Document:

Exhibit 10.1

 

 

 

AGREEMENT AND PLAN OF MERGER

 

 

DATED AS OF APRIL 18, 2008,

 

 

BY AND AMONG

 

 

MACROCHEM CORPORATION,

 

VRM ACQUISITION, LLC,

 

VIRIUM HOLDINGS, INC.

 

AND

 

VIRIUM PHARMACEUTICALS INC.

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  THE MERGER

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.01

  	
  The Merger

  	
  1

  
	
  1.02

  	
  Closing

  	
  2

  
	
  1.03

  	
  Effective Time of the Merger

  	
  2

  
	
  1.04

  	
  Effects of the Merger

  	
  2

  
	
  1.05

  	
  Certificate of Incorporation; By-Laws; Purposes

  	
  2

  
	
  1.06

  	
  Directors

  	
  2

  
	
  1.07

  	
  Officers

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  EFFECT OF THE MERGER ON THE CAPITAL STOCK
  AND MEMBERSHIP UNITS OF THE CONSTITUENT COMPANIES

  	
  3

  
	
   

  	
   

  	
   

  
	
  2.01

  	
  Effect on Capital Stock and Membership Units

  	
  3

  
	
  2.02

  	
  Exchange of Certificates

  	
  4

  
	
  2.03

  	
  Treatment of Company Warrants

  	
  4

  
	
  2.04

  	
  Company Notes

  	
  5

  
	
  2.05

  	
  Withholding Rights

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  REPRESENTATIONS AND WARRANTIES

  	
  5

  
	
   

  	
   

  	
   

  
	
  3.01

  	
  Representations and Warranties of the Company

  	
  5

  
	
  3.02

  	
  Representations and Warranties of Parent and Merger Sub

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  ADDITIONAL AGREEMENTS

  	
  28

  
	
   

  	
   

  	
   

  
	
  4.01

  	
  Company Financial Statements

  	
  28

  
	
  4.02

  	
  Access to Information; Confidentiality

  	
  28

  
	
  4.03

  	
  Reasonable Best Efforts

  	
  29

  
	
  4.04

  	
  Indemnification of Company Directors and Officers

  	
  29

  
	
  4.05

  	
  Public Announcements

  	
  31

  
	
  4.06

  	
  Shareholder Rights Plan

  	
  31

  
	
  4.07

  	
  Tax Free Reorganization Treatment

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  CONDITIONS PRECEDENT

  	
  31

  
	
   

  	
   

  
	
  5.01

  	
  Conditions to each Party’s Obligation to Effect the Merger

  	
  31

  
	
  5.02

  	
  Conditions to Obligations of Parent and Merger Sub

  	
  32

  
	
  5.03

  	
  Conditions to Obligations of the Company

  	
  34

  
				

 

i

 

	
  ARTICLE VI

  	
  TERMINATION, AMENDMENT, AND WAIVER

  	
  35

  
	
   

  	
   

  	
   

  
	
  6.01

  	
  Termination

  	
  35

  
	
  6.02

  	
  Effect of Termination

  	
  35

  
	
  6.03

  	
  Amendment

  	
  35

  
	
  6.04

  	
  Extension; Waiver

  	
  35

  
	
  6.05

  	
  Procedure for Termination, Amendment, Extension or Waiver

  	
  35

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  GENERAL PROVISIONS

  	
  36

  
	
   

  	
   

  	
   

  
	
  7.01

  	
  Nonsurvival of Representations and Warranties

  	
  36

  
	
  7.02

  	
  Notices

  	
  36

  
	
  7.03

  	
  Definitions

  	
  37

  
	
  7.04

  	
  Interpretation

  	
  43

  
	
  7.05

  	
  Counterparts

  	
  43

  
	
  7.06

  	
  Entire Agreement; No Third-Party Beneficiaries

  	
  44

  
	
  7.07

  	
  Governing Law; Consent to Jurisdiction; Waiver of Jury Trial

  	
  44

  
	
  7.08

  	
  Assignment

  	
  44

  
	
  7.09

  	
  Remedies

  	
  44

  
				

 

ii

 

AGREEMENT
AND PLAN OF MERGER (this “Agreement”), dated as of April 18, 2008,
by and among MacroChem Corporation, a Delaware corporation (“Parent”),
VRM Acquisition, LLC, a Delaware limited liability company and a direct
wholly-owned subsidiary of Parent (“Merger Sub”), Virium Holdings, Inc.,
a Delaware corporation (“Holdings”) and Virium Pharmaceuticals Inc., a
New York corporation and a direct wholly-owned subsidiary of Holdings (the “Company”). 
Certain capitalized terms used herein are defined in Section 7.03.

 

WHEREAS,
each of the respective Boards of Directors of Parent (upon the recommendation
of the Special Committee), Holdings and the Company has (i) determined it
advisable and in the best interests of each corporation and their respective
stockholders that Parent acquire the Company upon the terms and subject to the
conditions set forth in this Agreement and (ii) approved this Agreement
and the transactions contemplated hereby on the terms and subject to the
conditions set forth herein;

 

WHEREAS,
the sole member of Merger Sub has (i) determined it advisable and in the
best interests of Merger Sub that Parent acquire the Company upon the terms and
subject to the conditions set forth in this Agreement and (ii) approved
this Agreement and the transactions contemplated hereby on the terms and
subject to the conditions set forth herein;

 

WHEREAS,
the acquisition of the Company shall be effected through the merger (the “Merger”)
of Merger Sub with and into the Company, upon the terms and subject to the
conditions set forth in this Agreement and in accordance with the Delaware
Limited Liability Company Act (“DLLCA”) and the New York Business
Corporation Law (the “NYBCL”), as a result of which the Company shall
become a wholly-owned Subsidiary of Parent;

 

WHEREAS,
Parent, Merger Sub, Holdings and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and

 

WHEREAS,
for federal income Tax purposes, it is intended that the Merger shall qualify
as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the “Code”) and this
Agreement is intended to be a “plan of reorganization” within the meaning of
the regulations promulgated under Section 368 of the Code.

 

NOW,
THEREFORE, in consideration of the representations, warranties, covenants and
agreements contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Parent, Merger Sub, Holdings and the Company agree as follows:

 

ARTICLE I.

 

THE MERGER

 

1.01         The Merger.  Upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with the DLLCA
and NYBCL, Merger Sub shall be merged with and into the Company at the
Effective Time.  Upon the Effective Time,
the separate existence 

 

 

of Merger Sub shall cease, and the Company shall continue as the
surviving corporation and a wholly-owned Subsidiary of Parent organized under
the laws of New York (the “Surviving Corporation”).

 

1.02         Closing.  Unless this Agreement shall
have been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 6.01, and subject to the satisfaction or
waiver of the conditions set forth in Article V, the closing of the Merger
(the “Closing”) shall take place at 10:00 a.m. on the date hereof
(the “Closing Date”), at the offices of Ropes & Gray LLP,
unless another date, time or place is agreed to by the parties hereto.

 

1.03         Effective Time.  Upon
the Closing, the parties shall (i) file with the Secretary of State of the
State of New York a certificate of merger (the “New York Certificate of
Merger”) in such form as required by, and executed and acknowledged in
accordance with, the relevant provisions of the NYBCL and (ii) file with
the Secretary of State of the State of Delaware a certificate of merger (the “Delaware
Certificate of Merger”) in such form as required by, and executed and
acknowledged in accordance with, the relevant provisions of the DLLCA and
shall, in each case, make all other filings or recordings required thereby.
 The Merger shall become effective at such time as the New York
Certificate of Merger is duly filed with the Secretary of State of the State of
New York, or at such other time as is permissible in accordance with the NYBCL
and as Merger Sub and the Company shall agree should be specified in the
Delaware Certificate of Merger (the time the Merger becomes effective being the
“Effective Time”).

 

1.04         Effects of the Merger.  The
Merger shall have the effects set forth in the applicable provisions of the
NYBCL and the DLLCA. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger
Sub shall become the debts, liabilities and duties of the Surviving
Corporation.

 

1.05         Certificate of Incorporation; By-Laws;
Purposes.

 

(a)           At the Effective Time, and without any
further action on the part of the Company or Merger Sub, the certificate of
incorporation of the Company as in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until thereafter
amended as provided therein or by applicable law.

 

(b)           At the Effective Time, and without any
further action on the part of the Company or Merger Sub, the by-laws of the
Company as in effect at the Effective Time shall be the by-laws of the
Surviving Corporation until thereafter changed or amended as provided therein
or by applicable law.

 

1.06         Directors.  From and after the Effective
Time, the directors of the Surviving Corporation shall be Robert Deluccia and
David Luci, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.

 

2

 

1.07         Officers.  From and after the Effective
Time, the officers of the Surviving Corporation shall be Robert Deluccia and
David Luci, until the earlier of their resignation or removal or until their
respective successors are duly elected or appointed and qualified, as the case
may be.

 

ARTICLE II.

 

EFFECT OF THE MERGER ON THE
CAPITAL STOCK AND MEMBERSHIP UNITS OF THE CONSTITUENT COMPANIES

 

2.01         Effect on Capital Stock and Membership Units.  As
of the Effective Time, by virtue of the Merger and without any action on the
part of the Company, Merger Sub or any holder of any shares of Company Common
Stock or any membership interests of Merger Sub:

 

(a)           Membership Units of Merger Sub.  Each
membership unit of Merger Sub outstanding immediately prior to the Effective
Time shall be converted into one share of the common stock, par value $0.001
per share, of the Surviving Corporation.

 

(b)           Cancellation of Treasury Stock and
Parent-Owned Company Stock.  Each share of Company Common Stock that is
owned by the Company, and each share of Company Common Stock that is owned by
Parent, Merger Sub or any other Subsidiary of Parent shall automatically be
cancelled and retired and shall cease to exist, and no cash, Parent Common
Stock or other consideration shall be delivered or deliverable in exchange
therefor.

 

(c)           Conversion of Company Common Stock.

 

(i)            Each issued and outstanding share of Company
Common Stock (excluding shares cancelled pursuant to Section 2.01(b))
shall be converted into the right to receive a number of shares of Parent
Common Stock equal to:  (x) the total number of issued and
outstanding shares of Parent Common Stock immediately prior to the Effective
Time, divided by (y) the total number of issued and outstanding shares of
Company Common Stock immediately prior to the Effective Time, such quotient to
be carried out to eight decimal places (the “Common Stock Exchange Ratio”);

 

(ii)           The total number of shares of Parent Common
Stock issuable in exchange for the Company Common Stock shall be referred to
herein collectively as the “Merger Consideration.”  Except as set forth in this Article II,
no other amounts shall be payable with respect to such Company Common Stock.

 

(d)           Cancellation and Retirement of Company Common
Stock.  As of the Effective Time, all shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate representing
any such shares of Company Common Stock (collectively, the “Certificates”)
shall, to the extent such Certificate represents such shares, cease to 

 

3

 

have any rights with respect thereto, except the right to receive the
Merger Consideration (and cash in lieu of fractional shares of Parent Common
Stock) to be issued or paid in consideration therefor upon surrender of such
Certificate in accordance with Section 2.02.

 

2.02         Exchange of Certificates.  At
the Effective Time, Holdings shall deliver to Parent its original certificate
or certificates representing all of the issued and outstanding shares of the
Company and Parent shall deliver to Holdings an original certificate
representing the Merger Consideration with respect thereto.

 

2.03         Treatment of Company Warrants.  At
the Effective Time, to the extent not exercised prior to the Effective Time,
each outstanding Company Warrant shall be automatically converted into a
warrant to acquire such number of shares of Parent Common Stock (a “Parent
Warrant”) as is determined by multiplying the number of shares of Company
Common Stock otherwise acquirable pursuant thereto by the Common Stock Exchange
Ratio at an exercise price per share of Parent Common Stock appropriately
adjusted such that the aggregate exercise price for such Parent Warrant shall
be the same as it was prior to the Effective Time.  At the Effective Time, Parent shall expressly
assume the due and punctual observance and performance of each and every
covenant contained in, and condition of, the Company Warrants to be performed
and observed by the Company and all the obligations and liabilities thereunder.

 

(a)           As promptly as practicable after the Effective Time,
Parent shall deliver to each holder of a Company Warrant a notice that contains
a calculation in reasonable detail and accurately reflects the number of shares
of Parent Common Stock that each such holder is entitled to receive upon the
exercise of such holder’s Company Warrant and the applicable adjusted exercise
price.  Together with such notice, or as
part of such notice, Parent shall deliver a duly executed confirmation that
Parent has expressly assumed the due and punctual observance and performance of
each and every covenant contained in, and condition of, the applicable Company
Warrant to be performed and observed by the Company and all the obligations and
liabilities thereunder.

 

(b)           The number of shares of Parent Common Stock issuable
upon exercise of the Parent Warrants shall be reserved by Parent out of
authorized but unissued Parent Common Stock for issuance upon exercise in full
of all Parent Warrants after the Effective Time.  Notwithstanding the foregoing, upon the
expiration of the Parent Warrants, such Parent Common Stock reserved for
issuance upon the exercise of the Parent Warrants shall no longer be reserved.

 

4

 

2.04         Company
Notes. At the Effective Time, Parent shall assume the due and punctual
performance of all of the terms and conditions of each outstanding Company Note
and each such Company Note shall, unless the conversion rights thereunder have
previously expired, become convertible into the number of New Securities (as
defined in the Company Notes) of Parent and at such Conversion Price (as
defined in the Company Notes) as set forth therein.

 

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

 

ARTICLE III.

 

REPRESENTATIONS AND WARRANTIES

 

3.01        Representations and Warranties of the Company. Except as may be set forth in a disclosure
letter (to the extent each disclosure item therein is clearly marked to
indicate the section, paragraph or subparagraph of this Agreement to which such
disclosure is an exception, referencing the same section, paragraph and subparagraph
as used in this Agreement) delivered by the Company to Parent and Merger Sub at
the time of execution of this Agreement (the “Company Disclosure Letter”),
the Company hereby represents and warrants to Parent and Merger Sub as follows:

 

(a)           Organization; Standing and Corporate Power. The Company is duly organized, validly
existing and in good standing under the laws of the State of New York and has
the requisite corporate power and authority to carry on its business as it is
now being conducted.  The Company is duly qualified or licensed to do
business and is in good standing in each jurisdiction (domestic or foreign) in
which the nature of its business or the ownership or leasing of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed (individually or
in the aggregate) would not have a Material Adverse Effect with respect to the
Company.  The Company has delivered to Parent complete and correct copies
of each of (i) the certificate of incorporation (including any Certificate
of Designations thereto) (the “Company Certificate”) and by-laws (the “Company
By-laws”) of the Company, in each case as amended and as currently in
effect and (ii) the minute books of the Company which contain records of
all meetings held of, and other corporate actions taken by, its stockholders,
board of directors and any committees appointed by its board of directors.

 

(b)           Subsidiaries. The Company does not own, directly or
indirectly, any capital stock or other ownership interest in any Person.

 

5

 

(c)           Capital Structure.  The authorized capital stock of the
Company consists of 50,000,000 shares of Company Common Stock and 1,000,000
shares of preferred stock, par value $0.001 per share. As of the date hereof,
there were:  (i) 25,617,833 shares
of Company Common Stock issued and outstanding; (ii) no shares of Company
Common Stock held in the treasury of the Company; (iii) Company Warrants
listed in Section 3.01(c) of the Company Disclosure Letter,
representing the right to purchase 925,000 shares of Company Common Stock and (iv) Company
Notes listed in Section 3.01(c) of the Company Disclosure Letter,
representing the right to purchase New Securities (as defined in the Company
Notes and representing the equivalent of approximately 1,250,000 shares of
Company Common Stock plus such number of additional shares as are issuable at
the time of conversion in respect of interest accrued on such Company Notes).
 Except as set forth above, as of the date hereof, there were no shares of
capital stock or other equity securities of the Company issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of the Company
are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights.  All securities issued by the Company were
issued in compliance in all material respects with all applicable federal and
state securities laws and all applicable rules and regulations promulgated
thereunder.  Except as set forth above or in Section 3.01(c) of
the Company Disclosure Letter, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company is a party or by which it is bound obligating
the Company to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other equity or voting securities
of the Company or obligating the Company to issue, grant, extend, accelerate
the vesting of or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking.  There are no
outstanding contractual obligations, commitments, understandings or
arrangements of the Company to repurchase, redeem or otherwise acquire or make
any payment in respect of any shares of capital stock of the Company.  To
the knowledge of the Company, there are no irrevocable proxies with respect to
shares of capital stock of the Company.  There are no agreements or
arrangements pursuant to which the Company is or could be required to register
shares of Company Common Stock or other agreements or arrangements with or, to
the knowledge of the Company, among any securityholders of the Company with
respect to securities of the Company.  The Company has complied in all
respects with any obligation to register shares of Company Common Stock and has
not incurred any liability in connection with its failure to register such
shares.

 

Except as set forth in Section 3.01(c) of
the Company Disclosure Letter, since December 31, 2007, the Company has
not (A) issued or permitted to be issued any shares of capital stock, or
securities exercisable for or convertible into shares of capital stock, of the
Company; (B) repurchased, redeemed or otherwise acquired, directly or
indirectly, any shares of capital stock of the Company or (C) declared, set
aside, made or paid to the stockholders of the Company dividends or other
distributions on the outstanding shares of capital stock of the Company.

 

6

 

For the avoidance of doubt, Section 3.01(c) of
the Company Disclosure Letter sets forth a list of all outstanding Company
Warrants as of the date of this Agreement, their date of grant, their
expiration date, the number of shares subject thereto and the current exercise
price therefor.

 

Except as set forth in Section 3.01(c) of
the Company Disclosure Letter, the Company is not a party to any agreement
restricting the transfer of, relating to the voting of, requiring registration
of, or granting any preemptive rights, anti-dilution rights or rights of first
refusal or similar rights with respect to any securities of the Company.

 

(d)          Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.  The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company.  This Agreement has been duly executed and
delivered by the Company and (assuming due authorization, execution and
delivery by Parent and Merger Sub) constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws affecting
creditors’ rights generally and general equitable principles (whether
considered in a proceeding in equity or at law).  The execution and
delivery of this Agreement does not, and the consummation by the Company of the
transactions contemplated by this Agreement and compliance by the Company with
the provisions hereof will not, conflict with, or result in any breach or
violation of, or any default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of,
or a “put” right with respect to any obligation under, or to a loss of a
material benefit under, or result in the creation of any pledge, claim, lien,
charge, encumbrance or security interest of any kind or nature whatsoever
except for a Permitted Lien (collectively, “Liens”) upon any of the
properties or assets of the Company under, (i) the Company Certificate or
Company By-laws, (ii) any agreement, contract, license, loan or credit
agreement, note, note purchase agreement, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license
applicable to the Company or its properties or assets or (iii) subject to
the governmental filings and other matters referred to in the last sentence of
this Section 3.01(d), any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to the Company or
its properties or assets. Each Lien of the Company in excess of $5,000 is set
forth in Section 3.01(d) of the Company Disclosure Letter. No
consent, approval, order or authorization of, or registration, declaration or
filing with, or notice to, any federal, state or local government or any court,
administrative agency or commission or other governmental authority or agency, domestic
or foreign (a “Governmental Entity”) is required by or with respect to
the Company in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of any of the transactions

 

7

 

contemplated hereby or the performance by the
Company of its obligations hereunder, except for the filing of the Delaware
Certificate of Merger with the Secretary of State of the State of Delaware and
the New York Certificate of Merger with the Secretary of State of the State of
New York and appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business.

 

(e)           Financial Statements. The Company has delivered to Parent:  (a) audited balance sheets of the
Company for each of the periods ended December 31, 2006 and December 31,
2007 (the most recent of which is referred to as the “Most Recent Balance
Sheet”) and the related audited statements of operations and cash flows for
the fiscal years then ended, in each case audited by J.H. Cohn LLP, the Company’s
independent accountants, and (b) monthly unaudited financials of the
Company in the form customarily prepared by management for internal use for
each complete month from the Most Recent Balance Sheet Date through the date of
this Agreement (the “Monthly Financials”). Such financial statements
(collectively, the “Company Financial Statements”), are true, correct
and complete and fairly present the financial condition, the results of
operations and cash flows of the Company as at the respective dates of and for
the periods referred to in such financial statements, all in accordance with
generally accepted accounting principles as applied in the United States (“GAAP”),
subject, in the case of interim financial statements, to normal recurring
year-end adjustments and the absence of notes. Except as disclosed therein, the
Company Financial Statements reflect the consistent application of such
accounting principles throughout the periods involved. No financial statements
of any Person other than the Company are required by GAAP to be included in the
Company Financial Statements. Except as set forth in Section 3.01(e) of
the Company Disclosure Letter, the Company has prepared all financial
statements of the Company required for the Parent to file with the SEC the
financial statements required under Items 2.01 and 9.01 of Form 8-K
including, without limitation the Company Financial Statements in compliance
with Regulation S-X promulgated under the Securities Act. The Company’s
auditor, J.H. Cohn LLP, qualifies as an independent registered public
accounting firm with respect to the Company within the meaning of the
Securities Act and the applicable rules and regulations thereunder adopted
by the SEC and the Public Company Accounting Oversight Board (United States). The
information provided by the Company to Griffin Securities Inc. for purposes of
rendering its opinion with respect to the consideration being issued by Parent
pursuant to this Agreement being fair from a financial point of view to the
holders of Parent Common Stock is true and correct in all material respects. The
Company has no liabilities or obligations of any kind, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, other than
(i) as set forth in the Company Financial Statements, (ii) as set
forth in Section 3.01(e) of the Company Disclosure Letter or (iii) which
do not exceed $5,000 in the aggregate.

 

(f)           Absence of Certain Changes or Events.  Since December 31, 2007, there
is not and has not been:  (i) any
Material Adverse Change with respect to the Company;

 

8

 

(ii) any condition, event or occurrence which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or give rise to a Material Adverse Change with respect
to the Company; (iii) any condition, event or occurrence which,
individually or in the aggregate, could reasonably be expected to prevent or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement or perform its obligations hereunder.

 

(g)          Litigation; Labor Matters; Compliance with
Laws.

 

(i)            Except as set forth in Section 3.01(g)(i) of
the Company Disclosure Letter, there is no suit, action, claim, charge,
arbitration, investigation or proceeding pending before or, to the knowledge of
the Company, threatened by, a Governmental Entity, in each case with respect to
the Company that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect with respect to the Company or
prevent or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement or to perform its obligations
hereunder. There is no judgment, decree, citation, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the Company
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect with respect to the Company.

 

(ii)           Except as set forth in Section 3.01(g)(ii) of
the Company Disclosure Letter (1) The Company is not a party to, or bound
by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization; (2) the Company is
not the subject of any strike, grievance or other proceeding asserting that the
Company has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions of employment; (3) there
is no strike, work stoppage or other labor dispute involving the Company
or, to its knowledge, threatened; (4) no grievance is pending or, to the
knowledge of the Company, threatened against the Company which, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect with respect to the Company; (5) the Company is in material
compliance with all applicable laws (domestic and foreign), agreements,
contracts and policies relating to employment, employment practices, wages,
hours, immigration matters and terms and conditions of employment; (6) the
Company has paid in full to all employees of the Company all wages, salaries,
commissions, bonuses, benefits and other compensation due and payable to such
employees under any policy, practice, agreement, plan, program, statute or
other law; (7) the Company is not liable for any severance pay or other
payments to any employee or former employee arising from the termination of
employment under any benefit or severance policy, practice, agreement, plan or
program of the Company, nor will the Company have any liability which exists or
arises, or may be deemed to exist or arise, under any applicable law, contract
or

 

9

 

otherwise, as a result of or in connection with the
transactions contemplated hereunder or as a result of the termination by the
Company of any Persons employed by the Company on or prior to the Effective
Time; and (8) the Company is in compliance with its obligations pursuant
to the Worker Adjustment and Retraining Notification Act of 1988 (“WARN”)
and any similar state or local laws, and all other employee notification and
bargaining obligations arising under any statute or otherwise.

 

(iii)          The business of the Company is not being
conducted in violation of any law (domestic or foreign), ordinance or
regulation of any Governmental Entity in any material respect.

 

(h)          Employee Benefit Plans.

 

(i)            Section 3.01(h)(i) of the Company
Disclosure Letter lists each oral or written agreement with any consultant,
employee, director or officer of the Company and the duration of such agreement
and amounts payable thereunder, including, but not limited to, any agreement (A) under
which the amount or timing of benefits are contingent, or the terms are
altered, upon the occurrence of a transaction involving the Company of the
nature of any of the transactions contemplated by this Agreement, (B) providing
any term of employment or compensation, or (C) providing severance
benefits or other benefits after the termination of employment or service of
such employee, director or officer.

 

(ii)           The Company does not maintain any “employee
benefit plan” (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”) (including,
without limitation, multiemployer plans within the meaning of Section 3(37)
of ERISA or any of its foreign equivalents)), stock purchase, stock option,
severance, employment, change-in-control, fringe benefit, collective
bargaining, bonus, incentive, deferred compensation or any other employee
benefit plans, agreements, programs, policies, payroll or other arrangements
relating to employment, benefits or entitlements, whether or not subject to
ERISA (including any funding mechanism therefor now in effect or required in
the future as a result of the transactions contemplated by this Agreement or
other activities taken by the Company on or prior to the date of this
Agreement), sponsored by the Company or any other entity such as a co-employer,
whether formal or informal, oral or written, legally binding or not under which
any employee or former employee of the Company has any present or future right
to benefits based on such employee’s employment with the Company and under
which the Company has any present or future liability.

 

(iii)          No payment that is owed or may become due to
any director, officer, employee or agent of the Company will be non-deductible
or subject to tax under Section 280G, Section 4999 or Section 162(m) of
the Code; nor will

 

10

 

the Company be required to “gross up” or otherwise
compensate any such person because of the imposition of any excise tax on a
payment to such person.

 

(i)            Taxes.

 

(i)            The Company has timely filed with the
appropriate Governmental Entity all Tax Returns required to be filed by it,
each such Tax Return has been prepared in compliance with all applicable laws
and regulations and all such Tax Returns are true, accurate and complete in all
material respects. The Company has (A) timely paid in full all Taxes
required to have been paid by it (whether or not such Taxes were shown to be
due on such Tax Returns); and (B) made adequate provision for all accrued
Taxes not yet due. The Company has made accruals for Taxes on the Company
Financial Statements that are adequate to cover any Tax liability of the
Company determined in accordance with GAAP through the date of the applicable
Company Financial Statements, and any Taxes of the Company arising after the
date of the most recent Company Financial Statements and at or before the
Effective Time have been or will be incurred in the ordinary course of the
Company’s business.

 

(ii)           The Company has timely withheld and timely
paid all Taxes that are required to have been withheld and paid by it in
connection with amounts paid or owing to any employee, independent contractor,
creditor or other Person.

 

(iii)          As of the date of this Agreement, no federal,
state, local or foreign audits, suits or other administrative proceedings or
court proceedings are presently pending with regard to any Taxes or Tax Returns
of the Company, and the Company has not received a written notice of any
material pending or proposed claims, audits or proceedings with respect to
Taxes. The Company has not granted any outstanding extensions of the time in
which any Tax may be assessed or collected by any Tax authority. There is no
action, suit, proceeding or audit with respect to any Tax or, to the knowledge
of the Company, threatened against or with respect to the Company. The Company
has not received any notice of deficiency or assessment from any Governmental
Entity for any amount of Tax that has not been fully settled or satisfied, and
to the knowledge of the Company no such deficiency or assessment is proposed.

 

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

 

(j)            Properties. The Company (i) has good and marketable title to all the
properties and assets (A) reflected in the Most Recent Balance Sheet as
being owned by the Company (other than any such properties or assets sold or
disposed of since such date in the ordinary course of business consistent with
past practice) or (B)

 

11

 

acquired after December 31, 2007. The Company
has good and valid leasehold interests in all real property leases, subleases
and occupancy agreements to which the Company is a party (the “Company Leases”)
and is in sole possession of the properties purported to be leased thereunder. Section 3.01(j) of
the Company Disclosure Letter lists and describes briefly all Company Leases. Each
Company Lease is in full force and effect and constitutes a legal, valid and
binding obligation of, and is legally enforceable against, the respective
parties thereto. There is no uncured breach, and no default exists, on the part
of landlord under any of the Company Leases, and the Company has no knowledge
of breach or default or any event, condition or state of facts, which with the
giving of notice or the passage of time, or both, would constitute a breach or
default by the Company under any Company Lease. There is no suit, action,
arbitration or other proceeding with respect to the Company Leases or the
premises leased under the Company Leases. The Company has not received notice
and does not otherwise have knowledge of any pending, threatened or
contemplated condemnation proceeding affecting any premises leased by the
Company or any part thereof or of any sale or other disposition of any such
leased premises or any part thereof in lieu of condemnation. The real property
leased to the Company under the Company Leases encompasses all real property
used by the Company, and the Company does not own any real property and does
not have any options to purchase real property. The landlord under each of the
Company Leases has performed all initial improvements required to be performed
by it under such Company Lease and all tenant improvements allowances have been
paid to the Company as tenant under such Company Lease. All insurance required
to be maintained by the Company under each of the Company Leases is in full
force and effect.

 

(k)           Environmental Matters.

 

(i)            The Company holds and is in compliance in all
material respects with all Environmental Permits and the Company is, and has
been, otherwise in compliance with all Environmental Laws in all material
respects and, to the knowledge of the Company, there are no conditions that
might prevent or interfere with such compliance in the future.

 

(ii)           The Company has not received any
Environmental Claim, and to the knowledge of the Company there is no threatened
Environmental Claim.

 

(iii)          The Company has not entered into any consent
decree, order or agreement under any Environmental Law.

 

(iv)         There are no (A) underground storage
tanks, (B) polychlorinated biphenyls, (C) friable asbestos or
asbestos-containing materials, (D) sumps, (E) surface impoundments, (F) landfills
or (G) sewers or septic systems present at any facility currently leased,
operated or otherwise used by the Company that could reasonably be expected to
give rise to liability of the Company under any Environmental Laws.

 

12

 

(v)                               There are no
past (including, without limitation, with respect to assets or businesses
formerly owned, leased or operated by the Company) or present actions,
activities, events, conditions or circumstances, including, without limitation,
the release, threatened release, emission, discharge, generation, treatment,
storage or disposal of Hazardous Materials, that could reasonably be expected
to give rise to liability of the Company under any
Environmental Laws.

 

(vi)                            No
modification, revocation, reissuance, alteration, transfer or amendment of the
Environmental Permits, or any review by, or approval of, any third party of the
Environmental Permits is required in connection with the execution or delivery
of this Agreement or the consummation of the transactions contemplated hereby
or the continuation of the business of the Company following such consummation.

 

(vii)                         Hazardous
Materials have not been generated, transported, treated, stored, disposed of,
arranged to be disposed of, released or threatened to be released at, on, from
or under any of the properties or facilities currently leased or otherwise used
by the Company, in violation of or so as could result in liability under, any
Environmental Laws.

 

(viii)                      The Company has
not contractually assumed any liabilities or obligations under any
Environmental Laws.

 

(l)                                     Contracts; Debt
Instruments.

 

(i)                                   Section 3.01(l) of
the Company Disclosure Letter lists all material contracts and other
agreements, whether written or oral, to which the Company is a party.  The Company has delivered to the Parent a
correct and complete copy of each written agreement listed or required to be
listed in Section 3.01(l) of the Company Disclosure Letter.  With respect to each agreement listed or
required to be listed in Section 3.01(l) of the Company Disclosure
Letter, except as may be set forth in Section 3.01(l) of the Company
Disclosure Letter:  (a) the
agreement is legal, valid, binding, enforceable and in full force and effect; (b) the
agreement will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (c) no event has occurred that, with
notice or lapse of time, would constitute a material breach or default, or
permit termination, modification or acceleration under the agreement; and (d) no
party has repudiated any provision of the agreement.

 

(ii)                                The Company has
delivered to Parent (x) true, complete and correct copies of all loan or
credit agreements, notes, bonds, mortgages, indentures and other agreements and
instruments pursuant to which any Indebtedness of the Company is outstanding
and (y) accurate information regarding the respective principal amounts
currently outstanding thereunder.  For
the avoidance of doubt, Company Disclosure Letter 3.01(l) lists each such 

 

13

 

item required to be delivered pursuant to this Section 3.01(l)(ii) to
which the Company is a party or pursuant to which the Company has any obligations.

 

(m)                               Brokers.  No broker, investment banker, financial
advisor or other Person is entitled to any broker’s finder’s, financial advisor’s
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company, except as set forth in Section 3.01(m) of the Company
Disclosure Letter.

 

(n)                                 Board and
Stockholder Approval.  (i) The
Board of Directors of the Company, has by unanimous vote or consent of its
directors  approved this Agreement and
the Merger and (ii) the holders of the requisite number of shares of the
Company’s capital stock have approved this Agreement and the transactions
contemplated herein, including the Merger, which is the only vote of the holders
of any class or series of securities of the Company necessary to approve this
Agreement, the Merger and the other transactions contemplated hereby.

 

(o)                                 Intellectual
Property.

 

(i)                                   The Company has
not developed and does not own any registered Intellectual Property which has
been issued to the Company.  Section 3.01(o) of
the Company Disclosure Letter identifies each item of Company Technology that
any Person besides the Company owns and that is used by the Company or in
connection with the Company’s business pursuant to any license, sublicense or
other contractual obligation (the “Licenses”). 
Except as disclosed on Section 3.01(o) of the Company
Disclosure Letter, there are no royalties for the use of any such Company
Technology.  The Company has made available
to the Parent true, accurate and complete copies of all of the Licenses, in
each case, as amended or otherwise modified and in effect.

 

(ii)                                The Company
owns or has the right to use all Intellectual Property necessary for the
Company to conduct its business as it is currently conducted and consistent
with past practice.

 

(iii)                             All of the
Intellectual Property used by the Company is subsisting and unexpired, free of
all Liens, has not been abandoned and, to the knowledge of the Company, does
not infringe the intellectual property rights of any third party, in each case,
except as set forth in Section 3.01(o) of the Company Disclosure
Letter.  None of the Intellectual
Property to the extent used by the Company is the subject of any license,
security interest or other agreement to which the Company is a party granting
rights therein to any third party.  To
the Company’s knowledge, no judgment, decree, injunction, rule or order
has been rendered by any U.S. federal or state or foreign Governmental Entity which
would limit, cancel or question the validity of, or the Company’s rights in and
to any Intellectual Property in any material respect.  The Company has not 

 

14

 

received notice of any pending or threatened suit, action or proceeding
that seeks to limit, cancel or question the validity of, or the Company’s
rights in and to any Intellectual Property.

 

(iv)                            To the Company’s
knowledge, the Company’s use and dissemination of any and all data and
information concerning consumers of its products or users of any web sites
operated by the Company is in compliance with all applicable privacy policies,
terms of use, and laws.  To the Company’s
knowledge, the transactions contemplated to be consummated hereunder as of the
Closing will not violate any privacy policy, terms of use, or laws relating to
the use, dissemination, or transfer of such data or information.

 

(v)                               The Company
takes reasonable steps to protect, maintain and safeguard its Intellectual
Property, including any Intellectual Property for which improper or
unauthorized disclosure would impair its value or validity, and have executed
appropriate agreements and made appropriate filings and registrations in
connection with the foregoing.

 

(p)                                 Government
Licenses; Compliance With FDC Act and Other Regulatory Requirements.

 

(i)                                     The Company holds all
material authorizations, consents, approvals, franchises, licenses and permits
required under applicable law or regulation for the operation of the business
of the Company as presently operated (the “Company Permits”).  All the Company Permits have been duly issued
or obtained and are in full force and effect, and the Company is in material
compliance with the terms of all the Company Permits.  The Company has not engaged in any activity
that would cause revocation or suspension of any such Company Permits.  Neither the execution, delivery nor
performance of this Agreement shall adversely affect the status of any of the
Company Permits.

 

(ii)                                  Without limiting the generality
of the representations and warranties made in sub-paragraph (i) above, the
Company represents and warrants that (i) all Pharmaceutical Products that are subject to the
jurisdiction of the United States Food and Drug Administration (the “FDA”)
are being developed, labelled, stored, tested and distributed directly by the
Company in substantial compliance with all applicable requirements under the
Federal Food, Drug and Cosmetic Act of 1938 (the “FDCA”), the Public
Health Service Act of 1944 (the “PHSA”) and all applicable similar state
and foreign Legal Requirements, including those relating to investigational
use, premarket clearance and applications or abbreviated applications to market
a new Pharmaceutical Product.  “Pharmaceutical
Products” shall mean all biological and drug candidates, compounds or
products being researched, tested, developed, manufactured or distributed by
the Company, (ii) all preclinical studies and clinical trials conducted by
the Company have been, and are being, conducted in substantial compliance with
the requirements of Good Laboratory Practice and Good Clinical Practice and all
requirements relating to protection of human subjects contained in Title 21,
Parts 50, 54, and 56 of the United States Code of Federal Regulations

 

15

 

(“C.F.R.”), in each case, to the extent
required by applicable law and regulations, (iii) no Pharmaceutical
Product has been recalled, suspended, or discontinued as a result of any action
by the FDA or any other similar foreign Governmental Entity by the Company, or (iv) since
December 31, 2005, neither the Company nor, to the knowledge of the
Company, any of its officers, key employees or agents has been convicted of any
crime or engaged in any conduct that has resulted, or would reasonably be
expected to result, in debarment under 21 U.S.C. Section 335a or any
similar state law or regulation under 42 U.S.C. Section 1320a-7.

 

(q)                                 Insurance.  The Company does not presently maintain any
insurance policies.

 

(r)                                    Accredited
Investor.  The Company
represents and warrants that it has received or, as of the Closing shall have
received,  reasonable assurance from each
holder of Company Common Stock that such holder is an “accredited investor” as
defined in Rule 501(a) promulgated under the Securities Act.

 

(s)                                  Transactions
with Affiliates.  Section 3.01(s) of
the Company’s Disclosure Letter lists all currently effective contracts and
agreements between the Company, on one hand, and any of its officers,
directors, shareholders or their Affiliates, on the other and all such
contracts and agreements that were in effect at any time since January 1,
2006.  None of the Company’s directors,
officers, employees and shareholders, or their Affiliates, owns any material
asset, tangible or intangible, that is used in the business of the Company,
except as set form on Section 3.01(s) of the Company’s Disclosure
Letter.

 

(t)                                    Description of
Business.  The
description of the Company included in Amendment No. 1 to Preliminary
Proxy Statement of REIT Americas, Inc. filed on Schedule 14A on December 19,
2007 does not contain any untrue statement of material fact or omit to state
any material fact necessary in order to make the statements and information
contained therein not misleading, in each case, as of the date of the filing
thereof.

 

(u)                                 Disclaimer of
Other Representations and Warranties.  The representations and warranties contained
in this Section 3.01, and in the Officer’s Certificate and Secretary’s
Certificate to be delivered by the Company under this Agreement, do not contain
any untrue statement of material fact or omit to state any material fact
necessary in order to make the statements and information contained therein not
misleading.  Parent and Merger Sub
acknowledge and agree that the Company has made no representation or warranty
in connection with this Agreement or the transactions contemplated hereby other
than as set forth in this Section 3.01.

 

3.02         Representations
and Warranties of Parent and Merger Sub.  Except as set forth in the disclosure letter
(to the extent each disclosure item therein is clearly marked to indicate the
section, paragraph or subparagraph of this Agreement to which such disclosure
is an exception, referencing the same section, paragraph and subparagraph as
used in this Agreement) delivered by Parent and Merger Sub to Holdings and the
Company at the time of execution of this Agreement (the “Parent Disclosure
Letter”) or in the Parent SEC

 

16

 

Documents filed on or after January 1, 2007, Parent and Merger Sub
represent and warrant to Holdings and the Company as follows:

 

(a)                                  Organization,
Standing and Corporate Power.  Each of Parent and Merger Sub is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority to carry on its business as
now being conducted.  Each of Parent and
Merger Sub is duly qualified or licensed to do business and is in good standing
in each jurisdiction (domestic or foreign) in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would not have a
Material Adverse Effect with respect to Parent. 
Parent has made available to Holdings and the Company complete and
correct copies of its certificate of incorporation (including any Certificates
of Designations thereto) (the “Parent Certificate”) and by-laws (the “Parent
Bylaws”) and the organizational documents of Merger Sub.

 

(b)                                 Capital
Structure.  The
authorized capital stock of Parent consists of (x) 100,000,000 shares of
Parent Common Stock and (y) 6,000,000 shares of Parent Preferred
Stock.  As of the date hereof, there were:  (i) 22,899,206
shares of Parent Common Stock issued and outstanding; (ii) 0 shares of
Parent Preferred Stock issued and outstanding, (iii) 299 shares of Parent
Common Stock held in the treasury of Parent; (iv) 1,784,584 shares of
Parent Common Stock reserved for issuance upon exercise of options available
for grant pursuant to Parent’s stock option plans; (v) 2,546,488 shares of
Parent Common Stock issuable upon exercise of awarded but unexercised stock options;
and (vi) warrants representing the right to purchase 20,445,984 shares of
Parent Common Stock.  Except as set forth above,
as of the date hereof, there were no shares of capital stock or other equity
securities of Parent issued, reserved for issuance or outstanding.  All outstanding shares of capital stock of
Parent are, and all shares which may be issued as described above will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights.  The shares
of Parent Common Stock to be issued in connection with the Merger (x) will,
when issued, be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights and (y) will be issued in compliance
in all material respects with all applicable federal and state securities laws
and applicable rules and regulations promulgated thereunder.  Except as set forth above and in the Rights
Agreement dated as of August 13, 1999, between the Parent and American
Stock Transfer & Trust Company as Rights Agent (the “Shareholder
Rights Plan”), there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which Parent is a party or by which it is bound obligating Parent to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity or voting securities of Parent or
obligating Parent to issue, grant, extend, accelerate the vesting of or enter
into any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking.  There are no
outstanding contractual obligations, commitments, understandings or 

 

17

 

arrangements of Parent to repurchase, redeem or otherwise acquire or
make any payment in respect of any shares of capital stock of Parent.  As of the date hereof, all of the membership
interests in Merger Sub are owned by Parent, free and clear of any Lien, and as
of the Closing Date, all the membership interests of Merger Sub will be owned
by Parent free and clear of any Lien.

 

(c)                                  Authority;
Noncontravention.  Parent and
Merger Sub have all requisite corporate (or other, as applicable) power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby.  The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly
authorized by all necessary entity action on the part of Parent and Merger
Sub.  This Agreement has been duly
executed and delivered by each of Parent and Merger Sub, as applicable, and
(assuming due authorization, execution and delivery by Holdings and the
Company) constitutes a valid and binding obligation of Parent and Merger Sub,
as applicable, enforceable against them in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors’ rights
generally and general equitable principles (whether considered in a proceeding
in equity or at law).  The execution and
delivery of this Agreement does not, and the consummation by Parent and Merger
Sub of the transactions contemplated by this Agreement and compliance by Merger
Sub with the provisions of this Agreement will not, conflict with, or result in
any breach or violation of, or any default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of, or a “put” right with respect to any obligation under, or to a
loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Parent or Merger Sub under (i) the
certificate of incorporation or by-laws of Parent or the organizational
documents of Merger Sub, (ii) any loan or credit agreement, note, note
purchase agreement, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent or
Merger Sub or any of their respective properties or assets or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule, regulation
or arbitration award applicable to Parent or Merger Sub or their respective
properties or assets, other than, in the case of clauses (ii) and (iii),
any such conflicts, breaches, violations, defaults, rights, losses or Liens
that individually or in the aggregate would not have a Material Adverse Effect
with respect to Parent or prevent or materially delay the ability of Parent and
Merger Sub to consummate the transactions contemplated by this Agreement or
perform their respective obligations hereunder. 
No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Governmental Entity is required
by or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement by Parent and Merger Sub or the consummation by
Parent and Merger Sub of any of the transactions contemplated hereby or the
performance by Parent and Merger Sub of their respective obligations hereunder,
except for (i) the filing with the SEC of such reports under the Exchange
Act as may be required in connection 

 

18

 

with this Agreement and the transactions contemplated hereby, (ii) the
filing of the Delaware Certificate of Merger with the Secretary of State of the
State of Delaware and the New York Certificate of Merger with the Secretary of
State of New York and appropriate documents with the relevant authorities of
other states in which Parent is qualified to do business, (iii) such other
consents, approvals, orders, authorizations, registrations, declarations,
filings or notices as may be required under the “takeover” or “blue sky” laws
of various states or the rules of any applicable stock market and (v) such
other consents, approvals, orders, authorizations, registrations, declarations,
filings or notices the failure of which to make or obtain, individually or in
the aggregate, could not reasonably be expected to (x) prevent or
materially delay consummation of the Merger or the other transactions
contemplated hereby or performance of Parent’s and Merger Sub’s obligations
hereunder or (y) have a Material Adverse Effect with respect to Parent.

 

(d)                                 Parent SEC
Documents; Undisclosed Liabilities.  Since January 1, 2003, Parent has filed
with the SEC all reports, schedules, forms, statements and other documents
required pursuant to the Securities Act and the Exchange Act (collectively, and
in each case including all exhibits and schedules thereto and documents
incorporated by reference therein, the “Parent SEC Documents”).  As of their respective dates, the Parent SEC
Documents (other than the Parent SEC Financial Statements) complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents.  Except to the extent that information
contained in any Parent SEC Document has been revised or superseded by a later
filed Parent SEC Document, none of the Parent SEC Documents (including any and
all Parent SEC Financial Statements included therein) contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.  The financial statements of Parent included
in the Parent SEC Documents (the “Parent SEC Financial Statements”)
comply as to form in all material respects with applicable published accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP, applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the financial position of Parent as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited quarterly statements, to normal
recurring year-end audit adjustments). 
Parent has no liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by GAAP to be recognized or
disclosed on a balance sheet of Parent or in the notes thereto, except (i) liabilities
reflected in the audited balance sheet of Parent as of December 31, 2007, (ii) liabilities
incurred since December 31, 2007, in the ordinary course of business
consistent with past practice and (iii) liabilities that would not be
reasonably likely to have a Material Adverse Effect with respect to Parent.

 

19

 

(e)                                  Disclosure
Controls and Procedures.  The Parent maintains disclosure
controls and procedures required by Rule

13a-15 and 15d-15 under the Exchange Act.  Such disclosure controls and procedures
are designed to ensure that all material information relating to the Parent is
made known to the Parent’s chief executive officer and chief financial officer
by others within the Parent, particularly during the period in which the Parent’s
applicable Exchange Act report is being prepared, and effective, in that they
provide reasonable assurance that information required to be disclosed by the
Parent in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.  The Parent’s management assessment was
that disclosure controls and procedures were effective as of December 31,
2007.

 

(f)                                    Absence of
Certain Changes or Events.  Since December 31, 2007, there
is not and has not been:  (i) any
Material Adverse Change with respect to Parent; (ii) any condition, event
or occurrence which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect or give rise to a Material Adverse
Change with respect to Parent; (iii) any condition, event or occurrence
which, individually or in the aggregate, could reasonably be expected to
prevent or materially delay the ability of Parent and Merger Sub to consummate
the transactions contemplated by this Agreement or perform their respective
obligations hereunder.

 

(g)                                 Litigation; Labor Matters;
Compliance with Laws.

 

(i)                                   There is no suit, action,
claim, charge, arbitration, investigation or proceeding pending before a
Governmental Entity and, to the knowledge of Parent, no suit, action, claim,
charge, arbitration, investigation or proceeding threatened against or pending,
in each case with respect to Parent that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect with respect to
Parent or prevent or materially delay the ability of Parent and Merger Sub to
consummate the transactions contemplated by this Agreement or to perform their
respective obligations hereunder, nor is there any judgment, decree, citation,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Parent which, individually or in the aggregate, could
reasonably be expected to have, a Material Adverse Effect with respect to
Parent.

 

(ii)                                Except as set
forth in Section 3.02(g)(ii) of the Parent Disclosure Letter (1) the
Parent is not a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization; (2) the Parent is not the subject of any strike, grievance
or other proceeding asserting that the Parent has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages or conditions of employment; (3) there is no strike, work stoppage or
other labor dispute involving the Parent or, to its knowledge, threatened; (4) no
grievance is pending or, to the knowledge 

 

20

 

of the Parent, threatened against the Parent which, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect
with respect to the Parent; (5) the Parent is in material compliance with
all applicable laws (domestic and foreign), agreements, contracts and policies
relating to employment, employment practices, wages, hours, immigration matters
and terms and conditions of employment; (6) the Parent has paid in full to
all employees of the Parent all wages, salaries, commissions, bonuses, benefits
and other compensation due and payable to such employees under any policy,
practice, agreement, plan, program, statute or other law; (7) the Parent
is not liable for any severance pay or other payments to any employee or former
employee arising from the termination of employment under any benefit or
severance policy, practice, agreement, plan or program of the Parent, nor will
the Parent have any liability which exists or arises, or may be deemed to exist
or arise, under any applicable law or otherwise, as a result of or in
connection with the transactions contemplated hereunder or as a result of the
termination by the Parent of any Persons employed by the Parent on or prior to
the Effective Time; and (8) the Parent is in compliance with its
obligations pursuant to WARN and any similar state or local laws, and all other
employee notification and bargaining obligations arising under any statute or
otherwise.

 

(iii)          The businesses
of Parent is not being conducted in violation of any law (domestic or foreign),
ordinance or regulation of any Governmental Entity, except for possible
violations which, individually or in the aggregate, do not and would not have a
Material Adverse Effect with respect to Parent.

 

(h)           Interim
Operations of Merger Sub.  Merger Sub was formed on April 3,
2008 solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.

 

(i)            Employee
Benefit Plans.

 

(i)                                   Section 3.02(i)(i) of
the Parent Disclosure Letter contains a true and complete list of each “employee
benefit plan” (within the meaning of Section 3(3) of ERISA)
(including, without limitation, multiemployer plans within the meaning of Section 3(37)
of ERISA or any of its foreign equivalents)), stock purchase, stock option,
severance, employment, change-in-control, fringe benefit, collective
bargaining, bonus, incentive, deferred compensation and all other employee
benefit plans, agreements, programs, policies or other arrangements relating to
employment, benefits or entitlements, whether or not subject to ERISA
(including any funding mechanism therefor now in effect or required in the
future as a result of the transactions contemplated by this Agreement or other
activities taken by the Parent on or prior to the date of this Agreement),
sponsored by the Parent or any other entity such as a co-employer, whether
formal or 

 

21

 

informal, oral or written, legally binding or not under which any
employee or former employee of the Parent has any present or future right to
benefits based on such employee’s employment with the Parent and under which
the Parent has any present or future liability.  All such plans,
agreements, programs, policies and arrangements are herein collectively
referred to as the “Parent Plans.”

 

(ii)                                  With respect to
each Parent Plan, the Parent has delivered to Parent a current, accurate and
complete copy (or, to the extent no such copy exists, an accurate description)
thereof and, to the extent applicable, (A) any related trust agreement,
annuity contract or other funding instrument; (B) the most recent
determination letter issued by the IRS; (C) any summary plan description
and other material written communications (or a description of any material
oral communications) by the Parent to its employees concerning the extent of
the benefits provided under a Parent Plan; and (D) for the three most
recent years (I) the Form 5500 and attached schedules; (II) audited
financial statements; (III) actuarial valuation reports; and (IV) attorney’s
response to an auditor’s request for information.

 

(iii)                               (A) Neither
the Parent nor any member of its Controlled Group has or shall have, as of the
Effective Time, any obligation to any multiemployer plan (within the meaning of
4001(a)(3) of ERISA) or any collective bargaining agreement; (B) neither
the Parent nor any member of its Controlled Group has incurred any material
withdrawal liability under Title IV of ERISA; and (C) neither the Parent
nor any member of its Controlled Group has engaged in a transaction which could
subject it to liability under ERISA Section 4212(c).

 

(iv)                              (A) Each
Parent Plan which is intended to meet the requirements for Tax-favored
treatment under Subchapter B of Chapter 1 of Subtitle A of the Code meets such
requirements; and (B) the Parent has received a favorable determination
from the IRS with respect to any trust intended to be qualified within the
meaning of Code Section 501(c)(9).

 

(v)                                 The Parent has
complied and currently complies in all material respects with the applicable
continuation requirements for its welfare benefit plans, including Section 4980B
of the Code and Sections 601 through 608, inclusive, of ERISA and any
applicable state statutes maintaining health insurance continuation coverage
for employees and beneficiaries.

 

(vi)          Except as
otherwise disclosed in Section 3.02(i)(vi) of the Parent Disclosure
Letter, none of the terms of the Parent Plans provides that the consummation of
the transactions contemplated by this Agreement will, either alone or in
combination with another event, (A) entitle any of the Parent’s employees
or current or former officers or directors to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, or (B) accelerate the time of

 

22

 

payment or vesting, or
increase the amount of compensation due any such employee or officer.

 

(vii)        Except as otherwise disclosed in Section 3.02(i)(vii) of
the Parent Disclosure Letter, no payment that is owed or may become due to
any director, officer, employee or agent of the Parent will be non-deductible
or subject to tax under Section 280G, Section 4999 or Section 162(m) of
the Code; nor will the Parent be required to “gross up” or otherwise compensate
any such person because of the imposition of any excise tax on a payment to
such person.

 

(viii)       Each Parent Plan is amendable and terminable
at the sole discretion of the sponsor thereof without notice to any participant
or beneficiary.

 

(ix)          There is no suit, action, claim, charge,
arbitration, investigation or proceeding (except with respect to benefits
payable in the normal operation of Parent Plans and qualified domestic
relations orders) against or involving any Parent Plan or asserting any rights
or claims to benefits under any Parent Plan that could give rise to any
material liability.

 

(x)           Except as disclosed in Section 3.02(i)(x) of
the Parent Disclosure Letter, there are no obligations or potential liability
under any Parent Plan for providing welfare benefits after termination of
employment to any employee (or any beneficiary of an employee), including, but
not limited to, retiree health and life insurance coverage, but excluding
continuation of health coverage required to be continued under Section 4980B
of the Code or other applicable law and insurance conversion privileges under
state law. The assets of each Parent Plan which is funded are reported on their
fair market value on the books and records of such Parent Plan.

 

(xi)          No individuals are currently providing, or
have ever provided, services to the Parent pursuant to a leasing arrangement or
similar type of arrangement. The Parent has no obligation to provide benefits
under any Parent Plan maintained for its employees to or for the benefit of any
individual who has been treated as an independent contractor by the Parent.

 

(j)            Taxes.

 

(i)            Parent has timely filed with the appropriate
Governmental Entity all Tax Returns required to be filed by it, each such Tax
Return has been prepared in compliance with all applicable laws and regulations
and all such Tax Returns are true, accurate and complete in all material
respects. Parent has (A) timely paid in full all Taxes required to have
been paid by it (whether or not such Taxes were shown to be due on such Tax
Returns); and (B) made adequate provision for all accrued Taxes not yet
due. Parent has made accruals for Taxes on the Parent SEC Financial Statements
that are adequate to cover any Tax liability of Parent determined in accordance

 

23

 

with GAAP through the date of the applicable Parent
SEC Financial Statements, and any Taxes of Parent arising after the date of the
most recent Parent SEC Financial Statements and at or before the Effective Time
have been or will be incurred in the ordinary course of Parent’s business.

 

(ii)           As of the date of this Agreement, no federal,
state, local or foreign audits, suits or other administrative proceedings or
court proceedings are presently pending with regard to any Taxes or Tax Returns
of Parent, and Parent has not received a written notice of any material pending
or proposed claims, audits or proceedings with respect to Taxes. The Parent has
not granted any outstanding extensions of the time in which any Tax may be
assessed or collected by any Tax authority. There is no action, suit,
proceeding or audit with respect to any Tax or, to the knowledge of Parent,
threatened against or with respect to Parent. Parent has not received any
notice of deficiency or assessment from any Governmental Entity for any amount of
Tax that has not been fully settled or satisfied, and to the knowledge of
Parent no such deficiency or assessment is proposed.

 

(iii)          No claim has been made in writing by any
Governmental Entity in a jurisdiction where Parent does not file Tax Returns that
any such entity is, or may be, subject to taxation by that jurisdiction.

 

(k)           Properties. The Parent (i) has good and marketable title to all the
properties and assets (A) reflected in the Most Recent Balance Sheet as
being owned by the Parent (other than any such properties or assets sold or
disposed of since such date in the ordinary course of business consistent with
past practice) or (B) acquired after December 31, 2007 which are
material to the Parent’s business, free and clear of all Liens. The Parent has
good and valid leasehold interests in all real property leases, subleases and
occupancy agreements to which the Parent is a party (the “Parent Leases”)
and is in sole possession of the properties purported to be leased thereunder. Section 3.02(k) of
the Parent Disclosure Letter lists and describes briefly all Parent
Leases. Each Parent Lease is in full force and effect and constitutes a
legal, valid and binding obligation of, and is legally enforceable against, the
respective parties thereto. There is no uncured breach, and no default exists,
on the part of landlord under any of the Parent Leases, and the Parent has
no knowledge of breach or default or any event, condition or state of facts,
which with the giving of notice or the passage of time, or both, would
constitute a breach or default by the Parent under any Parent Lease. There is
no suit, action, arbitration or other proceeding with respect to the Parent
Leases or the premises leased under the Parent Leases. The Parent has not
received notice and does not otherwise have knowledge of any pending,
threatened or contemplated condemnation proceeding affecting any premises
leased by the Parent or any part thereof or of any sale or other
disposition of any such leased premises or any part thereof in lieu of
condemnation. The real property leased to the Parent under the Parent Leases
encompasses all real property used by the Parent, and the Parent

 

24

 

does not own any real property and does not have any options to
purchase real property. The landlord under each of the Parent Leases has
performed all initial improvements required to be performed by it under such
Parent Lease and all tenant improvements allowances have been paid to the
Parent as tenant under such Parent Lease. All insurance required to be
maintained by the Parent under each of the Parent Leases is in full force and
effect.

 

(l)            Environmental Matters.

 

(i)            The Parent holds and is in compliance in all
material respects with all Environmental Permits and the Parent is, and has
been, otherwise in compliance with all Environmental Laws in all material
respects and, to the knowledge of the Parent, there are no conditions that
might prevent or interfere with such compliance in the future.

 

(ii)           The Parent has not received any Environmental
Claim, and to the knowledge of the Parent there is no threatened Environmental
Claim.

 

(iii)          The Parent has not entered into any consent
decree, order or agreement under any Environmental Law.

 

(iv)         There are no (A) underground storage
tanks, (B) polychlorinated biphenyls, (C) friable asbestos or
asbestos-containing materials, (D) sumps, (E) surface impoundments, (F) landfills
or (G) sewers or septic systems present at any facility currently leased,
operated or otherwise used by the Parent that could reasonably be expected to
give rise to liability of the Parent under any Environmental Laws.

 

(v)          There are no past (including, without
limitation, with respect to assets or businesses formerly owned, leased or
operated by the Parent) or present actions, activities, events, conditions or
circumstances, including, without limitation, the release, threatened release,
emission, discharge, generation, treatment, storage or disposal of Hazardous
Materials, that could reasonably be expected to give rise to liability of the
Parent under any Environmental Laws.

 

(vi)         No modification, revocation, reissuance,
alteration, transfer or amendment of the Environmental Permits, or any review
by, or approval of, any third party of the Environmental Permits is required in
connection with the execution or delivery of this Agreement or the consummation
of the transactions contemplated hereby or the continuation of the business of
the Parent following such consummation.

 

(vii)        Hazardous Materials have not been generated,
transported, treated, stored, disposed of, arranged to be disposed of, released
or threatened to be released at, on, from or under any of the properties or
facilities currently leased or otherwise used by the Parent, in violation of or
so as could result in liability under, any Environmental Laws.

 

25

 

(viii)       The Parent has not contractually assumed any
liabilities or obligations under any Environmental Laws.

 

(m)          Contracts; Debt Instruments.

 

(i)            The Parent is not, and has not received any
notice and has no knowledge that any other party is, in default in any material
respect under any contract, agreement, commitment, arrangement, lease, policy
or other instrument to which it is a party or by which it is bound; and, to the
knowledge of the Parent, there has not occurred any event that with the lapse
of time or the giving of notice or both would constitute such a default.

 

(ii)           The Parent has delivered to Holdings and the
Company (x) true, complete and correct copies of all loan or credit
agreements, notes, bonds, mortgages, indentures and other agreements and
instruments pursuant to which any Indebtedness of the Parent is outstanding and
(y) accurate information regarding the respective principal amounts
currently outstanding thereunder.

 

(iii)          The Parent has delivered to Holdings and the
Company true, complete and correct copies of all other contracts, agreements,
commitments, arrangements, leases, policies or other instruments that are
material to the business of the Parent, including, without limitation, any
non-compete agreement or any other agreement requiring expenditures above
$25,000.

 

(n)           Brokers. No broker, investment banker, financial advisor or other Person is
entitled to any broker’s finder’s, financial advisor’s or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Merger Sub.

 

(o)           Board Approval; Opinion of Financial Advisor. The Board of Directors of the Parent and
the sole member of Merger Sub, has (i) approved and adopted this Agreement
and the Merger and (ii) directed the officers of the Parent to vote (or
execute a consent with respect to) all of the membership units of Merger Sub to
approve this Agreement and the transactions contemplated herein, including the
Merger. Griffin Securities, Inc. has delivered to the Board of Directors
of the Parent, an opinion to the effect that, as of the date of this Agreement,
the consideration to be issued by Parent on the terms set forth in this
Agreement is fair from a financial point of view to holders of the Parent
Common Stock.

 

(p)           Intellectual Property.

 

(i)            Section 3.02(p)(i) of the Parent
Disclosure Letter sets forth all Intellectual Property owned by the Parent,
which is registered or filed with, or has been submitted to, any Governmental
Entity, and all Intellectual Property licensed from third parties by the
Parent, and the nature of the Parent’s rights therein.

 

26

 

(ii)           The Parent owns or has the right to use all
Intellectual Property necessary for the Parent to conduct its business as it is
currently conducted and consistent with past practice.

 

(iii)          All of the Intellectual Property used by the
Parent is subsisting and unexpired, free of all Liens, has not been abandoned
and, to the knowledge of the Parent, does not infringe the intellectual
property rights of any third party. None of the Intellectual Property to the
extent used by the Parent is the subject of any license, security interest or
other agreement to which the Parent is a party granting rights therein to any
third party. No judgment, decree, injunction, rule or order has been
rendered by any U.S. federal or state or foreign Governmental Entity which
would limit, cancel or question the validity of, or the Parent’s rights in and
to any Intellectual Property in any material respect. The Parent has not
received notice of any pending or threatened suit, action or proceeding that
seeks to limit, cancel or question the validity of, or the Parent’s rights in
and to any Intellectual Property. The Parent takes reasonable steps to protect,
maintain and safeguard its Intellectual Property, including any Intellectual
Property for which improper or unauthorized disclosure would impair its value
or validity, and have executed appropriate agreements and made appropriate
filings and registrations in connection with the foregoing.

 

(q)           Government Licenses; Compliance With FDC Act and
Other Regulatory Requirements.

 

(i)            The Parent holds all material authorizations,
consents, approvals, franchises, licenses and permits required under applicable
law or regulation for the operation of the business of the Parent as presently
operated (the “Parent Permits”). All the Parent Permits have been duly
issued or obtained and are in full force and effect, and the Parent is in
material compliance with the terms of all the Parent Permits. The Parent has
not engaged in any activity that, to their knowledge, would cause revocation or
suspension of any such Parent Permits. Neither the execution, delivery nor
performance of this Agreement shall adversely affect the status of any of the
Parent Permits.

 

(ii)           Without limiting the generality of the
representations and warranties made in sub-paragraph (i) above, the Parent
represents and warrants that (i) the Parent is in material compliance with
all applicable provisions of the FDCA and equivalent laws, rules and
regulations in jurisdictions outside the United States in which the Parent does
business, (ii) its products that are in the Parent’s control are not
adulterated or misbranded and are in lawful distribution, (iii) all of the
products marketed by and within the control of the Parent comply in all material
respects with any conditions of approval and the terms of the application by
the Parent to the appropriate Parent Regulatory Authorities, (iv) no
Parent Regulatory Authority has initiated legal action with respect to the
manufacturing of the Parent’s products, such as seizures or required recalls,
and the Parent is in compliance with applicable good manufacturing practice
regulations, (v) its products are labeled and promoted by the Parent and
its

 

27

 

representatives in substantial compliance with the
applicable terms of the marketing applications submitted by the Parent to the
Parent Regulatory Authorities and the provisions of the FDCA and foreign
equivalents, (vi) all adverse events that were known to and required to be
reported by Parent to the Parent Regulatory Authorities have been reported to
the Parent Regulatory Authorities in a timely manner, (vii) the Parent is
not, to its knowledge, employing or utilizing the services of any individual
who has been debarred under the FDCA or foreign equivalents, (viii) all
stability studies required to be performed for products distributed by the
Parent have been completed or are ongoing in material compliance with the
applicable Parent Regulatory Authority requirements, (ix) any products
exported by the Parent have been exported in compliance with the FDCA and (x) the
Parent is in compliance in all material respects with all applicable provisions
of the Controlled Substances Act. For purposes of this Section 3.02(q), “Parent
Regulatory Authority” means any governmental authority in a country or
region that regulates the manufacture or sale of Parent’s products, including,
but not limited to, the United States Food and Drug Administration.

 

(r)            Insurance. The Parent maintains insurance policies (each, a “Parent Insurance
Policy”) with reputable insurance carriers against all risks of a character
and in such amounts as are usually insured against by similarly situated
companies in the same or similar businesses. Each Parent Insurance Policy is in
full force and effect and is set forth in Section 3.02(r) of the
Parent Disclosure Letter.

 

Holdings and the Company acknowledge and agree that
neither Parent nor Merger Sub has made any representation or warranty in
connection with this Agreement or the transactions contemplated hereby other
than as set forth in this Section 3.02.

 

ARTICLE IV.

 

ADDITIONAL AGREEMENTS

 

4.01         Company Financial Statements The Company shall use its reasonable best
efforts to promptly (i) prepare all financial statements of the Company
required for the Parent to timely file with the SEC the financial statements
required under Items 2.01 and 9.01 of Form 8-K including, without
limitation, the Company Financial Statements in compliance with Regulation S-X
promulgated under the Securities Act and (ii) obtain the consent of J.H.
Cohn LLP to use their opinion with respect to the Company Financial Statements
in any SEC filings that may be necessary in connection with the
transactions contemplated by this Agreement.

 

4.02         Access to Information; Confidentiality.

 

Each of Holdings, the Company and Parent shall, and
shall cause its officers, employees, counsel, financial advisors and other
representatives to afford to the other party and its representatives reasonable
access during normal business hours, during the period prior to the Effective
Time to its properties, books, contracts, commitments, personnel and records,
and, during such period, each of Holdings, the Company and Parent shall, and

 

28

 

shall cause its officers, employees and
representatives to furnish promptly to the other documents filed by it during
such period pursuant to the requirements of federal or state securities laws
and (ii) all other information concerning its business, properties,
financial condition, operations and personnel as such other party may from
time to time reasonably request. Each of the Company and Parent shall hold, and
shall cause its respective directors, officers, employees, accountants,
counsel, financial advisors and other representatives and Affiliates to hold,
any nonpublic information in confidence to the extent required by, and in
accordance with, the provisions of the confidentiality agreement between Parent
and the Company (the “Confidentiality Agreement”). No investigation
pursuant to this Section 4.02 shall affect any representations or
warranties of the parties herein or the conditions to the obligations of the
parties hereto.

 

4.03         Reasonable Best Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) obtaining all consents, approvals, waivers,
licenses, permits or authorizations as are required to be obtained (or, which
if not obtained, would result in an event of default, termination or
acceleration of any agreement or any put right under any agreement) under any
applicable law or regulation or from any Governmental Entities or third parties
in connection with the transactions contemplated by this Agreement, (ii) defending
any lawsuits or other proceedings challenging this Agreement, (iii) accepting
and delivering additional instruments necessary to consummate the transaction
contemplated by this Agreement, and (iv) satisfying the conditions to
closing set forth under Article V hereof.

 

4.04         Indemnification of Company Directors and
Officers.

 

(a)           From and after the Effective Time, Parent and
the Surviving Corporation shall jointly and severally indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time eligible for indemnification
pursuant to the Company Certificate and Company By-laws (or comparable
organizational documents) of the Company or any agreement of indemnification
with the Company, in each case as the same existed on the date of this
Agreement (the “Indemnified Parties”) against (i) all losses,
claims, fines, damages, costs, expenses (including, without limitation,
reasonable attorneys’ fees), liabilities or judgments, or amounts that are paid
in settlement of or in connection with any claim, action, suit, proceeding or
investigation (whether civil, criminal or administrative) based in whole or in part on
or arising in whole or in part out of the fact that such person is or was
a director, officer or employee of the Company, pertaining to any matter
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, or at or after, the Effective Time (“Indemnified
Liabilities”) and (ii) all Indemnified Liabilities based in whole or
in part on, or arising in whole or in part out of, or pertaining to
this Agreement or the transaction contemplated hereby, in

 

29

 

each case to the extent the Company would have been
permitted under the Company Certificate and Company By-laws (or comparable organizational
documents) or any agreement of indemnification with the Company to indemnify
such person, in each case as the same existed on the date of this Agreement. In
the event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Parties (whether arising before or after the Effective
Time), (i) any counsel retained by the Indemnified Parties for any period
after the Effective Time shall be reasonably satisfactory to Parent; (ii) after
the Effective Time, Parent or the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; and (iii) after the
Effective Time, Parent and the Surviving Corporation shall cooperate in the
defense of any such matter, provided that neither Parent nor the Surviving
Corporation shall be liable for any settlement of any claim effected without
its written consent, which consent shall not be unreasonably withheld. Any
Indemnified Party wishing to claim indemnification under this Section 4.04,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify Parent and the Surviving Corporation (but the failure so to notify
Parent and the Surviving Corporation shall not relieve either from any
liability which it may have under this Section 4.04 except to the
extent such failure prejudices Parent and the Surviving Corporation). Parent
and the Surviving Corporation shall be liable for the fees and expenses
hereunder with respect to only one law firm to represent the Indemnified
Parties as a group with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict between the positions
of any two or more Indemnified Parties that would preclude or render
inadvisable joint or multiple representation of such parties.

 

(b)           If Parent or the Surviving Corporation or any
of their respective successors or assigns (i) shall consolidate with or
merge into any other corporation or entity and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then, and in each such case, proper
provisions shall be made so that the successors and assigns of Parent or the
Surviving Corporation shall assume all of the obligations set forth in this Section 4.04.

 

(c)           The provisions of this Section 4.04 are
intended to be for the benefit of, and shall be enforceable by, each of the
Indemnified Parties.

 

(d)           The rights of the Indemnified Parties under
this Section 4.04 shall be in addition to any rights such Indemnified
Parties may have under the Company Certificate or Company By-laws, or
under any applicable contracts or laws.

 

(e)           No
Circular Recovery. The obligations of the Parent and the Surviving
Corporation in this Section 4.04 are subject to the condition that each
Indemnified Party will not make any claim for indemnification against the
Parent, the Surviving Corporation or the Company by reason of the fact that
such Indemnified Party was a controlling person, director, employee or representative

 

30

 

of the Company or the
Surviving Corporation or was serving as such for another Person at the request
of the Company (whether such claim is for losses of any kind or otherwise and
whether such claim is pursuant to any statute, organizational document,
contractual obligation or otherwise) with respect to any claim brought by the
Parent or its affiliates relating to this Agreement that is finally and
successfully adjudicated against such Indemnified Party. With respect to any
claim brought by the Parent or its affiliates against any Indemnified Party
relating to this Agreement that is finally and successfully adjudicated against
such Indemnified Party, the obligations of the Parent and the Surviving
Corporation in this Section 4.04 are subject to the condition that any
right of subrogation, contribution, advancement, indemnification or other claim
against the Company with respect to any amounts owed by any Indemnified Party
shall not be applicable.

 

4.05        Public Announcements. Neither Parent and Merger Sub, on the one
hand, nor Holdings and the Company, on the other hand, shall issue any press
release or public statement with respect to the transactions contemplated by
this Agreement, including the Merger, without the other party’s prior consent
(such consent not to be unreasonably withheld or delayed), except as may be
required by applicable law, court process or by obligations pursuant to any
agreement with any securities exchange or quotation system on which securities
of the disclosing party are listed or quoted. In addition to the foregoing,
Parent, Merger Sub, Holdings and the Company shall consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any such press release or other public statements with respect to such
transactions. The parties agree that the initial press release or releases to
be issued with respect to the transactions contemplated by this Agreement shall
be mutually agreed upon prior to the issuance thereof.

 

4.06        Shareholder Rights Plan. The Parent shall take all action necessary
to render the Shareholder Rights Plan inapplicable to the execution, delivery
and performance of this Agreement and the transactions contemplated hereby.

 

4.07        Tax Free Reorganization Treatment. Holdings, the Company, Parent and Merger
Sub shall not intentionally take or cause to be taken any action not consistent
with the transactions contemplated by this Agreement or which could reasonably
be expected to prevent the Merger from qualifying as a “reorganization” within
the meaning of Section 368(a) of the Code.

 

ARTICLE V.

 

CONDITIONS PRECEDENT

 

5.01        Conditions to each Party’s Obligation to
Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:

 

(a)           No Injunctions or Restraints. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger

 

31

 

shall be in effect; provided, however, that the
parties hereto shall use their reasonable best efforts to have any such
injunction, order, restraint or prohibition vacated.

 

(b)           Governmental Approvals. Other than the filing of the Delaware
Certificate of Merger and the New York Certificate of Merger, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity in
connection with the Merger and the consummation of the other transactions
contemplated by this Agreement, the failure of which to file, obtain or occur
is reasonably likely to have a Material Adverse Effect with respect to Parent
or a Material Adverse Effect with respect to the Company, shall have been
filed, been obtained or occurred on terms and conditions which would not
reasonably be likely to have a Material Adverse Effect with respect to Parent
or a Material Adverse Effect with respect to the Company.

 

(c)           Investment Letter. Holdings shall have delivered to Parent a
completed investment representation letter in the form attached hereto as Exhibit A
(the “Investment Letter”).

 

(d)           RAI Termination. REIT Americas, Inc., a Maryland
corporation (“RAI”), Virium Pharmaceuticals Inc. , a Delaware
corporation and direct, wholly-owned subsidiary of RAI (“Pharmaceuticals”)
and Virium Merger Sub, Inc., a Delaware corporation and direct,
wholly-owned subsidiary of Pharmaceuticals (“Virium Merger Sub”) shall
have entered into an agreement with the Company satisfactory to the parties
hereto pursuant to which the Agreement and Plan of Merger dated as of May 25,
2007, by and among RAI, Pharmaceuticals, Virium Merger Sub and the Company
shall be terminated.

 

5.02        Conditions to Obligations of Parent and
Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are further subject to the
following conditions:

 

(a)           Representations and Warranties. The representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date, except for (i) changes contemplated by
this Agreement or in the Company Disclosure Letter, (ii) representations
and warranties that are qualified by materiality or Material Adverse Effect, in
which case such representations and warranties shall be true and correct in all
respects, and (iii) representations and warranties which address matters
only as of a particular date, in which case such representations and warranties
qualified as to materiality or Material Adverse Effect shall be true and
correct in all respects, and those not so qualified shall be true and correct
in all material respects, on and as of such particular date; and Parent shall
have received a certificate to such effect signed by the president of the
Company.

 

(b)           Performance of Obligations of the Company. The Company shall have performed in all
material respects all obligations required to be performed by it under this

 

32

 

Agreement at or prior to the Closing Date. Parent
shall have received a certificate dated as of the Closing Date signed on behalf
of the Company by the president of the Company to the effect set forth in this
paragraph.

 

(c)                                  Consents, Etc.  Parent and Merger Sub shall have
received evidence, in form and substance reasonably satisfactory to Parent,
that such licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other third parties
as are necessary in connection with the transactions contemplated hereby have
been obtained, except where the failure to obtain such licenses, permits,
consents, approvals, authorizations, qualifications and orders would not,
individually or in the aggregate with all other failures, have a Material
Adverse Effect with respect to the Company.

 

(d)                                 No Litigation.  There shall not be pending by any
Governmental Entity or any other Person or solely with respect to any
Governmental Entity, threatened by any suit, action or proceeding, (i) challenging
or seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement or seeking to obtain from any
party hereto or any of their Affiliates any damages that are material in relation
to the Company; (ii) seeking to prohibit or limit the ownership or
operation by the Company of any material portion of the business or assets of
the Company or to dispose of or hold separate any material portion of the
business or assets of the Company, as a result of the Merger or any of the
other transactions contemplated by this Agreement; (iii) seeking to impose
limitations on the ability of Parent to acquire or hold, or exercise full
rights of ownership of, any shares of the common stock of the Surviving
Corporation, including, without limitation, the right to vote such common stock
on all matters properly presented to the stockholders of the Surviving
Corporation; or seeking to prohibit Parent or any of its Subsidiaries from
effectively controlling in any material respect the business or operations of
the Company.

 

(e)                                  Opinion of Counsel.  Wiggin and Dana LLP, counsel to the
Company, shall have delivered to Parent a written legal opinion addressed to
Parent, dated on and as of the Closing Date, in form and substance reasonably
satisfactory to Parent covering such matters as are customarily addressed in
legal opinions relating to transactions such as the Merger.

 

(f)                                    No Material Adverse Effect. Since the date of this Agreement, there
shall not have occurred any Material Adverse Effect or Material Adverse Change
with respect to the Company.

 

(g)                                 Appraisal Rights. No holder of Company Common Stock will have
exercised any appraisal or dissenters’ rights pursuant to the NYBCL.

 

(h)                                 SCO Note Discharge. The Company shall have entered into an
agreement pursuant to which SCO Capital Partners LLC agrees that, effective
upon and subject to the consummation of the Merger, all amounts owing,
including principal and interest, under the SCO Note as of such time shall be
deemed to be fully discharged as a capital contribution to Company and that the
SCO Note shall

 

33

 

be cancelled and of no further force and effect as
if it had been paid in full by the Company.

 

(i)                                     SCO Engagement Letter Termination. The Company shall have entered into an
agreement pursuant to which the Engagement Letter dated January 1, 2007
between the Company and SCO Financial Group LLC shall be terminated effective
upon and subject to the consummation of the Merger.

 

5.03                           Conditions to Obligations of Holdings and the
Company.  The
obligation of Holdings and the Company to effect the Merger is further subject
to the following conditions:

 

(a)                                  Representations and Warranties.  The representations and warranties of
the Parent and Merger Sub contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date, with the same force and
effect as if made on and as of the Closing Date, except for (i) changes
contemplated by this Agreement or in the Parent Disclosure Letter, (ii) representations
and warranties that are qualified by materiality or Material Adverse Effect, in
which case such representations and warranties shall be true and correct in all
respects, and (iii) representations and warranties which address matters
only as of a particular date, in which case such representations and warranties
qualified as to materiality or Material Adverse Effect shall be true and
correct in all respects, and those not so qualified shall be true and correct
in all material respects, on and as of such particular date; and Holdings and
the Company shall have received a certificate to such effect signed by an
authorized officer of Parent and Merger Sub.

 

(b)                                 Performance of Obligations of Parent and
Merger Sub.  Parent and
Merger Sub shall have performed in all material respects all obligations
required to be performed by each of them under this Agreement at or prior to
the Closing Date. Holdings and the Company shall have received a certificate
dated as of the Closing Date signed on behalf of Parent and Merger Sub by an
authorized officer of Parent and Merger Sub to the effect set forth in this
paragraph.

 

(c)                                  No Litigation. There shall not be pending by any
Governmental Entity or any other Person or solely with respect to any
Governmental Entity, threatened by any suit, action or proceeding, challenging
or seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement.

 

(d)                                 Parent Directors and Officers. As of the Effective Time:

 

(i)                                   the Board of Directors of Parent shall
consist of not more than six directors; and

 

(ii)                                John L. Zabriskie, Michael A. Davis, Paul S.
Echenberg, and Peter G. Martin shall have resigned from the Board of Directors
of Parent and David Luci and James Pachence shall have been duly appointed to
the Board of Directors of Parent.

 

34

 

(e)                                Parent Consents, Etc. Holdings and the Company shall have received
evidence, in form and substance reasonably satisfactory to Holdings and the
Company, that such licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other third parties
as are necessary in connection with the transactions contemplated hereby have
been obtained, except where the failure to obtain such licenses, permits,
consents, approvals, authorizations, qualifications and orders would not,
individually or in the aggregate with all other failures, have a Material
Adverse Effect with respect to the Parent.

 

ARTICLE VI.

 

TERMINATION, AMENDMENT, AND WAIVER

 

6.01                         Termination.  This Agreement may be terminated and abandoned at any time
prior to the Effective Time by mutual written consent of Parent and the
Company.

 

6.02                         Effect of Termination.  In the event of termination of this
Agreement by either the Company or Parent as provided in Section 6.01,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of Parent, Merger Sub, Holdings or the
Company, provided that (a) any such termination shall not relieve a party
from liability for any breach of this Agreement and (b) the last sentence
of Section 4.02(a), this Section 6.02, Section 7.06 and the
Confidentiality Agreement shall remain in full force and effect and survive any
such termination. Nothing contained in this paragraph shall relieve any party
for any breach of the covenants or agreements set forth in this Agreement or
the Confidentiality Agreement.

 

6.03                         Amendment.  This Agreement may be amended by the parties at any time before
or after any required approval of matters presented in connection with the
Merger by the stockholders of the Company; provided, however, that after any
such approval, there shall be made no amendment that by law requires further
approval by such stockholders without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.

 

6.04                         Extension; Waiver.  At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of
the obligations or other acts of the other parties; (b) waive any
inaccuracies in the representations and warranties contained in this Agreement
or in any document delivered pursuant to this Agreement; or (c) subject to
the provisions of Section 6.03, waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.

 

6.05                         Procedure for Termination, Amendment,
Extension or Waiver.  A
termination of this Agreement pursuant to Section 6.01, an amendment of
this Agreement pursuant to Section 6.03 or an extension or waiver pursuant
to Section 6.04 shall, in order to be

 

35

 

effective, require in the case of any party hereto
an action by its Board of Directors or a duly-authorized designee of its Board
of Directors.

 

ARTICLE VII.

 

GENERAL PROVISIONS

 

7.01                         Nonsurvival of Representations and Warranties.  None of the representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time and all such representations and
warranties shall be extinguished on consummation of the Merger and no party
hereto nor any officer, director or employee or stockholder of any of them
shall be under any liability whatsoever with respect to any such representation
or warranty after such time. This Section 7.01 shall not limit any
covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.

 

7.02                         Notices.  All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

 

(a)           if
to Parent or Merger Sub, to

 

MacroChem Corporation

80 Broad Street, Suite 2210

New York, New York 10004

Attention:  Chief Executive Officer

Telecopier No.:  (212) 514-8613

 

with
a copy to:

 

Ropes & Gray LLP

1 International Place

Boston, MA 02110

Attention:  D. Win Quayle

Telecopier No.:  (617) 235-0091

 

(b)           if to the Company, to

 

Virium Pharmaceuticals
Inc.

116 Village Blvd., Suite 200

Princeton, NJ  08540

Attention:  James M. Pachence

Telecopier No.:  (908) 292-1096

 

36

 

with
a copy to:

 

Wiggin and Dana LLP

400 Atlantic Street

Stamford, CT  06901

Attention:  Michael Grundei, Esq. 

Telecopier No.:  (203) 363-7676

 

7.03                           Definitions.  For purposes of this Agreement:

 

(a)                                  “Affiliate” of any Person means another
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such first Person;

 

(b)                                 “Certificates” shall have meaning ascribed
thereto in Section 2.01(d);

 

(c)                                  “C.F.R.” shall have meaning ascribed thereto
in Section 3.01(p)(ii);

 

(d)                                 “Closing” shall have meaning ascribed thereto
in Section 1.02;

 

(e)                                  “Closing Date” shall have meaning ascribed
thereto in Section 1.02;

 

(f)                                    “Code” shall have meaning ascribed thereto in
the fifth recital to this Agreement;

 

(g)                                 “Common Stock Exchange Ratio” shall have
meaning ascribed thereto in Section 2.01(c)(i);

 

(h)                                 “Company” shall have meaning ascribed thereto
in the preamble to this Agreement;

 

(i)                                     “Company Certificate” shall have meaning
ascribed thereto in Section 3.01(a);

 

(j)                                     “Company Common Stock” means the common
stock, par value $0.001 per share, of the Company;

 

(k)                                  “Company Disclosure Letter” shall have
meaning ascribed thereto in Section 3.01;

 

(l)                                     “Company Financial Statements” shall have
meaning ascribed thereto in Section 3.01(e);

 

(m)                               “Company Insiders” shall have meaning
ascribed thereto in Section 4.07(c);

 

(n)                                 “Company Leases” shall have meaning ascribed
thereto in Section 3.01(j);

 

(o)                                 “Company Notes” means the convertible
promissory notes of the Company as listed in Section 3.01(c) of the
Company Disclosure Letter other than the SCO Note;

 

37

 

(p)                                 “Company Permits” shall have meaning ascribed
thereto in Section 3.01(p)(i);

 

(q)                                 “Company Technology” means any and all Technology
used or useful in connection with the Business and any and all Intellectual
Property in any and all such Technology.

 

(r)                                    “Company Warrants” means warrants to purchase
shares of Company Common Stock as listed in Section 3.01(c) of the
Company Disclosure Letter;

 

(s)                                  “Confidentiality Agreement” shall have
meaning ascribed thereto in Section 4.02(a);

 

(t)                                    “Controlled Group” shall have meaning
ascribed thereto in Section 3.01(h)(iii);

 

(u)                                 “Delaware Certificate of Merger” shall have
meaning ascribed thereto in Section 1.03;

 

(v)                                 “DLLCA” shall have meaning ascribed thereto
in the second recital to this Agreement;

 

(w)                               “Effective Time” shall have meaning ascribed
thereto in Section 1.03;

 

(x)                                   “Environmental Claim” means any written or
oral notice, claims, demand, action, suit, complaint, proceeding or other
communication by any Person alleging liability or potential liability
(including without limitation liability or potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or penalties) arising
out of, relating to, based on or resulting from (A) the presence,
discharge, emission, release or threatened release of any Hazardous Materials
at any location, whether or not owned, leased or operated by the Company or
Parent (as applicable) or (B) circumstances forming the basis of any
violation or alleged violation of any Environmental Law or Environmental Permit
or (C) otherwise relating to obligations or liabilities under any
Environmental Laws;

 

(y)                                 “Environmental Permits” means all permits,
licenses, registrations and other governmental authorizations required under
Environmental Laws for the Company or Parent (as applicable) to conduct its
operations and business on the date hereof and consistent with past practices;

 

(z)                                   “Environmental Laws” means all applicable
federal, state and local statutes, rules, regulations, ordinances, orders,
decrees and common law relating in any manner to contamination, pollution or protection
of the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Solid Waste
Disposal Act of 1976, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act of 1976, the Occupational Safety and Health Act of 1970,
the Emergency Planning and Community-Right-to-Know Act, the Safe Drinking Water
Act, all as amended, and similar state laws;

 

38

 

(aa)                            “ERISA” shall have meaning ascribed thereto
in Section 3.01(h)(i);

 

(bb)                          “Exchange Act” shall mean the Exchange Act of
1934, as amended;

 

(cc)                            “FDA” shall have meaning ascribed thereto in Section 3.01(p)(ii);

 

(dd)                          “FDCA” shall have meaning ascribed thereto in
Section 3.01(p)(ii);

 

(ee)                            “GAAP” shall have meaning ascribed thereto in
Section 3.01(e);

 

(ff)                                “Governmental Entity” shall have meaning
ascribed thereto in Section 3.01(d);

 

(gg)                          “Hazardous Materials” means all hazardous or
toxic substances, wastes, materials or chemicals, petroleum (including crude
oil or any fraction thereof) and petroleum products, friable asbestos and
asbestos-containing materials, pollutants, contaminants and all other
materials, and substances regulated pursuant to, or that could reasonably be expected
to provide the basis of liability under, any Environmental Law;

 

(hh)                          “Indebtedness” means, with respect to any
Person, without duplication, (A) all obligations of such Person for
borrowed money, (B) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (C) all obligations of such
Person under conditional sale or other title retention agreements relating to
property purchased by such Person, (D) all obligations of such Person
issued or assumed as the deferred purchase price of property or services
(excluding obligations of such Person to creditors for raw materials,
inventory, services and supplies incurred in the ordinary course of such Person’s
business), (E) all capitalized lease obligations of such Person, (F) all
obligations of others secured by any Lien on property or assets owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (G) all obligations of such Person under interest rate or
currency hedging transactions (valued at the termination value thereof), (H) all
letters of credit issued for the account of such Person, (I) all
guarantees and arrangements having the economic effect of a guarantee of such
Person of any Indebtedness of any other Person and (K) all obligations
with respect to compensation or other employee arrangements which become due or
payable as a result of this Agreement or the transactions contemplated hereby;

 

(ii)                                  “Indemnified Liabilities” shall have meaning
ascribed thereto in Section 4.04(a);

 

(jj)                                  “Indemnified Parties” shall have meaning
ascribed thereto in Section 4.04(a);

 

(kk)                            “Intellectual Property” means all rights,
privileges and priorities provided under federal, state, foreign and
multinational law relating to intellectual property, including, without
limitation, all (i)(a) inventions, discoveries, processes, formulae,
designs, methods, techniques, procedures, concepts, developments, research,
works, technology, new and useful improvements thereof and know-how relating
thereto, whether or not patented or eligible for patent protection; (b)

 

39

 

copyrights and copyrightable works, including
computer applications, programs, software, databases and related items (except
for off-the-shelf commercial software); (c) trademarks, service marks,
trade names, brand names, corporate names, logos and trade dress, the goodwill
of any business symbolized thereby and all common-law rights relating thereto;
and (d) trade secrets and other confidential information; and (ii) all
registrations, applications, recordings and licenses or other similar
agreements related to the foregoing;

 

(ll)                                  “Investment Letter” shall have meaning
ascribed thereto in Section 5.01(c);

 

(mm)                      “IRS” shall mean the U.S. Internal Revenue
Service;

 

(nn)                          “knowledge of the Company” means the actual
knowledge of any officer of the Company, including James Pachence as President
of the Company, assuming due inquiry, or those facts which, taking into account
the scope and nature of the responsibilities of the individual in question,
should have been known to such individual;

 

(oo)                          “knowledge of Parent” means the actual
knowledge of any officer of Parent, assuming due inquiry, or those facts which,
taking into account the scope and nature of the responsibilities of the
individual in question, should have been known to such individual;

 

(pp)                          “Licenses” shall have meaning ascribed
thereto in Section 3.01(o)(ii);

 

(qq)                          “Liens” shall have meaning ascribed thereto
in Section 3.01(d);

 

(rr)                                “Material Adverse Change” or “Material
Adverse Effect” means, when used in connection with the Company or Parent, any
change, effect, event or occurrence that either individually or in the
aggregate with all other such changes, effects, events and occurrences has been
or is reasonably likely to be materially adverse to the business, properties,
financial condition or results of operations of the Company or Parent, as the
case may be, and its Subsidiaries taken as a whole, provided that (i) with
respect to Section 3.01(f)(i) and (ii), shall exclude any material
adverse change in the Company’s results of operations for any fiscal period
prior to the Closing Date that is directly attributable to a disruption in the
conduct of the Company’s business arising from the transactions contemplated by
this Agreement or the public announcement thereof and (ii) with respect to
Section 3.02(f)(i) and (ii), shall exclude any material adverse
change in Parent’s results of operations for any fiscal period prior to the
Closing Date that is directly attributable to a disruption in the conduct of
Parent’s business arising from the transactions contemplated by this Agreement
or the public announcement thereof; and provided, further, that Material
Adverse Effect and Material Adverse Change shall not be deemed to include the
impact of (a) any change in laws and regulations or interpretations
thereof by courts or governmental authorities generally applicable to the
Company and Parent, (b) any change in GAAP or regulatory accounting
principles generally applicable to the Company and Parent, (c) any change
arising or resulting from general industry, economic or capital

 

40

 

market conditions or conditions in markets relevant
to the Company or Parent, as applicable, that affects Parent or the Company, as
applicable (or the markets in which Parent or the Company, as applicable,
compete) in a manner not disproportionate to the manner in which such
conditions affect comparable companies in the industries or markets in which
Company or Parent, as applicable, compete, (d) any act or omission of the
Company taken with the prior written consent of Parent or (e) the expenses
reasonably incurred by the Company in entering into this Agreement and
consummating the transactions contemplated by this Agreement;

 

(ss)                            “Merger” shall have meaning ascribed thereto
in second recital to this Agreement;

 

(tt)                                “Merger Consideration” shall have meaning
ascribed thereto in Section 2.01(c)(ii);

 

(uu)                          “Merger Sub” shall have meaning ascribed
thereto in the preamble to this Agreement;

 

(vv)                          “New York Certificate of Merger” shall have
meaning ascribed thereto in Section 1.03;

 

(ww)                      “NYBCL” shall have meaning ascribed thereto
in the second recital to this Agreement;

 

(xx)                              “Parent” shall have meaning ascribed thereto
in the preamble to this Agreement;

 

(yy)                          “Parent By-laws” shall have meaning ascribed
thereto in Section 3.02(a);

 

(zz)                              “Parent Certificate” shall have meaning
ascribed thereto in Section 3.02(a);

 

(aaa)                      “Parent Common Stock” means the common stock,
par value $0.01 per share, of Parent;

 

(bbb)                   “Parent Disclosure Letter” shall have meaning
ascribed thereto in Section 3.02;

 

(ccc)                      “Parent Insurance Policy” shall have meaning
ascribed thereto in Section 3.02(r);

 

(ddd)                   “Parent Leases” shall have meaning ascribed
thereto in Section 3.02(k);

 

(eee)                      “Parent Permits” shall have meaning ascribed
thereto in Section 3.02(q)(i);

 

(fff)                            “Parent Plans” shall have meaning ascribed
thereto in Section 3.02(i);

 

(ggg)                   “Parent Preferred Stock” means the preferred
stock, par value $0.01 per share, of Parent;

 

(hhh)                   “Parent Regulatory Authority” shall have
meaning ascribed thereto in Section 3.02(q)(ii);

 

41

 

(iii)                               “Parent SEC Documents” shall have meaning
ascribed thereto in Section 3.02(d);

 

(jjj)                               “Parent SEC Financial Statements” shall have
meaning ascribed thereto in Section 3.02(d);

 

(kkk)                      “Parent Warrant” shall have meaning ascribed
thereto in Section 2.03;

 

(lll)                               “PBGC” shall mean the Pension Benefit
Guaranty Corporation;

 

(mmm)             “Permitted Lien” means statutory Liens
securing payments not yet due and such Liens as do not materially affect the
use of the properties or assets subject thereto or affected thereby or
otherwise materially impair business operations at such properties;

 

(nnn)                   “Person” means an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity;

 

(ooo)                   “Pharmaceutical Products” shall have meaning
ascribed thereto in Section 3.01(p)(ii);

 

(ppp)                   “PHSA” shall have meaning ascribed thereto in
Section 3.01(p)(ii);

 

(qqq)                   “SCO Note” shall mean the Secured
Convertible Promissory Note up to $1,500,000 principal amount, issued by the
Company in favor of SCO Capital Partners LLC pursuant to a letter agreement
dated as of February 1, 2005 between SCO Capital Partners LLC and the
Company;

 

(rrr)                            “SEC” means the United States Securities and
Exchange Commission;

 

(sss)                      “Securities Act” shall mean the Securities
Act of 1933, as amended;

 

(ttt)                            “Shareholder Rights Plan” shall have meaning
ascribed thereto in Section 3.02(b);

 

(uuu)                   “Special Committee” means a committee of the
Parent’s board of directors, the members of which are not affiliated with
Company, formed for the purpose of, evaluating the acquisition of the Company
and this Agreement and the Merger.

 

(vvv)                   “Subsidiary” of any Person means another
Person, who holds an amount of the voting securities, other voting ownership or
voting partnership interests which is sufficient to elect at least a majority
of its Board of Directors or other governing body (or, if there are no such
voting interests, 50% or more of the equity interests of which) or is owned
directly or indirectly by such Person;

 

(www)             “Surviving Corporation” shall have meaning
ascribed thereto in Section 1.01;

 

(xxx)                         “Tax” or “Taxes” (and with correlative
meaning, “Taxable” and “Taxing”) means any United States federal, state or
local, or non-United States, income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use, transfer, registration, value
added, excise, natural resources, severance, stamp,

 

42

 

withholding, occupation, premium, windfall
profit, environmental, customs, duties, real property, personal property,
capital stock, net worth, intangibles, social security, unemployment,
disability, payroll, license, employee or other tax or similar levy, of any
kind whatsoever, including any interest, penalties or additions to tax in
respect of the foregoing;

 

(yyy)                 “Tax Return” means any return, declaration,
report, claim for refund, information return or other document (including any
related or supporting estimates, elections, schedules, statements or
information) filed or required to be filed in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, regulations or administrative requirements relating to any Tax;

 

(zzz)                       “Technology” means all inventions, works,
discoveries, innovations, know-how, information (including ideas, research and
development, know-how, formulas, compositions, processes and techniques, data,
designs, drawings, specifications, customer and supplier lists, pricing and
cost information, business and marketing plans and proposals, documentation and
manuals), computer software, firmware, computer hardware, integrated circuits
and integrated circuit masks, electronic, electrical and mechanical equipment
and all other forms of technology, including improvements, modifications, works
in process, derivatives or changes, whether tangible or intangible, embodied in
any form, whether or not protectible or protected by patent, copyright, mask work
right, trade secret law or otherwise, and all documents and other materials
recording any of the foregoing;

 

(aaaa)              “WARN” shall have meaning ascribed thereto in
Section 3.01(g)(ii).

 

7.04                         Interpretation.  When reference is made in this
Agreement to an Article or a Section, such reference shall be to an Article or
Section of this Agreement, unless otherwise indicated.  The table of
contents, table of defined terms and headings contained in this Agreement are
for convenience of reference only and shall not affect in any way the meaning
or interpretation of this Agreement.  The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express
their mutual intent, and no rule of strict construction shall be applied
against any party.  Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural,
and vice versa.  Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise.  Whenever
the words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without limitation.”  No
summary of this Agreement prepared by any party shall affect the meaning or
interpretation of this Agreement.

 

7.05                         Counterparts.  This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.  The
delivery of a signature page of this Agreement by one party to the other
via facsimile or other electronic transmission shall constitute the execution
and delivery of this Agreement by the transmitting party.

 

43

 

7.06                         Entire Agreement; No Third-Party
Beneficiaries.  This
Agreement (including the Company Disclosure Letter and the Parent Disclosure
Letter, and the Schedules and Exhibits attached hereto) and the other
agreements and instruments referred to herein constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter of this Agreement.
 This Agreement, other than Section 4.04 (with respect to which the
Indemnified Parties shall be third-party beneficiaries), is not intended to
confer upon any Person other than the parties any rights or remedies.

 

7.07                         Governing Law; Consent to Jurisdiction;
Waiver of Jury Trial.
 This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws.  Each of the
parties to this Agreement (a) consents to submit itself to the personal
jurisdiction of any state or federal court sitting in the State of New York in
any action in any action or proceeding arising out of or relating to this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that all claims in respect of such action or proceeding may be heard and
determined in any such court, (c) agrees that it shall not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court and (d) agrees not to bring any action or proceeding
arising out of or relating to this Agreement or any of the transaction
contemplated by this Agreement in any other court.  Each of the parties
hereto waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety or other security
that might be required of any other party with respect thereto.  Any party
hereto may make service on another party by sending or delivering a copy of the
process to the party to be served at the address and in the manner provided for
the giving of notices in Section 7.02.  Nothing in this Section 7.07,
however, shall affect the right of any party to serve legal process in any
other manner permitted by law.  Each party hereto
hereby irrevocably waives all right to trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of
or relating to this Agreement or the transactions contemplated hereby or the
actions of any party hereto in the negotiation, administration, performance and
enforcement of this Agreement.

 

7.08                         Assignment.  Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties.  Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.

 

7.09                         Remedies.  Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party shall be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy shall not preclude the exercise
of any other remedy.  The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached.  It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce

 

44

 

specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which they are
entitled at law or in equity.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

45

 

IN
WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective officers thereunto duly authorized, all as of the date first written
above.

 

	
  MACROCHEM CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ Robert J. DeLuccia

  	
   

  
	
   

  	
  Name:

  	
  Robert J. DeLuccia

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  
	
  VRM ACQUISITION, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ Robert
  J. DeLuccia

  	
   

  
	
   

  	
  Name:

  	
  Robert J. DeLuccia

  
	
   

  	
  Title:

  	
  Authorized Person

  
	
   

  	
   

  
	
   

  	
   

  
	
  VIRIUM HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ James M. Pachence

  	
   

  
	
   

  	
  Name:

  	
  James M. Pachence

  
	
   

  	
  Title:

  	
  Authorized Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  VIRIUM PHARMACEUTICALS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ James M. Pachence

  	
   

  
	
   

  	
  Name:

  	
  James M. Pachence

  
	
   

  	
  Title:

  	
  President

  
							

 

 

[Signature
page to Merger Agreement]

 

46Exhibit 10.2

 

THIS SECURITY AND THE
SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE OF HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THIS SECURITY AND THE SECURITIES ISSUABLE
UPON CONVERSION OR EXERCISE HEREOF MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT HERETO OR THERETO UNDER SAID ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO VIRIUM PHARMACEUTICALS INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.

 

	
  Certificate
  No. PN-May-1

  	
   

  
	
  Principal
  Amount $500,000.00

  	
  Issue
  Date: May  30, 2007

  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, VIRIUM PHARMACEUTICALS INC., a New York corporation,
located at 116 Village Blvd., Suite 200, Princeton, NJ 08540 (hereinafter
called “Borrower”), hereby promises to pay to Strategic
Capital Resources, Inc., located at 1801 N. Military Trail, Suite 203,
Boca Raton, Florida 33431 (the “Holder”), without demand, the sum of Five-Hundred Thousand Dollars
($500,000.00), plus all accrued and unpaid interest, on the earlier of (i) November 26,
2007 or (ii) the closing date of the Next Financing (as defined below),
unless the Holder elects to convert this Note as set forth in Article II (the
“Maturity Date”).

 

This
Note is one of a duly authorized issue of 12% Convertible Promissory Notes of
the Borrower, in aggregate principal amount of up to Five Hundred Thousand
Dollars ($500,000) (the “Promissory Notes”)
issued pursuant to the Subscription Agreement dated as of the date hereof (the “Subscription Agreement”). 
The Promissory Notes rank equally and ratably without priority over one
another.  No payment, including any
prepayment, shall be made hereunder unless payment, including any prepayment,
is offered with respect to the other Promissory Notes in an amount which bears
the same ratio to the then unpaid principal amount of such Promissory Notes as
the payment made hereon bears to the then unpaid principal amount under this
Note. Unless otherwise separately defined herein, all capitalized terms
used in this Note shall have the same meaning as is set forth in the
Subscription Agreement.  The following
terms shall apply to this Note:

 

ARTICLE I

 

GENERAL
PROVISIONS

 

1.1           Interest Rate.  Interest
on the outstanding principal balance of this Note shall accrue, beginning from
the date hereof, at a rate of 12% per annum, compounded quarterly.  Interest on the outstanding principal balance
of the Note shall be computed on the basis of the actual number of days elapsed
and a year of three hundred and sixty (360) days and shall be payable on the
Maturity Date, upon earlier prepayment of this Note or in the form of shares of
New Securities or Conversion Shares (each as defined below), of the Borrower
upon conversion of this Note as set forth in Section 1.2 below.

 

1.2           Conversion
Privileges.  The Note shall be
payable in full on the Maturity Date, unless previously converted into the
Borrower’s New Securities or Conversion Shares, in accordance with Article II
hereof.

 

1.3           Prepayment.  This Note shall not be subject
to any prepayment by the Company without the consent of the Holder in its sole
discretion.

 

ARTICLE II

 

CONVERSION
RIGHTS

 

The Holder shall have the right
to convert the principal and any interest due under this Note into New Securities
or Conversion Shares of the Borrower as set forth below.

 

 

2.1.          Conversion
into the Borrower’s New Securities.

 

(a)           Conversion Right. Upon written
notice to the Borrower, the Holder may, at its sole option, upon the initial
closing of the Borrower’s next round of equity financing (the “Next Financing”), convert the entire outstanding principal
hereunder and all interest accrued thereon into such number of shares of fully
paid and non-assessable securities issued by the Borrower (or the parent of the
Borrower, as the case may be) in such financing (the “New
Securities”), that is equal to the quotient of (A) the
outstanding principal hereunder plus all accrued and unpaid interest thereon
divided by (B) the Conversion Price (as defined below).  In addition, in connection with such
conversion, the Holder shall receive rights as a purchaser and holder of New
Securities (including, without limitation, customary registration rights) no
less favorable in the aggregate and in any single instance than those granted
to any other purchaser of New Securities. 
The Borrower agrees that it has no right to prevent the Holder from
effecting such conversion without the Holder’s consent, whether by attempting
to prepay this Note (whether or not there shall have been a default hereunder)
or otherwise.  The “Conversion
Price” shall (i) if the New Securities are common stock, par
value $0.001 per share of the Borrower (the “Common Stock”)
(or the common stock of the parent of the Borrower, as the case may be), be
equal to the Common Stock Equivalent Price (as defined below) or (ii) if
the New Securities are convertible capital stock of the Borrower (or of the
parent of the Borrower  as the case may
be), the Conversion Price shall be an amount equal to the Common Stock Equivalent
Price multiplied by the number of shares of Common Stock into which one share
of such convertible capital stock is convertible.  If the Holder does not convert this Note into
the Next Financing, then the conversion rights under this Section 2.1
shall lapse and be of no further force and effect, provided that the other
provisions of this Note shall remain in full force and effect.  The “Common Stock Equivalent
Price” shall initially be $0.80 and shall be adjusted as set forth
in Section 2.1(d) below.

 

(b)           Fractional Shares.  Upon the conversion of this Note, fractional
shares representing New Securities shall be issued only if fractional shares
are issuable in connection with the Next Financing to investors generally.  If no fractional shares are so issuable, then
with respect to any fraction of a share called for upon the conversion of this
Note or any portion hereof, a cash amount equal to such fraction shall be paid
to the Holder.

 

(c)           Conversion Mechanics.

 

(i)            Notice of Next Financing. The
Company shall notify the Holder in writing not less than 5 business days prior
to the expected closing date of the Next Financing (the “Next
Financing Closing Date”). 
Such notice shall include all of the material terms of the proposed Next
Financing and shall include, as promptly as such documents are available,
then-current drafts of the transaction documents for the Next Financing.  Following such notice, the Company shall
provide the Holder with any transaction documents or revised drafts thereof at
the same time that such transaction documents or drafts are made generally
available to the investors in the Next Financing.

 

(ii)           Conversion Notice. The right
of conversion shall be exercised by the Holder by delivering to the Company, no
later than the business day prior to the Next Financing Closing Date, a
conversion notice substantially in the form attached hereto as Exhibit A
(the “Conversion Notice”), appropriately
completed and duly signed, and by surrender not later than five (5) business
days thereafter of this Note (or if the original Note has been lost or
destroyed, an affidavit of Holder in customary form certifying as to such loss
or destruction). Promptly after the receipt of the Conversion Notice and the
original Note (or if the original Note has been lost or destroyed, an affidavit
of Holder in customary form certifying as to such loss or destruction), the
Company shall issue and deliver, or cause to be delivered, to the Holder, a
certificate or certificates for the number of shares of New Securities issuable
to such Holder in accordance with Section 2.1(a). Such conversion shall be
deemed to have been effected as of the date of consummation of the Next
Financing (the “Conversion Date”), and the person
or persons entitled to receive the shares of New Securities issuable upon
conversion shall be treated for all purposes as the holder or holders of record
of such shares as of the close of business on the Conversion Date.

 

(d)           The
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a), shall be subject to adjustment from
time to time upon the happening of certain events while this conversion right
remains outstanding, as follows:

 

2

 

(i)            Merger,
Sale of Assets, etc.  Unless the
conversion rights under Section 2.1 of this Note have previously lapsed,
and subject to Section 2.1(d)(ii) below, if the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to
such consolidation, merger, sale or conveyance. 
The foregoing provision shall similarly apply to successive transactions
of a similar nature by any such successor or purchaser.  Without limiting the generality of the
foregoing, the anti-dilution provisions of this Section shall apply to
such securities of such successor or purchaser after any such consolidation,
merger, sale or conveyance.

 

(ii)           Merger
with Virium Pharmaceuticals, Inc. (Delaware).  Notwithstanding Section 2.1(d)(i) above,
upon the consummation of the merger between the Borrower and Virium Merger Sub, Inc.,
a Delaware corporation (“Merger Sub”) in
accordance with that certain Agreement and Plan of Merger dated as of the date
hereof, by and among the Borrower, REIT Americas, Inc., a Maryland
corporation, Virium Pharmaceuticals, Inc., a Delaware corporation (“Virium Delaware”) and Merger Sub, pursuant to which the
Borrower shall become a wholly-owned subsidiary of Virium Delaware, no
adjustment shall be made to the Common Stock Equivalent Price or to the type of
securities or property issuable upon conversion hereof, except that provision
shall be made for this Note to be convertible into the New Securities issued in
the Next Financing of Virium Delaware on the same terms and conditions as it
was previously so convertible into New Securities of the Borrower.

 

(iii)          Reclassification,
etc.  If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes that may be issued
or outstanding, this Note, as to the unpaid principal portion thereof and
accrued interest thereon, shall thereafter be deemed to evidence the right to
purchase an adjusted number of such securities and kind of securities as would
have been issuable as the result of such change with respect to the Common
Stock immediately prior to such reclassification or other change.

 

(iv)          Stock Splits,
Combinations and Dividends.  If the shares of Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Common Stock in shares of Common Stock, the Common
Stock Equivalent Price shall be proportionately reduced in case of subdivision
of shares or stock dividend or proportionately increased in the case of
combination of shares, in each such case by the ratio which the total number of
shares of Common Stock outstanding immediately after such event bears to the
total number of shares of Common Stock outstanding immediately prior to such
event.

 

(e)           Whenever any action is taken pursuant to Section 2.1(d) above,
the Borrower shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a statement of the
facts requiring such adjustment.

 

2.2           Most
Favored Nations Conversion Right.

 

(a)           On
the date of the consummation by the Borrower of an offering of the Borrower’s
equity securities (which for purposes of this Section 2.2 includes any
securities convertible into or exercisable for any of the Borrower’s capital
stock, but does not include any Exempt Securities, as defined below), this Note
and all accrued and unpaid interest thereon shall be convertible, in whole or
in part and at the option of the Holder, into a number of shares of such equity
securities equal to the quotient obtained by dividing (i) the principal
amount of this Note being converted by the Holder (together with all accrued
and unpaid interest thereon), by (ii) the price per security at which such
equity securities are sold to other investors in such offering.  The Borrower shall notify the Holder of the
proposed closing date of any such offering no less than 3 business days, but no
more than 5 business days, prior to such date.

 

3

 

(b)           In
the event that the Holder elects to convert all or a portion of the Note
pursuant to Section 2.2(a), the Holder shall surrender the Note to the
Company, along with a written notice to the Company, in the manner specified in
Section 2.1(c)(ii) hereof, at least 1 day prior to the date on which
conversion is sought to become effective (the “Conversion
Date”) that such Holder elects to convert the Note or a specified
portion thereof on the Conversion Date, and such notice shall specify the names
(and addresses) in which certificates for Conversion Shares (as defined below)
are to be issued.

 

(c)           If
the Note is surrendered for conversion pursuant to Section 2.2(b), then
promptly after the Conversion Date, the Borrower shall deliver or cause to be
delivered to the Holder certificates representing the number of fully paid and
non-assessable shares of the applicable equity securities (the “Conversion Shares”), into which the Note may be
converted.  Such conversion shall be
deemed to have been made immediately prior to the close of business on the
Conversion Date, so that the rights of the Holder as a holder of the Note shall
cease with respect to the Note at such time (including, without limitation, the
right to receive the principal amounts of the Note other than in the form of
Conversion Shares), interest shall cease to accrue hereon and the person or
persons entitled to receive the Conversion Shares deliverable upon conversion
of the Note shall be treated for all purposes as having become the record
holders of such Conversion Shares at such time. 
If this Note shall have been converted in part, the Borrower shall, at
the time of delivery of the certificate or certificates representing Conversion
Shares, deliver to the Holder a new Note evidencing the rights of the Holder
with respect to the remaining principal amount (and all accrued and unpaid
interest thereon), which new Note shall in all other respects be identical with
this Note, or at the request of the Holder, appropriate notation may be made on
this Note and the same returned to the Holder.

 

(d)           “Exempt Securities” means any shares of Common Stock issued
by the Borrower after the date of issuance of this Note that are: (i) shares
issued or issuable upon the exercise of any warrants or options outstanding as
of the original date of the issuance of this Note (including any warrants
issued in connection with the issuance of the Promissory Notes); (ii) shares
of Common Stock or common stock equivalents issued in connection with a
bona-fide strategic transaction, partnership, joint venture or acquisition or (iii) shares
of Common Stock issued in connection with any stock-based compensation plans of
the Borrower, or any issuance of Common Stock, stock awards or options under,
or the exercise of options granted pursuant to, any Board approved employee
stock option or similar plan for the issuance of options or capital stock of
the Borrower or (iv) shares of Common Stock issued in connection with a
bona-fide underwritten public offering.

 

ARTICLE III

 

EVENT OF DEFAULT

 

3.1           Event
of Default.  The occurrence of any of
the following events of default (“Event of Default”)
shall, at the option of the Holder hereof, make all sums of principal and
interest then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable, upon demand, without presentment, or grace period,
all of which hereby are expressly waived, except as set forth below:

 

(a)           Failure to Pay Principal or Interest.  The Borrower fails to pay principal, interest
or other sum due under this Note when due and such failure continues for a
period of ten (10) days after the due date.

 

(b)           Breach of Covenant. 
The Borrower breaches any material covenant or other term or condition
of the Subscription Agreement or this Note in any material respect and such
breach, if capable of cure, continues for a period of ten (10) business
days after written notice to the Borrower from the Holder.

 

(c)           Breach of Representations and Warranties.  Any material representation or warranty of
the Borrower made herein, in the Subscription Agreement, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
therewith shall be false or misleading in any material respect as of the date
made and the Closing Date, and would otherwise have a material adverse effect
on the Borrower.

 

4

 

(d)           Receiver or Trustee. 
The Borrower shall make an assignment for the benefit of creditors, or
apply for or consent to the appointment of a receiver or trustee for it or for
a substantial part of its property or business; or such a receiver or trustee
shall otherwise be appointed.

 

(e)           Judgments.  Any money
judgment, writ or similar final process shall be entered or filed against
Borrower or any of its property or other assets for more than $500,000, and
shall remain unvacated, unbonded or unstayed for a period of forty-five (45)
days.

 

(f)            Bankruptcy. 
Bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings or relief under any bankruptcy law or any law, or the
issuance of any notice in relation to such event, for the relief of debtors
shall be instituted by or against the Borrower and if instituted against
Borrower are not dismissed within 45 days of initiation.

 

(g)           Failure to Deliver New Securities.  Borrower’s failure to timely deliver New
Securities to the Holder pursuant to and in the form required by this Note.

 

3.2           Remedies
Upon An Event of Default.  If an
Event of Default shall have occurred and shall be continuing, the Holder of
this Note may at any time at its option, (a) declare the entire unpaid
principal balance of this Note, together with all interest accrued hereon, due
and payable, and thereupon, the same shall be accelerated and so due and
payable; provided, however, that upon the occurrence of an Event
of Default described in (i) Sections 3.1(f), without presentment, demand,
protest, or notice, all of which are hereby expressly unconditionally and
irrevocably waived by the Borrower, the outstanding principal balance and
accrued interest hereunder shall be automatically due and payable, and (ii) Sections
3.1(a) through (e) and Section 3.1(g), the Holder  may exercise or otherwise enforce any one or
more of the Holder’s rights, powers, privileges, remedies and interests under
this Note or applicable law.  No course
of delay on the part of the Holder shall operate as a waiver thereof or
otherwise prejudice the right of the Holder. 
No remedy conferred hereby shall be exclusive of any other remedy
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.

 

ARTICLE IV

 

MISCELLANEOUS

 

4.1           Failure
or Indulgence Not Waiver.  No failure
or delay on the part of Holder hereof in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.  All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

 

4.2           Notices.  All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air
courier service with charges prepaid, or (iv) transmitted by hand
delivery, telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice.  Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received),
or the first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur.  The addresses for such communications shall
be the addresses set forth in the Subscription Agreement.

 

5

 

4.3           Assignability.  This Note shall be binding upon the Borrower
and its successors and assigns, and shall inure to the benefit of the Holder
and its successors and assigns.  This not
may not be assigned by the Holder without the prior written consent of the
Company, except to an Affiliate of Holder that is an “accredited investor” as
such term is defined in Regulation D under the 1933 Act.

 

4.4           Cost
of Collection.  If default is made in
the payment of this Note, Borrower shall pay the Holder hereof reasonable costs
of collection, including reasonable attorneys’ fees.

 

4.5           Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note, at
law or in equity (including, without limitation, a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall
be deemed a waiver of compliance with the provisions giving rise to such remedy
and nothing herein shall limit a Holder’s right to pursue actual damages for
any failure by the Borrower to comply with the terms of this Note.  Amounts set forth or provided for herein with
respect to payments and the like (and the computation thereof) shall be the
amounts to be received by the Holder. 
The Borrower acknowledges that a breach by it of its obligations
hereunder will cause irreparable and material harm to the Holder and that the
remedy at law for any such breach may be inadequate.  Therefore the Borrower agrees that, in the
event of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available rights and remedies, at law or in equity, to
such equitable relief, including but not limited to an injunction restraining
any such breach or threatened breach, without the necessity of showing economic
loss and without any bond or other security being required.

 

4.6           Payment
Not Subject to Set-Off.  The Borrower
acknowledges that it has no and will not be permitted to assert any right of
set-off or counterclaim with respect to its obligation to pay the principal and
interest as of the Maturity Date as set forth herein and hereby waives any and
all defenses it may have in the future with respect to such payment, except to
the extent that (a) this Note is converted in accordance with Article II
prior to the Maturity Date, (b) Borrower’s defense is that Borrower has
paid all principal and interest hereon in accordance with the terms hereof or (c) the
Holder has expressly waived its right to such payment in a writing signed by
Holder.

 

4.7           Governing
Law.  This Note shall be governed by
and construed in accordance with the laws of the State of New York.  Any action brought by either party against
the other concerning the transactions contemplated by this Note shall be
brought only in the state courts of Florida or in the federal courts located in
the state of Florida.  The prevailing
party shall be entitled to recover from the other party its reasonable attorney’s
fees and costs.

 

4.8           Maximum
Payments.  Nothing contained herein
shall be deemed to establish or require the payment of a rate of interest or
other charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.

 

4.9           Shareholder
Status.  The Holder shall not have
rights as a shareholder of the Borrower with respect to unconverted portions of
this Note.  However, the Holder will have
all the rights of a shareholder of the Borrower with respect to the shares of New
Securities to be received by Holder after delivery by the Holder of a
Conversion Notice  and effectiveness of conversion
in accordance with this Note.

 

[Signature page follows.]

 

6

 

IN
WITNESS WHEREOF, Borrower has caused this Note to be
signed in its name by an authorized officer as of the 30th day of May,
2007.

 

	
   

  	
  VIRIUM PHARMACEUTICALS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James M. Pachence

  
	
   

  	
   

  	
  Name: James M. Pachence

  
	
   

  	
   

  	
  Title: President and Chief Executive
  Officer

  

 

7

 

EXHIBIT A

 

FORM OF CONVERSION NOTICE

 

(To be executed by the Holder
in order to convert the Note.)

 

The undersigned hereby
irrevocably elects to convert the Convertible Promissory Note (the “Note”) of
Virium Pharmaceuticals Inc., a New York corporation (the “Company”),
held by the undersigned into shares of [New Securities in connection with the
Next Financing][Conversion Shares], according to the terms and conditions of
the Note and the conditions hereof. The undersigned hereby requests that
certificates for the shares of New Securities or Conversion Shares to be issued
to the undersigned pursuant to this Conversion Notice be issued in the name of,
and delivered to, the undersigned as indicated below. A copy of the Note being
converted is attached hereto (and the original Note shall be transmitted to the
Corporation pursuant to the terms thereof). 
All capitalized terms used in this Conversion Notice, but not otherwise
defined herein shall have the meanings assigned in the Note.  Execution and delivery of this Conversion
Notice by facsimile shall be valid an binding for all purposes and shall be
effective upon such facsimile transmission.

 

	
   

  	
  Date of Notice

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Conversion Information:[NAME OF HOLDER]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address of Holder:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name of Holder

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

Note: Subject
to the terms and conditions of the Note, conversion shall be effected upon
consummation of the applicable financing and the New Securities or Conversion
Shares shall be delivered to Holder only after receipt by the Company of the
original Note or an affidavit of loss in customary form.

 

8

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