and properties of the Company or any subsidiary in an aggregate amount exceeding $50,000; any acquisition or disposition of, or incurrence of a lien upon, any assets and properties of the Company or any subsidiary, other than in the ordinary course of business consistent with past practice; any (x) amendment of the certificate or articles of incorporation or by-laws (or other comparable corporate charter documents) of the Company or any subsidiary, (y) reorganization, liquidation or dissolution of the Company or any subsidiary or (z) merger or other type of business combination involving the Company or any subsidiary and any other person (other than the Company or another wholly-owned subsidiary of the Company); any entering into, amendment, modification, termination (partial or complete) or granting of a waiver under or giving any consent with respect to any Contract which is required (or had it been in effect on the date hereof would have been required) to be disclosed in the Disclosure Schedule pursuant to Section 3.6; any lapse, or any material breach or default under, or the incurrence of any material penalty or loss or diminishment of rights under, or the occurrence of any event which, with notice or the passage of time or both, could constitute the same, with respect to any Company Material Contract; capital expenditures or commitments for additions to property, plant or equipment of the Company and any subsidiary constituting capital assets in an aggregate amount exceeding $50,000, in the aggregate; any commencement or termination by the Company or any subsidiary of any line of business; any transaction by the Company or any subsidiary with any officer, director, or shareholder of the Company or any subsidiary, or any affiliate or associate of any of them (other than the Company or any subsidiary) other than on an arm's-length basis on terms substantially the same as those available from unrelated third parties; or any entering into of an agreement to do or engage in any of the foregoing after the date hereof. SECTION 3.8 PERMITS; COMPLIANCE WITH APPLICABLE LAWS. (A) The Company and its subsidiaries own and/or possess all permits, licenses, variances, authorizations, exemptions, orders, registrations and approvals of all Governmental Entities which are required for the operation of the respective businesses of the Company and its subsidiaries (the "Permits") as presently conducted, except for those the failure to own or possess 24 would not reasonably be expected to have a material adverse effect on the Company. Each such Permit is listed in Section 3.8 of the Company Disclosure Schedule. Each of the Company and its subsidiaries is in compliance with the terms of its Permits and all the Permits are in full force and effect and no suspension, modification or revocation of any of them is pending or, to the knowledge of the Company, threatened nor, to the knowledge of the Company, do grounds exist for any such action, except where the failure to be in full force and effect individually or in the aggregate would not reasonably be expected to have a material adverse effect on the Company. (B) Each of the Company and its subsidiaries is in compliance in all respects with all applicable statutes, laws, regulations, ordinances, Permits, rules, writs, judgments, orders, decrees and arbitration awards of each Governmental Entity applicable to the Company or its subsidiaries, except where the failure to be in compliance, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company. (C) Except for filings with respect to Taxes which is the subject of Section 3.10, and not covered by this Section 3.8(c), the Company and each of its subsidiaries have filed all regulatory reports, schedules, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that they were required to file with each Governmental Entity (the "Other Company Documents"), and have paid all fees and assessments, if any, due and payable in connection therewith, except where the failure to make such payments and filings individually or in the aggregate would not have a material adverse effect on the Company. SECTION 3.9 ABSENCE OF LITIGATION. (a) As used in this Agreement with respect to any person, an "Action" is any litigation, action, suit, case, proceeding, administrative charge or citation, investigation or arbitration against, relating to, or affecting such person or any of its subsidiaries or any of their respective assets or properties. Section 3.9(a) of the Company Disclosure Schedule contains a true and current summary description of each pending and, to the Company's knowledge, threatened Action with respect to the Company or any of its subsidiaries. (B) Except as disclosed in Section 3.9(b) of the Company Disclosure Schedule, there is no Action relating to the Company or any of its subsidiaries by or before any Governmental Entity or otherwise pending or, to the best of the Company's knowledge, threatened, which could reasonably be expected to have a material adverse effect on the Company, nor are there any facts or circumstances known to the Company or any of its subsidiaries which could reasonably be expected to give rise to any such Action. (C) Except as disclosed in Section 3.9(c) of the Company Disclosure Schedule, there is no Action relating to the Company or any of its subsidiaries by or before any Governmental Entity or otherwise pending or, to the best of the Company's knowledge, threatened, which could reasonably be expected to delay, prohibit, make illegal, or have a material adverse effect on the consummation of this Agreement or the transactions contemplated hereby, or the benefits to the parties hereto intended hereby and thereby. (D) Prior to the execution of this Agreement, the Company has delivered to Parent all responses of counsel for the Company and its subsidiaries to auditors' requests for information delivered in connection with the Company Financial Statements (together with any updates provided by such counsel) regarding Actions pending or threatened against, relating to or affecting the Company or any of its subsidiaries. 25 SECTION 3.10 TAX MATTERS. (A) Each of the Company and each of its subsidiaries has (i) timely filed (or there have been timely filed on its behalf) with the appropriate Governmental Entities all United States federal income and other Tax Returns required to be filed by it (giving effect to all extensions), except where the failure to file any such Tax Returns in a timely fashion or at all would not reasonably be expected to have a material adverse effect on the Company, and such Tax Returns are true, correct and complete in all material respects; (ii) timely paid in full (or there has been timely paid in full on its behalf) all United States federal income and other material Taxes required to have been paid by it; and (iii) made adequate provision (or adequate provision has been made on its behalf) for all accrued Taxes not yet due. The accruals and provisions for Taxes reflected in the Company's Financial Statements are adequate in accordance with GAAP for all Taxes accrued or accruable through the date of such statements. (B) As of the date of this Agreement, no Federal, state, local or foreign audits, suits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of the Company or any of its subsidiaries, and neither the Company nor any subsidiary of the Company has received a written notice of any material pending or proposed claims, audits or proceedings with respect to Taxes. (C) No deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Tax has been proposed, asserted, or assessed in writing by any Governmental Entity against, or with respect to, the Company or any of its subsidiaries. There is no action, suit or audit now in progress, pending or, to the knowledge of the Company, threatened against or with respect to the Company or any of its subsidiaries with respect to any material Tax. (D) Neither the Company nor any of its subsidiaries has been included in any "consolidated," "unitary" or "combined" Tax Return (other than Tax Returns which include only the Company and any of its subsidiaries) provided for under the laws of the United States, any foreign jurisdiction or any state or locality with respect to Taxes for any taxable year. (E) No election under Section 341(f) of the Code has been made by the Company or any of its subsidiaries. (F) No claim has been made in writing by any Governmental Entities in a jurisdiction where the Company or any of its subsidiaries does not file Tax Returns that any such entity is, or may be, subject to taxation by that jurisdiction. (G) Each of the Company and each of its subsidiaries has made available to Parent correct and complete copies of (i) all of their Tax Returns filed within the past three years, (ii) all audit reports, letter rulings, technical advice memoranda and similar documents issued by a Governmental Entity within the past three years relating to the Federal, state, local or foreign Taxes due from or with respect to the Company or any of its subsidiaries, and (iii) any closing letters or agreements entered into by the Company or any of its subsidiaries with any Governmental Entities within the past three years with respect to Taxes. 26 (H) Neither the Company nor any of its subsidiaries has received any notice of deficiency or assessment from any Governmental Entity for any amount of Tax that has not been fully settled or satisfied, and to the knowledge of the Company and its subsidiaries no such deficiency or assessment is proposed. (I) For purposes of this Agreement: (i) "Tax" or "Taxes" shall mean shall mean all federal, state, county, local, foreign and other taxes of any kind whatsoever (including, without limitation, income, profits, premium, excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, license, stamp, environmental, withholding, employment, unemployment compensation, payroll related and property taxes, import duties and other governmental charges and assessments), whether or not measured in whole or in part by net income, and including deficiencies, interest, additions to tax or interest, and penalties with respect thereto, and including expenses associated with contesting any proposed adjustment related to any of the foregoing. (ii) "Tax Return" shall mean any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendments thereof. SECTION 3.11 EMPLOYEE BENEFIT PLANS. (A) As used in this Agreement, the term "Employee Plan" shall mean, with respect to any person, all pension, stock option, stock purchase, phantom stock, bonus, compensation, benefit, welfare, profit-sharing, retirement, disability, vacation, severance, hospitalization, medical, surgical, dental, optical, psychiatric, insurance, incentive, deferred compensation, death and other similar fringe or employee benefit plans, funds, programs or arrangements, whether written or oral, in each of the foregoing cases which covers, is maintained for the benefit of, or relates to any or all current or former employees of such person or any other entity (an "ERISA Affiliate") related to such person under Section 414(b), (c), (m) and (o) of the Code, including, without limitation, subsidiaries of such person. Section 3.11 of the Company Disclosure Schedule contains a true and complete list of all of the Company's Employee Plans. Section 3.11 of the Company Disclosure Schedule identifies and includes but is not limited to, each of the Company's Employee Plans that is subject to Section 302 or Title IV of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section 412 of the Code. Neither the Company nor any ERISA Affiliate of the Company has any commitment or formal plan, whether or not legally binding, to create any additional Employee Plan or modify or change any existing Employee Plan other than as may be required by the express terms of such Employee Plan or applicable law. (B) With respect to each Employee Plan that has been qualified or is intended or required to be qualified under the Code or that is an "Employee Benefit Plan" within the meaning of Section 3.3 of ERISA, such Employee Plan has been duly approved and adopted by all necessary and appropriate action of the Board of Directors of the Company (or a duly constituted committee thereof). 27 (C) With respect to the Employee Plans, all required contributions for all periods ending before the Closing Date have been or will be paid in full by the Closing Date. Subject only to normal retrospective adjustments in the ordinary course, all required insurance premiums have been or will be paid in full with regard to such Employee Plans for policy years or other applicable policy periods ending on or before the Closing Date by the Closing Date. As of the date hereof, none of the Employee Plans has unfunded benefit liabilities, as defined in Section 4001(a)(16) of ERISA. (D) The Company has no "multi-employer plans," as defined in Section 3(37) or Section 4001(a)(3) of ERISA or Section 414 ("Multi-Employer Plans"), and never has had any such plans. (E) With respect to each Employee Plan (i) no prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code have occurred or are expected to occur as a result of the Merger or the transactions contemplated by this Agreement, (ii) no action, suit, grievance, arbitration or other type of litigation, or claim with respect to the assets of any Employee Plan (other than routine claims for benefits made in the ordinary course of plan administration for which plan administrative review procedures have not been exhausted) is pending or, to the knowledge of the Company, threatened or imminent against the Company, any ERISA Affiliate or any fiduciary, as such term is defined in Section 3(21) of ERISA ("Fiduciary"), including, but not limited to, any action, suit, grievance, arbitration or other type of litigation, or claim regarding conduct that allegedly interferes with the attainment of rights under any Employee Plan and (iii) the Company has no knowledge of any facts which would give rise to or could give rise to any such actions, suits, grievances, arbitration or other type of litigation, or claims with respect to any Employee Plan. To the knowledge of the Company, neither the Company, nor its directors, officers, employees or any Fiduciary has any liability for failure to comply with ERISA or the Code for any action or failure to act in connection with the administration or investment of such plan. None of the Employee Plans is subject to any pending investigations or to the knowledge of the Company threatened investigations from any Governmental Agencies who enforce applicable laws under ERISA and the Code. (F) Each of the Employee Plans is, and has been, operated in accordance with its terms and each of the Employee Plans, and administration thereof, is, and has been in compliance with the requirements of any and all applicable statutes, orders or governmental rules or regulations currently in effect, including, but not limited to, ERISA and the Code, except where the failure to comply individually or in the aggregate would not have a material adverse effect on the Company. All required reports and descriptions of the Employee Plans (including but not limited to Form 5500 Annual Reports, Form 1024 Application for Recognition of Exemption Under Section 501(a), Summary Annual Reports and Summary Plan Descriptions) have been timely filed and distributed as required by ERISA and the Code. Any notices required by ERISA or the Code or any other state or federal law or any ruling or regulation of any state or federal administrative agency with respect to the Employee Plans, including but not limited to any notices required by Section 204(h), Section 606 or Section 4043 of ERISA or Section 4980B of the Code, have been appropriately given. 28 (G) The Internal Revenue Service (the "IRS") has issued a favorable determination letter with respect to each Employee Plan intended or required to be "qualified" within the meaning of Section 401(a) of the Code that has not been revoked and, to the knowledge of the Company, no circumstances exist that could adversely affect the qualified status of any such plan and the exemption under Section 501(a) of the Code of the trust maintained thereunder. Each Employee Plan intended to satisfy the requirements of Section 125, 501(c)(9) or 501(c)(17) of the Code has satisfied such requirements in all material respects. (H) With respect to each Employee Plan to which the Company or any ERISA Affiliate made, or was required to make, contributions on behalf of any employee during the five-year period ending on the last day of the most recent plan year end prior to the Closing Date, (i) no liability under Title IV or Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate that has not been satisfied in full, and (ii) to the knowledge of the Company, no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring any such liability and (iii) the present value of accrued benefits under such plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such plan's actuary with respect to such plan did not exceed, as of its latest valuation date, the then current value of the assets of such plan allocable to such accrued benefits. No Employee Plan or any trust established thereunder has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recently ended fiscal year. (I) No Employee Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by Section 4980B of the Code, Section 601 of ERISA or other applicable law, (ii) death benefits under any "pension plan," (iii) benefits the full cost of which is borne by the employee (or his beneficiary) or (iv) Employee Plans that can be amended or terminated by the Company without consent. The Company does not have any current or projected liability with respect to post-employment or post-retirement welfare benefits for retired, former, or current employees of the Company. (J) No material amounts payable under the Employee Plans will fail to be deductible for Federal income tax purposes by virtue of Section 162(m) of the Code. (K) To the extent that the Company or any of its subsidiaries is deemed to be a fiduciary with respect to any Plan that is subject to ERISA, the Company or such subsidiary (i) during the past five years has complied with the requirements of ERISA and the Code in the performance of its duties and responsibilities with respect to such employee benefit plan and (ii) has not knowingly caused any of the trusts for which it serves as an investment manager, as defined in Section 3(38) of ERISA, to enter into any transaction that would constitute a "prohibited transaction" under Section 406 of ERISA or Section 4975 of the Code, with respect to any such trusts, except for transactions that are the subject of a statutory or administrative exemption. (L) No person will be entitled to a "gross up" or other similar payment in respect of excise taxes under Section 4999 of the Code with respect to the transactions contemplated by this Agreement. 29 (M) None of the Employee Plans have been completely or partially terminated and none has been the subject of a "reportable event" as that term is defined in Section 4043 of ERISA. No amendment has been adopted which would require the Company or any ERISA Affiliate to provide security pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code. SECTION 3.12 LABOR MATTERS. (A) With respect to employees of the Company and its subsidiaries: (i) to the knowledge of the Company, no senior executive or key employee has any plans to terminate employment with the Company or any of its subsidiaries; (ii) there is no unfair labor practice charge or complaint against the Company or any of its subsidiaries pending or, to the knowledge of the Company or any of its subsidiaries, threatened before the National Labor Relations Board or any other comparable Governmental Entity; (iii) there is no demand for recognition made by any labor organization or petition for election filed with the National Labor Relations Board or any other comparable Governmental Entity; (iv) there are, and have been, no collective bargaining agreements; and (v) there is no litigation, arbitration proceeding, governmental investigation, administrative charge, citation or action of any kind pending or, to the knowledge of the Company, proposed or threatened against the Company or any of its subsidiaries relating to employment, employment practices, terms and conditions of employment or wages, benefits, severance and hours. (B) Section 3.12(b) of the Company Disclosure Schedule lists the name, title, date of employment and compensation (whether cash or otherwise, including such items as options) of each current officer and director of the Company or any of its subsidiaries, and each current salaried employee of the Company or any of its subsidiaries. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not (i) result in any payment (including severance, unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any current or former director, employee or independent contractor of the Company or any of its subsidiaries, from the Company or any of its subsidiaries under any Employee Plan or otherwise, (ii) materially increase any benefits otherwise payable under any Employee Plan or otherwise, or (iii) result in the acceleration of the time of payment, exercise or vesting of any such benefits. (C) Section 3.12(c) of the Company Disclosure Schedule lists all contracts, agreements, plans or arrangements covering any employee, officer or director of the Company or its subsidiaries containing "change of control," "stay-put," transition, retention, severance or similar provisions, and sets forth the names and titles of all such employees, officers or directors, the amounts payable under such provisions, whether such provisions would become payable as a result of the Merger and the transactions contemplated by this Agreement, and when such amounts would be payable to such employees, officers or directors, all of which are in writing, have heretofore been duly approved by the Company's Board of Directors, and true and complete copies of all of which have heretofore been delivered to Parent. There is no contract, agreement, plan or arrangement (oral or written) covering any employee, officer or director of the Company that individually or collectively could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code. 30 SECTION 3.13 ENVIRONMENTAL MATTERS. Except for such matters which would not, individually or in the aggregate, reasonably be expected to result in a material adverse effect on the Company: (A) (i) The Company and its subsidiaries are in compliance with all applicable Environmental Laws; (ii) neither the Company nor any of its subsidiaries has received any written communication from any person or governmental entity that alleges that the Company or any of its subsidiaries are not in compliance with applicable Environmental Laws; and (iii) there have not been any Releases in any reportable quantity, or in violation of any Environmental Law, of Hazardous Substances by the Company or any of its subsidiaries, or, by any other party, at any property currently or formerly owned, leased or operated by the Company or any of its subsidiaries that occurred during the period of the Company's or any of its subsidiaries' ownership, lease or operation of such property or, to the knowledge of the Company and its subsidiaries, prior thereto, and no property now or previously owned or leased by the Company or any subsidiary is listed or proposed for listing on the National Priorities List promulgated pursuant to CERCLA or on any similar state list of sites requiring investigation or clean-up. (B) The Company and its subsidiaries have all Environmental Permits necessary for the conduct and operation of their business, and all such permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and the Company and its subsidiaries are in compliance with all terms and conditions of all such Environmental Permits and are not required to make any expenditure in order to obtain or renew any Environmental Permits. (C) There are no Environmental claims pending or, to knowledge, threatened, against the Company or any of its subsidiaries, or against any real or personal property or operation that the Company or any of its subsidiaries owns, leases or manages. (D) Except as set forth on Section 3.13(d) of the Company Disclosure Schedules, neither the Company, any of its subsidiaries, nor, to the knowledge of the Company and its subsidiaries, any prior owner or lessee of any property now or previously owned or leased by the Company or any subsidiary, has handled any Hazardous Substance on any property now or previously owned or leased by the Company or any subsidiary; and, without limiting the foregoing, to the knowledge of the Company, (i) no polychlorinated biphenyl is or has been present, (ii) no asbestos is or has been present, and (iii) there are no underground storage tanks, active or abandoned. (E) Neither the Company nor any subsidiary has transported or arranged for the transportation of any Hazardous Substance to any location which is the subject of any Action that could lead to claims against Parent, Merger Sub, the Company or any subsidiary for clean-up costs, remedial work, damages to natural resources or personal injury claims, including, but not limited to, claims under CERCLA. (F) There are no Liens arising under or pursuant to any Environmental Law on any real property owned or leased by the Company or any subsidiary, and no action of any Governmental Authority has been taken or, to the knowledge of the Company and the subsidiaries, is in process which could subject any of such properties to such Liens, and neither the Company nor any subsidiary would be required to place any notice or restriction relating to the presence of any Hazardous Substance at any property owned by it in any deed to such property. 31 (G) There have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by, or which are in the possession of, the Company or any subsidiary in relation to any property or facility now or previously owned or leased by the Company or any subsidiary which have not been delivered to Parent prior to the execution of this Agreement. (H) As used in this Agreement: (i) "Environmental Laws" shall mean any and all binding and applicable local, municipal, state, federal or international law, statute, treaty, directive, decision, judgment, award, regulation, decree, rule, code of practice, guidance, order, direction, consent, authorization, permit or similar requirement, approval or standard concerning (A) occupational, consumer and/or public health and safety, and/or (B) environmental matters (including without limitation clean-up standards and practices), with respect to operations, buildings, equipment, soil, sub-surface strata, air, surface water, or ground water, whether set forth in applicable law or applied in practice, whether to facilities such as those of the Company Properties in the jurisdictions in which the Company Properties are located or to facilities such as those used for the transportation, storage or disposal of Hazardous Substances generated by the Company and/or its subsidiaries or otherwise. (ii) "Environmental Permits" shall mean Permits required by Environmental Laws. (iii) "Hazardous Substances" shall mean any and all chemicals, materials, substances, wastes, dangerous substances, hazardous substances, toxic substances, radioactive substances, hazardous wastes, special wastes, controlled wastes, oils, petroleum and petroleum products, hazardous chemicals and any other materials which are regulated by the Environmental Laws or otherwise found or determined to be potentially harmful to human health or the environment, and any other chemical, material, substance or waste, exposure to which is now or hereafter prohibited, limited or regulated by any Governmental Authority. (iv) "Release" shall mean any spilling, leaking, pumping, emitting, emptying, discharging, injecting, escaping, leaching, migrating, dumping or disposing of Hazardous Substances (including, without limitation, the abandonment or discarding of barrels, containers or other closed receptacles containing Hazardous Substances) into the environment. SECTION 3.14 INTELLECTUAL PROPERTY. (A) Section 3.14(a) of the Company Disclosure Schedule sets forth, for the Intellectual Property (as defined below) owned by or licensed by the Company or any of its subsidiaries, a complete and accurate list (including date of registration, expiration date, and whether owned or licensed) of all U.S. and foreign (i) patents and patent applications, (ii) trademark or service mark registrations and applications, 32 (iii) copyright registrations and applications, and (iv) Internet domain names. The Company or one of its subsidiaries owns or has the valid right to use all patents and patent applications, trademarks, service marks, trademark or service mark registrations and applications, trade names, logos, designs, Internet domain names, slogans and general intangibles of like nature, together with all goodwill related to the foregoing, copyrights, copyright registrations, renewals and applications, Software (as defined below), technology, trade secrets and other confidential information, know-how, proprietary processes, formulae, algorithms, models and methodologies, licenses, agreements and all other proprietary rights (collectively, the "Intellectual Property"), owned by the Company or used in the business of the Company as it currently is conducted. "Software" means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, (iv) the technology supporting and content contained on any owned or operated Internet site(s), and (v) all documentation, including user manuals and training materials, relating to any of the foregoing. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their trade secrets. Neither the Company nor any subsidiary is, or has received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default) under any license to use such Intellectual Property, nor is there any default (or any condition which, with the giving of notice or lapse of time or both, would constitute a default) under any license out by the Company of any such Intellectual Property. This Agreement and the transactions contemplated hereby will not conflict with, or result in a default in respect of, or a diminishment of rights with respect to (whether with the giving of notice or lapse of time or both), any Intellectual Property licensed by the Company. (B) All of the Intellectual Property owned by the Company or one of its subsidiaries is free and clear of all Liens. The Company or one of its subsidiaries is listed in the records of the appropriate United States, state or, to the Company's knowledge, foreign agency as, the sole owner of record for each application and registration listed in Section 3.14(a) of the Company Disclosure Schedule. (C) All of the registrations owned by the Company and listed in Section 3.14(a) of the Company Disclosure Schedule are valid, subsisting, enforceable, in full force and effect, and have not been cancelled, expired, abandoned or otherwise terminated and all renewal fees in respect thereof have been duly paid and are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications). There is no pending or, to the Company's knowledge, threatened opposition, interference, invalidation or cancellation proceeding before any court or registration authority in any jurisdiction against the registrations and applications owned by the Company and listed in Section 3.14(a) of the Company Disclosure Schedule or, to the Company's knowledge, against any other Intellectual Property used by the Company or its subsidiaries. (D) To the knowledge of the Company, the conduct of the Company's and its subsidiaries' business as currently conducted or planned by the Company to be conducted does not, in any material respect, infringe upon (either directly or indirectly such as through contributory infringement or inducement to infringe), dilute, misappropriate or otherwise violate any Intellectual Property owned or controlled by any third party. 33 (E) To the Company's knowledge, no third party is misappropriating, infringing, diluting, or violating any Intellectual Property owned by or licensed to or by the Company or its subsidiaries and no such claims have been made against a third party by the Company or its subsidiaries. (F) Each material item of Software, which is used by the Company or its subsidiaries in connection with the operation of their businesses as currently conducted, is either (i) owned by the Company or its subsidiaries, (ii) currently in the public domain or otherwise available to the Company without the need of a license, lease or consent of any third party, or (iii) used under rights granted to the Company or its subsidiaries pursuant to a written agreement, license or lease from a third party. SECTION 3.15 INSURANCE MATTERS. The Company and its subsidiaries have all material primary insurance with financially sound and nationally recognized insurance carriers providing insurance coverage that is customary in amount and scope for other companies in the industry in which the Company and its subsidiaries operate. All such insurance policies are listed in Section 3.15 of the Company Disclosure Schedule and are in full force and effect, all premiums due and payable thereon have been paid and no written or oral notice of cancellation or termination has been received and is outstanding. The insurance coverage provided by the policies listed in Schedule 3.15 of the Company Disclosure Schedule will not terminate or lapse by reason of the transactions contemplated by this Agreement. Neither the Company nor any subsidiary has received notice that any insurer under any policy listed in Schedule 3.15 of the Company Disclosure Schedule is denying liability with respect to a claim thereunder or defending under a reservation of rights clause. SECTION 3.16 TRANSACTIONS WITH AFFILIATES. Except as disclosed in Section 3.16 of the Company Disclosure Schedule; there are (i) no outstanding amounts payable to or receivable from, or advances by the Company or any of its subsidiaries to, and neither the Company nor any of its subsidiaries is otherwise a creditor of or debtor to, any officer, director, or shareholder of the Company or any of its subsidiaries, or any affiliate or associate of any of them (any such person, a "Related Person"), other than as part of the normal and customary terms of such persons' employment or service as an officer, director or employee of the Company or any of its subsidiaries; (ii) no Related Person provides or causes to be provided any assets, services or facilities to the Company or any subsidiary; (iii) neither the Company nor any subsidiary provides or causes to be provided any assets, services or facilities to any Related Person; and (iv) neither the Company nor any subsidiary beneficially owns, directly or indirectly, any assets or property of any Related Person, that would be required to be disclosed pursuant to Item 404 of Regulation S-K of the Exchange Act if the Company were subject to Regulation S-K. Except as disclosed in Section 3.16 of the Company Disclosure Schedule, each of the liabilities and transactions listed in Section 3.16 of the Company Disclosure Schedule was incurred or engaged in, as the case may be, on an arm's-length basis. SECTION 3.17 VOTING REQUIREMENTS. The affirmative vote (in person or by duly authorized and valid proxy at the Company Shareholders Meeting of the holders of a majority of the outstanding shares of Company Common Stock and of each class or series of Company Preferred Stock in favor of the adoption of this Agreement is the only vote of the holders of any class or series of the Company's capital stock required by applicable law and the Company's organizational instruments to duly effect such adoption. 34 SECTION 3.18 BROKERS. Except as set forth in Section 3.18 of the Company Disclosure Schedule, no broker, investment banker, financial advisor, finder, consultant or other person is entitled to any broker's, finder's, financial advisor's or other similar fee, compensation or commission, however and whenever payable, in connection with the Merger and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. SECTION 3.19 REAL PROPERTY. (A) Each of the Company and its subsidiaries has good and marketable title in fee simple to all real properties owned by it and all buildings, structures and other improvements located thereon and valid leaseholds in all real estate leased by it, other than Permitted Liens. Section 3.19(a) of the Company Disclosure Schedule sets forth a complete list of all (i) real property owned by the Company or its subsidiaries as of the date hereof and (ii) real property leased, subleased, or otherwise occupied or used by the Company and its Subsidiaries as lessee. (B) As used in this Agreement, "Permitted Liens" shall mean: (i) Liens for Taxes not yet due or delinquent or as to which there is a good faith dispute and for which there are adequate provisions on the books and records of the Company in accordance with GAAP, (ii) with respect to real property, any Lien, encumbrance or other title defect which is not in a liquidated amount (whether material or immaterial) and which does not, individually or in the aggregate, interfere materially with the current use or materially detract from the value or marketability of such property (assuming its continued use in the manner in which it is currently used) and (iii) inchoate materialmen's, mechanics', carriers', workmen's and repairmen's liens arising in the ordinary course and not past due and payable or the payment of which is being contested in good faith by appropriate proceedings. As used with respect to real property, the term "Permitted Liens" shall also include any Lien reflected (A) on the Company's and its subsidiaries' title reports and (B) in Section 3.19(b)(i) of the Company Disclosure Schedule, provided, that none of the same shall materially interfere with the use of such real property by the Company or any of its subsidiaries as the same is currently used or planned to be used, and that none of the same materially detracts from the economic value of such real property. SECTION 3.20 TANGIBLE PERSONAL PROPERTY. Except as would not materially impair the Company and its operations or the operations of its subsidiaries, the machinery, equipment, furniture, fixtures and other tangible personal property (the "Tangible Personal Property") owned, leased or used by the Company or any of its subsidiaries is in the aggregate sufficient and adequate to carry on their respective businesses in all material respects as presently conducted and is, in the aggregate and in all material respects, in good operating condition and repair, normal wear and tear excepted. Section 3.20 of the Company Disclosure Schedule lists the Company's Tangible Personal Property having a replacement cost of not less than $500 for each item. The Company and its subsidiaries are in possession of and have good title to, or valid leasehold interests in or valid rights under contract to use, the Tangible Personal Property material to the Company and its subsidiaries, taken as a whole, free and clear of all Liens, other than Permitted Liens. No related party owns any Tangible Personal Property utilized by the Company in its business as currently conducted. 35 SECTION 3.21 INVESTMENT COMPANY. Neither the Company nor any of its subsidiaries is an investment company required to be registered as an investment company pursuant to the Investment Company Act. SECTION 3.22 BOARD APPROVAL. Pursuant to meetings duly noticed and convened in accordance with all applicable laws and at each of which a quorum was present, the Board of Directors of the Company, after full and deliberate consideration, has (i) duly approved this Agreement and resolved that the Merger and the transactions contemplated hereby are fair to, advisable and in the best interests of the Company's shareholders, (ii) resolved to recommend that the Company's shareholders approve the Merger and the transactions contemplated hereby and (iii) directed that the Merger be submitted for consideration by the holders of Company Common Stock and Company Preferred Stock. SECTION 3.23 BOOKS AND RECORDS. Each of the Company and the subsidiaries maintains and has maintained accurate books and records in accordance with GAAP reflecting its assets and liabilities and accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis. SECTION 3.24 ACCURACY OF INFORMATION. To the knowledge of the Company, neither this Agreement, the Company Disclosure Schedule nor any other document, schedule, exhibit, certificate or instrument provided by the Company or any of the Company's subsidiaries or any of their respective employees or agents to Parent in connection with the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, not misleading. None of the information supplied or to be supplied by the Company in writing specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading or (ii) the Proxy/Information Statement will, at the date it is first mailed to the Company's shareholders and at the time of the Company Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by the Company with respect to statements made based on information supplied by Parent specifically for inclusion or incorporation by reference in the Form S-4 or Proxy/Information Statement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT Except as set forth on the Disclosure Schedule delivered by Parent to the Company prior to the execution of this Agreement which is incorporated by reference in and constitutes an integral part of this Agreement (the "Parent Disclosure Schedule") and making specific reference to the particular subsection(s) of this Agreement to which exception is being taken, Parent hereby represents and warrants to the Company as follows: 36 SECTION 4.1 ORGANIZATION, STANDING AND CORPORATE POWER. (A) Each of Parent, its subsidiaries and Merger Sub is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power, as the case may be, and requisite authority to carry on its business as presently being conducted. Each of Parent and its subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction listed in Section 4.1 of the Parent Disclosure Schedule. Each of Parent and its subsidiaries is duly qualified or licensed to conduct business in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing individually or in the aggregate would not reasonably be expected to have a material adverse effect on Parent. (B) Parent has delivered or made available to the Company prior to the execution of this Agreement complete and correct copies of the certificate of incorporation and by-laws or other organizational documents of Parent, its subsidiaries and Merger Sub, as in effect at the date of this Agreement, and which shall be in effect as of the Closing Date (subject to any amendments permitted under Section 5.4(a) hereof). SECTION 4.2 SUBSIDIARIES. (A) Section 4.2 of the Parent Disclosure Schedule lists the names and jurisdiction of incorporation or organization of all the subsidiaries of Parent, whether consolidated or unconsolidated. The outstanding securities of the subsidiaries of Parent are set forth in Section 4.2 of the Parent Disclosure Schedules and all outstanding shares of capital stock of, or other equity interests in, each such subsidiary: (i) have been duly authorized, validly issued and are fully paid and nonassessable and (ii) are owned directly or indirectly by Parent, free and clear of all Liens. Except as set forth above or in Section 4.2 of Parent Disclosure Schedule, Parent does not own, directly or indirectly, any capital stock of or other equity or voting interests in any person. (B) Merger Sub is a newly formed corporation with no material assets or liabilities, except for liabilities arising under this Agreement. Merger Sub will not conduct any business or activities other than the issuance of its capital stock to Parent prior to the Merger. SECTION 4.3 CAPITAL STRUCTURE. (A) The authorized capital stock of Parent consists of 100,000,000 shares of common stock, $0.001 par value (the "Parent Common Stock"), and 25,000,000 shares of preferred stock, par value $0.001 per share, of Parent ("Parent Authorized Preferred Stock"). As of the date hereof: (i) 28,704,861 shares of Parent Common Stock were issued and outstanding; (ii) no (0) shares of Parent Common Stock were held by Parent in its treasury; (iii) no (0) shares of Parent Common Stock were held by subsidiaries of Parent; (iv) approximately 8,680,000 shares of Parent Common Stock were reserved for issuance pursuant to the stock-based plans identified in Section 4.3 of the Parent Disclosure Schedule (such plans, collectively, the "Parent Stock Plans"), of which approximately no (0) shares are subject to outstanding employee stock options or other rights to purchase or receive Parent Common Stock 37 granted under the Parent Stock Plans (collectively, "Parent Employee Stock Options"); and (v) 7,637,500 shares of Parent Common Stock are reserved for issuance pursuant to convertible securities or warrants (including 5,500,000 warrants at $1.50 heretofore issued to Bioaccelerate, Inc. and 1,500,000 warrants at $3.00 to be issued to Bioaccelerate in consideration of the $4,000,000 bridge financing heretofore agreed among the parties, and 637,500 shares reserved for issuance in respect of contingent obligations). (B) All shares of capital stock of Parent outstanding as of the date hereof have been, and all shares thereof which may be issued pursuant to this Agreement or otherwise will be, when issued, duly authorized and validly issued and are fully paid and nonassessable. All shares of capital stock of Parent outstanding as of the date hereof have been, and all shares which shall be issued as part of the Merger Consideration will be, when issued, not subject to preemptive rights created by statute, the Parent's Articles of Incorporation or any agreement to which Parent is a party or by which Parent may be bound. Except as set forth in this Section and except for changes since the date of this Agreement resulting from the exercise of Parent's employee stock options outstanding on such date, there are outstanding (i) no shares of capital stock or other voting securities of Parent, (ii) no securities of Parent convertible into or exchangeable for shares of capital stock or voting securities of Parent, and (iii) no options or other rights to acquire from Parent, and no obligation of Parent to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock of Parent. (C) Parent has a sufficient number of duly authorized but unissued shares of Parent Common Stock to issue the maximum number of such shares contemplated by Article II of this Agreement as the Merger Consideration. SECTION 4.4 AUTHORITY; NONCONTRAVENTION. (A) Parent and Merger Sub have the corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. Except for any required approval by Parent's shareholders in connection with the consummation of the Merger, all corporate acts and proceedings required to be taken by or on the part of Parent and Merger Sub to authorize Parent and Merger Sub, as the case may be, to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby have been duly and validly taken. This Agreement constitutes a valid and binding agreement of Parent and Merger Sub. (B) The execution and delivery of this Agreement does not and the consummation of the transactions contemplated hereby will not conflict with or result in a violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation under (i) any provision of Parent's or Merger Sub's articles of incorporation, (ii) any loan or credit agreement, note, mortgage, indenture, lease or other Parent Contract or (iii) instrument, permit, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or Merger Sub or their properties or assets. (C) The execution, delivery and performance by Parent and Merger Sub of this Agreement and the consummation of the Merger by Parent and Merger Sub requires no consent, approval, order or authorization of, action by or in respect of, or registration or filing with, any Governmental Entity other than the filing of a certificate of merger in accordance with the Secretary and with respect to Parent, (ii) compliance with any applicable requirement of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (iii) compliance with the Securities Act; and (iv) compliance with any state securities or blue sky laws. 38 (D) The execution and delivery of this Agreement and the consummation of the Merger will not result in the creation of any Lien upon any asset of Parent. (E) Except as set forth in Section 4.4(e) of the Parent Disclosure Schedule, no consent, approval, waiver or other action by any person (other than the governmental authorities referred to in (b) above) under any indenture, lease, instrument or other material contract, agreement or document to which Parent is a party or by which Parent is bound is required or necessary for, or made necessary by reason of, the execution, delivery and performance of this Agreement by Parent or the consummation of the Merger. SECTION 4.5 PARENT DOCUMENTS. (A) As of their respective filing dates, (i) Parent's Annual Report on Form 10-KSB for its fiscal year ended January 31, 2004, and all reports, schedules, forms, information statements and other documents (including exhibits) filed by Parent with the SEC subsequent to such fiscal year end (together with all certifications required pursuant to the Sarbanes-Oxley Act of 2002 ("SOXA"), the "Parent SEC Documents") complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Documents, except as amended or supplemented by a subsequently filed Parent SEC Document, and (ii) no Parent SEC Documents, as of their respective dates, contained (except for such matters as were amended or supplemented by a subsequently filed Parent SEC Document, if any), and no Parent SEC Document filed subsequent to the date hereof through the Closing Date will contain as of their respective dates, any untrue statement of a material fact or omitted, and no Parent SEC Document filed subsequent to the date hereof and through the Closing Date will omit as of their respective dates, to state a material fact required to be stated therein or necessary to make the statements therein (in the case of registration statements of Parent under the Securities Act, in light of the circumstances under which they were made) not misleading (excluding, for information furnished by Company or shareholders of Company for inclusion therein, as to which no representation or warranty is given by Parent). (B) The financial statements of Parent included in the Parent SEC Documents (including the related notes) complied as to form, as of their respective dates of filing with the SEC (except as subsequently amended or supplemented by a subsequent Parent SEC Document, if at all), in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by Quarterly Report on Form l0-QSB of the SEC) applied on a consistent basis during the periods and at the dates involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial condition of Parent and its subsidiaries at the dates thereof and the consolidated results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to notes and normal year-end audit adjustments that were not, or with respect to any such financial statements contained in any Parent SEC Documents to be filed subsequently to the date hereof are not reasonably expected to be, material in amount or effect). Except for liabilities (i) set forth in Section 4.5 of the Parent Disclosure Schedule, (ii) reflected in Parent's audited financial statements as at, and for the period ending, January 31, 2004, including, without limitation, any liabilities described in any notes thereto (or liabilities for which neither accrual nor footnote disclosure is required pursuant to GAAP), (iii) incurred in the ordinary course of business since January 31, 2004 consistent with Parent's past practices, or (iv) in connection with the negotiation and consummation of this Agreement and the transactions contemplated hereby, Parent has no material liabilities or obligations, whether absolute, accrued, contingent or otherwise. Cacciamatta Accountancy Corporation, who have expressed their opinion with respect to the financial statements of Parent and its subsidiaries included in the Parent SEC Documents (including the related notes), are independent public or certified public accountants as required by the Securities Act and the Exchange Act. 39 (C) Each of Parent, its directors and its senior financial officers has consulted to the extent necessary with Parent's independent auditors and with Parent's outside counsel with respect to, and (to the extent applicable to Parent) is familiar in all material respects with all of the requirements of, SOXA. Parent hereby reaffirms, represents and warrants to the Company the matters and statements made in the certifications filed with the SEC pursuant to Sections 302 and 906 of SOXA as if such certifications were made as of the Closing Date. (D) Parent has applied for listing of the Parent Common Stock on the American Stock Exchange (the "AMEX"). Parent shall use its commercially reasonable efforts to effectuate the listing of the Parent Common Stock on AMEX. If prior to the Effective Time, Parent Common Stock is listed on AMEX, Parent shall comply with all the rules and regulations of such exchange. SECTION 4.6 PARENT CONTRACTS. (A) Section 4.6 of the Parent Disclosure Schedule lists all Parent Contracts. Each Parent Contract is valid and binding on and enforceable against Parent (or, to the extent a subsidiary of Parent is a party, such subsidiary) and, to the knowledge of Parent, each other party thereto and is in full force and effect. Neither Parent nor any of its subsidiaries is in breach or default under any Parent Contract. Neither the Parent nor any subsidiary of the Parent knows of, or has received notice of, any violation, default, right of acceleration of any obligation or loss of a material benefit under (nor, to the knowledge of the Company, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation, default, right of acceleration of any obligation or loss of a material benefit, under) any Parent Contract by any other party thereto. Prior to the date hereof, Parent has made available to the Company true and complete copies of all Parent Contracts. (B) As used in this Agreement, "Parent Contracts" shall mean: (i) any Contract that (A) involves the payment or potential payment, pursuant to the terms of any such Contract, by or to Parent or any of its subsidiaries, of more than $50,000 individually or more than $200,000 in the aggregate and (B) cannot be terminated within thirty (30) calendar days after giving notice of termination without resulting in any material cost or penalty to Parent or any of its subsidiaries; 40 (ii) any Contract which contains provisions which in any non-de minimis manner restrict, or may restrict, the conduct of business as presently conducted by Parent or any of its subsidiaries; (iii) any Contract restricting in any way the right of Parent or any subsidiary to engage in business or to compete in any business; (iv) any Contract providing for the indemnification or surety by Parent or any of its subsidiaries; (v) any strategic alliance, revenue sharing joint venture or partnership agreement of Parent or any subsidiary of Parent; (vi) any Contract which grants any right of first or last refusal or right of first or last offer or similar right or that limits or purports to limit the ability of Parent or any of its subsidiaries to own, operate, sell, transfer, pledge or otherwise dispose of any material amount of assets or business; (vii) any Contract providing for any material future payments that are conditioned, in whole or in part, on a change of control of Parent or any of its subsidiaries; (viii) any employment agreement or any agreement or arrangement with any officer, director or key employee of Parent or any subsidiary of Parent; (ix) any Contract of Parent or any of its subsidiaries providing for or pertaining to employment or consultation services for a specified or unspecified term except for (A) Contracts involving payment of less than $50,000 individually or less than $200,000 in the aggregate, and (B) Contracts which can be terminated within thirty (30) calendar days after giving notice of termination without resulting in any material cost or penalty to Parent or any of its subsidiaries, including, without limitation, any material severance pay or post-employment liabilities or obligations of Parent or any of its subsidiaries; (x) any Contract pertaining to the use of or granting of any right to use or practice any rights under any Intellectual Property of Parent, whether Parent is the licensee or licensor thereunder, except for Contracts under which Parent or any of its subsidiaries is a licensee or "off-the-shelf" software provided that, to Parent's knowledge, there is no default under any such Contract; (xi) any Contract pursuant to which Parent or any of its subsidiaries leases or uses any real property; (xii) any Contract relating to Indebtedness of Parent or any of its subsidiaries in excess of $50,000 or to preferred stock issued by Parent or any of its subsidiaries (other than Indebtedness owing to or preferred stock owned by Parent or any of its wholly-owned subsidiaries); 41 (xiii) any Contract with distributors, dealers, manufacturers, manufacturer's representatives, sales agencies, franchisees, or pre-clinical or clinical trial testing entities; (xiv) any Contract relating to (A) the future disposition or acquisition of any assets or properties of Parent or any of its subsidiaries, other than dispositions or acquisitions in the ordinary course of business consistent with past practice, and (B) any merger or other type of business combination; (xv) any Contract between or among Parent or any of its subsidiaries, on the one hand, and any officer, director, employee or shareholder of Parent or any of its subsidiaries, or any affiliate or associate of any Parent (other than Parent or any of its subsidiaries, which inter-company transactions are not the subject of this clause), on the other hand; (xvi) any collective bargaining agreement or labor contracts; (xvii) any Contracts that (A) limit or contain restrictions on the ability of Parent or any of its subsidiaries to declare or pay dividends on, to make any other distribution in respect of or to issue or purchase, redeem or otherwise acquire its capital stock, to incur Indebtedness, to incur or suffer to exist any lien, to purchase or sell any assets and properties, to change the lines of business in which it participates or engages or to engage in any business combination or (B) require Parent or any of its subsidiaries to maintain specified financial ratios or levels of net worth or other indicia of financial condition; (xviii) any Contract that (A) involves the payment or potential payment, pursuant to the terms of any such Contract, by or to Parent or any of its subsidiaries, of more than $50,000 and (B) cannot be terminated within thirty (30) calendar days after giving notice of termination without resulting in any material cost or penalty to Parent or any of its subsidiaries; and (xix) any Contract not made in the ordinary course of business which is material to Parent and its subsidiaries, taken as a whole, or which reasonably would be expected (x) to delay the consummation of the Merger or any of the transactions contemplated by this Agreement or (y) to have a material adverse effect on Parent. SECTION 4.7 ABSENCE OF CERTAIN CHANGES. Except for liabilities incurred in connection with this Agreement or the transactions contemplated hereby, and except as disclosed in the Parent SEC Documents filed and publicly available prior to the date hereof, since January 31, 2004, there has not been any of the following: (i) any material adverse change in Parent or any event which either individually or when aggregated with other event(s) has or reasonably would be expected to have a material adverse effect on Parent, or (ii) to Parent's knowledge, any facts, circumstances or events that make it reasonably likely that Parent will not be able to fulfill its obligations under this Agreement in all material respects, or (iii) any occurrence which would be required to be disclosed in Parent's annual report on Form 10-KSB if the end of the period for which such report was due was the date hereof, but not including, with respect to this clause (iii), disclosure that would be reported only in financial statements or notes thereto, or management's discussion or analysis concerning the same, in respect of periods ending on the date hereof. 42 SECTION 4.8 PERMITS; COMPLIANCE WITH APPLICABLE LAWS. (A) Each of Parent and its subsidiaries is in compliance with all applicable statutes, laws, regulations, ordinances, permits, rules, writs, judgments, orders, decrees or arbitration awards of any Governmental Entity applicable to Parent or its subsidiaries except where the failure to be in compliance individually or in the aggregate would not have a material adverse effect on the Parent. (B) Except for filings with the SEC and filings with respect to Taxes, which are the subject of Sections 4.5 and 4.10, respectively, and not covered by this Section 4.8(b), the Parent and each of its subsidiaries have filed all regulatory reports, schedules, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that they were required to file with each Governmental Entity (the "Other Parent Documents"), and have paid all fees and assessments due and payable in connection therewith, except where the failure to make such payments and filings individually or in the aggregate would not have a material adverse effect on the Parent. SECTION 4.9 ABSENCE OF LITIGATION. (a) Section 4.9(a) of Parent Disclosure Schedule contains a true and current summary description of each pending and, to Parent's knowledge, threatened Action with respect to Parent or any of its subsidiaries. (B) Except as disclosed in Section 4.9(b) of Parent Disclosure Schedule, there is no Action relating to Parent or any of its subsidiaries by or before any Governmental Entity or otherwise pending or, to the best of Parent's knowledge, threatened, which could reasonably be expected to have a material adverse effect on Parent, nor are there any facts or circumstances known to Parent or any of its subsidiaries which could reasonably be expected to give rise to any such Action. (C) Except as disclosed in Section 4.9(c) of Parent Disclosure Schedule, there is no Action relating to Parent or any of its subsidiaries by or before any Governmental Entity or otherwise pending or, to the best of Parent's knowledge, threatened, which could reasonably be expected to delay, prohibit, make illegal, or have a material adverse effect on the consummation of this Agreement or the transactions contemplated hereby, or the benefits to the parties hereto intended hereby and thereby. (D) Prior to the execution of this Agreement, Parent has delivered to the Company all responses of counsel for Parent and its subsidiaries to auditors' requests for information delivered in connection with Parent's audited financial statements for the period ended January 31, 2004 (together with any updates provided by such counsel) regarding Actions pending or threatened against, relating to or affecting the Company or any of its subsidiaries SECTION 4.10 TAX MATTERS. (A) Each of the Parent and each of its subsidiaries has (i) timely filed (or there have been timely filed on its behalf) with the appropriate Governmental Entities all United States 43 federal income and other Tax Returns required to be filed by it (giving effect to all extensions), except where the failure to file any such Tax Returns in timely fashion or at all would not reasonably be expected to have a material adverse effect, and such Tax Returns are true, correct and complete in all material respects; (ii) timely paid in full (or there has been timely paid in full on its behalf) all income and other material Taxes required to have been paid by it; and (iii) made adequate provision (or adequate provision has been made on its behalf) for all accrued Taxes not yet due. The accruals and provisions for Taxes reflected in the Parent's audited consolidated balance sheet as of January 31, 2004 (and the notes thereto) and the most recent quarterly financial statements (and the notes thereto) are adequate in accordance with GAAP for all Taxes accrued or accruable through the date thereof. (B) As of the date of this Agreement, no Federal, state, local or foreign audits, suits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of the Parent or any of its subsidiaries, and neither the Parent nor any subsidiary of the Parent has received a written notice of any material pending or proposed claims, audits or proceedings with respect to Taxes. (C) No claim has been made in writing by any Governmental Entities in a jurisdiction where Parent or any of its subsidiaries does not file Tax Returns that any such entity is, or may be, subject to taxation by that jurisdiction. (D) Neither the Parent nor any of its subsidiaries has received any notice of deficiency or assessment from any Governmental Entity for any amount of Tax that has not been fully settled or satisfied, and to the knowledge of the Parent and its subsidiaries no such deficiency or assessment is proposed. SECTION 4.11 EMPLOYEE BENEFIT PLANS. (A) Section 4.11 of the Parent Disclosure Schedule contains a true and complete list of all of Parent's and its subsidiaries' Employee Plans as of the date hereof ("Parent Employee Plans"). With respect to the Employee Plans, all required contributions for all periods ending before the Closing Date have been or will be paid in full by the Closing Date. (B) None of the Parent Employee Plans is subject to any pending investigations or to the knowledge of Parent threatened investigations from any Governmental Agencies who enforce applicable laws under ERISA and the Code. (C) Each of the Parent Employee Plans is, and has been, operated in accordance with its terms and each of the Parent Employee Plans, and administration thereof, is, and has been in compliance with the requirements of any and all applicable statutes, orders or governmental rules or regulations currently in effect, including, but not limited to, ERISA and the Code, except where the failure to comply individually or in the aggregate would not have a material adverse effect on Parent. (D) No material amounts payable under the Parent Employee Plans will fail to be deductible for Federal income tax purposes by virtue of Section 162(m) of the Code. 44 (E) Neither Parent nor any subsidiary of Parent has any current or projected liability with respect to post-employment or post-retirement welfare benefits for retired, former, or current employees of Parent or any subsidiary of Parent. SECTION 4.12 LABOR MATTERS. (A) With respect to employees (and to the extent applicable, former employees) of Parent and its subsidiaries: (i) to the knowledge of Parent, no senior executive or key employee has any plans to terminate employment with Parent or any of its subsidiaries; (ii) there is no unfair labor practice charge or complaint against Parent or any of its subsidiaries pending or, to the knowledge of Parent or any of its subsidiaries, threatened before the National Labor Relations Board or any other comparable Governmental Entity; (iii) there is no demand for recognition made by any labor organization or petition for election filed with the National Labor Relations Board or any other comparable Governmental Entity; (iv) there are, and have been, no collective bargaining agreements; and (v) there is no litigation, arbitration proceeding, governmental investigation, administrative charge, citation or action of any kind pending or, to the knowledge of Parent, proposed or threatened against Parent or any of its subsidiaries relating to employment, employment practices, terms and conditions of employment or wages, benefits, severance and hours. (B) Section 4.12(b) of the Parent Disclosure Schedule lists the name, title, date of employment and current annual salary of each current salaried employee of Parent. (C) Section 4.12(c) of the Parent Disclosure Schedule lists all contracts, agreements, plans or arrangements covering any employee, officer or director of Parent or its subsidiaries, all of which are in writing, have heretofore been duly approved by the Parent's Board of Directors, and true and complete copies of all of which have heretofore been delivered to the Company. SECTION 4.13 ENVIRONMENTAL MATTERS. Except for such matters which would not, individually or in the aggregate, reasonably be expected to result in a material adverse effect on Parent: (A) (i) Parent and its subsidiaries are in compliance with all applicable Environmental Laws; (ii) neither Parent nor any of its subsidiaries has received any written communication from any person or governmental entity that alleges that Parent or any of its subsidiaries are not in compliance with applicable Environmental Laws; and (iii) there have not been any Releases in any reportable quantity, or in violation of any Environmental Law, of Hazardous Substances by Parent or any of its subsidiaries, or, by any other party, at any property currently or formerly owned, leased or operated by Parent or any of its subsidiaries that occurred during the period of Parent's or any of its subsidiaries' ownership, lease or operation of such property or, to the knowledge of Parent and its subsidiaries, prior thereto, and no property now or previously owned or leased by Parent or any subsidiary is listed or proposed for listing on the National Priorities List promulgated pursuant to CERCLA or on any similar state list of sites requiring investigation or clean-up. 45 (B) Parent and its subsidiaries have all Environmental Permits necessary for the conduct and operation of their business, and all such permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and Parent and its subsidiaries are in compliance with all terms and conditions of all such Environmental Permits and are not required to make any expenditure in order to obtain or renew any Environmental Permits. (C) There are no Environmental claims pending or, to knowledge, threatened, against Parent or any of its subsidiaries, or against any real or personal property or operation that Parent or any of its subsidiaries owns, leases or manages. (D) Neither Parent, any of its subsidiaries, nor, to the knowledge of Parent and its subsidiaries, any prior owner or lessee of any property now or previously owned or leased by Parent or any subsidiary, has handled any Hazardous Substance on any property now or previously owned or leased by Parent or any subsidiary; and, without limiting the foregoing, to the knowledge of Parent (i) no polychlorinated biphenyl is or has been present, (ii) no asbestos is or has been present, and (iii) there are no underground storage tanks, active or abandoned. (E) Neither Parent nor any subsidiary has transported or arranged for the transportation of any Hazardous Substance to any location which is the subject of any Action that could lead to claims against Parent, Merger Sub, the Company or any subsidiary for clean-up costs, remedial work, damages to natural resources or personal injury claims, including, but not limited to, claims under CERCLA. (F) There are no Liens arising under or pursuant to any Environmental Law on any real property owned or leased by Parent or any subsidiary, and no action of any Governmental Authority has been taken or, to the knowledge of Parent and the subsidiaries, is in process which could subject any of such properties to such Liens, and neither Parent nor any subsidiary would be required to place any notice or restriction relating to the presence of any Hazardous Substance at any property owned by it in any deed to such property. (G) There have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by, or which are in the possession of, Parent or any subsidiary in relation to any property or facility now or previously owned or leased by Parent or any subsidiary which have not been delivered to the Company prior to the execution of this Agreement. SECTION 4.14 INTELLECTUAL PROPERTY. (A) Section 4.14(a) of Parent Disclosure Schedule sets forth, for the Intellectual Property licensed to, or used in the business of, Parent or any of its subsidiaries, a complete and accurate list of all U.S. and foreign (i) patents and patent applications, (ii) trademark or service mark registrations and applications, (iii) copyright registrations and applications, (iv) Internet domain names, and (v) all licenses granted to or by Parent for the use of the foregoing and all license agreements. To the knowledge of Parent, Parent or one of its subsidiaries has the valid right to use the Intellectual Property, licensed to Parent or used in the business of Parent as it currently is conducted. 46 (B) Neither Parent nor any of its subsidiaries owns any Intellectual Property whether used in its business or otherwise except as disclosed in Section 4.14 of Parent Disclosure Schedule, including Parent's rights, if any, as a licensor under licenses disclosed therein. (C) Except as disclosed in Section 4.14 of Parent Disclosure Schedule, all Intellectual Property utilized in the business of Parent and its subsidiaries is pursuant to license agreements with third parties, copies of which have previously been provided to the Company. Each such license agreement listed in Section 4.14 of Parent Disclosure Schedule is valid and binding on and enforceable against Parent (or, to the extent a subsidiary of Parent is a party, such subsidiary) and, to the knowledge of Parent, each other party thereto and is in full force and effect. To the knowledge of Parent there is no pending or threatened opposition, interference, invalidation or cancellation proceeding before any court or registration authority in any jurisdiction against any Intellectual Property used by Parent or its subsidiaries. (D) To the knowledge of Parent, the conduct of Parent's and its subsidiaries' business as currently conducted or planned by Parent to be conducted does not, in any material respect, infringe upon (either directly or indirectly such as through contributory infringement or inducement to infringe), dilute, misappropriate or otherwise violate any Intellectual Property owned or controlled by any third party. (E) To Parent's knowledge, no third party is misappropriating, infringing, diluting, or violating any Intellectual Property licensed to or by Parent or its subsidiaries and no such claims have been made against a third party by Parent or its subsidiaries. (F) Parent and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their trade secrets. Neither Parent nor any subsidiary is, or has received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default) under any license to use such Intellectual Property, nor is there any default (or any condition which, with the giving of notice or lapse of time or both, would constitute a default) under any license out by Parent of any such Intellectual Property. This Agreement and the transactions contemplated hereby will not conflict with, or result in a default in respect of, or a diminishment of rights with respect to (whether with the giving of notice or lapse of time or both), any Intellectual Property licensed by Parent. SECTION 4.15 INSURANCE MATTERS. No later than the Effective Time, Parent and its subsidiaries will have all material primary insurance with financially sound and nationally recognized insurance carriers providing insurance coverage, including, but not limited to, directors and officers liability insurance, that is customary in amount and scope for other companies in the industry in which Parent and its subsidiaries operate. As of the Effective Time, all such insurance policies will be in full force and effect and all premiums due and payable thereon will be paid. The insurance coverage provided by such policies will not terminate or lapse by reason of the transactions contemplated by this Agreement. As of the Effective Time, neither Parent nor any subsidiary will have received notice that any insurer under any policy of Parent is denying liability with respect to a claim thereunder or defending under a reservation of rights clause. 47 SECTION 4.16 TRANSACTIONS WITH AFFILIATES. There are (i) no outstanding amounts payable to or receivable from, or advances by Parent or any of its subsidiaries to, and neither Parent nor any of its subsidiaries is otherwise a creditor of or debtor to, any officer, director, or shareholder of Parent or any Related Person, other than as part of the normal and customary terms of such persons' employment or service as an officer, director or employee of Parent or any of its subsidiaries; (ii) no Related Person provides or causes to be provided any assets, services or facilities to Parent or any subsidiary; (iii) neither Parent nor any subsidiary provides or causes to be provided any assets, services or facilities to any Related Person; and (iv) neither Parent nor any subsidiary beneficially owns, directly or indirectly, any assets or property of any Related Person, which, in the case of clauses (i) - (iv) above, if required to be disclosed in Parent's Form 10-KSB, is not so disclosed. Each of the liabilities and transactions identified on Parent's Form 10-KSB or in Section 4.16 of the Parent Disclosure Schedule, if such action occurred after January 31, 2004, was incurred or engaged in, as the case may be, on an arm's-length basis. SECTION 4.17 VOTING REQUIREMENTS. The consent or approval of the holders of the outstanding shares of Parent Common Stock or any other class of Parent capital stock is not required to approve the Merger and the transactions contemplated by this Agreement under applicable law and the Parent's organizational instruments. SECTION 4.18 BROKERS. Except as set forth in Section 4.18 of the Parent Disclosure Schedule, no broker, investment banker, financial advisor, finder, consultant or other person is entitled to any broker's, finder's, financial advisor's or other similar fee, compensation or commission, however and whenever payable, in connection with the Merger and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Merger Sub. SECTION 4.19 INVESTMENT COMPANY. Neither Parent nor any of its subsidiaries is an investment company required to be registered as an investment company pursuant to the Investment Company Act. SECTION 4.20 BOARD APPROVAL. Pursuant to meetings duly noticed and convened in accordance with all applicable laws and at each of which a quorum was present, the Board of Directors of Parent, after full and deliberate consideration, has duly adopted this Agreement and resolved that the Merger and the transactions contemplated hereby are in the best interests of Parent's shareholders. The Board of Directors of Merger Sub has duly approved this Agreement and has determined that the Merger is advisable. SECTION 4.21 BOOKS AND RECORDS. Each of Parent and its subsidiaries maintains and has maintained accurate books and records in accordance with GAAP reflecting its assets and liabilities and accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis. SECTION 4.22 ACCURACY OF INFORMATION. To the knowledge of Parent, neither this Agreement, the Parent Disclosure Schedule nor any other document, schedule, exhibit, certificate or instrument provided by the Parent, any of the Parent's subsidiaries, Merger Sub or any of their 48 respective employees or agents to the Company in connection with the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, not misleading. None of the information supplied or to be supplied by Parent specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Proxy/Information Statement will, at the date it is first mailed to the Company's shareholders and at the time of the Company Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, in either case, no representation or warranty is made by Parent with respect to statements made or incorporated by reference therein based on information supplied by the Company specifically for inclusion or incorporation by reference in the Form S-4 or Proxy/Information Statement. The Form S-4 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations thereunder. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS SECTION 5.1 CONDUCT OF BUSINESS BY THE COMPANY. Except as required by applicable law or regulation and except as otherwise contemplated by this Agreement, until the earlier of the termination of this Agreement or the Effective Time, the Company shall, and cause its subsidiaries to conduct their respective businesses in the ordinary course and consistent with past practices. Except as set forth in Section 5.1 of the Company Disclosure Schedule, as required by applicable law or regulation and except as otherwise contemplated by this Agreement or except as previously consented to by Parent, in writing, after the date hereof the Company shall not, and shall not permit any of its subsidiaries to: (A) amend or otherwise change its certificate of incorporation or by-laws; (B) issue, sell, pledge, dispose of, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of its capital stock of any class, or options, warrants, convertible securities or other rights of any kind to acquire shares of such capital stock, or any other ownership interest, thereof, other than (x) any issuance pursuant to any outstanding security or agreement of Company, or (y) any issuance or sale pursuant to any plan for or agreement with any officer, director or employee of Company, or (ii) any of its assets, tangible or intangible; (C) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to its capital stock; (D) (i) reclassify, combine, split, or subdivide, directly or indirectly, any of its capital stock, or (ii) redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock, except from any officer, director or employee upon termination of such officer, director or employee; 49 (E) (i) acquire (including, without limitation, for cash or shares of stock, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or purchase any property or assets of any other person, (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances, or (iii) enter into any Contract which constitutes a Company Material Contract; (F) make any capital expenditure or enter into any contract or commitment therefor; (G) amend, terminate or extend any Company Material Contract; (H) delay or accelerate payment of any account payable or other liability of the Company beyond or in advance of its due date or the date when such liability would have been paid in the ordinary course of business consistent with past practice; (I) take any action, or permit any event or condition to occur or exist, which would cause any representation or warranty of the Company to be untrue; or (J) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty contained in Article III untrue or incorrect. SECTION 5.2 ADVICE OF CHANGES. Each of the Company, as one party, and Parent and Merger Sub, together as the second party, shall promptly advise the other party orally and in writing to the extent it has knowledge of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect, (ii) the failure by it to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; (iii) any suspension, termination, limitation, modification, change or other alteration of any agreement, arrangement, business or other relationship with any of the Company's or its subsidiaries' respective customers, suppliers or sales or design personnel; and (iv) any change or event having, or which, insofar as reasonably can be foreseen, could have a material adverse effect on such party or on the accuracy and completeness of its representations and warranties or the ability of such party to satisfy the conditions set forth in Article VII; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement; and provided further that a failure to comply with this Section 5.2 shall not constitute a failure to be satisfied of any condition set forth in Article VII unless the underlying untruth, inaccuracy, failure to comply or satisfy, or change or event would independently result in a failure of a condition set forth in Article VII to be satisfied. SECTION 5.3 NO SOLICITATION BY THE COMPANY. (A) The Company will promptly notify Parent after receipt of any offer or indication that any person is considering making an offer with respect to a Company Acquisition Proposal or any request for nonpublic information relating to the Company or for access to the properties, books or records of the Company by any person that may be considering making, or has made, an offer with respect to a Company Acquisition Proposal and will keep Parent fully informed of the status and details of any such offer, indication or request. "Company Acquisition Proposal" means any proposal for a merger or other business combination involving the Company or the acquisition of any equity interest in, or a substantial portion of the assets of, the Company, other than the transactions contemplated by this Agreement. 50 (B) From the date hereof until the termination hereof, the Company and the officers of the Company will not and the Company will use its best efforts to cause its directors, employees and agents not to, directly or indirectly, subject to the directors' fiduciary obligations under applicable law, (i) take any action to solicit, initiate or encourage any offer or indication of interest from any person or entity with respect to any Company Acquisition Proposal, (ii) engage in negotiations with, or disclose any nonpublic information relating to the Company or (iii) afford access to the properties, books or records of the Company to, any person or entity that may be considering making, or has made, an offer with respect to a Company Acquisition Proposal. SECTION 5.4 CONDUCT OF BUSINESS BY PARENT. Except as required by applicable law or regulation and except as otherwise contemplated by this Agreement, until the earlier of the termination of this Agreement or the Effective Time, Parent shall, and cause its subsidiaries to conduct their respective businesses in the ordinary course and consistent with past practices. Except as set forth in Section 5.4 of the Parent Disclosure Schedule, as required by applicable law or regulation and except as otherwise contemplated by this Agreement or except as previously consented to by the Company, in writing, after the date hereof Parent shall not, and shall not permit any of its subsidiaries to: (A) amend or otherwise change its certificate of incorporation or by-laws, other than to increase the number of authorized shares of Parent Common Stock or Parent preferred stock, or to otherwise implement the terms and conditions of this Agreement, or as permitted by this Agreement; (B) issue, sell, pledge, dispose of, encumber or authorize the issuance, sale, pledge disposition, grant or encumbrance of (i) any shares of its capital stock of any class, or options, warrants, convertible securities or other rights of any kind to acquire shares of such capital stock, or any other ownership interest thereof, other than (x) any issuance in connection with a Qualified Financing, (y) any issuance pursuant to any outstanding security or agreement of Parent, or (z) any issuance or sale pursuant to any plan for or agreement with any officer, director or employee of Parent; or (ii) any of its assets, tangible or intangible, except pursuant to contracts or agreements identified in Parent Disclosure Schedule; (C) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to its capital stock, except, if at all, with respect to shares which may be issued in a Qualified Financing; (D) (i) reclassify, combine, split, or subdivide, directly or indirectly, any of its capital stock, or (ii) redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock, except from any officer, director or employee upon termination of such officer, director or employee; 51 (E) (i) acquire (including, without limitation, for cash or shares of stock, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or purchase any property or assets of any other person, (ii) incur any indebtedness for borrowed money other than pursuant to agreements disclosed in the Parent Disclosure Schedule, or issue any debt securities other than pursuant to agreements disclosed in the Parent Disclosure Schedule or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances other than pursuant to licensing/development agreements entered into in the ordinary course of Parent's business, consistent with past practice, or (iii) enter into any new Parent Contract not otherwise permitted pursuant to this Agreement; (F) make any capital expenditure or enter into any contract or commitment therefore other than pursuant to licensing/development agreements disclosed in Section 4.6 of the Parent Disclosure Schedule; (G) amend, terminate or extend any Parent Contract; (H) delay or accelerate payment of any account payable or other liability of the Company beyond or in advance of its due date or the date when such liability would have been paid in the ordinary course of business consistent with past practice; (I) take any action, or permit any event or condition to occur or exist, which would cause any representation or warranty of Parent to be untrue; or (I) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty contained in Article IV untrue or incorrect. Notwithstanding the foregoing, and anything to the contrary in this Agreement, the parties acknowledge and agree that Parent may negotiate, execute, deliver and perform agreements to establish customary benefit and compensation arrangements for its officers, directors and employees, appoint additional officers or directors and hire new employees and enter into customary agreements with them, enter in to customary arrangements to obtain insurance, enter into formal arrangements concerning its occupancy and use of its current headquarters space in New York, New York, amend, create and adopt such corporate governance policies, procedures, rules and regulations, as may be appropriate in connection with Parent's listing application or SOXA, take actions which are appropriate or necessary to enhance the corporate staffing and operations of Parent, and take actions which are appropriate or necessary to memorialize the registration rights of Parent's stockholders as heretofore disclosed to Company's management (each of the foregoing, a "Permitted Parent Action"), and no such Permitted Parent Action shall be deemed to breach any Parent representation, warranty, covenant or agreement in this Agreement, provided, that no such Permitted Parent Action shall have a material adverse effect on Parent and that Parent shall notify the Company of each such Permitted Parent Action. In appointing officers or directors between the date of this Agreement and the Closing Date pursuant to this paragraph, Parent shall only appoint, if any at all, (i) independent directors, (ii) other directors to replace existing directors, and (iii) one or more officers to replace functions currently performed by any officer or officers being replaced. In no event will any contract with any officer be in an amount which individually, or taken together with all other contracts with any such newly appointed officers, in the aggregate, is material to Parent. 52 SECTION 5.5 NO SOLICITATION BY PARENT. (A) Parent will promptly notify the Company after receipt of any offer or indication that any person is considering making an offer with respect to a Parent Acquisition Proposal or any request for nonpublic information relating to Parent or for access to the properties, books or records of Parent by any person that may be considering making, or has made, an offer with respect to a Parent Acquisition Proposal and will keep the Company fully informed of the status and details of any such offer, indication or request. "Parent Acquisition Proposal" means any proposal for a merger or other business combination involving Parent or the acquisition of any equity interest in, or a substantial portion of the assets of, Parent, other than (a) the transactions contemplated by this Agreement or (b) a Qualified Financing, (c) any other transaction which Parent may enter into without violating Section 5.4 of this Agreement. (B) From the date hereof until the termination hereof, Parent and the officers of Parent will not and Parent will use its best efforts to cause its directors, employees and agents not to, directly or indirectly, subject to the directors' fiduciary obligations under applicable law, (i) take any action to solicit, initiate or encourage any offer or indication of interest from any person or entity with respect to any Parent Acquisition Proposal, (ii) engage in negotiations with, or disclose any nonpublic information relating to Parent or (iii) afford access to the properties, books or records of Parent to, any person or entity that may be considering making, or has made, an offer with respect to a Parent Acquisition Proposal. SECTION 5.6 TRANSITION. To the extent permitted by applicable law, Parent and the Company shall, and shall cause their respective subsidiaries, affiliates, officers and employees to, use their commercially reasonable efforts to facilitate the integration of the Company and its subsidiaries with the businesses of Parent and its subsidiaries to be effective as of the Closing Date. ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.1 PREPARATION OF THE FORM S-4, PROXY/INFORMATION STATEMENT . (A) As promptly as practicable following the date of this Agreement, Parent shall prepare and file with the SEC (and the Company shall cooperate and participate in the preparation of) a Registration 53 Statement on Form S-4 (the "Form S-4"), in which an information statement (the "Proxy/Information Statement") shall be included as a prospectus and in which a resale prospectus (the "Resale Prospectus") shall be included for the purpose of permitting the Parent Common Stock issued to those affiliates of the Company identified in Section 6.10 of the Company Disclosure Schedule to be resold by such affiliates as provided in the last sentence of this Section 6.1(a), subject to the Initial Lock-Up Period and the Lock-Up Period.). Each of Parent and the Company shall use their reasonable best efforts to have the Form S-4 and the Resale Prospectus declared effective under the Securities Act and the Proxy/Information Statement "cleared" by the SEC's staff for mailing in connection with the Company Shareholder Meeting as promptly as practicable after such filing. As promptly as practicable after the Form S-4 is declared effective, the Company shall cause the Proxy/Information Statement to be mailed to its shareholders. In the event that the Resale Prospectus has not remained in effect, Parent shall file, with the SEC, no later than one (1) year after the Effective Date, a registration statement under the Securities Act and a resale prospectus covering all shares subject to the Resale Prospectus and those shares held by affiliates of the Parent. (B) The Company and Parent shall cooperate with one another (i) in connection with the preparation of the Proxy/Information Statement and the Form S-4, (ii) in determining whether any other action by or in respect of, or filing with, any governmental body, agency or official, or authority or any actions, consents, approvals or waivers are required to be obtained from parties to any leases and other material contracts in connection with the consummation of the Merger, and (iii) in seeking any such actions, consents, approvals or waivers or making any such filings, furnishing information required in connection therewith or with the Proxy/Information Statement or the Form S-4 and seeking timely to obtain any such actions, consents, approvals or waivers. (C) Parent shall use its commercially reasonable efforts to obtain consent from its shareholders for all other actions contemplated herein which require the consent of the shareholders of Parent, including without limitation the actions set forth in Section 6.9. (D) The Company shall furnish to Parent and to Parent's independent certified public accountants such workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as Parent or Parent's independent certified public accountants may reasonably require in order to include the Company's financial statements and the related reports of Company's independent certified public accountants in Parent's filing with the SEC on Form S-4 or any other filing required to be made by Parent with the SEC. (E) On or prior to the filing of Parent's registration statement on Form S-4 contemplated by this Agreement, the Company shall have furnished or arranged to be furnished to Parent and to Parent's independent certified public accountants such Company financial statements, audited and unaudited (including, without limitation, the Company Financial Statements and financial statements for such additional periods as may be required under applicable laws and regulations), workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as are Parent or Parent's independent certified public accountants shall have reasonably requested or may reasonably require in order to include the Company financial statements and the related reports of Company's independent certified public accountants, in satisfaction of all applicable SEC rules and regulations, in Parent's registration statement on Form S-4 to be filed with the SEC as contemplated by this Agreement and rely upon the same. The Company's financial statements included in the Form S-4 shall, at the time of filing of the Form S-4, satisfy the relevant SEC financial reporting and filing requirements. 54 (F) On or prior to the Effective Time, the Company shall have furnished or arranged to be furnished to Parent and to Parent's independent certified public accountants such workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as are Parent or Parent's independent certified public accountants shall have reasonably requested or may reasonably require in order to include the Company financial statements and the related reports of Company's independent certified public accountants, in satisfaction of all applicable SEC rules and regulations, in Parent's registration statement on Form S-4 as the same shall have been amended, if at all, by Parent and as the Parent same shall have requested acceleration of effectiveness by the SEC as contemplated by this Agreement, and rely upon the same. The Company's financial statements included in the Form S-4 shall, at the time of effectiveness of the Form S-4, satisfy the relevant SEC financial reporting and filing requirements. (G) On or prior to the Effective Time, and in any event, as required prior to such date in connection with any filings or disclosures Parent may deem necessary to make under applicable securities laws, the Company will furnish to Parent and to Parent's independent certified public accountants such financial statements, and such workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as Parent or Parent's independent certified public accountants have reasonably requested or may reasonably require in order to include the Company Financial Statements and the related reports of Company's independent certified public accountants in Parent's filing with the SEC on Form 8-K covering this Agreement or in other disclosures or filings that Parent may deem it necessary to make under applicable securities laws, and rely upon the same. SECTION 6.2 SHAREHOLDERS' MEETING. The Company shall cause a meeting of its shareholders (the "Company Shareholders Meeting") to be duly called and held within 30 days following the effective date of the Form S-4 for the purpose of voting on the adoption of this Agreement. SECTION 6.3 LETTERS OF COMPANY'S ACCOUNTANTS. The Company shall cause to be delivered to Parent two letters from the Company's independent accountants, one dated a date not later than the second business day next preceding the date on which the Form S-4 shall become effective and one dated a date not later than the second business day next preceding the Closing Date, each addressed to Parent, in form and substance reasonably satisfactory to Parent and customary in scope and substance for comfort letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. SECTION 6.4 ACCESS TO INFORMATION; CONFIDENTIALITY. (A) Each party shall, and shall cause its subsidiaries to, afford to the other party and to the officers, current employees, accountants, counsel, financial advisors, agents, lenders and other representatives of such party and its subsidiaries, reasonable access during normal business hours during the period prior to the Effective Time to all its respective properties, books, contracts, commitments, personnel and records and, during such period, each party shall, and shall cause each of its subsidiaries to, furnish promptly to the other party (a) a copy of each material report, schedule, registration statement and other document filed by it with any Governmental Entity and (b) all other information concerning its business, properties and personnel as such other party may reasonably request. 55 (B) The parties will hold, and will use its best efforts to cause its officers, directors, employees, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the other party and its subsidiaries furnished to it in connection with the transactions contemplated hereby, except to the extent that such information can be shown to have been (i) previously known on a nonconfidential basis by the disclosing party, (ii) in the public domain through no fault of the disclosing party, or (iii) later lawfully acquired by the disclosing party from sources; provided that each party may disclose such information to its officers, directors, employees, consultants, advisors and agents in connection with the Merger so long as such persons are informed of the confidential nature of such information and are directed to treat such information confidentially. Each parties' obligation to hold such information in confidence shall be satisfied if it exercises the same care with respect to such information as it would exercise to preserve the confidentiality of its own similar information. Notwithstanding any other provision of this Agreement, if this Agreement is terminated, such confidence shall be maintained and all confidential materials shall be destroyed or delivered to their owner, upon request. SECTION 6.5 COMMERCIALLY REASONABLE EFFORTS. Except where otherwise provided in this Agreement, each party will use its commercially 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 the Merger as soon as practicable after the satisfaction of the conditions set forth in Article VIII hereof, provided that the foregoing shall not require the Company, Parent or Merger Sub to take any action or agree to any condition that might, in the reasonable judgment of the Company or Parent, as the case may be, have a material adverse effect on the Company or Parent, respectively. SECTION 6.6 INDEMNIFICATION, EXCULPATION AND INSURANCE. (A) All rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time now existing in favor of the current or former directors or officers of the Company and its subsidiaries as provided in their respective certificates of incorporation or by-laws (or comparable organizational instruments and agreements) and any existing indemnification agreements or arrangements of the Company and its subsidiaries shall survive the Merger and shall continue in full force and effect in accordance with their terms, and shall not be amended, repealed or otherwise modified for a period of five years after the Effective Time in any manner that would adversely affect the rights thereunder of such individuals for acts or omissions occurring at or prior to the Effective Time. (B) In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any such claim, action, suit, proceeding or investigation in which any individual who is now or has been at any time prior to the date of this Agreement, or who becomes prior to the Effective Time, a director or officer of the Company or any of its subsidiaries (the "Indemnified Parties"), is, or is threatened to be, made a party, or arising out of or pertaining to (i) the fact that he is or was a director, officer or current employee of the Company or any of its subsidiaries or their respective predecessors or (ii) this Agreement or any of the transactions contemplated hereby, whether in any case asserted or arising before or after the Effective Time, the parties hereto agree to cooperate and use their reasonable best efforts to defend against and respond thereto. 56 (C) For a period of five (5) years after the Effective Time, the Surviving Corporation shall maintain in effect the tail insurance policy purchased by the Company prior to the Effective Time providing the Company's current directors' and officers' liability insurance covering acts or omissions occurring prior to the Effective Time; provided, however, that the Surviving Corporation may substitute therefor policies of Parent or its subsidiaries (including self-insurance) containing terms with respect to scope of coverage and amount no less favorable to such directors or officers; and provided further, that Surviving Corporation shall not be obligated to maintain any such insurance to the extent that doing so would require payments in addition to the amounts paid for that tail insurance policy by the Company prior to the Effective Time. (D) From and after the Effective Time, the Parent shall cause the Surviving Corporation to maintain in effect a directors' and officer's liability insurance policy covering acts or omissions occurring after the Effective Time. (E) Parent shall cause the Surviving Corporation or any successor thereto, whether by consolidation, merger or transfer of substantially all of its properties or assets, to comply with its obligations under this Section 6.6. The provisions of this Section 6.6 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and other person named herein and his or her heirs and representatives. (F) Prior to the Effective Time Parent shall obtain the insurance policies required by Section 4.15 hereof. SECTION 6.7 FEES AND EXPENSES. All costs, fees and expenses incurred in connection with the Merger, this Agreement (including all instruments and agreements prepared and delivered in connection herewith), and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses; provided that, the Company shall cause all of its fees and expenses to be paid prior to the Merger, and shall cause it's principal creditors (including, without limitation, its investment bankers, attorneys and accountants) in respect of transaction costs to confirm to Parent immediately prior to the Effective Time that all such fees and expenses are paid and none are unbilled. In further explication of the preceding sentence, but without limiting the same, all costs, fees and expenses (including, but not limited to, legal and accounting fees) incurred by the Company in connection with the Proxy/Information Statement shall be paid by the Company; provided, that the parties acknowledge and agree that the Parent shall take the lead in preparing the Form S-4, and the Parent shall pay its legal and accounting expenses in connection with the Form S-4 and the Resale Prospectus. 57 SECTION 6.8 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult with each other before issuing, and shall provide each other the opportunity to review, comment upon and concur with any press release or other public statements or announcements (including pursuant to Rule 165 under the Securities Act and Rule 14a-12 under the Exchange Act) and any broadly distributed internal communications with respect to the Merger, this Agreement and the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement or announcement prior to such consultation, except as either party may determine is required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange or inter-dealer quotation system of a registered national securities association (provided prior notice is given to the other party with a copy of any such disclosure). SECTION 6.9 CORPORATE GOVERNANCE OF PARENT. At the Effective Time, (A) Parent's principal place of operations shall be in the State of North Carolina and the Parent may maintain its corporate headquarters in New York, New York. (B) At the Effective Time, (i) Parent's directors not continued in office as hereinafter provided shall resign, (ii) the board shall be increased from five to seven directors, and (iii) the seven seats initially shall be filled by vote of the Parent's directors continuing in office to fill the vacancies so created, as follows: the Chairman and CEO shall be Christopher Every, three directors (at least two (2) of whom shall be independent) shall be appointed by Parent with the consent of Company, not to be unreasonably withheld, and three directors (at least two (2) of whom shall be independent) shall be appointed by the Company with the consent of Parent, not to be unreasonably withheld, to serve in accordance with Parent's articles of incorporation and by-laws. (C) Christopher Every will continue as Chief Executive Officer of Parent pursuant to an Employment Agreement substantially in the form attached hereto as Exhibit C. (D) Parent's Board of Directors shall appoint Kwen-Jen Chang and Phillip S. Wise as officers of the Parent pursuant to employment agreements, substantially in the form attached hereto as Exhibits D and E, respectively. (E) Prior to the Effective Time, the Parent will be in compliance with the provisions of SOXA applicable to it as of such time and will have implemented such programs and will have taken reasonable steps, upon the advice of the Parents independent auditors and outside counsel, respectively, to ensure Parent's future compliance with all provisions of SOXA which will become applicable to Parent after the Effective Time. SECTION 6.10 AGREEMENTS WITH HOLDERS OF COMPANY SECURITIES. The Company shall use its reasonable best efforts to obtain and deliver to Parent not later than 30 days after the date hereof a written agreement, reasonably acceptable to Parent in form and in substance, of all persons who are (or may deemed to be) "affiliates" of the Company for purposes of Rule 145 under the Securities Act (each of whom shall be so identified in Section 6.10 of the Company Disclosure Schedule). Notwithstanding any other provision of this Agreement, any person whatsoever who shall not have executed and delivered to Parent a 58 written agreement reasonably acceptable to Parent in form and substance as provided in this Section 6.10 shall not be entitled to have the Merger Consideration issued in the Merger to such person covered by (and shall not be entitled to be included as a "selling stockholder" in) the Resale Prospectus. The written agreement shall include, without limitation, provisions setting forth the restrictions under the Initial Lock-Up Period and the Lock-Up Period, customary stockholder information for inclusion of shares in the Resale Prospectus, and customary agreements and indemnifications by such stockholders in connection with the Resale Prospectus. Promptly after the expiration of such 30-day period, the Company shall cause to be delivered to each affiliate that shall not so execute such written agreement as provided in this Section 6.10 a statement disclosing that the shares of Parent Common Stock or other Merger Consideration (including, without limitation, securities issuable to holders of Company Options, Company Warrants, and Company Convertible Promissory Notes) to be issued to such person are subject to transfer restrictions under each of Rule 145 and Rule 144 under the Securities Act and, therefore, may not be sold, transferred or otherwise disposed of except pursuant to an effective registration statement under, or in accordance with an available exemption from the registration and prospectus delivery requirements of, the Securities Act, and that the certificates evidencing such shares of Parent Common Stock or other Parent securities, if applicable, shall bear appropriate restrictive legends and stop transfer orders shall be maintained by the Parent's transfer agent in respect of such shares. SECTION 6.11 SHAREHOLDER LITIGATION. Each of the Company and Parent shall give the other the reasonable opportunity to participate in the defense of any shareholder litigation against the Company or Parent, as applicable, and its directors relating to the transactions contemplated by this Agreement. SECTION 6.12 VOTING AGREEMENTS AND LOCK-UP AGREEMENTS (a) Within thirty (30) days of the date hereof, Parent shall use its reasonable best efforts to obtain and deliver to the Company written agreements, reasonably satisfactory to Company in form and in substance, from holders of Parent Common Stock owning more than five percent (the "5% Holders") of Parent Common Stock agreeing to be bound by the lock-up provisions set forth in Section 2.1(j) with respect to Parent Common Stock owned by such 5% Holders during the Lock-Up Period. (b) Within thirty (30) days of the date hereof, Company shall use its reasonable best efforts to obtain and deliver to Parent irrevocable agreements, reasonably satisfactory in form and in substance to Parent, from Company's executive officers and directors and from the holders of not less than a majority of the outstanding shares of each class of the Company's capital stock that is required by applicable law to consent to the Merger, agreeing to vote to approve the proposal to adopt this Agreement. (c) Within thirty (30) days of the date hereof, Company shall use its reasonable best efforts to obtain and deliver to Parent written agreements, reasonably satisfactory to Parent in form and in substance, from Company's executive officer and directors who hold Company Stock Options agreeing that all shares of Parent Common Stock received after the Effective Time by them upon exercise of such options will be subject to the lock-up provision set forth in Section 2.1(j) during the Lock-Up Period. 59 SECTION 6.13 EMPLOYEE BENEFITS. (A) Parent shall, or shall cause the Surviving Corporation and its subsidiaries to, (i) give those employees who are, as of the Effective Time, employed by the Company and its subsidiaries (the "Continuing Employees") full credit for purposes of eligibility, vesting and benefit accruals (other than for purposes of benefit accruals under any defined benefit pension plan) under any employee benefit plans or arrangements maintained by Parent, the Surviving Corporation or any subsidiary of Parent or the Surviving Corporation for which such Continuing Employees shall be eligible, for such Continuing Employees' service with the Company or any subsidiary of the Company (or any predecessor entity) to the same extent recognized by the Company and its subsidiaries, and (ii) waive all limitations as to preexisting conditions, exclusions and waiting periods, to the extent the same may be waived under any such plan, with respect to participation and coverage requirements applicable to the Continuing Employees under any welfare plan that such employees may be eligible to participate in after the Effective Time, other than limitations or waiting periods that are already in effect with respect to such employees and that have not been satisfied as of the Effective Time under any welfare plan maintained for the Continuing Employees immediately prior to the Effective Time, and (iii) provide credit under any such welfare plan for any copayments, deductibles and out-of-pocket expenditures for the remainder of the coverage period during which any transfer of coverage occurs. (B) At the Effective Time, Surviving Corporation shall provide, or shall cause to be provided, to the Continuing Employees compensation and employee benefit plans, programs and arrangements that are, in the aggregate, comparable to those generally provided to such employees as of the date hereof; provided, however, that nothing herein shall restrict Parent's or the Surviving Corporation's ability to amend or terminate such compensation and employee benefit plans, programs and arrangements in accordance with their terms. Notwithstanding anything contained herein to the contrary, each Continuing Employee whose employment is terminated during the twelve-month period (or such longer period as may be required by the terms of the applicable severance plan or other agreement of the Company as listed on Section 3.12(b) of the Company Disclosure Schedule) following the Effective Time shall be entitled to receive severance pay and benefits equal to the severance pay and benefits under the applicable severance plan or other agreement of the Company listed on Section 3.12(b) of the Company Disclosure Schedule. (C) Subject to performance of the obligations set forth in Section 6.13(a) and (b) above, from and after the Effective Time, Parent shall not be obligated to assume any compensation or employment benefit plans, programs or arrangements of the Company or its subsidiaries. SECTION 6.14 CASHLESS EXERCISE OF STOCK OPTIONS. Promptly upon the effectiveness of the Registration Statement on Form S-8 with respect to the Company Stock Options, Parent shall provide, either through an arrangement with a broker-dealer or other Parent program, a procedure whereby holders of such options can effect a cashless exercise of such options at the expense of such holders. SECTION 6.15 DIRECTORS AND OFFICERS INSURANCE. Prior to the Effective Time, Parent shall obtain, from a financially sound and nationally recognized insurance carrier, directors' and officers' liability insurance, reasonably acceptable to the Company, covering its and any of its subsidiaries directors and officers. 60 SECTION 6.16 CONTINGENT FEE SHARES. (A) Parent hereby covenants and agrees to issue to Century Capital Associates, LLC ("Century Capital") 233,807 shares of Parent Common Stock at the Effective Time. (B) If a Qualified Financing is not consummated within ninety (90) days of the consummation of the transactions contemplated hereby, Parent hereby covenants and agrees to issue to Century Capital, 85,000 shares of Parent Common Stock if Century Capital exercises its option to receive such shares pursuant to the terms of the letter agreement listed in Section 3.18 of the Company Disclosure Schedule. (C) If the Company does not enter into the Feasibility Study, Option and License Agreement within ninety (90) days of the consummation of the transactions contemplated hereby, Parent hereby covenants and agrees to issue to Century Capital 85,000 shares of Parent Common Stock if Century Capital exercises its option to receive such shares pursuant to the terms of the letter agreement listed in Section 3.18 of the Company Disclosure Schedule. ARTICLE VII CONDITIONS PRECEDENT SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligation of each party to effect the Merger is subject to the satisfaction or, to the extent permitted by applicable law, waiver by each of Parent and the Company on or prior to the Closing Date of the following conditions: (A) Shareholder Approvals. The Company shall have obtained the consent of the holders of each class of its capital stock to the Merger, this Agreement and the transactions contemplated hereby. (B) Governmental and Regulatory Approvals. Other than the filing of the Articles of Merger provided for under Section 1.3, all consents, approvals and actions of, filings with and notices to any Governmental Entity required by the Company, Parent or any of their subsidiaries under applicable law or regulation to consummate the Merger and the transactions contemplated by this Agreement, the failure of which to be obtained or made would result in a material adverse effect on Parent's ability to conduct the business of the Company in substantially the same manner as presently conducted, shall have been obtained or made (all such approvals and the expiration of all such waiting periods, the "Requisite Regulatory Approvals") (C) No Injunctions or Restraints. No judgment, order, restraining order and/or injunction (temporary or otherwise), decree, statute, law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued by any court or other Governmental Entity or other legal restraint or prohibition (collectively, "Restraints") shall be in effect preventing or materially delaying the consummation of the Merger; provided, however, that each of the parties shall have used its best efforts to have such Restraint lifted, vacated or rescinded. 61 (D) Form S-4. The Form S-4 shall have become effective under the Securities Act prior to the mailing by the Company and Parent of the Proxy/Information Statement to the shareholders of the Company, and no stop order or proceedings seeking a stop order shall have been entered or be pending by the SEC. (E) Stock Exchange Listing. The shares of Parent Common Stock issuable to the Company's shareholders as contemplated by Article II shall meet all listing requirements for listing on AMEX, other than any requirement with respect to the minimum market price of Parent's Common Stock. SECTION 7.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The obligation of Parent and Merger Sub to effect the Merger is further subject to satisfaction or waiver of the following conditions: (A) Representations and Warranties of the Company. The representations and warranties of the Company set forth herein and in the Company Disclosure Schedule shall be true and correct at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct as of such date); provided that no representation or warranty of the Company shall be deemed untrue or incorrect for purposes of this Section 7.2(a) as a consequence of the existence of any fact, event or circumstance inconsistent with such representation or warranty, unless such fact, event or circumstance, individually or when aggregated with all other facts, events or circumstances inconsistent with any representation or warranty of the Company, has had or would be expected to result in a material adverse effect on the Company, disregarding for these purposes any qualification or exception for, or reference to, materiality in any such representation or warranty. Parent shall have received a certificate of the Company's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (B) Performance of Obligations of the Company. The Company shall have performed, in all material respects, all obligations required to be performed by it at or prior to the Closing Date under this Agreement disregarding for these purposes any qualification or exception for, or reference to, materiality in any such covenant. Parent shall have received a certificate of the Company's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (C) Regulatory Condition. No condition or requirement shall have been imposed by one or more Governmental Entities in connection with any required approval by them of the Merger that requires the Company or any of its subsidiaries to be operated in a manner that would have a material adverse effect on the Company or the Parent or on the consummation of this Agreement and the transactions contemplated hereby. (D) No Company Material Adverse Effect. There shall not be or exist any change, effect, event, circumstance, occurrence or state of facts that has had, has or which reasonably could be expected to have, a material adverse effect on the Company. 62 (E) Legal Opinion. Parent shall have received an opinion of Pryor Cashman Sherman & Flynn LLP, counsel to the Company, in a form to be mutually agreed by the parties to this Agreement prior to the Effective Time. SECTION 7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the Company to effect the Merger is further subject to satisfaction or waiver of the following conditions: (A) Representations and Warranties. The representations and warranties of Parent set forth herein and in the Parent Disclosure Schedule shall be true and correct at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct as of such date); provided that no representation or warranty of Parent shall be deemed untrue or incorrect for purposes of this Section 7.3 (a) as a consequence of the existence of any fact, event or circumstance inconsistent with such representation or warranty, unless such fact, event or circumstance, individually or when aggregated with all other facts, events or circumstances inconsistent with any representation or warranty of Parent, has had or would be expected to result in a material adverse effect on Parent disregarding for these purposes any qualification or exception for, or reference to, materiality in any such representation or warranty. The Company shall have received a certificate of Parent's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (B) Performance of Obligations of Parent. Parent shall have performed in all material respects all obligations required to be performed by it at or prior to the Closing Date under this Agreement disregarding for these purposes any qualification or exception for, or reference to, materiality in any such covenant. The Company shall have received a certificate of Parent's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (C) Regulatory Condition. No condition or requirement shall have been imposed by one or more Governmental Entities in connection with any required approval by them of the Merger that requires Parent or any of its subsidiaries to be operated in a manner that would have a material adverse effect on Parent or Company or on the consummation of this Agreement or the transactions contemplated hereby. (D) No Parent Material Adverse Effect. There shall not be or exist any change, effect, event, circumstance, occurrence or state of facts that has had, has or which reasonably could be expected to have, a material adverse effect on Parent. (E) Legal Opinion. The Company shall have received an opinion of counsel to Parent, in a form to be mutually agreed by the parties to this Agreement prior to the Effective Time. SECTION 7.4 FRUSTRATION OF CLOSING CONDITIONS. Neither Parent nor the Company may rely on the failure of any condition set forth in Section 7.1, 7.2 or 7.3, as the case may be, to be satisfied if such failure was caused by such party's failure to use its own reasonable best efforts to consummate the Merger and the other transactions contemplated by this Agreement, as required by and subject to Section 6.5. 63 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether or not the Company's shareholders have approved the Agreement: (A) by mutual written consent of Parent and the Company; (B) by either Parent or the Company: (I) if the Merger shall not have been consummated at or prior to 5:00 p.m., New York time, on December 31, 2004, provided, however, that the right to terminate this Agreement pursuant to this Section 8.1(b)(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Merger to be consummated by such time and date; (II) if the Company's shareholders have not consented to the Merger, this Agreement and the transactions contemplated hereby; (III) if any Restraint having any of the effects set forth in Section 7.1(c) shall be in effect and shall have become final and nonappealable; provided, however, that the party seeking to terminate this Agreement pursuant to this Section 8.1(b) (iv) shall have used its reasonable best efforts to prevent the entry of such Restraint and to have such Restraint vacated or removed; (IV) if any Governmental Entity that must grant a Requisite Regulatory Approval shall have denied the applicable Requisite Regulatory Approval and such denial shall have become final and nonappealable; (V) if the Parent's Common Stock price closes below $1.50 per share on any five (5) trading days (whether such days are consecutive or not) during the thirty (30) day period ending five (5) days before the Closing Date; provided that the party desiring to terminate this Agreement pursuant to this Section 8.1(b)(v) gives written notice to the other party at least three (3) days prior to exercising its right to terminate the Agreement pursuant to this Section 8.1(b)(v) and provides an opportunity for the non-terminating party to meet with the terminating party to discuss the termination; or (VI) if the other party shall have failed to deliver the agreements it is to deliver pursuant to Section 6.10 or Section 6.12 of this Agreement within thirty (30) days of the date hereof; (C) by Parent, if the Company shall have breached any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach (i) would give rise to the failure of a condition set forth in Section 7.2(a) or (b), and (ii) is either incapable of being cured by the Company or, if curable, is not cured within 15 days of receipt from Parent of written notice thereof; or 64 (D) by the Company, if Parent shall have breached any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach (i) would give rise to the failure of a condition set forth in Section 7.3(a) or (b), and (ii) is either incapable of being cured by Parent or, if curable, is not cured within 15 days of receipt from the Company written notice thereof. The party desiring to terminate this Agreement pursuant to clause (b), (c) or (d) of this Section 8.1 shall provide written notice of such termination to the other party in accordance with Section 8.2, specifying in reasonable detail the provision hereof pursuant to which such termination is effected. SECTION 8.2 EFFECT OF TERMINATION. If this Agreement is terminated by either the Company or Parent as provided in Section 8.1, this Agreement forthwith shall become void and have no effect, without any liability or obligation on the part of Parent or the Company. This Section 8.2 and Article IX shall survive such termination, provided, however, that nothing herein shall relieve any party from any liability (in contract, tort or otherwise, and whether pursuant to an action at law or in equity) for any knowing or willful breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement or in respect of fraud by any party. SECTION 8.3 AMENDMENT. This Agreement may be amended by the parties at any time; provided, however, that after receipt of approval by the Company's shareholders, there shall not be made any amendment that by law requires any further approval by the shareholders of the Company without the further approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of all of the parties to be bound thereby. SECTION 8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, a party may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of Section 8.3, waive compliance by the other party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. ARTICLE IX GENERAL PROVISIONS SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 9.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. 65 SECTION 9.2 NOTICES. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (A) if to Parent or Merger Sub, to: Enhance Biotech, Inc. 712 Fifth Avenue New York, New York 10019 Fax No.: (212) 581-1922 Attention: Andrew J. Cosentino with a copy (which shall not constitute notice pursuant to this Section 9.2) to: such counsel to Parent as may be designated by Parent by written notice to Company. (B) if to the Company, to: Ardent Pharmaceuticals, Inc. 631 United Drive, Suite 200 Durham, North Carolina 27713 Fax No.: (919) 806-1161 Attention: Phillip S. Wise with a copy (which shall not constitute notice pursuant to this Section 9.2) to: Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Fax No.: (212) 326-0806 Attention: Eric M. Hellige, Esq. SECTION 9.3 DEFINITIONS. For purposes of this Agreement: 66 (A) an "affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. (B) "material adverse change" or "material adverse effect" means, when used in reference to the Company or Parent, any change, effect, event, circumstance, occurrence or state of facts that is, or which reasonably could be expected to be, materially adverse to the business, assets, liabilities, condition (financial or otherwise), cash flows or results of operations of such party and its subsidiaries, considered as an entirety; provided, however, that the following shall not be taken into account or given effect, either individually or in the aggregate, in determining whether there has occurred or there reasonably could be expected to occur, or whether there exists a change, effect, event, circumstance, occurrence or state of facts that is or which reasonably could be expected to be, a material adverse change or a material adverse effect: (i) any change, effect, event, circumstance, occurrence or state of facts relating to the United States economy or financial or securities markets in general, unless (A) constituting or arising from a banking moratorium or general suspension of trading for more than 10 consecutive trading days on any national securities exchange or U.S. inter-dealer quotation system of a registered national securities association or (B) involving a decline in the Dow Jones Industrial Average of more than 35% measured over any five AMEX-trading day period), (ii) any adverse change, effect, event, circumstance, occurrence or state of facts relating to the biotech industry to the extent not affecting the referent person to a disproportionately greater extent than other persons in industries in which the referent person competes are or could reasonably be expected to be affected, or (iii) any change, effect, event, circumstance, occurrence or state of facts directly relating to and arising out of the public announcement or performance of this Agreement and the transactions contemplated hereby. (C) "person" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. (D) a "subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect not less than a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person. (E) "knowledge" means, (i) with respect to the Company, the knowledge after reasonable due inquiry, of the Company's executive officers and (ii) with respect to Parent, the knowledge after reasonable due inquiry of Parent's executive officers. (F) "Company Preferred Stock" means, collectively, the Company Series A Preferred Stock, the Company Series B Preferred Stock, the Company Series C Preferred Stock, the Company Series D-1 Preferred Stock and the Company Series D-2 Preferred Stock SECTION 9.4 INTERPRETATION. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words 67 "without limitation unless the word "only" follows the words "include," "includes" or "including." The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. SECTION 9.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. A facsimile copy of a signature page shall be deemed to be an original signature page. SECTION 9.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement (including the documents and instruments referred to herein) (a) constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement and (b) except for the provisions of Section 6.6 which shall inure to the benefit of and be enforceable by the persons referred to therein, are not intended to confer upon any person other than the parties any rights or remedies. SECTION 9.7 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the internal substantive and procedural laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law of such state. SECTION 9.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties hereto without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 9.9 CONSENT TO JURISDICTION. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any Federal court located in the Southern District of New York or any New York state court located in New York county in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a Federal court sitting in the Southern District of New York or any New York state court located in New York county, except for any action in another jurisdiction to enforce any judgment previously obtained in any such Federal court sitting in the Southern District of New York or New York state court located in New York county. The parties irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or any of the transactions contemplated by this Agreement in any Federal court located in the Southern District of New York or any New York state court located in New York county, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 68 SECTION 9.10 HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.11 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. SECTION 9.12 ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. [The remainder of this page is intentionally left blank.] 69 IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. ENHANCE BIOTECH, INC. By /s/Christopher Every --------------------------------- Name: Christopher Every Title: President and CEO ARDENT ACQUISITION CORP. By /s/Christopher Every --------------------------------- Name: Christopher Every Title: President and CEO ARDENT PHARMACEUTICALS, INC. By /s/Kwen-Jen Chang --------------------------------- Name: Kwen-Jen Chang Title: President and CEO 70 EXHIBIT A LOCK-UP PERIOD LEGEND The shares represented by this Certificate are subject to restrictions on transfer until ________, 2005 (one year from the date of issuance) as set forth in Section 2.1(j) of that certain Merger Agreement, dated as of August 11, 2004, among the Company, Ardent Acquisition Corp., and Ardent Pharmaceuticals, Inc. Copies of the Merger Agreement are maintained and are available for inspection at the principal office of the Company. 71 EXHIBIT B INITIAL LOCK-UP PERIOD LEGEND The shares represented by this Certificate are subject to restrictions on transfer until the earlier of (i) the 30th day following the consummation by the Company of a Qualified Financing (as defined in the Merger Agreement dated as of August 11, 2004 (the "Merger Agreement"), among the Company, Ardent Acquisition Corp., and Ardent Pharmaceuticals, Inc.) or (ii) __________, 2005 (180 days from the date of issuance) as set forth in Section 2.1(j) of the Merger Agreement. Copies of the Merger Agreement are maintained and are available for inspection at the principal office of the Company. 72 EX-10.2 3 v010415_ex10-2.txt EXHIBIT 10.2 AMENDMENT NO. 1 TO THE AGREEMENT AND PLAN OF MERGER BY AND AMONG ENHANCE BIOTECH, INC., ARDENT ACQUISITION CORP. AND ARDENT PHARMACEUTICALS, INC. This Amendment No. 1 ("Amendment") to the Agreement and Plan of Merger (the "Agreement") made and entered into as of the 20th day of November, 2004, by and among ENHANCE BIOTECH, INC., a Delaware Corporation ("Parent"), ARDENT ACQUISITION CORP., a North Carolina corporation and wholly owned subsidiary of Parent ("Merger Sub"), and ARDENT PHARMACEUTICALS, INC., a North Carolina corporation (the "Company"). W I T N E S S E T H: WHEREAS, capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Agreement. WHEREAS, each of Parent, Merger Sub and the Company desire to amend the Agreement to (i) delete all obligations of Parent related to filing and maintaining an effective Form S-4, (ii) provide for the private placement of Parent Common Stock to the Company's shareholders, in accordance with federal and state securities laws, (iii) create registration rights for the benefit of Company shareholders who will receive Parent Common Stock, (iv) revise the allocation of the Merger Consideration to the Company's shareholders, (v) allow the implementation of procedures to allow the selection of the persons who shall be Directors after the Merger, and (vi) clarify the parties' immediate intentions in terms of listing the Parent Common Stock on the American Stock Exchange; WHEREAS, the Board of Directors of the Company has determined that it is in the best interest of the holders of the Company's securities to amend the Agreement and has adopted this Amendment in accordance with the NCBCA; WHEREAS, the Board of Directors of Parent has determined that it is in the best interest of the holders of Parent Common Stock to amend the Agreement and has adopted this Amendment in accordance with the DGCL, and Parent as the sole shareholder of Merger Sub, has adopted this Amendment in accordance with the NCBCA; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: -1- ARTICLE 1. Exhibit A attached to the Agreement shall be deleted in its entirety and replaced with the Registration Rights Agreement referenced herein and attached as Exhibit A hereto. ARTICLE 2. Exhibit B attached to the Agreement shall be deleted in its entirety and replaced with Exhibit B attached hereto. ARTICLE 3. All references to the "Proxy/Information Statement" shall be deleted from the Agreement. ARTICLE 4. All references to "Form S-4" shall be deleted from the Agreement. ARTICLE 5. All references to "Initial Lock Up Period" shall be deleted from the Agreement. ARTICLE 6. All references to "Resale Prospectus" shall be deleted from the Agreement." ARTICLE 7. Section 2.1(c) (SERIES A CONVERTIBLE EXHANGEABLE PREFERRED STOCK) of the Agreement shall be amended by deleting the percentage 0.000041762166263% of the Residual Merger Consideration to be issued to holders for each share of Series A Preferred Stock, and substituting the following percentage: 0.000041587422187%. ARTICLE 8. Section 2.1(d) (SERIES B CONVERTIBLE EXHANGEABLE PREFERRED STOCK) of the Agreement shall be amended by deleting the percentage 0.000029233509085% of the Residual Merger Consideration to be issued to holders for each share of Series B Preferred Stock, and substituting the following percentage: 0.000029111188262%. ARTICLE 9. Section 2.1(e) (SERIES C CONVERTIBLE EXHANGEABLE PREFERRED STOCK) of the Agreement shall be amended by deleting the percentage 0.000002923350909% of the Residual Merger Consideration to be issued to holders for each share of Series C Preferred Stock, and substituting the following percentage: 0.000003202230709%. ARTICLE 10. Section 2.1(f) (SERIES D-1 CONVERTIBLE PREFERRED STOCK) of the Agreement shall be amended by deleting the ratio of 1.111111111 shares of Parent Common Stock for each share of Series D-1 Convertible Preferred Stock, and substituting therefore the ratio of 1.228070175438600 shares of Parent Common Stock for each share of Series D-1 Convertible Preferred Stock. -2- ARTICLE 11. Section 2.1(g) (SERIES D-2 CONVERTIBLE PREFERRED STOCK) of the Agreement shall be amended by deleting the ratio of 0.761904487 shares of Parent Common Stock for each share of Series D-2 Convertible Preferred Stock, and substituting therefore the ratio of 0.842105263157895 shares of Parent Common Stock for each share of Series D-2 Convertible Preferred Stock. ARTICLE 12. Section 2.1(h) (COMPANY COMMON STOCK) of the Agreement shall be amended by deleting the percentage 0.000002923350909% of the Residual Merger Consideration to be ISSUED to holders for each share of Company Common Stock, and substituting the following percentage: 0.000002911118826%. ARTICLE 13. Section 2.1(j) of the Agreement presently reads as follows: "Shares of Parent Common Stock issued as Merger Consideration shall be registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 6.1 hereof. Notwithstanding the foregoing, (A) if Parent has consummated a Qualified Financing on or prior to the Closing Date, all shares issued to each holder of Company Common Stock or Company Preferred Stock, as the case may be, as Merger Consideration, in excess of 30,000 shares of Parent Common Stock shall be subject to a lock-up period restricting transfer of such shares for a period of 12 months after the Closing Date (the "Lock-Up Period") and each certificate representing such shares shall bear a restrictive legend substantially as set forth on Exhibit A attached hereto or (B) if Parent has not consummated a Qualified Financing on or prior to the Closing Date, the first 30,000 (or fewer) shares issued to each holder of Company Common Stock or Company Preferred Stock, as the case may be, as Merger Consideration shall be subject to a lock-up period (the "Initial Lock-Up Period") restricting transfer of such shares for a period ending on the earlier of (i) the 30th day following the date of consummation by Parent of a Qualified Financing or (ii) the 180th day following the Closing Date, and each certificate representing such shares shall bear a restrictive legend substantially as set forth on Exhibit B attached hereto, and all additional shares issued to such holders as Merger Consideration shall be subject to a restriction on transfer of such shares for the Lock-Up Period, and each certificate representing such shares shall bear a restrictive legend substantially as set forth on Exhibit A attached hereto. Separate stock certificates shall be issued representing the shares of Merger Consideration subject to either the Initial Lock-Up Period or the Lock-Up Period." Section 2.1(j) of the Agreement shall be deleted in its entirety and replaced with the following: "In accordance with and pursuant to a Registration Rights Agreement (the "Registration Rights Agreement") substantially in the form attached hereto as Exhibit A and Section 6.1(a) of this Agreement, Parent (x) shall file a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), to register up to 30,000 shares of Common Stock issued to each Company shareholder as Merger Consideration as soon as practicable after a Qualified Financing but no later than 150 days following the Effective Time, and (y) shall use Parent's commercially reasonable best efforts thereafter to cause such registration statement to be declared effective by -3- the Securities and Exchange Commission ("SEC") as soon as practicable on or after the 180th day following the Effective Time. The parties to this Agreement acknowledge and agree that Parent has agreed to furnish corresponding registration rights to Parent's existing shareholders who do not have freely-trading shares. All shares of Parent Common Stock issued as Merger Consideration shall be subject to a lock-up period restricting transfer of such shares for a period of 12 months after the Closing Date (the "Lock-Up Period") and each certificate representing such shares shall bear a restrictive legend reflecting such lock-up arrangement substantially as set forth on Exhibit B attached hereto. Notwithstanding the foregoing, the lock-up arrangement shall end as to any shares covered by the registration statement to be filed by Parent pursuant to this Paragraph simultaneously with such shares being sold by the holder thereof pursuant to such registration statement after that registration statement has been declared effective by the SEC. Upon termination of this lock-up arrangement with respect to any shares, the holder thereof may submit the certificate evidencing the same to Parent and Parent shall cause the restrictive legend to be removed from such certificate in respect of that number of shares and shall instruct Parent's transfer agent to remove such restriction in such transfer agent's records." ARTICLE 14. Section 2.1(1)(i) (AGGREGATE MERGER CONSIDERATION) of the Agreement shall be amended by deleting the reference to "233,807 shares of Parent Common Stock" in subsection (d) thereof and substituting therefor "234,171 shares of Parent Common Stock". ARTICLE 15. Section 2.6(c) (STOCK OPTIONS) is hereby amended by striking therefrom the terms "the Securities and Exchange Commission ("SEC")" and substituting therefor the term "the SEC". ARTICLE 16. Section 2.7(c) (WARRANTS) of the Agreement presently reads as follows: "The Merger Consideration allocated to the Company Warrants shall be reserved for issuance out of the Common Stock Merger Consideration by Parent for issuance upon exercise in full of all Company Warrants after the Effective Time and shall register such Parent Common Stock reserved for issuance upon the exercise of the Company Warrants on the Form S-4. Notwithstanding the foregoing, upon the expiration of the Company Warrants, such Parent Common Stock reserved for issuance upon the exercise of the Company Warrants shall no longer be reserved and shall be released as treasury stock to Parent." Section 2.7(c) of the Agreement shall be amended by deleting from the first sentence thereof the words "and shall register such Parent Common Stock reserved for issuance upon the exercise of the Company Warrants on the Form S-4." ARTICLE 17. Section 2.10 (ISSUANCE OF RESTRICTED SHARES) of the Agreement presently reads as follows: "Any shares of Parent Common Stock issued upon exercise of any Company Stock Option or Company Warrant, or upon conversion of any Company Convertible Promissory Note, after the Effective Time shall be issued as "restricted securities," as defined in the Securities Act, unless such shares have been registered by Parent under the Securities Act in a registration statement filed with, and declared effective by, the SEC after the Effective Time." -4- Section 2.10 shall be deleted in its entirety and replaced with the following: "All shares of Parent Common Stock issued as Merger Consideration, including, without limitation, any shares of Parent Common Stock issued upon exercise of any Company Stock Option or Company Warrant, or upon conversion of any Company Convertible Promissory Note, shall be issued as "restricted securities," as defined under the Securities Act, and shall be subject to transfer restrictions under each of Rule 145 and Rule 144 under the Securities Act and, therefore, may not be sold, transferred or otherwise disposed of except pursuant to an effective registration statement under, or in accordance with an available exemption from the registration and prospectus delivery requirements of, the Securities Act, and the certificates evidencing such shares of Parent Common Stock or other Parent securities, if applicable, shall bear appropriate restrictive legends and stop transfer orders shall be maintained by the Parent's transfer agent in respect of such shares until such time as such shares are so registered." ARTICLE 18. Section 3.12(b) (LABOR MATTERS) of the Agreement presently reads as follows: Section 3.12(b) of the Company Disclosure Schedule lists the name, title, date of employment and compensation (whether cash or otherwise, including such items as options) of each current officer and director of the Company or any of its subsidiaries, and each current salaried employee of the Company or any of its subsidiaries. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not (i) result in any payment (including severance, unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any current or former director, employee or independent contractor of the Company or any of its subsidiaries, from the Company or any of its subsidiaries under any Employee Plan or otherwise, (ii) materially increase any benefits otherwise payable under any Employee Plan or otherwise, or (iii) result in the acceleration of the time of payment, exercise or vesting of any such benefits. Subsection (iii) of the second sentence of Section 3.12(b) shall be amended by adding at the end of such clause the words "other than the vesting of the Company Stock Options at the Effective Time." ARTICLE 19. Section 3.24 (ACCURACY OF INFORMATION) of the Agreement presently reads as follows: "To the knowledge of the Company, neither this Agreement, the Company Disclosure Schedule nor any other document, schedule, exhibit, certificate or instrument provided by the Company or any of the Company's subsidiaries or any of their respective employees or agents to Parent in connection with the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, not misleading. None of the information supplied or to be supplied by the Company in writing specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading or (ii) the Proxy/Information Statement will, at the date it is first mailed to the Company's shareholders and at the time of the Company Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by the Company with respect to statements made based on information supplied by Parent specifically for inclusion or incorporation by reference in the Form S-4 or Proxy/Information Statement." -5- Section 3.24 shall be deleted in its entirety and replaced with the following: "To the knowledge of the Company, neither this Agreement, the Company Disclosure Schedule nor any other document, schedule, exhibit, certificate or instrument provided by the Company or any of the Company's subsidiaries or any of their respective employees or agents to Parent or to the Company's shareholders in connection with the transactions contemplated hereby, including, without limitation, the Company's Proxy Statement prepared by the Company and delivered to the Company's shareholders, or the information concerning the Company, its business, its properties, its condition (financial or otherwise), its plans and its prospects which has been included in Parent's Private Placement Memorandum, contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances under which they are made, not misleading. The Company specifically acknowledges that the foregoing representation shall be true in respect of the Company's Proxy Statement prepared by the Company and the aforesaid information included in Parent's Private Placement Memorandum, respectively, at the date of such Proxy Statement and such Private Placement Memorandum, and at all times thereafter through the Effective Date. The Company makes no representation whatsoever as to any other information in Parent's Private Placement Memorandum." ARTICLE 20. Section 4.3(a) (CAPITAL STRUCTURE) of the Agreement presently reads as follows: "The authorized capital stock of Parent consists of 100,000,000 shares of common stock, $0.001 par value (the "Parent Common Stock"), and 25,000,000 shares of preferred stock, par value $0.001 per share, of Parent ("Parent Authorized Preferred Stock"). As of the date hereof: (i) 28,704,861 shares of Parent Common Stock were issued and outstanding; (ii) no (0) shares of Parent Common Stock were held by Parent in its treasury; (iii) no (0) shares of Parent Common Stock were held by subsidiaries of Parent; (iv) approximately 8,680,000 shares of Parent Common Stock were reserved for issuance pursuant to the stock-based plans identified in Section 4.3 of the Parent Disclosure Schedule (such plans, collectively, the "Parent Stock Plans"), of which approximately no (0) shares are subject to outstanding employee stock options or other rights to purchase or receive Parent Common Stock granted under the Parent Stock Plans (collectively, "Parent Employee Stock Options"); and (v) 7,637,500 shares of Parent Common Stock are reserved for issuance pursuant to convertible securities or warrants (including 5,500,000 warrants at $1.50 heretofore issued to Bioaccelerate, Inc. and 1,500,000 warrants at $3.00 to be issued to Bioaccelerate in consideration of the $4,000,000 bridge financing heretofore agreed among the parties, and 637,500 shares reserved for issuance in respect of contingent obligations)." -6- Section 4.3(a) shall be deleted in its entirety and replaced with the following: "The authorized capital stock of Parent consists of 100,000,000 shares of common stock, $0.001 par value (the "Parent Common Stock"), and 25,000,000 shares of preferred stock, par value $0.001 per share, of Parent ("Parent Authorized Preferred Stock"). As of the date hereof: (i) 29,172,833 shares of Parent Common Stock were issued and outstanding; (ii) no (0) shares of Parent Common Stock were held by Parent in its treasury; (iii) no (0) shares of Parent Common Stock were held by subsidiaries of Parent; (iv) approximately 8,680,000 shares of Parent Common Stock were reserved for issuance pursuant to the stock-based plans identified in Section 4.3 of the Parent Disclosure Schedule (such plans, collectively, the "Parent Stock Plans"), of which approximately no (0) shares are subject to outstanding employee stock options or other rights to purchase or receive Parent Common Stock granted under the Parent Stock Plans (collectively, "Parent Employee Stock Options"); and (v) 7,258,618 shares of Parent Common Stock are reserved for issuance pursuant to convertible securities or warrants (including 5,500,000 warrants at $1.50 heretofore issued to Bioaccelerate, Inc. and 1,500,000 warrants at $3.00 to be issued to Bioaccelerate in consideration of the $4,000,000 bridge financing heretofore agreed among the parties, and 258,618 shares reserved for issuance in respect of contingent obligations)." ARTICLE 21. Section 4.22 (ACCURACY OF INFORMATION) of the Agreement presently reads as follows: "To the knowledge of Parent, neither this Agreement, the Parent Disclosure Schedule nor any other document, schedule, exhibit, certificate or instrument provided by the Parent, any of the Parent's subsidiaries, Merger Sub or any of their respective employees or agents to the Company in connection with the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, not misleading. None of the information supplied or to be supplied by Parent specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Proxy/Information Statement will, at the date it is first mailed to the Company's shareholders and at the time of the Company Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, in either case, no representation or warranty is made by Parent with respect to statements made or incorporated by reference therein based on information supplied by the Company specifically for inclusion or incorporation by reference in the Form S-4 or Proxy/Information Statement. The Form S-4 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations thereunder." Section 4.22 shall be deleted in its entirety and replaced with the following: -7- "To the knowledge of Parent, neither this Agreement, the Parent Disclosure Schedule nor any other document, schedule, exhibit, certificate or instrument provided by the Parent, any of the Parent's subsidiaries, Merger Sub or any of their respective employees or agents to the Company or to the Company's shareholders in connection with the transactions contemplated hereby including, without limitation, Parent's Private Placement Memorandum, contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances under which they are made, not misleading. Parent specifically acknowledges that the foregoing shall be true in respect of Parent's Private Placement Memorandum at the date of such Private Placement Memorandum and at all times thereafter through the Effective Date. Notwithstanding the foregoing, Parent makes no representation with respect to information in the Private Placement Memorandum concerning the Company, its business, its properties, its condition (financial or otherwise), its plans and its prospects insofar as such information was furnished to Parent by the Company and Parent has relied upon the accuracy of such information furnished by the Company." ARTICLE 22. Section 5.4 (CONDUCT OF BUSINESS BY PARENT) of the Agreement is amended by addition of the following at the end of the Section: "In addition, notwithstanding the foregoing, and anything to the contrary in this Agreement, the parties acknowledge and agree that Parent may amend its bylaws as necessary or appropriate by resolution of its Board of Directors (x) to ratify the number of directors constituting Parent's Board of Directors, (y) to increase the number of directors constituting Parent's Board of Directors in order that the number of directors constituting Parent's Board of Directors shall be four (4) directors thereafter up until the Effective Time, and (z) to increase the number of directors constituting Parent's Board of Directors as of the Effective Time in order that the number of directors constituting Parent's Board of Directors shall be seven (7) directors as of the Effective Time. In addition, Parent's Board of Directors may fill the vacancies so created in accordance with Section 6.9 of this Agreement. Each of the foregoing actions shall constitute a "Permitted Parent Action", and no such Permitted Parent Action shall be deemed to breach any Parent representation, warranty, covenant or agreement in this Agreement." ARTICLE 23. Section 6.1 (PREPARATION OF THE FORM S-4, PROXY/INFORMATION STATEMENT) of the Agreement presently reads as follows: "SECTION 6.5 PREPARATION OF THE FORM S-4, PROXY/INFORMATION STATEMENT . (A) As promptly as practicable following the date of this Agreement, Parent shall prepare and file with the SEC (and the Company shall cooperate and participate in the preparation of) a Registration Statement on Form S-4 (the "Form S-4"), in which an information statement (the "Proxy/Information Statement") shall be included as a prospectus and in which a resale prospectus (the "Resale Prospectus") shall be included for the purpose of permitting the Parent Common Stock issued to those affiliates of the Company identified in Section 6.10 of the Company Disclosure Schedule to be resold by such affiliates as provided in the last sentence of this Section 6.1(a), subject to the Initial Lock-Up Period and the Lock-Up Period.). Each of Parent and the Company shall use their reasonable best efforts to have the Form S-4 and the Resale Prospectus declared effective under the Securities Act and the Proxy/Information Statement "cleared" by the SEC's staff for mailing in connection with the Company Shareholder Meeting as promptly as practicable after such filing. As promptly as practicable after the Form S-4 is declared effective, the Company shall cause the Proxy/Information Statement to be mailed to its shareholders. In the event that the Resale Prospectus has not remained in effect, Parent shall file, with the SEC, no later than one (1) year after the Effective Date, a registration statement under the Securities Act and a resale prospectus covering all shares subject to the Resale Prospectus and those shares held by affiliates of the Parent. -8- (B) The Company and Parent shall cooperate with one another (i) in connection with the preparation of the Proxy/Information Statement and the Form S-4, (ii) in determining whether any other action by or in respect of, or filing with, any governmental body, agency or official, or authority or any actions, consents, approvals or waivers are required to be obtained from parties to any leases and other material contracts in connection with the consummation of the Merger, and (iii) in seeking any such actions, consents, approvals or waivers or making any such filings, furnishing information required in connection therewith or with the Proxy/Information Statement or the Form S-4 and seeking timely to obtain any such actions, consents, approvals or waivers. (C) Parent shall use its commercially reasonable efforts to obtain consent from its shareholders for all other actions contemplated herein which require the consent of the shareholders of Parent, including without limitation the actions set forth in Section 6.9. (D) The Company shall furnish to Parent and to Parent's independent certified public accountants such workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as Parent or Parent's independent certified public accountants may reasonably require in order to include the Company's financial statements and the related reports of Company's independent certified public accountants in Parent's filing with the SEC on Form S-4 or any other filing required to be made by Parent with the SEC. (E) On or prior to the filing of Parent's registration statement on Form S-4 contemplated by this Agreement, the Company shall have furnished or arranged to be furnished to Parent and to Parent's independent certified public accountants such Company financial statements, audited and unaudited (including, without limitation, the Company Financial Statements and financial statements for such additional periods as may be required under applicable laws and regulations), workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as are Parent or Parent's independent certified public accountants shall have reasonably requested or may reasonably require in order to include the Company financial statements and the related reports of Company's independent certified public accountants, in satisfaction of all applicable SEC rules and regulations, in Parent's registration statement on Form S-4 to be filed with the SEC as contemplated by this Agreement and rely upon the same. The Company's financial statements included in the Form S-4 shall, at the time of filing of the Form S-4, satisfy the relevant SEC financial reporting and filing requirements. -9- (F) On or prior to the Effective Time, the Company shall have furnished or arranged to be furnished to Parent and to Parent's independent certified public accountants such workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as are Parent or Parent's independent certified public accountants shall have reasonably requested or may reasonably require in order to include the Company financial statements and the related reports of Company's independent certified public accountants, in satisfaction of all applicable SEC rules and regulations, in Parent's registration statement on Form S-4 as the same shall have been amended, if at all, by Parent and as the Parent same shall have requested acceleration of effectiveness by the SEC as contemplated by this Agreement, and rely upon the same. The Company's financial statements included in the Form S-4 shall, at the time of effectiveness of the Form S-4, satisfy the relevant SEC financial reporting and filing requirements. (G) On or prior to the Effective Time, and in any event, as required prior to such date in connection with any filings or disclosures Parent may deem necessary to make under applicable securities laws, the Company will furnish to Parent and to Parent's independent certified public accountants such financial statements, and such workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as Parent or Parent's independent certified public accountants have reasonably requested or may reasonably require in order to include the Company Financial Statements and the related reports of Company's independent certified public accountants in Parent's filing with the SEC on Form 8-K covering this Agreement or in other disclosures or filings that Parent may deem it necessary to make under applicable securities laws, and rely upon the same." Section 6.1 of the Agreement shall be deleted in its entirety and replaced with the following: "SECTION 6.1 Preparation of the Proxy Statement and Preparation of the Private Placement Memorandum. (A) Following the date of this Agreement, the Company shall prepare the Proxy Statement (the "Proxy Statement") which shall be mailed by the Company to the Company's security holders in connection with the Company Shareholder Meeting as promptly as practicable upon completion. In addition, following the date of this Agreement, Parent shall prepare the Private Placement Memorandum (the "PPM") of Parent covering the Parent securities to be issued in connection with the Merger, and which also shall be delivered to the Company's security holders. (B) The Company and Parent shall cooperate with one another (i) in connection with the preparation of the Proxy Statement and the PPM, (ii) in determining whether any filings are required under federal and state securities laws, (iii) in determining whether any -10- other action by or in respect of, or filing with, any governmental body, agency or official, or authority or any actions, consents, approvals or waivers are required to be obtained from parties to any leases and other material contracts in connection with the consummation of the Merger, and (iv) in seeking any such actions, consents, approvals or waivers or making any such filings, furnishing information required in connection therewith or with the Proxy Statement and the PPM and seeking timely to obtain any such actions, consents, approvals or waivers. (C) Parent shall use its commercially reasonable efforts to obtain consent from its shareholders for all other actions contemplated herein which require the consent of the shareholders of Parent, including without limitation the actions set forth in Section 6.9. (D) The Company shall furnish to Parent and to Parent's independent certified public accountants such workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as Parent or Parent's independent certified public accountants may reasonably require in order to include the Company's financial statements and the related reports of Company's independent certified public accountants in any filing required to be made by Parent with the SEC as a result of the Merger. (E) On or prior to the Effective Time, and in any event, as required on prior to such date in connection with any filings or disclosures Parent may deem necessary to make under applicable securities laws as a result of the Merger, including without limitation any Current Report on Form 8-K to be filed after the Merger with respect to the consummation of the Merger, the Company will furnish to Parent and to Parent's independent certified public accountants such financial statements, and such workpapers and supporting documentation, as well as such consents by the Company's independent public certified accountants, as Parent or Parent's independent certified public accountants have reasonably requested or may reasonably require in order to include the Company Financial Statements and the related reports of Company's independent certified public accountants in Parent's filings with the SEC on Form 8-K covering this Agreement or the consummation of the Merger or in other disclosures or filings that Parent may deem it necessary to make under applicable securities laws, and rely upon the same. ARTICLE 24. Section 6.2 (SHAREHOLDERS' MEETING) of the Agreement presently reads as follows: "The Company shall cause a meeting of its shareholders (the "Company Shareholders Meeting") to be duly called and held within 30 days following the effective date of the Form S-4 for the purpose of voting on the adoption of this Agreement." Section 6.2 of the Agreement shall be deleted in its entirety and replaced with the following: -11- "The Company shall cause a meeting of its shareholders (the "Company Shareholders Meeting") to be duly called and held by December 13, 2004 for the purpose of voting on the adoption of this Agreement." ARTICLE 25. Section 6.3 (LETTERS OF COMPANY'S ACCOUNTANTS) of the Agreement shall be deleted in its entirety and replaced with the following: "SECTION 6.3 INTENTIONALLY DELETED." ARTICLE 26. Section 6.7 (FEES AND EXPENSES) of this Agreement presently reads as follows: "All costs, fees and expenses incurred in connection with the Merger, this Agreement (including all instruments and agreements prepared and delivered in connection herewith), and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses; provided that, the Company shall cause all of its fees and expenses to be paid prior to the Merger, and shall cause it's principal creditors (including, without limitation, its investment bankers, attorneys and accountants) in respect of transaction costs to confirm to Parent immediately prior to the Effective Time that all such fees and expenses are paid and none are unbilled. In further explication of the preceding sentence, but without limiting the same, all costs, fees and expenses (including, but not limited to, legal and accounting fees) incurred by the Company in connection with the Proxy/Information Statement shall be paid by the Company; provided, that the parties acknowledge and agree that the Parent shall take the lead in preparing the Form S-4, and the Parent shall pay its legal and accounting expenses in connection with the Form S-4 and the Resale Prospectus." The second sentence of Section 6.7 of the Agreement shall be deleted in its entirety and replaced with the following: "In further explication of the preceding sentence, but without limiting the same, all costs, fees and expenses (including, but not limited to, legal and accounting fees) incurred by the Company in connection with the Proxy Statement and the PPM shall be paid by the Company, and the Company shall take the lead in preparing the Proxy Statement, provided, that the parties acknowledge and agree that Parent shall take the lead in preparing the PPM, and Parent shall pay the legal and accounting expenses that Parent incurs in connection with the PPM and the Proxy Statement." ARTICLE 27. Section 6.9(b) (CORPORATE GOVERNANCE OF PARENT) presently reads as follows: "At the Effective Time, (i) Parent's directors not continued in office as hereinafter provided shall resign, (ii) the board shall be increased from five to seven directors, and (iii) the seven seats initially shall be filled by vote of the Parent's directors continuing in office to fill the vacancies so created, as follows: the Chairman and CEO shall be Christopher Every, three directors (at least two (2) of whom shall be independent) shall be appointed by Parent with the consent of Company, not to be unreasonably withheld, and three directors (at least two (2) of whom shall be independent) shall be appointed by the Company with the consent of Parent, not to be unreasonably withheld, to serve in accordance with Parent's articles of incorporation and by-laws." -12- Section 6.9(b) of the Agreement shall be deleted in its entirety and replaced as follows: "At the Effective Time, if it has not already done so, Parent shall take such actions, to cause the number of directors comprising the Parent's Board of Directors to be increased to seven (7) directors effective as of the Effective Time. Of the individuals comprising those seven (7) directors as of the Effective Time, (i) one of the directors of Parent shall be Christopher Every, the Chairman and CEO, (ii) three (3) of those directors shall be such individuals as shall have been elected by Parent's shareholders or by Parent's Board of Directors to fill vacancies created on Parent's Board of Directors, provided that at least two (2) of such three (3) shall be independent, and (iii) three directors (at least two (2) of whom shall be independent) shall be nominees designated by the Company's Board of Directors prior to the Effective Time and appointed by Parent's Board of Directors to fill vacancies on Parent's Board of Directors effective as of the Effective Time. All such directors shall serve in accordance with Parent's articles of incorporation and by-laws." ARTICLE 28. Section 6.10 (AGREEMENTS WITH HOLDERS OF COMPANY SECURITIES) presently reads as follows: "AGREEMENTS WITH HOLDERS OF COMPANY SECURITIES. The Company shall use its reasonable best efforts to obtain and deliver to Parent not later than 30 days after the date hereof a written agreement, reasonably acceptable to Parent in form and in substance, of all persons who are (or may deemed to be) "affiliates" of the Company for purposes of Rule 145 under the Securities Act (each of whom shall be so identified in Section 6.10 of the Company Disclosure Schedule). Notwithstanding any other provision of this Agreement, any person whatsoever who shall not have executed and delivered to Parent a written agreement reasonably acceptable to Parent in form and substance as provided in this Section 6.10 shall not be entitled to have the Merger Consideration issued in the Merger to such person covered by (and shall not be entitled to be included as a "selling stockholder" in) the Resale Prospectus. The written agreement shall include, without limitation, provisions setting forth the restrictions under the Initial Lock-Up Period and the Lock-Up Period, customary stockholder information for inclusion of shares in the Resale Prospectus, and customary agreements and indemnifications by such stockholders in connection with the Resale Prospectus. Promptly after the expiration of such 30-day period, the Company shall cause to be delivered to each affiliate that shall not so execute such written agreement as provided in this Section 6.10 a statement disclosing that the shares of Parent Common Stock or other Merger Consideration (including, without limitation, securities issuable to holders of Company Options, Company Warrants, and Company Convertible Promissory Notes) to be issued to such person are subject to transfer restrictions under each of Rule 145 and Rule 144 under the Securities Act and, therefore, may not be sold, transferred or otherwise disposed of except pursuant to an effective registration statement under, or in accordance with an available exemption from the registration and prospectus delivery requirements of, the Securities Act, and that the certificates evidencing such shares of Parent Common Stock or other Parent securities, if applicable, shall bear appropriate restrictive legends and stop transfer orders shall be maintained by the Parent's transfer agent in respect of such shares." -13- Section 6.10 shall be deleted in its entirety and replaced with the following: "AGREEMENTS WITH HOLDERS OF COMPANY SECURITIES. The Company shall use its reasonable best efforts to obtain and deliver to Parent not later than 30 days after the date hereof a written agreement, reasonably acceptable to Parent in form and in substance, of all persons who are (or may deemed to be) "affiliates" of the Company for purposes of Rule 145 under the Securities Act (each of whom shall be so identified in Section 6.10 of the Company Disclosure Schedule). Promptly after the expiration of such 30-day period, the Company shall cause to be delivered to each affiliate that shall not so execute such written agreement as provided in this Section 6.10 a statement disclosing that the shares of Parent Common Stock or other Merger Consideration (including, without limitation, securities issuable to holders of Company Options, Company Warrants, and Company Convertible Promissory Notes) to be issued to such person are subject to transfer restrictions under each of Rule 145 and Rule 144 under the Securities Act and, therefore, may not be sold, transferred or otherwise disposed of except pursuant to an effective registration statement under, or in accordance with an available exemption from the registration and prospectus delivery requirements of, the Securities Act, and that the certificates evidencing such shares of Parent Common Stock or other Parent securities, if applicable, shall bear appropriate restrictive legends and stop transfer orders shall be maintained by the Parent's transfer agent in respect of such shares." ARTICLE 29. Section 6.16(a) (CONTINGENT FEE SHARES) of the Agreement shall be amended by deleting the reference to "233,807 shares of Parent Common Stock" and substituting therefor "234,171 shares of Parent Common Stock". ARTICLE 30. A new Section 6.17 (APPLICATION TO LIST MERGER CONSIDERATION SHARES ON THE AMERICAN STOCK EXCHANGE) shall be added to the Agreement as follows: "SECTION 6.17 APPLICATION TO LIST MERGER CONSIDERATION SHARES ON THE AMERICAN STOCK EXCHANGE. Parent will use its commercially reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable in order to effectuate the listing of the shares of Common Stock constituting the Merger Consideration on the American Stock Exchange as soon as practicable after the Effective Time of the Merger; provided that the foregoing shall not require Parent to take any action or agree to any condition or incur any expense or liability that might, in the reasonable judgment of Parent, have a material adverse effect on Parent or its shareholders, or that, in the reasonable exercise of the fiduciary responsibilities of Parent's Board of Directors (as constituted subsequent to the Merger), is deemed by them to not be in the best interests of Parent or its shareholders." ARTICLE 31. A new Section 6.18 (REGISTRATION OF PARENT OUTSTANDING WARRANTS) shall be added to the Agreement as follows: -14- "SECTION 6.18. REGISTRATION OF PARENT OUTSTANDING WARRANTS. (a) With respect to the shares of Parent Common Stock issuable upon the exercise by Bioaccelerate, Inc. of warrants to purchase Parent Common Stock issued to Bioaccelerate, Inc. prior to the date hereof, Parent shall file, no later than 180 days after the Effective Time, with the SEC a registration statement registering the shares of Parent Common Stock underlying such warrants. Parent will use its best efforts to have such registration statement become and remain continuously effective under the Securities Act and, if the Company is then listed on a national stock exchange, file with such exchange a listing application and use its best efforts to have such shares admitted to trading thereon upon exercise of such warrants. (b) Prior to the Effective Time, Parent shall obtain and deliver to Company a written agreement, reasonably satisfactory to Company in form and substance, from Bioaccelerate, Inc. agreeing that all shares of Parent Common Stock received after the Effective Time upon exercise of warrants held by Bioaccelerate, Inc., other than 1,500,000 shares of Parent Common Stock, will be subject to the lock-up provisions set forth in Section 2.1(j) during the Lock-Up Period." ARTICLE 32. Section 7.1 (d) (CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER) which pertains to the Form S-4, shall be deleted in its entirety and replaced with the following: "(D) Registration Rights Agreement. The parties each shall have executed and delivered to the other the Registration Rights Agreement substantially in the form of Exhibit A to this Agreement." ARTICLE 32. Section 7.1(e) (STOCK EXCHANGE LISTING) shall be deleted in its entirety and replaced with the following: "Parent shall have endeavored to cause the shares of Common Stock issuable to the Company's shareholders pursuant to this Agreement to meet all requirements for listing on the AMEX other than any requirement of a minimum market price of Enhance's Common Stock, and shall have filed an application for listing on the AMEX. However, the parties acknowledge and agree that Parent may not have satisfied all such requirements prior to closing (including, without limitation, election of sufficient independent directors and Board committee members prior to the Effective Time), and satisfaction of all listing requirements is not a condition of closing." [Remainder of page intentionally left blank.] -15- IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused this Amendment to be signed by their respective officers thereunto duly authorized, all as of the date first written above. ENHANCE BIOTECH, INC. By /s/ Christopher Every -------------------------------- Christopher Every President and CEO ARDENT ACQUISITION CORP. By /s/ Christopher Every -------------------------------- Christopher Every President and CEO ARDENT PHARMACEUTICALS, INC. By /s/ Kwen-Jen Chang -------------------------------- Kwen-Jen Chang President and CEO EXHIBIT B LOCK-UP PERIOD LEGEND The shares represented by this Certificate are subject to restrictions on transfer until ___________, 2005 (one year from the date of the consummation of the transactions contemplated by that certain Merger Agreement dated August 11, 2004, as amended (the "Merger Agreement"), among the Company, Ardent Acquisition Corp., and Ardent Pharmaceuticals, Inc.) as set forth in Section 2.1(j) of the Merger Agreement. Copies of the Merger Agreement are maintained and are available for inspection at the principal office of the Company. EX-10.3 4 v010415_ex10-3.txt EXHIBIT 10.3 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of December ___, 2004, is entered into by and among ENHANCE BIOTECH, INC., a Delaware corporation ("Parent"), ARDENT ACQUISITION CORP., a North Carolina corporation and wholly owned subsidiary of Parent ("Merger Sub") and ARDENT PHARMACEUTICALS, INC., a North Carolina corporation ("Ardent"). W I T N E S S E T H: WHEREAS, Parent, Merger Sub and Ardent have entered into that certain Merger Agreement dated August 11, 2004, as amended as of November 20, 2004 (the "Merger Agreement"), pursuant to which Parent and Ardent have consummated a business combination whereby Merger Sub merged with and into Ardent and each outstanding security of Ardent was converted into the right to receive the Merger Consideration; WHEREAS, in connection with the conversion of Ardent securities into the Merger Consideration, Parent has agreed to provide certain registration rights pursuant to the terms of this Agreement; NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Merger Agreement shall have the meaning ascribed to such terms in the Merger Agreement. As used in this Agreement the following terms shall have the following meanings: 1.1 "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 1.2 "Common Stock" shall mean shares of Parent's common stock, par value $0.001 per share. 1.3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute enacted hereafter, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 1.4 "Filing Date" shall mean the date which is the earlier of the following: (x) as soon as practicable after consummation of a Qualified Financing; or (y) the date which is not more than the 150th day following the Effective Date of the Merger. 1.5 "Form SB-2" means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the Commission which permits inclusion or incorporation of substantial information by reference to other documents filed by Parent with the Commission. 1.6 "Holder" shall mean any security holder of Ardent to whom Registrable Securities are issued pursuant to the Merger Agreement. 1.7 "Person" shall mean any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. 1.8 "Prospectus" shall mean the prospectus included in the Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 1.9 "Qualified Financing" means an equity financing by Parent of at least $10,000,000 with a minimum valuation of at least $1.50 per share of Common Stock. 1.10 "Registration Statement" shall mean the registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 1.11 "Registrable Securities" shall mean for each Holder, up to 30,000 shares of Common Stock issued to such Holder pursuant to the Merger Agreement at the Effective Time; provided, however, that the shares of Common Stock reserved pursuant to the Merger Agreement for issuance upon exercise or conversion of Ardent stock options, warrants and convertible promissory notes shall not be deemed "Registrable Securities" if such stock options and warrants were not exercised prior to or at the Effective Time or if such convertible promissory notes were not converted prior to or at the Effective Time; provided, however, that the term "Registrable Securities" shall not include (i) any shares of Common Stock that have been registered and sold pursuant to a registration, or (ii) any shares of Common Stock that have been sold, or could then be sold within any three (3) month period, pursuant to Rule 144 promulgated under the Securities Act. 1.12 "Registration Expenses" shall mean all of Parent's expenses relating to Parent's compliance with Sections 2 and 3 hereof, including, without limitation, all SEC and "blue sky" registration and filing fees, printing expenses, fees for listing on any national exchange on which Parent may list the Registrable Shares, any transfer taxes applicable to the initial issuance of Registrable Securities to each Holder, fees of any transfer agents and registrars, fees and disbursements of Parent's counsel and independent public accountants for -19- Parent, including expenses incurred by Parent in connection with any special audits incidental to or required by such registration. The term "Registration Expenses" shall not include any of the following, which are sometimes hereinafter referred to as "Individual Holder Expenses": underwriting fees, discounts and expenses, if any, applicable to any Holder's Registrable Securities; fees and disbursements of counsel or other professionals that any Holder may choose to retain in connection with the registration statement filed pursuant to this Agreement; selling commissions or stock transfer taxes applicable to the Registrable Securities registered on behalf of any Holder; any other expenses incurred by or on behalf of such Holder in connection with the offer and sale of such Holder's Registrable Securities other than Registration Expenses. 1.13 "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute enacted hereafter, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 2. Registration. On or prior to the Filing Date, Parent shall prepare and file with the Commission a registration statement on Form SB-2 (or, if such form is unavailable for such a registration, on such other form as is available to Parent for such a registration), covering the resale of all of the Registrable Securities. Parent shall use its commercially reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as practicable on or after the 180th day following the Effective Date of the Merger. Parent shall use its commercially reasonable best efforts to keep the Registration Statement continuously effective under the Securities Act during the period from the Effective Date of the Merger until the first anniversary of the Effective Date of the Merger (the "Effective Period"). 3. Registration Procedures; Condition to Parent's Obligations. 3.1 Parent will keep each Holder advised in writing as to the initiation of the Registration Statement and as to the completion thereof and will, at its expense: (a) use its commercially reasonable best efforts to keep such registration effective for the Effective Period; (b) Prepare and file with the Commission such amendments and supplements to the Registration Statement and the Prospectus as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement; (c) Furnish such number of Prospectuses and other documents incident thereto, including any amendment of or supplement to the Prospectus, as a Holder from time to time may reasonably request, but only while the Company shall be required under the provisions hereof to cause the registration statement to remain current; (d) Notify each Holder of Registrable Securities covered by the Registration Statement 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 at the request of any such Holder, prepare and furnish to such Holder a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such Prospectus shall 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; -20- (e) Use its best efforts to cause all Registrable Securities covered by such Registration Statement to be registered with or approved by such other federal or state governmental agencies or authorities as may be necessary in the opinion of counsel to Parent and counsel to the Holders of Registrable Securities to enable the Holders thereof to consummate the disposition of such Registrable Securities (provided, however, that Parent shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified), and maintain any such registration or qualification current until the earlier of the sale of the Registrable Securities so registered or until the expiration of the Effective Period; (f) List all such Registrable Securities registered in such registration on each securities exchange or automated quotation system on which the Common Stock of Parent is then listed; (g) Provide a transfer agent and registrar for all Registrable Securities and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (h) Prior to filing the registration statement covering the Registrable Securities, make available for inspection at Parent's corporate office in New York, New York upon reasonable request by any Holder of Registrable Securities, any attorney, accountant or other agent retained by any of the Holders, during normal business hours of Parent and without unreasonable disruption of Parent's business or unreasonable expense to Parent and solely for the purpose of due diligence with respect to the registration statement, all publicly available, non-confidential financial and other records, including without limitation pertinent corporate documents of Parent, and cause Parent's officers, directors and employees to supply, at the requesting parties expense and without unreasonable disruption of Parent's business or unreasonable expense to parent and solely for the purpose of due diligence with respect to the registration statement, all publicly available, non-confidential information reasonably requested by the attorney, accountant or other agent of any of the Holders; 3.2 It shall be a condition precedent to the obligations of Parent to take any action pursuant to this Agreement that each of the Holders whose Registrable Securities are to be registered pursuant to this Agreement shall furnish the following to Parent prior to performance by Parent of its obligations under this Agreement: (a) written evidence reasonably satisfactory to Parent of each such Holder's agreement to be bound by this Agreement; -21- (b) information regarding each such Holder, the Registrable Securities held by such Holder, and any additional information as Parent shall reasonably request and as shall be required in connection with the action to be taken by Parent; (c) written evidence reasonably satisfactory to Parent of each such Holder's agreement to provide customary indemnifications to Parent in respect of information furnished by or on behalf of each Holder or actions taken or omitted by each Holder (as consistent with the indemnification provisions of this Agreement), and to pay the Individual Holder Expenses incurred by or on behalf of each Holder which are not Registration Expenses required to be paid by Parent hereunder, and to customary blackout periods in the event of material corporate developments affecting Parent or its securities; and (d) written evidence reasonably satisfactory to Parent of each Holder's agreement that upon receipt of any written notice by Parent to discontinue use of the registration statement or any prospectus or related document until the same are supplemented or amended, that Holder will so refrain and, if so directed by Parent, will deliver to Parent all copies, other than permanent file copies, then in Holder's possession of such documents at the time of receipt of such notice. Furthermore, each Holder shall agree that if such Holder uses a prospectus in connection with the offering and sale of any of the Registrable Securities, the Holder will use only the latest version of such prospectus provided by Parent. 4. Expenses. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 2 and 3 of this Agreement shall be borne by Parent. 5. Indemnification. 5.1 Indemnification by Parent. To the full extent permitted by law, Parent will indemnify each Holder, each of its officers, directors and employees, and each person controlling a Holder within the meaning of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement against all claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on 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, or any violation by Parent of the Securities Act or any rule or regulation thereunder applicable to Parent and relating to action or inaction required of Parent in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each person controlling such Holder for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action, provided that Parent will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission made in reliance upon and based upon written information furnished to Parent by or on behalf of such Holder for use therein. -22- 5.2 Indemnification by the Holders. Each Holder will, to the extent Registrable Securities held by him or it are included in the Registration Statement, indemnify Parent, each of its directors, officers and employees and each other person, if any, who controls Parent within the meaning of the Securities Act, against all claims, losses, damages, expenses and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement, Prospectus, offering circular or other document, or 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, or any violation by such Holder of the Securities Act or any rule or regulation thereunder applicable to such Holder and relating to action or inaction required of such Holder in connection with any such registration, qualification or compliance, and will reimburse Parent, each of its directors, officers and employees and each other person for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case with respect to any such alleged or actual untrue statement of a material fact or alleged or actual omission to state a material fact to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement, Prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to Parent by such Holder for use therein. 5.3 Notices of Claims, Procedures, etc. Each party entitled to indemnification under this Section 5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that the Indemnified Party may participate in such defense at the Indemnified Party's sole expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 5 unless such failure is prejudicial to the ability of Indemnifying Party to defend such claim or action. Notwithstanding the foregoing, such Indemnified Party shall have the right to employ its own counsel in any such litigation, proceeding or other action if (i) the employment of such counsel has been authorized by the Indemnifying Party, in its sole and absolute discretion, or (ii) the named parties in any such claims (including any impleaded parties) include any such Indemnified Party and the Indemnified Party and the Indemnifying Party shall have been advised in writing (in suitable detail) by counsel to the Indemnified Party either (A) that there may be one or more legal defenses available to such Indemnified Party which are different from or additional to those available to the Indemnifying Party, or (B) that there is a conflict of interest by virtue of the Indemnified Party and the Indemnifying Parties having common counsel, in any of which events, the reasonable legal fees and expenses of a single counsel for all Indemnified Parties with respect to each such claim, defense thereof, or counterclaims thereto shall be borne by Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, which consent shall not be unreasonably withheld, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall cooperate to the extent reasonably required and furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. -23- 5.4 Contribution. If the indemnification provided for in this Section 5 shall for any reason be held by a court to be unenforceable as a matter of public policy with respect to an Indemnified Party in respect of any loss, claim, damage, expense or liability, or any action in respect thereof, then, in lieu of the amount paid or payable under Section 5.1 or Section 5.2, the Indemnified Party and the Indemnifying Party under Section 5.1 or Section 5.2 shall contribute to the aggregate losses, claims, damages, expenses and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (a) in such proportion as is appropriate to reflect the relative fault of the Indemnified Party and Indemnifying Party covered by the registration statement which resulted in such loss, claim, damage, expense or liability, or action or proceeding in respect thereof, with respect to the statements or omissions which resulted in such loss, claim, damage, expense or liability, or action or proceeding in respect thereof, as well as any other relevant equitable considerations or (b) if the allocation provided by clause (a) above is not permitted by applicable law, in such proportion as shall be appropriate to reflect the relative benefits received by the Indemnified Party and Indemnifying Party from the offering of the securities covered by such registration statement; provided, that for purposes of this clause (b), the relative benefits received by the prospective sellers shall be deemed not to exceed the amount of proceeds received by such prospective sellers. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Such prospective sellers' obligations to contribute as provided in this Section 5.4 are several in proportion to the relative value of their respective Registrable Securities covered by such registration statement and not joint. In addition, no person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such person's consent, which consent shall not be unreasonably withheld. 6. [INTENTIONALLY OMITTED] 7. Exchange Act Compliance. While Parent is subject to the reporting requirements of the Exchange Act, Parent shall make commercially reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder, and to take all actions reasonably necessary to enable Holders of Registrable Securities to sell such securities without registration under the Securities Act within the limitation of the provisions of (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, (b) Rule 144A under the Securities Act, as such Rule may be amended from time to time, if applicable or (c) any similar rules or regulations hereunder adopted by the Commission. Upon the request of any Holder of Registrable Securities, Parent will deliver to such holder a written statement as to whether it has complied with such requirements. 8. Specific Performance. The parties hereto acknowledge that there may be no adequate remedy at law if any party fails to perform any of its obligations hereunder and that each party may be irreparably harmed by any such failure, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to seek to compel specific performance of the obligations of any other party under this Agreement in accordance with the terms and conditions of this Agreement. -24- 9. No Registration Conflict. Parent has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that has not been fully satisfied other than registration rights granted in connection with warrants issued to Bioaccelerate, Inc. Parent shall not after the date hereof enter into any agreement granting registration rights with respect to any of its securities outstanding on the date hereof, except (i) pursuant to the Merger Agreement, (ii) registration rights for Parent's existing shareholders who do not have freely tradable shares on the date hereof as contemplated by Section 2.1(j) of the Merger Agreement, or (iii) as may be determined by Parent's Board of Directors (as constituted subsequent to the Merger) in the exercise of their fiduciary responsibilities. 10. Benefits of Agreement; Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder and each Holder shall be an intended third party beneficiary under this Agreement. Neither Parent nor any Holder may assign its rights or obligations hereunder. 11. Complete Agreement. This Agreement constitutes the complete understanding among the parties with respect to its subject matter and supersedes all existing agreements and understandings, whether oral or written, among them. No alteration or modification of any provisions of this Agreement shall be valid unless made in writing and signed, on the one hand, by the Holders of a majority of the Registrable Securities then outstanding and, on the other, by Parent. 12. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13. Notices. All notices, offers, acceptances and other communications required or permitted to be given or to otherwise be made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument delivered by hand, first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, if to Parent, at 712 Fifth Avenue, New York, New York, 10019, Attention: Andrew J. Cosentino, and if to any Holder, at the address of such Holder as set forth in the stock transfer books of Parent. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the United States mail, First Class postage prepaid, if mailed; when receipt acknowledged, if telecopied (or on the next succeeding business day if such date is not a business day; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. For purposes of this paragraph, a "business day" shall mean any day which is not a Saturday, Sunday, or public holiday or a day on which commercial banks are required or authorized by law to close in New York, New York. Any party may change the address to which each such notice or communication shall be sent by giving written notice to tie other parties of such new address in the manner provided herein for giving notice. -25- 14. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware without giving effect to the provisions, policies or principles thereof respecting conflict or choice of laws. 15. Counterparts. This Agreement may be executed in one or more counterparts each of which shall be deemed an original but all of which taken together shall constitute one and the same agreement. A facsimile copy of a signature page shall be deemed to be an original signature page. 16. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. [Remainder of page intentionally left blank.] -26- IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first set forth above. ENHANCE BIOTECH, INC. By /s/ Christopher Every -------------------------------- Name: Christopher Every Title: President and CEO ARDENT ACQUISITION CORP. By /s/ Christopher Every -------------------------------- Name: Christopher Every Title: President and CEO ARDENT PHARMACEUTICALS, INC. By /s/ Kwen-Jen Chang -------------------------------- Name: Kwen-Jen Chang Title: President and CEO EX-10.4 5 v010415_ex10-4.txt EXHIBIT 10.4 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of December 20, 2004 (the "Effective Date"), between ENHANCE BIOTECH, INC., a corporation organized under the laws of the State of Delaware ("Employer"), and Christopher Every ("Executive"). WHEREAS, Executive desires to provide services to Employer and Employer desires to retain the services of Executive; WHEREAS, Employer and Executive desire to formalize the terms and conditions of Executive's employment with Employer. NOW, THEREFORE, Employer and Executive hereby agree as follows: 1. Employment. 1.1. General. 1.1.1 Effective as of the Effective Date, Employer hereby employs Executive in the capacity of President and Chief Executive Officer. Executive hereby accepts such employment upon the terms and subject to the conditions herein contained. Commencing on the Effective Date, Executive shall have the duties set forth on Schedule 1 attached hereto. Executive agrees to perform the foregoing duties and responsibilities as well as such other duties as may be requested by the Board of Directors of Employer (the "Board of Directors"). 1.1.2 During Executive's employment with Employer, Executive will report directly to, and take direction from, the Board of Directors. 1.2. Board of Directors. For so long as Executive is serving as the President and Chief Executive Officer of Employer, Executive agrees, if so requested by Employer, to serve as a member of Board of Directors without additional compensation. 1.3. Exclusive Full-Time Position. Executive, during Executive's employment with Employer, will devote Executive's best efforts and all of Executive's business time, attention and skills to the business and affairs of Employer, it being understood that Executive shall not be employed by or provide services to any other person or entity during Executive's employment with Employer, provided that Executive may also serve as a member of the board of directors or as an officer of Bioaccelerate, Inc. or its affiliates if so requested by Bioaccelerate, Inc. Notwithstanding the foregoing, Executive shall be permitted to (i) serve as a member of the board of unaffiliated companies but only if such service is with the prior written consent of the Board of Directors, which consent may be withheld in the sole discretion of the Board of Directors; (ii) serve on civic, professional or charitable boards or committees, and (iii) manage personal investments; provided, however, that Executive may not engage in any of the activities described in this sentence to the extent such activities (x) prevent Executive from devoting substantially all of Executive's business time to Employer, (y) adversely affect the performance of Executive's duties and responsibilities to Employer or (z) violate any other provision of this Agreement. -27- 1.4. Location of Employment. Executive's principal place of employment during Executive's employment with Employer shall be 20 The Crofters, Streathem, Ely, Cambridgeshire CB6 3NF U.K. or such other location as Employer and Executive shall agree. Executive acknowledges that the proper performance of Executive's duties may require travel and Executive agrees to engage in such travel as may be required during Executive's employment. 2. Compensation and Benefits. 2.1. Salary. During the period of Executive's employment pursuant to this Agreement, Employer will pay to Executive a base salary ("Base Salary") at an annual rate of Two Hundred Twenty Five Thousand Dollars ($225,000), payable in accordance with the customary payroll practices of Employer. Executive's Base Salary shall be reviewed in accordance with the policy of Employer from time to time, but in any event no less than annually, and may be subject to upward adjustment based upon, among other factors, Executive's performance, as determined in the sole discretion of the Board of Directors. In no event shall Executive's Base Salary in effect at a particular time be reduced without Executive's prior written consent. 2.2. Additional Compensation. The compensation set forth in this Section is in addition to the Base Salary and other benefits set forth in Section 2. 2.2.1 Annual Bonus. (a) Executive shall be eligible for and the Board of Directors may, in its sole discretion, award Executive a bonus (the "Annual Bonus") based upon the attainment of performance targets and other reasonable criteria established by the Board of Directors. The Annual Bonus shall be paid to Executive at the same time it is paid to other eligible employees. Except as specifically set forth in this Agreement, Executive must be employed on the date the bonus is paid in order to earn the Annual Bonus. (b) In addition to the discretionary bonus set forth in Section 2.2.1(a) above, Executive shall receive a stock bonus in an amount equal to Thirty Five Thousand Dollars ($35,000) on each of the first, second and third anniversaries of the Effective Date which shares shall be registered pursuant to a Registration Statement on Form S-8 which shall be filed with the Securities Exchange Commission. 2 2.2.2 Stock Options. As additional consideration for Executive's performance of services hereunder, upon the Effective Date, Employer shall issue to Executive, pursuant to Employer's 2004 Incentive Plan, options (the "Options") to purchase 1.4 Million shares of Employer's common stock, $0.001 par value per share. It is intended that the maximum amount of these Options as permitted under law qualify as an "incentive stock option" under Section 422 of the Code, and to the extent that all or any portion of the Options do not so qualify, the Options shall be treated as non-qualified options. The Options shall have a per share exercise price equal to not less than the fair market value on the date of grant and shall expire on a date to be established by the Board of Directors or the applicable committee administering the Employer's 2004 Incentive Plan, but no later than the tenth anniversary of the Effective Date. The Options are subject to the following vesting schedule; provided, however, that Executive must be an employee of Employer on the applicable vesting date in order for such Options to vest: 25% of the Options shall vest on the date of grant and 25% of the Options shall vest on each of the first, second and third anniversaries of the date of grant. 2.3. Executive Benefits. In addition to the Base Salary and additional compensation set forth in Section 2, Executive shall also be entitled to the following benefits during Executive's employment hereunder: 2.3.1. Expenses. Employer shall, subject to Employer's expense reimbursement policies as established or amended from time to time, promptly reimburse Executive for expenses Executive reasonably incurs in connection with the performance of Executive's duties (including, without limitation, reimbursement for professional society membership fees and fees to attend meetings of such professional societies, business travel and entertainment expenses); provided, that Executive has provided Employer with documentation of such expenses in accordance with Employer's expense reimbursement policies and applicable tax requirements. 2.3.2. Employer Plans. Executive will be entitled to participate in the employee benefit plans and programs generally provided to employees by Employer from time to time, including, but not limited to, participation in any 401(k), life insurance, health and accident, medical and dental, disability and retirement plans and programs, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and programs. Employer retains the unilateral right to amend, modify or terminate any of its employee benefit plans and programs at any time. 2.3.3. Vacation. Executive shall be entitled to twenty (20) working days of paid vacation leave per year. Vacation must be scheduled at those times most convenient to Employer's business as reasonably determined by the Board of Directors. 2.3.4. Coverage. Nothing in this Agreement shall prevent Executive from participating in any other compensation plan or benefit plan made available to Executive by Employer. 3 2.3.5. Life/Key Man Insurance. Providing Executive is insurable at commercially reasonable rates, Employer shall obtain term life insurance on the life of Executive in the amount of at least $500,000, at Employer's expense, and Executive may name the beneficiary of the policy. Employer shall have the right, but not the obligation, to obtain key man life insurance on the life of employee at Employer's expense, in reasonable amounts, but not less than the amounts set forth in the preceding sentence. 2.4. Taxes and Withholding. Employer shall have the right to deduct and withhold from all compensation payable to Executive all Medicare, social security, and other federal, state and local taxes and charges which currently are or hereafter may be required by law to be so deducted or withheld. 2.5. Employment Term. Executive's employment by Employer pursuant to this Agreement shall commence as of the Effective Date and, except as provided in Section 3.1 hereof, will continue at-will until the third anniversary of the Effective Date. On the third anniversary of the Effective Date this Agreement shall terminate and, unless Executive and the Employer enter into a new employment agreement, Executive shall thereafter be an employee at-will subject to the general employment policies and practices of the Employer. 3. Termination of Employment. 3.1. Events of Termination. Executive's employment with Employer will terminate upon the occurrence of any one or more of the following events: 3.1.1. Death. In the event of Executive's death, Executive's employment will terminate on the date of death. 3.1.2. Disability. In the event of Executive's Disability (as hereinafter defined), Employer will have the option to terminate Executive's employment by giving a written notice of such termination to Executive. For purposes of this Agreement, "Disability" means Executive's inability as a result of a physical or mental illness to perform Executive's duties which has continued or is expected to continue for an aggregate of 90 days (not including permitted vacation days and holidays) during any consecutive 365 day period, as determined in good faith by the Board of Directors upon the advice of an independent physician. 3.1.3. Termination by Employer for Cause. Employer may, at it's option, terminate Executive's employment for "Cause" upon giving written notice of such termination to Executive. As used in this Agreement, the term "Cause" shall include but not necessarily be limited to (i) conviction of, or plea of nolo contendere to, a felony or a crime involving moral turpitude; (ii) engagement in conduct which has the effect of bringing disrepute to the Employer's reputation or hold the Employer or the Executive up to public ridicule; (iii) fraud on or misappropriation of any funds or property of the Employer, any affiliate, customer or vendor; (iv) willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses); (v) personal dishonesty, willful misconduct, or breach of fiduciary duty which involves personal profit; (vi) gross incompetence in the performance of the Executive's duties under this Agreement; (vii) willful misconduct in 4 connection with the Executive's duties or willful failure to perform the Executive's responsibilities in the best interests of the Employer; (vii) habitual absenteeism or inattention to the Executive's duties; (ix) chronic use of alcohol, drugs or other similar substances (other than pursuant to medical prescriptions and under doctors' supervision for treatment of legitimate illnesses or conditions) which affects the Executive's work performance; (x) violation of any Employer rule, regulation, procedure or policy which has, or may reasonably be expected to have, a material adverse effect on the Employer; (xi) engaging in behavior that would constitute grounds for liability for harassment (as proscribed by the U.S. Equal Employment Opportunity Commission Guidelines or any other applicable state or local regulatory body) or other egregious conduct that violates laws governing the workplace; or (xii) material breach of any material provision of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement executed by the Executive for the benefit of the Employer (including, without limitation, such provisions within this Agreement) or of any material Employer policy, all as determined by the Board of Directors, which determination will be conclusive. Notwithstanding anything to the contrary, employment may not be terminated for Cause in the event that the Executive becomes permanently disabled as set forth in this Agreement or dies. Anything herein to the contrary notwithstanding, the Employer shall give the Executive written notice prior to terminating the Executive's employment for Cause under any circumstance in which the conduct constituting Cause is reasonably open to cure (for instance, by way of illustration only, where the Cause does not involve a violation of trust or otherwise adversely affect the relationship between the Executive and the Employer on a going-forward basis or involve commission of an act, such as a felony, or an unauthorized disclosure of confidential material, or an act which may constitute illegal harassment under laws governing the workplace, which can't be undone), setting forth in reasonable detail the nature of any alleged breach and the conduct required to cure such breach. If, and only if, the nature of the breach is such that the breach is reasonably open to cure, then the Executive shall have fourteen (14) days from the giving of such notice within which to cure such breach. 3.1.4. Without Cause By Employer. Employer may, at its option, terminate Executive's employment for any reason whatsoever (other than for the other reasons set forth above in this Section 3.1) by giving written notice of such termination to Executive, and Executive's employment shall terminate on the later of the date the written notice of such termination is given or the date set forth in such written notice. 3.1.5. For Good Reason by Executive. Executive may, at Executive's option, terminate Executive's employment for "Good Reason" by giving written notice of termination to Employer in the event that there is a failure of Employer (or successor employer) to promptly pay Executive's salary or additional compensation or benefits hereunder in accordance with this Agreement in any material respect. It shall also be considered Good Reason for termination by Executive if, in the event of a Change of Control (as defined below), any successor employer fails to fully assume Employer's obligations under this Agreement. For purposes, of this Agreement, a "Change of Control", shall mean (i) the dissolution or liquidation of Employer, or (ii) the consummation of any merger or consolidation of Employer other than in a transaction in which Employer is the surviving corporation or a majority of the board of directors of the surviving corporation were directors of Employer before such transaction or are designated by the former shareholders of Employer, or (iii) a sale or other disposition of all or substantially all of the then-outstanding capital stock of Employer or a sale or other disposition of all or substantially all of Employer's assets. Good Reason shall also include any requirement that Executive move his principal office to a location outside the Research Triangle area of North Carolina. 5 3.1.6. Without Good Reason By Executive. Executive may terminate Executive's employment for any reason (other than for Good Reason) by giving written notice of such termination to Employer. Executive's employment shall terminate on the earlier of (i) the date, following the date of the notice of termination, upon which a suitable replacement for Executive is found by Employer or upon which Employer makes a determination, in its sole discretion, that Executive's duties shall be undertaken by other employees of Employer, or (ii) sixty (60) days after the date of receipt by Employer of the written notice. 3.2. Certain Obligations of Employer Following Termination of Executive's Employment. Following the termination of Executive's employment under the circumstances described below, Employer will pay to Executive in accordance with its regular payroll practices the following compensation and provide the following benefits: 3.2.1. Death; Disability. In the event that Executive's employment is terminated by reason of Executive's death or Disability, Executive or Executive's estate, as the case may be, shall be entitled to the following: (i) that portion of any unpaid Base Salary up to and including the date of such termination and any accrued but unused vacation up to and including the date of such termination (the "Accrued Amount"); (ii) any accrued but unpaid Annual Bonus for any year prior to the year in which such termination occurred ("Prior Annual Bonuses"); (iii) any unreimbursed business expenses incurred prior to the date of such termination ("Expense Reimbursement"); (iv) all benefits generally available under the employee benefit plans, and the policies and practices of Employer, determined in accordance with the applicable terms and provisions of such plans, policies and practices, in each case, as accrued to the date of termination ("Accrued Benefits") or otherwise payable as a consequence of Executive's death or Disability; and (v) the right to exercise all options that are fully vested as of the date of such termination for the remainder of the term of such options as fully set forth in the applicable grant agreement. 3.2.2. Without Cause by Employer; For Good Reason by Executive. In the event that Executive's employment is terminated by Employer pursuant to Section 3.1.4 hereof or by Executive pursuant to Section 3.1.5 hereof, Executive shall be entitled to the following: 6 (i) continuing payments of then current Base Salary for the following period (each such period as applicable, the "Severance Period"): (a) if such termination occurs prior to the first anniversary of the Effective Date, for the period beginning on the date of such termination and ending on the second anniversary of the Effective Date, or (b) if such termination occurs on or after the first anniversary of the Effective Date, for the twelve (12) month period following such termination; and (ii) continuing coverage under Employer's employee benefit plans during the Severance Period or if earlier, until Executive is covered under the employee benefit plans of another employer; (iii) the Accrued Amount, Prior Annual Bonuses, Expense Reimbursement and Accrued Benefits; and (iv) any unvested portion of any options previously granted to Executive that is scheduled to vest during the Severance Period shall vest immediately as of the date of such termination and Executive shall have the right to exercise all options that are fully vested as of the date of such termination (including, those vested by acceleration on the date of such termination) for the remainder of the term of such options as fully set forth in the applicable grant agreement. 3.2.3. Termination by Executive Without Good Reason or by Employer for Cause. In the event Executive's employment is terminated by Executive pursuant to Section 3.1.6 or Section 3.1.7 hereof or by Employer pursuant to Section 3.1.3 hereof, Executive shall be entitled to the Accrued Amount, Expense Reimbursement and Accrued Benefits. 3.2.4. Termination on the Third Anniversary of the Effective Date. In the event Executive's employment is terminated upon the expiration of this Agreement on the third anniversary of the Effective Date, Executive shall not be entitled to any compensation, benefits or severance of any kind, except as required by law. 3.3. Nature of Payments. All amounts to be paid by Employer to Executive pursuant to this Section 3 are considered by the parties to be severance payments. In the event such payments are treated as damages, it is expressly acknowledged by the parties that damages to Executive for termination of employment would be difficult to ascertain and the above amounts are reasonable estimates thereof. 3.4. Release. Notwithstanding anything to the contrary, neither the Executive nor the Executive's estate shall be entitled to receive any compensation, reimbursement 7 or benefits upon termination of employment (other than as required by law) unless the Executive or the Executive's estate, as the case may be, executes and delivers to the Employer promptly after termination a written release, in form and substance reasonably satisfactory to the Employer, by which the Executive and the Executive's estate, as the case may be, releases the Employer from any obligations and liabilities of any type whatsoever related to Executive's employment under this Agreement, except for the Employer's obligations with respect to Section 3.2 of this Agreement, which release shall not affect the Executive's estate's right, if any, to indemnification with respect to, or insurance in respect of, any actions taken within the scope of the Executive's employment, or the Executive's or the Executive's estate's rights in respect of the Executive's vested securities. The parties hereto acknowledge that the compensation, reimbursement and benefits to be provided under Section 3.2 are to be provided in consideration for the above-specified release, as well as for Executive's agreement to be bound by the provisions of Section 3.5 and Section 4. 3.5. Other Provisions Applicable to Termination of Employment. (1) At any time after notice to terminate this Agreement has been served or received by the Employer, the Employer, without being deemed in breach of this Agreement or being deemed to be taken steps which would constitute grounds for a different kind of termination under this Agreement, may require the Executive to do the following during the applicable notice period concluding on the effective date of termination of employment under this Agreement: (i) work in a capacity consistent with the Executive's then applicable position and status other than that in which the Executive is employed under this Agreement but without affecting the Executive's fixed salary, including benefits; and (ii) remain away from work and, although the Executive will continue to receive the Executive's salary and benefits provided for under this Agreement during such period, and the Employer will not be obliged to provide the Executive with any work although the Employer may, in its absolute discretion, assign to the Executive during this period, from time to time, such appropriate tasks or projects as may be carried out by the Executive away from the Employer's offices. (2) Upon termination of the Executive's employment under this Agreement, the Executive shall do the following: (i) forthwith surrender to the Employer, in good condition and working order (ordinary wear and tear excepted), all Employer property in the Executive's possession including, without limitation, all books, papers and other documents (of whatever nature and in whatever media) belonging to the Employer or its subsidiary or associated company or relating to the business of the Employer or its subsidiary or associated companies; 8 (ii) if the Executive is a director of the Employer or of any subsidiary or associated company, or if the Executive is an officer of any subsidiary or any associated company, and is so requested by the Employer, resign as an officer or director, as the case may be, within forty-eight (48) hours of being so requested and, should the Executive fail to do so within forty-eight (48) hours of being so requested, the Executive irrevocably authorizes the Employer to appoint an agent in the Executive's name and on the Executive's behalf to execute and deliver any documents and to take any and all actions reasonably deemed by the Employer to be necessary or appropriate to give effect to such resignation(s) by the Executive; and (iii) immediately repay all outstanding debts or loans due to the Employer and/or any subsidiary or associated company, the Employer being expressly authorized, for purposes of clarity, to deduct the same from any wages of the Executive a sum in repayment of all or any part of any such debts or loans. 4. Confidentiality; Nonsolicitation; Non-Compete. 4.1. Confidential and Proprietary Information; Non-Solicitation. Executive's employment by Employer is subject to Executive executing the Proprietary Rights and Confidentiality Agreement annexed hereto as Schedule 2. Such agreement shall be deemed, upon execution, to be incorporated in and a part of this Agreement. 4.2. Executive acknowledges and agrees that (a) Employer will be irreparably injured in the event of a breach by Executive of any of Executive's obligations under Section 4.1; (b) monetary damages will not be an adequate remedy for any such breach; (c) in the event of any such breach Employer will be entitled to injunctive relief as a matter of right and without posting a bond or other security, in addition to any other remedy which it may have, and Executive shall not oppose such injunctive relief based upon the extent of the harm or the adequacy of monetary damages. 4.3. Non-competition and Non-solicitation. (a) The Executive agrees and acknowledges that, in connection with the Executive's employment with the Employer, the Executive will be provided with access to and become familiar with confidential and proprietary information and trade secrets belonging to the Employer. Executive further acknowledges and agrees that, given the nature of this information and trade secrets, it is likely that such information and trade secrets would inevitably be used or revealed, either directly or indirectly, in any subsequent employment with a competitor of the Employer in any position comparable to the position the Executive holds with the Employer under this Agreement. Accordingly, in consideration of the Executive's employment with the Employer pursuant to this Agreement, and other good and valuable consideration, the receipt of which is hereby acknowledged, Executive agrees that, while the Executive is in the employ of the Employer and for a period equal to the greater of the period during which the Executive receives any severance pursuant to this Agreement, if any, and Twelve (12) months after the termination of the Executive's employment, the Executive shall not, either on the Executive's own behalf or on behalf of any third party, except on behalf of the Employer or, with the prior written agreement of the Employer (not to be unreasonably withheld) or any affiliate of the Employer, directly or indirectly: 9 (1) Other than through the Executive's ownership of stock of the Employer, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control, or financing of, or be connected as a proprietor, partner, stockholder, officer, director, principal, agent, representative, joint venturer, investor, lender, consultant or otherwise with, or use or permit the Executive's name to be used in connection with, any business or enterprise engaged directly or indirectly in competition with the Business Conducted by the Employer (as hereinafter defined) at any time during such period, and any other business ("Other Business") engaged in by the Employer that Executive is or has been directly involved with during the Twelve (12) month period immediately preceding termination of the Executive's employment. As used in this Agreement, the term "Business Conducted by the Employer" shall mean the discovery, clinical or pre-clinical development, sale and/or manufacture of drugs or drug candidates that are known to be pharmacologically active at the delta and/or mu cell receptor(s), and the acquisition, licensing, development, manufacturing, marketing and distribution of drugs and treatments for such other conditions as the Employer is engaged in addressing during the Twelve (12) month period immediately preceding termination of the Executive's employment. The foregoing, however, shall not prevent Executive from performing services for a business engaged in the biotechnology or biopharmaceutical businesses generally which is not competitive with the Employer, or for a competitive business if such competitive business is also engaged in lines of business which do not compete with the Employer and if Executive's services are restricted to employment in such other lines of business. It is recognized by the Executive and the Employer that the Business Conducted by the Employer is and is expected to continue to be conducted throughout the United States and the world, and that more narrow geographical limitations of any nature on this non-competition covenant (and the non-solicitation provisions set forth in clauses (2) and (3) below) are therefore not appropriate. The foregoing restriction shall not be construed to prohibit the ownership by Executive as a passive investment of not more than one percent (1%) percent of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. (2) Attempt in any manner to solicit from a current client or customer of the Employer at the time of the Executive's termination, business of the type performed by the Employer or to persuade any client of the Employer to cease to do business or change the nature of the business or to reduce the amount of business which any such client has customarily done or actively contemplates doing with the Employer; or (3) Recruit, solicit or induce, or attempt to induce, any person or entity which, at the time of the termination of the Executive's employment or at any time during the Twelve (12) month period prior to such termination was an employee of the Employer or its affiliates, to terminate such employee's employment with, or otherwise cease such employee's relationship with the Employer or its affiliates. As used in this Agreement, an affiliate of the Employer is any person or entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Employer. 10 (b) The parties agree that the relevant public policy aspects of covenants not to compete have been discussed, and that every effort has been made to limit the restrictions placed upon the Executive to those that are reasonable and necessary to protect the Employer's legitimate interests. Executive acknowledges that, based upon the Executive's education, experience, and training, this non-compete provision will not prevent the Executive from earning a livelihood and supporting himself and the Executive's family during the relevant time period. (c) If any restriction set forth in Section 4.3 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or geographic area, it shall be interpreted to extend over the maximum period of time, range of activities or geographic areas as to which it may be enforceable. (d) The restrictions contained in 4.3 are necessary for the protection of the business and goodwill of the Employer and/or its affiliates and are considered by the Executive to be reasonable for such purposes. The Executive agrees that any material breach of Section 4.3 will cause the Employer and/or its affiliates substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Employer shall have the right to seek specific performance and injunctive relief. (e) The provisions of Section 4.3 shall survive termination or expiration of this Agreement. (f) EXECUTIVE HAS READ AND CAREFULLY CONSIDERED THE TERMS OF THIS AGREEMENT, HAS HAD THE OPPORTUNITY TO CONTACT EXECUTIVE'S OWN LEGAL COUNSEL TO ADVISE EXECUTIVE REGARDING THE TERMS OF THIS AGREEMENT, AND EXECUTIVE NOW AGREES THAT THE TERMS OF THIS AGREEMENT ARE FAIR AND REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTEREST OF THE EMPLOYER. EXECUTIVE FURTHER AGREES THAT THE RESTRICTIONS AND COVENANTS OF THIS AGREEMENT WILL NOT IMPAIR THE ABILITY OF EXECUTIVE TO SECURE EMPLOYMENT SO AS TO BE ABLE TO MAKE A REASONABLE LIVING. The provisions of this Agreement shall be enforceable notwithstanding the existence of any claim or cause of action of Executive against the Employer whether predicated on this Agreement or otherwise. Failure of the Employer to enforce at any time or for any period of time any of the conditions or covenants of this Agreement shall not be construed as a waiver of such provisions or of the right of the Employer to enforce subsequent breaches of the same or other conditions and covenants, unless such permanent waiver is provided to Executive in writing and signed by the President of the Employer or, if Executive is the President of the Employer, such writing is to be signed by the officer of the Employer designated for such purpose by the Board of Directors. (g) Notwithstanding anything herein which may be construed to the contrary, Executive shall be free to use and employ Executive's general skills, know-how and expertise, and to use, disclose and employ any generalized ideas, concepts, know-how, methods, techniques or skills gained or learned during the course of providing the services hereunder, so long as Executive acquires and applies this information without violating the terms of this Paragraph 4.3 or the Proprietary Rights and Confidentiality Agreement executed and delivered by the Executive to the Employer in connection herewith. 11 (h) The term of this non-competition covenant shall be tolled during any period of actual competition or breach of this Section 4.3 by the Executive and/or any period of litigation to enforce Executive's obligations under this Agreement. 5. Indemnification. Executive shall be covered by the Employer's directors and officers liability insurance policy, and errors and omissions coverage, to the same extent such coverage is generally provided by the Employer to its directors and officers and to the fullest extent permitted by such insurance policies. In addition, the Employer shall indemnify and hold Executive harmless from all liability to the fullest extent permitted by the Employer's bylaws and applicable law. 6. Miscellaneous Provisions. 6.1. Severability. If in any jurisdiction any term or provision hereof is determined to be invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, (b) any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and (c) the invalid or unenforceable term or provision shall, for purposes of such jurisdiction, be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 6.2. Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement (and all signatures need not appear on any one counterpart), and this Agreement shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. 6.3. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed duly given when delivered by hand, or when delivered if mailed by registered or certified mail, postage prepaid, return receipt requested, or private courier service or via facsimile (with written confirmation of receipt) as follows: If to Employer, to: Enhance Biotech, Inc. 712 Fifth Avenue New York, NY 10019 Attn: Board of Directors Copy to: Andrew J. Cosentino Enhance Biotech, Inc. 12 712 Fifth Avenue New York, NY 10019 Facsimile No.: (212) 581-1922 If to Executive, to: Christopher Every 20 The Crofters Stretham Ely Cambridgeshire CB6 3NF United Kingdom or to such other address(es) as a party hereto shall have designated by like notice to the other parties hereto. 6.4. Amendment. No provision of this Agreement may be modified, amended, waived or discharged in any manner except by a written instrument executed by Employer and Executive. No course of dealing between the parties to this Agreement shall be deemed to affect or to modify, amend or discharge any provision or term of this Agreement. 6.5. Entire Agreement. This Agreement and the Proprietary Rights and Confidentiality Agreement executed and delivered by the Executive to the Employer in connection herewith constitute the entire agreement of the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings of the parties hereto, oral or written, with respect to the subject matter hereof. No representation, promise or inducement has been made by either party that is not embodied in this Agreement or the Proprietary Rights and Confidentiality Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth. 6.6. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be wholly performed therein without regard to its conflicts or choice of law provisions. 6.7. Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement. 6.8. Binding Effect; Successors and Assigns. Executive may not delegate Executive's duties or assign Executive's rights hereunder. This Agreement will inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, and successors. Employer may assign this Agreement to any entity purchasing all or substantially all of the assets of Employer. 13 6.9. Waiver, etc. The failure of either of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Agreement or any provision hereof or the right of either of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party against whom or which enforcement of such waiver is sought, and no waiver of any such breach shall be construed or deemed to be a waiver of any other or subsequent breach. 6.10. Continuing Effect. Where the context of this Agreement requires, the respective rights and obligations of the parties shall survive any termination or expiration of the term of this Agreement, and more specifically, including, without limitation, Section 4. 6.11. Representations and Warranties of Executive. Executive hereby represents and warrants to Employer that to the knowledge of Executive, Executive is not bound by any non-competition, confidentiality or other agreement which would prevent Executive's execution, delivery and performance of this Agreement. The Executive agrees to indemnify and hold harmless the Employer for any liability the Employer may incur as the result of the existence of any such obligation. [Remainder of page intentionally left blank.] 14 IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written. ENHANCE BIOTECH, INC. By: /s/ Linden Boyne -------------------------------------- Name: Title: /s/ Christopher Every -------------------------------------- Christopher Every 15 SCHEDULE 1 EXECUTIVE'S DUTIES Executive shall be responsible for the normal and routine duties required of a President and Chief Executive Officer as set forth in the by-laws of the Employer or established by law as well as the following key tasks: 1. To direct the creation of shareholder value in the Employer through optimisation of pipeline development, licensing, merger and acquisition opportunities, according to the agreed Board of Directors strategy; 2. To provide the operational interface between the Board of Directors and the Employer's management to ensure implementation of the business strategy; 3. To ensure the business is adequately funded to achieve the strategies laid down by the Board of Directors; 4. To develop relationships and maintain them with funding and shareholder groups on behalf of the Employer; 5. To develop and maintain an effective company profile in the capital markets in USA and Europe; 6. To develop and maintain an effective company profile in the pharma industry in USA and Europe; and 7. To ensure the Employer's adherence to the corporate regulatory and legislative reporting requirements of a public company and of the market(s) on which the Employer chooses to trade. 16 SCHEDULE 2 ATTACHED PROPRIETARY RIGHTS AND CONFIDENTIALITY AGREEMENT See Following Pages. 17 PROPRIETARY RIGHTS AND CONFIDENTIALITY AGREEMENT THIS AGREEMENT is made this ___ day of December, 2004, between Enhance Biotech, Inc., a Delaware corporation, with its offices at712 Fifth Avenue, New York, NY 10019 (the "Company"), and Christopher Every, an individual residing at 20 The Crofters, Stretham, Ely, Cambridgeshire CB6 3NF, United Kingdom ("Employee"). This Agreement is based on the following understandings: A. Employee is a valued employee and officer of the Company and has an interest as an employee and officer in the continued success of the Company; and B. The Company and Employee wish to set forth certain agreements regarding the terms of Employee's employment; and C. Employee is entering into an agreement simultaneously with this Agreement concerning his duties and compensation as an officer of Company. THEREFORE, in consideration of the premises, the employment of Employee by the Company, the disclosure by the Company of confidential and trade secret information, and the mutual promises and agreements in this document, the parties to this Agreement contract as follows: 1. Confidential Information. Employee may gain access to or knowledge of information about Company and/or Company clients and customers that is not generally known or available to the public ("Confidential Information"). Confidential Information may include, but is not limited to: Inventions (as defined below), research results, specifications, models, diagrams, data, flowcharts, spreadsheets, marketing and development plans, chemical compound structures, synthesis methods, pre-clinical and clinical data, regulatory filings, content of negotiations with potential licensees and/or partners, financial investors or affiliates, client names and other information related to current and potential clients (including without limitation names, addresses, phone and fax numbers, and services requested and provided and client information acquired in the course of providing services to clients), prospective client lists, price lists, pricing policies, supplier lists, financial information and employee files. It shall also include, without limitation, data, notes, records, files, memoranda, reports, designs, drawings, plans, sketches, documents, print-outs, and the like, in any way or in any medium incorporating or reflecting any of the Confidential Information, or relating to the Company's Business (as defined below) or to any client, vendor, licensor, licensee or other party transacting business with the Company and any information which Employee made or makes, conceived or conceives, developed or develops or obtained or obtains knowledge or access through or as a result of Employee's relationship with the Company (including information received, originated, discovered or developed in whole or in part by Employee) from the initial date of Employee's employment with the Company. As used in this Agreement, the term "Company's Business" shall mean the discovery, clinical or pre-clinical development, sale and/or manufacture of drugs or drug candidates that are known to be pharmacologically active at the delta and/or mu cell receptor(s), and the acquisition, licensing, development, manufacturing, marketing and distribution of drugs and treatments for such other conditions as the Company is engaged in addressing during the Employee's employment by the Company. Confidential Information also includes any information described above which the Company obtains from another party and which the Company treats as proprietary or designates as Confidential Information, whether or not owned or developed by the Company, including without limitation, information of or concerning the Company's clients, partners, financial investors or business collaborators. The failure of the Company to mark any of the above-described information as proprietary, confidential, or secret shall not affect its status as part of the Confidential Information protected by this Agreement. 1 For the purposes of this Agreement, "Inventions" shall mean ideas, designs, creations, concepts, techniques, inventions, improvements, discoveries, and works of authorship, whether or not patentable or protectable by copyright or patent, whether or not fixed in a tangible medium of expression and whether or not reduced to practice, including but not limited to the nature and results of research and development activities, processes, formulae, devices, designs, processes, computer programs, and methods, together with any improvements thereon or thereto, derivative works or applications derived therefrom, and know-how related thereto. Information publicly known that is generally employed by the trade at or after the time Employee first learns of such information (other than as a result of a breach by Employee of any duty owed to, or agreement with, the Company), or generic information or knowledge which Employee would have learned in the course of similar employment or work elsewhere in the trade shall not be deemed part of the Confidential Information. 2. Non-Disclosure of Confidential Information. Employee agrees that Employee has a fiduciary duty to the Company and that Employee shall hold in confidence and shall not, except in the course of performing Employee's employment obligations or pursuant to written authorization from the Company, at any time during or for ten (10) years after termination of Employee's relationship with the Company (a) directly or indirectly reveal, report, publish, disclose or transfer the Confidential Information or any part thereof to any person or entity; (b) directly or indirectly use, or permit the use of any of the Confidential Information or any part thereof for any purpose other than for the benefit of the Company; (c) assist any person or entity other than the Company to secure any benefit from the Confidential Information or any part thereof or (d) solicit (on Employee's behalf or on behalf of any third party) any employee of the Company for the purpose of providing services or products which Employee is prohibited from providing hereunder. 3. Ownership of Confidential Information and Work Product. Except as limited by this Paragraph, Employee agrees that all Confidential Information and all other work product of any type or nature created by Employee or resulting from work performed by Employee for the Company, or using the Company's facilities, equipment, supplies or other property, or related to the Company's Business, even if not Confidential Information (such Confidential Information and work product being defined as "Work Product"), shall belong to the Company exclusively and without any additional compensation to Employee. Employee agrees that any original copyrightable Work Product shall be considered as "works made for hire," and that the Company shall be deemed the author thereof, provided that to the extent such Work Product is determined not to constitute "works made for hire" as a matter of law, Employee hereby irrevocably assigns and transfers to the Company all rights in and to such Work Product. 2 The Company's ownership right to such Work Product shall extend regardless of the hours during which or facilities at which the Work Product is made or the resources or ownership of resources used in making it; provided however that the assignment of rights shall not apply to creations developed entirely on Employee's own time without using the Company's facilities, equipment, supplies or other property, Confidential Information or Work Product, provided that the creations do not (a) relate to the Company's Business or actual or demonstrably anticipated research or development, or (b) result from any work performed by Employee for the Company. Upon request Employee will execute any instrument required to vest in the Company complete title and ownership to all Work Product, and will, at the request and expense of the Company, execute any instruments necessary to obtain legal protection in the United States and foreign countries for all Work Product and for the purpose of vesting title thereto in the Company, or its nominee, all without any additional compensation of any kind to Employee. Only if the Company executes a written statement that it does not desire to obtain protection for a particular Invention or copyrightable creation is Employee free to obtain protection in Employee's own name and at Employee's own expense; provided, however, that the Company shall have a royalty-free nonexclusive irrevocable license under any patent or copyright so obtained by Employee. 4. Disclosure to the Company. Upon the conception of any Work Product by Employee (either solely or in conjunction with others) and without waiting to perfect or complete it, Employee promises and agrees immediately to fully disclose to the President and Chief Executive Officer or other applicable officer of the Company designated by the Board of Directors of the Company, and to no one else, and thereafter to treat the Work Product as the property and secret of the Company. This shall include Work Product made, conceived or reduced to practice after the term of Employee's employment but which belong to the Company pursuant to Paragraphs 3 and 9. Upon request Employee will reduce any concept in the Work Product to writing and deliver all copies of the writing to the President of the Company, or if Employee is the President of the Company, such copies shall be delivered to such other officer of the Company as may be designated by the Board of Directors of the Company. These obligations shall continue beyond the termination of employment with respect to Work Product conceived or made during the period of employment. 5. Collaboration. Employee warrants that Employee will disclose the participation of any other person in any of Employee's work for the Company. Absent such disclosure, Employee warrants that all work performed by Employee will be Employee's own and that no other person shall have any right, title, or interest in any work submitted to the Company. 3 6. Records. Employee agrees that Employee will keep and maintain adequate and current written records of all Work Product created by Employee. All written records relating to any Work Product, whether in the form of notes, data, reference materials, sketches, drawings, memoranda, correspondence, blueprints, manuals, letters, notebooks, reports, flowcharts, programs, proposals, or any other form, and whether in written, electronic or other media, concerning the Company's Business or incorporating or reflecting any of the Work Product, shall be and remain the property of and available to the Company at all times, and shall be delivered to the Company on demand or upon Employee leaving the Company's service. The Company may, at any time and without notice to Employee, take possession of such records regardless of their location, including Employee's files, desk, computer or other areas under the control of the Company. 7. Assistance After Employment. Employee agrees that if, subsequent to Employee's employment by the Company, his assistance is needed in regard to securing, defending, or enforcing any patent or copyright of which Employee is an inventor, co-inventor, author or co-author Employee shall provide requested assistance and the Company shall pay reasonable compensation for his time at a rate to be agreed upon but not higher than 150% of the last salary rate paid to Employee by the Company during his employment, together with full reimbursement of reasonable and necessary directly-related expenses. 8. Third-Party Obligations. Employee acknowledges that the Company from time to time may have agreements with other person or entities or with government or other agencies that impose obligations or restrictions on the Company regarding Inventions, Confidential Information or Work Product created by Employee or the Company during the course of work thereunder, or regarding the confidential nature of the work or confidential information of the third party disclosed during or used as part of such work. Employee agrees to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder. 9. Warranty by Employee. Employee represents and warrants that his performance of all terms under this Agreement does not result in a breach of any duty owed by Employee to another, under contract or otherwise, or violate any confidence of another. Employee agrees not to disclose to the Company or induce the Company to use any confidential or proprietary information belonging to any of the Employee's previous employers or others. Employee warrants that Employee has executed no prior noncompetition, nondisclosure or confidentiality agreements that would in any way interfere with his work for or employment by the Company. Employee represents and warrants that Exhibit A attached hereto, entitled "List of Work Product," is a true and complete list of all creations, if any, whether or not patented or copyrighted and whether or not reduced to practice, made by Employee prior to his employment with the Company, and which therefore are not subject to the provisions of Paragraph 3; provided, however, that any improvements, whether or not patentable or reduced to practice, made to or on, or any derivative work made from, any of the listed confidential and propriety information after Employee's commencement of employment by the Company are subject to the terms of Paragraph 3. 4 Employee agrees to notify the Company in writing before Employee makes any disclosure to or performs any work on behalf of the Company which appears to threaten or conflict with any proprietary right Employee claims in any Work Product and in the event of Employee's failure to give such notice, Employee shall make no claim against the Company with respect to any such Work Product. 10. Exit Interview. Employee agrees that upon termination of Employee's employment for any reason, Employee shall participate in an exit interview with Company personnel. At or prior to the time of this interview Employee shall deliver to the Company all notes, data, reference materials, sketches, drawings, memoranda, correspondence, manuals, letters, notebooks, reports, programs, proposals, or any other documents, whether in written, electronic or other media, concerning the Company's Business or incorporating or reflecting any of the Confidential Information or Work Product. Employee agrees that, upon request, Employee will execute a sworn statement that Employee has complied with the terms of this Paragraph, and that should Employee fail to execute such a statement the Company may withhold any and all amounts due to Employee for any reason, except minimum compensation required by law. 11. Extraordinary Relief. Nothing in this Agreement shall be construed as prohibiting the Company from pursuing all remedies available to the Company for breach of this Agreement. Employee recognizes and agrees that because of the unique nature of the Confidential Information and the competitive position of the Company his breach of this Agreement will irreparably injure the Company, for which the Company could not adequately be compensated by remedies at law. Should Employee at any time reveal or use for the benefit of other than the Company or threaten to so reveal or use any Confidential Information in violation of Paragraph 2, the Company shall be entitled to an injunction restraining Employee from doing or continuing to do or performing any such acts, and Employee hereby consents to the issuance of such injunction against Employee. Employee further agrees to waive any bond or proof of damages requirement that may arise if the Company is forced to seek injunctive relief to enforce the terms of this Agreement. 12. Accounting for Profits; Indemnification. Employee covenants and agrees that if Employee shall violate any of Employee's covenants or agreements under this Agreement, the Company shall be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remunerations or benefits which Employee directly or indirectly shall have realized or may realize relating to, growing out of or in connection with any such violation; such remedy shall be in addition to and not in limitation of any injunctive relief or other rights or remedies to which the Company is or may be entitled at law or in equity or otherwise under this Agreement. Employee hereby agrees to defend, indemnify and hold harmless the Company against and in respect of: (i) any and all losses and damages resulting from, relating or incident to, or arising out of any misrepresentation or breach by Employee of any warranty, covenant or agreement made or contained in this Agreement; and (ii) any and all actions, suits, proceedings, claims, demands, judgments, payments, costs and expenses (including reasonable attorneys' fees) incident to the foregoing. 5 13. Successor Employers. Employee hereby authorizes the Company to provide a copy of this Agreement, including any Exhibits, to any and all future employers, and to notify any and all future employers that the Company intends to exercise its legal rights arising out of or in conjunction with the Agreement and/or any breach or any inducement of breach of it. 14. Reasonableness and Enforceability. EMPLOYEE HAS READ AND CAREFULLY CONSIDERED THE TERMS OF THIS AGREEMENT, HAS HAD THE OPPORTUNITY TO CONTACT EMPLOYEE'S OWN LEGAL COUNSEL TO ADVISE EMPLOYEE REGARDING THE TERMS OF THIS AGREEMENT, AND EMPLOYEE NOW AGREES THAT THE TERMS OF THIS AGREEMENT ARE FAIR AND REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTEREST OF THE COMPANY. EMPLOYEE FURTHER AGREES THAT THE RESTRICTIONS AND COVENANTS OF THIS AGREEMENT WILL NOT IMPAIR THE ABILITY OF EMPLOYEE TO SECURE EMPLOYMENT SO AS TO BE ABLE TO MAKE A REASONABLE LIVING. The provisions of this Agreement shall be enforceable notwithstanding the existence of any claim or cause of action of Employee against the Company whether predicated on this Agreement or otherwise. Failure of the Company to enforce at any time or for any period of time any of the conditions or covenants of this Agreement shall not be construed as a waiver of such provisions or of the right of the Company to enforce subsequent breaches of the same or other conditions and covenants, unless such permanent waiver is provided to Employee in writing and signed by the President of the Company or, if Employee is the President of the Company, such writing is to be signed by the Board of Directors of the Company. 15. Reformation/Severability of Agreement. If any provision of this Agreement shall for any reason be adjudged by any court of competent jurisdiction or arbiter to be illegal, invalid or otherwise unenforceable, such judgment shall not affect, impair or invalidate the remainder of this Agreement but shall be confined in its operation to the provision of this Agreement directly involved in the controversy in which such judgment shall have been rendered. The invalid or unenforceable provision shall be reformed so that each party shall have the obligation to perform reasonably alternatively to give the other party the benefit of its bargain. In the event the invalid or unenforceable provision cannot be reformed, the other provisions or applications of this Agreement shall be given full effect, and the invalid or unenforceable provision shall be deemed struck. 16. Construction of Terms. Any reference herein to the masculine shall include the feminine or neuter, and any reference herein to the singular or plural may be construed as plural or singular wherever the context requires. 17. Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, including without limitation any entity which may acquire all or substantially all of the Company's assets and business or into which the Company may be consolidated or merged, and the Employee, his heirs, executors, administrators and legal representatives. Employee may not assign any of his obligations under this Agreement. 6 18. Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of New York applicable to contracts between residents of New York which are wholly executed and performed in New York. Any lawsuit brought under the terms of this Agreement shall have exclusive venue in the state and federal courts of New York County, New York; provided, however, that with respect to any proceeding for injunctive relief the Company may, at its option, bring the proceeding before a court where Employee resides at the time of such proceeding. 19. Merger. This Agreement constitutes the entire Agreement between the parties with respect to the subject matter hereof; and supersedes and replaces any oral or written communications and any undertakings otherwise made between the parties relating to the subject matter. Except as specified in Paragraph 15, no changes, modifications, or amendments of any terms and conditions of this Agreement are valid or binding unless agreed to in a writing signed by Employee and the President of the Company or, if Employee is the President, the Board of Directors of the Company. [Remainder of page intentionally left blank.] 7 This Agreement is effective as of the date first above written and is executed in duplicate originals. Enhance Biotech, Inc. - -------------------------------------- Employee By: - -------------------------------------- ----------------------------- Witness Its: EXHIBIT A LIST OF WORK PRODUCT NOT SUBJECT TO OWNERSHIP BY THE COMPANY The following is a complete list of all confidential or proprietary information, relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my employment by the Company that I desire to remove from the operation of my Proprietary Rights and Confidentiality Agreement with the Company, to which this is attached as Exhibit A. _____ No creations, inventions, improvements or other Work Product. _____ Any and all such creations, inventions, improvements or other Work Product as are described below: _____ Additional sheets attached. Employee _____ EX-10.5 6 v010415_ex10-5.txt EXHIBIT 10.5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of December 20, 2004 (the "Effective Date"), between ENHANCE BIOTECH, INC., a corporation organized under the laws of the State of Delaware ("Employer"), and Kwen-Jen Chang ("Executive"). WHEREAS, Executive desires to provide services to Employer and Employer desires to retain the services of Executive; WHEREAS, Employer and Executive desire to formalize the terms and conditions of Executive's employment with Employer. NOW, THEREFORE, Employer and Executive hereby agree as follows: 1. Employment. 1.1. General. 1.1.1 Effective as of the Effective Date, Employer hereby employs Executive in the capacity of President - Asia Pacific Operations & Chief Science Officer. Executive hereby accepts such employment upon the terms and subject to the conditions herein contained. Commencing on the Effective Date, Executive shall have the duties set forth on Schedule 1 attached hereto. Executive agrees to perform the foregoing duties and responsibilities as well as such other duties as may be requested by the Board of Directors of Employer (the "Board of Directors") and the President and Chief Executive Officer of Employer. 1.1.2 During Executive's employment with Employer, Executive will report directly to, and take direction from, the Board of Directors and the President and Chief Executive Officer of Employer. 1.2. Board of Directors. For so long as Executive is serving as President - Asia Pacific Operations & Chief Science Officer of Employer, Executive agrees, if so requested by Employer, to serve as a member of Board of Directors without additional compensation. 1.3. Exclusive Full-Time Position. Executive, during Executive's employment with Employer, will devote Executive's best efforts and all of Executive's business time, attention and skills to the business and affairs of Employer, it being understood that Executive shall not be employed by or provide services to any other person or entity during Executive's employment with Employer. Notwithstanding the foregoing, Executive shall be permitted to (i) serve as a member of the board of unaffiliated companies but only if such service is with the prior written consent of the Board of Directors, which consent may be withheld in the sole discretion of the Board of Directors; (ii) serve on civic, professional or charitable boards or committees, and (iii) manage personal investments; provided, however, that Executive may not engage in any of the activities described in this sentence to the extent such activities (x) prevent Executive from devoting substantially all of Executive's business time to Employer, (y) adversely affect the performance of Executive's duties and responsibilities to Employer or (z) violate any other provision of this Agreement. 1.4. Location of Employment. Executive's principal place of employment during Executive's employment with Employer shall be in Durham, North Carolina or such other location as Employer and Executive shall agree. Executive acknowledges that the proper performance of Executive's duties may require travel and Executive agrees to engage in such travel as may be required during Executive's employment. 2. Compensation and Benefits. 2.1. Salary. During the period of Executive's employment pursuant to this Agreement, Employer will pay to Executive a base salary ("Base Salary") at an annual rate of Two Hundred Twenty Two Thousand Eight Hundred Twenty Dollars ($222,820), payable in accordance with the customary payroll practices of Employer. Executive's Base Salary shall be reviewed in accordance with the policy of Employer from time to time, but in any event no less than annually, and may be subject to upward adjustment based upon, among other factors, Executive's performance, as determined in the sole discretion of the Board of Directors. In no event shall Executive's Base Salary in effect at a particular time be reduced without Executive's prior written consent. 2.2. Additional Compensation. The compensation set forth in this Section is in addition to the Base Salary and other benefits set forth in Section 2. 2.2.1 Annual Bonus. Executive shall be eligible for and the Board of Directors may, in its sole discretion, award Executive a bonus (the "Annual Bonus") based upon the attainment of performance targets and other reasonable criteria established by the Board of Directors. The Annual Bonus shall be paid to Executive at the same time it is paid to other eligible employees. Except as specifically set forth in this Agreement, Executive must be employed on the date the bonus is paid in order to earn the Annual Bonus. 2.2.2 Stock Options. As additional consideration for Executive's performance of services hereunder, upon the Effective Date, Employer shall issue to Executive, pursuant to Employer's 2004 Incentive Plan, options (the "Options") to purchase 1 Million shares of Employer's common stock, $0.001 par value per share. It is intended that the maximum amount of these Options as permitted under law qualify as an "incentive stock option" under Section 422 of the Code, and to the extent that all or any portion of the Options do not so qualify, the Options shall be treated as non-qualified options. The Options shall have a per share exercise price equal to not less than the fair market value on the date of grant and shall expire on a date to be established by the Board of Directors or the applicable committee administering the Employer's 2004 Incentive Plan, but no later than the tenth anniversary of the Effective Date. The Options are subject to the following vesting schedule; provided, however, that Executive must be an employee of Employer on the applicable vesting date in order for such Options to vest: 25% of the Options shall vest on the date of grant and 25% of the Options shall vest on each of the first, second and third anniversaries of the date of grant. 11 2.3. Executive Benefits. In addition to the Base Salary and additional compensation set forth in Section 2, Executive shall also be entitled to the following benefits during Executive's employment hereunder: 2.3.1. Expenses. Employer shall, subject to Employer's expense reimbursement policies as established or amended from time to time, promptly reimburse Executive for expenses Executive reasonably incurs in connection with the performance of Executive's duties (including, without limitation, reimbursement for professional society membership fees and fees to attend meetings of such professional societies, business travel and entertainment expenses); provided, that Executive has provided Employer with documentation of such expenses in accordance with Employer's expense reimbursement policies and applicable tax requirements. 2.3.2. Employer Plans. Executive will be entitled to participate in the employee benefit plans and programs generally provided to employees by Employer from time to time, including, but not limited to, participation in any 401(k), life insurance, health and accident, medical and dental, disability and retirement plans and programs, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and programs. Employer retains the unilateral right to amend, modify or terminate any of its employee benefit plans and programs at any time. 2.3.3. Vacation. Executive shall be entitled to twenty (20) working days of paid vacation leave per year. Vacation must be scheduled at those times most convenient to Employer's business as reasonably determined by the Board of Directors and the President and Chief Executive Officer. 2.3.4. Coverage. Nothing in this Agreement shall prevent Executive from participating in any other compensation plan or benefit plan made available to Executive by Employer. 2.3.5. Life/Key Man Insurance. Providing Executive is insurable at commercially reasonable rates, Employer shall obtain term life insurance on the life of Executive in the amount of at least $500,000, at Employer's expense, and Executive may name the beneficiary of the policy. Employer shall have the right, but not the obligation, to obtain key man life insurance on the life of employee at Employer's expense, in reasonable amounts, but not less than the amounts set forth in the preceding sentence. 2.4. Taxes and Withholding. Employer shall have the right to deduct and withhold from all compensation payable to Executive all Medicare, social security, and other federal, state and local taxes and charges which currently are or hereafter may be required by law to be so deducted or withheld. 12 2.5. Employment Term. Executive's employment by Employer pursuant to this Agreement shall commence as of the Effective Date and, except as provided in Section 3.1 hereof, will continue at-will until the third anniversary of the Effective Date. On the third anniversary of the Effective Date this Agreement shall terminate and, unless Executive and the Employer enter into a new employment agreement, Executive shall thereafter be an employee at-will subject to the general employment policies and practices of the Employer. 3. Termination of Employment. 3.1. Events of Termination. Executive's employment with Employer will terminate upon the occurrence of any one or more of the following events: 3.1.1. Death. In the event of Executive's death, Executive's employment will terminate on the date of death. 3.1.2. Disability. In the event of Executive's Disability (as hereinafter defined), Employer will have the option to terminate Executive's employment by giving a written notice of such termination to Executive. For purposes of this Agreement, "Disability" means Executive's inability as a result of a physical or mental illness to perform Executive's duties which has continued or is expected to continue for an aggregate of 90 days (not including permitted vacation days and holidays) during any consecutive 365 day period, as determined in good faith by the Board of Directors upon the advice of an independent physician. 3.1.3. Termination by Employer for Cause. Employer may, at it's option, terminate Executive's employment for "Cause" upon giving written notice of such termination to Executive. As used in this Agreement, the term "Cause" shall include but not necessarily be limited to (i) conviction of, or plea of nolo contendere to, a felony or a crime involving moral turpitude; (ii) engagement in conduct which has the effect of bringing disrepute to the Employer's reputation or hold the Employer or the Executive up to public ridicule; (iii) fraud on or misappropriation of any funds or property of the Employer, any affiliate, customer or vendor; (iv) willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses); (v) personal dishonesty, willful misconduct, or breach of fiduciary duty which involves personal profit; (vi) gross incompetence in the performance of the Executive's duties under this Agreement; (vii) willful misconduct in connection with the Executive's duties or willful failure to perform the Executive's responsibilities in the best interests of the Employer; (vii) habitual absenteeism or inattention to the Executive's duties; (ix) chronic use of alcohol, drugs or other similar substances (other than pursuant to medical prescriptions and under doctors' supervision for treatment of legitimate illnesses or conditions) which affects the Executive's work performance; (x) violation of any Employer rule, regulation, procedure or policy which has, or may reasonably be expected to have, a material adverse effect on the Employer; (xi) engaging in behavior that would constitute grounds for liability for harassment (as proscribed by the U.S. Equal Employment Opportunity Commission Guidelines or any other applicable state or local regulatory body) or other egregious 13 conduct that violates laws governing the workplace; or (xii) material breach of any material provision of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement executed by the Executive for the benefit of the Employer (including, without limitation, such provisions within this Agreement) or of any material Employer policy, all as determined by the Board of Directors, which determination will be conclusive. Notwithstanding anything to the contrary, employment may not be terminated for Cause in the event that the Executive becomes permanently disabled as set forth in this Agreement or dies. Anything herein to the contrary notwithstanding, the Employer shall give the Executive written notice prior to terminating the Executive's employment for Cause under any circumstance in which the conduct constituting Cause is reasonably open to cure (for instance, by way of illustration only, where the Cause does not involve a violation of trust or otherwise adversely affect the relationship between the Executive and the Employer on a going-forward basis or involve commission of an act, such as a felony, or an unauthorized disclosure of confidential material, or an act which may constitute illegal harassment under laws governing the workplace, which can't be undone), setting forth in reasonable detail the nature of any alleged breach and the conduct required to cure such breach. If, and only if, the nature of the breach is such that the breach is reasonably open to cure, then the Executive shall have fourteen (14) days from the giving of such notice within which to cure such breach. 3.1.4. Without Cause By Employer. Employer may, at its option, terminate Executive's employment for any reason whatsoever (other than for the other reasons set forth above in this Section 3.1) by giving written notice of such termination to Executive, and Executive's employment shall terminate on the later of the date the written notice of such termination is given or the date set forth in such written notice. 3.1.5. For Good Reason by Executive. Executive may, at Executive's option, terminate Executive's employment for "Good Reason" by giving written notice of termination to Employer in the event that there is a failure of Employer (or successor employer) to promptly pay Executive's salary or additional compensation or benefits hereunder in accordance with this Agreement in any material respect. It shall also be considered Good Reason for termination by Executive if, in the event of a Change of Control (as defined below), any successor employer fails to fully assume Employer's obligations under this Agreement. For purposes, of this Agreement, a "Change of Control", shall mean (i) the dissolution or liquidation of Employer, or (ii) the consummation of any merger or consolidation of Employer other than in a transaction in which Employer is the surviving corporation or a majority of the board of directors of the surviving corporation were directors of Employer before such transaction or are designated by the former shareholders of Employer, or (iii) a sale or other disposition of all or substantially all of the then-outstanding capital stock of Employer or a sale or other disposition of all or substantially all of Employer's assets. Good Reason shall also include any requirement that Executive move his principal office to a location outside the Research Triangle area of North Carolina. 3.1.6. Without Good Reason By Executive. Executive may terminate Executive's employment for any reason (other than for Good Reason) by giving written notice of such termination to Employer. Executive's employment shall terminate on the earlier of (i) the date, following the date of the notice of termination, upon which a suitable replacement for Executive is found by Employer or upon which Employer makes a determination, in its sole discretion, that Executive's duties shall be undertaken by other employees of Employer, or (ii) sixty (60) days after the date of receipt by Employer of the written notice. 14 3.2. Certain Obligations of Employer Following Termination of Executive's Employment. Following the termination of Executive's employment under the circumstances described below, Employer will pay to Executive in accordance with its regular payroll practices the following compensation and provide the following benefits: 3.2.1. Death; Disability. In the event that Executive's employment is terminated by reason of Executive's death or Disability, Executive or Executive's estate, as the case may be, shall be entitled to the following: (i) that portion of any unpaid Base Salary up to and including the date of such termination and any accrued but unused vacation up to and including the date of such termination (the "Accrued Amount"); (ii) any accrued but unpaid Annual Bonus for any year prior to the year in which such termination occurred ("Prior Annual Bonuses"); (iii) any unreimbursed business expenses incurred prior to the date of such termination ("Expense Reimbursement"); (iv) all benefits generally available under the employee benefit plans, and the policies and practices of Employer, determined in accordance with the applicable terms and provisions of such plans, policies and practices, in each case, as accrued to the date of termination ("Accrued Benefits") or otherwise payable as a consequence of Executive's death or Disability; and (v) the right to exercise all options that are fully vested as of the date of such termination for the remainder of the term of such options as fully set forth in the applicable grant agreement. 3.2.2. Without Cause by Employer; For Good Reason by Executive. In the event that Executive's employment is terminated by Employer pursuant to Section 3.1.4 hereof or by Executive pursuant to Section 3.1.5 hereof, Executive shall be entitled to the following: (i) continuing payments of then current Base Salary for the following period (each such period as applicable, the "Severance Period"): (a) if such termination occurs prior to the first anniversary of the Effective Date, for the period beginning on the date of such termination and ending on the second anniversary of the Effective Date, or 15 (b) if such termination occurs on or after the first anniversary of the Effective Date, for the twelve (12) month period following such termination; and (ii) continuing coverage under Employer's employee benefit plans during the Severance Period or if earlier, until Executive is covered under the employee benefit plans of another employer; (iii) the Accrued Amount, Prior Annual Bonuses, Expense Reimbursement and Accrued Benefits; and (iv) any unvested portion of any options previously granted to Executive that is scheduled to vest during the Severance Period shall vest immediately as of the date of such termination and Executive shall have the right to exercise all options that are fully vested as of the date of such termination (including, those vested by acceleration on the date of such termination) for the remainder of the term of such options as fully set forth in the applicable grant agreement. 3.2.3. Termination by Executive Without Good Reason or by Employer for Cause. In the event Executive's employment is terminated by Executive pursuant to Section 3.1.6 or Section 3.1.7 hereof or by Employer pursuant to Section 3.1.3 hereof, Executive shall be entitled to the Accrued Amount, Expense Reimbursement and Accrued Benefits. 3.2.4. Termination on the Third Anniversary of the Effective Date. In the event Executive's employment is terminated upon the expiration of this Agreement on the third anniversary of the Effective Date, Executive shall not be entitled to any compensation, benefits or severance of any kind, except as required by law. 3.3. Nature of Payments. All amounts to be paid by Employer to Executive pursuant to this Section 3 are considered by the parties to be severance payments. In the event such payments are treated as damages, it is expressly acknowledged by the parties that damages to Executive for termination of employment would be difficult to ascertain and the above amounts are reasonable estimates thereof. 3.4. Release. Notwithstanding anything to the contrary, neither the Executive nor the Executive's estate shall be entitled to receive any compensation, reimbursement or benefits upon termination of employment (other than as required by law) unless the Executive or the Executive's estate, as the case may be, executes and delivers to the Employer promptly after termination a written release, in form and substance reasonably satisfactory to the Employer, by which the Executive and the Executive's estate, as the case may be, releases the Employer from any obligations and liabilities of any type whatsoever related to Executive's employment under this Agreement, except for the Employer's obligations with respect to Section 3.2 of this Agreement, which release shall not affect the Executive's estate's right, if any, to indemnification with respect to, or insurance in respect of, any actions taken within the scope of the Executive's employment, or the Executive's or the Executive's estate's rights in respect of the Executive's vested securities. The parties hereto acknowledge that the compensation, reimbursement and benefits to be provided under Section 3.2 are to be provided in consideration for the above-specified release, as well as for Executive's agreement to be bound by the provisions of Section 3.5 and Section 4. 16 3.5. Other Provisions Applicable to Termination of Employment. (1) At any time after notice to terminate this Agreement has been served or received by the Employer, the Employer, without being deemed in breach of this Agreement or being deemed to be taken steps which would constitute grounds for a different kind of termination under this Agreement, may require the Executive to do the following during the applicable notice period concluding on the effective date of termination of employment under this Agreement: (i) work in a capacity consistent with the Executive's then applicable position and status other than that in which the Executive is employed under this Agreement but without affecting the Executive's fixed salary, including benefits; and (ii) remain away from work and, although the Executive will continue to receive the Executive's salary and benefits provided for under this Agreement during such period, and the Employer will not be obliged to provide the Executive with any work although the Employer may, in its absolute discretion, assign to the Executive during this period, from time to time, such appropriate tasks or projects as may be carried out by the Executive away from the Employer's offices. (2) Upon termination of the Executive's employment under this Agreement, the Executive shall do the following: (i) forthwith surrender to the Employer, in good condition and working order (ordinary wear and tear excepted), all Employer property in the Executive's possession including, without limitation, all books, papers and other documents (of whatever nature and in whatever media) belonging to the Employer or its subsidiary or associated company or relating to the business of the Employer or its subsidiary or associated companies; (ii) if the Executive is a director of the Employer or of any subsidiary or associated company, or if the Executive is an officer of any subsidiary or any associated company, and is so requested by the Employer, resign as an officer or director, as the case may be, within forty-eight (48) hours of being so requested and, should the Executive fail to do so within forty-eight (48) hours of being so requested, the Executive irrevocably authorizes the Employer to appoint an agent in the Executive's name and on the Executive's behalf to execute and deliver any documents and to take any and all actions reasonably deemed by the Employer to be necessary or appropriate to give effect to such resignation(s) by the Executive; and 17 (iii) immediately repay all outstanding debts or loans due to the Employer and/or any subsidiary or associated company, the Employer being expressly authorized, for purposes of clarity, to deduct the same from any wages of the Executive a sum in repayment of all or any part of any such debts or loans. 4. Confidentiality; Nonsolicitation; Non-Compete. 4.1. Confidential and Proprietary Information; Non-Solicitation. Executive's employment by Employer is subject to Executive executing the Proprietary Rights and Confidentiality Agreement annexed hereto as Schedule 2. Such agreement shall be deemed, upon execution, to be incorporated in and a part of this Agreement. 4.2. Executive acknowledges and agrees that (a) Employer will be irreparably injured in the event of a breach by Executive of any of Executive's obligations under Section 4.1; (b) monetary damages will not be an adequate remedy for any such breach; (c) in the event of any such breach Employer will be entitled to injunctive relief as a matter of right and without posting a bond or other security, in addition to any other remedy which it may have, and Executive shall not oppose such injunctive relief based upon the extent of the harm or the adequacy of monetary damages. 4.3. Non-competition and Non-solicitation. (a) The Executive agrees and acknowledges that, in connection with the Executive's employment with the Employer, the Executive will be provided with access to and become familiar with confidential and proprietary information and trade secrets belonging to the Employer. Executive further acknowledges and agrees that, given the nature of this information and trade secrets, it is likely that such information and trade secrets would inevitably be used or revealed, either directly or indirectly, in any subsequent employment with a competitor of the Employer in any position comparable to the position the Executive holds with the Employer under this Agreement. Accordingly, in consideration of the Executive's employment with the Employer pursuant to this Agreement, and other good and valuable consideration, the receipt of which is hereby acknowledged, Executive agrees that, while the Executive is in the employ of the Employer and for a period equal to the greater of the period during which the Executive receives any severance pursuant to this Agreement, if any, and Twelve (12) months after the termination of the Executive's employment, the Executive shall not, either on the Executive's own behalf or on behalf of any third party, except on behalf of the Employer or, with the prior written agreement of the Employer (not to be unreasonably withheld) or any affiliate of the Employer, directly or indirectly: (1) Other than through the Executive's ownership of stock of the Employer, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control, or financing of, or be connected as a proprietor, partner, stockholder, officer, director, principal, agent, representative, joint venturer, investor, lender, consultant or otherwise with, or use or permit the Executive's name to be used 18 in connection with, any business or enterprise engaged directly or indirectly in competition with the Business Conducted by the Employer (as hereinafter defined) at any time during such period, and any other business ("Other Business") engaged in by the Employer that Executive is or has been directly involved with during the Twelve (12) month period immediately preceding termination of the Executive's employment. As used in this Agreement, the term "Business Conducted by the Employer" shall mean the discovery, clinical or pre-clinical development, sale and/or manufacture of drugs or drug candidates that are known to be pharmacologically active at the delta and/or mu cell receptor(s), and the acquisition, licensing, development, manufacturing, marketing and distribution of drugs and treatments for such other conditions as the Employer is engaged in addressing during the Twelve (12) month period immediately preceding termination of the Executive's employment. The foregoing, however, shall not prevent Executive from performing services for a business engaged in the biotechnology or biopharmaceutical businesses generally which is not competitive with the Employer, or for a competitive business if such competitive business is also engaged in lines of business which do not compete with the Employer and if Executive's services are restricted to employment in such other lines of business. It is recognized by the Executive and the Employer that the Business Conducted by the Employer is and is expected to continue to be conducted throughout the United States and the world, and that more narrow geographical limitations of any nature on this non-competition covenant (and the non-solicitation provisions set forth in clauses (2) and (3) below) are therefore not appropriate. The foregoing restriction shall not be construed to prohibit the ownership by Executive as a passive investment of not more than one percent (1%) percent of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. (2) Attempt in any manner to solicit from a current client or customer of the Employer at the time of the Executive's termination, business of the type performed by the Employer or to persuade any client of the Employer to cease to do business or change the nature of the business or to reduce the amount of business which any such client has customarily done or actively contemplates doing with the Employer; or (3) Recruit, solicit or induce, or attempt to induce, any person or entity which, at the time of the termination of the Executive's employment or at any time during the Twelve (12) month period prior to such termination was an employee of the Employer or its affiliates, to terminate such employee's employment with, or otherwise cease such employee's relationship with the Employer or its affiliates. As used in this Agreement, an affiliate of the Employer is any person or entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Employer. (b) The parties agree that the relevant public policy aspects of covenants not to compete have been discussed, and that every effort has been made to limit the restrictions placed upon the Executive to those that are reasonable and necessary to protect the Employer's legitimate interests. Executive acknowledges that, based upon the Executive's education, experience, and training, this non-compete provision will not prevent the Executive from earning a livelihood and supporting himself and the Executive's family during the relevant time period. (c) If any restriction set forth in Section 4.3 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or geographic area, it shall be interpreted to extend over the maximum period of time, range of activities or geographic areas as to which it may be enforceable. 19 (d) The restrictions contained in 4.3 are necessary for the protection of the business and goodwill of the Employer and/or its affiliates and are considered by the Executive to be reasonable for such purposes. The Executive agrees that any material breach of Section 4.3 will cause the Employer and/or its affiliates substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Employer shall have the right to seek specific performance and injunctive relief. (e) The provisions of Section 4.3 shall survive termination or expiration of this Agreement. (f) EXECUTIVE HAS READ AND CAREFULLY CONSIDERED THE TERMS OF THIS AGREEMENT, HAS HAD THE OPPORTUNITY TO CONTACT EXECUTIVE'S OWN LEGAL COUNSEL TO ADVISE EXECUTIVE REGARDING THE TERMS OF THIS AGREEMENT, AND EXECUTIVE NOW AGREES THAT THE TERMS OF THIS AGREEMENT ARE FAIR AND REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTEREST OF THE EMPLOYER. EXECUTIVE FURTHER AGREES THAT THE RESTRICTIONS AND COVENANTS OF THIS AGREEMENT WILL NOT IMPAIR THE ABILITY OF EXECUTIVE TO SECURE EMPLOYMENT SO AS TO BE ABLE TO MAKE A REASONABLE LIVING. The provisions of this Agreement shall be enforceable notwithstanding the existence of any claim or cause of action of Executive against the Employer whether predicated on this Agreement or otherwise. Failure of the Employer to enforce at any time or for any period of time any of the conditions or covenants of this Agreement shall not be construed as a waiver of such provisions or of the right of the Employer to enforce subsequent breaches of the same or other conditions and covenants, unless such permanent waiver is provided to Executive in writing and signed by the President of the Employer or, if Executive is the President of the Employer, such writing is to be signed by the officer of the Employer designated for such purpose by the Board of Directors. (g) Notwithstanding anything herein which may be construed to the contrary, Executive shall be free to use and employ Executive's general skills, know-how and expertise, and to use, disclose and employ any generalized ideas, concepts, know-how, methods, techniques or skills gained or learned during the course of providing the services hereunder, so long as Executive acquires and applies this information without violating the terms of this Paragraph 4.3 or the Proprietary Rights and Confidentiality Agreement executed and delivered by the Executive to the Employer in connection herewith. (h) The term of this non-competition covenant shall be tolled during any period of actual competition or breach of this Section 4.3 by the Executive and/or any period of litigation to enforce Executive's obligations under this Agreement. 5. Indemnification. Executive shall be covered by the Employer's directors and officers liability insurance policy, and errors and omissions coverage, to the same extent such coverage is generally provided by the Employer to its directors and officers and to the fullest extent permitted by such insurance policies. In addition, the Employer shall indemnify and hold Executive harmless from all liability to the fullest extent permitted by the Employer's bylaws and applicable law. 20 6. Miscellaneous Provisions. 6.1. Severability. If in any jurisdiction any term or provision hereof is determined to be invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, (b) any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and (c) the invalid or unenforceable term or provision shall, for purposes of such jurisdiction, be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 6.2. Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement (and all signatures need not appear on any one counterpart), and this Agreement shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. 6.3. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed duly given when delivered by hand, or when delivered if mailed by registered or certified mail, postage prepaid, return receipt requested, or private courier service or via facsimile (with written confirmation of receipt) as follows: If to Employer, to: Enhance Biotech, Inc. 712 Fifth Avenue New York, NY 10019 Attn: Christopher Every, President and Chairman Copy to: Andrew J. Cosentino Enhance Biotech, Inc. 712 Fifth Avenue New York, NY 10019 Facsimile No.: (212) 581-1922 If to Executive, to: Kwen-Jen Chang 104 Sierra Drive Chapel Hill, NC 27514 21 or to such other address(es) as a party hereto shall have designated by like notice to the other parties hereto. 6.4. Amendment. No provision of this Agreement may be modified, amended, waived or discharged in any manner except by a written instrument executed by Employer and Executive. No course of dealing between the parties to this Agreement shall be deemed to affect or to modify, amend or discharge any provision or term of this Agreement. 6.5. Entire Agreement. This Agreement and the Proprietary Rights and Confidentiality Agreement executed and delivered by the Executive to the Employer in connection herewith constitute the entire agreement of the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings of the parties hereto, oral or written, with respect to the subject matter hereof. No representation, promise or inducement has been made by either party that is not embodied in this Agreement or the Proprietary Rights and Confidentiality Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth. 6.6. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be wholly performed therein without regard to its conflicts or choice of law provisions. 6.7. Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement. 6.8. Binding Effect; Successors and Assigns. Executive may not delegate Executive's duties or assign Executive's rights hereunder. This Agreement will inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, and successors. Employer may assign this Agreement to any entity purchasing all or substantially all of the assets of Employer. 6.9. Waiver, etc. The failure of either of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Agreement or any provision hereof or the right of either of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party against whom or which enforcement of such waiver is sought, and no waiver of any such breach shall be construed or deemed to be a waiver of any other or subsequent breach. 6.10. Continuing Effect. Where the context of this Agreement requires, the respective rights and obligations of the parties shall survive any termination or expiration of the term of this Agreement, and more specifically, including, without limitation, Section 4. 22 6.11. Representations and Warranties of Executive. Executive hereby represents and warrants to Employer that to the knowledge of Executive, Executive is not bound by any non-competition, confidentiality or other agreement which would prevent Executive's execution, delivery and performance of this Agreement. The Executive agrees to indemnify and hold harmless the Employer for any liability the Employer may incur as the result of the existence of any such obligation. [Remainder of page intentionally left blank.] 23 IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written. ENHANCE BIOTECH, INC. By: /s/ Christopher Every ------------------------- Name: Title: /s/ Kwen-Jen Chang ------------------------- Kwen-Jen Chang SCHEDULE 1 EXECUTIVE'S DUTIES Executive will be responsible for the thought leadership and expertise in the discovery and development of new indications for the Employer's compound library, with special focus upon the delta receptor compounds as well as the following key tasks reporting to the Chief Executive Officer: 1. To direct the implementation of a company Strategic Science and Drug Development Plan with the objective to achieve effective commercialisation and to increase value in the product pipeline and compound library, for Board of Directors approval; 2. To provide consultancy and support to the President & Chief Executive Officer and Chief Financial Officer in optimising the commercial development of the Delta Receptor science and product library; 3. To Chair the Scientific Advisory Board thereby directing and contributing to existing and new product development programs and direction; 4. To direct the implementation of research and discovery programs within the parameters agreed in the Strategic Science & Drug Development Plan (1 above), and to oversee drug development in the short term until such time as the VP Development is recruited and inducted into the role, as requested by the Board of Directors and Chief Executive Officer; 5. To provide scientific supports for Chief Executive Officer and Chief Financial Officer for in and out licensing activities; 6. To oversee the publication and presentation of scientific data at appropriate times as the Employer requires; and 7. To direct and oversee the drug development programs in Asia as President - Asia Pacific Operations: 7.1. Responsible for overseeing the effective achievement of research objectives and science relationships in the Asian based product development and licensing relationships; 7.2. To direct the business and development of the Asian Pacific area utilizing the resources and relevant management skills of the Employer in carrying out the agreed strategy of the Employer's Board of Directors; 7.3. To encourage and develop similar opportunities in additional East Asian markets relevant to the Employer's strategic objectives and pipeline capabilities; 7.4. To ensure that budget allocations agreed to by the Employer's Board of Directors for development of research and projects in Asian areas are strictly adhered to; 7.5. To maintain information flow on a regular basis and interface the relationships and development programs of the Asian area to the Employer through reporting to the Chief Executive Officer and Board of Directors; 7.6. To maintain a market watch and pre-selection program for opportunities to license in well founded new products in the Employer's strategic portfolio for Science and main Board of Directors presentation and evaluation. 8. In any event, notwithstanding the foregoing, this Executive will perform such duties and responsibilities as may be requested by the Chief Executive Officer of the Employer and the Board of Directors of the Employer, will report directly to, and take direction from, the Chief Executive Officer, and will make expenditures, or incur obligations only as approved by the Chief Executive Officer in accordance with budgets adopted by the Board of Directors. Schedule 2 ATTACHED PROPRIETARY RIGHTS AND CONFIDENTIALITY AGREEMENT See Following Pages. PROPRIETARY RIGHTS AND CONFIDENTIALITY AGREEMENT THIS AGREEMENT is made this __ day of December, 2004, between Enhance Biotech, Inc., a Delaware corporation, with its offices at 712 Fifth Avenue, New York, NY 10019 (the "Company"), and Kwen-Jen Chang, an individual residing at 104 Sierra Drive, Chapel Hill, NC 27514 ("Employee"). This Agreement is based on the following understandings: A. Employee is a valued employee and officer of the Company and has an interest as an employee and officer in the continued success of the Company; and B. The Company and Employee wish to set forth certain agreements regarding the terms of Employee's employment; and C. Employee is entering into an agreement simultaneously with this Agreement concerning his duties and compensation as an officer of Company. THEREFORE, in consideration of the premises, the employment of Employee by the Company, the disclosure by the Company of confidential and trade secret information, and the mutual promises and agreements in this document, the parties to this Agreement contract as follows: 1. Confidential Information. Employee may gain access to or knowledge of information about Company and/or Company clients and customers that is not generally known or available to the public ("Confidential Information"). Confidential Information may include, but is not limited to: Inventions (as defined below), research results, specifications, models, diagrams, data, flowcharts, spreadsheets, marketing and development plans, chemical compound structures, synthesis methods, pre-clinical and clinical data, regulatory filings, content of negotiations with potential licensees and/or partners, financial investors or affiliates, client names and other information related to current and potential clients (including without limitation names, addresses, phone and fax numbers, and services requested and provided and client information acquired in the course of providing services to clients), prospective client lists, price lists, pricing policies, supplier lists, financial information and employee files. It shall also include, without limitation, data, notes, records, files, memoranda, reports, designs, drawings, plans, sketches, documents, print-outs, and the like, in any way or in any medium incorporating or reflecting any of the Confidential Information, or relating to the Company's Business (as defined below) or to any client, vendor, licensor, licensee or other party transacting business with the Company and any information which Employee made or makes, conceived or conceives, developed or develops or obtained or obtains knowledge or access through or as a result of Employee's relationship with the Company (including information received, originated, discovered or developed in whole or in part by Employee) from the initial date of Employee's employment with the Company. As used in this Agreement, the term "Company's Business" shall mean the discovery, clinical or pre-clinical development, sale and/or manufacture of drugs or drug candidates that are known to be pharmacologically active at the delta and/or mu cell receptor(s), and the acquisition, licensing, development, manufacturing, marketing and distribution of drugs and treatments for such other conditions as the Company is engaged in addressing during the Employee's employment by the Company. Confidential Information also includes any information described above which the Company obtains from another party and which the Company treats as proprietary or designates as Confidential Information, whether or not owned or developed by the Company, including without limitation, information of or concerning the Company's clients, partners, financial investors or business collaborators. The failure of the Company to mark any of the above-described information as proprietary, confidential, or secret shall not affect its status as part of the Confidential Information protected by this Agreement. 1 For the purposes of this Agreement, "Inventions" shall mean ideas, designs, creations, concepts, techniques, inventions, improvements, discoveries, and works of authorship, whether or not patentable or protectable by copyright or patent, whether or not fixed in a tangible medium of expression and whether or not reduced to practice, including but not limited to the nature and results of research and development activities, processes, formulae, devices, designs, processes, computer programs, and methods, together with any improvements thereon or thereto, derivative works or applications derived therefrom, and know-how related thereto. Information publicly known that is generally employed by the trade at or after the time Employee first learns of such information (other than as a result of a breach by Employee of any duty owed to, or agreement with, the Company), or generic information or knowledge which Employee would have learned in the course of similar employment or work elsewhere in the trade shall not be deemed part of the Confidential Information. 2. Non-Disclosure of Confidential Information. Employee agrees that Employee has a fiduciary duty to the Company and that Employee shall hold in confidence and shall not, except in the course of performing Employee's employment obligations or pursuant to written authorization from the Company, at any time during or for ten (10) years after termination of Employee's relationship with the Company (a) directly or indirectly reveal, report, publish, disclose or transfer the Confidential Information or any part thereof to any person or entity; (b) directly or indirectly use, or permit the use of any of the Confidential Information or any part thereof for any purpose other than for the benefit of the Company; (c) assist any person or entity other than the Company to secure any benefit from the Confidential Information or any part thereof or (d) solicit (on Employee's behalf or on behalf of any third party) any employee of the Company for the purpose of providing services or products which Employee is prohibited from providing hereunder. 3. Ownership of Confidential Information and Work Product. Except as limited by this Paragraph, Employee agrees that all Confidential Information and all other work product of any type or nature created by Employee or resulting from work performed by Employee for the Company, or using the Company's facilities, equipment, supplies or other property, or related to the Company's Business, even if not Confidential Information (such Confidential Information and work product being defined as "Work Product"), shall belong to the Company exclusively and without any additional compensation to Employee. Employee agrees that any original copyrightable Work Product shall be considered as "works made for hire," and that the Company shall be deemed the author thereof, provided that to the extent such Work Product is determined not to constitute "works made for hire" as a matter of law, Employee hereby irrevocably assigns and transfers to the Company all rights in and to such Work Product. 2 The Company's ownership right to such Work Product shall extend regardless of the hours during which or facilities at which the Work Product is made or the resources or ownership of resources used in making it; provided however that the assignment of rights shall not apply to creations developed entirely on Employee's own time without using the Company's facilities, equipment, supplies or other property, Confidential Information or Work Product, provided that the creations do not (a) relate to the Company's Business or actual or demonstrably anticipated research or development, or (b) result from any work performed by Employee for the Company. Upon request Employee will execute any instrument required to vest in the Company complete title and ownership to all Work Product, and will, at the request and expense of the Company, execute any instruments necessary to obtain legal protection in the United States and foreign countries for all Work Product and for the purpose of vesting title thereto in the Company, or its nominee, all without any additional compensation of any kind to Employee. Only if the Company executes a written statement that it does not desire to obtain protection for a particular Invention or copyrightable creation is Employee free to obtain protection in Employee's own name and at Employee's own expense; provided, however, that the Company shall have a royalty-free nonexclusive irrevocable license under any patent or copyright so obtained by Employee. 4. Disclosure to the Company. Upon the conception of any Work Product by Employee (either solely or in conjunction with others) and without waiting to perfect or complete it, Employee promises and agrees immediately to fully disclose to the President and Chief Executive Officer or other applicable officer of the Company designated by the Board of Directors of the Company, and to no one else, and thereafter to treat the Work Product as the property and secret of the Company. This shall include Work Product made, conceived or reduced to practice after the term of Employee's employment but which belong to the Company pursuant to Paragraphs 3 and 9. Upon request Employee will reduce any concept in the Work Product to writing and deliver all copies of the writing to the President of the Company, or if Employee is the President of the Company, such copies shall be delivered to such other officer of the Company as may be designated by the Board of Directors of the Company. These obligations shall continue beyond the termination of employment with respect to Work Product conceived or made during the period of employment. 5. Collaboration. Employee warrants that Employee will disclose the participation of any other person in any of Employee's work for the Company. Absent such disclosure, Employee warrants that all work performed by Employee will be Employee's own and that no other person shall have any right, title, or interest in any work submitted to the Company. 3 6. Records. Employee agrees that Employee will keep and maintain adequate and current written records of all Work Product created by Employee. All written records relating to any Work Product, whether in the form of notes, data, reference materials, sketches, drawings, memoranda, correspondence, blueprints, manuals, letters, notebooks, reports, flowcharts, programs, proposals, or any other form, and whether in written, electronic or other media, concerning the Company's Business or incorporating or reflecting any of the Work Product, shall be and remain the property of and available to the Company at all times, and shall be delivered to the Company on demand or upon Employee leaving the Company's service. The Company may, at any time and without notice to Employee, take possession of such records regardless of their location, including Employee's files, desk, computer or other areas under the control of the Company. 7. Assistance After Employment. Employee agrees that if, subsequent to Employee's employment by the Company, his assistance is needed in regard to securing, defending, or enforcing any patent or copyright of which Employee is an inventor, co-inventor, author or co-author Employee shall provide requested assistance and the Company shall pay reasonable compensation for his time at a rate to be agreed upon but not higher than 150% of the last salary rate paid to Employee by the Company during his employment, together with full reimbursement of reasonable and necessary directly-related expenses. 8. Third-Party Obligations. Employee acknowledges that the Company from time to time may have agreements with other person or entities or with government or other agencies that impose obligations or restrictions on the Company regarding Inventions, Confidential Information or Work Product created by Employee or the Company during the course of work thereunder, or regarding the confidential nature of the work or confidential information of the third party disclosed during or used as part of such work. Employee agrees to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder. 9. Warranty by Employee. Employee represents and warrants that his performance of all terms under this Agreement does not result in a breach of any duty owed by Employee to another, under contract or otherwise, or violate any confidence of another. Employee agrees not to disclose to the Company or induce the Company to use any confidential or proprietary information belonging to any of the Employee's previous employers or others. Employee warrants that Employee has executed no prior noncompetition, nondisclosure or confidentiality agreements that would in any way interfere with his work for or employment by the Company. Employee represents and warrants that Exhibit A attached hereto, entitled "List of Work Product," is a true and complete list of all creations, if any, whether or not patented or copyrighted and whether or not reduced to practice, made by Employee prior to his employment with the Company, and which therefore are not subject to the provisions of Paragraph 3; provided, however, that any improvements, whether or not patentable or reduced to practice, made to or on, or any derivative work made from, any of the listed confidential and propriety information after Employee's commencement of employment by the Company are subject to the terms of Paragraph 3. 4 Employee agrees to notify the Company in writing before Employee makes any disclosure to or performs any work on behalf of the Company which appears to threaten or conflict with any proprietary right Employee claims in any Work Product and in the event of Employee's failure to give such notice, Employee shall make no claim against the Company with respect to any such Work Product. 10. Exit Interview. Employee agrees that upon termination of Employee's employment for any reason, Employee shall participate in an exit interview with Company personnel. At or prior to the time of this interview Employee shall deliver to the Company all notes, data, reference materials, sketches, drawings, memoranda, correspondence, manuals, letters, notebooks, reports, programs, proposals, or any other documents, whether in written, electronic or other media, concerning the Company's Business or incorporating or reflecting any of the Confidential Information or Work Product. Employee agrees that, upon request, Employee will execute a sworn statement that Employee has complied with the terms of this Paragraph, and that should Employee fail to execute such a statement the Company may withhold any and all amounts due to Employee for any reason, except minimum compensation required by law. 11. Extraordinary Relief. Nothing in this Agreement shall be construed as prohibiting the Company from pursuing all remedies available to the Company for breach of this Agreement. Employee recognizes and agrees that because of the unique nature of the Confidential Information and the competitive position of the Company his breach of this Agreement will irreparably injure the Company, for which the Company could not adequately be compensated by remedies at law. Should Employee at any time reveal or use for the benefit of other than the Company or threaten to so reveal or use any Confidential Information in violation of Paragraph 2, the Company shall be entitled to an injunction restraining Employee from doing or continuing to do or performing any such acts, and Employee hereby consents to the issuance of such injunction against Employee. Employee further agrees to waive any bond or proof of damages requirement that may arise if the Company is forced to seek injunctive relief to enforce the terms of this Agreement. 12. Accounting for Profits; Indemnification. Employee covenants and agrees that if Employee shall violate any of Employee's covenants or agreements under this Agreement, the Company shall be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remunerations or benefits which Employee directly or indirectly shall have realized or may realize relating to, growing out of or in connection with any such violation; such remedy shall be in addition to and not in limitation of any injunctive relief or other rights or remedies to which the Company is or may be entitled at law or in equity or otherwise under this Agreement. Employee hereby agrees to defend, indemnify and hold harmless the Company against and in respect of: (i) any and all losses and damages resulting from, relating or incident to, or arising out of any misrepresentation or breach by Employee of any warranty, covenant or agreement made or contained in this Agreement; and (ii) any and all actions, suits, proceedings, claims, demands, judgments, payments, costs and expenses (including reasonable attorneys' fees) incident to the foregoing. 5 13. Successor Employers. Employee hereby authorizes the Company to provide a copy of this Agreement, including any Exhibits, to any and all future employers, and to notify any and all future employers that the Company intends to exercise its legal rights arising out of or in conjunction with the Agreement and/or any breach or any inducement of breach of it. 14. Reasonableness and Enforceability. EMPLOYEE HAS READ AND CAREFULLY CONSIDERED THE TERMS OF THIS AGREEMENT, HAS HAD THE OPPORTUNITY TO CONTACT EMPLOYEE'S OWN LEGAL COUNSEL TO ADVISE EMPLOYEE REGARDING THE TERMS OF THIS AGREEMENT, AND EMPLOYEE NOW AGREES THAT THE TERMS OF THIS AGREEMENT ARE FAIR AND REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTEREST OF THE COMPANY. EMPLOYEE FURTHER AGREES THAT THE RESTRICTIONS AND COVENANTS OF THIS AGREEMENT WILL NOT IMPAIR THE ABILITY OF EMPLOYEE TO SECURE EMPLOYMENT SO AS TO BE ABLE TO MAKE A REASONABLE LIVING. The provisions of this Agreement shall be enforceable notwithstanding the existence of any claim or cause of action of Employee against the Company whether predicated on this Agreement or otherwise. Failure of the Company to enforce at any time or for any period of time any of the conditions or covenants of this Agreement shall not be construed as a waiver of such provisions or of the right of the Company to enforce subsequent breaches of the same or other conditions and covenants, unless such permanent waiver is provided to Employee in writing and signed by the President of the Company or, if Employee is the President of the Company, such writing is to be signed by the Board of Directors of the Company. 15. Reformation/Severability of Agreement. If any provision of this Agreement shall for any reason be adjudged by any court of competent jurisdiction or arbiter to be illegal, invalid or otherwise unenforceable, such judgment shall not affect, impair or invalidate the remainder of this Agreement but shall be confined in its operation to the provision of this Agreement directly involved in the controversy in which such judgment shall have been rendered. The invalid or unenforceable provision shall be reformed so that each party shall have the obligation to perform reasonably alternatively to give the other party the benefit of its bargain. In the event the invalid or unenforceable provision cannot be reformed, the other provisions or applications of this Agreement shall be given full effect, and the invalid or unenforceable provision shall be deemed struck. 16. Construction of Terms. Any reference herein to the masculine shall include the feminine or neuter, and any reference herein to the singular or plural may be construed as plural or singular wherever the context requires. 17. Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, including without limitation any entity which may acquire all or substantially all of the Company's assets and business or into which the Company may be consolidated or merged, and the Employee, his heirs, executors, administrators and legal representatives. Employee may not assign any of his obligations under this Agreement. 6 18. Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of New York applicable to contracts between residents of New York which are wholly executed and performed in New York. Any lawsuit brought under the terms of this Agreement shall have exclusive venue in the state and federal courts of New York County, New York; provided, however, that with respect to any proceeding for injunctive relief the Company may, at its option, bring the proceeding before a court where Employee resides at the time of such proceeding. 19. Merger. This Agreement constitutes the entire Agreement between the parties with respect to the subject matter hereof; and supersedes and replaces any oral or written communications and any undertakings otherwise made between the parties relating to the subject matter. Except as specified in Paragraph 15, no changes, modifications, or amendments of any terms and conditions of this Agreement are valid or binding unless agreed to in a writing signed by Employee and the President of the Company or, if Employee is the President, the Board of Directors of the Company. [Remainder of page intentionally left blank.] 7 This Agreement is effective as of the date first above written and is executed in duplicate originals. Enhance Biotech, Inc. - -------------------------------------- Employee By: - -------------------------------------- -------------------------------- Witness Its: EXHIBIT A LIST OF WORK PRODUCT NOT SUBJECT TO OWNERSHIP BY THE COMPANY The following is a complete list of all confidential or proprietary information, relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my employment by the Company that I desire to remove from the operation of my Proprietary Rights and Confidentiality Agreement with the Company, to which this is attached as Exhibit A. _____ No creations, inventions, improvements or other Work Product. _____ Any and all such creations, inventions, improvements or other Work Product as are described below: _____ Additional sheets attached. Employee _____ EX-10.6 7 v010415_ex10-6.txt EXHIBIT 10.6 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of December 20, 2004 (the "Effective Date"), between ENHANCE BIOTECH, INC., a corporation organized under the laws of the State of Delaware ("Employer"), and Phillip S. Wise ("Executive"). WHEREAS, Executive desires to provide services to Employer and Employer desires to retain the services of Executive; WHEREAS, Employer and Executive desire to formalize the terms and conditions of Executive's employment with Employer. NOW, THEREFORE, Employer and Executive hereby agree as follows: 1. Employment. 1.1. General. 1.1.1 Effective as of the Effective Date, Employer hereby employs Executive in the capacity of Chief Financial Officer. Executive hereby accepts such employment upon the terms and subject to the conditions herein contained. Commencing on the Effective Date, Executive shall have the duties set forth on Schedule 1 attached hereto. Executive agrees to perform the foregoing duties and responsibilities as well as such other duties as may be requested by the Board of Directors of Employer (the "Board of Directors") and the President and Chief Executive Officer of Employer. 1.1.2 During Executive's employment with Employer, Executive will report directly to, and take direction from, the Board of Directors and the President and Chief Executive Officer of Employer. 1.2. Board of Directors. For so long as Executive is serving as Chief Financial Officer of Employer, Executive agrees, if so requested by Employer, to serve as a member of Board of Directors without additional compensation. 1.3. Exclusive Full-Time Position. Executive, during Executive's employment with Employer, will devote Executive's best efforts and all of Executive's business time, attention and skills to the business and affairs of Employer, it being understood that Executive shall not be employed by or provide services to any other person or entity during Executive's employment with Employer. Notwithstanding the foregoing, Executive shall be permitted to (i) serve as a member of the board of unaffiliated companies but only if such service is with the prior written consent of the Board of Directors, which consent may be withheld in the sole discretion of the Board of Directors; (ii) serve on civic, professional or charitable boards or committees, and (iii) manage personal investments; provided, however, that Executive may not engage in any of the activities described in this sentence to the extent such activities (x) prevent Executive from devoting substantially all of Executive's business time to Employer, (y) adversely affect the performance of Executive's duties and responsibilities to Employer or (z) violate any other provision of this Agreement. 1.4. Location of Employment. Executive's principal place of employment during Executive's employment with Employer shall be in Durham, North Carolina or such other location as Employer and Executive shall agree. Executive acknowledges that the proper performance of Executive's duties may require travel and Executive agrees to engage in such travel as may be required during Executive's employment. 2. Compensation and Benefits. 2.1. Salary. During the period of Executive's employment pursuant to this Agreement, Employer will pay to Executive a base salary ("Base Salary") at an annual rate of Two Hundred Twenty Five Thousand Dollars ($225,000), payable in accordance with the customary payroll practices of Employer. Executive's Base Salary shall be reviewed in accordance with the policy of Employer from time to time, but in any event no less than annually, and may be subject to upward adjustment based upon, among other factors, Executive's performance, as determined in the sole discretion of the Board of Directors. In no event shall Executive's Base Salary in effect at a particular time be reduced without Executive's prior written consent. 2.2. Additional Compensation. The compensation set forth in this Section is in addition to the Base Salary and other benefits set forth in Section 2. 2.2.1 Annual Bonus. (a) Executive shall be eligible for and the Board of Directors may, in its sole discretion, award Executive a bonus (the "Annual Bonus") based upon the attainment of performance targets and other reasonable criteria established by the Board of Directors. The Annual Bonus shall be paid to Executive at the same time it is paid to other eligible employees. Except as specifically set forth in this Agreement, Executive must be employed on the date the bonus is paid in order to earn the Annual Bonus. (b) In addition to the discretionary bonus set forth in Section 2.2.1(a) above, Executive shall receive a stock bonus in an amount equal to Thirty Five Thousand Dollars ($35,000) on each of the first, second and third anniversaries of the Effective Date which shares shall be registered pursuant to a Registration Statement on Form S-8 which shall be filed with the Securities Exchange Commission. 2.2.2 Stock Options. As additional consideration for Executive's performance of services hereunder, upon the Effective Date, Employer shall issue to Executive, pursuant to Employer's 2004 Incentive Plan, options (the "Options") to purchase 1.2 Million shares of Employer's common stock, $0.001 par value per share. It is intended that the maximum amount of these Options as permitted under law qualify as an "incentive stock option" under Section 422 of the Code, and to the extent that all or any portion of the Options do not so qualify, the Options shall be treated as non-qualified options. The Options shall have a per share exercise price equal to not less than the fair market value on the date of grant and shall expire on a date to be established by the Board of Directors or the applicable committee administering the Employer's 2004 Incentive Plan, but no later than the tenth anniversary of the Effective Date. The Options are subject to the following vesting schedule; provided, however, that Executive must be an employee of Employer on the applicable vesting date in order for such Options to vest: 25% of the Options shall vest on the date of grant and 25% of the Options shall vest on each of the first, second and third anniversaries of the date of grant. 11 2.3. Executive Benefits. In addition to the Base Salary and additional compensation set forth in Section 2, Executive shall also be entitled to the following benefits during Executive's employment hereunder: 2.3.1. Expenses. Employer shall, subject to Employer's expense reimbursement policies as established or amended from time to time, promptly reimburse Executive for expenses Executive reasonably incurs in connection with the performance of Executive's duties (including, without limitation, reimbursement for professional society membership fees and fees to attend meetings of such professional societies, business travel and entertainment expenses); provided, that Executive has provided Employer with documentation of such expenses in accordance with Employer's expense reimbursement policies and applicable tax requirements. 2.3.2. Employer Plans. Executive will be entitled to participate in the employee benefit plans and programs generally provided to employees by Employer from time to time, including, but not limited to, participation in any 401(k), life insurance, health and accident, medical and dental, disability and retirement plans and programs, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and programs. Employer retains the unilateral right to amend, modify or terminate any of its employee benefit plans and programs at any time. 2.3.3. Vacation. Executive shall be entitled to twenty (20) working days of paid vacation leave per year. Vacation must be scheduled at those times most convenient to Employer's business as reasonably determined by the Board of Directors and the President and Chief Executive Officer. 2.3.4. Coverage. Nothing in this Agreement shall prevent Executive from participating in any other compensation plan or benefit plan made available to Executive by Employer. 2.3.5. Life/Key Man Insurance. Providing Executive is insurable at commercially reasonable rates, Employer shall obtain term life insurance on the life of Executive in the amount of at least $500,000, at Employer's expense, and Executive may name the beneficiary of the policy. Employer shall have the right, but not the obligation, to obtain key man life insurance on the life of employee at Employer's expense, in reasonable amounts, but not less than the amounts set forth in the preceding sentence. 12 2.4. Taxes and Withholding. Employer shall have the right to deduct and withhold from all compensation payable to Executive all Medicare, social security, and other federal, state and local taxes and charges which currently are or hereafter may be required by law to be so deducted or withheld. 2.5. Employment Term. Executive's employment by Employer pursuant to this Agreement shall commence as of the Effective Date and, except as provided in Section 3.1 hereof, will continue at-will until the third anniversary of the Effective Date. On the third anniversary of the Effective Date this Agreement shall terminate and, unless Executive and the Employer enter into a new employment agreement, Executive shall thereafter be an employee at-will subject to the general employment policies and practices of the Employer. 3. Termination of Employment. 3.1. Events of Termination. Executive's employment with Employer will terminate upon the occurrence of any one or more of the following events: 3.1.1. Death. In the event of Executive's death, Executive's employment will terminate on the date of death. 3.1.2. Disability. In the event of Executive's Disability (as hereinafter defined), Employer will have the option to terminate Executive's employment by giving a written notice of such termination to Executive. For purposes of this Agreement, "Disability" means Executive's inability as a result of a physical or mental illness to perform Executive's duties which has continued or is expected to continue for an aggregate of 90 days (not including permitted vacation days and holidays) during any consecutive 365 day period, as determined in good faith by the Board of Directors upon the advice of an independent physician. 3.1.3. Termination by Employer for Cause. Employer may, at it's option, terminate Executive's employment for "Cause" upon giving written notice of such termination to Executive. As used in this Agreement, the term "Cause" shall include but not necessarily be limited to (i) conviction of, or plea of nolo contendere to, a felony or a crime involving moral turpitude; (ii) engagement in conduct which has the effect of bringing disrepute to the Employer's reputation or hold the Employer or the Executive up to public ridicule; (iii) fraud on or misappropriation of any funds or property of the Employer, any affiliate, customer or vendor; (iv) willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses); (v) personal dishonesty, willful misconduct, or breach of fiduciary duty which involves personal profit; (vi) gross incompetence in the performance of the Executive's duties under this Agreement; (vii) willful misconduct in connection with the Executive's duties or willful failure to perform the Executive's responsibilities in the best interests of the Employer; (vii) habitual absenteeism or inattention to the Executive's duties; (ix) chronic use of alcohol, drugs or other similar substances (other than 13 pursuant to medical prescriptions and under doctors' supervision for treatment of legitimate illnesses or conditions) which affects the Executive's work performance; (x) violation of any Employer rule, regulation, procedure or policy which has, or may reasonably be expected to have, a material adverse effect on the Employer; (xi) engaging in behavior that would constitute grounds for liability for harassment (as proscribed by the U.S. Equal Employment Opportunity Commission Guidelines or any other applicable state or local regulatory body) or other egregious conduct that violates laws governing the workplace; or (xii) material breach of any material provision of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement executed by the Executive for the benefit of the Employer (including, without limitation, such provisions within this Agreement) or of any material Employer policy, all as determined by the Board of Directors, which determination will be conclusive. Notwithstanding anything to the contrary, employment may not be terminated for Cause in the event that the Executive becomes permanently disabled as set forth in this Agreement or dies. Anything herein to the contrary notwithstanding, the Employer shall give the Executive written notice prior to terminating the Executive's employment for Cause under any circumstance in which the conduct constituting Cause is reasonably open to cure (for instance, by way of illustration only, where the Cause does not involve a violation of trust or otherwise adversely affect the relationship between the Executive and the Employer on a going-forward basis or involve commission of an act, such as a felony, or an unauthorized disclosure of confidential material, or an act which may constitute illegal harassment under laws governing the workplace, which can't be undone), setting forth in reasonable detail the nature of any alleged breach and the conduct required to cure such breach. If, and only if, the nature of the breach is such that the breach is reasonably open to cure, then the Executive shall have fourteen (14) days from the giving of such notice within which to cure such breach. 3.1.4. Without Cause By Employer. Employer may, at its option, terminate Executive's employment for any reason whatsoever (other than for the other reasons set forth above in this Section 3.1) by giving written notice of such termination to Executive, and Executive's employment shall terminate on the later of the date the written notice of such termination is given or the date set forth in such written notice. 3.1.5. For Good Reason by Executive. Executive may, at Executive's option, terminate Executive's employment for "Good Reason" by giving written notice of termination to Employer in the event that there is a failure of Employer (or successor employer) to promptly pay Executive's salary or additional compensation or benefits hereunder in accordance with this Agreement in any material respect. It shall also be considered Good Reason for termination by Executive if, in the event of a Change of Control (as defined below), any successor employer fails to fully assume Employer's obligations under this Agreement. For purposes, of this Agreement, a "Change of Control", shall mean (i) the dissolution or liquidation of Employer, or (ii) the consummation of any merger or consolidation of Employer other than in a transaction in which Employer is the surviving corporation or a majority of the board of directors of the surviving corporation were directors of Employer before such transaction or are designated by the former shareholders of Employer, or (iii) a sale or other disposition of all or substantially all of the then-outstanding capital stock of Employer or a sale or other disposition of all or substantially all of Employer's assets. Good Reason shall also include any requirement that Executive move his principal office to a location outside the Research Triangle area of North Carolina. 14 3.1.6. Without Good Reason By Executive. Executive may terminate Executive's employment for any reason (other than for Good Reason) by giving written notice of such termination to Employer. Executive's employment shall terminate on the earlier of (i) the date, following the date of the notice of termination, upon which a suitable replacement for Executive is found by Employer or upon which Employer makes a determination, in its sole discretion, that Executive's duties shall be undertaken by other employees of Employer, or (ii) sixty (60) days after the date of receipt by Employer of the written notice. 3.2. Certain Obligations of Employer Following Termination of Executive's Employment. Following the termination of Executive's employment under the circumstances described below, Employer will pay to Executive in accordance with its regular payroll practices the following compensation and provide the following benefits: 3.2.1. Death; Disability. In the event that Executive's employment is terminated by reason of Executive's death or Disability, Executive or Executive's estate, as the case may be, shall be entitled to the following: (i) that portion of any unpaid Base Salary up to and including the date of such termination and any accrued but unused vacation up to and including the date of such termination (the "Accrued Amount"); (ii) any accrued but unpaid Annual Bonus for any year prior to the year in which such termination occurred ("Prior Annual Bonuses"); (iii) any unreimbursed business expenses incurred prior to the date of such termination ("Expense Reimbursement"); (iv) all benefits generally available under the employee benefit plans, and the policies and practices of Employer, determined in accordance with the applicable terms and provisions of such plans, policies and practices, in each case, as accrued to the date of termination ("Accrued Benefits") or otherwise payable as a consequence of Executive's death or Disability; and (v) the right to exercise all options that are fully vested as of the date of such termination for the remainder of the term of such options as fully set forth in the applicable grant agreement. 3.2.2. Without Cause by Employer; For Good Reason by Executive. In the event that Executive's employment is terminated by Employer pursuant to Section 3.1.4 hereof or by Executive pursuant to Section 3.1.5 hereof, Executive shall be entitled to the following: (i) continuing payments of then current Base Salary for the following period (each such period as applicable, the "Severance Period"): 15 (a) if such termination occurs prior to the first anniversary of the Effective Date, for the period beginning on the date of such termination and ending on the second anniversary of the Effective Date, or (b) if such termination occurs on or after the first anniversary of the Effective Date, for the twelve (12) month period following such termination; and (ii) continuing coverage under Employer's employee benefit plans during the Severance Period or if earlier, until Executive is covered under the employee benefit plans of another employer; (iii) the Accrued Amount, Prior Annual Bonuses, Expense Reimbursement and Accrued Benefits; and (iv) any unvested portion of any options previously granted to Executive that is scheduled to vest during the Severance Period shall vest immediately as of the date of such termination and Executive shall have the right to exercise all options that are fully vested as of the date of such termination (including, those vested by acceleration on the date of such termination) for the remainder of the term of such options as fully set forth in the applicable grant agreement. 3.2.3. Termination by Executive Without Good Reason or by Employer for Cause. In the event Executive's employment is terminated by Executive pursuant to Section 3.1.6 or Section 3.1.7 hereof or by Employer pursuant to Section 3.1.3 hereof, Executive shall be entitled to the Accrued Amount, Expense Reimbursement and Accrued Benefits. 3.2.4. Termination on the Third Anniversary of the Effective Date. In the event Executive's employment is terminated upon the expiration of this Agreement on the third anniversary of the Effective Date, Executive shall not be entitled to any compensation, benefits or severance of any kind, except as required by law. 3.3. Nature of Payments. All amounts to be paid by Employer to Executive pursuant to this Section 3 are considered by the parties to be severance payments. In the event such payments are treated as damages, it is expressly acknowledged by the parties that damages to Executive for termination of employment would be difficult to ascertain and the above amounts are reasonable estimates thereof. 3.4. Release. Notwithstanding anything to the contrary, neither the Executive nor the Executive's estate shall be entitled to receive any compensation, reimbursement or benefits upon termination of employment (other than as required by law) unless the Executive or the Executive's estate, as the case may be, executes and delivers to the Employer promptly after termination a written release, in form and substance reasonably satisfactory to the Employer, by which the Executive and the Executive's estate, as the case may be, releases the Employer from any obligations and liabilities of any type whatsoever related to Executive's employment under this Agreement, except for the Employer's obligations with respect to Section 3.2 of this Agreement, which release shall not affect the Executive's estate's right, if any, to indemnification with respect to, or insurance in respect of, any actions taken within the scope of the Executive's employment, or the Executive's or the Executive's estate's rights in respect of the Executive's vested securities. The parties hereto acknowledge that the compensation, reimbursement and benefits to be provided under Section 3.2 are to be provided in consideration for the above-specified release, as well as for Executive's agreement to be bound by the provisions of Section 3.5 and Section 4. 16 3.5. Other Provisions Applicable to Termination of Employment. (1) At any time after notice to terminate this Agreement has been served or received by the Employer, the Employer, without being deemed in breach of this Agreement or being deemed to be taken steps which would constitute grounds for a different kind of termination under this Agreement, may require the Executive to do the following during the applicable notice period concluding on the effective date of termination of employment under this Agreement: (i) work in a capacity consistent with the Executive's then applicable position and status other than that in which the Executive is employed under this Agreement but without affecting the Executive's fixed salary, including benefits; and (ii) remain away from work and, although the Executive will continue to receive the Executive's salary and benefits provided for under this Agreement during such period, and the Employer will not be obliged to provide the Executive with any work although the Employer may, in its absolute discretion, assign to the Executive during this period, from time to time, such appropriate tasks or projects as may be carried out by the Executive away from the Employer's offices. (2) Upon termination of the Executive's employment under this Agreement, the Executive shall do the following: (i) forthwith surrender to the Employer, in good condition and working order (ordinary wear and tear excepted), all Employer property in the Executive's possession including, without limitation, all books, papers and other documents (of whatever nature and in whatever media) belonging to the Employer or its subsidiary or associated company or relating to the business of the Employer or its subsidiary or associated companies; (ii) if the Executive is a director of the Employer or of any subsidiary or associated company, or if the Executive is an officer of any subsidiary or any associated company, and is so requested by the Employer, resign as an officer or director, as the case may be, within forty-eight (48) hours of being so requested and, should the Executive fail to do so within forty-eight (48) hours of being so requested, the Executive irrevocably authorizes the Employer to appoint an agent in the Executive's name and on the Executive's behalf to execute and deliver any documents and to take any and all actions reasonably deemed by the Employer to be necessary or appropriate to give effect to such resignation(s) by the Executive; and 17 (iii) immediately repay all outstanding debts or loans due to the Employer and/or any subsidiary or associated company, the Employer being expressly authorized, for purposes of clarity, to deduct the same from any wages of the Executive a sum in repayment of all or any part of any such debts or loans. 4. Confidentiality; Nonsolicitation; Non-Compete. 4.1. Confidential and Proprietary Information; Non-Solicitation. Executive's employment by Employer is subject to Executive executing the Proprietary Rights and Confidentiality Agreement annexed hereto as Schedule 2. Such agreement shall be deemed, upon execution, to be incorporated in and a part of this Agreement. 4.2. Executive acknowledges and agrees that (a) Employer will be irreparably injured in the event of a breach by Executive of any of Executive's obligations under Section 4.1; (b) monetary damages will not be an adequate remedy for any such breach; (c) in the event of any such breach Employer will be entitled to injunctive relief as a matter of right and without posting a bond or other security, in addition to any other remedy which it may have, and Executive shall not oppose such injunctive relief based upon the extent of the harm or the adequacy of monetary damages. 4.3. Non-competition and Non-solicitation. (a) The Executive agrees and acknowledges that, in connection with the Executive's employment with the Employer, the Executive will be provided with access to and become familiar with confidential and proprietary information and trade secrets belonging to the Employer. Executive further acknowledges and agrees that, given the nature of this information and trade secrets, it is likely that such information and trade secrets would inevitably be used or revealed, either directly or indirectly, in any subsequent employment with a competitor of the Employer in any position comparable to the position the Executive holds with the Employer under this Agreement. Accordingly, in consideration of the Executive's employment with the Employer pursuant to this Agreement, and other good and valuable consideration, the receipt of which is hereby acknowledged, Executive agrees that, while the Executive is in the employ of the Employer and for a period equal to the greater of the period during which the Executive receives any severance pursuant to this Agreement, if any, and Twelve (12) months after the termination of the Executive's employment, the Executive shall not, either on the Executive's own behalf or on behalf of any third party, except on behalf of the Employer or, with the prior written agreement of the Employer (not to be unreasonably withheld) or any affiliate of the Employer, directly or indirectly: 18 (1) Other than through the Executive's ownership of stock of the Employer, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control, or financing of, or be connected as a proprietor, partner, stockholder, officer, director, principal, agent, representative, joint venturer, investor, lender, consultant or otherwise with, or use or permit the Executive's name to be used in connection with, any business or enterprise engaged directly or indirectly in competition with the Business Conducted by the Employer (as hereinafter defined) at any time during such period, and any other business ("Other Business") engaged in by the Employer that Executive is or has been directly involved with during the Twelve (12) month period immediately preceding termination of the Executive's employment. As used in this Agreement, the term "Business Conducted by the Employer" shall mean the discovery, clinical or pre-clinical development, sale and/or manufacture of drugs or drug candidates that are known to be pharmacologically active at the delta and/or mu cell receptor(s), and the acquisition, licensing, development, manufacturing, marketing and distribution of drugs and treatments for such other conditions as the Employer is engaged in addressing during the Twelve (12) month period immediately preceding termination of the Executive's employment. The foregoing, however, shall not prevent Executive from performing services for a business engaged in the biotechnology or biopharmaceutical businesses generally which is not competitive with the Employer, or for a competitive business if such competitive business is also engaged in lines of business which do not compete with the Employer and if Executive's services are restricted to employment in such other lines of business. It is recognized by the Executive and the Employer that the Business Conducted by the Employer is and is expected to continue to be conducted throughout the United States and the world, and that more narrow geographical limitations of any nature on this non-competition covenant (and the non-solicitation provisions set forth in clauses (2) and (3) below) are therefore not appropriate. The foregoing restriction shall not be construed to prohibit the ownership by Executive as a passive investment of not more than one percent (1%) percent of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. (2) Attempt in any manner to solicit from a current client or customer of the Employer at the time of the Executive's termination, business of the type performed by the Employer or to persuade any client of the Employer to cease to do business or change the nature of the business or to reduce the amount of business which any such client has customarily done or actively contemplates doing with the Employer; or (3) Recruit, solicit or induce, or attempt to induce, any person or entity which, at the time of the termination of the Executive's employment or at any time during the Twelve (12) month period prior to such termination was an employee of the Employer or its affiliates, to terminate such employee's employment with, or otherwise cease such employee's relationship with the Employer or its affiliates. As used in this Agreement, an affiliate of the Employer is any person or entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Employer. (b) The parties agree that the relevant public policy aspects of covenants not to compete have been discussed, and that every effort has been made to limit the restrictions placed upon the Executive to those that are reasonable and necessary to protect the Employer's legitimate interests. Executive acknowledges that, based upon the Executive's education, experience, and training, this non-compete provision will not prevent the Executive from earning a livelihood and supporting himself and the Executive's family during the relevant time period. 19 (c) If any restriction set forth in Section 4.3 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or geographic area, it shall be interpreted to extend over the maximum period of time, range of activities or geographic areas as to which it may be enforceable. (d) The restrictions contained in 4.3 are necessary for the protection of the business and goodwill of the Employer and/or its affiliates and are considered by the Executive to be reasonable for such purposes. The Executive agrees that any material breach of Section 4.3 will cause the Employer and/or its affiliates substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Employer shall have the right to seek specific performance and injunctive relief. (e) The provisions of Section 4.3 shall survive termination or expiration of this Agreement. (f) EXECUTIVE HAS READ AND CAREFULLY CONSIDERED THE TERMS OF THIS AGREEMENT, HAS HAD THE OPPORTUNITY TO CONTACT EXECUTIVE'S OWN LEGAL COUNSEL TO ADVISE EXECUTIVE REGARDING THE TERMS OF THIS AGREEMENT, AND EXECUTIVE NOW AGREES THAT THE TERMS OF THIS AGREEMENT ARE FAIR AND REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTEREST OF THE EMPLOYER. EXECUTIVE FURTHER AGREES THAT THE RESTRICTIONS AND COVENANTS OF THIS AGREEMENT WILL NOT IMPAIR THE ABILITY OF EXECUTIVE TO SECURE EMPLOYMENT SO AS TO BE ABLE TO MAKE A REASONABLE LIVING. The provisions of this Agreement shall be enforceable notwithstanding the existence of any claim or cause of action of Executive against the Employer whether predicated on this Agreement or otherwise. Failure of the Employer to enforce at any time or for any period of time any of the conditions or covenants of this Agreement shall not be construed as a waiver of such provisions or of the right of the Employer to enforce subsequent breaches of the same or other conditions and covenants, unless such permanent waiver is provided to Executive in writing and signed by the President of the Employer or, if Executive is the President of the Employer, such writing is to be signed by the officer of the Employer designated for such purpose by the Board of Directors. (g) Notwithstanding anything herein which may be construed to the contrary, Executive shall be free to use and employ Executive's general skills, know-how and expertise, and to use, disclose and employ any generalized ideas, concepts, know-how, methods, techniques or skills gained or learned during the course of providing the services hereunder, so long as Executive acquires and applies this information without violating the terms of this Paragraph 4.3 or the Proprietary Rights and Confidentiality Agreement executed and delivered by the Executive to the Employer in connection herewith. 20 (h) The term of this non-competition covenant shall be tolled during any period of actual competition or breach of this Section 4.3 by the Executive and/or any period of litigation to enforce Executive's obligations under this Agreement. 5. Indemnification. Executive shall be covered by the Employer's directors and officers liability insurance policy, and errors and omissions coverage, to the same extent such coverage is generally provided by the Employer to its directors and officers and to the fullest extent permitted by such insurance policies. In addition, the Employer shall indemnify and hold Executive harmless from all liability to the fullest extent permitted by the Employer's bylaws and applicable law. 6. Miscellaneous Provisions. 6.1. Severability. If in any jurisdiction any term or provision hereof is determined to be invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired, (b) any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and (c) the invalid or unenforceable term or provision shall, for purposes of such jurisdiction, be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 6.2. Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement (and all signatures need not appear on any one counterpart), and this Agreement shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. 6.3. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed duly given when delivered by hand, or when delivered if mailed by registered or certified mail, postage prepaid, return receipt requested, or private courier service or via facsimile (with written confirmation of receipt) as follows: If to Employer, to: Enhance Biotech, Inc. 712 Fifth Avenue New York, NY 10019 Attn: Christopher Every, President and Chairman Copy to: Andrew J. Cosentino Enhance Biotech, Inc. 712 Fifth Avenue New York, NY 10019 Facsimile No.: (212) 581-1922 21 If to Executive, to: Phillip S. Wise 605 Downpatrick Lane Raleigh, NC 27615 or to such other address(es) as a party hereto shall have designated by like notice to the other parties hereto. 6.4. Amendment. No provision of this Agreement may be modified, amended, waived or discharged in any manner except by a written instrument executed by Employer and Executive. No course of dealing between the parties to this Agreement shall be deemed to affect or to modify, amend or discharge any provision or term of this Agreement. 6.5. Entire Agreement. This Agreement and the Proprietary Rights and Confidentiality Agreement executed and delivered by the Executive to the Employer in connection herewith constitute the entire agreement of the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings of the parties hereto, oral or written, with respect to the subject matter hereof. No representation, promise or inducement has been made by either party that is not embodied in this Agreement or the Proprietary Rights and Confidentiality Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth. 6.6. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be wholly performed therein without regard to its conflicts or choice of law provisions. 6.7. Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement. 6.8. Binding Effect; Successors and Assigns. Executive may not delegate Executive's duties or assign Executive's rights hereunder. This Agreement will inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, and successors. Employer may assign this Agreement to any entity purchasing all or substantially all of the assets of Employer. 6.9. Waiver, etc. The failure of either of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Agreement or any provision hereof or the right of either of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party against whom or which enforcement of such waiver is sought, and no waiver of any such breach shall be construed or deemed to be a waiver of any other or subsequent breach. 22 6.10. Continuing Effect. Where the context of this Agreement requires, the respective rights and obligations of the parties shall survive any termination or expiration of the term of this Agreement, and more specifically, including, without limitation, Section 4. 6.11. Representations and Warranties of Executive. Executive hereby represents and warrants to Employer that to the knowledge of Executive, Executive is not bound by any non-competition, confidentiality or other agreement which would prevent Executive's execution, delivery and performance of this Agreement. The Executive agrees to indemnify and hold harmless the Employer for any liability the Employer may incur as the result of the existence of any such obligation. IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written. ENHANCE BIOTECH, INC. By: /s/ Christopher Every ---------------------------------- Name: Title: /s/ Phillip S. Wise ---------------------------------- Phillip S. Wise SCHEDULE 1 EXECUTIVE'S DUTIES Executive shall be responsible for the normal and routine duties required of a Chief Financial Officer as set forth in the by-laws of the Employer or established by law as well as the following key tasks reporting to the Chief Executive Officer: 1. To direct the strategic financial control of business operations on behalf of the Board of Directors providing reporting as and when required; 2. To direct statutory financial reporting and audit relationships to meet Securities Exchange Commission requirements of the business; 3. To direct (i) the preparation of annual budgets, (ii) their translation into and (iii) monitoring of monthly performance against them in the management account reporting systems down to individual operational management areas; 4. To oversee the maintenance of management accounting and cost control systems and reporting enabling tightly controlled budget management in all operational areas; 5. To assist the Chief Executive Officer in the maintenance of adequate funding for the business to meet targets and develop compound in accordance with Board of Directors policy; 6. To assist Chief Executive Officer in the strategic planning and negotiation of (i) in and (ii) out-licensing opportunities; 7. To direct the management of site administrative functions including, human resources and maintenance of the general fabric of the site; 8. To ensure the Employer's adherence to financial regulatory requirements of a public company and of the market(s) on which the Employer chooses to trade; and 9. To provide commercial input into the strategic planning, research and development programs for the Employer. Schedule 2 ATTACHED PROPRIETARY RIGHTS AND CONFIDENTIALITY AGREEMENT See Following Pages. PROPRIETARY RIGHTS AND CONFIDENTIALITY AGREEMENT THIS AGREEMENT is made this ___ day of December, 2004, between Enhance Biotech, Inc., a Delaware corporation, with its offices at 712 Fifth Avenue, New York, NY 10019 (the "Company"), and Phillip S. Wise, an individual residing at 605 Downpatrick Lane, Raleigh, NC 27615 ("Employee"). This Agreement is based on the following understandings: A. Employee is a valued employee and officer of the Company and has an interest as an employee and officer in the continued success of the Company; and B. The Company and Employee wish to set forth certain agreements regarding the terms of Employee's employment; and C. Employee is entering into an agreement simultaneously with this Agreement concerning his duties and compensation as an officer of Company. THEREFORE, in consideration of the premises, the employment of Employee by the Company, the disclosure by the Company of confidential and trade secret information, and the mutual promises and agreements in this document, the parties to this Agreement contract as follows: 1. Confidential Information. Employee may gain access to or knowledge of information about Company and/or Company clients and customers that is not generally known or available to the public ("Confidential Information"). Confidential Information may include, but is not limited to: Inventions (as defined below), research results, specifications, models, diagrams, data, flowcharts, spreadsheets, marketing and development plans, chemical compound structures, synthesis methods, pre-clinical and clinical data, regulatory filings, content of negotiations with potential licensees and/or partners, financial investors or affiliates, client names and other information related to current and potential clients (including without limitation names, addresses, phone and fax numbers, and services requested and provided and client information acquired in the course of providing services to clients), prospective client lists, price lists, pricing policies, supplier lists, financial information and employee files. It shall also include, without limitation, data, notes, records, files, memoranda, reports, designs, drawings, plans, sketches, documents, print-outs, and the like, in any way or in any medium incorporating or reflecting any of the Confidential Information, or relating to the Company's Business (as defined below) or to any client, vendor, licensor, licensee or other party transacting business with the Company and any information which Employee made or makes, conceived or conceives, developed or develops or obtained or obtains knowledge or access through or as a result of Employee's relationship with the Company (including information received, originated, discovered or developed in whole or in part by Employee) from the initial date of Employee's employment with the Company. As used in this Agreement, the term "Company's Business" shall mean the discovery, clinical or pre-clinical development, sale and/or manufacture of drugs or drug candidates that are known to be pharmacologically active at the delta and/or mu cell receptor(s), and the acquisition, licensing, development, manufacturing, marketing and distribution of drugs and treatments for such other conditions as the Company is engaged in addressing during the Employee's employment by the Company. Confidential Information also includes any information described above which the Company obtains from another party and which the Company treats as proprietary or designates as Confidential Information, whether or not owned or developed by the Company, including without limitation, information of or concerning the Company's clients, partners, financial investors or business collaborators. The failure of the Company to mark any of the above-described information as proprietary, confidential, or secret shall not affect its status as part of the Confidential Information protected by this Agreement. 1 For the purposes of this Agreement, "Inventions" shall mean ideas, designs, creations, concepts, techniques, inventions, improvements, discoveries, and works of authorship, whether or not patentable or protectable by copyright or patent, whether or not fixed in a tangible medium of expression and whether or not reduced to practice, including but not limited to the nature and results of research and development activities, processes, formulae, devices, designs, processes, computer programs, and methods, together with any improvements thereon or thereto, derivative works or applications derived therefrom, and know-how related thereto. Information publicly known that is generally employed by the trade at or after the time Employee first learns of such information (other than as a result of a breach by Employee of any duty owed to, or agreement with, the Company), or generic information or knowledge which Employee would have learned in the course of similar employment or work elsewhere in the trade shall not be deemed part of the Confidential Information. 2. Non-Disclosure of Confidential Information. Employee agrees that Employee has a fiduciary duty to the Company and that Employee shall hold in confidence and shall not, except in the course of performing Employee's employment obligations or pursuant to written authorization from the Company, at any time during or for ten (10) years after termination of Employee's relationship with the Company (a) directly or indirectly reveal, report, publish, disclose or transfer the Confidential Information or any part thereof to any person or entity; (b) directly or indirectly use, or permit the use of any of the Confidential Information or any part thereof for any purpose other than for the benefit of the Company; (c) assist any person or entity other than the Company to secure any benefit from the Confidential Information or any part thereof or (d) solicit (on Employee's behalf or on behalf of any third party) any employee of the Company for the purpose of providing services or products which Employee is prohibited from providing hereunder. 3. Ownership of Confidential Information and Work Product. Except as limited by this Paragraph, Employee agrees that all Confidential Information and all other work product of any type or nature created by Employee or resulting from work performed by Employee for the Company, or using the Company's facilities, equipment, supplies or other property, or related to the Company's Business, even if not Confidential Information (such Confidential Information and work product being defined as "Work Product"), shall belong to the Company exclusively and without any additional compensation to Employee. Employee agrees that any original copyrightable Work Product shall be considered as "works made for hire," and that the Company shall be deemed the author thereof, provided that to the extent such Work Product is determined not to constitute "works made for hire" as a matter of law, Employee hereby irrevocably assigns and transfers to the Company all rights in and to such Work Product. 2 The Company's ownership right to such Work Product shall extend regardless of the hours during which or facilities at which the Work Product is made or the resources or ownership of resources used in making it; provided however that the assignment of rights shall not apply to creations developed entirely on Employee's own time without using the Company's facilities, equipment, supplies or other property, Confidential Information or Work Product, provided that the creations do not (a) relate to the Company's Business or actual or demonstrably anticipated research or development, or (b) result from any work performed by Employee for the Company. Upon request Employee will execute any instrument required to vest in the Company complete title and ownership to all Work Product, and will, at the request and expense of the Company, execute any instruments necessary to obtain legal protection in the United States and foreign countries for all Work Product and for the purpose of vesting title thereto in the Company, or its nominee, all without any additional compensation of any kind to Employee. Only if the Company executes a written statement that it does not desire to obtain protection for a particular Invention or copyrightable creation is Employee free to obtain protection in Employee's own name and at Employee's own expense; provided, however, that the Company shall have a royalty-free nonexclusive irrevocable license under any patent or copyright so obtained by Employee. 4. Disclosure to the Company. Upon the conception of any Work Product by Employee (either solely or in conjunction with others) and without waiting to perfect or complete it, Employee promises and agrees immediately to fully disclose to the President and Chief Executive Officer or other applicable officer of the Company designated by the Board of Directors of the Company, and to no one else, and thereafter to treat the Work Product as the property and secret of the Company. This shall include Work Product made, conceived or reduced to practice after the term of Employee's employment but which belong to the Company pursuant to Paragraphs 3 and 9. Upon request Employee will reduce any concept in the Work Product to writing and deliver all copies of the writing to the President of the Company, or if Employee is the President of the Company, such copies shall be delivered to such other officer of the Company as may be designated by the Board of Directors of the Company. These obligations shall continue beyond the termination of employment with respect to Work Product conceived or made during the period of employment. 5. Collaboration. Employee warrants that Employee will disclose the participation of any other person in any of Employee's work for the Company. Absent such disclosure, Employee warrants that all work performed by Employee will be Employee's own and that no other person shall have any right, title, or interest in any work submitted to the Company. 6. Records. Employee agrees that Employee will keep and maintain adequate and current written records of all Work Product created by Employee. All written records relating to any Work Product, whether in the form of notes, data, reference materials, sketches, drawings, memoranda, correspondence, blueprints, manuals, letters, notebooks, reports, flowcharts, programs, proposals, or any other form, and whether in written, electronic or other media, concerning the Company's Business or incorporating or reflecting any of the Work Product, shall be and remain the property of and available to the Company at all times, and shall be delivered to the Company on demand or upon Employee leaving the Company's service. The Company may, at any time and without notice to Employee, take possession of such records regardless of their location, including Employee's files, desk, computer or other areas under the control of the Company. 3 7. Assistance After Employment. Employee agrees that if, subsequent to Employee's employment by the Company, his assistance is needed in regard to securing, defending, or enforcing any patent or copyright of which Employee is an inventor, co-inventor, author or co-author Employee shall provide requested assistance and the Company shall pay reasonable compensation for his time at a rate to be agreed upon but not higher than 150% of the last salary rate paid to Employee by the Company during his employment, together with full reimbursement of reasonable and necessary directly-related expenses. 8. Third-Party Obligations. Employee acknowledges that the Company from time to time may have agreements with other person or entities or with government or other agencies that impose obligations or restrictions on the Company regarding Inventions, Confidential Information or Work Product created by Employee or the Company during the course of work thereunder, or regarding the confidential nature of the work or confidential information of the third party disclosed during or used as part of such work. Employee agrees to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder. 9. Warranty by Employee. Employee represents and warrants that his performance of all terms under this Agreement does not result in a breach of any duty owed by Employee to another, under contract or otherwise, or violate any confidence of another. Employee agrees not to disclose to the Company or induce the Company to use any confidential or proprietary information belonging to any of the Employee's previous employers or others. Employee warrants that Employee has executed no prior noncompetition, nondisclosure or confidentiality agreements that would in any way interfere with his work for or employment by the Company. Employee represents and warrants that Exhibit A attached hereto, entitled "List of Work Product," is a true and complete list of all creations, if any, whether or not patented or copyrighted and whether or not reduced to practice, made by Employee prior to his employment with the Company, and which therefore are not subject to the provisions of Paragraph 3; provided, however, that any improvements, whether or not patentable or reduced to practice, made to or on, or any derivative work made from, any of the listed confidential and propriety information after Employee's commencement of employment by the Company are subject to the terms of Paragraph 3. Employee agrees to notify the Company in writing before Employee makes any disclosure to or performs any work on behalf of the Company which appears to threaten or conflict with any proprietary right Employee claims in any Work Product and in the event of Employee's failure to give such notice, Employee shall make no claim against the Company with respect to any such Work Product. 4 10. Exit Interview. Employee agrees that upon termination of Employee's employment for any reason, Employee shall participate in an exit interview with Company personnel. At or prior to the time of this interview Employee shall deliver to the Company all notes, data, reference materials, sketches, drawings, memoranda, correspondence, manuals, letters, notebooks, reports, programs, proposals, or any other documents, whether in written, electronic or other media, concerning the Company's Business or incorporating or reflecting any of the Confidential Information or Work Product. Employee agrees that, upon request, Employee will execute a sworn statement that Employee has complied with the terms of this Paragraph, and that should Employee fail to execute such a statement the Company may withhold any and all amounts due to Employee for any reason, except minimum compensation required by law. 11. Extraordinary Relief. Nothing in this Agreement shall be construed as prohibiting the Company from pursuing all remedies available to the Company for breach of this Agreement. Employee recognizes and agrees that because of the unique nature of the Confidential Information and the competitive position of the Company his breach of this Agreement will irreparably injure the Company, for which the Company could not adequately be compensated by remedies at law. Should Employee at any time reveal or use for the benefit of other than the Company or threaten to so reveal or use any Confidential Information in violation of Paragraph 2, the Company shall be entitled to an injunction restraining Employee from doing or continuing to do or performing any such acts, and Employee hereby consents to the issuance of such injunction against Employee. Employee further agrees to waive any bond or proof of damages requirement that may arise if the Company is forced to seek injunctive relief to enforce the terms of this Agreement. 12. Accounting for Profits; Indemnification. Employee covenants and agrees that if Employee shall violate any of Employee's covenants or agreements under this Agreement, the Company shall be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remunerations or benefits which Employee directly or indirectly shall have realized or may realize relating to, growing out of or in connection with any such violation; such remedy shall be in addition to and not in limitation of any injunctive relief or other rights or remedies to which the Company is or may be entitled at law or in equity or otherwise under this Agreement. Employee hereby agrees to defend, indemnify and hold harmless the Company against and in respect of: (i) any and all losses and damages resulting from, relating or incident to, or arising out of any misrepresentation or breach by Employee of any warranty, covenant or agreement made or contained in this Agreement; and (ii) any and all actions, suits, proceedings, claims, demands, judgments, payments, costs and expenses (including reasonable attorneys' fees) incident to the foregoing. 13. Successor Employers. Employee hereby authorizes the Company to provide a copy of this Agreement, including any Exhibits, to any and all future employers, and to notify any and all future employers that the Company intends to exercise its legal rights arising out of or in conjunction with the Agreement and/or any breach or any inducement of breach of it. 5 14. Reasonableness and Enforceability. EMPLOYEE HAS READ AND CAREFULLY CONSIDERED THE TERMS OF THIS AGREEMENT, HAS HAD THE OPPORTUNITY TO CONTACT EMPLOYEE'S OWN LEGAL COUNSEL TO ADVISE EMPLOYEE REGARDING THE TERMS OF THIS AGREEMENT, AND EMPLOYEE NOW AGREES THAT THE TERMS OF THIS AGREEMENT ARE FAIR AND REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTEREST OF THE COMPANY. EMPLOYEE FURTHER AGREES THAT THE RESTRICTIONS AND COVENANTS OF THIS AGREEMENT WILL NOT IMPAIR THE ABILITY OF EMPLOYEE TO SECURE EMPLOYMENT SO AS TO BE ABLE TO MAKE A REASONABLE LIVING. The provisions of this Agreement shall be enforceable notwithstanding the existence of any claim or cause of action of Employee against the Company whether predicated on this Agreement or otherwise. Failure of the Company to enforce at any time or for any period of time any of the conditions or covenants of this Agreement shall not be construed as a waiver of such provisions or of the right of the Company to enforce subsequent breaches of the same or other conditions and covenants, unless such permanent waiver is provided to Employee in writing and signed by the President of the Company or, if Employee is the President of the Company, such writing is to be signed by the Board of Directors of the Company. 15. Reformation/Severability of Agreement. If any provision of this Agreement shall for any reason be adjudged by any court of competent jurisdiction or arbiter to be illegal, invalid or otherwise unenforceable, such judgment shall not affect, impair or invalidate the remainder of this Agreement but shall be confined in its operation to the provision of this Agreement directly involved in the controversy in which such judgment shall have been rendered. The invalid or unenforceable provision shall be reformed so that each party shall have the obligation to perform reasonably alternatively to give the other party the benefit of its bargain. In the event the invalid or unenforceable provision cannot be reformed, the other provisions or applications of this Agreement shall be given full effect, and the invalid or unenforceable provision shall be deemed struck. 16. Construction of Terms. Any reference herein to the masculine shall include the feminine or neuter, and any reference herein to the singular or plural may be construed as plural or singular wherever the context requires. 17. Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, including without limitation any entity which may acquire all or substantially all of the Company's assets and business or into which the Company may be consolidated or merged, and the Employee, his heirs, executors, administrators and legal representatives. Employee may not assign any of his obligations under this Agreement. 18. Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of New York applicable to contracts between residents of New York which are wholly executed and performed in New York. Any lawsuit brought under the terms of this Agreement shall have exclusive venue in the state and federal courts of New York County, New York; provided, however, that with respect to any proceeding for injunctive relief the Company may, at its option, bring the proceeding before a court where Employee resides at the time of such proceeding. 6 19. Merger. This Agreement constitutes the entire Agreement between the parties with respect to the subject matter hereof; and supersedes and replaces any oral or written communications and any undertakings otherwise made between the parties relating to the subject matter. Except as specified in Paragraph 15, no changes, modifications, or amendments of any terms and conditions of this Agreement are valid or binding unless agreed to in a writing signed by Employee and the President of the Company or, if Employee is the President, the Board of Directors of the Company. [Remainder of page intentionally left blank.] 7 This Agreement is effective as of the date first above written and is executed in duplicate originals. Enhance Biotech, Inc. - -------------------------------------- Employee By: - -------------------------------------- ---------------------------- Witness Its: EXHIBIT A LIST OF WORK PRODUCT NOT SUBJECT TO OWNERSHIP BY THE COMPANY The following is a complete list of all confidential or proprietary information, relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my employment by the Company that I desire to remove from the operation of my Proprietary Rights and Confidentiality Agreement with the Company, to which this is attached as Exhibit A. ______ No creations, inventions, improvements or other Work Product. ______ Any and all such creations, inventions, improvements or other Work Product as are described below: ______ Additional sheets attached. Employee _____ EX-99.1 8 v010415_ex99-1.txt EXHIBIT 99.1 ENHANCE BIOTECH ANNOUNCES CLOSING OF MERGER WITH ARDENT PHARMACEUTICALS NEW YORK, NY-- (PR NEWSWIRE)--DECEMBER 20 2004--ENHANCE BIOTECH, INC. (OTC PK: EBOI), a specialty pharmaceutical company developing a portfolio of products focused on lifestyle drugs, and Ardent Pharmaceuticals Inc., a world leader in discovering and developing delta receptor compounds, announced today that their previously announced merger transaction has been consummated. As a consequence of the transaction, Ardent is now a wholly-owned subsidiary of Enhance Biotech, Inc. The new portfolio offers a broad pipeline of products under development, ranging from pre-clinical New Chemical Entities (NCE) through to later stage products addressing the potentially large lifestyle market areas of urology, dermatology and Central Nervous System (CNS). The management and scientific team includes leading specialist scientists in the delta receptor area and management talent with an expertise in licensing products and driving them through the regulatory process to market. Combined facilities include state-of-the-art laboratory and development facilities for early stage chemistry and pharmacology along with clinical expertise. Merger agreements provide that immediately upon consummation of the merger transaction, on a fully-diluted basis, Enhance's pre-existing stockholders own approximately fifty-five percent (55%) of Enhance Biotech, Inc., and former Ardent shareholders own approximately approximately forty-five percent (45%) of Enhance Biotech, Inc. Effective immediately, Chris Every, Enhance Biotech's CEO, will continue as the CEO, President and a member of the Board of Directors. Dr. Ken Chang, Chairman, Chief Executive Officer and Founder of Ardent, has been appointed President of Asia Pacific Operations and Chief Science Officer of Enhance. Phillip Wise, Chief Financial Officer and VP Business Development of Ardent has been named the Chief Financial Officer of Enhance. Sam McCormick, the Chief Science Officer of Enhance has assumed the position of Vice President Science of Europe. The Company's operational headquarters is based in the North Carolina Research Triangle with corporate offices in New York and London. Chris Every commented, "This merger opens an exciting future for our employees, shareholders and future customers. The closing of this merger transaction was the realization of the hard work and collaborative efforts of employees from both organizations. The success of the negotiation process, which was facilitated by independent biotech bankers BIO-IB, bodes well for effective completion and cohesive merging of the operations of the two organizations in the immediate future. Combined, our two companies have taken a significant step toward fulfilling the vision of becoming a leader in lifestyle, specialty pharmaceuticals offering a broad portfolio of products to the market in a relatively short period of time." About Enhance Biotech Enhance Biotech, Inc. is a specialty pharmaceutical company focused on developing a product portfolio in three key areas of the lifestyle drug market: urology, dermatology and CNS. Key conditions addressed within the urology area are Urinary Incontinence and Sexual Dysfunction, which include premature ejaculation and male fertility, while skincare indications include Cellulite, Itch, Anti-aging, Periodontal Disease and Dermatological Disorders such as Atopic Dermatitis and Psoriasis. Within the CNS area, the Company is developing compounds in moderate-to-severe Pain, Parkinson's disease and Depression. An area for future licensing for which the Company has developed compounds is Cardio-protection. The Company has developed substantial knowledge of the chemistry and pharmacology of the delta receptor, including a library of approximately 1,000 compounds that demonstrate specific delta receptor activity. This creates a valuable product portfolio in the lifestyle market, a market that is forecast to grow to US $32 billion by 2008. The pharmaceutical industry has invested over $20 billion in R&D for lifestyle drugs over the last 10 years, although relatively few new products have as yet reached the market. Enhance's lead development products are intended to address unmet needs in these global blockbuster markets. These products are generally in development stages ranging from pre-clinical target compound selection through to late Phase II. Enhance has 18 employees and an extensive research facility based in North Carolina's Research Triangle Park along with experienced clinical development and commercial management. For more information on the Company, please visit the Company's website at www.enhancelifesciences.com. Certain statements contained herein are "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because these statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Specifically, factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to: risks associated with preclinical and clinical developments in the biopharmaceutical industry in general and in Enhance Biotech's compounds under development in particular; the potential failure of Enhance Biotech's compounds under development to prove safe and effective for treatment of disease; uncertainties inherent in the early stage of Enhance Biotech' compounds under development; failure to successfully implement or complete clinical trials; failure to receive marketing clearance from regulatory agencies for our compounds under development; acquisitions, divestitures, mergers, licenses or strategic initiatives that change Enhance Biotech' business, structure or projections; the development of competing products; uncertainties related to Enhance Biotech' dependence on third parties and partners; and those risks described in the filings with the SEC, all of which are under the Company's prior name Becor Communications, Inc. Enhance Biotech disclaims any obligation to update these forward-looking statements. Investor Contact: European Contact: Yvonne Zappulla John Gisborne Managing Director Splash Communications Wall Street Investor Relations (44) 1225 - 318000 212-681-4108 jgisborne@splashcommunications.com Yvonne@WallStreetIR.com END OF FILING -----END PRIVACY-ENHANCED MESSAGE-----