Document:

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                                                                    Exhibit 10.4

Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as *. A complete version of this exhibit has been filed
separately with the Securities and Exchange Commission.

                                LICENSE AGREEMENT

         THIS LICENSE AGREEMENT, dated as of August 28, 2002 (this "Agreement"),
is entered into by and between AnorMED Inc., a company incorporated in Canada
("AnorMED"), and Synergy Pharmaceuticals, Inc., a Delaware corporation
("Synergy").

                                    RECITALS

         A. Johnson Matthey Public Limited Company, an English corporation
("JM"), and SmithKline Beecham Corporation, a Pennsylvania corporation ("SKB"),
entered into a Cooperative Research and Assignment Agreement, dated as of
January 11, 1990 (the "Cooperative Agreement") for a joint research program
regarding the synthesis of certain non-metal compounds.

         B. JM and AnorMED entered into an Asset Transfer Agreement, dated as of
June 28, 1996, whereby JM assigned to AnorMED all of its right, title and
interest in the Cooperative Agreement, including valuable patent rights,
technical data and information relating to the compound Atiprimod (a/k/a
Azaspiranes).

         C. Effective November 4, 1996, SKB terminated the Cooperative Agreement
and assigned to AnorMED all of its right, title, and interest in the Cooperative
Agreement, including valuable patent rights, technical data and information
relating to the compound Atiprimod (a/k/a Azaspiranes).

         D. Synergy desires to acquire from AnorMED, and AnorMED desires to
grant to Synergy, a license to develop, manufacture, have manufactured, use and
commercialize products incorporating Atiprimod (a/k/a Azaspiranes), upon the
terms and conditions set forth herein.

                                    AGREEMENT

         NOW, THEREFORE, the parties agree as follows:

1. DEFINITIONS

         "Affiliate" shall mean any company or other business entity controlled
by, controlling or under common control with a party, control being presumed if
there is direct or indirect ownership of at least thirty-three and one-third
percent (33 1/3%) (or, if less, the maximum permitted by applicable law) of the
voting stock, equity or income interest.

         "Final Product" shall mean any pharmaceutical composition approved for
sale as a drug in a country in the Territory by the appropriate agency or
governmental body in dosage form that contains a Licensed Compound and that is
packaged and labeled for sale to the ultimate customer for use in the Licensed
Field.

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         "Health Registration Application" shall mean, with respect to a country
in the Territory, an application for a Health Registration Approval. For the
purpose of Section 3, a Health Registration Application shall be deemed a
separate Health Registration Application for each therapeutic area (e.g.,
oncology, rhinitis, asthma, inflammatory bowel disease, rheumatoid arthritis or
chronic obstructive pulmonary disease (COPD)) covered by the Health Registration
Application whether filed as one or several applications.

         "Health Registration Approval" shall mean, with respect to a country in
the Territory, the approval by the appropriate agency or governmental body
required to manufacture, distribute, sell and market a Final Product in that
country. For the purpose of Section 3, a Health Registration Approval shall be
deemed a separate Health Registration Approval for each therapeutic area (e.g.,
oncology, rhinitis, asthma, inflammatory bowel disease, rheumatoid arthritis or
chronic obstructive pulmonary disease (COPD)) covered by the Health Registration
Approval whether given as one or several approvals.

         "Licensed Compound" shall mean Atiprimod (a/k/a Azaspiranes) and any
analogs or derivatives described in the Patent Rights.

         "Licensed Field" shall mean the diagnosis, treatment and prevention of
disease in humans.

         "Net Sales" shall mean the gross invoiced amount for Final Product sold
or otherwise transferred by Synergy, its Affiliates or its sublicenses (other
than Qualifying Sublicensees, as defined in Section 2.2(a)) less:

         (a) any trade, cash or quantity discounts actually allowed;

         (b) credits or allowances actually granted upon claims, rejections,
returns or retroactive price adjustments of Final Product; and

         (c) customs duties and taxes based on gross sales included in and
separately stated on the invoice, as adjusted for rebates and refunds (but not
including taxes assessed on income).

         Any Final Product sold or otherwise transferred in other than an arm's
length transaction or for other property (e.g., barter) shall be deemed invoiced
at its fair market price in the country of sale or transfer. "Net Sales" shall
exclude (i) the transfer of free samples of Final Product and, prior to
marketing, clinical trial materials and (ii) sales or transfers of Final Product
among Synergy, its Affiliates and its sublicensees unless the receiving party is
the consumer or user of the Final Product; however, the resale or retransfer of
such Final Product to a third party shall be included in "Net Sales."

         "Patent Rights" shall mean all the patents and patent applications of
AnorMED set forth in Exhibit A attached hereto, together with all divisionals,
extensions, reissues, substitutions, renewals, continuations and foreign
counterparts thereof (including European Supplementary Protection Certificates)
and patents issuing thereon.

                                       2
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         "Technical Information" shall mean all trade secrets, technical reports
and data concerning the Licensed Compound or Final Product that are necessary to
develop, manufacture, have manufactured, use or commercialize Final Product in
the Territory for the Licensed Field, including, but not limited to, preclinical
data, toxicological studies, methods of synthesis, assay information and
clinical trial data.

         "Territory" shall mean all countries of the world.

         "Valid Patent Claim" shall mean either (a) a claim of an issued and
unexpired patent included in the Patent Rights that has not been held
unenforceable, unpatentable or invalid in a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer or otherwise or (b) a claim of a
pending patent application included in the Patent Rights that has not been
canceled, withdrawn, abandoned or rejected in a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal; provided that no more than eight (8) years has
passed since the filing date of such patent application.

2. GRANT OF RIGHTS

         2.1 Patent License

         Subject to the terms of this Agreement, AnorMED hereby grants to
Synergy an exclusive license under the Patent Rights, together with related
Technical Information, to develop, manufacture, have manufactured, use, sell,
offer to sell and import Final Product in the Territory for the Licensed Field,
including the right to manufacture or have manufactured Licensed Compound for
such Final Product. Synergy shall not use the Patent Rights, together with
related Technical Information, for any purpose other than that described in the
preceding sentence. After execution of this Agreement, AnorMED shall promptly
deliver to Synergy all current written forms of the Technical Information.

         2.2 Sublicensing by Synergy

         (a) Synergy may sublicense its rights granted pursuant to Section 2.1.
If Synergy sublicenses substantially all of the rights pursuant to Section 2.1
to one or more third parties that are not an Affiliate of Synergy at the time of
such sublicensing (a "Qualifying Sublicensee"), (i) the royalties and milestone
payments due from the Qualifying Sublicensee shall be no less than those set
forth in this Agreement and (ii) Synergy shall pay AnorMED * percent of any and
all income and other consideration (e.g.;, equity, consulting fees and payments
for supplies) received by Synergy from such Qualifying Sublicensee.

Certain information on this page has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.

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         (b) Each sublicense shall be subject to and consistent with the terms
of this Agreement and shall be terminable at AnorMED's option upon termination
of this Agreement. Synergy shall promptly inform AnorMED of the execution,
scope, amendment of scope and termination of each sublicense and the name and
address of each sublicensee.

3. MILESTONE PAYMENTS

         In consideration of the license granted herein, Synergy shall pay to
AnorMED the following amounts upon the occurrence of each milestone indicated
below (whether the milestone is achieved by Synergy, its Affiliates or
sublicensees (other than a Qualifying Sublicensee):

         Milestone                     Payment to AnorMED by Synergy
         ---------                     ------------------------------

         *                                         US$*
         *                                         US$*

         *                                         US$*

         *                                         US$*

         All payments shall be made within thirty (30) days following the
occurrence of the milestone indicated by wire transfer to an account designated
by AnorMED. All the above payments are nonrefundable and are not creditable
against royalties.

4. ROYALTIES

         4.1 Amount

         In consideration of the license granted herein, Synergy shall pay
AnorMED the following royalty on Net Sales in the Territory during the term of
this Agreement even though the Final Product may have different indications,
formulation, unit size, etc.

         Net Sales During Calendar Year                         Royalty Rate
         ------------------------------                         ------------

         $0 to US$*                                                  *%

         Above US$* and at or below US$*                             *%

         Above US$* and at or below US$*                             *%

         Above US$*                                                  *%

Certain information on this page has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.

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         For example, if Net Sales during the calendar year are US$*), the total
royalties to be paid would equal US$* (i.e., * of US$*, plus* of US$*, plus * of
US$*, plus * of US$*).

         4.2 Patent Coverage and Generic Competition; Reduction in Royalty

         On a quarter-by-quarter basis, Net Sales of a particular Final Product
in any country in which:

                 (a) there is not a Valid Patent Claim covering such Final
        Product; and

                 (b) there is competition to such Final Product from a product
        incorporating as an active component a compound identical to the
        Licensed Compound in such Final Product

shall not be aggregated with other Net Sales for the purpose of calculating the
royalty payable under Section 4.1. Instead, a royalty of * percent shall be
payable in respect of such Net Sales. For the purpose of this Section 4.2, a
product shall be in competition with a Final Product if the market share of such
product in the country and quarter in question is * percent or more of the total
market for all products incorporating as an active component a compound
identical to the Licensed Compound incorporated as an active component in such
Final Product.

         4.3 Payment; Reports

         Royalties shall be paid to AnorMED within thirty (30) days after the
end of each calendar quarter by wire transfer to an account designated by
AnorMED. With each payment, Synergy shall provide AnorMED with a written report
of (a) Net Sales (in local currency and United States dollars, with applicable
exchange rates pursuant to Section 4.4 noted) and the number of units sold
during each month of the quarter for each type of Final Product by country and
(b) a calculation of the royalties due thereon and aggregate royalties due.

         4.4 Currency Conversion

         Royalties shall be calculated and paid in United Stated dollars. For
the purpose of computing the Net Sales made in a currency other than United
States dollars, Synergy shall convert such currency from local currency to
United States dollars on a monthly basis using the average of the relevant
exchange rate published by The Wall Street Journal for the first five (5) days
of the relevant month.

Certain information on this page has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.

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         4.5 Books and Records

         Synergy shall keep, or cause to be kept, accurate books and records in
sufficient detail to verify the calculation of royalties and the reports given
hereunder and shall retain such books and records at its principal place of
business for at least five (5) years after the end of the fiscal year to which
they pertain. AnorMED shall have the right, at its expense and not more
frequently than once per calendar year, to have its accountants and/or auditors
examine, during normal business hours, the books and records of Synergy, its
Affiliates and its sublicensees relating to the calculation of royalties and
reports given hereunder for any period during which Synergy is to keep the books
and records. If such examination discovers an error in excess of five percent
(5%) for the period under review, Synergy shall reimburse AnorMED for its
reasonable costs of examination.

5. WITHHOLDING

         If applicable law requires the withholding of taxes on amounts paid to
AnorMED hereunder, Synergy will have the right to withhold such taxes; provided
that Synergy shall pay the amount withheld to the proper taxing authority on
behalf of AnorMED and shall promptly secure and send to AnorMED proof evidencing
the payment of such taxes. Synergy agrees to assist AnorMED in claiming
exemption under any applicable income tax treaty from any such withholding.

6. ASSISTANCE FROM ANORMED

         As needed and upon reasonable request of Synergy, AnorMED will arrange
to make certain of its scientific personnel available to Synergy for assistance
in the development of the Licensed Compound at an approximate yearly rate of
US$* per full-time equivalent (adjusted annually for cost-of-living increases),
payment by Synergy for such assistance to be within thirty (30) days of invoice
and invoices shall be issued quarterly at the end of each calendar quarter.
Assistance by AnorMED shall be subject to the availability of its scientific
personnel. In no event shall AnorMED be required to prejudice its own research
and development programs to provide assistance to Synergy.

7. DILIGENCE

         7.1 Responsibilities

         Synergy shall be responsible, at its expense, for all development and
commercialization activities related to Licensed Compound and Final Product,
including, but not limited to, preclinical development, clinical trials,
regulatory strategy, applications for regulatory approval, manufacturing,
marketing and sales.

Certain information on this page has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.

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         7.2 Efforts

         Synergy shall use commercially reasonable and diligent efforts to
develop, register, manufacture, promote, market, distribute and sell Final
Product for the Licensed Field within the Territory.

         7.3 Reports

         In order to inform AnorMED of the progress of the Atiprimod (a/k/a
Azaspiranes) project, Synergy shall submit to AnorMED, during the term of this
Agreement, a written report within three months after the end of each calendar
year which covers, without omission of any relevant information, the then
current technical status, the results achieved, the problems being encountered
and other pertinent information relating to the development and manufacturing of
Final Product, including, but not limited to, all clinical data, clinical
protocols and regulatory filings in the Territory. Synergy shall submit to
AnorMED summary updates of each annual report on a quarterly basis. In addition,
Synergy shall report all material events and results relating to the Atiprimod
(a/k/a Azaspiranes) project (e.g., results of clinical trials, results of
toxicology or stability studies, or unexpected, serious or severe adverse
events) promptly following their occurrence or receipt.

         7.4 Maintenance Fee

         Commencing on January 1, 2004, and on January 1 of each subsequent
calendar year during the term of this Agreement, Synergy shall pay AnorMED a
maintenance fee of two hundred thousand ($200,000) in United States dollars;
provided that the maintenance fee shall not be due on or after the first January
1 following the payment of royalties under this Agreement in excess of two
hundred thousand United States dollars (US$200,000). Failure to pay the
maintenance fee when due will be a material breach of this Agreement.

8. CONFIDENTIALITY; PRESS RELEASES

         8.1 Confidential Information

         Except as otherwise provided in this Section 8, during the term of this
Agreement and for a period of five (5) years thereafter, each party shall keep
confidential and not disclose or use (except as contemplated by this Agreement)
any proprietary or confidential information received from the other party,
including Technical Information. This restriction shall not apply to any
information to the extent it (a) is already known to the recipient at the time
of disclosure (as may be verified by the recipient's contemporaneous written
records), (b) is or becomes public knowledge through no fault of the recipient,
(c) is received without an obligation of confidentiality from a third party
having the lawful right to disclose same, or (d) was independently developed or
discovered by the recipient without the use of the information disclosed by the
disclosing party (as may be verified by the recipient's contemporaneous written
records).

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         8.2 Authorized Disclosure

         Each party may disclose information received from the other party (a)
to third parties under appropriate terms and conditions, including
confidentiality provisions substantially equivalent to this Section 8, for
consulting, manufacturing, development, sublicensing, external testing and
marketing trials with respect to Licensed Compound or Final Product or an
investment in a party's capital stock and (b) to the extent such disclosure is
reasonably necessary, in connection with submissions to regulatory authorities
for purposes of this Agreement, filing or prosecuting patent applications
contemplated under this Agreement, prosecuting or defending litigation,
complying with applicable governmental regulations or conducting preclinical or
clinical trials of Licensed Compound or Final Product; provided, however, that
in the event of any proposed disclosure described in clause (b), the disclosing
party will, except where impracticable (e.g., medical emergencies), give
reasonable advance notice to the other party of such disclosure requirement and
will use its reasonable efforts to secure confidential treatment of the
information to be disclosed.

         8.3 Scientific Publications

         Except as required by law, regulation or court order, neither party
shall publish or make a presentation of any confidential or proprietary
information it has created or developed with respect to the development of
Licensed Compound or Final Product, including the Technical Information, or the
results of any preclinical or clinical studies or investigations it has
conducted or had conducted with respect to Licensed Compound or Final Product,
without the prior written consent of the other party, which consent shall not be
unreasonably withheld.

         8.4 Public Announcements

         Except to the extent required by applicable law or regulations, in the
reasonable judgment of a party, or to the extent the substance thereof has
previously been reviewed and released by the parties or is in the public domain
through no fault of the originating party, neither party shall make any
announcement, news release, public statement, publication or presentation
regarding the material terms of this Agreement without the prior written consent
of the other party, which consent shall not be unreasonably withheld. The
parties will consult with one another regarding the provisions of this Agreement
to be redacted in any filing made by the parties with regulatory agencies (e.g.,
Securities Commission) or as otherwise required by law. The parties will use
reasonable efforts to coordinate the initial announcement or press release
relating to this Agreement such that each party's initial announcement or press
release may be made contemporaneously.

9. ANORMED PATENTS

         9.1 Prosecution

         AnorMed shall diligently prosecute and take all reasonable steps
required to maintain in full force and effect and defend the Patent Rights in
the Licensed Field and Territory. Defending the Patent Rights includes, for
example, interference and opposition proceedings pertaining to patent
applications or patents, but does not include enforcing the Patent Rights
against third party infringers, which is covered by Section 9.2. All
out-of-pocket costs after the date of this Agreement, including, but not limited
to, outside attorneys', translation, filing and maintenance fees and costs in
connection therewith, shall be paid by Synergy to AnorMED within thirty (30)
days of invoice. AnorMED shall provide Synergy with an opportunity to review and
comment on the nature and text of any new or pending patent applications for all
Patent Rights in the Territory. AnorMED shall consider in good faith any
comments from Synergy regarding steps that might be taken to strengthen the
Patent Rights being licensed to Synergy hereunder and shall, on a reasonable
basis, conduct discussions with Synergy, at its request, regarding the patent
prosecution strategy for the Patent Rights. If AnorMED shall elect not to
prosecute, maintain or defend any Patent Rights in any country in the Territory,
Synergy shall be entitled to do so at its expense and AnorMED agrees, without
charge, to render such reasonable assistance, execute any documents and do such
other acts as may be reasonably necessary in connection with the prosecution,
maintenance or defense of any Patent Rights as Synergy may reasonably requests.

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         9.2 Third Party Infringement

         Each party shall promptly notify the other party in writing of any
alleged or threatened infringement of a patent included in the Patent Rights.
Synergy shall have the first right, but not the obligation, to take and control
all legal action necessary, at its expense, to enforce the Patent Rights against
any infringer in the Licensed Field and Territory that is or could be adversely
impacting its rights hereunder. If, after sixty (60) days' notice, Synergy has
not brought a suit or action against such infringer, then AnorMED shall, in its
sole discretion, have the right to take such legal action as it deems necessary
or desirable, at its expense. Each party agrees, without charge, to render such
reasonable assistance, execute any documents and do such other acts as may be
reasonably necessary in such legal action as the other party may reasonably
request.

         After reimbursing the parties of their out-of-pocket costs from any
recovery, including, but not limited to, reasonable attorneys' fees, the balance
of any recovery related to such infringement shall be split as follows: fifty
percent (50%) to Synergy and fifty percent (50%) to AnorMED.

         9.3 Patent Markings

         Synergy shall cause all Final Product to be marked with applicable
Patent Rights in accordance with applicable patent laws.

         9.4 Patent Term Extension

         Synergy shall within thirty (30) days of obtaining any Health
Registration Approval provide to AnorMED any information required by AnorMED to
apply for a European Supplementary Protection Certificate or other patent term
extension in respect of the Final Product covered by the Health Registration
Approval in the country or countries covered by the Health Registration
Approval.

10. TRADEMARKS AND CORPORATE NAME

         All trademarks (except the "ANORMED" mark) to be utilized by Synergy
and/or its Affiliates with Final Product under this Agreement shall be owned by
Synergy and/or its Affiliates. Except to the extent prohibited by applicable
law, Final Product covered by this Agreement shall bear AnorMED's corporate name
in a reasonable location on outer packaging labels and on any package inserts.
Synergy shall mention, in certain appropriate forms of its advertising and
promotional literature, AnorMED's contribution to the development of each Final
Product. The first use of any such reference shall require AnorMED's approval,
which shall not be unreasonably withheld.

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11. WARRANTIES; DISCLAIMER; LIMITATION OF LIABILITY

         11.1 Both Parties

         Each party represents and warrants to the other that (a) it has full
right, power and authority to enter into this Agreement and to carry out the
provisions hereof and (b) it has all necessary corporate approvals for its
execution, delivery and performance of this Agreement.

         11.2 AnorMED

         AnorMED represents and warrants that it has full rights to the Patent
Rights.

         11.3 Disclaimer

         EXCEPT FOR THE WARRANTIES SET FORTH IN SECTIONS 11.1 AND 11.2, ANORMED
MAKES NO OTHER REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE PATENT RIGHTS
AND TECHNICAL INFORMATION AND EXPRESSLY DISCLAIMS ANY OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING, WIHTOUT LIMITATION, WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, PATENTABILITY AND NONINFRINGEMENT OF
INTELLECTUAL PROPERTY RIGHTS OF OTHER PARTIES.

         11.4 Limitation of Liability

         (a) AnorMED shall have no liability whatsoever to Synergy or any other
person for or on account of any injury, loss, damage, of any kind or nature,
sustained by, or damage assessed or asserted against, or any other liability
incurred by or imposed upon Synergy or any other person, arising out of or in
connection with or resulting from (i) the development, production, use or sale
of any Licensed Compound or Final Product, or the practice of the Patent Rights,
or (ii) any advertising or other promotional activities with respect to any of
the foregoing.

         (b) In no event shall AnorMED be liable for any incidental, special,
indirect or consequential damages resulting from any reason whatsoever. This
exclusion applies to all legal theories under which damages may be sought.

12. INDEMNIFICATION

         Synergy shall indemnify and hold AnorMED, its officers, directors,
employees, agents, consultants and contractors (the "Indemnified Parties")
harmless from and against any claim, action, liability, damage, loss, cost or
expense (including reasonable attorneys' fees) ("Loss") arising from or related
to the exercise of the license granted herein, unless and to the extent such
Loss arises from or is related to the gross negligence or willful default or
fraud of the Indemnified Parties. AnorMED shall promptly notify Synergy of any
such claim or action, allow Synergy to control the defense of such claim or
action and render all reasonable assistance to Synergy in connection with
defending such claim or action. Synergy shall secure and maintain product
liability insurance commensurate with the reasonable standards of the industry
with respect to Final Product. Upon request, Synergy shall provide AnorMED with
evidence of such insurance coverage.

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<PAGE>

13. TERM AND TERMINATION

         13.1 Expiration

         Unless terminated earlier pursuant to Section 13.2 through 13.4 or
14.15, this Agreement shall expire upon the last to expire of any patents
included in the Patent Rights. Upon expiration (but not earlier termination) of
this Agreement, Synergy's license to use the Technical Information pursuant to
Section 2.1 shall become fully paid-up, royalty-free and nonexclusive and shall
survive.

         13.2 Termination for Convenience

         Synergy may terminate this Agreement for any reason or no reason on
ninety (90) days' written notice to AnorMED.

         13.3 Insolvency

         If either party shall become insolvent or make an assignment for the
benefit of creditors, or if proceedings in voluntary or involuntary bankruptcy
shall be instituted on behalf of or against such party, or if a receiver or
trustee of such party's property shall be appointed, the other party shall have
the right to terminate this Agreement at any time by written notice to the
insolvent party.

         13.4 Breach

         Each party shall have the right to terminate this Agreement after
appropriate written notice to the other party in the event the other party is in
material breach of this Agreement (including failure to timely pay any amounts
due hereunder), unless the other party cures such breach within thirty (30) days
(or ten (10) days in the case of failure to pay any amount due) after the date
of notice; provided, however, that any such termination shall not release either
party from any obligations accrued prior thereto.

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         13.5 Inventory of Final Product

         Synergy shall have a period of twelve (12) months following expiration
or termination of this Agreement to sell any Final Product held in inventory
remaining at the date of termination, subject to the payment of royalties in
accordance with Section 4. At the end of such twelve (12) month period, AnorMED
shall have the option but not the obligation to purchase any Final Product still
held in inventory by Synergy for a price equal to *.

         13.6 Return of Technical Information

         Upon expiration (pursuant to Section 13.1) or earlier termination
(pursuant to Section 13.2 through 13.4 or 14.15) of this Agreement, Synergy
shall (at its expense):

         (a) Cause all materials containing any Technical Information to be
promptly returned to AnorMED.

         (b) Return or destroy, at AnorMED's option, all bulk Licensed Compound.

         (c) Assign to AnorMED all rights in all pre-clinical studies, clinical
trials or regulatory applications or approvals (e.g., investigational new drug
applications). Within thirty (30) days after such assignment, AnorMED shall
elect which of the preclinical studies, clinical trials or regulatory
applications or approvals will be continued and which will be discontinued
thereafter Synergy shall, promptly following demand therefore, reimburse AnorMED
for all costs and charges incurred in connection with those pre-clinical
studies, clinical trials or regulatory applications or approvals AnorMED elects
to discontinue, including all wind down costs and charges.

         (d) During the four (4) months following termination, discuss with
AnorMED information and data that exists with respect to Licensed Compound and
Final Product and provide to AnorMED such relevant information and data
requested by AnorMED.

         13.7 Synergy Developments

         In the event of termination of this Agreement for reasons other than
insolvency of AnorMED or material breach by AnorMED pursuant to Section 13.3 or
13.4, AnorMED shall be granted a fully paid-up, royalty-fee, worldwide,
nonexclusive license, with right to sublicense, to develop, manufacture, have
manufactured, use, sell, offer to sell and import Final Product in the Territory
for the Licensed Field using any inventions, developments or other Technical
Information, including patents and copyrights, developed for or incorporated in
Final Product by Synergy or its Affiliates or sublicensees.

Certain information on this page has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.

                                       12
<PAGE>

         13.8 Survival

         The rights and obligations of Sections 4.5, 8.1, 11.4, 12, 13.1 (second
sentence), 13.5, 13.6, 13.7 and 14 and any accrued obligations shall survive
termination or expiration of this Agreement. All other rights and obligations
shall not survive termination or expiration.

14. MISCELLANEOUS

         14.1 Assignment

         Neither this Agreement nor any right or obligation arising hereunder
may be assigned or delegated in whole or in part by either party without the
prior written consent of the other party, except to a successor or purchaser of
all or substantially all the assets of the party related to its pharmaceutical
business or, in the case of AnorMED, to a wholly-owned subsidiary of AnorMED,
provided, that, in the event of an assignment by AnorMED to a wholly owned
subsidiary, AnorMED shall guarantee the full performance of this Agreement by
the subsidiary. Any assignment or delegation that is not exempted and that is
attempted without such consent shall be of no force or effect. This Agreement
shall be binding on and inure to the benefit of the successors and permitted
assigns of the parties.

         14.2 Entire Agreement; Modification

         This Agreement constitutes the entire understanding between the parties
hereto with respect to the subject matter hereof and supersedes and cancels all
prior understandings, promises and agreements, including the Term Sheet, dated
June 27, 2002; provided that Synergy's obligation to make the payments described
under the heading "Exclusivity" shall survive. No modifications or amendment
hereof shall be valid or binding on the parties unless made in writing and duly
executed by the parties.

         14.3 Notices and Communications

         Any notice or any other communication required or permitted to be given
to a party pursuant hereto shall be sufficiently given if delivered personally
or by facsimile or express courier service (expenses prepaid) to the address set
forth below:

         AnorMED: AnorMED Inc.
                  Suite #200
                  20353 - 64th Avenue
                  Langley, BC
                  V2Y IN5 Canada
                  Attn:  President
                  FAX:  (604) 530-0976

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<PAGE>

         Synergy: Synergy Pharmaceuticals, Inc.
                  2 Executive Drive, Suite 450
                  Somerset, NJ  08873
                  Attn:  President
                  FAX:  (732) 302-1115

or to such other address as the party shall designate by written notice given to
the other party. All notices, information, reports and other communications in
connection with this Agreement shall be in English.

         14.4 Separability

         If any provision of this Agreement shall be held to any extent invalid
or unenforceable, such provision shall be deemed amended to conform to
applicable laws and to accomplish the intentions of the parties.

         14.5 Waivers

         No waivers of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future right or of any other right arising under
this Agreement.

         14.6 Counterparty

         This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

         14.7 Review of Agreement

         This Agreement has been submitted to the scrutiny of both parties and
their counsel and shall be given a fair and reasonable interpretation in
accordance with the words hereof, without consideration or weight being given to
its being drafted by or for one of the parties.

         14.8 Payments

         All payments due under this Agreement shall be paid in United States
dollars and made by wire transfer. Any payments that are overdue shall be
charged interest at the prime rate as quoted by the Royal Bank of Canada on the
first business day of each month plus five (5) percentage points or the maximum
permitted by applicable law, whichever is less.

         14.9 Compliance with Law; Export Regulations

         In the performance of this Agreement, each party shall comply with all
laws, regulations, rules, orders and other requirements, now or hereafter in
effect, of governmental authorities having jurisdiction. This Agreement and any
Technical Information provided hereunder are subject to restrictions concerning
the export of information and materials that may be imposed by a government.
Accordingly, Synergy agrees that it will not export, directly or indirectly, any
information or materials acquired under this Agreement or any products utilizing
any such information or materials to any country for which a government or any
agency thereof at the time of export requires an export license or other
governmental approval, without first obtaining the written consent to do so from
the appropriate agency of the government when required by an applicable statute
or regulation.

                                       14
<PAGE>

         14.10 Independent Contractors

         The parties are and shall be independent contractors. The relationship
between the parties created by this Agreement shall not constitute a
partnership, joint venture or agency. Neither party shall have the authority to
make any statements, representations or commitments of any kind, or to take any
action, that shall be binding on the other party.

         14.11 Nonsolicitation

         During the first eight (8) years after the date of this Agreement,
Synergy shall not solicit or seek to induce any employee of or consultant to
AnorMED to terminate his or her relationship with AnorMED and to seek employment
or an independent consulting relationship with Synergy or any of its Affiliates
or sublicensees.

         14.12 Governing Law

         This Agreement shall be governed by and construed in accordance with
the laws of the State of Washington, U.S.A. (regardless of its or any other
state's choice of law provisions).

         14.13 Jurisdiction and Venue

         Any legal action with respect to this Agreement shall be instituted in
a provincial court of general jurisdiction in British Columbia, Canada, the
parties hereby consenting to the jurisdiction and venue of such court.

         14.14 Payments to GlaxoSmithKline

         All costs and expenses associated with obtaining Atiprimod drug
substance or product or information related to Atiprimod from SmithKline Beecham
(a/k/a GlaxoSmithKline) incurred after the date hereof will be paid by Synergy
to AnorMED within thirty (30) days of invoice.

                                       15
<PAGE>

         14.15 Force Majeure

         Either party shall be excused from performance under this Agreement to
the extent such performance is prevented because of governmental action or
inaction, war, act of terrorism, fire, explosion, flood, strike, peril of the
sea, lockout, embargo, act of God, or any other cause beyond the control and
without the fault or negligence of the party claiming the force majeure event;
provided that the party claiming the force majeure event has exerted all
reasonable efforts to avoid or remedy such force majeure event. The excuse for
performance shall continue as long as the force majeure event continues. Upon
the cessation of the force majeure event, the party claiming the force majeure
shall promptly resume performance under this Agreement. If the force majeure
event continues for a period of one hundred and twenty (120) days, AnorMED shall
have the right to terminate this Agreement upon a further thirty (30) days'
written notice to Synergy.

         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.

                                            ANORMED INC.

                                            By:   /s/ Michael Abrams
                                               ---------------------------
                                                  Dr. Michael Abrams
                                                  President

                                            SYNERGY LIMITED

                                            By:    /s/ Donald Picker
                                               ---------------------------
                                                   Dr. Donald Picker
                                                   President

                                       16

<PAGE>

                                    EXHIBIT A
                                  PATENT RIGHTS

1.       Title:   Immunomodulatory Azaspiranes
         Priority Application:          USSN 712.325                 7 June 1991

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Reference No.           Territory                     Application No.      Filing Date  Issue Date  Patent No. or
                                                                                                    Publication
                                                                                                    No.
-------------------------------------------------------------------------------------------------------------------
<S>                     <C>                           <C>                  <C>          <C>         <C>
20015.00                US                            07/712,325           7-Jun-91
Abandoned
-------------------------------------------------------------------------------------------------------------------
20015.01                US                            07/981,147           24-Nov-92
Abandoned
-------------------------------------------------------------------------------------------------------------------
20015.20                US                            08/277,456           19-Jul-94    7-Jan-97    US 5,591,748
-------------------------------------------------------------------------------------------------------------------
20015.40                PCT                           PCT/US92/04834       5-Jun-92                 WO
                                                                                                    92/22294
-------------------------------------------------------------------------------------------------------------------
20015.41                EPO                           92914312.1           5-Jun-92
-------------------------------------------------------------------------------------------------------------------
20015.42                Ireland                       921,827              1-Jul-92
-------------------------------------------------------------------------------------------------------------------
20015.43                Japan                         500972/1993          5-Jun-92     2-Feb-01    3155277
-------------------------------------------------------------------------------------------------------------------
20015.44                S. Korea                      93-703765            5-Jun-92     13-Jan-00   251570
-------------------------------------------------------------------------------------------------------------------
20015.45                Mexico                        922713               5-Jun-92
Abandoned
-------------------------------------------------------------------------------------------------------------------
20015.46                New Zealand                   243,029              5-Jun-92     29-Nov-94   243029
Abandoned
-------------------------------------------------------------------------------------------------------------------
20015.47                Portugal                      100,566              4-Jun-92
-------------------------------------------------------------------------------------------------------------------
20015.48 Abandoned      S Africa                      92/4107              5-Jun-92     28-Apr-93
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       17
<PAGE>

     2. Title:    Cytokine Inhibitors
         Priority Application:   USSN 657,578                   19 February 1991

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Reference No.            Territory                    Application No.      Filing Date  Issue Date   Patent No. or
                                                                                                     Publication
                                                                                                     No.
-------------------------------------------------------------------------------------------------------------------
<S>                      <C>                          <C>                  <C>          <C>          <C>
20019.00 Abandoned       US                           07/657,578           19-Feb-91
-------------------------------------------------------------------------------------------------------------------
20019.01 Con 01          US                           07/887,628           22-May-92
Abandoned
-------------------------------------------------------------------------------------------------------------------
20019.02 Con 01          US                           08/138,178           15-Oct-93     11-Feb-97   US 5,602,166
-------------------------------------------------------------------------------------------------------------------
20019.03 Con 02          US                           08/779,418           7-Jan-97     4-May-99     US 5,900,430
-------------------------------------------------------------------------------------------------------------------
20019.20 CIP 02          US                           08/469,415           6-Jun-95
Abandoned
-------------------------------------------------------------------------------------------------------------------
20019.40                 PCT                          PCT/US92/01283       18-Feb-92                 WO
                                                                                                     92/14462
-------------------------------------------------------------------------------------------------------------------
20019.41                 Australia                    1463392              18-Feb-92    11-Jul-95    657745
-------------------------------------------------------------------------------------------------------------------
20019.42                 Canada                       2,104,214            18-Feb-92
-------------------------------------------------------------------------------------------------------------------
20019.43                 European Patent Office       929073625            18-Feb-92    17-Nov-99    0 572537B1
-------------------------------------------------------------------------------------------------------------------
20019.44                 Ireland                      920508               18-Feb-92
-------------------------------------------------------------------------------------------------------------------
20019.45                 Japan                        04-507323/1992       18-Feb-92    23-Feb-0l    0162071
-------------------------------------------------------------------------------------------------------------------
20019.46 Abandoned       S Korea                      93-702468            18-Feb-92
-------------------------------------------------------------------------------------------------------------------
20019.47                 S Africa                     92/1120              17-Feb-92    27-Jan-93    92/1120
-------------------------------------------------------------------------------------------------------------------
20019.48                 Austria                      92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.49                 Belgium                      92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.50                 Switzerland/Liechtenstein    92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.51                 Denmark                      92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.52                 Spain                        92907362.5           18-Feb-92    17-Nov-99    5172537
-------------------------------------------------------------------------------------------------------------------
20019.53                 France                       92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.54                 Great Britain                92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.55                 Greece                       92907362.5           18-Feb-92    17-Nov-99    20000400311
-------------------------------------------------------------------------------------------------------------------
20019.56                 Italy                        92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.57                 Luxembourg                   92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.58                 Monaco                       92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.59                 Netherlands                  92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.60                 Sweden                       92907362.5           18-Feb-92    17-Nov-99    572537
-------------------------------------------------------------------------------------------------------------------
20019.61                 Germany                      92907362.5           18-Feb-92    17-Nov-99    P69230
                                                                                                     314.6-08
-------------------------------------------------------------------------------------------------------------------
20019.62                 Hong Kong                    981133586.6
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       18
<PAGE>

  3.    Title: 2-[2-(Dimethylamino)ethyl]-8,8-dipropyl-
        2-azaspiro[4.5]decane dimaleate
        Priority Application: U.S. provisional 60/016,066 23 April 1996
                              U.S. provisional 60/001,134 13 July 1995

<TABLE>
<CAPTION>
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Reference             Territory          Application No.     Filing Date        Issue Date          Patent No.
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
<S>                   <C>                <C>                 <C>                <C>                 <C>
20021.00 (US)                            08/981,929          11-Jul-96          14-Sep-99           US 5,952,365
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>

                                       19
<PAGE>

  4.      Title: N,N-dimethyl-8,8-dipropyl-2-azaspiro
          [4.5]decane-2-propanamine dimaleate
          Priority Application:    U.S. provisional 60/001,138     13 July 1995
                                   U.S. provisional 60/015,996     23 April 1996

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Reference No.          Territory                     Application No.      Filing Date  Issue Date   Patent No.
                                                                                                    or
                                                                                                    Publication
                                                                                                    No.
-----------------------------------------------------------------------------------------------------------------
<S>                    <C>                           <C>                  <C>          <C>          <C>
20024.00               US                            08/981,928           12-Jul-96    17-Aug-99    US 5,939,450
-----------------------------------------------------------------------------------------------------------------
20024.40               PCT                           PCT/US96/11590       12-Jul-96                 WO
                                                                                                    97/02820
-----------------------------------------------------------------------------------------------------------------
20024.41 Abandoned     S Africa                      96/5883              11-Jul-96    28-May-97   96/5883
-----------------------------------------------------------------------------------------------------------------
20024.42 Abandoned     EPO                           969260769            12-Jul-96                837678
-----------------------------------------------------------------------------------------------------------------
20024.43               Japan                         09-505996            12-Jul-96    1 June-01   3195364
-----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       19
<PAGE>

  5.   Title:  N, N-diethy]-8,8-dipropyl-2-azaspiro [4.5] decane-2-propanamine
       Priority Application:     U.S. provisional 60/001,139      13 July 1995
                                 U.S. provisional 60/016,065      23 April 1996

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Reference No.            Territory                     Application No.      Filing Date  Issue Date   Patent No. or
                                                                                                      Publication
                                                                                                      No.
--------------------------------------------------------------------------------------------------------------------
<S>                      <C>                           <C>                  <C>          <C>          <C>
20029.00                 US                            08/679,480           12-Jul-96    28-Apr-98    US 5,744,495
--------------------------------------------------------------------------------------------------------------------
20029.40 Abandoned       Algeria                       11296                9-Jul-96

--------------------------------------------------------------------------------------------------------------------
20029.41                 Argentina                     960103537            11-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.42                 Australia                     5945596              11-Jul-96    8-Jun-00     716256
--------------------------------------------------------------------------------------------------------------------
20029.43 Abandoned       Barbados                      81402                12-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.44                 Brazil                        96019093             3-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.45                 Bulgaria                      100710               8-Jul-96     25-Feb-99    62359
--------------------------------------------------------------------------------------------------------------------
20029.46                 Canada                        2,181,006            11-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.47                 Chile                         123696               12-Jul-96    14-Aug-00    40.657
--------------------------------------------------------------------------------------------------------------------
20029.48                 China                         961108207            12-Jul-96    1-Mar-01     96110820.7
--------------------------------------------------------------------------------------------------------------------
20029.49 Abandoned       Colombia                      96036764             12-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.50                 Czech Rep.                    PV 203696            9-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.51 Abandoned       Eucador                       SP 961818            11-Jul-96    21-May-98    P1-981368
--------------------------------------------------------------------------------------------------------------------
20029.52 Abandoned       Egypt                         66096                11-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.53                 Eurasia                       199600048            12-Jul-96    3-Dec-97     000037
--------------------------------------------------------------------------------------------------------------------
20029.54                 European Patent Office        962019436            11-Jul-96    18-Mar-98    0753512
--------------------------------------------------------------------------------------------------------------------
20029-55                 Hungary                       P 9601918            12-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.56                 India                         1557/DEL/96          12-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.57                 Indonesia                     P 961950             8-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.58 Abandoned       Israel                        118815               8-JuI-96     29-Sep-00
--------------------------------------------------------------------------------------------------------------------
20029.59                 Japan                         1830581996           12-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.60                 S Korea                       280161996            11 Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.61                 Malaysia                      PI9602865            11-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.62                 Mexico                        962767               12-Jul-96    29-Sep-00    198843
--------------------------------------------------------------------------------------------------------------------
20029.63                 New Zealand                   286951               8-Jul-96     15-Jun-98    286951
--------------------------------------------------------------------------------------------------------------------
20029.64 Abandoned       Nigeria                       15396                10-Jul-96    6-Dec-96     12578
--------------------------------------------------------------------------------------------------------------------
20029-65                 Norway                        962931               12-Jul-96    6-Dec-99     306.672
--------------------------------------------------------------------------------------------------------------------
20029.66 Abandoned       Pakistan                      450/96               11-Jul-96    11-Nov-98    135353
--------------------------------------------------------------------------------------------------------------------
20029.67 Abandoned       Peru                          52596                12-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.68                 Philippines                   53652                8-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.69                 Poland                        315191               10-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029-70                 Romania                       9601426              11-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029-71                 Saudi Arabia                  96170188             30-Jul-96
--------------------------------------------------------------------------------------------------------------------
20029.72 Abandoned       Singapore                     96102355             8-Jul-96     22-Aug-00    43383
--------------------------------------------------------------------------------------------------------------------
20029.73 Abandoned       Slovak Rep.                   PV 0 88696           8-Jul-96     18-Jan-01
--------------------------------------------------------------------------------------------------------------------
20029.74 Abandoned       S Africa                      965883               11 Jul-96    26-Mar-97    965883
--------------------------------------------------------------------------------------------------------------------
20029.75 Abandoned       Sri Lanka                     11031
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       20
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Reference No.           Territory                     Application No.       Filing Date  Issue Date   Patent No. or
                                                                                                      Publication
                                                                                                      No.
-------------------------------------------------------------------------------------------------------------------
<S>                     <C>                           <C>                   <C>          <C>          <C>
20029.76                Taiwan                        85108324              10-Jul-96    21-Jan-01    126896
-------------------------------------------------------------------------------------------------------------------
20029.77 Abandoned      Tangiers                      1399                  12-Jul-96
-------------------------------------------------------------------------------------------------------------------
20029.78                Thailand                      32280                 9-Jul-96
-------------------------------------------------------------------------------------------------------------------
20029.79                Turkey                        9600579               12-Jul-96    22-Mar-99    TR 1996
                                                                                                      00579 B
-------------------------------------------------------------------------------------------------------------------
20029.80 Abandoned      United Arab Emirates          10796                 13-Jul-96
-------------------------------------------------------------------------------------------------------------------
20029.81 Abandoned      Ukraine                       96072764              9-Jul-96
-------------------------------------------------------------------------------------------------------------------
20029.82 Abandoned      Uruguay                       24283                 15-Jul-96
-------------------------------------------------------------------------------------------------------------------
20029.83                Venezuela                     126096                12-Jul-96
-------------------------------------------------------------------------------------------------------------------
20029.84 Abandoned      Vietnam                       SC 2696               12-Jul-96    29-Sep-00    1500
-------------------------------------------------------------------------------------------------------------------
20029.85                Austria                       962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.86                Belgium                       962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.87                Denmark                       962019436             11 -Jul-96   18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.88                Finland                       962010436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.89                France                        962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.90                Germany                       962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.91                Greece                        962019436             11-Jul-96    18-Mar-98    3026998
-------------------------------------------------------------------------------------------------------------------
20029.92                Netherlands                   962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.93                Ireland                       962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.94                Italy                         962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.95                Luxembourg                    962019436             11 -Ju1-96   18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.96 Abandoned      Morocco                       24311                 12-Jul-96
-------------------------------------------------------------------------------------------------------------------
20029.97                Portugal                      962019436             11 Ju1-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.98                Spain                         962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
20029.99                Sweden                        962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
25029.40                Switzerland                   962019436             11-Jul-96    18-Mar-98    0753512
-------------------------------------------------------------------------------------------------------------------
25029.41 Abandoned      Hong Kong                     991107432             18-Sep-98    11 -Jun-99   HK1010052
-------------------------------------------------------------------------------------------------------------------
25029.42                Great Britain                 962019436             11-Jul-96    18-Mar-98    753512
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       21
<PAGE>

           6. Title: Immunomodulatory azaspiranes
              Priority Application:     USSN 101,704          28 September 1987

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Reference No.            Territory                     Application No.      Filing Date  Issue Date   Patent No. or
                                                                                                      Publication
                                                                                                      No.
--------------------------------------------------------------------------------------------------------------------
<S>                      <C>                           <C>                  <C>          <C>          <C>
20031.00                 US                            07/101,704           28-Sep-87
Abandoned
--------------------------------------------------------------------------------------------------------------------
20031.20 CIP             US                            07/244,229           13-Sep-88    16-Oct-90    US 4,963,557
20031.00
--------------------------------------------------------------------------------------------------------------------
20031.40                 PCT                           PCT/US88/03323       27-Sep-88
--------------------------------------------------------------------------------------------------------------------
20031.41 Abandoned       Bahamas                       930                  27-Sep-88    14-Apr-89    930
--------------------------------------------------------------------------------------------------------------------
20031.42                 Canada                        578528               27-Sep-88    26-Apr-93    1313189
--------------------------------------------------------------------------------------------------------------------
20031.43                 China                         881090328            27-Sep-88    21-Jan-96    881090328
--------------------------------------------------------------------------------------------------------------------
20031.44                 Cyprus                        883089146            26-Sep-88    12-Sep-96    1955
--------------------------------------------------------------------------------------------------------------------
20031.45                 Czech Rep                     PV 397091            20-Dec-91
--------------------------------------------------------------------------------------------------------------------
20031.46                 European Patent Office        883089146            26-Sep-89    30-Nov-94    0310321
--------------------------------------------------------------------------------------------------------------------
20031.47                 Ireland                       292998               28-Sep-88    16-Apr-96    67891
--------------------------------------------------------------------------------------------------------------------
20031.48 Abandoned       Israel                        87908                25-Sep-88    21-Feb-93    87908
--------------------------------------------------------------------------------------------------------------------
20031.49 Abandoned       Malaysia                      8801078              27-Sep-88    30-Jul-94    104932
--------------------------------------------------------------------------------------------------------------------
20031.50                 Mexico                        923765               29-Jun-92    10-May-94    174367
--------------------------------------------------------------------------------------------------------------------
20031.51                 New Zealand                   226354               27-Sep-88    13-Jun-91    226354
--------------------------------------------------------------------------------------------------------------------
20031.52                 Pakistan                      43988                28-Sep-88    26-Dec-90    131497
Abandoned
--------------------------------------------------------------------------------------------------------------------
20031.53                 Portugal                      88603                27-Sep-88    25-Jun-92    88603
--------------------------------------------------------------------------------------------------------------------
20031.54 Abandoned       Singapore                     96914205             26-Sep48     30-Nov-94    96914205
--------------------------------------------------------------------------------------------------------------------
20031.55                 Slovakia                      397097               20-Dec-91
--------------------------------------------------------------------------------------------------------------------
20031.56 Abandoned       S Africa                      887266               28-Sep-88    27-Jan-93    887266
--------------------------------------------------------------------------------------------------------------------
20031.57                 Taiwan                        77106657             24-Sep-88    26-Apr-91    43871
--------------------------------------------------------------------------------------------------------------------
20031.58 Abandoned       Zimbabwe                      12388                21-Sep-88    7-Apr-89     12388
--------------------------------------------------------------------------------------------------------------------
20031.59                 Australia                     2533388              27-Sep-88    1 -Jun-92    619780
--------------------------------------------------------------------------------------------------------------------
20031.60                 Denmark                       77090                27-Sep-88    8-May-95     170042
--------------------------------------------------------------------------------------------------------------------
20031.61                 Finland                       901530               27-Sep-88    10-Feb-95    93006
--------------------------------------------------------------------------------------------------------------------
20031.62 Abandoned       Hungary                       588988               27-Sep-88    24-Sep-93    208809
--------------------------------------------------------------------------------------------------------------------
20031.63                 Japan                         63508105             27-Sep-88    2 1-Nov-96   2582888
--------------------------------------------------------------------------------------------------------------------
20031.64 Abandoned       S Korea                       899-00907            27-Sep-88    22-Sep-98    166336
--------------------------------------------------------------------------------------------------------------------
20031.65                 Norway                        901392               27-Sep-88    9-Feb-94     173824
--------------------------------------------------------------------------------------------------------------------
20031.66                 Philippines                   37609                13-Sep-88    5-Nov-91     25812
--------------------------------------------------------------------------------------------------------------------
20031.67 Abandoned       Hungary                       P/P00121             1-Jul-95                  211325
--------------------------------------------------------------------------------------------------------------------
20031.68                 Austria                       883089146            26-Sep-88    30-Nov-94    0310321
--------------------------------------------------------------------------------------------------------------------
20031.69                 Belgium                       883089146            26-Sep-88    30-Nov-94    0310321
--------------------------------------------------------------------------------------------------------------------
20031.70                 France                        883089146            26-Sep-88    30-Nov-94    0310321
--------------------------------------------------------------------------------------------------------------------
20031.71                 Germany                       883089146            26-Sep-88    30-Nov-94    0310321
--------------------------------------------------------------------------------------------------------------------
20031.72                 Great Britain                 883089146            26-Sep-88    30-Nov-94    0310321
--------------------------------------------------------------------------------------------------------------------
20031.73                 Greece                        883089146            26-Sep-88    30-Nov-94    0310321
--------------------------------------------------------------------------------------------------------------------
20031.74                 Italy                         8830891 46           26-Sep-98    30-Nov-94    0310321
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       22
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Reference No.          Territory             Application No.       Filing Date   Issue Date       Patent No. or
                                                                                                  Publication
                                                                                                  No.
-------------------------------------------------------------------------------------------------------------------
<S>                    <C>                   <C>                   <C>            <C>             <C>
20031.75               Luxembourg            883089146             26-Sep-88      30-Nov-94       0310321
-------------------------------------------------------------------------------------------------------------------
20031.76               Netherlands           883089146             26-Sep-88      30-Nov-94       0310321
-------------------------------------------------------------------------------------------------------------------
20031.77               Spain                 883089146             26-Sep-88      30-Nov-94       0310321
-------------------------------------------------------------------------------------------------------------------
20031.78               Sweden                883089146             26-Sep-88      30-Nov-94       0310321
-------------------------------------------------------------------------------------------------------------------
20031.79 Abandoned     Hong Kong             98105430                                             HK 1006274
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       23<PAGE>

                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

         EMPLOYMENT AGREEMENT (the "Agreement") is dated November 13, 2003 to be
effective as of the 13th day of November, 2003 between POWER EFFICIENCY
CORPORATION, a Delaware corporation (the "Corporation"), with principal
executive offices located at 4220 Varsity Drive, Suite E, Ann Arbor, MI 48108;
and Keith Collin, residing at 547 McKinley, Plymouth, Michigan 48170 (the
"Executive").

                               W I T N E S E T H:

         WHEREAS, the Corporation desires to employ Executive as the
Corporation's Chief Financial Officer and Vice President of National Sales to
engage in such activities and to render such services under the terms and
conditions hereof and has authorized and approved the execution of this
Agreement; and

         WHEREAS, Executive desires to be employed by the Corporation under the
terms and conditions hereinafter provided;

         NOW, THEREFORE, in consideration of the mutual covenants and
undertakings herein contained, the parties agree as follows:

         1.       Employment, Duties and Acceptance.

                  1.1      Services. The Corporation hereby employs Executive,
for the Term (as hereinafter defined in Section 2 hereof), to render services to
the business and affairs of the Corporation in the office referenced in the
recitals hereof and, in connection therewith, shall perform such duties as
directed by the Chief Executive Officer of the Corporation, and shall perform
such other duties as shall be consistent with the responsibilities of such
office (collectively the "Services"). Specifically, Executive shall be
responsible for fulfilling the role of Chief Financial Officer, ("CFO") and in
that capacity will be responsible all of the Corporation's financial affairs
including, fulfilling the duties required of a CFO of a public company.
Executive will also have responsibilities as Vice President of National Sales
for the management and profitability of the Corporation's National Sales
Division. Executive shall use his best efforts, skill and abilities to promote
the interests of the Corporation and its subsidiaries to accomplish his
responsibilities under this Agreement.

                  1.2      Acceptance. Executive hereby accepts such employment
and agrees to render the Services.

                  1.3      Representations of the Executive. The Executive
represents and warrants to the Corporation that his execution and delivery of
this Agreement, his performance of the Services hereunder and the observance of
his other obligations contemplated hereby will not (i) violate any provisions of
or require the consent or approval of any party to any agreement, letter of
intent or other document to which he is a party, or (ii) violate or conflict
with any arbitration award, judgment or decree or other restriction of any kind
to or by which he is subject or bound.

                                       11
<PAGE>

         2.       Term of Employment.

         The term of Executive's employment under this Agreement (the "Term")
shall commence on September 15, 2003 (the "Commencement Date") and shall
terminate on September 16, 2005, unless sooner terminated pursuant to Sections 9
or 5.1 of this Agreement. Notwithstanding anything to the contrary contained
herein, the provisions of this Agreement governing Protection of Confidential
Information shall continue in effect as specified in Section 10 hereof.

         3.       Base Salary and Expense Reimbursement.

                  3.1      Base Salary. During the Term, as base compensation
for the Services, the Corporation agrees to pay Executive a minimum base salary
("Base Salary") at the annual rate of $100,000. The Executive shall be eligible
for annual salary increases in such amount(s) as the Corporation's Chief
Executive Officer shall determine. Base Salary is subject to withholding and
other applicable taxes, payable during the term of this Agreement in accordance
with the Corporation's customary payment practices, but not less frequently than
monthly.

                  3.2      Division Profit Participation. During the Term, the
Corporation agrees to pay Executive a percentage ("Profit Participation") of the
Division net profit ("Division Net Profit") of National Sales, with the
operations of National Sales accounted for as a true profit center, in
accordance with generally accepted accounting principles and in accordance with
the Corporation's accounting practices. Executive understands that all of the
Corporation's expenses shall be allocated among the Corporation's various
divisions. Currently, the Corporation is expected to have three divisions:
Governmental Operations, National Sales, and Distributors but the number of
divisions may increase or decrease. Each expense of the Corporation shall be
allocated among the divisions based on the connection between such expense and
each division. General expenses not connected with any division shall generally
be allocated among the divisions based on revenue. The Corporation's Chief
Executive Officer shall make the final determinations related to the allocation
of expenses. Revenues of the Corporation shall be allocated among the divisions
based on the connection between the revenue and each division. There may be
times when it will be appropriate to allocated revenue from a single source
between two or more divisions. The Corporation's Chief Executive Officer shall
make the final determinations related to the allocation of revenues. Executive
shall receive a Profit Participation of 20% (Twenty Percent) of Division Net
Profit for accrued Division Net Profit up to and including $1,000,000 (One
Million Dollars) per annual Corporation fiscal reporting period, and 10% (Ten
Percent) of Division Net Profit above $1,000,000 per annual Corporation fiscal
reporting period. Profit Participation payments will be made to Executive in
arrears, on an annual basis after the financial statements for the year are
completed. However the Executive will be entitled to receive interest at the
prime rate on the profit participation as it accumulates during the year and
executive is entitled to borrow up to 75% of the tentative profit participation,
also at the prime rate, on a monthly basis provided that the loan amounts do not
exceed the accrued profit participation. Any loans taken by the Executive shall
be due on March 31 of the following year.

                                       12
<PAGE>

                  3.3      Stock Options. In connection with this Agreement, the
Corporation shall on the date hereof grant the Executive incentive stock options
(the "ISO Options") to purchase up to 400,000 shares of the Corporation's common
stock, $.001 par value per share (the "Common Stock"), at a per share purchase
price of $0.87. The options shall be exercisable for a period of ten (10) years
commencing on the date hereof and shall vest as follows:

<TABLE>
<CAPTION>
     Date          Number of ISO Options            Number of NQSO Options            Total Options
------------------------------------------------------------------------------------------------------
<S>                       <C>                               <C>                        <C>
Nov.  13, 2003             80,000                             --                          80,000
Sept. 15, 2004             80,000                             --                          80,000
Sept. 15, 2005             80,000                             --                          80,000
Sept. 15, 2006             80,000                             --                          80,000
Sept. 15, 2007             80,000                             --                          80,000
                                                                                     -----------------
                                                                                         400,000
</TABLE>

The grant of the options is conditioned upon and subject to the Executive
executing the incentive stock option agreement, attached hereto as Exhibit A,
the terms of which are hereby incorporated by reference.

                  3.4      Business Expense Reimbursement. Upon submission to,
and approval by, an officer of the Corporation designated by the Board of
Directors of the Corporation of a statement of expenses, reports, vouchers or
other supporting information, which approval shall be granted or withheld based
on the Corporation's policies in effect at such time, the Corporation shall
promptly reimburse the Executive for all reasonable business expenses actually
incurred or paid by him during the Term or renewals thereof in the performance
of the Services, including, but not limited to, expenses for entertainment,
travel and similar items.

         4.       Bonuses

                  4.1      Bonus. The Executive shall be eligible to receive
bonuses in such amount(s) as the Corporation's Compensation Committee shall
determine in its absolute discretion. If there is no Compensation Committee,
such determination shall be made by the entire Board of Directors.

                  4.2      Nothing in this Section 4 shall be construed as
conferring on the Executive any right (i) normally associated with the ownership
of capital stock; (ii) to continue in the employ of the Corporation or any
affiliate of the Corporation, or (iii) to interfere in any way with the right of
the Corporation to terminate this Agreement in accordance with the provisions
hereof. Nothing in this Agreement shall be construed to imply that any specific
assets of the Corporation have been set aside to provide for payments under this
Agreement. Any payments under this Agreement shall be made solely from general
assets of the Corporation existing at the time such payments are due.

<PAGE>

         5.       Severance.

                  5.1      Termination Without Cause or for Good Reason. In the
event that Executive's employment hereunder (i) is terminated by the Corporation
without Cause (as defined in Section 9.4 hereof), (ii) is terminated by the
Executive for Good Reason (as defined in Section 9.5 hereof) at any time prior
to the end of the Term, or (iii) is not renewed by the Corporation at the end of
the Term, the Executive shall be entitled to receive from the Corporation, in
addition to any Base Salary earned to the date of termination, a severance
payment in an amount equal to $50,000, which shall be paid in bi-monthly (twice
a month) increments during the six-month period following such termination.
Provided, however, that Executive shall not be entitled to the severance payment
in the event that the Executive continues employment with the Corporation
without a contract. The $50,000 severance payment referenced above shall
increase by $8,333 for each full year of employment by the Executive after the
Executive's original date of employment. Should Executive secure employment or a
consulting engagement during the six-month period after termination, then the
compensation from this employment or consulting shall be deducted from the
bi-weekly payments the Corporation is obligated to pay Executive.

         6.       Additional Benefits.

                  6.1      In General. In addition to the compensation, bonuses,
expenses and other benefits to be paid under Sections 3, 4 and 5 hereof,
Executive will be entitled to all rights and benefits for which he shall be
eligible under any insurance, health and medical, incentive, bonus,
profit-sharing, pension or other extra compensation or "fringe" benefit plan of
the Corporation or any of its subsidiaries now existing or hereafter adopted for
the benefit of the executives or employees generally of the Corporation. The
provisions of this Agreement which incorporate employee benefit packages shall
change as and when such employee benefit packages change.

         7.       Vacation.

         The Executive shall be entitled each year during the Term of this
Agreement to a vacation period of 3 (three) weeks, during which all salary,
compensation, benefits and other rights to which the Executive is entitled to
hereunder shall be provided in full. Such vacation may be taken in the
Executive's discretion, and such time or times as are not inconsistent with the
reasonable business needs of the Corporation. If the Executive does not take the
3 weeks of paid vacation in any year during the term of the Agreement, the
unused vacation days will accrue until they are used, this Agreement is
terminated or Executive retires. In the event of termination, Executive
retirement or other resignation, Executive shall receive a payment for all
accrued but unused vacation days equal to the amount Executive would have been
paid if Executive continued as an employee of Corporation for such number of
accrued but unused vacation days.

         8.       Insurability; Right to Insure. Executive agrees that the
Corporation shall have the right during the Term to insure the life of Executive
by a policy or policies of insurance in such amount or amounts as it may deem
necessary or desirable, and the Corporation shall be the beneficiary of any such
policy or policies and shall pay the premiums or other costs thereof. The
Corporation shall have the right, from time to time, to modify any such policy
or policies of insurance or to take out new insurance on the life of Executive.
Executive agrees, upon request, at any time or times prior to the commencement
of or during the Term to sign and deliver any and all documents and to submit to
any physical or other reasonable examinations which may be required in
connection with any such policy or policies of insurance or modifications
thereof.

<PAGE>

         9.       Termination.

                  9.1      Death. If Executive dies during the Term of this
Agreement, Executive's employment hereunder shall terminate upon his death and
all obligations of the Corporation hereunder shall terminate on such date,
except that Executive's estate or his designated beneficiary shall be entitled
to payment of any unpaid accrued Base Salary and/or Profit Participation through
the date of his death.

                  9.2      Disability. Subject to the provisions of Section 6.1,
if Executive shall be unable to perform a significant part of his duties and
responsibilities in connection with the conduct of the business and affairs of
the Corporation and such inability lasts for (i) a period of at least sixty (60)
consecutive days, or (ii) periods aggregating at least ninety (90) days during
any three hundred sixty-five (365) consecutive days, by reason of Executive's
physical or mental disability, whether by reason of injury, illness or similar
cause, Executive shall be deemed disabled, and the Corporation any time
thereafter may terminate Executive's employment hereunder by reason of the
disability. Upon delivery to Executive of such notice, all obligations of the
Corporation hereunder shall terminate, except that Executive shall be entitled
to payment of any unpaid accrued Base Salary and/or Profit Participation through
the date of termination. The obligations of Executive under Section 10 hereof
shall continue notwithstanding termination of Executive's employment pursuant to
this Section 9.2.

                  9.3      Termination For Cause. The Corporation may at any
time during the Term, without any prior notice, terminate this Agreement and
discharge Executive for Cause, whereupon the Corporation's obligation to pay
compensation or other amounts payable hereunder to or for the benefit of
Executive shall terminate on the date of such discharge. Furthermore, the
Executive shall be entitled to all options which have vested as of the
termination date and all options which have not vested shall be cancelled. As
used herein the term "Cause" shall mean: (i) a willful and material breach by
Executive of the terms of this Agreement; (ii) willful violation of specific and
lawful written direction from the Chief Executive Officer of the Corporation;
provided such direction is not inconsistent with the Executive's duties and
responsibilities under the office the Executive is holding at the time of the
directive; or (iii) conviction of the Executive of a felony by a federal or
state court of competent jurisdiction. The obligations of the Executive under
Section 10 shall continue notwithstanding termination of the Executive's
employment pursuant to this Section 9.3.

                  9.4      Termination Without Cause. The Corporation shall have
the option to terminate this Agreement without Cause without any prior notice to
the Executive. In the event the Corporation terminates this Agreement without
Cause as defined above, the Corporation shall pay the Executive upon
termination, the amount required pursuant to Section 5.1 and any Profit
Participation payable to Executive through the termination date. In addition,
all options granted to the Executive shall immediately vest and be exercisable
by the Executive. The obligations of the Executive under Section 10 hereof shall
continue notwithstanding termination of the Executive's employment pursuant to
this Section 9.4.

<PAGE>

                  9.5      Termination by Executive. The Executive shall have
the right to terminate this Agreement for Good Reason, as hereinafter defined.
"Good Reason" shall mean any of the following: (i) the assignment to the
Executive of duties inconsistent with the Executive's position, duties,
responsibilities, titles or offices as described herein; (ii) any material
reduction by the Corporation of the Executive's duties and responsibilities; or
(iii) any reduction by the Corporation of the Executive's compensation or
benefits payable hereunder (it being understood that a reduction of benefits
applicable to all executives of the Corporation, including the Executive, shall
not be deemed a reduction of the Executive's compensation package for purposes
of this definition). In the event the Executive terminates this Agreement for
Good Reason as defined above, the Corporation shall pay the Executive upon
termination, the amount required pursuant to Section 5.1. In addition, all
options granted to the Executive shall immediately vest and be exercisable by
the Executive. The obligations of the Executive under Section 10 hereof shall
continue notwithstanding termination of the Executive's employment pursuant to
this Section 9.5. In the event the Executive terminates this Agreement without
Good Reason, the Executive shall be entitled to Base Salary accrued from the
most recent pay period through the date of termination but shall otherwise be
treated as if this Agreement had been terminated pursuant to Section 9.3.

         10.      Protection of Confidential Information.

         In view of the fact that Executive's work for the Corporation will
bring him into close contact with confidential information and plans for future
developments, Executive agrees to the following:

                  10.1     Secrecy. To keep secret and retain in the strictest
confidence all confidential matters of the Corporation, including, without
limitation, trade "know how" and trade secrets, customer lists, pricing
policies, marketing plans, technical processes, formulae, inventions and
research projects, and other business affairs of the Corporation, learned by him
heretofore or hereafter, and not to disclose them to anyone inside or outside of
the Corporation, except in the course of performing the Services hereunder or
with the express written consent of the Chief Executive Officer or Board of
Directors of the Corporation and except to the extent such information is
already known to the general public.

                  10.2     Return Memoranda, etc. To deliver promptly to the
Corporation on termination of his employment, or at any other time as the Chief
Executive Officer or the Board of Directors of the Corporation may so request,
all memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) relating to the Corporation's business and
all property associated therewith, which he may then possess or have under his
control.

<PAGE>

                  10.3     Covenants.

                           10.3.1   Non-Competition. Executive agrees that at
all times while he is employed by the Corporation and, regardless of the reason
for termination of his employment or this Agreement, for a period of six (6)
months thereafter, he will not, as a principal, agent, employee, employer,
consultant, stockholder, investor, director or co-partner of any person, firm,
corporation or business entity other than the Corporation, or in any individual
or representative capacity whatsoever, directly or indirectly, without the
express prior written consent of the Corporation:

                           (i)      engage or participate in any business whose
                                    products or services are competitive with
                                    that of the Corporation, which business is
                                    the manufacture and sale of energy saving
                                    equipment, and which conducts or solicits
                                    business, or transacts with suppliers or
                                    customers located within the United States;

                           (ii)     aid or counsel any other person, firm,
                                    corporation or business entity to do any of
                                    the above;

                           (iii)    become employed by a firm, corporation,
                                    partnership or joint venture which competes
                                    with the business of the Corporation within
                                    the United States; or

                           (iv)     approach, solicit business from, or
                                    otherwise do business or deal with any
                                    customer of the Corporation in connection
                                    with any product or service competitive to
                                    any provided by the Corporation.

                           10.3.2   Anti-Raiding. Executive agrees that during
the term of his employment hereunder, and, thereafter for a period of one (1)
year, he will not, as a principal, agent, employee, employer, consultant,
director or partner of any person, firm, corporation or business entity other
than the Corporation, or in any individual or representative capacity
whatsoever, directly or indirectly, without the prior express written consent of
the Corporation approach, counsel or attempt to induce any person who is then in
the employ of the Corporation to leave the employ of the Corporation or employ
or attempt to employ any such person or persons who at any time during the
preceding six months was in the employ of the Corporation.

                           10.3.3   Executive's Acknowledgements. Executive
acknowledges (i) that his position with the Corporation requires the performance
of services which are special, unique, and extraordinary in character and places
him in a position of confidence and trust with the customers and employees of
the Corporation, through which, among other things, he shall obtain knowledge of
the Corporation's "technical information" and "know-how" and become acquainted
with its customers, in which matters the Corporation has substantial proprietary
interests; (ii) that the restrictive covenants set forth above are necessary in
order to protect and maintain such proprietary interests and the other
legitimate business interests of the Corporation; and (iii) that the Corporation
would not have entered into this Agreement unless such covenants were included
herein.

<PAGE>

                  Executive also acknowledges that the business of the
Corporation presently will extend throughout the United States, and that he will
personally supervise and engage in such business on behalf of Corporation and,
accordingly, it is reasonable that the restrictive covenants set forth above are
not more limited as to geographic area than is set forth therein. Executive also
represents to the Corporation that the enforcement of such covenants will not
prevent Executive from earning a livelihood or impose an undue hardship on the
Executive.

                  10.4     Severability. If any of the provisions of this
Section 10, or any part thereof, is hereinafter construed to be invalid or
unenforceable, the same shall not affect the remainder of such provision or
provisions, which shall be given full effect, without regard to the invalid
portions. If any of the provisions of this Section 10, or any part thereof, is
held to be unenforceable because of the duration of such provision, the area
covered thereby or the type of conduct restricted therein, the parties agree
that the court making such determination shall have the power to modify the
duration, geographic area and/or other terms of such provision and, as so
modified, said provision(s) shall then be enforceable. In the event that the
courts of any one or more jurisdictions shall hold such provisions wholly or
partially unenforceable by reason of the scope thereof or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the Corporation's right to the relief provided for herein in the courts
of any other jurisdictions as to breaches or threatened breaches of such
provisions in such other jurisdictions, the above provisions as they relate to
each jurisdiction being, for this purpose, severable into diverse and
independent covenants.

                  10.5     Injunctive Relief. Executive acknowledges and agrees
that, because of the unique and extraordinary nature of his services, any breach
or threatened breach of the provisions of Sections 10.1, 10.2 or 10.3 hereof
will cause irreparable injury and incalculable harm to the Corporation, and the
Corporation shall, accordingly, be entitled to injunctive and other equitable
relief for such breach or threatened breach and that resort by the Corporation
to such injunctive or other equitable relief shall not be deemed to waive or to
limit in any respect any right or remedy which the Corporation may have with
respect to such breach or threatened breach. The Corporation and Executive agree
that any such action for injunctive or equitable relief shall be heard in a
state or federal court situated in New York County, New York and each of the
parties hereto, hereby agrees to accept service of process by registered mail
and to otherwise consent to the jurisdiction of such courts.

                  10.6     Expenses of Enforcement of Covenants. In the event
that any action, suit or proceeding at law or in equity is brought to enforce
the covenants contained in Sections 10.1, 10.2, or 10.3 hereof or to obtain
money damages for the breach thereof, the party prevailing in any such action,
suit or other proceeding shall be entitled upon demand, to reimbursement from
the other party for all expenses (including, without limitation, reasonable
attorneys' fees and disbursements) incurred in connection therewith.

<PAGE>

                  10.7     Separate Agreement. The provisions of this Section 10
shall be construed as an agreement on the part of the Executive independent of
any other part of this Agreement or any other agreement, and the existence of
any claim or cause of action of the Executive against the Corporation, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Corporation of the provisions of this Section 10.

         11.      Indemnification.

         The Corporation shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors and
officers liability insurance policy at the Corporation's expense to the same
extent as provided for any other director, officer or trustee of the
Corporation. In addition, the Corporation shall indemnify the Executive (and his
heirs, executors and administrators) to the fullest extent permitted under the
law of its state of incorporation against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which the Executive may be involved by reason of his having
been a director or officer of the Corporation or any subsidiary thereof. Such
expenses and liabilities shall include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements, such
settlements to be approved by the Board if such action is brought against the
Executive in his capacity as a director or officer of the Corporation or any
subsidiary thereof. The Corporation shall, upon the request of the Executive,
advance to the Executive such amounts as necessary to cover expenses, including
without limitation legal fees and expenses, incurred by the Executive in
connection with any suit or proceeding in which the Executive may be involved by
reason of his being or having been a director or officer of the Corporation or
of any subsidiary thereof. Such indemnity and advance of expenses, however,
shall not extend to matters as to which the Executive is finally adjudged to be
liable for willful misconduct in the performance of his duties.

         12.      Arbitration.

         Except with respect to any proceeding brought under Section 10 hereof,
any controversy, claim, or dispute between the parties, directly or indirectly,
concerning this Employment Agreement or the breach hereof, or the subject matter
hereof, including questions concerning the scope and applicability of this
arbitration clause, shall be finally settled by arbitration in Ann Arbor,
Michigan pursuant to the rules then applying of the American Arbitration
Association. The arbitrator shall be selected by the mutual agreement of the
parties. If the parties can not agree on a neutral arbitrator they will each
select one representative who will select the arbitrator who will preside over
the arbitration.. The parties agree to expedite the arbitration proceeding in
every way, so that the arbitration proceeding shall be commenced within thirty
(30) days after request therefore is made, and shall continue thereafter,
without interruption, and that the decision of the arbitrators shall be handed
down within thirty (30) days after the hearings in the arbitration proceedings
are closed. The arbitrator shall have the right and authority to assess the cost
of the arbitration proceedings and to determine how their decision or
determination as to each issue or matter in dispute may be implemented or
enforced. The decision in writing of the arbitrator shall be binding and
conclusive on all of the parties to this Agreement. Should either the
Corporation or the Executive fail to comply with these requirements as required
by this Section 12 within thirty (30) days after receiving written notice from
the other party to do so, the other party shall have the right to name the
arbitrator who will act for all of the parties and his decision in writing shall
be binding and conclusive on all of the parties to this Employment Agreement.
Any decision or award of the arbitrator shall be final and conclusive on the
parties to this Agreement; judgment upon such decision or award may be entered
in any competent Federal or state court located in the United States of America;
and the application may be made to such court for confirmation of such decision
or award for any order of enforcement and for any other legal remedies that may
be necessary to effectuate such decision or award.

<PAGE>

         13.      Notices.

         All notices, requests, consents and other communications required or
permitted to be given hereunder, shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by prepaid telegram, telecopy or
mailed first-class, postage prepaid, by registered or certified mail (notices
sent by telegram or mailed shall be deemed to have been given on the date sent),
to the parties at their respective addresses hereinabove set forth or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith.

         14. General.

                  14.1     Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the local laws of the State of
Delaware.

                  14.2     Captions. The section headings contained herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.

                  14.3     Entire Agreement. This Agreement sets forth the
entire agreement and understanding of the parties relating to the subject matter
hereof, and supersedes in their entirety all prior agreements, arrangements and
understandings, written or oral, relating to the subject matter hereof
including. No representation, promise or inducement has been made by either
party that is not embodied in this Agreement, and neither party shall be bound
by or liable for any alleged representation, promise or inducement not so set
forth.

                  14.4     Severability. If any of the provisions of this
Agreement shall be unlawful, void, or for any reason, unenforceable, such
provision shall be deemed severable from, and shall in no way affect the
validity or enforceability of, the remaining portions of this Agreement.

                  14.5     Waiver. The waiver by any party hereto of a breach of
any provision of this Agreement by any other party shall not operate or be
construed as a waiver of any subsequent breach of the same provision or any
other provision hereof.

                  14.6     Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same Agreement.

<PAGE>

                  14.7     Assignability. This Agreement, and Executive's rights
and obligations hereunder, may not be assigned by Executive. The Corporation may
assign its rights, together with its obligations, hereunder in connection with
any sale, transfer or other disposition of all or substantially all of its
business or assets; in any event the rights and obligations of the Corporation
hereunder shall be binding on its successors or assigns, whether by merger,
consolidation or acquisition of all or substantially all of its business or
assets. This Agreement shall inure to the benefit of, and be binding upon, the
Executive and his executors, administrators, heirs and legal representatives.

                  14.8     Amendment. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. No superseding
instrument, amendment, modification, cancellation, renewal or extension hereof
shall require the consent or approval of any person other than the parties
hereto. The failure of either party at any time or times to require performance
of any provision hereof shall in no matter affect the right at a later time to
enforce the same. No waiver by either party of the breach of any term or
covenant contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.

                     [Signature page to immediately follow]

<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

POWER EFFICIENCY CORPORATION

By:
   -----------------------------------------
     Richard Koch, Chief Executive Officer

--------------------------------------------
Keith Collin., individually

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