ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

On June 12, 2006, the Company approved the appointment of Michael J. McKelvey to serve as the Company’s President and Chief Executive Officer effective on June 23, 2006. Dr. McKelvey will be entitled to an annualized salary of $350,000, a signing bonus of $150,000 that will be payable on or before November 1, 2006, an annualized bonus opportunity of $175,000, an annualized car allowance of $12,000 and 150,000 stock options. The bonus opportunity will be earned pursuant to Company’s 2006 Bonus Plan, with 50% of the bonus based on the extent to which the Company achieves specified revenue targets and the remaining 50% based on the extent to which the Company achieves specified net income targets. The stock option award will be issued pursuant to the Company’s 2003 Stock Option Plan, as amended, priced at fair market value on the date of grant, which will be Dr. McKelvey’s start date, and have a 7-year life with 4-year vesting in equal installments.

Under the terms of Dr. McKelvey’s agreement with the Company, either he or the Company may terminate his employment with or without cause (as defined therein) at any time. In the event that the Company terminates Dr. McKelvey’s employment other than for cause, death or disability, the Company is obligated to pay him, in a lump sum, one year in salary and prorated bonus and to continue his benefits (as defined therein) for one year, subject to benefit plan restrictions. In the event of a change of control (as defined in the agreement) of the Company, one-third of Dr. McKelvey’s options would become exercisable. Notwithstanding the foregoing, upon any change of control after which either (i) Dr. McKelvey is terminated other than for cause or (ii) he resigns his employment within 60 days after the change of control because neither the Company nor the other party to the change of control (the “Buyer”) offers him a position with comparable responsibilities, authority, location and compensation, then the Company would be obligated to pay him, in a lump sum, up to two years in salary and prorated bonus and to continue his benefits for up to two years, subject to benefit plan restrictions, and all of his options would become exercisable in full. Dr. McKelvey has also agreed to a customary nondisclosure covenant and a covenant that, during his employment and for a period of one year thereafter, Dr. McKelvey will neither compete with the Company nor solicit any customer, vendor, supplier or employee to terminate their relationship with the Company.

A copy of the Company’s press release issued on June 12, 2006 announcing Dr. McKelvey’s appointment is filed herewith as Exhibit 99.1.

On June 12, 2006, the Company also modified the terms of its Management Employment Agreement dated May 2, 2006 with Richard A. Baron, the Company’s Executive Vice President and Chief Financial Officer. Under the terms of the agreement as modified, upon any change of control prior to December 31, 2006 after which either (i) Mr. Baron is terminated other than for cause or (ii) he resigns his/her employment within 60 days after the change of control because neither the Company nor the other party to the change of control (the “Buyer”) offers him a position with comparable responsibilities, authority, location and compensation, then, in addition to the existing severance obligations under the agreement, the Company would be obligated to pay him in a lump sum payment his remaining salary for 2006 and his entire 2006 bonus opportunity to the extent not previously paid.