Document:

Exhibit
10.1

AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT

AND CONVERTIBLE SUBORDINATED NOTES

THIS AMENDMENT NO. 1 TO SECURITIES
PURCHASE AGREEMENT AND CONVERTIBLE SUBORDINATED NOTES (this “Amendment”),
dated as of April 23, 2007, amends (i) that certain Securities Purchase
Agreement, dated January 3, 2007 (the “Purchase Agreement”),
among Liquidmetal Technologies, Inc., a Delaware corporation (the “Company”),
and the investors listed on the Schedule of Buyers attached thereto
(individually, a “Buyer” and
collectively, the “Buyers”), and
(ii) the Convertible Subordinated Notes, dated January 3, 2007, issued to the
Buyers pursuant to the Purchase Agreement (the “Notes”).

WHEREAS:

A.            On
January 3, 2007, pursuant to the Purchase Agreement, the Company completed a
private placement (the “Private Placement”)
of the Notes and warrants to purchase shares of the Company’s common stock (the
“Warrants”).

B.            The
parties to this Amendment desire to hereby amend the Purchase Agreement and
Notes to, among other things, modify certain covenants and extend certain
additional rights and benefits to the Buyers.

C.            As
required by Section 9(e) of the Purchase Agreement and Section 17 of the Notes,
the Buyers who have executed this Amendment represent more than one-half of the
aggregate principal amount of the Notes.

NOW, THEREFORE, the Company and each Buyer hereby agree as
follows:

1.             Section
4(i) of the Purchase Agreement is hereby amended by deleting said section in
its entirety and replacing it with the following:

“(i)          Debt Repayment.  The Company will, on or before October 1,
2007 (or such earlier date on which such indebtedness is due), pay off all of
its indebtedness in existence as of January 3, 2007, other than the
indebtedness set forth on Schedule 4(i) and other than trade debt, capital
leases, and equipment financing incurred in the ordinary course of business.”

2.             The
Schedule of Buyers attached to the Purchase Agreement is hereby amended by
deleting such schedule in its entirety and replacing it with the Schedule attached
hereto as Exhibit A.

3.             In
consideration of the provisions set forth in Sections 1 and 2 of this Amendment,
the Company hereby agrees to amend each Note as follows, with such amendment
being effective as of the date of this Amendment:

a.             In
Section 3(b)(ii) of the Note, the initial Conversion Price (as defined in the
Note)  is changed to $1.10.

 

b.             The
following paragraph is hereby added to each Note as new Section (1)(d):

“(d)         Within two (2) trading days after the
closing of one or more Qualified Transactions resulting in $25,000,000 (Twenty Five
Million Dollars) in aggregate proceeds after transaction expenses and placement
agent or broker commissions or fees, the Company will notify the Holder of said
closing (a “Transaction Notice”).  Upon the closing of the Qualified Transaction,
the Holder may elect to have all or part of the outstanding principal amount of
this Note and all accrued but unpaid interest thereunder redeemed within five
(5) Trading Days of the Company’s receipt of written notice of the Holder’s
election to effect such redemption.  In
order to elect such redemption, the Holder must deliver written notice of redemption
to the Company within twenty (20) Trading Days after its receipt of the
Transaction Notice, and such written notice must be accompanied by the
surrender of the originally executed Note, which must be marked “cancelled”
(provided that in lieu of surrendering the Notes (if not fully redeemed), the
Holder may deliver a certification to the Company affirming that the requisite
principal amount of Notes is being forfeited as a result of such redemption, in
which case the change in the Notes will be noted by book entry by the Company).  For purposes hereof, the term “Qualified Transactions” means (A) the sale of all or a
significant portion of the assets of the Company’s Liquidmetal Coatings
business unit (whether by merger, asset sale, or stock sale), other than sales
in the ordinary course of business, and/or (B) the sale of Liquidmetal Korea’s
manufacturing facility in Pyong-Taek, Republic of Korea and that the
appropriate authorities or banks in the Republic of Korea approve the transfer
of such proceeds from Liquidmetal Korea to the Company and/or (C) the raising
of capital in a debt or equity offering after the date hereof (subject to any
restrictions or limitations thereon set forth in the Purchase Agreement or the
Notes).

4.             In
consideration of the provisions set forth in Sections 1 and 2 of this
Amendment, the Company also hereby agrees to amend each Warrant as
follows:  In the first paragraph of the Warrant,
the Exercise Price (as defined in the Warrant) is changed to $1.55, and the
maximum number of shares of Company common stock issuable upon the exercise of
such Warrant is increased to an amount that equals fifty percent (50%) of the
principal amount of the Note in connection with which the Warrant was issued
divided by $1.10.

5.             Upon
surrender of any Note or Warrant to the Company, the Company will promptly
exchange such Note or Warrant for a new Note or Warrant that incorporates the
amendments set forth in Sections 3 and 4 hereof but that shall otherwise be
identical to the original Note or Warrant.

 2
 

 

6.             Buyers
acknowledge that the Company plans to pursue a private placement (the “New Private Placement”) of convertible notes (the “New Notes”) in the aggregate amount of up to $15,000,000 in
order to satisfy certain other indebtedness of the Company outstanding on the
date hereof, and the Company agrees that it will grant to the Buyers a security
interest to secure the Notes in any assets granted as security for the New
Notes, and the Notes will be pari passu with the New Notes with respect to
security and in right of payment in proportion to the relative principal
amounts of the notes held by the holders of the New Notes and Notes.  In addition, Section 15(a) of each Note is
hereby amended to provide that payments under the Note shall not senior to, and
shall not preclude payments under, the New Notes so long as the form of New
Notes is approved by the holders of a majority or more of the then-outstanding
principal amount of the Notes.

7.             Except
as specifically set forth in this Amendment, all of the terms and provisions of
the Purchase Agreement and Notes shall continue to remain in full force and
effect.  Capitalized terms appearing in
this Amendment and not otherwise defined herein shall have the meanings
ascribed thereto in the Purchase Agreement or Notes.

8.             This
Amendment may be executed in any number of counterparts, each of which shall be
deemed to be an original, and all of which together shall constitute one
document. This Amendment, together with the Purchase Agreement and Notes,
contains the final, complete, and exclusive expression of the parties’
understanding and agreement concerning the matters contemplated herein and
supersedes any prior or contemporaneous agreement of representation, oral or
written, among them.  This Amendment shall
be governed by, and construed and enforced in accordance with the laws of the
State of New York without reference to principles of choice of law thereunder.

[signatures follow]

 3
 

 

IN WITNESS WHEREOF,  the parties have caused their respective signature page to
this Amendment to be duly executed as of the date first written above.

	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry E.
  Buffington

  
	
   

  	
   

  	
  Name: Larry E.
  Buffington

  
	
   

  	
   

  	
  Title: President
  and Chief Executive Officer

  

 

 4
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective signature page to this Amendment to
be duly executed as of the date first written above.

	
   

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Diamond
  Opportunity Fund, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard
  Marks

  
	
   

  	
   

  	
  Name: Richard
  Marks

  
	
   

  	
   

  	
  Title: Managing Director

  

 

 5
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective signature page to this Amendment to
be duly executed as of the date first written above.

	
   

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE
  TAIL WIND FUND LTD.

  
	
   

  	
   

  	
  By:
  TAIL WIND ADVISORY & MANAGEMENT LTD., as investment manager

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Crook

  
	
   

  	
   

  	
  Name: David
  Crook

  
	
   

  	
   

  	
  Title: CEO

  

 6
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective signature page to this Amendment to
be duly executed as of the date first written above.

	
   

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Solomon
  Strategic Holdings, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ A P
  MacKellar

  
	
   

  	
   

  	
  Name: A P
  MacKellar

  
	
   

  	
   

  	
  Title: Director

  

 

 7
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective signature page to this Amendment to
be duly executed as of the date first written above.

	
   

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Abdi
  Mahamedi

  
	
   

  	
   

  	
  Name: Abdi
  Mahamedi

  
	
   

  	
   

  	
  Title: 

  

 

 8
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective signature page to this Amendment to
be duly executed as of the date first written above.

	
   

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Edward
  Neugeboren

  
	
   

  	
   

  	
  Name: Edward
  Neugeboren

  
	
   

  	
   

  	
  Title: 

  

 

 9
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective signature page to this Amendment to
be duly executed as of the date first written above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
  By:  

  	
   

  	
  /s/ Eric Brachfeld

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Eric Brachfeld

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 10
 

IN WITNESS WHEREOF, each Buyer below has caused its respective signature
page to this Amendment to be duly executed as of the date first written above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
  Fort Mason Master, LP

  
	
   

  	
   

  	
  Fort
  Mason Partners, LP

  
	
   

  	
   

  	
  By:  

  	
   

  	
  /s/
  Dan German

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Dan German

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Managing Member

  
	
   

  	
   

  	
   

  	
   

  	
  Fort Mason Capital, LLC

  

 

 11
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective signature page to this Amendment to
be duly executed as of the date first written above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
  WYNNEFIELD SMALL CAP VALUE

  
	
   

  	
   

  	
  OFFSHORE
  FUND, LTD.

  
	
   

  	
   

  	
  By:  

  	
   

  	
  /s/
  Nelson Obus

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Nelson Obus

  
	
   

  	
   

  	
  Title:

  	
   

  	
  President

  

 

 12
 

IN
WITNESS WHEREOF, each Buyer below has caused its respective
signature page to this Amendment to be duly executed as of the date first
written above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
  WYNNEFIELD PARTNERS SMALL CAP

  
	
   

  	
   

  	
  VALUE, LP

  
	
   

  	
   

  	
  By:  

  	
   

  	
  /s/
  Nelson Obus

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Nelson Obus

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Managing Member

  

 

 13
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective signature page to this Amendment to
be duly executed as of the date first written above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
  WYNNEFIELD PARTNERS SMALL CAP

  
	
   

  	
   

  	
  VALUE, LP
  I

  
	
   

  	
   

  	
  By:  

  	
   

  	
  /s/
  Nelson Obus

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Nelson Obus

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Managing Member

  

 

 14
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective signature page to this Amendment to
be duly executed as of the date first written above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
  BridgePointe Master Fund Ltd.

  
	
   

  	
   

  	
  By:  

  	
   

  	
  /s/
  Eric Swartz

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Eric Swartz

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Director

  

 

 15
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective
signature page to this Amendment to be duly executed as of the date first
written above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
  Ricardo A. Salas

  
	
   

  	
   

  	
  By:  

  	
   

  	
  /s/
  Ricardo A. Salas

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Ricardo A. Salas

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 16
 

IN WITNESS WHEREOF,
each Buyer below has caused its respective
signature page to this Amendment to be duly executed as of the date first
written above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
  Chang Ki Cho

  
	
   

  	
   

  	
  By:  

  	
   

  	
  /s/
  Chang Ki Cho

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Chang Ki Cho

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 17
 

 

EXHIBIT A

SCHEDULE OF BUYERS

	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  
	
  Buyer

  	
   

  	
  Address, Email and Facsimile Number

  	
   

  	
  Aggregate

  Principal

  Amount

  of Notes

  	
   

  	
  Number of

  Warrants**

  	
   

  	
  Legal Representative’s

  Address and Facsimile Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Mason
  Master, LP

  	
   

  	
  4 Embarcadero Center

  Suite 2050

  San Francisco, CA 94111

  Facsimile: 415-288-8113

  Email: mjensen@fortmasoncapital.com

  klynch@fortmasoncapital.com

  	
   

  	
  $2,817,300

  	
   

  	
  1,280,591

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Mason
  Partners, LP

  	
   

  	
  4 Embarcadero Center

  Suite 2050

  San Francisco, CA 94111

  Facsimile: 415-288-8113

  Email: mjensen@fortmasoncapital.com

  klynch@fortmasoncapital.com

  	
   

  	
  $182,700

  	
   

  	
  83,046

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Tail Wind
  Fund Ltd.

  	
   

  	
  The Tail Wind Fund Ltd.

  c/o Tail Wind Advisory and Management Ltd.

  Attn: David Crook

  77 Long Acre

  London WC2E 9LB UK

  Facsimile: 44-207-420 3819

  Email: dcrook@tailwindam.com

  	
   

  	
  $1,250,000

  	
   

  	
  568,182

  	
   

  	
  Peter J. Weisman, P.C.

  52 Venderbilt, 17th Floor

  New York, NY 10017

  Facsimile: 212-317-8855

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Solomon
  Strategic Holdings, Inc.

  	
   

  	
  c/o A P MacKellar

  Greenlands

  The Red Gap

  Castletown

  Isle of Man

  IM9 1HB

  British Isles

  Facsimile: +44 (0) 1624 824191

  	
   

  	
  $250,000

  	
   

  	
  113,637

  	
   

  	
  Peter J. Weisman, P.C.

  52 Vanderbilt, 17th Floor

  New York, NY 10017

  Facsimile: 212-317-8855

  	
   

  

 

 18
 

 

	
  Whitebox Intermarket
  Partners, L.P.

  	
   

  	
  3033 Excelsior Blvd.

  Suite 300

  Minneapolis, MN 55416

  Facsimile: (612) 253-6100

  	
   

  	
  $2,000,000

  	
   

  	
  909,091

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CastleRigg
  Master Investments Ltd.

  	
   

  	
  c/o Sandell Asset
  Management Corp.

  40 W. 57th Street, 26th Floor

  New York, NY 10019

  Facsimile: 212-603-5710

  	
   

  	
  $2,000,000

  	
   

  	
  909,091

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Diamond Opportunity
  Fund, LLC

  	
   

  	
  500 Skokie Blvd.

  Suite 300

  Northbrook, IL 60062

  Facsimile: 847-919-4410

  Email: rmarks@diagrp.com

  	
   

  	
  $350,000

  	
   

  	
  159,091

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rockmore
  Investment Master Fund, Ltd.

  	
   

  	
  c/o Rockmore Capital,
  LLC

  150 East 58th Street, 28th Floor

  New York, NY 10155

  Facsimile: 212-258-2315

  Email: as@rockmorecapital.com

  	
   

  	
  $1,000,000

  	
   

  	
  454,546

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Abdi Mahamedi

  	
   

  	
  c/o Carlyle Development
  Group

  2 Gannett Drive

  Suite 201

  White Plains, NY 10604

  Facsimile: 914-694-6789

  Email: carlylegroup@aol.com

  	
   

  	
  $500,000

  	
   

  	
  227,273

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BridgePointe
  Master Fund Ltd.

  	
   

  	
  1125 Sanctuary Parkway

  Suite 275

  Alpharetta, GA 30004

  Facsimile: 770-777-5844

  Email: BradHathorn@Roswell

  CapitalPartners.com

  	
   

  	
  $2,000,000

  	
   

  	
  909,091

  	
   

  	
  P. Bradford Hathorn,
  Esq.

  1125 Sanctuary Parkway

  Suite 275

  Alpharetta, GA 30004

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Iroquois Master
  Fund Ltd.

  	
   

  	
  641 Lexington Ave., 26th Floor

  New York, NY 10022

  Facsimile: 212-207-3452

  Email: jsilverman@iefund.com

  	
   

  	
  $500,000

  	
   

  	
  227,273

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rodd Friedman

  	
   

  	
  93 Hillspoint Road

  Westport, CT 06880

  Facsimile: 203-663-1303

  Email: roddf@optonline.net

  	
   

  	
  $148,874

  	
   

  	
  67,670

  	
   

  	
   

  	
   

  

 

 19
 

 

	
  Myron Neugeboren

  	
   

  	
  P.O. Box 1410

  Lakeville, CT 06039

  Facsimile: 860-435-2603

  Email: neugeboren@sbcglobal.net

  	
   

  	
  $28,904

  	
   

  	
  13,139

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ricardo A. Salas

  	
   

  	
  64 Ritz Cove Drive

  Monarch Beach, CA 92629

  Facsimile: 949-315-3096

  	
   

  	
  $330,990

  	
   

  	
  150,451

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Chang Ki Cho

  	
   

  	
  Kangnam-Ku Gaepo-Dong
  12-2

  LG Gaepo Xi Apt # 101-901

  Seoul, Korea 135-543

  Facsimile: 82-2-749-0574

  	
   

  	
  $436,174

  	
   

  	
  198,261

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eric Brachfeld

  	
   

  	
  890 West End Ave., #160

  New York, NY 10025

  Facsimile: 212-298-9933

  Email: eric@indiven.com

  	
   

  	
  $54,522

  	
   

  	
  24,783

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Edward
  Neugeboren

  	
   

  	
  282 New Norwalk Road

  New Canaan, CT 06840

  Email: edward@indigomcg.com

  	
   

  	
  $20,095

  	
   

  	
  9,135

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield
  Partners Small Cap Value, LP

  	
   

  	
  450 Seventh Ave., Suite
  509

  New York, NY 10123

  Facsimile: 212-760-0824

  	
   

  	
  $420,000

  	
   

  	
  190,910

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield
  Partners Small Cap Value, LP I

  	
   

  	
  450 Seventh Avenue,
  Suite 509

  New York, NY 10123

  Facsimile: 212-760-0824

  	
   

  	
  $550,000

  	
   

  	
  250,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wynnefield Small
  Cap Value Offshore Fund, Ltd.

  	
   

  	
  450 Seventh Avenue, Suite 509

  New York, NY 10123

  Facsimile: 212-760-0824

  	
   

  	
  $530,000

  	
   

  	
  240,910

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kenneth Lisiak

  	
   

  	
  8 Haskell Road

  Andover, MA 01810

  Facsimile: 978-475-7146

  	
   

  	
  $167,861

  	
   

  	
  76,301

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Vestal Venture
  Capital

  	
   

  	
  6471 Enclave Way

  Boca Raton, FL 33496

  Facsimile: 561-912-9979

  	
   

  	
  $366,935

  	
   

  	
  166,789

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Charles Jong Won
  Kim

  	
   

  	
  1015 Calle Son Rosa

  Glendale, CA 91208

  	
   

  	
  $225,806

  	
   

  	
  102,640

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Chunhyong
  (Charles) Myong

  	
   

  	
  Hilltop Treasure 505 B

  Hannamdong 1-44, Yong San-Gu

  Seoul, Korea

  Facsimile: 822-317-5086

  	
   

  	
  $169,355

  	
   

  	
  76,980

  	
   

  	
   

  	
   

  

**             Reflects
the changes to the warrant amounts set forth in Section 4 of this Amendment No.
1.

 20Exhibit 10.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

by and among

SCIELE PHARMA, INC.,

SP
ACQUISITION CORP.,

ALLIANT
PHARMACEUTICALS, INC.,

THE
SHAREHOLDERS OF ALLIANT PHARMACEUTICALS, INC.,

and

JOHN N.
KAPOOR, as the Shareholder Representative

 

TABLE OF CONTENTS

	
  

  	
   

  	
  

  	
   

  	
  Page

  
	
  ARTICLE I

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
  Section 1.1

  	
   

  	
  Certain Definitions

  	
   

  	
  1

  
	
  Section 1.2

  	
   

  	
  Other Definitions

  	
   

  	
  9

  
	
  ARTICLE II

  	
   

  	
  THE MERGER

  	
   

  	
  9

  
	
  Section 2.1

  	
   

  	
  The Merger

  	
   

  	
  9

  
	
  Section 2.2

  	
   

  	
  Time and Place of
  Closing

  	
   

  	
  10

  
	
  Section 2.3

  	
   

  	
  Effective Time

  	
   

  	
  10

  
	
  Section 2.4

  	
   

  	
  Effects of Merger

  	
   

  	
  10

  
	
  Section 2.5

  	
   

  	
  Articles of
  Incorporation and Bylaws

  	
   

  	
  10

  
	
  Section 2.6

  	
   

  	
  Directors

  	
   

  	
  10

  
	
  Section 2.7

  	
   

  	
  Officers

  	
   

  	
  10

  
	
  Section 2.8

  	
   

  	
  Name

  	
   

  	
  10

  
	
  ARTICLE III

  	
   

  	
  MERGER CONSIDERATION;
  ADJUSTMENTS

  	
   

  	
  11

  
	
  Section 3.1

  	
   

  	
  Conversion of Company
  Common Stock

  	
   

  	
  11

  
	
  Section 3.2

  	
   

  	
  Adjusted Merger Payment

  	
   

  	
  11

  
	
  Section 3.3

  	
   

  	
  Distribution of
  Adjusted Merger Payment

  	
   

  	
  11

  
	
  Section 3.4

  	
   

  	
  Statement of Closing
  Date Indebtedness

  	
   

  	
  12

  
	
  Section 3.5

  	
   

  	
  Treatment of Company
  Stock Options

  	
   

  	
  12

  
	
  Section 3.6

  	
   

  	
  Escrow Amount

  	
   

  	
  12

  
	
  Section 3.7

  	
   

  	
  Initial Working Capital
  Adjustment

  	
   

  	
  13

  
	
  Section 3.8

  	
   

  	
  Payment

  	
   

  	
  13

  
	
  Section 3.9

  	
   

  	
  Post-Closing Working
  Capital Adjustment

  	
   

  	
  13

  

 

 i
 

 

	
  ARTICLE IV

  	
   

  	
  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

  	
   

  	
  14

  
	
  Section 4.1

  	
   

  	
  Organization

  	
   

  	
  14

  
	
  Section 4.2

  	
   

  	
  Authorization

  	
   

  	
  15

  
	
  Section 4.3

  	
   

  	
  Absence of Restrictions
  and Conflicts

  	
   

  	
  16

  
	
  Section 4.4

  	
   

  	
  Required Consents

  	
   

  	
  16

  
	
  Section 4.5

  	
   

  	
  Real Property

  	
   

  	
  16

  
	
  Section 4.6

  	
   

  	
  Personal Property

  	
   

  	
  17

  
	
  Section 4.7

  	
   

  	
  Title to Assets

  	
   

  	
  17

  
	
  Section 4.8

  	
   

  	
  Inventory

  	
   

  	
  17

  
	
  Section 4.9

  	
   

  	
  Financial Statements

  	
   

  	
  18

  
	
  Section 4.10

  	
   

  	
  No Undisclosed
  Liabilities

  	
   

  	
  18

  
	
  Section 4.11

  	
   

  	
  Absence of Certain
  Changes

  	
   

  	
  18

  
	
  Section 4.12

  	
   

  	
  Legal Proceedings

  	
   

  	
  18

  
	
  Section 4.13

  	
   

  	
  Compliance with Law

  	
   

  	
  19

  
	
  Section 4.14

  	
   

  	
  Contracts

  	
   

  	
  19

  
	
  Section 4.15

  	
   

  	
  Tax Returns; Taxes

  	
   

  	
  21

  
	
  Section 4.16

  	
   

  	
  Officers, Employees and
  Independent Contractors

  	
   

  	
  24

  
	
  Section 4.17

  	
   

  	
  Company Benefit Plans

  	
   

  	
  24

  
	
  Section 4.18

  	
   

  	
  Labor Relations

  	
   

  	
  27

  
	
  Section 4.19

  	
   

  	
  Insurance Policies

  	
   

  	
  28

  
	
  Section 4.20

  	
   

  	
  Environmental, Health
  and Safety Matters

  	
   

  	
  28

  
	
  Section 4.21

  	
   

  	
  Intellectual Property

  	
   

  	
  29

  

 

 ii
 

 

	
  Section 4.22

  	
   

  	
  Software

  	
   

  	
  30

  
	
  Section 4.23

  	
   

  	
  Related Party
  Transactions

  	
   

  	
  31

  
	
  Section 4.24

  	
   

  	
  Customer and Supplier
  Relations

  	
   

  	
  31

  
	
  Section 4.25

  	
   

  	
  Accounts Receivable

  	
   

  	
  31

  
	
  Section 4.26

  	
   

  	
  Licenses

  	
   

  	
  31

  
	
  Section 4.27

  	
   

  	
  Ethical Practices with
  Governmental Entities

  	
   

  	
  32

  
	
  Section 4.28

  	
   

  	
  Product Warranties

  	
   

  	
  32

  
	
  Section 4.29

  	
   

  	
  Brokers, Finders and
  Investment Bankers

  	
   

  	
  32

  
	
  ARTICLE V

  	
   

  	
  REPRESENTATIONS AND
  WARRANTIES OF THE SHAREHOLDERS

  	
   

  	
  32

  
	
  Section 5.1

  	
   

  	
  Authorization and
  Validity of Agreement

  	
   

  	
  32

  
	
  Section 5.2

  	
   

  	
  Absence of Restrictions
  and Conflicts

  	
   

  	
  33

  
	
  Section 5.3

  	
   

  	
  Ownership of Equity

  	
   

  	
  33

  
	
  Section 5.4

  	
   

  	
  Legal Proceedings

  	
   

  	
  33

  
	
  Section 5.5

  	
   

  	
  Amounts Owed to Shareholders

  	
   

  	
  33

  
	
  ARTICLE VI

  	
   

  	
  REPRESENTATIONS AND
  WARRANTIES OF PARENT

  	
   

  	
  33

  
	
  Section 6.1

  	
   

  	
  Organization

  	
   

  	
  33

  
	
  Section 6.2

  	
   

  	
  Authorization

  	
   

  	
  34

  
	
  Section 6.3

  	
   

  	
  Absence of Restrictions
  and Conflicts

  	
   

  	
  34

  
	
  Section 6.4

  	
   

  	
  Brokers

  	
   

  	
  34

  
	
  Section 6.5

  	
   

  	
  Availability of Funds

  	
   

  	
  34

  
	
  ARTICLE VII

  	
   

  	
  CERTAIN COVENANTS AND
  AGREEMENTS

  	
   

  	
  35

  
	
  Section 7.1

  	
   

  	
  Conduct of Business by
  the Company

  	
   

  	
  35

  

 

 iii
 

 

	
  Section 7.2

  	
   

  	
  Inspection and Access to Information

  	
   

  	
  37

  
	
  Section 7.3

  	
   

  	
  Notices of Certain
  Events

  	
   

  	
  38

  
	
  Section 7.4

  	
   

  	
  Interim Financials

  	
   

  	
  39

  
	
  Section 7.5

  	
   

  	
  No Solicitation of
  Transactions

  	
   

  	
  39

  
	
  Section 7.6

  	
   

  	
  Reasonable Efforts;
  Further Assurances; Cooperation

  	
   

  	
  39

  
	
  Section 7.7

  	
   

  	
  Public Announcements

  	
   

  	
  40

  
	
  Section 7.8

  	
   

  	
  Employee Matters

  	
   

  	
  40

  
	
  Section 7.9

  	
   

  	
  Transfer Taxes;
  Expenses

  	
   

  	
  41

  
	
  Section 7.10

  	
   

  	
  Non-Competition

  	
   

  	
  41

  
	
  Section 7.11

  	
   

  	
  Tax Matters

  	
   

  	
  43

  
	
  Section 7.12

  	
   

  	
  Customer Visits

  	
   

  	
  46

  
	
  Section 7.13

  	
   

  	
  Director and Officer
  Liability and Indemnification

  	
   

  	
  46

  
	
  Section 7.14

  	
   

  	
  Accounts and Notes
  Receivable

  	
   

  	
  46

  
	
  Section 7.15

  	
   

  	
  Release

  	
   

  	
  47

  
	
  Section 7.16

  	
   

  	
  Termination of Certain
  Agreements

  	
   

  	
  47

  
	
  Section 7.17

  	
   

  	
  HSR Act

  	
   

  	
  47

  
	
  Section 7.18

  	
   

  	
  Additional Obligations
  and Performance Payments

  	
   

  	
  48

  
	
  ARTICLE VIII

  	
   

  	
  CONDITIONS TO CLOSING

  	
   

  	
  49

  
	
  Section 8.1

  	
   

  	
  Conditions to Each
  Party’s Obligations

  	
   

  	
  49

  
	
  Section 8.2

  	
   

  	
  Conditions to
  Obligations of the Parent

  	
   

  	
  49

  
	
  Section 8.3

  	
   

  	
  Conditions to
  Obligations of the Shareholders

  	
   

  	
  50

  
	
  ARTICLE IX

  	
   

  	
  CLOSING

  	
   

  	
  52

  

 

 iv
 

 

	
  Section 9.1

  	
   

  	
  Closing Location

  	
   

  	
  52

  
	
  Section 9.2

  	
   

  	
  Company and Shareholder
  Closing Deliveries

  	
   

  	
  52

  
	
  Section 9.3

  	
   

  	
  Parent Closing
  Deliveries

  	
   

  	
  52

  
	
  ARTICLE X

  	
   

  	
  TERMINATION

  	
   

  	
  53

  
	
  Section 10.1

  	
   

  	
  Termination

  	
   

  	
  53

  
	
  Section 10.2

  	
   

  	
  Specific Performance
  and Other Remedies

  	
   

  	
  53

  
	
  Section 10.3

  	
   

  	
  Effect of Termination

  	
   

  	
  54

  
	
  ARTICLE XI

  	
   

  	
  INDEMNIFICATION

  	
   

  	
  54

  
	
  Section 11.1

  	
   

  	
  Indemnification
  Obligations of the Key Shareholders and the Company

  	
   

  	
  54

  
	
  Section 11.2

  	
   

  	
  Indemnification
  Obligations of Shareholders

  	
   

  	
  54

  
	
  Section 11.3

  	
   

  	
  Indemnification
  Obligations of the Parent

  	
   

  	
  55

  
	
  Section 11.4

  	
   

  	
  Indemnification
  Exclusive Remedy

  	
   

  	
  55

  
	
  Section 11.5

  	
   

  	
  Indemnification
  Procedure

  	
   

  	
  55

  
	
  Section 11.6

  	
   

  	
  Survival Period

  	
   

  	
  57

  
	
  Section 11.7

  	
   

  	
  Liability Limits

  	
   

  	
  57

  
	
  Section 11.8

  	
   

  	
  Investigations

  	
   

  	
  58

  
	
  Section 11.9

  	
   

  	
  Calculation of Losses

  	
   

  	
  58

  
	
  ARTICLE XII

  	
   

  	
  MISCELLANEOUS
  PROVISIONS

  	
   

  	
  58

  
	
  Section 12.1

  	
   

  	
  Shareholder
  Representative

  	
   

  	
  58

  
	
  Section 12.2

  	
   

  	
  Notices

  	
   

  	
  59

  
	
  Section 12.3

  	
   

  	
  Schedules and Exhibits

  	
   

  	
  60

  
	
  Section 12.4

  	
   

  	
  Assignment; Successors
  in Interest

  	
   

  	
  60

  

 

 v
 

 

	
  Section 12.5

  	
   

  	
  Captions

  	
   

  	
  60

  
	
  Section 12.6

  	
   

  	
  Controlling Law

  	
   

  	
  60

  
	
  Section 12.7

  	
   

  	
  Severability

  	
   

  	
  61

  
	
  Section 12.8

  	
   

  	
  Counterparts

  	
   

  	
  61

  
	
  Section 12.9

  	
   

  	
  No Third Party
  Beneficiaries

  	
   

  	
  61

  
	
  Section 12.10

  	
   

  	
  Waiver; Amendment

  	
   

  	
  61

  
	
  Section 12.11

  	
   

  	
  Integration

  	
   

  	
  61

  
	
  Section 12.12

  	
   

  	
  Interpretation

  	
   

  	
  61

  
	
  Section 12.13

  	
   

  	
  Cooperation Following
  the Closing

  	
   

  	
  61

  
	
  Section 12.14

  	
   

  	
  Transaction Costs

  	
   

  	
  62

  

 

 vi

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”),
dated as of April 24, 2007, is made and entered into by and among SCIELE
PHARMA, INC., a Delaware corporation (the “Parent”), SP ACQUISITION
CORP., a Georgia  corporation (the “Merger Sub”),
ALLIANT PHARMACEUTICALS, INC., a Georgia corporation (the “Company”),
the shareholders of the Company set forth on the signature pages hereto
(collectively the “Shareholders” and individually, a “Shareholder”),  and John N. Kapoor, Ph.D., as representative
of the Company and the Shareholders (the “Shareholder Representative”).

RECITALS

WHEREAS, the Company is engaged in the business of
marketing, selling and developing pharmaceutical products (the “Business”);

WHEREAS, the respective Boards of Directors of each of
Parent, Merger Sub and the Company have determined that it is advisable and in
the best interests of their respective corporations and their shareholders that
Merger Sub be merged with and into the Company in accordance with the Georgia
Business Corporation Code (the “GBCC”), and the terms of this Agreement,
pursuant to which the Company will be the surviving corporation and will remain
a wholly owned subsidiary of Parent (the “Merger”);

WHEREAS, prior to or concurrently with the execution
hereof, pursuant to the written consent of the Shareholders made in accordance
with Section 14-2-1103 of the GBCC, the requisite holders of the Company’s
issued and outstanding shares of voting and nonvoting common stock (the “Company
Common Stock”) have approved the Merger; and

WHEREAS, the parties desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.

NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants and agreements herein contained, and
upon and subject to the terms and the conditions hereinafter set forth, the
parties do hereby agree as follows:

ARTICLE I

DEFINITIONS

Section
1.1             Certain Definitions.  The following terms, as used herein, have
the  meanings set forth below:

“Affiliate” of any specified Person means any
other Person directly or indirectly Controlling or Controlled by or under
direct or indirect common Control with such specified Person.

“Alternative Arrangements” means, with respect
to any Losses, (i) any proceeds received or receivable from insurance policies
covering the damage, loss, liability or expense that is the subject of the
claim for indemnity, less any increase in premiums resulting from any such
insurance claim or (ii) any proceeds actually received from third parties,
through 

indemnification, counterclaim, reimbursement
arrangement, contract or otherwise in compensation for the subject matter of an
indemnification claim by such indemnitee.

“Applicable Benefit Laws” means all Laws applicable
to any Company Benefit Plan or ERISA Affiliate Plan.

“Business Day” means any day except Saturday,
Sunday or any day on which banks are generally not open for business in the
City of New York, New York.

“CERCLA” means the United States Comprehensive
Environmental Response, Compensation and Liability Act.

“Closing Date Indebtedness” means any
indebtedness of the Company with respect to borrowed money or other long term
indebtedness, including any interest accrued thereon and prepayment, change of
control or similar penalties and expenses, as of the Closing Date.

“Code” means the United States Internal Revenue
Code of 1986.

“Company Benefit Plan” means each Employee
Benefit Plan sponsored or maintained or required to be sponsored or maintained
at any time by the Company or to which the Company makes or has made, or has or
has had an obligation to make, contributions at any time, or with respect to
which the Company has any material liability or material obligation.

“Company Common Stock” means the shares of
common stock of the Company, no par value per share.

“Company Contracts” means those Contracts to
which the Company is a party.

“Company Intellectual Property” means any
Intellectual Property that is owned by or licensed to the Company.

“Company Licensed Software” means all Software
licensed to the Company, other than off the shelf software.

“Company Proprietary Software” means all
Software owned by the Company.

“Company Registered Intellectual Property”
means all of the Registered Intellectual Property owned by, filed in the name
of, or licensed to the Company.

“Company Software” means the Company Licensed
Software and the Company Proprietary Software.

“Company Stock Option” means any option to
acquire capital stock of the Company, including any such option granted under
any Company Benefit Plan.

 2
 

“Confidential Information” means any data or
information concerning the Company (including trade secrets), without regard to
form, regarding (for example and including) (a) business process models;
(b) proprietary software; (c) research, development, products, services,
marketing, selling, business plans, budgets, unpublished financial statements,
licenses, prices, costs, Contracts, suppliers, customers, and customer lists;
(d) the identity, skills and compensation of employees, contractors, and
consultants; (e) specialized training; and (f) discoveries, developments,
trade secrets, processes, formulas, data, lists, and all other works of
authorship, mask works, ideas, concepts, know-how, designs, and techniques,
whether or not any of the foregoing is or are patentable, copyrightable, or
registrable under any intellectual property Laws in the United States or
elsewhere.  Notwithstanding the
foregoing, no data or information constitutes “Confidential Information” if
such data or information is publicly known through means that do not involve a
breach by any Party of any covenant or obligation set forth in this Agreement.

“Contract” means any contract, sub-contract,
agreement, lease, license, commitment, sale and purchase order, note, loan
agreement or binding commitment or instrument, whether oral or written, to
which the Company is a party.

“Control” means, when used with respect to any
specified Person, the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by Contract or otherwise.

“Customer” means a customer of the Company that
paid the Company more than $50,000 in the aggregate during the 24-month period
ended December 31, 2006, or a customer that is expected to pay the Company more
than $50,000 in the aggregate during the twelve (12)-month period ended
December 31, 2007.

“Disclosure Schedules” means the Disclosure
Schedules delivered by the Company to Parent concurrently with the execution
and delivery of this Agreement.

“Employee Benefit Plan” means, with respect to
any Person, each plan, fund, program, agreement, arrangement or scheme,
including each plan, fund, program, agreement, arrangement or scheme maintained
or required to be maintained under applicable Laws, that is at any time
sponsored or maintained or required to be sponsored or maintained by such
Person or to which such Person makes or has made, or has or has had an
obligation to make, contributions providing benefits to the current and former
employees, directors, managers, officers, consultants, independent contractors,
contingent workers or leased employees of such Person or the dependents of any
of them (whether written or oral), including (a) each deferred compensation,
bonus, incentive compensation, pension, retirement, employee stock ownership,
stock purchase, stock option, profit sharing or deferred profit sharing, stock
appreciation, phantom stock plan and other equity compensation plan, “welfare”
plan (within the meaning of Section 3(1) of ERISA, determined without regard to
whether such plan is subject to ERISA), (b) each “pension” plan (within the
meaning of Section 3(2) of ERISA, determined without regard to whether such
plan is either subject to ERISA or is tax-qualified under the Code), (c)
each severance plan or agreement, and each other plan providing health,
vacation, supplemental unemployment benefit, hospitalization insurance,
medical, dental, disability, life insurance, death 

 3
 

or survivor benefits, fringe benefits or legal
benefits and (d) each other employee benefit plan, fund, program, agreement or
arrangement, but excluding any plan (y) the terms of which are contained
primarily in statutes, regulations or rulings of a Governmental Entity, or (z) the
funding of which is effected primarily through a trust or other funding vehicle
(including a book reserve account), maintained directly or indirectly by a
Governmental Entity.

“Employees” means all individuals employed by
the Company as of the date hereof.

“Employment Agreement” means any employment
contract, consulting agreement, termination or severance agreement, salary
continuation agreement, change of control agreement or any other Contract,
including offers for any of the above, respecting the terms and conditions of
employment or payment of compensation in respect to any current or former
officer or employee.

“Environmental Laws” means all Laws and common
law relating to pollution or protection of health, safety or the environment,
including the Federal Water Pollution Control Act (33 U.S.C. §1251 et seq.),
Resource Conservation and Recovery Act (42 U.S.C. §6901 et seq.), Safe Drinking
Water Act (42 U.S.C. §3000(f) et seq.), Toxic Substances Control Act (15 U.S.C.
§2601 et seq.), Clean Air Act (42 U.S.C. §7401 et seq.), Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. §9601 et
seq.) and other similar federal, state and local environmental statutes.

“Equity Plan” means the Alliant Pharmaceuticals
2006 Equity Incentive Plan, dated July 1, 2006, as amended.

“ERISA” means the United States Employee
Retirement Income Security Act of 1974, as amended and in effect from time to
time.

“ERISA Affiliate” means any Person that
together with the Company would be deemed a “single employer” within the
meaning of Section 414 of the Code.

“ERISA Affiliate Plan” means each Employee
Benefit Plan sponsored or maintained or required to be sponsored or maintained
at any time by any ERISA Affiliate, or to which such ERISA Affiliate makes or
has made, or has or has had an obligation to make, contributions at any time,
or with respect to which such ERISA Affiliate has any liability or obligation.

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

“Financial Statements” means (a) the audited
balance sheet of the Company as of December 31, 2005, and the audited
statements of income and cash flows of the Company for the year then ended, (b)
the unaudited balance sheet of the Company as of December 31, 2006, and the
unaudited statements of income and cash flow of the Company for the year then
ended, and (c) the unaudited balance sheet of the Company as of March 31, 2007,
and the unaudited statements of income and cash flow of the Company for the
quarter then ended.

 4
 

“FLSA” means the United States Fair Labor
Standards Act.

“FMLA” means the United States Family and
Medical Leave Act.

“GAAP” means United States generally accepted
accounting principles.

“GMPs” shall mean Good Manufacturing Practices,
Good Laboratory Practices and Good Clinical Practices as defined in Parts 11,
50, 54, 56, 210, 211, 312, 314, and 601 and of Title 21 of the Code of Federal
Regulations, as amended from time to time, or any successor thereto.

“Governmental Entity” means any
(i) nation, state, commonwealth, county, city, town, village, district, or
other jurisdiction of any nature, (ii) federal, state, local, municipal,
foreign, or other government, (iii) federal, state, local or foreign
governmental or quasi-governmental authority of any nature (including any agency,
branch, department, board, commission, court or tribunal, e.g. the FDA and
Office of Medical Policy, Division of Drug Marketing, Advertising, and
Communications), (iv) multi-national or supra-national organization
or body with jurisdiction over the Parties, (v) body exercising, or
entitled or purporting to exercise, any administrative, executive, judicial,
legislative, police, regulatory, or taxing authority or power, including any
court or arbitrator, (vi) self-regulatory organization to which a Party
has submitted or (vii) official of any of the foregoing.

“Hazardous Materials” means any pollutant,
chemical, substance and any toxic, infectious, carcinogenic, reactive,
corrosive, ignitable or flammable chemical, or chemical compound, or hazardous
substance, material or waste, whether solid, liquid or gas, that is subject to
regulation, control or remediation under any Environmental Laws, including any
quantity of friable asbestos, urea formaldehyde, polychlorinated biphenyls, radon gas, crude oil or any fraction thereof,
all forms of natural gas, petroleum products or by-products or derivatives.

“HSR Act” means the United States
Hart-Scott-Rodino Antitrust Improvements Act of 1976.

“Indemnified Party” means a Parent Indemnified
Party or a Shareholder Indemnified Party.

“Initial Working Capital Adjustment” means the
variance in the calculation of Net Working Capital between the Target Working
Capital and the Net Working Capital on the Initial Working Capital Schedule.

“Intellectual Property” means any or all of the
following and all rights, arising out of or associated therewith: (a) all
United States, international and foreign patents and applications therefor and
all reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (b) all inventions (whether patentable or
not), invention disclosures, improvements, proprietary information, know-how,
technology, technical data and customer lists, and all documentation relating
to any of the foregoing throughout the world; (c) all copyrights,
copyright registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (d) NDAs, (e) all internet
uniform resource locators, 

 5
 

domain names, trade names, logos, slogans, designs,
common law trademarks and service marks, trademark and service mark
registrations and applications therefor throughout the world; and (f) all
databases and data collections and all rights therein throughout the world.

“Key Shareholders” means Mark Pugh, Michael
Stresser, Arthur Deas, John N. Kapoor Trust dated 9/20/89, and Kapoor Children’s
1992 Trust.

“Knowledge” means, with respect to the Company,
(i) all facts known by Mark Pugh, Michael Stresser, William Bucher, and Arthur
Deas, following reasonable inquiry and diligence with respect to the matters at
hand, and (ii) the actual and specific knowledge of John N. Kapoor.

“Labor Laws” means all Laws governing or
concerning labor relations, unions and collective bargaining, conditions of
employment, employee classification, employment discrimination and harassment,
wages, hours or occupational safety and health, including (as amended and as in
effect from time to time) ERISA, the United States Immigration Reform and
Control Act of 1986, the United States National Labor Relations Act, the United
States Civil Rights Acts of 1866 and 1964, the United States Equal Pay Act,
United States Age Discrimination in Employment Act, United States Americans
with Disabilities Act, FMLA, WARN, OSHA, the United States Davis Bacon Act, the
United States Walsh-Healy Act, the United States Service Contract Act, United
States Executive Order 11246, FLSA and the United States Rehabilitation Act of
1973.

“Laws” means all laws,
statutes, common law, rules, codes, regulations (including, without limitation,
GMPs), restrictions, ordinances, orders, decrees, approvals, directives,
judgments, rulings, injunctions, writs and awards of, or issued or entered by,
all Governmental Entities.

“Leased Real Property” means the parcels of
real property of which the Company is the lessee or sublessee (together with
all fixtures and improvements thereon).

“Licenses” means all notifications, licenses,
permits (including environmental, construction and operation permits),
franchises, certificates, approvals, exemptions, classifications, registrations
and other similar documents and authorizations issued by any Governmental
Entity, and applications therefor.

“Liens” means all mortgages, liens, pledges,
security interests, charges, claims, restrictions and encumbrances of any
nature whatsoever.

“Loss” or “Losses” shall mean any and
all claims, obligations, losses, liabilities, 
fines, costs, damages, penalties and expenses (including amounts paid in
settlement, costs of investigation and reasonable attorneys’ fees and expenses),
but not including speculative, punitive, indirect, incidental, or consequential
damages or damages relating to business interruption or lost profits (even if
advised of the possibility thereof) (collectively, “Extraordinary Damages”)
except to the extent such Extraordinary 
Damages are paid or payable 

 6
 

to third parties. 
All Losses shall be net of any other recoveries realized by an
indemnitee and its Affiliates pursuant to Alternative Arrangements.

“Material Adverse Effect” means any change,
event, effect or occurrence after the date hereof (when taken together with all
other changes, events, effects or occurrences after the date hereof) that has
had or is reasonably likely to have a materially adverse effect on the
financial condition, results of operations, assets or liabilities (including
contingent liabilities) of the Company. 
A Material Adverse Effect shall also include any change, event or
occurrence that shall have occurred that (when taken together with all other
states of facts, changes, events, effects or occurrences that have occurred)
has prevented the performance by the Company or the Shareholders of their
obligations hereunder or the consummation of the transactions contemplated
hereby.  Notwithstanding the foregoing,
in determining whether there has been a Material Adverse Effect, any adverse
change, event, effect or occurrence principally attributable to any of the
following shall be disregarded:  (i)
general economic, business, industry or financial market conditions (whether in
the United States or internationally); (ii) the taking of any action required
or permitted by this Agreement or the Seller Ancillary Documents; (iii) the
announcement or pendency of the transactions contemplated hereby, (iv) the
breach of this Agreement or any Parent Ancillary Documents by Parent, (v) any
changes in accounting rules, including GAAP; or (vi) any adverse change in or
effect on the business of the Company that is cured by or on behalf of the
Company before the earlier of the Closing Date and termination of this
Agreement as set forth in Article IX.

“NDAs” means all new drug applications,
abbreviated new drug applications and other registrations and approvals of any
Governmental Entity associated with the sale of pharmaceutical products.

“Net Working Capital” means the current assets
of the Company less the current liabilities of the Company, as reflected
on the Working Capital Schedule prepared in accordance with GAAP, and to the
extent consistent therewith, on a basis consistent with the methodologies, practices,
estimation techniques, assumptions and principles of the Company, provided,
however, that “current liabilities” shall exclude (A) all amounts, fees
and expenses payable in accordance with Section 3.2(a) and including any
related accruals or reserves therefor, and (B) all income Tax obligations
and liabilities, including deferred income Tax items, and (C) Closing Date
Indebtedness.  An example of the Net
Working Capital calculated from the Company’s December 31, 2006 balance sheet
is attached hereto as Schedule 1.1.

“Noncompete Business” means pharmaceutical
products for the following therapeutic classes and/or treatment indications, as
applicable: reduction of inflammation treated by prednisolone-based products;
short-acting treatment of attention deficit/hyperactivity disorder (ADHD);
pediculosis; and congestion and cough resulting from allergy and the common
cold.

“Noncompete Period” means the period beginning
on the Closing Date and continuing for a period of three (3) years from the
Closing Date.

“Option Releases” has the meaning set forth in
Section 7.8(a).

 7
 

“OSHA” means the United States Occupational
Safety and Health Administration.

“Party” or “Parties” means,
individually, the Parent, the Company, each Shareholder and the Shareholder
Representative and, collectively, the Parent, the Company, the Shareholders and
the Shareholder Representative.

“Permitted Liens” means (a) Liens for
Taxes not yet due and payable or being contested in good faith, (b) Liens
of carriers, warehousemen, mechanics, materialmen and repairmen incurred in the
ordinary course of business consistent with past practice and not yet
delinquent, and (c) Liens on assets which are leased and Intellectual Property
which is licensed.

“Person” means any individual, corporation, partnership,
joint venture, limited liability company, trust, unincorporated organization or
Governmental Entity.

“Product” means the Company’s proprietary
pharmaceutical product Rondec-DM.

“Parent Ancillary Documents” means any
certificate, agreement, document or other instrument, other than this
Agreement, to be executed and delivered by the Parent in connection with the
transactions contemplated hereby, including, without limitation, the Escrow
Agreement.

“Parent Indemnified Parties” means the Parent
and its Affiliates (including, after the Closing, the Company), their
respective officers, directors, employees, agents and representatives and the
heirs, executors, successors and assigns of any of the foregoing.

“Pro Rata Share” means the percentage of
Company Common Stock held by a Shareholder in the Company as of the Closing
Date.

“Receivables” means the Company’s accounts
receivable, notes receivable and other receivables as of the close of business
on the Closing Date.

“Reference Balance Sheet” means the audited
balance sheet of the Company at December 31, 2006.

“Registered Intellectual Property” means all
United States and international: (a) patents and patent applications
(including provisional applications); (b) registered trademarks and
service marks, applications to register trademarks and service marks,
intent-to-use applications, or other registrations or applications related to
trademarks and service marks; (c) registered copyrights and applications
for copyright registration; (d) domain name registrations; (e) NDAs, and
(f) any other Intellectual Property that is the subject of an application,
certificate, filing, registration or other document issued, filed with or
recorded with any Governmental Entity.

“Release” means, with respect to any Hazardous Material,
any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or 

 8
 

disposing into any surface or ground water, drinking
water supply, soil, surface or subsurface strata or medium or the ambient air.

“Seller Ancillary Documents” means any
certificate, agreement, document or other instrument, other than this
Agreement, to be executed and delivered by the Company, the Shareholders or any
Affiliate of the Shareholders in connection with the transactions contemplated
hereby, including, without limitation the Escrow Agreement.

“Shareholder Indemnified Parties” means the
Shareholders and their respective heirs, executors, successors and assigns.

“Software” means any computer software program,
together with any error corrections, updates, modifications or enhancements
thereto, in both machine-readable form and human-readable form, including all
comments and any procedural code.

“Supplier” means any supplier of goods or
services to which the Company paid more than $50,000 in the aggregate during
the 24-month period ended December 31, 2006, or expects to pay more than
$50,000 in the aggregate during the twelve (12)-month period ended
December 31, 2007.

“Target Working Capital” means an amount equal
to negative $6,500,000.

“Tax” or “Taxes” means all taxes,
assessments, duties, fees, levies and other charges of a Governmental Entity,
including income, franchise, capital stock, real property, personal property,
tangible, withholding, employment, payroll, social security, social
contribution, unemployment compensation, disability, transfer, sales, use,
excise, gross receipts, value-added and all other taxes of any kind for which
the Company or the Parent may have any liability imposed by any Governmental
Entity, whether disputed or not, and any related charges, interest or penalties
imposed by any Governmental Entity.

“Tax Return” means any report, return,
declaration or other information statement relating to Taxes required to be
supplied to a Governmental Entity, including any schedule or attachment
thereto, and including any amendment thereof.

“Termination Date” means the date prior to the
Closing when this Agreement is terminated in accordance with Article X.

“Territory” means the United States.

“Treasury Regulations”
means the temporary and final income tax regulations, promulgated under the
Code.

“WARN” means the United States Worker
Adjustment and Retraining Notification Act, as amended and as in effect from
time to time.

 9
 

“Working Capital Schedule” means a statement of
the current assets of the Company and the current liabilities of the Company as
of the close of business on the Closing Date.

Section
1.2             Other Definitions.  Terms not defined in Section 1.1 shall have
the meaning ascribed in the body of this Agreement.  All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.

ARTICLE II

THE MERGER

Section
2.1             The Merger.  Upon the terms and subject to the conditions
hereof, and in accordance with the GBCC, at the Effective Time, (a) Merger Sub
shall be merged with and into the Company, (b) the separate corporate existence
of Merger Sub shall cease, and (c) the Company shall continue as the surviving
corporation (the “Surviving Corporation”) in the Merger under the laws
of the State of Georgia.

Section
2.2             Time and Place of
Closing.  Subject to the terms and
conditions of this Agreement, the Closing of the transactions contemplated by
this Agreement (the “Closing”) shall take place at 10:00 a.m. local time
on (a) the third business day following the date on which all of the conditions
to the obligations of the parties set forth in Article VIII have
been satisfied or waived as provided therein, or (b) at such other time, date
or place as the Company and Parent may agree in writing.  The date on which the Closing occurs is
referred to herein as the “Closing Date.”

Section
2.3             Effective Time.  Simultaneously with the Closing, the parties
hereto shall file a certificate of merger (or other appropriate documentation)
with the Georgia  Secretary of State in such form
as required by, and executed in accordance with, the relevant provisions of the
GBCC  and acceptable to the parties hereto
(the “Certificate  of Merger”).  The Merger shall become effective at the time
of filing of the Certificate of Merger, or at such later time which the parties
hereto shall have agreed upon and designated in such filing  as
the effective time of the Merger (the “Effective Time”).

Section
2.4               Effects of Merger.  The Merger shall, from and after the
Effective Time, have the effects set forth in the GBCC.  Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the properties,
rights, privileges, powers, immunities and franchises of the Merger Sub and the
Company shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Merger Sub and the Company shall become the debts, liabilities
and duties of the Surviving Corporation. 
If at any time after the Effective Time, any further action is deemed
necessary or desirable to carry out the purposes of this Agreement, the parties
hereto agree that the Surviving Corporation and its proper officers and
directors shall be authorized to take, and shall take, any and all such action.

Section
2.5             Articles of Incorporation
and Bylaws.  At the Effective Time,
the Articles of Incorporation and the Bylaws of the Company shall become the
Articles of Incorporation and the Bylaws of the Surviving Corporation.

 10

 

Section
2.6             Directors.  The directors of Merger Sub shall be the
directors of the Surviving Corporation until their earlier death, resignation
or removal in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation.

Section
2.7             Officers.  The officers
of Merger Sub shall be the officers of the Surviving Corporation until their
earlier death, resignation or removal in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation.

Section
2.8             Name.  The name of the Surviving Corporation shall
be Alliant Pharmaceuticals, Inc.

ARTICLE III

MERGER CONSIDERATION; ADJUSTMENTS

Section
3.1             Conversion of Company
Common Stock.  At the Effective Time,
by virtue of the Merger and without any further action on the part of the
Parent, Merger Sub, the Company or the Shareholders, all issued and outstanding
shares of the Company Common Stock and any other equity security of the Company
(including preferred stock, options, warrants or debt convertible into stock,
options or warrants) shall be cancelled and retired and shall cease to exist,
and shall be converted into the right to receive, cash in an amount equal to
$122,250,000 (the “Merger Payment”), subject to adjustment as provided
in Section 3.2 hereof (as so adjusted, the “Adjusted Merger Payment”).

Section
3.2             Adjusted Merger Payment.  At the Effective Time, the Parent shall pay
or cause to be paid to the Shareholder Representative the Merger Payment (for
distribution to each Shareholder based on such Shareholder’s Pro Rata Share):

(a)           minus the amount, if any, of
the Closing Date Indebtedness, as set forth in the Closing Date Indebtedness
Statement;

(b)           minus an amount equal to
$12,500,000 (the “Escrow Amount”) deposited with LaSalle Bank (the “Escrow
Agent”), to be held in escrow as further provided in Section 3.6 below;

(c)           minus the amounts payable to
the holders of Company Stock Options in accordance with the provisions of
Section 3.5 below; and

(d)           plus or minus any Initial
Working Capital Adjustment in accordance with the provisions of Section 3.7
below; provided, however, that any positive Working Capital Adjustment
hereunder shall be capped at an amount equal to $1,000,000.

Section 3.3             Distribution of Adjusted Merger
Payment.  At the Closing, the
Shareholders shall receive the Adjusted Merger Payment for the Company Common
Stock promptly upon surrender to Parent by the Shareholder Representative of
the certificate or certificates evidencing such outstanding Company Common
Stock, duly endorsed in blank or accompanied by duly executed stock transfer
powers.  In any event, notwithstanding
whether such certificates representing all of the Company Common Stock have
been so surrendered, (i) 

 11
 

no dividend payable to
holders of record of stock of the Surviving Corporation shall be paid to the
holder of such outstanding certificate of Company Common Stock and (ii) the
holder of such outstanding certificate of Company Common Stock shall not have
any voting or other rights in the Surviving Corporation.

Section
3.4             Statement of Closing
Date Indebtedness.  Not less than two (2) Business Days prior to the
Closing Date, the Company shall deliver to the Parent a statement (the “Closing
Date Indebtedness Statement”), signed by the Chief Financial Officer of the
Company, which sets forth, by creditor, the aggregate amount of the Closing
Date Indebtedness.  Copies of the Payoff
Letters, delivered in accordance with Section 8.2(f) hereof, shall be attached
to the Closing Date Indebtedness Statement.

Section
3.5             Treatment of Company
Stock Options.

(a)           At the Effective Time, by virtue of
the Merger and without any further action on the part of the Parent, Merger
Sub, the Company or the Shareholders, each Company Stock Option outstanding
immediately prior to the Effective Time shall be canceled and retired and shall
cease to exist, in exchange for a cash payment by the Company payable on such
date of an amount equal to (i) the excess, if any, of (A) $6.50 per share of
Company Common Stock over (B) the exercise price per share of Company Common
Stock subject to such Company Stock Option, multiplied by (ii) the number of
shares of Company Common Stock for which such Company Stock Option shall not
theretofore have been exercised.

(b)           All amounts payable pursuant to this
Section 3.5 shall be subject to any required withholding of Taxes and shall be
paid without interest.  The Company shall
use its commercially reasonable efforts to obtain all consents of the holders
of the Company Stock Options as shall be necessary to effectuate the foregoing.

(c)           The Company’s board of directors
shall, prior to the Effective Time, adopt such resolutions or take such other
actions as are required so that the Equity Plan shall terminate as of the
Effective Time, and the provisions in any other benefit plan providing for the
issuance, transfer or grant of any capital stock of the Company or any interest
in respect of any capital stock of the Company shall be deleted as of the
Effective Time, and to ensure that following the Effective Time no holder of a
Company Stock Option or any participant in any Company Benefit Plan shall have
any right thereunder to acquire any capital stock of the Company, the Surviving
Corporation or the Parent.

(d)           The Parties acknowledge that it shall
be a condition precedent to delivery of the cash payment contemplated by
subsection (a) above to any holder of Company Stock Options, that such holder
shall have delivered an Option Release, and Parent shall be entitled to
withhold payment to any such Company Stock Option holder until such Option Release
has been given.

Section
3.6             Escrow Amount.  The Escrow Amount shall be deposited with the
Escrow Agent into an interest-bearing escrow account.  The Escrow Agent shall hold the aggregate 

 12
 

Escrow Amount in
accordance with the terms and conditions of an escrow agreement, by and among
the Parent, the Shareholder Representative and the Escrow Agent, in
substantially the form attached hereto as Exhibit 3.6 (the “Escrow
Agreement”).  The Escrow Amount shall
remain in escrow following the Closing for disbursement in accordance with the
working capital adjustment set forth below and to cover any indemnification
claims of Parent, in each case in accordance with the terms of the Escrow
Agreement, until: (i) twelve (12) months from the Closing Date, at which time
50% of the remaining and undisputed balance of the Escrow Amount (inclusive of
any investment earnings thereon) shall be released to the Shareholder
Representative, and (ii) the remaining and undisputed balance of the Escrow
Amount (inclusive of any investment earnings thereon) shall be released to the
Shareholder Representative on the date which is eighteen (18) months from the
date of Closing (the “Escrow Termination Date”).

Section
3.7             Initial Working Capital
Adjustment.  At least four (4)
Business Days prior to the Closing Date, the Company shall deliver to the
Parent a certificate, executed by the Company, setting forth a good faith
calculation of its estimate of Net Working Capital (the “Initial Working
Capital Schedule”) and a determination of the Adjusted Merger Payment,
which shall be calculated in accordance with Section 3.2.  The Parent shall have the right to review and
comment upon such Initial Working Capital Schedule, and the Company shall
provide Parent and its representatives reasonable access to all books, records,
and employees of the Company for purposes consistent therewith.

Section
3.8             Payment.  All payments required under this Article III
or any other provision hereof shall be made in cash by wire transfer of
immediately available funds to such bank account as shall be designated in
writing by the Parent or the Shareholder Representative, as applicable.

Section 3.9             Post-Closing
Working Capital Adjustment.

(a)           Within ninety (90) days following the
Closing Date, the Parent shall prepare and deliver to the Shareholder
Representative a schedule (the “Parent Working Capital Schedule”)
setting forth its good faith calculation of the Net Working Capital.  The Parent Working Capital Schedule shall be
prepared in accordance with GAAP and the calculation of the Initial Working
Capital Schedule.

(b)           The Shareholder Representative shall
have thirty (30) days following receipt of the Parent Working Capital
Schedule delivered pursuant to Section 3.9(a) during which to notify the Parent
of any dispute of any item contained therein (the “Objection Notice”),
which notice shall set forth in reasonable detail the basis for such
dispute.  The Parent and the Shareholder
Representative shall cooperate in good faith to resolve any such dispute as
promptly as practicable, and upon such resolution, the Working Capital Schedule
shall be prepared in accordance with the agreement of the Parent and the
Shareholder Representative.  In the event
the Shareholder Representative does not notify the Parent of any such dispute
within such thirty (30)-day period or notifies the Parent within such period
that it does not dispute any item contained therein, the Parent Working Capital
Schedule delivered pursuant to Section 3.9(a) and the 

 13
 

Parent’s calculation of the Working Capital Schedule,
shall be final and binding upon the Parties.

(c)           In the event the Parent and the
Shareholder Representative are unable to resolve any dispute regarding the
Parent Working Capital Schedule delivered pursuant to Section 3.9(a)
within thirty (30) days following the Parent’s receipt of notice of such
dispute, such dispute shall be submitted to, and all issues having a bearing on
such dispute shall be resolved by BDO Seidman, LLP, a nationally recognized
accounting firm (the “Accounting Referee”).  Within fifteen (15) Business Days of the
selection of the Accounting Referee, both the Shareholder Representative and
Parent shall submit a calculation of Net Working Capital and any supporting
documentation to the Accounting Referee. 
Within twenty (20) Business Days of the timely receipt of the later of
such submissions, the Accounting Referee shall choose the one of the two
submissions that most accurately reflects what the actual Working Capital
Schedule should be and that submission shall establish the adjustment to the
Merger Payment.  If only one of the
parties makes a timely submission, then that submission shall establish the
adjustment to the Merger Payment.  The
Accounting Referee’s determination of the Working Capital Schedule (the “Final
Working Capital Schedule”) shall be final and binding on the Parties.  To the extent any facts and circumstances
that constitute a breach of any representation or warranty contained in Article
IV or V also constitute an adjustment that is reflected in the Final Working
Capital Schedule, the Parent shall not be entitled to an additional remedy
under Article XI to the extent of the adjustment in the Final Working Capital
Schedule. The fees, costs and expenses of the Accounting Referee shall be
shared equally by (A) the Shareholder Representative (on behalf of the
Shareholders) on the one hand and (B) the Parent on the other hand, which such
amount in the case of (A) shall be paid out of the Escrow Amount at the
direction of the Shareholder Representative.

(d)           If the Net Working Capital as finally
determined in the Final Working Capital Schedule pursuant to Section 3.9(c) is
greater than that reflected in the Initial Working Capital Schedule, then
Parent shall promptly (but in any event within five (5) Business Days of the
final determination thereof) pay to the Shareholder Representative such excess;
provided, however, that the total positive adjustment pursuant to this
subsection (d) and the Initial Working Capital Schedule delivered pursuant to
Section 3.7 shall not exceed $1,000,000 in the aggregate.  If the Net Working Capital as finally
determined in the Final Working Capital Schedule pursuant to Section 3.9(c)
above is less than the amount shown in the Initial Working Capital Schedule,
then the Shareholder Representative shall promptly (but in any event within
five (5) Business Days of the final determination thereof) cause to be paid to
the Parent from the Escrow Amount an amount equal to such shortfall in
accordance with Section 3.8.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF 

THE COMPANY

Except as set forth on the Disclosure Schedules, the
Company represents and warrants to the Parent and Merger Sub that, as of the
date hereof:

 14
 

Section
4.1             Organization.

(a)           The Company is a corporation duly
formed and validly existing under the Laws of the State of Georgia and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted.  The
Company is duly qualified or registered as a foreign corporation to transact
business under the Laws of each jurisdiction where the character of its
activities or the location of the properties owned or leased by it requires
such qualification or registration.  Schedule 4.1(a)
contains a true, correct and complete list of the jurisdictions in which the
Company is qualified or registered and in good standing to do business as a
foreign corporation.  The Company has
heretofore made available to the Parent true, correct and complete copies of
its articles of incorporation and bylaws as currently in effect and its
corporate record books with respect to actions taken by its shareholders and
board of directors

(b)           The Company does not own, directly or
indirectly, any capital stock or other equity, securities or interests in any
other corporation or in any limited liability company, partnership, joint
venture or other Person.

(c)           The authorized capital stock of the
Company consists of 40,000,000 shares of
common stock, no par value per share, of which: (i) 30,000,000 shares are
voting common stock, 15,172,452 of which are issued and outstanding, and
(ii) 10,000,000 shares are nonvoting common stock, 15,500 shares of which
are issued and outstanding.  Schedule
4.1(c) accurately and completely sets forth a list of the number and class
of shares of capital stock of the Company held by each of the Shareholders, who
collectively own all of the issued and outstanding shares of capital stock of
the Company.  All of the issued and
outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and non-assessable.  Each Shareholder has full and exclusive
power, right and authority to vote all of the shares of capital stock owned by
it, and no Shareholder is bound by any agreement affecting or relating to its
right to transfer or vote such shares. 
Except as set forth on Schedule 4.1(c), there are no
outstanding options, warrants, conversion rights, subscriptions or other rights
entitling any Person to acquire or receive, or requiring the Company to issue,
any shares of its capital stock or securities convertible into, or exchangeable
for, such shares of capital stock.  There
are no outstanding Contracts of the Company or any Shareholder or any other
Person to purchase, redeem, or otherwise acquire any of the shares of capital
stock of the Company or securities or obligations of any kind convertible into
any shares of capital stock of the Company. 
There are no dividends which have accrued or been declared but are
unpaid on the capital stock of the Company.

(d)           Except for the Business, the Company
is not engaged in any other business or commercial activity.

Section
4.2             Authorization.  The Company has full corporate power and
authority to execute and deliver this Agreement and the Seller Ancillary
Documents and to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby 

 15
 

and thereby.  The execution and delivery of this Agreement
and the Seller Ancillary Documents by the Company and the performance by the
Company of its obligations hereunder and thereunder and the consummation of the
transactions provided for herein and therein (including, without limitation,
the Merger) have been duly and validly authorized by all necessary corporate
action on the part of the Company.  This
Agreement has been, and the Seller Ancillary Documents shall be as of the
Closing Date, duly executed and delivered by the Company and do or shall, as
the case may be, constitute the valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect which affect
the enforcement of creditors’ rights generally and by equitable principles.

Section
4.3             Absence of Restrictions
and Conflicts.  The execution,
delivery and performance by the Company of this Agreement and the Seller
Ancillary Documents, as applicable, the consummation of the transactions
contemplated hereby and thereby and the fulfillment of and compliance with the
terms and conditions hereof and thereof do not or shall not (as the case may
be), with the passing of time or the giving of notice or both,
(a) contravene or conflict with any term or provision of the articles of
incorporation or bylaws of the Company, (b) except as indicated on Schedule
4.3, violate or conflict with, constitute a breach of or default under,
result in the loss of any benefit under, permit the acceleration of any
obligation under or create in any party the right to terminate, modify or
cancel any Contract to which the Company is a party, (c) contravene or
conflict with any judgment, decree or order of any Governmental Entity to which
the Company is a party or by which the Company or any of its properties are
bound, (d) contravene or conflict with any Law or arbitration award
applicable to the Company, or the Business, or (e) result in the creation
or imposition of any Lien on any property or asset of the Company.

Section
4.4             Required Consents.  Schedule 4.4 sets forth each action,
consent, approval, notification, waiver, authorization, order or filing (each,
a “Required Consent” and collectively, the “Required Consents”)
under any Law, License or Contract to which the Company is or any of the
Shareholders are a party that is necessary with respect to the execution,
delivery and performance of this Agreement or the Seller Ancillary Documents to
avoid a breach or violation of, or giving rise to any right of termination,
cancellation or acceleration of any right or obligation or to a loss of any
benefit under any such Law, License or Contract.  Except as may be required by the HSR Act or
as set forth on Schedule 4.4, no consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required with respect to the Company or any of the Shareholders in connection with the
execution, delivery or performance of this Agreement or the Seller Ancillary
Documents.

Section
4.5             Real Property.

(a)           The Company does not own any real
property.

(b)           Schedule 4.5(b) lists any
Leased Real Property.  Except as set
forth on Schedule 4.5(b) the leases with respect to the Leased Real
Property are in full force and effect and, subject to application of any
bankruptcy or creditor’s rights laws, are valid, 

 16
 

binding and enforceable against the parties thereto in
accordance with their respective terms. Copies of the leases with respect
thereto have been provided to Parent.

(c)           Except for the Permitted Liens, no
Leased Real Property is subject to any Liens arranged by or resulting from the
action or inaction of the Company, in favor of any Person.

(d)           Except as set forth on Schedule 4.5(d),
the improvements and fixtures on the Leased Real Property are in good operating
condition for the purposes for which they are presently being used and in a
state of reasonable maintenance and repair, ordinary wear and tear excepted,
and are reasonably adequate and suitable for the purposes for which they are presently
being used.  There is no condemnation,
expropriation or similar proceeding pending or, to the Knowledge of the
Company, threatened against any of the Leased Real Property or any improvement
thereon.  The Leased Real Property
constitutes all of the real property utilized by the Company.

Section
4.6             Personal Property.  All equipment and other items of tangible
personal property and assets of the Company (a) are free of defects and in good
operating condition for the purposes for which they are presently being used
and in a state of reasonable maintenance and repair, ordinary wear and tear
excepted and (b) were acquired and are usable in the regular and ordinary
course of business.  Except for laptop
computers provided to employees, inventory, and as set forth on Schedule 4.5(d),
all tangible personal property and assets of the Company (whether owned, leased
or licensed) are located at the Leased Real Property.  No Person other than the Company owns any
equipment or other tangible personal property or asset that is necessary to the
operation of the Business, except for the leased equipment, property or assets
listed on Schedule 4.6(1) and such equipment, property or assets
which is licensed.  Schedule 4.6(2)
sets forth a true, correct and complete list and general description of each
item of tangible personal property of the Company having a book value of more
than $15,000.

Section
4.7             Title to Assets.

(a)           Except as set forth on Schedule
4.7(a), there are no assets, properties or rights (whether real, personal
or mixed and whether tangible or intangible), that are owned by the Company
that are not related to or used in the Business.

(b)           Except as set forth on Schedule
4.7(b), the Company has good title to or, in the case of the Leased Real
Property or leased personal property, valid leasehold interests in, its
properties and assets, free and clear of all Liens except Permitted Liens.

Section
4.8             Inventory.  The Company’s inventory consists of finished
goods and work-in-process manufactured, packaged and stored in compliance with
all applicable Laws (including any applicable NDA and requirements of any
Governmental Entity associated with product dating), and is valued on the books
and records of the Company at the lower of cost or market with the cost determined
under the first-in-first-out inventory valuation method consistent with past
practice.  The quantity of inventory held
by the Company, in the aggregate, is adequate to meet the presently outstanding
order fulfillment obligations of Company for a period of not 

 17
 

less than four months nor
more than six months following the Closing. 
The Company does not have more than six weeks worth of inventory in
stock at the wholesaler level (i.e. “in the trade”).  No previously sold inventory is subject to
returns in excess of those historically experienced by the Company.  A true and accurate schedule of inventory,
together with expiration dates for each of the inventory lots included therein,
will be attached hereto as Schedule 4.8 at the Closing.

Section
4.9             Financial Statements.  Schedule 4.9 contains the Financial
Statements.  The Financial Statements are
in conformity with GAAP and have been prepared from, and are in accordance
with, the books and records of the Company, which books and records have been
maintained on a basis consistent with the past practice of the Company.  Each balance sheet included in the Financial
Statements (including the related notes and schedules) fairly presents in all
material respects the financial position of the Company as of the date of such
balance sheet, and each statement of income and cash flows included in the
Financial Statements (including the related notes and schedules) fairly
presents in all material respects, the results of operations and cash flows, as
the case may be, of the Company for the periods set forth therein; provided,
however, that any Financial Statements that are not as of and for a year ended
December 31 are subject to normal year-end adjustments and lack footnotes and
other presentation items.  Since December
31, 2006, there has been no material change in any accounting policy, practice
or procedure of the Company.  The Company
maintains accurate books and records reflecting its assets, liabilities,
revenues and expenses.

Section
4.10           No Undisclosed
Liabilities.  There are no
liabilities of the Company of the nature required to be reflected as a
liability on a balance sheet prepared in accordance with GAAP or in the
footnotes thereto, except for:

(a)           liabilities and obligations fully
reflected or reserved against in the Reference Balance Sheet; and

(b)           liabilities and obligations incurred
in the ordinary course of business, consistent with past practice, since the
date of the Reference Balance Sheet.

Section
4.11           Absence of Certain
Changes.  Except to the extent
arising out of or relating to the transactions contemplated by this Agreement
or as set forth on Schedule 4.11, since the date of the Reference Balance Sheet, there has not been
(a) any Material Adverse Effect, (b) any damage, destruction, loss or
casualty to property or assets with a value in excess of $15,000 not covered by
insurance, (c) any sale, transfer or disposition of any properties or
assets, other than sales of inventory in the ordinary course of business,
consistent with past practice, or (d) any action taken of the type
described in Section 7.1, that, had such action occurred following the date
hereof without the Parent’s prior approval, would be in violation of such
Section 7.1.

Section
4.12           Legal Proceedings.  Except as set forth on Schedule 4.12,
there is no suit, action, claim, arbitration, proceeding or investigation
pending or, to the Knowledge of the Company, threatened against the Company
before any Governmental Entity.  No suit,
action, claim, proceeding or investigation pending or, to the Knowledge of the
Company, threatened against the Company before any Governmental Entity
(including any of those set forth on 

 18
 

Schedule 4.12),
if finally determined adversely, is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect. 
Except as set forth on Schedule 4.12, the Company is not subject
to any judgment, decree, injunction, rule or order of any court or arbitration
panel

Section
4.13           Compliance with Law.  Except as set forth on Schedule 4.13,
the Company is (and has been at all times during the past five (5) years) in
compliance with all applicable Laws (including applicable Laws relating to
zoning and the safety and health of employees, but excluding applicable
Environmental Laws, as to which the Company’s sole representations and
warranties are set forth in Section 4.20, and Laws relating to Taxes, Company
Benefit Plans and employment matters, as to which Seller’s sole representations
and warranties are set forth in Section 4.15, Section 4.17 and Section 4.18,
respectively).  Except as set forth on Schedule
4.13, the Company (a) has not been charged with, and the Company has not
received any written notice that it is under investigation with respect to,
and, to the Knowledge of the Company, is not otherwise now under investigation
with respect to, a violation of any applicable Law, (b) is not a party to,
or bound by, any order, judgment, decree, injunction, rule or award of any
Governmental Entity and (c) has filed all reports and has all Licenses required
to be filed with any Governmental Entity on or prior to the date hereof. The
Company has provided to Parent complete and accurate copies of all material
written communications to or from any Governmental Entity and associated with
the Company’s products, including, without limitation, any written
communication to or from the FDA or the Office of Medical Policy, Division of
Drug Marketing, Advertising, and Communications.  The Company has not made any material false
statements on, or omissions from, the applications, approvals, reports and
other submissions to any Governmental Entity. 
The Company has not received any communication, written or oral, from
any Governmental Entity indicating that any of its products are misbranded or
adulterated as defined in the U.S. Food, Drug & Cosmetic Act, 21 U.S.C.
321, et seq., as amended, and the rules and regulations promulgated thereunder,
or any other similar Law.  Except as set
forth on Schedule 4.13, no products of the Company have been recalled,
suspended or discontinued as a result of any action by any Governmental Entity,
or to the Knowledge of the Company, any licensee, distributor or marketer of
such products.  The Company is not in
receipt of notice of, and is not subject to, any adverse inspection, finding of
deficiency, finding of non-compliance, compelled or voluntary recall,
investigation, penalty for corrective or remedial action or other compliance or
enforcement action, in each case relating to its products or to the facilities
in which such products are manufactured, collected or handled.  Neither the Company nor, to the Knowledge of
the Company, any officer, employee or agent of the Company has been convicted
of any crime or engaged in any conduct that would reasonably be expected to
result in (i) debarment under 21 U.S.C. Section 335(a) or any similar Law, or
(ii) exclusion under 42 U.S.C. Section 1320(a)(7) or any similar Law.

Section
4.14           Contracts.  Each correspondingly lettered section of Schedule
4.14 sets forth a true, correct and complete list of the following
Contracts currently in force, or under which the Company has continuing
liabilities and/or obligations, related to the Business (other than the Company
Benefit Plans set forth on Schedule 4.17 and the insurance policies on Schedule
4.19) (collectively, the “Material Contracts”):

 19
 

(a)           bonds, debentures, notes, credit or
loan agreements or loan commitments, mortgages, indentures, guarantees or other
Contracts relating to the borrowing of money or the deferred purchase price of
property or binding upon any properties or assets (real, personal or mixed,
tangible or intangible);

(b)           Contracts of an amount in excess of
$25,000 that were not entered into in the ordinary course of business,
consistent with past practice;

(c)           leases relating to the Leased Real
Property, leases of any personal property and all other Contracts involving any
properties or assets (whether real, personal or mixed, tangible or intangible),
involving an annual commitment or payment of or performance having a value of
more than $25,000 by the Company;

(d)           Contracts that (i) limit or restrict
the Company or any officers, directors, employees, shareholders or other equity
holders, agents or representatives of the Company (in their capacity as such)
from engaging in any business or other activity in any jurisdiction, (ii)
create or purport to create any exclusive or preferential relationship or
arrangement, (iii) otherwise restrict or limit the Company’s ability to operate
or expand the Business, or (iv) impose, or purport to impose, any obligations
or restrictions on Affiliates of the Company with respect to the Shares;

(e)           Contracts for capital expenditures or
the acquisition or construction of fixed assets requiring the payment by the
Company of an amount in excess of $25,000;

(f)            Contracts that provide for any payment or benefit upon the
execution hereof or the Closing or in connection with the transactions
contemplated hereby, including accelerated vesting or other similar rights;

(g)           Contracts granting any Person a Lien
on all or any part of any properties or assets of the Company;

(h)           Contracts for the cleanup, abatement
or other actions in connection with any Hazardous Materials, the remediation of
any existing environmental condition or relating to the performance of any
environmental audit or study;

(i)            Contracts granting to any Person an
option or a right of first refusal, first-offer or similar preferential right
to purchase or acquire any assets of the Company;

(j)            Contracts with any agent,
distributor or representative that is not terminable without penalty on thirty
(30) days or less notice;

(k)           Contracts for the granting or
receiving of a license, sublicense or franchise or under which any Person is
obligated to pay or has the right to receive a royalty, license fee, franchise
fee or similar payment;

(l)            Contracts (i) with respect to
Company Intellectual Property licensed or transferred to any third party (other
than end user Licenses in the ordinary course of 

 20
 

business) or (ii) pursuant to which a third party has
licensed or transferred any Company Intellectual Property to the Company;

(m)          Contracts providing for the
indemnification or holding harmless by the Company of any officer, director,
employee or other Person;

(n)           Joint venture or partnership
Contracts or Contracts entitling any Person to any profits, revenues or cash
flows of the Company or requiring payments or other distributions based on such
profits, revenues or cash flows;

(o)           Contracts with Customers or
Suppliers;

(p)           Outstanding powers of attorney
empowering any Person to act on behalf of the Company;

(q)           Contracts with any Governmental
Entity;

(r)            Employment Agreements;

(s)           Contracts with any independent
contractor or consultant which involve annual payment in excess of $25,000; and

(t)            Contracts (other than those
described in subsections (a) through (s) of this Section 4.14) to which the
Company is a party or by which its properties or assets are bound (i) involving
an annual commitment or annual payment to or from the Company of more than $25,000 individually or (ii) that are
material to the Company, individually or in the aggregate.

True, correct and complete copies of all Material Contracts have been
provided to the Parent.  The Material
Contracts are legal, valid, binding and enforceable in accordance with their
respective terms with respect to the Company, except as such enforceability may
be limited by applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws in effect which affect the enforcement of creditors’ rights
generally and by equitable principles and, to the Knowledge of the Company,
each other party thereto.  There is no
existing default or breach of the Company under any Material Contract (or event
or condition that, with notice or lapse of time or both could constitute a
default or breach) and, to the Knowledge of the Company, there is no such
default (or event or condition that, with notice or lapse of time or both,
could constitute a default or breach) with respect to any third party to any
Material Contract.  There is no term, obligation,
understanding or agreement that would modify any term of a Material Contract or
any right or obligation of a party thereunder which is not reflected on the
face of such Material Contract.  The
Company is not participating in any discussions or negotiations regarding
modification of or amendment to any Material Contract in a manner that would be
adverse to the Company, or entry in any new Material Contract.

Section
4.15           Tax Returns; Taxes.  Except as set forth on Schedule 4.15:

 

 21

(a)           All Tax Returns due to have been
filed by the Company through the date hereof in accordance with all applicable
Laws (pursuant to an extension of time or otherwise) have been duly filed and
are true, correct and complete in all respects.

(b)           All Taxes for which the Company has
liability through the date hereof (whether or not shown on any Tax Return) have
been paid in full or are accrued as liabilities for Taxes on the books and
records of the Company.

(c)           There are not now any extensions of
time in effect with respect to the dates on which any Tax Returns were or are
due to be filed by the Company.

(d)           All Tax deficiencies asserted as a
result of any examination by a Governmental Entity of a Tax Return of the
Company have been paid in full, accrued on the books of the Company or finally
settled, and no issue has been raised in any such examination that, by
application of the same or similar principles, reasonably could be expected to
result in a proposed Tax deficiency for any other period not so examined.

(e)           No claims have been asserted and no
proposals or deficiencies for any Taxes of the Company are being asserted,
proposed or, to the Knowledge of the Company, threatened, and no audit or
investigation of any Tax Return of the Company is currently underway, pending
or, to the Knowledge of the Company, threatened.

(f)            No written claim has ever been made
against the Company by any Governmental Entity in a jurisdiction where the
Company does not file Tax Returns that the Company is or may be subject to taxation
in such jurisdiction.

(g)           The Company has withheld and paid all
Taxes required to have been paid by it in connection with amounts paid or owing
to any employee, independent contractor, creditor or shareholder thereof or
other third party.

(h)           There are no outstanding waivers or
agreements between any Governmental Entity and the Company for the extension of
time for the assessment of any Taxes or deficiency thereof, nor are there any
requests for rulings, outstanding subpoenas or requests for information,
notices of proposed reassessment of any property owned or leased by the Company
or any other Tax related matter pending between the Company and any
Governmental Entity.

(i)            Other than Permitted Liens, there
are no Liens for Taxes with respect to the Company or the assets or properties
of the Company, nor is there any such Lien that is pending or, to the Knowledge
of the Company, threatened.

(j)            The Company is not a party to or
bound by any Tax allocation or sharing agreement.

(k)           The Company has not been a member of
an “affiliated group” of corporations (within the meaning of Code
Section 1504 of the Code) filing a consolidated 

 22
 

federal income tax return (other than a group the
common parent of which was the Company).

(l)            The Company does not have any liability
for the Taxes of any Person (other than for itself) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign Tax law),
as a transferee or successor, by contract or otherwise.

(m)          None of the Tax Returns described in
Subsection (a) of this Section 4.15 contains any position which is or would be
subject to penalties under Section 6662 of the Code (or any similar provision
of provincial, state, local or foreign Tax law) and the Treasury Regulations
issued thereunder.

(n)           The Company has not made any
payments, is not obligated to make any payments, and is not a party to any
contract, plan or arrangement that obligates it to make any payments of (1) any
amounts that will be “excess parachute payments” under Section 280G of the Code
(or any corresponding provision of state, local or foreign Tax law), (2) any
amount that would trigger any excise tax under Section 4999 of the Code, and
(3) any amount that will not be fully deductible as a result of Section 162(m)
of the Code (or any corresponding provision of state, local or foreign Tax
law);

(o)           The Company has not been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code.

(p)           There is currently no limitation on
the utilization of the net operating losses, built-in losses, capital losses,
Tax credits or other similar items of the Company under Sections 382, 383, 384
or 1502 of the Code and Treasury Regulations promulgated thereunder.

(q)           The Company is currently, and has
been since January 1, 2004 a valid “S corporation” within the meaning of
Section 1361(a) of the Code (and will be up to the Closing Date), and no
Governmental Entity has challenged, or is challenging, the S election of the
Company.

(r)            The Company is, and has at all times
been, in compliance with the provisions of Section 6011, 6111 and 6112 of the
Code relating to tax shelter disclosure, registration and list maintenance and
with the Treasury Regulations thereunder.

(s)           The Company has not at any time,
engaged in or entered into a “listed transaction” within the meaning of
Treasury Regulation Sections 1.6011-4(b)(2), 301.6111-2(b)(2) or
301.6112-1(b)(2)(A), and no IRS Form 8886 has been filed with respect to the
Company nor has the Company entered into any tax shelter or listed transaction
with the sole or dominant purpose of the avoidance or reduction of a Tax
liability with respect to which there is a significant risk of challenge of
such transaction by a Governmental Entity.

 23
 

(t)            The Company has not, directly or
indirectly, transferred property to or acquired property from a Person with
whom it was not dealing at arm’s length for consideration other than
consideration equal to the fair market value of the property at the time of the
disposition or acquisition thereof.

(u)           The Company will not be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any Tax period after the Closing Date as a result of any (i) change
in method of accounting for a Tax period ending on or prior to the Closing
Date; (ii) “closing agreement” as described in Section 7121 of the Code (or any
corresponding or similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; (iii) any installment sale or open
transaction disposition made on or prior to the Closing Date; or (iv) prepaid
amount received on or prior to the Closing Date.

Section
4.16           Officers, Employees and
Independent Contractors.  Schedule
4.16 contains a true, correct and complete list of (a) all of the officers
of the Company, specifying their position, annual rate of compensation, date of
hire, work location, and length of service, (b) all of the employees (whether
full-time, part-time or otherwise) of the Company as of the date hereof,
specifying their position, annual salary and other compensation, hourly wages,
date of hire, work location, and length of service, and (c) all of the
independent contractors used by the Company within the one-year period
preceding the Closing Date whose fees from the Company during that period
exceeded $25,000, specifying the name of the independent contractor, type of
labor, fees paid to such independent contractor for the prior 12 months, work location and address.  All Persons classified by the Company as
independent contractors have been properly classified in accordance with all
applicable Laws and no such Person is eligible to participate in any Company
Benefit Plan or would be eligible to participate if the Company’s
classification of such Person as an independent contractor is subsequently
determined to be incorrect.  Neither the
Company nor the Shareholders have received a claim from any Governmental Entity
to the effect that the Company has improperly classified any Person as an
independent contractor, nor to the Knowledge of the Company has any such claim
been threatened.  Neither the Company nor
the Shareholders have made any verbal commitments to any officer, employee, former
employee, consultant or independent contractor of the Company with respect to
compensation, promotion, retention, termination, severance or similar matters
in connection with the transactions contemplated hereby or otherwise.  The Company has heretofore delivered to the
Parent true, correct and complete copies of each employee handbook applicable
to employees of the Company.

Section
4.17           Company Benefit Plans.

(a)           Schedule 4.17(a) contains a
true, correct and complete list of each Company Benefit Plan and ERISA
Affiliate Plan.  Any special tax status
or tax benefits for plan participants enjoyed or offered by a Company Benefit
Plan or ERISA Affiliate Plan is noted on such schedule.

(b)           With respect to each Company Benefit
Plan and ERISA Affiliate Plan identified on Schedule 4.17(a), the
Company has heretofore delivered to the Parent true, 

 24
 

correct and complete copies of the plan documents and
any amendments thereto (or, in the event the plan is not written, a written
description thereof), any related trust, insurance contract or other funding
vehicle, any summary plan descriptions, summaries of material modifications or
prospectuses reports or summaries required under all applicable Laws, including
ERISA or the Code, the most recent determination or opinion letter received
from the Internal Revenue Service with respect to each current Company Benefit
Plan or ERISA Affiliate Plan intended to qualify under Code Section 401,
nondiscrimination and coverage tests for the most recent three (3) full plan
years, the three most recent annual reports (Form 5500) and any related
financial statements filed with the Internal Revenue Service (“IRS”) and
the three most recent actuarial reports or valuations (if applicable).

(c)           The Company’s records accurately
reflect the employment or service histories of its employees, independent
contractors, contingent workers and leased employees, including their hours of
service, in all respects material to the Company Benefits Plans.

(d)           With respect to each Company Benefit
Plan, (i) there has not occurred any non-exempt “prohibited transaction” within
the meaning of Section 4975(c) of the Code or Section 406 of ERISA that would
subject the Company or the Parent to any material liability; and (ii) no
fiduciary (within the meaning of Section 3(21) of ERISA) of any Company Benefit
Plan that is subject to Part 4 of Title I of ERISA has committed a breach of
fiduciary duty that would subject the Company or the Parent to any
liability.  The Company has not been
assessed any excise taxes under Chapter 43 of the Code and nothing has occurred
with respect to any Company Benefit Plan that is expected to subject the
Company or the Parent to any such taxes. 
The transactions contemplated by this Agreement will not trigger any
Taxes under Section 4978 of the Code.  No
Company Benefit Plan or ERISA Affiliate Plan is or was subject to Title IV of
ERISA, Section 302 of ERISA or Section 412 of the Code, and no Company Benefit
Plan or ERISA Affiliate Plan is or within the last five years was a “multiemployer
plan” (as defined in Section 3(37) of ERISA), a “multiple employer plan”
(within the meaning of Section 413(c) of the Code), or a “multiple employer
welfare arrangement” (as defined in Section 3(40)(A) of ERISA), nor has the
Company or any of its ERISA Affiliates within the last five years sponsored,
maintained, contributed to, or had any liability or obligation with respect to,
any such Company Benefit Plan or ERISA Affiliate Plan of the type described in
this sentence.

(e)           Each Company Benefit Plan or ERISA
Affiliate Plan has been established, registered, qualified, invested, operated
and administered in all respects in accordance with its terms and in compliance
with all Applicable Benefit Laws.  The
Company has performed and complied in all respects with all of its obligations
under or with respect to the Company Benefit Plans.  The Company has not incurred, and no fact
exists that reasonably could be expected to result in, any liability to the
Company with respect to any Company Benefit Plan or any ERISA Affiliate Plan,
including any liability, tax, penalty or fee under any Applicable Benefit Law
(other than to pay premiums, contributions or benefits in the ordinary course
of business consistent with past practice). 

 25
 

There are no current or, to the Knowledge of the
Company, threatened Liens on any assets of any Company Benefit Plan or ERISA
Affiliate Plan.

(f)            No fact or circumstance exists that
could reasonably be expected to cause a Company Benefit Plan or ERISA Affiliate
Plan that is intended to be tax-exempt to lose its tax-exempt status.  Further, each such plan intended to be “qualified”
within the meaning of Section 401(a) of the Code and the trusts maintained
thereunder that are intended to be exempt from taxation under Section 501(a) of
the Code has received a favorable determination or opinion letter with respect
to all Applicable Benefits Laws on which the Internal Revenue Service will
issue a favorable determination letter on its qualification, and nothing has
occurred subsequent to the date of such favorable determination letter that
could reasonably be expected to cause a Company Benefit Plan or ERISA Affiliate
Plan to lose its qualified status.

(g)           There is no pending or, to the
Knowledge of the Company, threatened (i) complaint, claim, charge, suit,
proceeding or other action of any kind with respect to any Company Benefit Plan
or ERISA Affiliate Plan (other than a routine claim for benefits in accordance
with such Company Benefit Plan’s or ERISA Affiliate Plan’s claims procedures
and that has not resulted in any litigation) or (ii) proceeding, examination,
audit, inquiry, investigation, citation, or other action of any kind in or
before any Governmental Entity with respect to any Company Benefit Plan or
ERISA Affiliate Plan and there exists no state of facts that after notice or
lapse of time or both reasonably could be expected to give rise to any such
claim, investigation, examination, audit or other proceeding or to affect the
registration of any Company Benefit Plan or ERISA Affiliate Plan required to be
registered. All benefit claims have been paid in accordance with Applicable
Benefit Laws and the terms of the applicable Company Benefit Plan or ERISA
Affiliate Plan.

(h)           All contributions and premium
payments (including all employer contributions and employee salary reduction
contributions) that are due with respect to each Company Benefit Plan have been
made within the time periods prescribed by ERISA and the Code, and all
contributions and premium payments for any period ending on or before the
Closing Date that are an obligation of the Company and not yet due have either
been made to such Company Benefit Plan, or have been accrued on the Financial
Statements.  Adequate reserves will be
reflected on the Final Working Capital Schedule for any vacation, sick pay, and
other paid time off (i) accrued but unearned or (ii) earned but unused, in each
case as of the Closing Date by the Company’s employees.

(i)            With respect to each Company
Benefit  Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA), all claims incurred
by the Company are (i) insured pursuant to a contract of insurance whereby the
insurance company bears any risk of loss with respect to such claims, (ii)
covered under a contract with a health maintenance organization (an “HMO”),
pursuant to which the HMO bears the liability for claims or (iii) reflected as
a liability or accrued for on the Financial Statements.  Except as set forth on Schedule 4.17(i),
no Company Benefit Plan provides or has ever provided benefits, including
death, medical or health benefits (whether or not 

 26
 

insured), after an employee’s termination of
employment, and the Company has no liabilities (contingent or otherwise) with
respect thereto other than (A) continuation coverage required pursuant to
Section 4980B of the Code and Part 6 of Title I of ERISA, and the regulations
thereunder, and any other Applicable Benefit Laws, (B) death benefits or
retirement benefits under any employee pension benefit plan, (C) deferred
compensation benefits, reflected as liabilities on the Financial Statements, or
(D) benefits the full cost of which is borne by the current or former employee
(or the employee’s beneficiary).

(j)            The transactions contemplated by
this Agreement will not result (either alone or in combination with any other
event) in:  (i) any payment of, or
increase in, remuneration or benefits, to any employee, officer, director or
consultant of the Company; or (ii) any cancellation of indebtedness owed to the
Company by any employee, officer, director or consultant of the Company; (iii)
the acceleration of the vesting, funding or time of any payment or benefit to
any employee, officer, director or consultant of the Company; or (iv) any “parachute
payment” within the meaning of Section 280G of the Code (whether or not such
payment is considered to be reasonable compensation for services rendered).

(k)           The Company has not announced or
entered into any plan or binding commitment to (i) create or cause to
exist any additional Company Benefit Plan, or (ii) adopt, amend or terminate
any Company Benefit Plan, other than any amendment required by Applicable
Benefit Laws.  Each Company Benefit Plan
may be amended or terminated in accordance with its terms without liability to
the Company or the Parent other than for benefits accrued up to the later of
the effective date or adoption date of such amendment or termination.

(l)            Schedule 4.17(l) identifies
each Company Benefit Plan that is a “nonqualified deferred compensation plan”
within the meaning of Section 409A of the Code (and the regulations thereunder)
and associated Treasury Department guidance, including IRS Notice 2005-1 (each
a “NQDC Plan”).  With respect to
each NQDC Plan, it either (A) has been operated in good-faith compliance with
Code Section 409A since January 1, 2005, or (B) does not provide for the
payment of any benefits that have or will be deferred or vested after December
31, 2004 and since October 3, 2004, it has not been “materially modified”
within the meaning of Section 409A of the Code and associated Treasury
Department guidance, including IRS Notice 2005-1, Q&A 18.

Section
4.18           Labor Relations.

(a)           No employee of the Company, since
becoming an employee of the Company, has been, or currently is, represented by
a labor organization or group that was either certified or voluntarily
recognized by any labor relations board (including the United States National
Labor Relations Board) or certified or voluntarily recognized by any other
Governmental Entity.  The Company is not
and has never been a signatory to a collective bargaining agreement with any
trade union, labor organization or group. 
No representation election petition or application for certification has
been filed by 

 27
 

employees of the Company or is pending with the United
States National Labor Relations Board or any other Governmental Entity and no
union organizing campaign or other attempt to organize or establish a labor
union, employee organization or labor organization or group involving employees
of the Company has occurred, is in progress or, to the Knowledge of the
Company, is threatened.

(b)           The Company is not and has not been
engaged in any unfair labor practice and the Company is not aware of any
pending or, to the Knowledge of the Company, threatened labor board proceeding
of any kind.  No grievance or arbitration
demand or proceeding, whether or not filed pursuant to a collective bargaining
agreement has been filed or is pending or, to the Knowledge of the Company, has
been threatened against the Company.  No
labor dispute, walk out, strike, slowdown, hand billing, picketing, work
stoppage (sympathetic or otherwise), or other “concerted action” involving the
employees of the Company has occurred, is in progress or, to the Knowledge of
the Company, has been threatened.  The
Company is in material compliance with all Labor Laws. No citations, claims,
complaints, charges, proceedings, examinations, audits, inquiries,
investigations or other actions have been filed or are pending or, to the
Knowledge of the Company, threatened under the Labor Laws with respect to the
Company.  No citation has been issued by
OSHA against the Company and no notice of contest, claim, complaint, charge,
investigation, or other administrative enforcement proceeding involving the
Company has been filed or is pending or, to the Knowledge of the Company,
threatened against the Company under the Laws administered or enforced by OSHA
or any other applicable Law relating to occupational safety and health.  No workers’ compensation or retaliation
claim, complaint, charge or investigation has been filed or is pending against
the Company.  The Company has not taken
any action that could constitute a “mass layoff”, “mass termination” or “plant
closing” within the meaning of WARN or otherwise trigger notice requirements or
liability under any federal, local, state or foreign plant closing notice or
collective dismissal law. No wrongful discharge, retaliation, libel, slander or
other claim, complaint, charge or investigation that arises out of the
employment relationship between the Company and any of its employees has been
filed or is pending or, to the Knowledge of the Company, threatened against the
Company under any applicable Law.

(c)           The Company is not liable for any
liability, judgment, decree, order, arrearage of wages or taxes, fine or
penalty for failure to comply with any Labor Law.  The Company has provided the Parent with a
copy of the policy of the Company for providing leaves of absence under FMLA
and its FMLA notices.

Section
4.19           Insurance Policies.  Schedule 4.19 contains a true, correct
and complete list of all insurance policies carried by or for the benefit of
the Company, specifying the insurer, the amount of and nature of coverage, the
risk insured against, the deductible amount (if any) and the date through which
coverage shall continue by virtue of premiums already paid.  All insurance policies and bonds with respect
to the business and assets of the Company are in full force and effect and
shall be maintained by the Company in full force and effect through the Closing
Date and the Company has not reached or exceeded its policy limits for any
insurance policy in effect at any time during the past five (5) years.

 28
 

Section
4.20           Environmental, Health
and Safety Matters.

(a)           The Company possesses all Licenses
required under, and is in compliance with, all Environmental Laws.

(b)           Except as set forth on Schedule
4.20(b), the Company has not received written notice of actual or
threatened liability under CERCLA or any similar foreign, state or local
Environmental Law from any Governmental Entity or any third party.

(c)           The Company has not entered into or
agreed to enter into, and the Company has no present intent to enter into, any
consent decree or order, and the Company is not subject to any judgment, decree
or judicial or administrative order relating to compliance with, or the cleanup
of Hazardous Materials under, any applicable Environmental Law.

(d)           The Company has not been subject to
any administrative or judicial proceeding pursuant to, or paid any fines or
penalties pursuant to, applicable Environmental Laws at any time during the
past five (5) years.  The Company is not
subject to any claim, obligation, liability, loss, damage or expense of any
kind or nature whatsoever, contingent or otherwise, incurred or imposed or
based upon any provision of any Environmental Law or arising out of any act or
omission of the Company, or the Company’s employees, agents or representatives
or arising out of the ownership, use, control or operation by the Company of
any plant, facility, site, area or property (including any plant, facility,
site, area or property currently or previously owned or leased by the Company)
from which any Hazardous Material was Released.

(e)           Notwithstanding the generality of any
other representations and warranties in this Agreement, the representations and
warranties in this Section 4.20 constitute the sole and exclusive
representations and warranties of the Company with respect to matters directly
or indirectly relating to, or arising out of any environmental, health or
safety Laws, including any Environmental Laws.

Section
4.21           Intellectual Property.

(a)           Schedule 4.21(a) contains a
list of all Company Registered Intellectual Property.  No Company Intellectual Property or product
or service of the Business related to Company Intellectual Property is subject
to any proceeding or outstanding decree, order, judgment, agreement or
stipulation (i) restricting in any manner the use, transfer or licensing
thereof by the Company or (ii) that may affect the validity, use or
enforceability of the Company Intellectual Property or any such product or
service.  Each item of Company Registered
Intellectual Property is valid and subsisting. 
All necessary registration, maintenance and renewal fees currently due
in connection with Company Registered Intellectual Property have been made and
all necessary documents, recordations and certifications in connection with
such Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other 

 29
 

authorities in the United States or foreign
jurisdictions for the purpose of maintaining such Company Registered
Intellectual Property.

(b)           Except as set forth on Schedule
4.21(b), the Company owns and has good title to, or has licenses
(sufficient for the conduct of the Business as currently conducted) to, each
item of Company Intellectual Property, free and clear of any Lien (excluding
licenses and related restrictions).

(c)           The Company has good title to all
material copyrighted works purportedly owned by it and used in the Business,
free and clear of all Liens.  Schedule
4.21(c) lists all works of original authorship used in the Business and
prepared by or on behalf of the Company (including software programs) by title,
version number, author(s) and publication date (if any), regardless of whether
the Company has obtained or is seeking a copyright registration for such works.

(d)           To the extent that any Company
Intellectual Property has been developed or created by a third party
specifically for the Company, the Company has a written agreement with such
third party with respect thereto and the Company thereby either (i) has
obtained ownership of and is the exclusive owner of, or (ii) has obtained
a license (sufficient for the conduct of the Business as currently conducted)
to, all of such third party’s Intellectual Property in such work, material or
invention by operation of law or by valid assignment.

(e)           The operation of the Business as it
is currently conducted, including the design, development, marketing and sale
of the products or services of the Business (including with respect to products
currently under development), has not and does not infringe or misappropriate
in any manner the Intellectual Property of any third party or, to the Knowledge
of the Company, constitute unfair competition or trade practices under the Laws
of any jurisdiction.  The Company has not
received written notice of, or any claim from any third party, that either the
Company Intellectual Property or the operation of the Business, infringes or
misappropriates the Intellectual Property of any third party or constitutes
unfair competition or trade practices under the Laws of any jurisdiction.

(f)            To the Knowledge of the Company, no
Person has or is infringing or misappropriating any Company Intellectual
Property.

(g)           The Company has taken reasonable
steps to protect the rights of the Company in the Confidential Information and
any trade secret or confidential information of third parties used in the
Business, and, except under confidentiality obligations, there has not been any
disclosure by the Company of any Confidential Information or any such trade
secret or confidential information of third parties.

Section 4.22           Software.

(a)           The Company does not have any Company
Proprietary Software.   Schedule
4.22(a) sets forth a true, correct and complete list of: (i) the Company
Licensed 

 30
 

Software (other than off the shelf software) and (ii)
all technical and restricted materials relating to the acquisition, design,
development, use or maintenance of computer code program documentation and
materials used in connection with the Business.

(b)           The use of the Company Licensed
Software does not breach any term of any license or other contract between the
Company and any third party.  The Company
is in compliance in all respects with the terms and conditions of all Contracts
in favor of the Company relating to the Company Licensed Software.

Section
4.23           Related Party
Transactions.  Except as set forth on
Schedule 4.23, no (a) Shareholder or officer or director of the Company,
(b) Person with whom any such Shareholder, officer or director has any direct
or indirect relation by blood, marriage or adoption, or (c) entity in which any
such Shareholder, officer, director or Person owns greater than a ten percent
(10%) beneficial interest (other than a publicly held corporation whose stock
is traded on a national securities exchange or in the over-the-counter market
and less than five percent (5%) of the stock of which is beneficially owned by
such Shareholders, officers, directors and Persons in the aggregate) has any
interest in or is a party to: (i) any Contract with, or relating to, the
Company; or (ii) any loan for or relating to the Company.  Schedule 4.23 also sets forth a true,
correct and complete list of all accounts receivable, notes receivable and
other receivables and accounts payable owed to or due from any such Person
described above by or to the Company.

Section
4.24           Customer and Supplier
Relations.  Schedule 4.24
contains a true, correct and complete list of the names and addresses of the
Customers and Suppliers.  The Company
maintains good commercial relations with each of its Customers and Suppliers
and, to the Knowledge of the Company, no event has occurred that could
reasonably be expected to materially and adversely affect the Company’s
relations with any such Customer or Supplier. 
No Customer (or former Customer) or Supplier (or former Supplier) during
the prior twelve (12) months has canceled, terminated or, to the Knowledge of
the Company, made any threat to cancel or otherwise terminate any of such
Customer’s or Supplier’s Contracts with the Company or to decrease such
Customer’s usage of the Company’s services or products or such Supplier’s
supply of services or products to the Company. 
The Company has not received any written notice and does not have any
Knowledge to the effect that any current customer or supplier may terminate or
materially alter its business relations with the Company, either as a result of
the transactions contemplated hereby or otherwise.

Section
4.25           Accounts Receivable.  To the Knowledge of the Company, the debtors
to which the accounts receivable of the Company relate are not in or subject to
a bankruptcy or insolvency proceeding and none of such receivables have been
made subject to an assignment for the benefit of creditors.  All accounts receivable of the Company
represent monies due for goods sold and delivered or services rendered in the
ordinary course of business.  There are
no disputes regarding the collectibility of any such accounts receivable not
reserved against in the Initial Working Capital Schedule or Final Working
Capital Schedule.

Section
4.26           Licenses.  Schedule 4.26 is a true and complete
list of all Licenses held by the Company. 
The Company owns or possesses all Licenses that are necessary to enable
it to carry on the Business as presently conducted.  All Licenses are valid, binding and in full
force 

 31
 

and effect.  The execution, delivery and performance
hereof and the consummation of the transactions contemplated hereby shall not
adversely affect any License.  The
Company has taken all necessary action to maintain each License except where
the failure to so act shall not have an adverse effect on the Company or the
Business.  No loss or expiration of any
License is pending or, to the Knowledge of the Company, threatened (other than
expiration upon the end of any term).  Schedule
4.26 identifies with an asterisk each License set forth therein which by
its terms cannot be assigned without the prior consent of either party
thereto.  Each independent contractor
listed on Schedule 4.16 has the requisite License required to provide
the services such independent contractor provides the Company, as applicable.

Section
4.27           Ethical Practices with
Governmental Entities.  Neither the
Company nor any of its representatives nor any Shareholder, in his, her or its
capacity as an employee, agent or other representative of the Company, has
offered or given, and the Company does not have any Knowledge of any Person
that has offered or given on its behalf, any thing of value to: (a) any
official of a Governmental Entity, any political party or official thereof or
any candidate for political office; (b) any customer or member of any
Governmental Entity; or (c) any other Person, in any such case while knowing or
having reason to know that all or a portion of such money or thing of value may
be offered, given or promised, directly or indirectly, to any official of a Governmental
Entity or any candidate for political office for the purpose of the following:
(i) influencing any action or decision of such Person, in such Person’s
official capacity, including a decision to fail to perform such Person’s
official function; (ii) inducing such Person to use such Person’s influence
with any Governmental Entity to affect or influence any act or decision of such
Governmental Entity to assist the Company in obtaining or retaining business
for, with, or directing business to, any Person; or (iii) where such payment
would constitute a bribe, kickback or illegal or improper payment to assist the
Company in obtaining or retaining business for, with, or directing business to,
any Person.

Section
4.28           Product Warranties.  Except as set forth on Schedule 4.28,
the Company does not make any warranty or guaranty as to goods manufactured,
sold, or delivered by the Company.

Section
4.29           Brokers, Finders and
Investment Bankers.  Neither the
Company nor any officer, member, director or employee of the Company, nor any
Affiliate of the Company, nor any Shareholder has employed any broker, finder
or investment banker or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders’ fees in connection with the
transactions contemplated hereby.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS

Each Shareholder severally, and not jointly,
represents and warrants to the Parent that, as of the date hereof and as of the
Closing Date:

Section
5.1             Authorization and
Validity of Agreement.  Such
Shareholder has the right, power and capacity to execute and deliver this
Agreement and the Seller Ancillary Documents to which it is a party and to
perform its obligations hereunder and thereunder and to consummate 

 32
 

the transactions
contemplated hereby and thereby.  This
Agreement has been, and the Seller Ancillary Documents to which it is a party
shall be as of the Closing Date, duly executed and delivered by such
Shareholder and do or shall, as the case may be, constitute the valid and
binding agreements of such Shareholder, enforceable against such Shareholder in
accordance with their respective terms.

Section
5.2             Absence of Restrictions
and Conflicts.  The execution,
delivery and performance by such Shareholder of this Agreement and the Seller
Ancillary Documents to which it is a party, the consummation of the
transactions contemplated hereby and thereby and the fulfillment of and
compliance with the terms and conditions hereof and thereof do not or shall not
(as the case may be), with the passing of time or the giving of notice or both,
(a) violate or conflict with, constitute a breach of or default under, result
in the loss of any benefit under, permit the acceleration of any obligation
under or create in any party the right to terminate, modify or cancel any
Contract to which such Shareholder is a party, (b) contravene or conflict with
any judgment, decree or order of any Governmental Entity to which such
Shareholder is a party or by which such Shareholder is bound, or (c) contravene
or conflict with any Law or arbitration award applicable to such Shareholder.

Section
5.3             Ownership of Equity.  Such Shareholder has good and valid title to
and record and beneficial ownership of the number of shares of capital stock set
forth next to such Shareholder’s name on Schedule 4.1(c), and such
shares are free and clear of all Liens, other than Liens in favor of the
Company identified on Schedule 5.3, which shall have been terminated
prior to Closing.  Other than the shares
of capital stock listed on Schedule 4.1(c), such Shareholder does not
own any shares of capital stock or other equity security of the Company or any
option, warrant, right, call, commitment or right of any kind to have any such
capital stock or equity security issued. Except as set forth on Schedule
4.1(c), such Shareholder has the full and exclusive right to transfer or
vote the Shares owned by such Shareholder, and such Shareholder is not bound by
any agreement affecting or relating to its right to transfer or vote the shares
of capital stock owned by such Shareholder. Such Shareholder is, under the
Code, an eligible shareholder of an “S corporation” (within the meaning of
Section 1361(a) of the Code)

Section
5.4             Legal Proceedings.  There are no suits, actions, claims,
proceedings or investigations pending or, to the knowledge of such Shareholder,
threatened against, relating to or involving such Shareholder that could
adversely affect such Shareholder’s ability to consummate the transactions
contemplated by this Agreement.

Section
5.5             Amounts Owed to
Shareholders.  Except as disclosed on
Schedule 5.5, the Company does not owe and is not otherwise obligated to
pay such Shareholder any amount, except for salary, employee benefits and
bonuses, incurred and accrued prior to the Closing in the ordinary course of
business of the Company, consistent with past practice.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PARENT

The Parent and the Merger Sub hereby represent and
warrant to the Company as follows as of the date hereof and the Closing Date:

 33
 

Section
6.1             Organization.  The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted.  The
Merger Sub is a Georgia corporation, duly organized, validly existing and in
good standing under the laws of the State of Georgia and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted.

Section
6.2             Authorization.  Each of the Parent and the Merger Sub has
full corporate power and authority to execute and deliver this Agreement and
the Parent Ancillary Documents to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby.  The
execution and delivery by the Parent and the Merger Sub of this Agreement and
the Parent Ancillary Documents to which the Parent and the Merger Sub are a
party, the performance by the Parent and the Merger Sub of their obligations
hereunder and thereunder, and the consummation of the transactions provided for
herein and therein have been duly and validly authorized by all necessary
corporate action on the part of the Parent and the Merger Sub.  This Agreement has been and, as of the
Closing Date, the Parent Ancillary Documents shall be, duly executed and delivered
by the Parent and the Merger Sub and do or shall, as the case may be,
constitute the valid and binding agreements of the Parent and the Merger Sub,
enforceable against the Parent and the Merger Sub in accordance with their
respective terms.

Section
6.3             Absence of Restrictions
and Conflicts.  The execution,
delivery and performance by Parent and Merger Sub of this Agreement and the
Parent Ancillary Documents to which each is a party, the consummation of the
transactions contemplated hereby and thereby and the fulfillment of, and
compliance with, the terms and conditions hereof and thereof do not or shall
not (as the case may be), with the passing of time or the giving of notice or
both, (a) contravene or conflict with any term or provision of the charter
documents of the Parent or the Merger Sub, (b) violate or conflict with,
constitute a breach of or default under, result in the loss of any benefit
under, permit the acceleration of any obligation under or create in any party
the right to terminate, modify or cancel any Contract to which the Parent or
the Merger Sub is a party, (c) contravene or conflict with any judgment,
decree or order of any Governmental Entity to which the Parent is a party or by
which the Parent or the Merger Sub is bound or (d) contravene or conflict
with any statute, Law, judgment, rule or regulation applicable to the Parent or
the Merger Sub.  Except for the filing of
the Certificate of Merger as contemplated hereby, no consent, approval, order
or authorization of, or registration, declaration or filing with, any Governmental
Entity is required with respect to the Parent or Merger Sub in connection with
the execution, delivery or performance of this Agreement or the Parent
Ancillary Documents or the consummation of the transactions contemplated hereby
or thereby, except as may be required by the HSR Act.

Section
6.4             Brokers.  Neither the Parent nor the Merger Sub has
incurred any obligation for any finder’s or broker’s or agent’s fees or
commissions or similar compensation in connection with the transactions
contemplated hereby for which Company or any Shareholders will be liable.

 34

 

Section
6.5             Availability of Funds.  Parent has immediately available funds
sufficient to enable it to pay the Merger Payment (as adjusted pursuant to
Section 3.2) and all other amounts payable by it in connection with this
Agreement and the transactions contemplated hereby.

ARTICLE VII

CERTAIN COVENANTS AND AGREEMENTS

Section
7.1             Conduct of Business by
the Company.  For the period
commencing on the date hereof and ending on the Closing Date, the Company
shall, except as expressly required hereby and except as otherwise consented to
in advance in writing by the Parent, conduct its business in the ordinary
course, consistent with past practice, and shall, except as expressly required
or permitted hereby and except as otherwise consented to in advance in writing
by the Parent:

(a)           use its commercially reasonable
efforts to preserve intact the goodwill and business organization of the
Company, keep the officers and employees of the Company available to the Parent
at reasonable times and under reasonable conditions and preserve the
relationships and goodwill of the Company with customers, distributors,
suppliers, employees and other Persons having business relations with the
Company;

(b)           maintain its existence and good
standing in its jurisdiction of organization and in each jurisdiction listed on
Schedule 4.1(a);

(c)           comply with all applicable Laws;

(d)           maintain in existing condition and
repair (ordinary wear and tear excepted), consistent with past practices, all
offices, equipment, fixtures and other tangible personal property of the
Company located on the Leased Real Property;

(e)           not authorize for issuance or issue
and deliver any additional shares of its capital stock or securities
convertible into or exchangeable for shares of its capital stock, except upon exercise
of its outstanding options, or issue or grant any right, option or other
commitment for the issuance of shares of its capital stock or of such
securities, or split, combine or reclassify any shares of its capital stock;

(f)            not amend or modify its articles of
incorporation or bylaws;

(g)           not declare any dividend, pay or set
aside for payment any dividend or other distribution or make any payment to any
Shareholder, officer or director or any Person with whom any such Shareholder,
officer or director has any direct or indirect relation, other than: (i) the
payment of salaries in the ordinary course of business and consistent with past
practice, and (ii) the payment of tax distributions sufficient to cover such
Shareholder’s income tax liability attributable to such Shareholder’s
distributive share of the Company’s operating income through the Closing Date,
in a manner consistent with past practice.

 35
 

(h)           not create any subsidiary, acquire
any capital stock or other equity securities of any corporation or acquire any
equity or ownership interest in any business or entity;

(i)            not dispose of or permit to lapse
any ownership and/or right to the use of any patent, trademark, trade name,
service mark, license or copyright of the Company (including any of the Company
Intellectual Property), or dispose of or disclose to any Person, any
Confidential Information;

(j)            protect, defend and maintain the
ownership, validity and registration of the Company Intellectual Property, and
not allow any of the Registered Intellectual Property to be abandoned,
forfeited, cancelled, expunged and/or dedicated to the public;

(k)           not (i) create, incur or assume any
indebtedness other than: (A) any trade debt created in the ordinary course of
business and in accordance with past practice, or (B) draws on the Company’s
existing credit facility with Bank of America in an amount not to exceed
$4,000,000, and which are expressly used to satisfy the Company’s milestone
payment obligations under a license agreement, dated March 15, 2005, between
the Company and BioMarin Pharmaceutical Inc., (ii) grant, create, incur or
suffer to exist any Lien on the assets or properties of the Company that did
not exist on the date hereof other than Permitted Liens, (iii) write-down
the value of any asset or investment on the books or records of the Company,
except for depreciation and amortization in the ordinary course of business and
consistent with past practice, (iv) cancel any debt or waive any claim or
right, (v) make any commitment for any capital expenditure to be made on
or following the date hereof in excess of $25,000 in the case of any single
expenditure or $100,000  in the case of
all capital expenditures, (vi) enter into any Contract which cannot be
cancelled by the Company on notice of not longer than thirty (30) days and
without liability or penalty of any kind, (vii) enter into any Contract which
imposes, or purports to impose, any obligations or restrictions on any of its
Affiliates, or (viii) settle or compromise any legal proceedings related to or
in connection with the Business;

(l)            not,
except, in each case, in the ordinary course of business to the extent
consistent with past practice of the Company, (i) increase in any manner the
compensation of, or enter into any new bonus or incentive agreement or
arrangement with, any of its employees, officers, directors or consultants,
(ii) except as required by Applicable Benefit Laws, pay or agree to pay any
additional pension, retirement, allowance or other employee benefit under any
Company Benefit Plan to any of its employees or consultants, whether past or
present.  Notwithstanding the foregoing,
the Company shall not take any action described in this Section 7.1(l)with
respect to (i) any manager, officer or director of the Company or (ii) any Person
whose annualized compensation is $100,000 or more or whose annual compensation
for the twelve (12)-month period following the Effective Date is expected to be
$100,000  or more;

(m)          except as required by Applicable
Benefit Laws, not adopt, amend or terminate any Company Benefit Plan or
increase the benefits provided under any 

 36
 

Company Benefit Plan, or promise or commit to
undertake any of the foregoing in the future;

(n)           not enter into a collective
bargaining agreement;

(o)           not enter into any Employment
Agreement;

(p)           perform in all material respects all
of its obligations under all Company
Contracts and Licenses, and not default or suffer to exist any event or
condition that with notice or lapse of time or both could constitute a material
default under any Company Contract
or License (except those being contested in good faith);

(q)           not increase any reserves for
contingent liabilities (excluding any adjustment to bad debt reserves in the
ordinary course of business consistent with past practice);

(r)            maintain in full force and effect
policies of insurance comparable in amount and scope of coverage to that
maintained as of the date hereof;

(s)           continue to maintain its books and
records in accordance with GAAP consistently applied and on a basis consistent
with past practice and not make any material change in any of its accounting
(or tax accounting) policies, practices or procedures except to the extent
required by GAAP;

(t)            continue its current cash and
inventory management practices in the ordinary course of business consistent
with past practice; and

(u)           not authorize, or commit or agree to
take, any of the foregoing actions, without the Parent’s prior written consent.

Section
7.2             Inspection and Access
to Information.  During the period
commencing on the date hereof and ending on the Closing Date, the Company shall
(and shall cause its officers, directors, employees, auditors and agents to)
provide the Parent and its accountants, investment bankers, counsel,
environmental consultants and other authorized representatives reasonable
access, during reasonable hours, under reasonable circumstances and upon
reasonable notice, to any and all of its premises, employees (including
executive officers), properties, Contracts, books, records and other
information (including Tax Returns filed and those in preparation) and shall
cause its officers to furnish to the Parent and its authorized representatives,
promptly any reasonably requested financial, technical and operating data and
other information pertaining to the Company and the Business. Notwithstanding
the foregoing, (a) Parent and its authorized agents and representatives shall
not contact or otherwise communicate with the employees, customers or suppliers
of the Company unless in each instance, approved in advance by the Company,
which approval shall not be unreasonably withheld, and (b) nothing herein shall
require the Company to furnish to the Parent or provide the Parent with access
to information which would cause competitive harm to the Company if the transactions
contemplated by this Agreement are not consummated or would be in violation of
applicable Laws or regulations of any Governmental Entity (including the HSR
Act and other anti-competition Laws).

 37
 

Section
7.3             Notices of Certain
Events.  Each Party will give written
notice to the other Party of any material variance from its representations and
warranties in Articles IV and VI, as the case may be. Unless the Party
receiving such notice has the right to terminate this Agreement pursuant to
Article X by reason of such development and exercises that right prior to
Closing, the written notice pursuant to this Section 7.3 will be deemed, solely
for purposes of Article XI hereof following the Closing, to have amended the
Disclosure Schedule, to have qualified the representations and warranties
contained in Articles IV and VI, and to have cured any misrepresentation or
breach of warranty that otherwise might have existed hereunder by reason of the
development.  The Company and/or the
Shareholders shall promptly notify the Parent of:

(c)           any fact, condition, change or event
that, individually or in the aggregate, has had or could reasonably be expected
to have a Material Adverse Effect or otherwise results in any representation or
warranty of the Company or the Shareholders hereunder being inaccurate in any
respect as of the date of such fact, condition, change or event had such
representation or warranty been made as of such date;

(d)           any fact, condition, change or event
that causes or constitutes a breach of any of the representations or warranties
of the Company or the Shareholders
hereunder made as of the date hereof;

(e)           any notice or other communication
from any Person alleging that the consent of such Person is or may be required
in connection with the transactions contemplated hereby;

(f)            any notice or other communication
relating to or involving or otherwise affecting the Company from or to any
Governmental Entity, including the FDA, Office of Medical Policy, Division of
Drug Marketing, Advertising, and Communications;

(g)           any action, suit, claim,
investigation or proceeding commenced or, to the Knowledge of the Company,
threatened against, relating to or involving or otherwise affecting the Company
that, if pending on the date hereof, would have been required to have been
disclosed pursuant to Section 4.12 or that relate to the consummation of the
transactions contemplated hereby; and

(h)           (i) the damage or destruction by fire
or other casualty of any material asset or part thereof of the Company or (ii)
any material asset or part thereof of the Company becoming the subject of any
proceeding (or, to the Knowledge of the Company, threatened proceeding) for the
taking thereof or of any right relating thereto by condemnation, eminent domain
or other similar governmental action.

Should any such fact or condition require any change
in the Disclosure Schedules if the Disclosure Schedules were dated the date of
the occurrence or discovery of any such fact or condition, the Shareholders
will promptly deliver to Parent a supplement to the Disclosure Schedules
specifying such change.  Except as
contemplated above, the Company and the Shareholders hereby acknowledge that
the Parent does not and shall not waive any right it may have hereunder solely
as a result of such notifications and any notification given pursuant to this 

 38
 

Section 7.3 (including any supplement to the
Disclosure Schedules) shall be disregarded for purposes of determining the
obligations of the Parties under Article XI hereof.

Section
7.4             Interim Financials.  As promptly as practicable following each
calendar month prior to the Closing Date, the Company shall deliver to the
Parent periodic financial reports in the form that it customarily prepares for
its internal purposes and, if available, unaudited statements of the financial
position of the Company as of the last day of such calendar month and
statements of income and changes in financial position of such entities for the
calendar month then ended.  The Company covenants
that such interim statements (i) shall present fairly in all material
respects the financial condition of the Company as of their respective dates
and the related results of operations for the respective calendar month then
ended, and (ii) shall be prepared on a basis consistent with prior interim
periods.

Section
7.5             No Solicitation of
Transactions.  Until the earlier of
the Closing or the termination of this Agreement pursuant to Article X, neither
the Company nor any of the Shareholders shall, directly or indirectly, through
any officer, director, manager or agent of any of them or otherwise, initiate,
solicit or encourage (including by way of furnishing non-public information or
assistance), or enter into negotiations of any type, directly or indirectly, or
enter into a confidentiality agreement, letter of intent or other similar
Contract with any Person other than the Parent with respect to a sale of all or
any substantial portion of the assets or properties of the Company, or a
merger, consolidation, business combination, sale of all or any substantial
portion of the capital stock of the Company, or the liquidation or similar
extraordinary transaction with respect to the Company (an “Acquisition
Transaction”).  The Company and the
Shareholders shall, and shall cause each of their officers, directors, managers
and agents to, immediately discontinue any ongoing discussions or negotiations
with any Person (other than the Parent) relating to a possible Acquisition
Transaction.

Section
7.6             Reasonable Efforts;
Further Assurances; Cooperation. 
Subject to the other provisions hereof, each Party shall use its
commercially reasonable efforts to perform its obligations hereunder and to
take, or cause to be taken, and do, or cause to be done, all things necessary,
proper or advisable under applicable Law to cause the transactions contemplated
herein to be effected as soon as practicable, but in any event on or prior to
the Expiration Date, in accordance with the terms hereof and shall cooperate
fully with each other Party and its officers, directors, employees, agents,
counsel, accountants and other designees in connection with any step required
to be taken as a part of its obligations hereunder, including the following:

(a)           Each Party shall promptly make its
filings and submissions and shall take all actions necessary, proper or
advisable under applicable Laws to obtain any required approval of any
Governmental Entity with jurisdiction over the transactions contemplated hereby
(except that the Parent shall have no obligation to take or consent to the
taking of any action required by any such Governmental Entity that could
adversely affect the Business, the assets or the properties of the Company or
the transactions contemplated by this Agreement or the Parent Ancillary
Documents).  The Company shall furnish to
the Parent all information required for any application or other filing to be
made by the Company pursuant to any applicable Law in connection with the
transactions contemplated hereby;

 39
 

(b)           Each Party shall promptly notify the
other Parties of (and provide written copies of) any communications from or
with any Governmental Entity in connection with the transactions contemplated
hereby;

(c)           In the event any claim, action, suit,
investigation or other proceeding by any Governmental Entity or other Person is
commenced that questions the validity or legality of the transactions
contemplated hereby or seeks damages in connection therewith, the Parties shall
(i) cooperate and use commercially reasonable efforts to defend against such
claim, action, suit, investigation or other proceeding, (ii) in the event an
injunction or other order is issued in any such action, suit or other
proceeding, use commercially reasonable efforts to have such injunction or
other order lifted, and (iii) cooperate reasonably regarding any other
impediment to the consummation of the transactions contemplated hereby; and

(d)           The Company shall give all notices to
third parties and use its commercially reasonable efforts (which shall include
the payment of any reasonable consent fee) to obtain all third-party consents
(i) required to be given or obtained, including the Required Consents or
(ii) required to prevent a Material Adverse Effect, whether prior to, on or
following the Closing Date.

Section
7.7             Public Announcements.  Subject to its legal obligations (including
requirements of stock exchanges and other similar regulatory bodies), each
Party shall consult with the other Parties with respect to the timing and
content of all announcements regarding this Agreement or the transactions
contemplated hereby to the financial community, Governmental Entities,
employees, customers or the general public and shall use commercially
reasonable efforts to agree upon the text of any such announcement prior to its
release.  Notwithstanding the foregoing,
prior to public disclosure by Parent pursuant to the reporting requirements of
the NASDAQ Stock Market and the Securities and Exchange Commission, without the
prior written consent of the Parent, neither the Company nor any Shareholder
shall disclose to any Person any of the terms of this Agreement other than to
such Parties’ advisors who the Company or any Shareholder, as applicable,
reasonably determines needs to know such information for the purpose of
advising Company or such Shareholder, it being understood that such advisor
will be informed of the confidential nature of this Agreement and the terms of
this Agreement and will be directed to treat such information as confidential
in accordance with the terms of this Agreement.

Section
7.8             Employee Matters.

(a)           Company Benefit Plans.  Prior to the Closing Date, the Company shall
make, or cause to be made, all contributions and pay all premiums under each
Company Benefit Plan and ERISA Affiliate Plan, other than a pension benefit
plan within the meaning of ERISA § 3(2), with respect to periods ending on
or prior to the Closing Date. 
Immediately prior to the Closing Date, the Company shall, if and as
requested by the Parent, and unless prevented by Applicable Benefit Laws,
terminate certain or all of the Company Benefit Plans and shall bear all the
expenses of terminating such plans. 
Without limiting the generality of the foregoing, certain employees of
the Company 

 40
 

identified in Schedule 4.1(c) have been granted
Company Employee Stock Options.  Prior to
the Closing, the Company shall take such action as is necessary to terminate
the Company Benefit Plan(s) pursuant to which such options were issued and to
ensure that upon the Closing, no Person (other than Parent) shall have any
rights with respect to the capital stock of the Company.  Prior to the Closing, the Company shall use
commercially reasonable efforts to obtain a general release substantially in
the form attached hereto as Exhibit 7.8 from each holder of Company
Stock Options (such releases being the “Option Releases”).

(b)           Communications.  Neither the Shareholders nor the Company nor
any officer, director, employee, agent or representative of the Company shall
make any communication to employees of the Company regarding any 401(k), group
health, life insurance, disability, accidental death and dismemberment
insurance or employee stock purchase plan maintained by the Parent or any of
its Affiliates or any compensation or benefits to be provided after the Closing
Date without the prior written consent of the Parent.

(c)           Status.  Subject to the provisions of any employment
agreements to be executed by any Employees on or prior to the Closing Date, the
Employees shall remain at-will employees of the Company immediately following
the Closing Date.

(d)           Credit.  To the extent permitted by the employee
benefit plans of Parent, Parent agrees that for purposes of all such plans
under which an Employee’s benefit depends, in whole or in part, on length of
service, credit will be given to Employees, for eligibility and vesting
purposes only, for service with the Company and its Affiliates prior to the
Closing Date that was previously credited under any analogous Company Benefit
Plans; provided, however, that such crediting of service does not
result in duplication of benefits, and shall not result in crediting for
purposes of determining benefit accruals.

Section
7.9             Transfer Taxes;
Expenses.  All sales, use, purchase,
transfer, documentary stamp or similar Taxes or recording fees (collectively, “Transfer
Taxes”) payable as a result of the purchase and sale of the Shares or any
other action contemplated hereby shall be borne one-half by Parent and one-half
by the Shareholders, which such amount in the case of the Shareholders shall be
paid out of the Escrow Amount.  The
Parties shall cooperate in the preparation, execution and filing of all
returns, questionnaires, applications and other documents regarding Transfer
Taxes that become payable in connection with the transactions contemplated
hereby that are required or permitted to be filed at or prior to the Closing.

Section
7.10           Non-Competition.

(a)           Confidential Information.  Each Shareholder and the Shareholder
Representative shall hold in confidence at all times following the date hereof
all Confidential Information and shall not disclose, publish or make use of
Confidential Information at any time following the date hereof without the
prior written consent of the Parent.

 41
 

(b)           Noncompetition.

(i)            Each Shareholder and the Shareholder
Representative hereby acknowledges that (A) the Parent conducts the
Noncompete Business and/or has current plans to expand the Noncompete Business
throughout the Territory and (B) to protect adequately the interest of the
Parent, it is essential that any noncompetition covenant with respect thereto
cover all of the Noncompete Business and the entire Territory.

(ii)           Neither any Shareholder nor the
Shareholder Representative shall, during the Noncompete Period, in any manner,
either directly, indirectly, individually, in partnership, jointly or in
conjunction with any Person (other than the Parent): (A) engage in the business
of providing, distributing or selling within the Territory products indicated
for the treatment of conditions the same as or similar to the products of the
Noncompete Business,  or (B) have an
equity or profit interest in, advise or render services (of an executive,
marketing, manufacturing, research and development, administrative, financial,
consulting or other nature) or lend money to any Person that provides, distributes
or sells within the Territory products of the Noncompete Business (other than
the ownership of not more than 5% of any publicly traded corporation).

(c)           Nonsolicitation.  Neither any Shareholder nor the Shareholder
Representative shall, during the Noncompete Period, in any manner, directly,
indirectly, individually, in partnership, jointly or in conjunction with any
Person, (i) (x) recruit or solicit or attempt to recruit or solicit, on any of
their behalves or on behalf of any other Person, any employee of the Company or
an Affiliate thereof, (y) encourage any Person (other than the Parent or one of
its Affiliates) to recruit or solicit any employee of the Company or an
Affiliate thereof, or (z) otherwise encourage any employee of the Company or an
Affiliate thereof to discontinue his or her employment by the Company or one of
its Affiliates; (ii) solicit any customer of the Company or an Affiliate
thereof who is or has been a customer on or within twelve (12) months prior to
the Closing Date for the purpose of providing, distributing or selling
pharmaceutical products indicated for the treatment of conditions the same as
or similar to the products of the Noncompete Business; or (iii) persuade or
attempt to persuade any customer or supplier of the Company or any of its
Affiliates to terminate or modify such customer’s or supplier’s relationship
with the Company or any of its Affiliates. 
Notwithstanding the foregoing, clauses (i) and (ii) of this Section
7.10(c) will not apply to (A) general solicitations (including through the use
of advertising or search firms) that do not target such Persons, (B) the hiring
of any such Person who approaches or initiates a discussion regarding
employment with any Shareholder, the Shareholder Representative or any of such
person’s Affiliates (including any discussions subsequent to such approach or
initiation), or (z) the solicitation of any such Person who is terminated by
the Company or its Subsidiaries.

(d)           Severability.  In the event a judicial or arbitral determination
is made that any provision of this Section 7.10 constitutes an unreasonable or
otherwise unenforceable 

 42
 

restriction against the Shareholders, the provisions
of this Section 7.10 shall be rendered void only to the extent that such
judicial or arbitral determination finds such provisions to be unreasonable or
otherwise unenforceable with respect to the Shareholders or Shareholder
Representative.  In this regard, any
judicial authority construing this Agreement shall be empowered to sever any
portion of the Territory, any prohibited business activity or any time period
from the coverage of this Section 7.10 and to apply the provisions of this
Section 7.10 to the remaining portion of the Territory, the remaining business
activities and the remaining time period not so severed by such judicial or
arbitral authority.  Moreover,
notwithstanding the fact that any provision of this Section 7.10 is determined
not to be specifically enforceable, the Parent shall nevertheless be entitled
to recover monetary damages as a result of the breach of such provision by any
Shareholder or the Shareholder Representative. 
The time period during which the prohibitions set forth in this Section
7.10 shall be tolled and suspended for a period equal to the aggregate time
during which a Shareholder or the Shareholder Representative violates such
prohibitions in any respect.

(e)           Injunctive Relief.  Any remedy at law for any breach of the
provisions contained in this Section 7.10 shall be inadequate and the Parent
shall be entitled to injunctive relief in addition to any other remedy the
Parent might have hereunder.

Section
7.11           Tax Matters.

(a)           Tax Periods Ending on or Before
the Closing Date.  The Parent shall
prepare or cause to be prepared and timely file or cause to be timely filed all
Tax Returns for the Company for all Tax periods ending on or prior to the
Closing Date which are filed after the Closing Date.  All such Tax Returns shall (i) be prepared in
accordance with applicable Law, and to the extent consistent therewith, in a
manner consistent with the prior practice of the Company, (ii) be provided to
the Shareholder Representative for its review and comment at least thirty (30)
days prior to the due date of such Tax Return, and (iii) revised prior to their
filing to reflect any changes reasonably requested by the Shareholder
Representative.  Except to the extent
such Taxes arise out of or relate to the Section 338(h)(10) Election (as
hereinafter defined) or are Transfer Taxes allocated to the Parent under
Section 7.9, the Shareholders shall reimburse the Parent for Taxes of the
Company with respect to such periods within fifteen (15) days after payment by
the Parent or the Company of such Taxes to the extent such Taxes are not
reflected as a liability in the Final Working Capital Schedule.

(b)           Tax Periods Beginning Before and
Ending After the Closing Date.  The
Parent shall prepare or cause to be prepared and timely file or cause to be
timely filed any Tax Returns of the Company for Tax periods which begin before
the Closing Date and end after the Closing Date. All such Tax Returns shall (i)
be prepared in accordance with applicable Law, and to the extent consistent
therewith, in a manner consistent with the prior practice of the Company, (ii)
be provided to the Shareholder Representative for its review and comment at
least thirty (30) days prior to the due date of such Tax Return, and (iii)
revised prior to their filing to reflect any changes reasonably requested by
the Shareholder Representative.  Except
to the extent such Taxes arise out of or relate to the 

 43
 

Section 338(h)(10) Election or are Transfer Taxes
allocated to Parent under Section 7.9, the Shareholders shall pay to the Parent
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Tax period ending on the Closing Date to the extent such Taxes
are not reflected as a liability in the Final Working Capital Schedule.  For purposes of this Section, in the case of
any Taxes that are imposed on a periodic basis and are payable for a Tax period
that includes (but does not end on) the Closing Date, the portion of such Tax
which relates to the portion of such Tax period ending on the Closing Date
shall (i) in the case of any Taxes other than Taxes based upon or related to
income or receipts, be deemed to be the amount of such Tax for the entire Tax
period multiplied by a fraction the numerator of which is the number of days in
the Tax period ending on the Closing Date and the denominator of which is the
number of days in the entire Tax period, any (ii) in the case of any Tax based
upon or related to income or receipts be deemed equal to the amount which would
be payable if the relevant Tax period ended on the Closing Date.

(c)           Cooperation on Tax Matters.  The Parent, the Company and the Shareholders
shall cooperate as and to the extent reasonably requested by the other Party,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes.  Such cooperation shall include the retention
and (upon the other Party’s request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.

(d)           Section 338(h)(10) Election.

(i)            The Parent, the Company and the
Shareholders shall take all steps necessary to make a timely, effective and
irrevocable election pursuant to Section 338(h)(10) of the Code (and, if
permissible, under any applicable state or local income Tax laws) with respect
to the acquisition by Parent of the Shares to treat such purchase and sale as a
deemed sale of assets for federal income Tax and state income Tax purposes
(collectively, the “Section 338(h)(10) Election”).  The Parent, the Company and the Shareholders
and their respective affiliates shall report the transactions consistent with
such Section 338(h)(10) Election and shall take no position contrary thereto
unless and to the extent required to do so pursuant to a final determination by
the IRS or other applicable taxing authority.

(ii)           The Parent, the Company and the
Shareholders shall execute at the Closing any and all forms necessary to
effectuate the Section 338(h)(10) Election (including, without limitation,
Internal Revenue Service Form 8023 and any similar forms under applicable state
or local income Tax laws) (collectively, the “Section 338 Forms”).  In the event, however, any Section 338 Forms
are not executed at the Closing, the Seller and Parent shall prepare and
complete each such Section 338 Form no later than fifteen (15) days prior to
the date each such Section 338 Form is required to be filed.

 44
 

(iii)          Parent shall prepare and provide to
the Seller within sixty (60) days after the Closing, a schedule allocating the
Adjusted Merger Payment and the liabilities of the Company as of the Closing
Date among the assets of the Company. 
Such schedule shall be prepared in good faith and in accordance with
applicable provisions of the Code. 
Unless the Shareholder Representative objects to the Parent’s allocation
schedule within ten (10) days after receipt thereof, such schedule shall become
final and, absent a final determination by a governmental authority to the
contrary, shall be binding upon the Parent, the Company and the Shareholders
for all federal, state and local income Tax purposes.  If the Shareholder Representative objects to
the Parent’s allocation within ten (10) days of receipt, then the Parties agree
to meet and resolve the dispute in good faith. 
Any such objection by the Shareholder Representative shall be made in
good faith and based on the applicable provisions of the Code.

(iv)          The Parent and the Shareholders agree
that neither Party shall take any action to modify or revoke the Section
338(h)(10) Election following the filing of the Section 338 Forms, without the
written consent of the other, unless required to do so by any governmental
authority.  The Parent and Shareholders
shall not take any position for Tax purposes that is inconsistent with such
information without the prior written consent of the other, which shall not be
unreasonably withheld.

(v)           Notwithstanding anything in this
Agreement to the contrary, the provisions of this Section 7.11(d) shall survive
through the expiration of the applicable statute of limitations as the same may
be extended.

Section
7.12           Customer Visits.  During the period commencing on the date
hereof and ending on the Closing Date, and subject to reasonable limitations,
the Company and the Shareholders shall permit the Parent to discuss and meet,
and shall cooperate in such discussions and meetings, with any Customer of the
Company that the Parent so requests.  A
senior executive of the Company, reasonably satisfactory to the Parent, shall
have the right to accompany the Parent’s representative to such meeting and
shall participate with the Parent’s representative in any such discussions.  Furthermore, the Company and the Shareholders
shall cooperate with the Parent in the preparation of a presentation to such
Customers with respect to the transactions contemplated hereby.  All costs relating to the actions described
in this Section 7.12 shall be borne solely by the Parent.  The Company shall promptly notify the Parent
if a commercial relationship and/or agreement it has with a Customer terminates
during the period commencing on the date hereof and ending on the Closing Date.

Section
7.13           Director and Officer
Liability and Indemnification.

(a)           For a period of six (6) years after
the Closing, Parent shall not, and shall not permit the Surviving Corporation
to amend, repeal or modify any provision in the Surviving Corporation’s articles
of incorporation or bylaws relating to the exculpation or indemnification of
any officers and directors (unless required by law), unless pursuant to a
separate written agreement delivered by Parent, and reasonably satisfactory to
such 

 45
 

officers and directors, Parent has agreed to provide
exculpation or indemnification to such persons on substantially the same terms
and conditions.

(b)           For a period of six (6) years after
the Closing, Parent shall, or shall cause the Surviving Corporation to,
maintain director and officer liability insurance which insurance shall provide
coverage for the individuals who were officers and directors of the Company
prior to Closing comparable to the policy or policies maintained by the Company
immediately prior to the Closing for the benefit of such individuals.

(c)           Notwithstanding anything contained in
this Agreement to the contrary, this Section 7.13 shall survive the
consummation of the Closing for six (6) years.

Section
7.14           Accounts and Notes
Receivable.

(a)           The Company shall cause all notes and
accounts receivable and payable of the Company owing by or to any Shareholder
or any director, officer, employee or Affiliate of the Company (each, an “Affiliate
Loan”) to be paid in full at or prior to the Closing Date.

(b)           From and after the Closing, if any Shareholder receives or collects any
Receivables, the Shareholder shall
remit any such amounts to the Parent or the Company within five (5) days of
each day on which the Shareholder
receives such sum

Section
7.15           Release.  In consideration of the mutual covenants,
agreements and warranties herein contained, and for other good and valuable
consideration the sufficiency of which is hereby acknowledged, as of and
following the Closing Date, each Party to this Agreement (in such capacity, a “Releasor”)
knowingly, voluntarily and unconditionally releases, forever discharges, and
covenants not to sue any other Party to this Agreement (in such capacity, a “Releasee”)
from or for any and all claims, causes of action, demands, suits, debts,
obligations, liabilities, damages, losses, costs and expenses (including
attorneys’ fees) of every kind or nature whatsoever, known or unknown, actual
or potential, suspected or unsuspected, fixed or contingent, that such Releasor
has or may have, now or in the future, arising out of, relating to, or
resulting from any act or omission, error, negligence, breach of contract,
tort, violation of law, matter or cause whatsoever from the beginning of time
to the Closing Date; provided, however, that the foregoing release shall not
apply to: (i) any claims arising out of this Agreement, Parent Ancillary
Documents or the Seller Ancillary Documents, or (ii) in the case of the
officers of the Company, any claims arising out of their fraud or willful
misconduct.  For purposes of clarity, the
Shareholders knowingly, voluntarily and unconditionally release and discharge
the Company and Parent for any claim, cause of action, demand, suit, obligation
or liability associated with the Company’s cancellation of indebtedness
evidenced by certain promissory notes dated (A) January 1, 2006 from Mark Pugh
and Harold Deas, (B) August 1, 2006, October 26, 2006 and March 16, 2007 from
the John N. Kapoor Trust dated 9/20/89, (C) October 30, 2006 from Michael
Babich, and (D) December 12, 2006 from John Wesley, in an aggregate amount
(including principal and interest) equal to $2,216,828.66, made in exchange for
the sale and issuance by the Company of 3,141,452 shares of Company Common
Stock.

 

 46

Section
7.16           Termination of Certain
Agreements.  Prior to or at Closing,
the Company shall terminate, or cause to be terminated, and deliver to Parent
written evidence of termination, of the agreements and arrangements set forth
on Schedule 7.16 (the “Terminated Arrangements”), such that
the Company shall not have any liability following the Closing related to such
Terminated Arrangements, and no Person (other than Parent) shall have any
rights with respect to the Company’s capital stock.  Each such termination shall include a release
of the Company from any and all liabilities and obligations arising out of, or
related to, such Terminated Arrangement.

Section 7.17           HSR Act.

(a)           The
Parent and the Company will, within ten (10) Business Days of the date hereof,
file with the Federal Trade Commission (the “FTC”) and the Antitrust
Division of the Department of Justice (“DOJ”) the notifications and
other information required to be filed under the HSR Act with respect to the
transactions contemplated by this Agreement and shall otherwise comply with the
HSR Act.  Each of the Parent and the
Company shall use their commercially reasonable efforts to (i) cooperate in all
respects with each other in connection with any filing or submission and in
connection with any investigation or other inquiry, including any proceeding
initiated by a private party; (ii) promptly inform the other Party of any
communication received from, or given to, the FTC or DOJ and of any material
communication received or given in connection with any proceeding by a private
party, in each case regarding any of the transactions contemplated hereby; and
(iii) permit the other Party to review any necessary communication given by it
to, and consult with each other in advance of any meeting or conference with,
DOJ or the FTC or, in connection with any proceeding by a private party, with
any other Person, and to the extent permitted by DOJ or the FTC or such other
Person, give the other Party the opportunity to attend and participate in such
meetings and conferences.

(b)           The
Parties shall keep all information about the other obtained in connection with
the preparation of such notification confidential pursuant to the terms of that
certain Confidentiality Agreement, dated as of January 25, 2007, by and
between the Parent and the Company.  The Parent and the
Company will request early termination of the waiting period under the HSR
Act.  All filing fees in connection with
the HSR filing shall be borne equally by the Company on the one hand and the
Parent on the other hand.

(c)           Nothing
in this Section shall require the Parent or the Company to sell, hold separate
or otherwise dispose of any asset or to conduct their business in a specified
manner.

Section 7.18           Additional Obligations and Performance Payments.

(a)           From and
after the Closing, Parent shall use good faith, commercially reasonable efforts
to continue development and obtain approval for the Product for commercial sale
by prescription in the United States, including, without limitation, by the
filing of a new drug application with the FDA; provided, that, under no
circumstances 

 47
 

shall the
Parent be obligated to spend more than $10,000,000 in the aggregate, for
research, development and any other direct costs (i.e.,
excluding costs related to allocation of corporate overhead and other similar
costs) associated with such development and approval process.

(b)           Upon FDA
approval of the Product for commercial sale in the United States, Parent shall
make an additional one-time payment to the Shareholder Representative, on
behalf of the Shareholders, of $25,000,000 in the aggregate.  Parent shall further use commercially
reasonable efforts to market and sell the Product in the United States.

(c)           In
addition, if the Company achieves certain performance objectives set forth on Exhibit 7.18,
Parent shall make certain additional performance payments to the Shareholder
Representative, on behalf of the Shareholders, as set forth on such exhibit.

ARTICLE VIII

CONDITIONS TO CLOSING

Section
8.1             Conditions to Each
Party’s Obligations.  The respective
obligations of each Party to effect the transactions contemplated hereby shall
be subject to the fulfillment (or mutual waiver) at or prior to the Closing of
the expiration or termination of the waiting period applicable to the consummation
of the purchase and sale of the Shares under the HSR Act.

Section
8.2             Conditions to
Obligations of the Parent.  The
obligations of the Parent to consummate the transactions contemplated hereby
shall be subject to the fulfillment  (or
waiver by the Parent) at or prior to the Closing of each of the following
additional conditions:

(a)           Injunction. There shall be no
effective injunction, writ or preliminary restraining order or any order of any
nature issued or Law passed by a Governmental Entity of competent jurisdiction
to the effect that the transactions contemplated hereby may not be consummated
as provided herein, no proceeding or lawsuit shall have been commenced by any
Governmental Entity for the purpose of obtaining any such injunction, writ or
preliminary restraining order and no written notice shall have been received
from any Governmental Entity indicating an intent to restrain, prevent,
materially delay or restructure the transactions contemplated hereby, in each
case where the Closing would (or would be reasonably likely to) result in a
material fine or penalty payable by the Parent or the Company or a material
restriction on the operation of the Business as a result of such matter.

(b)           Consents. All Required
Consents shall have been obtained or made on terms and conditions reasonably
satisfactory to the Parent.

(c)           Representations and Warranties.  Each of the representations and warranties of
the Company set forth in Article IV and of the Shareholders contained in
Article V shall (i) have been true and correct in all material
respects as of the date hereof (except: (A) in the case of any representation or warranty that by its
terms is made as of a 

 48
 

date specified in such
representation or warranty, in which case such representation or warranty shall
be true and correct as of such date, and (B) those representations and
warranties which are qualified by materiality, which shall have been true and
correct in all respects) and (ii) be true and correct in all
material respects as of the Closing Date as though made on and as of the
Closing Date (except in the case
of any representation or warranty that by its terms is made as of a date
specified in such representation or warranty, in which case such representation
or warranty shall be true and correct as of such date), except where the
failure of one or more such representations or warranties to be true and
correct, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect.

(d)           Performance of Obligations of the
Company.  The Company shall have
performed in all material respects all covenants and agreements required to be
performed by each of them hereunder at or prior to the Closing.

(e)           No Material Adverse Effect.  Between the date hereof and the Closing Date,
there shall not have occurred any Material Adverse Effect.

(f)            Payoff Letters.  The Company shall have delivered to the
Parent satisfactory payoff letters (the “Payoff Letters”) evidencing the
outstanding amount of the Closing Date Indebtedness.

(g)           Release of Liens.  The Parent shall have received evidence
reasonably satisfactory to it that all Liens affecting any property or asset of
the Company (other than Permitted Liens) have been released, or will be
released upon repayment of the Closing Date Indebtedness pursuant hereto.

(h)           Opinion of Company’s Counsel.  The Parent shall have received an opinion of
Company’s counsel(s)  dated the
Closing Date, in form and substance reasonably satisfactory to Parent.

(i)            Termination of Terminated Arrangements.  The Parent shall have received evidence
(reasonably satisfactory to the Parent) that the Terminated Arrangements have
been terminated in accordance therewith.

(j)            Resignations and Releases.  All officers and directors of the Company
shall have delivered to the Parent their resignations as officers and
directors, effective as of the Closing Date, and general releases in form and
substance reasonably satisfactory to Parent (the “Resignations and Releases”).

(k)           Option Releases.  The holders of Company Stock Options
constituting not less than 90% of the total Company Stock Options outstanding
shall have delivered to the Parent the Option Releases.

(l)            Closing Date Indebtedness
Statement.  The Company shall have
delivered to the Parent the Closing Date Indebtedness Statement in accordance
with Section 3.2.

 49
 

(m)          Escrow Agreement.  The Parent shall have received an executed
counterpart of the Escrow Agreement from the Escrow Agent.

(n)           Certificate of Merger.  The Certificate of Merger shall have been
duly accepted for filing by the Secretary of State of the State of Georgia.

(o)           Audit Opinion.  The Parent shall have received a copy of an
audit opinion of BDO Seidman, LLP, expressing its opinion as to the audit of
the financial statements of the Company for the calendar year 2006.

(p)           Ancillary Documents.  The Company shall have delivered, or caused
to be delivered, to the Parent the documents listed in Section 9.2.

Section
8.3             Conditions to
Obligations of the Shareholders.  The
obligations of the Shareholders to consummate the transactions contemplated
hereby shall be subject to the fulfillment (or waiver by the Shareholder
Representative) at or prior to the Closing of each of the following additional
conditions:

(a)           Injunction.  There shall be no effective injunction, writ
or preliminary restraining order or any order of any nature issued by a
Governmental Entity of competent jurisdiction to the effect that the
Acquisition may not be consummated as provided herein, no proceeding or lawsuit
shall have been commenced by any Governmental Entity for the purpose of
obtaining any such injunction, writ or preliminary restraining order and no
written notice shall have been received from any Governmental Entity indicating
an intent to restrain, prevent, materially delay or restructure the
transactions contemplated hereby, in each case where the Closing would (or
would be reasonably likely to) result in a material fine or penalty payable by
the Shareholders or a material restriction on the Company’s operations as a
result of such matter.

(b)           Consents.  All consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any
Governmental Entity required in connection with the execution, delivery or
performance hereof shall have been obtained or made on terms and conditions
reasonably satisfactory to the Shareholder Representative.

(c)           Representations and Warranties.  Each of the representations and warranties of
the Parent set forth in Article VI shall (i) have been true and correct in
all respects as of the date hereof (except in the case of any representation or warranty that by its terms
is made as of a date specified in such representation or warranty, in which
case such representation or warranty shall be true and correct as of such date)
and (ii) be true and correct in all respects as of the Closing Date as
though made on and as of the Closing Date (except
in the case of any representation or warranty that by its terms is made as of a
date specified in such representation or warranty, in which case such
representation or warranty shall be true and correct as of such date).

 50
 

(d)           Performance of Obligations by the
Parent.  The Parent shall have
performed in all material respects all covenants and agreements required to be
performed by it hereunder on or prior to the Closing Date.

(e)           Escrow Agreement.  The Shareholder Representative shall have
received an executed counterpart of the Escrow Agreement from the Escrow Agent.

(f)            Opinion of Parent’s Counsel.  The Company shall have received an opinion of
Paul, Hastings, Janofsky & Walker LLP dated
the Closing Date, in form and substance reasonably satisfactory to Company.

(g)           Certificate of Merger.  The Certificate of Merger shall have been
duly accepted for filing by the Secretary of State of the State of Georgia.

(h)           Ancillary Documents.  The Parent shall have delivered, or caused to
be delivered, to the Shareholders and the Company the documents listed in
Section 9.3.

ARTICLE IX

CLOSING

Section
9.1             Closing Location.  The Closing shall take place at the time
specified in Section 2.2 of this Agreement, at the offices of Paul, Hastings,
Janofsky & Walker LLP, 600 Peachtree Street, NE, Suite 2400, Atlanta,
Georgia 30308, or at such other place as the Parties may agree.

Section
9.2             Company and Shareholder
Closing Deliveries.  At the Closing,
the Company and/or the Shareholders, as applicable, shall deliver to the Parent
the following:

(a)           a certificate executed by the
Shareholders as to compliance with the conditions set forth in Section 8.2(c)
and Section 8.2(d) hereof;

(b)           certificates representing the Shares,
duly endorsed in blank or accompanied by duly executed stock powers or other
assignment documents;

(c)           the Payoff Letters;

(d)           the Resignations and Releases;

(e)           the Escrow Agreement;

(f)            the organizational record books,
minute books and corporate seal of the Company;

(g)           a certificate by the Secretary or any
Assistant Secretary of the Company, dated as of the Closing Date, as to (i) the
good standing of the Company in its jurisdiction of incorporation and in each
other jurisdiction where it is qualified to do business, and (ii)  the
effectiveness of the resolutions of the board of directors of the Company and
the 

 51
 

Shareholders authorizing the Merger, and the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby;

(h)           the Certificate of Merger; and

(i)            all other documents required to be
entered into by the Company and the Shareholders pursuant hereto or reasonably
requested by the Parent to convey the Shares to the Parent or to otherwise
consummate the transactions contemplated hereby.

Section
9.3             Parent Closing
Deliveries.  On the Closing, the
Parent shall deliver, or caused to be delivered, to the Shareholder
Representative the following:

(a)           the Adjusted Merger Payment to be
paid at Closing pursuant to Section 3.1, paid and delivered in accordance with
such Section;

(b)           a certificate of an authorized
officer as to compliance with the conditions set forth in Section 8.3(c) and
Section 8.3(d);

(c)           the Escrow Agreement;

(d)           the Certificate of Merger; and

(e)           all other documents required to be
entered into or delivered by the Parent at or prior to the Closing pursuant
hereto.

ARTICLE X

TERMINATION

Section
10.1           Termination.  This Agreement may be terminated:

(a)           in writing by mutual consent of the
Parent and the Shareholder Representative;

(b)           by written notice from the
Shareholder Representative to the Parent, in the event the Parent (i) fails to
perform in any material respect any of its agreements contained herein required
to be performed by it at or prior to the Closing or (ii) materially breaches
any of its representations and warranties contained herein, which failure or
breach is not cured within ten (10) days following the Shareholder
Representative having notified the Parent of its intent to terminate this
Agreement pursuant to this Section 10.1(b);

(c)           by written notice from the Parent to
the Shareholder Representative, in the event the Company or the Shareholders
(i) fail to perform in any material respect any of their agreements contained
herein required to be performed by it at or prior to the Closing or (ii)
materially breach any of their representations and warranties contained herein,
which failure or breach is not cured within ten (10) days following the Parent
having 

 52
 

notified the Shareholder Representative of its intent
to terminate this Agreement pursuant to this Section 10.1(c);

(d)           by written notice by the Shareholder
Representative to the Parent or the Parent to the Shareholder Representative,
as the case may be, in the event the Closing has not occurred on or prior to
June 25, 2007 (the “Expiration Date”) for any reason other than delay or
nonperformance of the Party seeking such termination, provided  however,
if the only condition to Closing that has not been satisfied is the condition
in Section 8.1, such date shall be extended to July 25, 2007.

Section
10.2           Specific Performance and
Other Remedies.  Each Party hereby
acknowledges that the rights of each Party to consummate the transactions
contemplated hereby are special, unique and of extraordinary character and
that, in the event that any Party violates or fails or refuses to perform any
covenant or agreement made by it herein, the non-breaching Party may be
without an adequate remedy at law.  In
the event that any Party violates or fails or refuses to perform any covenant
or agreement made by such Party herein, the non-breaching Party or
Parties may, subject to the terms hereof and in addition to any remedy at law
for damages or other relief, institute and prosecute an action in any court of
competent jurisdiction to enforce specific performance of such covenant or
agreement or seek any other equitable relief

Section
10.3           Effect of Termination.  In the event of termination of this Agreement
pursuant to this Article X, this Agreement shall forthwith become void and
there shall be no continuing obligation on the part of any Party or its
officers, directors or stockholders, except for obligations under Section 7.7
(Public Announcements), Section 10.2 (Specific Performance and Other Remedies),
Section 12.2 (Notices), Section 12.6 (Controlling Law), Section 12.7
(Severability), Section 12.9 (Enforcement of Certain Rights), Section 12.10
(Waiver; Amendment) and Section 12.14 (Transaction Costs) and this Section
10.3, all of which shall survive the Termination Date.  Notwithstanding the foregoing, nothing
contained herein shall relieve any Party from liability arising out of any
breach of the representations, warranties, covenants or agreements set forth herein
and arising prior to termination.

ARTICLE XI

INDEMNIFICATION

Section
11.1           Indemnification
Obligations of the Key Shareholders and the Company.  The Key Shareholders and the Company shall,
jointly and severally, indemnify, defend and hold harmless the Parent
Indemnified Parties from, against, and in respect of, any and all Losses
arising out of or relating to:

(a)           any breach or inaccuracy of any
representation or warranty made by the Company contained in Article III of this
Agreement or by the Company in the Seller Ancillary Documents, whether such
representation and warranty is made as of the date hereof or as of the Closing
Date, after giving effect to any supplement to the Disclosure Schedules
delivered pursuant to Section 7.3;

 53
 

(b)           any breach of any covenant, agreement
or undertaking made by the Company or the Shareholders in this Agreement or the
Seller Ancillary Documents; and

(c)           the Closing Date Indebtedness.

Section
11.2           Indemnification
Obligations of Shareholders.  The
Shareholders, severally and not jointly, shall indemnify, defend and hold
harmless the Parent Indemnified Parties from, against, and in respect of, any
and all Losses arising out of or relating to:

(a)           any breach or inaccuracy of any
representation or warranty made by such Shareholder contained in Article V of
this Agreement or in any Seller Ancillary Document, whether such representation
and warranty is made as of the date hereof or as of the Closing Date, after
giving effect to any supplement to the Disclosure Schedules delivered pursuant
to Section 7.3; and

(b)           any breach of any covenant, agreement
or undertaking made by such Shareholder in this Agreement or in any Seller
Ancillary Documents; and

(c)           any liability or obligation of the
Company for (i) other than Taxes which arise out of or relate to the Section
338(h)(10) Election or Transfer Taxes allocated to Parent pursuant to Section
7.9, any Taxes with respect to any Tax period ending on or before the Closing
Date or any Tax period beginning before and ending after the Closing Date to
the extent allocable (determined in a manner consistent with Section 7.11(b) to
the portion of such period beginning before and ending on the Closing Date), or
(ii) the unpaid Taxes of any Person under Treasury Regulations Section 1.1502-6
(or any similar provision of other federal, provincial, state, local or foreign
Tax law), as a transferee or successor, by Contract or otherwise, in each case
to the extent not reflected as a liability in the Final Working Capital
Schedule.

Section
11.3           Indemnification
Obligations of the Parent.  Parent
shall indemnify and hold harmless the Shareholder Indemnified Parties from,
against and in respect of any and all Losses arising out of or relating to:

(a)           any breach or inaccuracy of any
representation or warranty made by Parent in this Agreement or in any Parent
Ancillary Document, whether such representation and warranty is made as of the
date hereof or as of the Closing Date; and

(b)           any breach of any covenant, agreement
or undertaking made by Parent in this Agreement or in any Parent Ancillary
Document.

Section
11.4           Indemnification
Exclusive Remedy.  The sole recourse
and exclusive remedy of any party hereto for the breach of any representations,
warranties, covenants and agreements contained in this Agreement, the
Schedules, or any agreement, instrument or certificate contemplated hereby, or
otherwise arising from the transactions contemplated hereby or the operations
of the Company prior to the Closing, (but excluding any Seller Ancillary
Documents or Parent Ancillary Documents), shall be to assert a claim for
indemnification under the indemnification provisions of Section 11.1, 11.2 or
11.3, as applicable.  In furtherance of
the 

 54
 

foregoing, each
indemnified party hereby waives, from and after the Closing, to the fullest
extent permitted under applicable law, any and all rights, claims, and causes
of action it may have against any indemnifying party relating to the subject
matter of this Agreement based upon predecessor or successor liability,
contribution, tort or strict liability or any federal, state, local or foreign
statute, law, rule, regulation or ordinance or otherwise; provided,
however, that the limitations and waiver of this Section shall not apply to:
(i) any claim arising from fraud, (ii) any claim arising from the willful
misconduct of any officer of the Company, or (iii) any claim for equitable
relief (e.g. injunctive relief or specific performance).

Section
11.5           Indemnification
Procedure.

(a)           Promptly following receipt by an
Indemnified Party of notice by a third party (including any Governmental
Entity) of any complaint, dispute or claim or the commencement of any audit,
investigation, action or proceeding with respect to which such Indemnified
Party may be entitled to receive payment from the other Party for any Losses,
such Indemnified Party shall promptly provide written notice thereof (a “Notice
of Claim”) to the Parent or the Shareholder Representative, as the case may
be (the “Indemnifying Party”), including the amount and specific factual
and legal basis for such claim, and give the Indemnifying Party a copy of such
claim, process and all legal pleadings and other written evidence thereof
received by the Indemnified Party; provided, however, that the
failure to so notify the Indemnifying Party shall relieve the Indemnifying
Party from liability hereunder with respect to such claim only if, and only to
the extent that, such failure to so notify the Indemnifying Party results in
the forfeiture by the Indemnifying Party of rights and defenses otherwise
available to the Indemnifying Party with respect to such claim.  The Indemnifying Party shall have the right,
upon written notice delivered to the Indemnified Party within twenty (20) days
thereafter assuming full responsibility for any Losses resulting from such
audit, investigation, action or proceeding, to assume the defense of such
audit, investigation, action or proceeding, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of the fees
and disbursements of such counsel.  In
the event, however, that the Indemnifying Party declines or fails to assume the
defense of the audit, investigation, action or proceeding on the terms provided
above and so notify the Indemnified Party within such 20-day period, or if the
Indemnifying Party is barred from assuming such defense pursuant to this
Section 11.5 then the Indemnified Party shall have the right to assume such
defense, subject to the participation of the Indemnifying Party, as provided in
this Section 11.5, and the Indemnified Party’s fees and expenses (including
reasonable fees and expenses of counsel) in connection with such defense will
be borne by the Indemnifying Party.  In
any audit, investigation, action or proceeding for which indemnification is being
sought hereunder the Indemnified Party or the Indemnifying Party, whichever is
not assuming the defense of such action, shall have the right to participate in
such matter and to retain its own counsel at such Party’s own expense.  The Indemnifying Party or the Indemnified
Party (as the case may be) shall at all times use commercially reasonable
efforts to keep the Indemnifying Party or Indemnified Party (as the case may
be) reasonably apprised of the status of the defense of any matter the defense
of which it is maintaining and to cooperate in good faith with each other with
respect to the defense of any such matter. 
If the Indemnified Party shall be 

 55
 

required by judgment or a settlement agreement to pay
any amount or perform any action in respect of any obligation or liability
pursuant to which the Indemnified Party may make a claim against the Escrow
Amount, the Indemnified Party shall make a claim with the Escrow Agent for such
amount or the reasonable and documented cost of performing such action (which
shall include all reasonable legal fees and documented expenses related
thereto) to be withdrawn from the Escrow Account in accordance with the terms
and provisions of the Escrow Agreement, subject to this Article XI.

(b)           In the event of a claim against the
Escrow Amount, all such reasonable fees and expenses in connection with the
defense of such claim shall be advanced from the Escrow Amount in accordance
with the Escrow Agreement, and Parent and the Shareholder Representative shall
execute any joint written notice to the Escrow Agent and otherwise to cooperate
with the other in obtaining such advance or advances of funds.

(c)           No Indemnified Party may settle or
compromise any claim or consent to the entry of any judgment with respect to
which indemnification is being sought hereunder without the prior written
consent of the Indemnifying Party (which may not be unreasonably withheld or
delayed), unless (i) the Indemnifying Party fails to assume and maintain the
defense of such claim pursuant to Section 11.5(a) or (ii) such settlement,
compromise or consent includes an unconditional release of the Indemnifying
Party and its officers, directors, employees and Affiliates from all liability
arising out of, or related to, such claim. 
An Indemnifying Party may not, without the prior written consent of the
Indemnified Party, settle or compromise any claim or consent to the entry of
any judgment with respect to which indemnification is being sought hereunder
unless such settlement, compromise or consent (x) includes an unconditional
release of the Indemnified Party and its officers, directors, employees and
Affiliates from all liability arising out of, or related to, such claim, (y)
does not contain any admission or statement suggesting any wrongdoing or liability
on behalf of the Indemnified Party and (z) does not contain any equitable
order, judgment or term that in any manner affects, restrains or interferes
with the business of the Indemnified Party or any of the Indemnified Party’s
Affiliates.

Section
11.6           Survival Period.  The representations and warranties of the
Parties contained herein shall not be extinguished by the Closing, but shall
survive the Closing for, and all claims for indemnification in connection
therewith shall be asserted not later than, eighteen
(18) months  following the
Closing Date; provided, however, that (a) each of the representations
and warranties contained in Section 4.1 (Organization), Section 4.2
(Authorization), those provisions of Section 4.15 (Tax Returns; Taxes) other
than Section 4.15(q), solely to the extent that such provisions of Section 4.15
relate to income Taxes only, Section 4.15(q), Section 5.1 (Authorization), and
Section 5.3 (Ownership of Equity) (collectively, the “Surviving
Representations”) shall survive and continue for, and all indemnification
claims with respect thereto shall be made prior to: (i) in the case of those
provisions of Section 4.15 (Tax Returns; Taxes) other than Section 4.15(q),
solely to the extent that such provisions of Section 4.15 relate to income
Taxes only, and Section 4.15(q), the expiration of the applicable statute of
limitations, and (ii) in the case of Section 4.1, Section 4.2 and Section 5.3,
two (2) years following the 

 56
 

Closing Date.  Notwithstanding the foregoing, if, prior to
the close of business on the last day a claim for indemnification may be
asserted hereunder, an Indemnifying Party shall have been properly notified of
a claim for indemnity hereunder and such claim shall not have been finally
resolved or disposed of at such date, such claim shall continue to survive and
shall remain a basis for indemnity hereunder until such claim is finally
resolved or disposed of in accordance with the terms hereof.

Section 11.7           Liability
Limits.  Notwithstanding anything to
the contrary set forth herein, the Parent Indemnified Parties shall not make a
claim against the Shareholders (including the Key Shareholders) or the Company
for indemnification under Sections 11.1(a), 11.1(b) (except in the case of
Section 11.1(b), any covenants, agreements or undertakings set forth in
Sections 7.1(b), 7.1 (d)-(o),
7.1 (q)-(t), 7.2, 7.5, 7.9, 7.10, 7.14, 
7.16 and 7.17) or Section 11.2 for Losses unless and until the aggregate amount of such Losses with respect to
any claim or series of related claims for which the Parent Indemnified Parties
are otherwise entitled to indemnification exceeds $1,500,000 (the “Parent
Deductible”) (it being understood and agreed that the Parent Deductible is
intended as a deductible).  If the
aggregate amount of Losses for which the Parent Indemnified Parties are
entitled to indemnification under the provisions cited in the first sentence of
this Section 11.7 exceeds the Parent Deductible, the Parent Indemnified Parties
shall be entitled to be paid the excess of the aggregate amount of all such
Losses over the Parent Deductible, subject to the other limitations on recovery
set forth in this Article XI.  The total aggregate amount of the liability of
the Shareholders and the Company for Losses with respect to any claims made
pursuant to the provisions cited
in the first sentence of this Section 11.7 shall be limited to the Escrow Amount and the sole and exclusive remedy
of Parent shall be to proceed against the Escrow; provided, however, that:
(i) the liability of the Shareholders for Losses arising out of or related to
fraud shall not be subject to the Parent Deductible or limited to the Escrow
Amount, (ii) the liability of the Shareholders for Losses arising out of or
related to a breach of any of the Surviving Representations shall not be
subject to the Parent Deductible or limited to the Escrow Amount, but shall be
capped at the amount of the Adjusted Merger Payment; provided further, however,
Losses arising out of or related to a breach of Section 4.15(q) shall be capped
at $10,250,000, and (iii) for purposes of calculating the Parent Deductible,
any breaches of any representation or warranty shall be calculated without
reference to any materiality or adverse effect qualifier or exception set forth
in such representation or warranty.

Section
11.8           Investigations.  The respective representations and warranties
of the Parties contained in this Agreement or any certificate or other document
delivered by any Party at or prior to the Closing and the rights to
indemnification set forth herein shall not be deemed waived or otherwise
affected by any investigation made, or knowledge acquired, by a Party.

Section
11.9           Calculation of Losses.  Losses shall be calculated net of any Tax
benefits actually realized by the Indemnified Party or any Affiliate of the
Indemnified Party as a result of the events giving rise to its right to
indemnification under this Article XI.

 57

 

ARTICLE XII

MISCELLANEOUS PROVISIONS

Section
12.1           Shareholder
Representative.

(a)           John N. Kapoor, Ph.D., is hereby
irrevocably appointed as representative, agent and attorney-in-fact for the
Company and each Shareholder, (i) to give and receive notices and
communications relating to the transactions and other matters contemplated by
this Agreement or the Seller Ancillary Documents, including those relating to
adjustments to the Merger Payment and indemnification claims; (ii) to make
decisions on behalf of the Company and the Shareholders with respect to the
transactions and other matters contemplated by this Agreement or the Seller
Ancillary Documents, including regarding (A) adjustments to the Merger Payment,
(B) indemnification claims, (C) amendments to this Agreement or the Seller
Ancillary Documents and (D) the defense of third party suits that may be the
subject of indemnification claims, and to negotiate, enter into settlements and
compromises of, and demand litigation or arbitration with respect to such third
party suits or claims by the Parent for indemnification; and (iii) to take
other actions on behalf of the Company and the Shareholders as contemplated by
this Agreement or the Seller Ancillary Documents, including the exercise of all
rights granted to the Company and the Shareholders under this Agreement or the
Seller Ancillary Documents.

(b)           The Company and each Shareholder
agrees that (i) the provisions of this Section 12.1 are independent and
severable, are irrevocable and coupled with an interest and shall be
enforceable notwithstanding any rights or remedies the Company or any
Shareholder may have in connection with the transactions contemplated by this
Agreement or the Seller Ancillary Documents, (ii) the remedy at law for
any breach of the provisions of this Section 12.1 would be inadequate, and
(iii) the provisions of this Section 12.1 shall be binding upon the
successors and assigns of the Company and each Shareholder.

(c)           A decision, act, consent or
instruction of the Shareholder Representative relating to this Agreement or the
Seller Ancillary Documents shall constitute a decision for the Company and all
Shareholders, and shall be final, binding and conclusive upon the Company and
the Shareholders, and the Parent may rely upon any such decision, act, consent
or instruction of the Shareholder Representative as being the decision, act,
consent or instruction of the Company and every Shareholder.  The Shareholders shall indemnify and hold
harmless the Parent from any action or omission on their behalf at the request
or instruction of Shareholder Representative.

Section
12.2           Notices.  All notices, communications and deliveries
required or made hereunder must be made in writing signed by or on behalf of
the Party making the same, shall specify the Section hereunder pursuant to
which it is given or being made, and shall be delivered personally or by
telecopy transmission or by a national overnight courier service or by
registered or certified mail (return receipt requested) (with postage and other
fees prepaid) as follows:

 58
 

 

	
  To the Parent:

  	
   

  	
  Sciele Pharma, Inc.

  5 Concourse Pky.

  Atlanta, Georgia 30328

  Attn: General Counsel

  Facsimile No.: 678.992.1043

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Paul, Hastings, Janofsky & Walker LLP

  600 Peachtree Street, NE, Suite 2400

  Atlanta, Georgia 30308-2222

  Attn: W. Tinley Anderson, III

  Facsimile No.: (404) 685-5215

  
	
   

  	
   

  	
   

  
	
  To the Company or

  the Shareholders:

  	
   

  	
  Alliant Pharmaceuticals, Inc.

  333 North Point Center East, Suite 250

  Alpharetta, Georgia 30022

  Attn: Mark Pugh

  Facsimile No.: (770) 817-4501

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  McKee and McKee, P.C.

  3820 Mansell Road, Suite 250

  Alpharetta, GA 30022

  Attn: Christopher J. McKee

  Facsimile No.:(770) 640-1184

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  McDermott, Will & Emery

  227 W. Monroe Street, Suite 4400

  Chicago, IL 60606

  Attn: Thomas J. Murphy

  Facsimile No.: (312) 984-7700

  

 

or to such other representative or at such other address of a Party as
such Party may furnish to the other parties in writing.  Any such notice, communication or delivery
shall be deemed given or made (a) on the date of delivery, if delivered in
person, (b) upon transmission by facsimile if receipt is confirmed by
telephone, (c) on the first (1st) Business Day following delivery to a national
overnight courier service or (d) on the fifth (5th) Business Day following
it being mailed by registered or certified mail.

Section
12.3           Schedules and Exhibits.  The Schedules and Exhibits are hereby
incorporated into this Agreement and are hereby made a part hereof as if set
out in full herein.

Section
12.4           Assignment; Successors
in Interest.  No assignment or
transfer by any Party of such Party’s rights and obligations hereunder shall be
made except with the prior written consent of the other Parties; provided that
the Parent shall, without the obligation to obtain the prior written consent of
any other Party, be entitled to assign this Agreement or all or any part of

 59
 

its rights or obligations
hereunder to one or more Affiliates of the Parent.  This Agreement shall be binding upon and shall
inure to the benefit of the Parties and their respective successors and
permitted assigns, and any reference to a Party shall also be a reference to
the successors and permitted assigns thereof.

Section
12.5           Captions.  The titles, captions and table of contents
contained herein are inserted herein only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.

Section
12.6           Controlling Law.  This Agreement shall be governed by and
construed and enforced in accordance with the internal Laws of the State of
Georgia without reference to its choice of law rules.  Each Party irrevocably
and unconditionally (a) consents to submit to the exclusive jurisdiction of the
state courts sitting in Fulton County, Georgia and of the United States
District Court for the Northern District of Georgia for any action, dispute,
suit or proceeding arising out of or relating to this Agreement (and each party
irrevocably and unconditionally agrees not to commence any such action,
dispute, suit or proceeding except in such courts), (b) waives any objection to
the laying of venue of any such action, dispute, suit or proceeding in any such
courts and (c) waives and agrees not to plead or claim that any such action,
dispute, suit or proceeding brought in any such court has been brought in an
inconvenient forum.

Section
12.7           Severability.  Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.  To the extent permitted by Law, each Party
hereby waives any provision of law that renders any such provision prohibited
or unenforceable in any respect.

Section
12.8           Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or the terms hereof to produce or
account for more than one of such counterparts.

Section
12.9           No Third Party
Beneficiaries.  Nothing expressed or
implied herein, other than as set forth in Section 7.13,  is intended, or shall be construed, to confer
upon or give any Person other than the Parties, and their successors or
permitted assigns, any right, remedy, obligation or liability under or by
reason of this Agreement, or result in such Person being deemed a third-party
beneficiary hereof.

Section
12.10         Waiver; Amendment.  Any agreement on the part of a Party to any
extension or waiver of any provision hereof shall be valid only if set forth in
an instrument in writing signed on behalf of such Party.  A waiver by a Party of the performance of any
covenant, agreement, obligation, condition, representation or warranty shall
not be construed as a waiver of any other covenant, agreement, obligation,
condition, representation or warranty.  A
waiver by any Party of the performance of any act shall not constitute a waiver
of the performance of any 

 60
 

other act or an identical
act required to be performed at a later time. 
This Agreement may not be amended, modified or supplemented except by
written agreement of the Parties.

Section
12.11         Integration.  This Agreement and the documents executed
pursuant hereto supersede all negotiations, agreements and understandings among
the Parties with respect to the subject matter hereof (except for that certain
Confidentiality Agreement, dated as of January 25, 2007, by and between
the Parent and the Company) and constitute the entire agreement among the
Parties with respect thereto.

Section
12.12         Interpretation.  Where the context requires, the use of a
pronoun of one gender or the neuter is to be deemed to include a pronoun of the
appropriate gender.  References herein to
any Law shall be deemed to refer to such Law, as amended from time to time, and all rules and regulations promulgated
thereunder.  The words “include,” “includes,”
and “including” shall not be deemed to be terms of limitation, but rather shall
be deemed to be followed by the words “without limitation.”  Except as otherwise indicated, all references
in this Agreement to “Sections” and “Exhibits” are intended to refer to
Sections of this Agreement and Exhibits of this Agreement.

Section
12.13         Cooperation Following the
Closing.  Following the Closing, each
Party shall deliver to the other Parties such further information and documents
and shall execute and deliver to the other Parties such further instruments and
agreements as any other Party shall reasonably request to consummate or confirm
the transactions provided for herein, to accomplish the purpose hereof or to
assure to any other Party the benefits hereof.

Section
12.14         Transaction Costs.  Except as provided above or as otherwise
expressly provided herein, (a) the Parent shall pay its own fees, costs and
expenses incurred in connection herewith and the transactions contemplated
hereby, including the fees, costs and expenses of its financial advisors,
accountants and counsel, and (b) the Shareholders shall pay the fees, costs and
expenses of the Company and the Shareholders incurred in connection herewith
and the transactions contemplated hereby, including the fees, costs and
expenses of financial advisors, accountants and counsel to the Shareholders.

*  *  *

 61

 

IN WITNESS WHEREOF, the Parties have caused this
Agreement to be duly executed, as of the date first above written.

	
  

  	
  PARENT:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SCIELE PHARMA, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patrick Fourteau

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Patrick Fourteau

  	
   

  
	
   

  	
   

  	
  Title:  President
  and CEO

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MERGER SUB:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SP ACQUISITION CORP.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Darell Borne

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   Name: Darrell
  Borne

  	
   

  	
   

  
	
   

  	
   

  	
   Title:   Secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  COMPANY:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ALLIANT PHARMACEUTICALS, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark W. Pugh

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   Name: Mark W.
  Pugh

  	
   

  	
   

  
	
   

  	
   

  	
   Title:   President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SHAREHOLDER REPRESENTATIVE:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ John N. Kapoor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  JOHN N. KAPOOR, PH.D.

  	
   

  	
   

  
									

 

 

	
  

  	
  SHAREHOLDERS:

  	
   

  	
  

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  JOHN N. KAPOOR TRUST DATED 

  	
   

  	
   

  
	
   

  	
  SEPTEMBER 29, 1989

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ John N.
  Kapoor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: John N. Kapoor, Ph.D.

  	
   

  	
   

  
	
   

  	
  Title:   Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KAPOOR CHILDREN’S 1992 TRUST

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Rao
  Akella

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: Rao Akella

  	
   

  	
   

  
	
   

  	
  Title:   Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ John N. Kapoor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  JOHN N. KAPOOR, PH.D.*

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ Mark W. Pugh

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MARK W. PUGH

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ Harold A. Deas, Jr.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HAROLD A. DEAS, JR.

  	
   

  	
   

  

 

 

	
  

  	
  /s/ John N. Kapoor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MICHAEL R. STRESSER

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ John R. Wesley

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  JOHN R. WESLEY

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ Steven Meyer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  STEVEN MEYER

  	
   

  	
   

  

 

	
  

  	
  /s/ Dennis L. Spangler

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  DENNIS L. SPANGLER

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ Marc Cantu

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MARC CANTU

  	
   

  	
   

  

 

*As proxy for each of the following:

	
  Michael Babich

  
	
  Rao Akella

  
	
  Barbara Hoff

  
	
  Vikram Malhotra

  
	
  Sanjiv Mehra

  
	
  Shashi Mehra

  
	
  Rajesh Aneja

  
	
  Robert Kapoor

  
	
  Gopal Mehra

  
	
  Sharon Stanfield

  
	
  Mary Gauwitz

  
	
  Rudi Teifke

  
	
  Nelida Oquendo

  

 

 

 

Exhibit
3.6

ESCROW
AGREEMENT

This Escrow Agreement (this “Escrow Agreement”), dated as of                    ,
2007 (the “Closing Date”),
is entered into by and among Sciele Pharma, Inc., a Georgia corporation (“Parent”), John N. Kapoor, Ph.D.,
in his capacity as representative (the “Representative”) on behalf of
the Shareholders and LaSalle Bank National Association, a national banking
association, as escrow agent (the “Escrow
Agent”).  Capitalized terms
used herein and not otherwise defined shall have the same meaning ascribed to
such terms in that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of April 24, 2007,
by and among Parent, SP Acquisition Corp., a Georgia corporation (“Merger Sub”), Alliant Pharmaceuticals, Inc., a
Georgia corporation (the “Company”), and
certain shareholders of the Company (the “Shareholders”).

RECITALS

WHEREAS, Parent, Merger Sub and the Company have
entered into the Merger Agreement providing for the merger of the Company with
and into Merger Sub, with Merger Sub as the surviving entity (the “Surviving Corporation”), the closing with respect
to which (the “Closing”) is taking place
concurrently with the execution hereof;

NOW, THEREFORE, in consideration of the consummation
of the transactions contemplated by the Merger Agreement, and payment to the
Escrow Agent of the sums set forth herein, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

AGREEMENT

The parties, intending to be legally bound, agree as
follows:

1.             ESTABLISHMENT OF ESCROW

(a)           Parent is depositing with Escrow
Agent $12,500,000 in cash (such cash together with any interest and other
earnings thereon is referred to herein as, the “Escrowed Funds”).

(b)           Escrow Agent acknowledges
receipt of the Escrowed Funds.

(c)           Escrow Agent agrees to act as escrow
agent and to hold, safeguard and disburse the Escrowed Funds pursuant to the
terms and conditions hereof.

2.             INVESTMENT OF FUNDS

Except as Representative and Parent may from time to
time jointly instruct Escrow Agent in writing, the Escrowed Funds shall be
invested from time to time, to the extent possible, in (i) direct obligations
of the United States of America or obligations for which the full 

faith and credit of the United States of America is
pledged to provide for the payment of principal and interest,
(ii) commercial paper rated of the highest quality by Moody’s Investors
Service, Inc. or Standard & Poor’s Corporation,
(iii) certificates of deposit issued by a commercial bank or banks having
at least $100,000,000 in undivided capital and surplus or (iv) an immediately
available money market account in a commercial bank or banks having at least
$100,000,000 in individual capital and surplus. 
None of the Escrowed Funds shall be invested in any obligation or
instrument having a maturity which exceeds one hundred (100) days from the date
of purchase or which cannot be sold, redeemed or otherwise liquidated at the
holder’s option in thirty (30) days or less without loss of interest or
discount, until disbursement of all Escrowed Funds.  Escrow Agent is authorized to liquidate in
accordance with its customary procedures any portion of the Escrowed Funds
consisting of the investments described in this Section 2 to provide for
payments required to be made under this Escrow Agreement.

3.             DISBURSEMENT OF ESCROWED
FUNDS

(a)           In accordance with the provisions set
forth below, the Escrowed Funds will be used: (i) to fund the obligations of
the Shareholder Representative to pay any post-Closing working capital
adjustment pursuant to Section 3.9 of the Merger Agreement, and (ii) to pay any
Losses properly payable to any Parent Indemnified Parties from the Escrowed
Funds pursuant to Article XI of the Merger Agreement .

(b)           From time to time on or before the
eighteen (18) month anniversary of the date hereof (the “Termination Date”),
Parent may give written notice to the Representative and Escrow Agent (a “Claim Notice”) specifying (i) in
reasonable detail, the nature and dollar amount of any claim (a “Claim”) for Escrowed Funds that
Parent has under the Merger Agreement as contemplated by Section 3(a) above,
and (ii) the amount of such Claim.  If
the Representative gives written notice to Parent and the Escrow Agent
disputing any Claim (a “Counter
Notice”) within thirty (30) calendar days following receipt by the
Representative of the applicable Claim Notice, such Claim shall be resolved by
Parent and the Representative as provided in Section 3(d) of this Escrow Agreement.  Until such resolution, the amount of the
Claim shall not be paid by the Escrow Agent to either party.

(c)           If no Counter Notice is received by
Escrow Agent within such thirty (30) calendar day period, Escrow Agent shall
pay the dollar amount set forth in the Claim Notice to Parent from the Escrowed
Funds.  Escrow Agent shall not be
required to inquire into or consider whether a Claim complies with the
requirements of the Merger Agreement.

(d)           If a Counter Notice is given with
respect to a Claim, Escrow Agent shall make payment with respect thereto only
in accordance with (i) joint written instructions of Parent and the
Representative, or (ii) a final non-appealable order of a court of competent
jurisdiction.    Escrow Agent shall be
entitled to act on such court order.

4.             TERMINATION OF ESCROW

(a)           This Escrow Agreement shall terminate
upon the first to occur of the following: 
(i) the date of the distribution of the entire balance of the
Escrowed Funds pursuant to Section 3  

hereof or (ii) the
Termination Date, except if on the Termination Date there is any pending Claim,
in which event, this Escrow Agreement shall terminate upon final resolution of
all such Claims in accordance with the terms hereof.

(b)           On the date that is twelve (12)
months after the Closing Date, the Escrow Agent shall continue to hold the
greater of: (i) 50% of the Escrowed Funds and (ii) the amount of the Escrowed
Funds then subject to any pending Claim. 
The balance (if any) of the Escrowed Funds, shall be returned to the
Representative to be distributed to the Shareholders.  On the Termination Date, the balance (if any)
of the Escrowed Funds, less the amount of any pending Claims made prior to such
date, shall be returned to the Representative to be distributed to the
Shareholders.

5.             DUTIES OF ESCROW AGENT

(a)           This Escrow Agreement expressly sets
forth all the duties of Escrow Agent with respect to any and all matters
pertinent hereto.  No implied duties or
obligations shall be read into this Escrow Agreement against Escrow Agent.

(b)           Escrow Agent shall not be under any
duty to give the Escrowed Funds held by it hereunder any greater degree of care
than it gives its own similar property and shall not be required to invest any
funds held hereunder except as directed in this Escrow Agreement.

(c)           Escrow Agent shall not be liable,
except for its own gross negligence or willful misconduct and, except with
respect to claims based upon such gross negligence or willful misconduct that
are successfully asserted against Escrow Agent. 
Without limiting the foregoing, Escrow Agent shall in no event be liable
in connection with its investment or reinvestment of any cash held by it
hereunder in good faith, in accordance with the terms hereof, including,
without limitation, any liability for any delays (not resulting from its gross
negligence or willful misconduct) in the investment or reinvestment of the
Escrowed Funds, or any loss of interest incident to any such delays.

(d)           Escrow Agent shall be entitled to
rely upon any order, judgment, certification, demand, notice, instrument or
other writing delivered to it hereunder without being required to determine the
authenticity or the correctness of any fact stated therein or the propriety or
validity of the service thereof.  Escrow
Agent may act in reliance upon any instrument or signature reasonably believed
by it to be genuine and may assume that the person purporting to give receipt
or advice or make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so.

(e)           Any payments of income from the
Escrowed Funds shall be subject to withholding regulations then in force with
respect to United States taxes.  The
parties will provide Escrow Agent with appropriate Internal Revenue Service
Forms W-9 for tax identification number certification, or non-resident alien
certifications.  Sections 5(b) and 5(e)
of this Escrow Agreement shall survive, notwithstanding any termination of this
Escrow Agreement or the resignation of Escrow Agent.

(f)            Escrow Agent (and any successor
Escrow Agent) may at any time resign as such by delivering the Escrowed Funds
to any successor Escrow Agent jointly designated by the other parties hereto in
writing, or to any court of competent jurisdiction, whereupon Escrow Agent shall
be discharged of and from any and all further obligations arising in connection
with this Escrow Agreement.  The
resignation of Escrow Agent will take effect on the earlier of (i) the
appointment of a successor (including a court of competent jurisdiction) or
(ii) the day which is 30 days after the date of delivery of its written notice
of resignation to the other parties hereto. 
If at that time Escrow Agent has not received a designation of a
successor Escrow Agent, Escrow Agent’s sole responsibility after that time
shall be to retain and safeguard the Escrowed Funds until receipt of a
designation of successor Escrow Agent or a joint written disposition
instruction by the other parties hereto or a final non-appealable order of a
court of competent jurisdiction.

(g)           In the event of any disagreement
between the parties resulting in adverse claims or demands being made in
connection with the Escrowed Funds or in the event that Escrow Agent is in
doubt as to what action it should take, Escrow Agent shall be entitled to
retain the Escrowed Funds until Escrow Agent shall have received (i) a final
non-appealable order of a court of competent jurisdiction directing delivery of
the Escrowed Funds or (ii) a written agreement executed by Parent and
Representative directing delivery of the Escrowed Funds, in which event Escrow
Agent shall disburse the Escrowed Funds in accordance with such order or
agreement.  Escrow Agent shall act on
such court order without further question.

(h)           Parent and Representative shall, jointly
and severally, pay Escrow Agent compensation (as payment in full) for the
services to be rendered by Escrow Agent hereunder in an amount set forth on Exhibit
A attached hereto and agree to reimburse Escrow Agent for all reasonable
expenses, disbursements and advances incurred or made by Escrow Agent in
performance of its duties hereunder (including reasonable fees, expenses and
disbursements of its counsel).  Any such
compensation, fee and reimbursement to which Escrow Agent is entitled shall, as
between Parent and Representative, be borne 50% by Parent and 50% by
Representative.

6.             TAX TREATMENT

For purposes of federal and other taxes based on
income, (i) Parent and the Shareholders agree to report the return of the
Escrowed Funds to the Shareholders pursuant to Section 4 hereof as a payment
pursuant to an installment sale, to be taken into account under the installment
method described in section 453 of the Internal Revenue Code of 1986, as
amended, and (ii) Parent will be treated as owner of the Escrowed Funds, and
Parent will report all income, if any, that is earned on, or derived from, the
Escrowed Funds as its income in the taxable year or years in which such income
is properly includible and pay any taxes attributable thereto.  Escrow Agent shall for each appropriate year,
prepare tax reports on Form 1099 and deliver the same to Parent promptly after
the calendar year involved.

7.             NOTICES

All notices, requests, demands and other
communications hereunder shall be in writing and shall be personally delivered,
sent by overnight carrier (such as Express Mail, 

Federal Express, etc.) or sent by facsimile
transmission or e-mail with confirming copy sent by overnight courier and a
delivery receipt obtained and addressed to the intended recipient as follows:

(a)           If to Parent:

	
  Sciele Pharma, Inc.

  	
   

  	
   

  	
   

  	
   

  
	
  5 Concourse
  Parkway.

  	
   

  	
   

  	
   

  	
   

  
	
  Atlanta, Georgia
  30328

  	
   

  	
   

  	
   

  	
   

  
	
  Attention:
  General Counsel

  	
   

  	
   

  	
   

  	
   

  
	
  Telephone No.:
  (678) 992-3696

  	
   

  	
   

  	
   

  	
   

  
	
  Facsimile No.:
  (678) 992-1043

  	
   

  	
   

  	
   

  	
   

  
	
  Email:
  LZacks@Sciele.com

  	
   

  	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Paul, Hastings,
  Janofsky & Walker LLP

  	
   

  	
   

  	
   

  	
   

  
	
  600 Peachtree
  Street, NE, Suite 2400

  	
   

  	
   

  	
   

  	
   

  
	
  Atlanta, Georgia
  30308-2222

  	
   

  	
   

  	
   

  	
   

  
	
  Attn: W. Tinley
  Anderson, III

  	
   

  	
   

  	
   

  	
   

  
	
  Telephone No.:
  (404) 815-2215

  	
   

  	
   

  	
   

  	
   

  
	
  Facsimile No.: (404)
  685-5215

  	
   

  	
   

  	
   

  	
   

  
	
  Email:
  tinleyanderson@paulhastings.com

  	
   

  	
   

  	
   

  	
   

  

(b)           If to the Representative:

	
  EJ Financial Enterprises

  
	
  225 East
  Deerpath Road, Suite 250

  
	
  Lake Forest, IL
  60045

  
	
  Attention: John
  N. Kapoor, Ph.D.

  
	
  Telephone No.:
  (847) 295-8665

  
	
  Facsimile No.:
  (847) 295-8680

  
	
  Email:
  JKapoor@ejfinancial.com

  
	
  With a copy to:

  
	
   

  
	
  McDermott Will
  & Emery LLP

  
	
  227 West Monroe
  Street

  
	
  Chicago,
  Illinois 60606 5096

  
	
  Attention:
  Thomas J. Murphy

  
	
  Telephone No.:
  (312) 984-2069

  
	
  Telecopy No.:
  (312) 984-7700

  
	
  Email:
  tmurphy@mwe.com

  

 

(c)           If to Escrow Agent:

Any party may change its
address or add or change parties for receiving notice by giving the other
parties notice in the manner set forth above.

8.             APPLICABLE LAW

This Escrow Agreement shall be governed by and
construed in accordance with the internal substantive laws of the State of
Georgia.  Each party hereby consents and
submits to the jurisdiction of the federal district court or state court
located in Atlanta, Georgia.  Each party
hereby irrevocably waives all claims of immunity from jurisdiction of a federal
district court or state court located in Atlanta, Georgia.

9.             ATTORNEY’S FEES

In any action at law or suit in equity to enforce or
interpret this Escrow Agreement or the rights of any of the parties hereunder,
the prevailing party in such action or suit shall be entitled to receive a
reasonable sum for its attorney’s fees and all other reasonable costs and
expenses incurred in such action or suit.

10.           COUNTERPARTS

This Escrow
Agreement may be executed in one or more counterparts, each of which will be
deemed to be an original and all of which, when taken together, will be deemed
to constitute one and the same instrument. 
In addition, the transaction described herein may be conducted and
related documents may be stored by electronic means.  Copies, telecopies, facsimiles, electronic
files and other reproductions of original executed documents shall be deemed to
be authentic and valid counterparts of such original documents for all
purposes, including the filing of any claim, action or suit in the appropriate
court of law.

11.           SECTION HEADINGS

The headings of sections in this Escrow Agreement are
provided for convenience only and will not affect its construction or interpretation.

12.           EXCLUSIVE AGREEMENT AND
MODIFICATION

This Escrow Agreement supersedes all prior agreements
among the parties with respect to its subject matter and constitutes (along
with the Merger Agreement and all related documents) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter.  This Escrow Agreement
may not be amended except by a written agreement executed by Parent,
Representative and Escrow Agent.

[The remainder of
this page is intentionally left blank.]

IN WITNESS WHEREOF, each of the parties has caused
this Escrow Agreement to be executed on its behalf by a duly authorized officer
all as of the date first written above.

 

	
  

  	
   

  	
  REPRESENTATIVE:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  JOHN N. KAPOOR, PH.D. 

  	
   

  	
   

  
	
   

  	
   

  	
  [                                    ]

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PARENT:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SCIELE PHARMA, INC. 

  	
   

  	
   

  
	
   

  	
   

  	
  EIN: 58-2004779

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ESCROW AGENT:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LASALLE BANK NATIONAL ASSOCIATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
   

  
								

 

Exhibit A

Escrow
Fees

[Escrow
Agent to provide fee schedule]

 

 

Exhibit 7.8

OPTION SETTLEMENT AGREEMENT

The undersigned is a holder
of options (the “Options”) to purchase shares of common stock, no par value,
(the “Common Stock”) of Alliant Pharmaceuticals, Inc., a Georgia corporation
(the “Company”), pursuant to the Company’s 2006 Equity Incentive Plan (the “Plan”).  The Company is party to an Agreement and Plan
of Merger dated April 24, 2007 (the “Merger Agreement”) by and among Sciele
Pharma, Inc., a Georgia corporation (“Sciele”), SP Acquisition Corp., a Georgia
corporation (“Merger Sub”), the Company, the stockholders of the Company and
John N. Kapoor, as shareholder representative providing for, among other
things, the merger of a Merger Sub with and into the Company in a transaction
pursuant to which the Company is to become a wholly-owned subsidiary of Sciele.

In consideration of the
Company continuing to pursue the Merger and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the undersigned
hereby agrees as follows:

1)             Upon
receipt of a cash payment equal to $6.50 per share of Common Stock subject to
the Options, the Options themselves shall terminate, the undersigned shall have
no further rights to purchase Common Stock of the Company and shall thereupon
knowingly, voluntarily and unconditionally release and forever discharge the
Company and its affiliates from or for any and all claims, causes of action,
demands, suits, debts, obligations, liabilities, damages, losses, costs and
expenses of every kind or nature whatsoever, known or unknown, actual or
potential, suspected or unsuspected, fixed or contingent, that the undersigned
has or may have, now or in the future, arising out of, relating to or resulting
from the Options.

2)             Notwithstanding
the provisions of Section 6 of the Plan, the Options are only exercisable upon
a “Change of Control”, as defined in Section 7 of the Plan.

3)             The
word “securities” in Section 11(b) of the Plan is hereby replaced with the
words “securities, cash or other consideration” for purposes of interpreting
the Options and the rights of the undersigned pursuant thereto.

IN WITNESS WHEREOF, the undersigned has caused this agreement to be
duly executed on the date set forth below.

 

	
  

  	
   

  	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print Name:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ALLIANT PHARMACEUTICALS, INC.

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  	
   

  	
   

  
											

 

 

Exhibit 7.18

PERFORMANCE PAYMENT

1.             Baseline Payment.  Parent shall make an
additional one-time payment to the Shareholder Representative of $5,000,000
(the “Baseline Payment”), in the event that Gross Profits (as defined
below) of the Surviving Corporation for calendar year 2007 exceed the Baseline
Amount (as defined below).

2.             Additional
Payment.  In addition, for each $1.00
in Gross Profits above the Baseline Amount that the Surviving Corporation
achieves during calendar  year 2007,
Parent shall make an additional payment to the Shareholder Representative of
$2.78, up to a maximum of $25,000,000 in additional funds (together with the
Baseline Payment, the “Performance Payment”).

3.             Definitions:

“Baseline Amount” means $36,000,000.

“Gross Profits” means net sales of
Pediatric Products to third parties, less costs of goods sold, and gross fees
in the case of Allegra, as determined in accordance with Parent’s internal
accounting principles and GAAP.  For the
avoidance of doubt, sales between Parent and its Affiliates shall be excluded
from the computation of Gross Profits, but Gross Profits shall include the sale
to third parties by any such Affiliates. Any royalties associated with Lindane
sales will be treated as a cost of goods sold for purposes of the calculation
of Gross Profit.

“Earn-out Period” means calendar year
2007.

“Pediatric Products” means the
following products: Lindane, Methylin, Orapred and Rondec.

Capitalized terms used herein and not
otherwise defined shall have the same meaning ascribed to such terms in the
Agreement and Plan of Merger, dated as of April 23, 2007, by and among Sciele
Pharma, Inc., SP Acquisition Corp., Alliant Pharmaceuticals, Inc. (the “Company”),
certain shareholders of the Company, and John N. Kapoor, Ph.D. as the shareholder
representative.

4.             Inventory Adjustment.  At December 31, 2007, Parent will obtain
inventory reports for each of the Pediatric Products from the three major
wholesalers (McKesson, Cardinal Health and Amerisource Bergen) which shall be
aggregated (on a per product basis) to determine the total number of weeks
worth of inventory of each Pediatric Product in the trade at the wholesale
level (based upon the average demand of such wholesalers over the previous six
(6) week period).  The targeted inventory
of each Pediatric Product shall be nine (9) weeks of inventory for such
Pediatric Product, and any amount of inventory of a Pediatric Product in excess
of such amount shall be “Surplus Inventory” and any deficit of inventory
of such Pediatric Product will be deemed “Deficit Inventory”.  At the same time, Parent shall determine for
the preceding twelve (12) months the Gross Profit attributable to each
Pediatric Product on a per commercial unit basis (based on actual net sales)
(the “Per Unit Gross Profit”). The Per Unit Gross Profit for each
Pediatric Product shall be multiplied by the Deficit Inventory or Surplus
Inventory of such Pediatric Product, as the case may be.  In the case of Surplus Inventory as to a
Pediatric Product, the amount calculated pursuant to the preceding sentence
shall reduce the total Gross Profits otherwise calculated for purposes of
Sections 1 and 2 above.  In the case of
Deficit Inventory as to a Pediatric Product, the amount calculated pursuant to
the preceding sentence shall increase the total Gross Profits 

otherwise
calculated for purposes of Section 1 and 2 above.  In the discretion of the Shareholder
Representative the inventory amounts also shall be subject to adjustment based
on the monthly November and December “TRX Data” of dispensed Pediatric Products
(computing a weekly average for such two months of data), provided by IMS
Health, Inc. (“IMS”) or, if such data is unavailable from IMS, from NDC,
Inc.

5.             Payments.  Within 90 days after the end of the Earn-out
Period, Parent will deliver to the Shareholder Representative (i) a reasonably
detailed calculation of Gross Profits and any Performance Payment based on such
calculation, (ii) an accompanying certification from the Chief Financial
Officer of Parent that such information is accurate and complete and has been
prepared in accordance with the terms of this Agreement and consistent with the
calculation as set forth on Exhibit 7.18(a), and (iii) a cash payment by
wire transfer to an account designated by the Shareholder Representative of the
amount of the Performance Payment specified in such calculation.  Parent will, and shall cause its Affiliates
to, support the Surviving Corporation in the continued advertising, marketing,
promotion and other sponsorship of the Pediatric Products.

6.             Adjustments.

(i)            The Shareholder Representative shall
have forty-five (45) days following receipt of the calculation of Gross
Profits during which to notify the Parent of any dispute with respect thereto,
which notice shall set forth in reasonable detail the basis for such
dispute.  The Parent and the Shareholder
Representative shall cooperate in good faith to resolve any such dispute as
promptly as practicable, and upon such resolution, Gross Profits shall be
calculated in accordance with the agreement of the Parent and the Shareholder
Representative.  In the event the
Shareholder Representative does not notify the Parent of any such dispute
within such forty-five (45)-day period or notifies the Parent within such
period that it does not dispute any item contained therein, the calculation of
Gross Profits and the Performance Payment delivered pursuant thereto shall be
final and binding upon the Parties.

(j)            If the Parties cannot resolve their
dispute within 30 days, then the dispute shall be submitted to an independent
accounting firm for final resolution substantially in accordance with the
procedures described in Section 7.4 (c) hereof. 
In the event the Parent and the Shareholder Representative are unable to
resolve any dispute regarding the calculation of Gross Profits delivered
pursuant hereto within thirty (30) days following the Parent’s receipt of
notice of such dispute, such dispute shall be submitted to, and all issues
having a bearing on such dispute shall be resolved by BDO Siedman, LLP, a
nationally recognized accounting firm (the “Accounting Referee”).

(k)           Within fifteen (15) Business Days of
the selection of the Accounting Referee, both the Shareholder Representative
and Parent shall submit a calculation of Gross Profits and the Performance
Payments and any supporting documentation to the Accounting Referee.  Within twenty (20) Business Days of the
timely receipt of the later of such submissions, the Accounting Referee shall
choose the one of the two submissions that most accurately reflects what the
actual calculation of Gross Profits and the Performance Payments should be and
that submission shall establish the Performance Payment.  If only one of the parties makes a timely
submission, then that submission shall establish the Performance Payment.  The Accounting Referee’s determination of the
calculation of Gross Profits shall be final and binding on the Parties.  The fees, costs and expenses of the
Accounting Referee shall be shared equally by the Shareholder Representative
and the Parent.

Disclosure Schedules to Agreement and Plan of Merger Intentionally
Omitted.

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