ex_10-1.htm


     

    
      

      

    

    exhibit
10.1

     

     

    Agreement
and Plan of Merger

     

     

    This
Agreement and Plan of Merger (this “Agreement”) is made
and entered into as of July 9, 2008 (the “Agreement Date”), by
and among (i) ULURU
INC., a Nevada corporation (“Parent”), (ii) CARDINIA ACQUISITION CORP., a
Delaware corporation and a wholly owned Subsidiary of Parent (“Merger Sub”),
(iii) BIO MED SCIENCES,
INC., a New York corporation (the “Company”), and (iv)
each of Mark E. Dillon, Thomas Asson, Joseph A. Dillon, Sr., and David P. Willis
as the members of the Holders Representative Committee referred to herein for
the limited purposes specifically set forth herein and only in their capacity as
such.  Capitalized terms used herein without definition shall have the
respective meanings set forth in Article 1 hereof.

     

    Whereas,
in accordance with the terms set forth herein, the Merger Sub shall merge with
and into the Company (the “Merger”), following
which the Company shall continue as the surviving corporation and a wholly owned
subsidiary of the Parent, upon the terms and subject to the conditions set forth
in this Agreement and in accordance with the provisions of Delaware Law and New
York Law;

     

    Whereas,
the board of directors of the Company (the “Company Board”) has
approved and adopted this Agreement and the consummation of the transactions
contemplated hereby, and will be submitting the execution and delivery of this
Agreement and the performance of the transaction contemplated hereby to the
holders of the shares of the capital stock of the Company (collectively, the
“Company
Stockholders”), for their approval in accordance with New York
Law;

     

    Whereas,
the Company Board has carefully considered the terms of this Agreement and has
determined that the terms and conditions of the transactions contemplated
hereby, including the Merger, are fair and in the best interests of, and are
advisable to, the Company and the Company Stockholders, and the Company Board
recommends that the Company Stockholders vote for the approval of this Agreement
and the transactions contemplated hereby; and

     

    Whereas,
as soon as practicable following the execution and delivery of this Agreement,
Parent and certain stockholders of Company will execute and deliver a Voting and
Support Agreement in the form of Exhibit A hereto (the
“Voting and Support
Agreement”) pursuant to which, among other things, such stockholders will
covenant to: (i) at any time after the execution and delivery of this Agreement,
vote in favor of the adoption of this Agreement and the transactions
contemplated hereby, including, but not limited to, the Merger and (ii)
otherwise to support this Agreement and the transactions contemplated
hereby.

     

    Now,
Therefore, in consideration of the foregoing and the mutual covenants and
agreements herein contained and intending to be legally bound hereby, the
Parent, the Merger Sub and the Company hereby agree as follows:

     

    ARTICLE
1

     

    DEFINITIONS

     

    “Affiliate” shall be
with respect to any person or entity, any person or entity that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such person or entity.

     


    
      
         


      

      
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    “Affiliated Group” has
the meaning ascribed to it in Section 1504 of the Code, and in addition includes
any analogous combined, consolidated or unitary group, as defined under any
applicable state, local, or foreign income Tax law.

     

    “business day”
(whether such term is capitalized or not) means any day other than Saturday,
Sunday or a legal holiday that banks located in Dallas, Texas are open for
business.

     

    “Branded Product”
means any Company woundcare, scar management or anti-wrinkle product sold under
any trademark and specifically not including any Parent products, including the
Parent’s Altrazeal product.

     

    “Buyer Group” means
Parent and its direct and indirect Subsidiaries, Affiliates, successors, and
permitted assignees and includes, after the Effective Time, the Surviving
Corporation and its Affiliates, successors, and permitted assignees (all of the
foregoing being collectively referred to herein as the “Members of the Buyer
Group” and individually as a “Member of the Buyer
Group”).

     

    “Closing Payment”
means any payment required to be made by Parent to the Participating Rights
Holders pursuant to Section 2.6 hereof.

     

    “Closing Payment
Amount” means any of the Initial Closing Payment Amount and Subsequent
Closing Payment Amount.

     

    “Code” means the
Internal Revenue Code of 1986, as amended.

     

    “Company Common Stock”
means the Company’s Common Stock, $0.002 par value per share.

     

    “Company Intellectual
Property” means (i) Company Patents and (ii) all Intellectual Property
(other than Company Patents) owned by, or licensed to, the Company.

     

    “Company Patents”
means those United States, international and foreign patents and patent
applications (including provisional applications), in each case that are listed
in Schedule
4.10 of the Company Disclosure Schedule, and all reissues, divisions,
renewals, extensions, provisions, continuations, foreign counterparts, and
continuations-in-part thereof.

     

    “Company Registered
Intellectual Property” means those United States, international and
foreign: (a) patents and patent applications (including provisional
applications), in each case that are listed in Schedule 4.10 of the
Company Disclosure Schedule; (b) registered trademarks, registered service
marks, applications to register trademarks or service marks, intent-to-use
applications, or other registrations or applications related to trademarks or
service marks, in each case that are listed in Schedule 4.10 of the
Company Disclosure Schedule; and (c) registered copyrights and applications
for copyright registration, in each case that are listed on Schedule 4.10 of the
Company Disclosure Schedule.

     

    “Contingent Payment”
means any payment required to be made by Parent to the Participating Rights
Holders pursuant to Section 2.7 hereof.

     

    “Contingent Payment
Amount” means any of the Manufacturing Milestone Payment Amount or the
Sales Milestone Payment Amount.

     


    
      
         


      

      
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    “Damages” means all
damages, losses, claims, demands, actions, causes of action, suits, litigations,
arbitrations, liabilities, costs, and expenses, including court costs and the
reasonable fees and expenses of legal counsel.

     

    “Delaware Law” means
the General Corporation Law of the State of Delaware, as amended from time to
time.

     

    “Disqualified
Stockholder” means (with respect to any Securities of the Company)
Parent, Merger Sub or any Subsidiary of Parent or Merger Sub or any of their
respective Affiliates or any transferees of any such securities of the Company
at any time held by any of the foregoing.

     

    “Dissenting Shares”
means shares of Company Common Stock that are outstanding immediately prior to
the Effective Time of the Merger and which are held by stockholders who shall
have not voted in favor of the Merger or consented thereto in writing and who
shall have exercised dissenters’ rights or rights of appraisal for such shares
of Company Common Stock in accordance with New York Law and who, as of the
Effective Time, have not effectively withdrawn or lost such dissenters’
rights.

     

    “FDA” means the United
States Food and Drug Administration.

     

    “Fully Diluted Company Common
Stock Number” means the fully-diluted number of shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time assuming
the exercise or cancellation of all options and warrants pursuant to Sections
3.1(b) and 3.1(c) hereof.

     

    “Governmental
Authority” means any United States (federal, state or local) or foreign
government, or governmental, regulatory or administrative authority, agency or
commission.

     

    “Holders Representative
Committee” means the group of individuals appointed to serve as such
under Section 3.5.

     


    
      
         


      

      
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    “Indebtedness,” as
applied to any person, means (a) all indebtedness of such person for borrowed
money, whether current or funded, or secured or unsecured, (b) all indebtedness
of such person for the deferred purchase price of property or services
represented by a note or other security, (c) all indebtedness of such person
created or arising under any conditional sale or other title retention agreement
(even if the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of specific property),
(d) all indebtedness of such person secured by a purchase money mortgage or
other Lien to secure all or part of the purchase price of property subject to
such mortgage or other Lien, (e) all notes payable of such person, (f) all
indebtedness or liabilities of such person that would be required to be
reflected on a balance sheet or referred to in the notes thereto in accordance
with generally accepted accounting principles, (g) all indebtedness, liabilities
or obligations of such person that are identified in Schedule 4.11 of the Company
Disclosure Schedule as “Indebtedness,” (h) all other obligations of such person
under leases that have been or must be, in accordance with generally accepted
accounting principles, recorded as capital leases in respect of which such
person is liable as lessee, (i) any liability of such person in respect of
banker’s acceptances or letters of credit, and (j) all indebtedness referred to
in clauses (a), (b), (c), (d), (e), (f), (g), (h) or (i) hereof that is directly
or indirectly guaranteed by such person or which such person has agreed
(contingently or otherwise) to purchase or otherwise acquire or in respect of
which such person has otherwise assured a creditor against loss.

     

    “Initial Closing Payment
Amount” means an amount equal to seven million dollars
($7,000,000).

     

    “Intellectual
Property” means any or all of the following and all rights in, arising
out of, or associated therewith: (a) all United States, international and
foreign patents and applications thereof and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof; (b)
all inventions (whether patentable or not), invention disclosures, improvements,
drug candidates, trade secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation relating to any of the
foregoing; (c) all copyrights, copyright registrations and applications
therefor, and all other rights corresponding thereto throughout the world; (d)
all industrial designs and any registration and applications therefor throughout
the world; (e) all trade names, logos, common law trademarks and service marks,
trademark and service mark registration and applications therefor throughout the
world; (f) all databases and data collections and all rights therein throughout
the world; and (g) any similar or equivalent rights to any of the foregoing
anywhere in the world.

     

    “Knowledge,” when used
to qualify a representation or warranty in this Agreement, has the following
meaning:  Where a representation or warranty is made to the Company’s
knowledge, or with a similar qualification, the Company will be conclusively
deemed to have knowledge of any matter with respect to which the Company’s Chief
Executive Officer has actual knowledge after conducting a reasonable
investigation.  Where a representation or warranty is made to the
Parent’s knowledge, or with a similar qualification, Parent will be conclusively
deemed to have knowledge of any matter with respect to which Parent’s Chief
Executive Officer has actual knowledge after conducting a reasonable
investigation.

     


    
      
         


      

      
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    “Liens” means any and
all liens, claims, mortgages, security interests, pledges, options, rights of
first offer or refusal, charges, encumbrances, limitations on voting rights, and
restrictions on transfer of any kind, except (i) in the case of references to
securities, those arising under applicable securities laws solely by reason of
the fact that such securities were issued pursuant to exemptions from
registration under such securities laws, (ii) mechanic’s, materialmen’s and
similar liens, (iii) liens for Taxes not yet due and payable and
(iv) liens arising under worker’s compensation, unemployment insurance,
social security, retirement and similar legislation.

     

    “Manufacturing
Milestone” means (i) the first occurrence after the Effective Time of any
Member of the Buyer Group entering into, prior to December 31, 2008, a contract
manufacturing agreement with Unilever for moisture amplifying skin strips or
(ii) the first occurrence after the Effective Time of any Member of the Buyer
Group entering into any other contract manufacturing agreement with respect to a
product utilizing the Intellectual Property of the Company with a market
opportunity equal to or greater than the moisture amplifying skin
strip.

     

    “Manufacturing Milestone
Payment Amount” means an amount equal to five hundred thousand dollars
($500,000) minus the aggregate
amount of any and all set off claims made against any Contingent Payment
pursuant to Section 9.6 or Section 3.7 hereof, if any, that are outstanding as
of the date on which the Manufacturing Milestone Payment is made pursuant to
Section 2.7(a) hereof.

     

    “Material Adverse
Effect” means with respect to the Company or Parent, as the case may be,
any change or effect that, when taken individually or together with all other
adverse changes or effects, is or is reasonably likely to be materially adverse
to the business, results of operations and financial condition of the Company or
Parent, as the case may be, and their respective Subsidiaries, taken as a whole,
except for any such changes or effects resulting from or arising as a result of
(i) changes in general political or geopolitical conditions, (ii) changes in the
healthcare, pharmaceutical or biotechnology industries generally, or (iii)
changes generally applicable to the economy or securities market in the United
States or the world economy or international securities markets, unless in any
such instance such change described in (i), (ii) or (iii) above impacts the
Company or Parent, as the case may be, in a materially disproportionate manner
relative to the majority of other similar entities impacted by such
change.  A decline or any fluctuation in the trading price or prices
of Parent Common Stock shall in no event constitute a Material Adverse Effect
with respect to Parent.  Any determination, decision or position taken
by the FDA or other similar regulatory authority, any change in regulatory
strategy by the Company or any change in the regulatory development status or
affairs of the Company, that would otherwise materially adversely affect any of
the Company’s product candidates or products, shall constitute a Material
Adverse Effect with respect to the Company.

     

    “Merger Consideration”
means the cash and, at the election of Parent pursuant to Section 2.9 hereof,
the shares of Parent Common Stock payable to the Participating Rights Holders
pursuant to this Agreement.

     


    
      
         


      

      
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    “Net Sales” means,
with respect to a Sales Milestone Payment Product, gross revenues recorded by
Parent during the Sales Milestone Payment Period plus gross revenues recorded by
the Company prior to the Effective Time of the Merger during the Sales Milestone
Payment Period.  Net Sales shall be computed in accordance with
generally accepted accounting principles as prescribed for application by
publicly traded companies in the United States, but in any case shall be reduced
by the following amounts to the extent applicable with respect to any sale to a
particular customer that is not a Member of the Buyer Group: applicable fees;
discounts; refunds; rebates; replacement or other credits allowed for return of
product or as reimbursement for damaged product; freight and other shipping
charges not borne by the customer; customs duties; sales and use taxes, value
added taxes (VAT) and any other governmental tax or charge (except income taxes)
imposed on or at the time of the importation, exportation, use, transportation,
or sale of product to a particular customer, to the extent not borne by that
customer.  Notwithstanding anything to the contrary herein, “Net Sales” shall not
include any revenue received by any Member of the Buyer Group in connection with
contracts pertaining to research and development of Sales Milestone Payment
Products.

     

    “New York Law” means
New York Consolidated Laws, Chapter Four, applicable to business corporations,
as amended from time to time.

     

    “Parent Common Stock”
means duly authorized, validly issued, fully paid and non-assessable shares of
the common stock, $0.001 par value per share, of Parent.

     

    “Participating Rights Holders” means those
persons (other than the holders of Dissenting Shares, the Company, any
Disqualified Stockholder or any Subsidiary of the Company) who, immediately
prior to the Effective Time of the Merger, were holders of shares of Company
Common Stock and whose interests therein, as the result of the Merger, are
converted into rights to receive a portion of the Merger
Consideration.

     

    “Per Share Common Closing
Payment” means, with respect to any Closing Payment, the amount equal to
the quotient obtained by dividing (x) the applicable Closing Payment Amount
for such Closing Payment by (y) the Fully Diluted Company Common Stock
Number.

     

    “Per Share Common Contingent
Payment” means, with respect to any Contingent Payment, the amount equal
to the quotient obtained by dividing (x) the applicable Contingent Payment
Amount for such Contingent Payment, by (y) the Fully Diluted Company Common
Stock Number.

     

    “Person” (whether such
term is capitalized or not) means an individual, corporation, partnership,
limited partnership, limited liability company, syndicate, person (including a
“person” as defined in Section 13(d)(3) of the Exchange Act), trust, association
or entity or government, political subdivision, agency or instrumentality of a
government.

     


    
      
         


      

      
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    “Reference Market
Value” means the average closing sale price, as published in the Eastern
Edition of The Wall Street Journal, of a share of Parent Common Stock on the
American Stock Exchange for the twenty (20) consecutive trading day period
ending three (3) business days prior to the first business day following the six
(6) month anniversary of the Closing Date; provided, that
the Reference Market Value shall not be lower than $.50 less than the average
closing price for the twenty (20) consecutive trading period immediately
preceding the Agreement Date or higher than $.50 above the average closing price
for the twenty (20) consecutive trading period immediately preceding the
Agreement Date.

     

    “Sales Milestone”
means the recording of Net Sales of Sales Milestone Payment Products during the
Sales Milestone Payment Period in an aggregate amount in excess of one million
seven hundred twenty five thousand dollars ($1,725,000).

     

    “Sales Milestone Payment
Amount” means an amount determined as
follows:

     

    (i) If the
amount of Net Sales during the Sales Milestone Payment Period exceeds one
million seven hundred twenty five thousand dollars ($1,725,000) and is less than
or equal to one million seven hundred seventy thousand dollars ($1,770,000),
then the “Sales
Milestone Payment Amount” means an amount equal to two hundred fifty
thousand dollars ($250,000) minus the aggregate
amount of any and all set off claims made against any Contingent Payment
pursuant to Sections 3.7 or 9.6 hereof, if any, that are outstanding as of the
date on which the Sales Milestone Payment is made pursuant to Section 2.7(b)
hereof.

     

    (ii) If the
amount of Net Sales during the Sales Milestone Payment Period exceeds one
million seven hundred seventy thousand dollars ($1,770,000) and is less than or
equal to one million eight hundred fifteen thousand dollars ($1,815,000), then
the “Sales Milestone
Payment Amount” means an amount equal to five hundred thousand dollars
($500,000) minus the aggregate
amount of any and all set off claims made against any Contingent Payment
pursuant to Sections 3.7 or 9.6 hereof, if any, that are outstanding as of the
date on which the Sales Milestone Payment is made pursuant to Section 2.7(b)
hereof.

     

    (iii) If the
amount of Net Sales during the Sales Milestone Payment Period exceeds one
million eight hundred fifteen thousand dollars ($1,815,000) and is less than or
equal to one million eight hundred sixty thousand dollars ($1,860,000), then the
“Sales Milestone
Payment Amount” means an amount equal to seven hundred fifty thousand
dollars ($750,000) minus the aggregate
amount of any and all set off claims made against any Contingent Payment
pursuant to Sections 3.7 or 9.6 hereof, if any, that are outstanding as of the
date on which the Sales Milestone Payment is made pursuant to Section 2.7(b)
hereof.

     

    (iv) If the
amount of Net Sales during the Sales Milestone Payment Period exceeds one
million eight hundred sixty thousand dollars ($1,860,000) and is less than or
equal to one million nine hundred five thousand dollars ($1,905,000), then the
“Sales Milestone
Payment Amount” means an amount equal to one million dollars ($1,000,000)
minus the
aggregate amount of any and all set off claims made against any Contingent
Payment pursuant to Sections 3.7 or 9.6 hereof, if any, that are outstanding as
of the date on which the Sales Milestone Payment is made pursuant to Section
2.7(b) hereof.

     

    (v) If the
amount of Net Sales during the Sales Milestone Payment Period exceeds one
million nine hundred five thousand dollars ($1,905,000) and is less than or
equal to one million nine hundred fifty thousand dollars ($1,950,000), then the
“Sales Milestone
Payment Amount” means an amount equal to one million two hundred fifty
thousand dollars ($1,250,000) minus the aggregate
amount of any and all set off claims made against any Contingent Payment
pursuant to Sections 3.7 or 9.6 hereof, if any, that are outstanding as of the
date on which the Sales Milestone Payment is made pursuant to Section 2.7(b)
hereof.

     

    (vi) If the
amount of Net Sales during the Sales Milestone Payment Period exceeds one
million nine hundred fifty thousand dollars ($1,950,000), then the “Sales Milestone Payment
Amount” means an amount equal to one million five hundred thousand
dollars ($1,500,000) minus the aggregate
amount of any and all set off claims made against any Contingent Payment
pursuant to Sections 3.7 or 9.6 hereof, if any, that are outstanding as of the
date on which the Sales Milestone Payment is made pursuant to Section 2.7(b)
hereof.

     

    “Sales Milestone Payment
Period” means the period of time commencing on January 1, 2008 and ending
on December 31, 2008.

     

    “Sales Milestone Payment
Product” means any product sold by Parent, Merger Sub or Company during
the Sales Milestone Payment Period as a Branded Product that could not have been
commercialized without the Intellectual Property of the Company.

     

    “SEC” means the United
States Securities and Exchange Commission.

     

    “Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.

     

    “Subsequent Closing Payment
Amount” means an amount (payable in the form or forms of consideration
set forth in Section 2.9 hereof) equal to three million dollars ($3,000,000),
subject to adjustment pursuant to the terms of this Agreement.

     

    “Subsidiary or
Subsidiaries” (whether or not capitalized) of any person means (i) any
corporation, partnership, joint venture or other legal entity of which such
person (either above or through or together with any other subsidiary), owns,
directly or indirectly, more than 50% of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity or
(ii) any partnership, limited liability company, association, trust, or other
entity in which such person (directly or indirectly through another Subsidiary
or Subsidiaries) holds an equity interest.

     


    
      
         


      

      
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    “Tax” or “Taxes” (and with
correlative meaning, “Taxable” and “Taxing”) means any
federal, state, local, or foreign income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use, transfer, registration, value
added, import value added, excise, export, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, net worth, intangibles, social
security, pension insurance contributions, unemployment, disability, payroll,
license, employee, withholding tax, including, but not limited to, on salaries
and wages, or other tax or levy or contribution, of any kind whatsoever,
regardless, whether directly or indirectly owed, including any interest,
penalties, special charges or additions to tax in respect of the
foregoing.

     

    “Valid and Enforceable
Claim” means (i) a claim of any issued patent which has not expired,
lapsed, or been held invalid, unpatentable or unenforceable by court or other
authority of competent jurisdiction in the issuing country in a decision which
is not subject to pending appeal or was not or is no longer appealable, or (ii)
a claim in any pending patent application which has not been the subject of a
final rejection notice from which an appeal cannot be taken or with respect to
which the applicable period of appeal has expired.

     

    


     

    ARTICLE
2

     

    THE
MERGER

     

    2.1 The
Merger.  Subject to the other terms and conditions of this
Agreement, including those set forth in Article 8 hereof, and in accordance
with Delaware Law and New York Law, at the Effective Time, Merger Sub shall be
merged with and into the Company.  As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation of the Merger (the surviving corporation
is referred to herein as the “Surviving
Corporation”).

     

    2.2 Consummation of the Merger;
Effective Time.  Subject to the fulfillment or waiver of all of
the conditions contained in Article 8, as soon as is reasonably practicable
on or after the date hereof, a closing (the “Closing”) will be
held at the offices of Parent or such other place as the parties may
agree.  The date on which the Closing is actually held is referred to
herein as the “Closing
Date.”  On the Closing Date, Parent, Merger Sub and the Company
shall cause the Merger to be consummated by filing (i) with the Secretary
of State of the State of Delaware a certificate of merger, substantially in the
form of Exhibit
B-1 hereto,
executed in accordance with the relevant provisions of Delaware Law (the “Delaware Merger
Certificate”) and (ii) with the Secretary of State of the State of New
York a certificate of merger, substantially in the form of Exhibit B-2 hereto, executed
in accordance with the relevant provisions of New York Law (the “New York Merger
Certificate” and together with the Delaware Merger Certificate, the
“Merger
Documents”).  The term “Effective Time” means
the later of the date and time of the filing of the Merger Documents with (i)
the Secretary of State of the State of Delaware and (ii) the Secretary of State
of the State of New York, as applicable (or such later time as may be agreed by
each of the parties hereto and specified in the Merger Documents in accordance
with Delaware Law and New York Law, as applicable).

     


    
      
         


      

      
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    2.3 Effect of the
Merger.  At the Effective Time, the effect of the Merger shall
be as provided in this Agreement, the Merger Documents and as provided by the
applicable provisions of Delaware Law and New York Law.  Without
limiting the generality of the foregoing, and subject thereto, upon the
consummation of the Merger, all the property (including, but not limited to,
Intellectual Property and licenses to Intellectual Property, subject to Section
2.3(a) below), rights, privileges, powers and franchises of the Company and the
Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities,
obligations, restrictions, disabilities and duties of each of those corporations
shall become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.

     

     

    (a)  Original Ribbon Copies of
Patents.  Provided that such possession has no legal bearing
and confers no right of ownership to Mark E. Dillon with respect to any
Intellectual Property, Mark E. Dillon shall be entitled to maintain in his
possession all original “Ribbon” copies of patents issued to date or hereafter
to Company or Surviving Corporation wherein Mark E. Dillon is listed as
inventor.  In the event that said originals are required by Parent or
the Surviving Corporation for any valid legal reason, said documents will be
surrendered for such period as required, and Parent or Surviving Corporation
shall return same to Mark E. Dillon when no longer required.

     

    


    2.4 Charter;
Bylaws.

     

    (a) As soon
as practicable after the Effective Time, Parent shall cause that the certificate
of incorporation of the Surviving Corporation be amended and restated in its
entirety to conform substantively, to the extent reasonably practicable (except
that the name of the Surviving Corporation shall continue to be “Bio Med
Sciences, Inc.”), to the terms of the certificate of incorporation of the Merger
Sub, as in effect immediately prior to the Effective Time, and such amended and
restated certificate of incorporation shall be the certificate of incorporation
of the Surviving Corporation (the “Surviving Corporation
Charter”) until thereafter amended as provided by New York Law and such
Surviving Corporation Charter.

     

    (b) As soon
as practicable after the Effective Time, Parent shall cause that the bylaws of
the Surviving Corporation be amended and restated in their entirety to conform
substantively, to the extent reasonably practicable, to the terms of the bylaws
of Merger Sub, as in effect immediately prior to the Effective Time, which shall
thereafter be the bylaws of the Surviving Corporation until thereafter amended
as provided by New York Law, the Surviving Corporation Charter and such
bylaws.

     

    2.5 Directors and
Officers.  The directors of the Merger Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Surviving Corporation Charter and the
bylaws of the Surviving Corporation, and until their respective successors are
duly elected and qualified or until their earlier death, disability, resignation
or removal.  The officers of the Merger Sub immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified or until their earlier death, disability, resignation or
removal.

    
       

      2.6 Closing
Consideration.

       

      (a) Initial Closing
Payment.  At the Effective Time, and subject to the provisions
of Article 3 hereof, Parent shall make a cash payment equal to the Initial
Closing Payment Amount, subject to the provisions of Article 3 hereof, the
remainder of the Initial Closing Payment Amount shall be payable in cash to the
Participating Rights Holders in the respective amounts set forth on the Merger
Consideration Certificate (as defined in Section 2.8 below) as being payable to
each Participating Rights Holder in respect of the Initial Closing Payment
Amount.

       

      (b) Subsequent Closing
Payment.  Subject to the provisions of Article 3 hereof, Parent
shall make a payment equal to the Subsequent Closing Payment Amount upon the
first business day following the six month anniversary of the Closing
Date.  The Subsequent Closing Payment Amount shall be payable to the
Participating Rights Holders in the respective amounts set forth on the Merger
Consideration Certificate as being payable to each Participating Rights Holder
in respect of the Subsequent Closing Payment Amount.

    

    
 

    
      
         


      

      
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    2.7 Contingent
Consideration.

     

    (a) Manufacturing Milestone
Payment.  Subject to the limitations set forth herein,
including without limitation those set forth in Sections 2.7(c) through (h)
below, within ninety (90) days after December 31, 2008, if any Member of the
Buyer Group has achieved the Manufacturing Milestone, Parent shall pay to the
Participating Rights Holders an amount equal to the Manufacturing Milestone
Payment Amount (the “Manufacturing Milestone
Payment”).  The obligation of Parent under this Section 2.7(a)
shall be subject to the provisions of Article 3 below.  The
Manufacturing Milestone Payment Amount shall be payable to the Participating
Rights Holders in the respective amounts set forth on the Merger Consideration
Certificate as being payable to each Participating Rights Holder in respect of
the Manufacturing Milestone Payment Amount.

     

    (b) Sales Milestone
Payment.  Subject to the achievement by the Company and/or the
Buyer Group of the Sales Milestone and to the limitations set forth herein,
including without limitation those set forth in Sections 2.7(c) through (h)
below, within ninety (90) days after the end of the Sales Milestone Payment
Period, Parent shall pay to the Participating Rights Holders an amount equal to
the Sales Milestone Payment Amount (the “Sales Milestone
Payment”).  The obligation of Parent under this Section 2.7(b)
shall be subject to the provisions of Article 3 below.  The Sales
Milestone Payment Amount shall be payable to the Participating Rights Holders in
the respective amounts set forth on the Merger Consideration Certificate as
being payable to each Participating Rights Holder in respect of the Sales
Milestone Payment Amount.  For purposes of clarification, Parent shall
make payment equal to the Sales Milestone Payment Amount only once regardless of
the number of times that the Sales Milestone is achieved.

     

    (c) Delivery of Sales Milestone
Payment Certificate.  On or prior to the ninetieth (90th) day
following end of the Sales Milestone Payment Period, Parent shall deliver to the
Holders Representative a certificate (the “Sales Milestone Payment
Certificate”), setting forth (a) the amount of Net Sales for the
Sales Milestone Payment Period, and (b) Parent’s determination of the amount of
the Sales Milestone Payment, if any, due pursuant to Section 2.7(b)
above.

     

    (d) Holders Representative
Committee Audit Rights.  Parent hereby grants, and shall cause
the other members of the Buyer Group to grant, the Holders Representative
Committee and its representatives and advisers, at the Holders Representative
Committee’s sole expense, the right, exercisable no more than once during the
forty-five (45) day period (the “Sales Milestone Payment
Dispute Period”) following the receipt by the Holders Representative
Committee of the Sales Milestone Payment Certificate, subject to the execution
of, and compliance with, a customary confidentiality agreement in form and
substance reasonably satisfactory to Parent, to demand an opportunity to examine
and have full access to the Buyer Group’s books of account and records of Net
Sales for the Sales Milestone Payment Period, at the location of such records on
prior written notice of at least ten (10) days, for the purpose of verifying the
amount of Net Sales for the Sales Milestone Payment Period (such review shall be
referred to herein as the “Sales Milestone Payment
Audit”).  For the purpose of conducting the Sales Milestone
Payment Audit, the Holders Representative Committee may hire, at its expense,
one or more auditors or attorneys of the Holders Representative Committee’s
choosing to assist in such examination, provided, that such
auditors or attorneys have entered into customary confidentiality agreements
with Parent in form and substance reasonably acceptable to
Parent.  The Holders Representative Committee and such representatives
shall have access to all of the books and records reasonably required to perform
the Sales Milestone Payment Audit at all times during the period of one hundred
twenty (120) days following the date on which the Holders Representative
Committee delivers a Dispute Notice (as defined below) to Parent (the “Sales Milestone Payment
Audit Period”).  Each Member of the Buyer Group hereby agrees
to keep the books of account and records of Net Sales for the Sales Milestone
Payment Period until the expiration of the Sales Milestone Payment Dispute
Period.

     

    (e) Dispute
Notice.  In the event that the Holders Representative Committee
does not agree with or desires to investigate the calculation of the Sales
Milestone Payment Amount set forth on the Sales Milestone Payment Certificate,
the Holders Representative Committee shall be entitled, during the Sales
Milestone Payment Audit Period, to give Parent written notice (a “Dispute Notice”), of
such disagreement or desire.  In the event that the Holders
Representative delivers a Dispute Notice, the date by which Parent shall be
obligated to deliver the Sales Milestone Payment reflected in the Sales
Milestone Payment Certificate shall not be extended, but the date by which
Parent shall be obligated to deliver any additional increment of Sales Milestone
Payment determined as a result of the Sales Milestone Payment Audit, shall be
extended until the date that is thirty (30) days following the final
determination of the disputed Sales Milestone Payment Amount pursuant to the
provisions of Sections 2.7(f) and 2.7(g) below.  In the event that the
Holders Representative Committee does not deliver a Dispute Notice during the
Sales Milestone Payment Audit Period, the Sales Milestone Payment Amount set
forth on the Sales Milestone Payment Certificate shall irrevocably be deemed to
be the final Sales Milestone Payment Amount for all purposes of this Agreement,
absent fraud or intentional misconduct, or the discovery after the expiration of
the Sales Milestone Payment Dispute Period of a material fact in existence at
such time and not disclosed by Parent to the Holders Representative Committee in
the Sales Milestone Payment Certificate.  

     

    (f) Agreed Sales Milestone
Payment.  In the event that the Holders Representative
Committee delivers a Dispute Notice within the Sales Milestone Payment Dispute
Period, the Holders Representative Committee and Parent shall, for a period of
not less than thirty (30) days after the later of delivery of the Dispute Notice
or conclusion of the Sales Milestone Payment Audit demanded by the Holders
Representative Committee, attempt in good faith to resolve the disputed Sales
Milestone Payment Amount (the “Disputed Sales Milestone
Payment Amount”), and mutually determine any adjustments to the Sales
Milestone Payment Amount (the “Agreed Sales Milestone
Payment Amount”).  Parent and the Holders Representative
Committee shall, subject to the execution of a confidentiality agreement in form
and substance reasonably satisfactory to the delivering party, provide each
other with such information, records and material kept in the ordinary course of
business in such party’s possession and which such party may disclose without
violating confidentiality obligations to third parties, as is reasonably
necessary and appropriate in attempting to resolve any such Disputed Sales
Milestone Payment Amount, including the delivery of a copy to the Holders
Representative Committee of any such information, records and material, to the
extent then available, that was used to calculate the amount of Net Sales and
the Sales Milestone Payment Amount set forth on the Sales Milestone Payment
Certificate.

     

    (g) Arbitration of Disputes Over
Net Sales.  In the event that no agreement can be reached by
the Holders Representative Committee and Parent as to the calculation of the
Disputed Sales Milestone Payment Amount within ninety (90) days after the later
of the delivery of a Dispute Notice or the conclusion of the Sales Milestone
Payment Audit, and such disagreement relates only to the amount of Net Sales of
Sales Milestone Payment Products, then, pursuant to this Section 2.7(g), either
party shall have the right to submit the Disputed Sales Milestone Payment Amount
to arbitration by the New York, New York office of a reputable accounting firm
(the “Accountant”) as the
Holders Representative Committee and Parent may mutually agree; provided, however, that the
engagement and charge of the Accountant shall be limited to determining the Net
Sales of any identified product or products for the Sales Milestone Payment
Period, and the Accountant shall not be entitled to determine whether any
products sold by Parent or its Affiliates are Sales Milestone Payment Products
for purposes of this Agreement or any other matter.  The Holders
Representative Committee and Parent shall jointly select the Accountant to
perform the calculation within thirty (30) days after either Holders
Representative Committee or Parent delivers a written demand to the other to
submit the dispute to arbitration; provided, that in the
event that the Holders Representative Committee and Parent are unable to agree
upon the Accountant to perform such calculation within such thirty (30) day
period, then each of the Holders Representative Committee and Parent shall
select one Accountant and such Accountants shall jointly select an alternative
Accountant to perform such calculation.  The Accountant selected in
accordance with the foregoing sentence shall be responsible for the
determination of the Disputed Sales Milestone Payment Amount (the “Appraiser”).  The
Appraiser shall determine the Disputed Sales Milestone Payment Amount within the
limitations set forth above within ninety (90) days after the date of such
Appraiser’s engagement and the Appraiser shall be provided with such information
and records, which may include on-site access, relating to such dispute as it
may reasonably request.  The Disputed Sales Milestone Payment Amount
determined by an Appraiser in accordance with this paragraph (g) shall be deemed
to be the final Sales Milestone Payment Amount for all purposes of this
Agreement.  The fees and expenses of the Appraiser shall be paid by
the Holders Representative Committee, provided, that if the
final Sales Milestone Payment Amount determined by the Appraiser in any
examination conducted pursuant to this Section 2.7(g) is greater than the
corresponding Sales Milestone Payment Amount set forth on the relevant Sales
Milestone Payment Certificate by an amount equal to or more than two and one
half percent (2.5%) of the Sales Milestone Payment Amount set forth on the Sales
Milestone Payment Certificate, then Parent shall pay all of the fees and
expenses of the Appraiser.  The determination of the Sales Milestone
Payment Amount pursuant to this Section 2.7(g) shall be conclusive, in the
absence of fraud or intentional misconduct, or the discovery (following the
completion of any determination by an Appraiser) of a material fact in existence
at the time of such determination and not made available by Parent to the Holder
Representative Committee, its representatives or the Appraiser in the course of
the dispute proceeding, which material fact, if taken into account in the
calculation of the Sales Milestone Payment Amount, would have resulted in an
increase in the Sales Milestone Payment Amount.

     

    
      (h)   Interest.  All
or any portion of the Sales Milestone Payment, including any incremental amounts
determined by agreement or pursuant to a determination by the Appraiser, not
paid when due under this Agreement shall bear interest at an annual rate equal
to the prime rate established by the Wall Street Journal from the date such
incremental amount would originally have been due until the date such
incremental amount is paid in full.

    

    
 

    
      
         


      

      
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    2.8 Merger Consideration
Certificate.  At Closing, the Company shall deliver to Parent
and the Holders Representative Committee a certificate (the “Merger Consideration
Certificate”) that shall include a calculation of the respective portions
of each Closing Payment and each Contingent Payment payable to each
Participating Rights Holder pursuant to the terms of Section 3.1
hereof.  The information and calculations set forth in the Merger
Consideration Certificate shall be deemed to constitute a representation and
warranty of the Company and any inaccuracy or calculation of any information set
forth in the Merger Consideration Certificate that results in Damages to Parent
shall entitle Parent to make a claim for indemnification for breach of
representation or warranty under Section 9.3 of this Agreement.

     

    2.9 Form of Consideration
Payable by Parent.

     

    (a) Parent Common
Stock.  Subject to the provisions of Section 2.9(b) below, at
the sole discretion of Parent, any portion or all of the Subsequent Closing
Payment Amount may be satisfied by (i) the issuance to the Participating
Rights Holders of that number of shares of Parent Common Stock equal to the
quotient obtained by dividing (x) the amount of the Subsequent Closing Payment
Amount that Parent has elected to satisfy through the issuance of whole shares
of Parent Common Stock, by (y) the Reference Market Value on the date of
payment, with any fraction of a share of Parent Common Stock being treated as
provided in Section 2.9(c) below, (ii) payment of such amount in cash, or (iii)
a combination of the forms of consideration referred to in the foregoing clauses
(i) and (ii).

     

    (b) Listing of
Shares.  The right of Parent to pay all or any portion of the
Subsequent Closing Payment Amount through the issuance of shares of Parent
Common Stock shall, upon the date such shares are issued to the Participating
Rights Holders, be subject to Parent having caused such shares to be listed on
each securities exchange on which similar securities, including as to class and
series, issued by Parent are then listed.

    


    (c) No Fractional
Shares.  In the event that all or any portion of the Subsequent
Closing Payment Amount is paid in the form of shares of Parent Common Stock, no
certificates or scrip representing fractional shares of Parent Common Stock
shall be issued.  Fractional portions of shares shall be rounded down
to the next whole integer and an amount in cash equal to the aggregate Reference
Market Value of all so affected fractional portions of shares shall be deposited
with the Holders Representative Committee by Parent.

     

    (d) Legend.  Any
certificate issued to any Participating Rights Holders representing shares of
Parent Common Stock that have not been registered under the Securities Act shall
be imprinted with the following legend (or the substantial equivalent
thereof):

    


     

    “THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, OTHER THAN PURSUANT TO
REGISTRATION UNDER SAID ACT OR IN CONFORMITY WITH THE LIMITATIONS OF
RULE 144 AND RULE 145 OR OTHER SIMILAR RULE OR EXEMPTION AS THEN IN EFFECT,
WITHOUT FIRST OBTAINING (I) IF REASONABLY REQUIRED BY THE COMPANY, A WRITTEN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, WHICH MAY BE COUNSEL TO THE
COMPANY, TO THE EFFECT THAT THE CONTEMPLATED SALE OR OTHER DISPOSITION WILL NOT
BE IN VIOLATION OF SAID ACT, OR (II) A ‘NO-ACTION’ OR INTERPRETIVE LETTER
FROM THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT SUCH
STAFF WILL TAKE NO ACTION IN RESPECT OF THE CONTEMPLATED SALE OR OTHER
DISPOSITION.”

     

    


     

    In the event that any certificate
issued to any Participating Rights Holders representing shares of Parent Common
Stock is imprinted with the foregoing legend (or a similar legend), Parent shall
cause such legends to be removed in connection with any resale of such shares of
Parent Common Stock that is made in compliance with, or pursuant to a valid
exemption from, the registration provisions of the Securities Act.

     

    (e) Accredited Investors Plus
35.  In the event that Parent elects to pay all or any portion
of the Subsequent Closing Payment Amount through the issuance of shares of
Parent Common Stock, then Parent, in its sole discretion, shall be entitled to
restrict any such issuance of Parent Common Stock to only those Participating
Rights Holders that are “accredited investors” as defined in Rule 501 under the
Securities Act, and the next 35 Participating Rights Holders based on size of
holding as per Schedule 4.4 of the
Company Disclosure Schedule.  Notwithstanding the foregoing or
anything to the contrary contained elsewhere in this Agreement, Parent shall be
entitled to determine, in its sole discretion (which shall be exercised based
solely on accredited investor status), (i) which Participating Rights Holders
shall receive shares of Parent Common Stock and which Participating Rights
Holders shall receive cash in satisfaction of any such payment, and (ii) the
ratio, if any, of cash versus shares of Parent Common Stock to be received by
any Participating Rights Holder in satisfaction of any such
payment.

     


    
      
         


      

      
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    2.10 Cash Payments. Parent
shall make payment to each Participating Rights Holder of any cash amount that
Parent is required or elects, in accordance with the terms of Section 2.9
hereof, to pay to such Participating Rights Holder pursuant to the terms of this
Agreement, either (i) for any such payment greater than $500,000, by wire
transfer to an account in the name of such Participating Rights Holder as
provided to Parent by written notice from the Holders Representative Committee
at least two (2) business days prior to the date when Parent shall be required
to make such payment or (ii) delivery of a check, made payable to such
Participating Rights Holder, to the Holders Representative Committee for further
distribution to such Participating Rights Holder pursuant to Section 3.2
hereof.

     

     

    


    ARTICLE
3

     

    CONVERSION
OF SECURITIES; EXCHANGE OF CERTIFICATES; PAYMENTS

     

    3.1 Conversion of
Securities.

     

    (a) Common
Stock.  Each share of the Company Common Stock issued and
outstanding immediately prior to the Effective Time and held by Participating
Rights Holders will be converted at the Effective Time into the right to receive
from Parent, in the form of consideration determined by Parent (except for the
Initial Closing Payment Amount and Contingent Payment Amount which shall be paid
in cash) in accordance with Section 2.9, (i) an amount equal to the Per
Share Common Closing Payment, plus (ii) an amount
equal to the Per Share Common Contingent Payment associated with each Contingent
Payment when such payments, if any, are made pursuant to Section 2.7 hereof. All
such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of Company
Common Stock shall cease to have any rights with respect thereto, except the
right to receive the Per Share Common Closing Payment associated with each
Closing Payment when such payments are made pursuant to Sections 2.6 hereof and
the Per Share Common Contingent Payment associated with each Contingent Payment,
if any, when such payments are made pursuant to Sections 2.7 hereof, upon the
surrender of such certificate in accordance with Section 3.2 and this Section
3.1.

     

    (b) Exercise and Termination of
Options.

     

    (i) All
options to purchase Company Common Stock issued under any stock option or equity
incentive plan of the Company (each, a “Company Option Plan”)
or otherwise listed on Schedule 4.4 of the Company
Disclosure Schedule (which Company Disclosure Schedule shall list all options to
purchase Company Common Stock or any other equity of the Company), whether or
not exercisable, whether or not vested, and whether or not performance-based,
(each a “Company
Option”), shall have been exercised or terminated pursuant to any
applicable Company Option Plan immediately prior to the Effective Time and shall
not be assumed by the Surviving Corporation or Parent.

     

    (ii) As soon
as reasonably practicable following the Agreement Date, the Company Board (or,
if appropriate, any committee thereof administering any Company Option Plan)
shall take all necessary action, including obtaining the consent of any holder
of a Company Option, to: (A) terminate, as of the Effective Time, each Company
Option Plan; (B) terminate, as of the Effective Time, each Company Option
that is then outstanding and unexercised, whether unvested or vested (including
Company Options that become vested as a result of any acceleration of the
vesting schedule of such Company Options pursuant to the terms of such Company
Options as a result of or in connection with the Merger, or as a result of any
such acceleration effected by the Company Board or any committee thereof prior
to the Closing); and (C) terminate all unvested Company Options without
consideration.  All Company Options, when terminated as contemplated
under this Section 3.1(b), shall no longer be outstanding and shall
automatically cease to exist, and each holder of a Company Option shall cease to
have any rights with respect thereto.

     

    (c) Warrants and Other
Rights.  All warrants to purchase shares of the Company’s
capital stock, if any, and all other rights or options (other than Company
Options) to purchase or acquire any securities of the Company, if any (all of
the foregoing, collectively, the “Company Warrants”),
whether or not exercisable or vested, shall have been exercised or terminated
prior to the Closing Date.  Parent shall not assume any Company
Warrants.

     

    (d) Treasury
Stock.  Notwithstanding anything to the contrary expressed or
implied herein, each share of Company Common Stock held in the treasury of the
Company or held by any Subsidiary of the Company immediately prior to the
Effective Time shall be cancelled and extinguished at the Effective Time without
any conversion thereof and no payment shall be made with respect
thereto.

     

    (e) Stock Held by Disqualified
Stockholders.  Notwithstanding anything to the contrary
expressed or implied herein, each share of Company Common Stock held by any
Disqualified Stockholder shall be cancelled and extinguished at the Effective
Time without any conversion thereof and no payment shall be made with respect
thereto.

     

    (f) Stock of Merger
Sub.  Each share of common stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into one
(1) validly issued fully paid and nonassessable share of common stock of the
Surviving Corporation and Parent shall be the owner and holder of all such
shares.

     


    
      
         


      

      
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    3.2 Exchange of Certificates and
Instruments.

     

    (a) Exchange
Procedures.

     

    (i) Within a
reasonable period of time prior to the Closing, Parent shall deliver to the
Company forms of the transmittal materials which Parent or its transfer agent
will require from those Participating Rights Holders entitled to receive at the
Closing Merger Consideration in respect of their shares of Company Common Stock,
which materials may include any certifications Parent may request with respect
to compliance with any withholding obligations of Parent or the Surviving
Corporation under the Code or other applicable Tax law.  The Company
shall distribute such materials to eligible Participating Rights
Holders.  As promptly as practicable following the Effective Time,
Parent shall deliver to each Participating Rights Holder who has completed such
transmittal materials and returned them to Parent at or prior to the Closing,
together with the certificate or certificates representing outstanding shares of
Company Common Stock (the “Certificates”), a
check (or, in the case of any payment in excess of $500,000, a wire transfer)
representing that portion of the Initial Closing Payment Amount to which such
Participating Rights Holder is entitled; provided, that such
payment made by Parent by check may be made by delivering such checks on the
Closing Date to the Holders Representative Committee, which, in turn, shall
distribute such checks to the appropriate Participating Rights
Holders.  The delivery of such checks (or wire transfers, as
applicable) by Parent to the Holders Representative Committee shall be deemed,
for all purposes, to have satisfied in full Parent’s Initial Closing Payment
Amount obligation to such Participating Rights Holders and Parent shall have no
further obligation for such payments.  Parent shall not be required to
pay any amount of the Closing Payment or any Contingent Payment to any
Participating Rights Holder until receipt from such Participating Rights Holder
of properly completed and executed transmittal materials in the form prepared by
Parent.

     

    (ii) As
promptly as practicable after the Effective Time, Parent or its transfer agent
will send to each Participating Rights Holder who does not submit completed
transmittal materials to Parent at or before the Closing, as permitted by
Section 3.2(a)(i) above, transmittal materials for use in exchanging his, her or
its Certificates for the applicable portion of the Merger Consideration into
which such shares of Company Common Stock (other than any Dissenting Shares)
have been converted.  Until surrendered as contemplated by this
Section 3.2, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the applicable
amounts of Merger Consideration payable pursuant to Section 3.1.  Upon
receipt of the completed transmittal materials and the applicable Certificates,
Parent will issue to the Participating Rights Holder a check (or, in the case of
any payment in excess of $500,000, a wire transfer) representing that portion of
the Initial Closing Payment Amount to which such Participating Rights Holder is
entitled.  Parent shall not be required to deliver any of the Merger
Consideration to any Participating Rights Holder until receipt from such
Participating Rights Holder of properly completed and executed transmittal
materials in the form prepared by Parent and the applicable
Certificate.

     

    (iii) Parent
shall be entitled to rely entirely on the information contained in the
Capitalization Certificate, Merger Consideration Certificate or any other
certificates delivered pursuant to this Agreement and in any transmittal
materials delivered hereunder for purposes of satisfying the obligation of
Parent to deliver the Merger Consideration hereunder.

     

    (b) No Further Rights in
Certificates or Company Options.  After the Effective Time,
holders of Company Common Stock or Company Options outstanding immediately prior
to the Effective Time will cease to be, and will have no rights as, stockholders
or right holders of the Company or the Surviving Corporation, other than
(i) in the case of Company Common Stock (other than Dissenting Shares and
other than any Disqualified Stockholder), the right to receive the applicable
portions of the Merger Consideration; (ii) in the case of Dissenting
Shares, the rights afforded to the holders thereof under New York Law, and
(iii) rights under this Agreement.

     

    (c) No
Liability.  Neither Parent, the Surviving Corporation nor the
Company shall be liable to any holder of Company Common Stock for any portion of
the Merger Consideration delivered to an appropriate public official pursuant to
any abandoned property, escheat or similar law.

     

    (d) Withholding
Rights.  Each of the Surviving Corporation and Parent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Company Common Stock such amounts as
it is required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign Tax
law.  To the extent that amounts are so withheld by the Surviving
Corporation or Parent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to such holder in
respect of which such deduction and withholding was made by the Surviving
Corporation or Parent, as the case may be.

     

    3.3 Stock Transfer
Books.  At the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
of Company Common Stock thereafter on the records of the
Company.  From and after the Effective Time, the holders of
certificates representing such shares outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares except
as otherwise provided herein or by any applicable laws.

     


    
      
         


      

      
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    3.4 Dissenting
Shares.

     

    (a) Notwithstanding
any provision of this Agreement to the contrary, Dissenting Shares shall not be
converted into or represent the right to receive any portion of the amounts to
be paid pursuant to Section 3.1, but the holders thereof shall only be entitled
to such rights as are granted by New York Law.  All Dissenting Shares
held by stockholders who shall have failed to perfect or who effectively shall
have withdrawn or lost their dissenters’ rights shall thereupon be deemed to
have been converted into and to have become exchangeable for, as of the later of
the Effective Time or the occurrence of such event, the right to receive an
appropriate portion of the amounts to be paid pursuant to Section 3.1, without
any interest thereon, upon surrender, in the manner provided in Section 3.2, of
the Certificates that formerly evidenced such shares.

     

    (b) The
Company shall give Parent (i) prompt notice of any demands for fair value
of shares of Company Common Stock received by the Company, any withdrawals of
such demands, and any other instruments served pursuant to New York Law, if any,
and received by the Company, and (ii) the opportunity to direct, at its
expense, all negotiations and proceedings with respect to demands for fair value
under New York Law, if any.  The Company shall cooperate with Parent
concerning, and shall not, except with the prior written consent of Parent, make
any payment with respect to, any demands for the fair value of shares of Company
Common Stock or settle or offer to settle any such demands other than by
operation of law or pursuant to a final order of a court of competent
jurisdiction. In the event that any Company Stockholder exercises his, her or
its appraisal rights pursuant to New York Law, then Parent shall be entitled to
seek indemnification from the Participating Rights Holders pursuant to, and in
accordance with, the provisions of Article 9 hereof in connection with any
Damages suffered or incurred by Parent in connection with such exercise of
appraisal rights.

     

    3.5 Holders Representative
Committee.

     

    (a) Appointment of Holders
Representative Committee.  Each of Mark E. Dillon, Thomas
Asson, Joseph A. Dillon, Sr., and David P. Willis (i) are hereby appointed,
effective from and after the Effective Time of the Merger, to act as the Holders
Representative Committee under this Agreement in accordance with the terms of
this Section 3.5, and (ii) hereby represents to Parent that they are an
“accredited investor” (as such term is defined in Rule 501 under the Securities
Act).  The members of the Holders Representative Committee (in such
capacity, the “Holders
Representatives”) shall be required to designate (and notify Parent of
such designation) a single member of the Holders Representative Committee upon
whose instruction Parent, the Merger Sub and the Surviving Corporation shall be
entitled to rely, without any investigation or inquiry, as having been taken or
not taken upon the authority of the Holders Representative Committee. In the
event that any member of the Holders Representative Committee ceases to be a
member thereof as a result of death, resignation, incapacity or removal, then
the remaining member of the Holders Representative Committee shall appoint a
successor member as soon as practicable. In the event that there are no members
of the Holders Representative Committee at any time from and after the Effective
Time as a result of death, resignation, incapacity or removal, then Thomas J.
Dugdale and Wilbur J. Smiles (each of whom, to the knowledge of the Company, is
an accredited investor) shall be automatically deemed to be appointed as
successor members of the Holders Representative Committee and Parent shall be
entitled to rely, without any investigation or inquiry, on the instruction of
such individuals.

     

    (b) Authority After the
Effective Time.  From and after the Effective Time, the Holders
Representative Committee shall be authorized to:

     

    (i) take all
actions required or permitted by, and exercise all rights granted to, the
Holders Representative Committee in this Agreement;

     

    (ii) receive
all notices or other documents given or to be given to the Holders
Representative Committee by Parent pursuant to this Agreement;

     

    (iii) negotiate,
undertake, compromise, defend, resolve and settle any suit, proceeding or
dispute under this Agreement on behalf of the Participating Rights
Holders;

     

    (iv) execute
and deliver all agreements, certificates and documents required or deemed
appropriate by the Holders Representative Committee in connection with any of
the transactions contemplated by this Agreement;

     

    (v) engage
special counsel, accountants and other advisors and incur such other expenses in
connection with any of the transactions contemplated by this Agreement on behalf
of the Participating Rights Holders;

     

    (vi) approve
of and execute amendments to this Agreement in accordance with Section 11.14
hereof; and

     

    (vii) take such
other action as the Holders Representative Committee may deem appropriate on
behalf of the Participating Rights Holders, including:

     

    (A) agreeing
to any modification or amendment of this Agreement and executing and delivering
an agreement of such modification or amendment; and

     

    (B) all such
other matters as the Holders Representative Committee may deem necessary or
appropriate to carry out the intents and purposes of this
Agreement.

     


    
      
         


      

      
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    3.6 Release from Liability;
Indemnification; Authority of Holders Representative
Committee.  Each Participating Rights Holder hereby releases
the Holders Representative Committee, and each of its members, from, and each
Participating Rights Holder agrees to indemnify the Holders Representative
Committee, and each of its members, against, liability for any action taken or
not taken by him, her or it in his, her or its capacity as such agent, except
for the liability of the Holders Representative Committee, or any member
thereof, to a Participating Rights Holder for loss which such holder may suffer
from the willful misconduct or gross negligence of the Holders Representative
Committee or such member in carrying out his, her or its duties
hereunder.  By virtue of the adoption of this Agreement and the
approval of the Merger by the stockholders of the Company, each Participating
Rights Holder (regardless of whether or not such Participating Rights Holder
votes in favor of the adoption of the Agreement and the approval of the Merger,
whether at a meeting or by written consent in lieu thereof) appoints, as of the
Agreement Date, the Holders Representative Committee as his, her or its true and
lawful agent and attorney-in-fact to enter into any agreement in connection with
the transactions contemplated by this Agreement, to exercise all or any of the
powers, authority and discretion conferred on him under any such agreement, to
give and receive notices on their behalf and to be his, her or its exclusive
representative with respect to any matter, suit, claim, action or proceeding
arising with respect to any transaction contemplated by any such agreement,
including, without limitation, the defense, settlement or compromise of any
claim, action or proceeding for which Parent, the Merger Sub or the Surviving
Corporation may be entitled to indemnification and, by virtue of its approval of
the Agreement, the Holders Representative Committee agrees to act as, and to
undertake the duties and responsibilities of, such agent and
attorney-in-fact.  This power of attorney is coupled with an interest
and is irrevocable.  All actions, decisions and instructions of the
Holders Representative Committee shall be conclusive and binding upon all of the
Participating Rights Holders.  By virtue of the adoption of this
Agreement and the approval of the Merger by the stockholders of the Company,
each Participating Rights Holder (regardless of whether or not such
Participating Rights Holder votes in favor of the adoption of the Agreement and
the approval of the Merger, whether at a meeting or by written consent in lieu
thereof) hereby agrees to the provisions of this Agreement, including, without
limitation, the provisions of Sections 3.5 and 3.6 and Article 9
hereof.

     

    3.7 Reimbursement of
Expenses.  The Holders Representatives shall receive no
compensation for services performed as the Holders Representatives, but shall
receive reimbursement from, and be indemnified by, the Participating Rights
Holders, pro rata, for any and all expenses, charges and liabilities incurred in
connection with such performance, including, but not limited to, reasonable
attorneys’ fees, incurred by the Holders Representatives in the performance or
discharge of their duties pursuant to this Section 3.7, which expenses,
charges and liabilities shall be paid out of any Contingent Payment payable to
the Participating Rights Holders pursuant to this Agreement and paid directly to
the Holders Representative Committee upon their reasonable request at the time
of any required Contingent Payment.  Unless the Participating Rights
Holders pay all such expenses, charges and liabilities upon demand by the
Holders Representative Committee, the Holders Representatives shall have no
obligation to incur such expenses, charges or liabilities, or to continue to
perform any duties hereunder.

     


    
      
         


      

      
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    ARTICLE
4

     

    REPRESENTATIONS
AND WARRANTIES OF THE COMPANY

     

    The
Company hereby represents and warrants to Parent, the Merger Sub and the
Surviving Corporation as follows as of each of (a) the Agreement Date and (b)
the Closing Date, subject in each case to such exceptions as are set forth in
the Company Disclosure Schedule attached to this Agreement (the “Company
Disclosure Schedule”):

     

    4.1 Incorporation;
Authority.  The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of New York
and has all requisite corporate power and authority to own or lease and operate
its properties and to carry on its business as presently conducted and as
presently proposed to be conducted. The Company has delivered to Parent complete
and correct copies of its certificate of incorporation and by-laws, in each case
with all amendments thereto, which certificate of incorporation and by-laws are
in full force and effect.

     

    4.2 Authorization and
Enforceability.  The Company has all requisite corporate power
to enter into this Agreement and to consummate the transactions contemplated
hereby.  The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the approval of the Merger and this Agreement by the Company’s stockholders
(which shall be obtained immediately after the execution and delivery of this
Agreement by written consent in accordance with Section 615 of New York
Law).  The Company Board has (i) approved this Agreement and the
transactions contemplated hereby and (ii) determined that the Merger is in the
best interests of the stockholders of the Company and is on terms that are fair
to such stockholders.  This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms, except as such enforcement
may be limited by (i) the effect of bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights, or (ii) the rules governing the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless of whether considered in a proceeding in law or
equity.

     


    
      
         


      

      
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    4.3 Governmental and Other
Third-Party Consents, Non-Contravention, Etc.  No consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority on the part of the Company is required in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, except for (i) the filing of the New York
Merger Certificate with the New York Secretary of State; (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state and federal securities laws
and the securities laws of any foreign country in connection with the issuance
of shares of Parent Common Stock in the Merger; and (iii) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not have a Material Adverse Effect on Parent and would
not be reasonably likely to prevent, or materially alter or delay any of the
transactions contemplated by this Agreement.  The execution, delivery,
and performance of this Agreement and the consummation of such transactions will
not violate (a) any provision of the Company’s certificate of incorporation or
by-laws, as amended and in effect, (b) any order, judgment, injunction, award or
decree of any court or state or federal governmental or regulatory body
applicable to the Company, (c) any judgment, decree, order, statute, rule,
regulation, agreement, instrument, or other obligation to which the Company is a
party or by or to which it or any of its assets is bound or subject, or (d) any
contract, agreement or written arrangement to which the Company is a party,
which violation will not have a Material Adverse Effect on the
Company.

     

    4.4 Capitalization.  The
authorized and outstanding capital stock and other securities of the Company are
as set forth in Schedule 4.4 of the
Company Disclosure Schedule.  All of such outstanding shares of
capital stock of the Company are duly authorized, validly issued, fully paid and
non-assessable, and all of such outstanding shares and other securities are
owned of record as set forth in Schedule 4.4 of the
Company Disclosure Schedule, and were issued in compliance with all applicable
laws, including securities laws, and all applicable preemptive or similar rights
of any person.  The only authorized, issued and outstanding class of
capital stock of the Company is the Company Common Stock (i.e., there are no
shares of any class or series of preferred stock authorized, issued or
outstanding).  The Company is not aware of any person who has a valid
right to rescind any purchase of any shares of the Company’s capital stock or
other securities. Other than as set forth on Schedule 4.4 of the
Company Disclosure Schedule, there are no agreements or other obligations to
which the Company is a party or known to it and by which it is bound to purchase
or sell any shares of its capital stock or other securities, and no outstanding
convertible or exchangeable securities, options, warrants or other rights to
acquire from the Company any shares of its capital stock or other
securities.  Schedule 4.4 of the
Company Disclosure Schedule sets forth the name of each person who holds any
option, warrant or other right to acquire shares of the Company’s capital stock
or other securities, the number and type of shares or securities subject to such
option or right, the per-share exercise price payable therefor and, in the case
of warrants, the priority and amount of consideration to be payable upon
exercise thereof.  The per-share exercise price payable for each of
the options set forth on Schedule 4.4 of the Company
Disclosure Schedule is equal to or greater than the fair market value of the
Company Common Stock as of the date of grant of each such option.

     

    4.5 Qualification.  The
Company is duly qualified and in good standing as a foreign corporation in all
jurisdictions in which to Company’s knowledge the character of its owned or
leased properties or the nature of its activities makes such qualification
necessary, except for such failures to be so qualified or in good standing as
would not, either individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect on the Company.

     

    4.6 Subsidiaries.  The
Company does not have any Subsidiaries or own any legal and/or beneficial
interests in or to any other business enterprise or other person.

     

    4.7 Financial
Statements. Attached to Schedule 4.7 of the
Company Disclosure Schedule are copies of (i) the audited balance sheets of the
Company as of December 31, 2007, and the related audited statements of income
and retained earnings and cash flows, respectively, of the Company, for the
fiscal year ended on such date, certified by Buckno Lisicky & Company,
independent public accountants (such balance sheet as of December 31, 2007, the
“Company’s Most Recent
Balance Sheet”), and (ii) the unaudited balance sheet of the Company as
of March 31, 2007 and as of March 31, 2008, and the related unaudited statements
of income and retained earnings and cash flows, respectively, of the Company,
for each of the three-month periods, respectively, ended on such
dates.  Each of such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods; each of such balance sheets presents fairly and
accurately in all material respects the financial condition of the Company as of
its respective date; and each of such statements of income and retained earnings
and cash flows, respectively, presents fairly and accurately in all material
respects the results of operations and retained earnings, or cash flows, as the
case may be, of the Company for the period covered thereby; in each case,
subject, with respect to the unaudited financial statements referred to in
clause (ii) of this section, to the absence of footnote disclosure and to
normal, recurring end-of-period adjustments, the effect of which, both
individually and in the aggregate, is not and will not be material.

     


    
      
         


      

      
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    4.8 Absence of Certain
Changes.  Since the date of the Company’s Most Recent Balance
Sheet, except as disclosed on Schedule 4.8 of the
Company Disclosure Schedule, there has not been any:  (i) change in
the assets, liabilities, sales, income, or business of the Company or in its
relationships with suppliers, customers, or lessors, other than changes that
were both in the ordinary course of business and have not caused, either in any
case or in the aggregate, a Material Adverse Effect on the Company; (ii)
acquisition or disposition by the Company of any material asset or property;
(iii) damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting, either in any case or in the aggregate, the
business or any material property of the Company; (iv) declaration, setting
aside or payment of any dividend or any other distributions in respect of any
shares of capital stock of the Company; (v) issuance of any shares of the
capital stock of the Company or any direct or indirect redemption, purchase, or
other acquisition by the Company of any such capital stock; (vi) loss of the
services of any officer or key employee or consultant, or any increase in the
compensation, pension, or other benefits payable or to become payable by the
Company to any of its officers or key employees or consultants, or any bonus
payments or arrangements made to or with any of them, except as provided in
Section 7.4 and Schedule 7.4 hereof; (vii) forgiveness or cancellation of any
debts or claims by the Company or any waivers of any rights; (viii) entry by the
Company into any transaction with any of its Affiliates; (ix) incurrence by the
Company of any obligations or liabilities, whether absolute, accrued, contingent
or otherwise (including without limitation liabilities as guarantor or otherwise
with respect to obligations of others), other than obligations and liabilities
incurred in the ordinary course of business with persons other than Affiliates
of the Company; (x) incurrence or imposition of any Lien on any of the assets,
tangible or intangible, of the Company; or (xi) discharge or satisfaction by the
Company of any Lien or payment by the Company of any obligation or liability
(fixed or contingent) other than (A) current liabilities included in the
Company’s Most Recent Balance Sheet, (B) current liabilities to persons other
than Affiliates of the Company incurred since the date of the Company’s Most
Recent Balance Sheet in the ordinary course of business, and (C) current
liabilities incurred in connection with the transactions contemplated hereby and
as disclosed in Schedule 4.8 of the
Company Disclosure Schedule.

     

    4.9 Properties and
Assets.

     

    (a) The
Company has good and marketable title or leasehold title, as the case may be, to
all of its assets and properties that it purports to own or lease, including
without limitation all those reflected in the Company’s Most Recent Balance
Sheet (except for properties or assets sold, consumed, or otherwise disposed of
in the ordinary course of business since the date of the Company’s Most Recent
Balance Sheet), all free and clear of Liens on the Company’s interest
therein.  All such properties and assets are in good condition and
repair, reasonable wear-and-tear excepted, and are, and as of the Closing Date
will be, adequate and sufficient to carry on the business of the Company as
presently conducted.  Schedule 4.9 of the
Company Disclosure Schedule sets forth a complete and correct list of all
capital assets of the Company.

     

    (b) The
Company does not own any real property.  The Company has not received
any notice that either the whole or any portion of any real property leased by
it is to be condemned, requisitioned, or otherwise taken by any public authority
or is to be the subject of any public improvements that may result in special
assessments against or otherwise affect such real property.  Schedule 4.9 of the
Company Disclosure Schedule sets forth a complete and correct description of all
leases of real property to which the Company is a party.  Complete and
correct copies of all such leases have been delivered to Parent.  Each
such lease is valid and subsisting and no event or condition exists that
constitutes, or after notice or lapse of time or both would be reasonably likely
to constitute, a default thereunder by the Company, or to its knowledge, any
other person.  The leasehold interests of the Company are subject to
no Lien, and the Company is in quiet possession of the properties covered by
such leases.

     

     


    
      
         


      

      
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      4.10 Intellectual
Property.

       

      (a) Schedule 4.10(a) of
the Company Disclosure Schedule lists all inter partes proceedings or
actions known to the Company before any court or tribunal (including the PTO or
equivalent authority anywhere in the world) related to any Company Intellectual
Property.  To the Company’s knowledge, no Company Intellectual
Property is the subject of any inter partes proceeding or
outstanding decree, order, judgment, agreement, or stipulation restricting in
any manner the use, transfer, or licensing thereof by the Company, or which may
affect the validity, use or enforceability of such Company Intellectual
Property.

       

      (b) With
respect to each item of Company Registered Intellectual Property, necessary
registration, maintenance and renewal fees in connection with such Company
Registered Intellectual Property have been made as shown in Schedule 4.10 of the
Company Disclosure Schedule and all necessary documents and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent authorities in the United States for the purposes of
maintaining such Company Registered Intellectual Property and no information
material to patentability under applicable law has been withheld from the
examining office that would constitute fraud or inequitable
conduct.

       

      (c) All
Company Registered Intellectual Property is listed on Schedule 4.10(c) of
the Company Disclosure Schedule.  The Company owns and has good and
exclusive title, or the Company exclusively licenses, in each case free and
clear of any Lien, all Company Registered Intellectual Property listed on Schedule 4.10(c) of
the Company Disclosure Schedule.

       

      (d) To the
extent that any work, invention, or material has been developed or created by a
third party for the Company, the Company has a written agreement with such third
party with respect thereto and the Company has obtained ownership of, and is the
exclusive owner of, or has a valid license to use, all Company Intellectual
Property in such work, material or invention by operation of law or by valid
assignment or by agreement, as the case may be.

    

     

    (e) Except as
set forth on Schedule
4.10(e) of the Company Disclosure Schedule, the Company has not
transferred ownership of, or granted any license with respect to, any Company
Intellectual Property to any third party.  Schedule 4.10(e) of
the Company Disclosure Schedule lists all contracts, licenses and agreements to
which the Company is a party that are currently in effect (i) with respect to
Company Intellectual Property licensed or offered to any third party; or (ii)
pursuant to which a third party has licensed or transferred any Company
Intellectual Property to the Company.

     

    (f) Each of
the Company’s contracts, licenses and agreements which relate in any way to
Company Intellectual Property are in full force and effect.  The
consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination, or
suspension of, nor require the consent of any party to, such contracts, licenses
and agreements.  The Company is in material compliance with, and has
not materially breached any term any of such contracts, licenses and agreements
and, to the knowledge of the Company, all other parties to such contracts,
licenses and agreements are in compliance with, and have not breached any term
of, such contracts, licenses and agreements.  Following the Closing
Date, the Surviving Corporation will be permitted to exercise all of the
Company’s rights under such contracts, licenses and agreements to the same
extent the Company would have been able to had the transaction contemplated by
this Agreement not occurred and without the payment of any additional funds
other than ongoing fees, royalties or payments which the Company would otherwise
be required to pay.  Schedule 4.10(f) of the
Company Disclosure Schedule sets forth each of the Company’s contracts, licenses
and agreements which relate in any way to Company Intellectual
Property.

     

    (g) Schedule 4.10(g) of
the Company Disclosure Schedule lists all contracts, licenses and agreements
between the Company and any third party wherein or whereby the Company has
agreed to, or assumed, any obligation or duty to warrant, indemnify, hold
harmless or otherwise assume or incur any obligation or liability with respect
to the infringement or misappropriation by the Company of any third party’s
Intellectual Property.

     

    (h) The
Company (including its executive officers, directors and, to the Company’s
knowledge, employees) has not received notice from any third party, nor is the
Company aware of any basis for any third-party claim that could assert, that the
operation of its business or any act, product, drug candidate or service of the
Company infringes or misappropriates the Intellectual Property of any third
party or constitutes unfair competition or trade practices under the laws of any
jurisdiction.

     

    (i) Except as
set forth in Schedule
4.10(i) of the Company Disclosure Schedule, (i) to the Company’s
knowledge, no person has nor is infringing or misappropriating any Company
Intellectual Property and (ii) there have been, and are, no claims asserted
against the Company or against any licensee of the Company with respect to the
Company Intellectual Property.

     

    (j) The
Company maintains reasonable security measures for the preservation of the
secrecy and proprietary nature of such of the Company Intellectual Property as
constitute trade secrets or other confidential information.  To the
Company’s knowledge, no officer, director, employee, or consultant of the
Company is obligated under or bound by any agreement or instrument, or any
judgment, decree, or order of any court of administrative agency, that (i)
conflicts or may conflict with his agreements and obligations to use his best
efforts to promote the interest of the Company, (ii) conflicts or may conflict
with the business or operations of the Company, or (iii) restricts or may
restrict the use or disclosure of any information that may be useful to the
Company.

     

    4.11 Indebtedness.  The
Company has no Indebtedness outstanding except as set forth in Schedule 4.11 of the
Company Disclosure Schedule.  The Company is not in default with
respect to any outstanding Indebtedness or any agreement, instrument, or other
obligation relating thereto and no such Indebtedness or any agreement,
instrument or other obligation relating thereto purports to limit the issuance
of any securities by the Company, or (except as set forth on Schedule 4.11 of the
Company Disclosure Schedule) the operation of its
businesses.  Complete and correct copies of all agreements,
instruments, and other obligations (including all amendments, supplements,
waivers, and consents) relating to any Indebtedness of the Company have been
furnished to Parent.

     

    4.12 Absence of Undisclosed
Liabilities.  Except to the extent (a) reflected or reserved
against in the Company’s Most Recent Balance Sheet, or (b) described on Schedule 4.12 of the
Company Disclosure Schedule, the Company does not have any liabilities or
obligations of any nature, whether accrued, absolute, contingent, or otherwise
(including, without limitation, liabilities, as guarantor or otherwise, in
respect of obligations of others) that would be required to be reflected or
reserved against in a balance sheet prepared in accordance with generally
accepted accounting principles or referred to in the notes thereto.

     

     


    
      
         


      

      
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      4.13 Taxes.

       

      (a) Elections.  All
material elections with respect to Taxes (including, without limitation, any
elections under Sections 108(b)(5), 338(g), 565, 936(a) or 936(e) of the Code or
Treasury Regulation Section 1.1502-20(g) or Treasury Regulation Section
1.1502-32(f)(2) as in effect prior to August 12, 1994) affecting the Company
have been provided to Parent in the Tax Returns and financial statements of the
Company.

    

     

    (b) Filing of Tax Returns and
Payment of Taxes. The Company has timely
filed all Tax Returns required to be filed by it, each such Tax Return has been
prepared in compliance with all applicable laws and regulations, and all such
Tax Returns are true and accurate in all respects.  All Taxes due and
payable by the Company have been paid, and the Company will not be liable for
any additional Taxes in respect of any taxable period ending on or before the
Closing Date in an amount that exceeds the corresponding reserve for unpaid
Taxes, if any, reflected in the Company’s Most Recent Balance
Sheet.  The Company has delivered to Parent true and complete copies
of all Tax Returns filed by or with respect to it with respect to taxable
periods ended on or after December 31, 2005, and has delivered to Parent true
and complete copies of all relevant material documents and information with
respect thereto in the possession of the Company, its tax advisers and its
auditors, including without limitation examination reports and statements of
deficiencies assessed against or agreed to by the Company with respect
thereto.

     

    (c) Audit History. With respect to each
taxable period of the Company ended on or before December 31, 2005, either such
taxable period has been audited by the relevant taxing authority or the time for
assessing or collecting Tax with respect to each such taxable period has closed
and such taxable period is not subject to review by any relevant taxing
authority.

     

    (d) Deficiencies. No deficiency or
proposed adjustment in respect of Taxes that has not been settled or otherwise
resolved has been asserted or assessed by any taxing authority against the
Company.

     

    (e) Liens. There are no Liens for
Taxes (other than current Taxes not yet due and payable) on the assets of the
Company.

     

    (f) Extensions to Statute of
Limitations for Assessment of Taxes.  The Company does not
currently have in effect any consent to extend the time in which any Tax may be
assessed or collected by any taxing authority.

     

    (g) Extensions of the Time for
Filing Tax Returns. Except as set forth in
Schedule
4.13(g) of the Company Disclosure Schedule, the Company has not requested
or been granted an extension of the time for filing any Tax Return to a date on
or after the Closing Date.

     

    (h) Pending
Proceedings. There is no action,
suit, taxing authority proceeding, or audit with respect to any Tax now in
progress, pending, or to the Company’s knowledge, threatened, against or with
respect to (i) the Company, or (ii) any Affiliated Group with respect to a
taxable period during which the Company was a member of such Affiliated
Group.

     

    (i) No Failures to File Tax
Returns. No
claim has ever been made by a taxing authority in a jurisdiction where the
Company does not pay Tax or file Tax Returns that the Company is or may be
subject to Taxes assessed by such jurisdiction.

     

    (j) Membership in Affiliated
Groups, Etc. The Company has never
been a member of any Affiliated Group, or filed or been included in a combined,
consolidated, or unitary Tax Return.

     

    (k) Adjustments under Section
481. The
Company will not be required, as a result of a change in method of accounting
for any period ending on or before the Closing Date other than as a result of
the transactions contemplated by this Agreement, to include any adjustment under
Section 481(c) of the Code (or any similar or corresponding provision or
requirement under any Tax law) in taxable income for any period ending on or
after the Closing Date.

     

    (l) Tax Sharing, Allocation, or
Indemnity Agreements. The Company is not a
party to or bound by any Tax sharing or allocation agreement or has any current
or potential contractual obligation to indemnify any other person with respect
to Taxes.

     

    (m) Withholding
Taxes. The
Company has withheld and paid all Taxes required to have been withheld and paid
by it in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other person.

     

    (n) Foreign Permanent
Establishments and Branches. Except as set forth in
Schedule
4.13(n) of the Company Disclosure Schedule, the Company does not have a
permanent establishment in any foreign country, as defined in the relevant tax
treaty between the United States of America and such foreign country, and does
not otherwise operate or conduct business through any branch in any foreign
country.

     

    (o) U.S. Real Property Holding
Corporation. The Company is not and
has not been a United States real property holding corporation, within the
meaning of Code Section 897(c)(2).

     

    (p) Safe Harbor Lease
Property. None of the property
owned or used by the Company is subject to a tax benefit transfer lease executed
in accordance with Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended by the Economic Recovery Tax Act of 1981.

     

    (q) Tax-Exempt Use
Property. Except as set forth in
Schedule
4.13(q) of the Company Disclosure Schedule, none of the property owned by
the Company is “tax-exempt use property” within the meaning of Section 168(h) of
the Code.

     

    (r) Security for Tax-Exempt
Obligations. None of the assets of
the Company directly or indirectly secures any Indebtedness, the interest on
which is tax-exempt under Section 103(a) of the Code, and the Company is not
directly or indirectly an obligor or a guarantor with respect to any such
Indebtedness.

     

    (s) Section 341(f)
Consent. The
Company has not filed a consent under Code Section 341(f) concerning collapsible
corporations.

     

    (t) Parachute
Payments. The Company has not made
any payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances would be reasonably likely to
obligate it to make any payments, that will not be deductible under Code Section
280G.

     

     


    
      
         


      

      
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      4.14 Employee Benefit
Plans.

       

      (a) Except as
described on Schedule
4.14(a) of the Company Disclosure Schedule, the Company does not now
maintain or contribute to, or have any liability (contingent or otherwise) in
respect of, any pension, profit-sharing, deferred compensation, bonus, stock
option, share appreciation right, severance, group or individual health, dental,
medical, life insurance, survivor benefit, or similar plan, policy, or
arrangement, whether formal or informal, for the benefit of any director,
officer, consultant or employee, whether active or terminated, of the
Company.  Each of the arrangements set forth on Schedule 4.14(a) of
the Company Disclosure Schedule is hereinafter referred to as a “Company Employee Benefit
Plan,” except that any such arrangement that is a multi-employer plan
will be treated as a Company Employee Benefit Plan only for purposes of Sections
4.14(d)(iv), (vi), and (viii) and 4.14(g) hereof.

       

      (b) The
Company has delivered or made available to Parent true, correct, and complete
copies of each Company Employee Benefit Plan, and with respect to each such Plan
(i) any associated trust, custodial, insurance, or service agreements, (ii) any
annual report, actuarial report, or disclosure materials (including specifically
any summary plan descriptions) submitted to any governmental agency or
distributed to participants or beneficiaries thereunder in the current calendar
year or any of the six preceding calendar years, and (iii) the most recently
received Internal Revenue Service (“IRS”) determination
letters and any governmental advisory opinions or rulings.

       

      (c) To the
Company’s knowledge, each Company Employee Benefit Plan is and has heretofore
been maintained and operated in material compliance with the terms of such Plan
and with the requirements prescribed (whether as a matter of substantive law or
as necessary to secure favorable tax treatment) by any and all statutes,
governmental or court orders, and governmental rules or regulations in effect
from time to time, including, but not limited to, the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), and the
Code, and applicable to such Plan.  Each Company Employee Benefit Plan
that is intended to qualify under Section 401(a) of the Code and each trust
forming part of a Company Employee Benefit Plan which is intended to qualify
under Section 501(c)(9) of the Code is specifically so identified in Schedule 4.14(a) of
the Company Disclosure Schedule and has been determined by the IRS to be so
qualified, and to the Company’s knowledge, nothing has occurred since the date
of the last such determination as to each such Plan or trust that has resulted
or is likely to result in the revocation of such determination as to such Plan
or trust, other than such failures as may be corrected without expenditure of
more than $10,000.

    

     

    (d) There is
no pending, or to the Company’s knowledge, threatened, legal action, proceeding,
or investigation, other than routine claims for benefits, concerning any Company
Employee Benefit Plan, or to the Company’s knowledge, any fiduciary or service
provider thereof, and to the Company’s knowledge, there is no basis for any such
legal action, proceeding, or investigation.

     

    (e) No
liability (contingent or otherwise) to the Pension Benefit Guaranty Corporation
(“PBGC”) or any
multi-employer plan has been incurred by the Company or any of its ERISA
affiliates (other than insurance premiums satisfied in due course).

     

    (f) No
reportable event, or event or condition that presents a material risk of
termination by the PBGC, has occurred with respect to any Company Employee
Benefit Plan, or any retirement plan of an ERISA affiliate of the Company, which
is subject to Title IV of ERISA.

     

    (g) To the
Company’s knowledge, no Company Employee Benefit Plan nor any party in interest
with respect thereto, has engaged in a prohibited transaction that could subject
the Company directly or indirectly to liability under Section 409 or 502(i) of
ERISA or Section 4975 of the Code.

     

    (h) No
communication, report, or disclosure has been made that, at the time made, did
not reflect accurately in all material respects the terms and operations of any
Company Employee Benefit Plan.

     

    (i) No
Company Employee Benefit Plan provides welfare benefits subsequent to
termination of employment to employees or their beneficiaries (except to the
extent required by applicable state insurance laws and Title I, Part 6 of
ERISA), other than (A) coverage mandated by applicable law, (B) benefits
the full cost of which is borne by the current or former employees (or their
beneficiaries), and (C) benefits that have already been satisfied in
full.

     

    (j) No
benefits due under any Company Employee Benefit Plan have been forfeited subject
to the possibility of reinstatement (which possibility would still exist at or
after the Closing) except as required by applicable law.

     

    (k) The
Company has not undertaken to maintain any Company Employee Benefit Plan for any
period of time and each such Plan is terminable at the sole discretion of the
Company, subject only to such constraints as may be imposed by applicable
law.

     

    (l) With
respect to each Company Employee Benefit Plan for which a separate fund of
assets is or is required to be maintained, full payment has been made of all
amounts that the Company is required, under the terms of each such Plan, to have
paid as contributions to that Plan as of the end of the most recently ended plan
year of that Plan, and no accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any such Plan.  The current value of the assets of each
such Company Employee Benefit Plan, as of the end of the most recently ended
plan year of that Plan, exceeded the current value of all accrued benefits under
that Plan.

     

    (m) The
execution of this Agreement and the consummation of the transactions
contemplated hereby will not result in any payment (whether of severance pay or
otherwise) becoming due from any Company Employee Benefit Plan to any current or
former director, officer, consultant, or employee of the Company or result in
the vesting, acceleration of payment, or increases in the amount of any benefit
payable to or in respect of any such current or former director, officer,
consultant, or employee.

     

    (n) No
Company Employee Benefit Plan is a multi-employer plan.

     

    (o) For
purposes of this Section 4.14, “multi-employer plan,” “party in interest,”
“current value,” “accrued benefit,” “reportable event,” and “benefit liability”
have the same meaning assigned such terms under Sections 3, 4043(b) or 4001(a)
of ERISA, and “ERISA affiliate” means any entity that under Section 414 of the
Code is treated as a single employer with the Company.

     

     


    
      
         


      

      
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    4.15 Safety and Environmental
Matters.  Except as set forth on Schedule 4.15 of the
Company Disclosure Schedule:

     

    (a) None of
the activities carried on by the Company at any plants, offices, or properties
in or on which the Company operates are in violation of any zoning, health, or
safety law or regulation, including without limitation the Occupational Safety
and Health Act of 1970, as amended, excluding only such violations as will not,
either individually or in the aggregate, have a Material Adverse Effect on the
Company.

     

    (b) Neither
the Company, nor to the Company’s knowledge, any operator of any real property
presently or formerly owned, leased, or operated by the Company is in violation
or alleged violation of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including without limitation the
Resource Conservation and Recovery Act (“RCRA”), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (“CERCLA”), the
Superfund Amendments and Reauthorization Act of 1986 (“SARA”), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act,
and applicable federal, state, foreign, and local statutes, regulations,
ordinances, orders, and decrees relating to Hazardous Substances (as defined in
Section 4.15(c) hereof), natural resources, pollutants or protection of human
health, safety, or the environment (all of the foregoing, collectively, “Environmental Laws”),
excluding only such violations as will not, either individually or in the
aggregate, have a Material Adverse Effect on the Company.

     

    (c) The
Company has not received notice from any third party, including without
limitation any federal, state, foreign, or local governmental authority, that
(i) the Company has been identified by the United States Environmental
Protection Agency (the “EPA”) as a
potentially responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) any
hazardous waste as defined by 42 U.S.C. §6903(5), any hazardous substance as
defined by 42 U.S.C. § 9601(14), any pollutant or contaminant as defined by 42
U.S.C. § 9601(33) or any toxic substance, oil, or hazardous material or
other chemical or substance regulated by or forming the basis of liability under
any Environmental Laws (collectively, “Hazardous
Substances”) that the Company has generated, transported, handled, used,
or disposed of has been found at any site at which a federal, state, foreign, or
local agency or other third party has conducted or has ordered that the Company
conduct a remedial investigation, removal, or other response action pursuant to
any Environmental Law; or (iii) the Company is or will be a named party to
any claim, action, cause of action, complaint (contingent or otherwise), or
legal or administrative proceeding arising out of any third party’s incurrence
of costs, expenses, losses, or damages of any kind whatsoever in connection with
the release of Hazardous Substances.

     

    (d) (i)           No
portion of any real property presently or formerly owned, leased, or operated by
the Company has been used by the Company, or to the Company’s knowledge, by any
other person, to handle, use, manufacture, transport, store, or dispose of
Hazardous Substances except in accordance in all material respects with
applicable Environmental Laws; and no underground tank or other underground
storage receptacle for Hazardous Substances used by the Company is located on
any real property presently owned, leased, or operated by the Company, or to the
Company’s knowledge, any real property formerly owned, leased, or operated by
it; (ii) in the course of the activities conducted by the Company and to the
Company’s knowledge, without investigation, those of any other operators of any
real property presently or formerly owned, leased, or operated by the Company,
no Hazardous Substances have been generated, stored, or used on such properties
except in accordance with applicable Environmental Laws; (iii) to the Company’s
knowledge, there have been no releases (i.e. any past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, disposing, or dumping) or threatened releases of Hazardous
Substances by the Company on, upon, into, or from any real property presently or
formerly owned, leased, or operated by the Company; (iv) to the Company’s
knowledge, there have been no releases on, upon, from, or into any real property
in the vicinity of any real property presently or formerly owned, leased, or
operated by the Company that, through soil or groundwater contamination, have
come to be located on, any of the real property presently or formerly owned,
leased, or operated by the Company; and (v) to the extent required by applicable
Environmental Laws, any Hazardous Substances that have been generated by the
Company, or to the Company’s actual knowledge, by any other person, on any real
property presently or formerly owned, leased, or operated by the Company, have
been transported offsite only by carriers having an identification number issued
by the EPA and treated or disposed of only by treatment or disposal facilities
having, to the Company’s actual knowledge, valid permits as required under
applicable Environmental Laws, which transporters and facilities, to the
Company’s knowledge, have been and are operating substantially in compliance
with such permits and applicable Environmental Laws.

     

    (e) No real
property presently owned, leased, or operated by the Company, and to the
Company’s knowledge, no real property formerly owned, leased, or operated by the
Company, and as a result of the present or past activities of the Company, is
subject to any Environmental Law requiring the performance of any Hazardous
Substances site assessment, the removal or remediation of any Hazardous
Substances, the giving of notice to any governmental agency or other person, or
the recording and/or delivery to any governmental agency or other person of any
environmental disclosure statement or document, by reason of, or as a condition
to the effectiveness of, the Merger and/or any other transaction contemplated
hereby.

     

    (f) The
Company has and maintains, in full force and effect, all licenses, permits,
registrations, consents, authorizations and other approvals (the “Environmental
Permits” from all governmental authorities as are required under
Environmental Laws or are otherwise necessary for the conduct of the business or
operation of the Company, and the Company is in material compliance with all of
the Environmental Permits.

     

    4.16 Labor
Relations.  The Company is and has been in compliance in all
material respects with all federal and state laws respecting employment and
employment practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment, and is not and has not been engaged in any
unfair labor practice.  There is no charge or proceeding pending, or
to the Company’s knowledge, threatened, against the Company alleging unlawful
discrimination in employment practices or unfair labor practice before any court
or agency, including without limitation the National Labor Relations
Board.  There is no labor strike, dispute, work slow-down, or work
stoppage pending, or to the Company’s knowledge, threatened against or involving
the Company.  No one has petitioned within the last five years or is
now petitioning for union representation of any of the employees of the
Company.  No grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is pending against the Company and no
claim therefor has been asserted.  None of the employees of the
Company is covered by any collective bargaining agreement, and no collective
bargaining agreement is currently being negotiated by the
Company.  The Company has not experienced any work stoppage or other
material labor difficulty during the last five years.

     

    4.17 Litigation.  Except
as set forth in Schedule 4.17 of the
Company Disclosure Schedule, no litigation, arbitration, action, suit,
proceeding, or investigation (whether conducted by any judicial or regulatory
body, arbitrator, or other person) is pending (as evidenced by the Company’s
receipt of service of process or other written notice of such pendency), or to
the Company’s knowledge, threatened, against the Company, nor is there any basis
therefor known to the Company.

     


    
      
         


      

      
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    4.18 Material
Contracts.

     

    (a) Schedule 4.18(a) of
the Company Disclosure Schedule sets forth a complete and accurate list of all
Material Contracts (as defined below).  As used in this Agreement, the
term “Material
Contract” means every agreement or understanding of any kind, written or
oral, that is legally enforceable by or against or otherwise binding on the
Company and which is material to the Company’s business, and specifically
includes without limitation: (i) agreements with any current or former
officer, director, employee, consultant, or stockholder, or any partnership,
corporation, joint venture, or any other entity in which any such person has an
interest (other than agreements terminable by the Company upon 30 days notice
and which termination does not result in any obligations or liabilities to the
Company); (ii) agreements with any labor union or association representing
any employee; (iii) agreements for the provision of services by or to the
Company in excess of $25,000; (iv) bonds or other security agreements provided
by any party in connection with the business of the Company; (v) agreements
for the purchase or other acquisition or the sale or other disposition of assets
or properties (other than in the ordinary course of business), or for the grant
to any person of any preferential rights to purchase any such assets or
properties; (vi) joint venture agreements relating to the assets,
properties, or business of the Company or by or to which it or any of its assets
or properties is bound or subject; (vii) agreements under which the Company
agrees to indemnify any party, to share tax liability of any party, or to
refrain from competing with any party; (viii) agreements with regard to
Indebtedness, including, without limitation, any indenture or other agreements
in connection with issuances of bonds, debentures or other debt securities by
the Company and any agreements in connection with bank financings by the
Company; (ix) any agreement, contract, commitment, transaction or series of
transaction for any purpose relating to capital expenditures or commitments or
long-term obligations; (x) any purchase order or contract for the purchase of
raw materials; (xi) any distribution, joint marketing or development agreement;
(xii) any assignment, license or other agreement with respect to any form of
intangible property; (xiii) any research collaboration agreement; (xiv) any
agreements relating to venture capital and other equity financings by the
Company; (xv) any stockholder agreements or other agreements with any of the
Company Stockholders pertaining to the shares of Company Common Stock held by
them or their rights as stockholders of the Company; and (xvi) to the knowledge
of the Company, any voting trust or voting agreements among the Company
Stockholders.

     

    (b) All of
the Material Contracts are in full force and effect, and neither the Company
nor, to the Company’s knowledge, any other party thereto is in default under or
in material breach of any of the material terms thereof, nor does any event or
condition exist that after notice or lapse of time or both would be reasonably
likely to constitute a default thereunder or material breach thereof on the part
of the Company, or to the Company’s knowledge, any other party
thereto.  All payments required under each contract, agreement or
understanding of any kind, written or oral, that is legally enforceable by or
against or otherwise binding on the Company have been accrued for in accordance
with generally accepted accounting principles, consistently applied, and are
reflected in the Company’s financial statements.  No approval or
consent of any person that has not already been obtained and listed on Schedule 4.18 of the
Company Disclosure Schedule is needed in order that the Material Contracts
continue in full force and effect following the consummation of the Merger and
the other transactions contemplated hereby, and no such Material Contract
includes any provision, the effect of which may be to terminate (or give rise to
a right of termination under) such Material Contract, to enlarge or accelerate
any obligations of the Company thereunder, or to give additional rights to any
other person, as a result of the consummation of the Merger or the other
transactions contemplated hereby.  The Company has delivered or made
available to Parent true, correct, and complete copies of all such Material
Contracts, including all amendments, modifications, and supplements
thereto.

     

    4.19 Potential Conflicts of
Interest.  No officer, director, or, to best of the Company’s
knowledge, stockholder of the Company (a) owns, directly or indirectly, any
interest (excepting not more than five percent (5%) stock holdings for
investment purposes in securities of publicly held and traded companies) in, or
is an officer, director, employee, or consultant of, any person that furnishes
or sells services, drug candidates or products that the Company furnishes or
sells or proposes to furnish or sell or is a lessor, lessee, customer, or
supplier of the Company; (b) owns, directly or indirectly, in whole or in part
(other than solely as a result of his or its ownership of Company Common Stock),
any tangible or intangible property that the Company is using or the use of
which is necessary for the business of the Company; or (c) to the Company’s
knowledge, has any cause of action or other claim whatsoever against, or owes
any amount to, the Company, except for claims in the ordinary course of
business, such as for accrued vacation pay, accrued benefits under Employee
Benefit Plans, and similar matters and agreements.

     

    4.20 Insurance.  Schedule 4.20 of the
Company Disclosure Schedule lists the policies of products liability, theft,
fire, liability, worker’s compensation, life, property and casualty, directors
and officers, and other insurance owned or held by the Company.  Such
policies of insurance are of the kinds, cover such risks, and are in such
amounts and with such deductibles and exclusions, as are consistent with prudent
business practice for companies in the Company’s line of business and of a
similar size and location.  All such policies are in full force and
effect; are sufficient for compliance by the Company with all requirements of
law and of all agreements to which the Company is a party; are valid,
outstanding, and enforceable policies and provide that they will remain in full
force and effect through the respective dates set forth on Schedule 4.20 of the
Company Disclosure Schedule; and will not in any way be affected by, or
terminate or lapse as a result of the consummation of, the transactions
contemplated by this Agreement.

     


    
      
         


      

      
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    4.21 Bank Accounts, Signing
Authority, Powers of Attorney.  Schedule 4.21 of the
Company Disclosure Schedule sets forth a complete and accurate list of all bank,
brokerage, and other accounts, and all safe-deposit boxes, of the Company and
the persons with signing or other authority to act with respect
thereto.  Except as so listed, the Company does not have any account
or safe deposit box in any bank, and no person has any power, whether singly or
jointly, to sign any checks on behalf of the Company, to withdraw any money or
other property from any bank, brokerage, or other account of the Company, or to
act under any agency or power of attorney granted by the Company at any time for
any purpose.  Schedule 4.21 of the
Company Disclosure Schedule also sets forth the names of all persons authorized
to borrow money or sign notes on behalf of the Company.

     

    4.22 Relationships With Suppliers
and Licensors.  No current supplier to the Company has notified
the Company of an intention to terminate or substantially alter its existing
business relationship with the Company, nor has any licensor under a license
agreement with the Company notified the Company of an intention to terminate or
substantially alter the Company’s rights under such license, which termination
or alteration would be reasonably likely to have a Material Adverse Effect on
the Company.

     

    4.23 Employment of Officers,
Employees.  The name and current annual salary and other
compensation payable by the Company to each of its employees including but not
limited to wages, salary, commissions, normal bonus, profit sharing, deferred
compensation, and other extra compensation) are as set forth on Schedule 4.23 of the
Company Disclosure Schedule.  Except to the extent otherwise disclosed
on Schedule
4.23 of the Company Disclosure Schedule, none of the current or former
officers, directors, employees or consultants of the Company is a party to, or
the beneficiary of, any agreement, plan or arrangement that provides for any
payment (whether of severance pay or otherwise) becoming due to such current or
former officer, director, employee or consultant upon termination of his or her
relationship with the Company or as a result of the Merger, or that provides for
the vesting, acceleration of payment, or increases in the amount of any benefit
payable to or in respect of such current or former director, officer,
consultant, or employee upon termination of his or her relationship with the
Company or as a result of the Merger.

     

    4.24 Minute
Books.  The minute books of the Company made available to
Parent for inspection accurately record therein all material actions taken by
the Company Board, all committees thereof, and the Company’s
stockholders.

     

    4.25 Brokers.  No
finder, broker, agent, or other intermediary has acted for or on behalf of the
Company in connection with the negotiation, preparation, execution, or delivery
of this Agreement or the consummation of the Merger or the other transactions
contemplated hereby.

     


    
      
         


      

      
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    4.26 Health Regulatory
Matters.

     

    (a) The
Company has complied in all material respects with the U.S. Federal Food, Drug,
and Cosmetic Act, the regulations issued thereunder, and similar state and
foreign statutes and regulations to the extent applicable to the Company’s
activities.  Items manufactured or under investigation by the Company
comply with all applicable good manufacturing practices regulations and other
requirements established by the FDA.  To the Company’s knowledge, it
is not the subject of any investigation by the FDA or any similar state or
foreign agency, nor has any investigation, prosecution, or other enforcement
action been threatened by the FDA or any similar state or foreign
agency.  The Company has not received from the FDA or any similar
federal, state, or foreign agency any letter or other document asserting that
the Company has violated any statute or regulation enforced by that
agency.

     

    (b) Medically
related and regulated research and/or development activities conducted by or for
the Company has complied in all material respects with all applicable legal
requirements including, without limitation, (i) requirements governing
investigational drugs and devices under the U.S. Federal Food, Drug, and
Cosmetic Act and regulations issued thereunder, (ii) regulations related to good
laboratory practices and good clinical practices issued by the FDA, and (iii)
the U.S. Animal Welfare Act, the regulations issued thereunder, and any similar
federal, state, and foreign statutes and regulations.

     

    (c) Research
and/or development activities involving human subjects conducted by or for the
Company has (i) been conducted in compliance in all respects with all applicable
federal, state, and foreign statutes and regulations governing the protection of
human subjects, (ii) had the approval of an institutional review board if
required, (iii) had the informed consent of the subjects, (iv) complied in all
respects with medical privacy requirements in the Health Insurance Portability
and Accountability Act of 1996, the regulations issued thereunder, and any
similar state statutes and regulations, and (v) not involved any investigator
who has been disqualified as a clinical investigator by the FDA or any other
agency or has been found by any agency with jurisdiction to have engaged in
scientific misconduct.

     

    (d) The
Company has made available to Parent copies of all correspondence with the FDA
or any similar state or foreign agency. To the Company’s knowledge, none of the
FDA or any similar regulatory authority has made any determination, decision or
position, and there has not been any change in regulatory or clinical strategy
by the Company or any change in the regulatory or clinical development status or
affairs of the Company, that would be reasonably likely to materially increase
the cost or duration of any of the Company’s clinical programs or that would be
reasonably likely to otherwise materially adversely affect any of the Company’s
clinical programs, product candidates or products.

     

    4.27 Compliance with Other
Agreements, Laws, Etc.  The Company has complied with, and is
in compliance with, (a) all laws, statutes, governmental regulations and all
judicial or administrative tribunal orders, judgments, writs, injunctions,
decrees or similar commands applicable to its business, (b) all unwaived terms
and provisions of all contracts, agreements and indentures to which the Company
is a party, or by which the Company or any of its properties is subject, and (c)
its certificate of incorporation and by-laws, respectively, each as amended to
date; in the case of the preceding clauses (a) and (b), excepting only any such
noncompliance that, both individually and in the aggregate, have not resulted
and will not be reasonably likely to result in any Material Adverse Effect with
respect to the Company.  The Company has not been charged with, or to
its knowledge, been under investigation with respect to, any violation of any
provision of any federal, state, or local law or administrative
regulation.

     

    4.28 Permits, Licenses, and
Programs; No Debarment.

     

    (a) Schedule 4.28 of the
Company Disclosure Schedule contains a complete and correct copy of (i) each
pending application or registration for governmental approval and each
governmental approval held by the Company to develop, manufacture, test
(including, without limitation, preclinical tests and clinical trials), import,
export, store, market and sell the Company’s products or drug candidates, (ii)
the most recent report by or on behalf of the FDA or any other governmental body
involving or relating to any facility inspection of the Company’s facilities,
and (iii) a description of all ongoing proprietary internal research and
development programs.  Except as are set forth on Schedule 4.28 of the
Company Disclosure Schedule, (i) the Company possesses such governmental
approvals from all governmental bodies including, without limitation, all FDA
approvals, necessary to permit the operation of its business in the manner as
the same is currently conducted, and to operate, own or occupy its properties,
(ii) except as contained in Schedule 4.28 there
have been no product recalls, field corrective activity, medical device reports,
warning letters or administrative actions by the FDA or any other governmental
body, and (iii) to the Company’s knowledge, (A) there is no administrative
action pending or threatened for the revocation of any such governmental
approval and (B) assuming the obtaining of the authorizations, consents,
approvals and other actions listed on Schedule 4.28 of the
Company Disclosure Schedule, no governmental approvals and other actions listed
on Schedule
4.28 of the Company Disclosure Schedule, no governmental approval by any
governmental body having jurisdiction over the operation of the Company’s
business, whether in whole or in part, will be revoked, or become ineffective or
subject to revocation, as a consequence of the transactions contemplated by this
Agreement.

     

    (b) The
Company (i) has not been debarred or received notice of action or threat of
action with respect to its debarment under the provisions of the Generic Drug
Enforcement Act of 1992, 31 U.S.C. Section 335(a) and (b), or (ii) to the
Company’s knowledge, has used in any capacity the services of any person which
has been debarred under the provisions of the Generic Drug Enforcement Act of
1992, 21 U.S.C. Section 335(a) and (b).

     


    
      
         


      

      
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    4.29 Distribution of Merger
Consideration.  The Merger Consideration, when distributed in
accordance with the terms of this Agreement, will have been distributed to the
holders of Company Common Stock in accordance with the provisions of the
Company’s certificate of incorporation in effect immediately prior to the
Effective Time and any other document or agreement among the Company and such
holders related to the distribution of the Merger Consideration.

     

    4.30 Disclosure.  No
representation or warranty of the Company in this Agreement (including the
exhibits and schedules hereto) or in any other agreement, instrument,
certificate, or other document delivered by the Company in connection with this
Agreement, the Merger, or any of the other transactions contemplated hereby
contains or will contain any untrue statement of a material fact.

     

    4.31 Registration or First Offer
Rights.  Except as described in Section 4.31 of the Company
Disclosure Schedule, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, or any right of first offer,
with respect to any sale of shares of its capital stock or any securities
convertible into shares of its capital stock to any person.

     

    4.32 Manufacturing and Marketing
Rights.  Except as described in Section 4.32 of the Company
Disclosure Schedule, the Company has not granted rights to manufacture, produce,
distribute, assemble, license, market, or sell its products to any other person
and is not bound by any agreement that affects the Company’s exclusive right to
manufacture, produce, distribute, assemble, license, market, or sell its
products.

     

    ARTICLE
5

     

    REPRESENTATIONS
AND WARRANTIES OF PARENT AND THE MERGER SUB

     

    Parent
and the Merger Sub hereby represent and warrant to the Company as follows as of
each of (a) the Agreement Date and (b) the Closing Date, subject in each case to
such exceptions as are set forth in the Parent Disclosure Schedule attached to
this Agreement (the “Parent
Disclosure Schedule”):

     

    5.1 Incorporation;
Authority.  Each of Parent and the Merger Sub is a corporation
duly organized, validly existing, and in good standing under the laws of its
respective jurisdiction of incorporation and has all requisite corporate power
and authority to own or lease and operate its properties and to carry on its
business as presently conducted and as presently proposed to be conducted. Each
of Parent and the Merger Sub is duly qualified to transact business and is in
good standing in each jurisdiction where such qualification is required and in
which failure to so qualify would have a Material Adverse effect on the Company.
Each of Parent and the Merger Sub has delivered to the Company complete and
correct copies of its certificate of incorporation and by-laws, in each case
with all amendments thereto, which certificate of incorporation and by-laws are
in full force and effect.

     


    
      
         


      

      
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    5.2 Authorization and
Enforceability.  Each of Parent and the Merger Sub has all
requisite corporate power to enter into this Agreement and to consummate the
transactions contemplated hereby.  The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Parent and the
Merger Sub. This Agreement has been duly executed and delivered by each of
Parent and the Merger Sub and constitutes the valid and binding obligation of
each of Parent and the Merger Sub, enforceable in accordance with its terms,
except as such enforcement may be limited by (i) the effect of bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights, or (ii) the rules governing the
availability of specific performance, injunctive relief or other equitable
remedies and general principles of equity, regardless of whether considered in a
proceeding in law or equity.

     

    5.3 Governmental and Other
Third-Party Consents, Non-Contravention, Etc.  No consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority on the part of Parent or Merger Sub is required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, except for (i) the
filing of the Delaware Merger Certificate with the Delaware Secretary of State;
(ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state and federal
securities laws and the securities laws of any foreign country in connection
with the issuance of shares of Parent Common Stock in the Merger; and
(iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Parent and would not prevent, or materially alter or delay any of the
transactions contemplated by this Agreement. The execution, delivery, and
performance of this Agreement and the consummation of such transactions will not
violate (a) any provision of Parent’s or Merger Sub’s certificate of
incorporation or by-laws, as amended and in effect, (b) any order, judgment,
injunction, award or decree of any court or state or federal governmental or
regulatory body applicable to Parent or Merger Sub, or (c) any judgment, decree,
order, statute, rule, regulation, agreement, instrument, or other obligation to
which Parent or Merger Sub is a party or by or to which it or any of its assets
is bound or subject, which violation will not have a Material Adverse Effect on
the Company.

     

    5.4 Parent Shares. 
The shares of Parent Common Stock issued pursuant to this Agreement, if any,
when issued and delivered to the Participating Rights Holders in accordance with
this Agreement, will be (i) duly authorized, validly issued, fully paid and
nonassessable, (ii) duly listed for trading on the American Stock Exchange
(or such other principal stock exchange on which the shares of Parent Common
Stock are traded on the date on which such shares are issued), (iii) subject to
certain restrictions under the Securities Act, and (iv) issued in compliance
with applicable state and federal securities laws.  Parent shall take
no action with the intent of artificially manipulating the share price of the
Parent Common Stock for purposes of the Subsequent Closing Payment.

     


    
      
         


      

      
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    5.5 SEC
Documents.  Parent has filed all required reports, schedules,
forms, statements and other documents with the SEC since January 1, 2007 (each,
a “Parent SEC
Document” and collectively, the “Parent SEC
Documents”).  As of their respective dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Securities Act or the United States Securities Exchange Act of 1934, as amended
(the “Exchange
Act”), as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents, and none of the
Parent SEC Documents, taken as a whole, contained at the time of filing any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading.  Except to the extent that information contained in any
Parent SEC Document has been revised or superseded by a later-filed Parent SEC
Document or by other public disclosure by Parent, none of the Parent SEC
Documents, taken as a whole, contains any untrue statement of a material fact or
omits 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 were made, not misleading.  Parent is in compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002, except to the extent
that any failure to so comply would not reasonably be expected to have a
Material Adverse Effect with respect to Parent.

     

    5.6 Compliance with Stock
Exchange Rules.  Parent is in compliance with the applicable
listing and other rules and regulations of the American Stock Exchange, except
to the extent that any failure to so comply would not reasonably be expected to
have a Material Adverse Effect with respect to Parent or prevent any shares of
Parent Common Stock issued pursuant to this Agreement to be eligible for listing
and trading on the American Stock Exchange, and has not since its listing on the
American Stock Exchange received any notice from the American Stock Exchange
asserting any non-compliance with such rules and regulations.

     

    5.7 No Material Adverse
Effect. Except for events and circumstances that have either been
publicly announced by Parent, or disclosed by Parent to the Company prior to the
date of this Agreement, no event constituting a Material Adverse Effect with
respect to Parent has occurred since the date of the latest balance sheet
included in the financial statements included or incorporated by reference in
Parent SEC Documents that could reasonably be expected to result in Parent being
unable to consummate the Merger in accordance with the terms and conditions of
this Agreement.

     

    5.8 Brokers.  Except
as set forth on Schedule 5.8 of the Parent
Disclosure Schedule, neither Parent nor Merger Sub have incurred, nor will they
incur, any liability for brokerage or finders’ fees or agents’ commissions or
investment bankers’ fees or any similar charges in connection with this
Agreement or the consummation of the transactions contemplated
hereby.

     


    
      
         


      

      
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    ARTICLE
6

     

    MUTUAL
COVENANTS.

     

    6.1 Satisfaction of
Conditions.  Each of the parties will use reasonable best
efforts to cause the satisfaction as promptly as possible, but in any event by
August 31, 2008, of the conditions contained in Sections 8.1 through 8.3 hereof
that impose obligations on it or require action on its part or the part of any
of its stockholders or Affiliates.

     

    6.2 Blue Sky
Approvals.  Parent will file all documents required to obtain
the Blue Sky permits and approvals, if any, required to carry out the
transactions contemplated by this Agreement (to the extent required prior to the
Effective Time), will pay all expenses incident thereto and will use its
commercially reasonable efforts to obtain such permits and approvals; provided, however, that Parent
shall not be required in connection with this Section 6.2 to qualify as a
foreign corporation or execute a general consent to service of process in any
jurisdiction.

     

    6.3 Further
Assurances.  Subject to the terms and conditions set forth in
this Agreement, from time to time both before and after the Effective Time, the
Company, Parent, Merger Sub and the Holders Representative Committee, and their
respective proper members, officers and directors, will use their respective
commercially reasonable efforts, as promptly as is practicable, to take or cause
to be taken all actions, and to do or cause to be done all other things, as are
necessary, proper, or advisable to consummate and make effective the Merger and
the other transactions contemplated hereby.

     

    6.4 Stockholder
Approval.  The Company will take all steps necessary or
appropriate to obtain, and shall obtain, the necessary written consents, or
votes cast in any meeting, of its stockholders in accordance with the New York
Law (the “Stockholder
Approval”), on the Agreement Date immediately following the execution and
delivery of this Agreement, for the purpose of adopting and approving this
Agreement and the transactions contemplated hereunder, and for such other
purposes as may be necessary or desirable.  The Company Board will
recommend to its stockholders the adoption and approval of this Agreement and
the transactions contemplated hereby and the other matters to be submitted to
its stockholders in connection therewith.

     


    
      
         


      

      
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    6.5 Notice of Merger and
Appraisal Rights; Accredited Investors.  As soon as practicable
after the date of this Agreement, Parent and the Company shall use reasonable
best efforts to prepare, and the Company shall furnish to its stockholders, an
information statement (the “Information
Statement”) soliciting a vote, whether at a meeting of stockholders of
the Company or by written consent, to ratify, approve and adopt the Merger
Agreement and the Merger and the other transactions contemplated by this
Agreement.  The Information Statement shall include a Notice of Merger
and Appraisal Rights (the “Appraisal Rights
Notice”) for the stockholders of the Company, which Appraisal Rights
Notice shall comply in all respects with the requirements of New York
Law.  In addition, the Information Statement shall constitute a
disclosure document for the offer and issuance of the shares of Parent Common
Stock that may be received by the Participating Rights Holders in the
Merger.  Parent and the Company shall each use reasonable best efforts
to cause the Information Statement to comply with applicable federal and state
securities laws requirements.  Each of Parent and the Company hereby
(i) consents to the use of its name and, on behalf of its Subsidiaries and
Affiliates, the names of such Subsidiaries and Affiliates and to the inclusion
of financial statements and business information relating to such party and its
Subsidiaries and Affiliates (in each case, to the extent required by applicable
securities laws) in the Information Statement, (ii) agrees to provide
promptly to the other party such information concerning it and its respective
Affiliates, directors, officers and securityholders as, in the reasonable
judgment of the other party or its counsel, may be required or appropriate for
inclusion in the Information Statement, or in any amendments or supplements
thereto, and (iii) agrees to cause its counsel and auditors to cooperate
with the other party's counsel and auditors in the preparation of the
Information Statement.  If any event relating to the Company or Parent
occurs, or if the Company or Parent becomes aware of any information, in either
case that should be disclosed in an amendment or supplement to the Information
Statement, then Parent and the Company shall promptly prepare such amendment or
supplement and the Company shall promptly distribute the same to its
stockholders.  The Information Statement shall contain the
recommendation of the Company Board that the stockholders of the Company approve
and adopt this Agreement, the Merger and the other transactions contemplated by
this Agreement, and the conclusion of the Company Board that the terms and
conditions of this Agreement and the Merger are fair and reasonable and in the
best interests of Company and its stockholders.  The Company shall
assist Parent in obtaining such information as Parent reasonably requires to
allow Parent to determine the number and nature of the stockholders of the
Company in their capacity as purchasers (as such term is used under Rule 506
under the Securities Act).  In connection with the distribution of the
Information Statement to the stockholders of the Company, the Company shall use
reasonable best efforts to cause each of its stockholders to complete and return
an accredited investor questionnaire.  The Company shall also use
reasonable best efforts to cause each holder of a Company Option to complete and
return an accredited investor questionnaire.  To the extent that
Parent reasonably determines that any Participating Rights Holder is not an
“accredited investor” (as defined in Rule 501 under the Securities Act) and does
not meet the financial knowledge and experience requirements of Rule 506 under
the Securities Act, the Company agrees that it shall use its reasonable best
efforts to cause such Participating Rights Holder to use a “purchaser
representative” (as defined in Rule 501 under the Securities Act) to assist such
Participating Rights Holder in evaluating the Information Statement (in the case
of a stockholder) and the investment decisions represented by this Agreement,
the Merger and the transactions contemplated hereby andthereby.  Notwithstanding
the foregoing, Parent shall not, under any circumstances, (i) issue shares of
Parent Common Stock pursuant to the terms of this Agreement to more than thirty
five (35) Participating Rights Holders that are not accredited investors or
(ii) be obligated to issue any shares of Parent Common Stock to any
Participating Rights Holder that is not an accredited investor.

     

    6.6 Dissenting
Shares.  As promptly as practicable after any such meeting of
the Company Stockholders of the Company at which this Agreement and the
transactions contemplated hereunder are submitted to such Company Stockholders
for adoption and approval, or after sending any notices required under the New
York Law after this Agreement and the transactions contemplated hereunder have
been adopted and approved by the Company Stockholders of the Company by written
consent in accordance with the New York Law, the Company shall furnish to Parent
the names and addresses of any dissenting stockholder and the number of
Dissenting Shares owned beneficially and of record by such dissenting
Stockholder.

     

    6.7 Intellectual
Property.  Parent and the Company each agree that, prior to the
Effective Time, any and all Intellectual Property, including trade secrets,
created or developed by either party shall remain the exclusive property of the
party who created or developed such property, notwithstanding the sharing of
information prior to the Merger.

     

    6.8 Public
Disclosure.  Between the date hereof and the Effective Time of
the Merger, neither the Company nor Parent will furnish any communications to
the public generally, except as required in compliance with applicable
securities laws, if the subject matter thereof relates to the other party or to
the transactions contemplated under this Agreement, without the prior approval
of the other party as to the contents thereof, which approval shall not be
unreasonably withheld or delayed.

     

    6.9 Consents.  The
Company shall use reasonable best efforts to obtain the consents, waivers and
approvals necessary for the consummation of the Merger and the transactions
contemplated under this Agreement (all of such consents, waivers and approvals
having been set forth in Schedule 6.9 of the Company
Disclosure Schedule), including, but not limited, all consents, waivers and
approvals that are necessary or required in connection with, or as a result of,
the Merger to preserve all of the Company’s rights and benefits in its business,
assets, properties, leases and contracts following the Merger and without
incurring any additional or special liability, or accelerating any existing
liability or obligation, in connection with or under its business, assets,
properties, leases and contracts following the Merger.

     


    
      
         


      

      
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      6.10 Notification of Certain
Matters.

       

      (a) Between
the date hereof and the Effective Time, each of Parent and the Company shall,
upon obtaining knowledge of any of the following, promptly notify the other
of:

       

      (i) any
notice or other communication from any person alleging that the consent of such
person is or may be required in connection with the Merger;

       

    

    (ii) any
actions, suits, claims, investigations or other judicial proceedings known to
its executive officers commenced or threatened against such party or any of its
Subsidiaries which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.17 hereof or which relate
to the consummation of the Merger;

     

    (iii) occurrence
or non-occurrence of any other event known to its executive officers which is
likely to cause any representation or warranty of such party contained in this
Agreement to be materially untrue or inaccurate at or prior to the Effective
Time; and

     

    (iv) any
failure of such party known to its executive officers to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder.

     

    (b) In
addition to its obligations set forth in Section 6.10(a) hereof, the Company
shall promptly notify Parent of any adverse determination or recommendation in
connection with any governmental proceeding to license any of the Company’s
products and any report filed with the FDA regarding an unexpected fatal or
life-threatening experience with respect to any such product.

     

    (c) The
delivery of any notice pursuant to this Section 6.10 shall not limit or
otherwise affect any remedies available to a party.

     

    6.11 Indemnification of Directors
and Officers.  From and after the Effective Time, Parent shall
cause the Surviving Corporation to fulfill and honor in all respects the
obligations, to the extent legally permissible, of the Company to its directors
and officers pursuant to the indemnification provisions under the Company’s
certificate of incorporation or by-laws as in effect on the date
hereof.

     

    6.12 Confidentiality.  Any
and all non-public information disclosed or made available by Parent to the
Company or by the Company to Parent as a result of the negotiations or due
diligence investigations leading to the execution of this Agreement, or in
furtherance thereof, including, without limitation, any information disclosed or
made available pursuant to Section 7.1 hereof, shall remain subject to the terms
and conditions of that certain Mutual Confidentiality Agreement, by and between
the Company and Parent, dated October 28, 2005 (the “Confidentiality
Agreement”).

     


    
      
         


      

      
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    6.13 Registration
Statement.  In the event that Parent deems it appropriate or
desirable to file a Registration Statement on Form S-3 or Form S-4 with the SEC
in connection with this Agreement and the Merger, then Parent shall prepare,
with the full cooperation and assistance of the Company, such Registration
Statement.  Parent and the Company shall each use their commercially
reasonable best efforts to cause the Registration Statement to comply with all
applicable requirements of federal and state securities laws.  The
Company hereby (a) consents to the use of its name and, on behalf of its
Subsidiaries and Affiliates, the names of such Subsidiaries and Affiliates, and
to the inclusion of financial statements and business information relating to
the Company and its Subsidiaries and Affiliates (in each case, to the extent
required by applicable securities laws) in the Registration Statement,
(b) agrees to provide promptly to Parent such information concerning its
business and financial statements and affairs, including with respect to any
securities of Parent such person may be deemed to own beneficially, as may
reasonably be requested by Parent for inclusion in the Registration Statement,
or in any amendments or supplements thereto, and (c) agrees to cause its
counsel and auditors to cooperate with Parent’s counsel and auditors in the
preparation of the Registration Statement.  The Company will promptly
advise Parent, and Parent will promptly advise the Company, in each case in
writing, if at any time prior to the Effective Time either the Company or Parent
shall obtain knowledge of any facts that might make it necessary or appropriate
to amend or supplement the Registration Statement in order to make the
statements contained or incorporated by reference therein not misleading or to
comply with applicable law.

     

    6.14 Sales
Representatives.  Prior to July 10, 2008, Parent shall have at
least five (5) full time sales representatives (the “New Sales
Reps”).  Parent shall (a) include, as part of the formal
employment obligations of the New Sales Reps, general responsibilities regarding
the marketing and selling of Sales Milestone Payment Products until the end of
the Sales Milestone Period, and (b) set any commission programs for Branded
Product sales on no less favorable terms to any other product represented by New
Sales Reps until the end of the Sales Milestone Period.

     

    6.15 Registration.  In
the event that Parent elects to pay all or any portion of the Subsequent Closing
Payment Amount through the issuance of shares of Parent Common Stock, Parent
shall (i) file, as soon as practicable after the issuance of such shares, a
Registration Statement on Form S-3 under the Securities Act (or on Form S-1
under the Securities Act if Parent is not eligible, pursuant to the rules
governing the use of Form S-3, to use Form S-3) registering for resale all of
such shares (other than any such shares issued to Mark E. Dillon, which shall
not be covered by such Registration Statement), and (ii) use commercially
reasonable efforts to ensure that such Registration Statement is declared
effective by the SEC as soon as practicable after the initial filing
thereof.

     

    6.16 Financial
Statements.  As soon as practicable after the Agreement Date,
and in any event no later than five (5) business days prior to the Closing, the
Company shall deliver to Parent the unaudited balance sheet of the Company as of
June 30, 2007 and as of June 30, 2008, and the related unaudited statements of
income and retained earnings and cash flows, respectively, of the Company, for
each of the six-month periods, respectively, ended on such dates.

     


    
      
         


      

      
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    ARTICLE
7

     

    CONDUCT
OF BUSINESS PENDING THE CLOSING

     

    From and
after the date of this Agreement and until the Closing, except as otherwise
specifically agreed by Parent:

     

    7.1 Full
Access.  The Company will afford to Parent and its authorized
representatives full access, upon request and reasonable notice and during
normal business hours, to all of the properties, books, records, contracts, and
documents of the Company, and a reasonable opportunity to make such
investigations as Parent desires to make, and will furnish or cause to be
furnished to Parent and its authorized representatives all such information with
respect to the Company’s affairs and businesses as Parent reasonably
requests.  During such investigations, Parent shall make all
reasonable efforts to avoid interfering with the normal conduct of the Company’s
operations.  No information or knowledge obtained by Parent in any
investigation pursuant to this Section 7.1 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions of the parties
to consummate the Merger.

     

    7.2 Course of Business Pending
the Closing.  Subject to the provisions set forth below in this
Article 7, the Company shall operate the Company’s business solely in the
ordinary course consistent with past practice.

     

    7.3 No Dividends, Issuances,
Repurchases, Etc.  The Company will not declare, set aside, or
pay any dividends (whether in cash, shares of stock, other property, or
otherwise) on, or make any other distribution in respect of, any shares of its
capital stock or other securities, or issue, purchase, redeem, or otherwise
acquire for value any shares of its capital stock or other
securities.  The Company will not issue any shares of its capital
stock or other securities (including without limitation any options, warrants,
or other rights to acquire Company Common Stock), other than shares of Company
Common Stock issued upon the due exercise of vested Company Options or Company
Warrants listed in Schedule 4.4 of the Company
Disclosure Schedule (which exercises will be disclosed by the Company in a
supplement to the Company Disclosure Schedule pursuant to Section 7.27
hereof).

     


    
      
         


      

      
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    7.4 No Compensation
Changes.  The Company will
not increase the base salary payable or to become payable to any of its
officers, directors, employees, consultants or agents, or pay or increase any
severance, bonus, insurance, pension, or other benefit plan, payment, or
arrangement made to, for, or with any such officers, directors, employees,
consultants or agents, except as described in Schedule 7.4 of the Company
Disclosure Schedule.  The Company shall not pay any severance benefits
to, enter into any contract, agreement or arrangement to provide severance
benefits to, or implement any severance plan for the benefit of, any of the
Company’s officers, directors, employees or consultants, except pursuant to any
severance plan, contract or arrangement described in Schedule 4.14 of the Company
Disclosure Schedule.  The Company shall not accelerate the vesting or
exercisability of any Company Option.  Notwithstanding anything to the
contrary in this Section 7.4, and provided the Company does not incur any
Indebtedness in connection therewith, the Company shall be permitted, at any
time prior to the Effective Time, to expend up to an aggregate of $175,000 in
cash to pay for certain incentive bonuses to be paid to its employees, as more
fully set forth on Schedule 7.4
hereto.

     

    7.5 Contracts and
Commitments.  The Company will not enter into any contract or
commitment, or engage in any other transaction, other than as specifically
contemplated by this Agreement or with the prior written consent of Parent,
which consent shall not be unreasonably withheld, conditioned or
delayed.

     

    7.6 Purchase and Sale of
Assets.  The Company will not purchase, lease as lessee,
license as licensee, or otherwise acquire any interest in, or sell, lease as
lessor, license as licensor, or otherwise dispose of any interest in, any assets
(including, without limitation, any Company Intellectual Property), other than
sales of assets in the ordinary course of business and in amounts not exceeding,
in the aggregate, $10,000.  Notwithstanding the foregoing, in no event
shall the Company sell, lease, license or otherwise dispose of any Company
Intellectual Property, computer hard drives, computer servers, computer network
hardware, physical or electronic offsite storage materials, electronic tapes
and/or other backup media materials or written documents of the
Company.

     

    7.7 Liabilities.  The
Company shall not incur any Indebtedness or enter into any contracts or
commitments involving potential payments to or by the Company or any Subsidiary
of the Company in any single instance of $10,000 or more or in the aggregate
$50,000 or more.

     

    7.8 Charter and
By-Laws.  The Company shall not cause, permit or propose any
amendments to its certificate of incorporation or by-laws except as contemplated
hereby.

     

    7.9 Acquisitions.  The
Company shall not make, or permit to be made, any material acquisition of
property, assets or businesses.

     

    7.10 Capital
Expenditures.  The Company shall not authorize or incur any
single capital expenditure in excess of $10,000 or capital expenditures which in
the aggregate exceed $50,000.

     


    
      
         


      

      
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    7.11 Accounts
Payable.  The Company shall make payment with respect to all of
its accounts payable and its Indebtedness in a timely manner in accordance with
their respective terms in the ordinary course of business consistent with the
Company’s past practices.

     

    7.12 Employees.  The
Company shall not hire any employee without the prior written consent of Parent,
which consent shall not be unreasonably withheld, conditioned or
delayed.

     

    7.13 Accounting
Policies.  Except as may be required as a result of a change in
law or in generally accepted accounting principles, change any of the accounting
practices or principles used by it.

     

    7.14 Taxes.  The
Company shall not make any Tax election or settle or compromise any material
federal, state, local or foreign Tax liability (other than settlements or
compromises not involving any payments of Taxes), change its annual tax
accounting period, change any method of Tax accounting, enter into any closing
agreement relating to any Tax, surrender any right to claim a Tax refund, or
consent to any extension or waiver of the limitations period applicable to any
Tax claim or assessment.

     

    7.15 Legal.  The
Company shall not settle or compromise any pending or threatened suit, action or
claim.

     

    7.16 Extraordinary
Transactions.  The Company shall not adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company (other than the
Merger).

     

    7.17 Payment of
Indebtedness.  The Company shall not pay, discharge or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business and consistent with past
practice, of liabilities reflected or reserved against in the Company Most
Recent Balance Sheet and authorized pursuant to Section 7.2 hereof.

     

    7.18 New Agreements;
Amendments.  The Company shall not enter into or modify any
material supply, license, development, research or collaboration agreement with
any other person or entity.

     

    7.19 Obligations.  The
Company shall not obligate itself to do any of the things that the Company is
prohibited from doing pursuant to any of the provisions of this Section
7.

     

    7.20 Subsidiaries.  The Company shall
not permit any Subsidiary to take any action that the Company is not permitted
to do pursuant to this Section 7.

     

    7.21 Preservation of
Organization.  The Company will use commercially reasonable
efforts to preserve its business organization intact, to preserve for the
benefit of the Surviving Corporation its present business relationships with its
suppliers and customers and others having business relationships with
it.

     

    7.22 Intellectual Property
Rights.  The Company will use commercially reasonable efforts
to maintain, preserve and protect the Company Intellectual
Property.

     

    7.23 No
Default.  The Company will not take or omit to take any action,
or permit any action or omission to act, that would cause a default under or a
material breach of any of its contracts, commitments, or
obligations.

     

    7.24 Compliance with
Laws.  The Company will duly comply in all material respects
with all applicable laws, regulations, and orders.

     

    7.25 Advice of
Change.  The Company will promptly advise Parent in writing of
any event or occurrence which results in or is reasonably likely to result in a
Material Adverse Effect on the Company.

     


    
      
         


      

      
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    7.26 No
Shopping.

     

    (a) During
the period beginning on the Agreement Date and ending on the Effective Time, the
Company shall not, nor shall the Company authorize or permit any of its
officers, directors, employees, Affiliates, investment bankers, advisors,
representatives or agents (collectively, “Representatives”),
directly or indirectly, to (a) make, solicit, assist, initiate or in any way
facilitate or encourage the submission of any Proposal (as defined below), (b)
participate in any discussions or negotiations regarding, or furnish to any
person or entity any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal, offer or bid that
constitutes, or may reasonably be expected to lead to, any Proposal, or (c)
enter into any understanding, arrangement, agreement or agreement in principle
with any person or group (other than Parent) relating to any proposed or
contemplated Company Transaction (as defined below); provided, however, that prior
to receipt of the Stockholder Approval the Company may, to the extent required
by the fiduciary obligations of the Company Board, as determined in good faith
by a majority of the disinterested members thereof after consultation with
outside counsel, in response to a bona fide, written Proposal that is made by a
person a majority of the disinterested members of the Company Board determine,
in good faith, is reasonably capable of making a Superior Proposal (as defined
below) and that a majority of the disinterested members of the Company Board
determine, in good faith, after consultation with the Company’s independent
financial advisor and outside counsel, has a high likelihood of resulting in the
completion of a transaction meeting the requirements of clause (i) of the
definition of “Superior Proposal” that was not solicited by the Company or any
of its Representatives and that did not otherwise result from a breach or a
deemed breach of this Section, and subject to compliance with Section 7.26(c),
(x) furnish information with respect to the Company to the person making such
Proposal pursuant to a confidentiality agreement not less restrictive of the
other party than the Confidentiality Agreement and (y) participate in
discussions or negotiations (including solicitation of a revised Proposal) with
such person and its Representatives regarding any Proposal.  Without
limiting the foregoing it is agreed that any violation of the restrictions set
forth in the preceding sentence by any Representative or affiliate of Company,
whether or not such person is purporting to act on behalf of Company or
otherwise, shall be deemed to be a breach of this Section 7.26(a) by the
Company. The Company shall, and shall cause its Representatives to, cease
immediately any current discussions and negotiations regarding any proposal that
constitutes, or may reasonably be expected to lead to, a Proposal.

     

    (b)  The
Company Board shall not approve or recommend any Proposal by a third party, or
withdraw or modify in a manner adverse to Parent its approval or recommendation
of this Agreement or the transactions contemplated hereby, including the Merger,
or fail to solicit the vote of its stockholders as required by this Agreement or
fail to include in such solicitation such recommendation (including the
recommendation that the stockholders of Company vote in favor of the Merger), or
publicly resolve to do any of the foregoing. Notwithstanding the foregoing, the
Company Board may withdraw or modify its approval or recommendation of the
Stockholder Approval and, in connection therewith, approve or recommend a
Superior Proposal, provided that each of
the following shall have been true and complied with, as applicable, prior to
the Company Board taking any such action: (i) the Company Board has received a
Superior Proposal, (ii) in light of such Superior Proposal a majority of the
disinterested directors of the Company Board shall have determined in good
faith, after consultation with outside counsel, that it is necessary for the
Company Board to withdraw or modify its approval or recommendation of the
Stockholder Approval in order to comply with its fiduciary duty under applicable
law, (iii) Company has notified Parent in writing of the determinations
described in clause (ii) above, (iv) at least five business days following
receipt by Parent of the notice referred to in clause (iii) above, and taking
into account any revised proposal made by Parent since receipt of the notice
referred to in clause (iii) above, such Superior Proposal remains a Superior
Proposal and a majority of the disinterested directors of the Company Board has
again made the determinations referred to in clause (ii) above, (v) the Company
is in compliance with Section 7.26 and (vi) Parent is not at such time entitled
to terminate this Agreement pursuant to Section 10.1(c).

     

    (c) Company
shall promptly advise Parent orally and in writing of (A) the receipt by it or
by any of its Representatives after the date hereof of any Proposal, or any
inquiry which could reasonably be expected to lead to a Proposal, or any request
for nonpublic information in connection with such a Proposal or inquiry, or for
access to the properties, books or records of Company by any third party and (B)
the terms and conditions of any such Proposal or inquiry.  Such notice
to Parent will indicate in reasonable detail the identity of the person making,
and the terms of, the Proposal or inquiry. Company shall (i) keep Parent fully
informed of the status including any change to the material terms or details of
any Proposal or inquiry and (ii) provide to Parent as soon as practicable after
receipt or delivery thereof with copies of all correspondence and other written
material sent or provided to the Company from any third party in connection with
any Proposal or sent or provided by the Company to any third party in connection
with any Proposal.

     

    (d) Nothing
contained in this Section 7.26 shall prohibit the Company from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any required disclosure to the
Company’s stockholders if, in the good faith judgment of the Company Board,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable
law.  Notwithstanding anything in this Section 7.26, the Company Board
may not take any action that would result in the Company’s stockholders no
longer being legally capable under New York Law of validly approving the
Merger.

     

    (e) For
purposes of this Agreement:

     

    (i) “Proposal” means any
inquiries, proposals, offers or bids with respect to a Company
Transaction;

     

    (ii) “Company Transaction”
means (i) a purchase, merger, reorganization, consolidation, share exchange,
strategic alliance, corporate partnering transaction, license, sublicense or
other transfer to a third party of intellectual property of the Company,
business combination or other similar transaction involving Company or any
subsidiary of Company and a third party (including, but not limited to, any
transaction in which a third party could become the direct or indirect
beneficial owner of any capital stock or any other equity interest of Company),
or any purchase of all or any significant portion of the assets of Company or
any subsidiary of Company by a third party or (ii) any financing of Company by a
third party; and

     

    (iii) “Superior Proposal”
means any proposal made by a third party to acquire all or substantially all the
equity securities or assets of the Company, pursuant to a tender or exchange
offer, a merger, a consolidation, a liquidation or dissolution, a
recapitalization, a sale of all or substantially all its assets or otherwise,
(i) on terms which a majority of the disinterested members of the Company Board
determines in good faith to be superior from a financial point of view on a
present value basis to the holders of Company Common Stock than the transactions
contemplated by this Agreement (based on the written opinion, with only
customary qualifications, of a nationally recognized independent financial
advisor of the Company), taking into account all the terms and conditions of
such proposal and this Agreement (including any proposal by Parent to amend the
terms of this Agreement and the transactions contemplated hereby) and (ii) that
has a high likelihood of being completed, taking into account all financial,
regulatory, legal and other aspects of such proposal, and assuming this
Agreement has been terminated.

     

    7.27 Disclosure
Supplements.  From time to time before the Closing, and in any
event immediately before the Closing, each of Parent and the Company will
promptly advise the other in writing of any matter hereafter arising or becoming
known to the disclosing party that, if existing, occurring, or known at or
before the date of this Agreement, would have been required to be set forth or
described in the Company Disclosure Schedule or Parent Disclosure Schedule, as
the case may be, or that is necessary to correct any information in such
Disclosure Schedule that is or has become inaccurate.  No such
disclosure will be taken into account in determining whether the conditions to
(i) in the case of any such supplemental disclosure by Parent, the obligations
of the Company, and (ii) in the case of any such supplemental disclosure by the
Company, the respective obligations of Parent and Merger Sub, to consummate the
transactions contemplated by this Agreement have been satisfied.  If
the Merger is consummated, then for purposes of the indemnification provisions
of this Agreement, such supplemental disclosures pursuant to this Section 7.27
will have no effect on the availability of indemnification
hereunder.

     


    
      
         


      

      
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    ARTICLE
8

     

    CONDITIONS
TO THE PARTIES’ OBLIGATIONS

     

    8.1 Mutual
Conditions.  The parties’ obligations to consummate the Merger
are subject to the satisfaction (or waiver by each such party, in its sole
discretion) of each of the conditions set forth in this Section 8.1 on or before
the Closing Date.  If the Merger is consummated, such conditions will
conclusively be deemed to have been satisfied or waived.

     

    (a) No Injunctions or
Restraints.  No temporary restraining order, preliminary or
permanent injunction, or other order issued by any court of competent
jurisdiction, or other legal restraint or prohibition preventing the
consummation of the Merger, shall be in effect, and no petition or request for
any such injunction or other order shall be pending.

     

    (b) Compliance with
Laws.  All actions by or in respect of or filings with any
Governmental Authority required to permit the consummation of the Merger in
accordance with the terms hereof shall have been obtained (other than those
actions or filings which, if not obtained or made prior to the consummation of
the Merger, would not have a Material Adverse Effect on the Company prior to or
after the Effective Time or a Material Adverse Effect on Parent after the
Effective Time or be reasonably likely to subject the Company, Parent, Merger
Sub, or any of their respective Subsidiaries or any of their respective officers
or directors to substantial penalties or criminal liability).

     

    (c) Proceedings and Documents
Satisfactory.  All proceedings in connection with the
transactions contemplated by this Agreement and all certificates and other
documents delivered to such party pursuant to this Agreement or in connection
with the Closing will be reasonably satisfactory to such party and its
counsel.

     

    8.2 Conditions to the Company’s
Obligations.  The obligations of the Company to consummate the
Merger are subject to the satisfaction (or waiver by the Company, in its sole
discretion) of each of the conditions set forth in this Section 8.2 on or before
the Closing Date.  If the Merger is consummated, such conditions will
conclusively be deemed to have been satisfied or waived.

     

    (a) Representations and
Warranties.  Each of the representations and warranties made by
Parent and/or Merger Sub in or pursuant to this Agreement or in any statement,
certificate, or other document delivered to the Company in connection with this
Agreement, the Merger, or any of the other transactions contemplated hereby
(a) that is qualified as to materiality or Material Adverse Effect shall be
true and correct in all respects as of the Closing Date as though each such
representation and warranty had been made on and as of the Closing Date, except
to the extent any such representation and warranty expressly speaks only as of
an earlier date (in which case as of such earlier date), and (b) that is
not so qualified shall be true and correct in all material respects as of the
Closing Date as though each such representation and warranty had been made on
and as of the Closing Date, except to the extent any such representation and
warranty expressly speaks only as of an earlier date (in which case as of such
earlier date).

     

     

    (b) Compliance with
Agreement.  Parent and Merger Sub shall have performed and
complied in all material respects with all of their respective obligations under
this Agreement to be performed or complied with by them before or at the
Closing.

     

    (c) Closing
Certificate.  Parent and Merger Sub shall have executed and
delivered to the Company, at and as of the Closing, a certificate certifying
that the conditions referred to in Sections 8.2(a) and 8.2(b) hereof have been
satisfied.

     

     

    (d) Opinion of
Counsel.  Counsel to Parent and Merger Sub, shall have
delivered to the Company a written legal opinion addressed to the Company, dated
on and as of the Closing Date, in the form attached hereto as Exhibit 8.2(d).

     

     

    (e) Employment
Agreements.  Parent
and Surviving Corporation shall have entered into an Employment, Non-Competition
and Non-Solicitation Agreement with each of Mark E. Dillon and Karl R. Alden in
the form attached hereto as Exhibit 8.2(e), pursuant to
which, among other things, (i) Mark E. Dillon shall be appointed President of
the Surviving Corporation and Vice President of Manufacturing of Parent for a
period of at least two years after the Closing and (ii) Mark E. Dillon and Karl
R. Alden shall each agree to be bound by standard non-competition and
non-solicitation provisions restricting their activities for a period of time
equal to one year after termination of employment with Parent or two years after
the Closing, whichever is later.

     


    
      
         


      

      
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    8.3 Conditions to Parent’s and
Merger Sub’s Obligations.  The obligations of each of Parent
and Merger Sub, respectively, to consummate the Merger are subject to the
satisfaction (or waiver by Parent, in its sole discretion) of each of the
conditions set forth in this Section 8.3 on or before the Closing
Date.  If the Merger is consummated, such conditions will conclusively
be deemed to have been satisfied or waived.

     

    (a) Representations and
Warranties.  Each of the representations and warranties made by
the Company in or pursuant to this Agreement or in any statement, certificate,
or other document delivered to Parent or Merger Sub in connection with this
Agreement, the Merger, or any of the other transactions contemplated hereby
(a) that is qualified as to materiality or Material Adverse Effect shall be
true and correct in all respects as of the Closing Date as though each such
representation and warranty had been made on and as of the Closing Date, except
to the extent any such representation and warranty expressly speaks only as of
an earlier date (in which case as of such earlier date), and (b) that is
not so qualified shall be true and correct in all material respects as of the
Closing Date as though each such representation and warranty had been made on
and as of he Closing Date, except to the extent any such representation and
warranty expressly speaks only as of an earlier date (in which case as of such
earlier date).

     

     

    (b) Stockholder
Approval.  Immediately after the execution and delivery of this
Agreement on the Agreement Date, the Company shall solicit the approval of this
Agreement and the Merger by the Company Stockholders (i) by the requisite vote
under applicable law, the Company’s certificate of incorporation and any other
applicable agreement involving the Company or its stockholders and (ii) this
Agreement and the Merger shall be approved by the affirmative vote of the
holders of at least ninety percent (90%) of all shares of the Company’s capital
stock then outstanding.

     

    (c) Compliance with
Agreement.  The Company shall have performed and complied in
all material respects with all of its obligations under this Agreement to be
performed or complied with by it before or at the Closing.

     

    (d) Closing
Certificates.  The Company will have executed and delivered to
Parent, at and as of the Closing,

     

    (i) a
certificate certifying that the conditions referred to in Sections 8.3(a),
8.3(b), 8.3(f) and 8.3(g) hereof have been satisfied;

     

    (ii) a
certificate that incorporates by reference the representations and warranties
set forth in Section 4.4 hereof and sets forth the information required to be
set forth on Section 4.4 of the Company Disclosure Schedule as of the Effective
Time (the “Capitalization
Certificate”), which Capitalization Certificate shall be deemed to be a
representation and warranty of the Company hereunder; and

     

    (iii) the
Merger Consideration Certificate.

     

    (e) Opinion of
Counsel.  Counsel to the Company, will have delivered to Parent
a written legal opinion addressed to Parent, dated on and as of the Closing
Date, and in form reasonably satisfactory to Parent.

     

    (f) No Pending
Litigation.  No action, suit or proceeding shall be pending
against the Company or any of its Subsidiaries wherein any unfavorable
injunction, judgment, order, decree ruling or charge would have a Material
Adverse Effect on Parent.

     

    (g) Third Party
Consents.  Parent shall have been furnished with evidence
reasonably satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 4.18 of the Company
Disclosure Schedule and any other consents, approvals and waivers that are
necessary or required in connection with, or as a result of, the Merger to
preserve all of the Company’s rights and benefits in its business, assets,
properties, leases and contracts following the Merger and without incurring any
additional or special liability, or accelerating any existing liability or
obligation, in connection with or under its business, assets, properties, leases
and contracts following the Merger.

     


    
      
         


      

      
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    (h) Terminations;
Notices.  Company shall have been furnished evidence reasonably
satisfactory to the Parent that all Company Options, Company Warrants or any
other rights or derivative securities have been exercised or terminated
immediately prior to the Effective Time and that there are no Company Options or
Company Warrants outstanding as of the Effective Time and all required
notifications of the Merger and the other transactions contemplated hereby to
the holders of Company Options have been properly and timely
delivered.

     

    (i) Resignation of Directors and
Officers.  The directors and officers of the Company in office
immediately prior to the Effective Time shall have resigned as directors and
officers of the Surviving Corporation effective as of the Effective
Time.

     

    (j) Dissenters’
Rights.  Any applicable period during which Company
Stockholders have the right to exercise appraisal, dissenters’ or other similar
rights under Section 623 of New York Law or other applicable law shall have
expired and no Stockholder shall have exercised appraisal, dissenters’ or
similar rights under applicable law with respect to its shares of the Company
Common Stock by virtue of the Merger.

     

    (k) Number of Accredited
Investors; Purchaser Representative.  Each Participating Rights
Holder (or a sufficient number of Participating Rights Holders so that Parent
can make the determination described in this Section 8.3) shall have delivered
to Parent an executed accredited investor questionnaire such that there shall be
no more than thirty five (35) Participating Rights Holders who are not
“accredited investors” as defined in Rule 501 under the Securities Act, or who
are not otherwise excluded from the calculation of the number of “purchasers”
under Rule 501(e) under the Securities Act.  Each Participating Rights
Holder who is not an “accredited investor” as defined in Rule 501 under the
Securities Act and who does not meet the sophistication requirements set forth
in Rule 501 under the Securities Act, shall be represented by a “purchaser
representative”, as defined in Regulation D under the Securities Act, reasonably
satisfactory to Parent, and such purchaser representative shall have executed
and delivered documentation reasonably satisfactory to Parent with respect to
the issuance and delivery by Parent of Parent Common Stock to such Stockholder
pursuant to the Merger.

     

    (l) Parent
Financing.  Parent shall have completed an equity or debt
financing after the date hereof, on terms satisfactory to Parent in its sole
discretion, pursuant to which Parent shall have received gross proceeds of not
less than seven million dollars ($7,000,000) (the “Parent
Financing”).

     

    ARTICLE
9

     

    INDEMNIFICATION

     

    9.1 Effectiveness.  The
provisions of this Article 9 shall apply and become effective only if the Merger
is consummated.

    


     

    9.2 Indemnification by Parent
and Surviving Corporation.  Subject to the limitations set
forth in Section 9.6 hereof, Parent and the Surviving Corporation, jointly and
severally, shall indemnify, defend, and hold harmless each Participating Rights
Holder from and against any and all Damages related to or arising, directly or
indirectly, out of or in connection with any breach by Parent and/or Merger Sub
of any representation, warranty, covenant, agreement, obligation, or undertaking
made by Parent and/or Merger Sub in this Agreement (including any schedule or
exhibit hereto), or any other agreement, instrument, certificate, or other
document delivered by or on behalf of Parent and/or Merger Sub in connection
with this Agreement, the Merger, or any of the other transactions contemplated
hereby.  Notwithstanding anything in this Section 9.2 or elsewhere in
this Agreement to the contrary, only the Holders Representative Committee shall
have the right, power and authority to make or bring indemnification claims (or
commence any action, suit or proceeding on account of or with respect to any
indemnification claims) by and on behalf of any or all Participating Rights
Holders against Parent or the Surviving Corporation, and in no event shall any
Participating Rights Holder himself, herself or itself have the right to make or
bring indemnification claims (or commence any action, suit or proceeding on
account of or with respect to any indemnification claims) against Parent or the
Surviving Corporation.

     

    9.3 Joint and Several
Indemnification by the Participating Rights Holders.  Subject
to the limitations set forth in Section 9.6 hereof, the Participating Rights
Holders, jointly and severally, shall indemnify, defend, and hold harmless
Parent, the Surviving Corporation and each of the directors, officers,
employees, agents, representatives and other Affiliates of Parent and/or Merger
Sub (all persons entitled to indemnification under this Section 9.3 being
hereinafter referred to as the “Parent Indemnified
Parties”, and, together with the Holders Representative Committee, acting
for and on behalf of any or all of the Participating Rights Holders in their
capacities as indemnified parties under Section 9.2 hereof, the “Section 9 Indemnified
Parties”) from and against any and all Damages related to or arising,
directly or indirectly, out of or in connection with (i) any breach by the
Company of any representation, warranty, covenant, agreement, obligation, or
undertaking made by the Company in this Agreement (including any schedule or
exhibit hereto), or any other agreement, instrument, certificate, or other
document delivered by or on behalf of the Company in connection with this
Agreement, the Merger, or any of the other transactions contemplated hereby,
(ii) any claim made by holders of Dissenting Shares for an appraisal of the
value of such Dissenting Shares pursuant to, and in accordance with, the
provisions of such Sections 905 and 623 of New York Law, and (iii) any claim
made against Parent or the Surviving Corporation by any officer, director or
employee of the Company seeking indemnification from Parent or the Surviving
Corporation under the circumstances contemplated under Section 6.11
hereof.

     

    
      
         


      

      
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      9.4 Claims.

       

      (a) All
claims for indemnification by a Section 9 Indemnified Party pursuant to this
Agreement shall be made in accordance with the provisions of this Article
9.

    

     

    (b) If a
Section 9 Indemnified Party has incurred or suffered Damages for which it is
entitled to indemnification under this Section 9, such Section 9 Indemnified
Party shall give prompt written notice of such claim (a “Claim Notice”)
to the Holders Representative Committee, in the case of a claim by a Parent
Indemnified Party, or to Parent, in the case of a claim by the Holders
Representative Committee.  Each Claim Notice shall state the amount of
claimed Damages (the “Claimed Amount”), if
known, and the basis for such claim.  For purposes of this Agreement,
the term “Section 9
Indemnifying Party” shall mean any or all, as the context may require, of
(i) the Participating Rights Holders in their capacities as indemnifying parties
under Section 9.3 hereof, and (ii) Parent and the Surviving Corporation in their
capacities as indemnifying parties under Section 9.2 hereof.

     

    (c) Within 20
days after delivery of a Claim Notice by a Section 9 Indemnified Party, the
applicable Section 9 Indemnifying Party (who for purposes of this Section 9
shall be represented by the Holders Representative Committee in the case of a
claim by a Parent Indemnified Party) shall provide to such Section 9 Indemnified
Party a written response (the “Response Notice”) in
which such Section 9 Indemnifying Party shall:  (i) agree that
all of the Claimed Amount is owed to such Section 9 Indemnified Party,
(ii) agree that part, but not all, of the Claimed Amount (the “Agreed Amount”) is
owed to such Section 9 Indemnified Party, or (iii) contest that any of the
Claimed Amount is owed to such Section 9 Indemnified Party.  Such
Section 9 Indemnifying Party may contest the payment of all or a portion of the
Claimed Amount only based upon a good faith belief that all or such portion of
the Claimed Amount does not constitute Damages for which such Section 9
Indemnified Party is entitled to indemnification under this Section
9.  If no Response Notice is delivered by such Section 9 Indemnifying
Party within such 20-day period, such Section 9 Indemnifying Party shall be
deemed to have agreed that all of the Claimed Amount is owed to the Section 9
Indemnified Party.

     

    (d) If a
Section 9 Indemnifying Party in any Response Notice agrees (or is deemed to have
agreed) that all of the Claimed Amount is owed to the applicable Section 9
Indemnified Party, such Section 9 Indemnifying Party shall owe to such Section 9
Indemnified Party an amount equal to the Claimed Amount and such amount shall be
paid in the manner set forth further below in this Section 9.  If such
Section 9 Indemnifying Party in such Response Notice agrees that part, but not
all, of the Claimed Amount is owed to such Section 9 Indemnified Party, such
Section 9 Indemnifying Party shall owe to such Section 9 Indemnified Party an
amount equal to the Agreed Amount set forth in such Response Notice and such
amount shall be paid in the manner set forth further below in this Section
9.  If such Section 9 Indemnifying Party in such Response Notice
contests the payment of all or a portion of the Claimed Amount, such Section 9
Indemnifying Party shall owe to such Section 9 Indemnified Party only such
amount, if any, as a court of competent jurisdiction determines to be so
owed.

     

    (e) Each
Section 9 Indemnified Party shall give prompt written notification to the
applicable Section 9 Indemnifying Party of the commencement of any action, suit
or proceeding relating to a third party claim for which indemnification pursuant
to this Section 9 may be sought; provided, however, that no
delay on the part of such Section 9 Indemnified Party in notifying such Section
9 Indemnifying Party shall relieve such Section 9 Indemnifying Party of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such delay.  Within 20 days
after delivery of such notification, such Section 9 Indemnifying Party may
(except to the extent otherwise provided below in this Section 9.4(e)), upon
written notice to such Section 9 Indemnified Party, assume control of the
defense of such action, suit or proceeding with counsel reasonably satisfactory
to such Section 9 Indemnified Party, provided that (i)
such Section 9 Indemnifying Party acknowledges in writing to such Section 9
Indemnified Party, on behalf of the Section 9 Indemnifying Party, that any
damages, fines, costs or other liabilities that may be assessed against such
Section 9 Indemnified Party in connection with such action, suit or proceeding
constitute Damages for which such Section 9 Indemnified Party shall be entitled
to indemnification pursuant to this Section 9, and (ii) the third party
seeks monetary damages only.  If such Section 9 Indemnifying Party
does not so assume control of such defense, such Section 9 Indemnified Party
shall control such defense.  The party not controlling such defense
may participate therein at its own expense; provided that if such
Section 9 Indemnifying Party assumes control of such defense and such Section 9
Indemnified Party reasonably concludes that such Section 9 Indemnifying Party
and such Section 9 Indemnified Party have conflicting interests or different
defenses available with respect to such action, suit or proceeding, the
reasonable fees and expenses of counsel to such Section 9 Indemnified Party
shall be considered “Damages” for purposes
of this Agreement.  The party controlling such defense shall keep the
other party advised of the status of such action, suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
other party with respect thereto.  Such Section 9 Indemnified Party
shall not agree to any settlement of such action, suit or proceeding without the
prior written consent of such Section 9 Indemnifying Party, which shall not be
unreasonably withheld or delayed.  A Section 9 Indemnifying Party
shall not agree to any settlement of or the entry of a judgment in any action,
suit or proceeding without the prior written consent of the applicable Section 9
Indemnified Party, which shall not be unreasonably withheld (it being understood
that it is reasonable to withhold such consent if, among other things, the
settlement or the entry of a judgment (A) lacks a complete release of such
Section 9 Indemnified Party for all liability with respect thereto or (B)
imposes any liability or obligation on such Section 9 Indemnified
Party).

     


    
      
         


      

      
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    9.5 Payment of
Claims.  A Section 9 Indemnifying Party shall make payment of
any portion of any Claimed Amount that such Section 9 Indemnifying Party has
agreed in a Response Notice that it owes to a Section 9 Indemnified Party or
that such Section 9 Indemnifying Party is deemed to have agreed it owes to such
Section 9 Indemnifying Party pursuant to the provisions of Section 9.4(c)
hereof, said payment to be made within thirty (30) days after such Response
Notice is delivered by such Section 9 Indemnifying Party or should have been
delivered by such Section 9 Indemnifying Party, as the case may be.  A
Section 9 Indemnifying Party shall make payment of any portion of any Claimed
Amount that is being disputed and contested by such Section 9 Indemnifying Party
only if and when the dispute or contest is settled by such Section 9
Indemnifying Party and the applicable Section 9 Indemnified Party or if and when
a court of competent jurisdiction determines the portion, if any, of such
Claimed Amount that is owed by such Section 9 Indemnifying Party, whereupon such
Section 9 Indemnifying Party shall make payment to such Section 9 Indemnified
Party of the settlement amount or the amount determined by such court of
competent jurisdiction within thirty (30) days after such settlement or court
determination has been made.

     

    9.6 Limitations of
Liability.

     

    (a) Threshold.  Subject
to the exceptions set forth below in this Section 9.6(a), no Section 9
Indemnifying Party shall be required to indemnify a Section 9 Indemnified Party
hereunder for any claim for indemnification under this Section 9, except in the
case of intentional or willful breach of this Agreement, fraud or similar
circumstances, unless and until the aggregate amount of Damages in connection
with all claims for indemnification under this Section 9 by such Section 9
Indemnified Party and all other Section 9 Indemnified Parties (including,
without limitation, prior claims for indemnification regardless of whether or
not they are still pending) exceeds $50,000, whereupon such Section 9
Indemnified Party shall be entitled to be paid the full amount of all Damages in
connection with all claims for indemnification under this Section 9 by such
Section 9 Indemnified Party irrespective of such $50,000 threshold, subject to
the limitations on the maximum amount of recovery set forth in this Article
9.  The provisions of this Section 9.6(a) requiring that the aggregate
amount of Damages in connection with all claims for indemnification under this
Section 9 by any Section 9 Indemnified Party exceed $50,000 before such Section
9 Indemnified Party is entitled to be indemnified for any such Damages under
this Section 9 shall not apply to any claim for indemnification made by (1) any
Parent Indemnified Party pursuant to (A) clause (ii) or (iii) of Section 9.3
hereof or (B) clause (i) of Section 9.3 hereof with respect to a breach by the
Company of the representations and warranties set forth in Sections 4.4, 4.7,
4.13, 4.15 or 4.25 hereof, or (2) by the Holders Representative Committee or any
of them pursuant to Section 9.2 with respect to a breach by Parent of the
representation and warranty set forth in Section 5.8 hereof.

     

     

    (b) Maximum
Liability.  Notwithstanding any provision of this Agreement to
the contrary, the maximum aggregate liability under this Article 9 of (i) Parent
and the Surviving Corporation, collectively, in their capacities as indemnifying
parties under Section 9.2 hereof, and (ii) the Participating Rights Holders,
collectively, in their capacities as indemnifying parties under Section 9.3
hereof, will not exceed, in each case, an amount equal to the sum of the
Subsequent Closing Payment Amount, the Manufacturing Milestone Payment Amount
and the Sales Milestone Payment Amount.

     

    (c) Limited
Recourse. Notwithstanding anything
expressed or implied in this Agreement to the contrary, the sole recourse
available to any Parent Indemnified Party in connection with any claim for
indemnification under Section 9.3 hereof is to (i) set off against, and
accordingly reduce, the Subsequent Closing Payment Amount that Parent would
otherwise be required to pay pursuant to the terms of this Agreement or (ii) if
the Subsequent Closing Payment Amount has already been paid, set off against,
and accordingly reduce, the amount of any Contingent Payment not yet
paid.  No Participating Rights Holder shall have any personal
liability to any Parent Indemnified Party with respect to or in connection with
any claim for indemnification pursuant to Section 9.3 hereof.  The foregoing
limitations in this Section 9.6(c) shall not apply to any claim for
indemnification by any Parent Indemnified Party pursuant to Section 9.3 relating
to a breach of Section 4.4 hereof, fraud or willful misconduct.

     

    (d) Time
Limit.  No Section 9 Indemnifying Party will be liable for any
Damages hereunder in connection with any claim for indemnification under this
Section 9 by any applicable Section 9 Indemnified Party unless such claim for
indemnification is made in writing by such Section 9 Indemnified Party on or
prior to the second anniversary of the Closing Date.

     

    (e) Tax and Insurance
Benefits.  The amount of any Damages otherwise payable to any
Section 9 Indemnified Party hereunder will be reduced (i) to the extent that
such Section 9 Indemnified Party actually realizes, by reason of such Damages,
any tax benefit that is not offset by any corresponding adjustment of the tax
attributes of such Section 9 Indemnified Party or any of his or its assets
(e.g., any tax
deduction available to such Section 9 Indemnified Party in respect of such
Damages will not be deemed to result in a tax benefit to such Section 9
Indemnified Party to the extent that such deduction results in a decrease in
such Section 9 Indemnified Party’s tax basis in any securities or other assets),
and (ii) by any insurance proceeds actually received by such Section 9
Indemnified Party in respect thereof, to the extent that such reduction is
permitted without reduction of the amount of such proceeds payable under the
applicable insurance policy.

     


    
      
         


      

      
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    9.7 Insurance
Collection.  Each Section 9 Indemnified Party will use
reasonable efforts to collect any Damages from any available insurer before
attempting to collect from the applicable Section 9 Indemnifying Party at any
time.  If any Section 9 Indemnified Party recovers any amount from any
insurer after payment to such Section 9 Indemnified Party by one or more Section
9 Indemnifying Parties of all Damages suffered or incurred by such Section 9
Indemnified Party in respect of the matters to which such insurance payment
relates, then such Section 9 Indemnified Party will promptly pay over to such
Section 9 Indemnifying Parties the amount so recovered, to the extent not in
excess of the amount previously paid by such Section 9 Indemnifying Party to
such Section 9 Indemnified Party in respect of such matter.

     

    9.8 Subrogation.  A
Section 9 Indemnifying Party who indemnifies a Section 9 Indemnified Party
pursuant to this Article 9 will, upon indefeasible payment in full of the amount
owed with respect to such matter pursuant to this Article 9, be subrogated to
the extent of such payment to the rights of such Section 9 Indemnified Party
against all other persons in respect of the matter for which such
indemnification payment was made, to the extent permitted by applicable
insurance policies of such Section 9 Indemnified Party, and upon such
subrogation may assert such rights against such other persons.

     

    9.9 Exclusive
Remedies.  The parties hereby acknowledge and agree that, if
the Merger is consummated, the sole and exclusive remedies of any and all Parent
Indemnified Parties, the Surviving Corporation and any and all Participating
Rights Holders in respect of any and all claims (other than actions for fraud or
willful misconduct or causes of action seeking specific performance) relating to
any breach or purported breach of any representation, warranty, covenant,
agreement, obligation, or undertaking that is contained in this Agreement will
be pursuant to the indemnification provisions of this Article
9.  Without limiting the generality of the foregoing, if the Merger is
consummated, no breach of any such representation, warranty, covenant,
agreement, obligation, or undertaking will give rise to any right of any Parent
Indemnified Party or any Participating Rights Holder to rescind this Agreement
or any of the transactions contemplated hereby.

     


    
      
         


      

      
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    9.10 Releases.

     

    (a)  If
the Merger is consummated, then, effective as of the Effective Time, each of the
Participating Rights Holders, for himself or itself and his or its heirs,
legatees, successors, and assigns, hereby fully and irrevocably releases,
remises, and discharges the Surviving Corporation and its officers, directors,
employees, agents, representatives, successors, and assigns and the officers,
directors, employees, agents and representatives of the Company from any and all
Damages, regardless of whether known, unknown, or unknowable, and regardless of
whether absolute, contingent, or otherwise, and regardless of whether at law, in
equity, or otherwise, without limitation, whether now existing or arising in the
future, in each case to the extent based on actions, omissions, and/or events
occurring at or before the Effective Time, including without limitation all
rights to indemnification and/or contribution, but excluding all rights, to the
extent payable, to receive the Closing Payment Amount and the Contingent Payment
Amount and excluding Damages and rights of indemnification arising expressly
under this Agreement.  Furthermore, each of such releasing persons
hereby irrevocably agrees not to sue, or to commence, maintain, or aid in the
prosecution of any litigation, arbitration, or other action or proceeding
against or adverse to any of such released persons, or otherwise to seek any
recourse against any of such released persons, in respect of any matter hereby
released or purported or attempted to be released.

     

    (b)  If the Merger is
consummated, then effective as of the Effective Time, Parent, the Merger Sub and
the Surviving Corporation, for themselves and their respective successors and
assigns, hereby fully and irrevocably release, remise and discharge the
Participating Rights Holders and their respective officers, directors,
employees, agents, representatives, successors and assigns, from any and all
Damages, regardless of whether known, unknown or unknowable, and regardless of
whether absolute, contingent or otherwise and regardless of whether at law, in
equity or otherwise, without limitation, whether now existing or arising in the
future, in each case to the extent based on actions, omissions and/or events
occurring at or before the Effective Time, including without limitation all
rights to indemnification and/or contribution, but excluding Damages and rights
of indemnification arising expressly under this
Agreement.  Furthermore, each of such releasing entities hereby
irrevocably agrees not to sue, or to commence, maintain or aid in the
prosecution of any litigation, arbitration or other action or proceeding against
or adverse to any of such released persons, or otherwise to seek any recourse
against any of such released persons, in respect of any matter hereby released
or purported or attempted to be released.

     

    9.11           Obligations of Indemnified
Parties.   Each Section 9 Indemnified Party shall
reasonably cooperate with each other Section 9 Indemnifying Party in connection
with the investigation, defense and settlement of any action, suit or proceeding
relating to a third party claim for which indemnification pursuant to this
Section 9 is being sought, and each Section 9 Indemnified Party shall take all
reasonable actions to mitigate its Damages.


    
      
         


      

      
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    ARTICLE
10

     

    TERMINATION

     

    10.1 Termination.  This
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time (whether before or after approval of the Merger by the
stockholders of the Company or by Parent as sole stockholder of Merger Sub) only
as follows:

     

    (a) at any
time by mutual written agreement of Parent, Merger Sub and the
Company;

     

    (b) by the
Company, upon written notice to Parent and Merger Sub if there has been a
material breach by Parent or Merger Sub of any representation, warranty,
covenant or agreement set forth in this Agreement and such material breach is
not curable, or, if curable, is not cured within thirty (30) days after written
notice of such breach is given by the Company to Parent and Merger
Sub;

     

    (c) by
Parent, upon written notice to the Company and the Holders Representatives if
there has been a material breach by the Company of any representation, warranty,
covenant or agreement set forth in this Agreement and such material breach is
not curable, or, if curable, is not cured within thirty (30) days after written
notice of such breach is given by Parent to the Company and the Holders
Representatives;

     

    (d) by
Parent, if the Company Stockholders shall fail to approve this Agreement and the
Merger within forty-five (45) days after the execution and delivery of this
Agreement as set forth in Section 8.3(b) hereof;

     

    (e) by
Parent, if Company or any of its directors or officers shall participate in
discussions or negotiations in breach of, or otherwise breach, Section 7.26
hereof;

     

    (f) by
Parent:

     

    (i) if the
Company Board or any committee thereof withdraws or modifies, in a manner
adverse to Parent, or proposes to withdraw or modify, in a manner adverse to
Parent, its approval or recommendation of the Stockholder Approval, fails to
recommend to the Company’s stockholders that they give the Stockholder Approval
or approves or recommends, or proposes to approve or recommend, any Proposal;
or

     

    (ii) if the
Company Board fails to reaffirm publicly and unconditionally its recommendation
to the Company’s stockholders that they give the Stockholder Approval
immediately after Parent’s request to do so (which request may be made at any
time), which public reaffirmation must also include the unconditional rejection
of any Proposal if so requested by Parent;

     

    (g) by the
Company or Parent, upon written notice to the other parties to this Agreement if
any temporary restraining order, preliminary or permanent injunction, or other
order issued by any court of competent jurisdiction, or other binding legal
restraint or prohibition preventing the consummation of the Merger or the other
transactions contemplated hereby is at any time in effect for a period of more
than 20 consecutive days; or

     

    (h) by the
Company or Parent, upon written notice to the other parties to this Agreement if
the Merger has not been consummated on or before August 31, 2008 (the “Outside Date”), provided, however, that the
right to terminate this Agreement pursuant to this Section 10.1(h) shall not be
available to any party whose breach of a representation or warranty or failure
to fulfill any covenant or other agreement under this Agreement has been the
cause of, or resulted in the failure of, the Merger to occur on or before August
31, 2008.

     

    10.2 Effect of
Termination.  If this Agreement is terminated pursuant to
Section 10.1 hereof, then (a) this Agreement shall become void and have no
effect whatsoever, except that the provisions of Article 1 (“Definitions”),
Article 9 (“Indemnification”),
this Article 10 (“Termination”) and
Article 11 (“General”) shall
survive any such termination, (b) such termination shall not relieve any
party hereto from liability arising from any breach by such party of any
provision of this Agreement if such breach occurred prior to such termination,
(c) each party will redeliver all documents, work papers and other material
of the other party or parties relating to the transactions contemplated hereby
including such memoranda, notes, lists, records or other documents compiled or
derived from such material, whether so obtained before or after the execution
hereof, to the party furnishing the same and (d) all information received
by any party hereto with respect to the business of the other parties or their
affiliated companies shall remain subject to the terms of the Confidentiality
Agreement.

     

    
      
         


      

      
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      10.3 Fees and
Expenses.

       

      (a) Except as
otherwise provided in this Agreement and whether or not the transactions
contemplated by this Agreement are consummated, all costs and expenses incurred
in connection with the transactions contemplated by this Agreement shall be
borne by the party incurring such expenses.

       

      (b) The
Company shall reimburse Parent for all its out-of-pocket expenses actually
incurred in connection with this Agreement and the transactions contemplated
hereby if this Agreement is terminated pursuant to Section 10.1(f) or 10.1(c).
Such reimbursement shall be paid upon demand following such termination, except
that no payment shall be due by the Company under this Section 10.3(b) to the
extent that the Company has previously made any payment due under Section
10.3(b).

       




     

    (c) In the
event the Merger is not consummated prior to the Outside Date due solely to the
failure of Parent to consummate the Parent Financing, then Parent shall
reimburse the Company for its out-of-pocket expenses actually incurred and
documented in connection with this Agreement and the transactions contemplated
hereby up to a maximum amount of fifty thousand dollars ($50,000). Such
reimbursement shall be paid upon demand following the failure of the Merger to
occur after Outside Date, except that no payment shall be due by Parent under
this Section 10.3(c) to the extent that Parent has previously made any payment
due under Section 10.3(c).

     

    ARTICLE
11

     

    GENERAL

     

    11.1 Cooperation.  Each
of the parties will cooperate with the others and use reasonable best efforts to
prepare all necessary documentation, to effect all necessary filings, and to
obtain all necessary permits, consents, approvals, and authorizations of all
governmental bodies and other third parties necessary to consummate the
transactions contemplated by this Agreement.

     

    11.2 Survival of
Provisions.  The provisions of this Agreement, including
without limitation the representations and warranties of the parties, and the
provisions of the other documents executed and delivered in connection with this
Agreement, the Merger, and the other transactions contemplated hereby will be
deemed material, and, notwithstanding any investigation by or on behalf of any
other party, will be deemed to have been relied on by each other party, and will
survive the Closing and the consummation of the Merger and the other
transactions contemplated hereby until terminated or no longer in effect in
accordance with their respective terms, except that the representations and
warranties made by the parties pursuant to this Agreement shall survive the
Closing and the consummation of the Merger and the other transactions
contemplated hereby until the second anniversary of the Closing
Date.

     

    11.3 Benefits of Agreement; No
Assignments; No Third-Party Beneficiaries.

     

    (a) This
Agreement will bind and inure to the benefit of the parties hereto and their
respective heirs, successors, and permitted assigns.

     

    (b) No party
will assign any rights or delegate any obligations hereunder without the consent
of the other parties, other than in the case of Parent, in connection with (i) a
merger or consolidation of Parent or (ii) a sale of the assets to which this
transaction relates (provided that, in the event of such sale of assets, the
buyer agrees in writing with the Holders Representatives to be bound by the
obligations of Parent under this Agreement), and any attempt to do so will be
void.

    
       

      (c) Nothing
in this Agreement is intended to or will confer any rights or remedies on any
person other than the parties hereto and their respective heirs, successors, and
permitted assigns; provided however, that, if,
but only if, the Merger is consummated, the provisions in Section 3 hereof
concerning the payment of the Merger Consideration for the Company Common Stock,
the representations of Parent and the Merger Sub set forth in Section 5 hereof,
and the indemnification provisions in Section 9 hereof are intended, and shall
be, for the benefit of the Participating Rights Holders as third party
beneficiaries.

    


    
      
         


      

      
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    11.4 Notices.  All
notices, requests, payments, instructions, or other documents to be given
hereunder will be in writing or by written telecommunication, and will be deemed
to have been duly given if (i) delivered personally (effective upon
delivery), (ii) mailed by registered or certified mail, return receipt
requested, postage prepaid (effective five business days after dispatch),
(iii) sent by a reputable, established courier service that guarantees next
business day delivery (effective the next business day), or (iv) sent by
telecopier/fax followed within 24 hours by confirmation by one of the foregoing
methods (effective upon receipt of the telecopy/fax in complete, readable form),
addressed as follows (or to such other address as the recipient party may have
furnished to the sending party for the purpose pursuant to this
section):

     

    (a) If to
Parent, Merger Sub, and/or (after the Effective Time), the Surviving Corporation
to:

     

    ULURU
Inc.

    4452
Beltway Drive

    Addison,
Texas  75001

    Attention:  Kerry
P. Gray, President

    Fax No.:
(214) 905 5130

    


     

    with a
copy sent at the same time and by the same means to:

     

    Bingham
McCutchen LLP

    One
Federal Street

    Boston,
Massachusetts  02110

    Attention:  John
J. Concannon III, Esq.

    Fax No.:
(617) 951-8736

     

    


    (b) If to the
Company (before the Effective Time) to:

     

    Bio Med
Sciences, Inc.

    7584
Morris Court, Suite 218

    Allentown,
PA  18106

    Attention:  Mark
E. Dillon, President

    Fax
No.:  (610) 530-3194

    


    


     

    (c) If to the
Holders Representative Committee to:

     

    Mark E.
Dillon

    3495
Laurel Lane

    Center
Valley, PA  18034

    Fax No.:
(610) 434-8912

     

    and

    


    Thomas
Asson

    1062
Henrietta Ave.,

    Huntingdon
Valley, PA  19006-8504

    Fax No.:
(215) 379-2053

     

    and

    


    Joseph A.
Dillon, Sr.

    205
Bobwhite Road

    New Hope,
PA  18938

    Fax No.:
(215) 862-5621

     

    and

    


    David P.
Willis

    PO BOX
80

    47 Park
Avenue.

    Elverson,
PA 19520

    Fax No.:
(610) 286-3588

     

    


    with a
copy sent at the same time and by the same means to:

     

    Jane P.
Long, Esquire

    Fitzpatrick
Lentz & Bubba, P.C.

    4001
Schoolhouse Lane

    P. O. Box
219

    Center
Valley, PA  18034-0219

    Fax No.:
(610) 797-6663

    


    


    11.5 Counterparts.  This
Agreement may be executed by the parties in separate counterparts, each of which
when so executed and delivered will be an original, but all of which together
will constitute one and the same agreement.  In pleading or proving
this Agreement, it will not be necessary to produce or account for more than one
such counterpart.

     


    
      
         


      

      
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    11.6 Captions.  The
captions of sections or subsections of this Agreement are for reference only and
will not affect the interpretation or construction of this
Agreement.

    


    11.7 Equitable
Relief.  Each of the parties hereby acknowledges that any
breach by him or it of his or its obligations under this Agreement would cause
substantial and irreparable damage to the parties, and that money damages would
be an inadequate remedy therefor, and accordingly, acknowledges and agrees that
each other party will be entitled to an injunction, specific performance, and/or
other equitable relief to prevent the breach of such obligations.

    


    11.8 Construction.  The
language used in this Agreement is the language chosen by the parties to express
their mutual intent, and no rule of strict construction will be applied against
any party.

     

    


    11.9 Waivers.  No
waiver of any breach or default hereunder will be valid unless in a writing
signed by the waiving party.  No failure or other delay by any party
exercising any right, power, or privilege hereunder will be or operate as a
waiver thereof, nor will any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege.

     

    11.10 Entire
Agreement.  This Agreement, together with the exhibits and
schedules hereto and the other agreements, instruments, certificates, and other
documents referred to herein as having been or to be executed and delivered in
connection with the transactions contemplated hereby (including, without
limitation, the Confidentiality Agreement), contains the entire understanding
and agreement among the parties, and supersedes any prior understandings or
agreements among them, or between or among any of them, with respect to the
subject matter hereof, including, without limitation, that certain Term Sheet,
dated as of March 27, 2008, by and between Parent and the Company.

     

    11.11 Governing
Law.  This Agreement will be governed by and interpreted and
construed in accordance with the internal laws of State of Delaware, as applied
to contracts under seal made, and entirely to be performed, within Delaware, and
without reference to principles of conflicts or choice of laws.

     

    11.12 Jurisdiction and
Venue.  The parties hereto agree that any suit, action or
proceeding arising out of or relating to this Agreement shall be instituted only
in a state or federal court located in the State of Delaware.  Each
party hereto waives any objection it may have now or hereafter to the laying of
the venue of any such suit, action or proceeding, and irrevocably submits to the
jurisdiction of any such court in any such suit, action or
proceeding.

     

    11.13 Publicity.  From
the date of this Agreement through the Effective Time, no public release or
announcement concerning the transactions contemplated by this Agreement shall be
issued by a party without the prior consent of the other party (which consent
shall not be unreasonably withheld or delayed), except as such release or
announcement as may be required by law, rule or regulation or the rules or
regulations of any applicable securities exchange, in which case the party
required to make the release or announcement shall allow the other party
reasonable time to comment on such release or announcement in advance of such
issuance; provided, however, that each of
the parties may make internal announcements to their respective employees that
are consistent with the parties’ prior public disclosures regarding the
transactions contemplated by this Agreement.

     

    11.14 Amendment.  This
Agreement may not be amended, modified, changed, waived or supplemented except
by a writing duly executed by Parent, Merger Sub and the Company; provided
however, that any amendment, modification, change, waiver or supplement to any
provision or provisions of this Agreement at any time subsequent to the time the
Company Stockholders approve this Agreement may be effected and implemented if,
but only if, such amendment, modification, change, waiver or supplement is set
forth in a written instrument or agreement duly executed by Parent and a
majority of the Holders Representatives.

     

     

    [Signature Page Follows]

     

    



    
      
         


      

      
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    IN WITNESS WHEREOF, the parties hereto
have executed and delivered this Agreement and Plan of Merger and Reorganization
under seal as of the date first above written.

     

     

     

    


    
      	
              PARENT:

            	
              ULURU
      INC.

            
	 
      	
              By:

            	
              /s/
      Kerry P. Gray

            
	 
      	 
      	
              Name:

            	
              Kerry
      P. Gray

            
	 
      	 
      	
              Title:

            	
              President

            


    

     

    


    
      	
              MERGER
      SUB:

            	
              CARDINIA
      ACQUISTION CORP.

            
	 
      	
              By:

            	
              /s/
      Kerry P. Gray

            
	 
      	 
      	
              Name:

            	
              Kerry
      P. Gray

            
	 
      	 
      	
              Title:

            	
              President

            


    

     

    


    
      	
              COMPANY:

            	
              BIO
      MED SCIENCES, INC.

            
	 
      	
              By:

            	
              /s/
      Mark E. Dillon

            
	 
      	 
      	
              Mark
      E. Dillon, President

            


    

     

    


    
      	
              HOLDERS
      REPRESENTATIVE COMMITTEE:

            
	 
      	
              /s/
      Mark E. Dillon

            
	 
      	
              Mark
      E. Dillon

            
	 	 
	 
      	
              /s/
      Thomas Asson

            
	 
      	
              Thomas
      Asson

            
	 	 
	 
      	
              /s/
      Joseph A. Dillon, Sr.

            
	 
      	
              Joseph
      A. Dillon, Sr.

            
	 	 
	 
      	
              /s/
      David P. Willis

            
	 
      	
              David
      P. Willis

            


    

     


    
      
         


      

      
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