EMPLOYMENT AGREEMENT

         This Employment Agreement ("Agreement") is dated December 15, 1997 by
and between Intercardia, Inc., a Delaware corporation having a place of business
at 3200 East Highway 54, Cape Fear Building, Suite 300, Post Office Box 14287,
Research Triangle Park, North Carolina, 27709 (the "Corporation"), and Clayton
I. Duncan, an individual residing at 12465 Creedmoor Road, Raleigh, North
Carolina, 27614 ("Employee").

                              W I T N E S S E T H:

         WHEREAS, the Corporation has employed and desires to continue to employ
the Employee as President, Chief Executive Officer and Director, and the
Employee desires to continue to be employed by the Corporation as President and
Chief Executive Officer and Director, all pursuant to the terms and conditions
hereinafter set forth;

         NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained and other good and valuable
consideration the receipt of which is hereby acknowledged, the parties agree as
follows:


1.       EMPLOYMENT;  DUTIES

         (A) The Corporation engages and employs the Employee, and the Employee
hereby accepts engagement and employment, as President and Chief Executive
Officer, to direct, supervise and have responsibility for the daily operations
of the Corporation, including, but not limited to: (i) directing and supervising
the business and research and development efforts of the Corporation and its
subsidiaries; (ii) managing the other executives and personnel of the
Corporation and any subsidiaries of the Corporation including acting as
president and chief executive officer of such subsidiaries; (iii) evaluating,
negotiating, structuring and implementing business transactions with the
Corporation's and its subsidiaries, licensees, customers and suppliers; (iv)
attending meetings of the Board of Directors of the Corporation; (v) raising or
assisting in raising capital for the Corporation and its subsidiaries; and
performing such other services and duties as the Board of Directors of the
Corporation shall determine. The Corporation agrees to continue to nominate
Employee, during the term of this Agreement, as a Director of the Corporation.

         (B) The Employee shall perform his duties hereunder from the
Corporation's executive offices in North Carolina, provided, however, that the
Employee acknowledges and agrees that the performance by the Employee of his
duties hereunder may require significant domestic and international travel by
the Employee.

         (C) The Employee shall devote such of his time and efforts as shall be
necessary to the proper discharge of his duties and responsibilities under this
Agreement.

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Employee Agreement
Clayton I. Duncan
December 15, 1997
Page 2





2.       TERM

         The Employee's employment hereunder shall be for a term of three years
commencing on January 3, 1998 and continuing through the third anniversary of
such date.


3.       COMPENSATION

         (A) As compensation for the performance of his duties under this
Agreement, the Employee shall be compensated as follows:

                  (i) The Employee shall be granted options to purchase shares
of Common Stock of the Corporation as deemed appropriate by the Board of
Directors or its Compensation Committee. To the maximum extent permitted by law,
the stock options shall be incentive stock options.

                  (ii) The Corporation shall pay the Employee an annual base
salary ("Base Salary") of Three Hundred Thousand Dollars ($300,000), payable in
accordance with the usual payroll period of the Corporation. Base Salary will be
subject to an annual review in the sole discretion of the Board of Directors or
its Compensation Committee, provided that the Base Salary may not be adjusted
downward;

                  (iii) The Corporation shall pay the Employee bonuses, the
amount of which shall be in the discretion of the Corporation, upon the
achievement of substantial milestones to be mutually agreed upon from time to
time by the Board of Directors or its Compensation Committee and the Employee.

                  The Corporation shall withhold all applicable federal, state
and local taxes, social security and workers' compensation contributions and
such other amounts as may be required by law and any additional amounts agreed
upon by the parties with respect to the compensation payable to the Employee
pursuant to section 3(A) hereof.

         (B) The Corporation shall reimburse the Employee for all normal, usual
and necessary expenses incurred by the Employee in furtherance of the business
and affairs of the Corporation, including reasonable travel and entertainment,
against receipt by the Corporation of appropriate vouchers or other proof of the
Employee's expenditures and otherwise in accordance with such Expense
Reimbursement Policy as may from time to time be adopted by the Board of
Directors of the Corporation.

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Employee Agreement
Clayton I. Duncan 
December 15, 1997 
Page 3

         (C) The Employee shall be, during the term of this Agreement, entitled
to vacation time of four (4) weeks per year.

         (D) The Corporation shall make available to the Employee and his
dependents, such medical, disability, life insurance and such other health
benefits as the Corporation makes available to its senior officers and
directors.


4.       REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE AND CORPORATION

         The Employee hereby represents and warrants to the Corporation as
follows:

         (A) Neither the execution and delivery of this Agreement nor the
performance by the Employee of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict
with or constitute a default under (whether immediately, upon the giving of
notice or lapse of time or both) any prior employment agreement, contract, or
other instrument to which the Employee is a party or by which he is bound.

         (B) The Employee has the full right, power and legal capacity to enter
and deliver this Agreement and to perform his duties and other obligations
hereunder. This Agreement constitutes the legal, valid and binding obligation of
the Employee enforceable against him in accordance with its terms. No approvals
or consents of any persons or entities are required for the Employee to execute
and deliver this Agreement or perform his duties and other obligations
hereunder.

         (C) The Employee understands that some or all of the stock issuable
upon exercise of the Options received by the Employee pursuant to section 3(A)
hereof may not be registered under the Securities Act of 1933 (the "1933 Act"),
and acknowledges that he may be obligated to agree, as a condition to the
issuance thereof, that he will acquire such stock for his own account for
investment and not with a view to, or for resale in connection with a
distribution thereof, and will bear the economic risk of his investment in such
stock for an indefinite period of time.

         The Corporation hereby represents and warrants to the Employee as
follows:

                  (i) The Corporation is duly organized, validly existing and in
good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to own its properties and conduct its business in
the manner presently contemplated.

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Employee Agreement
Clayton I. Duncan 
December 15, 1997 
Page 4            



                  (ii) The Corporation has full power and authority to enter
into this Agreement and to incur and perform its obligations hereunder.

                  (iii) The execution, delivery and performance by the
Corporation of this Agreement does not conflict with or result in a breach or
violation of or constitute a default under (whether immediately, upon the giving
of notice or lapse of time or both) the certificate of incorporation or by-laws
of the Corporation, or any agreement or instrument to which the Corporation is a
party or by which the Corporation or any of its properties may be bound or
affected.


5.       NON-COMPETITION

         (A) The Employee understands and recognizes that his services to the
Corporation are special and unique and agrees that, during the term of this
Agreement and, unless such termination is by the Employee pursuant to
7(A)(iii)(a) below, for a period of one (1) year from the date of termination of
his employment hereunder, he shall not in any manner, directly or indirectly, on
behalf of himself or any person, firm, partnership, joint venture, corporation
or other business entity ("Person"), enter into or engage in any business
engaged in the development or commercialization of products directly competitive
with products of the Corporation, including products under development by the
Corporation, either as an individual for his own account, or as a partner, joint
venturer, executive, agent, consultant, salesperson, officer, director or
shareholder of a Person operating or intending to operate in the areas of
therapeutics for congestive heart failure or the treatment of diseases by drugs
which act through the modulation of superoxide dismutase or Corporation's future
business, proposed business or future research activities or any additional
areas of business as shall be updated from time to time by the parties to take
into account additional areas of business in which the Corporation may become
engaged), within the geographic area of the Corporation's business.

         (B) During the term of this Agreement and for one (1) year thereafter,
Employee shall not, directly or indirectly, without the prior written consent of
the Corporation solicit or induce any employee of the Corporation or any
affiliate to leave the employ of the Corporation or any affiliate or hire for
any purpose any employee of the Corporation or any affiliate or any employee who
has left the employment of the Corporation or any affiliate within six months of
the termination of said employee's employment with the Corporation; or

         (C) In the event that the Employee breaches any provisions of this
Section 5 or there is a threatened breach, then, in addition to any other rights
which the Corporation may have, the Corporation shall be entitled, without the
posting of a bond or other security, to injunctive relief to enforce the
restrictions contained herein. In the event that an actual proceeding is brought
in

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Employee Agreement
Clayton I. Duncan  
December 15, 1997  
Page 5


equity to enforce the provisions of this Section 5, the Employee shall not urge
as a defense that there is an adequate remedy at law nor shall the Corporation
be prevented from seeking any other remedies which may be available.

6.       CONFIDENTIAL INFORMATION

         The Employee agrees that during the course of his employment or at any
time after termination, he will not disclose or make accessible to any other
person, the Corporation's products, services and technology, both current and
under development, promotion and marketing programs, lists, trade secrets and
other confidential and proprietary business information of the Corporation or
any of its clients. The Employee agrees: (i) not to use any such information for
himself or others; and (ii) not to take any such material or reproductions
thereof for the corporations facilities at any time during his employment by the
Corporation, except as required in the Employee's duties to the Corporation. The
Employee agrees immediately to return all such material and reproductions
thereof in his possession to the Corporation upon request and in any event upon
termination of employment.

         (A) Except with prior written authorization by the Corporation, the
Employee agrees not to disclose or publish any of the confidential, technical or
business information or material of the Corporation, its clients or any other
party to whom the Corporation owes an obligation of confidence, at any time
during or after his employment with the Corporation.

         (B) Employee hereby assigns to the Corporation all right, title and
interest he may have or acquire in all inventions (including patent rights)
developed by the Employee during the term of this Agreement ("Inventions") and
agrees that all Inventions shall be the sole property of the Corporation and its
assigns, and the Corporation and its assigns shall be the sole owner of all
patents, copyrights and other rights in connection therewith. Employee further
agrees to assist the Corporation in every proper way (but at the Corporation's
expense) to obtain and from time to time enforce patents, copyrights or other
rights on said Inventions in any and all countries.


7.       TERMINATION

         (A) The Employee's employment pursuant to this Agreement shall begin as
of January 3, 1998 and shall continue for the period set forth in Section 2
hereof unless sooner terminated upon the first to occur of the following events:

                  (i)      The death of the Employee;

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Employee Agreement 
Clayton I. Duncan  
December 15, 1997  
Page 6  

           
                  (ii) Termination by the Board of Directors of the Corporation
for just cause. Any of the following actions by the Employee shall constitute
just cause:

                           (a) Material breach by the Employee of Section 5 or
Section 6 of this Agreement;

                           (b) Material breach by the Employee of any provision
of this Agreement other than Section 5 or Section 6 or the willful or reckless
failure by Employee to perform his duties hereunder which breach or failure is
not cured by the Employee within fifteen (15) days notice thereof from the
Corporation; or

                           (c) The commission by the Employee of an act of fraud
or theft against the Company or any of its subsidiaries, or the conviction of
Employee of any criminal act;

                  (iii) Termination by the Employee for just cause. Any of the
following actions or omissions by the Corporation shall constitute just cause:

                           (a) Material breach by the Corporation of any
provision of this Agreement which is not cured by the Corporation within fifteen
(15) days notice thereof from the Employee; or

                           (b) Any action by the Corporation to intentionally
harm the Employee;

                  (iv) Termination by the Board of Directors of the Corporation
without just cause.

         (B) Upon termination, Employee will be entitled to the following:

                  (i) Upon termination by the Board without just cause pursuant
to Section 7(A)(iv) or by Employee for just cause pursuant to Section 7(A)(v) or
upon termination resulting from Employee's death pursuant to Section 7(A)(i) or
from Employee's disability pursuant to Section 7(A)(ii), Employee (or his estate
in the event of a termination pursuant to Section 7(A)(i)) will be entitled to
the following:

                           (a)      all vested compensation then due and owing;

                           (b) as of the date of the termination, the
Corporation will pay either in a lump sum or in equal monthly payments over a
period of twelve (12) months, at the option of the Corporation, the total sum of
the Base Salary for a period of twelve (12) months and a bonus

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Employee Agreement
Clayton I. Duncan 
December 15, 1997 
Page 7


equal to a percentage of the annual Base Salary, which percentage is equal to
the average of the actual annual bonus percentage for the two (2) years
immediately prior to the date of the termination ("Average Annual Bonus");

                           (c) Corporation will continue to pay for his, or his
heirs', COBRA premiums and the premium for his executive disability insurance
coverage, if applicable, for a period of eighteen (18) months commencing as of
the date of termination; and

                           (d) any options to acquire the common stock of the
Corporation in which Employee has not yet fully vested as of the date of
termination will be deemed to vest and be exercisable on the termination date to
the extent they would have vested as if he had continued to be employed by the
Corporation, for one (1) additional year after the date of termination.


8.       NOTICES

         Any notice or other communication under this Agreement shall be in
writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth above, or to such other address as such party shall give
by notice hereunder to the other party.


9.       RENEWAL OF AGREEMENT

         Upon expiration of the term of this Agreement, this agreement may be
renewed for additional one (1) year periods by the parties by mutual written
agreement.


10.      SEVERABILITY OF PROVISIONS

         If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any other
covenant or provision unless so expressed herein.

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Employee Agreement
Clayton I. Duncan 
December 15, 1997 
Page 8            




11.      ENTIRE AGREEMENT MODIFICATION

         This Agreement contains the entire agreement of the parties relating to
the subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.


12.      BINDING EFFECT

         The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Corporation, its successors and assigns, and
upon the Employee and his legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the Employee's obligations
hereunder may not be transferred or assigned by the Employee.

13.      NON-WAIVER

         The failure of either party to insist upon the strict performance of
any of the terms, conditions and provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and said
terms, conditions and provisions shall remain in full force and effect. No
waiver of any term or condition shall be effective for any purpose whatsoever
unless such waiver is in writing and signed by such party.


14.      GOVERNING LAW

         This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Delaware without regard to principles
of conflict of laws.


15.      HEADINGS

         The headings of paragraphs are inserted for convenience and shall not
affect an interpretation of this Agreement.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written.

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Employee Agreement
Clayton I. Duncan
December 15, 1997
Page 9



                                            INTERCARDIA, INC.


                                            By:
                                               ----------------------
                                            Name:    Glenn L. Cooper
                                            Title:   Chairman



                                            -------------------------
                                            CLAYTON I. DUNCAN

                                            Date:
                                                ----------------------


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