SECURITIES PURCHASE AGREEMENT

        This Securities Purchase Agreement, dated as of __________, 2007 (this
“Agreement”), is made by and between Derma Sciences, Inc., a Pennsylvania
corporation (the “Company”), each of the undersigned purchasers (each a
“Purchaser” and collectively, the “Purchasers”) and each assignee of a Purchaser
who becomes a party hereto.

        WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and Rule 506 of Regulation D promulgated thereunder, the
Company desires to offer, issue and sell to the Purchasers (the “Offering”), and
the Purchasers, severally and not jointly, desire to purchase from the Company,
shares (the “Shares”) of the Company’s common stock, par value $0.01 per share
(the “Common Stock”), at a price per share equal to $0.70, and five-year
warrants to purchase shares of Common Stock (the “Warrants”) with an exercise
price per share of $0.77, subject to adjustment therein. The Shares and the
Warrants are collectively referred to herein as the “Securities”.

        NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration the
receipt and adequacy of which is hereby acknowledged, the Company and each of
the Purchasers agree as follows:

DEFINITIONS

    (1)        Definitions. In addition to the terms defined elsewhere in this
Agreement: the following terms have the meanings set forth in below:

          “Acquisition Closing” shall have the meaning ascribed to such term in
Section A(3) to this Agreement.

          “Acquiring Person” shall have the meaning ascribed to such term in
Section F(5) to this Agreement.

          “Action” shall mean an action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign)

          “Advice”shall have the meaning ascribed to such term in Section E(6)
to this Agreement.

          “Affiliate”means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common control
with a Person as such terms are used in and construed under Rule 405 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a

 

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  discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser.

          “Agreement”means the Securities Purchase Agreement.

          “Board of Directors” means the board of directors of the Company.

          “Closing”shall have the meaning ascribed to such term in Section A(3)
to this Agreement.

          “Closing Date” shall have the meaning ascribed to such term in Section
A(3) to this Agreement.

          “Common Stock” shall have the meaning ascribed to such term in the
Recitals to this Agreement.

          “Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

          “Company”means Derma Sciences Inc., a Pennsylvania corporation.

          “Company Counsel” means Hedger & Hedger, with offices located at 2 Fox
Chase Drive, Hershey, PA 17033.

          “Discussion Time” shall have the meaning ascribed to such term in
Section B(15) to this Agreement.

          “Disclosure Schedules” means the Disclosure Schedules of the Company
delivered concurrently herewith.

          “Effective Date” shall have the meaning ascribed to such term in
Section F(12) of this Agreement.

          “Effectiveness Period” shall have the meaning ascribed to such term in
Section E(2)(b) to this Agreement.

          “Environmental Laws” shall have the meaning ascribed to such term in
Section C(20) of this Agreement.

          “ERISA”shall have the meaning ascribed to such term in Section
C(22)(e) to this Agreement.

          “Evaluation Date” shall have the meaning ascribed to such term in
Section C(9) of this Agreement.

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          “Event”shall have the meaning ascribed to such term in Section E(2)(d)
to this Agreement.

          “Exchange Act” shall have the meaning ascribed to such term in Section
C(7) of this Agreement.

          “Exempt Issuance” means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any stock
or option plan duly adopted for such purpose, by a majority of the non-employee
members of the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities.

          “FAD”shall have the meaning ascribed to such term in Section A(3) to
this Agreement.

          “FDA” shall have the meaning ascribed to such term in Section C(41) to
this Agreement.

          “FDCA”shall have the meaning ascribed to such term in Section C(41) to
this Agreement.

          “Filing Date” shall have the meaning ascribed to such term in Section
E(2)(a) to this Agreement.

          “Filing Default Date” shall have the meaning ascribed to such term in
Section E(2)(a) to this Agreement.

          “FINRA”means the Financial Industry Regulatory Authority, Inc.

          “GAAP”shall have the meaning ascribed to such term in Section C(8) to
the Agreement.

          “Hazardous Substance” shall have the meaning ascribed to such term in
Section C(20) of this Agreement.

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          “Indebtedness”shall have the meaning ascribed to such term in Section
C(14) to this Agreement.

          “Indemnified Party” shall have the meaning ascribed to such term in
Section E(5)(c) to this Agreement.

          “Intangible Rights” shall have the meaning ascribed to such term in
Section C(21) to this Agreement.

          “Legend Removal Date” shall have the meaning ascribed to such term in
Section F(1)(c) to this Agreement.

          “Liens”means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.

          “Lock-Up Agreement” means the Lock-Up Agreement in the form of Exhibit
B attached hereto.

          “Losses”shall have the meaning ascribed to such term in Section
E(5)(a) to this Agreement.

          “Material Adverse Effect” shall have the meaning ascribed to such term
in Section C(1) to this Agreement.

          “Material Agreement” shall have the meaning ascribed to such term in
Section C(16) to this Agreement.

          “Material Permits” shall have the meaning ascribed to such term in
Section C(34) to this Agreement.

          “No-Review Effectiveness Default Date” shall have the meaning ascribed
to such term in Section E(2)(b) to this Agreement.

          “Offering”shall have the meaning ascribed to such term in the Recitals
to this Agreement.

          “Offering Documents” shall have the meaning ascribed to such term in
Section B(1) to this Agreement.

          “Offering Price” shall have the meaning ascribed to such term in
Section A(2) to this Agreement.

          “Participation Maximum” shall have the meaning ascribed to such term
in Section F(17)(a).

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          “Pharmaceutical Product” shall have the meaning ascribed to such term
in Section C(41) to this Agreement.

          “Plan of Distribution” shall mean the Plan of Distribution in the form
of Exhibit E attached hereto.

          “Person”means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

          “Pre-Notice”shall have the meaning ascribed to such term in Section
F(17)(b).

          “Proceeding” shall have the meaning ascribed to such term in Section
E(3)(b) to this Agreement.

          “Prospectus”shall have the meaning ascribed to such term in Section
E(1)(a) to this Agreement.

          “Purchaser Questionnaire” shall have the meaning ascribed to such term
in Section B(11) to this Agreement.

          “Purchaser Party” shall have the meaning ascribed to such term in
Section F(8) to this Agreement.

          “Registrable Securities” shall have the meaning ascribed to such term
in Section E(1)(b) to this Agreement.

          “Registration Statement” shall have the meaning ascribed to such term
in Section E(1)(c) to this Agreement.

          “Rule 144” means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

          “Sarbanes-Oxley Act of 2002” shall have the meaning ascribed to such
term in Section C(10) to this Agreement.

          “SEC”shall have the meaning ascribed to such term in Section C(5)(b)
to this Agreement.

          “SEC Reports” shall have the meaning ascribed to such term in Section
C(7) to this Agreement.

          “SEC-Review Effectiveness Default Date” shall have the meaning
ascribed to such term in Section E(2)(b) to this Agreement.

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          “Securities”shall have the meaning ascribed to such term in the
Recitals to this Agreement.

          “Securities Act” shall have the meaning ascribed to such term in the
Recitals to this Agreement.

          “Selling Stockholder Questionnaire” shall have the meaning ascribed to
such term in Section B(12) to this Agreement.

          “Shares”shall have the meaning ascribed to such term in the Recitals
to this Agreement.

          “Signature Page” shall have the meaning ascribed to such term in
Section H to this Agreement.

          “Short Sales” means all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to include the
location and/or reservation of borrowable shares of Common Stock). 

          “Subsequent Financing” shall have the meaning ascribed to such term in
Section F(17)(a).

          “Subsequent Financing Notice” shall have the meaning ascribed to such
term in Section F(17)(b).

          “Subscription Amount” shall have the meaning ascribed to such term in
Section A(1) to this Agreement.

          “Subsidiaries”shall have the meaning ascribed to such term in Section
C(13) to this Agreement.

          “Taxes”shall have the meaning ascribed to such term in Section C(18)
to this Agreement.

          “Trading Day” means a day on which the New York Stock Exchange is open
for trading.

          “Trading Market” means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market,
the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin
Board.

          “Transaction Documents” shall have the meaning ascribed to such term
in Section C(4) to this Agreement.

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          “Transfer Agent” means StockTrans, Inc., the current transfer agent of
the Company, with a mailing address of 44 West Lancaster Avenue, Ardmore, PA
19003 and a facsimile number of (610) 649-7302, and any successor transfer agent
of the Company.

          “Variable Rate Transaction” shall have the meaning ascribed to such
term in Section F(12)(b) to this Agreement.

          “Warrants”shall have the meaning ascribed to such term in the Recitals
to this Agreement.

          “Warrant Exercise Price” shall mean $0.77, subject to adjustment
therein.

          “Warrant Shares”shall have the meaning ascribed to such term in
Section B(8) to this Agreement.

        A.   Subscription

        (1)   Subject to the conditions to closing set forth herein, each
Purchaser, severally and not jointly with the other Purchasers, hereby
irrevocably subscribes for and agrees to purchase Securities for the aggregate
purchase price set forth on the signature page of such Purchaser hereto (the
“Subscription Amount”). The Securities to be issued to a Purchaser hereunder
shall consist of (i) Shares in an amount equal to the quotient of (x) the
Subscription Amount, divided by (y) the Offering Price, rounded up to the
nearest whole number, and (ii) a Warrant to purchase such number of shares of
Common Stock to be determined based on a ratio of one (1) share of Common Stock
for every four (4) Shares purchased hereunder, rounded up to the nearest whole
number. The aggregate amount of Securities to be issued pursuant to the Offering
shall not exceed 7,142,857 Shares and Warrants to purchase 1,785,714 shares of
Common Stock.

        (2)   For purposes of this Agreement, the “Offering Price” shall be
$0.70 which shall be the price per Share to be paid by the Purchasers.

        (3)   It is expected that the closing of the Offering (the “Closing”,
and the date of the Closing, the “Closing Date”) will occur simultaneously with
the closing of the Company’s proposed acquisition (the “Acquisition Closing”) of
the First Aid Division of NutraMax Products, Inc. (“FAD”). Prior to the Closing,
each Purchaser shall deliver the applicable Subscription Amount, by wire
transfer to the escrow account of Gallagher, Briody & Butler in accordance with
the wire transfer instructions set forth on Schedule A, and such amount shall be
held in the manner described in Paragraph (4) below.

        (4)   The following conditions must be met in order for the Closing to
occur:

          (a)   On or prior to the Closing Date, the Company shall deliver or
cause to be delivered to each Purchaser the following:

          (i)   this Agreement duly executed by the Company;

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          (ii)   a legal opinion of Company Counsel, substantially in the form
of Exhibit B attached hereto;

          (iii)   a copy of the irrevocable instructions to the Transfer Agent
instructing the Transfer Agent to deliver, on an expedited basis, a certificate
evidencing a number of Shares equal to such Purchaser’s Subscription Amount
divided by the Offering Price, registered in the name of such Purchaser;

          (iv)   a Lock-Up Agreement executed by each of the Company and its
executive officers, directors, affiliates and 10% stockholders, in the form of
Exhibit B; and

          (v)   a Warrant registered in the name of such Purchaser to purchase
up to a number of shares of Common Stock equal to 25% of the Shares issuable to
such Purchaser hereunder, with an exercise price equal to the Warrant Exercise
Price, subject to adjustment therein.

          (b) On or prior to the Closing Date, each Purchaser shall deliver or
cause to be delivered to the Company the following:

          (i)     this Agreement duly executed by such Purchaser; and

          (ii)     such Purchaser’s Subscription Amount by wire transfer to the
account as specified in writing by the Company.

          (c) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:

          (i)   the accuracy in all material respects on the Closing Date of the
representations and warranties of the Purchasers contained herein;

          (ii)   all obligations, covenants and agreements of each Purchaser
required to be performed at or prior to the Closing Date shall have been
performed; and

          (iii) the delivery by each Purchaser of the items set forth in Section
2.2(b) of this Agreement.

          (d) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being met:

          (i)        the accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained herein;

          (ii)        all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have been
performed;

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          (iii) the delivery by the Company of the items set forth in Section
2.2(a) of this Agreement;

          (iv) the minimum aggregate Subscription Amount hereunder shall be at
least $4,000,000;

          (v) there shall have been no Material Adverse Effect with respect to
the Company since the date hereof;

          (vi) from the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the SEC or the Company’s principal
Trading Market (except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by such service, or on any Trading Market, nor shall a banking moratorium have
been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing;

          (vii) the Acquisition Closing shall have occurred contemporaneous
with, or prior to the Closing hereunder, and in any event prior to October 31,
2007 on substantially the same terms as in the draft Asset Purchase Agreement
set forth in Exhibit F; and

          (viii) the Company has received debt financing for the acquisition of
FAD on substantially the same terms as in the preliminary term sheet set forth
in Exhibit G.

        (5)     All payments for Securities made by the Purchasers will be
effected by wire transfer to the account specified in Schedule A hereof not
later than 12:00 p.m. E.S.T. on the date of the expected Acquisition Closing
provided that the Company shall have given the Purchasers at least 2 business
days’ prior notice of such event. Payments for Securities made by the Purchasers
will be returned promptly, prior to an applicable Closing, without interest or
deduction, if, or to the extent, (i) the undersigned’s subscription is rejected;
(ii) the Offering is terminated for any reason; or (iii) upon request by the
Purchaser, if the Acquisition Closing does not occur by November 15, 2007.

        (6)     Notwithstanding anything to the contrary herein, the Company and
Purchasers agree that no funds may be utilized by the Company until all of the
items required to be delivered by the Company pursuant to Section (A)(4) have
been delivered and all other conditions to

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Closing set forth in this Agreement, including the items in Paragraph A(4)
above, have been satisfied or waived.

        (7)     Each Purchaser acknowledges and agrees that the purchase of
Shares and Warrants by such Purchaser pursuant to the Offering is subject to all
the terms and conditions set forth in this Agreement.

         B.     Representations and Warranties of the Purchaser

        Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company and the Placement Agent, and agrees with the Company as
follows:

        (1)     The Purchaser has carefully read this Agreement and the form of
Warrant attached hereto as Exhibit C (collectively the “Offering Documents”),
and is familiar with and understands the terms of the Offering. Specifically,
and without limiting in any way the representations of the Purchasers hereunder,
the Purchaser has carefully read and considered the Company’s (a) Annual Report
on Form 10-K for the fiscal year ended December 31, 2006 (the “2006 Form 10-K”),
including, without limitation, the financial statements included therein and the
sections therein entitled “Item 1. Description of Business,” “Item 6.
Management’s Discussion and Analysis or Plan of Operation or Plan of Operation,”
and “Risks” (which is contained in Item 6), and (b) Quarterly Report on Form
10-Q for the quarter ended June 30, 2007, including, without limitation, the
subsections of such Form 10-Q entitled “Item 1. Financial Statements,” “Item 2.
Management’s Discussion and Analysis or Plan of Operation” and c) Proxy
Statement dated April 9, 2007. The Purchaser has relied only on the information
contained in the Offering Documents and has not relied on any representation
made by any other person. Further, the Purchaser has received and carefully
considered information relative to the Company’s contemplated acquisition of the
FAD of NutraMax Products, Inc. and the risks associated therein, including, but
not limited to: (i) the Company may experience delays with respect to the
manufacturing transition to a sole-source supplier in China, (ii) the expected
cash flow from the FAD business may not be realized, and (iii) the Company may
experience issues in the integration of the FAD business, including personnel
matters. The Purchaser fully understands all of the risks related to the
purchase of the Securities. The Purchaser has carefully considered and has
discussed with the Purchaser’s professional legal, tax, accounting and financial
advisors, to the extent the Purchaser has deemed necessary, the suitability of
an investment in the Securities for the Purchaser’s particular tax and financial
situation and has determined that the Securities being subscribed for by the
Purchaser are a suitable investment for the Purchaser. The Purchaser recognizes
that an investment in the Securities involves substantial risks, including the
possible loss of the entire amount of such investment. The Purchaser further
recognizes that the Company intends to apply the proceeds from the Offering for
the acquisition of the FAD.

        (2)     The Purchaser acknowledges that (i) the Purchaser has had the
opportunity to request copies of any documents, records, and books pertaining to
this investment and (ii) any such documents, records and books that the
Purchaser requested have been made available for inspection by the Purchaser,
the Purchaser’s attorney, accountant or advisor(s).

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        (3)     The Purchaser and the Purchaser’s advisor(s) have had a
reasonable opportunity to ask questions of and receive answers from
representatives of the Company or persons acting on behalf of the Company
concerning the Offering and all such questions have been answered to the full
satisfaction of the Purchaser.

        (4)     The Purchaser is not subscribing for Securities as a result of
or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar, meeting or conference whose
attendees have been invited by any general solicitation or general advertising.

        (5)     If the Purchaser is a natural person, the Purchaser has reached
the age of majority in the state in which the Purchaser resides. Each Purchaser
has adequate means of providing for the Purchaser’s current financial needs and
contingencies, is able to bear the substantial economic risks of an investment
in the Securities for an indefinite period of time, has no need for liquidity in
such investment and can afford a complete loss of such investment.

        (6)     The Purchaser has sufficient knowledge and experience in
financial, tax and business matters to enable the Purchaser to utilize the
information made available to the Purchaser in connection with the Offering, to
evaluate the merits and risks of an investment in the Securities and to make an
informed investment decision with respect to an investment in the Securities on
the terms described in the Offering Documents.

        (7)     Such Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for
its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting such Purchaser’s right to sell
the Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.

        (8)     The Purchaser acknowledges that the certificates representing
the Shares, the Warrants and, upon the exercise of the Warrants, the shares of
Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”),
shall be stamped or otherwise imprinted with a legend substantially in the
following form:

  The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or any state securities laws and neither the
securities nor any interest therein may be offered, sold, transferred, pledged
or otherwise disposed of except pursuant to an effective registration under such
act or an exemption from registration, which, in the opinion of counsel
reasonably satisfactory to this corporation, is available.  

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        Certificates evidencing the Shares and the Warrant Shares shall not be
required to contain such legend or any other legend (i) following the Effective
Date of the Registration Statement filed hereunder, (ii) following any sale of
such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such Shares or
Warrant Shares are eligible for sale under Rule 144(k), or (iv) such legend is
not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the Staff of the SEC).
Subject to the foregoing, at such time and to the extent a legend is no longer
required for the Shares or Warrant Shares, the Company will no later than three
(3) trading days following the delivery by a Purchaser to the Company or to the
Company and the Company’s transfer agent of a legended certificate representing
such Shares or Warrant Shares (together with such accompanying documentation or
representations as reasonably requested by counsel to the Company in connection
with any sales made pursuant to Rule 144), deliver or cause to be delivered a
certificate representing such Shares or Warrant Shares that is free from the
foregoing legend.

        (9)     If this Agreement is executed and delivered on behalf of a
partnership, corporation, trust, estate or other entity: (i) such partnership,
corporation, trust, estate or other entity has the full legal right and power
and all authority and approval required (a) to execute and deliver this
Agreement and all other instruments executed and delivered by or on behalf of
such partnership, corporation, trust, estate or other entity in connection with
the purchase of its Securities, and (b) to purchase and hold such Securities;
(ii) the signature of the party signing on behalf of such partnership,
corporation, trust, estate or other entity is binding upon such partnership,
corporation, trust, estate or other entity; and (iii) such partnership,
corporation, trust or other entity has not been formed for the specific purpose
of acquiring such Securities, unless each beneficial owner of such entity is
qualified as an accredited investor within the meaning of Rule 501(a) of
Regulation D promulgated under the Securities Act and has submitted information
to the Company substantiating such individual qualification.

        (10)     If the Purchaser is a retirement plan or is investing on behalf
of a retirement plan, the Purchaser acknowledges that an investment in the
Securities poses additional risks, including the inability to use losses
generated by an investment in the Securities to offset taxable income.

        (11)     The information contained in the purchaser questionnaire in the
form of Exhibit C attached hereto (the “Purchaser Questionnaire”) delivered by
the Purchaser in connection with this Agreement is complete and accurate in all
respects, and the Purchaser is an “accredited investor” as defined in Rule 501
of Regulation D under the Securities Act on the basis indicated therein.

        (12)     The information contained in the selling stockholder
questionnaire in the form of Exhibit D attached hereto (the “Selling Stockholder
Questionnaire”) delivered by the Purchaser in connection with this Agreement is
complete and accurate in all respects.

        (13)     The Purchaser acknowledges that the Company will have the
authority to issue shares of Common Stock, in excess of those being issued in
connection with the Offering, and that the Company may issue additional shares
of Common Stock from time to time. The issuance of additional shares of Common
Stock may cause dilution of the existing shares of Common Stock and a decrease
in the market price of such existing shares. The Purchaser

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acknowledges and agrees that the Purchaser shall have no preemptive rights,
right of first refusal, or other rights to subscribe for or purchase any shares
of Common Stock the Company may issue in the future as a result of Purchaser’s
purchase of Securities pursuant to this Agreement.

        (14)     The Purchaser acknowledges that the Company has engaged the
Placement Agent in connection with the Offering and, as consideration for its
services, has agreed to pay the Placement Agent an aggregate cash commission
equal to six percent (6.0%) of the gross proceeds resulting from the Offering.

        (15)     Other than consummating the transactions contemplated
hereunder, such Purchaser has not, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, directly or indirectly
executed any purchases or sales, including Short Sales, of the securities of the
Company during the period commencing from the time that such Purchaser first
received information relative to the Offering (written or oral) from the Company
or any other Person representing the Company setting forth the material terms of
the transactions contemplated hereunder until the date hereof (“Discussion
Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement. Other than to other Persons party to this Agreement,
such Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).

        C.     Representations and Warranties of the Company

        The Company hereby makes the following representations and warranties to
the Purchaser and the Placement Agent as of the date of this Agreement and
immediately prior to Closing:

        (1) Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania and has full corporate power and authority
to conduct its business as currently conducted. The Company is duly qualified to
do business as a foreign corporation and is in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary, except
where the failure to be so qualified would not have a material adverse effect on
the business, properties, assets, financial condition or results of operations
of the Company and its subsidiaries taken as a whole (a “Material Adverse
Effect”).

        (2) Capitalization. The authorized capital stock of the Company consists
of 50,000,000 shares of Common Stock and 11,750,000 shares of preferred stock,
par value $.01. As of the date hereof, the type, amount and terms of all
outstanding securities of the Company are as set forth on Schedule C(2) hereof,
which schedule shall include the total number of shares of Common Stock held by
affiliates of the Company. Other than as set forth on Schedule C(2) or

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as contemplated in this Agreement, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which the Company is a
party or by which either the Company is bound or obligating the Company to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement. The Company has not issued any capital
stock since its most recently filed periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the
Company’s stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company’s employee stock purchase plans and pursuant
to the conversion or exercise of Common Stock Equivalents outstanding as of the
date of the most recently filed periodic report under the Exchange Act. No
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents. The issuance and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.

        (3) Issuance; Reservation of Shares. The issuance of the Shares has been
duly and validly authorized by all necessary corporate and stockholder action,
and the Shares, when issued in accordance with the terms of this Agreement, will
be validly issued, fully paid and non-assessable shares of Common Stock of the
Company. The issuance of the Warrants has been duly and validly authorized by
all necessary corporate and stockholder action, and the Warrant Shares, when
issued upon the due exercise of the Warrants, will be validly issued, fully paid
and non-assessable shares of Common Stock of the Company. The Company has
reserved, and will reserve, at all times that the Warrants remain outstanding,
such number of shares of Common Stock sufficient to enable the full exercise of
the then outstanding Warrants and Placement Agent Warrants.

        (4) Authorization; Enforceability. The Company has all corporate right,
power and authority to enter into this Agreement and all other documents and
agreements required to be executed by the Company hereunder (this Agreement and
such other documents and agreements, the “Transaction Documents”) and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of the Transaction Documents
by the Company, the authorization, sale, issuance and delivery of the Securities
contemplated herein and the performance of the Company’s obligations hereunder
has been taken. The Transaction Documents have been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with their respective
terms and subject to laws of general application relating to bankruptcy,

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insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy. The issuance and sale of the Securities contemplated hereby
will not give rise to any preemptive rights or rights of first refusal on behalf
of any person.

        (5) No Conflict; Governmental and Other Consents.

          (a) The execution and delivery by the Company of this Agreement and
the consummation of the transactions contemplated hereby will not result in the
violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority to or by which the
Company or any Subsidiary is bound, or of any provision of the Certificate of
Incorporation or Bylaws of the Company or any of its Subsidiaries, and will not
conflict with, or result in a breach or violation of, any of the terms or
provisions of, or constitute (with due notice or lapse of time or both) a
default under, any lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Company or any
Subsidiary is a party or by which it is bound or to which any of its or its
Subsidiaries’ properties or assets is subject, nor result in the creation or
imposition of any lien upon any of the properties or assets of the Company or
any Subsidiary except to the extent that any such violation, conflict or breach
could not have or be reasonably likely to have a Material Adverse Effect. No
holder of any of the securities of the Company or any of its subsidiaries has
any rights (“demand,” “piggyback” or otherwise) to have such securities
registered by reason of the intention to file, filing or effectiveness of a
Registration Statement.

          (b) No consent, approval, authorization or other order of any
governmental authority or other third-party is required to be obtained by the
Company in connection with the authorization, execution and delivery of this
Agreement or with the authorization, issue and sale of the Securities, except
such pre- or post-Closing filings as may be required to be made with the
Securities and Exchange Commission (the “SEC”), FINRA, and with any state or
foreign blue sky or securities regulatory authority.

        (6) Litigation. There are no pending or, to the Company’s knowledge,
threatened legal or governmental proceedings against the Company, which, if
adversely determined, would be reasonably likely to have a Material Adverse
Effect. There is no action, suit, proceeding, inquiry or investigation before or
by any court, public board or body (including, without limitation, the SEC)
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its subsidiaries wherein an unfavorable decision, ruling or
finding could adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under this
Agreement. Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company. The SEC has
not issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.

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        (7) Accuracy of Reports. All reports required to be filed by the Company
in the period commencing January 1, 2006 and ending on the date of this
Agreement (the “SEC Reports”) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), have been filed with the SEC, complied at the time
of filing in all material respects with the requirements of their respective
forms and, except to the extent updated or superseded by any subsequently filed
report, were complete and correct in all material respects as of the dates at
which the information was furnished, and contained (as of such dates) no untrue
statements of a material fact nor omitted to state any material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading.

        (8) Financial Information. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

        (9) Accounting Controls. The Company and Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management’s general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management’s general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports 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 Company’s certifying
officers have evaluated the effectiveness of the Company’s disclosure controls
and procedures as of the end of the period covered by the Company’s most
recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the Company’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.

        (10) Sarbanes-Oxley Act of 2002. The Company is, and will be, at all
times during the period the Company must maintain effectiveness of the
Registration Statement as provided herein, in compliance in all material
respects with all applicable provisions of the Sarbanes-

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Oxley Act of 2002 and all rules and regulations promulgated thereunder or
implementing the provisions thereof that are in effect and is taking reasonable
steps to ensure that it will be in compliance with other applicable provisions
of the Sarbanes-Oxley Act of 2002 not currently in effect upon the effectiveness
of such provisions.

        (11) Absence of Certain Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof or as
contemplated by the acquisition of the FAD, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the SEC,
(iii) the Company has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. Except for the issuance of the Securities
contemplated by this Agreement, no event, liability or development has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least 1 Trading Day prior to the date that this representation is made.

        (12) Investment Company. The Company is not, and is not an Affiliate of,
and immediately after receipt of payment for the Securities, will not be or be
an Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act of 1940,
as amended.

        (13) Subsidiaries. The Company has three wholly owned subsidiaries,
Sunshine Products, Inc., Derma Sciences Canada Inc. and Derma First Aid
Products, Inc. (collectively referred to herein as the Company’s “subsidiaries”.
Each of the Company’s subsidiaries has been duly formed, is validly existing and
is in good standing under the law of the jurisdication of its formation, has the
corporate power and authority to own its property and to conduct its business as
described in the SEC Reports and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and clear of any
Liens, and all of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities.

        (14) Indebtedness. The financial statements in the SEC reports set forth
all outstanding secured and unsecured Indebtedness (as defined below) of the
Company or any subsidiary, or for which the Company or any subsidiary has
commitments as of their respective

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dates. For purposes of this Agreement, “Indebtedness” shall mean (a) any
liabilities for borrowed money or amounts owed (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments due
under leases required to be capitalized in accordance with GAAP. The Company is
not in default with respect to any Indebtedness. The Company does not intend to
incur debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect of its
debt). The Company has no knowledge of any facts or circumstances which lead it
to believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date.

        (15) Certain Fees. Other than fees payable to the Placement Agent, no
brokers’, finders’ or financial advisory fees or commissions will be payable by
the Company with respect to the transactions contemplated by this Agreement. The
Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by the Transaction Documents.

        (16) Material Agreements. Except as set forth in the SEC Reports, the
Company is not a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the SEC as an exhibit to Form 10-K (each, a “Material
Agreement”). The Company and each of its subsidiaries has in all material
respects performed all the obligations required to be performed by them to date
under the foregoing agreements, have received no notice of default by the
Company or the subsidiary that is a party thereto, as the case may be, and, to
the Company’s knowledge, are not in default under any Material Agreement now in
effect, the result of which would be reasonably likely to have a Material
Adverse Effect.

        (17) Transactions with Affiliates. Except as set forth in the SEC
Reports, there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company or any of its customers or suppliers on the one hand, and (b) on
the other hand, any person who would be covered by Item 404(a) of Regulation S-K
or any company or other entity controlled by such person.

        (18) Taxes. The Company and each of its Subsidiaries have prepared and
filed all federal, state, local, foreign and other tax returns for income, gross
receipts, sales, use and other taxes and custom duties (“Taxes”) required by law
to be filed by it, except for tax returns, the failure to file which,
individually or in the aggregate, do not and would not have a Material Adverse
Effect. Such filed tax returns are complete and accurate, except for such
omissions and inaccuracies, which individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. The Company and its
Subsidiaries have paid or made provisions for the payment of all Taxes shown to
be due on such tax returns and all additional assessments, and adequate
provisions have been and are reflected in the financial statements of the
Company and the subsidiaries for all current Taxes to which the Company or any
subsidiary is subject and

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which are not currently due and payable, except for such Taxes which, if unpaid,
individually or in the aggregate, do not and would not have a Material Adverse
Effect. None of the federal income tax returns of the Company or ant Subsidiary
for the past five years has been audited by the Internal Revenue Service. The
Company has not received written notice of any assessments, adjustments or
contingent liability (whether federal, state, local or foreign) in respect of
any Taxes pending or threatened against the Company or any subsidiary for any
period which, if unpaid, would have a Material Adverse Effect.

        (19) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as the Company believes are prudent and customary in the
businesses in which the Company is engaged, including, but not limited to,
directors and officers insurance coverage at least equal to the aggregate
Subscription Amount hereunder. The Company has no reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without an increase in cost significantly greater than
general increases in cost experienced for similar companies in similar
industries with respect to similar coverage.

        (20) Environmental Matters. To the Company’s knowledge, all real
property owned, leased or otherwise operated by the Company is free of
contamination from any substance, waste or material currently identified to be
toxic or hazardous pursuant to, within the definition of a substance which is
toxic or hazardous under, or which may result in liability under, any
Environmental Law (as defined below), including, without limitation, any
asbestos, polychlorinated biphenyls, radioactive substance, methane, volatile
hydrocarbons, industrial solvents, oil or petroleum or chemical liquids or
solids, liquid or gaseous products, or any other material or substance
(“Hazardous Substance”) which has caused or would reasonably be expected to
cause or constitute a threat to human health or safety, or an environmental
hazard in violation of Environmental Law or to result in any environmental
liabilities that would be reasonably likely to have a Material Adverse Effect.
The Company has not caused or suffered to occur any release, spill, migration,
leakage, discharge, disposal, uncontrolled loss, seepage, or filtration of
Hazardous Substances that would reasonably be expected to result in
environmental liabilities that would be reasonably likely to have a Material
Adverse Effect. The Company has generated, treated, stored and disposed of any
Hazardous Substances in compliance with applicable Environmental Laws, except
for such non-compliances that would not be reasonably likely to have a Material
Adverse Effect. The Company has obtained, or has applied for, and is in
compliance with and in good standing under all permits required under
Environmental Laws (except for such failures that would not be reasonably likely
to have a Material Adverse Effect) and the Company has no knowledge of any
proceedings to substantially modify or to revoke any such permit. There are no
investigations, proceedings or litigation pending or, to the Company’s
knowledge, threatened against the Company or any of the Company’s facilities
relating to Environmental Laws or Hazardous Substances. “Environmental Laws”
shall mean all federal, national, state, regional and local laws, statutes,
ordinances and regulations, in each case as amended or supplemented from time to
time, and any judicial or administrative interpretation thereof, including
orders, consent decrees or judgments relating to the regulation and protection
of human health, safety, the environment and natural resources.

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        (21) Intellectual Property Rights and Licenses. The Company owns or has
the right to use any and all information, know-how, trade secrets, patents,
copyrights, trademarks, trade names, software, formulae, methods, processes and
other intangible properties that are of a such nature and significance to the
business that the failure to own or have the right to use such items would have
a Material Adverse Effect (“Intangible Rights”). The Company has not received
any notice that it is in conflict with or infringing upon the asserted
intellectual property rights of others in connection with the Intangible Rights,
and, to the Company’s knowledge, neither the use of the Intangible Rights nor
the operation of the Company’s and its Subsidiaries’ businesses is infringing or
has infringed upon any intellectual property rights of others in a manner that
would be reasonably expected to have a Material Adverse Effect. All payments
have been duly made that are necessary to maintain the Intangible Rights in
force. No claims have been made, and to the Company’s knowledge, no claims are
threatened, that challenge the validity or scope of any material Intangible
Right of the Company. The Company has taken reasonable steps to obtain and
maintain in force all licenses and other permissions under Intangible Rights of
third parties necessary to conduct their businesses as heretofore conducted by
them, and now being conducted by them, and as expected to be conducted, and the
Company is not or has not been in material breach of any such license or other
permission.

        (22) Labor, Employment and Benefit Matters.

          (a) There are no existing, or to the best of the Company’s knowledge,
threatened strikes or other labor disputes against the Company that would be
reasonably likely to have a Material Adverse Effect. There is no organizing
activity involving employees of the Company pending or, to the Company’s or its
subsidiaries’ knowledge, threatened by any labor union or group of employees.
There are no representation proceedings pending or, to the Company’s knowledge,
threatened with the National Labor Relations Board, and no labor organization or
group of employees of the Company or its subsidiaries has made a pending demand
for recognition.

          (b) Except as set forth in the SEC Reports, the Company is not, or
during the five years preceding the date of this Agreement was not, a party to
any labor or collective bargaining agreement and there are no labor or
collective bargaining agreements which pertain to employees of the Company.

          (c) Each employee benefit plan is in compliance with all applicable
law, except for such noncompliance that would not be reasonably likely to have a
Material Adverse Effect.

          (d) The Company does not have any liabilities, contingent or
otherwise, including without limitation, liabilities for retiree health, retiree
life, severance or retirement benefits, which are not fully reflected, to the
extent required by GAAP, on the Balance Sheet or fully funded. The term
“liabilities” used in the preceding sentence shall be calculated in accordance
with reasonable actuarial assumptions.

          (e) The Company has not (i) terminated any “employee pension benefit
plan” as defined in Section 3(2) of ERISA (as defined below) under circumstances
that present a material risk of the Company or any of its subsidiaries incurring
any liability or

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  obligation that would be reasonably likely to have a Material Adverse Effect,
or (ii) incurred or expects to incur any outstanding liability under Title IV of
the Employee Retirement Income Security Act of 1974, as amended and all rules
and regulations promulgated thereunder (“ERISA”).

          (f) No executive officer, to the knowledge of the Company, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

        (23) Compliance with Law. The Company is in compliance in all material
respects with all applicable laws, except for such noncompliance that would not
reasonably be likely to have a Material Adverse Effect. The Company has not
received any notice of, nor does the Company have any knowledge of, any
violation (or of any investigation, inspection, audit or other proceeding by any
governmental entity involving allegations of any violation) of any applicable
law involving or related to the Company which has not been dismissed or
otherwise disposed of that would be reasonably likely to have a Material Adverse
Effect. The Company has not received notice or otherwise has any knowledge that
the Company is charged with, threatened with or under investigation with respect
to, any violation of any applicable law that would reasonably be likely to have
a Material Adverse Effect. Neither the Company nor any of its subsidiaries nor
any employee or agent of the Company or any subsidiary has made any contribution
or other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law. The Company and its directors, officers,
employees and agents have complied in all material respects with the Foreign
Corrupt Practices Act of 1977, as amended, and any related rules and
regulations.

        (24) Ownership of Property. Except as set forth in the Company’s
financial statements included in the SEC Reports, the Company and has (i) good
and marketable fee simple title to its owned real property, if any, free and
clear of all liens, except for liens which do not individually or in the
aggregate have a Material Adverse Effect; (ii) a valid leasehold interest in all
leased real property, and each of such leases is valid and enforceable in
accordance with its terms (subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies, and to
limitations of public policy) and is in full force and effect, and (iii) good
title to, or valid leasehold interests in, all of its other properties and
assets free and clear of all liens, except for liens disclosed in the SEC
Reports or which otherwise do not individually or in the aggregate have a
Material Adverse Effect.

        (25) Compliance with OTC Bulletin Board Requirements. The Company’s
Common Stock is registered pursuant to Section 12(b) of the Exchange Act and is
eligible to be quoted on

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the OTC Bulletin Board, trading in the Common Stock has not been suspended, and
the Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
disqualifying the Common Stock from quotation on the OTC Bulletin Board, nor to
the Company’s knowledge is FINRA currently contemplating terminating the
eligibility of the Company’s Common Stock to be quoted on the OTC Bulletin
Board. The Company and the Common Stock meet the criteria for continued
quotation on the OTC Bulletin Board.

        (26) No Integrated Offering. Assuming the accuracy of each Purchaser’s
representations and warranties set forth in Section B hereof, neither the
Company, nor any of its affiliates or other person acting on the Company’s
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the Offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act, when integration would cause the
Offering not to be exempt from the requirements of Section 5 of the Securities
Act.

        (27) General Solicitation. Neither the Company nor, to its knowledge,
any person acting on behalf of the Company, has offered or sold any of the
Securities by any form of “general solicitation” within the meaning of Rule 502
under the Securities Act. The Company has offered the Securities for sale only
to the Purchasers and certain other “accredited investors” within the meaning of
Rule 501 under the Securities Act. To the knowledge of the Company, no person
acting on its behalf has offered the Securities for sale other than to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.

        (28) No Manipulation of Stock. The Company has not and will not, and to
its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any
compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any Person any compensation for soliciting another to
purchase any other securities of the Company, other than, in the case of clauses
(ii) and (iii), compensation paid to the Company’s placement agent in connection
with the placement of the Securities.

        (29) No Registration. Assuming the accuracy of the representations and
warranties made by, and compliance with the covenants of, the Purchasers in
Section B hereof, no registration of the Securities under the Securities Act is
required in connection with the offer and sale of the Securities by the Company
to the Purchasers as contemplated by this Agreement.

        (30) Form D. The Company agrees to file one or more Forms D with respect
to the Securities on a timely basis as required under Regulation D under the
Securities Act to claim the exemption provided by Rule 506 of Regulation D and
to provide a copy thereof to the Purchasers and their counsel promptly after
such filing.

        (31) Certain Future Financings and Related Actions. The Company will not
sell, offer to sell, solicit offers to buy or otherwise negotiate in respect of
any “security” (as defined in the Securities Act) that is or could be integrated
with the sale of the Securities in a manner that would require the registration
of the Securities under the Securities Act.

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        (32) Use of Proceeds. The Company will use the net proceeds from the
Offering will to acquire the assets of FAD.

        (33) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents and
information relative to the Company’s contemplated purchase of the FAD, the
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that it believes constitutes or might constitute material, non-public
information. The Company understands and acknowledges that each of the
Purchasers will rely on the foregoing representations in effecting transactions
in securities of the Company. All disclosure provided by or on behalf of the
Company to the Purchasers regarding the Company, its business and the
transactions contemplated hereby furnished by or on the behalf of the Company
are true and correct in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. To the Company’s knowledge, no
material event or circumstance has occurred or information exists with respect
to the Company or its business, properties, operations or financial conditions,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

        (34) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

        (35) Registration Rights. Other than each of the Purchasers, no Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.

        (36) Application of Takeover Protections. The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Securities and the Purchasers’ ownership of the Securities.

        (37) Accountants. The Company’s accounting firm is Ernst & Young LLP. To
the knowledge and belief of the Company, such accounting firm (i) is a
registered public accounting

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firm as required by the Exchange Act, and (ii) intends to express its opinion
with respect to the financial statements to be included in the Company’s Annual
Report for the year ending 2007.

        (38) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company which could affect the Company’s ability to
perform any of its obligations under any of the Transaction Documents, and the
Company is current with respect to any fees owed to its accountants and lawyers.

        (39) Acknowledgment Regarding Purchasers’ Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers’ purchase of the Securities. The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.

        (40) Acknowledgement Regarding Purchaser’s Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections B(15) hereof), it is understood and acknowledged by the Company (i)
that none of the Purchasers have been asked by the Company to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that past
or future open market or other transactions by any Purchaser, specifically
including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities;
(iii) that any Purchaser, and counter-parties in “derivative” transactions to
which any such Purchaser is a party, directly or indirectly, presently may have
a “short” position in the Common Stock, and (iv) that each Purchaser shall not
be deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. The Company further understands
and acknowledges that (a) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Warrant Shares deliverable with respect to Securities are being determined
and (b) such hedging activities (if any) could reduce the value of the existing
stockholders’ equity interests in the Company at and after the time that the
hedging activities are being conducted.  The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

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        (41) FDA. As to each product subject to the jurisdiction of the U.S.
Food and Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic
Act, as amended, and the regulations thereunder (“FDCA”) that is manufactured,
packaged, labeled, tested, distributed, sold, and/or marketed by the Company or
any of its Subsidiaries (each such product, a “Pharmaceutical Product”), such
Pharmaceutical Product is being manufactured, packaged, labeled, tested,
distributed, sold and/or marketed by the Company in compliance with all
applicable requirements under FDCA and similar laws, rules and regulations
relating to registration, investigational use, premarket clearance, licensure,
or application approval, good manufacturing practices, good laboratory
practices, good clinical practices, product listing, quotas, labeling,
advertising, record keeping and filing of reports, except where the failure to
be in compliance would not have a Material Adverse Effect. There is no pending,
completed or, to the Company’s knowledge, threatened, action (including any
lawsuit, arbitration, or legal or administrative or regulatory proceeding,
charge, complaint, or investigation) against the Company or any of its
Subsidiaries, and none of the Company or any of its Subsidiaries has received
any notice, warning letter or other communication from the FDA or any other
governmental entity, which (i) contests the premarket clearance, licensure,
registration, or approval of, the uses of, the distribution of, the
manufacturing or packaging of, the testing of, the sale of, or the labeling and
promotion of any Pharmaceutical Product, (ii) withdraws its approval of,
requests the recall, suspension, or seizure of, or withdraws or orders the
withdrawal of advertising or sales promotional materials relating to, any
Pharmaceutical Product, (iii) imposes a clinical hold on any clinical
investigation by the Company or any of its Subsidiaries, (iv) enjoins production
at any facility of the Company or any of its Subsidiaries, (v) enters or
proposes to enter into a consent decree of permanent injunction with the Company
or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws,
rules or regulations by the Company or any of its Subsidiaries, and which,
either individually or in the aggregate, would have a Material Adverse Effect.
The properties, business and operations of the Company have been and are being
conducted in all material respects in accordance with all applicable laws, rules
and regulations of the FDA.  The Company has not been informed by the FDA that
the FDA will prohibit the marketing, sale, license or use in the United States
of any product proposed to be developed, produced or marketed by the Company nor
has the FDA expressed any concern as to approving or clearing for marketing any
product being developed or proposed to be developed by the Company.

        D. Understandings

        Each of the Purchasers understands, acknowledges and agrees with the
Company as follows:

        (1)   Each Purchaser hereby acknowledges and agrees that the
subscription hereunder, once accepted by the Company, is irrevocable by such
Purchaser save as otherwise provided in Section A(5) hereof, and that, except as
required by law, such Purchaser is not entitled to cancel, terminate or revoke
this Agreement or any agreements of such Purchaser hereunder, except that the
obligations under this Agreement shall not survive the death or disability of
the Purchaser.

        (2)   No federal or state agency or authority has made any finding or
determination as to the accuracy or adequacy of the Offering Documents or as to
the fairness of the terms of the Offering nor any recommendation or endorsement
of the Securities. Any representation to the contrary is a criminal offense. In
making an investment decision, Purchasers must rely on their

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own examination of the Company and the terms of the Offering, including the
merits and risks involved.

        (3)   The Offering is intended to be exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act and the
provisions of Rule 506 of Regulation D thereunder, which is in part dependent
upon the truth, completeness and accuracy of the statements made by the
Purchaser herein and in the Purchaser Questionnaire.

        (4)   Notwithstanding the registration obligations provided herein,
there can be no assurance that the Purchaser will be able to sell or dispose of
the Securities. It is understood that in order not to jeopardize the Offering’s
exempt status under Section 4(2) of the Securities Act and Regulation D, any
transferee may, at a minimum, be required to fulfill the investor suitability
requirements thereunder.

        (5)   The Purchaser acknowledges that the Offering is confidential and
non-public and agrees that all information about the Offering shall be kept in
confidence by the Purchaser until the public announcement of the Offering by the
Company. The Purchaser acknowledges that the foregoing restrictions on the
Purchaser’s use and disclosure of any such confidential, non-public information
contained in the above-described documents restricts the Purchaser from trading
in the Company’s securities to the extent such trading is on the basis of
material, non-public information of which the Purchaser is aware. Except for pro
forma and projected financial information and other information reflecting the
Company’s contemplated acquisition of the FAD and except for the terms of the
Transaction Documents and the fact that the Company is considering consummating
the transactions contemplated therein, the Company confirms that neither the
Company nor, to its knowledge, any other person acting on its behalf, has
provided any of the Purchasers or their agents or counsel with any information
that constitutes material, non-public information.

        E.   Registration Rights

        (1)  Certain Definitions. For purposes of this Section E, the following
terms shall have the meanings ascribed to them below.

          (a)   “Prospectus” means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the Offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

          (b)   “Registrable Securities” shall mean any Shares and Warrant
Shares issued or issuable pursuant to the Offering Documents together with any
securities issued or issuable upon any stock split, dividend or other
distribution, adjustment (including any anti-dilution adjustment),
recapitalization or similar event with respect to the foregoing.

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          (c)   “Registration Statement” means the registration statement
required to be filed under this Section E, including the Prospectus, amendments
and supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.

          (d)   “SEC Guidance” means (i) any publicly-available written or oral
guidance, comments, requirements or requests of the Commission staff and (ii)
the Securities Act.

        (2)   Shelf Registration.

          (a)   The Company shall use its best efforts to cause to prepare and
file with the SEC a “Shelf” Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415 under the Securities Act on or prior to the 60th day (the “Filing
Default Date”) following the Closing (such date of actual filing, the “Filing
Date”). The Registration Statement shall be on Form S-3; provided that if the
Company shall determine in good faith that Form S-3 is not then available to it,
the Registration Statement shall be on Form S-1 or on another appropriate form
in accordance herewith. The Registration Statement shall contain (except if
otherwise directed in writing by the Purchasers) a “Plan of Distribution”
substantially in the form attached hereto as Exhibit E Each Purchaser will
furnish to the Company, within five days of the Closing, a completed
questionnaire in the form set forth as Exhibit G hereto. Each Purchaser agrees
to promptly update such questionnaire in order to make the information
previously furnished to the Company by such Purchaser complete and not
materially misleading. The Registration Statement shall register the Registrable
Securities for resale by the holders thereof.

          (b)   The Company shall use its best efforts to cause the Registration
Statement to be declared effective by the SEC on or prior to the 90th day
following the Closing (the “No-Review Effectiveness Default Date”) if there is
no SEC review of the Registration Statement or the 120th day following the
Closing (the “SEC-Review Effectiveness Default Date”) in the event of an SEC
review of the Registration Statement, and shall use its best efforts to keep the
Registration Statement continuously effective under the Securities Act until the
earliest of (i) the date when all Registrable Securities covered thereby may be
sold without registration or restriction pursuant to Rule 144(k) under the
Securities Act or any successor provision or (ii) the date when all Registrable
Securities covered by such Registration Statement have been sold (the
“Effectiveness Period”).

          (c)   The Company shall request effectiveness of the Registration
Statement (and any post-effective amendments thereto) within five (5) business
days following the Company’s receipt of notice from the SEC that the
Registration Statement will not be reviewed by the SEC or that the SEC has
completed its review of such Registration Statement and has no further comments.
The Company shall request effectiveness of the Registration Statement (and any
post-effective amendments thereto) at 5:00 p.m., Eastern time, on the effective
date, and file with the SEC and deliver the Prospectus (or any

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  supplements thereto), which delivery may be made electronically, by 8:00 a.m.
Eastern time on the business day after such effective date.

          (d)   Upon the occurrence of any Event (as defined below), as partial
relief for the damages suffered therefrom by the Purchasers (which remedy shall
not be exclusive of any other remedies which are available at law or in equity;
and provided further that the Purchasers shall be entitled to pursue an action
for specific performance of the Company’s obligations under Paragraph (2)(b)
above and any such actions at law, in equity, for specific performance or
otherwise shall not require the Purchaser to post a bond), the Company shall pay
to each Purchaser, as liquidated damages and not as a penalty (it being agreed
that it would not be feasible to ascertain the extent of such damages with
precision), such amounts and at such times as shall be determined pursuant to
this Paragraph (2)(d). For such purposes, each of the following shall constitute
an “Event”:

          (i)   the Filing Date does not occur on or prior to the Filing Default
Date, in which case the Company shall pay to each Purchaser an amount in cash
equal to one-thirtieth of one percent of the aggregate purchase price paid by
such Purchaser for each day from the Filing Default Date until the Filing Date,
payable at the end of each 30-day period after the Filing Default Date; or

          (ii)   (A) there is no SEC review of the Registration Statement and
the Registration Statement is not declared effective on or prior to the
No-Review Effectiveness Default Date, in which case the Company shall pay to
each Purchaser for each day after the No-Review Effectiveness Default Date until
the date upon which the Registration Statement is first declared effective, an
amount in cash equal to one-thirtieth of one percent of the aggregate purchase
price paid by such Purchaser; or (B) there is an SEC review of the Registration
Statement and the Registration Statement is not declared effective on or prior
to the SEC-Review Effectiveness Default Date, in which case the Company shall
pay to each Purchaser an amount in cash equal to one-thirtieth of one percent of
the aggregate purchase price paid by such Purchaser for each day after the
SEC-Review Effectiveness Default Date until the date the Registration Statement
is first declared effective, in each case payable at the end of each 30-day
period after the No-Review Effectiveness Default Date or SEC-Review
Effectiveness Default Date, as applicable; or

          (iii)   if during the Effectiveness Period, the SEC issues any stop
order suspending the effectiveness of the Registration Statement, in which case
the Company shall pay to each Purchaser for each day after the issuance of such
SEC stop order until the date upon which the Registration Statement is again
declared effective or the end of the Effectiveness Period, whichever is earlier,
an amount in cash equal to one-thirtieth of one percent of the aggregate
purchase price paid by such Purchaser with respect to any Shares not previously
sold or transferred by such Purchaser pursuant to the Registration Statement as
of the time of the issuance of the stop order, payable at the end of each 30-day
period after the issuance of the SEC stop order.

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        The payment obligations of the Company under this Section E(2)(d) shall
be cumulative. If any payment under this Section E(2)(d) is not received by the
Purchasers when such payment is due, then in addition to any other remedies that
may be available to the Purchasers, interest at the rate of 1% per 30-day period
(prorated for periods less than 30 days) shall accrue on the outstanding balance
of the delinquent payment until such delinquent payment is paid in full.
Provided, however, liquidated damages payable by the Company hereunder to a
given Purchaser may in no event exceed ten percent (10.0%) of the aggregate
purchase price paid by such Purchaser.

          (e) The Purchasers acknowledge that the SEC has recently given
enhanced scrutiny to registration statements attempting to register the resale
of shares and warrant shares obtained by purchasers in private placements and
that such SEC reviews have resulted in registrants being denied the use of Rule
415(a)(1)(i). Accordingly, notwithstanding anything herein to the contrary, the
Purchasers agree that (i) the Company shall not be obligated to pay any amount
of liquidated damages under Section (E)(2)(d)(ii)(B) in the event the
Registration Statement is not declared effective on or prior to the SEC-Review
Effectiveness Default Date solely as a result of or in connection with a
determination by the SEC that either the Company or the Purchasers are
ineligible to rely on Rule 415(a)(1)(i) under the Securities Act with respect to
the registration of any of the Registrable Securities for resale by the
Purchasers on a continuous or delayed basis; provided, that the Company shall
thereafter use its commercially reasonable efforts to find alternative methods
to register the Registrable Securities with the SEC for resale; and (ii) in the
event the Company, after conducting a pre-filing conference with the SEC, if
possible, and after consultation with the Placement Agent, reasonably determines
that it is unable to, or it is inadvisable for the Company to attempt to,
register all of the Registrable Securities in a single Registration Statement,
the Company may elect to fulfill the registration requirements of this Section
(E)(2) by registering the Registrable Securities in two or more Registration
Statements, provided that the Company shall use its best efforts to file each
subsequent Registration Statement no later than the earlier of (A) 60 days
following the date on which the last of the Registrable Securities registered
under the preceding Registration Statement were sold or (B) 6 months following
the date on which the preceding Registration Statement was declared effective.

        (3) Registration Procedures. In connection with the Company’s
registration obligations hereunder, the Company shall:

          (a) Not less than 3 Trading Days prior to the filing of each
Registration Statement and not less than one Trading Day prior to the filing of
any related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to each Purchaser copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Purchasers and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the reasonable opinion of respective counsel to each Purchaser, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company

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  shall not file a Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Purchasers of a majority of the
Registrable Securities shall reasonably object in good faith, provided that the
Company is notified of such objection in writing no later than 3 Trading Days
after the Purchasers have been so furnished copies of a Registration Statement
or 1 Trading Day after the Purchasers have been so furnished copies of any
related Prospectus or amendments or supplements thereto.

          (b) Use its best efforts to (i) prepare and file with the SEC such
amendments, including post-effective amendments, to the Registration Statement
as may be necessary to keep the Registration Statement continuously effective as
to the Registrable Securities for the Effectiveness Period; (ii) cause the
related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424;
and (iii) respond as promptly as reasonably possible, and in any event within
ten (10) trading days, to any comments received from the SEC with respect to the
Registration Statement or any amendment thereto and as promptly as reasonably
possible provide the Purchasers true and complete copies of all correspondence
from and to the SEC relating to the Registration Statement (provided that the
Company may excise any information contained therein which would constitute
material non-public information as to any Purchaser which has not executed a
confidentiality agreement with the Company).

          (c) Notify the Placement Agent and the Purchasers as promptly as
reasonably possible, and (if requested by any Purchaser) confirm such notice in
writing no later than one (1) trading day thereafter, of any of the following
events: (i) the SEC notifies the Company whether there will be a “review” of the
Registration Statement; (ii) the SEC comments in writing on the Registration
Statement (in which case the Company shall deliver to the Purchaser a copy of
such comments and of all written responses thereto, provided that the Company
may excise any information contained therein which would constitute material
non-public information as to any Purchaser which has not executed a
confidentiality agreement with the Company); (iii) the SEC or any other Federal
or state governmental authority in writing requests any amendment or supplement
to the Registration Statement or Prospectus or requests additional information
related thereto; (iv) if the SEC issues any stop order suspending the
effectiveness of the Registration Statement or initiates any action, claim,
suit, investigation or proceeding (a “Proceeding”) for that purpose; (v) the
Company receives notice in writing of any suspension of the qualification or
exemption from qualification of any Registrable Securities for sale in any
jurisdiction, or the initiation or threat of any Proceeding for such purpose; or
(vi) the financial statements included in the Registration Statement become
ineligible for inclusion therein or any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference is untrue in any material respect or any
revision to the Registration Statement, Prospectus or other document is required
so that it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Notwithstanding the foregoing, the Company shall not include any
material

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  non-public information in any notice provided to any Purchaser under this
Section E(3)(b).

          (d) Use its best efforts to avoid the issuance of or, if issued,
obtain the prompt withdrawal of (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction.

          (e) Use its best efforts to deliver to each Purchaser, which delivery
may be made electronically, by 8:00 a.m. Eastern time on the business day after
the date first available, without charge, such reasonable number of copies of
the Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Purchasers may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Purchasers in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.

          (f) In the event the Company’s Common Stock is then listed on the
NASDAQ Stock Market: (i) In the time and manner required by FINRA, prepare and
file with FINRA an additional shares listing application covering all of the
Registrable Securities and a notification form regarding the change in the
number of the Company’s outstanding Shares; (ii) use its best efforts regardless
of listing or similar costs to take all steps reasonably necessary to cause such
Registrable Securities to be approved for listing on The NASDAQ Stock Market as
soon as possible thereafter; (iii) provide to the Purchasers notice of such
listing; and (iv) use its best efforts regardless of listing or similar costs to
maintain the listing of such Registrable Securities on The NASDAQ Stock Market.

          (g) To the extent required by law, prior to any public offering of
Registrable Securities, use its best efforts to register or qualify or cooperate
with the selling Purchasers in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or “blue sky” laws of such
jurisdictions within the United States as any Purchaser requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be required for any such purpose
to (i) qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not be otherwise required to qualify but for the
requirements of this Paragraph (3)(f), or (ii) subject itself to taxation.

          (h) Upon the occurrence of any event described in Paragraph (3)(b)(vi)
above, as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a

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  material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company may
suspend sales pursuant to the Registration Statement for a period of up to forty
five (45) days (unless the holders of at least a majority of the then eligible
Registrable Securities consisting of outstanding shares of Common Stock consent
in writing to a longer delay of up to an additional sixty (60) days no more than
once in any twelve-month period) if the Company furnishes to the holders of the
Registrable Securities a certificate signed by the Company’s Chief Executive
Officer stating that in the good faith judgment of the Company’s Board of
Directors, there is some material development relating to the operations or
condition (financial or other) of the Company that has not been disclosed to the
general public and as to which it is in the Company’s best interests not to
disclose such development, and the Company shall not disclose such development
to the Purchasers; provided further, however, that the Company may not so
suspend sales more than once in any calendar year without the written consent of
the holders of at least a majority of the then eligible Registrable Securities
consisting of outstanding shares of Common Stock. Each violation of the
Company’s obligation not to suspend sales pursuant to the Registration Statement
longer than permitted pursuant to the proviso of this Paragraph (3)(g) shall be
deemed an “Event” and for each such default, Purchaser shall be entitled to the
payment provisions in the amounts set forth in Paragraph (2)(d)(i).

          (i) Comply with all applicable rules and regulations of the SEC and
the FINRA in all material respects, including using its best efforts to
cooperate with the Placement Agent or other registered broker-dealer making any
filing required by NASD Rule 2710 to permit resales of the Registrable
Securities by the Purchasers through registered broker-dealers.

        (4) Registration Expenses. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the SEC, Nasdaq and in connection with applicable
state securities or “Blue Sky” laws, (b) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing copies of Prospectuses reasonably requested by the Purchasers), (c)
messenger, telephone and delivery expenses, (d) and fees and expenses of all
other Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. Notwithstanding the foregoing, each
Purchaser shall pay any and all costs, fees, discounts or commissions
attributable to the sale of its respective Registrable Securities.

        (5) Indemnification.

          (a) Indemnification by the Company. In consideration of each
Purchaser’s execution and delivery of this Agreement and in addition to the
Company’s other obligations hereunder, the Company shall, notwithstanding any
termination of this Agreement, indemnify, defend, protect and hold harmless each
Purchaser, its officers and directors, partners, members, agents, brokers and
employees of each of them, each Person who controls any such Purchaser (within
the meaning of Section 15 of the Securities Act

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  or Section 20 of the Exchange Act) and the officers, directors, partners,
members, agents and employees of each such controlling Person, and each
underwriter of Registrable Securities, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, settlement costs and expenses, including without limitation costs
of preparation and reasonable attorneys’ fees (collectively, “Losses”), as
incurred, arising out of or relating to (A) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or form of prospectus or in any amendment or supplement thereto, or
arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading, except to
the extent, but only to the extent, that (i) such untrue statements or omissions
are based upon information regarding such Purchaser furnished in writing to the
Company by such Purchaser expressly for use therein, or to the extent that such
information related to such Purchaser or such Purchaser’s proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Purchaser expressly for use in the Registration Statement,
such Prospectus or such form of Prospectus or in any amendment or supplement
thereto (which shall, however, be deemed to include disclosure substantially in
accordance with the “Plan of Distribution” attached hereto), or (ii) in the case
of an occurrence of an event of the type specified in Paragraph (3)(b) above,
the use by such Purchaser of an outdated or defective Prospectus after the
Company has duly notified such Purchaser in writing that the Prospectus is
outdated or defective and prior to the receipt by such Purchaser of the Advice
contemplated in Paragraph (6) below; (B) any misrepresentation or material
breach of any representation or warranty made by the Company in the Offering
Documents; (C) any breach of any covenant, agreement or obligation of the
Company contained in the Offering Documents; (D) any cause of action, suit or
claim brought or made against such Indemnified Party (as hereinafter defined) by
a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Offering Documents, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of issuance of Securities, or (iii) the status of
such Purchaser as an investor in the Company pursuant to the transactions
contemplated by the Offering Documents, other than any such cause of action,
suit or claim resulting from the fraud or willful misconduct of such Purchaser.
The Company shall notify the Purchasers promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.

          (b) Indemnification by Purchasers. Each Purchaser shall, severally and
not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, and each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus or in any amendment

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  or supplement thereto, or arising out of or based upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information furnished in writing by
such Purchaser to the Company specifically for inclusion in such Registration
Statement or Prospectus or to the extent that (i) such untrue statements or
omissions are based upon information regarding such Purchaser furnished in
writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information related to such Purchaser or such Purchaser’s
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (which shall, however, be deemed to include
disclosure substantially in accordance with the “Plan of Distribution” attached
hereto), or (ii) in the case of an occurrence of an event of the type specified
in Paragraph (3)(b) above, the use by such Purchaser of an outdated or defective
Prospectus after the Company has notified such Purchaser in writing that the
Prospectus is outdated or defective and prior to the receipt by such Purchaser
of the Advice contemplated in Paragraph (6) below. In no event shall the
liability of any selling Purchaser hereunder be greater in amount than the
dollar amount of the net proceeds received by such Purchaser upon the sale of
the Registrable Securities giving rise to such indemnification obligation.

          (c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof, provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that such failure shall have prejudiced the
Indemnifying Party. An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(iii) the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party; provided, however, that in the event that the
Indemnifying Party shall be required to pay the fees and expenses of separate
counsel, the Indemnifying Party shall only be required to pay the fees and
expenses of one separate counsel for such Indemnified Party or Parties. The

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  Indemnifying Party shall not be liable for any settlement of any such
Proceeding affected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding. All fees and
expenses of the Indemnified Party (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten trading days of written notice
thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).

          (d) Contribution. If a claim for indemnification under Paragraph
(5)(a) or (b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or related to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Paragraph (5)(c), any reasonable attorneys’ or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Paragraph 5(d) was
available to such party in accordance with its terms.

        The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Paragraph (5)(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Paragraph (5)(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

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        The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties and any cause of action or similar right of the Indemnified
Parties against the Indemnifying Parties or others.

        (6)     Dispositions. Each Purchaser agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Paragraphs
(3)(b), such Purchaser will discontinue disposition of such Registrable
Securities under the Registration Statement until such Purchaser’s receipt of
the copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Paragraph (3)(g), or until it is advised in writing (the
“Advice”) by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph.

        (7)      Piggy-Back on Registrations. Neither the Company nor any of its
security holders (other than the Purchasers in such capacities pursuant hereto)
may include securities of the Company in the Registration Statement other than
the Registrable Securities, and the Company shall not after the date hereof
enter into any agreement providing any such right with respect to the
Registration Statement to any of its security holders.

        (8)      Piggy-Back Registrations. If at any time during the
Effectiveness Period, other than any suspension period referred to in Paragraph
(3)(g) above, there is not an effective Registration Statement covering all of
the Registrable Securities and the Company shall determine to prepare and file
with the SEC a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Purchaser written notice of
such determination and if, within fifteen (15) days after receipt of such
notice, any such Purchaser shall so request in writing, the Company shall use
its best efforts to include in such registration statement all or any part of
such Registrable Securities not already covered by an effective Registration
Statement such Purchaser requests to be registered; provided, however, that the
Company shall have the right to postpone or withdraw any registration effected
pursuant to this Section E(8).

        (9)      Rule 144. For a period of two years following the date hereof,
the Company agrees with each holder of Registrable Securities to:

          (a) use its best efforts to comply with the requirements of Rule
144(c) under the Securities Act with respect to current public information about
the Company;

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          (b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time it is subject to such reporting requirements); and

          (c) furnish to any holder of Registrable Securities upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c) and the reporting requirements of the Securities Act and the
Exchange Act (at any time it is subject to such reporting requirements), (ii) a
copy of the most recent annual or quarterly report of the Company, and (iii)
such other reports and documents of the Company as such holder may reasonably
request to avail itself of any similar rule or regulation of the SEC allowing it
to sell any such securities without registration.

        F. Covenants of the Company

        (1) Transfer Restrictions. (a) The Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section F(1)(b), the Company may
require the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the form
and substance of which opinion shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of transfer, any
such transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement.

          (a) The Purchasers agree to the imprinting, so long as is required by
this Section F(1), of a legend on any of the Securities in the following form:

  THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

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        The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities, including, if the Securities are subject to registration pursuant to
the terms hereof, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.

          (b) Certificates evidencing the Shares and Warrant Shares shall not
contain any legend (including the legend set forth in Section F(1)(b)), (i)
while a registration statement (including the Registration Statement) covering
the resale of such security is effective under the Securities Act, or (ii)
following any sale of such Shares or Warrant Shares pursuant to Rule 144, or
(iii) if such Shares or Warrant Shares are eligible for sale under Rule 144(k),
or (iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the SEC). The Company shall cause its counsel to issue a legal
opinion to the Transfer Agent promptly after the Effective Date if required by
the Transfer Agent to effect the removal of the legend hereunder. If all or any
portion of a Warrant is exercised at a time when there is an effective
registration statement to cover the resale of the Warrant Shares, such Warrant
Shares shall be issued free of all legends. The Company agrees that following
the Effective Date or at such time as such legend is no longer required under
this Section F(1)(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Transfer Agent of a certificate representing
Shares or Warrant Shares, as the case may be, issued with a restrictive legend
(such third Trading Day, the “Legend Removal Date”), deliver or cause to be
delivered to such Purchaser a certificate representing such shares that is free
from all restrictive and other legends. The Company may not make any notation on
its records or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section. Certificates for Securities
subject to legend removal hereunder shall be transmitted by the Transfer Agent
to the Purchaser by crediting the account of the Purchaser’s prime broker with
the Depository Trust Company System as directed by such Purchaser.

          (c) In addition to such Purchaser’s other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages and not
as a penalty, for each $2,000 of Shares or Warrant Shares (based on the VWAP of
the Common Stock on the date such Securities are submitted to the Transfer
Agent) delivered for removal of the

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  restrictive legend and subject to Section F(1)(c), $10 per Trading Day for
each Trading Day after the 2nd Trading Day Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit such
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. Each Purchaser, severally and not
jointly with the other Purchasers, agrees that such Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a Registration Statement,
they will be sold in compliance with the plan of distribution set forth therein,
and acknowledges that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section F(1) is predicated upon the
Company’s reliance upon this understanding.

        (2) Furnishing of Information. Until the time that no Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act even if the Company is not then subject to the reporting
requirements of the Exchange Act. As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to the Exchange Act, it
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers
to sell the Securities under Rule 144. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, to the extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act within the
requirements of the exemption provided by Rule 144.(3)

        (3) Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities to the Purchasers for
purposes of the rules and regulations of any Trading Market such that it would
require shareholder approval prior to the closing of such other transaction
unless shareholder approval is obtained before the closing of such subsequent
transaction.

        (4) Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. (New York City time) on the fourth Trading Day immediately following the
date hereof, issue a Current Report on Form 8-K, disclosing the material terms
of the transactions contemplated hereby, and filing the Transaction Documents as
exhibits thereto. The Company and each Purchaser shall consult with each other
in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld or delayed,
except if such disclosure is required by law, in which case

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the disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the SEC or any regulatory agency or
Trading Market, without the prior written consent of such Purchaser, except (i)
as required by federal securities law in connection with (A) any registration
statement contemplated by the Registration Rights Agreement and (B) the filing
of final Transaction Documents (including signature pages thereto) with the SEC
and (ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under this clause (ii).

        (5) Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an “Acquiring Person” under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.

        (6) Non-Public Information. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it nor any other Person acting on
its behalf will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.

        (7) Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for its purchase of the FAD and shall not use
such proceeds for (a) the satisfaction of any portion of the Company’s debt
(other than payment of trade payables in the ordinary course of the Company’s
business and prior practices), (b) the redemption of any Common Stock or Common
Stock Equivalents or (c) the settlement of any outstanding litigation.

        (8) Indemnification of Purchasers. Subject to the provisions of this
Section F(8), the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
in any

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capacity, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents.

        (9) Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.

        (10) Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a Trading Market, and as
soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the Closing Date) to
list all of the Shares and Warrant Shares on such Trading Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Trading Market, it will include in such application all of the Shares and
Warrant Shares, and will take such other action as is necessary to cause all of
the Shares and Warrant Shares to be listed on such other Trading Market as
promptly as possible. The Company will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.

        (11) Equal Treatment of Purchasers. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the

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Transaction Documents. For clarification purposes, this provision constitutes a
separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the
Purchasers as a class and shall not in any way be construed as the Purchasers
acting in concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.

        (12) Subsequent Equity Sales.

          (a) The Company hereby agrees that, for a period of ninety (90) days
after effectiveness of the first Registration Statement (the “Effective Date”),
it shall not issue or sell any Common Stock of the Company, any warrants or
other rights to acquire Common Stock or any other securities that are
convertible into Common Stock, with the exception of issuances or sales related
to a strategic transaction, pursuant to the exercise of an option, warrant or
other right to acquire Common Stock outstanding as of the date of this
Agreement, or to an employee, director, supplier, lender or lessor, or any
option grant or issuance; provided, however, the 90 day period set forth in this
Section F(12) shall be extended for the number of Trading Days during such
period in which (i) trading in the Common Stock is suspended by any Trading
Market, or (ii) following the Effective Date, the Registration Statement is not
effective or the prospectus included in the Registration Statement may not be
used by the Purchasers for the resale of the Shares and Warrant Shares.

          (b) From the date hereof until such time as no Purchaser holds any of
the Securities, the Company shall be prohibited from effecting or entering into
an agreement to effect any Subsequent Financing involving a Variable Rate
Transaction. “Variable Rate Transaction” means a transaction in which the
Company issues or sells (i) any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the shares of Common Stock at any time after the
initial issuance of such debt or equity securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price. Any
Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages.

        (13) Other Registration Statements. Until forty-five (45) days following
effectiveness of the first Registration Statement, the Company shall not file
any other registration statements, other than the Registration Statement
contemplated hereby, any registration statement on Form S-8 or other appropriate
form related to securities issued or to be issued pursuant to any option or
other plan for the benefit of the Company’s employees, officers, directors or
consultants, or any registration statement filed on Form S-4 relating to
securities issued in connection with a merger or other acquisition; provided,
however, that nothing herein shall prohibit the Company from maintaining the
effectiveness of any currently outstanding registration statement filed by the

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Company under the Securities Act, including, without limitation, the filing of
post-effective amendments to such registration statements.

        (14) Maintenance of Listing. During the period any Securities issued
pursuant to the Offering Documents remain outstanding, the Company shall use its
best efforts to ensure the Company’s Common Stock is either quoted on the OTC
Bulletin Board, or listed for trading on a national securities exchange, in the
sole discretion of the Company. The Company and the Purchasers expressly agree
that the quotation of the Company’s Common Stock on the “pink sheets” shall not
be considered to satisfy the Company’s obligations pursuant to this covenant.

        (15) Form D; Blue Sky Filings. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.

        (16) Capital Changes. Until six months from the Closing, the Company
shall not undertake a reverse or forward stock split or reclassification of the
Common Stock without the prior written consent of the Purchasers holding a
majority in interest of the Shares.

        (17) Participation in Future Financing.

          (a) From the date hereof until the date that less than twenty-five
percent (25%) of the Warrants purchased hereunder by a given Purchaser (any such
Purchaser then holding more than 25% of the Warrants purchased hereunder, an
“Eligible Purchaser”) are outstanding, upon any issuance by the Company or any
of its Subsidiaries of Common Stock or Common Stock Equivalents for cash
consideration (a “Subsequent Financing”), each Eligible Purchaser shall have the
non-transferable right to participate in the Subsequent Financing up to an
amount that shall permit such Eligible Purchaser to beneficially own the same
percentage of the Company after such Subsequent Financing as before such
Subsequent Financing (the “Participation Maximum”) on the same terms, conditions
and price provided for in the Subsequent Financing. When determining the
Participation Maximum, such Eligible Purchaser’s beneficial ownership before the
Subsequent Financing shall be calculated by dividing the securities held by such
Eligible Purchaser on a fully diluted basis by the Company’s issued and
outstanding shares of Common Stock as reported in the last periodic SEC Report
and such Eligible Purchaser’s beneficial ownership immediately following the
Subsequent Financing shall be calculated by dividing the securities held by such
Eligible Purchaser on a fully diluted basis immediately following such
Subsequent Financing by the Company’s issued and outstanding shares of Common
Stock as reported in the last periodic SEC Report including any shares issued or
issuable in the Subsequent Financing on a fully diluted basis.

          (b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Eligible Purchaser a written notice
of its intention to

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  effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such
Eligible Purchaser if it wants to review the details of such financing (such
additional notice, a “Subsequent Financing Notice”).  Upon the request of an
Eligible Purchaser, and only upon a request by such Eligible Purchaser, for a
Subsequent Financing Notice, the Company shall promptly, but no later than 1
Trading Day after such request, deliver a Subsequent Financing Notice to such
Eligible Purchaser.  The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder and the Person or Persons through or
with whom such Subsequent Financing is proposed to be effected and shall include
a term sheet or similar document relating thereto as an attachment.   

          (c) Any Eligible Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than 5:30 p.m.
(New York City time) on the 5th Trading Day after all of the Eligible Purchasers
have received the Pre-Notice that the Eligible Purchaser is willing to
participate in the Subsequent Financing, the amount of the Eligible Purchaser’s
participation, and that the Eligible Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Eligible Purchaser as of such
5th Trading Day, such Eligible Purchaser shall be deemed to have notified the
Company that it does not elect to participate. 

          (d) If by 5:30 p.m. (New York City time) on the 5th Trading Day after
all of the Eligible Purchasers have received the Pre-Notice, notifications by
the Eligible Purchasers of their willingness to participate in the Subsequent
Financing (or to cause their designees to participate) is, in the aggregate,
less than the total amount of the Subsequent Financing, then the Company may
effect the remaining portion of such Subsequent Financing on the terms and with
the Persons set forth in the Subsequent Financing Notice.

          (e) The Company must provide the Eligible Purchasers with a second
Subsequent Financing Notice, and the Eligible Purchasers will again have the
right of participation set forth above in this Section 4.12, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not consummated
for any reason on the terms set forth in such Subsequent Financing Notice within
60 Trading Days after the date of the initial Subsequent Financing Notice.

          (f) Notwithstanding the foregoing, this Section E(17) shall not apply
in respect of (i) an Exempt Issuance or (ii) an underwritten public offering of
Common Stock.

        G. Miscellaneous

        (1) All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, singular or plural, as identity of the
person or persons may require.

        (2) Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest

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of (a) the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number set forth on the signature pages attached
hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number set forth on the signature pages
attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, (c) the 2nd Trading Day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as set forth
below in Section G(3) and on the signature pages attached hereto.

        (3) Any notice or other document required or permitted to be given or
delivered to the Purchasers shall be in writing and sent (a) by fax if the
sender on the same day sends a confirming copy of such notice by an
internationally recognized overnight delivery service (charges prepaid) or (b)
by an internationally recognized overnight delivery service (with charges
prepaid):

  (i)     if to the Company, at

  Derma Sciences, Inc.
214 Carnegie Center, Suite 300
Princeton, NJ 08540
Fax No.: (609) 514-8554
Attention: John E. Yetter, CPA

  or such other address as it shall have specified to the Purchaser in writing,
with a copy (which shall not constitute notice) to:

  Hedger & Hedger
2 Fox Chase Drive
P.O. Box 915
Hershey, PA 17033
Fax No.: (717) 534-9813
Attention: Raymond C. Hedger, Jr., Esq.

  (ii)     if to the Purchaser, at its address set forth on the signature page
to this Agreement, or such other address as it shall have specified to the
Company in writing, with a copy (which shall not constitute notice) to:

  Feldman Weinstein & Smith LLP
The Graybar Building
420 Lexington Avenue New York, NY 10170
Fax No.: (212) 401-4741
Attention: Robert Charron, Esq.

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        (4)     No provision of this Agreement may be waived or amended except
in a written instrument signed, in the case of an amendment, by the Company and
the Purchasers of at least 85% of the Shares still held by the Purchasers or, in
the case of a waiver, by the party against whom enforcement of any such waived
provision is sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right.

        (5)     This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of New York, as such laws are
applied by the New York courts to agreements entered into and to be performed in
New York by and between residents of New York, and shall be binding upon the
Purchaser, the Purchaser’s heirs, estate, legal representatives, successors and
assigns and shall inure to the benefit of the Company, its successors and
assigns. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.

        (6)     If any provision of this Agreement is held to be invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provisions hereof.

        (7)     The parties understand and agree that, unless provided otherwise
herein, money damages would not be a sufficient remedy for any breach of the
Agreement by the Company or the Purchaser and that the party against which such
breach is committed shall be entitled to equitable relief, including injunction
and specific performance, as a remedy for any such breach. Such remedies shall
not, unless provided otherwise herein, be deemed to be the exclusive

46

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remedies for a breach by either party of the Agreement but shall be in addition
to all other remedies available at law or equity to the party against which such
breach is committed.

        (8)     This Agreement, together with the agreements and documents
executed and delivered in connection with this Agreement, constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.

        (9)     The Company shall pay all Transfer Agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of any Securities
to the Purchasers.

        (10)     This Agreement shall be binding upon and inure to the benefit
of the parties and their successors and permitted assigns. The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Purchaser (other than by merger). Any Purchaser may
assign any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the “Purchasers.”

        (11)     This Agreement is intended for the benefit of the parties
hereto and their respective successors and permitted assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person,
except as otherwise set forth in Section F(8).

        (12)     The representations and warranties contained herein shall
survive the Closing and the delivery of the Shares and Warrant Shares.

        (13)     This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

        (14)     Notwithstanding anything to the contrary contained in (and
without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the

47

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Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights; provided, however, in the case of a
rescission of an exercise of a Warrant, the Purchaser shall be required to
return any shares of Common Stock delivered in connection with any such
rescinded exercise notice.

        (15)     If any certificate or instrument evidencing any Securities is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof (in the
case of mutilation), or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction. The applicant for a new certificate
or instrument under such circumstances shall also pay any reasonable third-party
costs (including customary indemnity) associated with the issuance of such
replacement Securities.

        (16)     To the extent that the Company makes a payment or payments to
any Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

        (17)     The obligations of each Purchaser under any Transaction
Document are several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the performance or
non-performance of the obligations of any other Purchaser under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Purchaser pursuant thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in their review
and negotiation of the Transaction Documents. Feldman Weinstein & Smith LLP does
not represent all of the Purchasers but only [LB I Group, Inc.] The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.

        (18)     The Company’s obligations to pay any partial liquidated damages
or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

        (19)     If the last or appointed day for the taking of any action or
the expiration of any right required or granted herein shall not be a Business
Day, then such action may be taken or such right may be exercised on the next
succeeding Business Day.

        (20)     The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

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        (21)     IN ANY ACTION, SUIT OR PROCEEDING IN ANY JURISDICTION BROUGHT
BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND
INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY
ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY
JURY.

         H.     Signature

 The signature page of this Agreement is contained as part of the applicable
subscription package, entitled “Signature Page”.

*******

49

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SIGNATURE PAGE

        The Purchaser hereby subscribes for such number of Shares as shall equal
the Subscription Amount as set forth below divided by the Offering Price, and
shall also receive a Warrant to purchase such number of shares of Common Stock
calculated as set forth in this Agreement, and agrees to be bound by the terms
and conditions of this Agreement.

PURCHASER

1.    Dated: ______________________, 2007

2.    Total Subscription Amount: $__________

Signature of Subscriber
(and title, if applicable)   Signature of Joint Purchaser
(if any)     Taxpayer Identification or Social
Security Number   Taxpayer Identification or Social
Security Number of Joint Purchaser (if any)     Name (please print as name will
appear
on stock certificate)         Number and Street         City, State
                                 Zip Code        

ACCEPTED BY:

DERMA SCIENCES, INC.
 
      By:         Edward J. Quilty
President and Chief Executive Officer       Dated:      

50

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Schedule A

Wire Transfer Instructions

  Bank: Bank of America     Bank Address: 301 Carnegie Center
Princeton, NJ 08540
Phone: (609) 987-3672     ABA No.: 0260-0959-3     For: Gallagher, Briody &
Butler Trust Account     Checking Account No.: 0999-111-892

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Schedule C(2)

Derma Sciences, Inc.

Capitalization Summary – Fully Diluted

September 30, 2007

  Common Stock        25,258,335     Preferred Stock        Series A Preferred
150,003         Series B Preferred 440,003         Series C Preferred 619,055  
      Series D Preferred 1,071,346       2,280,407     Warrants        Series G
Warrants 2,760,000         Series H Warrants 2,655,098         Series I Warrants
754,806       6,169,904     Stock Options        Stock Options – Vested
5,684,730         Stock Options – Unvested 1,033,750       6,718,480    
Restricted Stock        Restricted Stock – Unvested 175,000       175,000    
Total Stock – Fully Diluted      40,602,126  

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Exhibit A

Legal Matters

Hedger & Hedger shall deliver an opinion covering the following matters. The
opinion shall be subject to and include customary assumptions, limitations and
qualifications.

    1.        The Company is a corporation, validly existing and in good
standing under the laws of the State of Pennsylvania and has all requisite
corporate power and authority under the laws of the State of Delaware to conduct
its business as it is described in the Company’s Form 10-Q for the quarter ended
June 30, 2007 and Form 10-K for the fiscal year ended December 31, 2006 and to
enter into and perform its obligations under the Agreement.

    2.        The authorized capital stock of the Company consists of 50,000,000
shares of common stock, par value $.01 per share (the “Common Stock”), and
11,750,000 shares of preferred stock, par value $.01 per share (the “Preferred
Stock”).

    3.        The Shares have been duly authorized or reserved for issuance by
all necessary corporate action on the part of the Company; and the Shares, when
issued and delivered against payment therefore in accordance with the provisions
of the Agreement, will be validly issued, fully paid and non-assessable. The
Warrants have been duly authorized by all necessary corporate action on the part
of the Company, and the Warrant Shares have been duly reserved for issuance and,
when issued and delivered against payment therefore upon the due exercise of the
Warrants in accordance with the provisions thereof, will be validly issued,
fully paid and non-assessable shares of Common Stock.

    4.        The execution and delivery by the Company of the Agreement, and
the consummation by the Company of the transactions contemplated thereby, have
been duly authorized by all necessary corporate action on the part of the
Company. The Agreement constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
rights to indemnification and contribution thereunder may be limited by
applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors’ rights generally or by general equitable
principles.

    5.               The execution and delivery by the Company of the Agreement,
and the consummation by the Company of the transactions contemplated thereby, do
not (a) violate the provisions of any federal law of the United States of
America or the General Corporation Law of the State of Delaware applicable to
the Company; (b) violate the provisions of the Company’s Certificate of
Incorporation or By-laws; or (c) violate any existing obligation of the Company
under any judgment, decree, order or award of any court, governmental body or
arbitrator specifically naming the Company and of which we are aware, without
any inquiry; or (d) with or without notice and/or the passage of time, conflict
with or result in the material breach or termination of any material term or
provision of, or constitute a material default under, or cause any acceleration
of any material obligation under, or cause the creation of any material lien,

A-1

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charge or encumbrance upon the material properties or assets of the Company
pursuant to any contract or instrument in the form included as an exhibit to the
Company’s 2006 10-K and subsequent SEC Reports.

    6.        Assuming (a) the accuracy of the representations made by each
Purchaser in the Agreement; (b) that neither the Company, the Placement Agent
nor any person acting on behalf of either the Company or the Placement Agent has
offered or sold the Securities by any form of general solicitation or general
advertising within the meaning of Rule 502(c) of Regulation D promulgated (the
“Regulation D”) under the Securities Act; (c) that no offerings or sales of
securities of the Company after the date hereof in a transaction can be
“integrated” with any sales of the Securities; and (d) that each person or
entity that purchased securities of the Company directly from the Company or its
agents and without registration between the date six months prior to the Closing
of the Offering and the date of the Agreement was, as of the date of such
purchase, an “accredited investor” as defined in Rule 501 of Regulation D, the
sale of the Securities to the Purchasers at the Closing under the circumstances
contemplated by this Agreement are exempt from the registration and prospectus
delivery requirements of Section 5 of the Securities Act.

    7.        To our knowledge, without any inquiry (including, without
limitation, without any docket search or other inquiry), there is no action,
proceeding or litigation pending or threatened against the Company before any
court, governmental or administrative agency or body required to be described in
the Company’s Form 10-Q for each of the quarters ended March 31, 2007 and June
30, 2007 and the Company’s Form 10-K for the fiscal year ended December 31,
2006, which is not otherwise disclosed therein.

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Exhibit B

Form of Lock-Up Agreement

_________________, 2007

Oppenheimer & Co., Inc.
125 Broad Street
New York, NY 10004

Re: Derma Sciences, Inc. (the “Company”)

Ladies and Gentlemen:

The undersigned owns of record or beneficially certain shares of common stock,
par value $0.01 per share (“Common Stock”), of the Company or securities
convertible into or exchangeable or exercisable for Common Stock.

This letter is being delivered to you in connection with a private placement of
Common Stock and warrants (the “Warrants”) to purchase Common Stock (the
“Offering”) for which you have acted as placement agent. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for the
Company’s operations. The undersigned acknowledges that you are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering.

In consideration of the foregoing, and as a condition of the closing of the
Offering, the undersigned hereby agrees that the undersigned will not (and will
cause any spouse or minor child or immediate family member of the spouse or the
undersigned living in the undersigned’s household not to), without your prior
written consent (which consent may be withheld in your sole discretion),
directly or indirectly, sell, offer, contract or grant any option to sell
(including without limitation any short sale), pledge, transfer, or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock, or securities exchangeable or exercisable for or convertible into
shares of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) by the undersigned (or such spouse or minor child or family
member) (collectively, the “Undersigned’s Shares”), or publicly announce an
intention to do any of the foregoing, for a period commencing on the date hereof
and continuing though the later of (i) the date that is one hundred eighty (180)
days from the closing date of the Offering, or (ii) the date that is ninety (90)
days from the effective date of the registration statement filed under the
Securities Act of 1933, as amended, covering the resale of the Common Stock sold
in the Offering, including the shares of Common Stock issuable upon exercise of
the Warrants. The undersigned also agrees and consents to the entry of stop
transfer instructions with the

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Company’s transfer agent and registrar against the transfer of the Undersigned’s
Shares except in compliance with the foregoing restrictions.

Notwithstanding the foregoing, the undersigned may transfer the Undersigned’s
Shares (i) as a bona fide gift or gifts, provided that the donee or donees
thereof agree in writing to be bound by the restrictions set forth herein; or
(ii) to any trust for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned, provided that the trustee of the trust
agrees in writing to be bound by the restrictions set forth herein, and provided
further that any such transfer shall not involve a disposition for value. For
purposes of the foregoing, “immediate family” shall mean any relationship by
blood, marriage or adoption, not more remote than first cousin.

This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.

_____________________________________
Printed Name of Holder

_____________________________________
Signature of Holder

B-2

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Exhibit D

Selling Stockholder Questionnaire

To:   Derma Sciences Inc.
c/o [___________________]

  Attention: [___________]

        Reference is made to the Securities Purchase Agreement (the
"Agreement"), made between Derma Sciences Inc. a Pennsylvania corporation (the
"Company"), and the Purchasers noted therein.

        Pursuant to Section B(12) of the Agreement, the undersigned hereby
furnishes to the Company the following information for use by the Company in
connection with the preparation of the Registration Statement contemplated by
Section E of the Agreement.

  (1)   Name and Contact Information:

  Full legal name of record holder: Address of record holder:

  Social Security Number or Taxpayer identification number of record holder:
Identity of beneficial owner (if different than record holder): Name of contact
person:

  Telephone number of contact person: Fax number of contact person: E-mail
address of contact person:

  (2)   Beneficial Ownership of Registrable Securities:

  (a) Number of Registrable Securities owned by Selling Stockholder:

  (b) Number of Registrable Securities requested to be registered:

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  (3)   Beneficial Ownership of Other Securities of the Company Owned by the
Selling Stockholder:

  Except as set forth below in this Item (3), the undersigned is not the
beneficial or registered owner of any securities of the Company other than the
Registrable Securities listed above in Item (2)(a).

  Type and amount of other securities beneficially owned by the Selling
Stockholder:

  (4)   Relationships with the Company:

  Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (5% or more) has held any
position or office or has had any other material relationship with the Company
(or its predecessors or affiliates) during the past three years.

  State any exceptions here:

  (5)   Plan of Distribution:

  Except as set forth below, the undersigned intends to distribute pursuant to
the Registration Statement the Registrable Securities listed above in Item (2)
in accordance with the “Plan of Distribution” section set forth therein:

  State any exceptions here:

  (6)   Selling Stockholder Affiliations:

  (a) Is the Selling Stockholder a registered broker-dealer?

  (b) Is the Selling Stockholder an affiliate of a registered broker-dealer(s)?
(For purposes of this response, an “affiliate” of, or person “affiliated” with,
a specified person, is a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.)

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  (c) If the answer to Item (6)(b) is yes, identify the registered
broker-dealer(s) and describe the nature of the affiliation(s):

  (d) If the answer to Item (6)(b) is yes, did the Selling Stockholder acquire
the Registrable Securities in the ordinary course of business (if not, please
explain)?

  (e) If the answer to Item (6)(b) is yes, did the Selling Stockholder, at the
time of purchase of the Registrable Securities, have any agreements, plans or
understandings, directly or indirectly, with any person to distribute the
Registrable Securities (if yes, please explain)?

  (7)   Voting or Investment Control over the Registrable Securities:

  If the Selling Stockholder is not a natural person, please identify the
natural person or persons who have voting or investment control over the
Registrable Securities listed in Item (2) above:

        Pursuant to Section E(3) of the Agreement, the undersigned acknowledges
that the Company may, by notice to the Placement Agent and to each Purchaser at
its last known address, suspend or withdraw the Registration Statement and
require that the undersigned immediately cease sales of Registrable Securities
pursuant to the Registration Statement under certain circumstances described in
the Agreement. At any time that such notice has been given, the undersigned may
not sell Registrable Securities pursuant to the Registration Statement.

        The undersigned hereby acknowledges receipt of a draft of the
Registration Statement dated [ ], 2007 and confirms that the undersigned has
reviewed such draft including, without limitation, the sections captioned
“Selling Stockholders” and “Plan of Distribution,” and confirms that, to the
best of the undersigned’s knowledge, the same is true, complete and accurate in
every respect except as indicated in this Questionnaire. The undersigned hereby
further acknowledges that pursuant to Section B(12) of the Agreement, the
undersigned shall indemnify the Company and each of its directors and officers
against, and hold the Company and each of its directors and officers harmless
from, any losses, claims, damages, expenses or liabilities (including reasonable
attorneys fees) to which the Company or its directors and officers may become
subject by reason of any statement or omission in the Registration Statement
made in reliance upon, or in conformity with, a written statement by the
undersigned, including the information furnished in this Questionnaire by the
undersigned.

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        By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items (1) through (7) above and
the inclusion of such information in the Registration Statement, any amendments
thereto and the related prospectus. The undersigned understands that such
information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related
prospectus.

        The undersigned has reviewed the answers to the above questions and
affirms that the same are true, complete and accurate. THE UNDERSIGNED AGREES TO
NOTIFY THE COMPANY IMMEDIATELY OF ANY CHANGES IN THE FOREGOING INFORMATION.

Dated: _____________, 2007

  Signature of Record Holder
(Please sign your name in exactly the same
manner as the certificate(s) for the shares being
registered)

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Exhibit E

Plan of Distribution

        We are registering the shares offered by this prospectus on behalf of
the selling stockholders. The selling stockholders, which as used herein
includes donees, pledgees, transferees or other successors-in-interest selling
shares of common stock or interests in shares of common stock received after the
date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell,
transfer or otherwise dispose of any or all of their shares of common stock or
interests in shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These
dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices. To the extent any of
the selling stockholders gift, pledge or otherwise transfer the shares offered
hereby, such transferees may offer and sell the shares from time to time under
this prospectus, provided that this prospectus has been amended under Rule
424(b)(3) or other applicable provision of the Securities Act to include the
name of such transferee in the list of selling stockholders under this
prospectus.

        The selling stockholders may use any one or more of the following
methods when disposing of shares or interests therein:

  •   ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;

  •    block trades in which the broker-dealer will attempt to sell the shares
as agent, but may position and resell a portion of the block as principal to
facilitate the transaction;

  •   purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;

  •   an exchange distribution in accordance with the rules of the applicable
exchange;

  •   privately negotiated transactions;

  •   short sales;

  •    through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;

  •    broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;

E-1

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  •   a combination of any such methods of sale; and

  •   any other method permitted pursuant to applicable law.

        The selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock, from
time to time, under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.

        In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

        The aggregate proceeds to the selling stockholders from the sale of the
common stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering. Upon
any exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.

        The selling stockholders also may resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the Securities Act
of 1933, provided that they meet the criteria and conform to the requirements of
that rule.

        The selling shareholders might be, and any broker-dealers that act in
connection with the sale of securities will be, deemed to be “underwriters”
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by such broker-dealers and any profit on the resale of the securities
sold by them while acting as principals will be deemed to be underwriting
discounts or commissions under the Securities Act.

        To the extent required, the shares of our common stock to be sold, the
names of the selling stockholders, the respective purchase prices and public
offering prices, the names of any

E-2

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agents, dealer or underwriter, any applicable commissions or discounts with
respect to a particular offer will be set forth in an accompanying prospectus
supplement or, if appropriate, a post-effective amendment to the registration
statement that includes this prospectus.

        In order to comply with the securities laws of some states, if
applicable, the common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in some states the
common stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.

        We have advised the selling stockholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, we will make copies of this prospectus (as it may be supplemented
or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.

        We have agreed to indemnify the selling stockholders against
liabilities, including liabilities under the Securities Act and state securities
laws, relating to the registration of the shares offered by this prospectus.

        We have agreed with the selling stockholders to keep the registration
statement that includes this prospectus effective until the earlier of (1) such
time as all of the shares covered by this prospectus have been disposed of
pursuant to and in accordance with the registration statement or (2) the date on
which the shares may be sold pursuant to Rule 144(k) of the Securities Act.

E-3

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Exhibit F

ASSET PURCHASE AGREEMENT

        THIS ASSET PURCHASE AGREEMENT (herein, the “Agreement”) is made and
entered into this 8th day of November, 2007, by and among F.A. Products L.P., a
Delaware limited partnership (“FAP”), First Aid Products, Inc., a Delaware
corporation (“First Aid”), NutraMax Products, Inc., a Delaware corporation
(“NutraMax” and, together with FAP and First Aid, the “Sellers”), Derma First
Aid Products, Inc., a Pennsylvania corporation, (“Buyer”), and Derma Sciences,
Inc., a Pennsylvania corporation and the sole shareholder of Buyer (“Buyer
Parent”).

        WHEREAS, subject to the terms and conditions hereof, Sellers desire to
contribute, assign, transfer and deliver to Buyer, certain of their assets used
or useful exclusively in connection with the sale of the product lines of
Sellers’ first aid business division operated out of Houston, Texas that are set
forth on Exhibit A hereto (the “Business”), as more specifically set forth
herein; and

        WHEREAS, subject to the terms and conditions hereof, Buyer desires to
acquire from Sellers certain assets used or useful exclusively in connection
with the Business.

        NOW THEREFORE, in consideration of the premises, and of the mutual
covenants hereinafter contained, and other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:

SECTION 1.  DEFINITIONS.

        1.1 Definitions The following terms, as used herein, have the following
meanings:

        “Business Employees” means all employees of Sellers exclusively engaged
in the Business.

        “Business Intellectual Property” means those inventions (whether
patentable or unpatentable and whether or not reduced to practice), patents,
patent applications, trademarks, trademark applications, service marks,
formulas, trade dress, logos, slogans, trade names, packaging designs, internet
domain names, copyrightable works, copyrights, copyright registrations, trade
secrets, confidential information or other intellectual property used or held
for use by Sellers exclusively in the Business as currently conducted, which are
listed on Schedule 2.1(c).

        “Closing Date Working Capital” means the sum of the value of the
Purchased Inventory and the Purchased Accounts Receivable, minus the amount of
Assumed Accounts Payable.

        “Consent” means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).

        “Contractual Amount” means the dollar amount resulting from the sum of
(A) the product of (i) the total quantity of each SKU included on invoices for
products supplied by Infotex to Buyer under the Supply Agreement during any
period subsequent to the Closing Date

 

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multiplied by (ii) the unit price for each SKU set forth in the Supply Agreement
and (B) the product of (i) the total quantity of each SKU covered by the Supply
Agreement manufactured by Buyer in its United States manufacturing facilities
during such period multiplied by (ii) the unit price for each SKU set forth on
Schedule 1.1.

        “Environment” means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds and wetlands),
groundwaters, drinking water supply, stream sediments, ambient air, plant and
animal life, and any other environmental medium or natural resource.

        “Environmental Law” means any Legal Requirement that requires or relates
to pollution or protection of the Environment, natural resources or human health
or safety, including, without limitation, the use, generation, manufacture,
storage, transportation, treatment, disposal, Release, investigation, analysis
or remediation of any Hazardous Material.

        “GAAP” means United States generally accepted accounting principles.

        “Governmental Authorization” means any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by any Governmental Body or pursuant to any Legal Requirement.

        “Governmental Body” means any: (a) nation, state, county, city, town,
village, district, or other jurisdiction; (b) federal, state, local, municipal,
foreign, or other government; (c) governmental, or quasi-governmental, body
(including any governmental agency, branch, department, official, or entity and
any court or tribunal); (d) multi-national organization or body with authority
to issue and enforce Legal Requirements; or (e) body statutorily authorized to
exercise any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power.

        “Hazardous Materials” means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, and asbestos or asbestos-containing materials, and including,
without limitation, any such materials contained in tanks, vessels or other
containers.

      “Infotex” means Infotex Enterprise Ltd., Inc.

        “Landlord” shall mean NUTRA (TX) QRS 12-39, INC., a Texas corporation.

        “Lease” shall mean the Lease Agreement, by and between Landlord and
Buyer, in the form attached hereto as Exhibit B.

        “Legal Requirement” means any enforceable federal, state, local,
municipal, foreign, international, multinational, or other administrative order,
constitution, law, rule, ordinance, principle of common law, regulation,
statute, treaty or other law adopted, enacted, implemented or promulgated by or
under the authority of any Governmental Body or by the eligible voters of any
jurisdiction and any enforceable agreement, approval, Consent, injunction,
judgment,

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license, Order, or permit by or with any Governmental Body or to which any
Seller is a party or by which any Seller or any of the Purchased Assets is
bound.

        “Lien” means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, restriction or encumbrance of any kind in respect of
such asset.

        “Material Adverse Change” means a material adverse change in the
Business, except for any such change resulting from (i) this Agreement, the
transactions contemplated hereby or the announcement thereof or (ii) changes in
general economic or political conditions or the securities markets in general.

        “Material Adverse Effect” means a material adverse effect on the
Business, except for any such effect resulting from (i) this Agreement, the
transactions contemplated hereby or the announcement thereof or (ii) changes in
general economic or political conditions or the securities markets in general.

        “Material Adverse Effect on Buyer or Buyer Parent” means a material
adverse effect on Buyer or Buyer Parent’s respective businesses, except for any
such effect resulting from (i) this Agreement, the transactions contemplated
hereby or the announcement thereof or (ii) changes in general economic or
political conditions or the securities markets in general.

        “Order” means any award, decision, injunction, judgment, order, ruling,
subpoena or verdict entered, issued, made, or rendered by any Governmental Body
or by any arbitrator or mediator in a legally binding arbitration or mediation,
the results of which are enforceable.

        “Person” means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, sole proprietorship, trust, association, organization, labor
union, or other entity or Governmental Body.

        “Performance Standard” shall mean the manufacture and delivery by
Infotex of materially all of the products ordered by Buyer in the ordinary
course of business, which for the purposes of this Agreement shall be deemed to
be the manufacture and shipment by Infotex of no more than eighty percent (80%)
of the commercially reasonable volume of products ordered by Buyer within sixty
(60) days of the placement of the order by Buyer; provided, that (A) Buyer
provides forecasts in accordance with the terms of the Supply Agreement; (B) the
incoming order rate by SKU does not exceed the forecasted demand by more than
five percent (5%); and (C) all new items, new SKUs and/or new customers allow
for pipeline fill.

        “Proceeding” means any claim, action, audit, charge, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative or
investigative) commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Body or any arbitrator or mediator in a
legally binding arbitration or mediation, the results of which are enforceable.

        “Release” means any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or releasing of Hazardous Materials
into the Environment, whether intentional or unintentional.

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        “SKU” means the set of merchandise inventory to which a single stock
number is assigned and utilized for tracking.

        “Supply Agreement” shall mean that certain Supply Agreement, dated as of
July 15, 2005, by and between NutraMax and Infotex, as amended on October 31,
2007, a copy of which is attached hereto as Exhibit C; provided, however, that
all references to the Supply Agreement related to any post-Closing period shall
mean the Supply Agreement as assigned to Buyer.

        “Tax” and “Taxes” means any federal, state, local, foreign and other
taxes, including, without limitation, income taxes, estimated taxes, alternative
minimum taxes, excise taxes, sales taxes, use taxes, value-added taxes, gross
receipts taxes, franchise taxes, capital stock taxes, employment and
payroll-related taxes, withholding taxes, stamp taxes, transfer taxes, windfall
profit taxes, environmental taxes and property taxes, whether or not measured in
whole or in part by net income, and all deficiencies, or other additions to tax,
interest, fines and penalties.

        “Threatened” means, with regard to any Proceeding, that a demand has
been made (orally or in writing) or notice has been given (orally or in
writing), and with regard to any Release or noncompliance with or violations of
Environmental Law, that an event has occurred that would reasonably lead a
prudent Person to conclude that a Proceeding would reasonably be expected to be
asserted, commenced, taken, or otherwise pursued in the future.

        “WARN” means the Worker Adjustment and Retraining Notification Act.

SECTION 2.  SALE AND PURCHASE.

        2.1 Purchased Assets. Subject to the provisions of this Agreement, at
the Closing (as defined in Section 4 hereof) Sellers shall sell, transfer and
assign to Buyer all right, title and interest in and to the following assets,
properties, interests and business of Sellers owned, used or held for use
exclusively in the operations of the Business as currently conducted (except for
the Excluded Assets, as defined in Section 2.2) (collectively, the “Purchased
Assets”):

        (a)     The raw material and packaging inventory used in ongoing
production, and the work in process and finished first aid product inventory of
the Business (including finished first aid product inventory in transit from
suppliers and inventory for which advance payments have been made prior to
Closing), provided such inventory is usable within 180 days in the ordinary
course of business (collectively, the “Purchased Inventory”);

        (b)     Sellers’ current customer lists used or held for use by Sellers
exclusively in the operation of the Business as currently conducted (the
“Customer Lists”);

        (c)     Sellers’ right, title and interest in and to the Business
Intellectual Property listed on Schedule 2.1(c);

        (d)     Sellers’ right, title and interest in and to the Fixed Assets
listed on Schedule 2.1(d) (collectively, the “Fixed Assets”);

        (e)     Sellers’ right, title and interest in and to the contracts and
agreements which are listed on Schedule 2.1(e) (the “Transferred Contracts”);

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        (f)     The accounts receivable of Sellers that are deemed collectible
by Buyer and are less than ninety (90) days past due, a listing of which is
contained on Schedule 2.1(f) (the “Purchased Accounts Receivable”); and

        (g)     Sellers’ right, title and interest in and to any records,
management reports, studies and all other corporate and financial books and
records specifically relating to the Business, the marketing of its products and
prospective and lost customers.

        2.2 Excluded Assets. Notwithstanding anything to the contrary in Section
2.1 or elsewhere in this Agreement, expressly excluded from the sale to Buyer
are all of Sellers’ assets other than those set forth in Section 2.1 (the
“Excluded Assets”), including but not limited to the following assets:

        (a)     all assets of Sellers not used or held for use exclusively in
connection with the Business, including the assets used or held for use in the
operation of Sellers’ other businesses, including without limitation, the chew
supplement business and cough/cold product business and any assets used or held
for use in connection with Sellers’ oral care products business;

        (b)     all of Sellers’ cash, cash equivalents, deposits and bank
accounts;

        (c)     inventory of Sellers other than the Purchased Inventory;

        (d)     any rights or claims of Sellers under any intercompany
receivables, obligations, agreements or arrangements relating to the Business
between or among Sellers and any subsidiary or affiliate of Sellers;

        (e)     all corporate and financial books and records of Sellers and all
of Sellers’ contracts and policies of insurance (other than those relating to
the Business that are included in the Purchased Assets); and

        (f)     accounts receivable of Sellers other than the Purchased Accounts
Receivable.

        2.3 Liabilities.

        (a)     Buyer shall assume at the Closing (i) certain trade payables of
the Sellers identified on an accounts payable listing prepared by Sellers and
attached hereto as Schedule 2.3(a) (the “Assumed Accounts Payable”) and (ii)
obligations of Sellers under the Transferred Contracts, but only to the extent
such obligations arise after the Closing Date and do not arise from or relate to
any breach by the Sellers of any provision of any of the Transferred Contracts;
and (iii) the obligations expressly assumed under Section 9 (collectively, the
“Assumed Liabilities”).

        (b)    Except for the Assumed Liabilities, and subject to Buyer’s
indemnification obligations under Section 12.3, Buyer shall not assume or be
bound by any obligations or liabilities of Sellers of any kind or nature
whatsoever, whether known, unknown,

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accrued, absolute, contingent or otherwise, now existing or hereafter arising
(the “Excluded Liabilities”).

SECTION 3.  PURCHASE PRICE.

        3.1 Purchase Price. The purchase price for the Purchased Assets (the
“Purchase Price”), subject to adjustment pursuant to Section 3.2, shall be the
cash amounts to be delivered as described below, reduced by amounts paid by
Buyer to Sellers at the Closing with respect to the Non-Competition and
Non-Solicitation Agreement to be entered into between the parties on the date
hereof in substantially the form attached hereto as Exhibit D (the
“Non-Competition Agreement”). The Purchase Price shall include:

        (a)     an amount equal to Ten Million, Two Hundred Fifty Thousand
Dollars ($10,250,000) (the “Cash Purchase Price”) paid by wire transfer in
immediately available funds at Closing to an account designated by FAP;

        (b)     an amount equal to Seven Hundred Fifty Thousand Dollars
($750,000) (the “Indemnification Escrow Amount”) shall be placed into escrow in
respect of any further adjustments that may be made pursuant to Section 3.2(e)
and with respect to any Claims made by the Buyer Indemnified Parties under
Section 12 on or before the first anniversary of the Closing Date, all in
accordance with the terms of an agreement in substantially the form attached
hereto as Exhibit E (the “Escrow Agreement”);

        (c)     an amount equal to Two Million Dollars ($2,000,000) (the “Supply
Agreement Escrow Amount”) shall be placed into escrow and released in accordance
with the provisions of Section 3.3 and pursuant to the procedures set forth in
the Escrow Agreement; and

        (d)     an amount equal to the Bonus Payment Amount as calculated
pursuant to Section 3.3(b).

        3.2  Working Capital Adjustment.

        (a)     The Purchase Price shall be (i) increased dollar for dollar to
the extent the Closing Date Working Capital exceeds $4,500,000 and (ii)
decreased dollar for dollar to the extent the Closing Date Working Capital is
less than $4,300,000.

        (b)     Sellers and Buyer shall cooperate to conduct a physical
inventory of the Purchased Inventory. The inventory shall be taken three (3)
business days before the Closing Date or at such time as is reasonably and
mutually convenient for Buyer or its accountants to observe such taking of
inventory.

        (c)     Within forty-five (45) days after the Closing Date, Sellers
shall prepare and deliver to Buyer a closing statement calculating the Closing
Date Working Capital (the “Closing Statement”). For purposes of this Agreement,
the Purchased Inventory value shall be calculated at the agreed values set forth
on Schedule 3.2(c); provided, however, that the fixed overhead allocation
related to the Purchased Inventory shall not exceed the lesser of (i) $625,000
and (ii) 18.5% of the Purchased Inventory.

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        (d)     Sellers shall provide Buyer and its accountants and legal
counsel with reasonable information, and access to books and records of Sellers,
related to the calculation of Closing Date Working Capital set forth on the
Closing Statement, for forty five (45) days after receipt of the Closing
Statement. Unless Buyer delivers the Dispute Notice within forty five (45) days
after receipt of the Closing Statement, such Closing Statement shall be deemed
the “Final Closing Statement,” shall be binding upon all parties and shall not
be subject to dispute or review. If Buyer disagrees with the Closing Statement,
Buyer shall, within forty five (45) days after receipt thereof, notify Sellers
in writing (the “Dispute Notice”), which Dispute Notice shall provide reasonable
detail of the nature of each disputed item on the Closing Statement. Buyer and
Sellers shall first use commercially reasonable efforts to resolve such dispute
among themselves and, if the parties are able to resolve such dispute, the
Closing Statement shall be revised to the extent necessary to reflect such
resolution, shall be deemed the “Final Closing Statement” and shall be
conclusive and binding upon all parties and shall not be subject to dispute or
review. If the parties are unable to resolve the dispute within thirty (30) days
after the Sellers’ receipt of the Dispute Notice, the parties shall submit the
dispute to Grant Thornton LLP at such firm’s New York City office (the
“Accountants”). Each of Buyer, FAP, First Aid and NutraMax represents and
covenants that the Accountants are not currently engaged and are not expected to
be engaged to perform services for it or any of its affiliates (as hereinafter
defined). The Accountants shall act as experts and not arbiters and shall
determine only those items in dispute on the Closing Statement. Promptly, but no
later than thirty (30) days after engagement, the Accountants shall deliver a
written report to Buyer and Sellers as to the resolution of the disputed items
and the resulting calculation of the Closing Statement. The Closing Statement as
determined by the Accountants shall be deemed the “Final Closing Statement,” and
shall be conclusive and binding upon all parties and shall not be subject to
dispute or review. The fees and expenses of the Accountants in connection with
the resolution of disputes pursuant to this Section 3.2 shall be borne one-half
by Buyer and one-half by Sellers. If the Closing Working Capital exceeds
$4,500,000, Buyer shall pay the difference to FAP within five (5) days of the
delivery of the Final Closing Statement. If the Closing Working Capital is less
than $4,300,000, the Escrow Agent shall release the difference to Buyer pursuant
to the Escrow Agreement.

        3.3  Supply Agreement Escrow Amount Release.

        (a)     As soon as reasonably practicable, but in any event within forty
five (45) days after each of the dates that are three months, six months, nine
months, and twelve months from the Closing Date, Buyer shall prepare, and
provide to Sellers, a schedule (each, a “Supply Schedule”) calculating the
amount invoiced by Infotex to Buyer for products supplied to Buyer under the
Supply Agreement during the three month period then ended (the “Invoiced
Amount”), the cost of any products covered by the Supply Agreement but
manufactured in Buyer’s United States manufacturing facilities during the three
month period then ended, calculated by Buyer in accordance with GAAP (the
“Manufacturing Cost” and, together with the Invoiced Amount, the “Buyer’s Total
Cost”), and the calculation of the Contractual Amount. Each Supply Schedule
shall provide reasonable detail of the calculation of the Invoiced Amount, the
Manufacturing Cost and the Contractual Amount, including detail by SKU. If Buyer
claims that Infotex has not met the Performance Standard, each Supply Schedule
shall also provide reasonable detail documenting such noncompliance. Buyer shall
provide Sellers and their accountants and legal counsel with reasonable
information, and access to books and records of Buyer related to the preparation
of the Supply Schedule for fifteen (15) days after receipt of

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each Supply Schedule. Unless Sellers deliver a Supply Dispute Notice within
fifteen (15) days after receipt of a Supply Schedule, such Supply Schedule shall
be deemed a “Final Supply Schedule,” shall be binding upon all parties and shall
not be subject to dispute or review. If Sellers disagree with the Supply
Schedule, Sellers shall, within fifteen (15) days after receipt thereof, notify
Buyer in writing (a “Supply Dispute Notice”), which Supply Dispute Notice shall
provide reasonable detail of the nature of each disputed item on the Supply
Schedule. Buyer and Sellers shall first use commercially reasonable efforts to
resolve such dispute among themselves and, if the parties are able to resolve
such dispute, the Supply Schedule shall be revised to the extent necessary to
reflect such resolution, shall be deemed the “Final Supply Schedule” and shall
be conclusive and binding upon all parties and shall not be subject to dispute
or review. If the parties are unable to resolve the dispute within thirty (30)
days after the Buyer’s receipt of the Supply Dispute Notice, the parties shall
submit the dispute to the Accountants. The Accountants shall act as experts and
not arbiters and shall determine only those items in dispute on such Supply
Schedule. Promptly, but no later than thirty (30) days after engagement, the
Accountants shall deliver a written report to Buyer and Sellers as to the
resolution of the disputed items and the resulting calculation of the Supply
Schedule. The Supply Schedule as determined by the Accountants shall be deemed
the “Final Supply Schedule,” and shall be conclusive and binding upon all
parties and shall not be subject to dispute or review. The fees and expenses of
the Accountants in connection with the resolution of disputes pursuant to this
Section 3.3 shall be borne one-half by Buyer and one-half by Sellers.

        (i)     If the Buyer’s Total Cost is less than or equal to 105% of the
Contractual Amount for such three-month period, and the Performance Standard has
been met, an amount equal to $500,000, plus interest on such amount at a rate of
6% per annum calculated from the Closing Date until the date that the payment is
actually made, shall be released, within five (5) days of the delivery of the
Supply Schedule by Buyer, to NutraMax from the Supply Agreement Escrow Amount in
accordance with the procedures set forth in the Escrow Agreement.

        (ii)     If the Buyer’s Total Cost is greater than 105% but less than
110% of the Contractual Amount for such three-month period, and the Performance
Standard has been met, an amount equal to the product of (i) $500,000, plus
interest on such amount at a rate of 6% per annum calculated from the Closing
Date until the date that the payment is actually made, multiplied by (ii) one(1)
minus a fraction, (A) the numerator of which shall be the excess of the Invoiced
Amount over one hundred five percent (105%) of the Contractual Amount and (B)
the denominator of which shall be five percent (5%) of the Contractual Amount
shall be released, within five (5) days of the delivery of the Final Supply
Schedule by Buyer, to NutraMax from the Supply Agreement Escrow Amount in
accordance with the procedures set forth in the Escrow Agreement. To the extent
that the amount released to NutraMax under this Section 3.3(a)(ii) is less than
$500,000, the balance of the $500,000 shall be released to the Buyer.

By way of example, if the Buyer’s Total Cost for a three-month period is
$107,500 and the Contractual Amount for the same three-month period is $100,000,
the amount to be released to NutraMax shall be calculated as ($500,000) *
[1-($2500/$5000)] = ($500,000) * (0.5) = $250,000, plus interest on such amount
at a rate of 6% per annum calculated from the Closing Date until the date that
the payment is actually made.

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        (iii)     If the Buyer’s Total Cost is greater than 110% of the
Contractual Amount for such three-month period pursuant to a Final Supply
Schedule, an amount equal to $500,000 shall be released to Buyer from the Supply
Agreement Escrow Amount in accordance with the procedures set forth in the
Escrow Agreement.

        (b)     As soon as reasonably practicable after the first anniversary of
the Closing Date, but in any event within forty five (45) days thereof, Buyer
shall prepare, and provide to Sellers, a Supply Schedule calculating the Buyer’s
Total Cost for the twelve-month period then ended. The Supply Schedule provided
under this Section 3.3(b) shall be subject to the review and dispute procedures
set forth in Section 3.3(a).

        (i)     If the Buyer’s Total Cost is less than or equal to 101% of the
Contractual Amount for such twelve-month period, and the Performance Standard
has been met (over such twelve month period), Buyer shall pay to NutraMax,
within five (5) days of the delivery of the Supply Schedule by Buyer, an amount
equal to $500,000, by wire transfer in immediately available funds to an account
designated by NutraMax. If the Buyer’s Total Cost is greater than 101% of the
Contractual Amount for such twelve-month period pursuant to a Final Supply
Schedule, or if the Performance Standard has not been met (over such twelve
month period), no additional payment shall be made by Buyer to any Seller
hereunder.

Any payment to Seller under this Section 3.3(b) shall be deemed a “Bonus Payment
Amount”.

        (c)     Notwithstanding acceptance of any payment under Section
3.3(a)(ii) hereunder, Sellers shall be entitled to dispute the amount of any
such payment and the accuracy of any Supply Schedule.

        (d)     For the twelve-month period subsequent to the Closing Date,
Buyer and Buyer Parent shall act in good faith in their dealings with Infotex
and shall take no actions, including but not limited to materially breaching the
Supply Agreement, that would reasonably be expected to harm their relationship
with Infotex or cause Infotex to raise the prices at which it provides products
to Buyer. Should Infotex attempt to raise such prices, or if Buyer believes in
good faith that the Performance Standard is in jeopardy of not being met for any
three month period, Buyer shall immediately notify NutraMax, and Sellers shall
have the right to participate in negotiations with Infotex in connection with
such proposed price increases or such claimed nonperformance. At any time after
ten (10) days following the date of such notice to NutraMax, nothing herein
shall preclude Buyer from accepting products from Infotex at higher prices if a
failure to accept such products would have a Material Adverse Effect; provided,
however, that nothing in this Section 3.3(d) shall relieve Buyer and Buyer
Parent of their duty hereunder to pursue all remedies reasonably available to
them in order to enforce the terms of the Supply Agreement, including but not
limited to the price terms set forth on Addendum A to Amendment One to the
Supply Agreement, and any relief granted to the Buyers pursuant to such remedies
shall be taken into account in calculating the relevant Invoiced Amount. In
addition, Buyer shall use commercially reasonable efforts to purchase supplies
from Infotex in preference to manufacturing products in its United States
manufacturing facility during the twelve month period subsequent to the Closing
Date and shall not make any decision to manufacture products in its United
States manufacturing facility with the primary intent of avoiding any payment to
NutraMax pursuant to this Section 3.3. Upon a material breach by Buyer of its
obligations under

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this Section 3.3(d), (i) the entire remaining balance of the Supply Agreement
Escrow Amount, plus interest on such amount at a rate of 6% per annum calculated
from the Closing Date until the date that the payment is actually made, shall
immediately be released to NutraMax in accordance with the procedures set forth
in the Escrow Agreement and (ii) the maximum Bonus Payment Amount shall become
immediately payable to NutraMax as set forth in Section 3.2(b).

        (e)     Any dispute as to whether Infotex has met the Performance
Standard under the Supply Agreement shall be submitted to the American
Arbitration Association for resolution in accordance with its rules in effect at
that time. The decision of the arbitrator(s) shall be final and judgment upon
the award rendered may be entered in any court having jurisdiction hereof. The
costs of the arbitration shall be split equally between the parties. The parties
shall pay their own respective legal expenses.

SECTION 4.  CLOSING.

        The closing of the purchase and sale provided for in this Agreement (the
“Closing”) shall be held at the offices of Goodwin Procter LLP, Exchange Place,
53 State Street, Boston, Massachusetts 02109 (or via courier or facsimile or
other electronic transmission), on the date hereof (the “Closing Date”).

SECTION 5.  ALLOCATION OF PURCHASE PRICE.

        Buyer and Sellers hereby agree that the Purchase Price shall be
allocated among the Purchased Assets in accordance with the allocation
statement, the form of which is attached hereto as Schedule 5 (the “Tax
Allocation Statement”) to be prepared by Buyer and delivered to Sellers at
Closing, provided that Sellers shall have the right to review the Tax Allocation
Statement prior to the Closing Date, which reflects the allocation methodology
required by Section 1060 of the Internal Revenue Code of 1986, as amended (the
“Code”), and the rules and regulations thereunder. Such allocation shall be
binding upon Buyer and Sellers for all tax reporting purposes. At or as soon as
practicable after the Closing, Buyer and Sellers shall execute IRS Forms 8594 in
accordance with the allocation set forth in the Tax Allocation Statement and in
compliance with Section 1060 of the Code and the rules and regulations
thereunder. All tax returns and reports filed by Buyer and Sellers with respect
to the transactions contemplated by this Agreement shall be consistent with the
Tax Allocation Statement.

SECTION 6.  REPRESENTATIONS AND WARRANTIES OF SELLERS.

        Except as set forth in the disclosure schedules (the “Schedules”) dated
as of the date hereof and delivered herewith to Buyer and Buyer Parent, Sellers
hereby severally and jointly represent and warrant to Buyer and Buyer Parent as
of the date hereof:

        6.1 Good Standing.

        (a)     NutraMax is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.

        (b)     First Aid is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.

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        (c)     FAP is a limited partnership validly existing and in good
standing under the laws of the State of Delaware with all powers and all
governmental licenses, authorizations, consents and approvals required to carry
on the Business as now conducted.

        6.2 Authorization. NutraMax, First Aid and FAP have full right, power
and authority to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by them pursuant to or as contemplated
by this Agreement and to carry out the transactions contemplated hereby and
thereby. The execution, delivery and performance by NutraMax, First Aid and FAP
of this Agreement and each such other agreement, document and instrument has
been duly authorized by all necessary action of NutraMax, First Aid and FAP, and
no other action on the part of NutraMax, First Aid or FAP is required in
connection therewith. This Agreement and each agreement, document and instrument
to be executed and delivered by NutraMax, First Aid and/or FAP pursuant to or as
contemplated by this Agreement constitutes or will, when executed and delivered
by NutraMax, First Aid or FAP, as applicable, constitute valid and binding
obligations of NutraMax, First Aid or FAP, as applicable, enforceable in
accordance with their respective terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
rights of creditors generally and subject to the rules of law governing (and all
limitations on) specific performance, injunctive relief and other equitable
remedies.

        6.3 Title. Sellers have, and shall convey to Buyer at Closing, good and
marketable title to all of the Purchased Assets, free and clear of any and all
Liens.

        6.4 Litigation. Except as set forth on Schedule 6.4, there is no
litigation, claim, investigation, action, suit or proceeding pending or, to the
knowledge of any Seller, Threatened against any Seller or any affiliate of
Sellers relating to or affecting any of the Purchased Assets or the Business
which would prevent or hinder the consummation of the transactions contemplated
by this Agreement.

        6.5 Non-Contravention. The execution, delivery and performance by
NutraMax, First Aid and FAP of this Agreement and each such other agreement,
document and instrument hereunder to which NutraMax, First Aid and/or FAP is a
party and the consummation of the transactions contemplated hereby and thereby,
do not and will not (i) contravene or violate any provision of the charter,
bylaws or other organizational document of NutraMax, First Aid or FAP, (ii)
contravene or conflict with any provision of any law, regulation, judgment,
injunction, order, permit or decree binding upon or applicable to Sellers or the
Business, except as would not reasonably be expected to have a Material Adverse
Effect; or (iii) assuming the receipt of all the consents set forth on Schedule
6.7, constitute a default (with or without notice or lapse of time, or both)
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Sellers relating to the Business to which Sellers are
entitled under any provision of any material agreement, contract or other
instrument binding upon any Seller.

        6.6 Compliance with Law. Sellers’ operation of the Business is and has
been conducted in material compliance with all Legal Requirements including,
without limitation, the Foreign Corrupt Practices Act, except for any actual or
Threatened violations that have not had or could not reasonably be expected to
have, or to have had, individually or in the aggregate, a Material Adverse
Effect.

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        6.7 Consents. Except as set forth on Schedule 6.7, no approval, consent,
authorization or exemption from or filing with any person or entity is required
to be obtained or made by any Seller in connection with the execution and
delivery of this Agreement and each other agreement, document or certificate
required to be delivered by Sellers hereunder and the consummation of the
transactions contemplated hereby.

        6.8 Customers.

        (a)     Schedule 6.8(a) includes all of the unfilled or open customer
purchase orders relating exclusively to the Business as of the Closing Date and
each has been entered into in the ordinary course of business by Sellers and is
valid and in full force and effect, and neither any Seller nor, to Sellers’
knowledge, any customer is in default of its obligations thereunder.

        (b)     Schedule 6.8(b) lists the customers (“Material Customers”) of
Sellers with respect to the Business for the twelve (12) month period ended
September 30, 2007 that comprise at least 80% of the revenues of the Business
and sets forth opposite the name of each such Material Customer the gross sales
to each such Material Customer for the twelve (12) month period ended September
30, 2007 and the payment terms offered to each such Material Customer. Except as
set forth on Schedule 6.8(b), no Material Customer has advised any Seller that
it intends to cease purchasing or materially decrease the dollar amount of
purchases it makes from such Seller.

        6.9 Vendors. Schedule 6.9 lists the ten (10) largest ongoing vendors of
the Sellers with respect to the Business (the “Material Vendors”) based on
amounts paid by the Sellers to such Material Vendor for the twelve (12) month
period ended September 30, 2007. Schedule 6.9 sets forth opposite the name of
each Material Vendor the amount paid by the Sellers to such Material Vendor over
such twelve (12) month period for materials, products or services provided to
the Sellers with respect to the Business.

        6.10 Fixed Assets. The Fixed Assets have been maintained in accordance
with Sellers’ past practices and are in a sufficient condition for Buyer to
operate such Fixed Assets as currently operated by Sellers on the date hereof.

        6.11 Sales Register. The sales summary for the Business by product and
by customer for the calendar years 2005 and 2006 and for the nine (9) month
period ended September 30, 2007 set forth on Schedule 6.11 fairly presents in
all material respects gross sales dollars for the Business.

        6.12 Business Intellectual Property.

        (a)     Except as set forth in Schedule 2.1(c), each item of the
Business Intellectual Property set forth on Schedule 2.1(c) is either: (i) owned
solely by Sellers free and clear of any Liens, license or other restriction; or
(ii) rightfully used and authorized for use by Sellers and their successors
pursuant to a valid license, sublicense, agreement or permission. Sellers have
all rights in the Business Intellectual Property necessary to conduct the
Business as currently conducted.

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        (b)    Schedule 2.1(c) identifies all the Business Intellectual Property
owned by the Sellers and each license, agreement, or other permission that the
Sellers have granted to any third party with respect to any of the Business
Intellectual Property (together with any exceptions). The Sellers have delivered
to Buyer correct and complete copies of all such registrations, applications,
licenses, sublicenses, agreements and permissions (as amended to date). Schedule
2.1(c) also identifies each material item of Business Intellectual Property that
any third party owns and that any Seller uses pursuant to a license, sublicense,
agreement, or permission. The Sellers have delivered to Buyer correct and
complete copies of all such licenses, sublicenses, agreements, and permissions
(as amended to date). With respect to each item of Business Intellectual
Property identified on Schedule 2.1(c): (i) no Seller is in violation in any
material respect of any license or other agreement to which such Seller is a
party or otherwise bound relating to any of the Business Intellectual Property;
(ii) none of the Business Intellectual Property is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; (iii) no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand is
pending or, to the knowledge of Seller, is threatened that challenges the
legality, validity, enforceability, use, or ownership of the Business
Intellectual Property; and (iv) no Seller has agreed to indemnify any Person for
or against any interference, infringement, misappropriation, or other conflict
with respect to the Business Intellectual Property.

        (c)     To Sellers’ knowledge, each Seller’s current use of the Business
Intellectual Property does not infringe upon any other Person’s copyright, trade
secret rights, patent, trademark, service mark or other intellectual property
right. Except as set forth in Schedule 6.4, no claims or demands have been
asserted in writing against any Seller by any Person (i) challenging the
validity, enforceability, effectiveness or ownership by any Seller of any of the
Business Intellectual Property or (ii) to the effect that any Seller’s current
use, reproduction, modification, manufacture, distribution, licensing, sale, or
any other exercise of rights in any of the Business Intellectual Property,
interferes, infringes, misappropriates or violates any intellectual property
right of any Person.

(d)     To Sellers’ knowledge, no Person is interfering, infringing,
misappropriating or violating any of Sellers’ rights in and to the Business
Intellectual Property.

        6.13 Absence of Certain Changes. Since March 31, 2007, each Seller has
conducted the Business only in the ordinary course and consistent with past
practices, and there has not been any:

        (a)     Material Adverse Change,

        (b)     damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the Purchased Assets and/or the
Business; or

        (c)     any acceleration of any sales to any customer of the Business in
anticipation of the Closing Date.

        6.14 Product Warranty. The Purchased Inventory has been manufactured in
conformity with applicable contractual commitments, and no Seller has a material
liability for replacement or repair thereof or other damages in connection
therewith. No product

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manufactured, sold, leased, or delivered by any Seller which is included in the
Purchased Assets is subject to any guaranty, express warranty or other
indemnity.

        6.15 Product Liability. Neither the Sellers nor any of their
subsidiaries have any liability arising out of any injury to individuals or
property as a result of the manufacture, sale, possession or use of any
inventory sold by them in connection with the Business and, to Sellers’
knowledge, there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any such liability. The Sellers have maintained product liability
insurance for at least the last five (5) years and agree to continue such
coverage or purchase an extended reporting period for any claims arising out of
events occurring before the Closing.

        6.16 Product Recalls. To Sellers’ knowledge there have been no product
recalls, withdrawals, off-sale orders, warning letters or seizures with respect
to any products or items included in the Purchased Inventory.

        6.17 Broker/Finder’s Fees. No Seller has incurred or become liable for
any broker’s commission or finder’s fee relating to or in connection with the
transactions contemplated by this Agreement.

        6.18 Inventory. All of the Purchased Inventory (a) is not obsolete and
of a suitable quality for sale in the ordinary course of the Business (b) is at
levels consistent with past practice, and (c) is or will be at Closing free and
clear of all Liens.

        6.19 Environmental.

        (a)     There are no pending or, to Sellers’ knowledge, Threatened
Proceedings resulting from, arising under or pursuant to any Environmental Law
with respect to or affecting any facility used in the conduct of the Business
that could reasonably be expected to have a Material Adverse Effect. To Sellers’
knowledge, there has been no Release of any Hazardous Materials at or from any
facility used in the conduct of the Business that could reasonably be expected
to have a Material Adverse Effect.

        (b)     The Sellers have delivered to Buyer true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by any Seller pertaining to material compliance of any facility
involved in the conduct of the Business with Environmental Laws.

        6.20 Labor Relations. Within the last three years, the Business has not
experienced any union organization attempts, labor disputes or work stoppage, or
slow downs due to labor disagreements. No Seller has closed any plant or
facility, effectuated any layoffs of employees or implemented an early
retirement or separation program within the three (3) year period prior to the
date hereof, nor has any Seller planned or announced any such action or program
in the future. There is no labor strike, dispute or work stoppage, lockout, slow
down or other labor controversy pending or, to the knowledge of Sellers,
Threatened with respect to any of the Business Employees.

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        6.21 Affiliate Transactions.

        (a)        There are no agreements, arrangements or understandings
pursuant to which an affiliate of any Seller (other than another Seller)
provides or causes to be provided any assets or services used or held for use in
connection with the Business or pursuant to which the Business provides or
causes to be provided any assets or services to an affiliate of any Seller
(other than another Seller).

        (b)        To the knowledge of Sellers, none of William Bauer, Daniel
Rivest or Steven Gottsegen has any plans to terminate employment with the
Business. Each Seller is in compliance in all material respects with and has
complied with in all material respects all laws applicable to the Business
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining, and the payment of
social security and other taxes.

        (c)        There are no administrative charges or court complaints or
investigations pending or, to the knowledge of Sellers, Threatened against any
Seller related to such Seller’s operation of the Business before (i) the U.S.
Equal Employment Opportunity Commission, (ii) any state or federal court or
agency concerning alleged employment discrimination, or (iii) any other
Governmental Authority.

        6.22 Condition and Sufficiency of Assets. To the knowledge of Sellers,
the Fixed Assets are in good operating condition and repair. The Purchased
Assets constitute in all material respects all of the rights, privileges and
other assets owned by Sellers and used in the Business and are adequate in all
material respects to conduct such Business as currently conducted and as it has
been conducted by the Sellers during the twelve (12) month period prior to the
date hereof; provided, however, that the Sellers are currently in the process of
transitioning manufacturing activity of the Business to China.

        6.23 China Manufacturing. Except as set forth in Schedule 6.23, all
products currently sold by the Business are currently being manufactured in
China by an unaffiliated third party under contract to Sellers at a facility or
facilities owned, leased or otherwise held by such unaffiliated third party or
another party other than Sellers.

        6.24 Disclosure. No representation or warranty made in this Agreement as
modified by the Schedules hereto by any Seller contains or will contain as of
the Closing Date any untrue statement of material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading.

SECTION 7.  REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER PARENT.

        Except as set forth in Buyer and Buyer Parent’s Schedules dated as of
the date hereof and delivered herewith to Seller, Buyer and Buyer Parent hereby
severally and jointly represent and warrant to Sellers as of the date hereof:

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        7.1 Good Standing. Buyer and Buyer Parent are corporations duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania with all corporate powers and all governmental
licenses, authorizations, consents and approvals required to own or lease their
properties and to conduct their respective businesses in the manner and in the
places where such properties are owned or leased or such business is conducted.

        7.2 Authorization. Buyer and Buyer Parent have the full right, power and
authority to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by Buyer and Buyer Parent pursuant to or
as contemplated by this Agreement and to carry out the transactions contemplated
hereby and thereby. The execution, delivery and performance by Buyer and Buyer
Parent of this Agreement and each such other agreement, document and instrument
has been duly authorized by all necessary action of Buyer and Buyer Parent, and
no other action on the part of Buyer or Buyer Parent is required in connection
therewith. This Agreement and each agreement, document and instrument to be
executed and delivered by Buyer and Buyer Parent pursuant to or as contemplated
by this Agreement constitutes or will, when executed and delivered by Buyer and
Buyer Parent, constitute valid and binding obligations of Buyer and Buyer
Parent, enforceable in accordance with their respective terms, except as the
same may be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the rights of creditors generally and subject to the rules
of law governing (and all limitations on) specific performance, injunctive
relief and other equitable remedies.

        7.3 Litigation. There is no litigation, claim, investigation, action,
suit or proceeding pending or, to the knowledge of Buyer and Buyer Parent,
threatened against Buyer or Buyer Parent or any affiliate of Buyer or Buyer
Parent which if adversely determined, individually or in the aggregate, with all
other litigation, claims, investigations, actions, suits or proceedings, would
(i) prevent or hinder the consummation of the transactions contemplated by this
Agreement or (ii) have a Material Adverse Effect on Buyer or Buyer Parent.

        7.4 Non-Contravention. The execution, delivery and performance by Buyer
and Buyer Parent of this Agreement and each such other agreement, document and
instrument hereunder to which Buyer or Buyer Parent is a party, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (i) contravene or violate any provision of the charter or bylaws of
Buyer or Buyer Parent, (ii) contravene or conflict with any provision of any
law, regulation, judgment, injunction, order, permit or decree binding upon or
applicable to Buyer or Buyer Parent or their respective businesses or
subsidiaries, except as would not reasonably be expected to have a Material
Adverse Effect on Buyer or Buyer Parent; or (iii) constitute a default (with or
without notice or lapse of time, or both) under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of Buyer or
Buyer Parent to which Buyer or Buyer Parent is entitled under any provision of
any material agreement, contract or other instrument binding upon Buyer or Buyer
Parent.

        7.5 Consents. No approval, consent, authorization or exemption from or
filing with any person or entity is required to be obtained or made by Buyer or
Buyer Parent in connection with the execution and delivery of this Agreement and
each other agreement, document or certificate required to be delivered by Buyer
or Buyer Parent hereunder and the consummation of the transactions contemplated
hereby.

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        7.6 Finder’s Fees. Except as set forth on Schedule 7.6, Buyer and Buyer
Parent have not incurred or become liable for any broker’s commission or
finder’s fee relating to or in connection with the transactions contemplated by
this Agreement.

        7.7 Resale of Purchased Inventory. Buyer is purchasing the Purchased
Inventory for resale to its customers in the ordinary course of its business.

        7.8 Disclosure. No representation or warranty made in this Agreement as
modified by the Schedules hereto by the Buyer Parent or Buyer contains or will
contain as of the Closing Date any untrue statement of material fact or omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading.

SECTION 8.  COVENANTS OF SELLERS.

        Sellers hereby covenant and agree with Buyer and Buyer Parent as
follows:

        8.1 Confidentiality. Following the Closing, each of the Sellers and
their respective affiliates will, and will cause their respective
representatives to, maintain the confidentiality of all confidential documents
and information concerning the Business, except to the extent that such
information can be shown to have been (i) in the public domain through no fault
of Sellers, (ii) later lawfully acquired by NutraMax, First Aid or FAP from
sources other than Buyer or Buyer Parent or (iii) required to be disclosed by
judicial or administrative process or by other requirements of law.

        8.2 Payments with Respect to Purchased Accounts Receivable or Inventory.
Following the Closing, the Sellers shall promptly remit to Buyer any and all
proceeds received by the Seller after the Closing that are attributable to the
Purchased Accounts Receivable or sales of the Purchased Inventory by Buyer, or
which are otherwise for the account of Buyer; provided, however, that the
Sellers shall have the right to set-off the amount of any payments made in
payment of Assumed Accounts Payable against amounts due to Buyer pursuant to
this Section 8.2.

        8.3 Business Financial Statements. The Sellers shall cooperate with
Buyer and Buyer Parent and use their reasonable efforts to provide Buyer and
Buyer Parent within sixty eight (68) days of the Closing Date with the First Aid
Division (“FAD”) financial information necessary for the Buyer and Buyer Parent
to file with the Securities and Exchange Commission the financial information
required under Item 310(c) of Regulation S-B promulgated under the Securities
Act of 1933, as outlined below, within 75 days after the Closing Date, as
follows:

1)   Audited financial statements for the fiscal years ended September 29, 2007
and September 30, 2006.

2)   Condensed profit and loss statements for the nine months ended September
29, 2007 and September 30, 2006.

3)   Condensed profit and loss statement for the twelve months ended December
30, 2006.

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        The financial information will be prepared by the Sellers in accordance
with GAAP and, with respect to item 1 above, shall be audited by Vitale Caturano
& Company Ltd. (the “Sellers’ Auditor”), and with respect to items 2 and 3
above, shall be reviewed by Sellers’ Auditor, provided, however, that the fees
and expenses of the Sellers’ Auditor in connection with the preparation of the
required financial information shall be borne by Buyer.

SECTION 9.  COVENANTS OF BUYER AND BUYER PARENT.

        Buyer and Buyer Parent hereby covenant and agree with Sellers as
follows:

        9.1 Confidentiality. Following the Closing Date, Buyer and Buyer Parent
will, and will cause each of their affiliates and representatives to maintain
the confidentiality of all confidential documents and information concerning the
Sellers and any businesses of the Sellers (other than the Business) furnished to
Buyer, Buyer Parent or their affiliates in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (i) previously known on a nonconfidential basis by Buyer
or Buyer Parent, (ii) in the public domain through no fault of Buyer or Buyer
Parent, (iii) later lawfully acquired by Buyer or Buyer Parent from sources
other than a Seller or (iv) required to be disclosed by judicial or
administrative process or by other requirements of law.

        9.2 Employees.

        (a)     The Sellers shall terminate the employment of each of the
Business Employees set forth on Schedule 9.2(a) (the “Rehired Employees”) as of
the end of business on the Closing Date. The Buyer shall have, prior to the
Closing Date, offered employment to each of the Rehired Employees, to commence
immediately upon such Rehired Employee’s termination by the Sellers, at the base
compensation at which such person was employed by the Sellers and with benefits
offered by Buyer Parent to its employees, subject to modification given the
anticipated short term nature of the employment of certain of the Rehired
Employees. The Sellers agree to pay all amounts due to the Rehired Employees
upon their termination by the Seller to which they may be entitled upon
termination by the Sellers under Sellers’ benefit plans.

        (b)     Each of the Business Employees of the Sellers who are not
Rehired Employees (the “WARN Employees”) shall be retained by the Sellers for
the applicable notice period under WARN (the “WARN Notice Period”). Subject to
the provisions of Section 9.3, the WARN Employees shall be available to the
Buyer at any time during the WARN Notice Period upon at least two (2) days
notice to the Sellers in connection with the operation of the Business after the
Closing Date. No WARN Employee shall be required by the Buyer to perform duties
or assume responsibilities inconsistent with the duties and responsibilities of
such WARN Employee prior to the Closing Date. Notwithstanding the foregoing, no
Seller shall be responsible for any failure by any WARN Employee to report to
work as may be requested by the Buyer or otherwise to perform responsibilities
as requested by the Buyer.

        (c)     Nothing in this Section 9.2 shall be deemed to make any employee
of the Sellers a third party beneficiary of any term or provision of this
Agreement.

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        (d)     The Sellers hereby consent to the hiring of any such employees
by Buyer and waives, with respect to the employment by Buyer of such employees,
any claims or rights any Seller may have against Buyer or any such employee
under any non-competition, confidentiality or employment agreement.

        9.3 WARN. The Sellers agree that they shall be responsible for and shall
assume any liabilities or obligations arising under WARN or any similar state
statute affecting WARN Employees as a result of the transactions contemplated
hereby.

        9.4 Payments with Respect to Excluded Assets. Buyer and Buyer Parent
shall promptly remit to Sellers all monies received by Buyer, Buyer Parent or
any of their affiliates following the Closing Date in payment for any Excluded
Assets, including payments on account of accounts receivables and trade
receivables of Sellers not acquired by Buyer under the terms of this Agreement.
Payments remitted to Sellers pursuant to this Section 9.4 shall be in the form
received by Buyer, Buyer Parent or any of their affiliates.

        9.5 Payments with Respect to Assumed Accounts Payable. Following the
Closing Date, Buyer shall pay, as they come due, all amounts owing under the
Assumed Accounts Payable.

        9.6 Services by WARN Employees. In the case of each WARN Employee called
to service by the Buyer pursuant to Section 9.2(b), Buyer shall reimburse
Sellers at a per diem rate equal to such WARN Employee’s daily compensation
rate.

SECTION 10.  COVENANTS OF SELLERS, BUYER AND BUYER PARENT.

        10.1 Cooperation.

        (a)     Subject to Section 12.4, in the event that a claim is asserted
against Buyer or its directors or officers with respect to events or conditions
occurring or existing in connection with, or arising out of, the operation of
the Business prior to the Closing, or the ownership, possession, use or sale of
the Purchased Assets prior to the Closing, the Sellers shall reasonably
cooperate with Buyer in the defense of any such claim; provided that, if such
claim does not give rise to a claim for indemnity against Sellers pursuant to
Section 12, such cooperation shall be at the sole cost and expense of Buyer and
shall not unreasonably disrupt normal business operations of any Seller.

        (b)     Subject to Section 12.4, in the event that a claim is asserted
against any Seller or its officers or directors with respect to events or
conditions occurring or existing in connection with, or arising out of, the
operation of the Business after the Closing, or the ownership, possession, use
or sale of the Purchased Assets after the Closing, Buyer shall reasonably
cooperate with such Seller in the defense of any such claim; provided that, if
such claim does not give rise to a claim for indemnity against Buyer pursuant to
Section 12, such cooperation shall be at the sole cost and expense of such
Seller and shall not unreasonably disrupt normal business operations of Buyer.

        10.2 Further Assurances. Following the Closing, each of the parties
hereto agrees to execute and deliver such other documents, certificates,
agreements and other writings and to take

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such other actions as may be reasonably necessary or desirable in order to
evidence or otherwise facilitate the implementation of the transactions
contemplated by this Agreement and to vest in Buyer good and marketable title to
the Purchased Assets.

        10.3 Post-Closing Tax Matters. After the Closing, upon reasonable prior
notice, Buyer, on the one hand, and Sellers, on the other hand, agree to furnish
or cause to be furnished to each other and their representatives, employees,
counsel and accountants such information relating to the Purchased Assets as is
reasonably necessary for financial reporting and accounting matters relating to
the Purchased Assets, the preparation and filing of any tax returns, reports or
forms relating to the Purchased Assets and the defense of any tax or other claim
or assessment relating to the Purchased Assets; provided, however, that such
assistance does not unreasonably disrupt the normal operations of Buyer, in the
case of assistance given to the Sellers, or any Seller, in the case of
assistance given to Buyer.

        10.4 Transition Services. The Sellers agree to perform the corporate
overhead and accounting transition services as requested by Buyer for a period
of up to ninety (90) days following the Closing as set forth in the terms of the
Transition Services Agreement attached hereto as Exhibit F (the “Transition
Services Agreement”), at the cost to Buyer set forth therein.

SECTION 11.  CONDITIONS TO CLOSING.

        11.1 Conditions to Obligations of Buyer and Buyer Parent. The
obligations of Buyer and Buyer Parent to effect the transactions contemplated by
this Agreement shall be subject to the satisfaction (or waiver) on or prior to
the Closing Date of all of the following conditions:

        (a)    Representations; Warranties; Covenants. Each of the
representations and warranties of the Sellers contained in Section 6 shall be
true and correct in all material respects at and as of the Closing; and the
Sellers shall, on or before the Closing, have performed all of their obligations
hereunder which by the terms hereof are to be performed on or before the
Closing.

        (b)    Bill of Sale. The Sellers shall have executed and delivered the
Bill of Sale in substantially the form attached hereto as Exhibit G.

        (c)    Assignment and Assumption Agreement. The Sellers shall have
executed and delivered the Assignment and Assumption Agreement in substantially
the form attached hereto as Exhibit H.

        (d)    Trademark Assignment. FAP shall have executed and delivered the
Trademark Assignment in substantially the form attached hereto as Exhibit I.

        (e)    Non-Competition Agreement. The Sellers shall have executed and
delivered the Non-Competition and Non-Solicitation Agreement in substantially
the form attached hereto as Exhibit D.

        (f)    Lease. Buyer shall have entered into the Lease.

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        (g)    Secretary’s Certificate. Each of the Sellers shall have delivered
to Buyer a certificate of their respective Secretaries, dated as of the Closing
Date which shall certify (A) the resolutions adopted by their respective Boards
of Directors and stockholders (if applicable) authorizing the Sellers to
consummate all of the transactions contemplated hereby and (B) the names of the
officers of the Sellers authorized to sign this Agreement and the other
documents, instruments or certificates to be delivered pursuant to this
Agreement by each of the Sellers, together with the true signatures of such
officers.

        (h)    Good Standing Certificate. Each Seller shall have delivered to
Buyer a certificate from the Secretary of the State of Delaware, dated as of a
recent date prior to the Closing, as to the good standing of such Seller in
Delaware.

        (i)    Consents. The Sellers shall have obtained the consents listed in
Schedule 6.7.

        (j)    Releases. The Sellers shall have delivered to Buyer at or prior
to the Closing instruments releasing any liens on the Purchased Assets.

        (k)    Supply Agreement. NutraMax shall have assigned the Supply
Agreement to Buyer.

        (l)    Employment Agreements. Buyer shall have entered into Employment
Agreements with William Bauer, Daniel Rivest and Steven Gottsegen on terms and
conditions satisfactory to Buyer.

        (m)    Insurance. Seller shall have provided to Buyer evidence of
product liability insurance as set forth in Section 6.15 and evidence of
insurance maintained by Infotex under the Supply Agreement.

        11.2 Conditions to Obligations of Sellers. The obligation of the Sellers
to effect the transactions contemplated by this Agreement shall be subject to
the satisfaction (or waiver) on or prior to the Closing Date of all of the
following conditions:

        (a)    Representations; Warranties; Covenants. Each of the
representations and warranties of Buyer and Buyer Parent contained in Section 7
shall be true and correct in all material respects as of the Closing; and Buyer
and Buyer Parent shall, on or before the Closing, have performed all of their
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.

(b)     Purchase Price. Buyer shall have delivered the Cash Purchase Price to
FAP.

        

        (c)    Assignment and Assumption Agreement. Buyer shall have executed
and delivered the Assignment and Assumption Agreement in substantially the form
attached hereto as Exhibit H.

        (d)    Trademark Assignment. Buyer shall have executed and delivered the
Trademark Assignment in substantially the form attached hereto as Exhibit I.

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        (e)    Non-Competition Agreement. Buyer and Buyer Parent shall have
executed and delivered the Non-Competition and Non-Solicitation Agreement in
substantially the form attached hereto as Exhibit D.

        (f)    Good Standing Certificate. Each of Buyer and Buyer Parent shall
have delivered to Sellers a certificate from the Secretary of State of the
Commonwealth of Pennsylvania, dated as of a recent date prior to the Closing, as
to the good standing of Buyer and Buyer Parent in Pennsylvania.

        (g)    Secretary’s Certificates. Each of Buyer and Buyer Parent shall
have delivered to Sellers a certificate of such party’s corporate Secretary
dated as of the Closing Date which shall certify (A) the resolutions adopted by
such party’s Board of Directors and stockholders (if applicable) authorizing
such party to consummate all of the transactions contemplated hereby, (B) the
charter and by-laws of such party and (C) the names of the officers of such
party authorized to sign this Agreement and the other documents, instruments or
certificates to be delivered pursuant to this Agreement by such party, together
with the true signatures of such officers.

SECTION 12.  SURVIVAL; INDEMNIFICATION.

        12.1 Survival. The covenants, agreements, representations and warranties
of the parties in this Agreement or in any certificate or other writing
delivered pursuant hereto shall survive for twelve (12) months following the
Closing Date, or in the case of Sections 6.1 (Good Standing), 6.2
(Authorization), 6.3 (Title), 7.1 (Good Standing), 7.2 (Authorization), and
Section 9.1 (Confidentiality) until expiration of the applicable statute of
limitations, if any, or if there is none, indefinitely, or Section 8.1
(Confidentiality) for five (5) years after the Closing Date (such date, the
“Indemnification Cut-Off Date”). Notwithstanding the preceding sentence, any
covenant, agreement, representation or warranty in respect of which indemnity
may be sought under Section 12.2 or Section 12.3 shall survive the time at which
it would otherwise terminate pursuant to the preceding sentence, if notice of
the inaccuracy or breach thereof giving rise to such right to indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time.

        12.2 Indemnification By Seller and Seller Parent.

        (a)     NutraMax, First Aid and FAP, severally and jointly, hereby
indemnify Buyer, Buyer Parent and their directors and officers (collectively,
the “Buyer Indemnified Parties” and, individually, a “Buyer Indemnified Party”)
from and against any and all damage, loss, diminution in value, liability and
expense (including without limitation reasonable expenses of investigation and
reasonable attorneys’ fees and expenses in connection with any action, suit or
proceeding) (“Losses”) incurred or suffered by any such Buyer Indemnified Party
which arises out of (i) any breach of any representation, warranty or covenant
of NutraMax, First Aid or FAP in this Agreement or any other agreement executed
in connection herewith, (ii) the Excluded Liabilities or (iii) any Liens
described on Schedule 2.1(c).

        (b)     Limitation of Seller Indemnification. Notwithstanding the
provisions of Section 12.2(a):

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        (i)     Buyer Indemnified Parties shall not be entitled to
indemnification for Losses in respect of claims made pursuant to Section 12.2(a)
unless the total of all Losses in respect of such claims made by such Buyer
Indemnified Parties shall exceed Fifty Thousand Dollars ($50,000) in the
aggregate (the “Seller Deductible”), whereupon, all such Losses in respect of
such claims above such amount shall be recoverable by the Buyer Indemnified
Parties in accordance with the terms hereof. For the purposes of calculating the
Seller Deductible, all materiality qualifiers contained in Sellers’
representations and warranties shall be disregarded;

        (ii)     Except as set forth in Section 12.6, the maximum amount payable
to all Buyer Indemnified Parties for Losses in respect of claims made by Buyer
Indemnified Parties under Section 12.2(a) shall not exceed: (i) with respect to
claims made under Sections 6.2 and 6.3 hereunder, the Purchase Price and (ii)
with respect to all other claims One Million, Three Hundred Thousand Dollars
($1,300,000) (the “Seller Cap”);

        (iii)     No Seller will have no liability under any provision of this
Agreement for any Losses to the extent that such Losses relate to actions taken
or not taken by Buyer or Buyer Parent after the Closing. After the Closing,
Buyer and Buyer Parent will take all reasonable steps to mitigate all Losses
upon and after becoming aware of any event or circumstance that could reasonably
be expected to give rise to any Losses with respect to which indemnification may
be required hereunder;

        (iv)     Any liability for indemnification under Section 12.2(a) shall
be determined without duplication of recovery by reason of the state of facts
giving rise to such liability constituting a breach of more than one
representation, warranty or covenant;

        (v)     Except as set forth herein, the Sellers shall not be obligated
to provide indemnification hereunder with respect to any claim made after the
Indemnification Cut-Off Date;

        (vi)     No Seller shall in any event be liable under this Section 12.2,
and no claim for indemnification may in any event be asserted against any Seller
under this Section 12.2, for any incidental or consequential damages by reason
of a breach of any representation, warranty, covenant or indemnity contained
herein; and

        (vii)     Upon making any payment to any Buyer Indemnified Party for any
indemnification claim pursuant to this Section 12, the Sellers will be
subrogated, to the extent of such payment, to any rights that the Buyer
Indemnified Party may have against other Persons (other than another Buyer
Indemnified Party) with respect to the subject matter of such indemnification
claim.

        12.3 Indemnification By Buyer and Buyer Parent.

        (a)     Buyer and Buyer Parent, severally and jointly, hereby indemnify
the Sellers and their controlling stockholders, directors, officers and
employees (collectively, the “Seller Indemnified Parties” and, individually, a
“Seller Indemnified Party”) from and against any and all Losses incurred or
suffered by any such Seller Indemnified Party which arises out of (i) any breach
of any representation, warranty or covenant made by Buyer or Buyer Parent in
this

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Agreement or any other agreement executed in connection herewith or (ii) the
operation of the Business and/or ownership of the Purchased Assets from and
after the Closing.

        (b)     Limitation of Buyer Indemnification. Notwithstanding the
provisions of Section 12.3(a):

        (i)     Seller Indemnified Parties shall not be entitled to
indemnification for Losses in respect of claims made pursuant to Section 12.3(a)
unless the total of all Losses in respect of such claims made by such Seller
Indemnified Parties shall exceed Fifty Thousand Dollars ($50,000) in the
aggregate (the “Buyer Deductible”), whereupon, only Losses in respect of such
claims above such amount shall be recoverable by Seller Indemnified Parties in
accordance with the terms hereof;

        (ii)     Except for the obligations set forth in Section 3.3 and as set
forth in Section 12.6, the maximum amount payable to all Seller Indemnified
Parties for Losses in respect of claims made by Seller Indemnified Parties under
Section 12.3(a) shall not exceed: (i) with respect to claims made under Section
7.2 hereunder, the Purchase Price and (ii) with respect to all other claims One
Million, Three Hundred Thousand Dollars ($1,300,000) (the “Buyer Cap”);

        (iii)     Seller Indemnified Parties shall take all reasonable steps to
mitigate Losses for which indemnification may be claimed by them pursuant to
this Agreement upon and after becoming aware of any event that could reasonably
be expected to give rise to any such Losses. Any liability for indemnification
under Section 12.3(a) shall be determined without duplication of recovery by
reason of the state of facts giving rise to such liability constituting a breach
of more than one representation, warranty or covenant;

        (iv)     Except as set forth herein, Buyer shall not be obligated to
provide indemnification hereunder with respect to any claim made after the
Indemnification Cut-Off Date;

        (v)     Buyer and Buyer Parent shall not in any event be liable under
this Section 12.3, and no claim for indemnification may in any event be asserted
against Buyer or Buyer Parent under this Section 12.3, for any incidental or
consequential damages by reason of a breach of any representation, warranty,
covenant or indemnity contained herein; and

        (vi)     Upon making any payment to any Seller Indemnified Party for any
indemnification claim pursuant to this Section 12, Buyer and Buyer Parent will
be subrogated, to the extent of such payment, to any rights that Seller
Indemnified Party may have against other Persons (other than another Seller
Indemnified Party) with respect to the subject matter of such indemnification
claim.

        12.4 Notice; Payment of Losses; Defense of Claims.

        (a)     Notice of Claims. Promptly after receipt by an indemnified party
of notice of any claim, liability or expense to which the indemnification
obligations hereunder would apply, the indemnified party shall give notice
thereof in writing (a “Claim Notice”) to the indemnifying party, but the
omission to so notify the indemnifying party promptly will not

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relieve the indemnifying party from any liability except (i) to the extent that
the indemnifying party shall have been materially prejudiced as a result of the
failure or delay in giving such Claim Notice and (ii) that no indemnification
will be payable to an indemnified party with respect to any claim for which the
Claim Notice is given after the Indemnification Cut-Off Date for such claim.
Such Claim Notice shall state the information then available regarding the
amount and nature of such claim, liability or expense and shall specify the
provision or provisions of this Agreement under which the liability or
obligation is asserted.

        (b)    Third Party Claims. In the case of any third party claim, if
within ten (10) business days after receiving the notice described in the
preceding paragraph the indemnifying party gives written notice (the “Defense
Notice”) to the indemnified party stating that (i) it may be liable under the
provisions hereof for indemnity in the amount of such claim if such claim were
successful and (ii) that it disputes and intends to defend against such claim,
liability or expense at its own cost and expense, then counsel for the defense
shall be selected by the indemnifying party (subject to the consent of the
indemnified party which consent shall not be unreasonably withheld) and the
indemnified party shall not be required to make any payment with respect to such
claim, liability or expense as long as the indemnifying party is conducting a
good faith defense at its own expense; provided, however, that the assumption of
defense of any such matters by the indemnifying party shall relate solely to the
claim, liability or expense that is subject or potentially subject to
indemnification.

        (c)     The indemnifying party shall have the right, with the consent of
the indemnified party, which consent shall not be unreasonably withheld, to
settle all indemnifiable matters related to claims by third parties which are
susceptible to being settled provided the indemnifying parties’ obligation to
indemnify the indemnified party therefore will be fully satisfied. The
indemnifying party shall keep the indemnified party apprised of the status of
the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the indemnified party with all documents and
information that the indemnified party shall reasonably request and shall
consult with the indemnified party prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated, the indemnified
party shall at all times have the right to fully participate in such defense at
its own expense directly or through counsel; provided, however, if the named
parties to the action or proceeding include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate under applicable standards of professional conduct, the expense
of separate counsel for the indemnified party shall be paid by the indemnifying
party.

        If no Defense Notice is given by the indemnifying party, or if a good
faith defense is not being or ceases to be conducted by the indemnifying party,
the indemnified party shall, at the expense of the indemnifying party, undertake
the defense of (with counsel selected by the indemnified party), and shall have
the right to compromise or settle such claim, liability or expense. If such
claim, liability or expense is one that by its nature cannot be defended solely
by the indemnifying party, then the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably request
and shall cooperate with the indemnifying party in such defense.

        12.5 Purchase Price Adjustment. All indemnification payments made under
this Agreement shall be treated as adjustments to the Purchase Price.

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        12.6 Exclusive Remedy. Except as otherwise set forth in this Agreement,
after the Closing, this Section 12 shall provide the sole and exclusive remedy
for claims for indemnification for Losses arising from a breach of the
representations and warranties, covenants or other agreement or any other claim
arising out of this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, nothing in this Agreement shall limit the remedy
available to a party for (i) claims arising out of fraud, intentional
misrepresentation or willful breach or (ii) claims arising out of breaches of
Sections 8.1 (Confidentiality) and 9.1 (Confidentiality).

        SECTION 13.  MISCELLANEOUS.

        13.1 Notices. All notices, requests, demands or other communications
that are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed to have been duly given: (i) on the date of
delivery, if personally delivered by hand, (ii) upon the third day after such
notice is deposited in the United States mail, if mailed by registered or
certified mail, postage prepaid, return receipt requested, (iii) upon the date
scheduled for delivery after such notice is sent by a nationally recognized
overnight express courier or (iv) by fax upon written confirmation (including
the automatic confirmation that is received from the recipient’s fax machine) of
receipt by the recipient of such notice:

if to Buyer, to: with a copy to:          Derma Sciences, Inc.      Gallagher,
Briody & Butler      Attn: Edward J. Quilty      Attn: Thomas P. Gallagher, Esq.
     214 Carnegie Center, Suite 100      155 Village Boulevard, Second Floor
     Princeton, NJ 08540      Princeton, NJ 08540      Fax: (609) 514-0502
     Fax: (609) 452-0090   if to Buyer Parent, to: with a copy to:        Derma
Sciences, Inc.      Gallagher, Briody & Butler      Attn: Edward J. Quilty
     Attn: Thomas P. Gallagher, Esq.      214 Carnegie Center, Suite 100
     155 Village Boulevard, Second Floor      Princeton, NJ 08540
     Princeton, NJ 08540      Fax: (609) 514-0502      Fax: (609) 452-0090   if
to any Seller, to: with a copy to:        NutraMax Products, Inc.      Goodwin
Procter LLP      Attn: Jim Todd, President      Attn: James A. Matarese, Esq.
     9 Blackburn Drive      Exchange Place      Gloucester, Massachusetts 01930
     53 State Street      Fax: (978) 282-3790      Boston, Massachusetts 02109  
     Fax: (617) 523-1231

26

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13.2 Amendments; No Waivers.

        (a)     Any provision of this Agreement may be amended prior to the
Closing Date if, and only if, such amendment is in writing and signed by each of
the parties hereto. Any provision of this Agreement may be waived by any of the
parties hereto if the waiver is in writing and signed by the party to be bound.

        (b)     No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

13.3 Expenses. Except as expressly provided hereunder, all costs and expenses
incurred in connection with this Agreement shall be paid by the party incurring
such cost or expense.

        13.4 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Except for an assignment by Buyer and Buyer
Parent of their rights under this Agreement to their lenders as collateral
security for loans made by such lenders, no party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the consent of the other party hereto.

        13.5 Governing Law; Consent to Jurisdiction. Except as otherwise
provided in this Agreement, all disputes, claims or controversies arising out of
or relating to this Agreement, or the negotiation, validity or performance of
this Agreement, or the transactions contemplated hereby shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. If a claim is commenced by Buyer, such claim
shall be brought in the courts of Suffolk County in the Commonwealth of
Massachusetts or the United States district courts for such county. If a claim
is commenced by Sellers, such claim shall be brought in the courts of Mercer
County, New Jersey or the United States District Court located in Trenton, New
Jersey. Each party agrees not to commence any litigation relating hereto except
as set forth above, waives any objection to the laying of venue of any such
litigation in the courts agreed to above, and agrees not to plead or claim if
litigation is commenced as set forth above that such litigation has been brought
in an inconvenient forum.

        13.6 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.

        13.7 Entire Agreement. This Agreement and each agreement, document and
instrument to be delivered pursuant to this Agreement constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter hereof. No
representation, inducement, promise, understanding, condition or

27

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warranty not set forth herein has been made or relied upon by either party
hereto. None of the provisions of this Agreement, or the agreements, documents
and instruments to be delivered pursuant to this Agreement, is intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.

        13.8 Bulk Sales Laws. Buyer Parent, Buyer and the Sellers each hereby
waive compliance by the Sellers with the provisions of the “bulk sales”, “bulk
transfer” or similar laws of any state, provided that Sellers agree to indemnify
the Buyer Indemnitees from and against any claims arising out of the failure to
comply with such laws.

        13.9 Taxes Related to Transfer of Purchased Assets. Buyer shall be
responsible for any transfer, documentary, sales, use, stamp, or other Taxes
assessed upon or with respect to the transfer of the Purchased Assets to Buyer
and any recording or filing fees with respect thereto.

[Signature Page Follows]

28

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[Signature Page to Asset Purchase Agreement]

        IN WITNESS WHEREOF, the parties hereto here caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first set forth above.

  BUYER:
 
DERMA FIRST AID PRODUCTS, INC.
 
      By:       Name:
Title:       BUYER PARENT:
 
DERMA SCIENCES, INC.
 
      By:       Name: Edward J. Quilty
Title: President and Chief Executive Officer       SELLERS:
 
F.A. PRODUCTS, L.P.
By: First Aid Products, Inc.
Its: General Partner
      By:       Name: James W. Todd
Title: President and Chief Executive Officer       NUTRAMAX PRODUCTS, INC.
 
      By:       Name: James W. Todd
Title: President and Chief Executive Officer       FIRST AID PRODUCTS, INC.
 
      By:       Name: James W. Todd
Title: President and Chief Executive Officer    

F-29

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Exhibit G

Derma Sciences Inc.

Confidential Purchaser Questionnaire

Before any sale of Shares or Warrants by Derma Sciences Inc. can be made to you,
this Questionnaire must be

completed and returned to Oppenheimer & Co. Inc. Attn: Investment Banking
Department, 125 Broad St., New

York, NY 10004, FAX: 212-425-2028

1.

IF YOU ARE AN INDIVIDUAL PLEASE FILL IN THE IDENTIFICATION QUESTIONS IN (A)
IF YOU ARE AN ENTITY PLEASE FILL IN THE IDENTIFICATION QUESTIONS IN (B)

    A.  INDIVIDUAL IDENTIFICATION QUESTIONS

  Name
(Exact name as it should appear on stock certificate)
Residence Address
Home Telephone Number
Fax Number
Date of Birth
Social Security Number

    B.  IDENTIFICATION QUESTIONS FOR ENTITIES

  Name
(Exact name as it will appear on stock certificate)
Address of Principal Place of Business
State (or Country) of Formation or Incorporation
Contact Person
Telephone Number ( )
Type of Entity
(corporation, partnership, trust, etc.)
Was entity formed for the purpose of this investment?
Yes        No

2.     DESCRIPTION OF INVESTOR

  The following information is required to ascertain whether you would be deemed
an “accredited investor” as defined in Rule 501 of Regulation D under the
Securities Act. Please check whether you are any of the following:

    o a corporation or partnership with total assets in excess of $5,000,000,
not organized for the purpose of this particular investment;

    o private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940, a U.S. venture capital fund which invests
primarily through private placements in non-publicly traded securities and makes
available (either directly or through co-investors) to the portfolio companies
significant guidance concerning management, operations or business objectives;

G-1

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    o a Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958;

    o an investment company registered under the Investment Company Act of 1940
or a business development company as defined in Section 2(a)(48) of that Act;

    o a trust not organized to make this particular investment, with total
assets in excess of $5,000,000 whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii) of the Securities Act of 1933 and who
completed item 4 below of this questionnaire;

    o a bank as defined in Section 3(a)(2) or a savings and loan association or
other institution defined in Section 3(a)(5)(A) of the Securities Act of 1933
acting in either an individual or fiduciary capacity;

    o an insurance company as defined in Section 2(13) of the Securities Act of
1933;

    o an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974 (i) whose investment decision is made by
a fiduciary which is either a bank, savings and loan association, insurance
company, or registered investment advisor, or (ii) whose total assets exceed
$5,000,000, or (iii) if a self-directed plan, whose investment decisions are
made solely by a person who is an accredited investor and who completed Part I
of this questionnaire;

    o a charitable, religious, educational or other organization described in
Section 501(c)(3) of the Internal Revenue Code, not formed for the purpose of
this investment, with total assets in excess of $5,000,000;

    o an entity not located in the U.S. none of whose equity owners are U.S.
citizens or U.S. residents;

    o a broker or dealer registered under Section 15 of the Securities Exchange
Act of 1934;

    o a plan having assets exceeding $5,000,000 established and maintained by a
government agency for its employees;

    o an individual who had individual income from all sources during each of
the last two years in excess of $200,000 or the joint income of you and your
spouse (if married) from all sources during each of such years in excess of
$300,000 and who reasonably excepts that either your own income from all sources
during the current year will exceed $200,000 or the joint income of you and your
spouse (if married) from all sources during the current year will exceed
$300,000;

    o an individual whose net worth as of the date you purchase the securities
offered, together with the net worth of your spouse, be in excess of $1,000,000;
or

    o an entity in which all of the equity owners are accredited investors.

3.        BUSINESS, INVESTMENT AND EDUCATIONAL EXPERIENCE

  Occupation
Number of Years
Present Employer
Position/Title
Educational Background

G-2

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        Frequency of prior investment (check one in each column):

  Stocks & Bonds Venture Capital Investments Frequently     Occasionally    
Never    

4.   SIGNATURE

  The above information is true and correct. The undersigned recognizes that the
Company and its counsel are relying on the truth and accuracy of such
information in reliance on the exemption contained in Subsection 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The
undersigned agrees to notify the Company promptly of any changes in the
foregoing information, which may occur prior to the investment.

Executed at ___________________, on ______________________, 2007

(Signature)

G-3

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Exhibit H

[GRAPHIC OMITTED]

  William Rubenstein
Vice President
Healthcare Finance
 
Merrill Lynch Capital,
A division of Merrill Lynch
Business Financial Services Inc.
222 North LaSalle St
15th Floor
Chicago, IL 60601
312.750.6144
312.428.4073 fax
 
August 21, 2007

Edward Quilty
Derma Sciences Inc.
214 Carnegie Center
Suite 100
Princeton, NJ 08540

Re: Working Capital and Acquisition Facility

Dear Edward:

We are pleased to advise you that Merrill Lynch Capital, a division of Merrill
Lynch Business Financial Services Inc. (“Lender”) will consider establishing
credit facilities which would consist of a Senior $8.0 million revolving loan
(“Revolver”), a Senior $6.0 million Term Loan A (the “Term Loan A”) (together,
the “Facility”) under the terms and conditions set forth below with the relative
entities involved in the ownership and operation of Derma Sciences Inc.
(collectively “Borrower”). Please note that any funding under this proposal is
subject to due diligence, legal documentation and credit committee approval.

Revolver

Maximum
Loan Amount:    
The Maximum Loan Amount under the Revolver shall be $8.0MM. The amount available
to Borrower under the Revolver at any one time shall be based upon the
Availability (as described below).

Availability:   Availability under the Facility shall be an amount up to 85% of
the "net collectable value” of Borrower’s accounts receivable due from eligible
direct and third-party payors, and the lesser of 70% of NOLV of eligible
inventory or 60% of the inventory valued at cost. The “net collectable value” of
Borrower’s accounts receivable is the amount Borrower bills such payors less bad
debt, contractual allowances and other standard ineligibles, which, along with
eligible inventory, shall be determined by Lender upon completion of onsite due
diligence.

Term:   60 Months.

Please initial upon approval _______________

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MERRILL LYNCH CAPITAL

Derma Sciences Inc.
August 21, 2007
Page 2 of 5

Interest and Fees:    

      (a) Interest on the outstanding balance of the Revolver shall be payable
monthly in arrears at an annual rate of one month LIBOR plus 275 basis points or
Prime plus 50 basis points, reset daily. Interest on the outstanding balance
shall be calculated on the basis of the actual number of days elapsed in a 360
day year. Collections of cash by Lender under the Revolver shall be credited to
Borrower’s obligations thereunder on a daily basis, subject to three business
clearance days.

      (b) Borrower shall pay Lender a collateral management fee of $24,000 per
annum, payable monthly.

      (c) Borrower shall pay Lender an unused line fee equal to .50% per annum,
payable monthly, of the average unused portion of the Revolver.

      (d) Borrower shall pay Lender a Commitment Fee of 1.0% of the Maximum Loan
Amount at closing.

Security:   Lender shall receive a perfected first priority security interest in
all existing and future accounts receivable and accounts receivable-related
items, all securities evidencing ownership interest in Borrower and its
subsidiaries and joint ventures, and all other assets of Borrower.

Term Loan A

Term Loan A
Amount:   $6.0MM

Security:   Term Loan A will be cross-collateralized with Revolver

Term:   60 Months.

Interest and Fees:    

      (a) Interest on the outstanding balance of Term Loan A shall be payable
monthly in arrears at an annual rate of one month LIBOR plus 450 basis points or
Prime plus 150 basis points, reset daily. Interest on the outstanding balance
shall be calculated on the basis of the actual number of days elapsed in a 360
day year.

      (b) Borrower shall pay Lender a Commitment Fee of 1.5% of the Term Loan A
Amount at closing.

Amortization:   Normal straight line amortization paid monthly.

Please initial upon approval _______________

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MERRILL LYNCH CAPITAL

Derma Sciences Inc.
August 21, 2007
Page 3 of 5

Facility Terms

Other Terms:   Borrower shall maintain and pay for a Lock Box Account mutually
satisfactory to Borrower and Lender for Borrower’s cash collections; and Lender
shall receive an opinion from Borrower’s counsel satisfactory to Lender.

    In the event of any early repayment of the Facility deferred commitment fees
are TBD.

Loan Documents:   Borrower shall execute and deliver to Lender such loan and
security agreements, instruments, documents, certificates, opinions and
assurances as are reasonable and customary for similar loans, and as Lender may
reasonably require in connection with the closing of the Facility.

Derivatives
Capabilities:    
While the financing described herein is in no way contingent upon the purchase
of any services from Merrill Lynch & Co., Lender will, at Borrower’s request,
facilitate Borrower’s interaction with Merrill Lynch & Co. Derivative Hedging
Group to assist Borrower in planning interest rate hedging strategies.

Financial
Covenants:    
Financial covenants will consist of:

  (a) Minimum fixed charge coverage ratio 1.2x. The fixed charge coverage ratio
shall be calculated by taking EBITDA less unfinanced capital expenditures and
dividing the result by the sum of debt amortization, cash interest expense, cash
distributions and cash taxes.

  (b) Maximum senior leverage of 3.0x.

  (c) Others as may reasonably be determined in due diligence.

Facility costs:   All reasonable costs associated with the Facility, including,
but not limited to Lender’s out-of-pocket expenses associated with the
transaction, professional fees, recording fees, search fees, and filing fees
will be paid by Borrower regardless of whether the transaction closes. Upon
acceptance of the general terms of this letter, Borrower shall remit a
non-refundable $50,000 deposit, which amount shall be applied against the
Facility costs. Borrower agrees to remit, upon request by Lender, additional
deposit funds to be applied against Facility costs, if necessary, during the
Facility underwriting and diligence period.

Borrower
Identification –
USA Patriot Act
Notice:   Merrill Lynch hereby notifies Borrower that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56, signed into
law October 26, 2001) (the “Act”) and Merrill Lynch’s policies and practices,
Merrill Lynch is required to obtain, verify and record certain information and
documentation that identifies each Borrower, which information includes the name
and address of each Borrower and such other information that will allow Merrill
Lynch to identify each Borrower in accordance with the Act.

Please initial upon approval _______________

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MERRILL LYNCH CAPITAL

Derma Sciences Inc.
August 21, 2007
Page 4 of 5

Exclusivity:   In connection with the credit process for the Facility, Borrower
understands that Lender will invest significant resources into making financial,
legal and collateral investigations and determinations, and that Lender will
incur opportunity costs in pursuing such investigations and determinations for
this Facility. Accordingly, Borrower agrees that, during the “Feasibility
Period” defined below, Borrower and its principals and affiliates will (a) not
close any loan or extend or refinance any existing financing for any entity
listed herein as Borrower, or sign a term sheet with or otherwise engage another
lender for such purpose, (b) negotiate exclusively with Lender regarding any
financing, the purpose of which is substantially the same as that of the
proposed Facility, and (c) act in good faith and with reasonable diligence and
dispatch to provide all requested access, information, and documentation to
allow Lender to pursue approval of the proposed Facility and closing if the
Facility is approved by Lender’s credit committee. If Borrower fails to comply
with the requirements of the preceding sentence, then Borrower shall pay to
Lender, on demand, liquidated damages equal to 1.0% of the maximum Facility loan
amount, such payment to be in addition to any deposit(s) paid to Lender and any
other reimbursement obligations of the Borrower hereunder. The “Feasibility
Period”means the period commencing as of the date hereof and continuing until
the earlier of (a) the closing of the Facility, (b) a determination by Lender
not to pursue such transaction, or (c) 90 days from the date hereof (which
90-day period will automatically be extended to 360 days if Lender obtains,
within 90 days, credit committee approval for the Facility substantially in
accordance with the terms described herein). Borrower agrees that such
liquidated damages are a reasonable approximation of the damages Lender will
sustain by reason of Borrower’s breach of its agreements in this paragraph.

The terms of the Facility as set forth herein are for discussion purposes only
and this term sheet does not imply in any way a commitment by Lender to enter
into the Facility or to submit the Facility to Lender’s credit committee for
approval. Lender may terminate its review of the Facility at any time in its
sole discretion. Lender will make the loans summarized above only upon further
due diligence and underwriting of the transaction, approval through Lender’s
credit

approval process, Lender’s continuing satisfaction with the financial and
business conditions of the Borrower and its principals, and receipt of
documentation and assurances satisfactory to Lender and its legal counsel. This
term sheet does not purport to specify all of the terms, conditions,
representations and warranties, covenants and other provisions that will be
contained in the final Financing Documents for the Facility, if approved by
Lender. The Facility shall be subject to such other terms, covenants and
conditions as Lender deems appropriate in its sole discretion.

This term sheet is being delivered in reliance that all information provided to
Lender is and will be accurate and complete. The contents of this term sheet may
not be shared with any third party without Lender’s prior written consent,
except for management and regulatory bodies on a need-to-know basis. All persons
who are informed of the contents of this term sheet also need to be informed
that such contents are confidential and cannot be disclosed without Lender’s
prior written consent.

Notwithstanding anything else contained herein, Borrower hereby expressly agrees
to be bound by the provisions of this term sheet relating to confidentiality,
exclusivity and expense reimbursement.

Please initial upon approval _______________

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MERRILL LYNCH CAPITAL

Derma Sciences Inc.
August 21, 2007
Page 5 of 5

This term sheet supersedes all previous discussions, communications and
proposals relating in any way to the Facility and shall expire if not executed
by Borrower and returned to Lender by 5:00 pm EST on August 24 2007.

If you would like Lender to continue reviewing your loan request, please
evidence your agreement with the forgoing by accepting this proposal on the
space set forth below, and returning it, along with a good faith deposit of
$50,000, to Merrill Lynch Capital, Attn: Finance & Accounting/Good Faith
Department, 222 N. LaSalle Street, 16th Floor, Chicago, IL 60601. Alternatively,
the good faith deposit can be wired to LaSalle Bank, 135 S. LaSalle Street,
Chicago, IL 60603; ABA # 071000505, Account Name: MLBFS Healthcare Finance,
ACCT# 5800395088, ATTN: Derma Sciences Inc. Upon receipt, we will immediately
begin due diligence, Lender’s credit process, and legal documentation. We
appreciate the opportunity to furnish this proposal to you. If you have any
questions, please do not hesitate to call.

Very Truly Yours,

William Rubenstein

Agreed and accepted this ___ day of ____________, 2007.

___________________________
Derma Sciences, Inc.

By:_________________________

Name:_________________________

Title :__________________________

Please initial upon approval___________