3.     Confidential Information .

3.1  Company Information .  Executive agrees at all times during the term of his employment and thereafter, to hold in the strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Board, any confidential Information of the Company, except under a non-disclosure agreement duly authorized and executed by the Company.  Executive understands that “Confidential Information” means any non-public information that relates to the actual or anticipated business or research and development of the Company, technical data, trade secrets or know-how, including, but not limited to, research, product plans or other information regarding Company’s products or services and markets therefore, customer lists and customers (including, but not limited to, customers of the Company on whom Executive called with whom Executive became acquainted during the term of his employment), software developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information.  Executive further understands that Confidential Information does not include any of the foregoing items that have become publicly known and made generally available through no wrongful act of Executive’s or of others who were under confidentiality obligations as to the item or items involved or improvements or new versions thereof.

3.2  Former Employer Information .  Executive agrees that he will not, during his employment with the Company, improperly use or disclose any proprietary information or trade secrets of any former employer or other person or entity and that he will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity.

3.3  Third Party Information .  Executive recognizes that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes.  Executive agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out Executive’s work for the Company’s consistent with the Company’s agreement with such third party.

4.     Inventions .

4.1  Inventions Retained And Licensed .  Except as listed on Exhibit A , Executive does not have any inventions, original works of authorship, developments, improvements, and trade secrets which were made by him prior to his employment with the Company (collectively referred to as “Prior Inventions”), which belong to him, which may relate to the Company’s proposed business, products or research and development, and which were not previously assigned to the Company.  If in the course of Executive’s employment with the Company, Executive incorporates into a Company

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product, process or service a Prior Invention owned by Executive or in which Executive has an interest, Executive hereby grants to the Company a nonexclusive, royalty-free, fully paid-up, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such product, process or service, and to practice any method related thereto.

4.2  Assignment of Inventions .  Executive agrees that Executive will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assigns to the Company, or its designee, all Executive’s right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks or trade secrets, whether or not patentable or registrable under copyright or similar laws, which Executive may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time Executive is in the employ of the Company (collectively referred to as “Inventions”), except as provided in Section 4.6 below.  Executive further acknowledges that all original works of authorship which are made by him (solely or jointly with others) within the scope of and during the period of his employment with the Company, and which are protectible by copyright, are “works made for hire,” as that term is defined in the United States Copyright Act.  Executive understands and agrees that the decision whether or not to commercialize or market any Invention developed by Executive solely or jointly with others is within the Company’s sole discretion and for the Company’s sole benefit and that no royalty will be due to Executive as a result of the Company’s efforts to commercialize or market any such Invention.

4.3  Inventions Assigned To The United States .  Executive agrees to assign to the United States government all his right, title, and interest in and to any and all Inventions whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies.

4.4  Maintenance Of Records .  Executive agrees to keep and maintain adequate and current written records of all Inventions made by Executive (solely or jointly with others) during the period of his employment with the Company.  The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company.  The records will be available to and remain the sole property of the Company at all times.

4.5  Patent And Copyright Registrations .  Executive agrees to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto.  Executive further agrees that his obligation to execute or cause to be

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executed when it is in his power to do so, any such instrument or papers shall continue after the termination of this Agreement.  If the Company is unable because of Executive’s mental or physical incapacity or for any other reason to secure Executive’s signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as his agent and attorney in fact, to act for and in Executive’s behalf and stead to execute and file any such applications an to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by Executive.

4.6  Exception To Assignments .  Executive understands that the provision of this Agreement requiring assignment of Inventions to the Company do not apply to any Invention which qualifies fully under the provisions of California Labor Code section 2870 (attached as Exhibit B ).  Executive will advise the Company promptly in writing of any Inventions that Executive believes meet the criteria in California Labor Code Section 2870.

5.     Office .  The Company shall provide Executive with an office at the location of the Company’s primary business operations that is consistent with his positions and titles.

6.     Compensation And Fringe Benefits .

6.1  Base Salary .  For all services rendered by Executive pursuant to this Agreement, the Company shall pay Executive a base salary (the “Base Salary”) at the annual rate of not less than Five Hundred Sixty Two Thousand Three Hundred Eighty Dollars ($562,380.00) as of the Effective Date.  The Base Salary shall be paid in periodic installments in accordance with the Company’s regular payroll practices.  Executive’s annual salary shall be adjusted annually on January 1 of each year to compensate for changes in the cost of living.  The amount of each annual cost of living increase shall be twice the rate determined for such annual period by the “Consumer Price Index for Urban Wage Earners and Clerical Workers (All Items) published by the bureau of Labor Statistics, U.S. Department of Labor (1967 equals 100).”

6.2  Bonuses .

(a)           Executive shall be entitled to a guaranteed bonus of One Hundred Fifty Thousand Dollars ($150,000.00) on January 1 of each year during the term of this Agreement, provided that he remains continuously employed by the Company through each applicable date (the “Guaranteed Bonus”), which shall be paid in accordance with the Company’s normal payroll practices and policies no later than March 15 of the year following the year in which Executive’s right to such bonus vests.

(b)           Executive shall be eligible to receive an annual performance-based bonus of Three Hundred and Fifty Thousand Dollars ($350,000.00) based upon

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achievement of certain criteria to be specified by the compensation committee of the Board (“Compensation Committee”), including (without limitation) revenue and profitability targets and/or other organizational and strategic milestones (the “Performance Bonus”; and together with the Guaranteed Bonus, the “Bonuses”).  The Performance Bonus shall be based upon achieving performance objectives during each calendar year and shall be payable in accordance with the Company’s normal payroll practices and policies no later than March 15 of the year following the year in which Executive’s right to such bonus vests.

6.3  Stock Options .

(a)           Executive shall be permitted to participate in any stock option and similar plans as adopted by the Company from time to time for the grant of stock options and other equity incentives to the Company’s employees.  On the first business day occurring on or after January 1 of each year during the term of this Agreement (subject to Executive’s continuous employment with the Company through each such anniversary), the Company shall grant Executive a stock option with a vesting commencement date of January 1 of the year in which it is granted, which will be, to the extent possible under the $100,000 rule of Section 422(d) of the Internal Revenue Code of 1986, as amended (the “Code”), an “incentive stock option” (as defined in Section 422 of the Code), under the Company’s 2003 Stock Plan (the “Plan”) to purchase 360,000 shares of the Company’s common stock (as adjusted for stock splits and stock combinations that may occur after the date of this Agreement), which each such option shall have a per share exercise price equal to the fair market value of the Company’s common stock on the applicable date of grant (each an “Annual Option” and collectively, the “Annual Options”).  Subject to the accelerated vesting provisions set forth herein, each Annual Option will vest as to 1/12th of the shares subject to such option each month following its date of grant, so that each Annual Option will be fully vested and exercisable one year from its grant date, subject to Executive’s continuous service to the Company through each relevant vesting date.  Notwithstanding the above, in the event of a Change in Control (as defined in Section 8.1 below) of the Company prior to the granting of all Annual Options, and that occurs while Executive remains employed hereunder, then all Annual Options yet to be granted through the term of the Agreement will immediately be granted and 100% of the then-unvested shares subject to all such Annual Options will vest and become exercisable.

(b)           On the Original Effective Date, the Company granted Executive a stock option, which is, to the extent possible under the $100,000 rule of Section 422(d) of the Code, an “incentive stock option” (as defined in Section 422 of the Code), under the Plan to purchase 1,000,000 shares of the Company’s common stock, which such option has a per share exercise price equal to the fair market value of the Company’s common stock on the Original Effective Date (the “Performance Option” and together with the Annual Options, the “Options”).  The Performance Option shall vest upon the Company’s achievement of the following performance milestones, subject to Executive’s continuous employment with the Company through the date any such performance milestone is achieved:

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·                   100,000 shares subject to the Performance Option will vest upon the filing of the first IND of a drug derived from the “Montigen acquisition;”

·                   100,000 shares subject to the Performance Option will vest upon the filing of the second IND of a drug derived from the “Montigen acquisition;”

·                   100,000 shares subject to the Performance Option will vest upon the filing of the third IND of a drug derived from the “Montigen acquisition;”

·                   100,000 shares subject to the Performance Option will vest upon the acquisition of a corporate partner or licensee for one or more of the drugs in the Company’s portfolio, providing the value of any such deal is projected to exceed $10MM in combined up-fronts, R&D payments, milestones and royalties to the Company throughout its course ;

·                   250,000 shares subject to the Performance Option will vest upon the securing of a significant corporate partner for one or more of the Company’s drugs or $25,000,000 in additional financing;

·                   100,000 shares subject to the Performance Option will vest upon the Company achieving a cash-flow positive first year of operations;

·                   100,000 shares subject to the Performance Option will vest upon the Company achie