EMPLOYMENT AGREEMENT
 
EMPLOYMENT AGREEMENT (this “Agreement”), effective as of August 6, 2008
(“Effective Date”), between Urigen Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), and Martin E. Shmagin (the “Employee”).
 
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that
it is in the best interests of the Company and its shareholders to employ the
Employee in the position set forth below, and the Employee desires to serve in
that capacity.
 
NOW, THEREFORE, in consideration of the foregoing premises, the Company and
Employee hereby agree as follows:
 
1. Employment Period. The Company shall employ the Employee, and the Employee
shall serve the Company, on the terms and conditions set forth in this
Agreement, for a term of two years commencing on the date hereof, unless earlier
terminated in accordance with Section 4 hereof (the “Initial Term” and, together
with any subsequent term of Employment, the “Employment Period”); provided that
the term of employment hereunder will automatically be renewed for successive
one-year terms (each such term a “Renewal Term”) unless either party shall, at
least 30 days before such date, provide written notice to the other party that
the Employment Period will not be extended.
 
2. Position and Duties.
 
(a) The Employee shall serve as Chief Financial Officer of the Company,
reporting to the Chief Executive Officer, with such duties and responsibilities
as are customarily assigned to such position, and such other duties and
responsibilities not inconsistent therewith as may be assigned to him from time
to time by the Board.
 
(b) During the Employment Period, and excluding any periods of vacation and sick
leave to which the Employee is entitled, the Employee shall devote his full-time
efforts to the business and affairs of the Company and use his best efforts to
carry out such responsibilities faithfully and efficiently. It shall not be
considered a violation of the foregoing for the Employee to (i) serve on
corporate, civic or charitable boards or committees, (ii) deliver lectures or
fulfill speaking engagements, (iii) manage personal investments, (iv) engage in
other business activities, so long as such activities do not materially
interfere with the performance of his responsibilities as an employee of the
Company in accordance with this Agreement or violate the provisions of Section 8
of this Agreement.
 
(c) Employee shall not be required to change his domicile to perform his
duties.  Employee agrees to perform a reasonable amount of travel in order to
perform his duties hereunder.
 
3. Compensation.
 
(a) Base Salary. During the first contract year of the Initial Term, the
Employee shall receive an annual base salary (the “Annual Base Salary”) of
$225,000.  Employee will receive an annual salary review by the Board, or an
authorized committee thereof, on each anniversary of the Effective Date. The
Annual Base Salary shall be payable in accordance with the Company’s payroll
practices as in effect from time to time. The Board or an authorized committee
thereof may increase the Annual Base Salary above the foregoing amounts at its
discretion.
 
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(b) Bonus. In addition to the Annual Base Salary, the Employee shall be entitled
to an annual bonus based upon the discretion of the Board of Directors.
 
(c) Benefits. During the Employment Period, the Employee and the Employee’s
direct family shall be entitled to participate in all benefit programs of the
Company provided to executives of similar rank, including, but not limited to,
health insurance coverage, as well as all welfare benefit plans, practices,
policies and programs provided by the Company or Parent, including, but not
limited to any comprehensive dental plan, retirement plans and profit sharing
programs the Company or Parent may provide to other employees from time to time.
 
(d) Expenses. During the Employment Period, the Employee shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Employee in carrying out the Employee’s duties under this Agreement, provided
that the Employee complies with the policies, practices and procedures of the
Company for submission of expense reports, receipts and similar documentation of
such expenses.
 
(e)           Vacation. During the Employment Period, the Employee shall be
entitled to a paid annual vacation of four weeks and other fringe benefits on
such terms and conditions as may be determined by the Board or authorized
committee thereof from time to time.
 
4. Termination of Employment.
 
(a) Death or Disability. The Employee’s employment shall terminate automatically
upon the Employee’s death during the Employment Period. The Company shall be
entitled to terminate the Employee’s employment because of the Employee’s
Disability during the Employment Period. “Disability” means that (i) the
Employee is unable to perform the job with or without a reasonable accommodation
pursuant to the state and federal disability discrimination laws or (ii) a
physician selected by the Company or its insurers, and acceptable to the
Employee or the Employee’s guardian or legal representative, made a finding of
permanent physical or mental disability and such disability is expected to
result in death or to be of a continuous duration of no less than twelve (12)
months. A termination of the Employee’s employment by the Company for Disability
shall be communicated to the Employee by written notice, and shall be effective
on the 30th day after receipt of such notice by the Employee (the “Disability
Effective Date”), unless the Employee is able to, and does, return to full-time
performance of the Employee’s duties before the Disability Effective Date or the
employee establishes that he is not disabled under this definition of
Disability.
 
(b) By the Company.
 
(A) The Company may terminate the Employee’s employment during the Employment
Period for Cause or without Cause. “Cause” means:
 
(i) Employee having, in the reasonable judgment of the Company, committed an act
which if prosecuted and resulting in a conviction would constitute a fraud,
embezzlement, or any felonious offense (specifically excepting simple
misdemeanors not involving acts of dishonesty and all traffic violations);
 
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(ii) the Employee’s theft, embezzlement, misappropriation of or intentional and
malicious infliction of damage to the Company’s property or business
opportunity;
 
(iii) the Employee’s repeated abuse of alcohol, drugs or other substances as
determined by an independent medical physician; or
 
(iv) the Employee’s engagement in gross dereliction of duties, refusal to
perform assigned duties consistent with his position, his knowing and willful
breach of any material provision of this Agreement continuing after written
notice from the Company or repeated violation of the Company’s written policies
after written notice.
 
(B) A termination of the Employee’s employment by the Company for Cause shall be
effectuated by giving the Employee written notice (“Notice of Termination for
Cause”) of the termination, setting forth the conduct of the Employee that
constitutes Cause. Termination of employment by the Company for Cause shall be
effective on the date when the Notice of Termination for Cause is given, unless
the notice sets forth a later date (which date shall in no event be later than
60 days after the notice is given).  Employee will be immediately advised of any
allegations of conduct covered by clause (A) above and will be provided a period
of thirty (30) days from the date of the written notice to defend himself
against such allegations and to take any appropriate remedial action. If
Employee shows that the allegations are untrue or takes appropriate remedial
action to address the allegations, the Company will not terminate the Employee’s
employment for Cause.
 
(C) A termination of the Employee’s employment by the Company without Cause
shall be effected by giving the Employee written notice of the termination at
least 6 months (180 days) prior to the termination date or by providing the
employee with compensation that would have been earned by Employee during the
six months period, in lieu of such notice and the severance benefits in section
5(a) below.
 
(c) By the Employee.
 
(A) The Employee may terminate employment with or without Good Reason.  “Good
Reason” means:
 
(i) a material reduction in the Employee's responsibilities, compensation, or
title;
 
(ii) any act of the Company requiring that the Employee relocate
 
Employee's living residence outside of the San Francisco Bay Area;
 
(iii) the assignment to the Employee of any duties inconsistent in any respect
with paragraph (a) of Section 2 of this Agreement, other than actions that are
not taken in bad faith and are remedied by the Company within thirty (30) days
after receipt of notice thereof from the Employee;
 
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(iv) any failure by the Company to comply with any provision of Section 3 of
this Agreement, other than failures that are not taken in bad faith and are
remedied by the Company within thirty (30) days after receipt of notice thereof
from the Employee;
 
(v) the occurrence of a Non-Negotiated Change in Control of the Company (as
defined below); or
 
(vi) the Company’s material breach of this Agreement.
 
For purposes of this Agreement, “Non-Negotiated Change in Control” means any one
or more of the following occurrences:
 
(x)           Any individual, corporation (other than the Company, any trustees
or other beneficiary holding securities under any employee benefit plan of the
Company, or any Company owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company), partnership, trust, association, pool, syndicate, or any other
entity or any group of persons acting in concert becomes the beneficial owner
(within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of
securities of the Company possessing more than fifty percent (50%) of the voting
power for the election of directors of the Company;
 
(y)           There shall be consummated any consolidation, merger, or other
business combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to such
consummation own, as a group, immediately after such consummation, voting
securities of the Company (or, if the Company does not survive such transaction,
voting securities of the entity surviving such transaction) having less than
fifty percent (50%) of the total voting power in an election of directors of the
Company (or such other surviving corporation); or
 
(z)           There shall be consummated any sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated basis) to a
party which is not controlled by or under common control with the Company.
 
(d) A termination of employment by the Employee for Good Reason shall be
effectuated by giving the Company written notice (“Notice of Termination for
Good Reason”) of the termination, setting forth the conduct of the Company that
constitutes Good Reason. A termination of employment by the Employee for Good
Reason shall be effective on the fifth business day following the date when the
Notice of Termination for Good Reason is given, unless the notice sets forth a
later date (which date shall in no event be later than 30 days after the notice
is given).
 
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(e) A termination of the Employee’s employment by the Employee without Good
Reason shall be effected by giving the Company written notice of the termination
at least sixty (60) days prior to the termination date, where it is reasonable
for the Employee to provide such notice.
 
(f) Notwithstanding anything in this Agreement to the contrary, in no event will
any amount which otherwise would be payable under or pursuant to this Agreement
be payable to Employee to the extent such amount, together with all other
amounts payable and benefits provided to Employee under or pursuant to this
Agreement and/or under any other plan(s), agreements and/or arrangement(s)
arising out of Employee’s employment relationship with Company and/or any direct
or indirect subsidiary of Company (including without limitation any such amounts
payable by any affiliate of Company or any acquirer of any of the stock or
assets of Company or any affiliate of such acquirer), if paid to Employee, would
result in Employee receiving an “excess parachute payment” for purposes of
Section 280G of the Internal  Revenue Code of 1986, as amended.  The
determination of whether a payment under or pursuant to this Agreement would
result in Employee  receiving an excess parachute payment (but for the
provisions of this Section 4) shall be made by counsel for Company reasonably
selected by Company and acceptable to Employee, after consultation with
Company’s independent auditor.
 
(g) No Waiver. The failure to set forth any fact or circumstance in a Notice of
Termination for Cause or a Notice of Termination for Good Reason shall not
constitute a waiver of the right to assert, and shall not preclude the party
giving notice from asserting, such fact or circumstance in an attempt to enforce
any right under or provision of this Agreement.
 
(h) Date of Termination. The “Date of Termination” means the date of the
Employee’s death, the Disability Effective Date, the date on which the
termination of the Employee’s employment by the Company for Cause or by the
Employee for Good Reason is effective, or the date on which the Company gives
the Employee notice of a termination of employment without Cause or the Employee
gives the Company notice of a termination of employment without Good Reason, as
the case may be.
 
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5. Obligations of the Company upon Termination.
 
(a) Termination for Reasons Other Than for Cause, Death or Disability, or Good
Reason. If, during the Employment Period, the Company terminates the Employee’s
employment, for any reason other than for Cause, Death or Disability, or the
Employee terminates his employment for Good Reason, the Company shall (i) pay
the Employee’s accrued but unpaid portion of the Annual Base Salary and Bonus,
if any, (the “Accrued Obligations”) to the Employee in a lump sum in cash within
thirty (30) days after the Date of Termination, and (ii) continue to pay the
Annual Base Salary for a period of twelve (12)  months from the date of
termination, provided, however, if (i) during the twelve (12) month period
immediately following a Non-Negotiated Change of Control, Employee is terminated
at any time by Employer without Cause or Employee terminates his employment for
Good Reason (other than simply the occurrence of a Non Negotiated Change of
Control), the Company shall pay to the Employee a lump sum in cash within thirty
(30) days after the Date of Termination in an amount equal to twenty four (24)
months of the Annual Base Salary.
 
(b) Termination for Cause or Resignation for other than a Good Reason. If the
Employee’s employment is terminated by the Company for Cause during the
Employment Period, or if the Employee terminates his employment during the
Employment Period other than for Good Reason, the Company shall pay Employee the
Accrued Obligations.
 
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Employee’s continuing or future participation in any plan, program, policy
or practice provided by the Company or any of its affiliated companies for which
the Employee may qualify, nor, subject to paragraph (f) of Section 4, shall
anything in this Agreement limit or otherwise affect such rights as the Employee
may have under any contract or agreement with the Company or any of its
affiliated companies. Vested benefits and other amounts that the Employee is
otherwise entitled to receive under any plan, policy, practice or program of, or
any contract or agreement with, the Company or any of its affiliated companies
on or after the Date of Termination shall be payable in accordance with such
plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement.
 
7. Covenant of Employee.
 
(a) Employee recognizes that the services to be performed by him pursuant to
this Agreement are special, unique and extraordinary.  The parties confirm that
it is reasonably necessary for the protection of the Company’s goodwill that
Employee agree, and accordingly, Employee does hereby agree and covenant that
Employee will not, directly or indirectly, except for the benefit of the
Company:
 
(i) become an officer, director, more than 2% stockholder, partner, associate,
employee, owner, proprietor, agent, creditor, independent contractor,
co-venturer or otherwise, or be interested in or associated with any other
corporation, firm or business engaged in the Territory (as hereinafter defined)
in the same or any similar business competitive with that of the Company
(including the Company’s present and future subsidiaries and affiliates) while
an employee of the Company;
 
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(ii) solicit, cause or authorize, directly or indirectly, to be solicited for or
on behalf of himself or third parties from parties who were customers of the
Company (including the Company’s present and future subsidiaries and affiliates)
at any time while an employee of the Company;
 
(iii) solicit, or cause or authorize, directly or indirectly, to be solicited
for employment for or on behalf of himself or third parties, any persons who
were at any time during the Employment Period hereunder, employees of the
Company (including the Company’s present and future subsidiaries and affiliates)
(except for general solicitations made to the public at large) for a period of
one year from the date the Employee’s employment was terminated; or
 
(iv) use the tradenames, trademarks, or trade dress of any of the products of
the Company (including the Company’s present and future subsidiaries and
affiliates); or any substantially similar tradename, trademark or trade dress
likely to cause, or having the effect of causing, confusion in the minds of
manufacturers, customers, suppliers and retail outlets and the public generally.
 
8. Confidentiality; Return of Property
 
(a) The Employee acknowledges that during the Employment Period he will receive
confidential information from the Company, the Parent and subsidiaries of the
Company (each a “Relevant Entity”).  Accordingly, the Employee agrees that
during the Employment Period and thereafter, the Employee and his affiliates
shall not, except in the performance of his obligations to the Company hereunder
or as may otherwise be approved in advance by the Company, directly or
indirectly, disclose or use (except for the direct benefit of the Company) any
confidential information that he may learn or has learned by reason of his
association with any Relevant Entity. Upon termination of this Agreement, the
Employee shall promptly return to the Company any and all properties, records or
papers of any Relevant Entity, that may have been in his possession at the time
of termination, whether prepared by the Employee or others, including, but not
limited to, confidential information and keys. For purposes of this Agreement,
“confidential information” includes all data, analyses, reports,
interpretations, forecasts, documents and information concerning a Relevant
Entity and its affairs, including, without limitation with respect to clients,
products, policies, procedures, methodologies, trade secrets and other
intellectual property, systems, personnel, confidential reports, technical
information, financial information, business transactions, business plans,
prospects or opportunities, (i) that the Company reasonably believes are
confidential or (ii) the disclosure of which could be injurious to a Relevant
Entity or beneficial to competitors of a Relevant Entity, but shall exclude any
information that (x) the Employee is required to disclose under any applicable
laws, regulations or directives of any government agency, tribunal or authority
having jurisdiction in the matter or under subpoena or other process of law, (y)
is or becomes publicly available prior to the Employee’s disclosure or use of
the information in a manner violative of the second sentence of this Section
8(a), or (z) is rightfully received by Employee without restriction or
disclosure from a third party legally entitled to possess and to disclose such
information without restriction (other than information that he may learn or has
learned by reason of his association with any Relevant Entity). For purposes of
this Agreement, “affiliate” means any entity that, directly or indirectly, is
controlled by, or under common control with, the Employee.  For purposes of this
definition, the terms “controlled” and under common control with” means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such person, whether through the ownership of
voting stock, by contract or otherwise.
 
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(b) Injunction.  Notwithstanding any other provisions of this Agreement,
Employee acknowledges and agrees that in the event of a violation or threatened
violation of any of the provisions of this Section 8, Employer shall have no
adequate remedy at law and shall therefore be entitled to enforce each such
provision by temporary or permanent injunctive or mandatory relief obtained in
any court of competent jurisdiction without the necessity of proving damage or
posting any bond or other security, and without prejudice to any other remedies
that may be available at law or in equity.
 
9. Successors.
 
(a) This Agreement is personal to the Employee and, without the prior written
consent of the Company, shall not be assignable by the Employee otherwise than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Employee’s legal representatives.
 
(b) This Agreement shall inure to the benefit of and be binding upon the Company
and its successors and assigns.
 
10. Miscellaneous.
 
(a) This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
except by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
 
(b) All notices and other communications under this Agreement shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt  requested, postage prepaid, addressed as
follows:
 
If to the Employee:

Martin E. Shmagin
3498 Viola Place
Concord, CA 94518

If to the Company:

President
Urigen Pharmaceuticals, Inc.
875 Mahler Road, Suite 235
Burlingame, CA 94518
 
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or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 10. Notices and communications
shall be effective when actually received by the addressee.
 
(c) The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
 
(d) Notwithstanding any other provision of this Agreement, the Company may
withhold from amounts payable under this Agreement all federal, state, local and
foreign taxes that are required to be withheld by applicable laws or
regulations.
 
(e) The failure of the Employee or the Company to insist upon strict compliance
with any provision of, or to assert any right under, this Agreement shall not be
deemed to be a waiver of such provision or right or of any other provision of or
right under this Agreement.
 
(f) The Employee and the Company acknowledge that this Agreement supersedes any
other agreement between them concerning the subject matter hereof.
 
(g) This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, and which together shall constitute one instrument.
 

 
[Signature Page follows]
 
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IN WITNESS WHEREOF, the Employee has hereunto set the Employee’s hand and,
pursuant to the authorization of its Board, the Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
 
 

 

URIGEN PHARMACEUTICALS, INC.
         
 
By:
/s/ Tracy Taylor       Tracy Taylor       Chairman          

 

  EMPLOYEE          
 
By:
/s/ Martin E. Shmagin       Martin E. Shmagin                  

 
 
 
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